Rachel Reeves stunned millions when she abolished the winter fuel payment for anybody not claiming pension credit, just weeks after the election in July 2024. It was the first major sign that Reeves hasn’t got a clue. The disasters and U-turns have come thick and fast ever since.
Reeves snatched the winter fuel payment from more than 10million pensioners, so that only around two million of the very poorest would qualify. The backlash was immediate and ferocious. Eventually, Sir Keir Starmer forced Reeves into a humiliating U-turn. She then unveiled a new, fiendishly complex system that operates for the first time this winter. And it’s about to confuse pensioners.
Instead of restricting winter fuel payments upfront, everybody will receive the cash. However, those deemed to have earned too much money that year will be forced to hand it back. Now pensioners are waking up to what that means. It isn’t a simple tweak. It’s a fundamental rewrite of how a previously universal benefit works, and it shifts the burden squarely onto older taxpayers to sort out the consequences.
Under the revised rules, winter fuel payments of up to £300 will be paid as normal. Pensioners aged under 80 get £200, while those aged 80 or over receive £300. But there’s a new £35,000 income threshold.
Any pensioner whose total income from work, pensions or savings exceeds that level will have to repay the full amount, via their tax bill.
HMRC has begun issuing new tax codes to state pensioners to claw the money back. Those who complete a self-assessment tax return will settle up that way. Everybody else will see their PAYE tax code altered.
HMRC says pensioners must wait for the taxman to collect the money and cannot repay it early. For the 2025/26 tax year payment, recovery will take place through the 2026/27 tax code.
A typical £200 payment will mean roughly £17 extra tax per month, going straight on pensioners’ tax bills. Pensioners will receive a letter or a notification via the HMRC app confirming their new code. This is where the chaos begins.
Instead of a clear entitlement, we now have a system where HMRC pays pensioners first, then decides later whether they were too “rich” to keep it. The clawback will be buried in tax codes that many already struggle to understand.
If HMRC fails to collect the full amount through the adjusted code, it will issue a tax calculation and chase the balance. The majority will repay automatically via PAYE, HMRC says, while those in self-assessment will settle through their return.
That may sound neat on paper. In practice it’s another layer of bureaucracy, another source of uncertainty and another opportunity for errors. This convoluted mechanism will cost money to run and will leave pensioners guessing what they owe and when. It’s an unnecessarily complex fix to a problem of the Chancellor’s own making, and we’re now stuck with it. And it means for all Reeves’s fiddling, she’ll save next to nothing. As ever, she’d have been better off doing nothing at all.