Rachel Reeves has announced that the winter fuel payment will be available for all pensioners earning £35,000 or less, reversing a move that sparked widespread public anger and a political backlash.
Although this decision offers relief to many older people and eases some fears of rising pensioner poverty, it comes with a hefty £1.25bn price tag – sparking concerns about potential tax increases or cuts to other public services later this year.
The shift has also intensified demands from MPs to tackle child poverty, particularly calls to scrap the two-child benefit cap, which experts say has worsened hardship for many families.
Yet while around nine million pensioners gain a reprieve, a number of other vulnerable groups may be left struggling.
Here, The i Paper talks to the experts to uncover who could miss out amid this policy U-turn.
All state pensioner households will get a payment of up to £300 automatically. The payment will be £200 per household, or £300 per household where there is someone over 80.
This is normally paid in November or December, though the Government hasn’t yet confirmed the exact dates for the coming winter.
If you individually earn over £35,000 per year, the payment will be clawed back through the tax system.
For most, this will happen automatically through PAYE. If you file a self-assessment tax return – because you’re self-employed or have a high income – then it will be collected that way.
Who will miss out?
Those earning slightly above the threshold
Although the U-turn on the winter fuel payment, which was removed for all pensioners not in receipt of pension credit last summer by Rachel Reeves, has been more extensive than some envisaged, there are still some groups who could lose out.
Rachel Vahey, head of public policy at AJ Bell, said those who are asset-rich but cash-poor could get the payment.
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But those who earn slightly above the threshold would have it taxed away from them.
She said: “Someone with a house worth £150,000 and a £36,000 income would have the payment taken away, whereas someone with a £3m house and a £30,000 income would get to keep it.”
Not every retiree wants to downsize, Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said, which is why some may find themselves in this situation.
Haine said: “In these instances, if their taxable income skims just above the £35,000 threshold, losing that winter fuel payment can have a detrimental impact on cash flow in the winter months.”
Those in poverty
Other campaigners added that the amount may not be enough for those in real poverty.
Matt Copeland, National Energy Action’s head of policy and public affairs, said: “We must not forget about low-income working-age households, many of whom are struggling to afford their energy bills – they also need more direct energy bill support.”
Some people have complained that workers earning under £35,000, who are under pension age, are not receiving support towards their energy bills and this is unfair.
Couples
For couples, it will be individual income that counts – not household income. For those not claiming pension credit (or other benefits), the payment will be split, with each person getting £100, £150 or £200 – up to a total of £300.
It’ll then only be clawed back from each person based on their income. So, for example, if one person earns £30,000 a year and the other £40,000, one would keep their share and the other would have to pay it back.
This could lead to some households potentially looking to ensure they have a slightly lower income in order to benefit from the payment.
Widows
As the payment is based on individual income rather than household income, single pensioners, like those who have been widowed, could miss out as they may now be receiving a lower pension income than they were in the past.
Haine said managing money in retirement can be much harder for a single person, not only because there’s just one lot of income coming in rather than two, but also because the pro-rated cost of living is much higher.
She explained: “A house will still cost the same to heat and water, and home insurance bills may only come in slightly cheaper or even remain the same, so it can be more expensive to run a home on just one pension income.
“Meanwhile, the discount applied to council tax for a single person is only 25 per cent, rather than 50 per cent as might be expected.
“If you look at the recent Pensions and Lifetime Savings Association calculations for how much income people need in retirement, a couple wanting a moderate lifestyle need an income of £43,900, but this does not halve for a single person – they still need £31,700.
“This illustrates that the loss of one full income is not compensated by an equal reduction in costs.”
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