From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Care ISAs: Over-60s have £300billion in ISAs which could help care funding crisis

    Care ISAs: Over-60s have £300billion in ISAs which could help care funding crisis

    • Britain’s over-60s have more than £300billion in ISAs which could help solve the care crisis.
    • Over 8million over 60s have £35,000-£40,000 in ISAs.
    • £1trillion+ earmarked to pay future pensions but nothing for future care costs.
    • Government’s should introduce incentives for Care ISA. 

    Britain faces a funding crisis for elderly care with no money set aside for future care needs: The country cannot cope with the costs of caring for today’s elderly population as more than one million older people who need care are not receiving it. But the current cohort is small and as the baby-boomers are just reaching their 70s, numbers needing care are set to soar. No money has been earmarked to fund future care costs.

    Over 60s have saved over £300billion in ISAs which could help fund their care: Figures released to me in response to a recent Written Parliamentary Question reveal that the over 60s have more than £300billion in ISA savings. Currently, any ISAs that are not spent before someone passes away, could be taxed at 40%, so there is an incentive to spend them before death.

    ISAs are normally not earmarked for any particular purpose: Encouraging the current cohorts of older people to keep some ISA savings for later life, in case they need care, can contribute to solving the care funding crisis. Rather than spending the money on a new car, a cruise or giving it to other family members, some people might prefer to keep it as a Care Fund, just in case they need it. There are huge sums saved in ISAs by the older generations. If all this money is spent before people reach later life, the burden of paying for their care will fall more heavily on younger generations. Here are the statistics released by the Treasury in reply to my Written Parliamentary Question.

    Age Number of people Average value (total amount)
    90+ 256,000 £40,097 (£138.32billion)
    80-89 1.36million £40,373 (£105.42billion)
    70-79 2.67million £39,484 (£ 54.91 billion)
    60-69 4.02million £34,409 (£ 10.26billion)
    Total 8.31million   (£308.91billion)


    The average ISA holding for over 8 million over 60s is £35,000-£40,000 per person, millions have far more than the average. (Source: https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2017-12-04/HL3799/ )

    Care ISAs, Inheritance Tax-free, could kick-start pre-funding for care:  The Government should consider introducing a special ‘Care ISA’ allowance, which could pass on free of inheritance tax if unused. Each person could be allowed a Care ISA fund up to a maximum sum, to be spent on care. They could transfer existing ISA balances into this Care ISA, or fund it from new savings.

    Advantages of Care ISAs: A Care ISA system can help the Government with a number of important objectives.

    • At last, people may set money aside, in advance, to cover future care costs (currently they do not think about it), rather than suddenly having to find money at the very time they are most vulnerable. Older people’s ISAs may otherwise be spent well before they need care, and they may regret this later but it would be too late.
    • Government can signal the need to think about this issue (currently most do not know or think about pre-allocating money for care).
    • Families and their loved ones will know they have some savings set aside in case they need care.
    • The Care ISA could also help fund care at an earlier stage than the state would start paying. Most councils now only pay for care for people assessed as having substantial or critical needs, while those with moderate needs receive nothing. Having money earmarked for care could supplement any state payments, as is the case with private pensions, which offer a better standard of living than relying only on state pensions.
    • By making that money IHT-free, Care ISA money could pass on to the next generation as a Care fund for them too if not all spent.

    Much-delayed Green Paper on funding and sustainability of our care system due soon:   In 2012, the Dilnot Commission suggested raising the means-test threshold (to exempt around £120,000 of savings instead of the current £23,250), and a cap on care costs. Families paying the first part, and the state taking over after that. The 2014 Care Act paved the way for this to be done, but the measures were abandoned.  The Conservative manifesto proposed paying care costs from the value of people’s homes, with the money collected after the home is sold or the person passes away. That suggestion proved politically toxic so the Green Paper will need some alternative suggestions for care funding.

    There is pre-funding of pensions, but nothing for care, so tax-free pension withdrawals may also be considered: Most people are shocked when they suddenly face enormous costs, for which they have made no prior provision and had no idea the NHS does not cover. Retirement funding has always been about pensions, with no consideration for care. Government has budgeted in advance for pension costs, companies and individuals have contributed huge sums for pensions, but a pension income is not designed for the high costs of care. Therefore, allowing tax-free pensions withdrawals, could be another part of the solution. Insurers have also suggested some kind of insurance for care needs too.

    There is no silver bullet but Care ISAs could help: The issue of care funding is so enormous, there cannot be just one solution – many measures will be required.  This is a major failure of social and economic policy and the Green Paper will need a range of proposals. Care ISAs should be one of them.

    One thought on “Care ISAs: Over-60s have £300billion in ISAs which could help care funding crisis

    1. Hi, interesting proposal. It seems to de-incentivise saving for later life. Presumably care will be free if you have no savings? Won’t it lead to two-tier health and care system? And it seems to suggest if you are in a hospital, the NHS will look after you, but in a care home and you are on your own. Have I misunderstood? And I don’t see why it should be free of IHT if not used. There are loads of ways of avoiding tax as it is. Why not give to relatives while alive, to help them provide your care?

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