A Care Isa to fund later life care would be taken up by merely a quarter of UK adults, with the majority favouring a pension-led option, new research has found.
According to data revealed to FTAdviser, the most popular option for people, when asked how they would like to pay for social care, was their pension – chosen by 31.5 per cent.
The second choice was equity release or selling their property – the preference of 31 per cent of respondents.
Aegon had surveyed 1,027 adults in June, two months before it became apparent the government was considering the Care Isa option.
The government is publishing its delayed green paper on social care in the autumn, and several solutions are said to be on the table, including the ‘Care Isa’ – a capped savings product, exempt from inheritance tax – and a 'care pension', which mixes drawdown and care insurance.
Aegon has been backing a solution in which savers would ring-fence part of their defined contribution (DC) pot for later life care.
Steven Cameron, pensions director at Aegon, told FTAdviser if the government decided on a maximum cap of, say, £150,000, as the amount anyone would ever need to pay for care, that money could sit aside their pension.
He said: "You are not giving [money] away to anyone, it is still in your pension, and [you can] use the remaining pension to draw an income from.
"If you are one of the four people that will need to pay for social care at a later age, you know that you have that money set aside, which will have grown with investment returns, it will have kept pace with inflation."
Mr Cameron said this solution "does everything that the Care Isa is reported to deliver, and more, as it is more tax efficient".
He noted pension providers could start offering such an option now, as long as the government sets up a care cap.
He said: "We could offer clients the facility to ask to ring-fence part [of their pension], we wouldn't need to make any product changes or to launch any new product."
Other specialists have pointed to the fact all Isas are already free of inheritance tax for spouses and civil partners.
Phil Hall, head of public affairs and public policy at the Association of Accounting Technicians (AAT), said this was protecting the savings of the some 150,000 married Isa holders who die every year.
He said: "The announcement that this new Care Isa would be exempt from inheritance tax is somewhat underwhelming."
The only difference between the new product for social care is that it would be free of inheritance tax for other family members, besides spouses and civil partners.
FTAdviser reported earlier this week that introducing a Care Isa could prove costly for providers as uptake may be too small to prove a significant business opportunity.
Jeannie Boyle, director and chartered financial planner at EQ Investors, said the proposed Care Isa inheritance tax break would only benefit a small number of people, since the problem for the vast majority of individuals was they were "unable to allocate money to pay for later life care".