Category — Social Care
20 January 2015
- Action to address care crisis cannot wait any longer
- Elderly people are suffering due to council and care company cost-cutting
- All parts of the system are failing and Government has not yet offered solutions
- Tax incentives to help families save for care costs are needed as £72,000 cap is too high for affordable insurance
- Care ISAs, Family Care Plans and Workplace Savings free of Inheritance Tax
- Use auto-enrolment and new free Guidance to kick-start care savings
There is no money set aside for care: Even though demographic trends clearly signal a dramatic rise in the numbers of older people needing long-term care, there is almost no money set aside to pay for the care they will require. Millions of baby boomers are currently reaching their 60s and will need care in the coming twenty years or so, yet 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.
Long-term care funding is one of the least understood parts of the health and care system. In fact, many people mistakenly believe that the Government will pay their care costs. But social care is the responsibility of local authorities, not the free NHS. 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 help from public funds at all.
Cash-strapped councils and indebted care companies are desperate to cut costs but this cuts quality too. Local authority budgets have been squeezed and councils have slashed their social care spending by 26% in the past four years. This affects all aspects of the care system. Whether it is funding for care homes, where local authorities are not paying the full costs of care and are forcing private payers to subsidise publicly funded residents, or homecare, where councils have cut the time for home visits to only 15 minutes in many cases, the system is not being funded properly. Private care companies are often highly indebted, both care home operators and homecare providers, so there is constant cost-cutting pressure. This affects the quality of care provided and also the conditions in which staff must operate. Zero hours contracts and low pay are endemic, often with no pay for travel time or training, which leads to a transient workforce and lack of adequate care.
Healthcare and social care must be integrated. 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.
Families will need to prepare for some costs, but they need help. In Scotland some social care is provided free by the government. Elsewhere 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, causing significant distress to many families and leaving the majority of families to find huge sums at short notice.
Politicians have talked about this problem for years, but there is still no solution in sight. 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 offering care are highly indebted and there is a crisis in the sector.
Products for care funding are inadequate. There are some products already on the market to help people pay for care. 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.
The £72,000 cap is not a solution. The latest proposal designed to stop people losing their life savings or their home to pay for care is the £72,000 cap to be introduced from April 2016. The state is supposed to step in once the cap is reached, to ensure nobody has to face catastrophic care costs, but most people will actually have to spend more like £140,000 on care before they receive any state help because the cap excludes.
- £12,000 a year board and lodging costs for a care home
- Any money spent on care before your council assesses your needs as severe
- Money spent on a higher-fee care home or more homecare in excess of the local authority basic minimum
- Any spending before April 2016
- Even after state funding begins, the £12,000pa for board and lodging elements of care home accommodation will not be paid by the council.
Insurance up to the cap is not a viable solution. Insurance companies have told the Government that they can’t develop an insurance solution to cover care costs up to the cap. If insurance is not a realistic option, then other avenues must be urgently explored. New products and approaches, together with new Government incentives, are urgently needed.
Encouraging saving for care and integrating health with social care could help. In addition to a better integration of health and social care (the current distinction seems arbitrary and manifestly unfair) it is also important to help people prepare in advance for care spending if it is needed. I believe a savings solution will have to be part of the mix.
How could a savings solution work?
Extra tax breaks are needed to encourage long-term care saving. This is justifiable 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, on younger generations and on older people. Urgent action is needed to head off a disaster that is clearly on the horizon.
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. 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. 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.
Auto-enrolment to encouraged 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. This could be part of a flexible benefits package, which receive an employer contribution.
Use Pensions Guidance to provide information and education: It will be important to ensure that the Government’s ‘Pension wise’ guidance tells people about planning for care.
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. Social care in this country is failing, radical action is long overdue.
January 20, 2015 1 Comment
4 September 2014
- More means-testing and tax increases will disincentivise private income and could worsen looming care crisis
- We need incentives to encourage people to save for care – Care ISAs and tax-free pension withdrawals, plus inheritance tax exemption for care savings
- Health and social care budgets must be integrated to provide fairer system
Radical reform of social care is required: I welcome the report released today by the King’s Fund, which highlights yet again the flaws in our system of social care. It is absolutely clear that radical reform of the care system is necessary to address the need for dignified care as the numbers needing care are set to soar in coming years.
Need fair partnership between state and individual: The King’s Fund report is right to raise the debate about how to fund social care fairly in future, but the proposed solutions could make the situation worse, rather than better, in the longer term. We need a fair partnership between the individual and the State. A proper review of how to integrate health and care spending is needed, to identify the priorities for public spending and how to fund this fairly. This would allow for an increase in early intervention and more at home care, which can reduce the numbers needing more costly NHS interventions as a result of avoidable falls.
Reform state pension and increase age of eligibility for benefits rather than more means-testing: However, the King’s Fund proposal to take away pensioner benefits and limit them only to Pension Credit claimants is not a solution. Indeed it could increase the taxpayer costs of care as it is like cutting the state pensions of those who have saved and penalising those who try to be self-reliant. Increasing the age of eligibility is an issue to consider, and integrating the free benefits into the state pension would also make sense, so that they become taxable, but extending means-testing is dangerous. Trying to provide free social care and funding this by more means-testing within the current health and care framework is like sticking a plaster on a wound that is getting worse underneath. Covering up the issue will not really solve it.
Need savings incentives urgently: It is really important to help people save for later life care needs – there are absolutely no incentives in place for this at the moment and no specific products either. By extending means testing, those who save for care are simply going to be penalised further which will result in fewer people saving and more needing taxpayer support. Nobody is saving to cover care needs and no new products are available – by offering tax incentives such as more ISA allowances, or inheritance tax breaks, savings for care could be kick-started.
Care ISAs and tax-free pension withdrawals: I have been calling for the Government to introduce a new Care Savings Allowance for the over 50s to allow tax free savings towards care for themselves or their relatives. A ‘Care ISA’ allowance, or tax-free pension withdrawals to pay for care. Even if care funding is radically reformed, individuals will still have to fund a portion of their care costs themselves so it is vital that we help families put money aside just in case.
NHS cannot cope with the costs of care: This issue is not just about looking after older or disabled people. It will affect families up and down country and ultimately all of us, because the NHS will be unable to keep picking up the pieces of our broken social care system. Getting social care right, helping people plan and prepare properly and look after themselves will ultimately save money and resources in the NHS. Failure to reform care will end up costing us all far more when the NHS safety nets break down.
Need to integrate health and care budgets and ensure tax incentives for private saving: Without the additional funding that would come from proper integration of our health and social care systems, plus incentives for people to save for their own care, our increasingly ageing population will still be at risk. Inheritance tax breaks, ISA incentives and encouraging people to use the new pension freedoms in ways that ensure they leave some money in their pension wrappers in case they need to pay for care, would finally start a savings culture for care that is long overdue.
September 4, 2014 1 Comment
23 June 2014
- Budget pension reforms could help kick-start saving for social care
- New tax breaks will help savers build up care savings funds – could be with pensions or ISAs
- My Budget consultation response highlights urgency of addressing social care funding crisis
In my response to the Chancellor’s 2014 Budget on pension reforms, I have included a section explaining how the pension freedoms could be used to help kick-start a culture of care saving. This probably needs to be incentivised with further tax breaks. However the cost to society of failing to ensure money is set aside for future social care needs could be unaffordable and there are already signs that the pressure is proving damaging to the NHS. The real crisis is still some years away, but as baby boomers reach later life, the numbers needing care will soar. Something must urgently happen to head off a disaster that is clearly on the horizon.
The new pension fund freedoms introduced by the 2014 Budget could pave the way for exciting new approaches to solve the crisis in social care funding – which will inevitably follow the pensions crisis. Official estimates suggest that perhaps 80% of the population over age 65 will need some care and support in later life. Half are likely to need to spend around £20,000 and one in ten will spend over £100,000.
But there is no money set aside for care: Even though the demographics and medical advances obviously point to a dramatic rise in the numbers of older people needing long-term care, as the millions of baby boomers currently reaching their 60s will be likely to need care in the coming twenty years or so, there is almost no money set aside to pay for the care they will require. The Government has not set aside any money for this huge looming cost, so no one has actually prepared for this.
Government needs to urgently design new tax rules to encourage saving for social care
People need to plan to meet such costs – guidance could help: It will be important to ensure that guidance or advice on retirement planning includes consideration of having to pay for care. Materials that help people understand the risks of facing very high costs if they or a loved one needs care, can help educate people who are currently totally unaware of this issue.
Current products to help people cover care costs are expensive and poorly understood: There are various products on offer to help people pay for care, each of which has advantages and disadvantages. These include Immediate Needs Annuities, Equity Release and local authority deferred payment plans (which are often unavailable in most cases nowadays), other savings such as ISAs or insurance bonds and perhaps some health or illness insurance. New products and approaches, together with new Government incentives, are likely to be required.
Possible new approaches to paying for care – with proposed new tax incentives:
Potential new products for care funding
Using pensions for care
Tax free pension withdrawal – allow pensions to be withdrawn tax free if used for care
Care ISAs – incentivised by allowing them to pass on free of Inheritance Tax
Family Care Saving Plans – incentivised by allowing them to pass on free of Inheritance Tax
Workplace care savings plans in auto-enrolment
Using pensions for care: Until the latest Budget changes, pension savings could not be easily accessed to help pay for care. Many people reaching retirement will have some tens of thousands of pounds in their pension funds but once they buy an annuity, this capital could not be directed to pay for care. Now that the annuity requirement is removed, pension funds could potentially be used for care. Those who do not require extra income from all of their pension savings, might be interested in a savings or investment product that would be specifically earmarked to pay for care – perhaps for themselves or for a member of the family. Each couple may have a one in two chance of needing long-term care, although they do not know which one of them or when, the Government could use the new pension reforms to kick-start a culture of saving for long-term care. Even without new incentives, people may benefit from the opportunity to use their pension savings to pay for care. However, if any money withdrawn is taxed, the amount available will be reduced by 20-45%.
Tax free pension withdrawal: Given the social importance of funding social care, it makes sense for the Government to consider tax-exempting pension withdrawals that are used to pay for care needs. A specified sum of money might be allowed to be taken out of a pension fund tax-free if spent on care. This might encourage people to leave money in their pension funds for later life, closer to the point when they might need it, in the knowledge that there are tax advantages if they do spend it on care. While the money stays in a pension wrapper, it does not incur tax on investment returns, and then allowing it to be withdrawn tax-free if paying for care, might encourage more people to leave it there unless they really have an important reason to spend it.
Care ISAs – IHT free: Another possibility is for the Government to introduce a specific annual allowance for any ISAs that are earmarked to pay for care. This could be to pay for care for oneself, or for another family member, but as long as the money is used for care, people might be offered a special tax concession. This could allow ISAs to be used as a care saving plan. Investment returns would be tax free and if the fund was not needed for care it could be exempt from inheritance tax as long as the funds passed on are themselves set aside for future care funding. These special ‘Care ISAs’ would help signal the need for people to save for care. Even if only those with larger amounts of saving will benefit most at first, introducing special tax allowances to encourage care saving, could help more people realise the need for this kind of saving, which is important because most are currently unaware of the issue.
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 put in money each year, 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. Again, the Government could offer tax breaks to incentivise this kind of saving. People could perhaps use the tax free lump sum from their pension, with these plans being free of all inheritance tax as long as they stay earmarked for care spending. These savings plans might also include some ‘catastrophe insurance’ that would pay out if more than the expected number in the group actually need care.
Workplace benefits for care saving: Alongside auto-enrolment, it might also be helpful to ensure that employers consider offering the option for people to save in a workplace savings plan that is set aside specifically for care. This could be set up by the employer, and perhaps offered as part of a flexible benefits package, or offered to older workers who have some pension savings, but have not yet saved for care. These could be tax advantaged savings products, offered as a workplace benefit, or ordinary savings accounts which receive an employer contribution.
Why Dilnot reforms will not solve the care crisis: The £72,000 cap, based on Dilnot’s proposals, is not a solution to the problem of inadequate social care funding. It is not an actual maximum and represents only part of the amount people may need to actually spend on their care.
- £72,000 cap excludes £12,000 a year board and lodging costs which must still be paid
- Cap only covers spending when care needs assessed as ‘substantial’, ignores moderate need care spend
- Cap only covers spending up to local authority basic rate
- Only starts from 2016, any spending before that won’t count towards the cap
- Even after cap is reached, people must still pay £12,000pa for care home accommodation
The cap is much too high to allow an insurance solution to care funding: The £72,000 cap is too high to allow insurance companies to offer insurance solutions for care funding. Because of the exclusions, someone would probably have needed care for about 5 years before they reach the cap, and even then they will need to spend thousands more. The average care home stay is 2-3 years, so most people will simply not reach the cap and never be able to claim on the insurance. Thus, insurers will be reluctant to offer such a product and the bottom line is that people will have to find money to pay for care. As there are no savings currently set aside to pay for the huge looming costs of social care for an aging population, a new source of money must be found which will need to be based on savings, not just insurance. The sooner we can start to help people save for later life care needs – for themselves or their loved ones – the better.
Pension reforms are a start, but more tax incentives are required: The Chancellor’s pension reforms could help to raise awareness of the issue and, if coupled with further tax incentives, could form the basis for starting care saving that is so urgently needed.
Here is a link to my response to the Budget Consultation questions on social care funding
June 23, 2014 No Comments