You might not need child benefit, you might not be entitled to it. But, did you realise that by not registering for child benefit you could lose out on your full state pension entitlement?
Parents who claim child benefit whilst caring for their newborn are entitled to receive National Insurance credit. But, new rules were introduced in 2013 and the number of claimants has dropped significantly since.
According to research from Royal London as many as 63,000 parents could lose as much as half a billion pounds in state pension, it’s been estimated.
Helen Morrissey from Royal London explained that: “For the last forty years, the National Insurance record of mothers has been protected through valuable credits which mean that time spent at home with young children does not impact on their state pension.
But, since 2013, growing numbers of mothers have either opted out of child benefit or have not claimed in the first place because of a new tax charge on higher income couples. This is doing permanent damage to their state pension prospects.
Some mothers will have lost over £23,000 in state pension rights since 2013 because of the changes, and are not allowed to make a backdated claim for missing credits.”
Up until the overhaul in 2013, child benefit was paid on a non means-tested basis. Your household income was irrelevant, the level of child benefit you could receive was universal and the vast majority of families claimed it.
Changes meant if you have an income more than £50,000, you entitlement was reduced. There is now a sliding scale where this reduces between £50,000 and £60,000, after which you are not entitled to any child benefit at all.
Steve Webb, policy director at Royal London explained that unless action is taken “a whole generation of women run the risk of getting reduced state pensions, reversing decades of progress. Providing national insurance credits to parents looking after young children was a vital part of the system. It has protected millions of mothers over the years since it was first introduced. But there is now clear evidence that this protection is being undermined because of child benefit changes introduced in 2013.”
Royal London claims that while efforts have been made to ensure that mothers are aware of the impact of missing out on child benefits, the system is clearly not working.
Who is affected?
Of the 63,000 parents that may be affected, Royal London estimates an overwhelming 95% are women. However, those who were registered for child benefit in the past then lost their entitlement are not thought to be affected. Of course, it’s worth checking, as transitional arrangements preserved their records for the purposes of the state pension.
How does pension credit work?
In total, you need 35 years of National Insurance contributions, or credits, to receive the full state pension, which is currently £164.35 a week. Parents with children under 12 years old receiving child benefit, get credits towards this, despite not earning an income.
Worryingly, Royal London estimates that being just one year short at the end of your working life could cost nearly £5,000 in missing state pension through the course of a typical retirement.
What should you do?
If you’re currently caring for a child and think you might be affected, the sooner you submit a claim the better, regardless of your family income. You will then receive pension credits from the moment you sign up, but unfortunately, contributions will only be backdated for three months.
We can’t overemphasise the importance of properly planning towards your retirement. If you’d like any help or advice about your state pension entitlement or your personal and workplace pensions, don’t hesitate to get in touch with one of the team.