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

  • pensionsandsavings.com

    Social Care and Auto-Enrolment

    Social Care and Auto-Enrolment

    • Auto-enrolment for care funds could help younger workers but not older generations.
    • For babyboomers who’ve already retired, auto-enrolment via employers won’t help.
    • A 21st Century National Insurance system should include later life care as well as pensions.
    • Pensions, ISAs, housing, or other savings might help those already in later life. 
    • Green Paper on social care will need wide range of measures, implemented urgently, to spread burden more fairly within and between generations.

    The Secretary of State for Social Care has reportedly proposed some kind of ‘auto-enrolment’ system to help solve the care crisis. There is little detail on what exactly he has in mind.

    Auto-enrolment success depends on employers: Certainly, contributions to a national fund for social care would be a major step forward in addressing the stark, unsustainable unfairnesses of our current system. However, the success of pensions auto-enrolment has relied on employers organising and paying into pension schemes for their staff, so employees do not need to actively make decisions. This could be part of a long-term solution for younger generations.

    Older people are already retired and will need care soonest: Finding funding for social care is most urgent for those already in later life. They will not have an employer to help them, so the model of pensions auto-enrolment is less relevant and other reforms will be required.

    As the numbers of older people are set to soar in coming years, this problem will only worsen: There is no money set aside in the UK to pay for elderly care. One in three or four older people will need care, perhaps one person in each couple, but nobody has earmarked funds to pay for this. Unlike pensions, the National Insurance system does not cover social care and state pensions were not designed with care needs in mind either.

    If Beveridge was designing our National Insurance system today, he would include care cover: The UK National Insurance system was designed to offer basic protection against life’s uncertainties. In the 1940s, the major retirement need was just replacement of earnings and the pension system was introduced to ensure basic state support, topped up by private or workplace savings. And for those who fell ill, the National Health Service would provide free ‘make-you-better’ service. All the later life retirement support focussed just on pensions. However, in the 21st Century, any system of national insurance really needs to take account of elderly care too.

    National Insurance could help spread the burden more fairly, but private savings or insurance are also needed: A national system where everyone pays insurance, in case they need care in later life, is likely to offer just basic support. Only those with substantial needs would be likely to get any help, and they would have no choice over how much care they get or the quality or location of care home. Therefore, just like the State Pension system, on top of any national care provision, it will also be important to encourage private provision too. Private savings to supplement state care, would give people freedom and control over their care, just as private pensions or other savings allow pensioners to enjoy a better standard of living than just relying on the state pension.

    At the moment, only those people who need social care actually pay for it: Those who need social care in later life have to use all their private savings while receiving no help from the state. Indeed, not only do they pay for their own care, they pay for the care of those who are supported by councils too. Because local authorities are not paying care homes enough to cover the costs of care services, private payers are charged extra to fund other residents in their care homes whose council does not pay enough. Meanwhile, people who never need pay do not pay anything. This system imposes significant unfairness within the elderly generation.

    Private pensions, ISAs, housing equity or other savings can help older people fund care: At the moment, many over 60s have homes and they have over £300billion saved in ISAs. Many have private pensions or other savings too. The Government needs to find ways to encourage those already approaching later life to keep some money earmarked for care costs, rather than spending it before they reach that stage. Auto-enrolment into a savings fund for care could help younger generations, still at work, but different approaches are needed for those already retired.

    Green Paper on social care will need wide range of measures, short-term and long-term: To ensure greater fairness within and between generations, I believe the Government will need measures such as tax-free pension withdrawals for care, inheritance-tax free Care ISA allowances, good value national equity release schemes and possibly some insurance policies could all be part of a solution to this gigantic crisis. There is no silver bullet. A range of reforms will be needed and the sooner the Government acts, the better.

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