Steven Cameron, pensions director at Aegon says while increased funds announced in the Chancellor’s Spending Review are likely to be welcomed , significant challenges remain.
The social care sector will no doubt welcome the additional funding and local authority spending power announced in today’s Spending Review. However, this doesn’t deflect from the need to address the growing challenge of putting social care funding on a long-term, sustainable basis.
The devastating impact the pandemic has had on our most elderly has shown just how valuable but stretched our care system is, making it even more urgent that the Government delivers on promised reforms to social care funding for our aging population.
The additional funds allocated to the care sector in the Spending Review are unlikely to be more than a short-term sticking plaster. Previous suggestions to create sustainable funding included an increase in income tax or National Insurance, earmarked for social care, and perhaps just for the over 40s. But the Chancellor will now need to undertake a tricky balancing act to assess any such changes against other plans and priorities he may have for his Spring Budget.
It’s highly likely that people will need to take more personal responsibility for saving for social care and one route for this might be through pensions.
Increased life expectancy and the rising costs of providing care mean this is an issue that will just keep getting bigger unless tackled in a fair, transparent and sustainable way. The current care cost crisis should be a wake-up call to younger generations. With people living longer, the Government will find it increasingly challenging to cover care costs.
While tackling today’s funding shortfall is critical, we also need ways of rewarding and encouraging younger generations to plan ahead to cover the growing personal contribution they’ll be expected to make. Otherwise, today’s care crisis will become tomorrow’s care catastrophe.
For an increasing number, paying for social care will be a substantial part of their spending in retirement. For those planning ahead, saving through pensions offers the best solution. Currently, from age 55 onwards, individuals can take as little or as much as they like out of their pension and tax rules which used to penalise those who left large pension funds on death have been made fairer. Together, these changes mean pensions are now well suited to fund not just ‘typical’ retirement years but also social care if needed in later years.