A potential problem that may affect many parents has been highlighted by MPs who are warning that the changes to child benefit and poor communication from HMRC may mean thousands of parents risk losing out on future pension entitlements.
The problem has arisen since child benefit was reformed so that for couples where one partner earns between £50,000 and £60,000, a progressively rising tax charge is incurred. At incomes over £60,000, the tax charge wipes out the value of the child benefit entirely.
Registering for child benefit builds up entitlement to the state pension for parents of children under 12 who do not pay National Insurance contributions. If the parent does not register for child benefit, however, they may forgo their entitlement to National Insurance credits, and therefore part of their future state pension. When the tax charge was introduced in January 2013, HMRC wrote to affected households asking if they wished to opt out of receiving the benefit. Those who opt out continue to get the National Insurance credit required for the full state pension.
However, parents who have started a family since January 2013 may not have seen any advantage in registering for child benefit due to the tax charge, and those parents could be missing out on the National Insurance credits required for a full state pension. Published figures suggest that some of the families in this bracket, rather than registering for child benefit and then opting out, may have chosen not to register in the first place. These people will not get the National Insurance credits.
My question, however, is why MPs, rather than highlighting the problem just don’t solve it. It would seem to be simple enough to remove the link between National Insurance credits and child benefit and just give them to everyone with a child under 12. Action not words!
Meanwhile, make sure that you do not lose out by registering for child benefit even if you immediately opt out of actually receiving it.