Lost pension: Nandia Needham, pictured with husband Martin, could be thousands of pounds out of pocket in retirement
Today, This is Money launches a campaign to battle the unfairness of parents ending up with a smaller state pension because they failed to fill in a form.
Thousands are facing a poorer retirement as a result of innocent mistakes made over paperwork after their children are born, in a scandal recently highlighted by This is Money.
We have heard from many parents who stand to lose tens of thousands of pounds in old age and are calling on the Government to address this unjustice.
Nandia Needham, pictured right with husband Martin, has lost four years of credits towards her state pension, and could be left nearly £20,000 out of pocket if she lives for 20 years after retirement.
Like many other parents, she discovered the Government would only backdate credits by three months when she tried to correct the record.
This is Money is calling on the Government to give parents back all the state pension credits they are entitled to in full.
If it refuses, the current admin fiasco will only get bigger as more parents are being caught in this trap each year.
For those who are being penalised but haven’t realised yet, the number of credits they are losing is also going up with each passing year, creating an ever bigger hole in their future state pension.
The trouble stems from a controversial overhaul of child benefit in 2013, which reduced the entitlement for those earning £50,000-plus a year or wiped it out entirely for those earning £60,000-plus.
Snared by the child benefit trap
Our sister publication Money Mail has revealed how parents were sent threatening demands after wrongly receiving child benefit payments. Read more here.
But parents who earn too much to qualify for child benefit still have to apply for it so that they receive state pension credits.
Those who failed to sign up when the new rules began could have lost six years of state pension credits by now.
People who earn less and do qualify for child benefit are also losing state pension because the forms are so complicated it is easy to make a mistake – and there is little forbearance for anyone who does.
A common problem is when the ‘wrong’ partner signs up for child benefit, because they are working so the credits are worthless to them.
So, This is Money is also asking the Government to sort out the shambles that couples currently face when trying to get the taxman to transfer credits between them retrospectively.
We are calling for the following:
– Full backdating of state pension credits for those who claim child benefit late;
– A review of how credits are awarded, including the feasibility of signing up when registering a birth not through the child benefit system;
– An overhaul of credit transfers between couples following mistakes on child benefit forms, to remove red tape and to drop the time limits on applications made for years after 2010.
We asked the Government to respond and it said it has always urged families to claim child benefit to help protect their future right to the state pension.
It added that it changed the form and guidance notes last spring to stress further the importance of this and that it continuously considers ways to improve communications at the birth of a child and for existing child benefit claimants. Read the Government’s full response below.
Why are we campaigning for parents to get lost state pension credits back?
Parents who take time out to look after children are currently entitled to National Insurance credits that mean they shouldn’t receive a stingier pension in old age.
Why is it so important to claim child benefit?
Those who sign up get valuable credits towards their eventual state pension, providing they are not working and building up their National Insurance record that way.
Each credit missed could cost you 1/35 of the value of the state pension – around £244 per year or £4,880 over the course of a typical 20 year retirement. Four years lost works out at £19,520.
It’s crucial a parent who is not working is the one named on the form to get the child benefit, as these credits are worthless to someone employed and already paying enough NI.
You can apply to transfer it later, but couples report being refused this option for reasons they don’t understand and HMRC has so far failed to explain.
Meanwhile, new parents – predominantly women – who fail to sign up because they don’t qualify for the payments can end up losing many years’ worth of credits they can’t get back.
This is because if they discover their mistake and belatedly sign up, HMRC will only backdate their records for three months.
Nobody disputes they are intended to get these credits, yet many are still losing out due to the convoluted way parents must apply to keep their state pension records intact.
Parents who do not register for child benefit, because one earns too much to receive the payments, are still expected to register but not take the money.
The main way child benefit forms are distributed to new parents is via bounty packs handed out in hospitals, which are otherwise full of promotional leaflets and discount vouchers.
That means these vital documents are often overlooked in the hectic weeks after children are born.
The mess is potentially depriving tens of thousands of people – mostly but not only women – of future state pension, which currently stands at £164.35 a week.
Yet, many grandparents taking on childcare duties are also thought to be unwittingly losing credits towards a state pension – but unlike parents, their entitlement is fully backdated whenever they come forward.
The Government lets grandparents claim for years all the way back to 6 April 2011, when the policy of giving them credits was introduced.
But bizarrely, it sees nothing wrong with imposing much harsher rules on parents.
Many mums and dads have contacted This is Money after reading our stories of people getting ensnared in child benefit red tape to tell us their own experiences. We highlight some of them below.
Child benefit forms lost among ‘coupons for nappies and nipple shields’
Ruth Jones (not her real name) lost four years of state pension credits after not claiming child benefit because her husband’s pay was over the earnings limit.
A chartered accountant aged 41, who lives in the south of England, she sharply criticises the current policy of slipping such an important form into ‘a bounty pack full of coupons for nappies and nipple shields’.
After she gave birth, Ruth didn’t see the point of claiming child benefit when she wouldn’t receive the payments, but insists the consequences were never explained to her or she would certainly have done so.
Have you lost state pension by not signing up for child benefits or filling form in wrong?
If this has happened to you, contact firstname.lastname@example.org and tell us your story.
She and her husband only discovered she should have registered when he happened to read an article in the press about it years later.
Ruth says: ‘I’ve been caught out by this loophole.
‘Shoving the form in the bounty pack at a new mum who’s not had any sleep with a bunch of money off leaflets is ridiculous.
‘It should be linked to birth certificate registration.
‘I’m not entitled to child benefit but I must still claim and then tick the box to say I don’t want payment. It’s a ridiculous system and one which needs to be rectified.
‘You wouldn’t think you need to go through child benefit to get your state pension. I have nothing against them not giving child benefit to high earners. I agree with that but now they are discriminating against women.
‘I used to be a high rate earner as well. What if I get divorced? What if I have a tight husband who won’t share his pension with me?’
Three months backdating is ‘arbitrary’ cut-off point
Nandia Needham has also lost four years of state pension credits, after only belatedly realising she should sign up for child benefit despite husband Martin’s pay being over the earnings limit.
The former retail worker, 42, had her first child at around the time the changes axing payments for higher earners were introduced in 2013.
Martin, 52, a company director, says they therefore assumed there was no reason to claim.
The couple, who live in South Yorkshire, feel let down by a system which means Nandia will potentially miss out on thousands of pounds in retirement.
‘When my wife decided to look after our daughter I didn’t see any reason to claim.
‘Nothing was said at the hospital and there was nothing in the media highlighting this particular issue,’ says Martin.
‘I never gave a thought to the link between child benefit and the state pension.
‘It’s extremely disappointing to say the least that we have lost a significant proportion of my wife’s state pension.
‘It’s clear she is entitled to it so I don’t know why there is this arbitrary three months backdating.’
What should you do if you think you’ve lost state pension credits?
Call the taxman’s child benefit helpline on 0300 200 3100, and sign up using the form here.
You can then get both child benefit payments and state pension credits backdated for three months, and going forwards.
However, you can opt to simply register for child benefit but not receive the actual payments.
That means you get the state pension credits – backdated and in future – but can avoid having to sign up for tax self-assessment and paying what is called a High Income Child Benefit Charge (HICBC).
There’s another advantage to registering even if you don’t qualify for payments, which is that your child will automatically get a NI number when they are 16.
If you signed up for child benefit but the working partner mistakenly made the claim, find out how to transfer credits or their forerunner HRP (Home Responsibilities Protection) between couples here.
You can find out your current state pension forecast using the Government’s online Check my State Pension service here.
Official information on National Insurance credits and how to apply for them is available on Gov.uk here.
Why are we asking for a simpler system for couples to transfer credits?
Couples who try to transfer credits between them have been left confused and frustrated by the shambolic process.
We have previously reported how they are being blocked from transferring state pension rights between them when the ‘wrong’ partner signs up for child benefit, and are in the dark about why HMRC has refused them.
HMRC has admitted that baffling letters sent to claimants, saying they had to reach state pension age between April 2008 and April 2010 to qualify for transfers, were incorrect and apologised.
Shambolic system: We are calling on the Government to overhaul the credit transfer system to remove red tape
It confirmed the condition is you must reach state pension age on or after 6 April 2008, and that the bungle will be sorted in future decision letters.
But it has failed to explain whether earlier rejections will now be reversed, and if not why it is standing firm on them.
Raina Thurgood and Martin Ryott from Essex were refused a transfer of two years of Home Responsibilities Protection – the forerunner to state pension credits – from 2008 to 2010 from her name into his one.
They protested to the taxman, but were left in limbo for months as their letter went unanswered, while This is Money’s attempts to get an explanation were also ignored.
Martin, 50, a production editor who stopped working in 2008 to look after the couple’s three children, has lost HRP and state pension credits for 10 years in total. There are time limits on transferring credits from 2010 onwards.
After This is Money’s most recent attempt to get a response on their behalf, HMRC contacted Martin to say a decision on his case was ‘pending’.
We are now calling on the Government to overhaul the credit transfer system to remove red tape and to drop the time limits on applications, so that couples who make simple errors are no longer penalised.
Who else is trying to help couples over lost state pension credits?
A recent government drive urging parents to claim child benefit to avoid losing state pension prompted a call to fix the current ‘administrative mess’ by mum and campaigner Emma Maslin.
She says the Government should ‘do the right thing’ and give parents their missing state pension credits back, while also overhauling the current system to prevent more people falling into the same trap.
She reckons the official alert telling parents they ‘may inadvertently be missing out on retirement income’ missed the point.
Emma Maslin: The Government should ‘do the right thing’
‘Why are people missing out? Credits are available to all who have a child under 12 and yet there is a need to actively opt in to receive them.
‘There are surely far easier ways to ensure parents are registered than the current system which is seeing thousands of eligible parents missing out.
‘Why not link registration for state pension credits to the registration of a child’s birth which everyone has to do?
Or re-format the form which is required to be filled in – make it an application for state pension credits (available to all) with an opt-in for child benefit (not available to everyone).’
Former Pensions Minister Steve Webb is also calling on the Government to fully relax the backdating rules.
He welcomes the Government’s recent attempt to promote the value of National Insurance credits towards getting the state pension, but says instead of one-off initiatives it should proactively target people using its lists of those who might be affected.
‘In some cases the Government knows with some precision the exact people who are missing out on these NI credits and it should be contacting them personally and directly.
‘For example, the new mothers who have not claimed child benefit will have registered the birth of their child.
‘The Government could easily compare the birth register with the child benefit register and contact the families who are missing out. This would have a much bigger impact than generalised publicity, however well-intentioned.’
This year, Webb, who is now policy director at Royal London, has answered two reader questions on the issue in his pension column for This is Money.
Nicky Morgan MP: Chair of the Treasury committee has pushed the Government and HMRC to look into the issue of parents losing state pension
Separately, Nicky Morgan MP, chair of the Treasury committee, has also expressed worries and asked the Government and HMRC to look into the problem of parents losing state pension.
This summer, the committee published Morgan’s exchange of letters pressing the issue with these departments.
She said at the time: ‘It’s concerning that parents who haven’t registered for child benefit for fear of the higher tax rate charge may be forgoing part of their future state pension.’
And in response to the recent government alert to parents, she pledged: ‘The Treasury Committee will continue to challenge the Government to ensure that no-one misses out on these National Insurance credits.’
What did the Government say in response to our campaign?
A spokesman said: ‘No-one should miss out on their full State Pension entitlement and the government has always urged families to claim child Benefit to help protect their future right to the state pension,’ said a spokesperson.
‘The child benefit claim form and guidance notes were updated in April 2017 to stress further the importance of making a claim.
‘Child Benefit claimants on a high income can opt not to receive payments in order to avoid having to pay back their child benefit through the High Income Child Benefit Charge.
‘But they should still complete the claim form in order to qualify for National Insurance Credits and thus build qualifying years towards the State Pension.
‘Parents are advised to do this on the child benefit claim form (which is available in the bounty packs that go to new parents), through the HMRC helpline, online at gov.uk and through partners such as Citizen’s Advice.
‘We continuously consider ways in which communications can be improved further, both at the birth of a child and for existing child benefit claimants.’
How much is the state pension?
The basic state pension is currently £125.95 a week. It is topped up by additional state pension entitlements – S2P and Serps – accrued during working years.
The two-tier state system has changed for people retiring since 6 April 2016, when it was replaced by a new ‘flat rate’ state pension. This is currently worth £164.35 a week.
People who have contracted out of S2P and Serps over the years and retire after April 2016 get less than the full new state pension.
But they can fill gaps in unpaid and or underpaid National Insurance in previous years, and build up more qualifying years if they have enough time between now and state pension age.
Workers needed to have 30 years of qualifying National Insurance contributions to get the old state pension, but they now need to have 35 years of contributions to get the new flat rate state pension.
But even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get.
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