Who’ll pay for my long term care?

It seems the Government are intent on increasing national insurance by 1-1.25% to pay for the cost of long term care for those in the UK in later years.

The cost of this to the average person is substantial

Assuming of course you pay national insurance.But pensioners don’t pay national insurance on their pensions or income from their savings. And you don’t pay national insurance on your earnings after you reach state pension age.

So pensioners won’t pay this new charge, those who are in work and paying national insurance will.

Pensioners do pay income tax and as the IFS has worked out, a change in income tax would be more equitable across generations than simply raising the NI rate.

So why is everyone into equitability?

I’ve been brought up considering something called inter-generational solidarity.

Extra national insurance payments are only made by working  people below state age for a reason. It’s because of the principal that younger people support older people.

It’s called an intergenerational transfer and your national insurance payments are made on top of monies taken from your salary to pay for pensions. There is nothing wrong with intergenerational transfers, so long as both generations are up for it.

A threat to pensions?

The worry is that  these increased  national insurance contributions may become money taken from your salary instead of paying for pensions.  That’s a worry to the pension companies who were banking on wholesale increases in pension contribution rates any year soon.

But if we are looking at priorities, we need to prioritise the acute issues surrounding extreme old age. What is more, despite going through numerous inceases to AE contributions and a pandemic, pension contributions appear extremely resilient. There is a tolerance to increases in savings which is counter-intuitive.

Frankly , I think that young people have and should support older people and it is good that the Government is getting to grips with this – albeit 20 years after Dilmot.

A socialist policy?

I quote from the Times , which has been talking to Conservative party “insiders”

One referred to the triumvirate of Javid, Sunak and Johnson as a “cabal”. The minister said: “It places an undue burden on people of working age. We’ve yet to see the full plan but politically and ideologically looking at tax is not where we should be.”

Tory MPs were even blunter. After details of the plans leaked on Thursday, backbenchers took to WhatsApp to vent their frustration. A member of the main group for Tory MPs questioned whether this was a Conservative government at all.

Sajid Javid demanded billions more for the health service this week

Marcus Fysh, the Tory MP for Yeovil, said: “This is an extension of socialism that needs to be resisted. As a Conservative party we should be against tax rises. We stood on a manifesto not to implement them.

“Ministers who want to be socialists should not be ministers any more. If the British public wanted socialism, they would have voted for the Labour Party.”

My bet is that the Government has got this right

There is almost limitless capacity to take tax on a hypothecated basis. If the deal is presented in the right way, Sunak will have sold this as an insurance premium that protects younger people from seeing their parent’s houses sold to pay care bills.

I think that this extra cost will limit the capacity of Government to raise auto-enrolment rates but that it won’t prohibit a gradual increase. People are aware that they need both a pension and insurance against excessive care bills. The two issues are inseparably linked

If Sunak pulls this off, people will pay more for the privilege of knowing that what they  saved in their pension can be paid as a pension without the need for hoarding to meet the costs of care on their parents houses.

And people really don’t like insuring against long term care privately. There is no market for it – despite products having been periodically produced to insure against the worst.

The biggest loser in these proposals will be the financial services industry. Who – let’s face it – have had a free run from auto-enrolment and can hardly plead poverty.

We may see a dip in equity release sales and perhaps some curtailment of the passion for wealth management, but this tax will provide national security for the average person without the need for complex planning.

The alternative is  a property tax or similar.

Most property wealth is in the hands of the boomers and their parents. A tax on property at say 1- 1.25% of its value is a much more immediate way of solving this problem

But it would be politically and operationally hard to achieve. Finding the cash to meet a bill on an illiquid asset is not going to be popular amongst the over 60s.

And operationally , taxing assets that have no immediate valuation will lead to disputes which will be costly to sort out and socially divisive.

Attractive as it looks to tax the old to pay their bids, it is not going to happen.

This is a good thing

I am glad that at last Government is paying the funding of long term care some attention. Other Governments have floundered on these rocks, this Government has both time and support to see through this most unpopular of policies.

We do not like to think of the problems we may have, our parents may have our grandparents may have. But not thinking of them, doesn’t make them go away.

Who will pay for my long term care?

The younger generations will pay twice, once for me and once for myself. But they will do this. They would rather do it than risk losing their parents to destitution and/or the loss of their inheritances. And they would rather hand this to the state than to the private sector

The state is the best provider and funder of long term care and I hope that alongside this new care tax will be a commitment  from Government to give a national entitlement to care for those who need it , which will not be means tested, but available to all.

That would be the best thing since Beverage.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Who’ll pay for my long term care?

  1. Tim Simpson says:

    Hello Henry,
    Who will pay for my long-term care?
    The alternative is a property tax or similar.

    I have read your article twice as I’m not sure what I am missing. I write as someone who watched both parents die ‘in care’ and, for all I know at 76, I might be looking for somewhere myself quite soon…!. Both my parents had, luckily, saved and were able to pay for their keep. Neither Home was lavish about 3* hotel standards but my mother’s, at £550/week [London] Fraility Care during 2007-10, was more than I could afford and, I was told informally, she was the only one in there paying her own way [less National Pension allowances]. Nevertheless it was the nursing care that was important in both places. Her Home is now part of an American conglomerate and such enterprises may well be part of the local Authorities problem.

    You mention about introducing a Property Tax to fund the venture. We’ve seen this before with Council Tax [CT] with consequential riots in the streets etc. Citizens who were living in rented property complained they would be paying twice etc. Had the Tories set the rate centrally [as they do for the commercial property tax] instead of leaving it to each local authority, CT might have had more success. With CT in mind, are those citizens in rented property expected to pay this suggested Tax, given that Owner/occupied properties in the Home Counties are quickly becoming just a dream for many. It might be easier for those in the ‘Shires’. Nowadays, if one is reasonably careful with their health, a long life may well be enjoyed but ending it ‘in care’ becomes a possiblity and, ideally, should be budgeted for. That, however, is the ‘rub’.

    Kind regards,
    Tim Simpson

  2. Adam Saunders says:

    Most wealth in the nation is already with older people. A National Insurance rise is essentially a tax on those on low incomes who are already struggling to make ends meet. An Income Tax rise would be much, much more equitable but would undoubtedly be unwelcome to wealthy Tory voters. So the poor become poorer and we continue our journey back to Dickensian times. Yeah, nice job Boris.

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