HMRC data shows as many as 200,000 couples currently have the ‘wrong’ partner claiming child benefit which could risk their future state pension income.
For two-parent households, where only one parent is working and is also the parent in receipt of child benefit, the parent who is not working or a lower earner could miss out on National Insurance (NI) Credits, which counts towards their state pension.
One year of missing contributions could cost £260, according to pensions consultancy Lane Clark and Peacock (LCP), which submitted a Freedom of Information Request on the number of couples submitting the ‘wrong’ parent claims.
The good news is that if this applies to you, you can transfer the working or higher-earning parent’s credits to the unemployed or lower-earning parent.
Here, Which? explains how child benefits work with state pensions, and how to transfer NI credits.
How does child benefit impact your state pension?
Child benefit is a monthly government payment worth £21.15 a week for the first child and £14 per week for subsequent children in 2021-22. It is available to anyone who is responsible for a child to help pay for anything they need and boost their household budget.
Depending on your income, you may not benefit financially from receiving child benefit payments. But it’s always worth signing up – even if you choose to opt out of receiving the payments – as the benefit is linked with National Insurance contributions (NICs), and could affect your eligibility to claim the state pension.
Under current rules, where someone receives child benefit for a child under 12 they are also treated as if they had paid NICs for that week.
So one parent could potentially benefit from the credit more because, for example, they’re not working and need to build enough NICs to qualify for the state pension.
To get the full, new state pension you need 35 years’ worth of contributions. To get anything at all, you’ll need at least 10 years.
- Find out more: National Insurance and state pension
How much state pension could you lose?
HMRC points out that not everyone who misses out on a credit will necessarily suffer a reduced pension, according to LCP.
This is because they may build up the 35 years needed for a full pension during the rest of their adult life. But where they do miss out, the loss could be substantial. One year short would cost someone 1/35 of a full pension every week of their retirement.
This is £5 a week, £260 a year or £5,200 over a 20-year retirement. If just half of the 200,000 couples identified in the FOI are affected in this way, the combined loss each year could be £520m in pension rights, LCP has calculated.
For an individual family, suppose that the lower earner stays at home until the child is aged four and misses out on four years of credits. This will cost that individual more than £1,000 a year on their pension, or more than £20,000 through their retirement, according to the consultancy’s analysis.
- Find out more: how much state pension will I get?
How to claim the money back
If you’ve made the child benefit ‘mistake’, you should check your NI records.
Couples can transfer the previous year’s NI credits from one parent to another to ensure the ‘right’ parent protects their state pension entitlement.
To do this, you can contact the Child Benefit Office to arrange to transfer the child benefit claim into the name of the parent or carer who isn’t working.
You can transfer credits online or via post by completing a CF411A form on the government’s website.
For claims before 2010, you’ll need to fill out form C411.
- Find out more: how NICs work
How to boost your state pension
You can increase what you’ll get by adding to your NI record before reaching state pension age, which is currently 66 for men and women.
One way to do this is to carry on working and paying NICs until you meet state pension age.
Finally, you can defer your state pension, which allows you to boost your state pension by delaying when you take it.
- Find out more: read all our state pension guides