Features

Child-benefit pensions trap affects 200,000

A loophole meaning parents miss out on the full state pension because of changes to the child-benefit rules could hit more than 200,000 people, says HMRC.

933_MW_P21_Pensions_Bottom

506910340

A loophole meaning parents miss out on the full state pension because of changes to the child-benefit rules could hit more than 200,000 people, says HMRC far more than previously estimated. The technicality potentially affects couples where one partner commands a higher salary while the other doesn't earn enough to pay national insurance contributions (NICs), perhaps because they're staying at home to look after children.

Usually, the non-working partner would qualify for national insurance credits, helping to ensure their national insurance record is sufficient to qualify them for a full state pension. However, where the higher earner is the one claiming the child benefit, the credits are never paid to their spouse, as the scheme is administered throughthe child-benefit system.

With savers needing 35 years of NICs to qualify for a full state pension, the problem means many people will miss out in retirement.

And while couples havethe option of moving the child-benefit registration to the non-working partner to close the loophole, the change can only be backdated by three months. Affected families are missing out around £4,900 per family over the courseof a 20-year retirement, estimates pension provider Royal London. MPs onthe Treasury Select Committee have urged ministers to take action to protect couples caught out, and to change the rules so more people don't fall into the trap.

Recommended

The minimum pension withdrawal age is set to rise – don’t get caught short
Pensions

The minimum pension withdrawal age is set to rise – don’t get caught short

From April 2028, the earliest age at which you can take money from your pension savings will rise to 57. It's vital that you understand the detail of …
13 Apr 2021
Make sure you max out your pension contributions this year
Pensions

Make sure you max out your pension contributions this year

If you're saving for retirement, make sure that you have used up all their allowances before the tax year ends, and contributed as much to your pensio…
31 Mar 2021
Make sure you don't go over the pensions lifetime allowance
Pensions

Make sure you don't go over the pensions lifetime allowance

Breaching the lifetime allowance for pension savings could prove very costly, says David Prosser.
15 Mar 2021
Women could be compensated for state-pension shortfall
State pensions

Women could be compensated for state-pension shortfall

A government inquiry has said that up to 200,000 women could be owed a collective £1.7bn in compensation, with the average woman being owed £13,500 in…
12 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021