Steven Cameron, Pensions Director at Aegon: “We eagerly anticipate the publication of the Government’s long-awaited social care consultation. Aegon believes this must set out a fair and sustainable basis between individual contributions and what the state pays for from general taxation. It must avoid constant tinkering, be easy to understand with no hidden costs or penalties. Critically, it must include a cap on the maximum an individual will be required to pay before the state takes over.
“The Government needs to encourage people to plan ahead to meet their personal share of costs of care. But without a cap which would also allow people to protect their inheritance aspirations, there is little incentive to do so.
“The Conservative Manifesto proposed individuals would have to pay for their own care until their assets including their house had fallen to £100,000. This was referred to by opposition parties as a ‘dementia tax’. But in reality, the current system is actually worse for many as it can mean individuals are paying their own way until their assets fall to £23,250. The Conservatives then ‘clarified’ that there would be an absolute maximum that an individual would have to pay, although there was no indication of level.
“Looking ahead, the Dilnot proposals may be a useful starting point, but ideally they would be simplified. Rather than basing the cap around confusing ‘eligible care’ definitions, an alternative would be to limit the number of weeks of care an individual would have to fund before the state takes over.
“Aegon believes the best solution for individuals to save for their share would be to encompass social care funding into wider pension planning. For those with defined contribution pensions, the pension freedoms give people the ability to choose how and when to draw income from as early as age 55. One approach would be to notionally ring-fence a part of the pension pot, keeping it aside to use should the individual need social care. If not needed for that purpose, it would still be available for retirement income.
“But if this were the chosen way forward, it would be important to review the current pension lifetime allowance. This introduces tax penalties if pension funds exceed £1.03m. While this may seem like a substantial sum, people are living longer and social care can be very expensive.
“As individuals face up to taking more personal responsibility for both retirement and also social care funding, there will be an even greater benefit in seeking professional financial advice.”
|
