Aegon has called for the Treasury to extend its green paper on pension tax reliefs to consider how to incentivise individuals to fund their long-term care costs, a move supported by Just Retirement but not an IFA.
Shortly after the government published its pensions green paper, which is designed to consult on pension tax relief, it also pushed back the implementation of the cap on care costs until 2020.
Aegon said that it believes the two initiatives should now be brought together, reviewing individuals’ incentives to take responsibility for long-term care provision alongside pensions.
Steven Cameron, regulatory strategy director at Aegon, said: “The Treasury’s paper is exploring whether the pensions tax relief system could be amended to incentivise more people to take responsibility for their pension saving.
“With more individuals likely to find themselves in need of long term care at later stages of their retirement, we believe the pensions tax relief green paper is an ideal opportunity to look holistically at personal responsibility for both pension needs throughout retirement and possible long term care costs in later retirement.”
Mr Cameron added that many of the themes are similar, and that in both, individuals will need to understand what the state will provide and how much more they may need or aspire to have.
“The rules around state versus private responsibility on long-term care are particularly complex.
“The proposed cap aimed to quantify how much individuals might need to pay for themselves, but as it covered only ‘eligible care costs’ and not other aspects, it still left a lot of uncertainty and complexity.
“From a government financial sustainability perspective, encouraging personal responsibility is arguably even more critical for long term care than it is for pensions, as the new state pension will lift many people off means tested support, albeit after a lengthy transition period.”
He added that Aegon believes the most attractive way of planning in advance for possible long term care costs is through pensions rather than through a separate ‘insured’ solution.
However, Mr Cameron added that the delay in implementing the long-term care reforms creates a “breathing space” to think again about how best to incentivise people to take personal responsibility and that it would be a real missed opportunity if this was not incorporated into the Treasury’s review of pension tax relief incentives.
Steve Lowe, group external affairs and customer insight director at provider Just Retirement, said that he agreed with Aegon’s view but believes it could go even further.
“What Aegon have said is that all of the solution rests within the pension wrapper or environment - I don’t agree with that - there’s not enough money inside the pension itself.
“People have money stored up in their homes and that is the only lifeboat that is going to save them.”
However Scott Gallacher, independent financial adviser at Leicester-based Rowley Turton, does not believe it is helpful to tie-up pensions tax relief and long-term care together.
“If you are suggesting to use pensions tax relief to pay for long-term care, I don’t agree with it.
“Most people don’t have enough to pay for their pension. I’ve never been convinced that the two are linked - except that they are both for older people and it is a funding issue.
“I’m not sure what the benefit of looking at these two factors together will achieve - all that will happen is that pensions aren’t looked at at all or that it muddies the water or makes it more complicated.”
ruth.gillbe@ft.com
