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Election Manifesto for older voters – 6-point plan for reform

20 April 2017

Help poorer pensioners, older women and families facing elderly care

  1. Radical overhaul of social care to ensure fairer system for all – a crisis worse than pensions
  2. State Pension triple lock could move to a double lock, increasing by prices or earnings
  3. Double lock should apply to Pension Credit so poorest pensioners are protected properly
  4. Improve pension outcomes for women – private pensions, State Pensions and WASPI
  5. Reform pensions tax relief to give everyone a 33% Government bonus on their contributions
  6. Encourage longer working life – mid/later-life training, career reviews, apprenticeships

Government plans for Brexit and the economy will dominate many people’s thinking, but a coming Election Manifesto needs to cover other important issues that will affect the lives of older voters significantly.  Here’s some initial thoughts – a six-point plan to improve older people’s lives, while giving a more affordable, sustainable and fairer system for the future.

Here are my suggestions:

  1. Radical overhaul of social care to ensure fairer system for all

In terms of fairness, it is absolutely vital that the Government finally addresses the ongoing and worsening crisis in social care.  The current system penalises elderly people and their families and lowers care standards, while raising the costs to those paying privately.  It is undermining the NHS and places the biggest burdens on those who fall ill, rather than being shared fairly.  There is no help for the poorest people with moderate needs, which makes it more likely that they end up in hospital or care homes and lose their independence.

Meanwhile, older people who do have savings have to lose everything, including the value of their home, before they get any state help at all.  The draconian means-test coupled with council cutbacks, on top of rapidly rising numbers of elderly people in our aging population has caused huge strain on the social care and health services, undermining the quality of social care (such as only allowing 15 minute visits and low paid staff on zero hours contracts).  The system is riddled with unfairnesses and is simply not fit for the 21st Century.  Private payers who are denied state help end up paying over the odds for care, to make up for local authority underpayment.  This penalises those families who are unlucky enough to need elderly care twice – firstly they get no help from the State and secondly they also have to pay extra to cover the costs of those who are covered by the State.

This amounts to a most inequitable stealth tax, hitting the most vulnerable in society.  To add further to the unfairness, elderly people who are judged to have a health need, rather than social care need, will have all their care costs met by taxpayers.  This arbitrary allocation of resources is unsustainable and is placing the NHS under intolerable strain, even before the huge bulge of baby boomers reaches advanced old age.  Proper integration of health and social care is long overdue.  It is obvious that the State cannot pay to look after all baby boomers who will need it in coming years.

There is no money set aside for this purpose and younger taxpayers will be unable to afford it.  Therefore, incentivising those older people who have pensions, ISAs or other savings to earmark a sum to pay for care, while the State then covers the extra on top of that, would kick-start funding which is currently non-existent.  Introducing a Dilnot-style cap on care costs, then allowing tax free withdrawals from pension funds if needed to pay for care, plus introducing a special Care ISA allowance (that can be passed on free of Inheritance Tax) or allocating some proportion of property value up to a limit of, say, £70,000 per person, would ensure baby-boomers have incentives to prepare for their coming care costs, while also signalling that everyone will need to think about providing for care in old age, as well as pensions.

  1. State Pension Triple lock could move to a double lock, increasing by prices or earnings

The triple lock commits to increasing (only some parts of the) State Pension by the highest of price inflation, average earnings or 2.5%.  The 2.5% commitment contained in the triple lock adds billions to the cost (it is estimated that State Pension has cost £3billion more for the years 2010 – 2016 than if a double lock had been in place).

The longer the triple lock lasts, the greater the future cost will be, with official forecasts predicting it will add at least £15billion to the long-term cost of State Pension provision.  The arbitrary 2.5% figure is a political construct with no economic or social logic.  When it was introduced, the State Pension had fallen well behind average earnings, so it served a useful function in increasing basic State Pensions to a more reasonable level.  But pensions have increased significantly relative to other benefits.

The Pensions Commission recommended only increasing State Pensions in line with earnings, but perhaps the Government should offer pensioners the higher of prices or earnings inflation, as a double lock, to protect against rises in the cost of living and average living standards of those in work.  If other benefits are being frozen, or only protected by either prices or earnings, to add the extra 2.5% protection for pensioners will cause increasing resentment and also adds to pressure to increase the State Pension age faster, which disadvantages those with lower life expectancy and in poorer health.  In addition to this, the new State Pension system has rendered the triple lock concept socially inequitable.

  1. Double lock should apply to Pension Credit so poorest pensioners are protected properly

The triple lock, in fact, contains inherent unfairness which will worsen in coming years as more younger pensioners receive the new State Pension.  The triple lock does not actually protect many of the poorest and oldest pensioners because does not cover all State Pension payments.

It only applies to two bits of State Pension – the old Basic State Pension (up to around £120 a week) and the full new State Pension (up to around £160 a week, but only available to the youngest pensioners).  Most importantly, it does not apply to the Pension Credit (which the poorest pensioners receive).  A much fairer system would see the double lock protection extended to Pension Credit to help the oldest and poorest pensioners.

  1. Improve pension outcomes for women – private pensions, State Pensions and WASPI

Women lose out in pensions in many different ways and, although the Government has made some improvements, both State and private pensions policies still discriminate against women.  As regards private pensions, women are losing out in workplace pensions.  There are several reasons for this.

The gender pay gap means they earn less than men, so their pension contributions will be lower but recent studies also show that women work in jobs with lower employer contributions and on average their employers pay 1% of salary less into their pensions than for the typical male.  Women also take career breaks which reduce their lifetime earnings.  In addition to these factors, women are also losing out in auto-enrolment as they are more likely to be low earners.

Only people earning over £10,000 a year in any one job are auto-enrolled by their employer.  So these lower earners lose out on their employer’s contribution and on the behavioural benefits of being automatically enrolled, even though they are the people who would probably most need better pensions and the behavioural nudge of being automatically enrolled.  Many women work in multiple low paid jobs, in order to fit their work commitments around caring responsibilities.  Even if these women’s total income is above £10,000, if they earn less than this in each job, they lose out on auto-enrolment completely.

The Government estimates that over 70,000 women are affected.  These women are also more likely to be losing out in State Pensions too.  The cracks in the National Insurance system penalise far more women than men.  Those earning less than £5,876 a year in any one job get no credit for their State Pension, even if they have multiple low paid jobs that would bring their earnings over the National Insurance threshold.  The Government estimates 20,000 -30,000 women are affected and they get no credit for their State Pension.

In addition, women who have children but are in households with incomes that disqualify them from Child Benefit have to claim the benefit even if they know they’re not entitled to it, otherwise they lose out on their State Pension credit too.  All these wrinkles in the National Insurance State Pension system should be removed, so that women are no longer discriminated against in these ways.  Finally, there are many WASPI women who were not properly notified of changes to their State Pension Age.  The Government should recognise the hardship its failure to communicate properly has caused and should ensure those affected are able to receive some early payment, to compensate for the short-notice increase in pension age which they did not have time to prepare for.

  1. Reform pensions tax relief to give everyone a 33% Government bonus on contributions

The Government decided not to reform the current system of pensions incentives, that revolves around tax relief.  The present arrangements are not understood by the majority of people, who don’t realise that 20% tax relief gives them a 25% Government bonus on their pension contributions, while higher rate taxpayers get 40% tax relief, which is a 66% bonus on their contributions.

Instead of confusing people with a Lifetime ISA that could also be used for house purchase, the Government should introduce a fairer system of pension incentives shared more fairly, with a 33% Government bonus being offered to everyone.  The annual contribution limit would need to be cut from the current £40,000, and the Lifetime Allowance should be reformed or abolished.  The freedom and choice reforms have made pensions the most attractive retirement saving option, but if the Government is serious about helping those in the middle or less-advantaged positions in society, then making the pension system fairer for all should be a priority.

  1. Encourage longer working life – mid/later-life training, career reviews, apprenticeships

If the Government is serious about controlling immigration, given the aging workforce it will also need to ensure that more older people stay engaged in the labour market than ever before.  This will need a radical rethink of workplace practice, as well as greater encouragement of mid-life training, career reviews and apprenticeships.

Those who can and want to work flexibly as they get older should be supported positively, with employers required to ensure age is no barrier to ongoing training and re-skilling opportunities.  Businesses should take the value of older members of their workforce more seriously and unlock the potential of older workers.  This can boost the economy both now and in future, as people have higher lifetime incomes and opportunities to build up better pensions.

April 20, 2017   11 Comments

Budget Comments

8 March 2017

Another missed opportunity to start addressing social care

  • No new incentives for social care savings and radical reform proposals pushed into Green Paper later this year
  • No proper help for savers – new NS&I bond pays interest rate lower than inflation, so savers lose money
  • Costs of public sector pensions will rise sharply, by nearly 40% between 2015 and 2020
  • Self employed bearing brunt of tax rises to pay for other measures

Addressing Social care crisis:

  • Extra £2billion for social care will help councils but may not be enough to ensure NHS pressures really relieved.
  • No new help or incentives for families to save for social care or use their ISAs and pensions.
  • More money for councils to cover costs of social care is good, but proper reform delayed – more money is just a sticking plaster on a weeping wound.
  • Will be a Green Paper later this year on radical structural long-term reform. That’s good but needs to be followed by urgent action as care system is breaking the NHS. Integration of health and care, helping families prepare for care costs, finding ways to recover extra money to pay for care – all these are essential as our population ages. The number of people over age 75 will increase by 2million in next 10 years.
  • No help for families to start saving for care – no incentives to help them save even though ‘death tax’ ruled out so can’t take money from their homes or estates.

 

Measures for savers

  • No new help for savers even as savings ratio reaches such low levels
  • New NS&I bond pays only 2.2% interest while inflation forecast to be 2.4% this year and 2.3% next year, so savers lose money in real terms each year

 

Helping people extend working lives

  • The Chancellor has announced £5million extra money for returnships for adults trying to get back into work. This is potentially good news for older people and other adults trying to return to work, especially helping many older women and carers who want to work after taking time out for caring. Of course, more is needed but this is a start. For example, if each returnship costs £250, this can help 20,000 people.

 

Pension matters

Pensions flexibility is raising far more money for Treasury than originally forecast.

  • Treasury expected pension flexibility to raise £0.3bn in 2015-16 and £0.6bn in 2016-17, but people have taken higher amounts out than previously forecast, so actual tax receipts were £1.5bn in 2015-16 and £1.1bn in 2016017. One cannot draw many conclusions from this as we do not know what the people who withdrew money will be doing with it – whether they have other pensions elsewhere and are repaying debts and so on. The Government needs to conduct some proper research into what people are doing when withdrawing pension money. Expected revenues from pension flexibility rules are expected to be £1.6bn in 2017-18 and £0.9bn in 2018-19. Again, we cannot draw firm conclusions without further information.

 

Costs of public sector pensions set to rise sharply.

  • The Budget figures list the costs of public sector pensions as follows. In 2015-16 the cost was £11.3bn but by next year that will have risen by over 20% to £13.7bn. By 2021-22, the cost is forecast to rise to £15.7bn, which is an increase of 39% over the 2015-16 level.
  • 2015-16 £11.3bn
  • 2016-17 £11.5b
  • 2017-18 £12.1bn
  • 2018-19 £13.7bn

 

Overseas pensions:

  • The Government is continuing its clampdown on overseas pensions. Anyone who wants to move their UK pension offshore into a ‘Qualifying Registered Overseas Pension Scheme’ (QROPS) will have to pay a 25% tax charge on the funds transferred, and also any payments made from the QROPS in the first five years after the money is transferred will be taxable in the UK.

March 8, 2017   1 Comment

Budget measures for social care

7 March 2017

Chancellor has chance to address one of biggest social issues of our time

  • Britain has been sleepwalking into a social care crisis – time to wake up!
  •  Elderly people who need care face wealth tax and stealth tax while others pay nothing
  • More favourable fiscal position offers opportunity to radically reform unfair care system
  • Integration and incentives long overdue – consider Care ISAs, employer care saving plans, auto-enrolment, eldercare vouchers, National Insurance

 

  • Dramatic unfairness in social care must be addressed
  • Huge focus on pensions, but nothing for pre-funding social care is betrayal of elderly
  • Social care for older people is pushing NHS to breaking point – and that’s before the baby boomers start needing care in coming years
  • NHS cannot keep picking up the pieces of our broken care system
  • Babyboomers will need care within next 20 years – huge demographic timebomb for younger taxpayers
  • Just giving councils more money is not the answer, that is a sticking plaster, but more radical reform needed too.

 There’s no single solution to care crisis – having been left so long it needs multiple approaches.The Chancellor faces a more favourable fiscal position than previously forecast and should seize the opportunity to address the social care crisis that is causing misery to many elderly people and engulfing the NHS.  Philip Hammond could be the first Chancellor to introduce long overdue reforms of the broken care system.  This should encompass both short- and longer-term policies, including proper integration of health and care, extending National Insurance and new tax incentives to help families prepare for care costs in advance by setting some of their savings or pensions aside, or saving specifically for care.  Signalling to families that millions of them will need some money in later life to pay for care needs, not just pensions, should have been done years ago, but successive Governments have failed to tell families to prepare for care.  Government spends billions on private pensions tax breaks, and the State Pension provides a base level of income support for older people, but millions of people will also need money for later life care costs too. Currently, they don’t know and neither Government, nor individuals, have set money aside.  The NHS is already at breaking point as it picks up the pieces of our broken care system, and that’s before huge numbers of baby boomers, now in their 60s, start needing care in future.  That’s where there may be a window of opportunity.  Babyboomers are often criticised for having better pensions, savings and other assets than younger people.  Of course, not all are well off, but the Government should encourage those that have assets to keep some of their wealth, pensions or savings for care in future.

Elderly people who need care face a wealth tax and an extra stealth tax to fund care:  Councils will only pay for care if people have less than £23,250 in assets, which could include the value of their house, unless they or their partner is still living there.  So families needing care face an effective wealth tax.  Those with no savings get care costs covered by council taxpayers, but those people who do have some assets have to pay for their own care.  But these same people are actually hit twice – and face a stealth tax, on top of this wealth tax.  Because of local authority cutbacks, councils are not paying enough to cover the costs of care for those who do get public funding, so those same people who must fund their own care not only have to pay for themselves, they also pay extra for the underspend on those funded by councils.  This is clearly unfair.  Radical reform is needed, giving councils extra resources can help short-term, but integrating the health and care systems is also required, to remove the artificial divide between health care and social care.  Taxpayers simply cannot afford to support increasing numbers of elderly people, but the money must come from somewhere.  Encouraging everyone to save for later life care, which one in four will need (and one in two of many couples), would signal that care costs must be planned for and incentivising such savings is vital in our aging population. The Chancellor should consider several reforms:

  • Special ISAs for Care Savings: Chancellor could introduce a new type of ISA to help people save for care and could encourage people to switch existing ISAs into new Care ISAs. These could perhaps get an added Government bonus if the money is earmarked specifically for care. This would be a far better use of taxpayer money than subsidising Lifetime ISAs as retirement saving.  This could encourage a maximum sum (perhaps up to £75,000) to be set aside, which could be passed on free of Inheritance Tax to form a Care Savings ISA for today’s older generations and then passed on to next generations if not used.  A ‘family care savings plan’ could help signal to families that Government won’t cover most care costs.
  • Allowing tax free pension withdrawals for care: Many baby-boomers have money in their pension funds and now have more freedom to leave their money invested, rather than buying an annuity. The Chancellor could allow tax-free withdrawals from pension funds if the money is spent on care, to encourage people to keep some back in case they need care.
  • Tax incentives for employers to help staff save for later life care or auto-enrolment: A pension is not the only money you may need in retirement. Encouraging employers to contribute to a care savings plan for their staff, with similar tax breaks to pensions, could help people build up funds for later life care. Care saving could also be incorporated into auto-enrolment in future.
  • ‘Eldercare’ vouchers to help staff with care costs: Employers could offer elder care vouchers (along the lines of childcare vouchers) which get tax relief as an employee benefit.
  • Stamp duty breaks when older people downsize their home: Government could help ‘last time buyers’ downsize their home. Perhaps with a one-time stamp duty exemption on last home purchase. This could free up some money that could be spent on care in future years.

I do hope the Chancellor will seize the opportunity to start addressing our social care crisis.

March 7, 2017   1 Comment

Help people use pensions and savings to fund social care

8 February 2017

  • Care crisis is worse than pensions crisis – but pensions and savings could help fund social care
  • Many baby boomers have pensions and ISAs but no incentive to retain money for care
  • Chancellor’s Budget could consider tax-free pension withdrawals and IHT-free ISAs for care savings
  • Such incentives would let people know they need to prepare for care costs  
  • Have to get real about the scale of care challenge – need combination of public funding, national insurance, private savings and integration with healthcare

The UK crisis in social care is potentially far worse than the pensions crisis:  Both issues are a function of our aging population, which is a good news story.  But, because successive Governments have failed to properly prepare, it is turning into a disaster.

No money aside to cover the inevitable costs of aging:  There is no money at Government level – it’s all left to cash-strapped councils who cannot cope.  There is no money at private level either, because most people have not seriously considered this issue, wrongly assuming the NHS will look after them or their loved ones.  This is short-sighted policymaking at its worst.

Advanced old age usually entails extra spending: With increasing numbers of much older people in this country, it is inevitable that more money will be needed to look after them in later life.  This should be no surprise.  An aging population is bound to need money for this but so far all the Government incentives and preparation for later life income have revolved around pensions, with nothing to pay for care.

Current cohort of older people is small, but will rise sharply in coming years:  The fact that the social care system is so poorly understood and that there are no incentives to help people plan for such costs just in case it is needed, has led to a complete lack of preparedness.  The cohort of older people needing care now is actually relatively small, but in 20 years or so the huge demographic bulge of baby boomers will increasingly need looking after as they reach their 80s.

Pensions could be adapted to help fund care:  However, pension income is not designed to cover the extra costs of care.  Nevertheless, pensions could be adapted to provide some help, as could other savings products, with a little extra incentive from the Treasury.   There is an opportunity to encourage baby boomers to set money aside in advance, in case they need care.

Millions of older people do have pensions and savings but they may spend them soon:  Of course, the majority of older people are not hugely wealthy but millions do have savings and pensions built up over the years.  The pensions crisis for future retirees is being addressed, belatedly, with a reformed state pension and auto-enrolment.  But for today’s sixty-somethings there is much more to be done.  With the new flexible pensions landscape, there is an opportunity to encourage them to keep some capital sums for later life, rather than planning to spend them straight away – and indeed for those who have ISAs, it is important to encourage them to consider keeping some of those funds unspent as a ‘Care Fund’ in case they need it.

New incentives in the Budget urgently needed to help fund care:  But an important part of the mix should be new incentives to encourage people to use their pensions and savings for care.  Here are some suggestions for the Chancellor.

Allow people to take money out of their pension funds tax-free if they use it for care:  Doing this would give people a further incentive not to spend all their pension fund too soon.  If they have money in their pension, but don’t think about using it for care, then by the time they need care the money may all be gone.  Signalling the importance of not exhausting pension funds too quickly would give an additional behavioural incentive for people to leave money aside in their tax-free pension wrapper as a potential ‘care fund’.  If they don’t actually need it, then the fund passes to their loved ones tax free, so it could form a care fund for a partner too.  Care costs are much higher for women than for men, because they live longer.  With a traditional pension, widows do not receive a capital sum to help them fund care and, under the old pension rules, once their husband had bought an annuity (the vast majority of which were single life) the pension died when they did.  Even if they had a joint life annuity, the widow only inherited a part of the income and no capital sum.  With the new freedoms, if the husband keeps money in his pension fund and does not spend it all on care for himself, the money will be available to his widow for her care if needed.

Relax the regulatory attitudes to transferring money out of Defined Benefit pensions: The current regulatory attitude strongly discourages transferring money out of Defined Benefit final salary-type pensions into a Defined Contribution (DC) arrangement.  This should be relaxed.  With the new freedoms for DC pensions, there could be many people who would benefit from such transfers.  Giving up a relatively small, guaranteed pension income might be the optimal decision for a family, particularly if they have other pension income and this is just one smaller deferred pension that will not make a dramatic difference to their lifestyle.  As an example, a £50 a week final salary-type pension could be worth around £100,000 as a transfer value.  If a husband and wife were to take a transfer of this size into a Defined Contribution pension, they may not miss the £50 a week, but they could hugely benefit from the £100,000 fund in coming years to help pay for care.  Transferring small deferred pensions can both help pre-fund care costs -and the surviving partner can inherit that sum in full, rather than just receiving a fraction of their deceased partner’s pension if it were still in the DB scheme.

Introduce special ISA rules for Care ISA funds – free of Inheritance tax:  Many older people already have ISA savings, but they do not think of retaining that money until much later life, as a potential ‘care fund’ to help them pay for care.  Some will spend the money on holidays, new cars, house refurbishment or for other needs but if there was a clear reason not to spend it, then there could be more money set aside for care within families.  Earmarking some of their ISAs for care, in a newly-created ‘Care ISA’ environment, could benefit many people in years to come.  The Chancellor could consider allowing people to transfer some of their existing ISAs into a ‘Care ISA’, or could allow an additional ISA allowance for care.  Indeed, the money currently spent on the Lifetime ISA as a 25% bonus would be much better spent on incentivising saving for later life care.

There is no one silver bullet that will solve the care crisis: A crisis is already upon us and there is no one magic solution.  However, a range of measures, when added together, can at least make a start in preparing the nation for care.  Savings incentives need to be part of the mix.  In addition, broader reforms could include a national insurance system to improve publicly available funding.  Better integration of health care and social care is also urgently needed, so that older people’s needs are specifically addressed in the most cost-effective way, instead of being artificially separated between wholly inadequate council funding and hugely expensive NHS care.  This could include keeping small local hospitals open as ‘convalescent homes’ where older people can be safely discharged and encouraging GPs to ‘prescribe’ preventive measures such as homecare, handrails, telehealth or personal alarms.  Funding for meals-on-wheels could be restored and better information and advice for families whose loved ones need looking after could alleviate some of the pressures too.

Government must get real about the scale of the challenge:  I urge the Government to act swiftly on this issue.  The system is already in crisis and is much more difficult to solve than the pensions crisis.  With pensions, ultimately, the Government has decided to make people wait longer and to pay them less.  Such options are not realistic for care.  Once people need care, you cannot make them wait longer without causing harm.  And we are already forcing people to accept less care, which is part of the crisis.  Now is the time for action, no more waiting and hoping.  One mark of a decent society is how it treats its older, vulnerable people.  We must not fail our aging population.

February 8, 2017   2 Comments

Is Government going to introduce saving incentives for social care?

14 December 2016

Jeremy Hunt is right we need for private savings to help fund care crisis

  • There’s no one solution but private savings must be part of the mix
  • Care costs much higher for older women than older men
  • Government can introduce tax incentives to help families save for care costs
  • Care ISAs, Workplace Saving Plans, Eldercare vouchers, Family Care Saving Plans free of Inheritance Tax
  • Consider using auto-enrolment and free Guidance to kick-start care savings as part of 2017 auto-enrolment review

Jeremy Hunt is right – people will need private savings to help fund later life care: Politicians have talked about social care for years, but have ducked the difficult decisions required to address this time and again.  Despite knowing that numbers needing care will rise inexorably, policymakers have not set aside public money, or encouraged private provision to pay for care.  The quality of care has suffered, many companies cannot afford to deliver decent care within the council budgets, and the screaming headlines from recent days continue to highlight that this crisis is just getting worse.

There is no money set aside for care:  There is almost no money earmarked to pay for the care people will require – not at public or private level.  Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Problem is worse for older women than for men:  The CII Report released yesterday on Risks in women’s lives found that this is a much worse problem for women.  The median man over age 65 will need to spend around £37,000 on later life care, but the median woman will need around £70,000.  Where will this money come from?  It either has to come from councils on a draconian means-tested basis, or the NHS (when early intervention or prevention is not funded), or individuals and their families who suddenly find themselves faced with huge spending they had not prepared for.  And of course older women are less able to save for their future needs because they are more likely to have to cut down or stop working to provide care for loved ones – society takes this free female caring for granted.

Families will need to prepare for some costs, but they need help.  Local authority care funding is subject to one of the strictest means-tests.  Most people will receive no help from the state until they have used up the bulk of their assets (down to £23,250) and until their needs are considered ‘substantial’, causing significant distress to many families and leaving the majority of families without the care their loved ones or they need.  Many suddenly have to find significant sums at short notice.  Ideally, money is needed for prevention and early intervention, so that people can have a little help or pay for measures that will ensure they are safer and less likely to fall.  But they need to know what to do.

Products for care funding are inadequate.  There are some products already on the market to help people pay for care but they are expensive and will not help with prevention.  These include Immediate Needs Annuities, Equity Release and local authority deferred payment plans, but each has advantages and disadvantages and they only help at the point of need, rather than allowing people to make plans in advance.

Encouraging saving for care could help.  It seems that Jeremy Hunt may be signalling that at last the Government recognises the importance of helping families prepare for social care costs in advance.  People don’t know they will need such sums, but if they spend all their pensions or ISAs before they reach their 70s and 80s, they may really regret not being able to pay for the help they need.  I believe Jeremy Hunt is correct, some private savings will have to be part of the mix.  21st Century retirement income is about more than just pensions.

Extra tax breaks to encourage long-term care saving.  We spend around £40billion on incentives for pension saving and not a penny on incentives for social care saving.  21st Century retirement needs more than a conventional pension to help fund later life.  Providing taxpayer incentives and employer incentives is important because the cost to society of failing to ensure money is set aside for future social care needs will put intolerable burdens on the NHS and on younger generations as well as on older people.  Urgent action is needed to head off a disaster that is clearly on the horizon.

Care ISAs – IHT free: The Government could introduce a separate annual allowance for ISAs that are specifically earmarked to pay for care or allow people to transfer existing ISAs.  Launching such ‘Care ISAs’ would itself help people realise the need to save for care.  It could allow up to, say, £50,000 or £100,000 per person to be earmarked for care spending and such Care ISAs could be passed on free of inheritance tax to fund Care Savings for the next generation too.

2017 review of Auto-enrolment could consider encouraging workplace care saving plans:  Alongside auto-enrolment, it might also be helpful to ensure that employers are encouraged to offer the option for people to save in a workplace savings plan that is set aside specifically for care.

Workplace Saving Plans and flexible benefits packages to include eldercare:  The Government needs to incentivise employers to help staff prepare for care costs.  This can include savings plans to build up a fund to cover care costs, and also such ideas as eldercare vouchers, along similar principles to childcare vouchers.  Employers can help their staff pay for someone to look after elderly loved ones, rather than having to leave work or suffer stress when such help is not available.  This could be part of a flexible benefits package, which receive an employer contribution.

Family Care Savings Plans – IHT free:  Another possibility is for families to save collectively for the care needs of their loved ones.  For example, parents, siblings or children might join together to build up a fund in case one of them needs care.  The probability is that one in four people will need care, but nobody knows in advance which one.  Tax breaks to incentivise this kind of saving, perhaps allowing them to be passed on free of inheritance tax, would help.  There is a role for insurance with such savings plans – which might also include some ‘catastrophe insurance’ to pay out if more than the expected number in any family or group actually need care.

Tax free pension withdrawal if used for care:  The new pension freedoms could encourage people to set aside money for later life care.  Now that the annuity requirement has been removed, and there is no 55% death tax, pension funds could help cover care costs.  Many people reaching retirement have tens of thousands of pounds in their pension funds but if they use this to buy an annuity, they will have no money to pay for care.  Allowing people to withdraw money from their pension fund without paying income tax, if it is to pay for care, would encourage them to retain some funds in the tax free pension wrapper for longer, just in case it is needed.

Demographics show numbers needing care set to soar:  The cohort needing care at the moment is a relatively small proportion of the population, but millions of baby boomers are currently reaching their 60s and will need care in the coming twenty years or so. The numbers needing care are, therefore, set to soar.

Long-term care funding is one of the least understood parts of the health and care system.  Unfortunately, many people mistakenly believe the Government will pay their care costs.  But social care is the responsibility of local authorities, not the free NHS.  This system dates back to the Poor Laws of the 1800s and was completely omitted when Beveridge developed our National Insurance system and welfare state.  The difference between social care and healthcare is not easy to define, but as an example, someone with cancer is likely to qualify for healthcare funding with care provided at taxpayers’ expense, while someone with dementia may not be considered to have a ‘health’ need and gets no public money at all.

Public need to be informed about preparing for care:  We could extend the PensionWise Guidance service to provide information and education for people about preparing for care needs.  This could come from their pension savings or additional savings but because people don’t understand the system, they will definitely need help in planning for care.

The time to address this crisis is now:  It cannot wait longer without causing more misery.  Social care in this country is failing and radical action is long overdue.  This is not just about elderly people, it’s about families and loved ones who are being denied a decent standard of living in modern-day Britain.  Introducing incentives to help people save for later life care, as well as earmarking more funds from council and healthcare budgets, in an integrated fashion, will be vital parts of any solution.

December 14, 2016   1 Comment

Political courage needed for social care solutions

12 December 2016

Action to address care crisis cannot wait any longer – need a 21st Century revolution

  • Britain’s welfare state has never included social care – time for a rethink
  • Social Care system dates back to poor laws principles from the 1800s
  • Ultimately, National Insurance or tax will need to cover care funding
  • All parts of the system are failing and Government has not yet offered solutions
  • Private and employer provision can also help – such as Care ISAs, Family Care Plans, auto-enrolment, eldercare vouchers and free guidance

Britain’s welfare state, developed in the 1940s, was said by its architect William Beveridge to be a “British revolution”.  We need another revolution to fit with 21st Century lives as the population ages.

National Insurance was supposed to break away from Poor Laws, but social care was never included:  Our National Insurance system of benefits and support was designed to break away from the legacy of the Poor Laws, which were a harsh safety net, for those in dire need.  The 1940s welfare state aimed to establish a new, universal system on completely different principles, giving support for everyone, as of right.  However, social care did not feature in this new system.

NHS never included social care:  The National Health Service would give healthcare to all, free at the point of need, funded by taxpayers. However it did not factor in social care, which was left untouched and still the responsibility of local councils.  In the 1940s, the concept of millions of chronically ill older people needing a little help with their daily lives on a long-term basis was unthinkable.  Either their families or local communities would look after them, or they would not live very long.  21st Century life is totally different, but our social care system is stuck in the past.

Government must wake up to the reality that social care cannot be left unfunded:  Failing to fund social care means millions of people do not get decent, or any, care.  If Beveridge had realised the forthcoming population dynamics, he would have included provision for long-term care needs in the welfare state.  In the 70 years since our system started, no Government has taken this issue seriously enough – it’s time for a rethink.

Ultimately, taxpayers or National Insurance will need to fund social care:  There is little doubt that a 21st Century Beveridge would have included social care funding in the National Insurance system.  This is a clear risk now, which was not on the horizon in the 1940s.  Ultimately, Government will need to tackle the costs of social care provision at a national level, whether via the tax system or National Insurance.

The current cohort needing care is relatively small – it will grow significantly soon:  Demographic trends clearly signal a dramatic rise in the numbers of older people needing long-term care.  The current cohort of elderly people is relatively small.  However, millions of baby boomers are now reaching their 60s and will need care in the coming twenty years or so.  The Government has not planned for this huge looming cost.  Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Cutting social care provision is short-sighted and leads to long-term cost increases:  Social care provision by councils has been cut and cut in recent years.  Even as the numbers needing care have risen sharply, local authorities have reduced availability.  A few years ago, people with moderate needs could receive moderate amounts of help – now only those with substantial needs get any council care.  There is no help with prevention or early intervention.  That is a short-sighted saving causing extra long-term pressure.  And the amount of care being provided has also been cut – 15 minute visits are common, with no pay to careworkers for travel time between clients – which means the quality and dignity of care have also been reduced.

NHS at breaking point:  As increasing numbers of elderly people do not have their care needs met, they end up in the NHS after avoidable accidents, blocking the NHS system – as the NHS is the backstop with last resort funding from taxpayers.  This will put intolerable burdens on the NHS, on younger generations and on older people.  Urgent action is needed to head off a disaster that is clearly on the horizon.

Those who pay privately are subsidising council underspend:  Most people will receive no help from the state until they have used up the bulk of their assets, causing significant distress to many families and leaving the majority of families to find huge sums at short notice.  Even worse than this, local authorities are not paying the full costs of care for those they are funding via the means-test.  This forces care homes and homecare firms to charge private payers extra, to subsidise publicly funded residents.

Healthcare and social care must be integrated.  The current distinction seems arbitrary and manifestly unfair).  Until the Government properly integrates social care with healthcare and insists on higher standards across the industry, the current crisis will only worsen.  This should be a major political issue, but it is not receiving sufficient attention.  The public is not being adequately informed of the problems and possible solutions, leaving families struggling to cope and elderly people at risk in a system that is failing on all fronts.

The £72,000 cap is not a solution. The £72,000 cap was supposed to ensure nobody has to face catastrophic care costs, but it does not solve the problems of our system.  It is one small part and the £72,000 cap was set too high to achieve its original objectives.  In fact, it is not a £72,000 cap at all.  Most people will actually have to spend more like £140,000 on care before they receive any state help because the cap does not cover board and lodging costs (around £12,000 a year must be paid privately) and will not cover any money spent before care needs become substantial.

We’ve left it so late, there is no single solution but encouraging saving for care could help.  New products and approaches, together with new Government incentives, are urgently needed to help people prepare in advance for care spending if it is needed. A savings solution should be part of the mix.  This could include new tax breaks to encourage long-term care saving.

Tax free pension withdrawal if used for care:  Allowing people to withdraw money from their pension fund without paying income tax, if it is to pay for care, would encourage them to retain some funds in the tax free pension wrapper for longer, just in case it is needed.  If they don’t spend it on care, it will pass free of inheritance tax to the next generation as the 55% pensions death tax has been abolished.

Care ISAs – IHT free: The Government could introduce a separate annual allowance for ISAs that are specifically earmarked to pay for care.  Launching such ‘Care ISAs’ would itself help people realise the need to save for care.

Family Care Savings Plans – IHT free:  Another possibility is for families to save collectively for the care needs of their loved ones.  One in four people will need care, but nobody knows in advance which one.  Tax breaks to incentivise this kind of saving, perhaps also in the workplace, allowing funds to be passed on free of inheritance tax, would help.

Workplace benefits could help – such as auto-enrolment into workplace care saving plans or eldercare vouchers:  Alongside auto-enrolment, employers could be encouraged to offer the option to save in a workplace savings plan specifically for care.  This could be part of a flexible benefits package, which might also include eldercare vouchers to help families pay someone to look after loved ones, rather than having to stop work to do so.

PensionWise Guidance can help provide information and education:  The Government’s new ‘Pension wise’ free guidance service already tells people about planning for care costs and more people could use this service to help understand the system.

Message to Government – this cannot wait, it must be tackled now:  So, the message to the Government is that our care system is in crisis, there is no money set aside either publicly or privately to fund later life care adequately, and the time to address this crisis is now. There is no single silver bullet solution, a range of policies is required.   Social care in this country is failing, radical action is long overdue.

December 12, 2016   1 Comment

Autumn Statement has a bit of good news for savers

23 November 2016

  • Autumn Statement is missed opportunity to address social care crisis
  • State Pension triple lock seems under threat
  • Chancellor confirms intention to ban pension cold calling

The Chancellor’s Autumn Statement had no real surprises for pensions or savers.  There are some tweaks to pension rules, but the biggest disappointment for me is that there is no acknowledgement of the social care crisis.  The Chancellor started by saying the aim of his budget is to prepare and support the economy for a new Chapter.  Part of this new chapter includes the aging of our population.  This is a huge social issue as baby boomers reach their 60s and are heading for longer lives than previous generations.

I’m delighted to see a greater sense of urgency for new infrastructure and housing investment, this is vital for the future success of our economy.  I hope that our own long-term domestic investment funds – in particular pension funds and insurance assets – will be brought into Government to ensure they can participate in such investments.  However, it is really disappointing that there were no new savings incentives to help families set money aside for social care and not enough extra public funding to ensure decent care can be delivered to those elderly people who are currently denied the help they need.

Here is a summary of the measures and my thoughts:

  • Chancellor has not recognised the scale of the challenge the country faces in social care

The Chancellor has missed an opportunity to really signal that the Government cares about the social care crisis.  The country has no money set aside for elderly care – families do not even know that the NHS cannot be relied on to provide care.  The NHS will step in under some circumstances, but most families will find that they have to fund care themselves.  If they don’t have any savings, then they will be at the mercy of cash-strapped councils who are cutting back care provision and provide only a bare minimum.  New savings incentives for social care are needed urgently, not just to ensure at least some families will save for care, but also to help people realise that they need to think about this.  The NHS does not and cannot look after increasing numbers of older people from cradle to grave.  In an aging population where it is estimated that over 1million older people who need care now are not getting it.  Without more funding this can’t be delivered.  Allowing councils to raise an extra £2billion in council tax for care by 2020 is simply not enough.  The needs are higher than that already and the problem is only getting worse.  Employers could be incentivised to help workers with care savings plans, perhaps with elderly care vouchers but currently there is no help at all for employers or employees to provide for future care needs.  This will have spillover effects on our precious NHS, because we can’t cut social care without hitting NHS.  So taxpayers will keep having to put more money into the NHS if there is not extra funding for social care.

  • Good news for pensions – Government will consult on banning pension cold calling and further measures to crack down on pension scams

It is great to see that the Chancellor has confirmed he will consult on banning all cold calling for pensions and also look for other ways to clamp down on pension scams and frauds.  This is most welcome.  By making pension cold calling illegal, it will be much easier to help people understand that those who do contact them out of the blue about their pensions are acting against the law.  We must do as much as we possibly can to protect people’s precious pension savings.

  • Triple lock looks under threat beyond 2020 – watch out for more developments

The Chancellor’s speech signalled pretty clearly that the State Pension triple lock is only safe until 2020.  He talked about the need to adjust to rising longevity and alluded to a review of State Pension uprating.  Currently, the law only requires Basic State Pensions and new State Pension to be uprated in line with earnings after 2020.  I would like to see a double lock announced, whereby State Pensions would rise in line with either earnings or prices.  Currently, the Additional State Pensions only rise in line with prices.  Perhaps the Government could consider increasing all aspects of state pensions in line with a double lock to simplify the system.

  • Reduced Money Purchase Annual Allowance cut from £10,000 to £4000. Why not to £3,600?

The Chancellor will reduce the amount of new money someone over age 55 can contribute to a pension after they have already taken some money out of past pension savings.  Currently, those who have already taken money out of their pensions under so-called ‘flexible access’, can put a further £10,000 a year into new pension savings and get tax relief on that.  The Chancellor plans to reduce that to £4,000 a year instead. This will raise revenue for the Treasury, but it does seem a shame that he did not decide to just reduce the new MPAA to £3,600 a year, which would align it with the maximum amount that non-taxpayers are allowed to pay into a pension with a 25% bonus of basic rate tax relief being added.

  • Encourage British pension funds and insurers to invest in infrastructure and social housing

The Chancellor has announced that it will extend the UK Guarantees Scheme for infrastructure bonds and loans and that it is working with ‘industry’ on construction-only guarantees.  I do hope the new Ministerial group on delivery of infrastructure projects will work closely with UK pension funds and insurers so that British people’s pensions and long-term savings can help fund long-term improvements in the British economy

Good news for savers:

  • A new 3-year NS&I savings bond with market-beating interest rate of 2.2% from next Spring

It is really important to encourage more people to save and these bonds will be of some help to savers who have lost out from Bank of England’s policies.  The Chancellor plans to bring back the special savings bonds that were offered to the over 65s before the 2015 General Election.  This will allow anyone over age 16 to put up to £3000 into a new National Savings and Investment product that will pay 2.2% interest.  It will be available for 12 months from next Spring.  This will help some savers who have suffered so much for exceptionally low interest rates.  There are already tax breaks for savers, who can earn up to £5,000 a year in savings income tax free but the interest rates on savings accounts have fallen so low that savers need more help.

November 23, 2016   No Comments

Hammond could be first Chancellor to help families with social care saving incentives

20 November 2016

Hope Chancellor’s Autumn Statement will address
one of biggest social issues of our time

  • Philip Hammond needs to introduce incentives to help people prepare for care
  • Massive failure of political courage by previous Chancellors and a betrayal of British families
  • Britain has been sleepwalking into a social care crisis – it’s time to wake up!
  • Billions set aside for pensions – but virtually nothing to help fund later life care

Let’s have Care ISAs, employer care saving plans, eldercare vouchers

  • Politicians have failed to plan for population aging and rising life expectancy – even though it’s been happening for decades. We’ve had reviews, scandals, exposes, recommendations but still no proper funding plan
  • Care has been left to cash-strapped councils keep who keep cutting provision
  • There has been lots of focus on pensions, but nothing for pre-funding of social care
  • Chancellor should introduce incentives to help families to save for social care, rather than leaving them in the dark about the costs they may face
  • Chancellor could also incentivise employers to help with social care with tax breaks for care saving plans or elder-care vouchers
  • Politicians have adopted the ‘ostrich approach’ burying their heads in the sand and leaving future Governments to deal with the problems caused by today’s lack of action
  • Social care for older people is pushing NHS to breaking point – and that’s before the baby boomers start needing care in coming years
  • The NHS was designed as a make you better service, not a look after you for ever service – it cannot keep picking up the pieces of our broken care system

There’s no magic silver bullet to solve care inadequacies – having been left so long it needs multiple approaches.

Will Philip Hammond be the first Chancellor to introduce tax incentives to help families prepare for care costs in advance? He could show huge political courage by starting to address this enormous crisis. Signalling to families that millions of them will need some money in later life to pay for care needs, not just pensions, should have been done years ago, but successive Governments have failed to offer any help to families to prepare for care. Government spends billions on private pensions tax breaks, and there is a State Pension to provide a base level of support. But there are no incentives to set money aside for care costs. The Autumn Statement could introduce new initiatives giving tax breaks to encourage people to allocate existing or new savings for care. This would help more people recognise the need to keep money back for later life care costs. Currently, they don’t know.

  • Special ISAs for Care Savings: Chancellor could introduce a new type of ISA to help people save for care and could encourage people to switch existing ISAs into Care ISAs. Perhaps up to £50,000 per person which would get an added Government bonus if the money is earmarked specifically for care. The money could perhaps be passed on free of Inheritance Tax to form a Care Savings ISA for the generations if not used.
  • Family Care Savings plans: Baby boomers are now reaching their 60s, but have no idea they may face shocking costs of later life care. Encouraging families to save for care will help explain to families that Government won’t cover most care costs: The NHS is already at breaking point as it picks up the pieces of our broken care system, and that’s before huge numbers of baby boomers, now in their 60s, start needing care in future. Government could offer tax incentives for ‘family care savings plans’.
  • Tax incentives to keep some money in pensions, such as tax free withdrawals for care: Many baby-boomers have money in their pension funds and now have more freedom to leave their money invested, rather than buying an annuity. The Chancellor could allow tax-free withdrawals from pension funds if the money is spent on care.
  • Tax incentives to encourage employers to help staff save for later life care: A pension is not the only money you may need in retirement. Encouraging employers to contribute to a care savings plan for their staff, with similar tax breaks to pensions, could help people build up funds for later life care.
  • ‘Eldercare’ vouchers to help staff with care costs: Employers could offer elder care vouchers (along the lines of childcare vouchers) which get tax relief as an employee benefit.
  • Stamp duty breaks when older people downsize their home: Government could help ‘last time buyers’ downsize their home. Perhaps with a one-time stamp duty exemption on last home purchase. This could free up some money that could be spent on care in future years.

10 failings of social care:

  1. No financial or tax incentives to help families prepare for care costs in advance: There are significant incentives to help people build up private pensions, but no Government incentives for care savings. There is employer help for pensions and also the state pension to provide a base, but there is nothing for later life care needs.
  2. Triple cutbacks in publicly funded care is betrayal of British families – It is estimated that 150,000 fewer people are receiving help at home than five years ago as councils impose triple cutbacks: (a) only paying for those whose care needs are already substantial; (b) cutting the amount of care provided per person (such as 15 minute visits); (c) failing to pay the full costs.
  3. Health lottery – depending on what’s wrong with you, taxpayers may pay all your costs via the NHS, or none if your care needs come under council control. Most people assume the NHS looks after elderly people but they are often left to pay for care themselves.
  4. Postcode lottery – Many councils are cutting back care spending, leaving care homes or domiciliary care companies unable to cover their costs.
  5. Social care is the meanest of all means tests, and families with savings face a double hit – councils will only pay for care if people have less than £23,250. This could include the value of their house, unless they or their partner is still living there. While those with no assets get care costs covered by council taxpayers those people who have to pay for their own care are hit twice. Councils are not paying enough to cover the costs of care for those who do get public funding, so those who get no public money must not only cover their own cost, they also have to pay extra for other people’s care too, to make up for council underfunding.
  6. Government hasn’t told the public about the need to prepare for care costs – Government has tried to pretend it is sorting out the problem when in fact the crisis is getting worse. Families are being left to find funds when needs suddenly arise rather than having to prepare for care in advance. Political spin is does not help those in dire need.
  7. Lack of cross-Departmental approach – addressing the care crisis will require several Government Departments to work together – Department of Health, DCLG, Treasury and Housing. The NHS should work with DCLG to properly integrate funding for health and care needs of rising numbers of older people. Treasury must urgently introduce incentives to help families save for care. Housing Ministers must ensure building of suitable homes for ‘last time buyers’ to downsize to. If people stay in unsuitable homes, rather than being able to move to good quality, smaller, user-friendly housing, they are more likely to need social care.
  8. Lack of integration between health and social care services leaves the NHS paying for those who develop health needs due to lack of care – In Torbay and South Devon, the integration of health and social care has seen emergency hospital admissions for the over-65s almost eliminated. But in most other areas, failure to fund social care, often results in older people ending in the NHS – the most expensive care setting.
  9. No incentives for councils to save money to NHS – The current system actually incentivises councils to push extra costs onto the NHS. The longer councils can delay hospital discharge, the less they will have to pay for an elderly person’s care. This ends up costing the taxpayer far more, as well as being worse for older people. This failure is leaving NHS resources stretched to breaking point, a lose-lose situation for us all.

No incentives for NHS to save money to councils e.g. GPs could help patients by recommending preventative measures –currently GPs are not incentivised to prevent care needs, rather than waiting to treat them after problems arise. It could save money and improve people’s lives if GPs could recommend personal alarms, handrails or a bit of home care.

November 20, 2016   2 Comments

Cridland State Pension age independent review: interim report.

13 October, 2016

Here are my thoughts and comments on the Cridland State Pension age independent review: interim report.

As Cridland considers the options, Government has a chance to make State Pension policy fairer

Consider extending number of years for full pension, rather just than raising state pension age

  • Current system gives higher state pension to people healthy or wealthy enough to wait and work longer, but often disadvantages those with longest working lives or poor health
  • Continually increasing State Pension Age is not best way to control state pension costs
  • State Pension is based on contribution principles – but 35 years is not a full working life
  • Requiring longer contributions for full State Pension would allow long-service workers to get full State Pension sooner if they need to
  • New State Pension rules has made state pension less fair – people may now pay full National Insurance for more than 15 years, for no extra State Pension
  • Under old State Pension, people could build up more State Second Pension every year but new State Pension means no extra State Pension after 35 years
  • National Insurance makes no provision for social care – Beveridge would have ensured such insurance

I am delighted to see that John Cridland has released his interim Report on how to manage State Pension Age policy in the long-term.  I believe there are important issues that need to be opened up to national debate and it is good to see them starting to be aired.  Cridland is right to focus on the three pillars – affordability, fairness and fuller working lives. These are all important issues and can help frame the way State pensions policy works better in future.

 

Current system gives higher state pension to people healthy or wealthy enough to wait and work longer, but often disadvantages those with longest working lives or poor health

The current State Pension system is increasingly seen as unfair.  Those who reach state pension age in good health and with other private income can keep on working or waiting longer and achieve much higher state pensions when they do finally take them.  Under the old system, people could get an extra 10.4% a year state pension for each year they delayed starting to take it.  Under the new State Pension, people can still get an increase of 5.8% a year in State Pension if they can afford to delay their start date.  By contrast, people who desperately need their state pension before they reach state pension age cannot receive any money at all and State Pension age has been rising sharply, as indeed has the age at which Pension Credit can start being paid to both men and women.  This means the current system is penalising those who are in poor health, possibly due to having had very long working lives in physically demanding jobs.  Socially, such a system seems inequitable and the groups with lowest life expectancy lose out significantly.  This includes people in lower earning groups, but there are also major occupational, regional and income differentials in average life expectancy which have so far been ignored by the state Pension system.  The current rules favour higher earners, living in more prosperous areas and who have less strenuous jobs, or are in good health.  A balance needs to be struck between controlling costs and improving social fairness.

 

Continually increasing State Pension Age is not best way to control state pension costs – just look at the problems with Women’s State Pension Age changes

The Government should carefully consider whether just increasing state pension age is the optimal way to control costs.  I believe there needs to be a different mechanism than purely using average life expectancy, or chronological age.  A more considered approach would focus on length of working life and number of years contributing to the National Insurance system.  At the moment, the dice are all loaded in favour of the healthier and wealthier members of society, who get more State Pension per year and for more years than other groups.

 

State Pension is based on contribution principles – but 35 years is not a full working life

The National Insurance State Pension has always been based on the contribution principle – if you contribute to the country for enough years, you will be entitled to a full State Pension.  When Beveridge designed our system, he considered a full National Insurance record would be 44 years for men and 39 years for women.  Since the 1940s, average life expectancy has increased significantly but the number of years for a full record is now only 35.  If you have lived in the UK all your life, 35 years cannot possibly be considered a ‘full’ working life.

 

New State Pension rules has made state pension less fair – people may now pay full National Insurance for more than 15 years, for no extra State Pension

Those who left school at 16 would be just 51.  Those who went to university and started working at 21 would be just 56.  That means, people will be contributing National Insurance for many years, but will not get any more state pension at all.  By contrast, those who have only lived in this country for part of their lives could get the same State Pension as people who have lived and worked here much longer – and paid far more into the National Insurance system overall.  National Insurance contributions from both employee and employer amount to over 25% of average salary – yet no further pension accrual will be earned for this sum once people reach the 35 year threshold, meaning many people who did not go to higher education will be disadvantaged in the State Pension system.

 

Under old State Pension, people could build up more State Second Pension every year but new State Pension means no extra State Pension after 35 years

The unfairness of the State Pension system has been exacerbated by the new State Pension that started in April 2016.  Under the new system the old rules that allowed people to keep on building some State Pension every single year have been abolished.  Before April 2016, people could build up extra State Second Pension (S2P – the earnings related part of the State Pension) every year until they reached State Pension age.  They would have built up a full Basic State Pension after just 30 years, but at least they could go on accruing more S2P each year, so their National Insurance contributions would give them some extra State Pension in retirement.  (Those who were contracted out would be paying lower National Insurance and building up a replacement for this S2P in their private scheme).

 

Requiring longer contributions for full State Pension would allow long-service workers to get full State Pension sooner if they need to

Therefore, the idea of increasing the number of years required for a full State Pension makes sense.  In future, rather than increasing State Pension age just because ‘average’ life expectancy has risen, it could be fairer to increase the length of time required for a full State Pension instead.  If you reach State Pension age without a full record, you could still receive the relevant fraction of the State Pension – for example if you require 45 years and you have 40 years on your record, you would still get 40/45ths of the full amount.

 

Those caring for children or adults would still get credits towards their record, as would the unemployed or those who are too ill to work.

As with the current system, anyone who takes time out to look after their children or caring for older people, or unemployed or too ill to work would receive credits so that this does not damage their National Insurance record.

 

National Insurance makes no provision for social care – Beveridge would have ensured such insurance

The current National Insurance system is geared towards regular pension payments only.  However, if Beveridge was designing the system today, he would certainly want to include an element of insurance to cover social care costs.  Beveridge could not have imagined millions of elderly people living as long as they do now, being such a growing proportion of the population.  In the 1940s, life expectancy was much lower and medical research had not developed to allow people to live with chronic conditions until much later.

The measure of ‘up to’ one third of adult life living on a state pension is far too crude.  Given the vast differentials in life expectancy across the country and across occupational or income groups, this arbitrary measure hides significant unfairnesses.  A more sophisticated and equitable approach is required.

October 13, 2016   2 Comments

Care ISAs and incentives for care saving

2 February 2015

  • Government considering savings incentives for social care
  • Possible ways to incentivise care saving schemes:  1. Care ISA   2. Tax free pension withdrawal   3. Care saving in auto-enrolment
  • Could help millions of middle income families not just the well-off

Government must tackle lack of care funding: Are Ministers finally waking up to the need to help people save to pay for social care? I do hope so. It seems they may be considering savings incentives, to help people prepare for potential care bills for themselves or their loved ones. Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Insurance unlikely, need to encourage savings: Insurance companies cannot offer an insurance solution to cover care costs, so private savings must form part of the solution. With an aging population and rising longevity, it has long been clear that increasing numbers of older people will need care. Yet there is no money set aside by the state or in private savings to cover care costs. Obviously, using a family home is a possibility, but many would prefer other means.

Care ISAs and tax free pension withdrawal could help kick-start care savings culture: How can we help families start to plan care savings? Tax-free ISAs are a simple and popular form, but most people do not have specific spending plans for their ISAs. A ‘CareISA’ in the Chancellor’s final Budget would not involve upfront tax relief as with pensions. Launching a CareISA specifically earmarked to pay for care would itself help people realise the need to save for care and help kick-start a care saving culture that currently does not exist. In addition, allowing people to spend their pension money on care without paying tax first would also encourage more to keep money for later life as well as signalling the need for care saving plans.

Making a CareISA work – IHT free? A separate annual allowance for a ‘Care ISA’ of perhaps £10,000 a year, maybe with a lifetime maximum of £100,000 contributions would be an excellent measure for the Chancellor’s Budget. Transferring money from other ISAs into a CareISA could also be allowed. The money could only be spent on approved care provision (but it could cover care for a loved one as well as paying for moderate or preventive needs because such early intervention might help save money for the NHS). To increase the attraction of CareISAs they could be exempt from inheritance tax. Just as with pensions, they could then be passed on to future generations as a Care Savings plan. This could finally begin the process of planning in advance for care funding. Within any one couple, there is a 50/50 chance that one will need care, in a family of four, one is likely to need care but no money is set aside. Saving among family members would make sense if they wanted to, rather than each individual.

Tax free pension withdrawal to pay for care: Alongside a new Care ISA, the new pension freedoms could also be used to encourage people to save money for later life care by allowing any money taken out of the fund for care needs to be withdrawn tax-free. Removing the annuity requirement and 55% death tax could encourage pension funds to be kept to cover family care costs. Allowing some pension fund withdrawal to be tax free if it is used to pay for care, would encourage more people to retain some funds in the tax-free pension for longer, just in case it is needed. If they don’t spend it on care, it will pass free of inheritance tax to the next generation.

Auto-enrolment to encourage workplace care saving plans: Ultimately, there is another route to help care funding, especially for those without large savings. We certainly need a range of options to solve a crisis on this scale. With auto-enrolment potentially bringing every worker into pensions for the first time, there is an opportunity to use this to start funding social care too. The Government could eventually adjust auto-enrolment to cover more than pensions, or even build a national care insurance contribution into auto-enrolment too.

Bringing Care Savings into workplace flexible benefits packages: In the meantime, there would be merit in encouraging employers to offer workplace savings plans specifically for care, such as the CareISAs. This could be part of a flexible benefits package, with an employer contribution to help workers of all ages and income levels save up for care costs.

No magic bullet – urgently need range of options so public know they need to save: The cost to society of failing to ensure money is set aside for future social care needs will put intolerable burdens on the NHS, on younger generations and on older people. There is no magic bullet to solve this crisis – we’ve left it so late. The best we can do is start to tell people that the state won’t pay, help them realise just how little the state covers and that they are likely to need their own funding as well. Whether it’s ISAs, pensions or auto-enrolment, the Government must incentivise saving for social care and this can ultimately help millions of middle-income families, not just those who are well off.

February 2, 2015   2 Comments