State pension warning as 200,000 couples lose to child support errors
Families have been warned that fundamental mistakes could cost them thousands in their state pensions.
There are two crucial things parents must do to ensure they have enough to live on in retirement.
And both relate to Child Benefit, which pays Â£ 21.15 per week for the oldest or only child and Â£ 14 for all subsequent children.
What couples must note, however, is that child benefit also includes social security credits for the state pension.
Here are the most important things you need to know. Otherwise, you could miss out on thousands in your state pension.
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1. Claim child benefit even if you don’t get it in the end
Many parents don’t know that there is a rule about child benefit that means you can get NI credits towards a state pension even if you don’t actually get the benefit.
Only one person can receive child benefit for one child. However, the household income of both partners is taken into account.
And if your individual (or your partner’s) income is more than Â£ 50,000, you will be taxed at the child benefit and will receive a lower amount. And once you or your partner make Â£ 60,000 you will lose all of your tax benefits.
However, even if you were to lose part or all of your tax payment and you are put off by the potentially tedious filling in of the self-assessment tax forms, it is important to submit an application.
By applying for child benefit:
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Even if your partner’s or partner’s income is over Â£ 60,000 and you lost all child support, you are still building National Insurance credits. You can submit an application and request that it not be paid to avoid filling out self-assessment forms.
Simply fill out the child benefit application form available on the government website and tick the box that says you do not want to receive the payments.
This way, you will continue to contribute to a state pension that requires at least 10 years of social security.
Remember, you must have 35 qualifying years to receive the full State Pension, which is currently Â£ 179.60 per week or Â£ 9,339.20 per year.
Child benefit social security credits are paid until the youngest child is 12 years old.
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2. Ensure that the beneficiary is the parent with lower or non-earning income
Steve Webb, a former retirement secretary who is now a partner at Lane Clark and Peacock (LCP), said, “There are many parents, mostly mothers, who are at home with their children and cannot get loans.”
LCP advises that the lower (or zero) income parent should be the one applying for child benefit as they will then receive NI credits towards the state pension. The high-earning partner already pays NI towards the state pension through deductions on his payslip.
In April 2021, a response from HMRC on freedom of information to LCP showed that there are currently 200,000 couples for whom the âwrongâ partner is applying for child benefit. With these couples, the higher earner receives child benefit.
As a result, the low-wage earner (or non-earner) misses vital social security credits to secure his state pension. In most cases, the low earner is a woman, which means the decision to claim child benefit on behalf of the higher earner will further widen the gender pension gap, LCP said.
HMRC says that not everyone who misses out on a loan experiences a reduced pension. Because they can build up the 35 years necessary for a full pension in the rest of their adult life.
But where they miss it, the loss could be substantial. A year too short would cost someone 1/35 of a full pension each week in retirement. This is Â£ 5 per week, Â£ 260 per year, or Â£ 5,200 over a 20 year retirement, calculated under the LCP.
If only half of the 200,000 couples are affected this way, the combined loss could be Â£ 520 million in pension rights each year.
Steve Webb said, âA lot of couples may not realize that simply having child support on behalf of the high-income earners rather than the low-income earner caring for others could cost them dearly.
âThe majority of those who are missing out now are mothers with young children. It is simply unacceptable for them to receive a pension sentence as a result of child support and encourages people to check their NI records on where the wrong choices have been made in the past. “
HMRC has advised that there is a CF411A form on the government website that you can fill out to transfer NI credits to the low earning partner if the high earning parent is the one applying for child benefit.
The latest annual figures from August 2020 show that 7.2 million families in the UK received child benefit, a decrease of about 71,000 from the previous year.
The total includes 684,000 families in the West Midlands, the fourth highest number of claims in the UK after London, the South East and the North West.
The decline in child benefit claims is attributed to “a decline in birth rates and the take-up of new child benefit claims that have been interrupted by the effects of national bans”.
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