“Surge in pension credit take-up could slash savings from Winter Fuel Payment cut” – Steve Webb, LCP

Analysis by Steve Webb, partner at pension consultants LCP, indicates that the amount of money that will be saved by the plan to means-test Winter Fuel Payments could be dramatically reduced if there was a surge in people claiming pension credit.  

The modelling suggests that if 1 in 4 of those currently entitled to pension credit but not claiming it were to now put in a claim, this could wipe out around a third of the Chancellor’s assumed savings from the policy – reducing the savings by nearly half a billion pounds.

DWP recognise that not everyone who is entitled to Pension Credit takes up their entitlement. 

The latest figures, published in January 2024, cover the financial year ending March 2022 and suggest that between 720,000 and 880,000 miss out on what they are entitled to, with a central estimate of 800,000 people. The same publication indicates that the average (mean) amount of unclaimed benefits at the time was £2,200 per year.  

There is a fairly recent example of a surge in claims for Pension Credit when it was announced that the free TV licence for the over 75s would be restricted only to those on Pension Credit.

The Office for Budget Responsibility said in a commentary in July 2019:

 “The BBC’s announcement appears already to have had an effect. New pension credit claims rose from 7,600 in the four weeks to 7 June (immediately prior to the announcement) to 9,300 in the four weeks to 4 July. After allowing for the fact that no new claims were made on the late May bank holiday, that represents an increase of around a quarter.”

There are several reasons why we might expect a bigger effect on pension credit claims from this week’s announcement on Winter Fuel Payments:

• The latest announcement affects all pensioners and not just those aged 75, so applies to a much larger group.
• Pensioners under 75 are more likely to be digitally aware and more willing to claim Pension Credit online than those aged 75+.
• The amount lost – typically between £200 and £300 – is greater than the cost of a TV licence in 2019, which was £154.50.

The Chancellor’s announcement takes effect this Winter, but pensioners may have slightly longer than expected in order to put in a claim for Pension Credit. Under current rules, to qualify for Winter Fuel Payment, you have to have been a pensioner by 22 September 2024 and to have been living in the UK in the qualifying week beginning 3 September. However, it is possible to backdate a claim for Pension Credit by up to 3 months, which means someone claiming in early December could still be treated as having been entitled in early September. This will allow a lot more time for people to reinstate their eligibility for a Winter Fuel Payment.

If more people now claim pension credit, this will affect the government finances in two ways:

• The Treasury will not be able to ‘bank’ the savings in Winter Fuel Payment that had previously been assumed.
• The DWP will now have to pay pension credit to that household.

To give an idea of the potential scale of this issue, let us assume that 1 in 4 of the 800,000 people missing out on pension credit now puts in a claim.

The cost to the government would be:

• Extra winter fuel payments for 200,000 people (compared with the savings assumed by the Chancellor), if we assume equal numbers getting the £200 rate and the £300 rate, this would be 200,000 x £250, which is £50m;
• Extra pension credit payments for 200,000 people, using the DWP figure of £2,200 for average unclaimed amounts, this would work out at £440m.

In total, therefore, if 1 in 4 of those currently missing out on pension credit were now to claim, this could cost the government £490m, wiping out over one-third of the savings of £1,400m assumed for 2024/25.  

But even this figure could be an understatement.

On top of this, the government said yesterday that it wanted to integrate the administration of pension credit and housing benefit so that people who claim HB but fail to claim Pension Credit would now get both. Whilst this may take time, such a policy could substantially increase take-up of Pension Credit and thereby reduce savings still further.

Commenting, Steve Webb, partner at LCP, said:

“It is highly likely that this week’s announcement will lead to a flurry of new claims for Pension Credit. This is exactly what happened when entitlement to a free TV licence for the over 75s was restricted to those on benefit. But a big surge in take-up could slash the savings from this measure. If just 1 in 4 of those currently missing out on their entitlement to Pension Credit now makes a claim, this could cut the Chancellor’s savings by around one-third. One consequence of this is that additional cuts might be required to make up for the shortfall.”