Mothers have missed out on more than £500m in state pension rights in the last three years because of changes to the rules around Child Benefit, according to research by Royal London.
The group’s policy paper The Mothers Missing out on Millions showed the High Income Child Benefit Tax Charge introduced in 2013 meant families receiving child benefit where one parent earns more than £60,000 a year incur a tax charge that wipes out the value of Child Benefit.
In response, said the report, growing numbers of mothers are simply not claiming Child Benefit in the first place and are thereby losing out on valuable credits towards their state pension rights.
Under the current National Insurance system, a parent – usually a mother – receiving child benefit for a child under 12 receives a year of National Insurance credits towards her state pension record.
This means, even if she is not in paid work and does not pay National Insurance contributions, her state pension is protected – but this system does not work for new mothers affected by the High Income Child Benefit Tax Charge.
Across 2014/15 and 2015/16, said Royal London, women have so far lost a total of £278m in state pension rights by not initiating a claim to child benefit when starting a family.
If the problem grows at its present rate, the group added, more than £0.5bn in pension rights will have been forfeited by the end of the current financial year. At present, some 38,000 mothers are already missing out – with that number set to rise at about 20,000 a year.
Royal London called on HM Revenue & Customs (HMRC) to take action to deal with this problem before a whole generation of women reaches pension age with incomplete pension records.
The group’s director of policy Steve Webb said that, while providing national insurance credits was a “vital part of the system” and had “protected millions”, it was now clear this protection was being undermined because of the Child Benefit changes introduced in 2013.
He added: “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.
“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 called on any new mother who had not yet made a claim for Child Benefit to do so, adding: “Even applying for a nil award will ensure her state pension rights are protected.”
HMRC has acknowledged the issue in its own statistical publications, noting: “Families subject to the High Income Child Benefit charge, whose first child was born since January 2013, would have had a choice between either registering for Child Benefit and then opting out or not registering to begin with.
“These figures suggest some of these families may have chosen not to register after learning about the High Income Child Benefit charge.”
Gender Inequality
Last week a Pensions Policy Institute report, commissioned by NOW Pensions, suggested women disproportionately lose out on pension savings because of the auto-enrolment trigger and qualifying earning calculation.
Meanwhile, to mark Equal Pay Day last Thursday,the Fawcett Society released a blog detailing reasons why a wage gap still exists between the sexes, including women being less likely to receive bonuses or progress to highest-paid roles, and facing discrimination because of pregnancy.
Royal London pensions specialist Fiona Tait said: “So long as women earn less, they will most likely continue to save less for their retirement – particularly as workplace pension contributions are usually based on a percentage of salary.
“This results in a ‘double whammy’ of lower employer contributions and an increased financial pressure to make their own pension contributions.”
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