Most attempts to put the world to rights at dinner have been dismissed as lighthearted tomfoolery within hours. But dining with Peter Gatenby has left me with serious food for thought.
The director of Age Concern Financial Partnerships has been shouting “eureka” ever since the mid-1990s but his proposed solution for our long term care (LTC) funding problem has fallen largely on deaf ears.
Gatenby, who became an acknowledged LTC guru during his previous incarnation as chief actuary at PPP lifetime care, even saw his idea largely ignored by the Royal Commission, to which he acted as an adviser.
His argument has always been that anyone developing a system of retirement funding from scratch would involve the automatic provision of LTC. Nevertheless, because the subject was not an issue when the Welfare State was originally formulated this did not happen.
He has calculated that the problem can be largely solved by making it compulsory for a tiny additional percentage of pension contributions to be put towards LTC.
The additional contribution needed, which would continue until the age of 65, would be a mere 1.1% for a man starting at the age of 35 with a salary of £30,000 – assuming only current pension take-up rates and taking into account both salary and care cost inflation.
Even someone starting at 45 would need to pay only 1.25% if they were earning £40,000 and just under 3% if they were earning £20,000.
At retirement these additional contributions provide a lump sum which is used to buy a single premium prefunded LTC plan. Care is also available for those who need it before retirement.
The vast majority of the 15 experts I bounced the idea off acknowledge that this seemed a good way of giving the young and middle aged something they feel they do not need.
Those most keen for it to receive serious consideration included Roger Edwards, Bright Grey; Michael Whittaker, Lifetime Care; and Sheila Scott, National Care Homes Association.
Even Labour peer Lord Lipsey, who was on the Royal Commission, says: “I welcome any ideas put forward for the better integration of pensions and long term care arrangements, but have never endorsed any particular scheme.”
The Nursing Home Fees Agency’s Philip Spiers is, however, concerned that an insurance based scheme would take many years to build up a fund sufficient to meet the costs of care, requiring the Government to fund the shortfall. This would assumably result in tax increases, leaving the present working population effectively having to pay the care costs of several generations.
The National Association of Pension Funds feels that pensions should not be compelled to cover this type of insurance risk because they are designed to provide income in retirement. It points out that companies that feel it is essential to offer LTC cover could always do so as part of a benefits package.
Shelley Robertson at Skandia is unusual in actually disputing the validity of Gatenby’s calculations. Work she performed with a leading reinsurer in 1995 found it would require an increase in income tax of around 5% to give everyone access to the care they felt they were entitled to.
Peter Barnett of Britannic Retirement Solutions also raises some costing concerns, despite describing the idea as “excellent in principle”. He says: “I couldn’t be certain about care patterns and medical inflation because I have a nasty feeling that care costs will soar in response to wage inflation, a scarcity of carers and increasing care standard costs.”
Others who admire the idea in principle but raise specific doubts about its viability include Sandy Johnstone at Norwich Union and Paul Harvey at The Care Consultancy.
Johnstone feels that contributions should only become compulsory for those aged over 40 because young people simply have too much pressure on their incomes. Harvey feels that current nursing home shortages are a more pressing issue, because there could otherwise soon be little care left to fund.
Even experts warmly in favour inevitably stress political barriers to implementation, particularly the turmoil in the pensions market – because more votes currently hang on pensions than LTC.
Nevertheless one could argue that in view of the major surgery currently needed to revive pensions now is as good a time as any to slip in such a reform and kill two birds with one stone.
I would therefore encourage those impressed by the Gatenby vision to make their views known during the consultation process to the pensions Green Paper, which remains open until mid March.
Edmund Tirbutt was voted the Association of British Insurers’ Freelance Journalist Of The Year in 2002, 2000 and 1998.
Patrick Collinson is on holiday.