Royal London Pensions  

Families losing up to £1bn in pension rights

Families losing up to £1bn in pension rights

Families that have their child benefit paid to a working parent are losing millions of pounds in pension rights, Royal London has warned. 

Calculations from the insurer showed one-earner families who chose to have their child benefits paid to the working parent rather than the parent at home with the children were losing £1bn a year in lost pension rights as the stay-at-home parent misses out on National Insurance credits towards their state pension.

The warning followed last week's correspondence between the Treasury committee and HMRC in which HMRC stated an estimated 237,000 couples were in this situation. 

Steve Webb, director of policy at Royal London, said: "If you are part of a couple where the higher earner is claiming child benefit, it is vitally important to check your National Insurance record.    

"Valuable National Insurance credits are available to those who receive child benefit but if the person in work claims the child benefit rather than the stay-at-home parent, there is a risk that these credits are being wasted. 

"The good news is that it is possible to fix this problem by applying to have the credits transferred. I would urge families affected to investigate this option so that they do not lose out on significant amounts of state pension rights."

The current full rate of the state pension is £164.35 per week, payable to those with 35 years of full rate NI contributions.

According to Royal London, each year missed could cost 1/35 of a pension, which is £4.69 per week or £244.18 per year.  

The mutual calculated that over the course of a typical 20-year retirement the total loss per person who misses one year of contributions would be £4,883.  

With 237,000 couples potentially in this position, the total loss of state pension rights would be £1.15bn every year.

Fiona Tait, technical director at Intelligent Pensions said: "It is no surprise that people don’t realise that they need to do this as state benefits are incredibly complicated.

"Most people would assume that claiming child benefits could be done as part of the main wage earner’s tax returns, especially if the other partner does not have much in the way of tax to report. 

"The system of NI credits however, is specifically designed to allow non-earning carers to build up pension entitlements in their own right rather than having to rely on their partner or spouse.

"I would urge as many people as possible to take action and ensure they qualify, otherwise they could be in for a very big disappointment when they reach State Pension age."