Key: Retired households lose 14% of income to taxes
Retired households lose close to 14% of their income a year to direct taxes, analysis from Key has revealed.
This equates to approximately £4,078 a year in direct taxes each, or £45.278bn in total.
Income tax and council tax take 13.9% off the average retired household’s pre-tax income of £31,674.
However, government data shows benefits contribute around two-fifths – nearly £13,000 a year – of the average retired household’s pre-tax income with most of that coming from the State Pension and the rest from a range of other benefits including Disability Living Allowance and Housing Benefit.
Average disposable incomes for retired people fell in the financial year ending 2020 from the previous year by nearly 12% with much of the cut coming from lower private pension income and investment income.
Retired households on average received £12,102 from private pensions in 2020, compared with £14,756 previously, while investment income dropped from £2,933 to £2,084.
Will Hale, chief executive at Key, said: “While national insurance contributions cease when you retire, you still need to pay income tax and council tax so it pays to budget for these bills as part of your retirement planning.
“If you haven’t accounted for tax within your budgeting, losing almost 14% of your household income can have a significant impact on your standard of living throughout retirement.
“Taking advantage of tax-free savings and checking that you are on track to receive the full state pension are simple steps that you can take to ensure that you are best placed to ride out any income fluctuations in retirement.
“Taking a holistic view of all your assets, including your home, is also important as there may be a number of options to create additional income when needed.
“When considering your options it is vital you take specialist financial advice and, for those with more complex affairs, specialist tax advice may also be beneficial.
“Paying some form of tax is a reality for most retired people but how this impacts on their household income and aspirations is something that they can manage through careful planning.”