The government should ask taxpayers over 40, including pensioners, to pay an extra 1p in income tax to help fund social care.
While the move will help fund social care, taxpayers should have the right to opt out, under proposals from policy experts at pension consultants LCP.
Those who remained in the scheme would build up a discount on their future social care costs so that those who paid in over a 25 year period would be entitled to entirely free personal social care, the firm said.
Prime Minister Andy Burnham has recently outlined plans to reform the pensions Triple Lock to help pay for the rising cost of social care.
LCP said under its proposals discounts would start as soon as people had a year in the system, when they would get a 4% discount on care costs. Those with two years would be handed an 8% discount and so forth.
LCP said the purpose of the scheme was to allow people to pool their risk of facing ‘catastrophic’ care costs, such as the one in seven people who are projected to need to spend more than £100,000 on care costs over their lifetime.
With private care insurance impossible to buy or very costly, it said the scheme uses the power of the state to enable people to protect the value of their family home and life savings against these risks for the first time.
The proposal builds on the precedent of automatic enrolment into workplace pensions, which has brought more than 11m people into pension saving since 2012.
Former Pensions Minister Steve Webb, co-author of the report, said: “Pensions automatic enrolment is a hugely successful policy which is admired around the world. There is no reason why the same approach could not be applied to the thorny problem of social care funding.”
He pointed out that currently people are at risk of having their life savings wiped out by ‘catastrophic’ care costs, and have no way of pooling the risk with other people.
He said his scheme, with an opt out for those who don’t want it, provides an affordable and efficient way for people to protect their savings.
Mr Webb added: “We have already had a very warm response to these ideas as we have discussed them, and hope that they might form a useful approach for consideration as part of all-party discussions.”
The report estimates that the new social care premium could raise around £3.5bn per year from people who had voluntarily remained in the scheme rather than opting out.
The report proposes the up-front money could be used in a variety of ways including:
• An immediate relaxation of the capital rules which currently mean that people in England cannot get any help with their care costs if they have assets of more than £23,250. The report suggests that this cut-off should be immediately raised to £100,000.
• Interventions to help people living with care needs at home now — including falls prevention, home adaptations and better support for unpaid carers as well as reducing future social care demand.
• Providing additional revenue without the need for controversial new taxes could help bridge the cap between the savings from the recently announced proposed changes to the state pension Triple Lock and the much larger cost of the Prime Minister’s plans for free social care.