Up to 200,000 families may unwittingly be forfeiting their pension income because the ‘wrong’ person is claiming Child Benefit.
A Freedom of Information request made to HMRC by pension law specialists Lane, Clark & Peacock (LCP) reveals that at least 200,000 couples in which the higher-earning partner is claiming child benefit.
Therefore, the lower earner is missing out on important NI credits, which could boost their pension in retirement- and help eliminate the gender pension gap.
According to LCP Partner and former Pensions Secretary Steve Webb, these families are at risk of doing ‘serious damage’ to their retirement income:
Many couples may not realise that simply having the Child Benefit in the name of the higher earner rather than, the lower earner could cost them dearly. National Insurance credits are a vital way of protecting the retirement position of those who spend time caring for others. The majority of those who are currently missing out are mothers with young children. It is simply unacceptable that they should suffer a pension penalty as a result.
In March, the Institute of Fiscal Studies found that for most heterosexual couples, the gender pay gap “opens up in earnest” after childbirth.
Even in cases where the woman was initially the higher earner, women are far more likely than men to give up work after becoming a parent– with 13% of ‘breadwinning’ women in heterosexual relationships leaving work, versus just 3% of men.
When an unemployed person claims Child Benefit, they also receive NI credits until their youngest child is 12 years old.
This means that even parents and carers who are not working receive credits towards their state pension, as though they had paid NI contributions throughout the period of time when they were caring for children.
In its response to LCP, HMRC pointed out that this means not everyone missing out on NI credits will suffer a smaller pension. In many cases, by the time they reach the state pension age, they will have made enough contributions to claim the full state pension.
However, LCP pointed out that for those who fall short of the minimum NI contributions needed to claim a full state pension, the loss to retirement income could be substantial.
According to the firm:
One year short (of the minimum contributions) would cost someone 1/35 of a full pension every week of their retirement. This is £5 per week, £260 per year or £5,200 over a twenty-year retirement. If just half of the 200,000 couples are affected in this way, the combined loss each year could be £520m in pension rights.
Partner Steve Webb called on HMRC to raise awareness of the issue to prevent parents from losing valuable retirement income.
HMRC needs to do much more to make people aware of the impact of choice over who gets Child Benefit as well as encouraging people to check their NI records where the wrong choice has been made in the past.he said
To claim a full state pension, you must have made at least 35 years of NI contributions.
People who work for between 10-35 years may qualify for a portion of the full state pension, which is £179.60 per week for 2021-22.