Social care  

Lawyers propose AE solution for social care crisis

Lawyers propose AE solution for social care crisis

Law firm Irwin Mitchell has called on the government to extend the auto-enrolment regime and introduce separate contributions to encourage saving for long-term care.

The government has failed to act on social care reform in recent years, with the long-awaited green paper, promised since 2017, put on hold indefinitely last year as vague details on plans to raise further funds through local authorities were released.

In December's Queen’s Speech, the Conservative government promised to reform social care to ensure that “no one who needs care has to sell their home to pay for it” but has failed to publish any reforms so far.

In its 68-page report on the care crisis, Elderly Care Crisis: A Tipping Point, published today (February 25), Irwin Mitchell warned that unless this issue is addressed as a priority the elderly care system will collapse by 2029.

The research found there is already a social care funding shortfall which is anticipated to increase to £1.5bn in 2020/21.

Irwin Mitchell has found this shortfall will increase by 57 per cent in five years to hit £3.5bn if urgent action is not taken.

It also found despite auto-enrolment many individuals will still struggle to fund social care in later life using their pensions.

According to the report, individuals will need to save £799 more into their pensions each month to have a moderate standard of living when they retire as well as adequate social care.

To address this issue, Irwin Mitchell stated: “A simple, cheap, and readily available solution for long-term care savings for those in employment would be for the government to expand the existing automatic enrolment framework. Ideally running through defined contribution schemes so that it covers long-term care savings.”

This would work by keeping the funds for long-term care separate from the worker’s DC pension fund.

Much like auto-enrolment, a minimum contribution could be set and start at the rate of 1 per cent employer contribution, 1 per cent employee contribution and, with government support, 1 per cent tax relief. 

These savings would count as the worker's own fund to use for their long-term care and would be able to be accessed at point of need, not just at retirement.

The law firm also said the government could “easily extend” its pensions dashboard project to show what long-term care savings the individual has, giving them a clear perspective of what provision they have for their retirement and care.

Irwin Mitchell said the need for financial planning must be raised by the industry. For example, some individuals may be best considering an immediate care annuity, where payments are made to the care home direct and are tax free. 

This allows them to use the rest of their pension pot without worrying about care costs.

Irwin Mitchell stated: "There shouldn’t be an assumption that 65 is too old to start planning, and we would urge anyone, regardless of the value of their wealth, to consult a financial planner for advice on saving for care in the future."