A HMRC data request by Pensions consultancy LCP found 200,000 couples have fallen into the “wrong” parent trap
At least 200,000 couples in the UK are missing out on thousands of pounds a year because the wrong adult in the family is registered for child benefit.
Freedom of Information figures show parents could lose £2,000 a year at retirement because of a simple misunderstanding in child support eligibility.
In these couples it is the higher earner who is claiming child benefit – but transferring it to the lowest – or non-earner – means they’ll get National Insurance credits that will boost their state pension.
A HMRC data request by Pensions consultancy LCP found 200,000 couples have fallen into the “wrong” parent trap.
Pensions expert Sir Steve Webb said it could worsen the gender pay gap at retirement.
In the UK, you need 35 years of National Insurance credits to get the full state pension. This is usually accumulated through wages, however, if you’re a low earner or a non-earner, you can get credits when you claim child benefit for a young person under 12, instead. This means it will preserve your full pension – but only if it’s in your name.
Currently in around 200,000 families, the wrong person is claiming child benefit. As a rule of thumb, it should always be the lowest earner. As a result, their state pension may suffer lasting damage.
Of course, not everyone will lose out. If the lower earner returns to full-time work and builds up their 35-years’ service, they will still get their full pension. But if they never do, these child benefit credits could prove vital to their retirement.
You need 35 years of work to get the full pension. One year short would cost someone 1/35 of a full pension every week of their retirement. This is £5 per week, £260 per year or £5,200 over a twenty year retirement.
If just half of the 200,000 couples are affected in this way, the combined loss each year could be £520million in pension rights.
For an individual family, suppose that the lower earner stays at home until the child is aged four and misses out on four years of credits. This will cost that individual over £1,000 per year on their pension or over £20,000 through their retirement.
Pensions expert Steve Webb said: Many couples may not realise that simply having the Child Benefit in the name of the higher earner rather than the lower earner could cost them dearly. National Insurance credits are a vital way of protecting the retirement position of those who spend time caring for others.