With life expectancy increasing and the cost of elderly care between £30,000 and £40,000 per year, the government has announced proposals for a possible ‘care ISA’ to help individuals cover the growing costs. Despite the plans offering a potential solution to the government’s bid to ensure the social care system is sustainable, it has received criticism from pension industry experts.
Stuart Price, Partner and Actuary at leading independent financial services consultancy Quantum Advisory, said: “The ‘care ISA’ would essentially allow people to save a lump sum to be specifically used for their care costs. Upon their death, the remaining pot will be passed on to their family with no inheritance tax. Currently inheritance tax is 40% of anything saved in ISAs over £325,000. People with savings over this threshold may be inclined to spend their money before they die to avoid paying the tax, which means they leave themselves little money if they do need assistance in later life. On the surface, the ‘care ISA’ offers the option to set money aside without fear of losing nearly half of it, however, I believe the proposals are floored and not as enticing as they seem. According to recent figures, 19 out of 20 estates are below the threshold so are not subject to inheritance tax anyway, so the ‘care ISA’ would only benefit the wealthy minority.
“An alternative solution may be to replicate the auto enrolment system used for pensions and encourage workers and employers to regularly contribute into a separate pot for nursing home fees. However, I expect this would be a big ask given that we are currently struggling to get workers to save enough for their retirement.”
The government will release further details about the proposals in its green paper in the autumn.
Stuart Price, Partner and Actuary at Quantum