The Government should make it easier for advisers to sell products that blend income drawdown with insurance to meet future care costs, according to former pensions minister Steve Webb.
A paper published today by Royal London calls on the Government to introduce policy changes which allow new products to be created that pay for long-term care.
Webb argues that blending drawdown with insurance is better than the current system where an individual covers the cost and risk of care.
Currently the pension and insurance markets are far apart which means each financial product has its own set of rules, regulations and tax treatments.
Long-term care products can be sophisticated and while financial advisers may want to provide advice on them they may want to take specialist qualifications before they do so.
This limits the number of advisers and potentially the size of the market at a time when long-term care needs are growing.
The paper suggests that care insurance could be ‘bolted on’ to income drawdown arrangements, either in the form of a regular premium or a one-off lump sum.
To make these products more attractive, the paper suggests favourable tax treatment on money taken out of income drawdown to pay for care insurance.
If this money goes directly to an insurer and any pay out from the policy goes straight to a care home, these withdrawals should be tax free.
An overall cap on people’s lifetime care bills, so that insurers are not taking on an open-ended liability and can therefore offer more attractive premium levels would also help.
Webb says: “I have been talking to quite a few advisers, run this by them and they have expressed interest. One advantage is that a lot of clients do not want to think about long-term care but they do want to protect the value of their family home. Also this is a product feature add on rather than a whole separate product and sale pitch.”
The document has been submitted to the Government and is under consideration by the team preparing the proposed green paper on social care that is expected this summer.
Webb adds: “The green paper will be floating ideas and I would like them to say there is a market for care insurance and drawdown. These are the key questions they need to be asking.”