Will state pension increases offset the impact of Winter Fuel Payment changes?

“Because we are taking tough decisions, we can commit ourselves to the triple lock, and that means that the state pension will increase by more than any loss of the Winter Fuel Payment.”

During Prime Minister’s Questions this week the Prime Minister Sir Keir Starmer claimed that the state pension “will increase by more than any loss of the Winter Fuel Payment”.

State pension payments are expected to increase in the 2025/26 financial year by 4%. For someone receiving the full new state pension this would mean an increase of approximately £460, and for someone receiving the full basic state pension an increase of about £350.

Mr Starmer’s comments refer to the fact that these figures are higher than the value of the Winter Fuel Payment, which provides pensioners with either £200 or £300 to go towards paying for heating bills over the winter.

The Winter Fuel Payment was previously available to everyone receiving a state pension. However in July the government announced that from this winter it would only be paid to those receiving Pension Credit or certain other qualifying benefits, meaning the majority of pensioners will no longer receive it.

It’s worth noting that this change takes effect this winter, whereas the increase in the state pension will take effect at the start of the next financial year in April 2025, so the loss of this year’s Winter Fuel Payment won’t be offset.

Mr Starmer’s comments refer to the cash terms increase in the state pension. As was pointed out by Steve Webb—a former Liberal Democrat MP who served as pensions minister in the Conservative-Liberal Democrat coalition government: “Based on the current inflation figure of 2.2%, the new state pension would need to rise by just over £250 simply for pensioners to stand still… only the further £210 represents a real increase.”

This implies that the real terms increase to the full new state pension next year is set to be less than the value of the Winter Fuel Payment for those who received the higher amount, though more than the value of the Payment for those who received the lower amount.

We’ve contacted Number 10 for comment and will update this article if we receive a response.

Longer-term increases

Writing in the Daily Telegraph earlier this week, Chancellor of the Exchequer Rachel Reeves claimed: “The full new state pension alone will be worth around £1,700 more by the time of the next election.”

This is correct for the full new state pension based on the expected increase of 4% next year, and Office for Budget Responsibility (OBR) forecasts for the triple lock from 2026/27 to 2029/30, and would represent an average annual increase of just under £350.

Over the same period the full basic state pension could increase by around £1,300—an average annual increase of about £260.

So while under these forecasts the cash terms increase to the new state pension is set to offset the loss of the Winter Fuel Payment over this period, for those receiving the basic state pension it will only offset the lower amount.

This doesn’t take into account other benefits pensioners may receive (for example, Pension Credit, or the warm homes discount) or additional income from other sources, such as private pensions. These figures also refer to the full state pension amounts—it’s worth noting not all pensioners receiving the state pension are entitled to the full amount.

What about tax?

Another issue impacting the state pension is the ongoing freeze to the Personal Allowance (the amount you can earn without paying income tax).

The Personal Allowance is currently set to remain at its current level of £12,570 until at least 2028, instead of increasing in line with inflation each year, as is the default.

As we’ve explained previously, this means that, based on current forecasts, the new state pension is set to increase beyond the Personal Allowance by 2027/28, meaning that for the first time someone whose sole income is from the full new state pension would have to pay income tax (albeit only on a small amount of their pension).

The basic state pension is not expected to increase above the Personal Allowance over the forecast period.

It’s worth noting the vast majority of pensioners receive additional income beyond the state pension (for example, through workplace private pensions). The Institute for Fiscal Studies estimated last year that in 2022/23 almost two-thirds of pensioners paid income tax.