Winter Fuel Payment – How it’ll really work (Eng & Wales) | And are you drinking enough beer

0:01BBC Sounds. Music. Radio. Podcast. Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Now, usually much of it comes from my BBC Radio 5 live show, but not this week. This week it's a winter fuel payment and beer drinkers, yes really, pod only special just for you lucky, lucky podcast listeners. In the pod this week, how will the reintroduction of a universal winter fuel payment for all state pensioners work in practice. Those who earn over£35 ,000 will see winter fuel payment clawed back through the tax system. But what exactly counts towards the£35 ,000?

0:45How will winter fuel payment work when it's a two-pensioner household or even a pensioner throuple? Not a phrase I thought I'd say very often. Plus, I hope to answer a host more of your winter fuel payment questions. All the practicals, not the politics. And are you getting enough beer? We're concerned. When a pint's pulled for you, how much of the amber nectar should there actually be in the glass? All that and more. Play the theme tune.

1:24I got a mouth. I got a feed. So I'm going to make sure. Hello and welcome to our winter fuel payments special. As I'm sure it hasn't escaped your notice, the government announced earlier this week that winter fuel payments will again be universal. Every household that has a state pensioner living in it will automatically get a winter fuel payment. The basic payment is£200 if none of the state pensioners in the household are under£80 and£300 if they're over£80. However, if any individual state pensioner earns over£35 ,000 a year, they will have their portion of the winter fuel payment clawed back through the tax system.

2:15That's the summary of how it works in a nutshell. But actually, once you get into it, it gets more complicated. I've got questions to answer on what exactly counts as income for the£35 ,000 level, how the winter fuel payment is demarked to be split per person, is there an opt-out rule? Spoiler yes, but how it works is a little bit more detailed, and a whole host of other questions that I hope to go through with you. It's important at this point to say that these changes only affect people in England and Wales. In Northern Ireland, they have confirmed the executive will look to expand the payments in line with the new English and Welsh criteria.

2:50in Scotland the existing equivalent form had said again eligibility and payment amounts would be the same as those in England and Wales but we don't yet have confirmation this will be the case following the latest changes so you're going to have to wait for updates on those but for the moment technically this only applies to England and Wales. Now as it's podcast only this week I'm joined by the one and only PPS, podcast producer Simon, who will be asking me your questions, because if I ask them myself, it sounds a bit weird. Hello, Simon, how are you doing, mate? Oh, yeah, delighted to be here, and I'm just glad that you're not making me do an Adrian Charles impression.

3:27Well, I like to do my own Adrian Charles impression, you know, but if I did that, everyone would have to put the podcast on fast forward in order to go through it in time. So, shall we get on? So, Martin, I'm assuming you're in favour of winter fuel payment changes, because Torsten Bell, the pension minister, said this earlier this week. Age UK say the exact opposite. Charity director Carol Abrahams has said this announcement is the right thing to do. Martin Lewis has said out it is a big improvement. Well, yeah, I have said it is a big improvement and I do think it's a big improvement. Let's just go back before we get into the practicals.

4:00And this programme is all about the practicals, the nitty gritty of actually how it will work. Let's just go back to what I've said on the programme in recent weeks. My big problem with the change that was made to winter fuel payment was. Winter fuel payment used to be totally universal without any clawback. Then for last winter, it was changed. The first big change is that the winter before, there was a cost of living payment that meant many pensioner households were getting£600. Then last winter, the winter fuel payment was dropped. So it was a maximum of£300, but it was means tested and it was means tested for the first time.

4:35Now I had two big problems with this. First of all, I felt that the level of means testing was too low. For last winter, the level was set at an income of£11 ,600 for a single pensioner. That's really low. When you consider a typical energy bill is about£1 ,800 a year and many pensioners use more than that because they're in the house more and they need the heating up more, especially older pensioners. So to set it up a threshold of£11 ,600 left many pensioners who were just above that threshold, because that threshold is below those who just received the basic full new state pension. People who are just above that threshold missing out.

5:12But more importantly for me, was that I have never approved of the method of means testing. I'm not anti-means testing. I'm not arguing that millionaires and billionaires should get the winter fuel payment. But my biggest problem was that for over a decade, I've been trying to communicate pension credit, which is a top-up to the state pension for those on low incomes, but it is critically underclaimed. It always has been critically underclaimed. I've been shouting about it for years. And even after the government did all its communication to say, if you want to get winter fuel payment and you're on a low income, you need to get pension credit, there are still 700 ,000 eligible pensioners who should be getting pension credit, but don't claim.

5:52One suspects they will often be those with onset dementia or who find form-filling difficult or who find getting hold of information very difficult. So some of the most vulnerable pensioners in the country. So those were people the government said should get winter fuel payment, but weren't getting winter fuel payment, even though they were likely vulnerable and on very low incomes. And I had a big problem with 700 ,000 vulnerable pensioners missing out because of a critically flawed method of means testing. So when I heard, and between you and I, Simon, And I heard this was going to happen about 25 minutes before the announcement was made.

6:29I got an embargoed call from someone in my office who'd got the call from the Treasury that I'd missed because I was out for a run. And so Katie, who's on my team, called me up and said, there's big news. And I was like, what? Because I don't normally answer the phone on a run, but she doesn't normally call me. So I was like, what's happened? And she said, they're making the announcement on winter fuel changes at 12. And she gave me a very brief price. She said, do you want to talk to them now? I said, I can't. I need to get home. So I then I was halfway through the run. I'd done 6K. I was meant to be doing 12K.

6:59I was 2.5K from home. That last 2.5K is one of the fastest 2.5Ks I've ever done. I'm going home. I've got to get there. They're making the announcement. I've got to be there before the announcement. So that was how I learned about what was happening. But the most important thing for me is the payment is now universal. Yes, it's clawed back for some, but it's paid automatically. so we don't have this problem of the most vulnerable who are always the hardest to reach missing out. So that is the primary reason I say it's a big improvement. I will leave politicians to debate whether there should be an apology or not.

7:33Not interested. I'm just pleased that we've got a better system. I will also leave others to debate the level of the threshold at£35 ,000 per individual. It's higher than I was actually calling for because I didn't think that they would be putting that much more money towards it. And again, that's a sort of political level. My biggest issue with the old means testing was structural. And the structure has been improved by this. Now, I know we've got a lot of questions. So why don't we get into those now? Well, we actually have a question from a caller called Denise, who I think we've got on the line.

8:03And she she's interested in the universality of it. Sure. Denise, hello. Hello, Martin. Hello. How are you doing? So what is your question? Okay, my question relates to a single-person household of state pension age but under 80 years old. If your total income is over the£35 ,000 threshold and therefore your winter fuel payment is to be clawed back through PAYE or self-assessment, will the whole sum of£200 be clawed back or only the percentage according to your personal tax liability? If 100 % is to be clawed back, then would it be simpler to opt out? And are there any pros and cons in doing so?

8:58OK, Denise, I absolutely understand. So what you're saying is, let's say you earn£40 ,000. you have£40 ,000 of taxable income, you're due to get the£200 payment. Will you, because you're a basic rate taxpayer, just lose 20 % of that income? No, this is a cliff edge, right? This is a cliff edge payment. If you earn£35 ,000 exactly or less, you will get the£200 in your case because you're under 80. If you earn£35 ,000 and a penny, you lose the entire£200. It is not a graduated scheme. It is a cliff edge scheme. It's all or nothing. So in your case, I'm presuming that means you will get nothing. Thank you.

9:45And what I would say is do listen on as we go through, because I want to explain and I will go through the exact definition of what is taxable income. And that's just worth you knowing what counts and what doesn't count towards that. that then would it be simpler to opt out? Possibly yes. Although the opt out mechanism is the one thing that we don't have much detail on yet. But in your particular case, as you're a single pensioner, it's not because the real complexity is, is the opt out individual or is the opt out household? We don't know. It doesn't actually matter. Yet if you are almost certain to have over£35 ,000 income in this current tax year, opting out is the simplest thing for you to do once you're able to do so.

10:28Does that help? That answers the question. Thank you very much. It's not what you wanted to hear, but at least it gives you an answer. Yes. And I don't want to complicate my own tax position. And to opt out might be just simple for me to do. Yeah, I wouldn't have any, you know, I can't think of any reason why you wouldn't want to opt out. I'm going to give myself a slight caveat, Denise, that the opt out details aren't published yet. And when they publish it, there might be a reason. But at the moment, I can't see any reason. Thanks so much for getting in touch. What are we doing next, Simon? Well, we've actually been joined on the line by Elaine.

11:00What? Two callers? You're spoiling me. Right. Hello, Elaine. Hello. Hello. What's your question, please? Right. So I'm a state pensioner. I get my state pension. I also work part time, so I get a salary for that. And in total, I'm just under the£35 ,000 for the winter fuel limit. I also get savings interest, and I've also got interest with my ISIS. So will that be included in the total amount of income? Because if it does, then it puts me over the 35 and I won't get it. Okay, so let's go through exactly what counts as taxable income. So the first thing to say is the means test will be based on your taxable income for the current year, that's 2025-26 tax year.

11:52So to be really technical, the 6th of April 2025 to the 5th of April 2026. And it is all of your earnings that are subject to income tax. Right. Now, so that is any private pension income, the state pension income, people think that isn't taxable, it's always been taxable, employment, self-employment income, any savings interest, so not the amount of savings you get outside of an ISA, right? Right. So the interest you get inside of an ISA doesn't count. the interest you get outside of an ISA does count. Now, just to be really technical, we don't yet know whether premium bond wins count or not.

12:34I'm almost certain they don't count because they're not taxable income, but I'm waiting to get that confirmed. So if it's just your savings interest from outside of an ISA, will that put you over the threshold? No, just under, because I keep it at, like, the£1 ,000 limit. Well, no, hold on. It's interesting you said that. So you're talking about the personal savings allowance, yeah? Yeah. So, while the personal savings allowance is an amount you are allowed to earn of savings interest tax-free, as a basic rate taxpayer, you can earn£1 ,000 of savings interest outside an ISA tax-free. Yeah. That interest still counts towards your tax-free earnings for winter fuel payment.

13:17So let me just do a really simple example. You earn£1 ,000 of interest inside an ISA. Doesn't count. You earn£500 of interest within your personal savings allowance so you don't pay tax on it. That£500 of interest does count towards the£35 ,000 a year threshold. Right. I'm with you, yeah. Now, have you used this year's ISA allowance? Not yet. So then a very obvious thing that you could do is you could move that savings into a cash ISA. Yeah. And then the interest doesn't count and then you won't be over the threshold and you'll get the winter fuel payment. Right. I'll do that then. Yeah, exactly.

14:00So good. So we've solved that. I'm just going to go on just for other people. So you stay with me for a second. If you've got investment dividends outside an ISA, they count. if you get carer's allowance, incapacity benefit and other taxable state benefits, they count. So what doesn't count? The winter fuel payment itself, investment income or savings income with inside ISAs, your tax-free lump sum from your pension, capital gains don't count. And then non-taxable benefits like attendance allowance, disability living allowance, pension credit and personal independence payments don't count towards your£35 ,000.

14:39So that's sort of my rough summary. If it's generally taxable, it counts. If it's generally not taxable, it doesn't count. Hopefully that makes sense. Yeah, absolutely. It does. Yeah. Perfect. Yeah. Well, thank you very much for calling, Elaine. Good luck. And yeah, definitely move it into a cash ISA and then that should keep you below the£35 ,000 and you're a winner. Well done. Yeah, I'll do that today. OK, thank you. Cheers. Right, what's next, Simon? So we've got this question from Angela. Just want to know if the£35 ,000 yearly earnings is gross or net earnings. It's gross earnings. It's your before tax earnings that counts as£35 ,000.

15:17Judy wants to know, will this be income from 2526 or the previous year? Yeah, so what will happen is it's your income in 202526 tax year that counts. And then if you've earned over£35 ,000, your tax code for the next tax year, the 2026-27 tax year, will be altered to claw back. So it's sort of going to work a year in delay if you like. So in next year's income, you will have the claw back for this year's winter fuel payment if you got it. If you already do self-assessment, so you know you do your tax returns, then you won't have it through your tax code. it will be done through the self-assessment system.

16:00But what they are saying is no one will be pushed into doing self-assessment because that's a hassle if you don't need to do it by the winter fuel payment. So if you're currently, the vast majority of people will do it through pay as you earn, an alteration in your tax code, either from your employer or most likely from your private pension provider, which is where most people who are of state pension age are getting their income from. Joanne wants to know, what if a pensioner gets attendance allowance if the receipt of AA takes them over the£35 ,000 threshold, will the winter fuel allowance still be paid?

16:32No. Attendance allowance does not count towards your£35 ,000. It is not a taxable payment. Attendance allowance massively underclaimed, and I would urge people to look at claiming attendance allowance. If you need help during the day or during the night with the basic functions of living, you know washing dressing going to the toilet you may be eligible for attendance allowance but attendance allowance is not a taxable payment therefore that should be not be counted towards your£35 ,000 and if that is the thing that is taking you over it you should and will I hope as long as it all works as they say it will get your full winter fuel payment.

17:14Now I might need an explain on what a unit trust is here but Pam asks what if you have a unit trust? So a unit trust is a form of collective investment. So instead of investing in one single share in a company, it will have a basket of shares. Maybe there'll be American small companies or UK technology companies, and they will all be put together so that you just invest in the unit trust and it moves with the combined underlying movements of the investment that's within there. So if you have a unit trust or any form of collective investment or any form of shares, it's not the capital gain that you make, so you invest£100 and then you sell it for£200, you've made a £100 gain, that doesn't count as income.

17:57What does count of income is any dividend payments that are made to you by having it. A dividend is when you own a share or a collection of shares and they pay income out each year from their profits as a distribution to their shareholders. That income counts as income because it is income. So any dividends you get count towards the£35 ,000, unless those dividends are paid within an ISA wrapper, because ISAs are totally tax-free and that doesn't count. And then one final one for this section. Path Pink wants to know, do you think it will be treated the same way as child benefit, in that the lower paid recipient can get the whole benefit and the higher earner transfers their options out?

18:40No, this is absolutely demarked as an individual assessment. So if an individual earns over£35 ,000, they lose their portion. And if the other individual doesn't, they keep their portion, which moves us on to the next section, actually, which is how the winter fuel payment is split per person. I think you've got a caller on this, haven't you? Yeah, we've got Amanda in Nantwick. Hello, Amanda. What is your question? Hi, Martin. Hello. My question regarding the fuel winter payment is regarding mixed-age couples. Is the criteria based on total household income or is it just based on the pensioner's income?

19:22This is generally an individual assessment with the rare exception of a household where they're entitled to pension credit and then it's done as a couple assessment. But the basic answer is it's an individual assessment. So are we talking about somebody of state pension age married to, say, or partner with somebody of non-state pension age? Is that the situation you're thinking of? Yes, and the non-pensioner earns over£35 ,000. Irrelevant. OK. So, if the state pensioner is married to a non-state pensioner, a partner with a non-state pensioner, the assessment is based solely on the state pensioner's income.

20:01if the state pensioner earns over£35 ,000 they don't get the winter fuel payment if the state pensioner earns under£35 ,000 they do get the winter fuel payment even if they are married to Bill Gates Yeah, okay, that's great That's how it works Now listen, I know some people will be listening out there going this is ridiculous, this is a loophole to enable billionaires and millionaires' spouses to manipulate their finances Well first of all, let's remember this is£200 or£300 quid. It's not exactly big money to billionaires in order to restructure their finances. But ultimately, almost every structure of how they were going to do a clawback on winter fuel payment was imperfect.

20:43I had personally been suggesting linking it to pension credit and council tax bands A to C because I was working on that the government would want to not pay out as much money as it has decided to pay out using this system. And we were told that the tax system couldn't work on an individual basis for this. But anyway, that has all been sorted. So this is an imperfect system. Let's be absolutely plain. But from my perspective, and I may be going slightly too small-pea-political here, if you are given a choice between 700 ,000 vulnerable state pensioners on low incomes not getting it because of the structure of that means test versus a few rich people married to somebody with a low income or partner with somebody with a low income and that person with a low income does get it.

21:31I think the greater evil is having the most vulnerable people not receiving it when they should get it than having a few people receive it when they shouldn't really get it. I mean, they should get it technically, but maybe shouldn't get it morally. I mean, the bigger question there is where the threshold has been set. So I just sort of think it was worth throwing it in there. And I better get myself out of that question. Ask me another question quickly, Simon. Quickly, next question. Well, John actually has a similar question. How will this work where I am, a qualifying pensioner who's 82 years old with a younger partner who is working?

22:03Well, the working is irrelevant to an extent. What matters is, is your younger partner of state pension age? Which in this case means, were they born before the 22nd of September 1959? That's the crucial cutoff point. So if they're born on the 21st of September 1959. They are state pension age for the winter fuel payment if they were born on the 22nd of September 1959 or after they're not state pension age. So if your partner isn't a state pension age, then it is determined solely on your situation. If your partner is of state pension age, then the way it would work... Okay, go with me. So because you're 82, you're a household that gets a£300 payment.

22:49So if you're with somebody who is of state pension age, it is demarked that you get£200 and your partner or spouse gets£100. If you earn over£35 ,000, you therefore don't get£200. If your spouse earns over£35 ,000, she or he doesn't get their £100. So it's sort of, there's a calculation of how towards each individual. Each individual gets of payment. So if you're a state pensioner aged over to 80 and you are the only person in your household who's a pensioner, you get all£300 and whether you keep that depends on whether you earn over£35 ,000. If you're with another state pensioner under 80, then in that case it's demarked as£200 for you and£100 for the younger partner and each is treated individually whether you're over£35 ,000.

23:41If your partner was younger than you but over 80, which I'm pretty sure they're not, by the way, you phrased the question, but let's just go for it for everybody else listening. So let's say you're 82, they're 81, then the payment is£300, but it's demarked £150 to you and£150 to your partner. And if you're both under 80, where you're getting£200, then obviously it's£100 each, it's demarked. So in almost all cases, the main way this works is the winter fuel payment is split amongst pensioners in the household, if you're in a two pensioner household. The only exception is if you get pension credit, which is for those on the lowest incomes, where it's deemed as a household payment.

24:23But in that case, neither of you will be earning over£35 ,000 because you wouldn't be eligible for pension credit if you were earning over£35 ,000. So I don't need to go into those scenarios. And I should state at this point, While winter fuel payment is no longer going to be linked to pension credit, there are still 700 ,000 people out there eligible for pension credit who are missing out on it, and it's typically worth over£4 ,000 a year. So if you are a pensioner and your total income is low, so that's income from any earnings and income from any private pension, income from your state pension, which may not be the full state pension, if it's low, check whether you're entitled to pension credit, because you might be missing out on both a large payment each year, and it's also a gateway to many other entitlements.

25:07What's next? Perfect. Ramji, if a husband earns£36 ,000 and wife has income of£15 ,000, would they qualify to receive any winter fuel payments? If they're both of state pension age, then yes, because the wife's portion would qualify for winter fuel payments. If the wife is not of state pension age and the husband is, then no, because it's all based on the husband's earnings because he is the only state pensioner. Final question on this specific section. Anita, what if there's three pensioners living in the same house? Ah, the famous pensioner thruple question. Although more likely, perhaps, than a pensioner thruple.

25:45I love saying pensioner thruple. I might say it one more time. Pensioner thruple. Perhaps a more likely scenario is two people who've just hit state pension age living with one of their parents. I think it's probably a more likely scenario. Or, you know, people in a house share situation. OK, let's get on to this, because this is where it gets really complicated. Deep breath, everyone. The amount you get depends first on your age and secondly on your income. So, if you are not a household that claims pension credit, each individual in a three or more pensioner household will be paid at least£100.

26:24Now, that could increase to£150 or£200 based on the ages of other people in the household. So if all are aged 66 to 79, each person is paid the£100 starting amount. So if there are five pensioners in a household, even though I had been saying earlier, you know, it's either£200 or£300 per household, in that rare event, it would be£500 per household, with each one demarked£100 each, and each one judged on whether they get it clawed back through their taxable income, depending on whether they earn over£35 ,000 or not. If one person is aged 80 and the rest are 66 to 79, the person aged 80 is paid 200 quid and the rest are paid£100 each.