14 December 2016
Jeremy Hunt is right we need for private savings to help fund care crisis
- There’s no one solution but private savings must be part of the mix
- Care costs much higher for older women than older men
- Government can introduce tax incentives to help families save for care costs
- Care ISAs, Workplace Saving Plans, Eldercare vouchers, Family Care Saving Plans free of Inheritance Tax
- Consider using auto-enrolment and free Guidance to kick-start care savings as part of 2017 auto-enrolment review
Jeremy Hunt is right – people will need private savings to help fund later life care: Politicians have talked about social care for years, but have ducked the difficult decisions required to address this time and again. 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 cannot afford to deliver decent care within the council budgets, and the screaming headlines from recent days continue to highlight that this crisis is just getting worse.
There is no money set aside for care: There is almost no money earmarked to pay for the care people will require – not at public or private level. 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.
Problem is worse for older women than for men: The CII Report released yesterday on Risks in women’s lives found that this is a much worse problem for women. The median man over age 65 will need to spend around £37,000 on later life care, but the median woman will need around £70,000. Where will this money come from? It either has to come from councils on a draconian means-tested basis, or the NHS (when early intervention or prevention is not funded), or individuals and their families who suddenly find themselves faced with huge spending they had not prepared for. And of course older women are less able to save for their future needs because they are more likely to have to cut down or stop working to provide care for loved ones – society takes this free female caring for granted.
Families will need to prepare for some costs, but they need help. 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 (down to £23,250) and until their needs are considered ‘substantial’, causing significant distress to many families and leaving the majority of families without the care their loved ones or they need. Many suddenly have to find significant sums at short notice. Ideally, money is needed for prevention and early intervention, so that people can have a little help or pay for measures that will ensure they are safer and less likely to fall. But they need to know what to do.
Products for care funding are inadequate. There are some products already on the market to help people pay for care but they are expensive and will not help with prevention. 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.
Encouraging saving for care could help. It seems that Jeremy Hunt may be signalling that at last the Government recognises the importance of helping families prepare for social care costs in advance. People don’t know they will need such sums, but if they spend all their pensions or ISAs before they reach their 70s and 80s, they may really regret not being able to pay for the help they need. I believe Jeremy Hunt is correct, some private savings will have to be part of the mix. 21st Century retirement income is about more than just pensions.
Extra tax breaks to encourage long-term care saving. We spend around £40billion on incentives for pension saving and not a penny on incentives for social care saving. 21st Century retirement needs more than a conventional pension to help fund later life. Providing taxpayer incentives and employer incentives is important 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 and on younger generations as well as on older people. Urgent action is needed to head off a disaster that is clearly on the horizon.
Care ISAs – IHT free: The Government could introduce a separate annual allowance for ISAs that are specifically earmarked to pay for care or allow people to transfer existing ISAs. Launching such ‘Care ISAs’ would itself help people realise the need to save for care. It could allow up to, say, £50,000 or £100,000 per person to be earmarked for care spending and such Care ISAs could be passed on free of inheritance tax to fund Care Savings for the next generation too.
2017 review of Auto-enrolment could consider encouraging 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.
Workplace Saving Plans and flexible benefits packages to include eldercare: The Government needs to incentivise employers to help staff prepare for care costs. This can include savings plans to build up a fund to cover care costs, and also such ideas as eldercare vouchers, along similar principles to childcare vouchers. Employers can help their staff pay for someone to look after elderly loved ones, rather than having to leave work or suffer stress when such help is not available. This could be part of a flexible benefits package, which receive an employer contribution.
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.
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.
Demographics show numbers needing care set to soar: The cohort needing care at the moment is a relatively small proportion of the population, but millions of baby boomers are currently reaching their 60s and will need care in the coming twenty years or so. The numbers needing care are, therefore, set to soar.
Long-term care funding is one of the least understood parts of the health and care system. Unfortunately, many people mistakenly believe the Government will pay their care costs. But social care is the responsibility of local authorities, not the free NHS. This system dates back to the Poor Laws of the 1800s and was completely omitted when Beveridge developed our National Insurance system and welfare state. 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 public money at all.
Public need to be informed about preparing for care: We could extend the PensionWise Guidance service to provide information and education for people about preparing for care needs. This could come from their pension savings or additional savings but because people don’t understand the system, they will definitely need help in planning for care.
The time to address this crisis is now: It cannot wait longer without causing more misery. Social care in this country is failing and radical action is long overdue. This is not just about elderly people, it’s about families and loved ones who are being denied a decent standard of living in modern-day Britain. Introducing incentives to help people save for later life care, as well as earmarking more funds from council and healthcare budgets, in an integrated fashion, will be vital parts of any solution.