Pensions  

Providers see no business case for Care Isa

Providers see no business case for Care Isa

Introducing a Care Isa could prove costly as uptake may be too small to prove a significant business opportunity, providers have said as they shrugged off recently leaked proposals.

Isa providers said the product could prove too niche due to the fact not many people end up paying inheritance tax, pointing out pensions already allow members to save for care.

Aside from that, a mere quarter of people need to pay for care, they say, which could further limit uptake.

Media reports suggested over the weekend the government was considering the introduction of a Care Isa as part of its forthcoming green paper on social care.

The product would have an allowance on its own, up to a maximum amount that would reflect the cost of care, and savings would be exempt from inheritance tax regardless of who they are passed on to. Currently, funds held in Isas are subject to inheritance tax in case of death.

The product received backing from former pensions minister Ros Altmann but was rebuffed by her predecessor Steve Webb, who questioned its "meaningful contribution to tackling the social care funding crisis". 

Rob Morgan, pensions and investments analyst at Charles Stanley, said it was unlikely the Care Isa would have widespread appeal, saying the product could end up similar to the Lifetime Isa, which MPs are now thinking to abolish.

"In theory there would be significant costs in setting up the product," said Mr Morgan.

"As we have seen from the Lifetime Isa, providers would have to weigh up the business opportunity against the cost of implementing it, and that take up among providers wouldn’t necessarily be that high if it is considered a niche product.

"Not many estates actually pay IHT so I am doubtful it would have widespread appeal. For those for whom the IHT tax break isn’t relevant another product such as a pension would likely be better due to the boost from tax relief."

Mr Morgan said the increasing cost of social care presented the opportunity for an insurance product to address the problem.

"Pensions as they currently stand do provide flexibility to fund care as well as provide estate planning opportunities," he said.

This view is shared by national adviser LEBC, which warned the majority of Isas were held in cash, which would not withstand the rising cost of care and rate of inflation.

Kay Ingram, director of public policy at LEBC, said: "Pension savings already allow the saver to designate part of their funds for later life care and if they don’t need the funds to that end, the saver can leave their pension fund IHT free to a nominated person.

"[Most Isas] are not suitable if planning for longer term care needs for the real value of cash accounts is constantly eroded by inflation, with the cost of care fees increasing year on year well ahead of inflation."