Around three million higher-income pensioners are seeing deductions from their state pension payments as HMRC claws back Winter Fuel Payments. The deductions, which began this year, amount to approximately £17 per month and are set to rise to £33 per month from April 2027.
The changes affect pensioners with a total income over £35,000. Under the current system, all pensioners initially receive the annual Winter Fuel Payment, but those above the income threshold must pay it back through their tax code. HMRC collects the money in instalments over the following year.
How the Deduction System Works
According to the Government, if your total income exceeds £35,000, you will need to repay the Winter Fuel Payment. HMRC automatically adjusts your tax code unless you file self-assessment tax returns. For a typical payment of £200, this means a deduction of approximately £17 per month during the 2026 to 2027 tax year.
The Government explained: "If your total income is over £35,000, you’ll need to pay back the payment. HMRC will automatically collect the payment through your tax code unless you already file self-assessment tax returns."
"This means we’ll change your tax code for the 2026 to 2027 tax year. For a typical payment of £200, we’ll deduct approximately £17 per month."
Deductions Rise in 2027
In the 2027 to 2028 tax year, the monthly deduction will increase to approximately £33 for a typical £200 payment. This is because HMRC will be collecting payments from both 2026 and 2027 in that year. The deduction will then return to around £17 per month for the 2028 to 2029 tax year.
This system, while potentially confusing, is designed to simplify the process of distinguishing between those who qualify for the Winter Fuel Payment and those who do not. The changes were introduced under the previous Labour Government and remain in place under Andy Burnham and new Chancellor John Healey.
Impact on Pensioners
Despite the deductions, the state pension increased this year by hundreds of pounds under the triple lock rule. However, the net effect for higher-income pensioners is a reduction in their monthly pension income.
The £35,000 income threshold means that around three million pensioners are affected. These individuals receive the Winter Fuel Payment initially but then have it reclaimed through their tax code, effectively reducing their annual pension income by the amount of the payment.
For many, the deduction is a manageable adjustment, but it represents a significant change for those who previously received the full Winter Fuel Payment without any repayment obligation. The system ensures that only those with lower incomes retain the benefit, aligning with the government's policy to target support more effectively.
Pensioners affected by these changes may need to review their finances and plan for the reduced monthly payments. The government has stated that the process is automatic, and no action is required unless the individual files a self-assessment tax return.
