As demand for care has grown, the rate has had to rise; in 2008 it went up to 1.95 per cent. In addition, an extra 0.25 per cent premium was added in 2005 for people without children as they are less likely to receive informal care in old age. Further increases are also expected, with suggestions that the contribution rate will have to go up to 6.5 per cent by 2055.
Self-provision
Whether or not the CPS figures are out of kilter, the one important thing a formal system does offer is certainty. Knowing what the state will provide enables individuals to put plans in place to fund their future care.
The opportunity to do this also features in Green’s report through a top-up mechanism, the care supplement. This would be similar to an annuity or insurance policy that could be funded through savings, a pension, or equity withdrawal resulting from downsizing or a deferred payment when the property is sold.
All of these options have their merits. Pension freedoms make it much simpler to earmark a lump sum for future care costs, and the over-65s property market is awash with equity. Figures from Key’s Pensioner Property Equity index show that the over-65s are sitting on around £1.1tn of unmortgaged property wealth.
But, while the funds are available, Mr Webb says the government should offer some tax breaks, such as allowing people to pay for the care supplement gross out of their pension, to encourage people to use them towards their future care costs.
Calls for tax breaks also come from those advocating property as a means to fund future care costs. Research by Saga has found that the cost of moving to a new home deters 25 per cent of potential downsizers. As a result, it is calling on the government to offer a stamp duty break to this group, allowing them to move into smaller properties without incurring this tax.
Product design
As well as exploring ways to encourage self-provision, product design is key to driving take-up. This is something that the Chartered Insurance Institute has recently considered in its report – Caring for the elderly: Is there an insurance solution? – which was put together by its Society of Insurance Broking’s new generation group.
The report states that there is a role for insurance alongside government action to reform social care funding. Like the CPS report, it suggests a hybrid life insurance and annuity product that would be funded through monthly premiums, with policyholders rewarded with lower premiums if they started young. If the policyholder needed care, the product could switch into an annuity to guarantee a payment for the rest of their life.
