Since the changes to Child Benefit in 2013 when for those earning over £50,000 the child benefit was effectively reduced and for those earning over £60,000 the ensuing tax charge wiped out the child benefit payments completely. This has led to many new mothers not registering for child benefit.
Unless a mother who cares for a family, rather than working, signs up for child benefit, whether they are due to receive any or not, they won’t receive valuable credits towards a state pension to fill these career gaps.
Although some mothers may return to work and start paying National Insurance towards the state pension again. It is estimated that 38,000 are losing credits for looking after children, and this number is rising at roughly 20,000 per year.
Who is affected and how much are they losing?
In a policy paper titled ‘The Mothers Missing Out On Millions’, which analysed HMRC data to come up with the findings, Royal London calculated that over the two years to April 2016, some £278million in state pension entitlement may have been lost.
“If the rate of growth continues into the current financial year, the loss could reach more than £500million by next April”, it says.
Understandably women are most at risk but so are men that take on the responsibility of caring for children. If they haven’t signed up for child benefit, because they would suffer the High Income Child Benefit Tax Charge. This could have a devastating effect on their state pension when they come to retire, especially as this is now based on 35 years of National Insurance credits.
So how does the pension credit system work?
A parent receiving child benefit while a child is under 12 can get National Insurance credits towards their state pension despite not working.
This means that if a mother or father is unemployed and doesn’t pay National Insurance contributions, their state pension record is protected during these caregiving years.
People need to have 35 years’ worth of NI contributions or credits to get a full new state pension, which is currently £159.55 a week.
Someone who does not get NI credits while they are bringing up children, therefore, potentially loses 1/35 of their state pension each year.
Being 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.
So if you or someone you know has not signed up for child benefit, make a claim. Because even if you will not benefit from the child benefit payment now you could safeguard your state pension!