Pension deferral plan may solve care dilemma

NICHOLAS TIMMINS

Public Policy Editor

A scheme that would allow pensioners to defer part of their pension on retirement in order to provide them with cover if they need long-term care has emerged as a front-runner among a package of measures to tackle the mounting crisis in how to fund long-term care for the elderly.

The deferred pension would go into a tax exempt fund which would pay out higher benefits if the pensioner of their spouse required long-term care - either in their own house or in a nursing or residential home.

The idea is one of the ways ministers are likely to honour the promise to examine "the more flexible use of pensions" that the Prime Minister promised in his party conference speech last month.

Other measures under consideration include promising free long-term care where people agree to meet the cost of the first three years themselves.

That could be paid for by an insurance package taken while at work, one bought using part of the lump sum which accompanies many private sector pensions or by individuals using their own savings to cover three years' worth of care.

Once that was exhausted, the state would pick up the bill but crucially would do so without a means-test - allowing people to keep their houses and pass any other remaining inheritance on to their heirs.

The scheme - similar to packages already developed in New York state and in Connecticut in the United States - is being studied by Peter Lilley, the Secretary of State for Social Security, as part of a government-wide review on how to fund long-term care in the future in the face of an increase of 3 million in those past retirement age between now and the year 2025.

Other options being considered include allowing those nearing retirement to pay more than the present statutory maximum into a pension fund, on condition the cash is clearly earmarked for long-term care should that provide necessary. At present between one in six and one in eight pensioners end their days in long term care.

An announcement of the first moves to ease the looming crisis in long- term care is expected in Kenneth Clarke's budget later this month. The Chancellor, however, is resisting pressure to introduce tax relief on premiums for long-term care insurance.

Other options ministers have examined include a short-term easing of the means-test for residential and nursing care so that people would start to receive help when their savings have been run down to pounds 16,000, rather than the current pounds 8,000, and allowing people to sell their homes and put the capital into trust when they enter residential care.

The interest would be used to contribute to home fees, but the capital could be inherited. Both measures, however, would increase social security spending.