The Scottish Government

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CHAPTER 1 BACKGROUND AND INTRODUCTION

Introduction

1.1 This research was commissioned by the Scottish Executive (now the Scottish Government) to provide an assessment of the use of Deferred Payment Agreements for care home residents.

1.2 Deferred Payment Agreements were introduced in July 2002 under the Community Care and Health (Scotland) Act 2002. They were intended to extend the choice available to care home residents about how to fund their care. Care home residents seeking financial assistance from the local authority to meet fees must undergo a financial assessment, which takes account of income and capital, usually in the form of the applicant's home. Where the assessed contribution to fees is greater than their income, residents may have to consider selling their home in order to release capital. Deferred Payment Agreements extend choice by offering residents the option to avoid selling their homes up-front to meet their care home fees by entering into a legal agreement to have part of their fees paid by their local authority and the balance settled from their estate.

1.3 Since 2002, the Scottish Executive has built a total of £3.5 million per year into local authority allocations to meet the initial costs of Deferred Payment Agreements.

Deferred Payment Agreements

1.4 A Deferred Payment Agreement ( DPA) is a legal agreement between the local authority and the individual which defines the proportion of a person's care home fees to be deferred and provides for the grant to the local authority of a standard security ² over the person's home to cover the deferred amount. The agreement should cover:

• Start date
• Arrangements for termination
• Arrangements for charging interest
• Amounts to be deferred
• Standard security over the resident's home
• Any conditions of the agreement (e.g., covering insurance, maintenance, letting etc)

1.5 Importantly, DPAs are an agreement between 2 parties - the local authority and the care home resident - and both parties have a role to play in establishing the agreement. Specific actions such as providing proof of ownership and a valuation of the home fall to the care home resident, and there is an expectation that legal representation will be used.

1.6 Eligibility for a DPA is restricted to any person who:

• Has been assessed as needing a care home place;
• Has capital at or below the lower capital limit (currently £12,500) when his or her resources are assessed under the National Assistance (Assessment of Resources) Regulations 1992 (as amended), but excluding his or her home from that assessment;
• Would not normally have his or her home disregarded from such a financial assessment (such as the first 12 weeks of permanent residential care; residential care on a temporary basis; where the resident's home is occupied by his or her spouse or partner or a relative or family member who is aged 60 or over or is incapacitated; or where the authority uses its discretion to disregard the home while a former carer continues to live there: this restriction applies only to deferral of the relevant portion of 'normal' care costs);
• Does not wish to sell his or her home or is unable to sell it quickly enough to pay for his or her care home fees; and
• Can grant the authority a standard security against his or her home, to secure a reasonable estimate of the total amount which will be owed - i.e. the total of any deferred payments plus any subsequent interest payable.

Scottish Executive guidance regarding use of DPAs

1.7 The 2002 legislation gives local authorities the power to enter into a DPA with care home residents meeting the criteria. It also included provision for Ministers to compel local authorities to provide DPAs, but this power has not been used to date. The Scottish Executive has, though, provided local authorities with guidance with regard to their role in promoting DPAs and enabling individual residents to enter into a DPA. A summary of the guidance that has been issued to local authorities over the period since 2002 is highlighted below ³.

• The Scottish Executive expects all eligible residents to be offered the choice to defer payment of part of their care home fees;
• DPAs under the Community Care and Health (Scotland) Act 2002 are the preferred method by which the Scottish Executive expects all local authorities to enable eligible residents to defer part of their contribution towards their care home fees;
• The Scottish Executive expects all local authorities to provide information to any resident who may be eligible on the option to enter into DPAs under the Community Care and Health (Scotland) Act 2002; and
• The Scottish Executive expects all local authorities to have legal and administrative procedures in place to enable them to enter into and maintain DPAs under the Community Care and Health (Scotland) Act 2002.

Charging Orders

1.8 The stated aim of DPAs was to extend choice to care home residents by offering them the option to defer payment of care home fees, and thus defer the sale of their home. Prior to the introduction of DPAs, however, local authorities had the discretion to offer deferred payments via the use of Charging Orders under section 23 of HASSASSA 1983 ⁴. This Act enabled local authorities to apply for a Charging Order on a resident's property. Primarily intended as a debt recovery process, Charging Orders nevertheless provided a proactive process for deferring care home fees.

1.9 In setting up a Charging Order a local authority carries out a search of the Land Registry to ensure the property is in the name of the resident, and then registers an interest in a property with the Registers of Sasines in Edinburgh which then provides for repayment of a debt when that property is sold. Charging Orders are set up entirely by the local authority (in their capacity as "creditor"); the care home resident takes no active part in the process.

1.10 The 1999 Sutherland Report ⁵ recognised the use of Charging Orders as a mechanism for deferring payment of care home fees. However, the Scottish Executive's position (set out in Circular CCD13/04) is that local authorities should use DPAs in setting up deferred payments arrangements and that Charging Orders provide for situations where residents are unwilling to pay their assessed contribution, either currently or in the future, and a debt therefore arises or will arise.

Practices across Scotland in relation to deferring care home fees

1.11 As outlined above, the introduction of DPAs in 2002 meant that local authorities had 2 options available to them in offering care home residents the opportunity to defer part of their assessed fees (i.e., DPAs and Charging Orders). Available information shows that authorities in Scotland followed a range of practices in relation to offering deferred payments.

1.12 Since 2002, the Scottish Executive has monitored the use of DPAs through statistical returns in 2003, and 2 separate follow-up surveys issued in June 2004 and September 2006. Initial figures in 2003 showed general low use of DPAs, and significant variation across local authority areas. The follow-up surveys further explored the issue of low uptake and sought to ascertain whether or not each local authority offers DPAs to care home residents, how many DPAs have been set up each year since the scheme started and how straightforward agreements have been to operate, including any problems encountered. Where DPAs were not offered or taken up, the surveys sought to identify the main obstacles, and to ascertain the views of local authorities about what could be done to remove or reduce the obstacles to setting up DPAs.

1.13 The 2004 Scottish Executive survey (but not the 2006 survey) directly sought information on the use of Charging Orders as a mechanism for offering deferred payments. This survey confirmed the continuing use of Charging Orders by the majority of authorities who responded (18 out of 24 authorities who responded). The authorities that provided information in 2004 reported offering the following options for deferral of care home fees ⁶:

1.14 The 2006 survey did not ask directly about the use of Charging Orders, but the information provided (by all 32 authorities) indicated that a mix of practices continued across the country. Although almost all councils indicated that they offered DPAs, some only did so if asked by the resident, and a small number noted that they never offered DPAs. Comments included on the questionnaire returns indicated that the use of Charging Orders continued to be common, with several local authorities noting that this use of HASSASSA powers has the same practical effect as DPAs in allowing residents to delay selling their properties to pay for their care, while also offering a number of advantages to both local authorities and care home residents relating to cost, time, complexity etc, as explored further in this research.

1.15 It is important to note that a number of authorities indicated that, although they offered residents the option of Charging Orders, this was only done as part of an "interim funding arrangement". In these situations, the Charging Order was used to provide short-term security until the resident had sold their home. This represents a different option from that offered by DPAs where there is the expectation that the arrangement will stay in place for the duration of the person's time in the care home.

1.16 The latest 2006 survey of local authorities indicated that, since 2002, the total number of DPAs that had been set up across Scotland was 108, with 30 being the highest number recorded in any one year (2005-2006). Figure 1 below highlights the local authorities that reported that they had set up at least one DPA over the period, and the number concluded in each year since 2002, indicating that all DPAs were concentrated in a small number of local authorities.

Figure 1: Local authorities reporting one or more DPAs since 2002 in the Scottish Executive 2006 Survey

^{* The council were unable to identify numbers of DPAs for 2004-05 and 2005-06 from their records}

1.17 However, the commencement of the research by RP&M Associates has subsequently shown that these figures over-estimate substantially the actual number of DPAs that have been set up in Scotland since 2002. A number of local authorities indicated on their survey return that they had set up DPAs, when in fact the research found that they operate a regime of applying Charging Orders to the resident's property. While the table above based upon the Scottish Executive 2006 survey identified the total number of DPAs as 108, the research by RP&M has established the actual number to be 10 (See Figure 2 below). In addition to these DPAs already established, Borders, Highland and Edinburgh Councils were in the process of setting up further DPAs in the current financial year (2007-8).

Figure 2: Number of DPAs set up since 2002, as confirmed by current research

1.18 Many of the local authorities that indicated they had not set up any DPAs reported using the Charging Order regime as a method of allowing care home residents to defer fee payments. The exact number of Charging Orders put in place over the same period (2002-3 to 2006-7) is not known as the 2006 Scottish Executive survey did not seek this information; however, the 2004 survey reported 137 Charging Orders in place at that time across 13 local authorities that offered the option and provided information.

1.19 Both Scottish Executive surveys asked local authority representatives to give their views about the low uptake of DPAs since 2002. Reasons given included:

• The complexity involved in the process of setting them up
• The up-front costs to the resident/ family in preparing the standard security required
• The issue of the capacity of the resident to complete the agreement, coupled with no family member having power of attorney to act on the resident's behalf
• Clarity issues surrounding ownership of the property itself

1.20 The Scottish Executive, however, wished to further explore this low take up and the reasons for it through further research in order to provide a full assessment of the use of DPAs.

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