The average UK retired household pays out 30% of pension income to the taxman, according to new data published by insurer MetLife Europe.
UK pensioners lose this large slice of their pension income through a combination of direct and indirect taxes, which nets a total of £34 billion for the Revenue.
From an average household pension income of £17,727 this means that the taxman directly or indirectly receives £5,315, including income tax on pensions income of nearly £1,500 and VAT of £1,229.
The third largest tax burden on pension income in the UK’s 6 million retired households is council tax, which eats up 5% of gross pensions income.
These direct taxes including income tax and council tax comprise 13.4% of the total 30% tax burden on pension income, with 16.6% coming from indirect taxes such as VAT, duty on tobacco, alcohol and petrol, car tax and tv licences.
Proportionally the less well-off are hit harder, with tax taking a full 40% of gross pension income from the bottom 20% of pensioner households by income.
MetLife added that workers need to take pension advice and give more attention to pension planning in consideration of the growing tax burden, which does not end at the end of our working life.
Only by working with a qualified pension planner can future pensioners take the necessary steps to maximise both the amount and the flexibility of their pension income.
Pensions planning should look not only at state benefits but also at occupational and personal pensions. MetLife’s analysis indicated that the average retired household takes 36% of its gross pensions income from occupational pensions, 50.5% of pension income from benefits, and the remainder from investments and savings.
The average occupational pension pays £6,381 before taxes, according to MetLife.
