The average UK pensioner household pays out 29 per cent of its income in retirement to the taxman through a combination of direct and indirect taxation, which adds up to an annual tax bill of nearly ?42bn, new analysis [1] from MetLife shows (25/07/12).
Pensioner household income
On an average gross pensioner household income of ?20,130, that equates to ?5,864 paid out in tax, with income tax accounting for nearly ?1,501 of the bill and indirect taxes including VAT totalling ?1,937. Council tax is the third-largest tax burden, accounting for 5.8 per cent of gross income. With an average tax liability of ?5,864 for the UK's 7.15 million retired households, the bill from direct and indirect taxation equates to around ?41.9bn. In total, direct taxes, including income tax and council tax, account for 12.2 per cent out of the 29 per cent tax burden with indirect taxes, including VAT, duty on tobacco, alcohol and petrol, vehicle excise duty and TV licences, accounting for 16.8 per cent.
Direct and indirect tax
However, less well-off households proportionally pay out the most in direct and indirect tax with 42 per cent of their gross household income being paid out in tax. The bottom tenth of pensioner households, in receipt of gross income estimated at ?8,259 a year, pay ?3,599 in taxes. The top 10 per cent of pensioner households, with gross income of ?47,992, see 29 per cent of their income going in direct and indirect tax.
Planning for retirement
Pensioners need to think about the effects of direct and indirect tax on their retirement income and plan accordingly. With 29 per cent of gross retirement income being swallowed up by tax, it is clearly a major factor to consider when planning for retirement. When you add in the potential effects of inflation in a retirement lasting up to 20 or even 30 years, it is clear that savers need to consider all retirement income solutions in order to achieve a degree of certainty.
Investments and savings
MetLife's analysis shows that the average retired household receives 40 per cent of its gross income from private and occupational pensions, with 39 per cent coming from the State Pension and the rest coming from investments and savings plus other benefits. The average private pension pays ?8,134 per household before taxes.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. [1] MetLife analysis of the ONS Wealth and Assets Survey. ONS estimates that there are 7.151 million retired households.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Pension drawdown can leave your funds open to investment risk and is not suitable for everyone.
The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a guide to future performance. Please contact us for further information or if you are in any doubt as to the suitability of an investment.
The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.
Marcin Zientek
Independent Financial Adviser
Dip PFS, CeMAP
Scottsdale Consulting Ltd
Tel: 0845 504 6444
Mob: 07929 446 735
Email: m.zientek@sc-ifa.co.uk
Follow me on Twitter/LondonAdvisor
www.ScottsdaleConsulting.co.uk
Independent Financial Advisers UK | Financial Advisor UK| Independent Financial Advisor London
Source: http://www.ecademy.com/node.php?id=180963
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