Are you and your family claiming Child Benefit correctly? If not, you could be missing out on precious National Insurance (NI) credits that count towards your full State Pension. In this article, Acumen highlights the benefits of obtaining Child Benefit and explains how claiming can actually boost your pension prospects in the long run.
Child benefit eligibility – is it worth it?
Through the course of our conversations with clients it’s become very apparent to us that the subject of Child Benefit eligibility for high earning households is the cause of much confusion and consternation. Quite understandably so. If anyone in a household has a salary of more than £60,000 before tax, they’re required to pay back any claimed Child Benefit in full as Income Tax. In effect, one cancels out the other. Anyone earning between £50,000 and £60,000 has to pay back one percent of the family’s Child Benefit for every extra £100 earned over £50,000 each year. The question we often hear as a result of this system is: “What’s the point?” It’s a fair question, but our answer is unwavering. If you want to access the State Pension in retirement, you need to claim the Child Benefit.
Do you get National Insurance credits when you claim child benefit?
Yes. Yes. YES! We cannot emphasise this enough.
It is extremely important to claim Child Benefit because the benefits far outweigh the perceived hassle. If either partner opts to be a stay-at-home parent, it’s essential that they claim for Child
Benefit. Although you might not enjoy the monetary value in the short term, claiming for the benefit gives that partner NI credits that contribute towards their State Pension. Though it might seem like the logical option to not claim for Child Benefit in the first place, in actual fact the knock-on effect is that this course of action penalises the lower earner or stay-at-home parent with a gap in their NI contributions. To claim a full state pension, you currently need 35 years’ worth of NI credits or contributions (this has increased from 30 years). This is where Child Benefit comes in.
The importance of Child Benefit National Insurance credit
Home Responsibilities Protection (HRP) was a government scheme that was introduced to safeguard stay-at-home parents. “The idea was that if you were at home with young children and claiming child benefit you would still get a contribution towards your National Insurance record,” says Angela Maher, Managing Director at Acumen. “In other words, you wouldn’t be penalised for being a stay-at-home mum or dad and you wouldn’t lose the credits towards your State Pension.”
The scrapping of HRP in 2010, followed by the introduction of the current taxation policy, has since muddied the waters for parents. “Home Responsibilities Protection was replaced by National Insurance credits and they also introduced a tax charge,” Angela continues. “If you had a household income above £50,000, those parents would be liable to receive the High-Income Child benefit Tax Charge. This effectively claws back the benefit.”
Putting the resultant admin to one side, the crucial thing to bear in mind is that higher earners are no worse off for claiming Child Benefit. However, trying to avoid additional taxation can and will leave their partner worse off in retirement. “People think that there is no point in claiming Child Benefit and then having it clawed back through a tax charge,” says Angela. “But there is because it’s the only way to get that credit for your State Pension.
“It’s hugely important and it’s not being properly explained. It’s quite a complicated system now and people are slipping through the net,” she adds.
Don’t let your NI contributions slip through the net. Speak to the team at Acumen Financial Partnership for advice and guidance regarding your own financial situation. You can see if you are eligible for child benefit by completing the HMRC’s Child Benefit Tax Calculator. For further guidance, speak to one of our IFAs today on 0151 520 4353 or email email@example.com.