Steven Cameron, Pensions Director at Aegon comments: “After the devastating health impacts of the pandemic, it’s only right that Manifesto Commitments aside, the Government is raising taxes to improving shorter term funding for the NHS and providing long overdue extra funding for social care. The health effects of the pandemic have been particularly cruel to our most elderly which has shown just how important it is to have a high quality, properly funded care system.
“As we on average live longer, more of us can expect to need some form of social care in later life and the costs of providing quality care and dignity need shared fairly between the state and those needing care, based on individual wealth. Research carried out by Aegon shows strong support for the costs being shared between individuals and the Government, with a cap on overall personal contributions.”
The State’s Share
“The Government’s plans to increase employer and employee NI by 1.25% to pay for the state’s share will no doubt continue to prove controversial, with accusations of younger often lower paid workers paying a disproportionate share of the costs of care for today’s elderly, many of whom seem comparatively wealthy. Choosing to collect the extra funding through NI rather than income tax may make sense for the NHS boost but for social care looks more like spin. But using NI as the collection mechanism ensures businesses also contribute.
“Extending the additional care premium to those with earnings above state pension age removes what would otherwise have been a glaring generational inequity.
“Furthermore, the surprise addition of 1.25% to dividend taxes will ensure those with investment income will also contribute even if they have no earned income.”
Personal Contributions
“While the state through taxpayers will be funding an increased share, under the new deal, individuals who need care will still have to make a personal contribution based on their wealth. But crucially, this will be limited by the new £86,000 cap, avoiding those who need care for lengthy periods facing catastrophic six figure costs which can wipe out life savings and force the sale of the family home. Clarity will be needed on the requirement to pay for ‘room and board’ costs if in a residential care home.
“Another key change is to the means tested threshold under which the state will step in to cover part of care costs where an individual’s savings or wealth are or fall below £100,000. Currently, the threshold is a far lower £23,250. This will mean that many more individuals will be able to keep more of their savings.
“Previously, it was very difficult to plan ahead for possible care costs but the new deal will allow individuals to start planning well in advance with the financial services industry playing its part in designing solutions. Increasingly, preparing for possible care costs will become part of managing pension, property and other savings wealth into and through retirement. Seeking professional advice will ensure people make the right decisions for an uncertain future.”
Nigel Peaple, Director of Policy and Advocacy, PLSA, said: “The cost of social care can be a very substantial burden for people in retirement. Therefore, it is positive that today, after several decades of discussion by different administrations, the Government has come forward with proposals.
“The PLSA set out four principles for the reform of social care funding in its 2018 Hitting the Target proposals on retirement income. These were: the proposals should not reduce pension income needed to support normal living costs (adequacy); the proposals should cover all or most of those in need of social care (universality); the cost should fall on those who can afford to pay and protect those who cannot do so (fairness); they should be sustainable for the Exchequer (affordable).”
“We will examine the details of the proposals when they become available later today. The measures announced, so far, appear to go a long way to satisfying our four principles, although it is clear that the debate about the fairness of the proposals will continue for some time to come.”
“The application of the Health and Social Care levy to workers over retirement age will require some costs to employer payroll systems and the increased tax on dividend income will mean reduced returns for pension funds on which millions of savers rely in retirement.
“With an aging population it is important that we have a national conversation about retirement income. The Government’s proposals today for the funding of social care are a key element of this discussion. With millions of people not saving enough for retirement it is also important that the Government tackles the question of pension adequacy.”
Stephen Lowe, group communications director at retirement specialist, Just Group, commented: “Almost six in 10 people (58%) aged 75 or older have been delaying making financial plans for care until the government got off the fence and said how it planned to fund long-term care*. Today’s announcement is helpful for financial advisers and their clients. The detail needs to be examined but the fundamentals are at least now visible. The idea of a cap is popular, with 61%* of over 45s supporting the idea.
“A cap of £86,000 is only a start when considering the total costs people will be expected to bear because it excludes the ‘hotel’ costs – such as accommodation and food. It could easily take perhaps three or four years and perhaps £200,000 to £400,000 of associated spending to reach the cap. So financial planning to avoid catastrophic loss of assets will continue to be a valuable service provided by financial advisers.
“Seven in 10 of over 45s who have had to organise care for a family member said they found the care system very complex and were shocked at how expensive care is. After today’s announcement, financial advisers will have an increasingly important role to play in helping people make sense of the system and plan for the costs of later life care.”
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