I am a 64-year-old woman, and when I was younger I took some time off from work to raise my family.
I am now wondering how the time I spent at home will affect my retirement income.
Will the period in which I was looking after my child be counted towards the 35 years of National Insurance contributions I need to get my full state pension? And how does the credits system work?
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Retirement finances: How will my time as a stay-at-home Mum affect my pension?
Steve Webb replies: The way in which your state pension is protected for time at home with children changed in 2010.
I will start by covering your situation as someone yet to retire, but I will also explain the old rules for those who may have been retired for some years, in case they may be missing out, as I am sure some pensioners are.
When protection for time at home with children was first introduced in 1978, it went by the rather old-fashioned name of ‘Home Responsibilities Protection’ or HRP.
Since 2010, years spent at home have simply been referred to as years of National Insurance credits. HRP years already earned were converted into years of credits for those who were yet to retire.
You now get a year of credits for any complete financial year in which you were getting child benefit for a child aged under 12 (since 2010/11) or under 16 (from 1978/79 to 2009/10). Note that the year in which your child turns 12 or 16 does not count.
Importantly, the child benefit has to be in your name. If the child benefit was in your partner’s name, you can apply to get the credits/HRP transferred. However, this only applies to those reaching pension age since 2008.
Since 6 April 2016, you have needed 35 years of full rate NI contributions to get a full new state pension, whilst from 2010/11 to 2015/16 the target was 30 years for a full basic pension under the old system.
A year at home with a young child earns you just as much state pension as a year in a well-paid job
Under the new state pension, a year of NI credits for time at home with a child counts as one full year towards your 35 year target.
A year at home with a young child therefore earns you just as much state pension as a year in a well-paid job.
If you have several children, you can continue to get credits as long as the youngest child is under 12.
Although I have talked about being ‘at home’ with the children, there is no specific rule about what you are doing during the year in question.
Obviously, if you are working and paying NI contributions then the NI credit is of no value – though it could be transferred to a grandparent in certain cases. But if you are not working or don’t earn enough to pay or be credited with NI, then the credit for being a parent is very valuable.
Better-off families could be missing out
One worry at the moment is that growing numbers of better off families may be missing out on these vital credits. Because of the ‘high income child benefit charge’, some new families have decided simply not to bother claiming child benefit.
But if they don’t claim at all, they don’t get the NI credits towards their pension. If they don’t want the hassle of getting child benefit and then paying a tax bill, they should simply register for ‘credits only’.
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It is important to get on with doing this as new claims can only be backdated for three months.
Turning now to people who reached pension age before April 2010, the system worked in a rather different way.
Until 2010, women generally needed 39 years of NI contributions to get a full basic pension. Any years of HRP (for children under 16) were knocked off the 39-year target.
To see how this worked, consider the case of a woman who had 9 years of HRP and 15 years of NI contributions through work.
In this case, the woman’s target for a full pension would be reduced from 39 years to 30 years because of the 9 years of HRP.
Her 15 years of contributions would then entitle her to a 50 per cent pension, based on 15/30th of the full rate.
An important point to note is that women who had opted to pay the reduced ‘married woman’s stamp’ did not qualify for HRP for those years.
To be more precise, HRP was not awarded for any year in which such a woman either was paying the reduced stamp or would have been eligible to do so if she had been in work.
In theory, getting NI credits or HRP onto your National Insurance record should be automatic. Your record on the Child Benefit computer is matched to your National Insurance record and credits should appear automatically.
But I have heard from lots of people over the years where this did not happen. If uncorrected, this can mean you don’t get all the state pension to which you should be entitled.
Anyone who has missed out on HRP can claim it using Form CF411, and anyone who has missed out on NI credits can claim it using Form CF411a.
If you think this might be you, I would be interested to hear from you, especially if you have full details of why you think you may have missed out.
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