Enable’s IFA’s of Bishop’s Stortford know that having children can affect pensions if women take time out. Last year nearly half a million women opted out of receiving child benefit and many didn’t apply for it. Probably many of those women had a partner earning more than £60,000 a year, which is the final cut-off point for the payment. But they may have unwittingly denied themselves a full state pension.
Nicky Morgan, chair of the Treasury committee, has recently warned that the link between national insurance credits (NICs)and child benefit is not very well understood meaning some “stay-at-home parents risk losing out on their state pensions.
George Osborne announced that the government would remove child benefit from households with a higher earner back in 2010. If one partner earns between £50,000 and £60,000 child benefit is progressively removed, and it stops entirely if one earner has an income of over £60,000.
But this has had an unintended consequence. If either parent or guardian earns more than £50,000, they become liable for the “high-income child benefit tax charge”. You can still claim it, but you then have to register for self-assessment and fill in a tax return, and the state claims the child benefit back. It feels like getting money in just to have it taken back so many don’t bother to register for child benefit.
But claiming child benefit, whether it is actually paid or not, ensures the claiming parent receives NICs while the child is under 12. If you don’t claim you may fail to build up your full state pension entitlement.
To get a state pension the parent needs to have paid NICs, or received NICs, for a full 35 tax years. So it still makes sense to claim the benefit and regard it as an interest-free loan that you pay back at the end of the year but it keeps you in the NICs system.