Retired households lose 14 per cent of their income a year to direct taxes, according to data from equity release adviser Key.
The average tax bill reaches £4,078 a year, amounting to 13.9 per cent of the average retired household’s pre-tax income of £31,674.
The wealthiest 10 per cent of retired households pay £14,680 a year in direct taxes – the equivalent of 19 per cent on their gross incomes of nearly £77,000.
However, a large amount of retirees' incomes comes from benefits.
According to government data for 2019/20 benefits contribute around two-fifths - or £13,000 a year – of the average retired household’s pre-tax income with most of that coming from the state pension, alongside other benefits such as disability living allowance and housing benefit.
Will Hale, chief executive at Key, said: “Paying some form of tax is a reality for most retired people but how this impacts on their household income and aspirations is something that they can manage through careful planning.”
Disposable incomes for retired people fell in the financial year ending 2020 by nearly 12 per cent, with much of the loss coming from private pensions and investment incomes.
Retired households on average received £12,102 from private pensions in 2020 compared with £14,756 previously while investment income dropped from £2,933 to £2,084.
Andrew Morris, senior equity release adviser at Age Partnership, said: “Retirees feel like they are being squeezed from both sides, with pensions decreasing in real terms when compared with the cost of living and monthly outgoings increasing.
"When I discuss incomings and outgoings with my clients we chat through benefits and grants that they may be entitled to, but I also look at alternative ways to raise the money that they’re looking for, such as speaking to family & friends or downsizing.”
Ruth Gillbe is a freelance reporter for FTAdviser
