Why 200,000 parents risk smaller state pension

by Stephen Little from Moneywise |

Thousands of women face a reduced state pension because child benefit credits are in the wrong name.

Thousands of women could see their state pension reduced in retirement because their claim for child benefit is in the name of their partner.

A Freedom of Information (FOI) request put in by Royal London to HM Revenue and Customs has revealed that around 200,000 couples are making the wrong choice about who claims child benefit, potentially costing them thousands of pounds.

To qualify for the full state pension, you need a total of 35 qualifying years of national insurance contributions or credits (NICs).

However, as women are still more likely to take time out from work to raise children or become carers, they are at greater risk of having gaps in their NICs.

Parents with children under the age of 12 claiming child benefit will get NICs. As a result, in the years they are not employed and looking after their children their state pension record will not suffer.

A year of NICs builds up the same amount of state pension as a year in paid work paying NI contributions. 

Given that 35 years of contributions are needed for a full state pension, just one year of credits can be worth 1/35 of a pension – this is roughly £250 per year on the pension at retirement or £5,000 over a typical 20-year retirement.

The credit will only go to one parent, usually the lower earner or one that is not working. This is because the higher earner will most likely be in paid work and therefore already paying NICs so does not need the credit.

The FOI shows that in around 200,000 couples there is a non-earner - or very low earner - who could benefit from a credit but is not doing so because the child benefit is in the name of their spouse.

Steve Webb, director of policy at Royal London, says: “It is quite right that parents who are looking after children get protection for their state pension record if they are out of paid work.  But this protection only works if the ‘right’ parent claims child benefit.

“It is very worrying that in around 200,000 families one partner is potentially missing out on the state pension protection that is rightfully theirs.”

How you can claim

The good news that this problem can be easily fixed by completing a form, even if you want to back date the claim.

This CF411a form can be downloaded here.

Royal London warns that parents who are not aware of this could find their state pension reduced by hundreds or even thousands of pounds a year in retirement if they do not take action.

Mr Webb says:

“Whilst this can be fixed by filling in the relevant form, many people will be unaware of this. HM Revenue and Customs should do much more to alert people who might be affected in order to make sure that many thousands of parents do not end up being penalised in retirement.”

This article was originally published in our sister magazine Moneywise. Click here to subscribe.

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