Pensioners pay £111,400 tax in retirement: what can you do?
So can you do anything about this?
More taxThe research, from MET Life, found that the level of tax we pay in retirement has shot up as people live longer. Pensioners are living an average of 19 years past the age of 65, and every year in retirement adds an extra £5,864 in direct and indirect taxes. Women face potentially even bigger bills as female life expectancy at age 65 is 20.4 years.
During that time the average pensioner household pays out 29% of its income to the taxman through a combination of direct and indirect taxation. Direct taxes, including income tax and council tax, account for around two-fifths of a retired household's tax bill with indirect taxes, including VAT, duty on tobacco, alcohol and petrol, car tax and TV licences, accounting for the rest.
Less well-off households proportionally pay out the most in direct and indirect tax with 42% of their gross household income being paid out in tax. The bottom tenth of pensioner households earn £8,259 a year and pay £3,599 in taxes.
Pay less taxDominic Grinstead, Managing Director of MetLife UK, said this means that tax considerations need to be part of everyone's retirement planning. He says: "Tax is clearly a major factor and careful financial planning in the critical decade leading up to retirement is crucial to ensure people are prepared."
There are a number of steps people can take in order to pay less tax. The first step is to check your tax code to make sure you are being charged the right amount. The age-related tax allowances are not always correctly applied, so this could end up saving you a small fortune over the years.
If you work past state retirement age, you also need to check to ensure you are not automatically paying national insurance - as many employers will automatically deduct this from your earnings and if you are past the retirement age they shouldn't be doing this.
If you have significant savings or investments, one key is to ensure you make use of your ISA allowance every year, so that growth is free of tax.
You also need to think very carefully about inheritance tax, and whether you should making gifts during your lifetime in order to put those sums out of your estate for tax purposes, and save you from paying up to 40% on those sums after your death.
Of course, you can save on indirect taxes like VAT and fuel duty by cutting back on your spending altogether - taking the bus and treating yourself to fewer small luxuries in life. However, when you have been working and saving all your life, you have earned some luxuries, so you might be best off to start with cutting the direct taxes first - before you consign the car to the garage.