Ros Altmann: A care system that penalises the elderly

Which party will fund social care and pensions?
Which party will fund social care and pensions?
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IN terms of fairness, it is vital that the next Government finally addresses the ongoing and worsening crisis in social care. The current system penalises elderly people and their families and lowers care standards, while raising the costs to those paying privately.

It is undermining the NHS and places the biggest burdens on those who fall ill, rather than being shared fairly. There is no help for the poorest people with moderate needs, which makes it more likely that they end up in hospital or care homes and lose their independence.

Meanwhile, older people who do have savings have to lose everything, including the value of their home, before they get any state help at all. The draconian means-test, coupled with council cutbacks on top of rapidly rising numbers of elderly people in our ageing population, has caused huge strain on the social care and health services, undermining the quality of social care (such as 15-minute visits and low paid staff on zero hours contracts).

The system is riddled with unfairnesses and is simply not fit for the 21st century. Private payers who are denied state help end up paying over the odds for care, to make up for local authority underpayment. This penalises those families who are unlucky enough to need elderly care twice - firstly they get no help from the State and secondly they also have to pay extra to cover the costs of those who are covered by the State. This amounts to a most inequitable stealth tax, hitting the most vulnerable in society.

To add further to the unfairness, elderly people who are judged to have a health need, rather than social care need, will have all their care costs met by taxpayers. This arbitrary allocation of resources is unsustainable and is placing the NHS under intolerable strain, even before the huge bulge of so-called ‘baby boomers’ reaches advanced old age. Proper integration of health and social care is long overdue. It is obvious that the State cannot pay to look after all baby boomers who will need it in coming years. There is no money set aside for this purpose and younger taxpayers will be unable to afford it. Therefore, incentivising those older people who have pensions, ISAs or other savings to earmark a sum to pay for care, while the State then covers the extra on top of that, would kick-start funding which is currently nonexistent.

Introducing a Dilnot-style cap on care costs, then allowing tax free withdrawals from pension funds if needed to pay for care, plus introducing a special Care ISA allowance (that can be passed on free of Inheritance Tax) or allocating some proportion of property value up to a limit of, say, £70,000 per person, would ensure ‘baby boomers’ have incentives to prepare for their coming care costs, while also signalling that everyone will need to think about providing for care in old age, as well as pensions.

Turning to pensions, the triple lock commits to increasing (only some parts of the) state pension by the highest of price inflation, average earnings or 2.5 per cent.

The 2.5 per cent commitment contained in the triple lock adds billions to the cost (£3bn more for the years 2010-16 than if a double lock had been in place). The longer the triple lock lasts, the greater the future cost will be, with official forecasts predicting it will add at least £15bn to the long-term cost of State Pension provision.

The arbitrary 2.5 per cent figure is a political construct with no economic or social logic. When it was introduced, the state pension had fallen well behind average earnings, so it served a useful function in increasing basic pensions to a more reasonable level. But pensions have increased significantly relative to other benefits.

The Pensions Commission recommended only increasing state pensions in line with earnings, but perhaps the Government should offer pensioners the higher of prices or earnings inflation, as a double lock, to protect against rises in the cost of living and average living standards of those in work.

If other benefits are being frozen, or only protected by either prices or earnings, to add the extra 2.5 per cent protection for pensioners will cause increasing resentment and also adds to pressure to increase the state pension age faster, which disadvantages those with lower life expectancy and in poorer health.

Baroness Ros Altmann is a Tory peer and former pensions minister.