Feature

posted 14 Oct 2003 in Volume 8 Issue 6

Key benefits update

Benefits expert Alan Robinson provides an important set of updates on subjects that have so far caused confusion, including in the first case, the close observation of professional-indemnity policies. It is also expected that many older people will fail to apply for the new credit. Given the level of complexity, this is not surprising. ECA readers can help take the lead with the assistance provided in this summary.

Key update one: New commissioner’s guidelines on overpayments to appointees

Readers may recall my article in the March/April 2000 edition of Elderly Client Adviser concerning benefit overpayment and mental incapacity. In that article, one of the things I explained was the problematic position of an appointee when an overpayment arises. To recap that position, the issue is that of determining from whom an overpayment is recoverable where an appointee acts for someone who themselves lacks mental capacity:

The Statute. Section 71 of the Social Security Administration Act 1992 provides that an overpayment is recoverable when it arises from a misrepresentation or a failure to disclose a material fact. The overpayment is recoverable from the person who makes the representation or who fails to disclose. It is therefore clear that an agent who makes a misrepresentation, or who fails to disclose, is him or herself liable to repay any benefit overpaid.
The contradictory decisions. The issue was considered by different commissioners, and resulted in conflicting decisions. In CIS/332/1993, Commissioner Mesher held that the appointee merely acts on the claimant’s behalf, and so recovery could be made only from the claimant and not from the appointee.

In CIS/12022/1996 (reported as R(IS) 5/00), Commissioner Howell took the opposite view, and held that recovery was possible from the appointee.

The result was an unhappy confusion and serious worry for both lay and professional appointees whose only “crime” might be assisting a vulnerable person while acting upon what transpired to be partial information.

The issue has now been considered by a Tribunal of Social Security Commissioners in CIS/2178/2001:

The facts. The claimant was a woman who suffered from multiple sclerosis, and who lived in a nursing home from 17 May 1997. Her mother was her appointee. She received disability living allowance, incapacity benefit and income support, which were paid into her bank account by direct credit transfer. The local health authority took over responsibility for her nursing-home fees from 8 October 1998. Her award of income support was revised on 12 April 1999. In June 2000, decisions were taken to seek recovery of an overpayment.
The decision on appeal to the tribunal. There were two overpayment decisions. The second concerned an overpayment that had been caused by credit-transfer arrangements, and is not relevant to this article. The first decision, however, determined that the appointee on behalf of the claimant had failed to disclose a material fact, namely that the health authority was funding the claimant’s stay in the nursing home with effect from 8 October 1998. There was, therefore, an overpayment from that date until the revision of the income-support award on 12 April 1999. The appointee’s appeal to the tribunal was dismissed, the tribunal citing as a reason the decision of Mr. Commissioner Howell in R(IS) 5/00.
The legal arguments. At the hearing before the Tribunal of Commissioners, counsel for the claimant argued that the appointee simply stands in the shoes of the claimant so that any overpayment must be recovered only from the claimant. He submitted that R(IS)5/00 was wrongly decided and CIS/332/93 should be followed. Counsel for the Secretary of State, perhaps not surprisingly, adopted the point of view of Mr Commissioner Howell. The Tribunal of Commissioners preferred the reasoning set out in R(IS)5/00.
The ruling. Generally both the appointee and the claimant are liable where an appointee misrepresents, or fails to disclose a material fact.

While the general rule is now established that both the appointee and the claimant are liable where an appointee misrepresents, or fails to disclose a material fact, there are two exceptions. The exceptions arise out of the fact that appointees derive their authority from the Secretary of State and not from the claimant:

The retained benefits exception. Where the appointee has retained the overpaid benefit, the overpayment can only be recovered from the claimant if that person has sufficient mental capacity, and if he or she is a party to the misrepresentation or failure to disclose. Basing the argument on common law principles, the commissioners hold that the appointee acts without the authority of the claimant, and so the overpayment is recoverable only from the claimant in so far as the payment has been applied to or for the benefit of the claimant.
Reasonable exercise immunity with indemnity. In appointing a person to act on the behalf of the claimant, the Secretary of State must be taken to grant the appointee a degree of immunity from personal liability in respect of the reasonable exercise of the authority to act. The agent is presumed not to have agreed to accept liability for failing to do more than is reasonable. Bearing in mind the lack of remuneration for appointees, the commissioners held that the same indemnity should be implied into an appointment of an appointee under Regulation 33 of the Claims and Payments Regulations.

There are limits and other factors relevant to the application of the indemnity principle:

Appointee’s failure to disclose a material fact. There is unlikely to be a right for the appointee to obtain indemnity from the claimant in a case where it is determined that the appointee has failed to disclose a material fact. This is because it is implied that it is reasonable for the appointee to disclose all material facts, and failure to do so will, therefore, result in default on the part of the appointee.
Misrepresentation. In cases of misrepresentation, the commissioners noted the strict liability, which is imposed on the claimant. They indicated that this may be acceptable in the case of the claimant personally, but is not acceptable in the case of the representative. They therefore went on to say that in circumstances where the appointee has acted with due care and diligence, only the claimant is liable.

In summary, the decision does not affect the usual situation where an appointee having acted reasonably can readily obtain a small refund from the resources of the willing claimant. It is particularly important where the refund application is significantly greater than the claimant’s resources and the appointee finds themselves “in the frame” to supply the shortfall. It is also particularly important where the claimant, having had the benefit arising from an appointee’s genuine mistake based upon their reasonable endeavour, unfairly attempts to cast the burden of repayment upon the appointee.

The decision is of advantage to professional appointees such as Social Services departments or to professional attorneys who take on the role of appointee. As long as they carry out their duties with all due care and diligence, they will not be caught by an inadvertent misrepresentation. If, of course, a misrepresentation is made in any way carelessly, then there will be personal liability on the appointee.
The decision CIS/2178/2001provides a welcome clarification of a doubtful area, and provides useful support for appointees in the exercise of their duties.

Key update two: The state pension credit

The new state pension credit (SPC) is due to come into force on 6 October 2003. It replaces the minimum-income guarantee for pensioners, and adds a new savings credit. There will be no capital cut-off, and income from capital will be assumed at the rate of £1 for every £500 above £6,000 (in most cases). There will be a new system of making awards, which last for a period of five years, instead of the person claiming having to report every change of circumstance as it occurs.
The new benefit is covered by the State Pension Credit Act 2002. The principal regulations are the State Pension Credit Regulations 2002 No. 1792.

Structure of the state pension credit
The new SPC will consist of two parts. In summary:

Guarantee credit (GC). This replaces the minimum-income guarantee, itself a term describing income support as applicable to pensioners. For 2003/4 this is £102.10 for a single person and £155.80 for a couple, that is a man and woman living together as husband and wife whether married or not.
Savings credit (SC). This is new. For a single person, the savings credit will rise at 60p in the pound for prefix-pension credit assessed income between £77.45 and £102.10 per week. It then falls at 40p in the pound for prefix-pension credit assessed income between £102.10 and £139.07. The maximum amount of SC an individual can receive is £14.79 per week when the prefix-pension, credit-assessed income is £102.10. Similar rules apply to couples, with the threshold set at £123.80 and the maximum at £155.80. At an income of £123.80, no SC is payable. At £124.80, 60p SC is payable, and so on. The maximum amount of credit is £19.20, for a couple with non-pension provision of £31 a week.

The SPC will be run by the Department for Work and Pensions and not by the Inland Revenue. Decisions will be made in the name of the Secretary of State, and there will be a right of appeal to a tribunal.

Who can claim?

A person will need to be present and habitually resident in Great Britain to claim. People excluded from benefits under the Immigration and Asylum Act 1999 do not qualify;
A person who is temporarily absent can claim for up to four weeks provided that they otherwise fulfill the requirements of the tax credit and their absence is unlikely to exceed 52 weeks. If the absence is for the purpose of accompanying a child or young person for medical treatment, entitlement continues for eight weeks. The child or young person must live with the claimant. A person who is themselves abroad for treatment continues to be entitled;
Entitlement to the GC depends on the claimant, or his or her partner, being over the qualifying age, which is at present 60, but which is defined in the Act as the retirement age for a woman. Thus, the definition covers the changing retirement age;
Persons aged 65 or over can claim the SC;
A couple are treated as members of the same household except in three situations where:

The parties have separated and the separation is likely to exceed 52 weeks and the parties do not intend to live together;
Either is permanently in residential or nursing care;
Either is in detention (i.e., custody).

In the case of a couple, the SC can be claimed when the first of them reaches age 65.

Treatment of the claimant’s income and capital

Income and resources of couples are aggregated;
All benefits count as income, except for:

DLA or attendance allowance;
Constant attendance allowance;
Child benefit;
Child’s special allowance;
Guardian’s allowance;
Increases in benefits for a dependant other than the claimant’s partner;
Social-fund payments;
The Christmas bonus.

In the case of earnings, the amount taken into account is the gross earnings figure, less any tax and national insurance actually paid, and also less one half of any contributions actually made to an occupational pension. Other deductions from earnings are ignored for the purposes of calculating SPC;
There is provision for tariff income from capital, which will be £1 for every £500 over the threshold (£6,000, or £10,000 for someone permanently in residential care, as at present), and not for every £250 as at present. There will be no capital cut-off. Capital itself is defined in a similar way to income-support capital;
Certain income is disregarded. Schedule 4 to the regulations covers items of income other than earnings (such as income from personal-injury trusts and compensation for personal injuries administered by the Court of Protection), and Schedule 5 covers disregarded capital (such as the family home and awards for personal injury held in trust or administered by the Court of Protection). In both cases the regulations are similar to those for income support;
Schedule 6 covers disregards from earnings. There is a £20 disregard where the claimant is a lone parent, or is a part-time firefighter, auxiliary coastguard or lifeboat crew, or is a carer, or is disabled. Otherwise the disregard is £5 for a single person and £10 for a couple;
There will be notional income and capital rules. Notional income will include items of retirement provision for which no claim has been made or which is being deferred. Presumably this includes deferred state retirement pension;
The notional-capital rule (which imputes capital disposed of with the aim of securing or increasing means-tested benefits entitlement) is again similar to income support, and like that, it excludes payments of compensation for personal injury to the claimant, which are placed in a personal-injury trust or are administered by the Court of Protection. It also excludes diminishing notional capital from the notional-capital rules. A person who disposes of capital by way of gift is deemed to have deprived him or herself of it. However, an older person who has used capital to pay a debt (whether or not due), or to buy goods or services that are reasonable in the claimant’s case, does not deprive him or herself of the capital for the purpose of the capital and income-assessment rules;
Where assessable capital is jointly owned, the parties are deemed to hold it in equal shares;
The Act contains a definition of “retirement pension income”, which is relevant to the calculation of both the GC and the SC. It consists of a state-retirement pension, an occupational or personal pension, income from an overseas arrangement, and income from a retirement annuity;
11. There is to be no restriction on undertaking remunerative work as at present.

The guarantee credit

The GC operates in the same way as income support at present;
There is a prescribed amount (the “standard minimum guarantee”) and if the
claimant has no income, or has income below that level, the GC will top up
income to that level;
The standard minimum guarantee will consist of a set amount for a single person or a couple, (which for 2003/4 is £102.10 per week for a single person and £155.80 for a couple) with prescribed additions, which include the following:

An additional allowance for severe disability, based on the same conditions as those for the severe-disability premium at present, that is that the claimant claims attendance allowance or the middle or higher rate of DLA care component, and lives alone or with a partner who also claims, and nobody claims carers allowance for them (£42.95 per week for a single person, and £85.90 where both are entitled);
An additional allowance for a carer or carers (£25.10 per week for each carer);
Housing costs calculated in accordance with regulations, which largely resemble the present arrangements for income-support housing costs;
A transitional addition for someone who was formerly on income support or income-based, job-seekers allowance and who would otherwise be worse off as a result of the change.

The savings credit

The savings credit is, unlike GC, an entirely new benefits concept;
SC is payable where a person’s income includes items other than benefits, for example, an occupational or personal pension. The starting threshold is £77.45 per week for a single person and £123.80 per week for a couple. All income counts as “qualifying income” except:
- Working tax credit;
- Incapacity benefit;
- Contributory jobseekers allowance;
- Severe disablement allowance;
- Maternity allowance.
Thus, if a person has saved to modestly expand their weekly income above the starting threshold but below the upper threshold, they will benefit.
Note that if income is not qualifying income (for example, incapacity benefit for a partner under retirement age) it will not give rise to any additional income in the form of savings credit, but that it will count as total income in determining the amount of guarantee credit (see example in the box opposite).
GC is then calculated in the same way as income support. SC is calculated by awarding 60p for every pound of income above the threshold, up to the point at which entitlement to GC runs out. Thereafter, the amount reduces by 40p for every extra pound. The table in this section illustrates the scheme as it operates up to the guarantee credit threshold;
Similar rules apply to couples, with the weekly threshold set at £123.80 and the maximum at £155.80. At an income of £123.80 no SC is payable. At £124.80, 60p SC is payable, and so on. The maximum amount of credit is £19.20, for a couple with non-pension provision of £31 a week;
The guaranteed income level will be index-linked to earnings. Existing earnings disregards will be brought forward.

Savings credit where income exceeds upper threshold
Figure one shows what happens where the total retirement pension and other pension income is less than the standard minimum guarantee. Where it is more, an additional calculation is required. The excess income above the appropriate minimum guarantee is calculated and 40 per cent of this figure is deducted from the maximum amount calculated, as in figure one. If the figure of 40 per cent of the excess is more than the amount of savings credit as calculated, then no savings credit is payable. Excess income is calculated by reference to the standard minimum guarantee, not the appropriate minimum guarantee.

Figure one – single person
(assuming income of £77.45, which is the state retirement pension)

Extra           Total          Guarantee      Savings              Total
private         income       credit             credit                 income
income        pre-GC

£0               £77.45       £24.65          £0.00                 £102.10
£1               £78.45       £23.65          £0.60                 £102.70
£2               £79.45       £22.65          £1.20                 £103.30
£5               £82.45       £19.65          £3.00                 £105.10
£10             £87.45       £14.65          £6.00                 £108.10
£20             £97.45       £4.65            £12.00               £114.10
£24.65        £102.10     £0                 £14.79 (max)     £116.89

The award
An award of SC or GC, or both, can be made for a specified period. The Secretary of State is normally required to specify a period of five years, at the start of which retirement pension income is assessed for the whole period. The Secretary of State need not specify a period where one partner is under age 60, or where SPC is awarded at a higher rate during a temporary stoppage of part of the claimant’s retirement provision.

An assessed income period ends when the claimant no longer satisfies the conditions of entitlement, when part of the claimant’s retirement provision stops temporarily, or where a single claimant permanently enters residential care.

The intention is that there should be no continuing obligation to report every change of circumstance. There is no requirement to report changes in income from any retirement pension income during that time, and assessments are carried out to include taking into account any planned increases in retirement provision. Only changes, which need to be reported for the basic state pension (such as a change in the composition of the household), will need to be reported. At the end of the five-year period, a new assessment is made and the award is adjusted accordingly.

Effect on other benefits
Those entitled to GC will continue to be entitled to full housing benefit and council tax benefit (CTB).

Those receiving SC only will not be passported to full housing benefit or CTB, but their applicable amount for these benefits is increased by the maximum amount of SC allowed for a single person or couple, as appropriate. The SC will then count as income.

Where the claimant is receiving GC, with or without SC, the £16,000 capital cut-off will not apply to entitlement to housing and council-tax benefits, but where the claimant does not receive guarantee credit (including cases where only savings credit is received), the £16,000 cut-off will still apply.

Alan Robinson is a solicitor at Robinsons and Legal and Welfare Rights Training. He can be contacted at: alan@lwrt.co.uk.