The Financial Vulnerability Taskforce has called on the independent Commission on Adult Social Care to investigate how immediate needs annuities could help fund later-life care.
The taskforce believes immediate needs annuities offer a practical mechanism for helping people use private wealth to secure guaranteed care funding.
It says they could also provide greater certainty and financial protection for families facing potentially significant care costs.
In an email to Prime Minster Andy Burnham, the taskforce argued that this product offers a unique solution to the most challenging aspects of care funding: nobody knows whether they will need long-term care, how much it will cost, or how long it will be required.
Baroness Louise Casey’s Commission is reviewing options for how to reform the adult social care system, with the first phase of planning for a National Care Service due to report this year.
Immediate needs annuities are purchased when an individual already has identified care needs. In exchange for a single premium, the insurer provides a guaranteed income, paid directly towards registered care costs, for the remainder of that person's life.
The taskforce has proposed that policymakers should explore the creation of a Care Funding Pension Transfer, enabling pension assets to be transferred directly into a qualifying immediate needs annuity without triggering a conventional taxable pension withdrawal.
The principle of using private pension wealth to contribute towards care costs is already reflected in the Care Act framework, which allows local authorities to consider income that could reasonably be drawn from accessible pension funds when assessing an individual's contribution towards care.
The taskforce said the next logical step is to create more effective mechanisms that enable pension wealth to be used to insure against the financial risks associated with prolonged care needs.
Robin Melley, chair of the Financial Vulnerability Taskforce and managing director of Shropshire-based Matrix Capital Financial Planning and a Chartered Financial Planner, said: "With defined contribution pension savings now measured in excess of £1 trillion, there is a significant opportunity to direct more of that wealth towards meeting future care needs.
“As forthcoming inheritance tax changes prompt many retirees to consider gifting pension wealth to reduce future tax liabilities, policymakers have an opportunity to reinforce the original purpose of pension savings: providing security, dignity and financial protection in later life, including funding potential care needs.
“Even a modest increase in the use of immediate needs annuities could unlock many billions of pounds of private capital for the social care system.
“The Casey Commission presents an ideal opportunity to explore how pensions policy, tax policy and social care funding can be aligned more effectively, helping individuals secure greater certainty and dignity in later life."
Launched in October 2021, The Financial Vulnerability Taskforce is an independent representative body covering the retail finance sector. Its purpose is to promote greater understanding of vulnerability and help firms develop appropriate knowledge, behaviours and good practice when dealing with clients in vulnerable circumstances. It is part of the Consumer Duty Alliance.