Extend the uncertainty?

lisyloo

Malthusian wrote: »

If I get taxed at 20% for working and then put it into a pension with no tax relief and then get taxed at 20% again when I take it out, I may as well just spend it and pay 20% once.

You’ve simplified that to exclude
Employees NI (Sal sac)
Employers NI (if passed on via salary sacrifice)
Corp tax (if ltd company)
Tax free lump sum
0% rate tax band in retirement
Basic rate tax in retirement when getting higher rate tax relief.

It saves the state absolutely nothing. Sorry, I don't know how I can make the maths any more clear. If the person is going to run out of money then 100% of every penny that the state "saves" on their care costs has already been paid out to them in waived tax.

No it hasn’t.
If they decided under lisyloos new scheme to save up then they’d be paying 80% of their long term care and tax relief would be paying 20%.
If they didn’t save then state would be paying 100%.
You’ll have to tell me why that not clear.

Pension tax relief doesn't add any money into people's purses.

Yes it does if it’s part of a tax free lump sum or part of the 0% annual allowance.
There are also some people who get tax relief at 40% and pay it at 20%.
Please tell me how those 3 scenarios don’t result in a gain.

If you give people tax relief and then don't claim the deferred tax because they spent the money on care costs

Who said anything about not paying the deferred tax?
Lisyloos scheme is tax relief on earned income.

You’ve completely missed the point of the scheme which is to incentivise more saving. You can disagree with it but your missing this aspect of it.

They already had the chance and sufficient incentive to accumulate more assets than they have - i.e. a better lifestyle during retirement. The fact that they didn't means either their income was too low or they didn't wish to make further sacrifices during working life. Offering a potential bung to their heirs will not change that.

And I’m talking about changing that behaviour so we are better prepared rather than ignoring long term care completely in our financial planning.
Offering a bung to incentivise saving does encourage people to save as does employment schemes and auto enrollment.
Tax relief is one tool to try To change behaviour unless you are claiming that financial planning can’t be improved? (I don’t agree with that).

Malthusian

lisyloo wrote: »

You’ve simplified that to exclude

We are now talking about anomalies rather than the principle underpinning the system, and if we go further down this route we will end up talking about reforming pension tax relief rather than the actual problem, which is how to pay for people who do not have enough money to meet their later-life care needs and never will.

If somebody gets tax relief at 40% and pays tax at 20%, they are still paying tax and paying tax once, they are just paying a lower rate thanks to deferring it. They are not getting free money from the Government, the Government is getting 20% from them instead of 40%. Same applies regardless of what the percentages are.

People with no earned income getting 20% tax relief on £2,880 net are getting free money, but this is a minor loophole which costs the taxpayer almost nothing (if it was otherwise it would be closed). The purpose of this rule is to save the taxpayer money by ensuring that HMRC doesn't have to chase people over trivial amounts of incorrectly claimed tax relief.

The same is true of the tax free lump sum. The tax free lump sum is compensation for governments constantly changing the rules. The Government has repeatedly flown kites about watering it down and it has been protected because there is a good case for it. There is no such case for subsidising the inheritances of people in care who can afford to pay for it.

No it hasn’t.
If they decided under lisyloos new scheme to save up then they’d be paying 80% of their long term care and tax relief would be paying 20%.
If they didn’t save then state would be paying 100%.
You’ll have to tell me why that not clear.

Before they run out of money they pay 100% of their long term care. After they run out of money the Government pays 100%. (Ignoring non-means-tested benefits like AA and SP because the Government will pay those under either your system or the current one so they're not relevant to this discussion.)

Under your system they'd pay some of their care costs, despite having enough money to pay the lot, and the Government pays 20% of their pension income. Then after they run out of money the Government still pays 100%. Because of the 20% bung, it takes them slightly longer to run out and if they live long enough the Government eventually gets the 20% back, leaving the Government no better off than under the current system. But most people won't live long enough and the 20% goes to their heirs. Until they run out they can afford their care and there is no case for subsidy.

It is for exactly this reason that people can't buy a care annuity that only covers part of their care home fees and then ask the LA for the rest, even if the difference is less than the LA would pay for Overmydeadbody Grove. It's considered self-topping-up. The system works on the principle that you have to pay until you have completely run out. ("Running out" is defined as being below a low threshold to deter people from hiding trivial amounts of money.)

You’ve completely missed the point of the scheme which is to incentivise more saving. You can disagree with it but your missing this aspect of it.

People will not be incentivised to save more by offering them a tax break on something they don't value anyway.

The only people it will benefit are those who already save and already have enough money, by subsidising their heirs' inheritance (except for the minority who run out). This will come at the expense of those who have nothing to inherit, for whom there will be less money to pay for care.

Malthusian

The reason I am banging on about this to a forensic and pedantic extent is that the proposal is yet another example of solving made up Problem B instead of actual Problem A.

Problem A is that millions of people do not have enough money to afford what we regard as a minimum acceptable standard of care when they get older and become unable to look after themselves. Either they never earned enough or what they did earn they spent and didn't save into pensions or get on the housing ladder. It matters little. They are not going to save if they are offered a bung for something they don't value to subsidise an inheritance they will never leave.

This is the real problem and the source of misery in awful care homes across the country and why lots of people are justly stressed about the horrible state their elderly relatives are in. Or stressed about looking after elderly relatives in their own homes to keep them out of Overmydeadbody Grove, something they may not be very good at and stops them from earning a living.

Problem B is that many people who do have enough money want someone else to pay for their care. This is not a real problem. They would like their care subsidised via tax relief, a cap on care costs or some other means, but that is tough luck.

Malthusian

I'll concede this: with my economist's hat on, if we gave people a permanent tax break for paying money into pensions and then using it to pay care fees, then yes it would increase the amount saved into pensions.

But how much? The marginal effect of a handful of people deciding to save money instead of spending it would not make up for all the money we would be paying on tax relief for those who would have enough money anyway, and died before exhausting their funds and allowing the Government to get it back.

But that is not the biggest issue. If we are going to improve the incentives for saving it into pensions, to get people to save more into them to reduce the cost of people who exhaust their assets in later life, why do it this way? Why not, for example, grant basic rate tax relief at 25% rather than 20%?

This would definitely incentivise people to save significantly more into pensions. "You can use it to pay for your care costs without paying tax on it" = "Who cares about paying tax when you're gaga, and I'll be telling my children to put a pillow over my head anyway". "You get 5% free money" = "Wow, sign me up".

This in turn would result in fewer people falling onto the state, even though the incentive was not directly linked to care fees.

And it would be more equitable because everyone would benefit from the tax break, not just those who required care.

So why not do it this way? Probably because it's currently politically untenable to give more incentives to those who have enough money and wherewithal to save instead of concentrating on those who can't or won't. Not when the spectre of Corbyn is looming. For the last 10 years the direction of travel on pension tax relief has been completely the opposite direction.

lisyloo

How do you suggest we solve problem A in the context of a lot more people surviving heart attacks, strokes and cancer and living longer?
Even if the standard stays at the same level the cost burden will increase.
It’s also less likely that daughters (in particular) will be able to care as their state pension age has risen from 60 to 67 and some grandparents may also be involved in child care these days (so mother’s can work) I.e. social changes mean sons and daughters (in particular) are less able to care for their parents.

Thrugelmir

lisyloo wrote: »

How do you suggest we solve problem A in the context of a lot more people surviving heart attacks, strokes and cancer and living longer?

Educate people to look after themselves better. A fair number of ailments are self inflicted in some form. Relying on a nanny state isn't an option. The demographics of the industralised world suggest that an aging population is a major issue in many regards.

lisyloo

Thrugelmir wrote: »

Educate people to look after themselves better. A fair number of ailments are self inflicted in some form. Relying on a nanny state isn't an option. The demographics of the industralised world suggest that an aging population is a major issue in many regards.

Good luck with that.
People are looking after themselves less well e.g. higher levels of obesity than previous generations despite being better educated.
The current generation who are in nursing homes, lived through the war and lived much healthier lives and ate less processed food.
Younger generations are currently less healthier, more obesity and higher levels of diabetes etc.

Malthusian

lisyloo wrote: »

How do you suggest we solve problem A in the context of a lot more people surviving heart attacks, strokes and cancer and living longer?

The solution depends if I am imagining myself as benevolent dictator of the UK or democratically elected Prime Minister.

If I was a benevolent dictator I would build lots of care home facilities with wards and dormitories to take those who lack their own resources. Initially they would be temporary holding centres until a nicer state-run care facility became available, but I'm fully aware that pretty soon nicer ones wouldn't exist.

Thanks to me deciding as benevolent dictator which two of 1) free 2) universal and 3) high-quality the nation was going to get (1 and 2), all elderly people in need of care without their own resources would be cared for swiftly, without quibble and with dignity. And with considerably less carer abuse than in the current system. (More difficult to get away with in a ward than a private room.)

If I was Prime Minister I would not do this as it's a political non-starter. Instead I would continue to maintain the system in a state of permanent crisis, tell people that they could expect all three of universal, free and high-quality, and use it as a pretext to milk the populace for taxes.

Even if the standard stays at the same level the cost burden will increase.

The pips aren't squeaking just yet.

lisyloo

Malthusian wrote: »

The pips aren't squeaking just yet.

Not sure what the definition of that point is but LAs are using their reserves so if we aren’t there yet then we are going in that direction

https://www.theguardian.com/society/2018/mar/08/councils-raid-reserves-to-cope-with-social-care-nao-report

The crisis may be highlighted first in the NHS because that’s where some people will bed block which will have a hit on beds for operations and admissions, so the pips might squeak there first when A&E patients are lining the corridors.

Sailtheworld

The usual solution is already being implemented and that's rationing by waiting list.