‘The care Isa is a nice con­cept but peo­ple don’t have the money’

The Daily Telegraph - Your Money - - FRONT PAGE - Sam Mead­ows

A35-year-old who started pay­ing into the Gov­ern­ment’s pro­posed “care Isa” would need to save al­most £4,000 a year to have enough to fund care by the time they re­tire, ac­cord­ing to anal­y­sis car­ried out for Tele­graph Money.

Last week­end The Sun­day Tele­graph dis­closed that min­is­ters were con­sid­er­ing a new Isa to help fix the care fund­ing cri­sis. Savers would put money away as with any other Isa but, if so­cial care was not needed, the ac­count could be passed on free of in­her­i­tance tax.

The Gov­ern­ment is due to un­veil its plan to fund so­cial care this au­tumn, which is likely to in­clude a to­tal cap on costs. Cur­rently, fam­i­lies can be forced to pay hun­dreds of thou­sands of pounds in care costs if their to­tal as­sets ex­ceed £23,250 (or slightly more in Scot­land and Wales).

The care Isa has been lauded as a po­ten­tial fix. Yet cal­cu­la­tions by pen­sion firm Ae­gon for Tele­graph Money show that the pay­ments would be chal­leng­ing for all but the very wealthy to achieve.

For the pro­jec­tions we as­sume that the Gov­ern­ment im­ple­ments a cap on care costs of £150,000, which rises each year in line with in­fla­tion. We as­sume an av­er­age rate of in­fla­tion of 2.5pc and that the Isa is in­vested and grows by 4pc a year. An­nual con­tri­bu­tions also in­crease in line with in­fla­tion.

Even some­one who starts as early as age 20 would need to pay in £2,245 a year over 45 years to have saved the re­quired amount by the time they turn 65. Few 20-year-olds will have sev­eral thou­sand pounds a year spare to save into an Isa specif­i­cally for care.

Some­one who started sav­ing at age 25 would have to put away £2,745 an­nu­ally. Con­tri­bu­tions would rise to £3,264 a year for some­one start­ing at age 30, £3,950 at 35 and £4,940 at 40. Those who started even later would need to save in­creas­ingly large sums to hit the cap and cover their care costs. A 55-yearold would need to save a mas­sive £13,836 a year – and af­ter the age of 58 the re­quired amount would ex­ceed the £20,000 limit savers can cur­rently pay into an Isa.

This pot would purely be used for care, so peo­ple would need to make th­ese pay­ments on top of reg­u­lar pen­sion con­tri­bu­tions and any other sav­ings plans.

Steven Cameron of Ae­gon said he favoured a pen­sion-based so­lu­tion, whereby savers could “ring-fence” a por­tion of their pen­sion for care, only dip­ping into it if they strug­gled to­wards the end of their lives.

Th­ese con­tri­bu­tions would also ben­e­fit from tax re­lief, which turns 80p put into a pen­sion into £1 for a ba­sic-rate tax­payer.

Steve Lowe of Just, a pen­sion firm, said it was un­re­al­is­tic to ex­pect peo­ple to pay into an Isa on the off chance they might need care. He said: “The care Isa is a nice the­o­ret­i­cal con­cept but it’s not how hu­mans be­have. You can see how it could help but peo­ple don’t have those sums of money.”

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