The number of people paying tax who are above the state pension age has jumped “substantially” in the past 20 years, rising at a faster pace than the elderly population as a whole and leaving tax experts confused.
Figures from HMRC revealed that the proportion of taxpayers over the state pension age has increased from 14 per cent in 1990 to 22.2 per cent last year, increasing from 3.6 million people to 6.89 million. Experts disagree about what is causing the rise, as the proportion of the population who are over 65 has not risen by the same extent, increasing from 15.8 per cent in 1995 to 17.8 per cent in 2015.
Tom McPhail, the head of policy at Hargreaves Lansdown, said: “This is not simply down to people getting older, which would only account for a couple of percentage point rise.”
The increase comes despite the UK’s personal allowance threshold doubling in 20 years, which will have brought more of the lowest-earning pensioners out of the income tax bracket.
Mr McPhail said that the impact of the triple-lock pension guarantee since 2011, which guarantees that the basic state pension will rise by 2.5 per cent, the rate of inflation or average earnings growth, whichever is the highest, is likely to have contributed to the rise, as well as the improved basic state pension to £122.30 per week. “This is a reflection of increasing pension prosperity,” he said.
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Chris Sanger, the head of tax policy at EY, said that the cause was likely to be people choosing to come out of retirement to work part-time. Official figures have shown that the number of people over 65 in work has been increasing.
Adam Thompson, a tax manager at The Fry Group, suggested a different cause. “With more and more young people in university and less getting jobs when they leave, the proportion of younger people paying tax will drop, which would increase the effective proportion of pensioners paying tax.”