The explanation from George Osborne earlier this week on his Budget’s pension reforms gave greater clarity about the increased flexibility pensioners will receive by easing access to pension savings, lifting tax restrictions, and offering improved competition. However, it failed to address the implications for long term care.
All in all, we agree that the reforms – first announced in March – are a step towards greater independence for those in retirement, but greater clarity in the context of funding long term care is still required.
The Telegraph highlights that the reforms could play a significant role in helping people to pay for care later in life. Under the new regulations, individuals will be able to withdraw their savings – which may otherwise have been tied up in a fixed income that allowed no access for emergencies or unforeseen events – should they need to pay for care services. In previous years, many people requiring residential care have been forced to sell their homes in order to cover the cost, and the Chancellor has previously said the new reforms will not result in more people having to do this.
Despite expanding on how the changes will work, however, he is yet to address concerns that the reforms could result in people having to pay more towards social care. Under the new Care Act, the means-tested threshold for care costs will rise to £118,000 for people with property assets, and £27,000 for those without – anyone below these limits will be exempt from care costs.
Analysis of official wealth and assets data by Prestige Nursing + Care suggests that, under the new rules, more than one in ten (11%) of the 6.05 million people aged 55-64 in England could lose their exemption from care costs by withdrawing the average £25,000 net pension, which might push them over the threshold.
As of today, funds tied up in pensions or annuities are not included in the assessment of how much one has to pay towards care, whereas cash assets and property are. There is little indication about whether savings withdrawn under the new regulations will be counted as cash assets towards means testing for care. This is something the government must address. What is clear is that efficient forward-planning will be needed to ensure that individuals do not find themselves liable for huge care costs later in life as a result of liberating their pension savings