The number of pensioners caught in the 60% tax trap has more than doubled in three years, a new freedom of information request by interactive investor has revealed.
A total of 77,000 pensioners aged 66 plus paid 60% tax in 2024/25, earning between £100,000 and £125,140. This figure is up from 34,000 in 2021/22.
Although income tax is charged at 20%, 40% or 45% depending on earnings, individuals earning over £100,000 effectively pay 60% tax on a portion of their income. This is because the £12,570 tax-free personal allowance is gradually withdrawn once income exceeds £100,000.
For every £2 earned over £100,000, individuals lose £1 of their personal allowance, meaning it disappears once income reaches £125,140.
Craig Rickman, pensions expert at interactive investor, said: “This data reveals the punishing impact of the 60% tax trap on older workers, as frozen tax thresholds pull more pensioners’ incomes into six-figure territory. The threshold for losing the personal allowance has stubbornly stuck at £100,000 for more than 15 years, since it was introduced in April 2010.
“If the tax-trap threshold had kept pace with inflation, workers would now be able to earn £155,000 before being hit with 60% income tax. With the deep freeze on income tax bands set to endure until 2028/29, and fears the Government could extend it even further, thousands more people above state pension age will be hit with punitive rates of tax on some of their income.”
Rickman warned that with many people now working well into their late 60s, there is a risk that ultra-high tax rates could mean losing older talent.
“As taxes take an even bigger bite from the cherry, many older high earners will weigh up whether they’re better off stepping back and earning less, rather than risk facing such a heavy tax burden,” added Rickman.
Interactive investor said that with the full state pension set to increase to £12,547 from April 2026, thousands of pensioners who are still working will see 60% of this rise swallowed up in tax.
To avoid the 60% tax trap, the investment platform urged people to make the most of their pension contributions.
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