Retired households paid an average of just over £7,000 each in tax last year, equal to nearly 30% of their annual income, according to analysis of newly released data by Prudential.
According to the most recent available figures – for the 2014-15 tax year – retired households paid a total of more than £51 billion in tax in the 12 months to April 2015. The average retired household pays over £2,700 in direct taxation such as income tax and council tax, while just over £4,330, or 61%, of their total tax bill comes from VAT, vehicle excise duty and other indirect taxes.
The data for the year 2014-15 shows that average incomes for retired households – at more than £23,800 – increased by nearly £1,300 from just over £22,500 in the tax year 2013-14, while the total tax paid increased by approximately £300 from nearly £6,800. The figures also show that the proportion of the average retired household’s income paid in tax fell slightly from 30.1% in 2013-14 to 29.7% the following year.
The recently released ONS data also includes information on working households and reveals how tax as a proportion of total income falls by nearly five percentage points from 34.5% of a working household’s income to 29.7% when the head of the household retires.
Stan Russell, retirement income spokesperson 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 indirectly 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 many people considering their finances in retirement, a consultation with a professional financial adviser can help to set a target income level and the necessary regular savings required to achieve it. A financial adviser should also help explain the tax implications of the wider range of options now open 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 as much as possible as early as possible in their working lives.”