Pensioners Pay Enough Tax To Buy New Car Each Year

Pensioners are not really that financially bad off, according to research by a financial firm.

The tax paid by a retired household is enough to buy Britain’s cheapest car – the £6,500 Kia Pinto – with £500 left over towards the running costs.

Following recent freedoms unlocking billions of pounds of pension cash, understanding how their money is taxed is becoming a top priority for many pensioners.

The claims come from Prudential, one of Britain’s largest financial firms, and are based on analysis of Office of National Statistics data from the 2012-2013 year.

The firm reveals the £6,500 tax bill comprises income tax and other indirect taxes, such as VAT.

How much tax pensioners pay

The figures also show that the average retired household has an income of £21,800, with 30% going to HM Revenue & Customs (HMRC).

The total tax take from pensioners, says the firm, comes to £47.26 billion a year.

It’s too early to assess how pension freedoms introduced in April 2015 will affect the figures, but the Treasury forecast the new measures would raise an extra £320 million a year in tax straight away, rising to an additional £1.22 billion by 2018-2019.

The Prudential argues that this rise in taxes should urge pensioners to consider tax planning advice before accessing their pensions.

Stan Russell, retirement income expert at the firm, said: “Retirement savers now have more choices and options about how and when they take an income from their pension.

“This wider choice can mean some people may end up reducing their spending power by paying unnecessary tax when taking professional advice could have left them with more money.

Where the money goes

“Talking to a tax adviser will not allow every pensioner to buy a new car but should produce some tax savings for most people.”

The study disclosed retired households pay double the amount of indirect taxes, such as VAT, vehicle excise duty and duties on booze and fuel than they do on direct taxes, such as income tax and council tax.

Around 60% goes on indirect taxes and the rest on direct taxes.

In some cases, pensioners can control the amount of tax they pay by watching how they spend their money to save VAT and other duties.

“It’s not possible to legally avoid paying tax, but retired people can take advice about spending their money to pay less,” said Russell. “They need to remember that what they have at retirement is what they have for the rest of their lives and should learn to spend wisely.”

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