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21 Feb 2018

Could a ´care pension´ help people insure against long-term care costs?

A ‘care pension´ could be one solution to help people cover the cost of their care needs in later life, according to a former pensions minister.

Steve Webb, who is now director of policy at mutual insurer Royal London, said that resolving the issue of funding long-term care is becoming ever more urgent.

In a paper published by Royal London, Webb puts forward the idea of a new financial product, the care pension — combining a ‘drawdown´ account, which more and more people are using to fund their retirement, with a care insurance element.

This could help people build up protection against the possibility of huge care costs.

“More than one in four of us will spend some time in later life in residential care, and the total bill can easily run into tens of thousands of pounds,” Webb explained.

“In extreme cases, people can be forced to sell their family home to pay for care.

“It ought to be possible to take out insurance against this risk, but insurers are reluctant to offer products and consumers have been reluctant to take them up.

“A care pension could build on the increasingly popular income drawdown product by adding in care insurance.”

The paper says that withdrawals from the drawdown account to pay for the care insurance element would need to be tax-free. Also, there would need to be a lifetime cap on care costs, so that insurers are not taking on an open-ended liability.

Instead of ‘care´ insurance, the paper suggests branding the new offering as ‘inheritance´ insurance — because those covered by the policy could be confident that, regardless of their care needs in later life, their family home and other assets would not need to be sold and could still be passed on to the next generation.

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