Pensioners paying enough tax to buy a new car

Pensioner households shelling out £6,500 in tax each year.

The average retired household is paying enough tax each year to buy a brand new car, with £500 leftover to cover running costs, according to research from Prudential.

Figures taken from the 2012-13 tax year found that the average pensioner household paid £6,500 in tax. The figure rose year-on-year due to increased average incomes and higher tax bills. The average household income for pensioners rose by £500 to £21,800, with over 30% of that handed to the taxman in direct and indirect taxes.

Direct taxes are the amounts you clearly hand over such as Income Tax, while indirect taxes are taxes on your spending such as VAT, Vehicle Excise Duty and duties on petrol or alcohol. Indirect taxes accounted for 60.2% of retired households’ average annual tax bills, up from 58.7% the previous year.

On average pensioner households paid £3,900 in indirect taxes and £2,600 in direct taxes in the 2012-13 tax year. The biggest single tax was VAT, which made up 8.2% of the bill.

In total, pensioners paid £47.26 billion in taxes during 2012-13 and that figure is expected to continue to rise. The Treasury estimated that the new pension freedoms would generate a further 3320 million in tax revenue in the 2015-16 tax year, rising to an extra £1.22 billion by 2018-9.

“Retired households make a major contribution to the Exchequer every year whether it is in direct or indirect taxes and clearly it is not possible to avoid all taxes simply because you have stopped working,” said Stan Russell, retirement income expert at Prudential.

“It’s a stark reminder that not all the income you receive in retirement will be yours to spend as you like.”

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