Three ‘fairer’ ways to reform winter fuel payments as five in six poorer pensioners risk losing them

Reforms to the Winter Fuel Payment could be made fairer, experts say, as the government’s current plans mean five in six pensioners below the poverty line could lose the benefit.

The Winter Fuel Payment is a benefit intended to help with heating bills, worth between £100 and £300 a year. It is paid directly to all pensioners.

But these payments were severely cut by Chancellor Rachel Reeves in July, who changed the system so that only those receiving benefits such as the pension credit would receive it from this winter.

But analysis by former pensions minister Steve Webb has found that most poorer pensioners will lose help when support is restricted to those receiving pension credit.

The primary definition of the poverty line is having a household income below 60 percent of the national median.

Figures from the Department for Work and Pensions show there were 1.9 million people over pension age living below this income level in 2022/23.

But only 300,000 of these people claim pension credit and can keep their Winter Fuel Payments.

The remaining 1.6 million will lose out, despite being below the poverty line.

Webb, now a partner at consultancies Lane Clark and Peacock and a resident pensions expert at This is Money, said the Winter Fuel Payment reforms could be tweaked to make them fairer for poorer pensioners.

These are:

• Pay the Winter Fuel Payment only to households in council tax bands AD;
• Pay only older retirees, as they are more likely to spend more time at home and spend a higher percentage of their income on fuel;
• Include winter fuel payments in the definition of taxable income.

Maintaining the labour system, where winter fuel payments are restricted to those in receipt of pension credit, would affect 1.6 million low-income pensioners and save the Government £1.4bn.

Granting the benefit to those in the AD council tax bands would mean 300,000 pensioners would not receive the Winter Fuel Payment and £500m would be saved.

Giving winter fuel payments to pensioners aged over 80 would mean a loss of 1.3 million and a saving for the Government of £1.4 billion.

Finally, including the Winter Fuel Payment in taxable income would not affect pensioners but would save the Government £300m.

Webb said: ‘There are a variety of ways the Government could target spending on Winter Fuel Payments, but our analysis shows that limiting payments to only those receiving pension credit will leave the vast majority of pensioners below the poverty line losing out.

‘Ultimately, it is for politicians to decide the balance between raising incomes and protecting the vulnerable, but it is clear that continuing to pay only those in receipt of pension credit will mean that large numbers of pensioners already on low incomes will lose out.

Last monthOfgem revealed that the average household’s annual energy bill will rise by £149 in October under the new price cap.

People who use the average amount of gas and electricity will pay £1,717 a year, a 10 per cent increase.