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Helping mothers avoid losing out on vital State pension income

2 May 2017

There is nothing wrong with employers indulging in a little enlightened self-interest, and those who go the extra mile and draw employees’ attention to little publicised issues that could save their households significant amounts of money probably stand to gain as much as the individuals they help.

Taking a paternalistic attitude towards the workforce can boost morale, loyalty and productivity and help with recruitment and retention. If the information given increases the retirement income of employees or their partners it can also greatly help with succession planning by reducing the numbers of employees who carry on working past their State pension age simply because they can’t afford to retire.

And one fairly straightforward and inexpensive way in which employers can further both their employees’ and their own interests is through effective communication around the issue of mothers losing State pension rights as a result of changes to the rules surrounding Child Benefit. 

A recent Royal London policy paper has estimated that the number of mothers missing out on important credits towards their State pension has more than doubled in the last two years and now stands at over 50,000. The situation, which has resulted from changes to the benefit rules introduced in 2013, has already cost some mothers over £1,000 a year in retirement income.

Up until 1978 mothers who took time out of work to be at home with their children created a gap in their NI record which affected their entitlement to State pension rights. But since then a variety of measures have sought to address this injustice.

At present parents who receive Child Benefit for a child aged under 12 are entitled to an NI credit which restores them to the position they would have been in if they were working. But in January 2013 a new High Income Child Benefit Tax Charge reduced entitlement to Child Benefit for those whose income – or partner’s income – exceeds £50,000 a year.

The situation is particularly dire for anyone with income over £60,000 because the tax charge wipes out the cash value of all Child Benefit received. Consequently, many of those who have become new mothers since 2013 have not claimed Child Benefit at all.

However, plenty of these remain blissfully unaware that their failure to claim the benefit means they are missing out on NI credits that affect the level of State pension they will enjoy at retirement. Each year of NI credits missed could cost 1/35th of the annual value of their State pension, which works out at £231 a year.  

Furthermore, those who miss out on this front are not able to tackle the problem retrospectively because Child Benefit can only be claimed up to a maximum of three months in arrears.

Royal London points out that, as the Office for National Statistics (ONS) estimates that a woman who reaches the State pension age of 68 will live for a further 21 years on average, this means she is likely to lose £4,851 in total.

It therefore calculates that over the two financial years of 2014/15 and 2015/16 combined £278 million in State pension rights may have been lost by women as a by-product of the High Income Child Benefit Tax Charge. Additionally, it predicts that if the rate of growth had continued during the 2016/17 financial year (which was likely as another cohort of new mothers decided not to make a claim) it would have resulted in a further £268 million loss.    

Bearing in mind the sums involved, there can be few employees who wouldn’t be grateful to their employer for bringing this issue to their attention.

We are not necessarily suggesting that all employers should rush out and invest in a large-scale communications exercise just to address this in isolation. Nevertheless, it would be good practice to ensure that getting the message across is considered an important part of the overall package of help being offered to employees with regard to childcare and workplace benefits.

If you require any further explanations regarding this issue or need any broader advice on workplace benefits please do not hesitate to contact Chase de Vere on 0345 300 6256 or complete this simple form and we’ll call you.

The Financial Conduct Authority does not regulate tax advice.