Local authorities are cash strapped – fact. The Dilnot Report capping the cost of Later Life Care fees keeps being delayed. Something has to be done to address this.
The Pensions Policy Institute (PPI) has published ‘Care in later life: incentives to use assets to pay for care’ sponsored by The Association of British Insurers (ABI).
It’s clear that most people are unprepared for the possibility of a social care financial time bomb, according to the latest ABI research. At the same time, separate new analysis shows that over a third of the population could benefit from incentivising ways of self-funding care, for example through tax exemptions. The ABI is calling on the Government to urgently publish the social care Green Paper and consider how to target interventions for self-funders to help solve the social care funding crisis.
Publishing polling research from Populus alongside analysis from the Pensions Policy Institute (PPI), the ABI said that a massive new campaign was needed to raise awareness of social care funding and new incentives should be considered to encourage people to make provision to pay for care in the future.
Key findings from the research include:
- 89% of over-65s have made no plans to pay for social care, while only 10% have, despite around half of all care users having to self-pay in some way.
- 51% of people saw the state pension as the most likely source of funding to pay for care, with only 17% saying insurance and 26% saying they would sell their home.
- An effective target group for incentives to help self-funders are those who have savings of more than the means test threshold (£23,250), but less than £200,000. This target group makes up approximately 37% of people in England aged over-50.
- Among the target group, 90% of those aged 65-79 own their home outright, and half of these have over £300,000 in housing wealth. Among 60 to 64-year-olds in the target market, 25% have over £230,000 in pension wealth, and this is likely to increase in future. Therefore, many of the next generation who need care will ultimately have to use housing wealth to pay for it, but pension savings can play an increasing part in the longer term. The report shows that this target market would benefit from incentives to help them plan.
The report analyses five options for self-funding of social care, and sets out the challenges and opportunities of each. These are:
- No income tax payable on pension income used to pay for care.
- Tax-free pension withdrawals if used to purchase an insurance product that covers care costs.
- Introducing a new Care ISA with no Inheritance Tax paid on residual amounts at death.
- Releasing equity from a property to purchase an insurance product that covers care costs.
- Pledging equity from a property to cover care costs.
The Pensions Policy Institute report ‘Care in later life: Incentives to use assets to pay for care’, sponsored by the ABI, can be found here.
Amanda Cowie, Director and Chartered Financial Planner at Robson Laidler Wealth is an accredited member of the Society of Later Life Advisers.