‘Pensioners living on standard rate of new state pension set to lose up to £300, as Winter Fuel Payments abolished for those on not on benefits’ – Steve Webb, LCP

The proposal to remove entitlement to Winter Fuel Payments from those not receiving certain means-tested benefits could create a ‘cliff edge’ where those just a few pounds above pension credit levels could lose up to £300.  In particular, the standard rate of the new state pension is £221.20 per week, whilst the standard rate of pension credit for a single person is currently £218.15 per week. This means people on the standard new state pension will be just over £3 per week over the limit and will lose all of their Winter Fuel Payments.

One consequence of the new rules is that people on low incomes will need to think twice before topping up their state pension if this might lead to them losing entitlement to a Winter Fuel Payment.

There is also a risk that the package as a whole will not save nearly as much as the budgeted £1.4bn in 2024/25 and £1.5bn in 2025/26. This is because pensioners will have much more incentive to claim Pension Credit now that it is a ‘gateway’ to Winter Fuel Payments as well as other benefits. When the free BBC TV licence for all over 75s was limited to those on pension credit, this led to a surge in applications for pension credit, and a similar effect is likely in this case.

Indeed, the government explicitly says that it:

“It wants those entitled to Pension Credit to claim it. The government will bring together the administration of Pension Credit and Housing Benefit as soon as operationally possible so that pensioner households receiving Housing Benefit also receive any Pension Credit that they are entitled to.”

Although such a reform will take time, many of those who currently fail to claim Pension Credit do apply to their local authority for help with rental costs. If those people now automatically get Pension Credit this will significantly reduce the savings from today’s measure.

Commenting, Steve Webb, partner at consultants LCP, said:

“Whilst the government has some difficult choices to make, means-testing the Winter Fuel Payment will create some unwelcome ‘cliff-edges’ in the pensions and benefits system and could save much less than expected as take-up of pension credit soars. Pensioners living purely on the new state pension will be just a few pounds above pension credit levels and may be very resentful at losing up to £300 per year, especially as their state pension will soon fall within the income tax net as well. Ministers need to be careful that greater use of means-testing in retirement does not create new complexity and unfairness and discourage people from saving for their retirement.”