Claiming Child Benefit may protect your Pension

When I first became a parent in 2004, most people automatically registered for and claimed Child Benefit for their children until they reached age 16, or later if they remained in higher education.

What changed?

In 2013 HMRC changed the rules and introduced the High Income Benefit Charge. The result being that if one parent earned in excess of £50,000, the Child Benefit would need to be repaid to HMRC on a sliding scale (1% for every £100 salary received over £50,000). The full amount would need to be repaid where a parent earned £60,000 or above.

Because of this, many families decided not to register for Child Benefit, feeling there was little point if the money would all need to be repaid to HMRC.

Unexpected consequences of this change:

An unintentional result of this move was the loss of entitlement to the State Pension Credit for many stay-at-home (or low-earning) parents with a partner earning a salary that attracted the High Income Benefit Charge.

What many parents overlooked was the link between Child Benefit and the State Pension. And the fact that it is still worth registering your entitlement to receive Child Benefit, even if you then opt out of actually receiving it.

How is Child Benefit linked to the State Pension?

When a parent registers their entitlement to claim Child Benefit, they will continue to receive their National Insurance Credits until their child is 12 years old.

The New State Pension is based on your National Insurance Record and you will usually need at least 10 qualifying years on your record to qualify. And usually, if you have 35 qualifying years you should be entitled to the full amount.

So a year of missed contributions can result in a reduction in the final pension received of 1/35 of the full rate. And following on from this, twelve years of missed contributions could result in a staggering loss of over 1/3 of the final full State Pension rate. This figure becomes even more substantial in cases where a parent has more than one child.

How can I protect my entitlement to receive National Insurance Credits?

To ensure that these vital National Insurance Credits are not lost, the following steps should be considered where one partner earns in excess of £50,000:

  • Ensure that the non/low-earning parent registers their entitlement to claim Child Benefit following the birth of each Child.
  • The higher earning parent should not be the one to register their entitlement as they will already receive their National Insurance Credits through their employment.
  • Where the higher earning parent earns between £50,000 and £60,000 it is still worth claiming Child Benefit as the amount that will be repaid will be less than the amount claimed. However, it should be noted that the parent paying it back will be the higher earner and not the person who actually receive the payments.
  • Where the higher earning partner earns £60,000 or above all of the Child Benefit will need to be repaid to HMRC, so you many decide to stop claiming Child Benefit. However, this should not affect your entitlement and receipt of National Insurance Credits, provided you have made an initial registration of eligibility with HMRC.

Are there any other benefits of registering for Child Benefit?

It should also be noted that registering for entitlement to Child Benefit will ensure your child automatically receives an NI number when they reach age 16.

 For full details on how to register a claim please visit the website.

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