I read your article about the Winter Fuel Payment and the HMRC limit of £35,000.
I have a small private pension plus my state pension. I now need to draw a lump sum of money from my pension pot, which I built up for nine years during self employment, to replace my ‘clapped out’ car.
This could take me over the £35,000 income for the year.
Do I now need to return my Winter Fuel Payment? We can’t really afford to take out a loan for the car, nor would we want to with sufficient funds sitting in my pension pot.
Am I now to be punished once again for putting things in place for my old age?
Steve Webb: Scroll down to find out how to ask him YOUR pension question
Steve Webb replies: If your total income from your state pension, regular private pensions and lump sum pension withdrawal takes you over the £35,000 limit, then yes, your extra tax bill next year will wipe out the value of your share of this year’s Winter Fuel Payment.
However, it is worth remembering that, assuming you and your partner are under 80 and not receiving benefits, you are probably each receiving an equal share of the total £200 Winter Fuel Payment.
It is only your share (typically £100) which is at stake if your income goes above £35,000, rather than the total household payment.
There are some further aspects of this which might be worth bearing in mind.
The first is that what affects your WFP is your individual income, not the combined income of you and your spouse or partner.
This means that if your partner had access to a pension pot or other savings and could do this without taking their income above the £35,000 limit, then the car could be purchased without affecting the payment at all.
Alternatively, if your partner was able to make some contribution to the car, but not the full amount, another option would be for you to chip in by taking a smaller pension withdrawal to ‘mop up’ any spare income between your current annual figure and the £35,000 limit.
You could do this without affecting your WFP entitlement.
Depending on the state of your ‘clapped out’ car, another angle to think about is whether you could hold on until the end of this tax year.
If so, you could take your withdrawal in two lumps, one before 6 April 2026 and one afterwards. Provided each individual lump kept you within the limit, then your WFP would be unaffected.
How do you send back a Winter Fuel Payment?
Turning now to your comment about ‘returning’ your WFP, it’s worth being clear how the process will work from this winter onwards.
Under the new system, everyone who is over state pension age should be paid a WFP in full, regardless of their income.
HMRC will then identify at the end of the year those individuals who had income over £35,000 and will add an amount to their tax bill to offset the WFP they received the previous winter.
So you are not exactly ‘returning’ the WFP, you are simply facing a slightly higher tax bill next year.
If you prefer, the Government has said that it will be possible, in principle, to opt out of the WFP system.
But in your situation, where your income is only temporarily over the limit for one year, it’s hard to see what you would gain by doing this.
It would probably be far simpler to simply get a WFP, put it in the bank and earn a bit of interest, and then use it to help pay your increased tax bill for one year.
If you are determined to avoid this situation you could in principle opt out this year, and then (presumably) opt in again the following year, but we have yet to see any details as to how all of this will work and how bureaucratic the whole process will be.
SIPPS: INVEST TO BUILD YOUR PENSION
AJ Bell
AJ Bell
0.25% account fee. Full range of investments
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing, 40% off account fees
Interactive Investor
Interactive Investor
From £5.99 per month, £100 of free trades
InvestEngine
InvestEngine
Fee-free ETF investing, £100 welcome bonus
Prosper
Prosper
No account fee and 30 ETF fees refunded
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
