New mothers missing out on thousands of pounds

You are here: Home » News & Views » New mothers missing out on thousands of pounds

  • What’s new this month
Image for New mothers missing out on thousands of pounds

New mothers could be missing out on thousands of pounds worth of state pension.

New figures, released by mutual insurance company Royal London, show that a high percentage of new mothers are not claiming Child Benefit, resulting in £5,000 worth of pension rights being lost.

The figures show that a large percentage of Child Benefit claims are not being made due to the introduction of the High Income Child Benefit Tax Charge in 2013, which taxes a parent who earns more than £60,000 a year, at a rate which wipes out the Child Benefit rate of £20.70 a week (eldest child only, correct as of December 2016).

Child Benefit gives not only extra income to families but also National Insurance Credits to the claimant (usually the mother) so that any time off work does not impact on state pension entitlement.

The study by Royal London states that mothers who fall under the Child Benefit tax charge are not bothering to claim Child Benefit because of the high tax charge they incur, costing them thousands of pounds in state pension rights in the process.

“Being one year short at the end of your working life could cost nearly £5,000 in missing state pension rights through the course of a typical retirement,” said the report, entitled The Mother’s Missing out on Millions.

“Looking at lost pension rights in 2014/15 and 2015/16 combined, we estimate that around £278 million in state pension rights have potentially been lost.

“We also estimate that around 125,000 mothers were missing out during 2015/16.

“As the policy has not changed since then, there is no reason to suppose that the problem has not continued to grow.

“We therefore estimate that by the end of the current financial year more than half a billion pounds in state pension rights could be at stake,” it added.

Peter Way-Rider, Tax Manager at Ellis & Co Chartered Accountants said: “It is important that all new mothers apply for Child Benefit, regardless of income.

“As can be seen from these figures, thousands of pounds in state pension rights are being lost.

“Child Benefit forms are given to all new mothers before leaving hospital after having a baby, the form is included in a Bounty pack, which includes numerous vouchers and free samples.

“The most important item in the Bounty pack is the Child Benefit form, ensure you complete it.”

The report concluded: “Whilst efforts have been made to ensure that mothers are aware of the impact of missing out on child benefit, the system is clearly not working.

“Assuming that the High Income Child Benefit Tax Charge remains a feature of the system, we recommend that HMRC seeks to identify new mothers who have not (yet) claimed Child Benefit for the first time and encourages them to claim.”