Ben Tyer: Receiving an increased state pension and a lump sum will mean a financial reassessment
Ben Tyer is a partner at GLP Solicitors and a legal specialist in care funding. Scroll down for responses from the Government and the Local Government Association.
As a lawyer I cannot comment on whether it is morally right to include a state pension backpayment in a financial assessment for care funding. I have to advise on how the law applies.
I will explain how care fees are assessed and paid for at present, and the potential consequences of getting a large, unexpected state pension backpayment when you might need or are already receiving care funding.
Unlike healthcare, which is free at the point of use, social care is means-tested when the local council looks at your income, savings and property to calculate how much you need to contribute towards the cost of your care and support.
When someone is receiving this at home, as opposed to in a residential care setting, a local authority has more discretion about how much to charge so any calculation may disregard the state pension backpayment though it is not guaranteed.
If a person needs residential care and owns capital above the threshold of £23,250 then that person must pay their own charges. The person is known as a self-funder.
Where a person in residential care has savings below £23,250 but above £14,250, a person can seek financial support from the local authority.
The person’s income and benefits, such as pensions and attendance allowance, will be included plus a ‘tariff’ income based on capital between £14,250 and £23,250. The council pays the remaining cost of your care.
Where a person has less than £14,250 of capital then this amount is entirely disregarded, but the person must contribute to fees from their income. Again, the council pays the remaining cost of your care.
A person’s home is included unless it falls into one of the ‘disregards’ such as the person’s spouse continuing to live there.
Will a state pension backpayment lump sum be included in any financial assessment?
Receiving an increased state pension and a lump sum will mean a financial reassessment.
Has a state pension backpayment affected your care funding?
This article focuses on care funding in England, where the late Dorothy Ostins lived.
You can find out how the system works in Wales here, Scotland here and Northern Ireland here.
If you live anywhere in the UK, have received a state pension backpayment, and are having an issue with care funding as a result, please write to email@example.com and put CARE FUNDING in the subject line.
The new weekly pension amount will be included and there is no law, regulation or guidance that local authorities must disregard the lump sum.
The simplest method of preventing the victims of this pension error from having to use this money on care would be for the Government to amend what can be disregarded.
They did this, albeit under different circumstances, in response to the terrorist attacks in London and Manchester in 2017.
Following those tragic events, new regulations were passed so that any payments from the London Emergencies Trust and We Love Manchester Emergency Fund are to be disregarded in any financial assessment.
Unless there is a similar change, state pension backpayments will potentially be included in any financial assessment in calculating contributions to care home fees.
Can you give the money away, or spend it?
You have to tell your local authority about the state pension backpayment because they are allowed to recover debts where a person misrepresents or fails to disclose information relevant to the financial assessment.
Giving it away is similarly problematic. If a person has intentionally decreased their overall assets in order to reduce the amount they are charged towards their care then this is known as deliberate deprivation.
This can occur in different ways such as transferring title deeds, putting assets into trust or merely just giving money away.
However, there may be many reasons for a person depriving themselves of an asset.
A local authority therefore has to consider whether avoiding care and support charges was a significant motivation, and whether the person had a reasonable expectation of needing to contribute to the cost of their eligible care needs at the time.
If the local authority believes deprivation has occurred they would seek to charge the person as if they still had the asset or money.
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Where the person has transferred the asset to a third party to avoid the charge, the third party is liable to pay the local authority the difference between what it would have charged and did charge the person receiving care.
There is no time limit on a local authority seeking to recover charges in this scenario.
So, those already in care who receive a state pension backpayment, and who therefore know it may affect their contributions, will have more of an uphill task in persuading the local authority that giving it away to avoid paying was not a motivation.
However, someone coming into money unexpectedly when they were previously just getting by is not a typical scenario.
Therefore wanting to spend the money on much needed clothes, equipment, trips, children, grandchildren – which they have been unable to do for so long through no fault of their own – would be extremely persuasive in my view.
For those not already in a care home, it is easier if they are fit and healthy and could not have foreseen the need for care and support.
In those circumstances the guidance states that it would be unreasonable for a local authority to decide that such gifts were deliberately intended to avoid paying for care and support.
In either case, paying off a debt must not be considered as deprivation so this would be a sensible option.
Plus, if a property disregard applies because a spouse continues to live there then paying off some or all of the mortgage would also be sensible.
Can a local authority backdate or recover old charges?
If you have been in care and eligible for financial support, and later receive a state pension backpayment, my view is that local authorities will not be entitled to recoup their previous contributions.
In any assessment, the crucial issue is that a local authority must satisfy itself that the income would have been available to the person.
Clearly it is only since former Pensions Minister Steve Webb and This is Money discovered widespread underpayments of the state pension that people became aware they were entitled to lump sums and increases in income going forward.
These weren’t available to them in previous years so backdating assessments is not acceptable.
For those currently in care and reliant on funding, the local authority should not seek to recover charges for the period in which an increased pension income was unavailable, and a person was not aware of any higher costs they might have been incurring if it had been available.
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For those who were in care and reliant on local authority funding but have now died their estate should not be pursued for charges the person was unaware of incurring.
What about for charges going forward?
In calculating how much a person must contribute to care home fees, a local authority looks at two distinct areas: capital such as buildings, savings, investments and shares; and income such as state pension, private pension, attendance allowance and so on.
My view is that an increased state pension going forward would be a change in circumstances so a local authority will probably reassess a person’s ability to meet the cost of any charges to take account of this higher income, which may increase your contribution.
However, the lump sum backpayment should not be taken into account.
If a person were to receive a lump sum of £30,000, for example, then that would appear to take the person over the £23,250 threshold making them a self-funder paying the full cost of care.
But I would argue that a provision in the guidance to local authorities should apply here, namely that ‘capital is to be disregarded which is to be treated as income’.
This is because the lump sum in this case is based on underpaid pension, which as everyone knows is an income, so it should not be treated in the same way as savings or an inheritance.
Meanwhile, if the lump sum ought to be treated as income then it shouldn’t be included in a financial assessment as if were all received in the current year.
HMRC has confirmed it will tax backpayments based on the amounts that ought to have been received in previous years if state pension had been paid correctly at the time, so it must follow that local authorities should do the same.
What is likely to happen now?
This a best case scenario, but the straightforward solution would be for the Government to change the law to clarify that these state pension backpayments ought to be disregarded in financial assessments for care funding.
But whether it is or not, lump sums should be disregarded in practice and only the increased state pension going forward should be included in terms of assessing future care support.
If a local authority takes a different view, you can argue your case based on the guidance I have cited above, and if necessary you should consult a lawyer who specialises in this area.
It is of course important that people pay the contribution to their care costs that they are responsible for, but local authorities should bear in mind that they are bound by the public law principle of acting reasonably at all times.
And as the guidance states, ‘people should be treated with dignity and respect and be able to spend the money they have saved as they wish – it is their money after all’.
What do the Government and the Local Government Association say?
‘We are committed to the sustainable improvement of the adult social care system and, as set out in the Queen’s Speech, we will bring forward proposals later this year to ensure every person receives the care they need, provided with the dignity they deserve,’ says a Government spokesperson.
‘Under the Care Act 2014, charging is based on a number of principles including that people should not be charged more than it is reasonably practicable for them to pay.
‘The government is taking action to correct the historical pension underpayments made by successive governments and anyone impacted will be contacted to ensure they receive all that they are owed.’
The Government also gave a rundown of the rules as follows:
– Where a local authority charges a person for their care and support, regulations set limits below which a person’s income and capital must not be reduced by charges.
– Local authorities may take most of the benefits people receive into account, unless it is specifically required to be disregarded by the regulations.
– The Care and Support Statutory guidance sets out that any capital which is to be treated as income is to be disregarded.
– The responsibility for interpreting and applying the regulations and guidance rests with local authorities. It is for each local authority to consider the evidence presented and to make the appropriate decision taking into account all the available information and taking its own legal advice where appropriate.
Councillor David Fothergill, chairman of the Local Government Association’s community wellbeing board, said of Ben Tyer’s take on treatment of state pension backpayments: ‘Local authorities follow central government guidance on social care funding assessments and we will look at this legal opinion with interest.
‘We need a sustainable, long-term funding solution for social care and government should bring forward its proposals, including a timetable for reform, as soon as possible and before the summer parliamentary recess.’
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