A new Freedom of Information request response from HMRC, obtained by Royal London, has shown that around 200,000 couples are choosing the “wrong” parent in the couple to claim Child Benefit. While the impact may not be noticeable during one’s working life, parents are being warned that the decision could see them miss out when it comes to claiming their state pension later in life.
The state pension can be claimed by eligible people once they reach state pension age.
The amount that a person gets depends on a person’s National Insurance record, with those with 35 qualifying years on their National Insurance record able to get the full new state pension.
That said, some people currently receive less than the full rate due to previously being in an occupational pension scheme.
Under current rules, a parent claiming Child Benefit for a child under the age of 12 benefits from a National Insurance “credit”.
The purpose of the credit is to ensure that parents who are not working due to caring for a child do not suffer when it comes to their state pension.
A year of National Insurance credits would build up the same amount of state pension as a year in paid work paying National Insurance contributions.
Crunching the numbers, this means that one year of credits can be worth 1/35 of a full new state pension.
The Royal London calculations found this works out as roughly £250 per year on the pension at retirement, or £5,000 over a typical 20 year retirement.
The credit only goes to one parent, and this is the person who is claiming the Child Benefit payment.
In most cases, the lower earner in a couple would tend to claim the Child Benefit.
This may be the case because the higher earner is in paid work and paying National Insurance – thus not needing the credit.
However, the new FOI reply from HMRC shows that in 200,000 couples, there is a non-earner or a very low earner who could benefit from the credit but is not doing so, due to the Child Benefit being in the name of their spouse.
Commenting, Steve Webb, Director of Policy at Royal London said: “It is quite right that parents who are looking after children get protection for their state pension record if they are out of paid work.
“But this protection only works if the ‘right’ parent claims Child Benefit. It is very worrying that in around 200,000 families one partner is potentially missing out on the state pension protection that is rightfully theirs.
“Whilst this can be fixed by filling in the relevant form, many people will be unaware of this.
“HMRC should do much more to alert people who might be affected in order to make sure that many thousands of parents do not end up being penalised in retirement.”
Child Benefit: How to fix who gets the credit for state pension
Should it be decided that one person in a couple should get the credit instead, it may be possible to do so, even after the event.
This can be done by transferring the credit from the Child Benefit recipient to the spouse.
This is achieved by completing a form titled CF411a.