Retired households paying £4,000+ in tax
Tax bill for retired households the equivalent of 18% of annual income, with poor households hardest hit.
The average retired household is paying out around £4,100 a year in direct and indirect taxes.
That's according to MetLife's analysis of new figures from the Office for National Statistics, which reckons that equates to 18% of an average retired households' income and totals a whopping £29 billion a year.
The biggest contributor is VAT, with retired households contributing an average of £1,865 a year, the equivalent of 8% of their income. Fuel duty makes up £262 of the tax intake, while alcohol duties cost £242.
Lower income households hit hardest
Perhaps unsurprisingly, it's the households with the lowest incomes that are hardest hit by their tax bill. Retired households that are ranked in the bottom tenth of the population for income lose nearly a third of their income on tax.
In contrast, retired households with incomes in the top tenth pay out 14% in tax. That's despite having incomes as much as seven times higher than those in the bottom tenth.
Dominic Grinstead, managing director at MetLife UK, said that retiring from work unfortunately doesn't mean retiring from paying tax, whether direct or indirect.
He added: “The launch of pension freedoms has highlighted the issue of tax as many people rush to take their pension funds in full, risking unnecessary bills and providing further revenue for the Government.”
Read How to take tax-free cash from your pension.
Enough tax to buy a new car
Earlier this year research from Prudential suggested pensioners are shelling out even more significant sums on tax, at an average £6,500.
Stan Russell, retirement expert at Prudential, said: “It’s a stark reminder that not all the income you receive in retirement will be yours to spend as you like.”
Read Pensioners paying enough tax to buy a new car.
Earn 5% interest from your bank account
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Comments
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I meant "a disposable income of £6801 (after...." Sorry!
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I think the original data from the ONS is here: http://www.ons.gov.uk/ons/rel/household-income/the-effects-of-taxes-and-benefits-on-household-income/historical-data--1977-2013-14/summary--historical-data--1977-2013-14.html see table 18 - latest data is 2013/14. I find the data not at all rational. how for example can a disposable income (after direct taxation) then incur VAT expenditure of £1061, bearing in mind that most food is non vatable. also the poorest households seem to be composed of single people rather than couples because the income is too low. I'm also surprised that the lowest income households don't get any attendance allowance ( are they counting people from 60, not 65?) and how pension credit still gets collected in even the richest pensioner households. Quite how metlife uses this data is beyond me - there is no explanation.
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Lets think about the poorest pensioner households. That's the 50% of pensioners who still are eligible for one of these benefits: Income support, pension credit, council tax support or housing benefit. These people will pay no income tax, no ERNIC, probably little council tax. Their level of income, lets suggest £15,000 per annum will mean that they pay little if any tax other than VAT on eligible purchases, and fuel tax (of 5%) on their energy requirements. The claim in the article that "Retired households that are ranked in the bottom tenth of the population for income lose nearly a third of their income on tax." clearly cannot be correct. While the source of the data is Metlife, there is no means of accessing their work - a Google search finds reports from previous years but not from 2015, and their press releases are only listed to March 2015. So Sorry " I just don't believe it".
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09 September 2015