- Government plans to allow parents to claim National Insurance credits for missed years
- Every year gap in a NI record equals £6,000 in state pension payments over a typical retirement
- A 12-year gap in an National Insurance record equates to £3,634 a year less in state pension
Laura Suter, head of personal finance at AJ Bell, comments on government plans to change the child benefit rules:
“It will be a relief for parents who have missed out on getting valuable National Insurance credits that the government is working out a way for them to retrospectively claim them. Typically, it’s women who take career breaks, meaning that allowing parents to go back and fill in gaps on their record when they were out of work but caring for children will help to boost the collective wealth of women when they come to retire.
“We need to wait for the detail of the scheme to see how useful it will be. Factors like how far back claims can be made and how onerous the claims process is will have a big impact on how many people will actually be able to boost their National Insurance record and their state pension.
“The current system is convoluted and easily leads to parents not claiming what they are entitled to. We know that many families who hit the Child Benefit High Income Charge of £50,000 decide it’s not worth claiming child benefit, while many other sleep-deprived new parents just aren’t aware they are even eligible or how to claim it. There are many more families now hitting £60,000 of earnings or more and seeing the child benefit wiped out.
“It’s also only in recent years that the government simplified the process so that parents who had hit that High Income threshold could claim the National Insurance credits without claiming the child benefit payment. Before this, in order to get the National Insurance credit many had to claim the full child benefit payment and then repay it.
“You can claim child benefit up to a child turning 12, meaning that a parent of one with unclaimed credits could have a 12-year gap on their National Insurance record, meaning they are entitled to a far lower state pension when they hit retirement age. If parents have multiple children the gap could be even longer, if they don’t work for that period. We know that usually women are the ones who take career breaks, and they already suffer from the gender pensions gap, which is only exacerbated by frustrating elements of the tax system like this.
“If you had a 12-year gap in your National Insurance record, leaving you short of the full 35 years of credits you’d need to be entitled to the full state pension, that would equate to £3,634 a year in state pension you’d miss out on*. Over a 20-year retirement that would equate to £72,680 of missed state pension payments. Even shorter gaps in the record can have a dramatic impact on your state pension payments, with every year gap equating to around £6,000 in state pension payments over a typical 20-year retirement.
“While it’s welcome that the government is helping to fix the system for people who have been short changed so far, full reform of the High Income Charge and how national Insurance credits are applied would be far better. The High Income charge should be increased from its current £50,000 to reflect rising wages and help families struggling with higher costs. On top of that, the entitlement to National Insurance credits should be made automatic when a baby is born, to stop parents having to actively claim them.”
*Figures assume current state pension of £10,600 a year, and that you have 23 years of NI credits currently, meaning that claiming an additional 12 years takes you to the full 35 years.
