Pensioners may get tax break to pay for care

PENSIONERS could be given a tax break to pay for their own care under plans being considered by the Treasury.

Officials are weighing up a move to allow tax- free withdrawals from retirement savings to solve the care funding crisis, the Mail understands.

Pensioners would have to use the cash to buy a care insurance policy that would pay out if they needed care later in life.

The policy would cover all nursing fees, meaning those who signed up would never need to sell their homes or spend life savings on care.

Currently, anyone with assets of more than £23,250 must contribute to care costs – an average of £1,000 a week, according to data firm Laing Buisson. An estimated 21,000 homeowners a year are forced to sell up to fund care.

But new tax-free care cover policies could enable thousands to pass on properties and nest eggs to children.

Insurance premiums would be taken directly from pension pots under rules that allow over- 55s to dip into their retirement savings. Treasury officials are understood to have visited insurance firm Royal London, which came up with the idea, to discuss how the plans might work.

The proposal could be included in a Green Paper on social care for the elderly due to be launched this summer.

Former Lib Dem pensions minister Sir Steve Webb – the insurer’s policy director – said: ‘With these changes, millions of people could start to build up protection against the risk of facing catastrophic care costs in later life.’

Retirees withdrew £6.5billion from their pensions under the rules last year. But savers can currently take only a quarter of their pensions tax-free, with the remainder treated as taxable income.

Sir Steve said the Government would need to change the law to allow tax-free withdrawals specifically for care insurance plans.

It is already possible to take out insurance to cover care costs, but the few policies that exist are expensive.

Royal London admits its plan will work only if insurers launch new policies priced at around £100 a month.

Savers could then begin to pay for these policies by taking cash from their pensions as soon as they reach 55.

However, experts warned the insurance policy would do little to solve Britain’s care crisis. Nathan Long, of investment firm Hargreaves Lansdown, described the idea as ‘using an earbud to clean an elephant’.

He said: ‘Any solution must first tackle the huge public misunderstanding of the potential cost of care and the likelihood of ever needing it.’

The Treasury would not comment on the plans.