Pension deal aims to protect assets

Care for the elderly: Insurance for long-term care safeguards middle England's inheritance

The Government yesterday moved to help "middle England" protect its inheritance from the costs of long-term care by proposing new "partnership" schemes which could let individuals keep pounds 1.50 of their assets - including their homes - for every pounds 1 of insurance cover they buy themselves.

Stephen Dorrell, the Secretary of State for Health, claimed the deal offered a new partnership between the state, elderly people and their families, while retaining a safety net.

But it was condemned by Harriet Harman, his Labour opposite number, as "a betrayal" of the generation which believed they would be offered care "from cradle to grave".

By contrast - and to the delight of the Conservatives who claimed Labour's front bench were at loggerheads - Chris Smith, Labour's social security spokesman, said he had no objection to the basic idea of insurance, but warned the majority of people would not be able to afford the premiums. In a separate speech yesterday, he declared that individuals had a responsibility to make provision for the times when they could not support themselves.

The package was given a warm welcome by private insurers such as Bupa who predicted that half a million people among the 10 million or so pensioners could take out cover during the next five years.

But while others, including the National Association of Pension Funds, supported the ideas as "useful", Paul Seymour, chairman of the Continuing Care Conference, an alliance of insurers and pressure groups for the elderly, warned that at most 30 per cent of those retiring might benefit.

That figure, he said, "may well be on the high side" and depended on good equity release schemes being developed to allow people to use the capital in their home to buy protection. Without that, the figure would be far lower, perhaps 10 to 15 per cent, he said. Those to gain would be in the middle, he said - rather than the less well-off who would be unable to afford the premiums, and those with assets above pounds 150,000 who were reasonably well served by existing products.

Mr Dorrell's three-part package would allow individuals to add pounds 1.50 for each pounds 1 of insurance cover they buy to the existing pounds 10,000 of assets they can keep when entering means-tested nursing or residential care. Someone buying pounds 30,000 of protection - which might cost a one-off premium of pounds 5,000 - would keep pounds 45,000 plus the existing pounds 10,000.

A second option - which would cost the taxpayer less - would be pounds 1 for pounds 1, but with pounds 15,000 of capital protected on top.

Ministers will also consult on making it easier to buy an annuity covering all or part of the cost as people enter care homes, and on making pension payments more flexible. Individuals would then be able to trade a lower pension in the early years for a larger one later.Only around 10 per cent of pensioners have sufficient income to make the latter attractive, Peter Murray of the National Association of Pension Funds, said, although it could provide incentives for younger people to save for bigger pensions.

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