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Sunday, 24 May 2015

WHO WILL PAY FOR CARERS' PENSIONS?

A hundred thousand severely disabled people are being told they must set up a pension scheme for their carer. And no-one knows how the cost of doing so will be met. 

The people affected take what are called direct payments from their local authority to arrange their own care. The system was introduced in 2012 in England, Scotland, and Wales as a way of giving disabled people more independence and control over their care needs and how they were met. 

The local authority gives them the money - a direct payment - to pay for a carer or carers depending what they need. That payment is enough to include all the costs of employment - including national insurance, sick pay, holiday pay and so on. 

In general it has been seen as a great success - better for the disabled person and cheaper for the local authority. But it does mean that the disabled person becomes an employer. And from 1 June 2015 even the smallest employers will begin to be brought into the auto-enrolment of workplace pensions. They will have to provide a pension for their employee and pay into it. 

Who is auto-enrolled?
The people affected will have a carer who is 

  • their employee, 
  • aged 22 to state pension age (65 for a man and around 62.5 for a woman), and 
  • paid more than £10,000 a year - which is £192.30 a week or £833.33 a month. 

Someone on minimum wage of £6.50 an hour would reach those levels at 30 hours a week. And carers paid more than that - as many are - will be well above them. All figures are for gross pay.

People who are outside those ages or earn less than £10,000 will not have to be automatically enrolled. But may request to join a pension and if they do one will have to be provided. In some cases the employer will have to pay contributions too.

Employees can opt out of the auto-enrolment pension. But the employer must then re-auto-enrol them every three years. 

What will it cost?
The cost at first is likely to be modest. The contributions into the pension are 1% from employee and 1% from employer of the gross pay above £5824 (up to a maximum of £42,385).  So a carer working 35 hours a week on £9 an hour will earn £16,380 a year. The cost of 1% of the band of earnings which will be £8.80 a month which the disabled person will have to pay into a pension scheme. The carer will also get less. Another £8.80 will be taken off their gross income and paid in. However, they will get tax relief on that amount so the net cost will be £7.33 off their net pay.

But from October 2017 the contributions double to 2% each and then from October 2018 they rise to 3% from the employer and 5% from the employee. So the costs will by then be more significant, costing the disabled person £26.26 a month and the employee £36.67 on gross pay of £1365 a month.

Commercial employers can get tax relief on the payments they make - they count as a cost of employment and reduce the corporation tax they pay. But this tax relief is not of course available for an employer who is not a company and makes no profit. 

When will it happen?
Small employers with fewer than 30 employees will have to start auto-enrolment on what is called their staging date. That is the first of the month from 1 June 2015 to 1 April 2017. The date depends on the employer's PAYE reference number. A year before that date the employer will be written to by the Pensions Regulator, and again at six months and one month. Failure to comply with the new auto-enrolment duties can result in a fine of up to £400. Some disabled people have found the fairly small print letters and the tone of them intimidating.

The Pensions Regulator estimates that 100,000 disabled people will have to enrol their carer. That implies about 5000 a month will enter the system over the final 21 months of staging. 

The Pensions Regulator has more information online. But a recent survey by the Office for National Statistics found that 27% of disabled adults had never used the internet. 

Who will pay?
There seems little doubt that the local authority making the direct payment should meet the extra costs of auto-enrolment pensions. They are obliged to meet all the costs of employing the carer. Guidance issued by the Department for health says 

"The local authority should have regard to whether there will be costs such as recruitment costs, Employers’ National Insurance Contributions, and any other costs by reason of the way in which the adult’s needs will be met with the direct payment" (Care and Support Statutory Guidance Issued under the Care Act 2014 para 12.27

and footnote 170 on that page adds 

"Employers (including direct payment holders) will be required to comply with the duty to automatically enrol eligible workers into a qualifying workplace pension scheme and to meet the minimum contributions required by law."

But the local authorities seem completely unprepared. Will they review and revise the direct payments? How quickly will they do that? And how will they estimate the extra costs?

No-one seems to know. The Association of Directors of Adult Social Services told me it did not know but would start collecting some data in the future. And the Local Government Association told Money Box it did not know.

The Department for Work and Pensions - which is responsible for direct payments - told me 

"The local authority should consider these employment costs, including automatic enrolment pension contributions, when making the direct payment award."

But the Department would not say if that meant the local authority had to meet the costs nor how they would do so.

It will be hard for a local authority to work out the cost of auto-enrolment. The staging date system means that disabled people will be brought into the scheme depending on their PAYE reference number which bears no relation to the area where they live. And the cost of contributions will depend on the exact amounts carers are paid. There seems to be no mechanism for the disabled person to convey this information back to the local authority. And it is not clear how or when the care package that includes these costs can be revised.

More information
You can listen to the Money Box item on auto-enrolment and disabled people on Money Box 23 May 2015 

24 May 2015
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