Have you signed up for child benefit? If you didn’t, you’re not alone. Since the system changed in 2013, many parents have decided not to. This is partly because they might not be eligible (child benefit used to be universal, sadly no longer) and partly because the paperwork is offputting. But, by doing so, they may inadvertently lose thousands of pounds in potential state pension.
The new rules mean that child benefit, where given, is clawed back on a sliding scale from families where one parent is earning £50,000 or over a year. Once you’re earning £60,000, you effectively get no child benefit at all. For some, it’s just not worth the effort.
But here’s the catch. Basically, if you don’t register for child benefit, the tax man doesn’t know you have children. And if you take a career break to look after them, you won’t get the credits which replace the national insurance contributions (NICs) you would’ve made from your pay packet. (The NICs get totted up at the end of your working life to calculate how much state pension you're owed in retirement.)
The amount of harm you can inflict on your pension is shocking. Insurer Royal London has calculated that just one year of NICs missed equals roughly £5,000 less in the total sum you’ll be paid in state pension over your retirement.
One way around the problem is to tick the ‘zero rate’ box on the child benefit application form. This means you don’t get child benefit but you’re still registered to get the credits. It’s not as easy for those who are out of the workplace and didn’t sign up for child benefit. You can only backdate your child benefit claim by three months. If you’ve been out of formal work for longer, you cannot recover the pension credits you would’ve collected while bringing up your kid(s).
This seems pretty unfair, especially as most of the problems are due to the changes made by the government itself. Royal London has therefore started an online petition to allow claims for child benefit to be backdated to the 2013 changes. Last time I looked, about 1,000 people had registered their support but it needs 10,000 to get the government to consider it. I’ve signed it and, if you’d like to join in too, please click on this link which will take you to the official site: https://petition.parliament.uk/petitions/231761
Let’s hope we can get this silly situation changed. In the meantime, you can check your own credits and contributions to your state pension by ordering a summary here (it will arrive by post!). And see our SMM general guides to pensions here.