Winter Fuel Payments: even wealthier pensioners are holding on to the benefit

Fewer than 200 pensioners have opted out of the Winter Fuel Payment this year, new figures reveal.

This year’s energy bills are likely to be brutal despite the latest Government measures to help ease the pressure on our finances.

The energy price cap was already hiked back in April, and is set to be increased substantially once more later this year, with forecasters expecting it to hit around £2,600.

Just to add to the fun, the energy regulator Ofgem is now looking to have the ability to increase the cap more frequently in future too.

It's going to leave many households struggling to pay for to keep their homes warm this coming winter.

Read our top tips for cutting your energy bills

Winter Fuel Payments can help - for some

One area of help that's solely available to older people is the Winter Fuel Payment.

Interestingly, new figures suggest that even the well off who receive the payment are choosing to keep hold of the money, rather than opt out of the scheme altogether.

A Freedom of Information request from financial advice firm Quilter has found that only a tiny fraction of older people are opting out of receiving the Winter Fuel Payment.

According to data obtained from the Department for Work & Pensions, just 186 pensioners have opted out of the payment in 2021/22. That works out at a paltry 0.002% of pensioners.

This is a notable drop from the 846 who opted out of the payments in 2020/21.

Somewhat unhelpfully, there are no figures available for earlier years to demonstrate whether this is a longer-running trend or simply a one-off response to the current cost of living crisis.

How does the Winter Fuel Payment work?

The Winter Fuel Payment is paid out to people born before 26th September 1955.

It is normally worth between £100 and £300, but this year it will be worth up to £600 because of the one-off 'pensioner cost of living payment' recently announced by the Government.

It is designed to provide older people with some financial help for the energy bills run up over the winter months when our heating use goes up. 

It is a little unusual in that the Winter Fuel Payment is paid to everyone receiving the State Pension; there is no element of means-testing involved to ensure it only goes to those who need it.

Child Benefit used to work somewhat like this, in that it was paid to all parents, until it was revamped a few years ago so that it’s only paid to households where no member is a Higher Rate taxpayer.

Why aren’t more people opting out?

There have been campaigns in the past urging well off pensioners to opt out of receiving the Winter Fuel Payment, since they don’t really need it and that money could be better spent elsewhere.

There have also been some high profile older people who have very publicly gone about opting out, or at least donating the payment to those in need.

So why isn’t it happening more often? I think there are a handful of reasons.

There is a misconception that all older people are well off, particularly if they happen to live in an expensive house.

But this isn’t true, certainly not across the board.

The reality is that the frankly silly scale of house price growth over the last few decades has meant that some older people have seen the value of their home skyrocket, but their regular income has remained somewhat modest.

Just because you are living in an expensive asset, that doesn’t mean you also have access to plenty of cash.

Indeed, this situation has been a driver in the growth in equity release that we have seen in recent years, with increasing numbers of older people using this form of loan to unlock some of the value of their home to supplement their pension income.

There is also a question of ease. It’s generally accepted that opting out of receiving the Winter Fuel Payment is not as straightforward as it should be. In fact, this was an argument made by Lord Alan Sugar who ended up donating the money to charity. 

It seems bonkers to me that telling the Government you no longer want to receive a benefit is any more tricky that making a simple phone call.

It would be all too easy to say we can do it all online, but given we are talking about older people here I think it’s a dangerous assumption to think that an online centre will be the answer.

Finally, there will inevitably be some who have opted to take what they can get. Sure, they don’t need the money but if it’s on offer, why not pocket the cash. 

There’s no way of knowing quite how many fall into that latter group; it can be easy to get caught up thinking there are plenty of wealthy boomers acting in this way, but this isn’t really fair.

Who really needs the money?

What might appear to be the obvious answer is to adapt the payment, so that it only goes to the poorest households, the ones who most desperately need that cash.

After all, if we aren’t handing the money to rich pensioners, then we can instead offer more money to those receiving the payments.

Again, this may not be entirely true. One of the appeals of a universal payment like the Winter Fuel Payment is that it’s dead simple to do ‒ the money is paid out to everyone once they hit a certain age.

There’s no further investigation or work required, which makes it pretty simple to manage.

Things change somewhat when there are criteria that need to be met, since you need to have staff overseeing the payment and who gets it.

The cost of that administrative side starts to eat into the money you have at your disposal for the payments, and may mean that there is no real saving to be made.

Given the cost of living crisis, I can’t say I particularly blame older people for keeping hold of the Winter Fuel Payment, even those who might seem to be on the wealthier side of things.

This should be a reminder however that there are people receiving the payment who don’t really need it, and if revamping the system means that we can pay more to those most in need, then those changes should be implemented as soon as possible.