The Government is facing calls to review pension rules so providers have more flexibility to develop annuity products which pay a higher income when someone’s circumstances change in retirement.
The Government is currently consulting on the practicalities of its social care reforms, which will see the introduction of a £72,000 cap on care costs in April 2016.
Policymakers expect the financial services industry to respond by developing new products, such as an annuity product which provides more income when someone needs care.
In order for this to happen, however, Aviva says the Government would need to change pension rules which prevent providers dramatically increasing payouts in a single year.
Aviva head of policy, pensions and investments John Lawson says: “At the moment the regulations say an annuity can only increase year-on-year. That would need to change in order for providers to offer products linked to long-term care needs.
“The difficulty for providers is we do not have a lot of data on the likelihood of future long-term care, but you could potentially develop a market in this area.”
Lawson also says regulations could be adjusted to make it easier for providers to reduce annuity income in certain circumstances, such as when a pensioner begins receiving their state pension when they have taken their annuity years earlier.
He says: “More flexibility could be brought into the defined contribution world to better reflect the way people take pension income.”
Evolve Financial Planning director Jason Witcombe says: “Long-term care funding is a huge worry for a lot of people so if there could be an insurance-based solution I think demand would be high.”