Ahead of the long-anticipated green paper on funding care for the elderly, health secretary Matt Hancock has trailed one of the ideas expected to be included.
He apparently favours an opt-out proposal, comparable with pension auto-enrolment, whereby employees will contribute into an insurance-based scheme which will either cover their later life care costs, or mean they are at least capped at a lower level than those who opt out.
The pension auto-enrolment system is working well, with 93 per cent of employees paying into a qualifying workplace pension. The clear hope is that by replicating the same system, the later life care scheme will have similar success.
As always with these ambitious plans, there is a lack of detail and important questions remain. Crucially, will this be an employee-only contribution or will an additional burden be placed on employers? Employers must pay 13.8 per cent National Insurance, employers’ pension contributions of two per cent (rising to three per cent in April 2019) and 0.5 per cent apprenticeship levy. The cost of employing someone is therefore already at 16.3 per cent – and soon to be 17.3 per cent when the employer pension contribution increases.
Assuming a similar phasing in of employer contributions towards a later life care insurance scheme, these latest proposals could push the cost of employing people much closer to 20 per cent. Could yet another contributory scheme, with all the cocoons of red tape that would inevitably involve, be the collective straw that breaks the long-suffering camel’s back? But might employees too regard further taxation – however presented – as undermining the incentive to work?
It should be said that for the government to cite the statistic of 93 per cent of employees’ take-up of the auto-enrolment pension system as a benign indicator for the success of the proposed care payment scheme is frankly disingenuous. Very few would think of opting out of an auto-enrolment system costing them one per cent. When that number becomes five per cent, which it will in April next year, expect a sharp increase in the number of opt-outs.
If the later life care opt-out scheme is also implemented, employees may be faced with a ‘Sophie’s choice’ of saving for their pension or insuring their later life care costs. This would be a particularly difficult decision for those just entering working life, and who will have immediate pressures on their finances as they try to get on the housing ladder and pay off student debt.
A solution to the current care funding gap, estimated to be £3.5bn by 2025, is urgently needed and an insurance model is likely to be the way forward. But asking more of burdened employers and hard-pressed workers may prove to be a lazy and inequitable proposal. Mr Hancock may need another half hour.
Tim Stovold is head of tax at Kingston Smith