New research has found that thousands of mothers could be missing out on millions of pounds of future State Pension income.
The report, by pension provider, Royal London, has found that mothers have will miss out on £500 million of State Pension rights because of changes to Child Benefit.
The link between State Pension entitlement and Child Benefit isn’t immediately obvious. However, Royal London’s report, ‘Mothers missing out on millions’, shows that those who no longer claim Child Benefit, could be reducing the amount of State Pension they are entitled to as a result.
Child Benefit rule changes
The problem stems from changes in 2013, when rule changes meant that households with one parent earning over £60,000, would incur a tax charge wiping out the Child Benefit.
Affected parents have two choices; receive the Child Benefit and have their tax allowances adjusted to repay it, or simply not claim it in the first place.
It is mothers who take the second option who will see their State Pension reduced when they retire.
Why is this the case?
Parents of children under the age of 12, receiving Child Benefit, also get a year of National Insurance credit towards their State Pension. This means that someone in these circumstances, usually the mother, maintains their State Pension record.
Royal London has calculated that mothers who have failed to claim Child Benefit, when their son or daughter is born, have lost £278 million in future State Pension payments; a figure which will rise to £0.5 billion by the end of the current financial year.
So far, some 38,000 mothers are affected with a further 20,000 added each year.
Steve Webb, the former Pensions Minister, who is now Director of Policy at Royal London, said: “In a relatively short period of time, mothers have lost out on hundreds of millions of pounds in state pension rights and this situation is getting worse with every passing year.”
He continued: “It is vital HMRC takes action to ensure these women receive the National Insurance credits that should be theirs by right. Otherwise, the cause of gender equality in state pensions will have been set back a generation.”
Webb also said that all mothers should make a claim for Child Benefit as: “Even applying for a nil award will ensure her state pension rights are protected.”