People should be required to make added contributions from their income to pay directly for adult social care, an influential right-wing thinktank has proposed.
In a report published today, Reform says such a “radical” approach is “essential” to resolve the “sustainability and fairness questions that have plagued social care services for decades”.
The report proposes emulating the Japanese social insurance scheme by requiring contributions to be made between the ages of 40 and 65 and also suggests Germany’s social insurance scheme, which has a headline contribution rate of 2.55%, could offer a guideline for the new system.
This would be equivalent to £60 a month for an average earner, which would be split between employer and employee.
The contributions would be pooled into a ‘later life care fund’ which would be managed privately, with money released when contributors required support, the report said.
Under the current system individuals are required to contribute to the cost of their care if they have assets above £23,250; this threshold includes the value of the property for residential care but not for home care.
The Conservative Party manifesto had promised to include property in the home care means test for the first time and introduce a £100,000 asset floor below which no-one would have to contribute to the cost of their care.
The report said: “In contrast to what the government has proposed, prefunding later-life care would be a radical departure from the historic approach to welfare policy in the UK.
“However, such action is essential if policymakers are to resolve the sustainability and fairness questions that have plagued social care services for decades.”
The thinktank said the funding model would enable contributions to be invested so they appreciate faster than the economy grows and deliver “significant” savings.
Reform calculates that for every £1 of support financed through the current ‘pay-as-you-go’ system, only £0.82 would be required from prefunded contributions.
The report says that the prefunding model also avoids wealth being transferred from younger poorer people to older richer individuals.
It adds: “Reform calculates that according to Office for Budget Responsibility’s spending projections, the tax contributions made by those born in 1991 to fund social care will be 34% higher than for those born ten years earlier.
“The savings generated by prefunding would limit future rises in spending on later-life care, as well as ensuring that, in the long run, no generation is at risk of funding the care of a disproportionately large cohort.”
The report argues that as people underestimate the probability that they will require social care, the benefits of spreading risk and the “redistributive effects” of pooled savings “speak in favour of making participation compulsory”.
Reform says contributions would be kept relatively low by the effects of compound interest, but adds that there is a risk that contributions could be set too high or low if they were paid from a younger age as life expectancy projections can often be significantly revised.
The report says future liability can be more accurately predicted if funding is collected at a time when individuals are closer to the age when entitlement to support is reached.
The report says that scrapping the state pension triple lock and “tapping into” the housing wealth of current retired people could reduce the costs burden on younger people of the transition to the new system.
The Conservative manifesto committed to revise the state pension triple lock and universal eligibility for the winter fuel allowance.