The State pension is earned by paying national insurance (NI), with 35 years contributions required to get the full state pension from 2016. Each credit buys 1/35th of the state pension. The current weekly amount of £175.20 means that a credit will secure £260.29 per year of State pension, payable for life, once State pension age is reached. The Department for Work & Pensions (DWP) oversees this.
Parents who receive child benefit automatically get a credit for the State pension until their youngest child is 12 (aged 17 if the child is registered disabled). This is credited to the parent who claims the benefit. Where one parent is not in paid employment or self -employment and paying national insurance, it is important that they make the claim for child benefit or the credit is wasted. To transfer the credit from one parent to the other DWP form CF411A should be used.
Parents who are not working, or are earning less than the national insurance threshold and have not submitted a claim for child benefit, due to the High-Income Child Benefit charge, can still get State pension credits, providing they apply for the child benefit but then waive payment of it. If they do not apply for it, they will lose the credits.
The credits given to parents as part of a brand-new child benefit claim can only be backdated for 3 months. Parents who haven’t submitted a child benefit claim, even if they will be waiving the payments, need to act fast to reinstate State pension credits. Completing form CH2 from the DWP website is required for new claimants or telephone 0300 2003100 to amend a claim.
Other Family Carers
A parent of a child under 12, who is working and paying national insurance via their employment or self-employment can give their credits to another adult who is caring for their children. This is known as the Specified Adult Childcare Credit which enables that adult to build up their state pension while providing childcare. Applications are made 6 months after the tax year ends, for example, credits for 2019/20 can be made from 5 October 2020 on Form CA9176 on the DWP website or call 0300 200 3500.
This cannot be credited to someone who is a professional carer such as a child minder or nanny but it is intended to help a wide range of family members who give unpaid child care to enable a parent to go out to work.
To be eligible the carer must be over 16 and under State retirement age, so a carer over State pension age would not be able to benefit. Nor would they benefit if they had already built up a full state pension. The carer can check this by requesting a forecast of their State pension. https://www.gov.uk/check-state-pension
Often more than one family member will provide childcare, so it can be tricky knowing which carer to offer the credit to as only one adult can claim it even if care is shared. To resolve this dilemma the credit could be offered to one carer in one tax year and another in the next tax year.
However, it is important that credits are not wasted as would be the case if one of the carers was also working, or was self- employed, and building their state pension through their own NI contributions.
Equally some carers may have more than one set of children they look after, so sharing credits around the family is another way of ensuring no one misses out.
Some carers may also qualify for Carer’s Credits if they are also looking after an adult and will not benefit by taking up the Specified Adult Childcare Credit as well.
Backdating A Claim
Where childcare has been given for some time it is possible for Specified Adult Childcare Credits to be backdated up to 2011. This could mean that if childcare has been provided for that time up to 9 years’ credits could be available and that would be worth a State pension of up to £2,342 per year payable for life from State pension age.
During lockdown many relatives have been unable to see their families, but the Government have confirmed that carers who have continued to provide childcare remotely will still qualify for these credits.
Understanding who in the family can most benefit from State Pension Credits is vital in ensuring that the credits really do buy extra pension and are not wasted by the credit being given to someone who will get a full state pension anyway.
Director of Public Policy
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.
Please click on the link below to download the PDF version of this blog.Download