An automatic enrolment-style social care system could help protect people’s pension savings and other assets from “catastrophic” care costs while raising around £3.5bn a year, according to LCP.

The consultancy has proposed automatically enrolling all taxpayers aged 40 and over, including pensioners, into paying a voluntary social care premium equivalent to 1p on the basic rate of income tax.

Individuals would be free to opt out, replicating the behavioural approach used for workplace pension automatic enrolment (AE), which LCP noted has brought more than 11 million additional people into pension saving since its introduction in 2012.

Under LCP’s proposed model, the maximum premium would currently be just over £30 a month, with each year of contributions entitling an individual to a 4 per cent discount on their future personal social care costs.

This would rise to 8 per cent after two years and continue increasing until someone who had contributed for 25 years became eligible for free core personal care.

LCP stressed that the proposal was intended to pool the risk of potentially very high social care costs, with around one in seven people projected to incur lifetime care costs exceeding £100,000.

It argued that this risk was difficult for individuals to save for and had also proven challenging for the private insurance market to cover.

Modelling from LCP estimated that the social care premium could initially raise around £3.46bn a year, based on assumptions including all renters opting out and an average 20 per cent opt-out rate among homeowners.

Overall, it is estimated that just over 13 million people could pay into and potentially benefit from the scheme.

LCP partner and former Pensions Minister, Sir Steve Webb, said: “Pensions AE is a hugely successful policy which is admired around the world. There is no reason why the same approach could not be applied to the thorny problem of social care funding.

“At present, people are at risk of having their life savings wiped out by ‘catastrophic’ care costs, and have no way of pooling this risk with other people.

“This scheme, with an opt-out for those who don’t want it, provides an affordable and efficient way for people to protect their savings.”

LCP said one of the proposal's main advantages was that revenues would arise immediately, while the cost of the new entitlements would build more gradually.

Its modelling suggested the policy could remain net revenue-generating for the Exchequer until the end of the 2030s, although it acknowledged that long-term cost estimates became increasingly uncertain as the scheme matured.

The consultancy suggested some of the initial revenue could be used to relax England’s existing social care means-testing rules.

LCP proposed increasing the upper capital threshold from £23,250 to £100,000 and the lower threshold from £14,250 to £25,000, at an estimated first-year cost of around £1bn.

LCP Health head, Dr Jonathan Pearson-Stuttard, said: “Social care is one of the defining societal challenges of our time, but it is also an opportunity to do things differently.

“Our proposed economic framework would not only help people better meet the costs of care, but generate early funding to invest in keeping people healthier and independent for longer.

“Shifting our focus from treating illness to preventing it can strengthen communities, ease pressure on public services and support the health-driven prosperity on which a stronger economy depends.”

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