Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners comments: “The Government’s decision to reinstate the Winter Fuel Payment for all pensioners with an income of £35,000 or less will be welcomed by retirees who missed out on the valuable payment last winter.
“Labour’s decision to scrap winter fuel payments for all but the poorest pensioners was a highly unpopular move, as it forced some of the most vulnerable members of society to make difficult choices through the cold winter months, such as choosing to spend on heating rather than food or vice versa.
“While widening the pool of pensioners that receive the payment to around nine million is a positive move, basic-rate taxpayers earning just above that threshold are likely to be dismayed at the prospect of missing out once again.
“Approximately two million pensioners in England and Wales have incomes higher than £35,000 and, of course, it makes sense for the wealthiest members of society to no longer receive a payment of £200 per household or £300 where someone is over the age of 80 to cover their fuel bills. Finding the right level for a threshold increase was never going to please everyone but the decision to set the threshold at £35,000, which is broadly in line with average earnings, rather than include all basic-rate taxpayers will be challenging if the Government is looking to appease angry pensions.
“In addition, the process of making the payment is cumbersome and may be confusing for those on higher incomes. Pensioners earning above £35,000 will receive the payment automatically and then have it recollected via PAYE or their Self-Assessment tax return. There will be the option to opt out of receiving the payment, in a similar fashion to parents who opt out of receiving child benefit if they earn too much. This might be more straightforward for those that find the new system confusing and don’t want the hassle of the payment being recovered, though pensioners will have to wait for the details of that option to be confirmed.
“Ultimately, for pensioners earning just above the £35,000 threshold, the latest news will be disappointing. Some may even choose to reduce their income from private pensions if it means they can just skim under the threshold to receive the payment.
“Others may have to take it on the chin that they aren’t eligible for the payment. Pensioners are typically on fixed incomes as determined by their state pension and private pension income, so rising bills can be worrying. While the energy regulator has confirmed that the typical energy bill will drop by 7% to £1,720 from July 1, with expectations of further drops through the winter, future reductions can never be guaranteed. The summer rate may be an improvement on current levels, but it also remains 10% higher than the summer of 2024.
"Many retirees are still grappling with the fallout from the cost-of-living crisis and frozen tax thresholds and with the full new state pension now edging ever closer to the standard personal allowance threshold of £12,570 - the point at which any income is liable for tax - it means more retirees, including those that only have small private pensions, will be subject to tax on their retirement income.”
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