A care insurance product linked to pension drawdown could be marketed to middle-earners as “inheritance insurance”, according to proponent Steve Webb.
Ex-pensions minister and Royal London director of policy said a care insurance product tied to pension drawdown would work well for middle-earners who need to meet long-term care costs in later life but want to preserve wealth to pass on when they die.
Speaking at the National Later Life Adviser Conference in Gloucester, he explained lower earners would have their care costs covered by the state, while people at the top of the pay scale would be able to pay for themselves. However, he added people in the middle could face being forced to use the value of their home to pay for care and, therefore, forfeit inheritance.
The care cost product would work by paying a one-off premium from a pension drawdown pot to buy a policy to cover social care costs in the future.
He said: “We shouldn’t market this as care insurance but ‘inheritance insurance. You could say to the client that this is a good option if you are care about your kids getting the family home.
“I’m thinking about a £30,000 one-off premium out of the drawdown at retirement in order to know that your family is going to get your home.”
Additionally, Webb suggested the insurance product should be tax-free. He also said insurance providers “would give a damn” and argued “if the provider is on the hook for your care funding then we’d spend money on prevention, in order to stop you needing catastrophic care costs”.
The ex-Liberal Democrat minister said the government was leaning towards leveraging extra money from National Insurance (NI) instead of encouraging the development of a care insurance product. However, he added any extra cash raise from increased NI would likely be spent immediately and not go towards the growing care bill.
Webb said an at-retirement payment system was fairer for all generations. Adding if the policyholder did not end up needing care a payment could be made to pay for funeral arrangements, for example.
MP backs NI changes
Gloucester MP Richard Graham also spoke at the event on Thursday. On care funding, he said: “I think there will undoubtedly be changes to taxation that come out of the green paper.
“My own recommendation would be to use National Insurance to specifically fund care and that the money raised is a specific contribution to a health and care fund. The reality is that we’re all going to have to pay more and by increasing NI payments to a specific health and care fund, you can do this separate to general taxation.”
The Conservative MP said it was important everyone involved in the debate put “intergenerational fairness” at the heart of any changes.
“While we discus later life, there is another generation who are not having life as easy as it was for us in those heady days of youth.
“We can’t expect all the resources of the state to come the way of those of us in later life, which is why I think things like the triple-lock will have to be timed out, and we can’t have an ongoing 2.5% yearly increase to our state pensions.”