Winter Fuel Payment shake-up means 2m pensioners must hand cash back to HMRC

Anyone with an income of £35k and over will see their payment clawed back through the tax system

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New changes to the Winter Fuel Payment will make nine million pensioners in England and Wales eligible because they are below the new income threshold.

That's an increase on the 1.5 million who qualified last winter after cutbacks limited the payment to those on Pension Credit and some other means-tested benefits.

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However, two million others who get the payment will have to hand it back because their retirement income is too high, amid new rules that have been described as "cumbersome" and "confusing" because they involve recouping the allowance later, via the tax system.

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The Government says everyone over the State Pension age in England and Wales with an income of, or below, £35,000 a year will benefit from a Winter Fuel Payment this year.

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Eligibility is based on a person's age and place of residence during the qualifying week, which is generally the third full week of September. For winter 2025/26, the qualifying week will be September 15 to 21, and you'll need to have reached State Pension age by the end of that week to be eligible.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, said the changes to the fuel payment would be welcomed by many of those who missed out last year and the previous decision "was a highly unpopular move, as it forced some of the most vulnerable members of society to make difficult choices through the cold winter months, such as choosing to spend on heating rather than food or vice versa."

Ms Haine added: "While widening the pool of pensioners that receive the payment to around nine million is a positive move, basic-rate taxpayers earning just above that threshold are likely to be dismayed at the prospect of missing out once again.

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"Approximately two million pensioners in England and Wales have incomes higher than £35,000 and, of course, it makes sense for the wealthiest members of society to no longer receive a payment of £200 per household, or £300 where someone is over the age of 80, to cover their fuel bills.

"Finding the right level for a threshold increase was never going to please everyone, but the decision to set the threshold at £35,000, which is broadly in line with average earnings, rather than include all basic-rate taxpayers, will be challenging if the Government is looking to appease angry pensioners."

She expressed concerns about the new system for deciding who gets it and then clawing it back later from those who don't qualify.

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Ms Haine explained: "The process of making the payment is cumbersome and may be confusing for those on higher incomes.

"Pensioners earning above £35,000 will receive the payment automatically and then have it recollected via PAYE or their Self-Assessment tax return.

"There will be the option to opt out of receiving the payment, in a similar fashion to parents who opt out of receiving Child Benefit if they earn too much.

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"This might be more straightforward for those who find the new system confusing and don't want the hassle of the payment being recovered, though pensioners will have to wait for the details of that option to be confirmed.

"Ultimately, for pensioners earning just above the £35,000 threshold, the latest news will be disappointing. Some may even choose to reduce their income from private pensions if it means they can just skim under the threshold to receive the payment.

"Others may have to take it on the chin that they aren’t eligible for the payment.

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"Pensioners are typically on fixed incomes as determined by their State Pension and private pension income, so rising bills can be worrying. While the energy regulator has confirmed that the typical energy bill will drop by 7 per cent to £1,720 from July 1, with expectations of further drops through the winter, future reductions can never be guaranteed.

"The summer rate may be an improvement on current levels, but it also remains 10 per cent higher than the summer of 2024.

"Many retirees are still grappling with the fallout from the cost-of-living crisis and frozen tax thresholds and with the full new state pension now edging ever closer to the standard personal allowance threshold of £12,570 - the point at which any income is liable for tax - it means more retirees, including those that only have small private pensions, will be subject to tax on their retirement income."

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New guidance published today on GOV.UK to replace existing details about the payment said: "The Winter Fuel Payment for 2025 to 2026 will be made to everyone in England and Wales born before 22 September 1959, unless you choose not to get it. You could get either £200 or £300 to help you pay your heating bills for winter.

"You do not need to do anything - payments will be made automatically. If your income is over £35,000, your Winter Fuel Payment will be recovered later through HMRC. Details of the 2025 to 2026 payment will be available by the end of June 2025."

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