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Two-year wait for parents to plug vital National Insurance gaps

Two-year wait for parents to plug vital National Insurance gaps
Paloma Kubiak
Written By:
Paloma Kubiak

A much-awaited rule change allowing parents to plug historic gaps in their National Insurance record if they failed to claim but were eligible for child benefit will only come into effect from April 2026.

In April 2023, the Government announced plans to allow parents to retrospectively claim National Insurance credits if they were eligible for child benefit but did not claim at the time.

This was so that parents and carers “would not be disadvantaged when they start claiming their state pension”.

It was a surprise but welcome move giving parents another chance to claim vital credits to help them achieve the maximum state pension entitlement.

And it was particularly beneficial to those who didn’t know they could claim child benefit, as well as for those who weren’t working because of care responsibilities, didn’t earn enough to pay National Insurance contributions (NICs) or for parents who opted out entirely to avoid a tax bill due to the introduction of the High Income Child Benefit Charge in 2013 (more on this below).

Devil in the detail

Details of the planned legislative change were limited, but in an update on amending the parents’ National Insurance credit (child benefit) claims this week, the Treasury confirmed parents will only be able to apply from April 2026 – three years after the plan was first floated.

Nigel Huddleston, the financial secretary to the Treasury, wrote in a ministerial statement: “The eligibility for the credit will be closely based on child benefit eligibility criteria. Transitional arrangements will ensure those affected since 2013 are still able to claim. Going forward, applications will be available for six years following the relevant tax year. The Government will bring forward secondary legislation as soon as possible.”

As well as parental frustration over the two-year wait, the other concern centres around the upcoming election.

Laura Suter, director of personal finance at AJ Bell, said: “There was a lot of excitement when the Government first announced these plans – with hopes that it might start a wider process to modernise and reform the child benefit system. However, the devil was always going to be in the detail – and that detail has revealed a wait of at least two more years for people to be able to back-fill their National Insurance record – many had hoped for much quicker action.”

She added: “A saving grace is that parents will be able to backdate any credits all the way back to 2013, meaning that the delay to bringing in the new system won’t hugely cost people – it’s just frustrating that they won’t be able to fix any gaps sooner.

“We also have to be aware that this is an election year and there is potential for a change in Government. If that’s the case, there’s no guarantee this policy won’t get lost in the changeover – further delaying it. There isn’t any huge risk of the policy being canned if Labour does come into power – you’d expect them to be supportive of it. But there is a risk that a policy designed by the previous government isn’t going to be a huge priority for a new government.”

National Insurance credits with child benefit claims

Child benefit is paid to the parents and guardians of children under the age of 16, or under 20 if they stay in approved full-time education or training. It is currently set at £24 a week for the eldest child and £15.90 a week for each younger child.

You’ll get National Insurance credits automatically if you claim child benefit and your child is under 12.

And these credits are vital as they count towards your state pension, with those retiring under the new state pension scheme required to have 35 years of contributions to get the maximum pension amount.

Calculations by AJ Bell suggest a missing claim year can mean around £3,000 less in state pension payments.

However, not all families claimed even though they were eligible, while others actively opted out because of the High Income Child Benefit Charge (HICBC) which affects families where one parent earns more than £50,000 (net) a year.

Those with income above this figure are required to pay 1% income tax on the child benefit for each £100 of income above this. So, if you earn £55,000, you’ll have to pay back 50% of child benefit received. Where one adult’s taxable income exceeds £60,000, the value of child benefit is eroded to nil.

Now, to pay this back, parents and carers have to submit a tax return which complicates matters, particularly for PAYE employees who don’t ordinarily need to fill out self-assessment forms.

For many,  it was easier to avoid the tax bill and the paperwork simply by opting out of receiving child benefit altogether, meaning they also missed out on those vital National Insurance credits at the same time.

Indeed, since the introduction of the HICBC in 2013, child benefit claim rates have been in decline.

The other major criticism is that the £50,000 earnings threshold hasn’t changed at all in the decade since it was implemented, despite rising wages, AJ Bell figures suggest if it had increased in line with inflation, it would be at £65,000 today.

‘Public awareness campaign is needed’

Rachael Griffin, tax and financial planning expert at Quilter, said: “Parents had been set up to fail by the 2013 policy change which is complex and meant they had to be aware of the intricacies of these rules within the first few months of having a new-born baby.

“Child benefit is not an automatic entitlement. Instead parents must actively apply for it, a process which many find confusing and cumbersome particularly during what can be an incredibly stressful time. Parents who did not claim child benefit may not have received the NI credits they were entitled to, thereby reducing their state pension when they reach retirement age. This is especially problematic for stay-at-home parents or those with low incomes, who rely on these NI credits to maintain their pension entitlement.

“For years, the potential repercussions of not claiming child benefit have not been made clear to the public. Many parents have been left in the dark, unaware that their decision to forgo claiming child benefit could impact their future financial stability.”

Griffin added: “Though we are pleased the Government has now addressed this, it is astounding it took this long to do so and there is still a while yet before claims can be made.

“Going forward, the fact that applications will be available for six years following the relevant tax year should allow plenty of time for people to claim, but it is important that the Government makes absolutely certain that people are aware of whether they need to claim and if so, how to do so, by committing to a public awareness campaign ahead of the 2026 implementation date.”