April 28, 2010

UK: Pensioners pay a third of income in tax, research shows

. LONDON, England / The Telegraph / Personal Finance / Pensions / April 28, 2010 Pensioners end up paying back a third of their income to the Government through taxes, new research has revealed. By Myra Butterworth, Personal Finance Correspondent A typical retired household has an income of £17,727, but £5,315 of this is paid out in direct and indirect tax, according to financial services group MetLife Europe. Income tax accounts for the biggest share of the money that is handed over to HM Revenue & Customs at nearly £1,500, followed by VAT, which costs an average pensioner household £1,229 a year. Related Article New tax to pay for National Care Service Overall, an average of 13.4 per cent of retired households’ income is paid out in direct taxes, such as income tax, with a further 16.6 per cent paid in indirect taxes, such as VAT, duty on tobacco, alcohol and petrol, and road tax and the TV licence. Less well off pensioners pay out an even higher proportion of their income in tax, with the poorest fifth of retired households handing over 40 per cent of their £8,390 income to HM Revenue & Customs. Dominic Grinstead, managing director of MetLife's UK branch, said: “Pensioners need to be aware of the effects of direct and indirect tax on their retirement income and to plan accordingly. “Tax does not end when you stop working and clearly 30 per cent of gross retirement income being swallowed up by tax is a major factor to consider when planning for retirement.” Pensions experts warned pensioners are disproportionately hit by taxes. Money down the drain. Photo courtesy: Hargreaves Lansdown Laith Khalaf, a pensions expert at Hargreaves Lansdown, said: “Pensioners generally pay low rates of tax on their income but can be hit hard by other taxes. In particular council tax is one expense which continues into retirement after you have paid off your mortgage.” [rc] © Copyright of Telegraph Media Group Limited 2010