Tom Mcphail reports in The Times that “it’s inevitable, pensions will suffer from Andy Burnham’s reforms”.
As a pensioner myself I worry about the cost of care I’ll face as I grow older. I also worry that those who do the caring are badly paid and the payment system badly organised so ineffecient.
I agree that pensions must pick up some of the strain of paying for social care for the elderly, I don’t think the elderly will mind about that, so long as they are insured against the frightening prospect of needing increasing amounts of it.
Although some of Burnham’s thinking is for younger people (needing care), the bulk of Baroness Casey’s commission will focus on “cost of getting old”.
Tom sees the money as either coming out of capital (a death tax) or out of pay (an income tax). Elsewhere, I argue that there is a third place that money could come, that’s that insurance paid by pensions in payment.
My solution is a simple insurance paid from people’s pension, organised by the DWP and the insurers. People need to opt-out of it, if they want to self insure. Some will, but most will willingly or out of inertia , pay a levy, a semi national insurance.
Since this article Tom has written that the third source of finance could be taking away the third lock of the state pension. This may be necessary alongside pensioner insurance , we are reaching a point where that hard decision needs to be taken.
Of course pensioners don’t pay national insurance on their pensions so what’s suggested is not so radical as first appears.
Here’s Tom on August 5th. He expresses Burnham and Casey’s problem very eloquently. you can read both this article and the later of Tom’s articles from this link.
Tom McPhail
The PM has very little wiggle room, so an unavoidable consequence of his necessary changes will be financial pain for many of us
Most of us have welcomed the prime minister’s recently announced intention to address social care funding. It is a problem that needs fixing; if he can do it, then good on him. There’s no free ride though, and the price of solving social care could turn out to be to the detriment of our retirement savings. Trade-offs will have to be made.
Where’s the money coming from? Andy Burnham has pledged to adhere to the fiscal rules and to his predecessor’s manifesto commitments. That doesn’t leave much wiggle room and his backbenchers have so far displayed a pronounced aversion to spending cuts. Any additional tax revenue is already going to be hard to find.
Why is this relevant to our pensions? Because we’re not saving enough. Auto-enrolment has done a great job of boosting pension membership (except among the self-employed), but millions are saving 8 per cent of their salary, or even less. Modest reforms to the auto-enrolment rules were proposed in 2017, to lower the starting age and expand the definition of earnings… they’ve still not been implemented, nearly ten years later.This is because politicians have been too nervous about adding to the cost of living. Similarly, the upper limit of the earnings definition has been frozen at the same level for the past four years, linked to the higher-rate tax threshold. So fiscal drag isn’t just raising more taxes, it is also undermining the value of our pension contributions.
In this context, it is hard to imagine the government choosing not only to introduce some new form of levy on our incomes to pay for social care, but also to bump up pension contribution rates. In all likelihood, pensions would just get kicked down the road, again. The government has appointed a pensions commission to look at whether people are saving enough, but by the time it reports next year, it may find the cupboard is already bare.
For some, after a working life of inadequate retirement funding, an integral part of their financial plan for later life is to rely on inheriting wealth from their parents. This approach is already a lottery, given the catastrophic impact that care costs can have on savings and the prospects of passing on property. A more structured death tax approach could even out some of the uncertainty but could also mean more people inheriting less.
To finish where I started, it is to Burnham’s credit that he is willing to use up political capital in solving the care funding problem. But whether the costs are taken out of income, or out of capital, I’m struggling to see how it isn’t going to involve some difficult consequences for our pensions.
