The number of pensioners missing out on the winter fuel payment could rise by half a million in the next five years, according to analysis.
The Government has announced that money to help pensioners pay their energy bills will now be awarded to those earning £35,000 or less, after initially restricting the payment to those on pension credit only.
It was announced on Monday that the change will cost around £1.25bn in England and Wales, and that means-testing the payment will save about £450m.
But analysis from former pensions minister Sir Steve Webb suggests that the number of retirees missing out on the payment is set to increase by the end of the decade.
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This is likely because the Government plans to freeze the £35,000 threshold at which the winter fuel payment is made, while the pensioner population will grow during the next few years.
Means-testing the winter fuel payment was only expected to save £1.45bn overall in 2024/25, and was not expected to save £1.7bn until 2029/30.
Therefore, Webb said, the £450m saving figure given by the Government on Monday can only refer to the 2029/30 tax year.
He said the fact that the Government expects the policy to eventually yield £450m suggests that the number of “losers” is expected to grow.
Based on his analysis, out of two million pensioners currently on incomes over £35,000 or more, roughly half are in couples aged under 80, who will generally lose just £100 each.
Taking into account older couples and single pensioners who will lose £200 or £300, the average loss is expected to be in the range of £150 to £200.
On an average loss of £175, his calculations would imply that 2.5 million people will miss out by 2030 and that the policy will only generate £350m next year.
He said: “The Government’s own figures clearly suggest that they expect the number of losers from the new policy to rise each year.
“If the £35,000 threshold is frozen, then annual increases in state and private pensions will drag more and more pensioners over the limit each year, losing their winter fuel payment in the process.
“With around two million pensioners currently over the £35,000 threshold, this number could easily rise by another half a million by 2030. This could end up being another way in which governments use inflation to quietly raise additional revenue year by year.
“Our analysis also suggests that the new policy will raise less money next year than the headline figure quoted of £450m. Assuming an initial yield of around £350m, roughly two-thirds of this will be wiped out by higher pension credit costs. The net revenue from the policy is likely to end up barely a tenth of the amount banked by the Chancellor when she presented her last Budget”.
The new payment system has come under some criticism from experts for unfairness.
Payments will initially be made to all households. Those who earn more than £35,000 can opt out, or the money will be recovered via PAYE for the majority, or in their self-assessment tax return for the minority.
The way the payments have been designed means that eligibility is partly down to individual income, so some couples could still receive some money even if collectively they earn very high incomes.
The payments are worth £200 for eligible households, or £300 for households with someone aged 80 or over.
HM Treasury was contacted for comment.
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