"Whilst it is understandable that some parents may choose not to claim Child Benefit payments, it is vital that parents do not damage their state pension as a result."
Hundreds of thousands of couples have been declining to claim Child Benefit in order to avoid the High Income Child Benefit charge, but in doing so have risked jeopardising their future state pension because of the loss of the NI credits which go with claiming Child Benefit for a child under 12.
The government has now said it plans to make ‘retrospective’ changes to people’s records to fix the problem.
Since the High Income Child Benefit Charge was introduced in 2013, the number of families claiming Child Benefit has dropped every year. In August 2012 the number of families on Child Benefit stood at 7.9 million but this has now dropped to 7.0 million. Those who have decided not to claim are typically higher income couples who have decided that claiming child benefit and incurring a tax charge for the same amount was a waste of time.
But there is a risk that if they simply make no claim at all they will miss out on the valuable National Insurance credits which go to those who get Child Benefit for a child under 12.
Parents do have the option to claim just the NI credits (and not the cash) but many simply do not claim at all. Crucially, where people realise they have missed out they can put in a Child Benefit claim but under current rules it will only be backdated for three months.
However, today, the Government has announced a range of technical changes to tax and related issues and has indicated that it finally plans to address this issue. The Government has said it "recognises concerns that some parents who have not claimed Child Benefit could miss out on their future entitlement to a full State Pension".
The government added that it will "address this issue to enable affected parents to receive a National Insurance credit retrospectively".
If effective action is taken, it should be possible that those who have missed out on credits could now be awarded them and fill gaps in their National Insurance record. Details on how this will be done are now awaited.
Steve Webb, former pensions minister and partner at LCP, said: “Today’s announcement is extremely welcome. Whilst it is understandable that some parents may choose not to claim Child Benefit payments, it is vital that parents do not damage their state pension as a result. Until now the problem has been that there was a three month time limit on backdating of Child Benefit claims, meaning that the damage would be permanent. I am delighted that the government has finally listened to campaigners and plans to make changes which will boost the state pension of thousands of parents, and particularly many mothers who might otherwise have missed out.”
Shaun Moore, tax and financial planning expert at Quilter, commented: The government have finally pledged to address the issues surrounding parents who have not claimed Child Benefit subsequently missing out on the full state pension amount due to missed NI contributions.
"It is laughable that the rules dictate that you must claim Child Benefit as soon after your child’s birth as possible and can only backdate it by three months. Most parents can attest that the first few months after a baby is born is a blur without having to worry about filing in paperwork on top. This is a problem that has plagued the system for years, and it is astounding that it has taken this long to address it. The government now intends to legislate to allow eligible individuals to retrospectively claim National Insurance credit with more detail set to be published.
"Child Benefit is not an automatic entitlement; instead, parents must actively apply for it, a process which many find confusing and cumbersome particularly during what can be an incredibly stressful time. This means that thousands of parents have missed out on claiming their rightful benefits over the years, either due to a lack of awareness or the daunting prospect of navigating the bureaucratic maze with a screaming baby in your arms.
"Parents who do not claim Child Benefit may not receive the NI credits they are entitled to, thereby reducing their state pension when they reach retirement age. This is especially problematic for stay-at-home parents or those with low incomes, who rely on these NI credits to maintain their pension entitlement.
"For decades, the potential repercussions of not claiming Child Benefit have not been made clear to the public. Many parents have been left in the dark, unaware that their decision to forgo claiming child benefits could impact their future financial stability. It is only now that the government has decided to take action."
