LONDON - The U.K. government should not raid pension funds to pay for long-term care, according to National Association of Pension
Funds officials.
Instead, the London-based association proposed creation of savings vehicles to help individuals pay for long-term-care insurance premiums and asking the government to cap insurers' potential exposure at three years.
No estimates of the government's costs have been prepared, a likely sticking point when the government has been hard-pressed to come up with budget savings.
Separately, the NAPF said in a paper that U.K. pension funds have a duty to vote their proxy shares, but did not call for mandatory voting policy.
Recent press reports have said the Chancellor of the Exchequer is considering proposing measures in his Nov. 28 budget that would draw on pension assets to pay for nursing-home care.
The British are living longer and requiring greater nursing-home care. Insurance industry sources estimate one person in four will need a period of high-level care old age, and one in six will need a period of intensive nursing care. The average total cost for those needing long-term care is about 50,000, according to an NAPF paper on funding long-term care.
Meanwhile, the government has trimmed long-term-care benefits, both by cutting the number of geriatric beds and restricting benefits to the poor. The current elderly have not put aside money to pay for long-term care if it is required.
NAPF officials warned against turning to pension funds to try to solve the long-term-care funding dilemma.
Ann Robinson, the NAPF's director general, said U.K. employer-provided pension provision already has peaked. Raiding funds to finance other purposes could cause employers to step away from providing pension coverage, she said. There also isn't enough money in current retirees' pension benefits to pay for long-term-care insurance premiums. It is "financially infeasible except at the very top income brackets" for current retirees to receive both an adequate pension benefit and also cover long-term-care premiums, said Peter Murray, chairman of the NAPF's research and planning committee.
The problem is most acute for those neither very rich nor very poor, and women, who tend to live longer on average than men.
For example, the cost of a single premium to cover the cost of long-term care would be 24,000 for a woman retiring at age 60. But that would subsume the entire actuarial reserve of 23,700 for a recently retired female earning the median pension benefit, according to Bacon & Woodrow, London. (That pensioner also received a lump sum of 3,744.)
There is no simple short-term solution, Mr. Murray warned. Instead, the government should consider creating long-term savings vehicles so current workers could purchase insurance to cover potential nursing-home costs.
These savings vehicles should be funded by employees; neither companies nor pension trustees should be responsible for funding them, though the vehicles could operate parallel to existing pension funds, Mr. Murray said.
To make insurance affordable, however, the government should provide a "stop-loss" policy, covering the costs of care incurred after three years, Mr. Murray said.
Providing stop-loss coverage - as currently is done in New York, Indiana and California - would reduce insurance costs 30% to 40%, Mr. Murray estimated.
But no estimates of those costs to the government have been made. Rather, NAPF officials are starting to discuss their proposal with government officials, he said.
If enough people do not voluntarily put aside money for long-term care, eventually compulsory saving might be required, NAPF officials said. But Ms. Robinson said they will not address that issue now. The NAPF paper on proxy voting supports regular voting, but without making voting compulsory. The paper said every pension fund should develop voting policies that should be reporrted to plan participants.
The paper basically reiterates previous statements made by NAPF officials, but it is the first time the association has placed those positions on paper.
The paper said 21% of investment managers do not vote and 32% vote only on contentious issues. But it added voting is increasing in importance among pension funds and investment managers, because of a growing realization of the vote's importance, a desire to add value by managers, and growth of passive investment strategies, where selling a stock is not an option.
A growth in ancillary services and mandatory voting responsibilities of U.S. pension funds are enhancing the trend, the paper said.
