Taxes are one of life's certainties - even for pensioners
18 September 2015
- Over-65s pay 11 per cent of the UK’s income tax, with an average bill of £3,258
- London’s pensioners pay more than double the UK pensioner average in income tax
Pensioners in the UK pay a total of more than £17.5 billion in income tax every year, according to new analysis by Prudential1.
The insurer’s analysis of the most recently available ONS data on income and tax shows that in the 2012-13 tax year, over-65s paid an average of £3,258 each in tax. Collectively this accounts for 11 per cent of the £157 billion total income tax paid for the tax year.
The figures do however confirm that the amount of tax you pay falls after turning 65 – the average tax bill for over-65s in the UK is £2,300 lower than that for under-65s. The news is not so good for over-65s in London where the difference is only £692 a year.
The Prudential analysis also shows that the distribution of income tax paid by over-65s across the country is skewed heavily towards London. In the capital, 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. Discussing your retirement aspirations with a professional financial adviser is an important step for many towards achieving the best possible disposable income in retirement.
“The implication from this analysis is that over-65s in London have either managed to secure themselves more comfortable retirement incomes 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.”
The differences between the income tax paid by over-65s in the other UK regions are far less marked. Pensioners in the South East (£3,778) and East of England (£3,333) paid above the national pensioner average in income tax of £3,258. All other areas of the UK were below the national average, from Scotland (£2,855) through to Wales, where the average amount of income tax paid by a pensioner was just £1,795.
The figures may see a shake up when the impact of the recent changes to pension rules begins to be reflected in annual income tax statistics. Following the Autumn Statement last December2, the Treasury estimated that the new rules would generate £380 million in additional revenue during the 2015-16 tax year, rising to £1.25 billion by 2018-19.
Stan Russell continued: “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. 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.”
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