A woman who discovered a black hole in her state pension entitlement is urging people to check their support after she fell into a child benefit trap decades ago.
Ed Smith and his wife, a part time stylist, claimed child benefit for their son over 12 years in the 1970s and would collect their payments weekly from their local Post Office.
But what they didn't realise was that forty years later, they would discover a massive deficit in their state pension.
Ed, who is now 73, explained that their son was born in the mid-1970s and his wife used to collect the child benefit in person over the counter at the Post Office in Bury St Edmunds, reports the Mirror.
One day on collecting her payments, she was told that the branch was closing. Ed said: “They simply said to my wife ‘we can pay this in directly to your bank account’ which seemed a sensible thing to do.”
However, when the couple retired decades later, Ed discovered a huge discrepancy in his wife’s state pension.
Child benefit is the government’s way of helping parents cover the cost of parenting.
However, many people are unaware that it also pays National Insurance credits to the adult whose name it’s registered in.
This means that while that person is not working, they will still get the credits needed for a full state pension, which currently stands at 35.
Ed was already working full time and therefore earning credits for his pension – but his partner was not, therefore it made sense to have it registered in her name.
But when the Post Office switched to bank payments, the claimant’s name changed.
“It was only when we retired 40 years later and started our pensions that we found out that because our bank account was in joint names with mine being the lead name, the child benefit had been deemed to have been paid to me and not my wife,” Ed explained.
“This initially made a huge impact on my wife’s pension.”
Because Ed’s partner was only working part time, she did not pay National Insurance contributions – which meant she missed out her credits in both child benefit and employment.
After raising the issue with HMRC, the couple were able to open a review into their state pension entitlement.
“The Pensions Officer on the phone understood what had happened,” he explained.
She was able to review both their pension details and 'credit across' some of Ed’s pension entitlement to his wife.
“She now gets £1,600 a year more in state pension than me,” he said.
The couple have been able to benefit from a boost not just because of the backdated payments but also because they delayed their pension due to living in Australia for six years.
“The delay of six years on my wife’s pension has helped to increase the pension value. This enabled an 'enhanced' pension to be paid,” Ed said.
“I cannot endorse strongly enough how important it is for couples to be aware of this 'hidden trap'.”
Freedom of Information figures by Pensions consultancy LCP suggest 200,000 families are currently affected by this loophole.
LCP said some parents stand to lose at least £260 a year at retirement because of it.
In these couples, it is the higher earner that is claiming child benefit – but transferring it to the lowest (or non-earner) means they’ll get National Insurance credits that will boost their state pension.
In the UK, you need 35 years of National Insurance credits to get the full state pension.
This is usually accumulated through wages, however, if you’re a low earner or a non-earner, you can get credits when you claim child benefit for a young person under 12, instead.
This means your full pension will be protected - but only if the support is in your name.
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Pension expert Sir Steve Webb said it could worsen the gender pay gap at retirement.
“Many couples may not realise that simply having the child benefit in the name of the higher earner rather than the lower earner could cost them dearly.
“National Insurance credits are a vital way of protecting the retirement position of those who spend time caring for others.”
Families who do not realise they have made this mistake and fail to rectify it could lose out on thousands of pounds in lost pension rights, he said, because people need 35 years of NI credits to claim a full pension during the rest of their adult life.
“The majority of those who are currently missing out are mothers with young children.
“It is simply unacceptable that they should suffer a pension penalty as a result.
“HMRC needs to do much more to make people aware of the impact of the choice over who gets child benefit as well as encouraging people to check their NI records where the wrong choice has been made in the past.”