Taxing retired households to pay for care

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Part of Commission on the Future of Health and Social Care in England

This is the third and final guest blog that we are publishing in the run-up to the launch of the final report from the Commission on the Future of Health and Social Care in England.

Each blog focuses on one of the possible options for funding future health and social care considered in the commission’s interim report. Here, Andrew Harrop of the Fabian Society argues that retired households should contribute more towards the costs of health and care. 

The commission will make its final recommendations on 4 September.

Here’s an £8 billion answer to the health and care funding crisis: ask retired people to pay their fair share. For this sum is the difference between the amount of tax that retired households pay in a year and the amount they would pay if they were not retired. According to ONS figures, in 2012/13 non-retired households with middle incomes paid 35 per cent of their gross income in tax. This compares to the 29 per cent paid by retired households with roughly the same income (after making an adjustment for household size). 

It is hard to think of plausible reasons to justify this inequality. It’s not about pensioners being poorer overall: the tax gap is a calculation based on the difference we pay in tax as a share of our income (and anyway the gap isn’t observed between young and old households with very low incomes). Nor can it be justified by differences in wealth: retired households have higher assets than non-retired households on average. If wealth was taken into account and we thought broadly about ‘ability to pay’, the inter-generational tax gap would be even larger.

Instead, the gap is explained in two words: National Insurance. So, with the funding of health and care in crisis and retired households richer than ever, is it time for older people to pay National Insurance on their income? Or, to put it another way, is it time to merge National Insurance and income tax?

But to win the public’s support, the money must be earmarked for retired people’s health and social care. This cannot be just a tax rise, but a solution to a financial crisis facing us all in old age: ‘from older people, to older people’.

Indeed it is only because of history that retired households – those who use the NHS the most – don’t pay National Insurance. In the Beveridge Report of 1942, health care was listed as one of the insured benefits to which National Insurance created entitlement. But from day one, retired people were enrolled into the NHS without being asked to contribute. Back then, there was no way that most pensioners could have afforded to pay - they were too few in number for it to make much difference anyway. Today, the £8 billion gap shows this is now a discrepancy worth worrying about.

The Fabian Society, using the latest ONS data on income, tax and benefits, calculated that you could raise more than £8 billion if you levied National Insurance on older people’s total taxable incomes (including earnings, pensions and investment income). This would treat retired households on roughly the same basis as working households whose income mainly consist of earnings. 

To protect those with low incomes it would make sense to introduce a high starting threshold for National Insurance, imitating the coalition’s reforms to income tax. The table below illustrates the impact of a 12 per cent contribution on income over £10,000 in today’s prices. The policy would leave the average retired household paying £23 per week extra: not a terrible membership fee for a world-class health and care system. Better still, the reform would be progressive. Many people in the poorest fifth of retired households would pay nothing, while those in the richest fifth would pay over £70 each week, on average.

The impact of applying National Insurance at 12 per cent to pensioners’ incomes, with a lower threshold of £10,000 per year

Income quintile of retired householdsPoorest234RichestAverage
Income range of quintile (assuming 2 person family)under £14,400£14,400 to £17,600£17,600 to £21,600£21,600 to £28,800over £28,800-
Average National Insurance payable per week£0£6£12£28£71£23

Source: The effects of taxes and benefits on household income 2012/13, ONS, 2014; author’s calculations

This could all be phased in over time. For example, in each Budget in the next parliament, the chancellor could cut National Insurance employee and self-employed contributions by two pence in the pound and increase the basic rate of income tax by the same amount. National Insurance would wither on the vine and income tax would rise to take its place.

The main objection to the whole idea is political: would anyone dare to take on the grey vote? It would take a skilful politician to sell this as a ‘something for something’ deal, not a tax raid on the nation’s grannies. But every penny would go to pay for health and care in our long retirements. 

What are the alternatives? Ever deeper cuts to other hard pressed public services? A lottery where some older people pay huge sums themselves? A hike on National Insurance for workers, whose incomes have stalled for a decade, unlike those of older people? A death tax, which the truly rich can always evade?

No tax rise is an easy sell, but this has one great advantage: it is fair.

Andrew Harrop is General Secretary of the Fabian Society, Britain’s oldest political think-tank.

This is a guest blog post. The views expressed are the author’s own and do not necessarily represent the views of The King’s Fund.


Valerie John-Charles

Clinical Service Lead,
Comment date
25 August 2015
Go back to to basics and revamp a system that is over managed, consists of wasteful so called managers, directors, deputies and so on and so forth. By the time we have paid for these and the never ending traunch of project workers/ management consultants, there is little left for patient care. Previous comments mention - do the math! We have invested and wasted money on useless IT systems; PFI buildings that are now being seen as white elephants; sold off NHS land at next to nothing; continuously reformed the NHS and it is still in a mess yet we continue doing more of the same!! We have devalued the input of clinicians to favour a market approach to health. Integrated care is not a new concept - I am a nurse with many years of experience, as a District Nurse if I assessed patients needing social care input I made a call to my colleagues in social services and support systems were put in place for that patient and their family. Now I would have to go through hoops - referring, patient put on waiting list; another assessment; onward referral - another assessment and the list goes on. Everything has become so complicated. I would also like to point out that it is a fact that those who are articulate enough to ask questions and challenge decisions get results. There are many older persons out there caring for their own - who do not rely on the state or the NHS! To tax this group of people is obscene, especially when they have paid taxes and NI benefits all of their working life. Many of us will be supporting our children way into our seventies - work is hard for them to find and with us working into our late sixties and seventies they are unlikely to get jobs! The rich will just use tax havens and nothing will affect them in the way it does those that receive average pensions. If we introduce a tax - remember it will go up and up, especially if we continue with this ridiculous wasting of public funds. I really value to the concept of a NHS but in reality I think it is now defunct - it saddens me but this is reality. Do not get me wrong I do think health needs to be managed but we have gone way beyond this and the results are plain to see.

Julie Bailey

Retired. Widow. Disabled.,
Comment date
15 August 2015
Agree with much. Would be happy to pay NI according to income but why top band only £28,800 pa? Thats not much these days, especially if you're still supporting a younger generation - harder for them now to set up home & family whilst repaying ridiculous uni fees. I assume this extra NI would cover Care on same basis as Health - mad to separate the inseparable! But many retired people's income is well above this given maximum, so a higher band or two would help add to the fund, perhaps enabling the lowest band to be removed.

Incidentally, none of my suggestions would apply to my position, so its only self-interested in that I want the NHS+Social Care to thrive as well as its funding taken out of Government or Private plundering.

If social care is not included, hands off pensioners' money! i may soon need some care which would have to be paid for from my income, ( which just covers food & basics - no exotic holidays or luxuries) £7,000 - 10,000 pa for just one hour a day: the savings I carefully made for this eventuality would vanish alarmingly fast.

Pearl Baker

Carer/Independent Mental Health Advocate and Advisor,
Comment date
03 May 2015
I am 74, Carer of two sons with LTC, grandmother of child with Autism, provide free of charge Advocacy and Advisory for those with Mental Illness. I receive no money for my Caring role, because I am too old, and receive a State Pension. I save the State thousands because I provide my care for free. So if your idea that the old should pay more taxes or NI is 'blown' out of the window' because we already penalised through age, and denied the Carers Allowance. It is the other way around, the elderly should receive some additional financial help. The elderly are discriminated against don't you agree.

John McFadyen

Comment date
26 December 2014
Jim's final paragraph is significant. The problem with this proposal now enshrined in The Barker report, is that it has 'face' value. It appears to make sense. However in my own case I served the NHS for forty years and paid income tax and national insurance for all that time, during which I was a low user of services, in the expectation that in retirement, with a vastly reduced income I would be relieved of some of my 'tax' burden.
Going back to Jim's comments, there is far too much inefficiency and waste in the system. The idea of merging health and social care is said to be more costly which in logical terms makes little sense if administrative costs are considered. In addition I still find it reprehensible that we have created multiple commissioning bodies with all thier administrative costs to replace the old health authorities. It always looked like madness and still is. It was a political ploy to manoeuvre GPs and NHS consultants around the chesss board.

David Grimes

retired consultant physician,
Comment date
16 September 2014
If we are to continue to increase funding for the NHS (and everyone seems to think that we should do) then the suggestion is sensible that the retired (if they have a good income) should continue to pay national insurance - we already pay income tax. My age of 70 is not "old" these days and I have a life expectancy of 20 years. Many retired people have good pensions and have paid off mortgage. They should no longer have financial responsibility for their children. That we have already paid for our old age is not realistic these days. The model was that we worked for about 40-45 years, retired at 65 and die at 70-75 years of age. 40 years of work and NI, followed by 10 years benefit. Today the benefit is spread over 20 years, but contributions during working life remain the same. The sums do not add up and the retired are taking more benefit than they paid for during their working lives. The voices are simple:
1. Benefits are reduced or frozen, including pensions and NHS spending.
2. The present working population pays more tax and NI, not just to fund their expected long years of retirement but also to fund the unexpected benefits of the present retired.
3. The present retired make a greater contribution to their unexpected long years of retirement and the associated costs.
Perhaps the solution is a combination of all three, but the third option of NI contributions for the retired is realistic. It would not be popular, but it would be more equitable than increasing taxation of the present working population.

Pearl Baker

Carer/Independent Mental Health Advocated and Advisor,
Independent mental Health Advocate and Advisor
Comment date
15 September 2014
As a Carer, in receipt of a state pension are you aware that we are saving the Country millions! Are you aware that if you receive a state pension you cannot claim a carers allowance, so I would say the retired are already doing our 'bit' and then are many of us. If we ask for help in our caring role, we have to undergo an assessment of our Income, and guess what many have to pay for this as well.

Before you start considering asking the retired to contribute more than others, just remember we have already paid our National Insurance.

Unlike the previous contributor to this debate I do not receive a great pension that this NHS Consultant receives, including inflation linked, which we the general public are paying.

I like many others was unfortunate to have saved for my retirement through Equitable Life, the first Pension Company to nearly obliterate my Pension 'pot' my pension reduces each year, not like the NHS Consultant who had the privilege of working for the NHS and all the benefits that go with on retirement.

By the way 40 percent of my estate will be collected after the nil rate tax band is reached on death. My income was taxed, my savings are taxed, and then 40 percent is going back to the Government on death. Perhaps Scotland is a better place after all.

Colin Godber

Retired NHS consultant in mental health of older people,
Currently Age Concern trustee
Comment date
11 September 2014
Rather late in seeing this. I agree totally that those in retirement ahould pick up the excess cost of their ill health in old age. Our contributions were never enough to cover our full life time health and social care costs. Had they anticipated the rise in life expectancy and scale of medical advance and interventions Bevan and Beveridge would have created a realistic National Health and Social Insurance Fund into which we would all have been paying sufficient to fund the rising cost of care in older age. For decades now politicians have lacked the honesty and courage to put the issue to the electorate and have taken the easy option of steadily squeezing the care of chronic illness and disability out of the NHS, boosting the scale of means testing to a level that would have had Beveridge turning in his grave. While agreeing with Andrew Harrop that this cost should be shared in a progressive way across the retired generation I feel that it is better to source the contribution from wealth than income. For nearly everyone income falls fairly abruptly on retirement; in a general sense pensioners are "capital rich but income poor". For years I have advocated the win-win solution of assessing everyone's personal wealth at 65 and earmarking 15% to be collected after death in return for free health and social care in older age. I would remind some of the critics above that at least half of the capital tied up in our homes is an unearned windfall from house price inflation and that the wealthier end of our generation has also had the perks of free higher education and higher rate tax relief on pensions. As a generation we have huge inequality of wealth and trimming a bit off what we pass on to our children (many of whom have already got a few rungs up the ladder via the "bank of Mum & Dad") is a small price to pay for some solidarity with less fortunate contemporaries who will have contributed a lot to our infrastructure and comfort over the years. If we can help to get health and social care back on track by catching up on our payments in this way it might be a bit easier for the politicians to get their act together and set up a proper prosective National Insurance Fund hypothecated for health and social care that would be affordable for the generations to follow. The catch up pensioner wealth tax could then gradually taper out as lifetime contribution to this prospective fund worked through. The other important point is that this approach neutralises "demographic time bombs" and the current "baby boomer" bulge by ensuring that each generation covering its own health and social care cost.


Functional Nutritional Therapist,
Comment date
08 September 2014
Bad health is the result of bad lifestyle and diet choices and very little genetics. Rather than pay for those who don't look after themselves those who look after ourselves should be allowed to opt out of the NHS.

Bad lifestyle and diet choices are known to be linked to poverty and bad education. The logical projection of current policies that target 'better off' older people is for all to become dependent on government at the level where we receive means tested benefits. Singling out SOME older people as a scapegoat group for glaring failings in government and health care is demoralising and may result in even higher costs. National cares should be paid by nationally devised policies that do not victimise the old.

Finally why should anyone pay for the NHS - a service which does not recognise prevention as their role and is not looking for innovation but to do more of the same as now - allowing the growth of chronic diseases so that they can then be treated by expensive consultants who doe not communicated between specialties. Chronic diseases are diseases of the whole body that build up over years and are preventable. The only money worth investing are in education and professional nutrition therapy practicing personalised functional medicine. See news from US innovators here


I a
Comment date
07 September 2014
Agree with Largely with Wills commercial taxing privatising rationing the nhs ?
Who pays some of the ideas! Very worrying

Judith Wheelton

Retired Professional,
Library Services
Comment date
04 September 2014
While welcoming a concerted attempt to simplify heath and care services I would like to make 2 comments:-
1. When are we going to start charging Healthcare `tourists' from other countries (possibly even from Scotland and Wales?) up front? Wouldn't this help to reduce the financial burden of the people who have paid and are still paying National Insurance?
2. Not all pensioners are `wealthy'. What is wealthy? Who will define it? We are pensioners in our 60's and 70's with a teenage daughter who may be at home for years to come. Who will assess people such as ourselves? We are certainly not wealthy and having spent 43 and 56 years respectively working without a break cannot see the justification in taxing people a second time round on pensions that are already being taxed.

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