Cancelling child benefit costs 50,000 women 'vital' pension rights
The number of mothers who are missing out on vital state pension rights, because they haven’t claimed child benefit, has doubled over the last two years.
As many as 50,000 could now be missing out, according to the latest figures from HMRC. Royal London says that, together, these women could be losing millions of pounds of state pension income.
A change to child benefit rules in January 2013 saw the introduction of a high income child benefit tax charge for families where one parent was earning more than £60,000 a year. This charge effectively wipes out the value of child benefit and, as a result, more women are simply not bothering to claim the benefit which all women are entitled to once they have children.
However, while this might simplify families’ tax affairs, by failing to claim child benefit, mothers are also missing out on national insurance credits which are paid to women who take time out of work to care for young children. Note that working mums would be paying national insurance, it’s only those that stop working for a period that lose the credits.
However, those who stop work and cancel their child benefits may find that when they reach state pension age they may not have enough national insurance credits to receive the full state pension amount.
Under current rules to be eligible for the full state pension, which goes up to £159.55 a week from 6 April 2017, all claimants need to have paid 35 years of national insurance. Those who have not paid enough years get a reduced amount.
Some mothers could lose £20,000 of state pension income
Royal London says that each year of missed child benefit costs women 1/35th of their pension, which works out at £231 a year or £4,600 over a 20-year retirement. This means that a mother who started a family in early 2013 and has missed out on five years’ worth of national credits so far could already be on track to lose around £1,000 a year, or £20,000 over her retirement.
The pension provider raised this problem to government following the publication of a policy paper on the subject last year and says action must be taken to protect women.
“System is no longer working for families”
Steve Webb, director of policy at Royal London says: “Tens of thousands of mothers with young children are missing out on vital state pension rights. This risks setting back the cause of equality for mothers by a generation. HMRC was alerted to this problem last year and has done nothing about it.
These new figures are a damning indictment of a system that is no longer working for families. The government needs to take urgent action to ensure that mothers get the pension protection to which they are entitled”.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.