Tax costs ‘hitting retirees’ income’

Even after a lifetime of paying taxes to the exchequer, people across the UK continue to face the prospect of the taxman taking a portion of their income throughout their retirement and this poses a serious concern for some.

An analysis of government figures by Prudential has shown how during the 2011-12 tax year – the most recent statistics available – the average retired household had an annual income of £21,300.

However, over this same period, this group paid £6,400 in taxes. Overall, 30 per cent of typical retirees' annual income is therefore going straight into the government's coffers – a cumulative £45.6 billion when all of the UK's retired households are taken into account.

Retirement income expert at Prudential Stan Russell commented: "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."

Indeed, income tax, VAT and council tax were shown to be the greatest outgoings for individuals heading into their golden years – eight per cent, eight per cent and four per cent, respectively, of typical retirees' spending.

Meanwhile, indirect taxes other than VAT – such as vehicle excise duty or taxes on tobacco, alcohol and petrol – also combine to make up ten per cent of annual budgets for retirees across the country.

As a result, while many people will have a comfortable retirement following years of building a valuable nest egg, there are many who face serious financial concerns.

However, with a wide range of options available to the majority of people to get their finances back under control, such as debt management schemes or the use of equity release from any property they own, individuals currently struggling to make ends meet should consider talking to a professional on the matter.

Posted by Joe White