State Pension  

Stay-at-home parents may lose out on state pension

Stay-at-home parents may lose out on state pension

Stay-at-home parents, who have not registered for child benefits, could be losing out on state pension credits, but the government has no idea how big that shortfall is, the Treasury select committee revealed today (26 July).

Child benefit recipients with a child under the age of 12 get a national insurance credit towards their state pension.

This means even if they are not in paid work, they are still treated as having contributed when it comes to claiming their retirement benefits.

However, stay-at-home parents can only receive these credits if they apply for child benefit but then waive the payment of it.

In 2013, the government introduced a high-income child benefit tax charge for couples where one partner earns £60,000 per year or more, which effectively wipes out the value of the child benefit.

This may deter some couples from signing up to receiving child benefit, the committee said.

Nicky Morgan, chair of the committee, said it was "concerning" that parents who haven’t registered for child benefit for fear of the higher tax rate charge may be forgoing part of their future state pension.

"This is exemplified by the limited number of new opt-outs of child benefit claimants," she noted.  

According to data shared by the HM Revenue & Customs (HMRC) with the Treasury select committee, a mere 7 per cent of the 7.4 million claimants of child benefit in 2017 had opted out of the benefit.

According to analysis conducted by Royal London, changes to the child benefit system in 2013 could have cost mothers, or fathers, more than £23,000 in state pension rights, based on a 20-year retirement.

The total amount in future pension rights lost since 2013 is estimated to exceed £1bn.

HM Treasury secretary Mel Stride said in a letter to Ms Morgan that HMRC will be conducting consumer research to understand more fully "why some parents aren’t claiming child benefit and whether they are aware of the impacts" of not claiming it.

Jon Thompson, chief executive and permanent secretary of HMRC, revealed this research is currently underway, and a report is expected to come out in mid-August.

Ms Morgan said the committee will scrutinise HMRC’s child benefit consumer research to understand the scale of the risk of parents not claiming this benefit.

Kay Ingram, director of public policy at LEBC, said the Treasury committee was right to criticise the current system as being over complicated, especially for those whose earnings fluctuate and may fall either side of the £60,000 limit on earnings from year to year.

She said: "It is especially difficult for the self-employed whose earnings can vary a lot.

"While restricting child benefit was a necessary step the Treasury felt it had to take in the wake of the crisis, this restriction needs reform.

"The earnings threshold hits many middle income earners and is especially unfair on single parent earners."

Data provided by HMRC also showed the proportion of male claimants of child benefit has increased with the number of male claimants rising from 10 per cent in 2013 to 11.7 per cent in 2017.