The government is considering ways to encourage people to save for social care in time for next month's Budget, believes former pensions minister Ros Altmann - although she stressed to Professional Adviser she had no reason to think any firm decision had yet been taken.
Altmann (pictured) said, however, she "wouldn't be surprised" if Chancellor of the Exchequer Philip Hammond included measures to incentivise the public to save for care in later life - adding she would be "incredibly disappointed" to see the government fail to tackle the issue.
Describing the UK's social care situation as "potentially far worse than the pensions crisis", she said that, without some kind of incentive, people might not think about keeping some money back to put towards care in later life.
She continued: "With increasing numbers of much older people in this country, it is inevitable that more money will be needed to look after them in later life. This should not be a surprise.
"An aging population is bound to need money for this but, so far, all the government incentives and preparation for later life income have revolved around pensions, with nothing to pay for care."
Altmann called on the government to act swiftly on the issue. "The system is already in crisis and it is much more difficult to solve than the pensions crisis," she said. "With pensions, ultimately, the government has decided to make people wait longer and to pay them less - but such options are not realistic for care."
In terms of incentives, Altmann suggested people be allowed to take money out of their pension funds tax-free if they use it for care. "Signalling the importance of not exhausting pension funds too quickly would give an additional behavioural incentive for people to leave money aside in their tax-free pension wrapper as a potential ‘care fund'," she explained.
"If they don't actually need it, then the fund could pass to their loved one tax-free, so it could form a care fund for a partner too".
Altmann also raised the possibility of introducing special ISA rules for a ‘care ISA' - one that would be free of inheritance tax. "Many older people already have ISA savings, but they do not think of retaining that money until much later in life as a potential ‘care fund' to help them pay for care" she said.
"Earmarking some of their ISAs for care, in a newly-created ‘Care ISA' environment could benefit many people in years to come. Indeed, the money currently spent on the Lifetime ISA as a 25% bonus would be much better spent on incentivising saving for later life care".
Altmann added she would like to encourage financial advisers to talk to clients about putting money away for care.
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