CARE ACT 2014
The Act allows regulations to state when the local authority may or must enter into deferred payment or loan agreement which will allow people to avoid selling property or possessions.
MANCHESTER SPECIFIC INFORMATION
Under the terms of the Care and Support (Charging and Assessment of Resources) Regulations 2014, local authority citizens entering permanent residential care with capital over the maximum threshold (currently £23,250) are required to pay the full cost of their care. The local authority is precluded from funding these placements.
In some circumstances the value of a person’s main (or only) home is disregarded from the financial assessment indefinitely, but where this is not the case its’ value is usually taken into account 12 weeks after the person permanently moves into residential care. At that point, its’ value counts towards the £23,250 limit and means that, from that date, the resident is responsible for meeting the full cost of care themselves. In some – if not most – cases, this would lead to the need for the resident to immediately sell their former home in order to pay care fees. However by taking out a Deferred Payment Agreement (DPA), a person can defer or delay paying the costs of their care and support until a later date, which can provide peace of mind during a time that can be challenging for them and their loved ones as they make the transition into residential care.
This means that under a DPA people entering into permanent residential care are not forced to sell their home in their lifetime to pay for their care.
A DPA can last until death, however many people choose to use a deferred payment agreement as a bridging loan, to give them time and flexibility to sell their home when they choose to do so. This is entirely up to the individual to decide.
The care and support costs are deferred and not written off. These costs will have to be repaid at a later date by the individual or a third party. The Council secures the loan by placing a legal charge on the property with Land Registry and by entering into a legal contract with the resident or their representative, that is a DPA.
Manchester Council have offered a DPA Scheme for many years, but the Care Act 2014 makes it mandatory for all local authorities to operate the scheme.
Local authorities must offer them to people who meet the criteria below and who are able to provide adequate security (see Section 11, Obtaining Security). They must offer them to people who have local authority-arranged care and support, and also people who arrange and pay for their own care, subject to these criteria. The regulations specify that someone is eligible for and so must be offered a deferred payment agreement if they meet all three of the following criteria at the point of applying for a deferred payment agreement:
Note 1: When someone is arranging their own care and support and the authority has not performed an assessment, this condition is satisfied when someone would be assessed as having eligible needs if the authority had carried out such an assessment.
Note 2: Disregarded for the purposes of the financial assessment carried out under section 17 of the Act.
As well as providing protection for people facing the prospect of having to sell their home to pay for care, deferred payment agreements can offer valuable flexibility, giving people greater choice over how they pay their care costs. Local authorities are, at their discretion, permitted to be more generous than these criteria and offer deferred payment agreements to people who do not meet the above criteria.
In deciding whether someone who does not meet all of the criteria above should still be offered a deferred payment, some considerations a local authority may wish to take into account include (but are not limited to):
Local authorities may also at their discretion enter into deferred payment agreements with people whose care and support is provided in supported living accommodation.
The local authority should not exercise this discretion unless the person intends to retain their former home and pay the associated care and accommodation rental costs from their deferred payment. Further details on precisely what qualifies as supported living accommodation are set out in Annex A: Choice of Accommodation and Additional Payments.
Deferred payment agreements cannot be entered into in order to finance mortgage payments on supported living accommodation.
There are certain circumstances in which a local authority may refuse a request for a deferred payment agreement (‘permission to refuse’), even if a person meets the eligibility criteria and the local authority would otherwise be required to offer the person an agreement. This permission (or discretion) to refuse is intended to provide local authorities with a reasonable safeguard against default or non-repayment of debt.
A local authority may refuse a deferred payment agreement despite someone meeting the eligibility criteria where:
Note 3: In these situations, a local authority should still seek to offer a deferred payment agreement but should be guided by principles in the section below (see Section 6, How much can be deferred?) to determine a maximum amount that is sustainable (or reflects their core care costs without any top-ups) and agree a deferral. The person can then choose whether they wish to agree.
In any of the above circumstances, a local authority should consider whether to exercise its discretion to offer a deferred payment anyway (for example, if a person’s property is un-insurable but has a high land value, the local authority may choose to accept charges against this land as security instead).
There are also circumstances where a local authority may refuse to defer any more charges for a person who has an active deferred payment agreement. Local authorities cannot demand repayment in these circumstances, and repayment is still subject to the usual terms of termination, see Section 16, Termination of the Agreement.
The local authority should provide a minimum of 30 days’ advance notice that further deferrals will cease; and should provide the person with an indication of how their care costs will need to be met in future. Depending on their circumstances, the person may either receive local authority support in meeting the costs of their care, or may be required to meet their costs from their own income and assets. Local authorities exercising these powers to cease deferring additional amounts should consider their decision to do so whilst considering the person’s circumstances and their overarching duties under the wellbeing principle (see Promoting Wellbeing).
Circumstances in which a local authority may refuse to defer any more charges include:
Local authorities should not exercise these discretionary powers if a person would, as a result, be unable to pay any tariff income due to the local authority from their non-housing assets.
Local authorities must also cease deferring further amounts when a person has reached the ‘equity limit’ that they are allowed to defer (see Section 6, How much can be Deferred?), or when a person is no longer receiving care and support in either a care home setting or in supported living accommodation. This also applies when the value of the property has dropped and so the equity limit has been reached earlier than expected. Even though the local authority ceases deferring a further amount, the person will still be responsible for their weekly assessed charge (excluding the value of their property).
See also Information and Advice
Under the Care Act 2014, local authorities have responsibilities to provide information and advice about peoples’ care and support, including deferred payment schemes.
In order to be able to make well-informed choices, it is essential that people access appropriate information and advice before taking out a deferred payment agreement (DPA). It is also important that people are kept informed about their DPA throughout the course of the agreement. See also Financial Information and Advice; Section 14, The Local Authority’ Responsibilities whilst the Agreement is in place and Section 16, Termination of the Agreement).
Deferred payment agreements are often made during a time that is demanding for a person and their loved ones – a period when they are moving into a care home. People may need additional support during this period, and the local authority has a role in providing this support, particularly if a move into care is made rapidly and / or at an unexpected point. The local authority must provide information in a way which is clear and easy to understand, and it should be designed to ease the move into a care home for people, their carers and their families.
Carers and families often help people to make decisions about their care and how to pay for it. Local authorities should as appropriate invite carers and/or families to participate in discussions, and should also provide them with all the information that would otherwise be given to the person they care for, subject (where required) to the consent of the person with care and support needs (if they have capacity) or someone else with appropriate authorisation. In doing this, they must offer help within the principles of the Mental Capacity Act 2015 and data protection legislation, and duties pertaining to information and advice (see Information and Advice and also Section 5, Capacity Issues).
If a local authority identifies someone who may benefit from or be eligible for a DPA or a person approaches them for information, the local authority must tell them about the DPA scheme and how it works. This explanation should, at a minimum:
* Under the current offer, the Council will not charge interest while the payments are being deferred (although reasonable interest will be charged if repayment is not made when the agreement is terminated) nor does it charge administration fees, but subject to consultation the Council plans to revise this in line with the Care Act. The revisions will allow the Council to:
Anyone joining the current scheme will retain the current terms and conditions ie no interest will be charged unless the deferred amount is not paid on termination of the agreement
Local authorities should provide easy to read information about how the scheme works. This may be in the form of a standardised information sheet. Manchester is currently revising its guidance.
Local authorities must provide this information and advice in formats that ensure compliance with the requirements of the Equality Act 2010 (in particular, they must ensure where appropriate that the information is accessible to the sensory impaired, people with learning disabilities, and people for whom English is not their first language) (see Information and Advice).
Where relevant, the Case Management Team are providing information and advice on DPAs at the earliest appropriate opportunity during the period of the 12 week disregard.
People should be advised (where appropriate) that they will need to consider how they plan to use, maintain and insure their property if they take out a DPA; that is whether they wish to rent, to prepare for sale, or to leave it vacant for a period.
The local authority should advise if it intends to place conditions on how the property is maintained whilst the DPA is in place (authorities will usually include requirements for people to maintain and insure their homes in the terms and conditions of a deferred payment agreement; see Section 13, Making the Agreement).
Basic information and advice should be available for homeowners on how they may choose to use their property when they enter care, for example information on how they may go about renting their property, and the potential impact on other people living in the property if a sale is required after their death.
People should be directed to more specialist organisations if needed, who can provide further advice on this issue, including information about their legal responsibilities as landlords and their obligations to any potential tenants.
See also Mental Capacity
As a deferred payment agreement can take some time to set up and agree, it is important that both the local authority and the individual consider any potential issues around mental capacity.
Where a person may lack capacity to request a deferred payment, a deputy or attorney (a person with a relevant enduring power of attorney or lasting power of attorney) may request a deferred payment on their behalf. If a family member requests a deferred payment and they do not have the legal power to act on behalf of the person, the person and the family member should receive information and advice on how to obtain this, through LPA and deputyships.
Where the local authority is the deputy for a person, the local authority deputy may apply for deferred payments where this is in the best interests of the person. Local authorities must not enter into deferred payment agreements with a person lacking mental capacity unless the proper arrangements are in place.
Local authorities and the person applying for a deferred payment (who has capacity) may also want to consider any potential issues around loss of capacity. Information and advice should be provided on options for deputyship, legal power of attorney and advocacy (see Independent Advocacy and Independent Mental Capacity Advocates). The local authority should confirm what would happen were the person to lose capacity and not have made their own arrangements. For further advice on capacity and financial arrangements see Annex D: Recovery of Debts a deferred payment being effectively a consensually accruing debt to the local authority.
In principle, a person should be able to defer the entirety of their care costs; subject to any contribution the local authority is allowed to require from the person’s income. The local authority will need to consider whether a person can provide adequate security for the deferred payment agreement (see Section 11, Obtaining Security; usually this requirement for ‘adequate security’ will be fulfilled by securing their deferred payment agreement against their property).
If the person is considering a first party top up, the local authority should also consider whether the amount or size of the deferral requested is sustainable given the equity available from their property. A discussion of sustainability may be helpful in all cases to ensure the person is aware of how much care their property would afford them.
Three elements will dictate how much a person will defer, each of which is discussed below:
The local authority should also satisfy itself that any top up they agree to is sufficiently sustainable, taking into account the following points:
Three elements will dictate how much a person will defer:
The local authority should also be satisfied that any top up they agree to is sufficiently sustainable. Some guidance for local authorities in assessing whether a top up is sustainable is provided below.
When considering the equity available, the local authority must be guided by an ‘equity limit’ for the total amount that can be deferred and ensure that the amount deferred does not rise above this limit.
Where a property is used as security to offer a deferred payment agreement, the equity limit must be set at the value of the property minus 10%, minus £14,250 and the amount of encumbrance secured on it. This limit not only provides a cushion against changes in house prices, subsequent interest ( which continues to accrue) and the risk that they may not be able to recoup the full amount owed, but also should mean that people qualify for local authority support if they deplete the equity available in their property (and are consequently not at risk of having to sell their home to pay for care).
If the person intends to secure their deferred payment agreement with a property, the local authority must obtain a valuation of the property. Manchester Council currently accepts valuations given to the resident by estate agents and qualified valuers or, if requested, can arrange for a valuation to be carried out (at a reasonable cost). If the Council disagrees with the valuation provided by the resident, an appropriate valuation should be discussed and agreed prior to proceeding with the DPA agreement.
The local authority should, when someone is approaching or reaches the point at which they have deferred 70% of the value of their chosen security, review the cost of their care with the person, discuss when the person might be eligible for any means tested support, discuss the implications for any top up they might currently have, and consider jointly whether a deferred payment agreement continues to be the best way for someone to meet these costs.
Local authorities must not allow additional amounts to be deferred beyond the equity limit, and must refuse to defer care costs beyond this (see Section 2, Permission to Refuse a Deferred Payment Agreement). However, interest can still accrue beyond this point, and administrative charges can still be deferred.
A person may meet the costs of their care and support from a combination of any of four primary sources:
The share of care costs that someone defers will depend on the amount they will be paying from the other sources listed above.
After allowing for the statutory Personal Expenses Allowance (currently £24.90), the local authority will usually require a contribution towards care costs from the rest of a person’s income. However, under the terms of a DPA, the person has a right to retain a proportion of their income (the ‘disposable income allowance’), up to £144 per week.
A person may choose to keep less of their income than the disposable income allowance. However this must be entirely at the individual’s decision.
If a person decides to rent out their property during the course of their DPA, the local authority may permit that person to retain a percentage of any rental income.
A person may also contribute to their care costs from payments by a third party (including any contributions available from a financial product) or from their savings. Contributing to care costs from another source would be beneficial for a person as it would reduce the amount they are deferring (and hence reduce their overall debt to the local authority). The local authority must not compel a person to contribute to their deferral from these sources.
Before considering in detail how much they will be deferring, a person and usually the local authority should have a rough idea of their likely care costs as a result of the care planning process. Someone may wish to vary their care package (or any top ups they may be considering) following consideration of what they could afford with a deferred payment agreement, but should approach the process with an approximate idea of what their care costs are likely to be.
In principle, people should be able to defer their full care costs including any top ups. At a minimum, when local authorities are required to offer a deferred payment agreement they must allow someone to defer their ‘core’ care costs. To ensure sustainability of the deferral, the local authority has discretion over the amount people are permitted to top up themselves. It should consider any request for top ups, but retain discretion over whether or not to agree to a given top up and should accept any top up deemed to be reasonable given considerations of affordability, sustainability and available equity. The local authority should be mindful of the duties set out in relation to top ups and additional costs in the Care and Support and Aftercare (Choice of Accommodation) Regulations 2014.
When deciding on the amount to be deferred in a discretionary deferred payment agreement (particularly when considering top ups), both parties should consider a range of factors to satisfy themselves that the arrangement is sustainable including:
Deferred payment agreements should prevent people from having to sell their home in their lifetime to pay for their care. The local authority should discuss with the person the projected limit of what their equity could cover, given their projected care costs, and how their care costs might change over time.
This may include a discussion of when they are likely to reach any of the income thresholds and may begin to qualify for local authority support in paying for their care.
If the person is requesting a top up, it is important that the local authority discusses what might happen to any top up requested if the person reaches the equity limit and moves on to local authority support in paying for their care, and ensures that a written agreement is in place (see Annex A: Choice of Accommodation and Additional Payments). In particular, the local authority should make the person aware that once they have reached the equity limit, the local authority may not be willing to fund their top up, and the person may need to find other ways to pay for it or be prepared for a change in their care package.
The local authority should also consider with the person the length of time that their intended contribution to care costs from savings would last, if they intend to contribute to their care costs from their savings. This should include consideration of the impact on care if the person’s savings are depleted (normally this would involve increasing the amount the person is deferring).
An important factor in the sustainability of a deferred payment agreement will be any future care and support needs someone might face, the local authority and the person concerned should consider allowing flexibility for changes in circumstance, including possible escalations of needs, when deciding how much someone should defer. The local authority and the person concerned should factor any potential changes in circumstances into their considerations of sustainability.
When agreement has been reached between a person and the local authority as to how much they want to defer, the local authority must ensure this is clearly and unambiguously set out in the deferred payment agreement. See also Section 13, Making the Agreement and a sample deferred payment agreement co-produced by the Department of Health and the sector is also available.
The amount being deferred should be reviewed on a regular basis to ensure the deferred amount does not exceed the equity limit. The local authority should have particular regard to the amount deferred as it approaches the equity limit.
Further details of local authorities’ responsibilities during the course of the DPA are set out below.
The local authority must have adequate security in place when entering into a deferred payment agreement. The local authority should consider if another type of security could be provided if a person cannot secure their deferred payment agreement with a charge on a property.
The local authority must accept a first legal mortgage charge as adequate security and must offer a deferred payment to someone who meets the eligibility criteria for the scheme where the local authority is able to secure a first legal mortgage charge on the property.
In cases where an agreement is to be secured with a jointly owned property, the local authority must seek both owners’ consent (and agreement) to a charge being placed on the property. Both owners will need to be signatories to the charge agreement, and the co-owner will need to agree not to object to the sale of the property for the purpose of repaying the debt due to the local authority (following the same procedure as in the case where an individual is the sole owner of a property).
The local authority must obtain similar consent to a charge being created against the property from any other person who has a beneficial interest in the property.
The local authority has full discretion in individual cases to refuse a deferred payment agreement if it is not satisfied that adequate security is in place. The security should also be revalued when the amount deferred equals or exceeds 50% of the value of the security to assess any potential change in the value (and consequently the person’s ‘equity limit’ should be reassessed in turn). After this revaluation, the local authority should revalue the security periodically to monitor any potential further changes in value. If in either case there has been any substantial change the local authority should review the amount being deferred as well (see Section 6, How much can be Deferred).
Under the Care Act, if it chooses, the local authority can levy administrative charges involved with running the DPA and also charge compound interest charges on the total amount deferred as they are accrued.
Where the local authority charges interest this must not exceed the maximum amount specified in regulations.
Interest can accrue on the amount deferred even once someone has reached the ‘equity limit’ (see Section 6, How much can be Deferred). It can also accrue after someone has died up until the point at which the deferred amount is repaid to the local authority. If the local authority cannot recover the debt and seeks to pursue this through the County Court system (see Annex D: Recovery of Debts), the local authority may charge the higher County Court rate of interest.
The local authority must set their administration charge at a reasonable level, and maintain a publicly available list of the charges.
Where possible, the Case Management Team aims to have the agreement finalised and in place by the end of the 12 week disregard period (where applicable) (see Annex B: Treatment of Capital), or within 12 weeks of the person approaching the local authority regarding DPAs in other circumstances.However, like many other local authorities, Manchester is experiencing delays in setting up DPAs, due to the additional processes involved in the scheme.
The Deferred Payment Legal Agreement will require revision following the public consultation held, but it currently sets out all terms, conditions and information necessary to enable the person to ascertain his or her rights and obligations under the agreement.
The agreement will also stipulate:
The local authority should ensure at a minimum that people sign or clearly and verifiably affirm they have received adequate information on options for paying for their care, that they understand how the DPA works and understand the agreement they are entering into; and that they have had the opportunity to ask questions about the contract. A term reflecting this should be included in the agreement itself.
All deferred payment agreements will be subject to the Unfair Terms in Consumer Contracts Regulations 1999, so the terms will have to be written in plain, intelligible English and will not be binding if they are unfair to the borrowers. Local authorities will also have to ensure that they do not contravene the Consumer Protection from Unfair Trading Regulations 2008.
The Council will provide people with invoices for the deferred amount once every four weeks and will, at a minimum, provide written statements of the amount of fees deferred, of interest and administrative charges accrued to date, and of the total amount due and the equity remaining in the home (the ‘equity limit’ discussed in Section 6, How much can be Deferred?) once every six months.
The Council may provide statements on a more frequent basis at its discretion.
The local authority will request an annual revaluation of the property once the amount deferred exceeds 50% of the equity (and periodically thereafter) and review the amount deferred if the value has changed.
The deferred payment agreement sets out various contractual requirements on the individual as well as on the local authority.
The individual must:
A deferred payment agreement can be terminated in three ways:
All three scenarios for the termination of the agreement are discussed below, alongside the various options for repayment. On termination, the full amount due (including care costs, any interest accrued and any administrative or legal fees charged) must be paid to the local authority.
If a person decides to sell their home, they should notify the local authority during the sale process. They will be required to pay the amount due to the local authority from the proceeds of the sale, and the local authority will be required to relinquish the charge on their property.
A person may decide to repay the amount due to the local authority from another source, or a third party may elect to repay the amount due on behalf of the individual. In either case, the local authority should be notified of the person’s/the third party’s intention in writing, and the local authority must relinquish the charge on the property on receipt of the full amount due.
If the deferred payment is terminated due to the person’s death, the amount due to the local authority must be either paid out of the estate or paid by a third party. A person’s family or a third party may wish to settle the debt to the local authority by other means of repayment (as may be the case if the family wanted to avoid having to sell the property or means of security), and the local authority must accept an alternative means of payment in this case, provided this payment covers the full amount due to the local authority.
The executor of the will or administrator of the estate can decide how the amount due is to be paid; either from the person’s estate (usually via the sale of the house or potentially via a life assurance policy) or from a third party source.
A local authority should wait at least two weeks following the person’s death before approaching the executor with a full breakdown of the total amount deferred (but a family member or the executor can approach the local authority to resolve the outstanding amount due prior to this point).
Responsibility for arranging for repayment of the amount due (in the case of payment from the estate) falls to the executor of the will.
Interest will continue to accrue on the amount owed to the local authority after the individual’s death and until the amount due to the local authority is repaid in full.
If terminated through a person’s death, the amount owed to a local authority under a deferred payment agreement falls due 90 days after the person has died. After this 90 day period, if a local authority concludes active steps to repay the debt are not being taken, for example if the sale is not progressing and a local authority has actively sought to resolve the situation (or the local authority concludes the executor is wilfully obstructing sale of the property), the local authority may enter into legal proceedings to reclaim the amount due to it. Further information on debt recovery is included at Annex D.
In whichever circumstance an agreement is terminated, the full amount due to the local authority must be repaid to cover all costs accrued under the agreement, and the person (and / or the third party where appropriate) must be provided with a full breakdown of how the amount due has been calculated. Once the amount has been paid, the local authority should provide the individual with confirmation that the agreement has been concluded, and confirm (where appropriate) that the charge against the property has been removed.
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