State pension warning as 200,000 couples at risk of damaging their retirement – act now

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State Pension payments provide important support to individuals in later life, but to be entitled a person must build up a certain amount of National Insurance contributions throughout their lifetime. National Insurance credits are usually obtained through working life, but career breaks and other factors may contribute to a lack of a full record. Now, a new Freedom of Information (FOI) reply from HMRC to Lane, Clark, Peacock (LCP) partner, Sir Steve Webb, has revealed many could be unwittingly doing damage to their state pension prospects.

The issue centres around claims for Child benefit – a payment from HMRC which can help individuals responsible for raising a child in the UK.

The FOI reply shows there are currently 200,000 couples across the UK where the “wrong” partner is currently claiming Child Benefit.

In these instances, the higher earner of a couple is receiving the Child Benefit, which could significantly damage an individual’s state pension.

This is because lower earners, or indeed non-earners, are consequently losing out on important National Insurance credits which could boost their state pension.

Current rules mean someone receiving Child Benefit for a child under 12 are also treated as they had paid National Insurance contributions for that week.

But as the credit only goes to the person who actively claims the Child Benefit, it will be lower or non-earning parents who are most likely to benefit.

While people who are parents of young children at present will need to act, there is also a potential issue to address for older parents who now have grown up children.

The latter group may need to address the potential gaps in their National Insurance record to ensure they get the state pension to which they are entitled. 

Steve Webb, partner at Lane Clark Peacock, and former pensions minister, commented on the matter.

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Sir Steve Webb, partner at Lane Clark Peacock, and former pensions minister, commented on the matter.

He 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.

“The majority of those who are currently missing out are mothers with young children.

“It is simply unacceptable that they should suffer a pension penalty as a result.

“HMRC needs to do much more to make people aware of the impact of the choice over who gets Child Benefit, as well as encouraging people to check their NI records where the wrong choice has been made in the past.”

HMRC has highlighted that not everyone who misses out on National Insurance credits will necessarily suffer a reduced state pension – as they may build up their contributions during the rest of their life.

However, while this is important to bear in mind, where losses happen, they could be substantial.

LCP has said one year short could cost someone 1/35th of a full state pension every week of their retirement.

Over a twenty year retirement, the organisation has said, this could mean a loss of £5,200.

As a result, Britons are now being encouraged to take action on the matter and find out more about their contributions.

If currently in receipt of Child Benefit, families may wish to see if the lower-earning or non-earning parent can make the claim.

For older individuals, checking the state pension entitlement can be done through requesting a state pension forecast.

This can be achieved online, through the Government’s BR19 form, or by calling the Future Pensions Centre.

Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to personal.finance@reachplc.com. Unfortunately we cannot respond to every email.

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