Long-term care funding crisis awaits if credible reform is not made

Posted by Olderiswiser Editorial

Flexible pensions system would help people deal with long-term care funding problems.

long-term care funding crisis loomsA new white paper argues that pension plans could play a key part in meeting the costs of long-term care in retirement in the UK. The report by Squire Sanders pensions team  In Sickness and in Health: Reforming Pensions and Social Care  examines the funding challenges presented by the UK’s ageing population.

According to Government projections, over 80% of us will require care and support after age 65. The number of people living in the UK and aged over 85 is projected to double over the next 20 years, with many of this demographic finding a shortfall in retirement savings. Alarmingly, half of this group may also have to find additional finances for care costs of up to £20,000. This is a crisis in the making: a scenario exacerbated by a complex savings regime, the lack of pensions integration with other benefits, and widespread confusion about what the State will provide.

“The UK Government has laid out a cap on lifetime contributions to adult social care costs in the current Care Bill,” says Catherine McKenna, Leader of the Pensions Practice Group at Squire Sanders. “Even so, funding solutions need to be found to meet the costs of care and the Government has challenged the pensions and insurance industry to find them. If the Government is serious about supporting funding for care, then it has three main options: provide extra tax incentives to save for care; compel us to save for care; or re-shape pensions and tax legislation to allow pension savers to make choices about whether they save for care, and how they do so. We believe that only this last course of action is viable, and that the structural barriers can and should be overcome to make pensions flexible enough for individuals to provide for their care, both in sickness and in health.”

The key recommendations of the white paper are:

  • Savers should be permitted to earmark part of their pension rights in advance of retirement to provide for care;
  • Earmarked pension savings should be capable of being charged in favour of a suitably approved care provider, and payments made to care providers should be within the authorised payment regime;
  • Pension savers should be able to split and defer their tax free lump sum entitlements within the same plan to provide for care; and
  • More flexibility in existing tax reliefs so that unused reliefs and allowances could be portable between savings vehicles and between couples.

You can read a PDF version of the In Sickness and in Health: Reforming Pensions and Social Care on the website of Squire Sanders.

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