PENSIONSANDSAVINGS.COM

• Well done to the Government for restoring Winter Fuel Payments to most pensioners.  
• The decision to ensure those pensioners with incomes up to £35,000 a year still receive the money definitely helps ensure the poorest and those most needing help will receive it this winter.  
• But lots of questions remain about how the new system will work.  

Today’s announcement states that pensioners with incomes up to £35,000 – which is roughly equivalent to average earnings – will receive the Winter Fuel Payment this coming winter at last shows that the Government has recognised the injustice of last year’s decision to take hundreds of pounds away from the vast majority of pensioners, including many of the very poorest. By only requiring pensioners with incomes above this level, to pay the money back, and allowing them to opt out of receiving it altogether, there is finally an admission that last year’s shock decision was a terrible mistake. Indeed, it was one of the worst policy decisions for pensioners that I have ever seen.

The Government’s proposals are welcome relief:  Around 9 million pensioners will receive the Winter Fuel Payment this Winter (compared with under 1.5million last winter). This decision will certainly be a relief to millions of pensioners, but there are scant details of how this will work in practice.  Around 2 million or so pensioners are estimated to have incomes above £35,000 a year and will no longer be entitled to the money. It will be paid to them (unless they have opted out) but the money will be recouped via their individual taxable income.  The £200 for under 80s and £300 per household for those over 80, will be clawed back by adjusting the tax codes of those who are not eligible.

Devil is in the detail: The actual process, however, seems not to have been finalised and will be announced at some point in the future.  Pensioners whose incomes are around the £35,000 cut-off, will not know for sure whether they can keep the payments, because the details of how this new scheme will work have not yet been agreed or announced.

Simple Assessment is not completely reliable – errors often occur: The remainder will be relying on the Simple Assessment process, whereby HMRC automatically contacts pensioners to tell them how much how much tax it believes they owe – based on information from DWP about their State Pension, plus any private pension and bank interest which HMRC has been informed of by providers and banks.  This Simple Assessment form is meant to help pensioners pay their tax bills, without having to complete a full Self-Assessment form.  However, HMRC often makes mistakes and they warn that everyone needs to check the figures carefully to ensure the tax codes are correct.  For many of the oldest pensioners, this is likely to be a massive challenge and, especially for those who are not digitally enabled, it could cause significant worry.

Some of the vital questions that need answering to understand how this could work and the potential complexities or problems to watch out for:

 

1. WFP goes to the household, tax is assessed individually: Winter Fuel Payments are paid to each household (with two person households having the individual amount split between them, so a husband and wife who are over 80 are paid £150 each under the previous system. However, the income threshold for the new system is based on individual income it seems, so how much will be clawed back if one member of the couple earns over £35,000 but the other does not? Logically, one would expect that one of the couple would keep the £150, but that is not yet confirmed.
2. What about people who do not receive a Simple Assessment letter?: What happens to those people who do not currently have to fill in a tax return and do not receive a Simple-Assessment letter for some reason?  How will they be treated by HMRC if they fail to file a self-assessment form?  Will there be penalties?
3. What if pensioners believe their Simple Assessment tax code is wrong, but are not online – will HMRC expand its helpline capacity? How will HMRC help those pensioners who are worried that their Simple Assessment code is wrong? Many pensioners may want to speak to someone, to ensure their income has been calculated correctly.  To get through to HMRC at the moment, it can take several hours.  Those pensioners (of whom there are huge numbers) who are not online and do not have a computer or a smartphone, may face significant problems.  Will HMRC be expanding its helpline capacity?

Government decision is more generous than feared: The announcement today is more generous than was feared by some early suggestions, which looked at restricting Winter Fuel Payments in future to those on more types of benefit than just Pension Credit – for example people on housing benefit or council tax support. This would still leave out many low income pensioners.  Other suggestions included using Council Tax property bands, to exclude those living in homes with the highest Council Tax band assessment.  However, this would mean many pensioners living in parts of the country with high house values, but who may be on very low incomes, being denied the payment and the Council Tax bands were set several decades ago, so they are not a good indication of current house values anyway.