Urgent warning to one million families missing out on up to £6,500 due to little-known child benefit mistake

UP TO one million families could be at risk of losing as much as £6,500 in retirement over an easy child benefit mistake, new figures show.

One million fewer families claim child benefit now compared to in 2012, just before the High Income Child Benefit Charge (HICBC) was introduced, according to HMRC figures published today.

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By not claiming child benefit at all, they will lose out on vital credits towards their retirement which could knock thousands of pounds off their state pension income.

The HICBC is applied if either parent or carer starts earning over £60,000 a year.

The charge means you have to pay back 1% of your child benefit for every £200 of income earned over this £60,000 threshold.

Once you reach £80,000 of annual income, you have to repay the full amount you received in child benefit.

But these figures only kicked in this month following changes announced by the Chancellor in his Spring Budget this year.

Until this month, the charge used to be applied at £50,000 of annual earnings and parents had to pay back the full amount of child benefit they claimed if just one of them earned £60,000.

As a result, many families have stopped claiming it as they would just receive a tax bill for the same amount.

In 2012, the number of families claiming child benefit peaked at 7.92million, but the latest figures show there are now only 6.91million families claiming it.

But by opting not to claim child benefit at all, those families could be missing out on National Insurance (NI) credits towards their state pension which could impact their retirement income.

What are NI credits for child benefit claimants?

Anyone who claims child benefit can tick a box on their form to claim NI credits for the years they aren’t working.

This means their NI record won’t have gaps in – which could the amount of state pension they can get in retirement.

So, if you don’t claim the credits, you could end up with gaps in your record.

This can impact your state pension entitlement as you won’t have built up enough qualifying years to get the full amount.

Just one year of missed credits could knock £329 a year off your state pension, or around £6,500 over a typical 20-year retirement.

You can claim the credits even if you don’t take the actual cash benefit by ticking a box on the child benefit form, but many families aren’t aware of this.

Former pensions minister Steve Webb, now partner at consultancy LCP, said: “These latest figures show the dramatic impact of the HICBC, knocking a million families off child benefit in just over a decade.  

“An important knock-on effect is that hundreds of thousands of parents may have missed out on vital NI credits towards their state pension,” he explained.

The Government has announced that from 2026, parents will be able to claim NI credits for years in the past where they didn’t claim child benefit.

But parents will still have to proactively claim the credits and there is a risk that take-up will initially be low.

Mr Webb explained: “Although the Government has proposed a new way of crediting people in, we still lack important detail and there is a risk that these new credits will suffer from the same non take-up problems we see in the existing system. 

“This issue needs to be resolved as a matter of urgency”.

Should I claim NI credits?

If you stop paid work to look after children under 12, you can claim NI credits to ensure your state pension entitlement is not affected.

You need 30 qualifying years of NI to get the old state pension, which is £169.50 a week, and 35 years to get the new state pension – currently £221.20 a week – either through contributions made by working or credits.

So, if taking time off work means you’ll get less years than this, it’s worth getting the credits.

Visit the government website to start making a child benefit claim or you can download the paper form here.

You don’t need to claim child benefit to get the credits – you just need to say so on the form.

The relevant question is number 62 on the paper form, which says: “I do not want to be paid Child Benefit, but I do want to protect my State Pension”.

Tick the “no” box next to it.