State pension entitlement gaps: Blow as National Insurance credit system delayed until April 2027

The introduction of a scheme to protect the National Insurance records of people, mainly mothers, who might otherwise lose out when it comes to their state pension has been delayed, the government has announced today (30 March).

The delay has been condemned as “deeply frustrating” by Steve Webb, a former pension minister and now partner at pension consultancy LCP.

The issue relates to the impact of the introduction of the High Income Child Benefit Charge (HICBC) in 2013, which aims to claw back Child Benefit from higher earners. Parents – mostly mothers – can still claim Child Benefit, regardless of the charge, but if they or a partner has an individual income above the threshold, they face a tax bill which may wipe out the value of the Child Benefit.

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After HICBC was introduced, hundreds of thousands of parents reacted by simply not claiming the benefit.

However this created a new problem – not claiming Child Benefit also meant not getting a valuable ‘National Insurance credit’ for anyone with a child under 12. These credits help to protect the state pension record of those who are at home raising children.

Another problem was that although parents who later realised they might miss out could make a Child Benefit claim (but ask for the National Insurance credits and not the cash benefit), such claims could only be backdated for three months. This meant they could still have years missing on their National Insurance record.

To sort out the issue, in April 2023 the Conservative government under then prime minister Rishi Sunak promised to create a system where parents in this position could be awarded ‘replacement credits’. This system was due to come into force from April 2026.

However the government has announced a delay of one year in the introduction of this scheme, which is now due to open in April 2027.

Who will be affected by the delay to the “replacement credits” system?

Those who won’t reach state pension age until after April 2027 should not be affected – provided they had not inadvertently paid voluntary National Insurance contributions for the ‘missing’ years.

But, Webb pointed out, the delay will be especially frustrating for those who have already reached state pension age or will do so shortly, and may get less in state pension than they are due. In response, HMRC has said people who have lost out, in terms of reduced state pension, may be able to claim financial assistance.

Webb from LCP said: “It is deeply frustrating to see a delay in a scheme designed to unpick a mess in the pension system. When the High Income Child Benefit Charge was introduced in 2013, some parents – mostly mothers – decided it wasn’t worth bothering to claim Child Benefit, only for them or a partner to get a tax bill for the same amount. But by not claiming Child Benefit they also threw away valuable National Insurance credits towards the state pension.

“The government promised several years ago to fix this problem by creating ‘replacement credits’, but now we hear – just a few weeks before the new system was about to be introduced – that it has been delayed by a year. The whole thing has been a mess from the start.”

An HMRC spokesperson told MoneyWeek: “We can reassure parents and carers that when the service launches in April 2027, they will still be able to claim credits going back to January 2013, meaning no one will miss out on them.

“Because those who benefit from the service will be families with children under the age of 12 since 2013, we expect very few to have reached state pension age by this April.”

What are the current High Income Child Benefit Charge rules?

Since 2024/25, if you or your partner earn more than £60,000 per year, you will be affected by the High Income Child Benefit Charge. You’ll pay 1% of the Child Benefit back for every £200 you earn over the threshold.

This means if you or your partner earns £80,000 or more, you’ll repay all of the Child Benefit through the tax. Affected parents can opt out of Child Benefit payments. This means you are still registered for Child Benefit but don't get paid the money – letting you avoid having to pay the tax charge but still receive National Insurance credits.

Previously, if you or your partner earned more than £50,000 per year, you'd have to pay some of your Child Benefit back. It would be lost entirely to the tax if you or your partner's income was £60,000 or more.