Retired households lose 30% of income to tax

Tax atop coins

The average retired household loses 30% of their annual income to the taxman, according to new research.

In the 2011/2012 tax year, the average household gross income among the retired was £21,300 and £6,400 of it was paid to HM Revenue & Customs - or just over 30%.

Income tax, VAT and council tax accounted for the lion's share of the taxman's demands, according to analysis from Prudential.

Income tax and VAT each accounted for 8% of the average retired household's annual income, with council tax taking a 4% slice.

Other indirect taxes in addition to VAT - such as vehicle excise duty and those on alcohol, tobacco and petrol - accounted for a further 10% of gross income.

With all indirect taxation taking an 18% bite out of the average retired household's income, those on lower incomes are likely to find themselves paying out a greater proportion in tax.

A stark reminder

Stan Russell, retirement income expert at Prudential, said: "Previously our research has shown that retirees are becoming more optimistic about the income they expect to receive when they stop working. However, these latest figures are a stark reminder that not all the income you receive in retirement will be yours to spend as you like."

He added: "The best way to secure your desired level of retirement income is to save as much as possible as early as possible in your working life."

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I would have been interested to see how much the loss of the age related tax allowances has added to the tax take on the over 65's. If my experience is typical, it is a lot, far more than one expects!