By Richard Johnstone | 3 October 2013
The government should reform tax reliefs to encourage people to save for the future costs of adult social care through their pension scheme, according to a report published by a law firm today.
Lawyers Squire Sanders said the government’s plan to introduce a cap on an individual’s social care costs – set at £72,000 from 2016 – was intended to allow the pension and insurance industry to design products to pay up to the cap.
In sickness and in health: reforming pensions and social care said the pensions industry could indeed support the reforms by providing products.
However, the current savings system would need to be ‘re-shaped’ to ensure that incentives were in place for people to save.
In particular, it recommended that the government introduce ‘more flexibility’ in the existing pension tax reliefs, so that unused reliefs and allowances could be ported between savings plans – for example between a pension scheme and a care scheme – and between a couple.
Pension savers should be able to split and defer their tax-free lump sum entitlements within the same plan to provide for care. They should also be permitted to earmark part of their pension rights in advance to meet the costs.
Catherine McKenna, leader of Squire Sanders’ pensions practice group, stated that more than 80% of people aged over 65 will require some form of care and support, according to the government’s figures.
‘The UK government has laid out a cap on lifetime contributions to adult social care costs in the current Care Bill,’ she said.
‘Even so, funding solutions need to be found to meet the costs of care and the government has challenged the pensions and insurance industry to find them.’
McKenna said that, if the government was serious about supporting funding for care, it has three main options: to provide extra tax incentives to encourage people to save for care; to compel people to save; or to re-shape both pensions and tax legislation to allow people to make individual choices.
Only the last of these was a viable solution, she added.
‘The structural barriers can and should be overcome to make pensions flexible enough for individuals to provide for their care, both in sickness and in health.’
