The thought that they could struggle to cover the cost of social care as they age is one of the biggest worries that the clients of financial advisers have.
If a client’s main asset is the family home, there are many reasons why quickly selling it to pay for care is either not sensible or not possible.
They can, though, avoid or defer selling property to cover the cost of fees in a care home or supported living accommodation by using a deferred payment agreement.
What is a deferred payment agreement?
A deferred payment agreement (DPA) is meant to ensure you are not forced to sell your home in your lifetime if you need to release the equity in it to pay for residential care.
A DPA is an arrangement with your local authority that lets you use your home's value to cover care home costs. It lets you delay paying those costs until later, so you do not have to sell your home right away when you move into residential care.
A DPA can be used either to defer costs until after your death, or as a ‘bridging loan’ to allow time to sell a property to pay care fees. In effect, a DPA allows you to borrow money towards your care home fees from the local authority.
A local authority must offer a DPA if you meet the eligibility criteria and has discretion to do so if the criteria are not met.
The detail below is mainly in respect of the current rules in England, as there are slight differences for Wales and Scotland. In Northern Ireland there is no formal deferred payment system, but it might still be available.
What are the eligibility criteria?
To be eligible for a DPA you need to meet the following criteria:
- the local authority agrees you have care needs that should be met through a care home placement;
- you have a legal or beneficial interest in a property that is your "main or only home";
- you have savings and capital between the so-called lower and upper capital limits, not counting your home. Those who have less than the lower capital limit of £14,250 are not required to make any payments. Those with more than the upper capital limit must meet the full cost of their care. The upper capital limits are: £23,250 in England and Northern Ireland, £18,500 in Scotland, and £50,000 in Wales;
- your home is not disregarded in the financial assessment; and
- you agree to the conditions in the DPA.
The local authority must be able to take a first charge against the property. If they are unable to do so, they may not be able to offer a DPA.
You must also have mental capacity, if you lack mental capacity to agree to a DPA, someone with authority to act on your behalf can do so, for example a person with lasting power of attorney for financial decisions, or a deputy for property and financial affairs appointed by the Court of Protection.
Local authority discretion
If the local authority agrees you have care needs that should be met through a care home placement or sheltered accommodation, but you do not meet all the other eligibility criteria for a DPA, they can use their discretion and can consider:
- whether meeting care costs leaves you with very few accessible assets, including assets that cannot quickly or easily be converted to cash;
- if you would like to use funds tied up in your home to fund more than just your core care costs and purchase affordable top-ups;
- whether you have any other accessible means to help you meet the cost of your care and support; and
- if you are narrowly not eligible, for example, the assets are slightly too high.
When it comes to a discretionary decision, the authority does not have to agree to a DPA, but it must consider a request properly.
The two types of DPA
Local authorities offer two types of DPA if you qualify.
- Traditional agreement, also known as charging style: in this, the council pays the care home on your behalf. This is the most common type of agreement and it involves less paperwork since the council handles payments and contracts with the care home.
- Loan style agreement: the council loans you the money, and you pay the care home directly. It offers more control and flexibility in choosing a care home, but you must manage the payments and contract yourself.
In deciding what style of DPA to choose you should check with the care home what their charges would be in either case.
