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Majority unprepared for financial burden of social care

Analysis suggests a third would benefit from self-funding incentives

Most people over the age of 65 have no plans in place to pay for their long term care, research shows.

The survey for the Association of British Insurers (ABI) reveals 89% of over-65s have made no plans to pay for social care, while only 10% have.

This is despite around half of all care users having to self-pay in some way.

At the same time, separate analysis suggests over a third of the population could benefit from incentivising ways of self-funding care, for example through tax exemptions. 

The ABI is calling on the government to urgently publish the social care Green Paper and consider how to target interventions for self-funders to help solve the social care funding crisis.

The Populus survey found 51% of people saw the state pension as the most likely source of funding to pay for care, with only 17% saying insurance and 26% saying they would sell their home.

According to an analysis by the Pensions Policy Institute, an effective target group for incentives to help self-funders are those who have savings of more than the means test threshold (£23,250), but less than £200,000. This target group makes up approximately 37% of people in England aged over-50.

Among the target group, 90% of those aged 65-79 own their home outright, and half of these have over £300,000 in housing wealth. 

Among 60 to 64-year-olds in the target market, 25% have over £230,000 in pension wealth and this is likely to increase in future. 

The analysis concluded that many of the next generation who need care will ultimately have to use housing wealth to pay for it, but pension savings can play an increasing part in the longer term.

The report also analyses five options for self-funding of social care, including introducing a new Care ISA with no inheritance tax paid on residual amounts at death, tax-free pension withdrawals if used to purchase an insurance product that covers care costs, and releasing equity from a property to purchase an insurance product that covers care costs.

Yvonne Braun, director of Policy, Long-term Savings and Protection at the ABI, argued that the social care system and how it is funded desperately needs an overhaul. 

“People simply aren’t preparing to pay for their care costs and this needs to change,” she warned. 

Braun added that while insurance and pension savings will never be the whole answer to the social care funding question, it can play an important role.

Rachael Griffin, tax and financial planning expert at Quilter, said it is likely there will need to be some kind of combination of measures to ensure it is a system that works for the largest part of the population. 

“What is also clear is that while the state needs to be making a provision and needs to be clear on what they are providing, there also needs to be a substantial boost in self-funding and the government need to be carefully considering what kind of incentives they use to drive the right behaviours and encourage people to save,” she added.