Savers need to focus on tax as part of their retirement income planning

The average UK pensioner household could face a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, new analysis from MetLife shows.


Pushing the bill up

Every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household, with the average 19 years life expectancy at 65 pushing the bill up.

Female life expectancy

Women face potentially even bigger bills as female life expectancy at age 65 is 20.4 years compared with 17.8 years for males. In the past five years alone, longevity at 65 has risen by a year on average.

On average a pensioner household pays out 29 per cent of its income in retirement to the taxman through a combination of direct and indirect taxation – based on the average gross pensioner household income of £20,130 that equates to £5,864 per year.

Dominic Grinstead, Managing Director, MetLife UK, said: “Savers need to focus on tax as part of their retirement income planning and they need to ensure they factor in longevity as a major part of the calculations.

“Tax is clearly a major factor and careful financial planning in the critical decade leading up to retirement is crucial to ensure people are prepared.” MetLife’s analysis shows direct taxes, including income tax and council tax, account for around two-fifths of a retired household’s tax bill with indirect taxes, including VAT, duty on tobacco, alcohol and petrol, vehicle excise duty and TV licences, accounting for the rest.

However, less well-off households proportionally pay out the most in direct and indirect tax with 42 per cent of their gross household income being paid out in tax. The bottom tenth of pensioner households, in receipt of gross income estimated at £8,259 a year, pay £3,599 in taxes. The top 10 per cent of pensioner households, with gross income of £47,992, see 29 per cent of their income going in direct and indirect tax.


MetLife analysis of the ONS Wealth and Assets Survey. ONS estimates there are 7.151 million retired households and ONS healthy life expectancy data