Billions of pounds has been set aside to pay future pensions, with policymakers prepared for the upcoming costs of supporting our aging population in retirement. Initiatives to address the crisis have improved coverage of private pensions and reformed state pensions to ensure sustainability.
However, there is another crisis nobody has prepared for and which will worsen dramatically as the huge amount of baby-boomers reaches later life. There is no money earmarked to fund future care needs.
Social care has been neglected for decades. Responsibility rests, not with the NHS, but with cash-strapped councils that have had to cut provision. Those needing residential care must pay their own bills until they have used almost all their life savings. Councils only start paying once assets are below £23,250, usually including the value of a house if no partner lives there.
The artificial distinction between what counts as healthcare and what is considered social care means millionaires with cancer can have all their care costs covered by taxpayers, while low-income widows with dementia may get no help at all. Indeed, care shortcomings and flawed reform proposals proved politically toxic to the Conservatives in their recent manifesto.
As council funding has fallen, care provision is rationed, only helping those with severe needs. Those with moderate needs must fund themselves or manage without. What is more, local authorities usually only offer basic care – perhaps a care home far from loved ones or just 15-minute visits.
Just as with the state pension, you need private funding if you want more. But where can that money come from?
So far, governments have done nothing to help people prepare. What about a cap on the costs individuals must pay privately? For example, a £100,000 maximum lifetime payment per person would allow people to start planning. Once they have spent this capped amount, the state could cover those needing care for longer than the average three years.
Savings incentives would also help. Currently, all incentives focus on pensions but 21st century retirement is about more than that. Ordinary pension income is not designed to cope with supporting those who cannot live independently. Each family should be encouraged to have a “care pot” in case it is needed. Some ideas for new incentives to help people build a care fund might include:
- Care Isas which can pass on free of inheritance tax if unuselater lifed
- Allowing people to withdraw money from their pensions tax-free to pay for care
- A national “equity release” scheme.
All this would help address the looming catastrophe of elderly people spending all their money too early before falling back on state support, costing more to younger taxpayers, and being unable to choose the care they want.
Advisers would have an important role to play in explaining new incentives to clients and could start lobbying their MPs about this issue. In the meantime, they should still aim to help clients understand the need to prepare. The sooner we start addressing this crisis, the better all our futures can be.
Ros Altmann is former pensions minister