Majority of pensioners below poverty line ‘could lose winter fuel payments’

About five out of every six pensioners living below the “poverty line” could be at risk of being stripped of their winter fuel payments, according to a former pensions minister.

Sir Steve Webb, who is now a partner at pension consultants LCP (Lane Clark & Peacock), said analysis suggests that about 1.6 million older people who are below what is commonly regarded as the poverty line do not receive pension credit.

Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer have faced criticism from opponents, campaigners and some of their own MPs over the decision to means test winter fuel payments, worth up to £300.

Only those receiving pension credit or other means-tested benefits will be eligible for the payment in England and Wales as a result of the Government’s decision, which ministers have said is needed to help fill a £22 billion black hole in the public finances.

LCP analysed Department for Work and Pensions (DWP) statistics on low-income pensioner households.

Poverty line

It said that while there is not an official poverty line, the main benchmark used, both in the UK and internationally, is having a household income below 60% of the national median average.

The latest DWP figures indicate that in 2022/23 there were 1.9 million people over pension age across the UK living below this income level.

Analysis by LCP suggests 0.3 million of these people are receiving pension credit.

It said the remaining 1.6 million do not receive pension credit and could potentially miss out.

People in this category may not receive pension credit simply because they have not claimed.

About 800,000 pensioners are thought to be in this position. The Government has launched a campaign to encourage those eligible for pension credit to claim it.

In other cases, people may have just enough to cover basic household bills but they may also have housing costs such as mortgage interest or rent which are not fully covered by the benefits system. These costs could push them below the poverty line.

Analysis

The LCP analysis looks at other ways in which the Government could potentially make winter fuel payments more targeted – paying only to households in council tax bands A-D; paying only to older pensioners aged 80-plus; and bringing winter fuel payments within the definition of taxable income.

The analysis indicated that linking to council tax bands would protect the large majority of low-income pensioners, but would substantially reduce Government savings.

Paying only to older pensioners would still leave more than a million poorer pensioners aged under 80 still losing out, the analysis suggested.

Bringing payments into the tax net would raise only a modest amount – about £300 million – and would involve complex administration, the research suggested.

Sir Steve said: “There is a range of ways in which the Government could target spending on winter fuel payments, but our analysis shows that limiting payments only to those on pension credit will leave the vast majority of pensioners below the poverty line losing out.

“As an alternative, winter fuel payments could be targeted on those in lower value properties, which would protect most poorer pensioners, but would dramatically reduce the saving to the Chancellor.

“Taxing winter fuel payments would raise far less than the Government’s plans and could be administratively complex.

“It is ultimately a matter for politicians to decide on the balance between raising revenue and protecting the vulnerable, but it is clear that continuing payments only to those on pension credit will mean large numbers of already low income pensioners losing out.”

The findings were released as a survey commissioned by the Living Wage Foundation found 53% of UK people saving into a pension felt they would never be able to retire, and 62% felt they would have to work several years beyond retirement age.

Some 58% of women felt they would never be able to retire compared with 47% of men, the Savanta survey of 3,000 people found.

Research by the Resolution Foundation, which was also commissioned by the Living Wage Foundation, indicated that the average pension pot required for a basic standard of living in retirement has surged by 60%, from £68,300 in 2021-22 to £107,800 in 2023-24.

Cost-of-living crisis

Researchers said the cost-of-living crisis has pushed up the cost of securing an adequate income in retirement significantly.

The Living Wage Foundation’s “living pension” accreditation, which is based on the research, is a voluntary savings target for employers who want to help workers build up a pension pot that will provide enough income to meet basic everyday needs in retirement.

The standard sets out the minimum annual contribution required through an average working life to reach this savings level.

After launching with six accredited employers in March 2023, the initiative recently welcomed its 50th employer.

Katherine Chapman, director of the Living Wage Foundation, said: “The news that workers now require a significantly larger pension pot to cover basic living costs in retirement will undoubtedly be alarming for many, particularly low paid workers who have borne the brunt of rising prices over the past two years.

“These workers are already struggling to make ends meet today, and the prospect of saving for the future feels even more daunting.

“No-one should have to choose between getting by today and securing their future.”