Care ISA ‘no solution to care funding crisis’
Reports that the Government was considering a ‘Care ISA’ as part of its forthcoming Green Paper on Social Care have drawn sharp criticism from the profession.
Steve Webb, director of public policy and Royal London, said he could not see how a care ISA would make a “meaningful contribution to tackling the social care funding crisis.”
He said: “The latest figures suggest that 19 out of 20 estates pay no inheritance tax, suggesting that an IHT break would be irrelevant for most savers.
“In addition, care costs can vary hugely between those who run up six figure bills after extensive residential care and those who face negligible costs.
“It would be impossible to know in advance how much to save into a care ISA, with most people saving too much, and some people saving far too little.”
Mr Webb also said there would also be “issues about whether people whose needs changed could get money out of a care ISA without penalty, and rules would be needed to stop people shovelling money into a care ISA very late in life purely as a form of inheritance tax planning.”
He added: “Fundamentally, the solution to care funding has to involve a pooling of risk, where those who end up paying catastrophic end of life care costs can fund those costs from a common pool.
“This is likely to mean a mix of social insurance, particularly for those with low incomes, and private insurance.
“We urgently need fresh thinking on how to re-create a private market for care insurance, and the proposal of a ‘care pension’ could go some way towards this.”
Steven Cameron, pensions director at Aegon, also criticised the idea, saying it would “further complicate the ISA brand.”
Mr Cameron also pointed out that preferential inheritance tax treatment “would benefit only a small minority.”
He said: “The trend in policymaking has been to create new labels when many of the solutions already exist.
“For many, the most obvious solution is likely to be linked to retirement savings, particularly where individuals have defined contribution pensions.
“Here, under the Pension Freedoms, individuals at retirement could notionally ‘ringfence’ or set aside part of their retirement fund to meet possible future care costs, taking an income from the balance.
“Pension contributions also benefit from tax relief on the way in, making it a highly tax-efficient way to save.
“If the money is not needed for care costs, the ringfenced amount could be used for other purposes or left to a partner or other beneficiary, which is already usually free of any inheritance tax liability.”
He added: “The Government’s autumn Social Care Green Paper urgently needs to look seriously at how to encourage people to save in advance for their contribution to care costs.
“The key question the Paper must answer is how much an individual will ever need to pay towards their own care costs, so they can plan knowing inheritance aspirations are safe.
“Without this information, and longer term political certainty, it’s difficult to go into detail on specific solutions.”