UK Pensioners Pay Out 30% of Annual Incomes in Taxes

UK retirees are paying out 30% of their annual income in taxes, according to financial services firm Prudential.

The insurer, which analysed official data relating to the 2011/12 tax year, found that the average retired household paid £6,400 ($10,702, €7,872) in tax from a gross income of £21,300.

Prudential said that equates to a total of £45.6bn paid in taxes by all retired households in the UK.

"Retiring from work doesn't mean that you are retiring from paying tax," said Stan Russell, retirement income expert at Prudential.

"Whether you are liable for income tax or you are paying VAT on your purchases, the contributions you make to the Exchequer will continue throughout your retirement."

The research also revealed that VAT and income tax are the largest duties retirees find themselves paying – each consuming 8% of the average retired household's annual income – council tax also accounts for around 4% Indirect taxes other than VAT, including vehicle excise duty, taxes on alcohol, tobacco and petrol, combine to take a further 10%.

Of the 30% of its annual income that the average retired household pays in tax, just under three fifths (£3,800) is in indirect taxation.

Prudential said that retired households with lower incomes are likely to find themselves paying out a greater proportion of those incomes in tax.

But Russell argued the changes to pensions and how people can take their retirement income announced in the Budget will provide savers and retirees with "more choices and will affect the way that tax is applied".

George Osborne announced that workers will no longer have to take a compulsory annuity purchase in order to avoid a huge tax bill.

In addition, Osborne said that the limit on personal pension pots worth £2,000 will be increased to £10,000.