As 10 million pensioners lose their Winter Fuel Payment, our expert looks at the Chancellor’s money-saving plan – and suggests a few alternative, fairer solutions for all.
The new Chancellor Rachel Reeves has come under a lot of pressure to reverse her decision to take the Winter Fuel Payment away from 10 million pensioners. But it seems highly unlikely she will do a U-turn in her Budget on 30 October.
As I reported last month, from this year the Winter Fuel Payment will only be paid to the 1.4 million pensioners who get the means-tested benefit pension credit.
A small number of others who cannot get pension credit because they are in what the Department for Work and Pensions (DWP) calls a ‘mixed-age couple’ – one over 66 and the other under that age – will be entitled to it but only if the younger partner claims a means-tested benefit such as universal credit.
Some readers may think fair enough. I always said I did not need it. If the Chancellor needs to save £1.5 billion a year, I am happy to pay my share.
Paying Winter Fuel Payment to pensioners who don’t need it is the price we all pay – literally – for ensuring it goes to all those who do need it
But there are two big problems with restricting it to people on pension credit. First, as I have reported here for many years, there are up to an estimated 880,000 pensioners who could claim pension credit but do not do so. They live on incomes below the pension credit level but will not get the Winter Fuel Payment.
Second, Age UK estimates there are a million or so pensioners living on incomes just a few pounds a week above the level to claim it. They need the money to help pay their fuel bills but will not get it this winter.
My solution is to make no change. Paying Winter Fuel Payment to pensioners who don’t need it is the price we all pay – literally – for ensuring it goes to all those who do need it. But many disagree.
One alternative to the Reeves plan is to treat Winter Fuel Payment like the state pension and tax it. Everyone with an income below £12,570 a year would get it in full, everyone else would pay tax on it.
Another suggestion is to take it away from pensioners who pay higher rate tax – there are around 850,000 of them.
Neither of those methods would come close to saving the £1.5 billion a year that Reeves says her plan will. Taxing Winter Fuel Payment would bring in £330 million; taking it away completely from higher rate taxpayers would only save around £150 million.
Some have suggested a middle ground, perhaps paying it to pensioners with incomes below the minimum wage (around £21,000 a year for full-time work) or below the average wage of around £33,500 a year.
Wherever it is set, identifying those entitled would be difficult and raises questions like would all £200 vanish if your income rose a penny above the threshold or would there be a taper?
The Chancellor’s picked the easy route – attach it to an existing benefit.
The threshold to get pension credit varies with age and sex. The income thresholds for people who reached state pension age before 6 April 2016 (men born before 6 April 1951; women born before 6 April 1953) are:
For those who reached state pension age on 6 April 2016 or later:
And that rule creates both age and sex discrimination. For example, neighbours Barbara and Susan live alone, each on an income of £250 a week.
But Barbara reached pension age on 5 April 2016 and could get pension credit of £4.27 a week (£222 a year) plus the £200 Winter Fuel Payment.
Susan, who reached pension age on 6 April 2016, could not get pension credit or Winter Fuel Payment and would be £422 a year worse off than her day older neighbour.
Tiny amounts of pension credit that you may have thought not worth claiming can bring you hundreds of pounds of other benefits
Two more neighbours – Marjorie and John – were both born on 4 June 1952 and also have an income of £250 a week each. Marjorie – born before 6 April 1953 – could get pension credit and Winter Fuel Payment.
But John, because he is a man and born after 5 April 1951, could not and would be £422 a year worse off than his birthday twin Marjorie.
Reeves’ plan creates another odd anomaly. The standard new state pension is £221.20 a week or £11,502.40 a year. For people of that age, pension credit makes your income up to £218.15 a week if you are single, which is £11,343.80 a year.
Add on £200 Winter Fuel Payment and their annual income is £41.40 a year higher than someone on the new state pension alone who is deemed too rich to claim pension credit.
If they are over 80 and get the £300 Winter Fuel Payment they will be £141.40 better off – £2.72 a week.
Check the limits above and see which applies to you. Three-quarters of all pensioners can claim up to the higher thresholds. Remember too that carers can claim pension credit with incomes £45.60 a week higher than those listed and people with severe disabilities with incomes £81.50 higher.
Even the smallest amounts are worth claiming. Just 1p a week pension credit entitles you to the Winter Fuel Payment and, once you reach 75, to a free TV licence, currently worth £169.50.
It can also ensure you get your council tax paid and if you pay rent, all or almost all of that too. So tiny amounts of pension credit that you may have thought not worth claiming can bring you hundreds of pounds of other benefits.
Pension credit is backdated by three months – always ask for that – and the DWP has confirmed that if you claim by 21 December your pension credit will be backdated to be within the qualifying week for Winter Fuel Payment.
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