Child Benefit Mistake Costing 200,000 Couples Pension Contributions
27th April 2021
It’s a tough job bringing new life into the world, and getting the most out of your finances can be crucial. The Child Benefit system is designed to help make things a little easier - at least on the money side - but it can be tricky to get the best from it. Right now, 200,000 UK families are missing out on a valuable little wrinkle in the Child Benefit scheme, and it could be costing them real money in the long term.
When a couple claims Child Benefit, only one parent makes the application. In a lot of cases, that parent tends to be the primary earner of the household. It seems to make sense, since the main breadwinner is probably settling most of the bills and handling much of the day-to-day financial organisation.
The thing is, the Child Benefit system has a built-in mechanism to help with the pension situation of people who are cutting back on or dropping out of work to take care of a young family. In that situation, it actually makes much better financial sense to make your claim in the name of the lower earner.
What Child Benefit Means To Your Pension
It takes 3½ decades of steady work to build up enough National Insurance contributions to max out your State Pension entitlement. That’s a hard track record to rack up if you’ve been raising children.
When you claim Child Benefit, your National Insurance Contribution record gets topped up with credits, protecting your pension when you eventually retire.
Simply put, this little wrinkle in the Child Benefit rules can make it a lot easier to stock up the 35 years of NICs it takes to claim your full State Pension, putting it in reach for people who’d otherwise miss out.
At the moment, for 200,000 or more families across the UK, the simple mistake of having the wrong parent claim is putting a potentially serious dent in their retirement earnings.
How Much Are People Losing Out On?
Each year of missed NIC credits will cost you about a fiver a week in retirement. It might not sound like a lot when you put it in those terms, but that’s £260 a year – or well over £5,000 in the course of a 20-year retirement period.
That’s per year of missed credits, remember. If one of you takes a few years out from work to raise a family and never makes up their lost NICs, you could easily be looking at tens of thousands in lost pension earnings later in life!
What To Do About It?
Well, the first thing to do is check if you’re affected.
In some cases, even if you’ve got the “wrong” person claiming, it might not have harmed your finances. If the lower earner hasn’t missed any years of NICs, then you’re not losing out.
If you are, it’s actually possible to fix the mistake before it does any real damage to your retirement. Here’s how:
- Get in touch with the Child Benefit Office, and grab form CF411A to transfer your claim to the lower-earning parent.
- Better yet, you can actually backdate your claim as far as 2010 using form CF411 here.
Bringing up kids is an enormous investment in the future, but it shouldn’t have to cost you your own future to do it. Check if you’ve been missing out or if you meet HMRCs criteria to be required to declare your child benefit, speak to us and keep checking back here for more updates and advice from RIFT.
If you pay to travel for work or to cover other expenses such as tools, uniforms and specialist clothing, meals or accommodation then you should also check if HMRC owes you a tax refund on any of those costs. 2/3 people aren't claiming the refunds they're due - which means they're missing out on around £1000 per year on average.