Belfast Telegraph

Average retired households 'handed over £7,400 in tax last year'

Retired households handed over £7,400 typically in tax last year - the equivalent of nearly a third (30%) of their annual income, according to analysis.

The total annual tax bill for the UK's 7.1 million retired households was £52.7 billion from direct and indirect taxes, according to Prudential's analysis of figures from the Office for National Statistics (ONS) for the 2015-16 tax year.

Pr udential found the average retired household saw its tax bill rise by around £400 in the 12 months to April 2016, increasing the total tax coming from pensioners by around £1.7 billion.

But average retired household incomes, including the state pension, private pensions, benefits and other earnings, also increased by around £1,200, to just over £25,000.

Retired households' tax bills mount up from direct taxes such as income tax and council tax which came to an average of just over £3,050 in 2015-16, and indirect taxes such as VAT, insurance premium tax and vehicle excise duty which cost an average of £4,360 during the same period, Prudential said.

It found that the majority of the increase came from direct taxation, which increased by £300 on average from its 2014-15 level.

The average retired household paid around £1,970 in income tax in 2015-16 compared with just over £1,700 in the previous tax year.

Prudential's analysis also showed that in 2015-16 pensioners paid a slightly lower proportion of their income in taxes than those who were still working.

The total tax take for retired households was around four percentage points lower than the 34% paid by the average working household.

The recently introduced pension freedoms give the over-55s a much greater choice over how they take their retirement cash. Generally, the first 25% of the pot is tax-free and the remainder is subject to tax.

Stan Russell, a retirement income expert at Prudential, said: "No longer working doesn't mean you'll no longer be paying taxes, and 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.

"Saving as much as possible as early as possible during their working lives should help people to plan ahead with more confidence."

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