As part of the Centre for Policy Studies’ social care funding review, published on April 29, Mr Green suggested that people should be able to purchase a care supplement, which would be similar to an annuity or insurance policy, to ensure individuals have funds for more expensive care if needed in the future.
This money would come from individuals’ existing pension pots, lifetime savings or via equity withdrawal from people’s homes and would act as a top up to government funded state care.
In an Economic Affairs Committee hearing yesterday (May 21), Mr Green told the Lords that he was confident that the insurance industry "would rise to the challenge of making this a reality".
He said that the majority of insurers he had spoken to agreed there was a market for this type of insurance product, although Mr Green admitted that Royal London had disagreed.
One company had told Mr Green that care supplements were "an obvious employer perk" where employers would purchase care supplements as a job inducement, in the same way that some employers offer their employees private healthcare.
The care supplements could either be funded through individuals' working lives, much the same as pensions, or as a lump sum at the time of retirement, Mr Green explained.
He said: "The individuals who are now reaching the age of 60 are the generation who have a huge amount of housing wealth. These people are worried about having to sell their home in order to pay for their care in later life.
"The care supplement is designed to address these fears by giving individuals the option to give up only a small part of their housing wealth and in return they get peace of mind that they will receive top of the range social care. They will also have the rest of their housing wealth to leave as inheritance, which is an attractive offer to this age group."
The proposed changes to social care funding would only be offered to new entrants were they to come into force, Mr Green told the committee. This is so the new system would be simpler to introduce rather than having to implement the changes into the current system.
But Steve Webb, director of policy at Royal London, told FTAdviser the insurer thought the private sector had a role to play in providing care insurance.
Sir Steve said: "Our suggestion was that people should be able to take money out of their pension pot to buy care insurance without having to pay tax on it first.
"What Damian Green is suggesting is quite different. He is suggesting that everyone should have a universal entitlement to free social care at a basic level. Insurance would then only be for top-up spending for example, better quality or higher levels of care than the state would provide.
"My concern is that if people are only insuring themselves against modest top-up spending on an item they don’t really want to think about then it would be really complicated and very difficult to generate a market.
"This is totally different from individuals potentially being on the hook for tens of thousands of pounds of care costs, having to sell their home to pay for care etc., which is what might drive demand for insurance."
The government announced it was to publish a Green Paper on a new approach to social care funding in its March 2017 Budget.
However, this has been repeatedly delayed. Social care funding received a mention in the Chancellor’s 2019 Spring Statement but only to say it will be considered as part of a comprehensive Summer spending review.
The latest position is that it will be published "at the earliest opportunity".
Steven Cameron, pensions director at Aegon said: "With an increasing number of us facing the prospect of needing social care in later life, the government needs to put in place a stable and sustainable way of sharing costs between the state and individuals.
"Once individuals have a clear understanding of what they’ll receive from the state, they can start to think about whether this meets their needs should they in future require care."
amy.austin@ft.com
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