A huge change to winter fuel payments will see state pensioners issued tax bills from HMRC if they earn too much to qualify for the £200 to £300 cash, it was announced today.

Chancellor Rachel Reeves announced on Monday that the Pension Credit system of means testing winter fuel payments is set to be abandoned, and in its place, a new system based on income will be used instead.

The way the new winter fuel payment eligibility will work is that the money will be paid to every state pensioner by default (unless they opt out), but those who earn £35,000 or more will be made to pay the money back to the government in tax by HMRC.

This will either be done through PAYE, or self-assessment, though the government was keen to stress that nobody who is not currently on self-assessment will be made to take up self-assessment in order to repay the benefit cash.

It means that pensioners earning over the threshold will get a tax bill for the money through PAYE, according to Martin Lewis. This is likely in the form of a tax code change, though the final, finer details are yet to be published.

Money expert Martin Lewis has given his verdict on the new winter fuel payment system announced by government today.

The Money Saving Expert founder put out a video giving his instant reaction to the changes announced by Chancellor Rachel Reeves on Monday which will mean the vast majority of pensioners will now receive a £200 to £300 (depending on age) winter fuel payment this winter after all.

The money maestro set out how it will work, and who will get the new winter fuel payment, including the tax system to take back the money for those earning over the new £35,000 eligibility threshold.

Martin Lewis said: “The way it will work is, even though the payment is a household payment, the tax clawback is an individual tax clawback. So let’s give you an example.

“You’ve got a household that’s due to get £300 with two state pensioners in. That £300 for the clawback is treated as £150 and £150, so, if this person earns over £35,000 they lose it, if this person earns under £35,000 they keep it.

“They still get £150. If both of them earns over £35,000 they both lose it, and if both of them earn under £35,000, they both keep it.

“Now that, is a good system compared to what we thought it was going to happen that it would be something akin to the Child Benefit Higher Income tax charge, where the whole benefit depends on the highest earner’s income. And in fact now we know this system can be done, there’s an argument to for lobbying for that change to be made for Child Benefit too.

“But let’s keep this on Pension Credit. Do I think this is an improvement? Spoiler: yes, very much so.

“The two big things I have been campaigning on, the way the means testing was done, first of all, the threshold set last winter at £11,600, a single pensioner earning under £11,600, was just far too low and left many people still on very low incomes just above the threshold missing out.

“Moving it to £35,000 where it’s much more equivalent to average income is a big improvement and should lead to three in four state pensioners getting the payment according to the government numbers.”