Standard Life plans to lobby the Treasury to cut the flexible drawdown minimum income requirement from £20,000 to £12,000 for people who need to pay for long-term care.
Flexible drawdown was introduced in April 2011 as part of Government reforms designed to scrap compulsory annuitisation at age 75.
Investors who enter flexible drawdown can make unlimited withdrawals from their fund. But to qualify for flexible drawdown, a saver must prove they have a secure pension income for life of at least £20,000.
Earlier this year, the Department of Health asked the industry to examine ways to use pensions to fund LTC as part of proposals to cap care costs at £72,000 from April 2016.
Standard Life head of customer income solutions Alastair Black says policymakers should consider cutting the MIR to £12,000 for those requiring LTC.
He says: “The purpose of the MIR is to stop people falling back on the state. But the nature of risk to the state changes when someone needs care because the Government will be funding the excess once someone reaches the £72,000 cap.
“If we could set the flexible drawdown MIR at £12,000 for people who are going to be in care for the rest of their life, that would meet the hotel costs and you could use the rest of the pot to pay any additional care costs.”
Black says the provider will attempt to garner support for the idea from the Association of British Insurers and also plans to lobby officials at the Treasury.
Hargreaves Lansdown head of corporate research Laith Khalaf says: “History suggests linking private pensions with state benefits is hideously complex. I think the Treasury will want to investigate insurance-based solutions to long-term care funding rather than extend the flexible drawdown regime.”