Recent research has indicated that pensioners paid around a third of their income in tax during 2016.
According to the most recent Office for National Statistics figures, retired households handed over around £52.7 billion from both direct and indirect taxes during the 2015-16 tax year.
In the year to April 2016, the tax bill for the average retired household grew to around £400. This meant that the exchequer received an extra £1.7 billion in pensioner tax.
However, retired household incomes on average reached just over £25,000, an increase of around £1,200 according to Prudential. This includes private pensions, state pensions, benefit payments as well as other earnings.
Both indirect taxes and direct taxes cause retired household bills to grow. In 2015-16, direct taxes, which include outgoings so as income tax and council tax costed around £3,050 on average. Over the same time frame, indirect taxes such as insurance premium tax and VAT totalled an average of £4,360. A large portion of the growth resulted from the £300 average increase to direct taxation from the level in 2014-15.
In comparison to the amount of income tax paid during that particular period, the amount contributed by the average retired household grew from £1,700 to £1,970.
In 2015-16, the proportion of retiree income which was taken up by tax was down slightly from 2014-15. On average, it fell from 29.7% to 29.6%.
Contrasting to those who were still working, the research revealed that pensioners during 2015-16 contributed a slightly lower portion of their income on tax; 30% compared to 34%.
Commenting on the findings was Stan Russell. The retirement income expert at Prudential highlighted the ongoing expenses that pensioners will be subject to post retirement.
“Many retired people will still need to consider income tax bills as well as all the other indirect taxation on expenditure that they will continue to face when they give up work.
“We have seen income expectations for new pensioners rise in recent years which, for many will mean that they continue to face tax bills well into retirement. People planning to give up work should make sure they don’t underestimate the impact that tax will have on their income in retirement.”
He also drew attention to the importance of developing a plan for the long-term, factoring in the numerous outgoings and possibly seeking professional advice.
“Creating a long-term plan to set a target income level, and better understand tax implications, can be achieved through a consultation with a professional financial adviser, or with the help of some of the free independent guidance available through organisations such as the Government’s Pension Wise service or The Pensions Advisory Service.”
