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SMI loans from April

Andyp5 Citizens Advice Bridport & District
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Thought this extract may be of interest from the CA ‘Benefits update - from the expert advice team’ monthly email to Cabbies.

‘Hot topic
We are receiving an increasing number of queries from advisers asking if they can assist clients who are deciding whether to accept a loan from DWP when existing help with mortgage payments ends in April 2018. It is our view that clients should be referred for independent financial advice if they need to decide whether to accept the offer of a SMI loan. This is not something that an adviser could help the client to decide as it would constitute regulated financial advice. The loan is replacing a benefit, so it is not benefit advice.

The client would have to agree to a charge being put on the property so a debt adviser (or generalist adviser) may be able to provide advice on the implications of this. However, what clients appear to be coming to local Citizen’s Advice for is advice on whether to accept the loan or not, which is not something that we believe advisers can provide advice on. As compound interest would be charged on the loan (the loan is not repayable until the person sells, assigns the interest or dies), an independent financial adviser may need to look at all their circumstances including how long the mortgage term has left, what the sum repayable is, if they have any alternative means to pay the interest etc.

If a client needs help completing the application form, there may be issues over whether they have understood the implications of applying for the loan in the first place and whether it is the right thing for them to do in their circumstances. Although an adviser can advise on how the loan scheme works, and the implications of not accepting a loan (i.e. support for SMI in benefits will stop from 6 April 2018), they cannot advise on whether accepting a loan would be the right thing for that particular claimant’.

neilbateman
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Does this mean that DWP and their contractors SERCO who have been phoning people are breaking the law as they are not regulated financial advisers?  The logic of Cit A’s advice is that DWP and SERCO are acting unlawfully and should be reported to the relevant regulator?

Paul_Treloar_AgeUK
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No, this is part of the problem, all SERCO are doing for the DWP is explaining the “choices” that people affected have, as per pages 3 and 4 of the attached booklet.

The problem is they signpost people to Citizens Advice or MAS and they can’t add anything in terms of which might be the “best” for someone, if there is such a thing for this shabby and ill thought through policy.

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Gareth Morgan
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Andyp5 Citizens Advice Bridport & District - 16 January 2018 05:20 PM

.... The loan is replacing a benefit, so it is not benefit advice.

I don’t think it’s possible to separate the loan and benefits.  I also think that it’s perfectly possible to give ‘information’ about the loan in enough detail to allow people to make an informed choice without having to ‘advise’ them on what they should do.

One other factor, which pretty much excludes any IFA’s from getting involved, is that group of people who will be entitled to a loan but aren’t entitled to benefits.  Those are people who would have got benefits if SMI had remained a part of their needs assessment.  In order for them to find out whether they can get a loan, someone has to:
work out their benefit entitlement
check the maximum SMI amount (the same for loan as would have been the old scheme)
a) If there’s an entitlement to benefit, assess the amount of loan
b) If there’s no entitlement to benefit, see if the surplus income is less than the SMI figure.  If it is then there’s an entitlement to a loan of the difference (no de minimis).

They then have to expalin how to apply for a loan on its own; which is worth doing as it will be cheaper than other financing.  Remember the ongoing interest can be reduced by making payments in - a minimum of £100 or the amount outstanding if less.  Paying off the whole amount each month (50p?) would create an interesting administrative situation for DWP.

The departmental view is that “very, very few people” are expected to apply for loans outside benefits.

If they dont get ‘advice’, that’ll undoubtedly be true.

 

[ Edited: 17 Jan 2018 at 10:40 am by Gareth Morgan ]
Mike Hughes
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Gareth Morgan - 17 January 2018 10:34 AM
Andyp5 Citizens Advice Bridport & District - 16 January 2018 05:20 PM

.... The loan is replacing a benefit, so it is not benefit advice.

I don’t think it’s possible to separate the loan and benefits.  I also think that it’s perfectly possible to give ‘information’ about the loan in enough detail to allow people to make an informed choice without having to ‘advise’ them on what they should do.

I agree, but most clients will go away believing they have been specifically led towards a particular “informed choice”. Given a choice between walking that fine line and doing very detailed (or deliberately vague!) case recording, or, deciding that this is regulated financial advice territory, many advice agencies will understandably opt for the latter

I view this whole change as

a) further overt privatisation of welfare, and,
b) a deliberate further reduction in the number of things we can advise on despite it being one of those things “someone” needs to advise on.

Makes our lives harder and those of our clients too.

davidsmithp1000
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Michele_J
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Let me raise a very significant issue in relation to a transition to SMI Loan.

I have a client, lone parent, terminally ill with 3 children under 14 years old.

She has been retired from her employment on grounds of ill-health and has a pension £232/week.

She had an entitlement to SMI (she has been ill for a long time but is sadly coming to the end of the road).

In January 2018 she received her legacy benefit IR-ESA summary which has a top up because of housing costs, i.e. £75.76 / week.  Her applicable amount including SDP and this amount, she was eligible and has been in receipt of SMI… However, tables have now turned. She made a timely application for the loan. All well and good.

The DWP / JCP is now turning on her and telling her she has NO entitlement to IR-ESA, i.e. because her pension is over the applicable amount £191.45 /week. So on the one end, entitlement is assessed as in the past and then, the ‘entitlement to a passported benefit’ retrieved… now what happens with change of circumstances as every year for example the pension is uprated, and therefore the SMI has to be recalculated.. at that point it is still done on the basis of Income-Related ESA applicable amount (!!) all be it including the eligible loan into the calculation…

The impacts are massive in relation to the fact that she is now no longer considered to have a ‘passported benefit’.
For her this is a loss of:

a) automatic CTR (she was getting 100% due to the special circumstances) - she has now received a bill for £560 - it is very stressful even if we manage to resolve this.. she is likely to have to pay some
b) Loss of school meals for the 3 children
c) School transport / coach fares - this is a lot for her because of location just under £300 / month
d) Free counselling services for the children which had been agreed via the school because of ‘passported benefit’ entitlement
c) Eligibility for the NHS Healthcare Travel costs Scheme which is critical to her as she is in Hastings and is under the care of Royal Marsden and now Guy’s hospital in London. Also issues with claiming for dental costs which is critical again… as a long time cancer patient she has significant issues with de-calcification / teeth

Let’s not forget she is also liable to pay her mortgage, SMI loan only partially provides for interests.

I have found a House of Commons briefing paper (06618) which foresee this: https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06618#fullreport

“A third layer of protection will apply to cases where the removal of SMI as part of the benefit assessment would end qualification for the benefit as the needs figure falls below that of income. These claimants will be treated as entitled to benefits and offered loans. However, they will not be automatically entitled to any passported benefits.”
[page 28 of the briefing]

I cannot find anything in the SMI regs 2017 that clarifies this…

Anyone got something? this is a perverse legislation and I doubt that there has been a satisfactory impact assessment on this.

 

Paul_Treloar_AgeUK
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When you ask has “anyone got something” on this, I’m not completely sure what you’re driving at Michele?

All of the problems that you’ve identified for your unfortunate client are inherent to the SMI changes.

The SMI regulations were amended but insofar as treating someone as entitled and passporting, this is restricted to: endments to the Social Fund Maternity and Funeral Expenses (General) Regulations 2005 and the Social Fund Cold Weather Payments (General) Regulations 1988 that enable claimants receiving loan payments to access the passported benefits to which the Social Fund Regulations relate where the claimants are treated as entitled to benefit, but do not have actual entitlement.

So beyond CWP’s, funeral payments and maternity grants, there is no passporting for people in your client’s situation. As you say, it’s brutal.

[ Edited: 15 Aug 2018 at 10:49 am by Paul_Treloar_AgeUK ]
Michele_J
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Sorry…. I was just trying to clarify that there was an amendment to this effect and to locate the amendment that specifies this clearly… I must say I find reading this staff pretty difficult sometimes and most of all time consuming in the middle of all other things.

This is so upsetting… Any chance for a challenge in a Judicial Review?  We have had the case of SDP with new claims for UC where a change of circumstances forced a terminally ill man to make a new claim for UC that resulted in loss of income… successful..

 

Gareth Morgan
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Michele_J - 15 August 2018 09:51 AM

“A third layer of protection will apply to cases where the removal of SMI as part of the benefit assessment would end qualification for the benefit as the needs figure falls below that of income. These claimants will be treated as entitled to benefits and offered loans. However, they will not be automatically entitled to any passported benefits.”
[page 28 of the briefing]

I cannot find anything in the SMI regs 2017 that clarifies this…

There are two separate points here.

The first is that once benefit entitlement ceases, so does any passporting.  That doesn’t need any legislation or amendment; the rules are already there.  The only variations are those specifically made for SFMFE and the Social Fund Cold Weather Payments.

The second is the removal of SMI and the replacement by loans.

The rules which allow loans to be made to people who no longer qualify for benefits are hidden in the interpretation regulation.

“(b) “joint claimants”—
(a) ...  or
(ii) members of a joint-claim couple who have made a claim for, but are not entitled to, such a benefit by reason only that they have income—
(aa) equal to or exceeding the applicable amount, but
(bb) less than the sum of that applicable amount and the amount of a loan payment applicable to the joint-claim couple;”

and

“(b) “single claimant” means—
(a) ...
(b) an individual who has made a claim for, but is not entitled to, a legacy benefit or state pension credit by reason only that the individual has, or, if the individual is a member of a couple, they have, income—
(i) equal to or exceeding the applicable amount, but
(ii) less than the sum of that applicable amount and the amount of a loan payment applicable to the individual;”

Sadly, your client seems to be badly hit by the changes.

Paul_Treloar_AgeUK
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Michele_J - 15 August 2018 10:54 AM

Sorry…. I was just trying to clarify that there was an amendment to this effect and to locate the amendment that specifies this clearly… I must say I find reading this staff pretty difficult sometimes and most of all time consuming in the middle of all other things.

This is so upsetting… Any chance for a challenge in a Judicial Review?  We have had the case of SDP with new claims for UC where a change of circumstances forced a terminally ill man to make a new claim for UC that resulted in loss of income… successful..

No worries, it confused us as well when the amendments came out, let alone the original regulations.

In terms of JR, it’s difficult to think of the grounds that could be made - perhaps you could contact Public Law Project as they’re the experts here?

With the UC JR, it was established (subject to possible further appeal by DWP) that people in similar situations could have very different outcomes on transition from legacy benefits simply by dint of whether they moved inside of or outside of any particularl local authority area. I can’t see that’s anywhere near as clear cut here, even though there is no argument that people like your client have demonstrably had a detrimental impact to their overall situation compared to previously - remember, however, that the UC JR also tried to have the lack of SDP in UC to be found unlawful but that was thrown out. So simply losing entitlement to something you were previously entitled to isn’t necessarily the strongest of arguments.

Michele_J
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Thank you Paul, Gareth for your thoughts which are much appreciated…. the hard part is to come.. putting this to my client…and try to work through this.