The decision by Rachel Reeves to abolish the universal Winter Fuel Payment risks backfiring with much lower savings than originally predicted.
The highly controversial move saw the payment, which is worth up to £300, removed from 10.4 million pensioners.
The Chancellor argued it would save £1.4 billion and help to fill a £22 billion black hole in public finances left by the last Conservative government.
However, new research suggests that this saving will be much lower and could, potentially, be wiped out completely.
This is because the government has urged low income pensioners to apply for Pension Credit, which means they can continue to receive the Winter Fuel Payment.
And once people have qualified for Pension Credit, this also guarantees to top up recipients’ weekly income to £218.15 for a single person and £332.95 for a couple.
It can also open the door to claiming Housing Benefit, Council Tax support, the Warm Home Discount and other benefits, which comes at a cost to the Treasury.
Research from Policy in Practice shows that the number of new Pension Credit claims meant the government had been forced to overspend on the change already.
This is because the cost to the Treasury is estimated at £6,800 a year for each qualifying pensioner, rather than a figure of £3,900, which was originally predicted.
Following the changes to the winter fuel payment and a government publicity campaign, some 220,000 pensioners made an application for Pension Credit. This raised the proportion of people who are eligible and receiving the benefit from 63 percent to 65 percent.
Director at Policy in Practice, Deven Ghelani, said: “It’s great news that more pensioners are getting the financial support they need.
“The increased income for some of the country’s poorest elderly citizens can have wider benefits, providing much needed relief during a cost of living crisis.”
However, his analysis discovered that if the take-up of Pension Credit rises to 74 percent of those who are eligible this would completely wipe out the claimed £1.4 billion saving. And if it rose to 100 percent, this would cost the government £400 million more than the saving.
The DWP has been swamped by Pension Credit applications. Despite the recruitment of 500 extra staff to handle them, many pensioners still faced waits of over 100 days to receive payments.
Mr Ghelani said: “Policy in Practice has seen unprecedented demand, helping one in four local authorities to run Pension Credit take up campaigns in the lead up to Christmas.
“We’ve also been using data to target the Household Support Fund to pensioners just missing out on the Pension Credit threshold.
“It has meant a life changing boost in income for hundreds of thousands of pensioners living in poverty.”
A government spokesperson said: “We do not recognise these figures.
“An increase in Pension Credit claims, including effects on Housing Benefit and other cash benefits, were factored into the savings certified by the independent OBR.
“It is right that more pensioners are provided with the support they are entitled to. Pension Credit can still be backdated by up to three months and is worth on average £4,200 so we continue to urge everyone eligible to apply.”
