What is the link between State Pension Credits & Child Benefit Payments (CHB)

Well, if your state pension record has a hole in it, it could possibly be because you never claimed Child Benefit payments on the basis that you or your partner/spouse has income over £50,000 and therefore, there was no point in claiming it only to have it returned to HMRC through your annual self-assessment tax returns. This is something officially known as the ‘High Income Child Benefit Charge’.

In simple terms, where someone who gets child benefit earns over £50,000 per year, or where their partner earns over £50,000, there is a charge to be paid. The rate of charge is 1 per cent of the value of your child benefit for each £100 of annual income in excess of the £50,000 threshold.

This means that, for example, someone on £55,000 per year would have a charge of 50 per cent of their child benefit, whilst someone on £60,000 per year (or more) would have a charge equal to 100 per cent of their child benefit.

Note that the way the system works is that the child benefit is paid in full to the person who claimed it, but the charge has to be paid by whoever in the family is the higher earner! The higher earner has to fill in a tax return so that HMRC know they are in a family receiving child benefit and the charge can be collected.

To avoid a situation where people are being given money with one hand (in the form of child benefit) and having it taken away with the other (in the form of a High-Income Charge), families are given the option to ‘opt out’ of the child benefit payments. However, there is a catch. One of the advantages of getting child benefit for a child under 12 is that you automatically get valuable National Insurance ‘credits’ towards your state pension. If you simply opt out of receiving child benefit you would be at risk of damaging your National Insurance record.

To avoid this, HMRC give families an additional option which is to receive just the National Insurance credits but not the child benefit. This protects your state pension record without going through the hassle of receiving a benefit and then paying a tax bill.

A bigger problem affects those who were not aware of the option of choosing ‘credits only’, and simply did not claim child benefit at all. By not claiming child benefit, and not working because you were looking after your child, you don’t get National Insurance credits that go towards your state pension.

An HMRC spokesperson has mentioned that it continues to encourage all parents to claim child benefit, regardless of income, to ensure that they receive the associated National Insurance credit.

The Government announced in April it would enable eligible parents who have not claimed child benefit to apply for National Insurance credits retrospectively. It has issued no update since then but further information on this change, including eligibility, will no doubt be available in due course.

Parents who claim child benefit, including those who ‘opt out’ of receiving the payments, but claim just the NI credits automatically receive NI credits until their child turns 12.