Families Opting Out of Child Benefit Sparks State Pension Warning: A record number of families are opting out of child benefits, resulting in a smaller state pension for many parents.
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As of August 2023, almost double the number of families opted out of receiving child benefit payments, according to HMRC.
Over the past decade, there has been a decline of 1 million families receiving child benefit.
Since George Osborne introduced the high-income child benefit charge in 2013, the number of parents receiving the benefit has declined.
In Jeremy Hunt’s Spring Budget, the tax charge was reformed and the income threshold was raised, but experts warn that not claiming child benefit has serious repercussions.
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In just over a decade, a million families have lost their child benefit as a result of the high income child benefit charge. Steve Webb, former pensions minister and partner at the consultants LCP, says hundreds of thousands of parents may have missed out on vital National Insurance credits towards their state pensions.
In a typical 20-year retirement, just one year of missed credits could reduce state pensions by £329 a year, or around £6,500.
If they don’t claim their credits, a parent who waits until their child reaches primary school age could end up £1,316 short on their state pension per year. Over 20 years, that’s worth $26,320.
According to Webb, the government should resolve this issue as soon as possible.
As a result, hundreds of thousands of families that have been affected by the HICBC, which until this year affected households with incomes of £50,000 or more, have failed to claim the National Insurance credits associated with Child Benefit.
For children under the age of 12, National Insurance credits can be claimed through a Child Benefit claim.
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Difference between benefits and state pensions
Hargreaves Lansdown’s head of retirement analysis, Helen Morrissey, explains: “Child benefit carries National Insurance credits to preserve parents’ state pension entitlements while they are out of work.”
“Not claiming it leaves gaps in people’s records, leading to lower state pensions as a result. It’s a real hidden horror of the system that more people need to know about.”
If you claim child benefit and are not working, you can claim National Insurance (NI) credits.
If they don’t claim child benefit, but take time off work to raise their children, they will not receive NI credits and may not receive the full state pension.
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The new state pension is worth £221.20 a week, or £11,502 a year. To qualify for the full amount, pensioners must have 35 years of qualifying contributions – either from working or from NI credits.
With the new child benefit system, families who meet the high-income threshold can claim National Insurance credits without receiving the money. Parents can also claim the money and pay it back through self-assessment tax returns. This ensures they receive National Insurance credits towards the state pension and other benefits.
