Steven Cameron, Pensions Director at Aegon said: “The issue of how to fund social care has proven particularly challenging for successive governments, but now needs to be addressed alongside the Chancellor’s future plans to get the UK’s finances back on a sounder future. 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, meaning action can’t be deferred any longer.
“Delivering a fair and sustainable social care funding deal remains one of our greatest societal challenges. The Government needs to gain public support for a deal which is fair across wealth bands and generations. 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.
“With costs often very high, individuals would ideally start planning well in advance, potentially decades ahead of actually needing care. This means the ‘deal’ has to be stable, if possible with cross-party support and the Government’s share needs to be backed up by sustainable and adequate funding, which could well involve raising National Insurance or taxes either on income or wealth.
Manifesto commitments
“Under the Manifesto ‘triple tax lock’, the Government committed not to raise rates of income tax, National Insurance or VAT, but sticking to this would leave the chancellor’s options very limited. Social care funding is a very long-term problem, extending well beyond a term in Government, so there is justification for looking beyond these temporary ‘tax’ commitments even if that means breaking a Manifesto commitment. Shorter term options include adjustments to Capital Gains or Inheritance tax, or introducing a new tax, earmarked for social care.
The pros and cons of an increase in National Insurance
“The rumoured increase in National Insurance is another option with both pros and cons. While in many ways just another form of ‘tax’ on income, it is associated with paying for state pensions and the NHS, and social care could be ‘added’ to that list. Both employees and employers pay National Insurance and applying the increase to both would spread the costs widely. However, the different treatment of the self-employed would raise questions around fairness. More significantly, individuals currently don’t pay National Insurance on earnings after state pension age, and this would look hard to justify on intergenerational fairness grounds.
“The older people are, the sooner they may benefit personally from the new deal, so there is an argument for levying increases initially only on those above a certain age. Governments of nations within the UK have devolved powers to make their own social care arrangements and to set income tax rates and bands, which also need factored in, adding another layer of complexity. The different approach to social care in Scotland, for example, would raise questions around the fairness of a UK wide hike in National Insurance.
Incentivising individuals
“Individuals also need incentives to ‘do the right thing’, which is why those who do build up savings shouldn’t face unlimited personal contributions. We strongly support a cap on how much any individual will be asked to pay for care costs and clarity on any separate charges for ‘room and board’. Getting the level of the cap right, and hence the sharing between the individual and general taxpayers, will be a difficult balancing act and is key to making the deal sustainable long term.
“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.”
Aegon’s twelve point blueprint for social care funding deal
Here, Aegon sets out the 12 key components it believes must be part of such a deal.
Aegon is calling for a stable and sustainable way of sharing costs between the state and individuals, based on their wealth. The Government’s share needs to be adequately funded, likely through increases to taxes or National Insurance, ensuring fair rewards for carers delivering good quality care across the country, with an end to the current geographical lottery and co-ordination with the NHS. Importantly, individuals must have a clear understanding of what they’ll be expected to pay should they need care at some future point in their lives, with an overall limit or ‘cap’ on their personal contribution towards care, and incentives to plan their finances ahead for an event which could be 20 or more years into the future. The need for long term planning makes cross-party consensus particularly important.
1. Provide everyone who needs it with good quality care and dignity in later life, integrated with the NHS
2. Fair sharing and transparency between what the Government will pay and what individuals will be expected to pay for their own care, based on their wealth
3. Sustainable Government funding of its share, with transparency over how this will be raised from existing resources or new or increased taxes or NI and appropriate ‘ringfencing’
4. Clarity on whether an individual’s home is counted as part of their wealth when being assessed for a personal contribution
5. A clear and understandable way of determining personal contribution with an overall cap
6. Encouragement through tax incentives to reward people to save in advance, possibly linked to pensions, with access to professional advice to plan ahead
7. Long term stability with cross-party support
8. Widely accepted as fair across generations and wealth bands
9. Adequate resources at local council level ending the current care lottery across regions
10. Clarity on other ‘room and board’ costs with choices to suit individual needs and preferences
11. Increase or scrap the pensions lifetime allowance to allow people to fund for their ‘normal’ retirement needs as well as care costs within their pension
12. Flexibility to reflect the devolved powers our nations’ Governments have regarding both social care and income tax rates and thresholds
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