Gareth Shaw: What happens to someone’s pension when they go into care?

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Dear Gareth,

My mother is about to move into a residential care home on a permanent basis. I jointly own the house that she currently lives in and we plan to use a ‘deferred payment scheme’ to cover the cost of her care until I sell the property.

But no-one can tell me whether my mother will be able to still receive her state pension, attendance allowance and her private pensions if we take up the deferred payment scheme? Can you help?

Gina Rogers, via email

Gareth says…

Arranging care for a loved one can be stressful, not helped by negotiating a labyrinthine set of rules to understand how to pay for it. So I can appreciate the frustration you’ve experienced trying to get answers to what should be a relatively straight-forward question about your mother’s income.

Let’s start with how funding for residential care works. I’m going to focus on care in England, which is where you’re based, as the systems are slightly different across the UK. Whether or not your local authority will pay for some or all of your mother’s care will depend on the outcome of a financial assessment.

This will look at the income and capital your mother has to determine whether or not she can afford to pay for care herself, or whether the local authority will partially or fully fund her care.

It is important to note that the value of your home is only taken into consideration when assessing finances for care homes. It won’t be considered for ‘domiciliary care’, or care in your own home. In England, if her savings and assets are worth more than £23,250, she’ll have to fund her care entirely. As the joint owner of a property, this appears to be the case. But if the amount of capital she owned fell between £14,250 and £23,250, the council would make a contribution to her care. She would have to pay £1 for every £250 in savings she has between these bands.

The local authority would only pay for her care in full if she had less than £14,250 in assets. The council would not require her to pay anything out from her savings, but she may be required to make a contribution from her income.

That is very much the basics of care funding. Which? publishes a standalone website dedicated to helping you navigate later life care: which.co.uk/later-life-care. You have said that you are planning to use a deferred payment scheme.

A deferred payment scheme is essentially a loan from your local authority to cover the cost of your care, allowing you to effectively extract cash from your home without selling it. In order to qualify for it, your mother needs to own a property with no-one else living there, be in a residential care home, and have less than £23,250 in savings.

So, as the joint owner of the property, you cannot be living there if you want to take up this option.

The loan is secured against the property, which means it must be repaid when the owner dies or the property is sold. You will pay interest, although this is capped at a maximum of 1.45 per cent.

Local authorities may charge other set-up fees, but they are not allowed to make a profit. As to whether or not your mother can keep her income, the simple answer is yes, although that comes with a caveat. She should be able to retain her state pension, attendance allowance and other pension income, but she will go through a financial assessment with the local authority prior to arranging the deferred payment scheme.

They will usually expect her to use some of her income to contribute weekly to her care home costs. They must, however, allow her to retain a ‘disposable income allowance’, currently £144 per week. So she should be able to keep up to £144 a week of her total income – anything above that will likely be used to contribute towards care costs.

Depending on how much income your mother earns, this may sound disappointing that her income is effectively being cut to £7,488 a year. But it will reduce the amount that you need to defer, paying back less when the property is sold and retaining more of the profits made on sale.