Pension Credit claims eat into Winter Fuel Payment savings

New analysis by Policy in Practice finds that the rise in Pension Credit claims is likely to eat into the government’s savings earlier than first thought.

• The Treasury’s budgeted spend could be reached as early as this week
• The expected increase in take up is likely to be reached in the next six weeks

There have been 45,000 additional claims for Pension Credit since the announcement on Winter Fuel Payments. Additional claims will lower the savings from the Winter Fuel Payment cut, with the upside of lower social care costs and improved health and wellbeing for the poorest pensioners.

With 12 weeks to go to the deadline for applying for Pension Credit and getting the Winter Fuel Payment, Policy in Practice is working with leading local authorities across the country to let eligible residents know that they can claim.

By making the Winter Fuel Payment a means tested benefit tied to claims for Pension Credit, the government projected savings of £1.4 billion per year, while taking into account anticipated a £370 million increase in Pension Credit expenditure.

New analysis from Policy in Practice suggests that savings from changes to the Winter Fuel Payment are likely to be cancelled-out much sooner than expected, with the government set to hit its predicted expenditure level as soon as next week.

The government’s savings calculations were based on an assumption of a rise in Pension Credit applications by 95,000, with each new claimant receiving an average of £3,900. This would result in additional Pension Credit expenditure of £370 million a year.

This estimate was discussed on the BBC Radio 4’s More or Less programme where they reached the lower £2,677 estimate shown below. However, once we factor in other related benefits that people on Pension Credit can claim, the actual average spend per Pension Credit claim is expected to be much higher.

* Publicly funded benefit

Pension Credit is currently claimed by around 1.4 million people, with each recipient receiving an average of £3,900 per year. Those not currently claiming are likely to be eligible for less, which we account for in the table above.

In addition, Pension Credit is more than a direct financial benefit; it unlocks further support for older people. When factoring in benefits like Housing Benefit, Council Tax Support, the Winter Fuel Payment, and others, the total average value of claiming Pension Credit could be as high as £7,223 per year.

This discrepancy has significant implications for the policy’s long term financial impact. Using this revised figure of £7,223 for how much a pensioner claiming Pension Credit can gain, just 51,300 additional claims will exhaust the government’s £370 million allowance, compared to Treasury’s 95,000 estimate.

Even if we ignore the social tariffs and look only at publicly funded benefits, the total cost per new claim is £6,799. This means that 54,500 additional claims will exhaust the government’s £370 million allowance.

The government released new figures today that show that since the Winter Fuel Payment announcement on Monday 29 July 2024, the number of Pension Credit applications has surged, putting the initial savings estimates at risk. In just eight weeks, applications have increased by 152%, exceeding government expectations.

We have extrapolated the increase in claims, and find that the increase in spend assumed by the Treasury from increased Pension Credit take up (£370 million) could be reached as early as next week. That means that for as long as this surge continues, it will be eating into the £1.4 billion saving estimate.

Looking now just at the number of claims, if current new claim rates continue, we estimate that the 95,000 additional claims will be hit within six weeks, by mid November. This may be conservative, as DWP and local authorities will soon be launching their targeted uptake campaigns.

At the current rate of increase, we expect that the government’s assumed level of spend will be reached by the end of September, and the assumed take up level will be reached by mid November.

Given that the government has promised to honour Winter Fuel Payments for claims until Saturday 21 December, we anticipate the 95,000 additional claims figure will be well and truly exceeded.

If the current trend continues the total cost of Pension Credit and other benefits will far exceed budgets, potentially erasing all of the Winter Fuel Payment savings.

While the government factored in a £370 million rise in Pension Credit expenditure when reaching its £1.4 billion in savings, the £1.4 billion in savings would be entirely wiped out if Pension Credit take up rises by 259,000 additional claimants. Presented differently, that take up of Pension Credit increases from 63% of eligible pensioners as it is today to 73%.

We don’t think that the changes to the Winter Fuel Payment are a false economy.

Deven Ghelani, director of Policy in Practice, stated:

It’s great news that more pensioners are getting the financial support they need. The increased income for some of the country’s poorest elderly citizens can have wider benefits, providing much needed relief during a cost of living crisis.

Policy in Practice has seen unprecedented demand, with one in five local authorities looking to run Pension Credit take up campaigns in the lead up to Christmas. Policy in Practice’s targeted takeup campaigns are using Housing Benefit and council tax support data to drive an increase in take up.

While this means the change is unlikely to save the Treasury as much money as it hoped, it has meant a life changing boost in income for hundreds of thousands of pensioners living in poverty.

On More or Less presenter Paul Lewis made the point that the Treasury would not really care about passported benefits, they don’t pay for social tariffs or the TV licence for example.

Even factoring this in, and the impact of Policy in Practice’s targeted campaigns where claimants are already receiving Pension Credit, the cost to the government is still likely to be higher at £6,799 per person.

Local authorities and organisations are also using these campaigns to target pensioners whose incomes sit just above the Pension Credit threshold. With the Pension Credit threshold set at £218 a week for a single person and £333 a week for couples these pensioners are likely to still struggle.

By helping these people to access the Household Support Fund they can avoid some of the pitfalls of missing out on essential support such as the Winter Fuel Payment, but there would be less funding for others needing support.

The increased awareness and take up of Pension Credit also have wider societal benefits.

We work with one in five local authorities across the UK and many have seen an economic boost for pensioners, fiscal savings through lower social care costs, lower social care and council tax arrears, and a societal boost as pensioners engaged with third sector partners, many for the first time.

These direct effects won’t include the positive impact on the health and wellbeing of pensioners, helping to relieve the burden on the NHS and social care sector as well.

While the financial impact on government savings is clear, the increase in take up also means that more pensioners are receiving the vital support they need during these challenging times.

As we look ahead, it remains to be seen whether the government’s savings target will hold or whether applications for Pension Credit will continue to rise. Either way, this analysis highlights the importance of ensuring that the most vulnerable in society receive the support they are entitled to.

• Find out how much Pension Credit is unclaimed in your area and how many pensioners have income just above the Pension Credit threshold here
• Learn how Policy in Practice’s LIFT platform is helping one in five local authorities to run Pension Credit take up campaigns here
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