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.