10th June 2015
The amount of cash being paid to HMRC by the typical retired household is enough to buy a brand new car every year and cover its running costs claims new research.
The analysis from Prudential revealed that retired households are paying an average of £6,500 a year in direct and indirect taxes.
The figures, taken from the 2012-13 tax year, show a year-on-year increase in the average income of a retired household of nearly £500 a year to £21,800. However, the amount being paid in tax by retired households has also increased, and pensioners are still handing over 30% of their total income to the tax man.
Indirect taxes including VAT, Vehicle Excise Duty as well as tax on alcohol and petrol accounted for 60.2% of retired households’ average annual tax bill, an increase from 58.7% in 2011-12. Direct taxes including income tax and council tax accounted for the rest.
In total, £47.26bn was paid in taxes by all retired households during 2012-13 according to the insurer.
It asserted that this figure looks set to rise on the back of the new pension freedoms which came into force in April as over-55s are now able to access their nest-eggs, much of which will be liable to tax at the retiree’s marginal rate.
The Treasury estimated after last year’s Budget that the new rules would generate £320m in additional revenue during the 2015-16 tax year, rising to £1.22bn by 2018-19.
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 have stopped working. It’s a stark reminder that not all the income you receive in retirement will be yours to spend as you like.
“A consultation with a financial adviser or retirement specialist before making any choices about retirement income solutions may not reduce tax bills by enough to buy a new car, but it should help those looking to make the most of their pension savings and avoid the risk of paying unexpected tax.”