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When former Chancellor George Osborne enforced a controversial new levy on “high income” couples to obtain child benefit, few anticipated the issues it would generate for hundreds of thousands of parents concerning their future state pension entitlements. Will be born.
In this section, I would like to delineate the predicament, what you can presently do to rectify it, and how the government intends to ultimately recompense for the harm that has been caused.
The conundrum commenced in January 2013 when the “High Income Child Benefit Charge” was introduced. Under this arrangement, if a parent applies for child benefit and they or their partner earn more than £50,000 a year, there is a payment owed to HM Revenue and Customs.
The magnitude of the levy varies on a sliding scale, but for those earning £60,000 or more, their invoice concludes matching exactly the child benefit they would receive as a family.
Furthermore, there has been no modification to the £50,000 and £60,000 thresholds for beyond a decade and so there is now pressure on families who would definitely not perceive themselves as “high income”.
Perchance not surprisingly, numerous families have resolved that obtaining child benefit and then incurring a tax bill for the same amount is a futile exercise. In specific, persons embarking on parenthood for the first time have, increasingly, chosen not to demand child benefit at all.
As a consequence, the number of families receiving child benefit has dwindled annually since 2013.
How child benefit might impact your state pension
Regrettably, eschewing Child Benefit entails discarding something valuable – the National Insurance “credit” that accompanies the receipt of Child Benefit for a child under 12.
If an individual is at home with a toddler and not engaged in remunerative work, there may be a hiatus in their National Insurance (NI) dossier. Nevertheless, the blueprint of NI Credit (previously recognized as “Home Responsibilities Protection”) guarantees that their NI dossier is safeguarded for the year.
In truth, under the new state pension system, a year of NI credit for nurturing a child is as essential to your state pension as a year spent steering a large company. Moreover, with the bulk of child benefit disbursements allocated to mothers, the system is especially pivotal for preserving women’s state pensions.
The value of these credits can be computed by assessing their impact on your state pension.
At present, the full state pension is £203.85 every week, or approximately £10,600 per annum. If an individual has not yet completed the full state pension (which will be applicable to most parents), adding an extra year to their National Insurance record will be valued at 1/35 of the full pension rate, or a tad over £300 per annum and more is merged.
This suggests that an individual who does not rejoin the workforce by the time their child reaches primary school age, and thus misses out on four years of National Insurance, will be appended to their State Pension every year if they do not claim. There could be a shortfall of £1,200. Their NI credits.
If you start claiming the state pension by the time you hit the age of 90 – which is increasingly prevalent – it signifies you could potentially forego £30,000 of state pension payments.
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How to lay claim to NI credit solely
When the high income child benefit charge was introduced, the government envisaged that some individuals might decline to receive the benefits and furnished a mechanism by which individuals could still obtain their NI credits.
One has to check a box on the Child Benefit application form, which explicitly states, “Please do not dispense money to me, but provide me with my NI credit”. It is demonstrated below:
The predicament is, if you have resolved not to seek Child Benefit, you will likely never load a Child Benefit application form merely to check a box.
And it is ambiguous whether asserting benefits would necessitate a form inclusive of a box indicating “however, please do not bestow me with this benefit”.
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Is it feasible to lodge retroactive child benefit claims?
After years of advocating, the government has eventually conceded there is an issue. In April 2023, Victoria Atkins MP, then Financial Secretary to the Treasury, declared in a written statement:
“The Government acknowledges the concern that some parents who have not claimed child benefit may miss out on being entitled to the full state pension in the future. The Government will address this issue to enable affected parents to receive National Insurance credits retrospectively. “More details on next steps will be available in due course.”
Unfortunately, we have received nothing since then, and so numerous parents are still in danger of falling through the gaps. The presumption is that the government will construct a new NI credit for individuals with a “built-in entitlement” to child benefit, and this will be backdated to the time the higher income charge was implemented.
However, we are still unaware of any specifics, encompassing how individuals will be informed about this new credit, or how they will assert it.
As things stand, the most effective tactic would be for any parents who have never pursued child benefit to apply now and check the box to signify that they would like their NI credit, but not cash benefits. It is feasible to postpone that application for three months, but regrettably no longer.
The fact that child benefit claims cannot be backdated for more than three months underscores the urgency for the Government to resolve this issue promptly. Although most parents will not reach pension age for some time, there will be certain instances (potentially, grandparents who are the primary caregivers for their grandchildren) where matters are more pressing.
The entire issue is an avoidable muddle and jeopardizes the substantial advancements observed in enhancing women’s state pension standings in recent decades if not rectified promptly.
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