New figures published today (Wednesday 28th February) by HMRC suggest that tens of thousands of mothers with young children could face a permanently reduced state pension because of changes to the Child Benefit system introduced in 2013 for higher income couples.
Those affected are families who either opted out of Child Benefit when the rules changed or who have started a new family since 2013 and decided not to claim Child Benefit in the first place. Today’s figures show that the number of families receiving child benefit is 7.38 million compared with 7.92 million in 2012, just before the rules changed.
Forty years after the first National Insurance credits were introduced to protect the state pension rights of mothers, women are again facing greater poverty in retirement because of having children. Some mothers will have lost over £23,000 in state pension rights since 2013 because of the changes, and are not allowed to make a backdated claim for missing credits.
Commenting, Helen Morrissey, Personal Finance Specialist at Royal London said:
"For the last forty years, the National Insurance record of mothers has been protected through valuable credits which mean that time spent at home with young children does not impact on their state pension.
But since 2013, growing numbers of mothers have either opted out of child benefit or have not claimed in the first place because of a new tax charge on higher income couples. This is doing permanent damage to their state pension prospects.
It is outrageous that in the anniversary of women winning the right to vote, the government is overseeing a state pension system which penalises women for having children.
The Government needs to make sure that all mothers claim their national insurance credits, and to allow backdated claims. Otherwise, the cause of women’s pension equality will be set back a generation."
- Child benefit recipients (usually mothers) with a child under 12 get a National Insurance credit towards their state pension; this means that even if they are not in paid work, they are still treated as having contributed when it comes to claiming their state pension;
- In January 2013 a ‘High Income Child Benefit Tax Charge’ was introduced. For couples where one partner earns £60,000 per year or more, a tax charge is incurred which wipes out the value of the child benefit. As a result, around half a million families who were receiving child benefit decided to opt out, and tens of thousands of families having their first child since Jan 2013 have decided not to claim in the first place.
- Prior to 2013, the number of families on Child Benefit in the UK was growing at just under 1% per year. It rose from 7.25 million in 2003 to 7.92 million in August 2012. But in January 2013 the ‘High Income Child Benefit tax Charge’ was introduced. The number of families on Child Benefit immediately slumped by 370,000 to 7.55 million in August 2013 . It has continued to drift down since then and now stands at 7.38 million.
- We focus in particular on families with children under 5, on the assumption that mothers with older children will largely have returned to work and will therefore be less likely to benefit from NI credits. Royal London estimates that there are approximately 50,000 mothers in families with a child under 5 who have completely opted out of receiving Child Benefit having previously received it; in addition, an estimated 160,000 have started a family since 2013 and have decided not to claim child benefit; some of these mothers will be in paid work and so do not need the NI credit, but even if only 30% of these mothers of the under 5s are not in paid work, around 63,000 will be losing out on credits which would boost their state pension; the total amount in future pension rights lost since 2013 is estimated to exceed £1 billion;
- A woman who had a child after the rules changed in January 2013 and has not claimed benefit could have gaps in her NI record for 2013/14, 2014/15, 2015/16, 2016/17 and 2017/18; five missing years could cost her 5/35 of the full rate of the state pension which is around £160 per week; based on a typical twenty year retirement, this could cost such a woman over £23,000 in lost state pension rights;
- Claims for Child Benefit can only be backdated three months, so a mother can no longer remedy gaps in her record for 13/14, 14/15, 15/16 or 16/17 other than by paying voluntary NI contributions to make up the shortfall;
- The first credits to protect mothers were introduced in 1978 using a system of ‘home responsibilities protection’ of the NI record of parents receiving Child Benefit.
- ENDS -
Note to editors:
The following table shows the number of children in families receiving child benefit in a) August 2012 – shortly before the rule change and b) August 2017.
|(thousands)||Age 0||Age 1||Age 2||Age 3||Age 4|
The main report can be found here: https://www.gov.uk/government/statistics/child-benefit-statistics-geographical-analysis-august-2017 together with a link to more detailed tables on families who have opted out.
About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.