Retired households take a 15.4% direct tax hit on their income

Retired households take a 15.4% direct tax hit on their income

Retired people contribute more than £57.22 billion a year in direct taxes.

Tax rate for least well-off households is 29% compared with 22% for the most well-off, our analysis shows.

Retired households are paying an average tax rate of 15.4% a year on their income each year, according to our latest analysis.*

Their average bill for direct taxes is £4,961 annually, the analysis of the most recent Government data shows, with the total direct tax taken from retired households adding up to more than £57.22 billion.

Our analysis found the average gross income of retired households comes in at £32,265 with benefits including the State Pension accounting for 41% of total income. Income from private pensions accounts for 43% of gross income.

However, income tax and council tax plus a small amount of National Insurance contributions take £4,961 off their total income. The biggest chunk comes from income tax on private pensions at around £3,359 on average.

The least well-off households – those in the bottom 10% of the UK’s 11.534 million retired households – pay 29% of their income on direct tax, analysis shows. Their gross incomes are £9,749 but drop to £6,907 after direct taxes.

By contrast, the wealthiest 10% of retired households lose 22% of their income to direct taxes with gross household incomes dropping from £88,919 to £69,287.

We enable customers to sign up easily and consolidate pension funds into one pot with iSIPP, choose their preferred investment funds, and monitor how they are performing 24/7 online, with complete transparency on fees and charges. We also help individuals and their employers to make contributions.

Our free-to-set-up service has no dealing charges or charges to transfer in funds and enables clients to create their own portfolio complementing our existing ‘Choice’ range of Ready-Made funds from world-leading fund managers BlackRock and Schroders.

iSIPP Managing Director Hrishi Kulkarni said: “Paying some form of tax is a reality for most retired people but the impact this has on their household income is something that they can manage through careful planning.

“Tax in retirement doesn’t have to be taxing but it is important people budget for it and maximise their tax-free savings. Most important of all is to maintain contributions to private pensions and to ensure that fees on funds are minimised by consolidating funds where possible.”

Our digital pension consolidation service is available to all customers with UK pension funds who are working or have worked in the UK. Our ‘Choice’ range include Ready-Made Portfolios from world-leading fund managers BlackRock and Schroders. BlackRock’s multi-asset, risk-managed MyMap range of funds are available which include an ESG fund and we also provides access to the Schroders’s Shariah compliant fund. Focusing on transparency, the annual trust fee is £200 plus a 0.25% platform services fee. Funds with OCF (Ongoing Charges Figure) start at as low as 0.16%.


* The Effects of Taxes and Benefits on Household Income, UK, 2020/21 – Reference Tables



The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.

Apply now


Subscribe to our newsletter