Long-term care: Deferred payment agreements explained

Advising on long-term care is a key part of later life planning. Here, Liz Coyle explains the intricacies of deferred payment agreements

The combination of the savings gap and people generally living longer means that long-term care is now an essential part of planning for clients’ later life needs.

Those advisers who have dealt with clients needing long-term care in recent years may well have come across Deferred Payment Agreements (DPA).

This facility was not widely publicised by local authorities, but involved the payment of fees for residential care being deferred until the client’s property was sold, usually after their death.

From April this year, the Care Act 2014, in conjunction with the Care and Support (Deferred Payment Agreements) Regulation 2014, states that it is ‘universal’ that a local authority must offer a DPA to all:

• Whose needs are met by the provision of care in a care home, determined by when someone is assessed as having eligible needs which the local authority decides should be met through a care home placement;

• Who have less than (or equal to) £23,250 in assets excluding the value of their home (i.e. in savings or other non-housing assets); and

• Whose home is not disregarded (e.g. it is not occupied by a spouse or dependant relative); and

• Can provide adequate security.

The local authority also has the discretion to offer a DPA in other cases.

This facility was not widely publicised by local authorities

‘Eligible needs’

These are defined as being able to:

• Manage and maintain nutrition – having access to food and drink and being able to prepare and consume it

• Maintain personal hygiene – being able to wash and launder their clothes

• Manage toilet needs- being able to access and use the toilet

• Be appropriately clothed – able to dress themselves and be appropriately dressed in relation to the weather or activity being undertaken

• Be able to make use of the adult’s home safety – moving around the home safely, including climbing stairs, using kitchen facilities and accessing the bathroom / toilet

• Manage a habitable home environment – is the home sufficiently clean and maintained to be safe, including essential amenities

• Develop and maintain family and other personal relationships – are they lonely or isolated, or do their needs prevent them from maintaining or developing relationships with family or friends?

• Access and engage in work, training, education or volunteering

• Make use of necessary facilities or services in the local community, including public transport and recreational facilities or services – this includes attending health care appointments

• Carry out the caring responsibilities that the adult has for a child – as a parent, step-parent or grandparent.

Real estate

Adequate security means being able to acquire a ‘first charge’ on the property.

The client must have a ‘beneficial interest’ in the property. This may be a challenge if the client has taken equity release, or still has a mortgage on the property, and is an issue that should be discussed with clients when they take out such arrangements, as a factor to consider before they require care.

Relevant information must also be provided by the local authority. For example, they must be clear that interest will be applied to the DPA.

They must also suggest that people may wish to consider taking independent (from the local authority) financial advice, in line with their obligations under paragraph 3.51 of the Act.

Where a property is used as security for a DPA, the equity limit must be set at the value of the property minus 10%, minus £14,250 (financial year 2015/16); and there must be a minimum of a year of care costs in the property value.

If the local authority is not satisfied that their interest is ‘secure’, they may refuse to allow a DPA.

This may also be the case where the person lacks capacity; where they will not agree to the terms and conditions of the arrangement; or the property is held as ‘tenants in common’, perhaps for reasons related to estate planning.

The local authority has the option to take another form of security for the debt, for example, it may be secured on another asset such as a painting or an insurance policy.

However, if this option is utilised they will require consumer credit permissions and potentially other permissions from the Financial Conduct Authority.

In these circumstances, the local authority must be satisfied that they can gain ownership of the asset. Where a person is in an ‘assisted living property’ the local authority has the discretion to use a DPA.

“Eligibility criteria” includes both the national criteria (i.e. criteria set in legislation) and any local criteria used in deciding whether to offer DPAs where the national criteria are not met.

Liz Coyle is compliance policy manager at SimplyBiz Group

*Please note that this is applicable to English governance only and that Scotland and Wales have different limits and allowances.