Emma Maslin: Not signing up for child benefit could lose her nearly £20k over a 20 year retirement
Thousands of parents are facing a poorer retirement for failing to fill in a form within three months of having a baby.
Many don’t realise mistakes in the hectic weeks after children are born can end up costing them tens of thousands of pounds in old age.
Emma Maslin, 37, (pictured right) has lost four years of credits towards her state pension which could leave her nearly £20,000 out of pocket if she lives for 20 years after retirement.
When she tried to correct the record she discovered parents aren’t allowed to backdate credits by more than three months.
Even those who do manage to fill out the forms may still miss out because they are so complicated it can be easy to make a mistake – and there is little forbearance for anyone who does.
The problem arises from the convoluted way parents who take time out to look after children must apply to keep their state pension records intact.
Parents in this situation are entitled to credits that mean they shouldn’t receive a stingier pension just because they took time out of the workforce to look after their children.
But bizarrely, the way to get state pension credits is by applying for child benefit – you automatically receive credits when you fill in the form.
Some parents are not eligible for child benefit, but do not realise they have to register for it anyway to get the state pension credits.
Other parents are losing pension rights even when they do make child benefit claims in time, because they made innocent blunders on the form.
Couples tell us they are struggling to sort out old child benefit claims dating back 10 and even 20 years, but getting bogged down trying to convince the taxman to set things straight.
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HMRC is accused of creating a ‘shambles’ by giving out incorrect information to parents and failing to explain its refusal of appeals to sort things out.
Couples have come forward after reading This is Money columns by former Pensions Minister Steve Webb about people getting ensnared in ‘nightmare’ child benefit red tape.
This year, he has highlighted problems faced by one woman who mistakenly put her husband’s name first on the child benefit form, and another who like Emma failed to register because she wasn’t eligible for the payments.
The mess is potentially depriving tens of thousands of people – mostly but not only women – of future state pension, which currently stands at £164.35 a week.
Some parents might be able to make up the deficit by delaying retirement when they do return to work or by forking out for voluntary top-ups later, but others won’t be able to do this.
‘Making sure that people getting child benefit get protection for their state pension is a vital part of the system,’ says Steve Webb, who is now policy director at Royal London.
Steve Webb: ‘We need to keep up the pressure to get this sorted out,’ says ex-Pensions Minister and This is Money columnist
‘But trying to resolve problems when the credits haven’t been awarded or have been claimed by the wrong person is proving to be a nightmare, and many people may simply give up.
‘The rules around transferring credits from one partner to another are so complex that even HMRC don’t seem to be able to get them right – the whole thing is a shambles.
‘We need to keep up the pressure to get this sorted out, otherwise too many parents will miss out on the pension that is rightfully theirs.’
Rachael Griffin, tax and financial planning expert at Old Mutual Wealth, says: ‘With anything like this, it’s a minefield.
‘A lot of the unfairness in the system is invariably about people not understanding that state pension credits are available to them, and then how to claim them. Generally people aren’t au fait with form filling.’
She backs Webb’s call for the Government to fully backdate state pension credits when people sign up late for child benefit, saying: ‘If anyone is entitled to state pension credits then they should be entitled to more than three months.
‘When people are claiming for this they have just had children. They have busy lives. It’s not the first thing on their to do list. They are thinking about how they are going to care for their children rather than any state pension benefit.’
Treasury committee speaks out
Nicky Morgan MP, chair of the Treasury committee, has also expressed worries and pushed the Government and HMRC to look into the issue of parents losing state pension.
She says: ‘It’s concerning that parents who haven’t registered for child benefit for fear of the higher tax rate charge may be forgoing part of their future state pension.’
She added: ‘Parents can transfer National Insurance credits between themselves without transferring who receives the money, but HMRC does not monitor the number of transfers.
‘This is concerning, so the committee has asked HMRC what work it has done to publicise the possibility of National Insurance credits transfer.’
Each credit missed could cost you 1/35 of the value of the state pension – around £244 per year or £4,880 over the course of a typical 20 year retirement. Four years lost works out at £19,520.
HMRC has changed child benefit forms to say claiming ‘can help to protect your state pension’ – but not that you risk losing thousands of pounds in old age if the wrong parent fills in the application, or you omit to claim because you don’t qualify for payouts.
Forms are handed out in ‘Bounty Packs’ in hospitals after births, but parents say these come filled with money-off flyers and promotions and it’s not clear they also contain important documents.
HMRC stresses the importance of parents making a claim for child benefit to protect their state pension.
‘Customers can find specific information on the child benefit claim form, through the HMRC helpline, online at gov.uk, through partners such as Citizen’s Advice, and in the Bounty packs that go to new parents,’ it says. The tax office has also responded to individual cases below.
Mum loses four years of credits she can’t get back
Emma Maslin didn’t apply for child benefit when her daughter was born, without realising this would damage her state pension rights.
Tens of thousands of people – overwhelmingly new mothers – like Emma are believed to have missed out on vital credits as fewer now register for child benefit following a shake-up in 2013.
New baby: Many people have no idea child benefit has any link to how much state pension they will get decades later
The controversial overhaul reduced the entitlement for those earning £50,000-plus a year or wiped it out entirely for those earning £60,000-plus.
But parents who earn too much to qualify for child benefit still have to apply for it so that they receive state pension credits.
Those who failed to sign up when the new rules began could have lost six years of state pension credits by now.
Emma eventually learnt of her mistake and registered for child benefit even though she couldn’t receive the payments.
But like others who have fallen into this trap, she then discovered HMRC would only backdate her state pension credits for three months.
She has lost four years of credits as a result.
Emma lives in Buckinghamshire and is head of business development for a children’s nursery. She also writes a blog for families called The Money Whisperer, where she has publicised her experiences to her readers so they don’t lose out too.
She believes state pension credits should be fully backdated in cases like hers, and should be officially linked to parents registering a birth, not to making child benefit claims.
‘The paperwork comes in these bounty packs. There’s so much paperwork and flyers and things, you don’t know about it. I have an issue that it comes in the pack with a lot of other promotional stuff when it’s an important document. They are full of money off vouchers. A new mother has got a lot to do,’ she says.
Steve Webb says: ‘If Emma Maslin didn’t claim because of the high income issue, then she is a classic case of why they should relax the three month backdating rule.
‘Nobody disputes that she would have been eligible for credits if she had signed up at the time, and it is obviously the case that just re-wording the leaflet hasn’t picked up people, so they need to do more.
‘I reckon there are tens of thousands of mums in high income couples missing out on credits every year, and at some point someone will have to do something about this.’
Child benefit form: ‘Although the guide and the claim form talk about “protecting” your state pension, it could certainly say more clearly that the person who does not claim could end up with a smaller pension,’ says Steve Webb
Couples left mystified over transfer refusals
Parents who do claim child benefit are also running into problems after making innocent errors when filling in the forms.
They are being blocked from transferring state pension rights between them when the ‘wrong’ partner signs up for child benefit, and are in the dark about why HMRC has refused them.
It’s important a parent who is not working is the one named on the form to get child benefit, as credits – or their forerunner known as Home Responsibilities Protection or HRP – are worthless to someone employed and already paying enough NI to get a full state pension.
But the option to correct this via a transfer is so obscure even Steve Webb wasn’t aware of it until he tried to help a This is Money reader in June.
And two couples who tried to transfer have been left confused and frustrated by the process.
How do you transfer credits or HRP?
You can apply to have credits/HRP transferred for any year up to and including 2009/10 by filling in form CF411.
There is no time limit on transfer applications before then, but there are from 2010/11 to 2016/17.
Credits can now only be transferred for the most recent tax year, if you claim before 5 April in the following tax year, by filling in form CF411A.
The taxman sent them baffling letters, stating that claimants had to reach state pension age between April 2008 and April 2010 to qualify for transfers, although it has since admitted this was incorrect and apologised.
HMRC confirmed the condition is you must reach state pension age on or after 6 April 2008, and that the bungle will be sorted in future decision letters.
But it has failed to explain whether earlier rejections will now be reversed, and if not why it is standing firm on them.
Until he read Webb’s recent column about transfers, Joe Savage assumed his wife Michyo had lost seven years’ worth of HRP for good because he had claimed child benefit instead of her between 1995 and 2002.
They were not told years could be transferred between them when they switched payments to her back then. But Michyo, 56, applied and got rejected in June.
The Savages, who live in East Sussex and have two children, were also nonplussed when HMRC subsequently told This is Money that Joe, 51, was not in receipt of child benefit between 1995 and 2002, so their application was declined because there was no HRP to transfer.
Within a matter of hours, accountant Joe sent documents to This is Money showing child benefit was being paid to him during that period, aside from a short hiatus between November 1995 and July 1996 while he and his family were abroad.
After he provided the additional information, HMRC said it was confident the Savages’ transfer was refused on the right criteria, not the incorrect 2008-2010 state pension age criteria given in the refusal letter. But several weeks later, it wrote again to the couple saying five out of the seven years could be transferred.
Why is it so important to claim child benefit?
Those who sign up get valuable credits towards their eventual state pension, providing they are not working and building up their National Insurance record that way.
It’s crucial a parent who is not working is the one named on the form to get the child benefit, as these credits are worthless to someone employed and already paying enough NI.
You can apply to transfer it later, but couples report being refused this option for reasons they don’t understand and HMRC has so far failed to explain.
Meanwhile, new parents – predominantly women – who fail to sign up because they don’t qualify for the payments can end up losing many years’ worth of credits they can’t get back.
This is because if they discover their mistake and belatedly sign up, HMRC will only backdate their records for three months.
HMRC has given no further explanation to This is Money so far. It says people who disagree with transfer decisions can ask for them to be looked at again.
‘It’s very frustrating dealing with HMRC,’ says Joe, who with hairdresser wife Michyo plans to keep fighting to transfer the remaining two years.
‘They haven’t explained why they rejected the initial claim,’ he added.
The taxman’s admission it sent out incorrect rejection letters hasn’t shed any light for another couple. Raina Thurgood and Martin Ryott from Essex were refused a transfer of two years of HRP from 2008 to 2010 from her name into his one.
Martin, 50, a production editor who stopped working in 2008 to look after the couple’s three children, has lost HRP and state pension credits for 10 years in total. There are time limits on transferring credits from 2010 onwards.
‘At the time our children were born both my husband and I were working and I claimed the child benefit,’ says Raina, 48, a senior customer services manager.
‘When it came to returning to work after my last maternity leave, we calculated that it was in our interest for my husband to stay home while I returned to work. We did not realise at the time that this would affect my husband’s National Insurance credits.
‘Really the damage has been done. It’s fundamentally unfair. There are more stay at home dads now but it’s usually the mum. It’s going to affect more men.’
In Martin and Raina’s case, HMRC failed to respond to repeated requests from This is Money to explain why their transfer was turned down.
Credits lost as HMRC wrangles with couple over change of address
One couple plan to complain to the Parliamentary Ombudsman after reaching deadlock in a row with HMRC over three years’ worth of lost state pension credits.
What if HMRC rejects your complaint?
The Parliamentary Ombudsman is the final stop for complaints that have not been resolved by UK government departments including HMRC, the NHS or other public organisations.
But it can only look at complaints referred by an MP, so you need to contact your local member first to explain your case and get them to sign your form before submitting it.
The Ombudsman says: ‘We look into complaints where someone believes there has been injustice or hardship because an organisation has not acted properly or has given a poor service and not put things right.
‘We look into complaints fairly and our service is free for everyone.’ The website is here.
Anna Smith signed up for child benefit when she and husband John (not their real names) had twins in 2010, but she subsequently opted out because they no longer qualified for payments, without realising this might affect her state pension.
However, HMRC says the reason their child benefit came to an end was because they had lived in Spain for more than two years, and it notified them of this by letter.
The couple is now locked in dispute with the taxman on several fronts. They say John remained a UK taxpayer and paid full National Insurance contributions while his firm seconded him to Spain, so their child benefit should not have been terminated on that account, nor any state pension credits lost.
They also say they never received the letter in Spain, because they had already returned to the UK and informed HMRC of their change of address before the date it was sent.
The couple point to the www.gov.uk/tell-hrmc-change-address website, which states that updating your address with HMRC will also update your address for child benefit.
However, HMRC’s position is they should have told the Child Benefit Office their new address. An HMRC spokesperson said: ‘When there is a change of circumstance, including a change of address, claimants are specifically required to notify the Child Benefit Office.’
John says: ‘They are clearly in the wrong. Irrespective, it is irrelevant, as I was employed by my UK employer throughout still paying UK tax – they can check this if they bother – so my wife is entitled. Why can’t they correct their mistake?’
What must you report to the Child Benefit Office?
HMRC says you must tell the office straight away, and include the date, if:
* Your bank account, name or address changes
* A relationship ends
* You start a new relationship, for example you move in with a new partner or remarry
* The child’s parent has died
* You intend to go abroad for more than eight weeks
* You or your partner intend to move abroad permanently or for more than a year
* You’re a Crown servant leaving the UK for a posting abroad
* You move to or from Northern Ireland
* You have a baby, or a child comes to live with you
* Payments or contributions for a child who doesn’t live with you stop or change
* You’re paid to look after a child by a local council or similar
* Your immigration status changes
* You lose the right to reside in the UK
* You get a prison sentence of more than 8 weeks
* You have any other changes to your family life.
Read more on the Government’s website here.
The couple have contacted their MP and plan to appeal to the Parliamentary Ombudsman.
Many grandparents caring for kids fail to claim credits they are owed
Many grandparents taking on childcare duties could be unwittingly losing credits towards a state pension.
Pensions Minister Guy Opperman recently confirmed that just 19,000 people have made use of the perk that allows working parents to transfer unused credits to grandparents looking after under-12s.
Royal London has previously calculated there are some 100,000 grandparents who could benefit if the scheme had a higher profile.
Unlike with parents applying late for child benefit, who only get credits backdated by three months, the Government lets grandparents claim transfers for years all the way back to 6 April 2011.
The recipient must still be of working age, but otherwise the process involves the parent filling in and submitting a form.
Rachael Griffin of Old Mutual Wealth said: ‘With childcare costs surging to become a disproportionate amount of people’s salary, grandparents often throw families a much needed lifeline by taking on the care.
‘However, the vast majority of this workforce are not seizing what they rightly deserve, as Guy Opperman has confirmed that since 2011 just 19,000 people have taken advantage of the government’s childcare credits. A worrying figure, given the option has been in place for over seven years.
‘While spending your days taking trips to the zoo and having picnics in the park may sound like a holiday, taking care of young children while doing so makes it more akin to working a fulltime job. National Insurance credits are the least this unsung workforce deserves.’
Opperman said in a written answer to a fellow MP: ‘A communications campaign to raise awareness began when the credits were introduced.
‘The Department also provided information to stakeholder organisations to encourage wider awareness raising. Gov.uk contains full details of Specified Adult Childcare credits and how to apply for them.
‘This information is signposted to individuals when they request a State Pension forecast at the Check your State Pension service.’
‘These credits can be backdated until 6 April 2011 and the Government encourages everyone who is eligible to apply.’
How much is the state pension?
The basic state pension is currently £125.95 a week. It is topped up by additional state pension entitlements – S2P and Serps – accrued during working years.
The two-tier state system has changed for people retiring since 6 April 2016, when it was replaced by a new ‘flat rate’ state pension. This is currently worth £164.35 a week.
People who have contracted out of S2P and Serps over the years and retire after April 2016 get less than the full new state pension.
But they can fill gaps in unpaid and or underpaid National Insurance in previous years, and build up more qualifying years if they have enough time between now and state pension age.
Workers needed to have 30 years of qualifying National Insurance contributions to get the old state pension, but they now need to have 35 years of contributions to get the new flat rate state pension.
But even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get.
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