Top Tory calls proposed Care ISA a ‘colossal mistake’

Select committee chair speaks out against a care policy proposal she believes only benefits the well off.

social care

A top Tory MP calls the proposed Care ISA a “colossal mistake” that would only help the well off.

Ministers were considering a tax-free personal savings scheme to cover the rising costs of caring for an ageing population.

The policy proposal for the new Isa is being considered for inclusion in the government’s upcoming social care green paper and would allow any unspent funds after death to be passed on tax free to the holder’s family.

But Dr Sarah Wollaston, who chairs the Commons health and social care select committee, said such a “colossal mistake” would only serve as a solution for small majority already well off.

“This won’t solve the care crisis at all, there is no pooling of risk, it only ‘solves’ for a small minority of wealthy people who can afford to invest and whose families benefit from paying lower tax on their inheritance if not used for care,” she said.

With stats showing more than 4.3 million people over the age of 70 have an average of £40,000 in Isas, Wollaston urges the Treasury to look again at recommendations the select committee made on how to manage the social care budget.

Pointing out that the tax-free Isa scheme would only boost the care provision for the wealthy, she called for ministers to consider proposals outlined in the report drawn up jointly by the health committee and the housing, communities and local government committee.

The committees concluded that: “an earmarked contribution, described as a ‘social care premium’, should be introduced, to which individuals and employers should contribute.

“This can either be as an addition to national insurance, or through a separate mechanism similar to the German model.

“The social care premium could be managed by central government, and audited by the National Audit Office, or managed separately by a statutory body or not for profit insurance based funds, as is the case in Germany.”

At present, when an individual dies, any money left in an Isa investment is automatically rolled into their remaining estate, which is potentially subject to the inheritance tax rate of 40%.

By axing inheritance tax on the accounts ministers hope that it would encourage pensioners to hold on to their savings into old age, when they are more likely to need to pay for nursing homes and round-the-clock care.

Woolston is backed by Tory peer and former pensions minister Baroness Altmann who said current Isa tax rules were  a “perverse incentive” to spend savings before savers fell into ill-health.

Citing figures showing more than 12 million over-50s have saved tens of thousands of pounds into Isas, Altmann said: “As these figures are an average, many will have much more saved, which could usefully contribute towards their future care needs – unless they have spent it all by the time they reach later life.

“If you haven’t spent your Isas before you pass away, the money will go into your estate and could be taxed at potentially 40% – so if you have large sums in Isas, there is the perverse incentive to spend them before you die.

“There is a real danger that those who have set aside these savings will really regret not having kept it for possible care needs when older.

“The majority of people do not realise the NHS will not be able to pay for their care.”

The Department of Health and Social Care spokesman said the green paper due out in the autumn would set out plans to reform the social care system to ensure it is sustainable for the future, and, in developing the paper, government was looking to support care costs of their care in a way that was “fair to all generations.”

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