PensionBee noted that the new Chancellor Rachel Reeves has announced the end of the Winter Fuel Payments for those not receiving Pension Credit.
PensionBee explained that the one-off yearly payments have helped pensioners “with the often higher cost of heating in the winter months.”
Pension Credit is a state benefit “for lower income retirees, separate to the State Pension. However, it often goes unclaimed.”
PensionBee further noted that Pension Credit tops up your weekly income “to £218.15 per week and tops up your joint weekly income to £332.95 if you have a partner.”
Whereas the standard rate of the full new State Pension “for tax year 2024/25 is £221.20 per week.”
PensionBee explained that those whose only income is the full new State Pension will “lose their entitlement to the Winter Fuel Payment which could be up to £300.”
The UK government estimates that “just 6-in-10 people who’re eligible for Pension Credit make an application.”
PensionBee also mentioned that this could be costing those on the lowest incomes thousands of pounds.
Your income includes your State Pension, any workplace or personal pensions, employment or self-employment earnings and most state benefits. As with the State Pension, it’s “up to you to claim Pension Credit.”
PensionBee further noted that many people mistakenly believe if they “have some savings or their own home they won’t be entitled to it.”
Whereas others are worried about a perceived stigma attached to claiming.
However, eligibility is wider than often “assumed and Pension Credit can be a real lifeline.”
PensionBee added that those receiving Pension Credit are also entitled to other valuable benefits such as dental treatment and free TV licences.”
You can check eligibility with a benefits adviser or “via the government’s online Pension Credit calculator.”
PensionBee noted in a blog post that the government’s decision to scrap Winter Fuel Payments “for most pensioners is a second recent blow to the retired community.”
It follows the news that 140,000 pensioners are “set to receive tax demand under the ‘simple assessment‘ process.”
For some, this’ll be the first time since they retired. This is because the tax-free personal allowance has “remained frozen at £12,570 while the State Pension rose by over 10% in April 2023.”
So for many, their State Pension and private pension income “has now exceeded the income tax threshold.”
PensionBee added that people usually have until January 2025 “to pay the bill and can pay in instalments if they wish, provided the total bill is paid by the deadline.”
HMRC have an online guide with more information for pensioners who receive a demand.
Ways to generate tax-free income
For pensioners looking to make up for the shortfalls “from these double blows, one effective way is to make the most of your tax-free allowances.”
Maximise tax-free interest from savings
Most basic rate taxpayers usually receive up “to £1,000 in interest from savings accounts each year without paying tax.”
PensionBee further explained that this is known as the personal savings allowance. Higher rate taxpayers can receive up to £500.”
If your income is less than the personal allowance “of £12,570 (for tax year 2024/25) you also have the £5,000 starting rate for savings.”
You get the personal savings allowance “on top of that.” So you could have “an income of £12,570 plus £6,000 in savings interest before having to pay any tax.”
As noted in the update from PensionBee, this is scaled back so for every £1 of non-savings income “over your personal allowance, you lose £1 of your starting rate – if you earn £17,570 you don’t get the starting rate for savings at all.”
The rules around the starting rate “for savings can be complex, so it’s worth reading this guide from MoneySavingExpert.”
Use a Stocks & Shares ISA to generate income
You can take bond income or dividend income “free of tax in a Stocks & Shares ISA – or cash in your investment and take it out without paying capital gains tax (CGT).”
PensionBee added that this can be “a useful way of boosting your income without having to worry about going over a tax threshold.”
Couples can share assets to double their tax-free allowances
If you’re married or in a civil partnership, you can “both take advantage of your respective personal allowances, dividend allowances and ISA allowances.”
Tax-free pension withdrawals
If your retirement income includes “workplace or personal pensions, remember you can only withdraw 25% of the money tax-free.”
PensionBee pointed out that the remaining 75% will be subject to income tax. So it’s well worth thinking “about when, and how much you withdraw from these pensions. Read more about pension drawdown tax.”