05 July 2019

“Could Jeremy Hunt’s social care proposals fatally undermine automatic enrolment for pensions?”

5 min read

Steve Webb
Royal London



Today’s launch by Conservative leadership candidate Jeremy Hunt of plans to tackle the social care crisis risk undermining the whole system of automatic enrolment for pensions, according to Royal London director of policy Steve Webb.

The former Health Secretary has proposed a package of measures to improve the provision of social care including:

-          Encouraging people to save for social care costs ‘as they do for pensions’;

-          An overall cap on lifetime care costs and a promise that ‘no-one will have to sell their home’ to pay for care;

-          Tax breaks for families who look after loved ones in their own homes;

-          Increased public spending for social care from ‘Philip Hammond’s £26 billion ‘headroom reserves’ (though it is unclear where the funding would come from on an ongoing basis)

-          Closer working between health and social care systems

It is the first of these proposals that is being identified as a potential threat to pensions automatic enrolment.  A separate system of enrolment into a ring-fenced savings product for care would create extra cost and bureaucracy for employers but could lead to people opting out of both care and pensions savings, especially if combined contribution rates were too high.  This is particularly a risk for younger workers who have successfully been enrolled into pensions but who are likely to have little interest in setting aside money for a cost which may not arise for more than half a century.  Once the norm of saving into a pension has been undermined, large scale opt-outs could follow.

Commenting, Steve Webb, Director of Policy at Royal London said:

“It is welcome to see a candidate for Prime Minister coming forward with ideas on tackling the social care crisis. But there is a real risk that creating a new system of automatic enrolment for care costs could undermine the massive achievement of getting ten million workers enrolled into workplace pensions. These plans would greatly increase the complexity of the system, with individuals presumably able to opt out of either or both schemes. Young people in particular are likely to attach very little value to saving for a cost which may not affect them for over half a century. Helping people to build bigger pension pots so that they can buy care insurance later in life would be a very positive step. Setting up a rival system of automatic enrolment would not”.

For further information please contact:

Royal London Press Office

About Royal London:

Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.