Social careFeb 25 2020

Lawyers propose AE solution for social care crisis

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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."

Other recommendations included enforcing councils to plan and allocate land for retirement, care and nursing homes and to raise the eligibility criteria for support in paying for care.

Currently, if someone needing care has less than £23,250 of wealth, they’re eligible for local authority funding support, but Irwin Mitchell has called for this threshold to be reviewed.

Baroness Ros Altmann, former pensions minister, said: “Almost no-one has planned for long-term care. Despite growing numbers of frail, older people in our society, neither central nor local government has a sustainable plan to pay for care and there are no incentives for private individuals to set aside funds to meet later life care needs.

“Pensions are designed to support independent living, not the sharply higher costs of care. This important report uncovers many of the consequences. There are many aspects to this massive policy failure, which has been left unaddressed by successive governments for so long that there is no silver bullet solution.

“The sooner we all start planning for care, the better. There are measures families can take, but there are also important policy reforms which could help alleviate this crisis. The recommendations of this report should be taken seriously by government.”

Kelly Greig, head of later life planning at Irwin Mitchell, said the fact that the elderly care system could collapse at the end of this decade was a stark warning of what was to come and she warned government needs to address this issue in its upcoming Budget.

Ms Greig said: “It’s now been 10 years since funding levels for social care were adequate, and the cracks are turning into chasms. 

“A decade on we have less people eligible for funding support, more families taking on unpaid labour to look after their elderly loved ones and workers needing to save unsustainable levels of money into their pensions just to afford care in later life.

“We have a new majority government and the first post-Brexit budget coming up. While they have promised a cross-party solution we need a bold and fast-acting plan before it is too late. 

“The elderly care sector is already on its knees, and continuing to ignore the issue would be a disservice to the tens of millions of people that will be reaching old age in the next twenty years.”

amy.austin@ft.com

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