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

  • pensionsandsavings.com

    Recent research from Irwin Mitchell and CEBR provides new insight into Elderly Care Crisis

    Recent research from Irwin Mitchell and CEBR provides new insight into Elderly Care Crisis

    • Recent research from Irwin Mitchell and CEBR provides new insight into Elderly Care Crisis.
    • Chancellor needs to announce measures in the Budget to encourage savings and Care ISAs.
    • Urgent action to plan ahead can’t come soon enough.

    The aging population requires extra resources for care, yet no money is yet set aside for future needs. We’ve been talking about the care crisis for years, but despite reviews, Royal Commissions and even legislation, no meaningful reform has been introduced, as the underlying crisis has worsened.

    The Prime Minister is right that the issue of the ongoing NHS crisis cannot be solved without “a revolution in the way we approach social care”, but we are still waiting for some proposals, let alone action.

    New research from the Centre for Economics and Business research (CEBR), commissioned by law firm Irwin Mitchell, ‘Elderly Care Crisis: A Tipping Point’, suggests we are less than ten years away from a disastrous ‘tipping point’, when the country will run out of care beds even for those with most acute needs. For years, calls for reform have come from every direction, but this Report is another stark reminder of why action is urgent to make lasting changes for the already strained system.

    The report focuses on many of the issues that have contributed to the elderly care crisis, including the social care spending deficit, how families are struggling financially when it comes to caring for elderly relatives and the insufficiency of planning for future elderly accommodation needs.

    Pensions are not designed to cover care costs and we already know that most people are not contributing sufficiently to provide a decent retirement income for the later life lifestyle they want.

    The demise of so many defined benefit schemes, which are being replaced by riskier, less generous defined contribution schemes, coupled with the spread of workplace pensions under auto-enrolment, has seen a dramatic decline in pension adequacy, despite the encouraging increase in coverage. While millions more people are saving into pensions, they are saving less – the report points out that the average defined contribution scheme contribution was just 2.3% of salary from the employer and 2.7% from the employee, compared with traditional Defined Benefit scheme contributions of 20% or more. Inadequate pensions cannot cover care costs, but there is no money set aside to pay for care at all. Not by Government, local authorities, or individuals.

    Another key point in the report is that our rapidly ageing population is going to put strain on the elderly care accommodation sector. It notes the looming demographic pressure as baby boomers reach later life in ever-greater numbers, with more individuals needing care or developing diseases such as dementia.

    Clearly, the UK needs to build more accommodation that will be suitable for the elderly, but this presents a host of problems: the under-supply of purpose-built accommodation reflects both the policy focus on first-time buyers and affordable housing, as well as the fact that there is little incentive for care home providers to build new accommodation because so many councils have not drawn up plans for housing increasing numbers of older residents who cannot live independently.

    The elderly care crisis is also creating a wealth gap due to steadily increasing care home fees. Those who own a property may have some means of funding their care, but selling the family home while others do not pay anything towards their care is deeply unpopular. And, of course, rising numbers of over 65s do not own a property (currently it is 20% but the proportion is rising). They will struggle to pay for their care needs and more people will be left without the care they require.

    The report highlights many of the factors which are combining with one another to create a perfect storm and urges the Government to act now, without further delay.  And there are steps that can be taken to reverse this crisis.

    With the Budget coming up next week, I do hope the Government might make some headway in this area. For example, we urgently need to ensure families plan ahead in case care needs arise in later life. Without extra funding, more people will fall back on their local authority and councils will run out of money. So, the Chancellor should encourage people to save more. One possibility is to offer better rates in NS&I products, which are traditionally popular among older savers and which could pay higher returns (at least in line with inflation) than are available from other financial institutions, which have slashed interest rates. The recent reduction in NS&I interest rates was introduced because of Treasury restrictions, but these could be relaxed to allow better savings products for the public.

    Better still would be to see a Care ISA introduced. This was an idea supported at Irwin Mitchell’s launch event for the report last week by myself and the firm’s experts; as the ISA structures are already ingrained in the public’s knowledge of finance, and millions of older people already have significant sums in ISAs from past savings, why not introduce an ISA specifically for later life care, which could be used for existing ISAs or new savings, up to a limit of, say, £50,000 per person? An added incentive could be that Care ISAs which are not spent can be passed on free of Inheritance Tax (as with pensions) as long as they are used as a Care ISA for the inheritors.

    There is no doubt that the Government must act. Social Care has been left unaddressed for so long and there is no one silver bullet solution. A series of measures is urgently needed that will include:

    • offering new incentives for families to use their savings or save more to be able to pay for care if the need arises;
    • helping councils plan ahead for rising numbers of people needing care in coming years;
    • drawing up plans for building more homes that are suitable for elderly people with a focus on last-time buyers as well as first-time buyers;
    • integration of health and social care provision so the systems work together in the interests of patients;
    • consideration of using National Insurance or taxation to provide a basic level of care and more spending on preventive measures.

    These could all help and this new research is yet another reminder of why politicians cannot and must not keep ducking the difficult issue of elderly care.

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