Care and State Pension Reform - Interactions between state and pension long-term care reforms: a summary of findings

In April 2016 major reforms to state pensions were implemented in Great Britain. Reforms to the English long-term care financing system were also to be introduced in 2016 but have been postponed until 2020. The state pension reforms replace the existing two-tier state pension system with a single tier pension set just above the minimum income guaranteed through means-tested benefits. It affects only people reaching State Pension age from April 2016. The long-term care reforms introduce a cap on lifetime liability for care costs. To reach the cap, people will need to have eligible care needs for a considerable period, typically at least three years. The primary objective of the state pension reforms is to provide a clearer foundation for private pension saving and reduce reliance on means-tested benefits in retirement by setting the level of the new State Pension (nSP) above the level of the minimum income guaranteed by the means-tested benefit Pension Credit. The long-term care reforms introduce a lifetime limit on individual liability for care costs to provide protection against the risk that care costs could use up nearly all of an individual’s savings. The long-term effects of both sets of reforms will depend on how details of the systems are set in the intervening years, and in particular how components of the systems are adjusted each year – ‘uprated’ – for inflation. This report summarises the findings from a research project which aims to promote informed debate on how the reforms could evolve, highlighting the interactions between the two systems. Amongst other things, the study has analysed the impact of the reforms to 2030 under uprating assumptions consistent with current policy and under alternative uprating assumptions. A separate more detailed Technical Report of the analysis is available