Child Benefit Changes 'Cost New Mothers £500m In Pensions'

Child Benefit Changes 'Cost New Mothers £500m In Pensions'

New mothers may have lost out on more than half a billion pounds in state pension rights since changes to benefit rules were introduced in 2013, according to analysis.

Royal London, which made the calculations, said it was due to changes in rules on child benefit - and the number at risk was growing.

Steve Webb, a former pensions minister who is now policy director at Royal London, says unless urgent action is taken "a whole generation of women run the risk of getting reduced state pensions, reversing decades of progress".

Under the current system, a parent, usually a mother, receiving child benefit for a child under 12 gets a year of national insurance credits towards their state pension record. This means that even if a mother is not in paid work and does not pay national insurance contributions, her state pension record is protected.

But a new Royal London policy paper titled the Mothers Missing Out On Millions argues the system is not working for new mothers affected by the high income child benefit tax charge.

Previously, child benefit was paid at the same rate, regardless of whether households had a high or low income. But changes introduced in January 2013 now mean families receiving child benefit where one parent earns more than £50,000 a year incur a tax charge which wipes out the value of their child benefit.

In response to this, growing numbers of mothers are simply not claiming child benefit when starting a family in the first place - but Royal London said this could mean they lose out on valuable credits towards their future state pension rights.

People generally need to have 35 years of national insurance contributions or credits to get a full state pension.

And being one year short at the end of your working life could cost nearly £5,000 in missing state pension rights through the course of a typical retirement, according to Royal London's calculations.

Royal London analysed HM Revenue and Customs data to make the findings.

The report estimated that about £278 million in state pension rights had potentially been lost during the financial years 2014-15 and 2015-16 combined.

It said: "There is no reason to suppose that the problem has not continued to grow.

"We therefore estimate that by the end of the current financial year more than half a billion pounds in state pension rights could be at stake."

Mr Webb said providing national insurance credits to parents looking after young children was a vital part of the system.

He said: "It has protected millions of mothers over the years since it was first introduced. But there is now clear evidence that this protection is being undermined because of child benefit changes introduced in 2013.

"In a relatively short period of time, mothers have lost out on hundreds of millions of pounds in state pension rights and this situation is getting worse with every passing year."

He said it was vital that action was taken to ensure those affected got their national insurance credits, adding: "We would also encourage any new mother who has not yet made a claim for child benefit to do so. Even applying for a nil award will ensure that her state pension rights are protected."

People wishing to make a claim for child benefit can find information about it at www.gov.uk/child-benefit/overview.

A Government spokesman said: "We have always been clear that families can submit the child benefit claim form to help protect their future right to the state pension.

"We provide specific information to all new parents and on gov.uk. If anyone is worried about their national insurance record, they can contact HMRC at any time to check how many years of credits and contributions they have built up."

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