Pensioners Advised on How to Tweak Annual Income for Winter Fuel Payment

Strategic Insights -

Pensioners are being advised to make small behavioural changes to ensure they receive the winter fuel payment, as new rules introduced by Rachel Reeves exempt those earning above £35,000 from the cash boost. Financial planners have identified five ways to become eligible for the payment, including reducing pension drawdown income, transferring assets to a lower-earning spouse, and moving savings into an Isa.

Key Takeaways:

  • The new winter fuel payment rules exempt individuals with an income above £35,000, with the amount effectively clawed back via HMRC based on taxable income.
  • Around 75pc of pensioners in England and Wales, approximately nine million people, will be entitled to the payment.
  • Financial planners advise reducing pension drawdown income, transferring assets to a lower-earning spouse, moving savings into an Isa, drawing money from an Isa rather than a pension, and donating to charity to reduce taxable income.
  • Alice Haine, of wealth manager Bestinvest, suggests reducing regular drawdown in February and March in the run-up to the end of the tax year to coincide with the council tax bill break.
  • Transferring assets such as investment portfolios can be done to ensure the lower earner receives the full winter fuel allowance.
  • Moving savings into a cash Isa can take interest out of the calculation, reducing taxable income.
  • Drawing money from an Isa rather than a pension can be done to reduce taxable income, but may sacrifice growth in the Isa.
  • Donating to charity can be another way to reduce taxable income, as the charity can reclaim the tax paid by the giver from HMRC.

Statistics:

  • 75pc of pensioners in England and Wales, approximately nine million people, will be entitled to the winter fuel payment.
  • £200 or £300 is considered a small amount for most people to make major changes.
  • Clements' notes that many pensioners will be precisely at the threshold "which is effectively another tax cliff-edge".
  • The decision to reinstate winter fuel payments for the majority of elderly people means "no pensioner on a lower income will miss out", according to Rachel Reeves.
  • Under the new rules, if both occupants of a household have an income over £35,000, they will be required to return their full winter fuel payment via a tax return or PAYE.

Sources:

  • Rachel Reeves in the House of Commons
  • Alice Haine, of wealth manager Bestinvest
  • Jon Greer, of tax firm Quilter
  • Sarah Coles, of Hargreaves Lansdown
  • "Credit: House of Commons"