Research from the PPI and Association of British Insurers has revealed that out of 2,093 individuals, 89 per cent of over-65s have made no plans to pay for social care despite around half of all care users having to self-pay in some way.
It also found 51 per cent of people saw the state pension as the most likely source of funding to pay for care, with only 17 per cent saying insurance could play a role and 26 per cent of individuals willing to sell their home.
One third of the population could benefit from targeted government incentives, such as tax exemptions, the analysis revealed.
Due to this, the ABI is now calling on the government to urgently publish the social care green paper and consider how to target interventions for self-funders to help solve the social care funding crisis.
The ABI said a "massive new campaign" was needed to raise awareness of social care funding and new incentives should be considered to encourage people to make provision to pay for care in the future.
The publication of the green paper was originally expected in the summer but has faced several delays, with the government saying it will become public "in due course".
The PPI has proposed a target group for incentives which would include people who have savings of more than the means test threshold (£23,250) but less than £200,000.
This group makes up approximately 37 per cent of people in England aged over-50.
According to the research, within this target group, 90 per cent of those aged 65-79 own their home outright, and half of these have over £300,000 in housing wealth.
Among those aged 60 to 64 in the target market, a quarter have more than £230,000 in pension wealth, which is likely to increase in future.
Therefore, many of the next generation who need care will have to use housing wealth to pay for it, but pension savings can play an increasing part in the longer term, stated the PPI.
Yvonne Braun, director of policy, long-term savings and protection at the ABI, said: “The social care system and how it is funded desperately needs an overhaul. People simply aren’t preparing to pay for their care costs and this needs to change.
"The government urgently needs to publish the promised green paper and take important decisions on the future of care funding.”
Rachael Griffin, tax and financial planning expert at Quilter has also called for the government to release the green paper sooner rather than later.
She said: “This paper is something of a mythical creature as it has constantly been promised and never appeared.
“We can’t forget that it’s just the first stage in a long process towards shifting policy and finding a solution. There will need to be a consultation and a white paper and that’s all before we actually implement a timeframe to have a new system up and running."
The report has analysed five options for the self-funding of social care, which the two industry groups want the government to consider alongside the green paper.
Ms Braun said: “While insurance and pension savings will never be the whole answer to the social care funding question, it can play an important role.
“That’s why we are publishing this analysis in advance of the expected government green paper and we want to see them considered alongside other proposals.”
The five suggestions include no income tax payable on pension income used to pay for care, tax-free pension withdrawals if used to purchase an insurance product that covers care costs and the introduction of a new Care Isa with no inheritance tax paid on residual amounts at death;
They also included releasing equity from a property to purchase an insurance product that covers care costs and pledging equity from a property to cover care costs.
There are two ways to fund social care. The first is insurance based, where the individual is buying an insurance product that will cover some or all of the costs of care as they fall due.
The second is through individual funding, where the person is being offered a way to use their own money to efficiently pay for care if and when required.
Ms Griffin has suggested that there will need to be a combination of both methods to for people to ensure the system works for everyone.
She said: “It is likely there will need to be some kind of combination to ensure it is a system that works for the largest part of the population.
“What is also clear is that while the state needs to be making a provision and needs to be clear on what they are providing, there also needs to be a substantial boost in self-funding and the government need to be carefully considering what kind of incentives they use to drive the right behaviors and encourage people to save.
“In some respects something akin to the pension system would be sensible. A flat state provision for all, topped up by self-funding, which is encouraged by the state and workplace.”
Several solutions for the care funding problem are already 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.
As part of the Centre for Policy Studies’ social care funding review, published on April 29, MP Damian 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.
amy.austin@ft.com
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