Squire Sanders’ Pensions team has today published a white paper which argues that pension plans could play a key part in meeting the costs of long-term care in retirement in the UK. In Sickness and in Health: Reforming Pensions and Social Care addresses directly the funding challenges presented by an ageing population, of which according to the Government’s figures more than 80% will require care and support after 65 and half of those in this age bracket can expect care costs of up to £20,000 – a situation exacerbated by a complex savings regime, the lack of pensions integration with other benefits, and widespread confusion about what the State can provide.
“The UK Government has laid out a cap on lifetime contributions to adult social care costs in the current Care Bill,” says Catherine McKenna, Leader of the Pensions Practice Group at Squire Sanders. “Even so, funding solutions need to be found to meet the costs of care and the Government has challenged the pensions and insurance industry to find them. If the Government is serious about supporting funding for care, then it has three main options: provide extra tax incentives to save for care; compel us to save for care; or re-shape pensions and tax legislation to allow pension savers to make choices about whether they save for care, and how they do so. We believe that only this last course of action is viable, and that the structural barriers can and should be overcome to make pensions flexible enough for individuals to provide for their care, both in sickness and in health.”
The key recommendations of In Sickness and in Health: Reforming Pensions and Social Care are:
- Savers should be permitted to earmark part of their pension rights in advance of retirement to provide for care;
- Earmarked pension savings should be capable of being charged in favour of a suitably approved care provider, and payments made to care providers should be within the authorised payment regime;
- Pension savers should be able to split and defer their tax free lump sum entitlements within the same plan to provide for care; and
- More flexibility in existing tax reliefs so that unused reliefs and allowances could be portable between savings vehicles and between couples.
Clifford Sims, partner in the Pensions Practice Group and co-author of the white paper, added: “As well as arguing for an effective re-shaping of pensions, we have highlighted the fundamental need for a comprehensive educational programme. The survey we conducted in tandem with our research highlighted a lack of awareness, indeed even confusion, about what State support for care was available, how it was funded, and what options are available to savers.”
Mr. Sims says that there is also a need for both savers and also employers to become actively engaged. “We advocate that flexible benefit structures within the workplace should be designed to allow for the new care saving options we propose; and that simple standardised health checks, relievable for benefit in kind purposes, should be delivered via the workplace, supported by health education alongside financial education – something which the Government could support.”