What’s going on with the Winter Fuel Payments?
20th June 2025
Posted in Articles by Michael Hodgson
The Government recently announced a U turn on its controversial plans to scrap Winter Fuel Payments (WFP). This benefit provides individuals who are over state pension age with a small cash payment of £200 for the year (£300 if the individual is over the age of 80) to help heat their homes. However, as a cost cutting measure, for tax year 2025-26 the government intends to means test this benefit so that only pensioners with taxable (gross) income of under £35,000 per annum will be eligible. Although this may seem like a sensible approach, as many pensioners are asset rich but have relatively low levels of income this could have unintended consequences and exclude many ‘poor’ people.
Examples
1. Dorris, is a retired teacher with a defined benefit public sector pension. She receives an annual gross pension of £40,000 (about £2,600 after tax per month to live off). She has low levels of assets/investments and is reliant on this pension. Due to the new means testing, she will be ineligible for WFP.
2. David, a retired bank manager, receives income from private sector pensions and investments. He also has approximately £500k in cash ISAs. Historically, he has limited his gross ‘income’ to £50k per annum, by restricting his pension drawdown so that he does not pay higher rates of tax. He has paid tax and national insurance all his life and doesn’t see why he should lose out on this benefit in his retirement. He has enough ‘pots’ of cash to live off and therefore restricts his pension drawdown in 2025/26 to remain under the £35k threshold. He then uses his ISAs to cover any shortfall to meet his spending requirements. As a result, he will be eligible for the WFP.
3. Dr Sam, is a retired NHS senior consultant. He has an estate worth over £5m. Having previously undertaken various tax planning to mitigate future IHT, his estate is made up of £5m of loans to his Family Investment Company (‘FIC’) which is an investment vehicle which sits outside of Dr Sam’s IHT estate. The FIC invests in various share portfolios with all the income and gains being subject to corporation tax. On an annual basis Dr Sam receives no taxable income as none of the shares are held by him. However, he receives £200,000 per annum as a capital repayment of his loan to the FIC. He uses this repayment to live off. As Dr Sam has no taxable income he is not concerned by the new means testing and will continue to receive his WFP.
Forbes Dawson view
This is a good example of how the proposed means testing may not benefit those most in need because wealthy pensioners are generally in a unique position to control their level of taxable income on a year-to-year basis. Most pensioners will generally have some control over the amount of taxable income they extract from their pensions on an annual basis and many pensioners will have no ‘income’ and live off their built-up capital. We can therefore expect to see newspaper articles about the wealthy once again enjoying the WFP.
Although we are not seriously suggesting that wealthy individuals will manipulate their income just to enjoy a £200 benefit, there will be cases where the very wealthy still qualify while more deserving cases go without. Perhaps the main thing that this illustrates is how difficult it is to achieve the desired outcome with a simple rule.
