The money goes in income tax, VAT on goods and services and council tax, according to the study.
Losing nearly a third of expected pension income can make a big dent in a pensioner’s spending power.
On average, reckons the Pru, most households pick up around £21,300 a year gross – before tax – in retirement, and end up with £14,900 to spend after tax.
Income tax and council tax are direct taxes which pensioners have no control over – but they can pay less VAT by spending less or dealing with traders not registered for the tax.
Stan Russell, retirement income expert at Prudential, said: “Giving up work is optional, but paying tax is not. People will stay pay tax in their retirement, even if they pay no income tax, they will lose money in indirect taxes like VAT.”
Pension changes and tax
The financial firm calculated 8% of average pension income goes in income tax and VAT, 4% in council tax and 10% in excise duties for cars, wines, beers and spirits, cigarettes and fuel.
The Pru also explained that pension changes proposed by Chancellor George Osborne allowing retirees easier access to their pension funds from April 2015 will also affect the taxes they pay.
“These changes could change the amount of income tax and VAT paid. More choice could mean more tax, depending on how the money is spent or invested,” said Russell.
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Our comment: so we aren’t getting bus passes for free.