The income of retired households were reduced by almost 30 per cent in tax payments last year.

According to newly released data by Prudential, pensioners paid an average of £7,400 each in tax in 2016.

The average retired household saw its tax bill increase by around £400 in the 12 months to April 2016, resulting in an increase in the total tax received by the exchequer by around £1.7bn. However average retired household incomes, including the state pension, private pensions, benefits and other earnings increased by around £1,200 to just over £25,000.

Overall, the total annual tax bill for the UK’s 7.1 million retired households was £52.7bn from direct and indirect taxes in the 2015-2016 tax year, the Office for National Statistics revealed.

The average retired household paid around £1,970 in income tax in 2015/16 in comparison to just over £1,700 in the previous tax year. This made up 29.6 per cent of retirees’ annual income in comparison 29.7 per cent the previous tax year and 30.1 per cent in 2013-14.

Moreover, Prudential added that in 2015/16 pensioners paid a slightly lower proportion of their income in taxes than those who were still working; around 4 per cent lower than 34 per cent paid by working households.

Prudential retirement income expert Stan Russell 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."

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