Means-test elderly benefits to pay for care funding, says IFS

26 Jun 12
Some benefits paid to pensioners should be means-tested to meet the costs of reforms to adult social care, the Institute for Fiscal Studies said today.
By Richard Johnstone | 26 June 2012

Some benefits paid to pensioners should be means-tested to meet the costs of reforms to adult social care, the Institute for Fiscal Studies said today.

In a report published as the government draws up legislation to reform social care funding, the economics think-tank called for the Winter Fuel Payment to be rationed for better-off pensioners.

The draft Bill on social care, which will be published in the current parliamentary session, follows the report of Andrew Dilnot’s Commission on Funding of Care and Support. It proposed a £35,000 cap on the amount individuals would have to pay for their care. Dilnot said that the cost to the government of care above the cap would be around £1.7bn a year.

The IFS report, funded by the Nuffield Foundation, concluded that most of this cost could be met by reforming benefits for pensioners. As well as calling for restrictions on the £200 annual Winter Fuel Payment, currently given to all elderly people, the institute also said free TV licences for the over-75s should be scrapped for the better-off.

Means-testing these two benefits alone could raise £1.4bn a year – almost enough to pay for the Dilnot proposals, IFS director Paul Johnson said. It would also balance the fact that the main beneficiaries of the Dilnot reforms would be pensioners with higher incomes or significant assets.

Johnson will present the report, Pensioners and the tax and benefit system, at a social care seminar organised by the Strategic Society Centre think-tank later today.

Although changes to pension benefits would be ‘painful’ and there might be other ways to finance changes, reform could also make the tax and benefit system ‘more coherent’, he will say.

‘Should government choose, there are ways of raising money to pay for the changes from relatively well-off pensioners, the group which will benefit most from the proposals. But it is important that any changes are made in the context of a clear strategy for the design of a coherent tax and benefit system that works well as a whole for both those above and those below the state pension age,’ he is expected to say.

Other changes that could be considered include removing National Insurance exemption for people in work over the state pension age. This currently costs the Treasury around £800m annually.

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