Pension schemes could play a key part in meeting the costs of long-term care in retirement in the UK, according to a report by Squire Sanders.
The law firm’s white paper, In sickness and in health: reforming pensions and social care, addressed the funding challenges represented by an ageing population.
It recommended that flexible benefit structures should be designed to allow for these new care-saving options, and that simple, standardised health checks, relievable for benefit-in-kind tax purposes, should be delivered via the workplace, supported by health education alongside financial education.
Other key recommendations in the report include:
- Savers should be permitted to earmark part of their pension rights in advance of retirement to provide for care.
- Earmarked pension savings should be capable of being charged in favour of a suitably approved care provider, and payments made to care providers should be within the authorised payment regime.
- Pension savers should be able to split and defer their tax-free lump sum entitlements within the same plan to provide for care.
- There should be more flexibility in existing tax reliefs so that unused reliefs and allowances could be portable between savings vehicles and between couples.
Catherine McKenna (pictured), leader of the pensions practice group at Squire Sanders, said: “The UK government has laid out a cap on lifetime contributions to adult social care costs in the current care bill. Even so, funding solutions need to be found to meet the costs of care and the government has challenged the pensions and insurance industry to find them.
“If the government is serious about supporting funding for care, then it has three main options: provide extra tax incentives to save for care; compel us to save for care; or re-shape pensions and tax legislation to allow pension savers to make choices about whether they save for care, and how they do so.
“We believe that only this last course of action is viable, and that the structural barriers can and should be overcome to make pensions flexible enough for individuals to provide for their care, both in sickness and in health.”
Clifford Sims, partner in the pensions practice group and co-author of the white paper, added: “As well as arguing for an effective re-shaping of pensions, we have highlighted the fundamental need for a comprehensive educational programme.
“The survey we conducted in tandem with our research highlighted a lack of awareness, indeed even confusion, about what state support for care was available, how it was funded, and what options are available to savers.”