The government is considering a new ‘Care ISA’ to tackle the crisis in social care provision.
Under the proposals, Care ISAs would be capped to reflect care costs and any amount unspent could be passed on to the holder’s family when they die.
Aegon pensions director Steven Cameron commented: “A care ISA might appeal to some people, but would further complicate the ISA brand and preferential inheritance tax treatment would benefit only a small minority. The trend in policymaking has been to create new labels when many of the solutions already exist.
“For many, the most obvious solution is likely to be linked to retirement savings, particularly where individuals have defined contribution pensions. Here, under the pension freedoms, individuals at retirement could notionally ‘ringfence’ or set aside part of their retirement fund to meet possible future care costs, taking an income from the balance.
"Pension contributions also benefit from tax relief on the way in, making it a highly tax-efficient way to save. If the money is not needed for care costs, the ringfenced amount could be used for other purposes or left to a partner or other beneficiary, which is already usually free of any inheritance tax liability."
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