The Association of British Insurers (ABI) recently suggested that the tax relief on pension contributions could be diverted to fund social care. While many providers and advisers are in favor of this proposal, there are concerns about practical issues that need to be addressed.
At present, people who require long-term social care often face high costs that rapidly deplete their savings and assets. With an aging population in the UK, this issue is becoming more urgent. The ABI’s suggestion is that by diverting tax relief on pensions, which is currently estimated to cost the Treasury around £40bn per year, the government could provide additional funding for social care.
This proposal has received a positive response from many advisers and providers in the industry. Jason Hurwood, Chief Executive of Wealth at Zurich, said: “It is a powerful idea – tapping into a generous tax relief policy to help fill the growing funding gap for social care…”. Similarly, Alyson Scurfield, chief executive of the UK Homecare Association, stated that the proposal is “welcome”.
However, there are concerns about the practicalities of implementing such a policy. Firstly, it is important to consider how this would impact people who are already contributing to pensions. If tax relief is diverted, will these individuals be expected to pay more towards social care? Some have suggested that this could be the case, with pensions expert David Robbins stating that “Unless taxes are raised, this money has to come from somewhere.”
Another concern is how this will impact younger generations who may be contributing towards their future pensions. Considering that social care is typically required by older generations, some argue that this would be an unfair burden on younger people who are already struggling financially.
There are also questions around how much funding would be generated by diverting pensions tax relief towards social care. As noted by Alistair McQueen, Head of Savings and Retirement at Aviva, the £40bn estimate includes the tax relief on pensions for higher and additional rate taxpayers, who may not necessarily need social care support. Therefore, the actual amount of funding that would be generated specifically for social care is unclear.
Despite these concerns, the ABI’s proposal has sparked an important conversation about the urgent need for additional funding for social care in the UK. As the population continues to age, it is vital that the government explores all possible avenues for supporting those who require long-term social care, while also ensuring that any policy changes are fair and feasible.