Strategies for elevating your eligibility for the Winter Fuel Payment
Pensioners on a tight budget, with an income of under £35,000, are set to receive the Winter Fuel Payment this year. However, around one-fifth of retirees may miss out as the government adjusts eligibility rules. Now, about 9 million pensioners in England and Wales will receive the benefit, leaving around 2 million people over state pension age ineligible due to annual incomes exceeding £35,000.
If you're concerned you won't qualify because you earn more than £35,000 per year, fret not. We've got some clever financial tricks up our sleeve that won't just boost your chances but could save you on taxes too.
Head of retirement analysis at Hargreaves Lansdown, Helen Morrissey, shares her insights: "The government only looks at your taxable income. So, there are simple things you can do to reduce this, which means you can qualify for the Winter Fuel Allowance and even save on taxes."
1. Stash your savings & investments in ISAs
The £35,000 threshold is based on an individual's taxable income, not their total income. So, make the most of Individual Savings Accounts (ISAs). Any interest you make from cash or stock ISAs doesn't count towards your taxable income while interest on non-ISA savings or taxable income from investments will be included.
Jeremy Cox, head of strategy at Coventry Building Society, points out: "Interest earned on savings held outside of ISAs count towards total taxable income - even modest savings can generate income that pushes someone over the threshold."
Optimize your savings and watch the Winter Fuel Payment come your way!
2. Get lucky with Premium Bonds if you've maxed out your ISA allowance
If you've already maxed out this year's ISA allowance, and have significant savings where the interest might push you over the threshold, then consider buying Premium Bonds.
Winnings from Premium Bonds are tax-free, so they won't be part of your taxable income.
3. Take your pension tax-free cash wisely
Smart pension moves can help secure the Winter Fuel Payment while boosting your retirement income. Take the 25% tax-free cash from any workplace or personal pensions, which is not taxable income. However, any other pension income after that becomes taxable.
Consider combining pension and ISA income to stay below the threshold while still getting the income you need. For example, reducing your pension income and supplementing it with ISA withdrawals could keep your taxable income down.
4. Defer your state pension if you've planned it right
If you defer claiming your state pension, you can get a larger payment later. But deferral means you'll lose out on a year's worth of state pension income now – is it worth the higher pension down the line? Consider the pros and cons before making a decision.
5. Transfer assets to a spouse with lower income
A neat trick for couples where one individual earns above the £35,000 threshold and the other below it – both can claim the Winter Fuel Payment! Just shift income from the higher earner to the lower earner to keep the total taxable income below £35,000.
6. Disregard certain benefits when calculating income
Many benefits like Attendance Allowance, Pension Credit, and the Winter Fuel Payment itself are not taxable. So, enjoy the benefits without worrying they'll affect your Winter Fuel Payment eligibility.
But remember, some benefits like Carer's Allowance are taxable, so remember to include them when checking your eligibility for the Winter Fuel Payment.
7. Donate to charity
A forgotten strategy - making donations to charity using Gift Aid can provide tax relief, which can help reduce your taxable income. So, give back to your community while boosting your chances of receiving the Winter Fuel Payment.
Remember, tax laws and regulations change frequently, so keep up-to-date with changes and seek professional advice if needed. These strategies can help you secure financial gains while potentially qualifying for benefits like the Winter Fuel Payment, making your golden years a little brighter!
- Money accumulated in Individual Savings Accounts (ISAs) does not contribute to your taxable income, making them an excellent choice for pensioners on a tight budget as they aim to remain eligible for the Winter Fuel Payment.
- If your ISA allowance is maxed out and you have substantial savings, consider buying Premium Bonds as winnings from these bonds are tax-free, helping keep your taxable income low.
- Smart pension management, such as taking the 25% tax-free cash from any workplace or personal pensions and strategically combining pension and ISA income, can help pensioners stay under the £35,000 threshold while ensuring they receive the Winter Fuel Payment and securing their retirement income.
