Deferred Payment Agreements and Alternative Financial Arrangements

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1. Understanding what a Deferred Payment Agreement is

1.1 What is the Deferred Payment scheme?

Under Section 34 of the Care Act, a universal Deferred Payment scheme has been established. A deferred payment scheme allows the person entering into it to delay making some or all of their payments to the Local Authority for the Care and Support services they receive. It allows them time to come to terms with their situation and consider their options without having to rush into selling their home. Some people enter into a deferred payment agreement until they die but others use it as a 'bridging loan' while they decide what best to do and explore options available for meeting the cost of care (for example, they may be able to arrange the release of another asset to meet the cost). How long a person has a Deferred Payment agreement for is entirely up to them.

There are two types of Deferred Payment agreements:

  1. The Local Authority pays the care provider and defers the charges due to it from the person (traditional type); and
  2. The Local Authority lends the person money in instalments to pay the care provider directly (loan type).

When a Deferred Payment agreement is entered into the Local Authority usually secures its interests by arranging for a land registry charge to be placed upon the person's property. This is similar to a mortgage and the property cannot be sold unless the amount owed is repaid. The Local Authority then defers the agreed payments until a set equity limit is reached or the agreement is terminated, whichever comes first. At this point the person's home is sold and the Local Authority receives payment for the care costs it has deferred under the agreement.

The Local Authority is permitted to add administration costs and interest charges to the Deferred Payment agreement. This includes legal fees it pays to arrange a charge with the land registry, photocopying or printing costs and time spent arranging the agreement, although it must not charge more than the cost of operating the Deferred Payment scheme.

1.2 Who can access the Deferred Payment scheme?

The Deferred Payment scheme is currently available to all people living in a care home who meet clear criteria set out by the government (see below). If people living in a care home meet the criteria for a Deferred Payment agreement the Local Authority must offer one.

IMPORTANT TO KNOW

Under the Care Act, the Local Authority only has to offer a Deferred Payment agreement to people who live in a care home and meet the criteria. However, the Local Authority may choose to offer a Deferred Payment agreement to a person who lives in a care home but does not meet the criteria or to someone who lives in a supported living placement. Please see When the Local Authority may Enter into a Deferred Payment Agreement for details.

1.3 Payments that can be deferred

The person can defer the full amount of their care costs less any contribution that they have been assessed to pay. A lesser amount may be deferred where the person chooses to make an additional contribution from another source. However, if a person has chosen to live in a care home that costs more than the personal budget amount, the Local Authority does not have to defer the 'top-up' amount payable, although it has the power to do so if it wishes to. If the Local Authority decides not to defer the top-up amount then the top-up remains payable.

Payments relating to interest and charges made by the Local Authority should also be deferred unless the person requests to pay these separately.

Deferred Payment agreements cannot be used to pay a mortgage or rent on supported living accommodation.

1.4 Contributing to care costs from other sources

Where the person has a weekly income in excess of £144 (known as the disposable personal income) the Local Authority can request that the person contributes the remainder of their income towards the cost of their care through the financial assessment process. This means that only some of the costs will then be deferred.

If the person has savings, they may wish to make a contribution to the Local Authority towards the cost of their care from this, again meaning the amount of the deferred payment will be less. However, the Local Authority cannot compel a person with a Deferred Payment agreement to make a contribution from their savings if they do not wish to do so.

1.5 Equity Limit

When entering into a Deferred Payment agreement the total amount that can be deferred against the capital asset (normally property) must be agreed in advance. This amount is known as the Equity Limit and the Local Authority is not permitted under the Care Act to defer total payments over this amount.

To calculate the Equity Limit the Local Authority must obtain a property valuation then deduct 10%, and then deduct the lower financial limit. This allows for some variation in the market over time and ensures that the person maintains some of the equity in their home.

Mary has a property worth £165,000 following valuation. 10% of this is £16,500 and the lower financial limit is £14,250. This means that the Equity Limit is £134,250 and Mary still has £30,750 of equity in her home. The Local Authority can only defer payments up to £134,250.

2. Information and Advice regarding Deferred Payment Agreements

2.1 Information and Advice requirements

If the Local Authority identifies someone who may benefit from or be eligible for a Deferred Payment Agreement, or if a person approaches them for information, they must tell them about the scheme and how it works. This explanation should, at a minimum:

  1. Set out clearly that the fees are being deferred or delayed only and must still be paid back at a later date, for example through the sale of the home (potentially after the person's death)
  2. Explain the types of security that the Local Authority is prepared to accept;
  3. Explain that if a home is used as security, the home may need to be sold at a later date to repay the amount due;
  4. Explain that the total amount they can defer will be governed by an Equity Limit which may change if the value of their property changes;
  5. Explain the circumstances where the Local Authority may cease to defer further amounts (such as when the person qualifies for Local Authority financial support in paying for their care), and the circumstances where the Local Authority has to stop deferring further amounts (such as when the person reaches their equity limit);
  6. Explain how interest will be charged on any amount deferred;
  7. Explain that they may be liable to pay administrative charges;
  8. Explain what happens on termination of the agreement, how the loan becomes due and their options for repayment;
  9. Explain what happens if they do not repay the amount due;
  10. Set out the criteria governing eligibility for a Deferred Payment Agreement;
  11. Detail the requirements that must be adhered to during the course of the agreement;
  12. Explain the implications that a deferred payment agreement may have on their income, their benefit entitlements, and charging;
  13. Provide an overview of some potential advantages and disadvantages of taking out a Deferred Payment Agreement, and explain that there are other options for paying for their care that they may wish to consider;
  14. Note the existence of the 12-week disregard, which will afford those who qualify for it some additional time to consider their options in paying for care; and
  15. Suggest that people may want to consider taking independent financial advice.

3. The Criteria when the Local Authority must Enter into a Deferred Payment Agreement

Under the Care and Support (Deferred Payment) Regulations 2014 there is a clear eligibility criteria to determine whether a person is entitled to a deferred payment. If a person meets the criteria they must be offered a deferred payment by the Local Authority.

  1. The person must have eligible needs (that have either been assessed by the Local Authority or that the Local Authority is satisfied would be eligible if assessed); and
  2. The Local Authority is arranging for their eligible needs to be met in a care home; or
  3. In the case of a person self-funding, they are arranging for their eligible needs to be met in a care home and the Local Authority is in agreement that care home provision is required and that the care home provision being arranged is appropriate and in line with the provision it would have arranged;
  4. The person has capacity to enter into a Deferred Payment Agreement (or, if lacking capacity, there is a person with legal authority to do so on their behalf);
  5. The person has beneficial or legal entitlement to a property that is their only or main home; and
  6. The property is not subject to a property disregard. For further information see Non-Discretionary Property Disregard and Discretionary Property Disregard;
  7. The Local Authority is satisfied that the person’s capital assets other than the home do not exceed £23,250; and
  8. The Local Authority is satisfied that the equity in the property is sufficient to pay the likely Deferred Payment amount; and
  9. The person is able to offer financial security to the Local Authority that the Deferred Payment will be paid when the agreement is terminated (a first legal charge over the property).

4. When the Local Authority may Enter into a Deferred Payment Agreement

Under Section 35 of the Act the Local Authority has the discretion to offer a Deferred Payment agreement to people living in supported living accommodation (formal schemes) when:

  1. The same criteria as those people living in a care home is met;
  2. The person has made it clear that they intend to keep their home;
  3. There is adequate security for the Deferred Payment agreement in the form of a legal charge or some other security which the Local Authority considers sufficient to secure the payment of the deferred amount; and
  4. The Local Authority is of the view that Deferred Payment would be agreeable.

The Local Authority also has the power to offer a Deferred Payment agreement to someone living in a care home or supported living scheme who does not meet all of the criteria set by government, provided that there is adequate security for the deferred amount. The statutory guidance suggests the following considerations when deciding whether to offer a Deferred Payment agreement:

  1. Whether meeting care costs would leave someone with very few accessible assets (this might include assets which cannot quickly/easily be liquidated or converted to cash)
  2. If someone would like to use wealth tied up in their home to fund more than just their core care costs and purchase affordable top-ups
  3. Whether someone has any other accessible means to help them meet the cost of their care and support
  4. If a person is narrowly not entitled to a Deferred Payment agreement given the criteria above, for example because they have slightly more than the £23,250 asset threshold; or
  5. People who are likely to meet the criteria in the near future.

5. When the Local Authority may Refuse to enter into a Deferred Payment Agreement

The Local Authority cannot refuse to enter into a Deferred Payment Agreement with someone who lives in a care home and meets all of the criteria unless:

  1. The Local Authority is unable to secure a land registry charge on the person's property;
  2. Someone is seeking a top up to be added to the deferred amount (for example, because they have moved into a care home that is above what the Local Authority would reasonably pay); or
  3. The person does not agree to the terms and conditions of the agreement (for example, a requirement to insure and maintain the property).

In these situations the Care Act gives the Local Authority 'permission to refuse' to enter into an agreement in order to protect itself from default or non-repayment of debt. Where the refusal is because of a top-up, the Local Authority should still try to offer a Deferred Payment agreement but may stipulate certain terms and conditions or adjust the amount to be deferred. The person can then choose whether to accept the terms.

6. Terms and Conditions of a Deferred Payment Agreement

Wherever possible the Deferred Payment Agreement should be in place by the end of the 12- week property disregard period.

The Deferred Payment agreement is a loan agreement, because as soon as payments start to be deferred the person is indebted to the Local Authority and interest is accrued on the money owed. As such the agreement must clearly set out all terms, conditions and information necessary to enable the person to ascertain his or her rights and obligations under the agreement before entering into it. These include:

  1. How the interest will be calculated and compounded over time;
  2. Liable administration costs;
  3. How the person can terminate the agreement;
  4. Circumstances when the Local Authority may decline to defer payments;
  5. How the Local Authority intends to secure the debt (e.g. through a land registry charge);
  6. When statements regarding the amount owed will be provided;
  7. The Equity Limit, likelihood of variation to this over time and what action the Local Authority will take when the Equity Limit is nearing;
  8. A term that the person agrees to seek consent of the Local Authority before allowing anyone to live at the property that was not already there when the Deferred Payment agreement begins; and
  9. What will happen if the person stops needing Care and Support in a care home.

For further information about the terms and conditions of a Deferred Payment agreement see the Care Act Statutory Guidance.

7. Ending a Deferred Payment Agreement

7.1 The Local Authority ending the Agreement

The Deferred Payment agreement can only end when payments and charges accrued by the person have been paid in full. However, there are circumstances where the Local Authority can refuse to defer any more payments on an active Deferred Payment Agreement:

  1. When a person's assets fall below the financial limit and they become eligible for Local Authority support in paying for their care;
  2. When a person no longer has need for Care and Support in a care home (or in supported living when the Local Authority is exercising this discretion);
  3. If a person breaches terms of their contract and attempts to resolve the breach have been unsuccessful; and
  4. If the property becomes subject to a discretionary or non-discretionary property disregard (for example, a spouse has moved into the property after the Deferred Payment began, or another person living in the property at the time the Deferred Payment agreement began becomes a dependent relative through disability).

When refusing further deferred payments on a Deferred Payment 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 income and assets.

Even though deferred amounts may stop being added, the account will continue to accrue interest charges until it is paid in full and the Local Authority must ensure that it makes the person aware of this so that they can make an informed decision about settling of the account.

7.2 The person ending the Agreement

The person may choose to terminate the Deferred Payment agreement at any time prior to the agreed time or Equity Limit being reached by giving notice in writing to the Local Authority. There are a number of reasons the person may terminate the account:

  1. The person may die;
  2. The person may leave the care home and return back to their own home;
  3. The person may wish to settle their Deferred Payment agreement account by another means (for example another asset has matured); or
  4. The person may sell their home.

Where the person has sold their home or is deceased there is a time limit to settle the Deferred Payment agreement in full. This is either:

  1. The date of sale or disposal of the land or other asset in respect of which the authority has a charge; or
  2. 90 days after the date of the death of the adult with whom the agreement is made or such longer time as the authority may permit.

If the person has terminated the agreement because they have moved back into their home no further deferred payments can be made against the property and the property must be disregarded in respect of any new financial assessment. The person remains liable for the deferred payments to date and interest will continue to accrue until such time when the account is settled.