Pensioners lose third of income to taxman
Analysis of Office for National Statistics (ONS) data by Prudential found that in the 2011-2012 tax year, the average retired household paid £6,400 in tax from a gross income of £21,300. That equates to a total of £45.6bn paid in taxes by all retired households.
Stan Russell, retirement income expert at Prudential, said: “Retiring from work doesn’t mean that you are retiring from paying tax. Whether you are liable for income tax or you are paying VAT on your purchases, the contributions you make to the Exchequer will continue throughout your retirement.”
VAT and income tax are the largest duties retirees find themselves paying – each consuming eight per cent of the average retired household’s annual income. Council tax accounts for around four per cent.
Indirect taxes other than VAT, including vehicle excise duty, taxes on alcohol, tobacco and petrol, combine to take a further 10 per cent.
Russell said the changes to pensions and how people can take their retirement income announced in the Budget will provide savers and retirees with more choices and will affect the way that tax is applied.
“Irrespective of these changes, the fundamental principles remain true – the best way to secure your desired level of retirement income is to save as much as possible as early as possible in your working life,” he added.
Previous research by Prudential found that retirees are becoming more optimistic about the income they expect to receive when they stop working.
However, the insurer said these latest figures are a stark reminder that “not all the income you receive in retirement will be yours to spend as you like”.