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06

Tax takes up nearly one-third of pensioner income, analysis finds

Open-access content Friday 30th May 2014 — updated 5.13pm, Wednesday 29th April 2020

Taxes take up around 30% of the average annual income of retired households, an analysis of government data by Prudential has found.

2

According to the financial services firm, the average household paid around £6,400 out of an income of £21,300 in the 2011/12 tax year, through both direct and indirect taxes. Based on a retired population of over 7.1 million for the year, this equates to £45.6bn being paid in taxes, the insurance provider revealed on Friday.

A majority of the tax claimed in a year - 18 percentage points - was indirect tax such as VAT, which Prudential said meant that retired households with lower incomes were likely to find themselves paying out a greater proportion of those incomes.

Stan Russell, retirement income expert at Prudential, said: 'Retiring from work doesn't mean that you are retiring from paying tax. Whether you are liable for income tax or you are paying VAT on your purchases, the contributions you make to the Exchequer will continue throughout your retirement.

'The changes to pensions and how people can take their retirement income announced in the Budget [in March] will provide savers and retirees with more choices and will affect the way that tax is applied.

'Previously our research has shown that retirees are becoming more optimistic about the income they expect to receive when they stop working. However, these latest figures are a stark reminder that not all the income you receive in retirement will be yours to spend as you like.'

This article appeared in our June 2014 issue of The Actuary.
Click here to view this issue
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