You are here: Home - Retirement - Retirement planning - News -

‘Pension insurance’ floated to tackle long-term care challenge

0
Written by: Paloma Kubiak
19/02/2018
A mutual insurer has come up with an innovative potential solution to the puzzle of how to pay for long-term care.

The ‘Care pension’ idea would combine a pension drawdown option with a care insurance product which means that people’s family homes would no longer be at risk of being sold to pay for care, according to Royal London.

Following the introduction of ‘pension freedoms’, growing numbers of people go into retirement with a pot of money from which they draw an income through retirement. Royal London suggested that care insurance could be ‘bolted on’ to these income drawdown arrangements, either in the form of a regular premium or a one-off lump sum.

The paper’s author, Royal London’s director of policy, Steve Webb, said more than a quarter of the population will spend some time in later life in residential care, and the total bill can easily run into tens of thousands of pounds. But many people don’t want to think about whether they will need to be looked after, while others incorrectly assume the government will pay if someone needs care.

“In extreme cases,  people can be forced to sell their family home to pay for care. It ought to be possible to take out insurance against this risk, but insurers are reluctant to offer products and consumers have been reluctant to take them up,” he said.

He added: “A ‘care pension’ could build on the increasingly popular ‘income drawdown’ product by adding in care insurance. To make this work, the government would need to make sure payments into such policies were tax-free, and would need to introduce an overall cap on lifetime care costs. With these changes, millions of people could start to build up protection against the risk of facing ‘catastrophic’ care costs in later life.”

It also suggested favourable tax treatment on money taken out of income drawdown to pay for care insurance; if this money goes directly to an insurer and any payout from the policy goes straight to a care home, these withdrawals should be tax-free.

‘Single solution like using an earbud to clean an elephant’

Nathan Long, senior pension analyst at Hargreaves Lansdown, said there are really no easy answers, but any solution must tackle the huge public misunderstanding of the potential cost of care and the likelihood of actually needing it.

He said: “A single product solution to solve the problems of long-term care funding is like using an earbud to clean an elephant. Successive governments have continually kicked the can down the road, rather than go toe-to-toe with the complexities of the problem.

“While people’s awareness may increase over time as more and more of us experience our parents paying for care, the reality is a major intervention is needed. Tax free pension pay-outs to fund care costs has potential as a long-term solution, but there are far bigger challenges that need to be met first.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Insurance Experts: Are you fully insured? Click here to get a quote.

For a free quote or to speak with an insurance expert call 0800 1218744

Warning: scammers using GDPR emails to steal your data

With the introduction of the General Data Protection Regulation (GDPR) this week, fraudsters are jumping on th...

New best buy 1-year bond pays 2%

Gatehouse Bank has raised the rate on its 1-year fixed-term deposit (FTD) account to 2%, pushing it to the top...

Shhhh….‘niche’ lenders offer mortgages up to 6 times borrowers’ income

Some smaller lenders have quietly increased income multiples used to calculate the maximum mortgage they can o...

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

Tesco expected to post significant write-offs

Tesco is predicted to unveil the biggest loss in its 100-year history, according to analysts.

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2356281-shopping1s
Squeeze on household incomes gains momentum

UK households are struggling with higher living costs, in spite of some improvement in job security, according to the latest...

Close