The poorest pensioners would be the hardest hit if the Conservative commitment to means testing the Winter Fuel Payment system is linked to take-up of Pension Credit. That’s according to new financial modelling carried out by Independent Age, the older people’s charity, and think-tank IPPR.
Ahead of the forthcoming Queen’s speech, the new research, 'Analysis of Winter Fuel Payment reforms', demonstrates most of the options for means testing the Winter Fuel Payment would adversely affect the poorest pensioners.
The new analysis models the likely impact of four methods of means testing, assessing impact on pensioner income and likely savings achieved by Government.
The Conservative election manifesto committed to means testing Winter Fuel Payments, with the stated aim of “focusing assistance on the least well-off pensioners, who are most at risk of fuel poverty”. The manifesto did not set out how the payments would be means tested. The Democratic Unionist Party (DUP), which the Conservative party is seeking to work closely with in government committed to keeping Winter Fuel Payments in their election manifesto.
The analysis showed that, if Winter Fuel Payments were linked to Pension Credit, the poorest pensioners will lose more than 7% of their income (£190 per year). By contrast, the most well-off pensioners will lose less than 1% of their income (£160 per year). More than a third (38%) of all pensioners eligible for Pension Credit – 1.4 million people – do not currently claim it.
Simon Bottery, Director of Policy at Independent Age, said,
“There are no simple ways to restrict the Winter Fuel Payment, as the Government pledged to do in their election manifesto, without hitting the poorest pensioners. Means testing the Winter Fuel Payment through linking to take-up of Pension Credit would be a disaster for many of the poorest pensioners who are already struggling to pay their heating bills. We do not believe it is fair that millions of pensioners who are more susceptible to the cold could be faced with a choice of heating or eating if these changes go ahead.”
Different approaches to means testing were more progressive, but all except one resulted in the poorest pensioners losing out. The other key methods of means testing and the impacts were as follows:
Withdrawing Winter Fuel Payments from higher and additional rate taxpayers
- Older people in the top household income decile will lose on average 0.2% of their income (£90 per year).
- Older people in the bottom household income decile will lose none of their income.
Taxing Winter Fuel Payments for all older people who pay tax
- Older people in the top household income decile will lose 0.1% of their income (£50 per year).
- Older people in the bottom household income decile will lose 0.1% of their income (£10 per year).
Restricting Winter Fuel Payments to those aged 75 and over
- Older people in the top household income decile will lose 0.7% of their income (£110 per year).
- Older people in the bottom household income decile will lose 5.1% of their income (£100 per year).
Clare McNeil, Associate Director at IPPR said:
“The Conservatives are already running into trouble on their proposals to fund health and social care by means-testing Winter Fuel Payments for pensioners. Firstly, the Democratic Unionist Party they will now rely on to pass legislation has pledged to ‘resist any assault’ on this universal benefit payment for older people. Secondly, this analysis shows that most options for means-testing Winter Fuel Payment are regressive, and those that raise the most money are also the least fair. If the government went ahead with this policy it would be achieving the exact opposite of its intentions - achieving savings by removing Winter Fuel Payments from the least well-off pensioners – and those most at risk of fuel poverty.”
The Winter Fuel Payment is a tax-free annual payment to help people of State Pension age pay their winter heating bills. If pensioners receive the State Pension or certain other benefits such as Pension Credit, they should get a Winter Fuel Payment automatically. In 2015/2016 over 12.2 million people across Great Britain received the payment which ranges from £100 to £300. Government spending on the benefit was around £2.1 billion in 2015/2016.
The most progressive option for means testing Winter Fuel Payments – withdrawing it from higher rate taxpayers – would generate least savings for Treasury:
- Withdrawing Winter Fuel Payments from older people who do not receive Pension Credit results in an overall saving of £1.7bn.
- Withdrawing Winter Fuel Payments from higher rate and additional rate taxpayers results in an overall saving of £100m.
- Taxing Winter Fuel Payments for all older people who pay tax results in an overall saving of £350m.
- Restricting Winter Fuel Payments to those aged 75 and over results in an overall saving of £1.05bn.
This is the first publication from ‘A Fair Settlement for Old Age’, a project from Independent Age and IPPR running through Autumn 2017.