Child benefit trap hits high earners’ state pensions

Families earning more than £60,000 could miss out on millions of pounds in state pensions, says Sam Brodbeck

Cuts to child benefits for high earners are set to wipe hundreds of millions of pounds off stay-at-home mothers’ state pensions. As a result, gender equality in state pensions could be “set back a generation” unless the Government takes urgent action, experts have warned.

Around 38,000 mothers are already missing out on state pension entitlements as a result of a glitch uncovered by Telegraph Money.

Since January 2013, families where one parent earns £60,000 or more incur a tax charge that claws back the value of child benefit.

Many couples affected have stopped claiming the benefit because there is no monetary advantage in doing so.

However, what most do not realise is that by not claiming the benefit they are missing out on potential future state pension payments.

Claiming child benefit counts as a National Insurance credit if the child is under 12, even when the benefit is wiped out by tax charges. If a mother is not working and does not claim child benefit she will lose rights under the state pension at a rate of £231 a year for every “uncredited” year.

Analysis of HMRC figures produced by Royal London, the pension company, estimated around 38,000 women have lost a total of £278m in this way since 2014-15.

And the problem is set to get far worse.

The firm said the number of mothers missing out was rising by 20,000 a year, meaning by April 2017 the total figure lost would be well over £500m. Royal London has urged HMRC to ensure women get the credits “which should be theirs by right”.

Steve Webb, the former pensions minister and now a director at the company, said: “Providing NI credits to parents looking after young children is 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.

“In a relatively short period of time, mothers have lost out on hundreds of millions of pounds in state pension rights and this situation is getting worse with every passing year.”

Mr Webb said without government intervention the “cause of gender equality in state pensions will have been set back a generation”.

Before January 2013, everyone got the same level of child benefit, no matter their income. But since then, the “high income child benefit tax charge” applies if either person in a couple earns more than £50,000.

This charge wipes out 1pc of child benefit received for each £100 earned over the threshold.

Child benefit is currently £20 a week for the oldest child and £13 a week for any subsequent children. So, once a salary goes above £60,000 there is no benefit to claiming at all, apart from building up National Insurance contributions.

As a result, nearly 500,000 people have stopped claiming the child benefit they were receiving, while a smaller – but growing – number of new mothers are not even starting to claim.

The first group have been protected by the Government, as anyone who claimed before the changes will still get NI payments for that child until they reach the age of 12. The second group – anyone who had a first child after January 2013 – are the people most at risk.

Helen Skelton-Smith, a mother of two, falls into both camps. She had her first child in 2011 and carried on working in her job in public relations.

But she stopped claiming child benefit in 2013 when the rules changed and her husband’s salary pushed them over the £60,000 threshold.

She had a second child in 2014 and took a career break. Because she initially claimed the benefit she will receive NI credits until her first born

‘The cause of gender equality in state pensions will be set back a generation’