The Government should introduce a new pension-style savings vehicle to encourage people to save to cover the cost of long-term care, according to the Institute and Faculty of Actuaries.
A report from the IFoA, published today, proposes a new “pension care fund”, a savings pot that would run alongside defined contribution pension schemes.
Pension contributions would continue to be tax-free and if the money is not spent on care it can be passed on free of inheritance tax to fund the care of a spouse or beneficiary.
The Care Bill, which is set to be debated in Parliament today, proposes capping local authority care costs for those over state retirement age at £72,000. The cap is due to come in in April 2016, but will not cover daily living costs or accommodation costs which are more than local authorities would usually pay, known as top-up fees.
IFoA’s report estimates one in 12 men and one in six women aged 85 today will reach the cap. It says on average people can expect to have spent around £140,000 before they reach the cap and that if they are in care for a decade the cost could rise to £250,000.
One of the report’s authors Thomas Kenny, also Partnership head of technical pricing, says with the average income in retired households in 2011/12 at less than £19,000 many will not be able to afford to cover the cost of care with their income alone.
He says: “Anyone who is expecting the cap will pay for care is in for a shock. The cap is there to protect against catastrophic care costs and we estimate few people entering care aged 85 will reach it.”
It is hoped the cap will make it easier for insurers to design long-term care products. But in February care minister Norman Lamb said insurers had told Government there needs to be regulatory changes before they would look to launch new products.