A majority of pensioners will now receive a Winter Fuel Payment (WFP) with claw back made for those above a new income threshold of £35,000 as Rachel (the Reaper) Reeves confirms a major policy U-turn.
The Chancellor 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 WFP this year with the old age related figures reinstated. Those over 80 will receive £300, others £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.
The U-turn follows the political fallout from Reeves 2024 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.
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.
For example, a couple with an income of £60,000 with each partner receiving £30,000 would qualify for the full winter fuel payment WFP. However, the pensioners next door, with only one partner receiving an income of £36,000 , would get a much lower WFP.
This change will cost 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.
It remains to be seen if the U-turn will improve Labour's popularity in the polls.
Peter Nichols
Director BFN Accounts & Tax