Fuel payment blow for pensioners

Winter fuel payments for older people will fall this year although there was some cheer in the Budget for elderly savers.

The yearly tax-free payment to help people pay for their heating in the winter was worth £250 for the over 60s last week, and £400 for the over 80s.

But the payment will revert to £200 and £300 for the two age groups in the winter of 2011-12.

But Chancellor George Osborne signalled the return of inflation-linked savings.

Some elderly people live off the interest from savings but have been hit by low interest rates and a rising rate of inflation recently.

The Budget offered National Savings and Investments (NS&I) – a government-backed provider – the option to raise its revenue. This is likely to signal a return of savings certificates which track the rate of inflation.

Hard hit

Anyone on a fixed income or trying to live off the income from savings is suffering from the effects of inflation – because the things they are buying are rising in price, unlike the funds they have to pay for them.

Investment company Alliance Trust suggested that in February, pensioners up to the age of 75 faced the highest level of inflation of any age group, owing in part to rising utility bills and food prices.

Help for paying those gas and electricity bills over the winter has been at a higher level for the last three years, but the government said this was only “temporary”.

There had been some debate over the future of winter fuel payments when the government originally outlined its cuts programme, but the payments will continue – but at the lower level.

Meanwhile, NS&I could bring back inflation-linked, tax-free savings certificates.

NS&I works under rules that state that it must not dominate the savings and investments market.

Last July, savings certificates were withdrawn from sale by NS&I at the start of the day because sales “far exceeded” the level anticipated.

“By taking them away, savers no longer had any safe way to protect themselves against high inflation and they have suffered hugely as a result,” said Ros Altmann of Saga.

“Without the National Savings inflation-protected certificates, savers were forced into bank or building society accounts, which paid derisory returns that have fallen well behind RPI inflation.”

The opportunity for NS&I to raise more money means that these certificates could return.

However, although they would be linked to inflation, it has yet to be determined whether they would match the level of inflation – which stands at 4.4% under the CPI measure and 5.5% for RPI.

“Subject to market conditions, NS&I expect to be bringing savings certificates back on general sale in 2011/12,” a spokesman for NS&I said.

“NS&I can also confirm that a new issue of index-linked savings certificates will retain index-linking against the Retail Prices Index (RPI).”