Pensions could be adapted to help fund old-age care, former Pensions Minister Ros Altmann has said.

Discussing the social care crisis, Altmann claimed that successive governments have failed to properly prepare for the needs of the ageing population.

“No money aside to cover the inevitable costs of ageing: There is no money at government level...there is no money at private level either, because most people have not seriously considered this issue. This is short-sighted policy making at its worst,” she said.

“An ageing population is bound to need money for this but so far all the government incentives and preparation for later life income have revolved around pensions, with nothing to pay for care.”

Altmann explained that pensions could be adapted to help fund care in later life, along with other savings products and an incentive from the Treasury.

With today’s flexible pensions landscape Altmann pointed to an opportunity to encourage retirees to hold onto some of their capital for later life rather than spending it straight away in early retirement.

Moreover, the former Minister outlined a number of suggestions for the Chancellor Philip Hammond to consider for the next budget. These include allowing people to take money out of their pension funds tax-free if they use it for care – this could be a further incentive not to spend all of their funds early on, she said.

“Signalling the importance of not exhausting pension funds too quickly would give an additional behavioural incentive for people to leave money aside in their tax-free pension wrapper as a potential 'care fund'. If they don't actually need it, then the fund passes to their loved ones tax free.”

Another suggestion was to relax regulator attitudes to transferring money out of defined benefit pensions, in order to enable members to take greater advantage of pension freedoms and so have greater flexibility with their money.

Nonethless, it was highlighted that there is “no one silver bullet” that will solve the lack of care funding. A range of measures including those suggested by Altmann, however, could work towards beginning to prepare the nation for care costs.

Altmann concluded: “Government must get real about the scale of the challenge: I urge the government to act swiftly on this issue. The system is already in crisis and is much more difficult to solve than the pensions crisis.

“With pensions, ultimately, the government has decided to make people wait longer and to pay them less. Such options are not realistic for care. We must not fail our aging population.”

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