Reform think tank calls for compulsory insurance scheme to fund social care

The think tank Reform has called for the government to introduce a compulsory insurance scheme to solve the social care crisis.

Its report Social care: a pre-funded solution proposes that working-age adults would make a payment of around £30 per month, with their employer contributing a matched amount.

It claims this would cover the rising cost of publicly funded social care, which is projected by the Office for Budget Responsibility to rise from 1.0 per cent of GDP (£19 billion) today to more than 2.0 per cent of GDP (£40 billion) over the next 50 years.

Under the Reform proposal, working-age adults would save each month into a pooled Later Life Care Fund. The compulsory insurance scheme would see funds built up to pay for future social care costs, avoiding transfers of wealth between generations. The long-run performance of pension funds suggests contributions would have to pay for 82p of every £1 spent later.

Reform says the £30 a month contribution is broadly similar to the German insurance scheme, which requires working-age adults to pay 2.55 per cent of earned income in contributions.

The benefits of spreading risk and the redistributive effects of a pooled savings scheme all speak in favour of making it compulsory

It argues strongly for making the scheme compulsory, saying the benefits of meeting rising costs and avoiding unfair transfers of wealth between generations “can only be achieved if a series of implementation challenges are successfully addressed. Designing a contribution scheme would be the first of these. The fact that individuals underestimate the likelihood of needing social care, the benefits of spreading risk across the widest group possible, and the redistributive effects of a pooled savings scheme all speak in favour of making participation compulsory”.

While the policy is being rolled out, there would be a generation that is forced to pay for their own care as well as the care of those who were too old to pay into the fund. Reform says the transition could be funded through scrapping the winter fuel allowance and the triple lock and through equity release schemes.

Report author Danail Vasilev said: “The current crisis in social care will only deepen given the long-term pressures facing the system. Compulsory insurance is the radical action needed to pay for the growing ranks of people with social care needs.”

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