“The funding of social care is one of society’s greatest challenges. The Government’s promised new deal on social care provision and funding is critical so people know what they will be expected to pay based on their housing and other wealth. Ideally there will be a cap on the maximum anyone will have to pay for care, as this will allow people to plan ahead while protecting inheritance aspirations.
“Defined contribution pensions, particularly now that they offer people such huge flexibilities, are the most obvious means of funding social care in later life. As we continue on average to have longer life expectancies, more of us will need some form of social care in our later years and ideally people will plan and save not just for their ‘normal’ income needs in retirement but also to have enough to pay for their share of social care bills should they need it.
“Auto-enrolment has been a success in getting millions more making some savings towards retirement. It works as a default as it is in virtually everyone’s interest to be saving for retirement through a workplace pension. However, while some people will need social care, not everyone will, so the case for it being an automatic default is much weaker. While few people have opted out of pensions auto enrolment, there is a risk that many people would do so for the social care equivalent.
“Furthermore, there is growing consensus that 8% of band earnings will not allow most people to retain their pre-retirement lifestyle, so it is difficult to justify any additional contribution over 8% being segregated for social care which the majority of people will not need. The priority has to be to support ‘normal’ retirement.
“Our preference would be to encourage people to voluntarily save more into their pension and when they retire, to notionally ringfence part of their fund for possible future social care needs, aiming to live off the balance during their ‘normal’ retirement. This notionally ringfenced amount would still be in their pension and not physically separate, so if needed could be used for retirement income instead. We believe this approach would be a little more palatable to individuals as it does not involve locking money away for something most people hope they will never need.”
Elderly Care Crisis: A Tipping Point
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