Reform the independent think-tank has published Social care: a prefunded solution.
This paper makes the case for much more fundamental reform: replacing the current ‘pay-as-you-go’ (PAYG) approach to financing later-life care with a prefunded arrangement. Under this proposal, working-age people would contribute a percentage of their income into a Later Life Care Fund (LLCF). These pooled savings would then be managed privately, before being used to fund the care costs of those that contributed.
- The cost of long-term care is projected to rise from £19.0 billion today to £30.5 billion in twenty years’ time.
- The proportion of spending going to people beyond the state pension age is increasing.
- Due to the ageing population, in the absence of reform, a 26-year old today will pay a third more in tax to fund social care than people born just ten years earlier.
- An extra payroll tax can be introduced to fund future care liabilities. The funds would be pooled in a government fund with management outsourced to the private sector.
- A guideline for the magnitude of the extra tax is 2.55 per cent of earnings, or £60 for the median earner.
- Once contributors retire, their care liabilities will be covered by the fund.
- Transition to such a funding model would require the current older population to pay more towards their care