DWP “must do more” to inform parents on low-or-no income that they could be missing out on pensions says Treasury Committee chair.

Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, has written to Rt Hon. Esther McVey MP, Secretary of State for Work and Pensions, about a risk that parents on low-or-no income could be missing out on National Insurance credits, and therefore State Pension entitlement.

Registering for Child Benefit builds up State Pension entitlement for parents of children under 12 who do not pay National Insurance contributions (e.g. because they decide to stay at home to look after their children). If the parent doesn’t register for Child Benefit, they may forgo their entitlement to National Insurance credits, and therefore part of their future state pension.

The letter identifies a risk for households where one parent does not work, due to childcare commitments, but the other parent, who does work, is also the Child Benefit claimant. The parent who does not claim Child Benefit, therefore, will not receive the National Insurance credits for State Pension purposes.

Mrs Morgan has urged the Department for Work and Pensions ‘to do more to inform parents with low-or-no income that they can protect their entitlement to State Pension by transferring National Insurance credits from a spouse, partner or civil partner who claims Child Benefit.’

Commenting on the correspondence, Mrs Morgan said:

“If the earning-parent in a household receives Child Benefit, rather than the parent with low-or-no income, the latter parent may be missing out on National Insurance credits, and therefore State Pension entitlement.

“Households can either change the Child Benefit claimant from the earning-parent to the parent with low-or-no income, or the earning-parent is able to stay as the claimant and just the National Insurance credits can be transferred to the parent with low-or-no income.

“DWP must do more to inform parents that either option will ensure that parents with low-or-no incomes don’t miss out on their pension entitlement.”

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Notes to Editors

• Mrs Morgan’s letter to the Secretary of State for Work and Pensions is attached. Also attached is a letter from Jon Thompson, Chief Executive and Permanent Secretary of HMRC, which is a response to this letter from Mrs Morgan.

• The Committee published other correspondence with HMRC on this issue on 26 July 2018. Commenting at the time, Mrs Morgan said:

"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. This is exemplified by the limited number of new opt-outs of Child Benefit claimants.

The Committee will scrutinise HMRC’s Child Benefit consumer research to understand the scale of this risk.

The data provided by HMRC also shows that the proportion of male claimants of child benefit has increased. A shift in Child Benefit applications from mothers to fathers, where there is no underlying change in household formation, who earns or childcare responsibilities, represents a potential future pension problem.

There is a risk—to any household with one person earning and one person not earning but undertaking childcare commitments—that if the sole earner claims Child Benefit, the non-earner, with childcare commitments, forgoes National Insurance credits and, therefore, their entitlement to a full future state pension. The Committee has asked HMRC to provide it with any analysis of this risk.

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."

• Details on the High Income Child Benefit Tax Charge are on the Government’s website here. 

• Parents can transfer National Insurance credits between themselves. They should use the Government’s website here to consider their options.