HM Revenue and Customs will automatically change the tax codes of pensioners earning more than £35,000 annually to recover Winter Fuel Payments under new Government rules.
The policy shift means most pensioners will receive the payment automatically, but higher earners will see the £200 or £300 payment clawed back through the tax system.
An HMRC spokesperson confirmed: "Winter Fuel Payments will be paid automatically without a claim, and any charges will be collected via PAYE, or via self-assessment for those with other income to declare."
The department stated it would "automatically amend customers' PAYE tax codes for them" without requiring any action from pensioners.
The changes, which experts estimate will save approximately £450 million annually whilst costing around £1.25 billion to implement, mark a significant departure from the previous system where payments were restricted to those receiving means-tested benefits like Pension Credit.
State pensioners are at risk of paying more tax to HMRC GETTY Financial experts have raised serious concerns about the administrative burden the new system will create.
Rachel Vahey, of stockbroker AJ Bell, said claiming back the payment from 25 per cent of pensioners was "the most convoluted and difficult" route the Government could have chosen.
She added: "Given the chaos it could cause and the relatively tiny taxpayer savings on offer, it may have made sense for the Government to take the political embarrassment of a U-turn on the chin and make the payment to all pensioners."
Financial experts have raised serious concerns about the administrative burden the new system will create
GETTYThe Telegraph reported that experts warned the policy could have unintended consequences, with the changes potentially unleashing "chaos" on both pensioners and the tax office.
The complexity of recovering payments from an estimated quarter of all pensioners has prompted warnings that the administrative costs and confusion may outweigh the relatively modest savings.
HMRC has assured pensioners that the recovery process will be largely automatic, requiring no action from most individuals.
The department confirmed: "For the majority of customers, recovery will take place automatically via PAYE and they need take no action."
Those with additional income sources will need to report through self-assessment, though HMRC stressed it would not be necessary for anyone to register for self-assessment solely to repay the Winter Fuel Payment.
Pensioners can monitor their tax codes through several channels, including the HMRC app, their personal tax account online, recent payslips, or tax code notice letters.
The department said: "Customers can check their taxable income quickly and easily in the HMRC app or online."
When questioned about repayment deadlines, HMRC indicated that those filing self-assessment returns would need to "pay their overall liability in the normal way."
Financial experts have highlighted a crucial detail that could affect thousands of pensioners who believe they fall under the income threshold.
Jeremy Cox, head of Strategy at Coventry Building Society, warned: "Thousands could still unknowingly be left out in the cold - not because they're earning more, but because their savings are."
Pensioners can monitor their tax codes through several channels, including the HMRC app
GettyHe explained that many pensioners may not realise that interest earned on savings held outside of ISAs counts towards their total taxable income.
With current interest rates remaining relatively high, even modest savings could generate sufficient interest to breach the £35,000 limit.
For example, a pensioner with £20,000 in a standard savings account earning 4.5 per cent interest would accumulate £900 annually, potentially pushing them over the threshold and requiring repayment of the Winter Fuel Payment.
Cox suggested that those at risk could consider transferring their savings into tax-free ISAs, where interest earnings would not contribute to the income limit.
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