Monday, 4 July 2011

How will I save to pay for care?

Andrew Dilnot is encouraging insurance companies and other firms to come forward with new ways of saving, so that people can prepare to cover the cost of buying care in old age.

He's hoping that by capping the bill for care at £35,000, savers will be more confident that they can build up an effective way of meeting the bill.

In today's report, Dilnot suggests that pensions, Individual Savings Accounts (ISAs) and houses will be the favoured ways of saving, because they all benefit from tax breaks.

And he points to some specific products which could be beefed up by providers.

They include equity release, where a homeowner takes out a new mortgage on his or her property in order to fund some additional income, and critical illness policies from insurers.

He's also interested in making disability-linked annuities available. This would be a form of pension income, designed to increase sharply when the policyholder's needs became acute.

A big question hangs over the proposals, though: will people opt to save more, given that Andrew Dilnot is proposing to make care provision more generous than before?

He admits that few people are interested: they don't understand the care system and don't want to think about the day they'll need the care.

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