A research by MetLife documenting the effects of ill health in retirement has claimed that flexibility in pension funds will help pay for long-term care.
With more than £498 billion invested in defined contribution schemes, pension savings can be effectively used as a source of funds to help end means-tested benefits, said Peter Carter, product marketing director at MetLife UK. Presently, people with more than £23,000 need to pay for their own residential care fees.
“The issue of funding long-term care requires new solutions and this proposal could provide considerable help to people with reasonable-sized pension savings”, said Carter.
“We believe real improvements can be made to the current framework for UK savings and retirement income through a combination of innovation and flexibility and we want to play our part in that”, he added.
Pension investors should be allowed to tap their funds to pay for nursing home care, MetLife said while urging the government to ease capped drawdown rules.
The proposal forms part of a wider campaign by MetLife aimed at improving retirees’ standard of living, boosting total pension savings and engaging young savers for overall reforms of the pensions industry. The complete reforms proposal will be published in September by MetLife.
MetLife started working on the proposals after its own research showed that only 27 percent of non-retired people over 60 years have made financial arrangements for ill-health in retirement, while 62 percent were worried about its implications.
“Pension withdrawal is now more flexible but only for those with a secure pension income from other sources of £20,000. Nonetheless for this group of people who are likely to have to pay for their own care, the introduction of flexible withdrawals opens up the possibility of the cost of that care being met by their pension fund”, said Laith Khalaf, pensions analyst at Hargreaves Lansdown.
“I am completely in favour of more flexibility for pensions in respect of long-term care. Policyholders should be free to use their pension funds in this connection without any penalty being imposed by HM Revenue & Customs”, said Blair Cann of M Thurlow & Co.
“The government view has always broadly been that tax relief should be clawed back in circumstances where a fund is not used for pension provision. After all, this is why relief is given on the premiums in the first place. But people who provide for their own pensions avoid or reduce in the main any further claim on the state – that is the taxpayer – and so will people who use the pension fund to pay for long-term care. So why not show some common sense and allow this flexibility?”, he wondered.