For this reason, I see the new bill, particularly with the £86,000 cap, as a welcome means of opening up a range of advice opportunities for individuals to help plan ahead. For many, this could become an important consideration as they approach and move through retirement. 

The government had talked of the financial services industry designing insurance solutions here. One possibility would be a policy that pays out to cover eligible personal contributions up to the cap. But the costs of such insurance may be unattractively high, particularly if there is a degree of self-selection around who purchases. Also, those who might buy such insurance cover are more likely to want to top-up, meaning only part of their costs would be covered.

There is also the need to make provision for the £200 daily living costs, although many individuals will hopefully be able to cover these from state and private pension income.

There is unlikely to be a one-size-fits-all solution, and advisers will be able to tailor solutions based on an individual’s anticipated future income as well as wealth.

This could become part of cash flow modelling. The starting point might be an assessment of the adequacy of ongoing net retirement income against both likely top-up contributions and daily living costs. Then, advisers might help individuals identify assets from which to pay the care costs up to the cap.

One option for clients with a defined contribution pension could be to notionally ring-fence the £86,000 capped amount (or the grossed up equivalent) in their drawdown pot, aiming to live off income drawn from the balance. This offers tax efficiency and unlike suggestions for an explicit care Isa means if care is not needed, the funds are still available for later-life needs or for passing on as an inheritance.

For many, inheritance aspirations will be particularly important, increasing the merits of including not just spouses but younger family members in retirement planning advice. This in turn may highlight other intergenerational advice opportunities. 

Overall, I see the social care bill and its complex interaction with individuals’ finances as potentially having one of the most significant impacts on retirement planning since pension freedoms.

Steven Cameron is pensions director at Aegon

The above is based on his current understanding of the health and care bill 2022.