TaxJun 12 2018

Pensioner households contribute £9bn a year income tax

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Pensioner households contribute £9bn a year income tax

Pensioner households are contributing £8.6bn a year in income tax generated from work, analysis from pension provider Aegon found.

There are 8.7m pensioner households in the UK compromising around 12.8m people. A pensioner household is defined as having at least one person over state pension age.

The firm based its analysis on data from the Department for Work and Pensions (DWP), and assumed that each individual in a pensioner couple earn the same amount, and that both use their full income tax personal allowance.

Over the past twenty years, the proportion of pensioner households continuing to work has increased from 12 per cent in 1997/98 to 17 per cent in 2016/17.

The growth in the number of pensioner households working has been accompanied by a rise in their average earnings.

Even after taking account of inflation, pensioner couples have seen their weekly earnings increase 30 per cent over this period, rising from £410 in 1997/98 to £534 today, while single pensioners not in couples have seen a 71 per cent increase from £199 to £340 per week.

According to Steven Cameron, pensions director at Aegon, “gone are the days when reaching state pension age meant a total end to work”.

He said: “Many people are choosing to keep working and earning, perhaps by cutting back gradually on the amount of work they do, even once they’ve started taking their pension.

“These people are contributing significant amounts to the nation’s finances through the tax they generate while also helping the broader economy through their work.”

Recent research from Prudential shows that half of individuals (50 per cent) retiring this year are considering working past the state pension age.

Mr Cameron added that this is a “golden era for pensioners, with many benefiting from generous final salary pensions and increases to the state pension”.

He said: “When you combine this with earnings from post retirement work, it’s not surprising that many pensioners are living on very decent incomes.

“However, both final salary pensions and inflation busting increases to the state pension are unlikely to continue indefinitely so it’s important that society is changing with more people able to choose to work past traditional retirement ages.”