Boost for social care in Budget

As the chancellor himself put it in the Spring Budget: “The system is clearly under pressure. And this in turn puts pressure on our NHS.

“Today, there are half a million more people aged over 75 than there were in 2010.

“And there will be 2m more in 10 years’ time.”

This was Philip Hammond setting the scene for his announcement the government is committing £2bn in additional grant funding for social care over the next three years, with £1bn available in 2017-18.

“It would be nice to see some firm proposals and timescales for proper review of funding for care costs rather than another consultation.Mike Gordon

He also announced the government is to “set out its thinking on the options for the future financing of social care in a Green Paper later this year”.

“For the avoidance of doubt, Mr Deputy Speaker, those options do not include, and never have included, a death tax,” he added.

Plastering over the problem

But the response from many industry experts and commentators is the £2bn is merely a “sticking plaster” over the current crisis facing the NHS and care services.

Bob Champion, chairman of the Later Life Academy, says: “The statement has actually introduced more uncertainty as to what the future relationship will be between state and privately-funded care provision. 

“When talking about the forthcoming Green Paper on the future funding options for social care, [Mr] Hammond probably signalled the death of the care cap. 

“If that is the case then, by the time consultation on the Green Paper is concluded, legislation has passed through parliament and administration processes are put in place, the current existing system will continue until 2022 not 2020 as currently intended.”

Mike Gordon, technical director at Rutherford Wilkinson, was similarly unimpressed by the chancellor’s promise to consult on social care.

“It would be nice to see some firm proposals and timescales for proper review of funding for care costs rather than another consultation,” he suggests. 

“There was once a reasonable market in insurance for those wanting to protect themselves and provide for themselves. 

“However, almost all providers withdrew from the market as the uncertainty over what they would be entitled to, or changes to the goalposts, prevented people from planning effectively for the costs of care.” 

He adds: “Those who wish to remove themselves from the possibility of relying on the public purse should be encouraged with tax incentives to do so, but this never seems to be on the agenda.”

Decades of dithering

Steve Webb, policy director at Royal London, urges the government to “end the decades of dithering on how to fund social care”.

He points out there have already been three major reports on long-term care funding:

• March 1999: Royal Commission on long-term care for the elderly
• March 2006: Wanless review, Securing good care for older people
• July 2011: Dilnot Commission, Commission on Funding of Care and Support

The Dilnot Commission was chaired by Andrew Dilnot when it launched on 20 July 2010, tasked by government with reviewing the funding system for care and support in England.

It provided recommendations on how to reform the system to government in July 2011, having uncovered a system in “urgent need of reform”.

Mr Hammond’s confirmation he was ruling out a death tax has generally been welcomed.

“Savers will be hugely relieved to hear that the chancellor has ruled out exhuming the ‘death tax’ on estates to fund social care,” Gordon Andrews, financial planning expert at Old Mutual Wealth suggests.

“Such a measure would have been hugely controversial and [Mr] Hammond was clearly keen to stifle speculation by taking it off the table.”

What has effectively happened is that this extra funding has been used by politicians to kick care funding into the long grass so it becomes tomorrow’s problem.Bob Champion

Mr Champion asks now the death tax is no longer an option, what are the alternatives? 

“[The] moves on NICs for the self-employed could be seen as an indication of a way of raising more care funding,” he suggests.

Now the government has u-turned on its National Insurance hike for the self-employed there are question marks around how it will fund the promised social care funding.

“However, what has effectively happened is that this extra funding has been used by politicians to kick care funding into the long grass so it becomes tomorrow’s problem. Unfortunately, it does not give families any certainty about what they will need to fund and what care services they will receive from the state.”

Coming a cropper

In the Budget build-up there was speculation over whether the government would make any further tweaks to pensions but this was one area of policy that went untouched.

The pensions industry breathed a collective sigh of relief Mr Hammond did not spring any more reforms on them, after several years of significant change for the retirement sector.

What did come as a surprise was the introduction of a 25 per cent transfer charge applicable to qualifying recognised overseas pension schemes, or Qrops, which came in at midnight on 8 March.

This was part of Mr Hammond’s clamp down on tax avoidance, and confirmed in the Budget document which states “this charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction”.

Simon Nicol, pensions principal at Thomas Miller Investment, calls it a “mortal blow to the already wounded Qrops industry”.

He explains: “By introducing a 25 per cent exit charge on Qrops transfers with immediate effect he has, in one fell swoop, removed any advantage of transferring funds abroad for most pension holders. 

“The exception to the charge will be for those taking their pensions to their new country of residence and those where the pension and their residence are both within the EEA.”

He notes: “This will put the Qrops rules where the government always intended they should be, as a method for temporary UK workers to take their UK pensions home with them. Not a tax avoidance vehicle for UK residents.”

Pensions going to pot?

There were hopes the chancellor would announce a reversal in a reduction to the Money Purchase Annual Allowance (MPAA) which is going down to £4,000 from April this year.

As Tom McPhail, head of pensions research at Hargeaves Lansdown put it in a series of tweets on 8 March: “Money Purchase Annual Allowance cut to £4,000 is going ahead. HMT have confirmed.

“So basically the Treasury isn't bothered about pension freedom or longer working lives. Very disappointing.”

Our customers tell us that one of the main reasons for not saving more for retirement is they don’t trust that the rules won’t change again.Richard Parkin

Others have been expressing their disappointment about the government’s refusal to reverse the changes to the annual allowance.

“It is likely to affect good consumer behaviour more than it will reduce poor behaviour, causing some to reduce their retirement saving or have restricted access to pension freedoms,” explains Richard Parkin, head of pensions policy at Fidelity International.

“This constant moving of goal posts on pension rules only serves to undermine people’s confidence in pensions. 

“Our customers tell us that one of the main reasons for not saving more for retirement is they don’t trust that the rules won’t change again.”

Mr Parkin adds: “Not only that, this change makes life harder for employers offering generous pension schemes who now have to deal with yet more administration and cost.”

“It is time that the annual allowance was either scrapped, with only the lifetime allowance putting a total cap on tax relieved pensions or all taxpayers given the standard £40,000 yearly allowance, which should also be inflation linked and not a static amount that loses value over time and with no lifetime allowance test being applied,” states Kay Ingram, director of public policy at LEBC Group.

For now then, the pensions landscape stays as it is. As Tom Selby senior analyst at AJ Bell puts it: “Whether this is evidence of a chancellor putting an end to incessant tinkering and taking a long-term view or simply a stay of execution remains to be seen”.

eleanor.duncan@ft.com