People in England could be required to pay up to £20,000 after retirement to cover their long-term care under reforms that will ensure that everyone receives government financial help.

Publishing the long-awaited Green Paper on social care , Andy Burnham, the Health Secretary, said that radical reform was needed to end the “cruel lottery” of the present system, under which many have to sell their homes and use their savings to pay for long-term care.

Mr Burnham presented a choice of three models to fund a new national care service that would be “fair, simple and affordable” to all and give the same basic entitlement:

•the Government would pay up to a third of the cost of basic social care and support;

•a voluntary insurance scheme under which the State would pay the same proportion, but which would also make it easier for individuals to take out insurance — estimated at £20,000 to £25,000 at today’s prices — to cover the rest;

•compulsory insurance costing £17,000-£20,000 at today’s prices and providing free care for all who need it. Contributions could be set according to a person’s savings and assets.

The Government has already ruled out full state funding from general taxation, on the ground that it would place too great a burden on people of working age, and retaining the “pay for yourself” system, which is unfair to those who need years of care. The consultation will run until November, with the chosen system expected to be published in a White Paper next year and phased in from 2014.

Mr Burnham said that the figures contained in yesterday’s document, Shaping the Future of Care Together, were “indicative” but all three options could be expected to cost the State about the same as the present £14.7 billion annual budget. “It is a real injustice that people who have worked all their life and paid taxes all their life, if they are unlucky enough to develop a condition like Alzheimer’s in later life, they get no help to deal with the implications of that condition,” he said.

The average cost of care for people after the age of 65 is £30,000. Under the means-tested system those with a home or savings of more than £23,500 have to pay for their own care.

The National Care Service would offer assistance with needs such as dressing, washing and moving around at home, but those who needed to go into residential care would continue to pay the cost of accommodation and food, whether they had insurance or not. New arrangements would allow for bed and board costs to be deferred and paid as a lump sum after death.

The Department of Health is also consulting on whether insurance costs should be deferred until after death, paid in instalments or handed over in a lump sum when someone reaches retirement age. Under all three options, those with little or no savings or assets would continue to receive free care.

Britain has more pensioners than children. It is estimated that unless urgent action is taken there will be a £6 billion hole in the funding of social care within 20 years. The Government signalled yesterday that the legal retirement age of 65 would be scrapped or raised, allowing people to work for longer if they wanted to.

The age from which the state pension is payable is also due to rise to 68 for both sexes by 2046.

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