Millions of British workers will retire with a pension £150,000 too small to cover the cost of a comfortable lifestyle and care in later life, following the Government’s watering down on the care cap.
Even with Boris Johnson’s £86,000 cap in place, the average Briton will face an enormous funding black hole. Many will be forced to settle with a poorer retirement, poorer health, more debt or sell their home to pay for care.
MPs voted in favour of changes, despite a Tory rebellion, to the social care plan that meant means-tested support will not count towards the lifetime cap. Originally, the cap factored in state support and people’s individual contributions, ensuring that poorer pensioners would keep more of their assets. However, now they will now have to deplete more of their own assets.
The average care home stay lasts 801 days, according to Bupa, the insurer, and costs £101,613 based on a £888 per week average, calculated by Carehomes.co.uk. However, this would be capped at £86,000 from October 2023. Meanwhile, a comfortable retirement would cost £339,654 from age 65.
This would rise to £425,654 when combined with care costs, calculations by Quilter, the investment group, for Telegraph Money found.
However, a 25-year-old on the average starting salary of £22,437 who contributes the legally minimum 8pc of their salary into their pension will only save £276,354 by the time they reach age 65. This assumes no career breaks, 2.9pc wage inflation and a 4pc investment growth net of fees.
Olivia Kennedy, of Quilter, said: “Many Britons already heavily underestimate how much they need to save to have the retirement they dream of, let alone care costs on top. The social care cap will help some, but the vast majority of people will end up with bills they have to front themselves with a lower pension or selling property.”
The cost of care has spiralled and has increased by 15pc, or £119 a week, in the past five years. This has made it unaffordable for most households, according to Quilter.
Pensioners need £33,600 a year to fund a “comfortable lifestyle”, according to the Pensions and Lifetime Savings Association, a trade body. This requires an income of £24,261 to supplement the full state pension, which pays £9,339 a year.