Tax on spending takes an 18 per cent bite out of the average retired households’ income, adding up to an annual bill of £29bn, MetLife analysis of Office for National Statistics data shows.
The company looked at spending which includes VAT, duty on alcohol and tobacco, as well as fuel duty and taxes on betting and insurance premiums.
VAT is the biggest contributor to the tax on spending, with the average retired household contributing £1,865 in VAT a year – equivalent to around 8 per cent of the average retired household’s income.
Alcohol duties cost around £242 a year while fuel duty costs £262.
Tax on spending is a bigger burden for the less well-off – retired households ranked in the bottom tenth of the population for income lose nearly a third of their income to tax on spending.
The top tenth of retired households ranked on income pay out 14 per cent in indirect taxes, while their household incomes were as much as seven times higher than the bottom tenth.
Dominic Grinstead, managing director of MetLife UK, explained that retiring from work unfortunately does not mean retiring from paying tax, VAT and other indirect taxes on spending.
“The launch of pension freedoms has highlighted the issue of tax as many people rush to take their pension funds in full, risking unnecessary bills and providing further revenue for the government.
“People need certainty over income in retirement so that they can plan ahead and that should include looking at products which can provide a guaranteed income.”
MetLife’s analysis came after yesterday (2 September) the Association of British Insurers reported almost £2.5bn worth of payments have been made to customers in the first three months since the new pension freedoms came in.
The trade body’s figures for April, May and June showed that £2.3bn was used to buy nearly 37,500 regular income products – either annuities or income drawdown products.
emma.hughes@ft.com
