Pensions diminished when child benefit missed

Since the introduction of the High Income Child Benefit Charge (HICBC) in January 2013, many parents haven’t bothered to register for the child benefit because their taxable income is more than £60K. The HICBC starts to claw back any child benefit received by a couple when the income of the highest earning partner reaches £50,100. The claw back is at the rate of 1% for every £100 by which income exceeds £50,000. Once your income reaches £60,000, the whole child benefit you received has to be repaid to HMRC.

So why bother to make a claim for child benefit when you will have to pay back all the money you get anyway? Sadly, this could be a very costly mistake.

The issue is that your entitlement to your eventual state pension depends on getting 35 full qualifying years of national insurance contributions (NIC).

If you are a parent who has registered for child benefit, you will receive Class 3 NIC credits automatically. These count towards the state pension and are important in ensuring that stay-at-home parents (and other carers), who as a result don’t earn enough to pay NICs, continue to build up their state pension entitlement whilst bringing up a family.

If you have never bothered to “claim” the child benefit, then the Mother (to whom the child benefit is paid) could have lost out on 12 or more “qualifying tax years” for the state pension.

Recent figures from HMRC, reported in the Financial Times, reveal that over 200,000 parents may be in this situation and will have lost some, or all, of their state pension entitlement.

NOTE this issue is most relevant for those who have NEVER EVER claimed the child benefit, despite being entitled to it.

What is the solution?

Rather than not bothering to ever claim child benefit, parents entitled to Child Benefit should claim this on FORM CH2, even if you happen to be affected by the HICBC claw back.

If you don’t actually want to receive the benefit, so as to avoid having to pay it back in the form of the HICBC, you can simply opt not to receive it – by ticking the “No” box in section 68 of the CH2 form.

The initial claim for child benefit using form CH2 should be made as soon as possible, as a claim can only be backdated for three months.

Completing and submitting the form CH2, even where you’ve ticked the No box in section 68, will start your entitlement to credits towards the state pension.

If you have previously claimed the child benefit but then asked to stop receiving the money, you should not be affected by this issue. However, to check you should probably register online for a Personal Tax Account – see here: https://www.gov.uk/personal-tax-account . Once registered, you can see your entitlement to the basic state pension and hopefully see if you have been credited for years where you failed to pay sufficient NICs due to bringing up a family.

If all you want to do is stop receiving the child benefit (because the income of one of you in the couple is now more than £60K – and likely to remain so for the foreseeable future), you need to fill in another online form ONLINE FORM for STOPPING – we as agents can’t complete this form for you.

If circumstances change, for example, the family income falls and the HICBC no longer applies, you can restart the child benefit payments, again by completing yet a DIFFERENT ONLINE FORM.

If for any reason you have issues with these online forms, you can also write to the Child Benefit team of HMRC at the following address:

HM Revenue and Customs – Child Benefit Office 
PO Box 1 
Newcastle Upon Tyne 
NE88 1AA 
United Kingdom 

The child benefit helpline can also provide advice (T): 0300 200 3100.

Sadly, this is another instance where “tax” is extremely complex, caused in large by the Government introducing legislation without consulting the tax world and HMRC failing to ensure their computer systems are adequately linked (in this case tax and NICs)!