Steven Cameron, Pensions Director at Aegon, comments on the government’s new social care funding deal.
Steven Cameron, Pensions Director at Aegon, (pictured) says:
“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.”
