Expanding eligibility for the winter fuel payment

10th June 2025

The income threshold below which pensioners will be eligible for the winter fuel payment (WFP) is set to rise.

The Prime Minister and Chancellor announced last week that the income threshold below which pensioners will be eligible for the winter fuel payment (WFP) will rise, so that more pensioners will be able to receive it this winter. However, the government has ruled out a return to ‘universality', in which all pensioner families are eligible. In 2023-24, prior to the means-testing of WFP, 8.5 million pensioner households received it, at a cost of £2.0 billion. By restricting entitlement only to those receiving pension credit, around 85% of pensioner households were no longer able to receive WFP last winter.

This brief comment builds on previous IFS work considering the options for how to expand entitlement. The government previously chose to restrict eligibility to those receiving pension credit. It could choose to restrict eligibility based on the receipt of other benefits, such as housing benefit and disability benefits. Unless it wants to create a whole new administrative system, the only other option for means-testing WFP is to do it through the income tax system. This comment considers how many pensioner households would be (in)eligible given different income thresholds, and how much would be saved compared with returning to universal entitlement for pensioners.

How to expand eligibility and how many would be affected
A problem facing the government is that, unless it wants to restrict eligibility only to those already receiving particular benefits, the only obvious system it has at its disposal for means-testing WFP is through the income tax system. This could work in the same way as child benefit: any pensioner household could claim WFP, but those whose highest-income member has a taxable income above a certain threshold would pay it back in the form of a special income tax payment1. As with child benefit, this would likely require any higher-income individual receiving WFP to complete a self-assessment tax return.

If this is the route chosen, the threshold for ineligibility would determine the number of pensioner families who do not receive WFP2 and the benefit to the exchequer (compared with returning to universal entitlement). Table 1 shows the effect of different potential thresholds, including the income tax higher-rate threshold (£50,270) as well as other options ranging from £0 (i.e. full abolition of WFP) to a very high threshold (£100,000) or even an unlimited threshold, returning to universal entitlement.

Why would the threshold need to be relatively low to save a significant amount of money? First, it is because doing this through the tax system involves means-testing against an individual's income rather than the income of their whole family. Only the system for administering means-tested benefits holds information on couples' incomes.

Second, the taxable incomes of pensioners are generally quite low compared with those of people under state pension age. This does not mean that pensioners have a low average standard of living - most do not have dependent children to support, and many do not face significant housing costs. But the median household disposable income (without adjusting for household size, household structure or housing costs) is almost 45% lower for pensioners than for working-age people. This, combined with lower income inequality for pensioners than for the working-age population, means that there are relatively few pensioners on high taxable incomes. Therefore one needs to have a relatively low threshold to save significant sums of money.

Practical considerations
The practical experience with the child benefit taper does not provide a hopeful precedent. It adds significant complexity that people struggle to navigate. It is widely acknowledged to be an odd form of means-test that exists only because governments have chosen to taper a family-level benefit without having an administrative system that assesses all families' income.

If the government chooses this route for WFP then, irrespective of the exact threshold chosen for eligibility, the government needs to make it easy for people to claim or not to claim winter fuel payment. This is especially important for older pensioners who may struggle with navigating any complex system if they are suffering from cognitive decline.

While some parents pay back child benefit through a self-assessment tax return, many simply decline to receive the payment. For pensioners, it should be made as easy as possible for those who are ineligible to know that they are ineligible and therefore not claim WFP. This is less straightforward than it may sound because families often have incomes that change year to year. But the ability to opt out would be much better than many people receiving WFP and then paying it back (potentially more than a year later).

This also suggests that any threshold would ideally be indexed to rise over time - perhaps in line with inflation, or alternatively growth in average earnings, or growth in the value of the state pension. Otherwise, over time, significant numbers of pensioners who are used to being eligible for winter fuel payment will end up with incomes above a (frozen) threshold due to their income from the state pension (and from other sources) rising in cash terms, and more will have to pay the WFP back through a tax return.

Conclusion
The big picture here is that if the government wants to re-extend entitlement to WFP to many pensioners, but still prevent it being paid to high-income pensioners, it will end up making only small savings compared with returning to universal entitlement. Moreover, any benefits of the extension would be achieved through a highly complex form of means-testing that has already been shown to be problematic in the case of child benefit.

By contrast, expanding the number of benefits that entitle one to get WFP (specifically housing benefit or disability benefits, as discussed here) would still allow the government to reach more pensioners without adding much more administrative and hassle costs and while retaining significant saving relative to a universal policy. Alternatively, while reversing the policy in full and returning to universal entitlement would be the most costly option, it would be simple and again avoid administrative overheads. One has to wonder whether the benefits of setting up another means-tested system - in terms of either benefits to pensioners or savings for the exchequer – are really worth it.

Author


If the government set this threshold relatively high, such as at the higher-rate threshold, only a small fraction of pensioner households would be ineligible (11%, or 0.9 million pensioner households), saving the government only around £200 million per year relative to returning to universal entitlement. The actual saving to the exchequer would be even lower than this, due to the cost of operationalising a system to claw back winter fuel payment from those who received it but were ineligible due to their income. And there would be additional hassle for individuals actually navigating such a system.

To save significant sums of money compared with reverting back to universal entitlement, the threshold would have to be much lower. For example, if the threshold for ineligibility was £30,000, then 30% of pensioner households (2.7 million) would be ineligible, saving £600 million compared with universal entitlement. The government would have to reduce the threshold to £20,000 to make around half of pensioner families eligible and the other half ineligible.

Jonathan Cribb
Associate Director

Jonathan is an Associate Director and Head of Retirement, Savings and Ageing sector at Institute for Fiscal Studies, focusing on pensions, savings and later-life economic activity.

Source - https://ifs.org.uk/articles/expanding-eligibility-winter-fuel-payment