Families miss out on key pensions rights linked to child benefit

A campaign to help families with children maximise their state pension benefits this week secured an intervention from the secretary of state for work and pensions – but Esther McVey isn’t planning on changing the rules that mean many families are missing out.

Pension experts have been pushing for reforms to the system since the overhaul of the child benefit rules in 2013. Until then, this benefit was paid universally to families with children, but ministers targeted the payments as they sought austerity savings, introducing tax charges that completely wiped out the benefit for families with earnings of more than £60,000 a year. As a result, many families having children since then haven’t bothered to register for child benefit, not realising that this benefit is closely linked to pension rights.

Crucially, non-working parents looking after children under the age of 12 are entitled to claim national insurance (NI) credits for their time out of employment – but only those registered for child benefit can claim this support. NI credits count towards your NI contributions record, on which your entitlement to a state pension is based; to get a full state pension, you will need at least 35 years’ worth of NI contributions.

The link between child benefit and NI credits means many parents are missing out on the latter simply because they haven’t understood how the system works. Missing a year’s worth of credits potentially means missing out on 1/35th of your state pension – worth around £244 this year. Over a 20-year retirement, that would amount to lost pension of £4,880. For someone taking four years out of work but receiving no NI credits, the total loss would be more than £19,500.

Campaigners such as former pensions minister Steve Webb, who is now policy director at the insurer Royal London, have urged the government to change the system. MPs on the Work and Pensions Committee have also criticised the bureaucracy of the current arrangements, issuing a hard-hitting report earlier this year calling for reform.

However, Ms McVey has so far been reluctant to take action. This week she issued a press release urging families to check their entitlement and to claim NI credits to which they are entitled. But she does not appear to be prepared to change the rules or back-date the claims of families who have missed out.

The stance is particularly disappointing since families can currently back-date claims for missed NI credits by just three months when registering for child benefit. The rule means families who don’t register for the benefit within three months of their child’s birth will lose at least some NI credits – and those taking an extended period our of work but not registering will lose sizeable amounts of pension entitlement with almost no ability to claim retrospectively.

Women are hit disproportionately hard by the system, pension campaigners point out, since they are still more likely than men to take time out of work to look after children. This is especially worrying since women are already more likely to be behind on retirement saving. A study published last month by the insurer Aegon found men are now twice as likely as women to be confident that they will be able to retire comfortably; by contrast, 15 per cent of women have no pension savings at all.

In the absence of reforms to the system, it’s crucial that families understand what they need to do to secure NI credits – ideally as soon as their child is born, but as soon as possible if you already have children for whom you haven’t registered for child benefit.

You can download the child benefit claim form CR2 from the gov.uk government website, though completed forms must then be sent to the Child Benefit Office in Newcastle. This automatically entitles eligible parents for NI credits – but make sure you name the parent who is not working on the claim form, since the benefit is worthless to those who are in work and paying national insurance contributions in the normal way. You can transfer the entitlement in future if your circumstances change.

If you or your partner earn more than £50,000 a year, you’ll need to declare child benefit money you receive on your self-assessment tax return each year. HM Revenue & Customs will then recoup the payments by adjusting your tax position – you lose some of the money if you earn between £50,000 and £60,000, or all of it if you earn more than that.

Alternatively, you can opt not to receive any Child Benefit so that you don’t have to worry about your tax position. Crucially, you’ll still be registered for the benefit, so you’ll be entitled to NI credits – you just won’t receive any payments.

Finally, while you’re checking your child benefit position, it makes sense to review your entitlements to other benefits and tax credits – all families should do the same. The patchwork quilt-like structure of the UK’s benefits system means many families miss out on money they are owed because they fail to claim or don’t understand the system.

On NI credits alone, for example, you may be able to make a claim if you’re looking after any relative under the age of 12, have other caring duties, are receiving Statutory Sick Pay or are married to someone in the armed forces who is serving outside the UK.

More broadly, the Money Advice Service is an excellent source of advice on benefits entitlements and what you need to do to claim. Citizen’s Advice may also be able to help.