Number of losers from winter fuel policy ‘set to rise by half a million’

Detailed analysis of figures published by HM Treasury by LCP Partner Steve Webb suggests that the number of losers from the new policy on Winter Fuel Payments is expected by the Government to rise by around half a million in the coming years. It is likely that this is partly due to an assumed freeze in the new £35,000 threshold.

Yesterday, the Government said that the new policy would claw back around £450m and give back around £1.25bn of the planned savings. This suggests that the original policy would have raised £1.7bn. But it did not say which year those figures referred to.

Looking at published data at the time of the last Budget (see below), the policy only got close to raising £1.7bn at the end of this decade, in 2029-30.

It is clear therefore that the Government does not think that the policy will raise £450m next year.

Based on analysis by Steve Webb, out of 2 million pensioners currently on incomes over £35,000 or more, roughly half are in couples aged under 80, who will generally lose just £100 each.  Taking account of older couples and of single pensioners who will lose £200 or £300, the average loss is expected to be in the range £150-£200.

Assuming that the average loss is £175, then with 2 million relatively well-off pensioners currently, the policy would only generate £350m next year, not £450m.

The fact that the Government expects the policy to eventually yield £450m suggests that the number of losers is expected by the Government to grow.  Based on an average loss of £175, this would imply 2.5m losers – an increase of half a million on the figure published yesterday.

The number of losers is likely to rise over the coming years because of:

• An increase in the pensioner population (although slightly checked by the rise in the state pension age) and
• A likely freeze in the £35,000 threshold, meaning more and more pensioners will pass the threshold as it is frozen.

If the policy raises just £350m next year, this compares with an outlay of around £230m per year from the surge in pension credit applications since last July.  The net yield from the policy next year is therefore expected to be just £120m – meaning more than 90% of the planned savings will have been wiped out.

Commenting, Steve Webb, partner at pension consultants LCP, said:

“The Government’s own figures clearly suggest that they expect the number of losers from the new policy to rise each year. If the £35,000 threshold is frozen, then annual increases in state and private pensions will drag more and more pensioners over the limit each year, losing their winter fuel payment in the process. With around 2 million pensioners currently over the £35,000 threshold, this number could easily rise by another half a million by 2030. This could end up being another way in which governments use inflation to quietly raise additional revenue year-by-year.

Our analysis also suggests that the new policy will raise less money next year than the headline figure quoted of £450m. Assuming an initial yield of around £350m, roughly two thirds of this will be wiped out by higher pension credit costs. 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.”