PENSIONSANDSAVINGS.COM

12 December 2016

Action to address care crisis cannot wait any longer – need a 21^st Century revolution

• Britain’s welfare state has never included social care – time for a rethink
• Social Care system dates back to poor laws principles from the 1800s
• Ultimately, National Insurance or tax will need to cover care funding
• All parts of the system are failing and Government has not yet offered solutions
• Private and employer provision can also help – such as Care ISAs, Family Care Plans, auto-enrolment, eldercare vouchers and free guidance

Britain’s welfare state, developed in the 1940s, was said by its architect William Beveridge to be a “British revolution”.  We need another revolution to fit with 21^st Century lives as the population ages.

National Insurance was supposed to break away from Poor Laws, but social care was never included:  Our National Insurance system of benefits and support was designed to break away from the legacy of the Poor Laws, which were a harsh safety net, for those in dire need.  The 1940s welfare state aimed to establish a new, universal system on completely different principles, giving support for everyone, as of right.  However, social care did not feature in this new system.

NHS never included social care:  The National Health Service would give healthcare to all, free at the point of need, funded by taxpayers. However it did not factor in social care, which was left untouched and still the responsibility of local councils.  In the 1940s, the concept of millions of chronically ill older people needing a little help with their daily lives on a long-term basis was unthinkable.  Either their families or local communities would look after them, or they would not live very long.  21^st Century life is totally different, but our social care system is stuck in the past.

Government must wake up to the reality that social care cannot be left unfunded:  Failing to fund social care means millions of people do not get decent, or any, care.  If Beveridge had realised the forthcoming population dynamics, he would have included provision for long-term care needs in the welfare state.  In the 70 years since our system started, no Government has taken this issue seriously enough – it’s time for a rethink.

Ultimately, taxpayers or National Insurance will need to fund social care:  There is little doubt that a 21^st Century Beveridge would have included social care funding in the National Insurance system.  This is a clear risk now, which was not on the horizon in the 1940s.  Ultimately, Government will need to tackle the costs of social care provision at a national level, whether via the tax system or National Insurance.

The current cohort needing care is relatively small – it will grow significantly soon:  Demographic trends clearly signal a dramatic rise in the numbers of older people needing long-term care.  The current cohort of elderly people is relatively small.  However, millions of baby boomers are now reaching their 60s and will need care in the coming twenty years or so.  The Government has not planned for this huge looming cost.  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.

Cutting social care provision is short-sighted and leads to long-term cost increases:  Social care provision by councils has been cut and cut in recent years.  Even as the numbers needing care have risen sharply, local authorities have reduced availability.  A few years ago, people with moderate needs could receive moderate amounts of help – now only those with substantial needs get any council care.  There is no help with prevention or early intervention.  That is a short-sighted saving causing extra long-term pressure.  And the amount of care being provided has also been cut – 15 minute visits are common, with no pay to careworkers for travel time between clients – which means the quality and dignity of care have also been reduced.

NHS at breaking point:  As increasing numbers of elderly people do not have their care needs met, they end up in the NHS after avoidable accidents, blocking the NHS system – as the NHS is the backstop with last resort funding from taxpayers.  This will put intolerable burdens on the NHS, on younger generations and on older people.  Urgent action is needed to head off a disaster that is clearly on the horizon.

Those who pay privately are subsidising council underspend:  Most people will receive no help from the state until they have used up the bulk of their assets, causing significant distress to many families and leaving the majority of families to find huge sums at short notice.  Even worse than this, local authorities are not paying the full costs of care for those they are funding via the means-test.  This forces care homes and homecare firms to charge private payers extra, to subsidise publicly funded residents.

Healthcare and social care must be integrated.  The current distinction seems arbitrary and manifestly unfair).  Until the Government properly integrates social care with healthcare and insists on higher standards across the industry, the current crisis will only worsen.  This should be a major political issue, but it is not receiving sufficient attention.  The public is not being adequately informed of the problems and possible solutions, leaving families struggling to cope and elderly people at risk in a system that is failing on all fronts.

The £72,000 cap is not a solution. The £72,000 cap was supposed to ensure nobody has to face catastrophic care costs, but it does not solve the problems of our system.  It is one small part and the £72,000 cap was set too high to achieve its original objectives.  In fact, it is not a £72,000 cap at all.  Most people will actually have to spend more like £140,000 on care before they receive any state help because the cap does not cover board and lodging costs (around £12,000 a year must be paid privately) and will not cover any money spent before care needs become substantial.

We’ve left it so late, there is no single solution but encouraging saving for care could help.  New products and approaches, together with new Government incentives, are urgently needed to help people prepare in advance for care spending if it is needed. A savings solution should be part of the mix.  This could include new tax breaks to encourage long-term care saving.

Tax free pension withdrawal if used 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.  If they don’t spend it on care, it will pass free of inheritance tax to the next generation as the 55% pensions death tax has been abolished.

Care ISAs – IHT free: The Government could introduce a separate annual allowance for ISAs that are specifically earmarked to pay for care.  Launching such ‘Care ISAs’ would itself help people realise the need to save for care.

Family Care Savings Plans – IHT free:  Another possibility is for families to save collectively for the care needs of their loved ones.  One in four people will need care, but nobody knows in advance which one.  Tax breaks to incentivise this kind of saving, perhaps also in the workplace, allowing funds to be passed on free of inheritance tax, would help.

Workplace benefits could help – such as auto-enrolment into workplace care saving plans or eldercare vouchers:  Alongside auto-enrolment, employers could be encouraged to offer the option to save in a workplace savings plan specifically for care.  This could be part of a flexible benefits package, which might also include eldercare vouchers to help families pay someone to look after loved ones, rather than having to stop work to do so.

PensionWise Guidance can help provide information and education:  The Government’s new ‘Pension wise’ free guidance service already tells people about planning for care costs and more people could use this service to help understand the system.

Message to Government – this cannot wait, it must be tackled now:  So, the message to the Government is that our care system is in crisis, there is no money set aside either publicly or privately to fund later life care adequately, and the time to address this crisis is now. There is no single silver bullet solution, a range of policies is required.   Social care in this country is failing, radical action is long overdue.