The government should review its guaranteed annual increase of the state pension in order to free up capital to pay for rising care costs, a think tank has said.
In a recent report the Adam Smith Institute argued the so-called pensions triple lock, which guarantees annual raises based on the highest of earnings, prices or 2.5 per cent, should be adapted so that older wealthier people contribute more to their generation's care costs.
The report also called for a rethink of certain benefits for older people as well as the income tax allowance they are entitled to.
The authors of the report, economist Eamonn Butler and healthcare investment consultant Paul Saper, wrote: "Older people enjoy a number of benefits, from free TV licences and winter fuel payments, to lower rates of national insurance before they reach pensionable age.
"These, and the pensions triple lock, should be reviewed, and the personal income tax allowance adjusted, so that older but wealthier people make more of a contribution to their generation’s care costs."
The perceived future funding crisis in adult social care has been widely acknowledged by the likes of former pensions minister Ros Altmann, but the authors argue its scale is "greatly underestimated".
This is because on the one hand people aren't saving enough but on the other more people need professional help with their care as families are less able to provide that care for their loved ones.
The think tank also recommended the creation of a long-term care insurance market with the state agreeing to pick up the long-tail costs of those who insure themselves after a number of years.
"This would make insurance products viable and affordable so that individuals would be able to pool their risks and insure themselves, just as they do in other areas of life," the authors wrote.
"Moreover, bringing in the insurance sector would bring more order into the market, as the insurers would be responsible for meeting the costs."
Scrapping the pensions triple lock was on the Conservative agenda before last year's general election, with the likes of work & pensions select committee chairman Frank Field and the OECD backing it being pulled.
But following the election results, the government was forced to abandon this idea in order to secure parliamentary support from Northern Ireland's DUP, which disappointed the pensions industry.
But the Pensions Policy Institute (PPI) warned in March some 700,000 more pensioners will be living in poverty by 2050 if the triple lock were to be replaced and pension increases were only linked to average earnings.
carmen.reichman@ft.com
