Millions of Britons are sitting on top of a ‘social care financial time bomb’ which could drain their life savings and leave nothing for their children to inherit.
A new report from the Association of British Insurers (ABI) says 8 in 10 people over 65 have made no plans about how they will pay for their social care if it’s needed in the future, despite the fact that half of all pensioners will have to self-pay in some way.
The association is calling for a massive new campaign to raise public awareness of how social care funding works in the UK after 51% of people surveyed by the Pensions Policy Institute (PPI) said they saw their old age pension as the most likely source of funding.
Just 17% said they had taken out insurance to cover their needs and 26% said they would have to sell their home to pay the bills.
Financial time bomb
Yvonne Braun, ABI director of policy, said: “People simply aren’t preparing to pay for their care costs and this needs to change.
The size of the financial time bomb is clear for everyone to see.
“A major public awareness campaign is essential if we are ever going to get more people making financial plans for care.”
Senior policy analyst at the PPI, John Adams, said: “The diversity in people’s assets means that a single solution to this complex issue is unlikely to work for all.
“In developing a care funding framework, a wide range of options might need to be available, with the aim of enabling people to find the best solution for themselves.
“A properly functioning care funding solution is likely to need engagement of individuals, the state and financial providers.
Raising awareness of this need to provide for care, is an issue that remains and requires further attention.”
The report offers five suggestions to the government to help resolve the issues:
- No income tax payable on pension income used to pay for care
- Tax-free pension withdrawals if used to purchase an insurance product that covers care costs
- Introducing a new care ISA with no inheritance tax paid on residual amounts at death
- Releasing equity from a property to purchase an insurance product that covers care costs
- Pledging equity from a property to cover care costs
Ms Braun said: “The Government urgently needs to publish the promised Green Paper and take important decisions on the future of care funding.
“That’s why we are publishing this analysis and we want to see our suggestions considered alongside other proposals.”
The PPI research revealed a third of the population could benefit from the proposed incentives.
The suggested target for the intervention is the section of the population which holds more than the £23,250 means test threshold but less than £200,000 – approximately 37% of the population of the UK over 50.
Yvonne Braun added: “The social care system and how it is funded desperately needs an overhaul. People simply aren’t preparing to pay for their care costs and this needs to change.”