Deferred payment agreements

After an assessment takes place, a care and support plan can sometimes identify that a person requires residential or nursing care as the most appropriate way of meeting their needs.

Some people plan ahead for how they will cover the cost of their residential or nursing care, while others may only access the information when the need to consider this is first identified.

This article provides information about how a deferred payment agreement can help you meet the cost of residential or nursing care.

If you are looking for information on the cost of care and support costs to help you stay in your own home, read this article.

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Deferred payment agreements

A Deferred Payment Agreement (DPA) is an arrangement with the council that will enable you to use the value of your former home to help pay care home costs. If you are eligible, the council will help to pay your care home bills on your behalf. You can delay repaying us until you choose to sell your home, or until after your death.

Put simply, the scheme offers you a loan from South Gloucestershire Council using your home as security. It doesn’t work in exactly the same way as a conventional loan –  the local authority does not give you a fixed sum of money when you join the scheme, but pays an agreed part of your weekly care and support bill for as long as is necessary.

You will pay a weekly contribution towards your care that you have been assessed as being able to pay from your income and other savings. The council pays the part of your weekly charge that you cannot afford until your home is sold. The part the council pays is your ‘Deferred Payment’.

The deferred payment builds up as a debt, which is cleared when the money tied up in your home is released. For many people this is done through selling their home, either straight away or later on. You can also pay the debt back from another source if you want to.

This scheme means that you should not have to sell your home in your lifetime to pay for care if you do not want to. You may, for example, decide to keep your home for the rest of your life and repay the deferred payment out of your estate, or you may choose to rent it out to generate income. If you do this, you will be expected to use the rental income to increase the amount you pay each week, so reducing the weekly payments made by the council, and making the eventual deferred payment debt as low as possible.

Charges for deferred payment agreements

Interest will be charged on the loan in the same way that a bank charges interest on money it lends. The maximum interest rate charged is fixed by the government. Currently the maximum rate is based on the cost of government borrowing and will change on 1 January and 1 July every year. The interest will apply from the day you enter into the DPA scheme.

The council charge a fee to set up a deferred payment agreement and interest on the amount that is owed to them as follows (effective from April 2020):

  • an initial set up fee of £532.60
  • an annual administration fee of £106.50
  • interest on deferred payment accrued debt 1.45%

The set-up fee and annual administration fee are both reviewed annually in line with the council's general fees and charging processes. The maximum interest rate is fixed by the Government. The maximum rate to be charged is linked to the cost of Government borrowing. The rate will change on 1 January and 1 July every year. Interest will apply from the date of the Deferred Payment Agreement and will be compounded on a daily basis. The council will provide regular statements to inform service users or the legal representative how the charge is being calculated and what the outstanding sum is.

Your agreement with South Gloucestershire Council

If you decide to use the DPA scheme, you will enter into a legal agreement with the council by signing an agreement document. The council then places what is called a ‘legal charge’ on your property to safeguard the loan. You will be charged for this expense.

The agreement covers both the responsibilities of the council and your responsibilities, including making sure that your home is insured and maintained. If you incur expenses in maintaining your home while you are in residential or nursing care, these will be allowed for in the amount that you are assessed as contributing each week from your capital and income.

You can end the agreement at any time (for example if you sell your home) and the loan then becomes payable immediately. Otherwise the agreement ends on your death and the loan becomes payable 90 days later.

Advantages of using the deferred payment agreements scheme

A deferred payment is only one way to pay for care. To find out about other options available you can speak to a financial adviser or seek advice from an independent organisation – see ‘Getting independent advice’ below.

If there is an existing agreement for a third party top up, where a family member or other person puts additional money towards your care placement, and you decide to take advantage of the Deferred Payments Scheme, you can add the cost of the top up payments to your DPA scheme loan provided the council agrees that there is enough equity in your home.

The government’s rules say that top ups for people not using the deferred payments scheme currently have to be paid for by somebody else – for example, a member of their family – so a deferred payment is currently the only way of paying a top up yourself without depending on a third party.

Other options

You may choose to rent out your property, which could give you enough income to cover the full cost of your care. There are advantages to this as you will not accrue a debt, be liable for interest and administrative charges and your property will be occupied. Your tenant will be paying utilities and council tax which will reduce your outgoings.

There are also various equity release products which may be suitable for your personal circumstances.

You should take independent financial and legal advice to help you decide which course of action will be financially better for you - see ‘Getting independent advice’ below.

Conditions for the Deferred Payments Agreement Scheme

In order to apply for the Deferred Payments Agreement Scheme you must:

  • have capital (excluding the property) of less than £23,250
  • be professionally assessed as requiring and be entering permanent residential /nursing care in a registered care home
  • own or have part legal ownership of a property, which is not benefiting from a property disregard, and ensure your property is registered with the Land Registry (if the property is not, you must arrange for it to be registered at your own expense)
  • have mental capacity to agree to a deferred payment agreement or have a legally appointed agent willing to agree this

Whilst in the agreement, you will also need to:

  • have a responsible person willing and able to ensure that necessary maintenance is carried out on the property to retain its value (you are liable for any such expenses)
  • insure your property at your expense
  • pay any client contribution in a timely and regular manner; if you fail to pay the client contribution on a regular basis the council reserves the right to add this debt to the loan amount

There can be no other beneficial interests on the property, for example outstanding mortgages or equity release schemes, unless this is approved by the council.

Acceptance of any application under the scheme is subject to you meeting the criteria for entering the scheme, and the council being able to obtain security in your property. To check if you may be eligible, contact the Financial Assessments and Benefits Team on 01454 864269 or email fabteam@southglos.gov.uk.

Getting independent advice

There are many places you can get independent financial advice and practical help about meeting future and current care and support costs, as well as general information on money management and budgeting.  The article ‘How to get independent financial advice’ provides further information.

You can also visit the Society of Later Life Advisors (SOLLA) website, which provides information about choosing an accredited member of the society who has the expertise to best understand your needs and provide advice that is right for you and your family.

Age.UK has advice on paying for residential care, and The Money Advice Service explain more about means tests for social care costs on their website, including deferred payments.

Swan advocacy provide advocacy services for adult care matters.

If you or your family have any other questions about your rights to choose accommodation, you can talk to your social worker.

If you disagree with the amount you have been asked to contribute towards your residential or nursing care, the name and telephone number of the person in the Financial Assessments and Benefits Team who has prepared the calculation will be given on the statement. Contact this person in the first instance as they may be able to review the assessment. If you wish to make a formal complaint refer to this article.

 

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