Social care reforms will see more savers turn to advisers to help them navigate the rules, according to Steven Cameron, pensions director at Aegon.
Cameron said advisers will have a key role to play in helping people plan ahead for possible care costs in later life, after the government made changes to how social care will be funded earlier this year.
In September, prime minister Boris Johnson confirmed a 1.25 per cent hike in national insurance alongside a further 1.25 per cent rise in dividend tax to fund a cap on social care costs.
Alongside this it said from October 2023 no one would pay more than £86,000 for care.
The government later revealed in November, under controversial proposals, that ‘personal care costs’ refers only to the “components of any care package considered to be related to personal care”.
As well as benefits being excluded, it said the cap will not cover daily living costs such as rent, food and utility bills, and this will apply equally to those in a care home as well as those living in their own home.
People will have to pay living costs, set at £200 a week, for life or until their assets are eroded far enough to qualify for help.
Cameron said these various reforms would push people to take a step closer towards advice and seek an adviser to help them plan ahead for possible care costs in later life.
He said: “Care insurance is a possible approach, although costs might be high. It may be that more people might prefer to build up savings in a ‘care cost jam jar’, possibly within their pension or drawdown arrangement, so they have the funds available if they need them.”
It has been difficult for advisers to fully advise their clients on planning for future social care costs as the government's plans to publish reform proposals kept being pushed back.
“Until now, advisers have faced an extremely difficult task in advising clients around the advance funding of possible care costs in older age,” Cameron said.
“Previous rules with no limit on personal care contributions meant the more someone saved, the greater the risk they’d face catastrophic costs if needing lengthy care.”
National Insurance set to rise
From April 2023 the 1.25 per cent increase formally becomes the new Health and Social Care Levy and will be shown on pay slips.
The increase will be extended to those over state pension age, meaning this group will start paying 1.25 per cent NICs for the first time on earned income.
Cameron also said that dividend tax rates outside of Isa and pension wrappers will also rise by 1.25 per cent.
He said: “Advisers will need to be prepared to help their clients understand what the increase in NI means for them.
“It may be that some will see greater attractions to pay pension contributions by salary sacrifice although the rules here are unclear.
“While this may be of benefit for as long as the extra 1.25 per cent is wrapped up with NICs and is indistinguishable, it may not be possible from April 2023 when it becomes a separate levy.”
Previous analysis from the Institute for Fiscal Studies has suggested that if the government’s incoming levy is to meet social care needs then its rate will need to more than double from 1.25 per cent to 3.15 per cent by the end of the decade.
amy.austin@ft.com
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