Some Pensioners Are Pretty Well Off - But How Many Can Afford To Lose The Winter Fuel Payment?

14th September 2024

The government's plan to restrict pensioners' winter fuel payment to households getting pension credit has been easily if grudgingly passed by parliament. This was despite a strong case for delaying the move to explore better ways to target the money and to improve take-up of pension credit (which will now be the benchmark for qualifying for the payment). But the government estimates the move will cut public spending by £1.4 billion a year.

Winter fuel payment is a tax-free grant of £200 or £300 per household depending on age. Last winter it amounted to around 13% to 20% respectively of the average annual pensioner energy bill of around £1,500.

In winter 2022-23, 8.4 million households received the payment, although not all will have needed it. It's clear that not all pensioners are poor. In fact, just under half of pensioners are now in the top half of the population as a whole by income.

So, there is a good case for targeting winter fuel payment at poorer households. But the current plan is being implemented too hastily.

Government data suggest that 9.4 million individual pensioners will lose winter fuel payment as a result of the current measure. And Age UK estimates that 2.5 million of them could be left in the cold this winter either because they are not claiming the pension credit they're entitled to or because their incomes are only marginally above the official poverty line.

Though pension credit is meant to ensure that no pensioners live below the poverty line, the thresholds are lower than the basic income that the Pensions and Lifetime Savings Association PLSA reckons pensioners need. Even then, government data reveals that 37% (880,000 households) who are eligible fail to claim, collectively losing out on £2.1 billion (an average of £2,400 each).

The government has run a campaign to improve take-up. But if everyone who could claim it did, this would wipe out the expected £1.4 billion saving from the cut in winter fuel payments.

For the 880,000 non-claimants of pension credit, their reasons may be complex: a sense of stigma, a feeling that others have greater need, the perceived or real difficulty of claiming (there's an online or paper form with more than 200 questions), or a dislike of the state intruding on their privacy and finances.

What's it worth?
People might also mistakenly think pension credit is worth too little to bother claiming. The main part of pension credit (called guarantee credit) tops up income to a minimum level, currently £218.15 a week (£11,344 a year) if you’re single or £332.95 a week (£17,313 a year) if you are a couple - but more for carers or if you have a disability.

However, guarantee credit is more than just that amount. It’s what’s known as a "gateway benefit" that entitles people to claim other help such as cost reductions for energy, water and broadband, and from now on the winter fuel payment too. So, it’s important people check whether they are eligible and make a claim.

Those who reached state pension age before April 6 2016 may be able to claim another sort of pension credit called savings credit (with or without the guarantee credit). This is for people who have some savings or income, and the amount of benefit paid could be tiny. It does not normally act as a gateway benefit - but crucially, it will in the case of winter fuel payment.

Many pensioners may be in the group that has income just above the pension credit threshold. As the government argues, state pensions have risen by more than inflation recently because of the triple lock (which raises pensions by whichever is highest out of price inflation, wages growth or 2.5%).

However, lower-income pensioners - especially single pensioners - have benefited far less than those on higher incomes, as shown in the table below. This is because the increased state pension has reduced eligibility for, and so lifted some pensioners out of, means-tested benefits. This has left them hovering just above the official poverty line.

The government has so far offered little comfort for this group. It has renewed funding of the Household Support Fund, administered by local authorities. But the funding is modest and supports people in crisis of all ages, not just pensioners. The government also points to a further above-inflation increase in the state pension from April 2025 (£460 in line with the 4% rise in average earnings). But pensioners still have to manage their heating bills this winter before this rise will kick in.

Some observers had suggested alternative ways to target the winter fuel payment so that it would reach these pensioners on the margin. For example, council tax bands A to D could be used as a proxy for low income, as used by the former government for its 2022-23 energy rebate scheme.

Or a system similar to that used for child benefit could be introduced. This would mean continuing to distribute winter fuel payment to all pensioners but clawing it back from higher-income households through the tax system. (This would expand the target group for the payment since, while around 2.2 million pensioners are eligible for pension credit, around 4.5 million are non-taxpayers.)

So far, the government has not been swayed. We will have to wait and see whether the autumn budget on October 30 offers any warming in its approach.

Author
Jonquil Lowe
Senior Lecturer in Economics and Personal Finance, The Open University

Note
This article is from the Conversation web site. To read it with links to more information go HERE