Pension Age Winter Heating Payment : Island Communities Impact Assessment

Key Findings

42. This section provides an overview of issues for Scottish island communities that are relevant for the revised PAWHP.

43. Island stakeholders have emphasised the importance of understanding the island experience. Every island is unique with regards to its infrastructure, geography, and demography and therefore, each island has its own specific considerations and constraints.

44. At the time of the 2022 Census, Scotland had 93 inhabited islands with a total population of 102,900 (1.9% of Scotland’s population).^[17]

45. Of these islands, only five are connected to the Scottish mainland by bridge or causeway.^[18] The Islands Act, Part 4 (Section 20 (2), identifies six local authorities representing island communities - Argyll and Bute Council, Comhairle Nan Eilean Siar (Western Isles), Highland Council, North Ayrshire Council, Orkney Islands Council, and Shetland Islands Council. Amongst them, Orkney, Shetland, and Western Isles are entirely island authorities, while Highland, Argyll and Bute and North Ayrshire cover island regions as well as mainland regions.

46. PAWHP will provide older people with support during the winter months. All pensioner households with an income of £35,000 or less will receive £203.40 or £305.10, depending on their age. This will ensure that vital support is provided to pensioner households and many pensioners including those living on the lowest incomes are entitled to key support.

47. Our PAWHP payment is expected to increase the number of pensioners in Scotland entitled to a higher payment amount to 860,000^[19] for winter 2025/26.^[20] Under the restricted eligibility in winter 2024/25, 137,000 households were forecasted to receive the payment.^[21] Whilst we will not have analysis broken down at a local authority level until after delivery, based on WFP statistics, we know that in the three island local authority areas (Na h-Eileanan Siar, Shetland and Orkney) there were around 16,000 recipients (around 11,900 households) who received WFPs in winter 2023/24.^[22]

48. There are many pensioners who do not take up their Pension Credit entitlement and therefore miss out on support under the current restricted PAWHP eligibility. The latest statistics show that take-up of Pension Credit is around 65%, which means that there could be an estimated 68,000 people in Scotland who are eligible for Pension Credit but are not currently claiming it. Recent analysis shows that an estimated 193,000 could be eligible for Pension Credit in Scotland, but an estimated 126,000 are actually receiving it.^[23]

49. Although analysis is not currently available on the impact of this change to rural and island communities specifically, this general increase in caseload is likely to positively impact pensioners as it supports those who are not eligible for Pension Credit, or who do not take up their entitlement, but still face financial difficulties. A revised approach to PAWHP ensures that pensioner households including those on the lowest incomes are supported during winter months.

Geography

50. Geography, crofting culture, climate and the sparse population of island and rural communities present different challenges to those experienced by living in the mainland. Low and no connections to the gas grid, lower average Energy Performance Certificate (EPC) ratings and the fact that rural dwellings tend to be larger often resulting in higher levels of fuel poverty in these areas. Citizens Advice Scotland have specifically identified issues regarding being off the gas grid as key barriers for people in accessible rural, remote rural and remote small towns in their report ‘Remotely Excluded: Barriers facing Scotland’s Rural Consumers’ (2015).

51. A number of persistent and related challenges make life in Scotland’s rural and island communities more difficult, particularly in terms of accessing services, availability, and affordability of housing, heightened by house price rises and second home ownership, higher reliance on cars, rising living costs, rising poverty, and fuel poverty.^[24]

52. The colder climate and wind chill factor on the islands means that for many residents, homes may have heating on throughout the whole year. Research has shown the majority of pensioners tend to have a relatively low income, but also low housing costs as they own their home.^[25] Pensioner poverty is a growing issue in Scotland. 53% of participants in a Independent Age study revealed their current income negatively impacts their quality of life.^[26]

53. The Scottish Government’s Housing to 2040^[27] strategy sets out an ambition for everyone to have a safe, good quality and affordable home that meets their needs in the place they want to be. This includes rural and island areas.

54. Distributional analysis provided by the Office of the Chief Economic Advisor suggests^[28] the impact on rural and urban pensioner households is roughly the same as the average for all households when compared to the qualifying benefit policy and when compared to the universal policy in place before 2024.

55. The introduction of our revised PAWHP will ensure that pensioner households in rural and island communities receive support towards meeting their fuel costs and therefore will be better able to maintain a comfortable temperature in their homes throughout the winter.

Cost of Living

56. Rural communities already face some of the highest levels of extreme fuel poverty. Recent data has shown that levels of extreme fuel poverty were higher in rural areas (25%) compared to urban areas (18%) in 2023. When considering urban dwellings, 97% are within the coverage of the gas grid, whereas 55% of those in rural areas are not. For dwellings which are off gas grid, the extreme fuel poverty rate was 27%, in comparison to on gas grid dwellings, where the extreme fuel poverty rate was 18%.^[29]

57. The cost of living in rural and island communities is higher than ever because of the current cost of living crisis.

58. The costs of many amenities and activities are higher for people living in island communities than those living on the mainland. A lack of choice, greater distances, remoteness, and accessibility means that shopping, energy bills, travel, postage, mobile phone services and broadband can be more expensive for people living in island communities compared to those on the mainland.^[30]

59. The National Islands Plan^[31] acknowledges that extreme fuel poverty rates are higher for most of the island authorities. We also know that extreme fuel poverty can be particularly difficult to eliminate in island communities where building types are harder to improve to the required energy efficiency standard and opportunities to reduce fuel costs are more limited. In addition, traditionally constructed buildings and energy efficiency challenges can vary between the islands. Higher living costs and higher fuel costs in rural and island communities also impact the minimum income needed for an acceptable standard of living in these communities.

60. The reduction of fuel poverty is a key Strategic Objective of the National Islands Plan. The National Islands Plan provides a framework for action to meaningfully improve outcomes for island communities and therefore many of the key areas of work related to the plan support our island communities to address the cost of living.

61. We are determined to address the higher levels of extreme fuel poverty found in many of Scotland’s remote rural and island areas. We continue to work with consumer stakeholders, suppliers, and the regulator to progress meaningful, collaborative actions, within our limited powers, to support rural communities. This includes calling on the UK Government to introduce a social tariff in the form of an automatic targeted bill discount to provide the right and fair support for some of the most vulnerable energy consumers across the whole of Scotland, as well as ensuring that those using alternative fuels are treated equitably to those on the gas grid. Whilst powers remain reserved, the former Minister for Climate Action secured the agreement of energy suppliers and organisations to participate in a working group aimed at co-designing such a scheme – the outputs of which were shared with the UK Government in March 2025.

62. The 2017-2019 SHCS Local Authority analysis figures show there are a higher proportion of dwellings off the gas grid in island Local Authorities: 50% in Argyll and Bute; 88% in Na h-Eileanan Siar; 100% in Orkney, and Shetland; and 61% in Highlands; compared to 17% in Scotland overall.^[32] Off-gas grid properties have a more limited set of alternative fuel suppliers, constraining the ability to deliver reduced heating costs.

63. Similarly, the 2017-2019 SHCS Local Authority analysis shows a higher proportion of dwellings with 3 or more bedrooms in Na h-Eileanan Siar (69%), Highland (62%), Orkney (69%) and Shetland (68%) compared with the national average of 50%,^[33] which means higher fuel bills and potentially greater costs to improve the energy efficiency of these homes. Larger dwellings also necessitate higher fuel bills to reach requisite comfortable ambient temperatures.^[34]

64. A range of work is being undertaken by the Scottish Government to address the challenges that people in island communities face. For example, the Islands Strategic Group was established in August 2016. The group considers strategic issues affecting the island communities of Scotland, and to ensure greater involvement of the relevant councils in helping to identify and design solutions to the unique needs and challenges these communities face.

65. On 24 May 2024, the First Minister announced an additional £1 million round of the Islands Cost Crisis Emergency Fund to help island authorities support their island communities through cost-of-living pressures. In developing the Fund, the Scottish Government engaged widely with our island stakeholders, from civil society organisations to local authorities themselves and our own colleagues in government.

66. Our energy efficiency schemes continue to spend more per head on installations in rural and island areas – where we know costs are higher. Through our Warmer Homes Scotland scheme, we have made available renewable heat measures, some of which may be particularly beneficial to rural and remote communities not served by the gas grid.

67. Distributional analysis provided by the Office of the Chief Economic Advisor suggests that when compared to the qualifying benefit policy, the bottom half of the income distribution gain over £100 on average. When compared to the previous universal policy, pensioner households in the lowest three deciles see a small increase in household income due to uprating.

68. According to the 2023 SHCS, 491,000 households were in extreme fuel poverty under the original WFP eligibility prior to the UK Government’s restriction of Winter Fuel Payment eligibility in July 2024. This would increase to around 501,000 households under the current means-tested PAWHP and 495,000 households for the universal PAWHP eligibility scheme. 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.

69. We recognise that fuel costs are on average higher for island communities, and that this has been magnified by the current cost of living crisis. PAWHP will help all pensioner households, including those living in island communities.

Demography, Older People, and Health

70. Scotland has 93 inhabited islands with a total population of 102,900 (1.9% of Scotland’s population).^[35]

71. Data from the National Records of Scotland estimates that the population of the islands increased by 3.8% between 2001 and 2021.^[36]

72. Remote rural areas also have a higher (19%) proportion of older people (65+) who live alone in comparison to the rest of Scotland (14%).^[37]

73. According to the most recent data from the National Records of Scotland, 26,606 people over the age of 65 live on the Scottish islands^[38] and nearly a third (31%) of the Highlands and Islands population is projected to be aged 65 years or older by 2043.^[39]

74. Whilst people living on islands can experience colder conditions in their home which has been proven to impact on health, the 2022 census found that 79.6% of island residents reported their health as being ‘Very good’ or ‘Good’ compared with 78.8% per cent for Mainland Scotland. The proportion of island residents with a long-term (lasting 12 months or more) health problem or disability that limited their day-to-day activities was 24.2%, which was roughly the same as Mainland Scotland (24.1%).^[40]

75. For males, the life expectancy in remote rural and accessible rural areas is around 79 years, nearly 2 years more than life expectancy in the rest of Scotland. For females, the life expectancy in rural areas is around 83 years, nearly 2 years more than in the rest of Scotland.^[41] This difference in life expectancies is consistent with WFP statistics which show that across Na h-Eileanan Siar, Orkney and Shetland islands 7,555 men received WFPs in winter 2023/24 compared to 8,450 women.^[42]

76. Research published by Age Scotland in 2022 suggest that 76% of older people are always concerned about paying fuel bills.^[43] Older households in Scotland also have a higher rate of extreme fuel poverty (25%) than families (12%).^[44]

77. Scottish Government analysis showed that 26% of those who received a WFP in Scotland in 2022-23 were aged 80+. Given current take up of Pension Credit (PC), 82% of those aged 80+ who received WFP before restricted eligibility, currently lose out, compared to 89% of those aged below 80. Although a smaller proportion of those aged 80+ currently lose out than those under 80, as WFP payments are larger for those aged 80+, older pensioners who have been affected by the restricted criteria are proportionally worse off financially.

78. Distributional analysis indicates that the policy is progressive - both in comparison to the qualifying benefit policy and the universal policy in place before 2024. When compared to the qualifying benefit policy, households in the first eight income deciles are better off. The average pensioner household sees a 0.24% increase in income. When compared to the previous universal policy, the greatest impact is on higher-income pensioner households. As a result, the average pensioner household sees a 0.09% reduction in income.

79. We acknowledge that older people have an increased need for heat and that they therefore may require additional support to meet the increased heating costs during winter. A targeted PAWHP focused on households with the lowest incomes will offer a reliable form of support to pensioner households each winter, including those living in island communities.

PAWHP Consultation and Experience Panels

80. Prior to the UK Government decision to restrict eligibility of WFP in July 2024, we consulted on our policy proposals for PAWHP as a universal payment between 23 October 2023 and 15 January 2024. The purpose of the consultation and associated stakeholder engagement was to gather views on the proposed like-for-like delivery, considering eligibility criteria, payment format, to collect additional evidence for those who will receive PAWHP and who are off-gas grid and to identify any unintended consequences of introducing the new payment.

81. We had also invited our Social Security Experience Panels for their views on the key policy options for PAWHP prior to the changes made since the UK Government’s announcement in July.

82. Given the timing of the UK government’s decision to restrict WFP with no prior consultation with the Scottish Government, and the urgency in laying regulations to ensure payments are made to pensioners in Scotland in winter 24/25, it was not possible to consult further following the restriction of eligibility to PAWHP. The UK Government decision to extend eligibility for WFP to pensioners earning £35,000 or less in June 2025 was also announced with no prior engagement with the Scottish Government, and Ministers and Officials within Scottish Government worked to understand the implications of the UK Government decision. Similarly, given the limited timescales available to lay regulations to ensure that payments are paid to every pensioner household in winter 2025/26 that meets eligibility, it has not been possible to consult further on the proposed changes prior to laying amended regulations.

83. Within the previous consultation, several respondents noted that the challenges faced by island communities are not unique and were often shared by those living in rural areas, such as the costs associated with solid fuels and less established infrastructure and transport links.

84. Many however, acknowledged the additional challenges households face in remote rural, island, or off-gas grid communities, including the higher cost of alternative fuels, colder temperatures, and poorer housing stock. Some respondents suggested that island communities should receive a higher value payment to reflect these costs, or that the payment could be differentiated by the type of fuel that they used.

85. Others noted that housing on islands is often older, or in poorer condition, causing difficulties with heating properties and installing improvements such as insulation. Suggestions included prioritising island communities for assistance with new heating solutions such as heat pumps or local energy generation. A few suggested there should be additional planning in place to provide for these communities in the event of extreme weather or disruption which prevents access to fuel supplies.

86. Further suggestions for how PAWHP could be delivered more effectively to those communities included a higher or supplementary payment, that island residents could be prioritised to receive payments first or, an earlier payment to allow alternative fuels to be bought before winter.

87. Many advocated for the payment to be made earlier, or for greater flexibility around when the payment is made. Respondents suggested payments could be prioritised to this particular group to ensure they received the payment as soon as possible in the winter period. This would allow for them to buy the relevant fuel as early as possible in the winter period, where costs may be lower. As this group have to buy fuel in advance it would allow them to put their PAWHP towards the cost of a bulk order earlier in the winter.

88. Other respondents suggested that due to the circumstances of island or rural life, higher heating costs and weather conditions, there should be expanded eligibility for fuel payments. Suggestions included widening eligibility to cover all households that were off-gas grid, including disabled or vulnerable households, or assessing cases on an individual basis.

89. Identifying these groups within the current caseload in order to make payments earlier, or to make a payment of higher value, will require significant systems development which is not possible this winter. Any increase in value would have to be met from within the fixed Scottish Budget.

90. The timing of the UK Government announcement, and the lack of consultation or discussion with the Scottish Government, meant it was not practicable for the Scottish Government to deliver PAWHP in winter 2024/25. PAWHP was therefore delivered on behalf of Scottish Ministers by the Department for Work and Pensions under an agency agreement. This approach sought to ensure that eligible individuals in Scotland continued to receive support over winter 2024/25. PAWHP will be delivered by Social Security Scotland from winter 2025/26 onwards. As with all social security benefits, we will continue to consider possible improvements post-delivery, including improvements for rural, island and off-grid communities.