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Pensioners pay multi-billion pound income tax bill

25 September 2015

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UK pensioners pay more than £17.5billion in income tax every year, according to new analysis of recent ONS data by Prudential.

The figures show that in the 2012-2013 tax year, over-65s paid an average of GBP 3,258 each in tax, which collectively accounts for 11% of the total GBP 157billion tax paid.

They also indicate that the overall amount of tax paid by an individual does fall over the age of 65.

Prudential's says the figures show pensioners in London pay a higher amount of income tax, averaging GBP 8,386 each - significantly higher than the rest of the country.

Stan Russell, retirement income expert at Prudential, said: "These figures show that just because someone has retired from work, doesn't mean they have retired from paying tax, so taking into account the impact on retirement income is an important part of planning for a comfortable retirement."

"The implication from this analysis is that over-65s in London have either managed to secure themselves more comfortable retirement incomes or have been able to defer retirement and stay in well-paid employment for longer."

Outside of London, the average amount of tax paid varies minimally between regions

Pensions in the South East for example paid GBP 3,778, while those in the East paid GBP 3,333

All other areas of the UK were below the national average, including Scotland (GBP 2,855) and Wales (GBP 1,795).

Prudential says the figures may see a 'shake up' when the impact of the recent changes to pension rules begins to be reflected in annual income statistics.

Following the Autumn Statement last December, the Treasury estimated the new rules would generate GBP 380million in additional revenue during the 2015-2016 tax year, rising to GBP 1.25billion by 2018-19.

Stan Russell said the new freedoms mean pension savers now have a greater degree of choice when it comes to providing for their retirement.

"Some of the options come with a significant tax bill attached so taking professional advice will help people make the most of them," he said.

First published 25.09.2015

Lindsay.sharman@wilmingtonplc.com