The Treasury Committee is today publishing correspondence between Rt Hon. Nicky Morgan MP, Chair of the Treasury and HMRC and HM Treasury on Child Benefit.
In Spending Review 2010, the Government announced that it would remove Child Benefit from households with a higher earner. For couples where one partner earns between £50,000 and £60,000, a progressively rising tax charge is incurred. At incomes over £60,000, the tax charge wipes out the value of the Child Benefit entirely.
Registering for Child Benefit builds up entitlement to the state pensions for parents of children under 12 who do not pay National Insurance contributions (e.g. because they decide to stay at home to look after their children). If the parent doesn’t register for Child Benefit, they may forgo their entitlement to National Insurance Credits, and therefore part of their future state pension.
When the tax charge was introduced in January 2013, HMRC wrote to affected households asking if they wished to opt out of receiving the benefit. Those who opt out continue to get the National Insurance Credit required for the full state pension. However, parents who have started a family since January 2013 may have seen no advantage in registering for Child Benefit due to the tax charge. These families – for instance, consisting of a higher earner and one stay-at-home parent – could be missing out on the National Insurance Credits required for a full state pension.
Mrs Morgan wrote to Rt Hon. Mel Stride MP, Financial Secretary to the Treasury, in March to ask how many people have been affected, how HMRC is informing those who may have their pension entitlement affected, and whether HM Treasury has undertaken any analysis. Mrs Morgan has also written to Mr Thompson, who has provided the Committee with detailed Child Benefit statistics.
The statistics show (1) a limited number of opt outs of new Child Benefit claimants, and (2) an increase in the proportion of male Child Benefit claimants.
Commenting on the correspondence, Mrs Morgan said: “It’s concerning that parents who haven’t registered for Child Benefit for fear of the higher tax rate charge may be forgoing part of their future state pension. This is exemplified by the limited number of new opt-outs of Child Benefit claimants.
“The Committee will scrutinise HMRC’s Child Benefit consumer research to understand the scale of this risk.
“The data provided by HMRC also shows that the proportion of male claimants of child benefit has increased. A shift in Child Benefit applications from mothers to fathers, where there is no underlying change in household formation, who earns or childcare responsibilities, represents a potential future pension problem.”