Demos: Financial ‘health-check’ before collecting your pension

– Think tank report recommends ‘nudging’ people to make provisions for long-term social care and simplifying complex mean test for state support
People should be ‘nudged’ into planning for their long-term social care costs, argues a new Demos report released today.

The think-tank proposes that people should be required to undergo a financial ‘health-check’ before receiving their first State Pension payment, in the form of an online tool providing tailored feedback as well as prompting next steps.

The report argues such a step is necessary to ensure people are making provisions for their social care. It also explores new concepts for enabling people to pledge housing equity towards future care costs.

It is estimated that around a third of people will need long-term care at some point in their lives despite the government’s recent announcement to cap the costs of social care at £72,000 through the Care and Support Bill.

The Dilnot review found that half of over-65s could expect to pay care bills of up to £20,000, with one in ten facing costs of £100,000 or more.

The health-check would encourage people to give some much-needed thought to their assets, liabilities, planned future income and possible future care needs.

Unaware of the costs

The Demos report cites figures showing 4 in 10 people are unaware they might need to pay for their care and support later in life, with 63% saying they have hardly thought about how to pay for social care needs in the future and 72% saying they have not started to prepare.

Many people vastly underestimate the likely costs of care: the mean figure suggested by those who think they know the cost is around £140 – far below the actual average weekly fee of £531.

There is also limited awareness of the recent change in policy, with less than one in ten (9%) saying they know what limit it has been set at.

Overcomplicated system

The report also criticises social care funding as overcomplicated, leaving many people in the dark on what costs they are liable to pay.

Demos researchers argue that a confusing combination of thresholds and ‘cliff edges’ in the current system lead to many scenarios where state financial support either begins or falls away sharply – leaving many people struggling to understand and plan accordingly.

The report cites a specific example where the upper asset limit of £118,000 gives  the incorrect impression that people should receive some state support if their wealth is less than this. In reality after typical retirement income is taken into account, a person will need less than £89,000 of assets before they receive any state support.

Demos advocates a simpler system, which combines a person’s assets and income to calculate how many years of social care they could afford. Those able to afford fewer years would receive more government support.

Care accounts

The report also proposes the idea of applying the pension model to social care. The offer of a ‘care account’ would allow responsible savers to earmark some of their money or assets separately, a proportion of which wouldn’t count against them in their means test.

The scheme would reward savers by increasing the likelihood of the government supporting their future care costs.

Duncan O’Leary, Deputy Director of Demos and co-author of the report, said:

“Once-in-a-generation reforms to social care risk being undermined by a lack of public awareness about how much later-life care costs and who foots the bill. People should be expected to stop and think when they reach retirement age, so that more of us put money to one side for care.”

Les Mayhew, Professor of Statistics at Cass Business School and co-author of the report, said:

“Social care funding is still far too complex. Many will think they are entitled to public support when in fact they are not. The government needs to simplify the system or risk baffling people who want to know what their entitlements are so they can plan ahead.”

Stephen Lowe, group external affairs director at Just Retirement, said:

“Incentivising people to make early pledges toward future care costs by ring-fencing part of their housing equity is a new policy idea we have developed to provide a practical solution to an inevitable and growing challenge for increasing numbers of people.”




The report, Unlocking the Potential, authored by Duncan O’Leary and Les Mayhew is published by Demos on Monday 24th February 2014.

This research was supported by Just Retirement.