Prefunding arrangement solution to social care crisis

Even with the rising costs of social care, prefunding is expected to be 18 per cent cheaper than pay-as-you-go, a new study shows.

A new report published by Reform proposes a ‘fundamental reform’ of the social care system by replacing the pay-as-you-go (PAYG) method of financing later-life care with a prefunded arrangement.

Under this proposal, working-age people would contribute a percentage of their income into a Later Life Care Fund (LLCF). These savings would then be managed privately, before being used to fund the care costs of those that contributed.

The report, Social care: A prefunded solution, favours the LLCF for two reasons. First, because invested contributions will appreciate faster than the economy will grow, meaning significant savings. Reform calculated that for every £1 entitlement financed through a PAYG system, prefunded contributions would need to be just £0.82. Second, prefunding avoids transferring wealth from younger, poorer generations to older, richer ones. The savings generated can limit future rises in spending on later-life care as well as ensuring that no generation is at risk of funding the care of a disproportionately large cohort.

Chairman of the Local Government Association’s (LGA) community well-being board, counsellor Izzi Seccombe, responded to the report, saying: “We need fundamental changes to the social care system if we are deliver a long-term sustainable funding solution that works for everyone in society.

“Therefore, regardless of whether or not they are the way forward, it is essential that ideas for reform of this magnitude are brought to the table for consideration, rather than piecemeal measures that merely tinker around the edges, and do not get to the root of the problem.

“In rightly proposing change on such a level, this report also illustrates the difficult, brave and possibly even controversial decision-making that will be required to secure the long-term future of care and support.”