Mothers missing out on millions

By Steve Webb, director of policy and external communications

The ninth Royal London Policy Paper discusses how thousands of mothers are missing out on state pension rights when they don’t have to

Earlier this month we published the ninth Royal London Policy Paper, entitled ‘Mothers Missing out on Millions’. It focuses on the thousands of mothers who we estimate could be missing out on state pension rights because of the changes to the Child Benefit system for higher-earning families.

In January 2013, the Government introduced the High Income Child Benefit Tax Charge.

  • Under this scheme, where one or both parents in a family receiving Child Benefit have an income over £50,000 a year, a tax charge is incurred.
  • The tax charge is levied at a rate of 1 per cent of the Child Benefit in payment for each £100 of annual income over £50,000.
  • For someone with an income of £50,200, the charge would therefore be 2 per cent of their Child Benefit, while for someone with an income of £60,000 or more the tax charge would be equal to 100 per cent of the rate of Child Benefit in payment.
  • The tax charge cannot exceed the total amount of Child Benefit being paid.

In the policy paper we report that two things have happened in response to the charge, based on the statistics published by HM Revenue & Customs, which administers the Child Benefit system.

  1. Nearly half a million Child Benefit recipients (overwhelmingly mothers, as Child Benefit is paid by default to the mother) have ‘opted out’ of receiving the benefit, rather than incur a tax charge on the higher earner.
  2. Growing numbers of mothers who’ve had their first child since January 2013 have declined to make an initial claim to Child Benefit, presumably because they can see no short-term financial benefit in doing so.

For the first group, namely those mothers who have previously been in the Child Benefit system, a transitional arrangement has been put in place whereby the National Insurance credits to which Child Benefit recipients are entitled will remain in force, even though they have opted out of receiving Child Benefit.

For the second group, however, no such arrangement is in place. If a new mother never claims her entitlement to Child Benefit, no credits are added to her National Insurance record. As we discuss in the report, this could have damaging long-term implications for her future state pension entitlement.

In many cases, a new mother will return to paid work after a period of paid maternity leave and will thereby have a continuous record of paying NI contributions. This will protect her state pension record and so the absence of NI credits will be of no relevance.

But we estimate that around 30 per cent of the mothers who are not claiming Child Benefit would not otherwise build up a ‘qualifying year’ of contributions towards their state pension. As a result, they could reach retirement with a state pension below the full flat-rate amount for which 35 years of contributions or credits are required.

The impact of missing one year of contributions…


…simply by failing to make a claim for Child Benefit.

There is clear evidence from the statistics that HMRC has published each year that the number of Child Benefit claims in respect of children born since January 2013 has fallen markedly, and HMRC’s own commentary on the figures acknowledges that this is likely to be an issue.

Our policy paper shows that, looking just at 2014/15 and 2015/16, a total of £278m in state pension rights may have been foregone, and the loss could easily exceed half a billion pounds by the end of the current financial year. Losses are strongly concentrated geographically, no doubt reflecting the areas of the country where earnings are the highest, with more than half of all losses coming from families in London, the South-east and the East of England.

We are urging new mothers to make a claim for Child Benefit to make sure that they do not lose out on valuable NI credits towards their pension. If they wish to avoid receiving Child Benefit and incurring a matching tax charge, they can simply tick the box to be put on a ‘nil rate’ of benefit. More information about this

We are also calling on HMRC, working in partnership with registrars and others who are in contact with new mothers, to do more to ensure that these important rights are not lost. After decades of progress in achieving greater equality between men and women in the state pension system, it would be totally unacceptable if we were to revert to a situation where mothers end up with reduced state pensions simply as a by-product of changes to the Child Benefit system.

The full policy paper, ‘Mothers Missing out on Millions’, can be found along with all of our other policy papers.