Parents claiming child benefits could get an extra £250 a year by making a simple switch.
According to the latest figures 200,000 claimants could be making a mistake which will cost them further down the line.
The problem is linked to state pension – and if the ‘wrong’ parent claims child benefit, you will lose out on around £5,000 being added to your pension pot.
Figures released by HMRC after a Royal London freedom of information request, found that in many cases, the parent who is earning the most money is the one claiming child benefit.
In shorty, if you are taking time off work to look after a child, or working part time, or you earn less than your partner – you should be the one claiming child benefit – to make sure you get that £5,000 boost, reports The Mirror .
Under current rules, when a parent claims Child Benefit for a child under 12, they benefit from National Insurance ‘credits’ which contribute towards their state pension.
You need 35 years’ worth of these to get the full pay out at retirement, and being able to claim it through child benefit effectively means you won’t suffer while you’re out of work due to childcare.
In real terms, one year of credits is worth £250 a year on or £5,000 over a typical twenty year retirement.
However, the credit only goes to one person – the parent or guardian claiming the child benefit.
In most couples, the lower earner tends to claim the child benefit.
This makes sense because the higher earner is probably in paid work and already paying National Insurance, and therefore does not need the credit.
But new figures suggest that around 200,000 couples could lose out because the ‘wrong parent’ is claiming.
In these cases, the benefit is in the name of their spouse, meaning the non-earner (or very low earner) is missing out.
Parents – usually mothers – who are not aware of this, could find their state pension reduced by hundreds or even thousands of pounds a year in retirement if they do not take action.
The good news is that this problem can be fixed, even after the event, by transferring the credit from the child benefit recipient to the spouse.
This is achieved by completing a form CF411a to rectify the issue .
“It is quite right that parents who are looking after children get protection for their state pension record if they are out of paid work,” Steve Webb, director of policy at Royal London said.
“But this protection only works if the ‘right’ parent claims Child Benefit. It is very worrying that in around 200,000 families one partner is potentially missing out on the state pension protection that is rightfully theirs.
“Whilst this can be fixed by filling in the relevant form, many people will be unaware of this.
“HMRC should do much more to alert people who might be affected in order to make sure that many thousands of parents do not end up being penalised in retirement’.”
If you earn £118 a week or more, claiming child benefit won’t make a difference to your national insurance record, as you will already be paying national insurance contributions.
However, if you learn less than this, you should claim child benefit and get the national insurance credits that come with it.