From the blog: MPs may have migrated to warmer climes to relax during the parliamentary recess, but the civil servants at HM Treasury have evidently been working away behind the scenes.

The product of that hard work through the summer months? A rumoured policy almost no one thinks is a good idea, the care Isa. Maybe the heat got to them.

The newest addition to an ever-expanding array of savings products, the care Isa (Crisa?), which according to The Telegraph is being considered for inclusion in the government’s upcoming social care green paper, would be exempt from inheritance tax.

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The product of that hard work through the summer months? A rumoured policy almost no one thinks is a good idea, the care Isa. Maybe the heat got to them.

The newest addition to an ever-expanding array of savings products, the care Isa (Crisa?), which according to The Telegraph is being considered for inclusion in the government’s upcoming social care green paper, would be exempt from inheritance tax.

This would allow savers the prospect of an improved bequeathal, but would also ensure they keep money aside that could be used to fund any unexpected care costs towards the end of life.

A frosty reception

The main reason the plans, backed by former pensions minister Ros Altmann, have been slated by the rest of the pensions social media commentariat is that the product will only incentivise those who are likely to incur inheritance tax – some 4.2 per cent of estates according to the latest government figures.

These wealthy families are unlikely to struggle to fund care costs, but more importantly the policy does nothing to help those individuals who are unlikely to be affected by inheritance tax and still face the care lottery, where costs are unpredictable but often astronomical in size.

Would care pension be any better?

That unpredictability has led another former pensions minister, Sir Steve Webb of Royal London, to suggest the introduction of a ‘care pension’ instead.

“Fundamentally, the solution to care funding has to involve a pooling of risk, where those who end up paying ‘catastrophic’ end of life care costs can fund those costs from a common pool,” Webb said. “This is likely to mean a mix of social insurance, particularly for those with low incomes, and private insurance.”

Source: HM Revenue and Customs

The care pension would involve a portion of a pension pot in drawdown being siphoned off to pay a care insurance premium – not dissimilar to the way drawdown/annuity hybrids currently under development hope to insure against longevity risk.

Payments for insurance would be tax-free, and care costs would have to be capped as prescribed by the Dilnot Commission.

Age of the individual

But for all the sense that collective risk pooling still makes to many in the industry, their viability as an attractive product to consumers is still highly questionable.

Unfortunately, savers are as unlikely to perceive the risk that they have to pay for social care as they are to accurately assess their own longevity.

On numerous occasions I have been baffled to have people tell me that, present low interest rates aside, they worry about getting a ‘bad deal’ from an annuity – as if they might somehow be both dead and annoyed.

In the absence of a feature that makes social care insurance any different, it may be time to go back to the drawing board.

Angus Peters is an associate editor and Pensions Expert

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