Ros Altmann calls for pensioners in financial difficulties to keep winter fuel payments

Ros Altmann is a former pensions minister who now sits in the House of Lords.

The furor over the sudden elimination of winter fuel payments to retirees has not ended.

The shock announcement that these payments will be suddenly withdrawn, just weeks before millions of retirees were expected to receive the money, appears to be a serious error in judgment.

There are much fairer and better ways to save money without causing the hardship this would create.

The decision could be delayed and Winter Fuel Payments could be maintained at least for this year to give pensioners time to prepare, pending more careful consideration of the impact.

The government could make the payments taxable to recoup some of the cost, as it never made sense to hand out the money tax-free.

Below I outline three alternative ways to address the need for cost savings while protecting retirees.

Let’s hope the Government is willing to listen when it has made a mistake.

1. Incorporate the payment of winter fuel into the state pension and tax it

A much better way to save some money, without causing so much hardship, would be to announce an increase in state pensions equivalent to the money lost on winter fuel.

This would merge winter fuel payments with the state pension itself.

The benefit of this would be that the payments would no longer be tax-free, so would be subject to tax like state pensions, thereby recouping some of the cost from better-off retirees.

That would be fairer than eliminating it altogether.

Paying it as part of the state pension would also mean retirees choose how to spend their own money, rather than feeling it should just go towards heating bills.

Every little bit adds up: A few hundred pounds is not an insignificant sum, but it is a significant sum for many pensioners struggling to make ends meet, says Ros Altmann

2. Increase the £13 per year supplement for over-80s to £313 per year and reclaim some of the tax.

At the very least, winter fuel payments could be maintained for older retirees.

There is currently an insulting 25p a week “age surcharge” topping up the state pension for those aged 80 or over.

This princely sum of £13 a year could rise to £313.

It would be a significant increase, would keep the winter fuel payment money at least for the very elderly and still get some back in taxes from those with high incomes.

3. Remove winter fuel payments only from pensioners with higher tax rates

In the case of child benefit, the Government withdraws the payment from those with higher incomes.

The same principle could be applied to Winter Fuel Payments, so that they would only be available to people earning below the higher rate tax threshold.

This would also protect those who pay the basic tax (although I still believe it should be taxable), without creating hardship for those who earn only slightly above the means-test threshold.

Scrapping winter fuel payments is worse than reducing the 2.5% minimum triple lock

The government has made a mockery of its promise to protect the triple lock in last month’s general election.

One of his first announcements was to cut the money received by millions of pensioners, with those over 80 years of age at risk of losing the largest share.

The impact of the removal of Winter Fuel Payments is a serious reduction in the money paid to pensioners.

For older retirees, this amounts to a 3.3 percent cut in their pensions, worse than removing the triple lock.

This means that instead of a minimum 2.5 percent increase in basic state pension payments from April next year, pensioners will see an immediate reduction.

Since 1997, retirees have received their winter fuel payments in addition to their state pension.

Taking £300 off the over-80s’ pay packet, without warning, suggests the government sees pensioners as an easy target for attack.

You may not realise that a few hundred pounds is not a trivial sum, but a significant sum for many pensioners who are already struggling to make ends meet.

The new announcement comes on top of the hundreds of pounds pensioners were already losing this year as cost-of-living payments were withdrawn for last year and the year before.

But pensioners knew and expected this, while the latest decision comes as a real shock, especially since energy bills are expected to rise again this autumn.

In the meantime, it is not enough to test the means for the Winter Fuel Payment, granting it only to those who receive benefits such as the retirement credit.

First, it is estimated that around 800,000 eligible people do not apply for the pension credit.

Secondly, millions of people are only a small amount above the threshold and will actually have to live on even less than those deemed to need the pension credit and all its extra benefits.

This gap is one of the major problems that arises when relying on targeting aid to specific groups.

The attempt to focus aid only on the poorest retirees in the early 2000s led to a collapse of private retirement provision as those on low or moderate incomes decided it was not worth the trouble to save for their future.

They feared that they might end up worse off by losing the benefits paid to the poorest.

I hope the Government will quickly reconsider its decision and at least maintain winter fuel payments for November.

By delaying the decision, retirees would have a fairer chance to plan for their bills, and making the payments taxable would be fairer than eliminating them altogether.