This article forms part of the LGA think piece series 'Towards a sustainable adult social care and support system'.
A demographic time bomb is ticking as the huge cohort of baby-boomers approach their 70s. In a few years’ time, a significant proportion will develop care needs. Who will pay for this?
Currently, there is no funding set aside by national or local government. Neither have individuals or families allocated money to pay for later life care. Therefore, care is just funded at the point of need.
Adult social care is the responsibility of councils, but rising demand and costs, coupled with major reductions in councils’ core funding from Government, have forced cutbacks, despite councils protecting social care relative to other services. Councils have had to focus on those with the most severe needs and spending on preventative or early-stage help has been cut, which results in higher long-term costs, especially to the NHS as last-resort provider. Estimates suggest a million elderly people who need care are not receiving it,
As inter-generational demographic pressures increase, younger council taxpayers will face ever-greater burdens, especially in areas with large numbers of older residents as the population continues to age.
There are intra-generational fairness issues too. Most of the costs of adult social care are borne by only a small proportion of the elderly population - those who need care. In line with statutory regulations and guidance on charging, Councils operate a means-test to control eligibility for public funding, so most people have to pay for their own care, with no upper limit. They risk losing almost all their life savings and assets, before they qualify for any help from the public purse. But while these individuals face losing their life savings or the family home to pay for care, others who never need care, or whose needs are considered as healthcare, rather than social care, may pay nothing.
In fact, the intra-generational unfairness is even worse, because many councils cannot afford to cover the full cost of providing care, so private payers end up cross-subsidizing others, as well as paying for themselves.
Is it sustainable, or equitable, to place this burden on a small group? Surely a more sustainable solution should encompass the pooling of risks.
It is time for national and local politicians to work together towards a solution.
There is no silver bullet, a combination of measures is needed. These would encompass an element of national insurance for risk-pooling, private insurance, equity release and new incentives for private saving, both individually and in the workplace.
Care funding should be a core element of 21st Century retirement planning, but the policy focus is almost exclusively on pensions. This needs to change. The Welfare State needs to be extended beyond just health and pensions, in order to serve the modern era.
Just as the State Pension is supplemented by private pensions, state funded social care can only be at a minimum level, so private care funding to supplement this is also needed. Retirement savings have never accounted for care, despite Exchequer reliefs costing over £40billion a year which support the build-up of funds for later life.
For existing cohorts of older people, it is too late to impose National Insurance. Imposing a hypothecated tax would be possible, but forcing pensioner workers to pay NI seems unwise, as later-life working has significant economic and social benefits.
Baby-boomers with ISAs, pensions or housing wealth should be offered new incentives to keep money for care, rather than spending it in the early stages of retirement.
Potential new private saving initiatives could include an Inheritance-Tax-Free Care ISA allowance and allowing tax-free pension withdrawals if used for care. A national equity release scheme might also be introduced, as well as whole of life insurance that pays out early if care is needed.
Such measures would need to be combined with a cap on each individual’s elderly care costs, a rise in the means-test threshold for state funding and encouragement of preventive measures that prolong independent living,
For younger generations, more options are available. Extending National Insurance (or tax) to encompass elderly care allows risk-pooling at a national level to spread the costs. Traditional pensions are not adequate for the care needs of future generations. Workplace saving plans, either incorporated into new-style pensions or a separate product, can help people build a care pot for later life if needed and offering workers vouchers to pay for elderly care could work along similar principles as childcare vouchers.
Sustainable reform should spread care funding more evenly, rather than singling out small groups to bear the burden. I believe the fairest outcome would see as many people as possible pay something towards social care, rather than imposing huge costs on the minority needing elderly care or younger generations.
Baroness Ros Altmann CBE