Winter Fuel Allowance, Income Tax, food inflation and other financial shocks for pensioners in 2025


Updated on 20 January 2025 | 2 Comments

Following the withdrawal of Winter Fuel Allowance and sky-high Income Tax bills, Katy Ward reveals six of the biggest money woes for retirees in 2025 – and how you can get yourself on an even keel.

It doesn’t seem as though 2025 will be a great year for anyone, financially speaking, thanks to predicted food inflation and plummeting savings rates.

According to research from GoCompare, 47% of women and 43% of men predict it will be a difficult year.

However, pensioners look set to be among the worst hit, with the loss of Winter Fuel Payments proving particularly painful.

One in four 55 to 64-year-olds are worried about saving for later life, the research found.

Here, we look at six of the biggest challenges for retirees during the next 12 months.

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1. Loss of Winter Fuel Payments

In one of the biggest shocks since coming to power, the Government has withdrawn the Winter Fuel Payment for millions of pensioners – a £200 or £300 annual payment to help with gas and electricity bills.

While payments had previously been available to all pensioners, they are now reserved for those receiving means-tested benefits such as Pension Credit.

In effect, Pension Credit becomes a “gateway benefit”.

Worryingly, the benefit has a shockingly low take-up rate.

According to Government data, just 65% of those entitled receive their allowance.

If you think you may be entitled to Pension Credit (and therefore Winter Fuel Allowance), you can claim via the Government website.

Opinion: the Government has inadvertently achieved a highly successful Pension credit awareness drive

2. Little room for manoeuvre on Income Tax

Thanks to the triple lock, State Pensions increase every year in line with average earnings, inflation or by 2.5%, whichever is higher.

For the 2024/25 tax year, the full Basic State Pension is £221.20 per week or £11,502.40 per year.

However, it is expected to rise by 4.15% in 2025/26 – to reflect average earnings growth.

While this increase is welcome, this move puts many pensioners dangerously close to the payment bracket for Basic Rate Income Tax.

At present, Basic Rate taxpayers can earn up to £12,570 before they start paying Income Tax.

Luckily, there are ways you can beat this stealth rise, such as deferring your State Pension and making the most of your ISA savings.

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3. Food inflation: uncertainty ahead

Pensioners are not alone in worrying about rising food costs in 2025.

According to the latest data from analysts Peel Hunt, grocery prices could soar by up to 4% over the next 12 months.

Following the UK Budget, several UK supermarket bosses announced they may need to up prices to compensate for changes to employers’ National Insurance contributions.

As we roll into 2025, it feels like an uncertain start to the year, with most of us not sure what large retailers will do next.

That said, we have had a positive start, with Asda, Morrisons and Iceland starting off the year by announcing price cuts.

What does the rest of the year hold? It remains to be seen.

4. Savings rates: not looking good

While savings rates are key for many Brits, they may be especially important for those not receiving a regular income via a salary, such as retirees.

Likewise, the current climate may also be difficult for anyone looking to set up an emergency fund.

While savings rates are widely expected to drop over the next 12 months, the extent of the fall will depend on factors such as economic growth and decisions from the Bank of England.

Nevertheless, it is still possible to get a good deal if you shop around.

At the time of writing, the top cash ISA comes from Trading 212 with a rate of 5.1%.

Among the big names, Virgin Money offers 4.51%, with a maximum of three penalty-free withdrawals per year.

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5. Energy costs: more hikes on the horizon

Again, this is not specific to pensioners, but rising energy costs will likely be a particular concern for anyone on a fixed income.

Despite being at the start of the year, we’ve already seen a 1% hike in bills, pushing prices to roughly 50% higher than pre-Covid levels.

At present, the average energy bill is expected to be £1,738 between January and March, an increase of £21.

Analysts Cornwall Insights also predict the cap will rise again by 3% in April.

You can learn more about support schemes available in this article.

6. Where next for State Pensions?

For many retirees, uncertainty over the Government’s next move could be the biggest stressor over the next year.

Although the triple lock on pensions is a darling policy for both Conservative and Labour Governments, there is the constant anxiety that it could be withdrawn.

As a result, those relying on a State Pension are in a constant state of anxiety.

Not knowing how much pensions will be in the future also makes it near impossible to budget.

After all, the Government has already proven it isn’t afraid to leave retirees in the lurch with the loss of Winter Fuel Payments.

Energy, mortgages, house prices and other financial changes to watch out for in 2025

Have your say

Are you a retiree? What is your most significant money worry? Or perhaps you think your finances are looking up over the next 12 months.

We’d love to hear your thoughts in the comments below.

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