Up to half a million more pensioners could lose their Winter Fuel Payment over the next few years, Government figures suggest.
The warning comes as the Government freezes the £35,000 income threshold, increasing the risk of more retirees being pushed above it by inflation.
Fresh analysis suggests the the Winter Fuel Payment policy will affect significantly more pensioners over time, with the number of those losing out potentially rising from 2 million to 2.5 million by 2030.
The Treasury announced yesterday that approximately 2 million individuals in England and Wales currently have taxable incomes above the new £35,000 threshold.
However, detailed examination of the figures by Steve Webb, partner at pension consultants LCP, indicates this number is expected to grow by around half a million in the coming years.
The increase would come from both a growing pensioner population and what appears to be a frozen £35,000 threshold, creating a “fiscal drag” effect as annual pension increases push more people above the limit.
500,000 more pensioners could lose out
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The £450 million savings figure quoted by the Treasury is not next year’s revenue but a long-term estimate for around 2030, according to Webb’s analysis.
His examination of Treasury data reveals that the original policy would only have approached £1.7 billion in savings by 2029-30, based on figures from the last Budget.
With the Government now expecting to claw back £450 million whilst giving back £1.25 billion of planned savings, Webb calculates the policy will generate just £350 million next year.
“The Government’s own figures clearly suggest that they expect the number of losers from the new policy to rise each year,” Webb said.
His calculations show that to eventually yield £450 million with an average loss of £175 per pensioner, the number of those affected must grow to 2.5 million.
The Treasury announced yesterday that approximately 2 million individuals in England and Wales currently have taxable incomes above the new £35,000 threshold
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Webb warned this “could end up being another way in which Governments use inflation to quietly raise additional revenue year-by-year.”
The actual revenue from the policy next year is expected to be dramatically lower than headline figures suggest, with more than 90 per cent of the original savings wiped out.
Webb’s analysis indicates that with 2 million relatively well-off pensioners currently affected and an average loss of £175 per person, the policy would generate only £350 million next year rather than the £450 million figure quoted.
This compares with an outlay of around £230 million annually from the surge in pension credit applications since last July.
The frozen £35,000 threshold appears central to the Treasury’s revenue projections, with fiscal drag set to push increasing numbers of pensioners above the limit each year.
Webb’s analysis suggests that if the threshold remains frozen, annual increases in state and private pensions will steadily drag more pensioners over the limit, causing them to lose their winter fuel payment.
He said: “With around 2 million pensioners currently over the £35,000 threshold, this number could easily rise by another half a million by 2030.”
The mechanism mirrors other forms of fiscal drag where frozen thresholds combine with inflation to quietly increase the number of people affected by policies.
The Chancellor emphasised that the changes ensure “over three quarters of pensioners receiving the payment in England and Wales later this winte
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Webb calculated: “The net revenue from the policy is likely to end up barely a tenth of the amount banked by the Chancellor when she presented her last Budget.”
His findings suggest the net yield next year will be just £120 million after accounting for increased pension credit costs.
Chancellor Rachel Reeves defended the policy yesterday, stating: “Targeting Winter Fuel Payments was a tough decision, but the right decision because of the inheritance we had been left by the previous Government.”
She added: “It is also right that we continue to means-test this payment so that it is targeted and fair, rather than restoring eligibility to everyone including the wealthiest.”
The Chancellor emphasised that the changes ensure “over three quarters of pensioners receiving the payment in England and Wales later this winter.”