HMRC warns 200,000 parents risk losing out on state pension

Over 200,000 parents are at risk of missing out on their future state pension in families where one parent does not work, due to childcare commitments, and the other is the higher household earner and claiming child benefit, HMRC has revealed

Registering for child benefit builds up state pension entitlement for parents of children under 12 who do not already pay National Insurance contributions (NICs), including instances where they decide to stay at home to look after their children. If the parent does not register for child benefit, they may forgo their National Insurance credits, and therefore part of their future state pension.

New data provided to the Treasury Committee by HMRC estimates that of the 7.9m households in the UK receiving child benefit, around 3%, or more than 200,000 households, may not be benefitting from National Insurance credits because the child benefit is claimed by the higher earner in the household.

Nicky Morgan, chair of the Treasury committee, said: ‘The Treasury committee has long-warned the government of the risk that for families with one earner and one non-earner, that if the sole-earner claims child benefit, the non-earner, with childcare commitments, forgoes National Insurance credits and, potentially therefore, their entitlement to a full future state pension.

‘Now we have an idea of the scale of this problem, the government needs to pull its finger out and make sure people are aware of the issue and know how to put it right.’

Parents can transfer National Insurance credits between themselves. Households can either change the child benefit claimant from the earning-parent to the parent with low-or-no income, or the earning-parent is able to stay as the claimant and just the National Insurance credits can be transferred to the parent with low-or-no income.

In its letter of explanation to the Treasury committee, HMRC pointed out that some parents who might be counted amongst those affected will be able to claim a full state pension by virtue of numbers of years of NICs paid over the rest of their working life.

However, the department also said it continues to work with the Department for Work and Pensions to raise awareness of the issues and the options available to address them, and to improve the process for claimants.

HMRC letter to the Treasury selection committee is here.

Guidance on National Insurance credits is here.