The Association of British Insurers (ABI) has identified problems for people wanting to use insurance or a pension to pay for social care, as well as solutions to address them, using research commissioned from the Pensions Policy Institute.
The industry is committed to finding solutions to help more people afford the level of care and support they want, in a location of their choice. With the implementation of the Government’s social care reforms pushed back, the ABI is urging ministers to use the time to address the issues it has identified, so that insurance or long-term savings products could help more people pay for social care.
A pay-out from an insurance or a long-term savings product could help people ‘top up’ the funds provided by their local authority, allowing them to pay for additional care or support, in a location of their choice. However, in their current form, the reforms would see two thirds of the population receive less financial support for social care from their local authority if they had an insurance or long-term savings policy than without one. This is because the local authority would consider any payment from a policy as part of an individual’s income. As a result, their local authority support would be reduced or even cancelled. Only a very small group of people, mainly those with an already high level of income and/or savings, would see the full benefit of a pay-out.
The ABI has warned that this poses a significant barrier to making such products available, as providers would not want their customers to lose the benefits of the product. It also raises regulatory concerns as it would only partially benefit a customer and is likely to fail regulatory ‘fair value’ tests.
By excluding insurance pay-outs from local authorities’ financial assessments, the Government would enable providers to serve more people, and ultimately help more people access the care they want in a location of their choice.
For example: James needs help with everyday activities and the local authority decides he needs to go into residential care. He has a weekly income of £200, and £15,000 in savings. Under the planned reforms, the local authority would pay £508 a week towards his care.
Imagine James had taken out an insurance policy against his care needs and now receives an additional £200 a week from the policy. Under the planned rules, the local authority would reduce its support to £308 per week. Therefore, the extra income from the product would replace some of the local authority support James was previously receiving, leaving James in the same financial situation as before.
In its report, ‘Prepare for Care’ the ABI also proposes changing pension tax rules so that it is more straightforward for people to pay for their care using a pension.
More awareness of the importance of preparing for care costs in later life is also needed. The ABI has called for the Department of Health and Social Care to launch a public information campaign, setting out what level of support people can expect and providing guidance on how to navigate the care system.
Yvonne Braun, Director of Policy, Long Term Savings, Health and Protection, at the ABI said: “The social care reforms announced by the Government in 2021 could go a long way to help more people cover their care costs. Many people will want care services above and beyond what can be provided by their local authority. Insurance or pension pay-outs can help people afford top-up payments for additional services. However, as it stands, most people would actually lose out if they were to buy an insurance or long-term savings product to prepare in advance.
“This research has identified changes which would help more people benefit in full from an insurance or long-term savings product. The delay to the reforms presents an opportunity to ensure that the new rules work in practice and benefit as many people as possible.”
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