PENSIONSANDSAVINGS.COM

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.