Families across the UK could be missing out on millions of pounds of additional pension income as they fail to realise the connection between claiming child benefit and protecting their state pension record.
In the 1970s, the system of Home Responsibilities Protection was introduced, which was designed to treat women and men who were at home looking after children more favourably when their eventual state pension was provided to recognise the contribution they made at home.
By 2010 this system had evolved and a year at home with a child under 12 contributed nearly as much to a basic state pension as a year in paid work.
However, in January 2013 the Government introduced the High-Income Child Benefit Tax Charge, which saw a tax charge incurred if a parent receives child benefit, but is earning £50,000 per year or more.
This charge increases on a sliding scale until earnings pass £60,000, at which point the value of the child benefit is equal to the charge being levied.
Many high-income couples no longer bother to claim child benefit due to this, but as a result, they may be missing out on an integral pension protection.
It would seem that there is no point claiming for a credit only for it to be taxed, but the rules also allow partners to get credits towards their state pension, even if they don’t receive the child benefit.
To assist taxpayers the Government has even included the option to allow couples to defer the child benefit payment but accept the National Insurance credits.
There is a growing concern that many new mothers and fathers may not be aware of this and could, therefore, miss out on important National Insurance contributions.
Couples who have chosen to opt out of the child benefit system are therefore being reminded to check their current situation to ensure they maintain the state pension protection afforded to them.