Pensioners with sub £35k income to get winter fuel payment

Sara White, Editor, Business & Accountancy Daily

Majority of pensioners will be paid winter fuel allowance with clawback for those above threshold of £35,000 as chancellor confirms major u-turn.

Chancellor Rachel Reeves said everyone over the state pension age in England and Wales with an income of £35,000 or less a year will be paid a winter fuel payment this year with the old age related figures reinstated so those over 80 will receive £300, under £200 from this autumn. Scotland and Northern Ireland have their own systems.

Higher income pensioners will see their payments automatically recovered via HMRC, so there will be an element of means testing.

Pensioners above the £35,000 threshold will have the full amount of the winter fuel payment they received automatically collected via PAYE, or via their self-assessment tax return, the Treasury said, affecting 2.4 million wealthier pensioners.

There will be no requirement to register with HMRC for this or take any further action.  Pensioners who want to opt out and not receive the payment at all, will be able to do so, with details to be confirmed by the Treasury in due course.

At a Treasury Committee hearing last week, HMRC officials said it would be straightforward to change the system working with the Department of Work and Pensions. A similar system is being implemented for high income child benefit charge.

The u-turn follows the devastating fallout from the decision to limit payments to only pensioners in receipt of pension credits, which are notoriously hard to qualify for and limited to £11,809 in income for a single pensioner household.

The abolition of winter fuel payments was one of the first announcements made by the Labour government when it came to power last July, but had not been trailed in the manifesto and has been hugely damaging for the government.

After trailing plans to allow more pensioners to qualify by raising the threshold last month, now the government has increased the threshold nearly threefold on the current £11,809 figure bringing nine million pensioners back into scope.

The Treasury said ‘no lower or middle-income pensioners will miss out, with the vast majority - over three quarters - of pensioners in England and Wales receiving the payment’.

But some tax experts warned it will add more complexity to the tax system, with similar inequalities as experienced with the administration of the high income child benefit charge (HICBC).

Robert Salter, a director at Blick Rothenberg, said: ‘Firstly this U-turn will create more unfairness in our tax system. A couple with each partner receiving an income of £30,000 each would qualify for the full winter fuel payment (WFP).

‘But their fellow pensioners next door, with only one partner receiving an income of £36,000 in total, would get a much lower WFP, even though that second couple’s combined income is much smaller.’

There are also questions of priorities for HMRC due to the clawback mechanism. 

Salter added: ‘The mechanism to claw back where payment is not due, is similar to the HICBC, which has been fraught with difficulties and complexities. Pensioners who are close to the threshold might consider whether they are better off opting out rather than risk being drawn into the self-assessment system.’

Regardless of the complexity issue, the move has been welcomed by pensioner groups.

When announcing the u-turn, the chancellor blamed the last Conservative government for being forced into the original decision last July.

Chancellor Rachel Reeves said: ‘Targeting winter fuel payments was a tough decision, but the right decision because of the inheritance we had been left by the previous government.

‘It is also right that we continue to means-test this payment so that it is targeted and fair, rather than restoring eligibility to everyone including the wealthiest.’

This change will cost the Exchequer an estimated £1.25bn in England and Wales, saving around £450m due to means testing, compared to cost of running it as a universal benefit for all pensioners.