Why a new parent should claim child benefit . . . even when they AREN’T entitled
It may sound crazy, but that’s the official advice – or you could risk a pension worth THOUSANDS less
MORE than £500million has been lost from the future State pension income of tens of thousands of stayat-home parents because of flaws in the system for claiming child benefit. Parents who started a family since 2013 are potentially impacted and many are unaware of the permanent damage being done to their pensions. The problem affects mothers and some fathers – and arises when one parent takes a career break to care for young children.
If the stay-at-home mother or father fails to claim child benefit – even if they are not entitled to it – they harm their future retirement income. This is because they do not accumulate National Insurance ‘credits’ which count towards their State pension.
Some parents will be able to recover losses if they work enough years to plug the gaps, but others may not realise what has happened until they claim their pensions.
Financial expert and former Pensions Minister Ros Altmann is alarmed by the situation. She says: ‘It really is worrying that women who know they are not entitled to child benefit still have to claim it, otherwise they lose credit towards their State pension.’
She adds that the situation is made worse by the fact that even when people discover they should have claimed child benefit, they can only backdate three months of National Insurance credits. This results in the irrecoverable loss of future State pension. Steve Webb, also a previous Pensions Minister and now director of policy at financial mutual Royal London, shares her concerns. He says: ‘The risk is that many stay-at-home mothers and fathers will reach State pension age and receive much reduced pensions.’
Child benefit is a weekly tax-free payment aimed at helping parents cope with the cost of looking after children. It was previously available to all families, regardless of income. But the rules changed in January 2013, allowing the Government to reduce it when one parent earned more than £50,000 a year – through something called the high income child benefit charge. For couples where a parent earns more than £60,000, they are not entitled to benefit – or they have to repay it in full if they do claim. It is these complicated rule changes that have triggered all the problems – with many high-earning parents not bothering to claim child benefit, unaware of the huge impact it could have on one partner’s future State pension.
Only one parent can claim child benefit, worth £20.70 a week for one child and £13.70 for any others. It is paid until a child turns 16 or 20 if they are in eligible full-time education.
It makes sense for the person who is not in full-time employment to make the claim, as they are the one in need of the National Insurance credits that will keep their State pension building. Families safe from the child benefit ‘trap’ are those where both parents are in full-time employment and therefore paying National Insurance contributions. A 35-year National Insurance contribution record is required for a worker to retire on a full State pension, currently £164.35 a week. But a fraction of the pension is lost for every year’s shortfall, equating to around £244 a year.
A parent who has failed to claim child benefit for five years – April to April – has lost five years of National Insurance credits. As a result, they have lost £1,220 of annual State pension – or £24,400 over a typical 20year retirement.
Another reason why many parents do not claim child benefit is because of poor timing around when they are given the information. Details are handed over, along with a wealth of other information and vouchers, in ‘Bounty’ packs shortly after a mother
has given birth and while she is still on the maternity ward.
Webb says: ‘New parents have plenty to think about following the arrival of their first child, so it is not surprising that thousands have opted not to claim child benefit, thereby exposing themselves to the loss of future State pension.’
Families are now being encouraged to take up the fight to stem further losses, firstly by signing a petition that seeks to make the rules less punitive by allowing parents to backdate claims for National Insurance credits beyond three months. It is at petition.parliament.uk/petitions/231761.
Parents in charge of raising children and whose partners are high earners are also being urged to claim the National Insurance credits they are owed. When submitting child benefit forms there is an option to claim the credits alone and forego the cash benefit.
Webb adds: ‘This gives a nonworking mother the best of both worlds – protection of their future State pension without the hassle of a tax bill and the need to fill in a self-assessment tax return.
I would urge any family to claim these credits rather than risk a disappointing retirement income from the State in years to come.’
A parent can start claiming child benefit as soon as they have registered the birth of their child.
A CH2 Child Benefit form must be completed. Visit gov.uk/childbenefit/how-to-claim or call the helpline on 0300 200 3100.
A Revenue & Customs spokesman says: ‘To ensure no one misses out on their full State pension entitlement, we urge all families to claim child benefit, even households liable to the high income child benefit charge. The child benefit claim form – which is included in Bounty packs – stresses the importance of this. But we are continuously considering ways in which our communications can be improved, both at the birth of a child and for existing child benefit claimants.’
For Laura Shannon’s views on the child benefit fiasco, see thisismoney.co.uk/child-benefit.