Pension Pot to pay for Long Term Care Fees?
Jun 18, 2014
As you will be aware, the government has been busy trying to improve the way we plan for our retirement years, firstly by radically changing the rules on how we access our pension funds when we reach 55 years of age and secondly by introducing a Care Bill, which will see a cap of £72,000 imposed on the maximum personal contribution to care fees.
It was interesting then to read Friends Life, one of the leading life insurers in the UK’s take on things last week and their intriguing suggestion that perhaps the government should allow those needing long term care to fund it from their pension pot “tax free”!
With the relaxation of rules on pensions and the financial strain thousands of families feel when faced with the prospect of having to fund long term care for themselves or relatives, on the face of it this actually seems like a positive and sensible solution.
Of course it could also benefit the government which always helps their decision making process, as whilst they lose revenue from the tax free element of the monies released from pension pots, they could stand to make great savings from the reduction in people needing full or partial support with long term care fees.
It will certainly take a big brain and a rather large calculator to crunch the numbers but someone in government HQ should take a serious look at the possibilities – certainly could be a vote winner Mr Cameron or some other brave soul wishing to take the mantel!
Speaking on behalf of Friends Life, Chief Executive Andy Briggs said: “Significant changes are being made to the rules governing pensions. There is a real opportunity to extend these changes to provide greater incentive for consumers to save for their own retirement and to provide for their long-term care by making it more tax-efficient for them to do so.
In the UK, we have an ageing population, which brings with it a greater personal responsibility for people to save to ensure that they have the best retirement possible.
We also know that take-up of long-term care cover is low but the need for care is likely to increase, which makes it a more pressing consideration.
The new pension rules give people greater flexibility and it has never been more important for them to plan for their future, and this includes making provision for future care needs.”
Of course administering such a scheme might prove to be a bit of a nightmare and with the average pension pot in the UK between £35,000 to £50,000, it is questionable just how much of an impact a proposal like this will actually make; in truth it could be quite limited or only really benefit those with above average pension pots.
Personally, subject to doing the sums I think it’s a good idea. I’m sure that Gary Barlow, Jimmy Carr and the rest of the so called tax avoiders will agree that any ‘legal scheme’ that saves us paying more tax then we need to is worth looking at.
What do you think?