The average pensioner shells out £111,400 in direct and indirect taxes in retirement – that’s income tax, VAT, council tax and a horde of smaller taxes.
Research by insurer MET Life, www.metlife.co.uk, reckons even the financially worst off pensioners hand 42% of their income to the tax man.
The bad news is, says MET Life, the longer you live the more tax you pay.
The insurer has provided some statistics to prove the point – calculating most people live to an average 84 years old, so have to fund 19 years in retirement.
Each year costs £5,864 in taxes – so for every extra year, add the same amount again.
Women are slightly worse off than men because they live an extra year on average.
Tax saving options in retirement
Of course, averages are just that and more of us are living to 100 years old or more, bumping that average up.
The big question is what can you do to keep some of that money that goes in the tax man’s bulging coffers?
Sadly, the answer is not a lot. You can control how much you spend on some direct taxes by choosing to live in a smaller home that generates less council tax.
You can also opt to drive less, so do not pay as much for petrol – and that cuts VAT, too.
Similarly, you can give up your favourite tipple and stop smoking.
Personal austerity measures
However, introducing your own austerity measures will take a lot of pleasure out of life and won’t let you keep too much extra cash that would otherwise be paid out in tax.
One reason why so many retirees opt to move to a place in the sun is the cheaper lifestyle that boosts their spending power – but make sure the country where you go is somewhere where the British government accepts index-linking or your state pension is forever capped at what you are paid in the first month.
Other steps everyone can easily take are checking tax codes sent out by HM Revenue & Customs, which has a track record for getting them wrong.
If you decide to carry on working in to retirement, you should not pay national insurance, but many employers do not have their payroll software set up to cater for this.
MET Life managing director Dominic Grinstead said: “Tax is clearly a major factor in everyone’s life and careful financial planning in the critical decade leading up to retirement is crucial to ensure people are prepared.”
