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Budget ISA moves – ISA savings for care

21 March 2014

  • Nicer ISA savings – what could be NISA!
  • And how about a Care ISA?

As the dust starts to settle a little following the sudden Budget improvements to Individual Savings Accounts (ISA) rules, I thought it might be helpful to note down some more thoughts.  Wouldn’t it be great if the new found freedoms could be used to help fund social care.

An ISA tax free savings account, designated to pay for care costs, could help with the coming social care crisis and also give families some peace of mind about covering the expense of infirmity in old age.  An added incentive to encourage more people to pre-fund possible care needs – whether for themselves or a loved one – would be to allow any designated care funds to be passed on free of inheritance tax, if not needed for care and kept in a fund that will still be used to fund care needs for other family  members.

This would enable the savings industry to design longer term products to help people save for the possibility of needing care in later life, rather than suddenly finding they need large sums of money which have not been budgeted for.

Three or four years’ worth of ISA savings, of £15,000 a year, would result in a fund that could cover most people’s care costs in later life.  Once care is needed, the fund could then be drawn down slowly, or switched to cash.  I do hope the industry will rise to this challenge now that the Government has opened the door to more flexible savings.

Now that ISAs will be more flexible, with people being allowed to shelter much more income from tax and also free to choose whether they want cash or stocks and shares in their savings fund, the position of savers has been significantly improved.  Whether you have larger or more modest sums to set aside, or perhaps if you receive an inheritance or bonus payment, you will be able to build up more savings over the long-term in a tax-free account.  Young people saving for a house can keep the money in cash, those in retirement who need to live on their savings likewise, but those who have savings for the longer-term will be able to put the money in stocks and shares and then switch into cash as and when they feel it is appropriate for them.   There is not yet any funding vehicle to prepare for care costs, using the new ISA flexibility might just spur the industry to develop some.

2 comments

1 Helen { 03.21.14 at 10:42 pm }

At £900 a week in our area in order to subsidise Social services inhabitants of care homes where they will only pay £425 a week you can be sure that a 15K a year NISA limit simply will not be enough
Its all totally iniquitous that those who went without and saved for retirement should have to subsidise the spendthrifts of society . Councils should never have been allowed to close Council care homes and get away with paying such paltry rates expecting everyone else to pick up the tab
As far as i am concerned if care home is needed therews plenty of pills to do the job and stop others sponging off my prudence and going without
George Osborne , King and Carnage have done more than enough in the last 5 years

2 Arnold { 07.25.14 at 1:12 pm }

Why would anybody even consider wasting their ISA savings in such a way?

The ISA fund built-up in that way would go very quickly indeed. Don’t forget that beyond one’s first £10,000 (or, say, £15,000 to allow for inflation), you are obliged to pay ALL of the care home fees. Thus, if you had accumulated £45,000 as you suggest, after ignoring the first £15,000, the next £30,000 would be applied to pay 100% of the fees (admittedly butressed by other income). Even the cheapest care home costs around £25,000/year so after a few months into the second year you’d have spent all your care home savings. After that, had you opted for nicer (ie more expensive) home, you’d have to move to a cheaper one as the local authority generally won’t pay for the more expensive ones.

Of course, that does presuppose that the local authority would allow you to go into a more expensive home in the first place. It might well be that they would go to the court of protection and veto the more expensive home on the basis that you could only afford it for a year, or indeed possibly not even that long depending on where you live.

In fact, the tax free status of such a savings plan is moot. At the end of the day you would end up paying 100% of it for care so it would actually be taxed at a rate of 100%.

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