Deferred Payment Agreements and Alternative Financial Arrangements

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.

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.

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.

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.

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.

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.

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.

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.