Personal Pension  

Tax risks one of biggest retirement fears: MetLife

Tax risks one of biggest retirement fears: MetLife

Research released today (14 June) by MetLife shows tax risks are one of the biggest retirement planning worries with employees paying an average of £1.25 per hour in direct and indirect tax and the daily contribution to the government amounting to more than £30.

However, only 69p an hour of the average worker’s tax bill is due to direct deductions from earnings including income tax and national insurance, according to MetLife analysis of Office for National Statistics taxes and benefits data.

The rest adds up from charges including value added tax on spending, council tax and duty on a range of daily essentials.

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The average person spends nearly £5,000 a year in indirect taxes or 56p an hour, while income tax and national insurance cost around £6,000.

In total, the average direct and indirect tax bill adds up to more than £11,000 – the equivalent of 40 per cent of average earnings, the analysis of government data shows.

For employees aged 40 to 49 the daily tax bill peaks at £35 - nearly £1.50 an hour whilst those between 18 and 21 only need to pay £6.47 a day of just 27p an hour.

Employees aged 60-plus see their tax bill drop to around £23 a day.

Additionally, male workers enjoy higher salaries on average, and pay nearly double the direct and indirect tax that women pay - the average tax gap between men and women is at £6,430.

The average male employee pays £14,196 compared with £7,762 for women.

According to Simon Massey, wealth management director at MetLife UK, the impact of tax while working highlights the need to make saving for retirement as tax efficient as possible and underlines the risk of running up unnecessary tax bills when planning for retirement.

Mr Massey said: “Paying tax is one of the certainties of life and we all benefit from the work that central and local government are able to do as a result.

“However £1.25 an hour adds up to a considerable amount over a lifetime and should help concentrate savers’ minds on how to ensure they are benefiting as much as possible from tax-free savings such as Isas and tax breaks such as contributing to a pension.

“Paying too much tax at retirement is a major worry for savers which should encourage people to seek expert advice on retirement income and to look for retirement saving solutions that will provide certainty over income and flexibility over capital in retirement.”

ruth.gillbe@ft.com