Pensioner using her thermostat at home (Image: Getty)
Half a million more pensioners will be denied winter fuel payments by the end of the parliament, an analysis has predicted.
Former pensions minister Sir Steve Webb suggested every year on average about 100,000 additional older people will lose their winter fuel payments by 2030 because the new means test is frozen.
Ministers have confirmed that the threshold will be frozen for the coming years, dragging in more pensioners with inflation and rising state pensions through the triple lock.
Sir Steve, 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.”
Under the new system, all pensioners will automatically receive a payment of £200, or £300 for over-eighties. Couples who are both pensioners will get half the payment each, which will be clawed back through the tax system.
Officials say that about two million pensioners who have incomes of more than £35,000 will not get payments this year.
However, they estimate that the policy will ultimately save £450 million a year compared with the universal system that was in place until last year, a figure Miliband said was “not to be sneezed at”.
Sir Steve said: “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 £350million, 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”.
Announcing the U-turn, following a Daily Express campaign on the issue, Chancellor Rachel Reeves said: “It will be still means-tested, but at a higher level, we’ve listened to people’s concerns around the level of the means test.
“Because of changes we’ve made and the stability we’ve brought back to the economy, we are able to increase that amount.”
HMRC demand letters for people with £3,500 or more in savings account
Anyone with over £3,500 in their savings is being warned (Image: Getty)
People with £3,500 or more in savings are being told they could face an unexpected tax bill letter from His Majesty’s Revenue and Customs (HMRC).
HMRC is able to automatically detect interest on savings generated by your bank account and if you tip over a certain threshold, you will automatically be sent a notice of an extra tax bill. With the new tax year 2025-26 having started in the past month, the taxman has been busy sending out letters to people urging them to register for self-assessment or asking them to pay extra tax.
Because your entire previous financial year is now complete, HMRC is now assessing people’s final situations and issuing tax bills to those who it finds owe money in tax on savings accounts. Such information is automatically reported to the taxman by your bank unless it is in a Cash ISA, which is protected from tax.
The Personal Savings Allowance means you can make £1,000 per year in savings interest without being taxed on it, but this only applies to people earning less than £50,270. If you earn £50,271 or more, your Personal Savings Allowance is cut to just £500. And if you earn £125,000, your Personal Savings Allowance drops to £0.
The exact amount you will owe depends on how much you earn, how much interest you got, and when it was paid out.
But you could be stung with a tax bill with as little as £3,500 in savings if you had placed it into a fixed savings account for three years, because the interest is all paid out in one go in a fixed account, so the interest counts in only one tax year all at once.
If you put £3,500 into a fixed savings account at 5% for three years, you will earn more than £500 in interest. With fixed accounts, the interest is “crystallised” the moment the interest is paid out and you receive all the interest at once. So if you put it away for three years, the money is paid out all in one go at the end of that three-year term.
With just over £500 being paid out at once, you would go over your £500 Personal Savings Allowance even without taking into account any interest from any other accounts you hold and can expect a letter from HMRC.
And because you are a higher-income earner, you lose 40% of every £1 over £500, not 20%. So even going £100 over the Personal Savings Allowance would cost you £40.
If you had more money in savings, you could go over the allowance even with a non-fixed, easy-access account. For example, if you put £11,000 in a savings account for one year at 5%, you would earn £550 of interest, which would push you above the threshold and mean you owe tax to HMRC if you earn over £50,270.
Even if you earned less than £50,270, if you had savings of £21,000 at 5% for one year, you would generate £1,050 of interest and owe money to HMRC because you would exceed your £1,000 allowance.
There are, in fact, many different potential sources of income that count towards your Personal Savings Allowance.
According to the Government, these are:
- Bank and building society accounts
- Savings and credit union accounts
- Unit trusts, investment trusts and open-ended investment companies
- Peer-to-peer lending
- Trust funds
- Payment protection insurance (PPI)
- Government or company bonds
- Life annuity payments
- Some life insurance contracts
HMRC adds: “If you go over your allowance, you pay tax on any interest over your allowance at your usual rate of income tax.
“If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically.
“To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.”
