Retired households face an average annual tax bill of £6,500, research by Prudential has found.
The figures show that the average retired household income rose to £21,800 in the 2012/13 tax year. However, the amount of tax paid by retired households also increased and pensioners are now paying over 30% of their income to the taxman.
In the 2012/13 tax year:
- the average retired household paid £3,900 in indirect taxes and £2,600 in direct taxes
- indirect taxes (including VAT and duties) accounted for 60.2% of the average retired household’s tax bill
- direct taxes (including income tax and council tax) made up 39.8% of the average tax bill
- VAT was the biggest tax item, accounting for 8.2% of the average tax bill
- income tax accounted for 7.4% of the average tax bill.
The Treasury estimates that the newly introduced pension freedoms could lead to an increase in tax revenue of £320 million during the 2015-16 tax year and £1.22 billion in 2018-19. The research highlights this as further proof that people approaching retirement need to factor tax into their plans.
Stan Russell, retirement income expert at Prudential, said:
“Retired households make a major contribution to the Exchequer every year whether it is in direct or indirect taxes and clearly it is not possible to avoid all taxes simply because you’ve stopped working. It’s a stark reminder that not all the income you receive in retirement will be yours to spend as you like.
“Irrespective of the new pension rules and their tax implications, the fundamental principles remain true – the best way to secure enough income for a comfortable retirement is to save as much as possible as early as possible in your working life.”
We can help you minimise your tax liability in retirement. Contact us today