Giving up work does not mean you stop paying tax, according to the latest official figures.
Although many pensioners look forward to a comfortable financial time when they retire, many forget to include tax in their budgets and find they may not have as much as they thought to spend on luxuries and hobbies.
The latest data from the Office of National Statistics shows the over 65s paid more than £17.5 billion in tax in 2012-13.
Although the research shows the amount of tax over 65s pay is less than when they were working, they still pay an average £3,250 each – a drop from the £5,550 they paid on average when at work.
The pension tax take flowing into Treasury coffers adds up to 11% of the total £157 billion collected every year.
Londoners pay more
The study also reveals pensioners in London pay more than their counterparts elsewhere in the country.
The average pensioner living in the capital paid tax of £8,380 in 2012-13.
The figures also show pension wealth is spread at different levels across the country and is reflected in their lifestyles and disposable income.
In the South East and Eastern England, the average tax payment was just above the average, while everywhere else was below. Those in Wales pay just £1,795 a year tax on average – the lowest figure.
Stan Russell, retirement income expert at Prudential, the financial firm that carried out the analysis of the ONS data, said: “The data shows that anyone approaching retirement must consider the impact tax will have on their income and lifestyle once they give up work.”
Cash cushion
Russell also warns the government tax take from pensioners is likely to rise with the advent of new pension freedoms in April 2015.
Chancellor George Osbourne forecast that the new rules would generate an extra £380 million in tax in the 2015-16 tax year, which is likely to increase to £1.25 billion by 2018-19.
“Saving for retirement to give yourself as much of a cash cushion as possible for when you give up work is still the best financial advice for any worker,” said Russell.
“However, it is possible to save smarter and save tax by taking expert financial advice on where to save and invest and how to draw your pension cash.”
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