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Parents risk pension income over unclear child benefit changes

Written by: Paloma Kubiak
Thousands of parents may have inadvertently foregone future pension entitlements by not claiming child benefit following changes to the scheme. Now an MP is seeking answers over the ‘not up to scratch’ communication of the changes.

In 2010, the coalition government announced it would remove child benefit from households with a higher rate taxpayer.

This meant for couples where one partner earns between £50,000 and £60,000, a progressively rising tax charge is incurred. At incomes over £60,000, the tax charge wipes out the value of the child benefit entirely.

As part of the government’s impact assessment of the changes, it noted that claiming child benefit builds up entitlement to the state pension for parents of children under 12 who can’t pay national insurance contributions, such as a stay at home parent.

At the time, the government said clear information of the changes would be essential to ensure parents were aware that if they fail to claim child benefit, it could affect their pension entitlement.

When the tax charge was introduced in January 2013, HMRC wrote to affected households asking if they wished to opt out of receiving the benefit. Those who opted out continued to get the national insurance credit required for the full state pension.

However, parents who started a family since January 2013 may have seen no advantage in registering for child benefit due to fear of the subsequent tax charge.

As such, these families consisting of a higher earner and one stay-at-home parent, could be missing out on the national insurance credits needed for a full state pension.

The influential Treasury Committee has now called for more information from the Financial Secretary to the Treasury and Paymaster General regarding the communication strategy and numbers of families affected by these changes.

‘Problem wholly foreseeable and preventable’

Rt Hon. Nicky Morgan MP, chair of the Treasury Committee, said: “This problem was wholly foreseeable and preventable. The Committee warned this may happen seven years ago. It urged the government to provide parents with clear information about how their pension entitlement could be affected by the charge. HMRC stated a clear communications strategy was being developed. It appears this strategy has not been up to scratch, to the cost of thousands of parents.

“I have asked the Financial Secretary to provide the Committee with details of the number of people affected, how HMRC is informing those who may have their pension entitlement affected, and whether HM Treasury has undertaken any analysis of the problem.”

Royal London said a woman who started her family in 2013 and decided not to claim child benefit could have missed out on state pension credits for five years so far (2012/13 to 2016/17 inclusive). The total loss over those five years could be over £1,000 a year in retirement. Over the course of a 20 year retirement, these women could be more than £20,000 worse off in total.

Steve Webb, director of Policy at Royal London, said: “National Insurance credits are a vital way of making sure those who are not in paid work do not lose out when it comes to pensions.  We estimate that tens of thousands of women who have started a family since the rule change in 2013 are now missing out. It is vital the government relaxes the three month backdating rule on child benefit, otherwise these women will suffer permanent damage to their future state pension.”

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