Pensioners could lose their Winter Fuel Payment entitlement due to a little-known savings rule despite the Labour Government's recent U-turn on means-testing.

Last year, Chancellor Rachel Reeves confirmed eligibility for the up to £300 in energy bill support would be linked to benefits, such as Pension Credit.

After widespread backlash, all pensioner households with an annual income under £35,000 will be able to access the Winter Fuel Allowance.

However, thousands of pensioners with "modest savings" could lose their Winter Fuel Payment eligibility this winter due to an overlooked detail in the income calculation rules.

Experts are warning pensioners could lose access to the Winter Fuel Allowance

Interest earned on savings accounts held outside tax-free ISAs counts towards the Government's £35,000 income threshold for the payment.

This means pensioners who have worked hard to build up their savings pot could find themselves pushed over the limit without realising it.

The issue affects those with taxable incomes just below the threshold, where even small amounts of interest could tip them into ineligibility.

A pensioner with £20,000 in a standard savings account earning 4.5 per cent interest would generate £900 annually.

Last year, Chancellor Rachel Reeves announced the Winter Fuel Payment will be means-tested

While this falls comfortably within the £1,000 personal savings allowance for basic-rate taxpayers and remains untaxed, it still counts as taxable income when calculating Winter Fuel Payment eligibility.

For someone with combined state and private pension income of £34,000, this additional £900 would push their total income to £34,900 - just below the threshold.

Jeremy Cox, head of strategy at Coventry Building Society, warned: "Many pensioners may not realise that interest earned on savings held outside of ISAs counts towards their total taxable income.

"With interest rates still relatively high, even modest savings can generate income that pushes someone over the threshold."

He added: "ISAs offer a tax-free way to keep savings interest out of the income equation. Interest earned within an ISA is never taxed and does not count toward income calculations."

Charlene Young, senior pensions and savings expert at AJ Bell, said: "The means test relates to taxable income, but the convoluted UK tax system means that some people might get caught out."

ISAs are useful tools for those looking save and avoid paying taxGETTY

Current market-leading instant-access cash ISAs offer rates around 4.64 per cent, comparable to standard savings accounts.

Fixed-term ISA rates are slightly lower than non-ISA equivalents but still competitive.

Former pensions minister Ros Altmann noted that "means tests are always complex for people at the margin" and suggested pensioners might need financial advice to understand which income counts towards the threshold.