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TAX IT, DON’T AXE IT – ALTERNATIVE POLICIES FOR PENSIONERS’ WINTER FUEL PAYMENT.    

Three alternative policies to consider:

1. Roll the payment into State Pension and tax it.
   
2. Increase the £13 a year over 80’s Age Addition to £313 a year and recoup some in tax.
   
3. Only take it away from higher rate tax pensioners, similar to Child Benefit restriction.  
   

At least keep it for this year to give pensioners time to prepare: The shock announcement that pensioners’ Winter Fuel Payments will be suddenly withdrawn, just a few weeks before millions of pensioners were expecting to receive the money, seems like a serious error of judgment. There are much fairer, better ways to save some money, without causing the hardship this will create. The decision could be delayed, pending a more careful consideration of the impacts.

Worse than dropping the 2.5% minimum triple lock: For the oldest pensioners, this is equivalent to a 3.3% cut in their pensions. This is worse than dropping the triple lock. Instead of a minimum increase of 2.5% in the basic state pension payments from next April, pensioners have an immediate reduction. The Government has made a mockery of its pledge to protect the triple lock in last month’s General election. One of its first announcements has been to cut the money received by millions of pensioners, with over 80s at risk of losing the most.

Tax it – don’t axe it: I do hope the Government will rapidly reconsider and at least keep the payments for this November. It could make the payments taxable to recoup some of the cost, as it was never sensible to give the money tax-free. By delaying the decision, pensioners would have a fairer chance to plan their bills and making it taxable would be fairer than axing it completely.

Pensioners seem an easy target to raid: Since 1997, Pensioners have received their winter fuel payments on top of their state pension. Taking away that £300 from the over-80s, with no warning, suggests the Government sees pensioners as an easy target to raid and maybe does not realise that a few hundred pounds is not trivial, but is a significant sum for many pensioners already struggling to make ends meet.

This is on top of losing last two years’ cost-of-living payments too, just as energy bills start rising again: Many pensioners on low incomes will be really hurt by the loss of these payments. This new announcement is on top of the hundreds of pounds pensioners were already losing this year, as the cost-of-living payments last year and the year before have been withdrawn. But they knew about this and expected it.  However, the new decision is a real shock, especially as energy bills are expected to go up again this autumn.

Means-testing is not the way to protect pensioners against this cut: Retaining the Winter Fuel Payment only for those on means-tested benefits like pension credit is not enough. Firstly, 800,000 do not claim their entitlement.  Secondly, millions are only a small amount above the threshold and will actually have to live on even less than those considered to need Pension Credit and all its add-on benefits. This cliff-edge is one of the big problems with relying on ‘targeting’ help at particular groups. Trying to focus help only on the poorest pensioners in the early 2000’s led to a collapse in private provision for retirement, as those on low or moderate earnings decided it was not worth bothering to save for their future, since they feared they could end up worse off when losing the benefits paid to the poorest. The over-reliance on means-testing leaves many in hardship.

So what are the alternative ways to address the need for cost savings and still protect pensioners?

Tax it – don’t axe it! Roll the payment into a higher State Pension and then recoup some cost through tax:  A much better way to save some money, without causing such hardship, would have been to announce a rise in state pensions that equates to the winter fuel money. This would amalgamate winter fuel payments into the state pension itself. The benefit of this would be that the payments would no longer be tax-free, so they would be taxed like the state pension itself, thereby recouping some of the cost from better off pensioners. That would be fairer than taking it away altogether. Paying it as part of the state pension would also mean that pensioners choose how to spend their own money, rather than feeling it should be earmarked just for heating bills.

Increase the 25p Age Addition for the over-80s: At the very least, the Winter Fuel Payment could have been kept for the oldest pensioners. Currently, there is an insulting 25p a week ‘Age Addition’ added to the State Pension for the over 80s. This princely sum of £13 a year could have been raised to £313, thus reflecting a meaningful increase, keeping the Winter Fuel payout at least for them, and still recouping some in tax from those with high incomes.

Treat Winter Fuel Payments like Child Benefit and only withdraw it from higher rate taxpayers: In the case of Child Benefit, the Government withdraws the payment from higher earners. The same principle could be applied to Winter Fuel Payments, so they would only be available to people earning below the higher rate tax threshold. This, too, would protect those paying basic rate tax (although I still believe it should be taxable), without creating the hardship for those earning only a little above the means-test threshold.

The impact of removing Winter Fuel Payments is a serious reduction in the money paid to pensioners, the figures are as follows:

Over 80s face a 3.3% cut, under 80s on Basic state pension see a 2.2% fall in the money paid.

Here is the working:

• Basic state pension = £8814 a year. On top of that, pensioners were supposed to receive £300 if over 80 and £200 if younger.
• So total payments to over 80s should have been £8814 + £300 = £9114. Taking away £300 from £9914 is losing 3.3%  (£300 is 3.3% of £9114).
• For under 80s, taking away £200 when they should have received (£8814 + £200 =) £9104 this year, is a sudden cut of 2.2% in their state payment.

This is the wrong political choice – pensioners should not be targeted to fix the fiscal deficit: Pensioners are not all well-off and many struggle to make ends meet, living frugally on far less than most younger people. I do hope the Government will recognise that this is not right, it will cause real hardship and needs to be urgently reconsidered. Saving the £1.4billion this year, by making pensioners pay for the fiscal overspend, is a political choice.  And in my view it is the wrong one.