Long term care planning and the handling of income
19 November 2019
Following on from his article last week looking at the protection of capital when long term care planning, Tony Miles, technical director My Care Consultant Prudential, focusses on how income can affect a person’s care liabilities.
Having assessed a person’s capital position as part of a financial assessment when establishing ability to pay for social care, local authorities will then look at the person’s income position, but only where their capital assets fall below the upper threshold.
In England, Northern Ireland and Scotland, capital between the upper threshold and lower threshold is translated into ‘tariff income’ at a rate of £1 for every £250 of savings, and added to other eligible income. In Wales, as there is only one threshold above which a person must pay for their social care, this doesn’t come into play.
Only the income of the cared-for person can be taken into account in the financial assessment of what they can afford to pay for their care and support. Where this person receives income as one of a couple, the starting presumption is that the cared-for person has an equal share of the income. A local authority should also consider the implications for the cared-for person’s partner.
All income will be taken into account, unless it is disregarded under the regulations. Income that is disregarded will either be partially or fully disregarded; the statutory guidance applicable details types of income that fall into either disregarded category. This said, there are two areas of confusion that often need clarification.
Employed and self-employed earnings
One aspect of income that should be excluded but might sound counter-intuitive, is that of earned income. In all cases, irrespective of setting, employed and self-employed earnings are fully disregarded. Essentially, this is linked to the principle of wellbeing and the belief that taking into account earned income in a financial assessment would undermine this. So, in practice, someone could be immobile, in a care home, but running an online business generating earned income that would be ignored in any initial or subsequent financial assessment. Clearly the accumulation of such income as capital would then potentially be subject to the capital thresholds and giving it away might well be caught in the deliberate deprivation rules, so the matter is not simple and straightforward.
In some circumstances, a person may be treated as having income that they do not actually have. This is known as ‘notional income’. This might include, for example, income that would be available on application but has not been applied for, income that is due but has not been received, or income that the person has deliberately deprived themselves of, for the purpose of reducing the amount they are liable to pay for their care. In all cases, the local authority must satisfy itself that the income would or should have been available to the person.
Two specific areas are worthy of further comment in respect of notional income:
1) The impact of pensions on local authority support
2) How notional income impacts on state benefits
If a person is below the qualifying age for Pension Credit, only funds withdrawn from their pension savings will be assessed. Once that person reaches the qualifying age for Pension Credit, all their pensions are assessed for the means test. Where such pensions are uncrystallised, a notional income is taken into account based on the level of annuity that could otherwise have been purchased.
Where the pension is in drawdown, a notional income will also be taken into account, based on the higher level of the income being withdrawn and the level of annuity that could be bought.
In respect of state benefits, local authorities take most of the benefits people receive into account (subject to some that are disregarded – such as the mobility component of Disability Living Allowance or Personal Independence Payments – and the principle that a person should be able to retain enough of the benefit payments to pay for things to meet needs not being met or deemed eligible by their local authority). Where someone is not claiming nor in receipt of qualifying benefits for which they are eligible, this is where notional income kicks in again, and local authorities will proceed in such cases on the basis that benefits are being claimed. This is why understanding entitlement to and claiming benefits is important when an individual is subject to a financial assessment, to determine what they will have to pay towards their social care.