Pension Age Winter Heating Payment: Business and Regulatory Impact Assessment

Options

Option 1 – do nothing

36. The Scottish Government has consistently recognised that there are many individuals who are above the Pension Credit threshold, and who are therefore not eligible for either Pension Credit or PAWHP, who would benefit from this support.

37. This option would mean that PAWHP eligibility would continue to be based on someone being of state pension age and receiving a relevant benefit. As illustrated above, we know that Pension Credit, which is the qualifying benefit with the largest caseload, has a very low take-up rate (around 65%). Based on this rate, Scottish Government analysis estimates there could be approximately 68,000 individuals in Scotland who do not receive the Pension Credit they are entitled to.

38. The 2023 SHCS includes the 2023 criteria for WFP prior to the introduction of restricted eligibility and estimates that 861,000 households were in fuel poverty in 2023. This rises by around 10,000 to 871,000 when the current, means-tested PAWHP approach is applied to the 2023 data. When applying the proposed initial approach of universal eligibility with £100 payments to those not receiving relevant benefits to the 2023 SHCS data, we would estimate around 865,000 households to be in fuel poverty. The universal approach would therefore reduce the number of households in fuel poverty under the current criteria by 5,000, when compared to 2023 levels using the means-tested PAWHP criteria. Analysis on the impact of PAWHP changes on fuel poverty levels is forthcoming but it is expected that any impact on overall fuel poverty levels will be minor.

39. In winter 2024/2025, it was not possible to extend eligibility to PAWHP due to the timing of the UK Government’s decision to restrict WFP eligibility, the lack of prior consultation with the Scottish Government, and the significant reduction in budget. However, for winter 2025/26, due to the increase in fuel poverty levels under restricted PAWHP eligibility and the impact on pensioners not eligible for relevant benefits, the option to retain current eligibility was not taken forward.

Option 2 – re-introduce universal PAWHP as per previous universal WFP policy

40. This option would mean a full re-instatement of the payments at a value of £200 or £300 as previously provided under the WFP, and as we had intended to deliver in winter 2024/25, prior to the UK Government’s announcement to restrict eligibility.

41. Initial analysis of this option indicated that based on the Block Grant Adjustment we expected to receive in future years to deliver PAWHP (£31 million in 2025/26 and £30 million in 2026/27), that an additional £153 million to £155 million would be required to be found from within the Scottish Budget to deliver this.

42. Given the ongoing financial pressures, this option was not affordable and therefore was not progressed further.

Option 3 – re-introduce universal payments, providing £100 per pensioner household not in receipt of a relevant benefit

43. This option re-instates universal payments at a lower rate than was provided previously through universal WFP which ended in winter 2023/24. This would mean all pensioner households receive a contribution towards their energy costs each winter, in line with our commitment to ensuring financial security for older people.

44. Based on the Scottish Fiscal Commission’s May forecasts, it was expected that this would be an investment of around £98 million in the first year (2025/26), providing support to approximately 815,000 households.^[11]

45. Distributional analysis of introducing the £100 payment to households indicates that household income in the lowest three income deciles will increase by 0.6%, 0.5% and 0.3%, reflecting that most pensioner households will be £100 better off, and that has a larger impact – as a proportion of income - for households on lower incomes.

46. Within the consultation, although there was broad support for universal eligibility, some stakeholders disagreed, with five organisations calling for the benefit to be targeted more effectively at those in fuel poverty. This was on the basis that any savings could provide additional funding to support other fuel poverty initiatives.

47. We know there may be individuals who feel that they do not require PAWHP. Under these plans, clients would have been able to opt out of our universal PAWHP if they do not wish to receive it.

Option 4 – Follow the UK Government approach – reinstate a full Winter Fuel payment and recover the payment through the tax system from pensioners with an income of over £35,000.

48. This option would see us change to mirroring UK Government WFP eligibility. This would mean that generally pensioner households with an income of £35,000 or below with no individual aged 80 or over would receive £203.40, or £305.10 per pensioner households with an individual aged 80 or over. Those pensioners in receipt of relevant benefits would continue to receive a payment of either £203.40 or £305.10 per household depending on their age. This option would also continue the approach which pensioner households have been familiar with under the previous universal Winter Fuel Payment and would see us continuing to split the payment, with each pensioner in the household receiving a ‘shared rate’ payment (of £101.70 or £152.55) where there is more than one pensioner claimant in the household.

49. We know there may still be individuals who feel that they do not require PAWHP. Under these plans, clients can opt out to receive a PAWHP if they do not wish to receive it.

50. Based on the Scottish Fiscal Commission’s June forecasts, it is expected this will be an investment of around £151 million in the first year (2025/26), providing support to approximately 860,000 pensioners in total.^[12]

51. Distributional analysis undertaken indicates that when compared to universal policy, the greatest impact is on higher-income pensioner households. As a result of the introduction of the income threshold, the average pensioner household may see a 0.09% reduction in income. However, pensioner households in the lowest three deciles see a small increase in household income due to uprating of payments. When compared to the policy announced in the 2025-26 Scottish budget, households in the first eight income deciles are better off with the bottom half of the income distribution gaining over £100 on average. The average pensioner household sees a 0.24% increase in income.^[13]