29% of pensioner income goes to taxman - MetLife

Written by Ilonka Oudenampsen

Through a combination of direct and indirect taxation, 29 per cent of the average pensioner household’s retirement income goes to the taxman, new analysis from MetLife has shown. This adds up to an annual tax bill of almost £42bn.

For an average gross pensioner household income of £20,130, that equates to £5,864, with income tax accounting for almost £1,501 and indirect taxes including VAT for £1,937, while council tax accounts for 5.8 per cent of gross income.

Direct taxes, including income tax and council tax, take 12.2 per cent out of an average pensioner income, with indirect taxes, including VAT, duty on tobacco, alcohol and petrol, vehicle excise duty and TV licences accounting for 16.8 per cent.

However, the tax burden could increase to 42 per cent of gross household income for less well-off households. MetLife said that the bottom tenth of pensioner households, in receipt of gross income estimated at £8,259 a year, pay £3,599 in taxes. The top 10 per cent of pensioner households, with gross income of £47,992, see 29 per cent of their income going to the taxman.

MetLife UK managing director Dominic Grinstead said: “Pensioners need to think about the effects of direct and indirect tax on their retirement income and to plan accordingly.

“With 29 per cent of gross retirement income being swallowed up by tax it is clearly a major factor to consider when planning for retirement.

“When you add in the potential effects of inflation in a retirement lasting up to 20 or even 30 years it is clear that savers need to consider all retirement income solutions in order to achieve a degree of certainty.”

Forty per cent of the average retired household’s gross income comes from private and occupational pensions, MetLife’s analysis showed, while 39 per cent comes from the State Pension and the rest comes from investments and savings plus other benefits. The average private pension pays £8,134 per household before taxes.

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