The whole of retirement planning as most people understand it rests on one assumption: that you earn at 40% and draw at 20%. Put money in while the marginal rate is high, take it out when the marginal rate is low, and the gap between the two is the return. It is the single idea behind most pension contributions ever made by a UK owner-manager, and for a very long time it was broadly true. Figures published this morning suggest it has quietly stopped being true for a large and growing group of people.
A Freedom of Information request submitted by LCP partner Steve Webb, reported by Money Marketing on 1 September 2026, shows that the number of pensioners paying income tax at 40% or 45% has risen from 494,000 in 2021/22 to 1.092 million in 2026/27. The number paying at the 45% additional rate has roughly trebled over the same period. That is not a rounding shift. It is a doubling in five years, and it lands on precisely the cohort whose contributions were justified by the assumption that it would not happen.
What actually moved
Nothing about the rates changed. What changed was where the thresholds sit relative to income. GOV.UK's current guidance for the 2026 to 2027 tax year sets the Personal Allowance at £12,570, the basic rate at 20% up to £50,270, the higher rate at 40% from £50,271 to £125,140, and the additional rate at 45% above that. The Personal Allowance is also withdrawn at £1 for every £2 of income above £100,000, reaching zero at £125,140.
Those numbers have not moved for years, and they are not going to. HMRC's policy paper Maintaining Income Tax and equivalent National Insurance contributions thresholds until 5 April 2031, published on 26 November 2025, holds the Personal Allowance at £12,570 and the basic rate limit at £37,700 for the 2028/29, 2029/30 and 2030/31 tax years, keeping the higher rate threshold at £50,270 until 5 April 2031. Meanwhile pension income rises with inflation and earnings. The arithmetic does the rest.
Webb's framing of it is worth quoting directly, because it names the assumption rather than the number: “Many people of working age may have expected that they would be basic rate taxpayers in retirement, but few will have expected to find themselves paying 40% or more out of their pensions in tax.” He added that this “is the norm now for over a million pensioners, with the number set to rise further.”
The client is closer to the line than anyone thinks
Start with the base. GOV.UK gives the full rate of the new State Pension as £241.30 a week. Over 52 weeks that is £12,547.60 — against a Personal Allowance of £12,570. A client on the full new State Pension has about £22 of allowance left. Not a slice. Twenty-two pounds.
Everything else is therefore taxed from the first pound, and most retired owner-managers have a good deal of everything else. Consider a client who sold or wound down a business three years ago. State pension £12,547.60. Drawdown of £42,000 a year, set at that level because it was what the pot would sustain. Non-savings income of £54,547.60.
Against the 2026/27 bands, the Personal Allowance covers £12,570, the basic rate limit of £37,700 is taxed at 20% for £7,540, and the remaining £4,277.60 falls into the 40% band, costing £1,711.04. The client is a higher-rate taxpayer, which they did not plan to be, and almost certainly does not describe themselves as.
Now add the cash. Say the same client holds £8,000 of savings interest from the sale proceeds. As a higher-rate taxpayer their Personal Savings Allowance is £500 rather than £1,000 — GOV.UK sets it at £1,000 for basic rate, £500 for higher rate and nil for additional rate. So £7,500 is taxable, at 40%, costing £3,000. Had their pension income stopped £4,278 lower, that same interest would have been taxed at 20% and £1,000 of it would have been covered, a swing of about £1,600 on the interest alone.
The drawdown figure was set once, on the pension in isolation. It quietly re-rated every other pound of income the client has.
And it compounds from April 2027
The same client's savings interest gets more expensive. HMRC's policy paper Changes to tax rates for property, savings and dividend income, also published on 26 November 2025, increases the rates of income tax applicable to savings income by 2 percentage points across all bands from April 2027. On our client's £7,500 of taxable interest, that moves the charge from £3,000 to £3,150.
The same paper creates separate rates for property income from 2027/28 — 22% basic, 42% higher and 47% additional — which matters for the very common retired-owner profile of a modest rental portfolio alongside a pension. And it increases the ordinary and upper rates on dividend income by 2 percentage points from April 2026, with the additional rate unchanged. There is one further change in it that is easy to miss: reliefs and allowances deductible at steps 2 and 3 of the income tax calculation will be applied to property, savings and dividend income only after they have been applied to other sources of income.
None of these are large on their own. Stacked on a client who has drifted over the higher rate threshold without noticing, they are the difference between a retirement income that works and one that needs revisiting.
Where the accountant sits in this
Here is the structural problem, and it is not about competence on either side.
The tax return is the only document on which a retired client's state pension, drawdown, savings interest, rental profit and residual dividends appear together on one page. The accountant produces it. But it is produced after the tax year has closed, describing a year in which nothing can now be changed. Meanwhile the drawdown level — the single figure that determined which band everything else fell into — was set before that year began, by an adviser who could see the pension and not much else, or in a great many cases by the client alone.
The lang cat's State of Advice Report 2025 put the proportion of UK adults who had paid for regulated advice in the previous two years at 9%, and the average age of an IFA client at 59. Read those two together and the shape of the gap is clear enough: advice concentrates at exactly this life stage, and still reaches a small minority of the people at it. The accountant, by contrast, is looking at almost all of them, once a year, with the complete figures in hand.
There is a second trap sitting in the same file. Drawing taxable income flexibly from a defined contribution pension triggers the money purchase annual allowance. GOV.UK's pension schemes rates page, updated 6 April 2026, sets the standard annual allowance at £60,000 for 2026 to 2027 and the money purchase annual allowance at £10,000. An owner who starts drawdown at 58 and then takes on consultancy work at 61 has already cut their own pension headroom by £50,000 a year, usually without being told. The accountant is the one who sees the consultancy income arrive.
Two things worth doing this week
Sort one list by total income, not by pension income. Pull the clients drawing both state pension and private pension, and rank them by total income against £50,270. The ones between roughly £45,000 and £60,000 are the live group — close enough to the threshold that a modest change in drawdown moves them across a 20-point step, and close enough that they can still act for the current tax year. Add anyone between £100,000 and £125,140, where the Personal Allowance taper produces an effective marginal rate of 60%. In most practices both lists fit on one screen.
Move the conversation to before the year, not after it. The factual question is a short one: “Is the person setting your drawdown level looking at your rental income and savings interest as well?” It asks about the client's affairs, which is squarely an accountant's business, and it does not commit anyone to an answer. In a fair number of cases the reply is that nobody is, because the pension is looked at by one person and the rest by another, or by nobody. Our note on the Simple Assessment signal covers how the same disconnect turns up on the collection side.
Where the line is
The tax arithmetic here is accountancy work and always has been. Computing the marginal position, showing what a given level of income costs across the bands, explaining the interaction between the Personal Savings Allowance and the higher rate threshold, flagging the money purchase annual allowance consequence of a drawdown decision already taken — none of that requires FCA authorisation, and all of it is what clients already pay for.
What sits on the other side of the line is the recommendation: telling a client how much to draw, in what order to draw from which assets, or where the money should sit instead. That is regulated advice under the Financial Services and Markets Act regime and requires authorisation. The distinction is about permissions and liability, not knowledge. The practical version of joined-up here is a sequence — the accountant supplies the projected non-pension income before the drawdown is set, and the authorised adviser makes the decision against a real total rather than against the pension alone. Our overview of the advice gap sets out how often that sequence is simply absent.
What is still uncertain
Two things are genuinely open. The first is how far the trend runs. LCP's figures are a count of people at 40% and 45% today; the freeze to 5 April 2031 makes further increases arithmetically likely, but the size depends on earnings and inflation over four years that have not happened. Anyone giving a client a number for 2030 is guessing.
The second is the interaction with the inheritance tax treatment of unused pension funds from April 2027. A client told to draw less to stay under the higher rate threshold is, by definition, leaving more in a pension that is due to become part of their estate — and the reverse advice creates the income tax problem this article describes. Those two pressures point in opposite directions and the resolution is client-specific, which is exactly why it belongs with a regulated adviser rather than a rule of thumb. We covered the April 2027 change itself in when the pension joins the estate, and the related age change in the closing window.
What is not uncertain is the position of the accountant. The client who has drifted into higher-rate retirement will not raise it, because from where they sit nothing happened — the pension paid what it always paid. It shows up in one place, on one page, produced by one professional. The only question is whether that page gets read a year too late or a year in advance.
Common questions
Why does a client's retirement tax rate concern the accountant rather than the adviser?
Both, but at different moments. The drawdown level, the order assets are drawn in and the wrapper the money sits in are regulated decisions and belong to an authorised adviser. What sits with the accountant is the arithmetic and the timing: the return is where the state pension, the drawdown, the savings interest, the rental profit and the residual dividends first appear on one page. That page is usually produced months after the tax year closed, which is the problem. The accountant holds the only complete income picture of a retired client, and holds it too late to change the year it describes. Raising it early converts a filing exercise into a planning one.
How can a pensioner on the state pension alone be near a tax threshold?
They are not near the higher rate on it, but they have almost no allowance left for anything else. GOV.UK gives the full rate of the new State Pension as £241.30 a week, which is £12,547.60 over 52 weeks, against a Personal Allowance of £12,570. That leaves roughly £22 of unused allowance. Every pound of drawdown, annuity income, rental profit, savings interest above the Personal Savings Allowance or dividend beyond the dividend allowance is therefore taxed from the first pound. Clients often assume the allowance still shelters a slice of their private income. For a client on the full new State Pension it effectively does not.
What is the money purchase annual allowance trap for a semi-retired owner?
Taking taxable income flexibly from a defined contribution pension triggers the money purchase annual allowance. GOV.UK's pension schemes rates page, updated 6 April 2026, sets the standard annual allowance at £60,000 for 2026 to 2027 and the money purchase annual allowance at £10,000. So an owner who draws flexibly at 58, then takes on consultancy work at 60 and wants to put profits back into a pension, finds the headroom cut to £10,000 a year. The tax-free lump sum on its own does not trigger it. This is exactly the sequencing point where an accountant seeing the consultancy income and an adviser seeing the drawdown need to be talking.
Which clients should a firm look at first?
Run one filter rather than a full review. Pull the returns where a client is drawing both state pension and private pension income, then sort by total income against the £50,270 higher rate threshold. The clients sitting between roughly £45,000 and £60,000 are the live population, because small changes in drawdown move them across a 20-point rate step. Add anyone whose income sits between £100,000 and £125,140, where the Personal Allowance taper produces a 60% effective marginal rate. Both lists are short in most practices, and both are made up of clients whose position can still be changed for the current year.
What does a genuinely joined-up conversation look like here?
It reverses the usual order. Today the accountant reports the tax after the year has closed and the adviser, where there is one, set the drawdown before it opened, with no contact between the two. A joined-up version has the accountant supply the projected non-pension income for the coming year — rental profit, savings interest, residual dividends, any consultancy — before the drawdown level is set, so the adviser is deciding against a real total rather than a pension figure in isolation. The recommendation stays with the authorised adviser. What changes is that it is made with the whole income picture rather than a fragment of it.