Shortly after publishing its Green Paper, the Government pushed back the implementation of the cap on care costs till 2020. Aegon believes these two important initiatives should now be brought together, reviewing individuals’ incentives to take responsibility for long term care provision alongside pensions.
Regulatory Strategy Director at Aegon, Steven Cameron said:
“The Treasury’s paper is exploring whether the pensions tax relief system could be amended to incentivise more people to take responsibility for their pension saving. With more individuals likely to find themselves in need of long term care at later stages of their retirement, we believe the pensions tax relief Green Paper is an ideal opportunity to look holistically at personal responsibility for both pension needs throughout retirement and possible long term care costs in later retirement.
“Many of the themes are similar. In both, individuals need to understand what the state will provide and how much more they may need or aspire to have. The rules around state v private responsibility on long term care are particularly complex. The proposed cap aimed to quantify how much individuals might need to pay for themselves, but as it covered only ‘eligible care costs’ and not other aspects, it still left a lot of uncertainty and complexity.
“From a Government financial sustainability perspective, encouraging personal responsibility is arguably even more critical for long term care than it is for pensions, as the new state pension will lift many people off means tested support, albeit after a lengthy transition period.
“Aegon believes the most attractive way of planning in advance for possible long term care costs is through pensions rather than through a separate ‘insured’ solution. But with the lifetime allowance reducing again to £1m from next April, holding back say £100,000 for long term care will reduce the maximum secure income anyone can have to around £22,000 a year before tax. That’s less than what many will aspire to. This again shows the need for long term care and pensions to be looked at together.
“The 5 year delay in the long term care reforms creates a breathing space to think again about how best to incentivising people to take personal responsibility. It would be a real missed opportunity if this wasn’t incorporated into the Treasury’s review of pension tax relief incentives.”
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