"Premium bond" plan to fund social care costs General views of a nursing home in the UK The prospect of long-term social care - an abstraction to most under the age of 50 but an increasingly likely prospect for everyone - is a painful thought. But a new proposal from the International Longevity Centre could make it less financially burdensome. The bulk of social care costs are borne by the public sector, but proposed government reforms will shift some of that to individuals. From 2016, individuals will be expected to pay for their own medical costs up to a limit of £72,000, and the state will only step in thereafter if the individual's assets are worth less than £118,000. When it unveiled this regime, the government expressed the hope that the financial services industry would launch new products. The ILC proposal, devised by two professors at Cass Business School, is designed to help even those on modest incomes to set aside a savings pot to help defray the cost of social care needed when they can no longer care for themselves. The scheme, dubbed personal care bonds, has the look and feel of a savings product that Britons have come to know and love: premium bonds, which have been offered via every post office since 1956. Professor Les Mayhew said PCBs would retain what is perhaps the most inviting aspect of premium bonds: the possibility of winning a big prize. He also suggested that these should share the tax exemption on winnings that premium bonds enjoy. "According to the National Lottery, about 70 per cent of UK adults buy lottery tickets," Professor Mayhew noted, adding that the average spend is £3.15 per person. "And with PCBs, you get your £1 back," he said. However, there would be some important differences. Unlike premium bonds, PCBs would accrue interest. Mayhew also proposes that these savings would not be redeemable until the saver has been assessed as needing social care. Premium bonds can be cashed at any time. Assessment itself can create complications. Currently, local authorities determine the assessment criteria and not all agree on what these should be. Although the proposed new law is intended to set a single, nationwide criteria, there are doubts about its uniform application. Mayhew concedes that such a scheme could not be put into place without legislation. The tax advantages of premium bonds and the authority of the National Savings & Investment unit to operate the new scheme would have to be set out in law. But since Premium bonds are among the cheapest, most efficient investment products available anywhere in the world, NS&I is the logical operator, he said. Should an individual die without ever requiring care, Mayhew proposes that unused PCBs could pass to heirs without attracting inheritance tax. The rate of return on investments would be determined by the UK government's own borrowing costs, as that of existing NS&I products is now. And as with other NS&I products, savers would have the benefit of no charges and a state guarantee on savings. It is also suggested that PCBs have a maximum cap of £30,000 per saver, similar to the limit on premium bonds now. Assuming a saver purchased 100 bonds of £1 each every year beginning at age 18, the fund would be worth £11,000 on average at current prices at age 75, £14,000 at age 85 and £18,000 at 95, the research suggests. However the saving product is structured, it is becoming increasingly clear that there is a need for one. Ros Altmann, an independent pensions adviser, said people are mistaken if they believe their pension income will be enough to cover social care costs, . "Pension is generally just enough to cover living expenses," she said. She is urging exploration of a variety of alternatives, including such things as mortgages for the over-50s to allow homeowners to unlock equity capital. Another possibility, given the constant speculation that policy makers are considering cutting the limits on the tax-free lump sum that workers can take at retirement, might be to require that a portion of that sum be designated for social care. High-quality social care is not cheap. According to Partnership, the impaired annuities specialist which also sells social care insurance, a comfortable nursing home in Southeast England can cost as much as £40,000 per year. However resistant people may be to paying these costs, Britain's demography makes it certain that increasing numbers will have to. Official estimates are that the number of those aged over 75 will double to 11m from 5m by 2050 and the number aged over 85 will rise to over 5m from 1.5m. The modal age of death - the age at which more people die than any other - is now 89, up from 79 in 1950 - and is projected to rise to 93 by 2030. Unless medical science can find ways to keep people mentally and physically fit for much longer than they now, it is clear that some form of savings plan will be needed to cover care when the elderly are no longer able to care for themselves.