James ConeyMay 8 2019

Social care clarity could help inheritance

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Financial advisers tell me that it is easy to start a conversation about retirement planning, but getting clients to think about the costs of what comes next is fabulously problematic.

As last week’s report into social care by Conservative MP Damian Green said: “It is unclear to most people what is available, what is funded by the state and what needs to be paid for by the individual.”

There will, of course, be those who simply want to spend their cash; they have earned it, they should be entitled to do as they please.

There are enough baby boomers in retirement now, with handsome final salary pensions, who do not have to worry about running out of money and the cost of social care when they eventually need it. The burden of their care will not fall on their families.

They are worried, though, about the quality of their care, after all, who wants to spend their final days in a sparse, tiny room, with food that is worse than most school dinners?

You cannot really plan for how much social care will cost. The average time in care is just over two years, but my grandmother, for example, was in a home for 15 years after she suffered a stroke and later dementia.

The fact inheritance has become demonised is a greater tragedy for the have-nots than the haves.

Handing down the masses of accumulated property wealth to younger generations could be the great income redistribution of our time.

The cost of social care is such a toxic issue that it effectively cost the last election, when Prime Minister Theresa May ended up being harangued on the doorstep over her ‘dementia tax’.

So, Mr Green’s suggestion is more tax, specifically 1 per cent more on national insurance for those aged over 50, which would yield about £300 a year per person on average, as well as a one-off payment in retirement of £10,000 to £30,000 for those that want better quality care.

This tells us two things: firstly, that revenue-raising is well and truly back on the table for the Treasury. Last month, a House of Lords committee suggested that workers of state pension age should now pay national insurance.

Secondly, that the care Isa, advocated by people such as former pensions minister Baroness Altmann, seems like it is coming closer to reality as the onus increasingly focuses on private saving.

This will add a whole new dimension to financial planning, convincing clients to set aside a separate pot of cash.

I suspect many households will not like Mr Green’s reforms on social care, mainly because they restore a link between property wealth and payment of costs. Families just do not like the idea of giving up some of their perceived inheritance for a service they think should be provided free.

Really though, clarity is what we need. With more structured rules on the costs of social care, and transparency and limits on what you have to pay, families can then properly plan for retirement.

Only then will we finally see some redistribution of all this property wealth down through the generations.

Public sector needs rethink

It was only in 2011 that the Hutton Review of Fair Pay in the Public Sector decided that there was no further need for reform of public sector pensions.

But it seems to me that time may have moved on very quickly since then and that a fresh set of eyes may be needed.

The most telling reason is because of what is happening in the Teachers’ Pension Scheme, where employer contributions are set to soar because of the £15bn black hole in it.

This is going to cripple the budgets of schools. State schools will get one year extra funding to cope, but the independent sector is going to have to foot the bill on its own, with one of them being opting many teachers out of the public sector scheme and into alternative ones.

Likewise, the growing furore about the vast tax bills being landed on doctors hit by the pension taper has seen cries for them too to be given the option of saving in to a defined contribution scheme – albeit none of these calls come from doctors themselves.

And finally, a series of growing concerns about regulation – such as with London Capital & Finance, the role played by Innovative Finance Isas, the pension freedoms and auto-enrolment – has focused minds on whether MPs should be in a DC scheme too in order to focus their attentions on the idea of risk.

Maybe it is time we looked again at what the public sector get from their pension and think about how it affects the rest of the economy.

Publicise holdings 

Calls are growing for clarity on publication of full investment holdings from fund managers. Two weeks ago, the Mail on Sunday joined my hitherto lone consumer voice in calling for publication of full holdings every month.

The argument that not publishing allows rivals to front-run shares is fatuous and insulting. It is a move to stop retail investors who want clarity from getting it.

It is our money, we should know where it is invested.

James Coney is money editor of the Sunday Times