Written by Malcolm Small on Monday 11 November 2013
I’ve been reading a report from Squire Sanders, the law firm, which looks at the interaction – or rather, the almost complete lack of it – between the pension system we have today, and long term care in later life. The recent Dilnot Commission cast a stark light on the prospects for care needs in an ageing population, and some of the figures here are quite frightening. More than 80% of the population will require care and support after age 65, whilst the number of people over age 85 is expected to double in the next 20 years and treble in the next 30. The numbers of dementia sufferers is forecast to increase from around 820,000 today to more than 1.7 million by 2051! We are facing a care funding issue of massive proportions already, and this is clearly only going to get much worse.
It’s therefore ironic that a “pension” as we have it today, delivering a level annuity income and with no access to the remaining “fund”, can make little contribution to a sudden need to support care home fees. Flexible Drawdown can make a contribution where an individual has a sufficiently large pension fund, but the requirement to “secure” an income of £20,000 a year when this occurs can diminish the utility of the remaining fund, with the payment subject to tax in any case. The report recommends a series of measures such as splitting and deferring pension commencement lump sums, all of which might help, but have the feeling of “tinkering” with the existing architecture and making it even more complex.
Steve Webb, the Pensions Minister, has called for a long, hard, look at how we “do” retirement income. Reports like this reinforce how radical we are going to have to be.