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What to do if the wrong parent has claimed Child Benefit

Written by: Emma Lunn
About 200,000 couples have made the wrong choice about who claims Child Benefit – but the error can be easily corrected.

Royal London put in a Freedom of Information (FOI) request to HMRC to find out how many families are making the wrong choice about which parent claims Child Benefit.

It found that the wrong decision could have seriously negative financial implications for the couple in later life – but the problem can be fixed by completing a little-known form.

Under current rules, a parent claiming Child Benefit for a child under 12 benefits from a National Insurance (NI) “credit”.

The purpose of the credit is to make sure that parents who are not working because they are looking after a child do not suffer when it comes to their State Pension.

A year of National Insurance credits builds up the same amount of State Pension as a year in paid work paying NI contributions.

Given that 35 years of contributions are needed for a full State Pension, just one year of credits can be worth 1/35 of a pension – this is roughly £250 per year on the pension at retirement or £5,000 over a typical 20-year retirement.

However, the credit only goes to one parent – the one who is claiming the Child Benefit.

In most couples, the lower earner tends to claim the Child Benefit. This makes sense because the higher earner is probably in paid work and paying NICs and therefore does not need the credit.

But the FOI response from HMRC obtained by Royal London shows that in about 200,000 couples, parents could lose out because the “wrong parent” is claiming. In these 200,000 couples there is a non-earner (or very low earner) who could benefit from a credit but is not doing so because the Child Benefit is in the name of their spouse.

The good news is that this problem can be fixed, even after the event, by transferring the credit from the Child Benefit recipient to the spouse. This is achieved by completing a form CF411a available on the government website. But parents – usually mothers – who are not aware of this could find their State Pension reduced by hundreds or even thousands of pounds a year in retirement if they do not take action.

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.”

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