Is the child benefit state pension trap claiming MORE victims? Families forced to wait until 2026 for a fix

Child benefit: Failure to claim because you aren’t entitled to receive the payments means you don’t receive state pension credits

One million fewer families are claiming child benefit payments than a decade ago, new figures reveal, meaning many could unwittingly be falling into the trap of creating shortfalls in their state pension records.

Parents who do not qualify for child benefit and therefore don’t claim it can miss out on valuable credits – worth £329 a year, or £6,500 over a 20-year retirement – in what one expert calls a ‘hidden horror’ of the system.

After shunning parents’ pleas for years, the Government has promised to let them repair state pension records by creating a new credit they can apply for from April 2026.

But there is little detail so far, no guarantee take-up of these new credits will be sufficient to fix the problem, and meanwhile the pending election could cause delay.

Former Pensions Minister Steve Webb, who has campaigned with This is Money on the issue for the past six years, today called for urgent action to protect parents’ state pensions.

Hardly anyone is aware there is a connection between child benefit and how much state pension you could receive decades from now.

This became a problem because the number of families claiming it slumped after a controversial overhaul in 2013.

Child benefit: Claims have slumped which means some parents will have holes in their state pension records, until a proposed Government fix due in spring 2026

Child benefit was reduced for those earning £50,000-plus a year, or wiped out entirely for those earning £60,000-plus – something officially known as the ‘high income child benefit charge’ or HICBC. 

The rules were eased earlier this month so child benefit starts to be phased out if one member of the household earns £60,000, and payments stop altogether at £80,000.

HMRC released figures today showing around 1million fewer families now claim child benefit payments, down from a peak of 7.92million in summer 2012.

Before the rule change in January 2013, the number of families receiving child benefit had been rising every year, but there was an immediate drop of 370,000 the following year, and the decline has continued ever since.

HMRC figures show that in August last year, 7.65 million families in total were claiming child benefit, down 47,000 on the year before.

Some 6.91million were receiving payments, down 106,000. There were 741,000 families who claimed but chose to opt out of receiving the money.

At present, parents can submit a claim for child benefit but tick a box to opt out of receiving payments, and only get state pension credits.

Anyone who has not done so yet is urged to do so now, rather than wait for the Government to fix the issue by offering new credits in several years’ time.

For now, your state pension credits will only be backdated for three months when you belatedly register, but you will be in the system and the hole in your record will stop getting bigger.

Parents who miss out on credits might make them up before retirement by working and paying National Insurance for enough years, or qualifying for them in some other way such as being a carer.

But this is not guaranteed, and parents will not necessarily be well off in their own right, or still married to a partner whose high earnings disqualified them from child benefit, by the time they reach retirement age.

MPs have questioned the delay to fixing state pension holes for parents and asked for more details of ‘simplification’ plans to help them claim valuable credits.

now a partner at LCP, Steve Webb, who is This is Money’s pension columnist, has previously called it a ‘sticking plaster’ solution to create another NI credit for those who didn’t get a first credit because they were put off claiming child benefit.

Regarding the latest data on claims released by HMRC, he says: ‘These latest figures show the dramatic impact of the High Income Child Benefit Charge, 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 National Insurance credits towards their state pension.

‘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.’

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: ‘Child benefit take-up continues to fall, as parents do what they can to avoid the dreaded High Income Child Benefit tax charge.

‘But avoiding the charge today can have a severe impact on their income long term, because they also risk missing out on valuable National Insurance credits towards their state pension.

‘Child benefit is one benefit that carries National Insurance credits to help preserve parents’ state pension entitlement during time they spend out of work.

‘Not claiming it leaves gaps in people’s records, leading to lower state pensions as a result. It’s a real hidden horror of the system that more people need to know about.’

Morrissey says ticking a box to get he National Insurance credit but not the child benefit payment saves you the admin headache of filling out a self-assessment tax return, but the continuing fall in claims suggests not everyone is aware that they can do this.

Meanwhile, she says the new higher threshold for the High Income Child Benefit tax charge means more families won’t be affected, but until a system to help claim back NI credits is up and running we will continue to see them unwittingly miss out.

A Government spokesperson says: ‘We’ve raised the threshold for the High Income Child Benefit Charge (HICBC) which will take 170,000 families out of paying the charge this year.

‘We also plan to end the unfairness for single earner families by administering the HICBC on a household basis from April 2026 and will consult in due course.

‘We’re developing comprehensive plans to raise awareness of the new retrospective National Insurance credits scheme and ensure parents don’t miss out on their state pension entitlement.’

This post first appeared on Dailymail.co.uk