One third of pensioners’ income goes on tax
While the average income of a retired household increased to £23,800 in the 2014-15 tax year, up from £22,500 in 2013-14, the total tax paid jumped about £300 to £6,800, the report said.
Indeed the most recent available figures show that retired households paid a total of more than £51bn in tax in the 12 months to April 2015. This was made up of each household paying over £2,700 in direct taxation such as income and council tax, while just over £4,330, or 61%, in VAT, vehicle excise duty and other indirect taxes.
Stan Russell, a retirement income expert at Prudential, said: “When planning for life after giving up work it is important to remember that unfortunately you’re not retiring from paying tax. As well as paying tax and duty on the goods and services they buy every day, many retired people will also still need to pay income tax.”
For those people considering their finances in retirement, a consultation with a professional financial adviser can help establish a target income level and the necessary regular savings to achieve it. The same adviser should also help explain the tax implications of the wider range of options now available to those looking to take an income from their pension savings.
“These figures show that taxes continue to take a significant slice out of pensioners’ incomes, and the best way for most people to secure a comfortable retirement is to save a much as possible in their working lives,” Russell said.