George Osborne’s Budget announcement on reforms to pensions has huge implications for those approaching retirement yet the impact this will have for funding long term care is also significant.
His changes will increase the flexibility of pensions by easing access, lifting tax restrictions and, in essence, offering improved competition. This could play a significant role in helping people pay for care in future. Individuals will now be able to access their savings should they need to pay for care services, which may otherwise have been tied to a fixed income allowing no access for emergencies or unexpected costs. Up until now in cases such as this, those requiring residential care have been forced to sell their homes to cover the cost but now many will be prevented from having to do this.
However, there are also concerns in some quarters that these reforms could result in people having to pay more towards social care. Currently amounts tied up in pensions or annuities are not included in the means testing to assess how much one has to pay towards care while cash assets and property are. At this stage it is unclear what this could mean for people who elect to withdraw their entire pensions pot as a cash lump sum but the government has denied it will mean having to spend more. It is crucial the government makes clear the potential implications for funding care in order to avoid any confusion later on and to help people plan well in advance.
The Chancellor also announced a government guarantee to provide people with financial guidance upon reaching retirement. Prestige Nursing + Care has stressed the importance of financial advice for funding care in previous blogs so it is great to see the government is encouraging this. It should be used not just to address immediate retirement planning but also longer term suggestions for funding care, an issue that continues to worry people and will only grow in magnitude as the population gets older.