Tackling the social care funding challenge – could ‘opt-out automatic enrolment’ solve the problem?
This content is AI generated, click here to find out more about Transpose™.
For terms of use click here.
A new report from policy experts at LCP has set out a radical solution to the social care funding issue which is currently at the top of the political agenda. Drafts of the report have already been shared with key figures in government and opposition, and it has generated considerable interest.
The proposal builds on the highly successful precedent of automatic enrolment into workplace pensions, which has brought more than 11 million people into pension saving since 2012.
Under the new plan, all taxpayers aged 40 or over – including pensioners – would be automatically enrolled into paying a social care premium equivalent to 1p on the basic rate of income tax. The maximum premium would therefore be just over £30 per month. But they would be entirely free to opt out.
Those who remained in the scheme would build up a discount on their future social care costs such that those who paid in over a 25-year period would be entitled to entirely free personal social care. But discounts would start as soon as people had one year in the system, getting a 4% discount, those with two years an 8% discount and so forth.
The purpose of the scheme is to allow people to pool their risk of facing ‘catastrophic’ care costs, such as the 1 in 7 people who are projected to need to spend more than £100,000 on care costs over their lifetime. With private care insurance impossible to buy, this scheme uses the power of the state to enable people to protect the value of their family home and life savings against these risks for the first time.
A big advantage of the scheme is that it generates substantial up front revenue for the government, with costs rising much more slowly. The report estimates that, even making cautious assumptions about opt out rates, the new social care premium could raise around £3.5bn per year. And all of this would be from people who had voluntarily remained in the scheme rather than opting out.
The up front money could be used in a variety of ways including:
- For an immediate relaxation of the tough capital rules which currently mean that people in England cannot get any help with their care costs if they have assets of more than £23,250. The report suggests that this cut-off should be immediately raised to £100,000.
- For interventions that help people living with care needs at home now — including falls prevention, home adaptations and better support for unpaid carers as well as reducing future social care demand by improving chronic diseases to benefit today’s working age population through more effective access to obesity or mental health treatment. This could also support NHS priorities in establishing the proposed Integrated Health Organisations, using targeted, time-limited investment to prevent avoidable ill health, and make the NHS more sustainable over the long term.
- As part of the introduction of a national care service, providing additional revenue without the need for controversial new taxes; this could help bridge the gap between the savings from the recently announced changes to the state pension triple lock and the much larger cost of the Prime Minister’s plans for free social care
Pensions automatic enrolment is a hugely successful policy which is admired around the world. There is no reason why the same approach could not be applied to the thorny problem of social care funding. At present, people are at risk of having their life savings wiped out by ‘catastrophic’ care costs, and have no way of pooling this risk with other people. This scheme, with an opt-out for those who don’t want it, provides an affordable and efficient way for people to protect their savings. We have already had a very warm response to these ideas as we have discussed them, and hope that they might form a useful approach for consideration as part of all-party discussions.
Steve Webb Report co-author and LCP partner
Social care is one of the defining societal challenges of our time, but it is also an opportunity to do things differently. Our proposed economic framework would not only help people better meet the costs of care, but also generate early funding to invest in keeping people healthier and independent for longer. Shifting our focus from treating illness to preventing it can strengthen communities, ease pressure on public services and support the health-driven prosperity on which a stronger economy depends.
Dr Jonathan Pearson-Stuttard Report co-author and Head of Health
