18th September 2015
Death and taxes are the only certainties in life and pensioners are still shelling out money to the Treasury after they’ve long given up work.
A total of 11% of the UK’s income tax is paid by over-65s who stump up an average £3,258 a year. This totals £17.5 billion of income tax every year.
Research from Prudential shows during the 2012/13 tax year, the most recent data available, over-65s paid 11% of the total £157 billion paid in income tax each year.
However, turning 65 does mark a drop in income tax take, the income tax bill paid by those aged over-65 is on average £2,300 lower than those aged under 65.
Although the news isn’t so good for pensioners living in London, where the difference is just £692 a year.
The distribution of income tax paid by over 65s across the country is skewed heavily towards London where the average amount of income tax paid by over-65s was £8,386, more than £5,000 higher than the UK pensioner average of £3,258.
Stan Russell, retirement income expert at Prudential, said: ‘These figures show that just because someone has retired from work doesn’t mean they have retired from paying tax, so taking into account the impact on retirement income is an important part of planning for a comfortable retirement.
‘The implication from this analysis is that over-65s in London have either managed to secure themselves more comfortable retirement income or perhaps have been able to defer retirement and stay in well-paid employment for longer. However, for most of us, saving as much as possible as early as possible in our working lives remains the best way to help secure a comfortable retirement.’
Pensioners in the South East pay on average £3,778 a year in income tax, those in the East of England pay £3,333 – both above the national average.
All other areas paid below the national average; £2,855 in Scotland to Wales, where the average amount of income tax paid by pensioners was just £1,795.
The income tax figures for pensioners may be in for a shake-up thanks to the introduction of pension freedom that allows retirees to access their whole pension as cash. The Treasury estimated that it would generate £380 million in additional revenue in 2015/16, rising to £1.25 billion by 2018/19.
‘It is great news that the pension freedoms that came into force earlier in the year now provide many pension savers with a greater degree of choice when it comes to providing for their retirement,’ said Russell.
‘Some of the options come with a significant tax bill attached. Therefore taking professional advice before deciding to cash in a pension pot will help most people to make the most of the new options.’