It means that the winter fuel payment will now be targeted so that those most in need get support, instead of paying it to all pensioners of a certain age regardless of income.
Paul Johnson, the director of the Institute for Fiscal Studies, called it a “sensible” choice which would save the country around £1.5bn.
Anna Soubry, a former Conservative minister, also welcomed the move – saying the winter fuel payment “should be paid to those most in need – not across the board including to millionaires”.
But there are fears about the impact this might have on pensioners, of whom 2.1 million in the UK are living in poverty.
Pensioners on the lowest incomes can get an additional benefit known as pension credit to help them survive, and these people will still get the winter fuel payment.
Yet up to £2.1bn in pension credit went unclaimed in the financial year ending 2022, according to the most recent government estimates. That means up to 880,000 families missed out on an average of £2,200 per year.
Caroline Abrahams, charity director at Age UK added: “We strongly oppose the means-testing of Winter Fuel Payment because our initial estimate is that as many as two million pensioners who badly need the money to stay warm this winter will not receive it and will be in trouble as a result – yet at the other end of the spectrum well-off older people will scarcely notice the difference – a social injustice.
“A big reason for this disastrous outcome is that more than one in three pensioners entitled to pension credit, the qualifying benefit for winter fuel payment under this proposal, don’t receive it, a proportion that’s been roughly constant for many years.
“More than 800,000 older people living on very low incomes – under £218.25 a week for single pensioners and under £332.95 for couples – who are already missing out of the pension credit they are entitled to get to boost their incomes, will now lose the winter fuel payment that helps them to pay their fuel bills.”
Rachel Reeves said she would promote awareness of pension credit and work with elderly people’s charities to ensure that more people claim the benefit if they are eligible.
Abrahams said: “There are also about a million pensioners whose weekly incomes are less than £50 above the poverty line, who will also be hit hard by the loss of the payment. Older people in this group often tell us they really struggle financially; the proposed change will make it even harder for them to afford to stay warm when it gets chilly.”
Morgan Vine, the head of policy and influencing at Independent Age, said that the moves risks “driving hundreds of thousands of people into financial hardship”.
“Every day, we hear from older people who just miss out on pension credit but still struggle to pay their energy bills. They could now be heading into winter without this important lifeline,” Vine said.
“We understand the UK government needs to make some tough choices, but today’s announcement demonstrates just how important it is for all older people living facing financial hardship to receive the money they are entitled to.
“We also hope the new UK government will take this opportunity to work cross party to determine what an adequate income in older age is and ensure that everybody receives it so that nobody lives in poverty in later life.”
Simon Francis, coordinator of the End Fuel Poverty Coalition said: “When Rishi Sunak threatened to axe Winter Fuel Payments in September 2023 we said that this could be a death sentence for pensioners who are only just about managing to keep out of fuel poverty.
“Nothing has changed. Energy prices are still high, people are still struggling with the cost of living and this dangerous decision by the chancellor could condemn pensioners to living in cold damp homes this winter.”
Martin Lewis, the founder of MoneySavingExpert, added: “The targeting of winter fuel payments is too narrow with the winter we have coming. Pensioners were already due to get less as this will be the first time since winter 2022 they haven’t got the up-to-£300 extra winter fuel cost of living top-up.
“The energy price cap is likely to rise 10% this October and stay high across the winter, leaving most energy bills nearly double those pre-crisis, at levels unaffordable for millions.
“Many pensioners eke out the £100-to-£300 winter fuel payments to allow them to keep some heating on through the cold months. While there’s an argument for ending its universality due to tight national finances, it’s being squeezed to too narrow a group – just those on benefits and pension credit. Yet again, those just above the thresholds will be hardest hit.”
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