Child Benefit statistics raise concerns about state pension impact

Fall in claims and increase in opt outs could mean parents are missing out on valuable NICs towards the state pension.

HMRC has today released its latest statistics on Child Benefit.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The decrease in families claiming Child Benefit and the uptick in those opting out of receiving payments raise concerns that parents are unwittingly missing out on valuable National Insurance credits, which could bolster their state pension in future.

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“Even if you don’t think you qualify because either you or your partner earns over the £50,000 High Income Child Benefit charge threshold – it’s still worth claiming. This is so you don’t miss out on National Insurance credits, which build qualifying years towards the state pension. If your income is over £60,000, the HICBC will be equal to the full amount of your child benefit, so you are no better off for receiving the benefit. You can always opt not to receive the payments – and avoid the tax charge – but still get the National Insurance credits. Crucially, you’d need to fill in the child benefit claim form, and state that you do not want to get payments."

HICBC unwanted admin hassle?

Myron Jobson says: “The HICBC is collected through self-assessment, which could prove to be an unwanted layer of bureaucracy for many families. It is interesting that the total number of families opting out of child benefit payments has increased each year since 2013. The latest data show that 683,000 families chose to opt out of payments, an increase of 5% since August 2021. While reasons for opting out isn’t explored in the government’s data, some families may have elected to not receive child benefit rather than going through the rigmarole of paying the HICBC via self-assessment.”

Baffling rules

Myron Jobson says: “Child benefit is worth £21.80 per week (over £1,133.60 a year) for the first child and £14.45 a week (over £751.40 a year) for each subsequent one at present. If you or your partner has an adjusted net income (total taxable income minus certain tax reliefs, for example pension contributions) exceeding £50,000, child benefit payments are reduced and withdrawn entirely if your income is more than £60,000. That means a parent earning £60,000 with two children has to pay back a total £1,885 every year.

“The rule also bafflingly leaves child benefit payments out of reach if just one parent earns above the £50,000 threshold but does not apply if both parents earn just below the threshold – or if one partner doesn’t work at all.

“The £50,000 threshold has not budged since the HICBC was introduction in 2013. The threshold would have risen to around £65,000 if uprated in line with inflation. The big freeze in the income tax personal allowance and the point at which people start paying higher tax rates until 2028 means will drag more working families into the scope of the HICBC.”

Parents earning £50,000+ can avoid or lessen HICBC by topping up their pension

Myron Jobson says: “Parents earning over £50,000 could avoid paying the High-Income Child Benefit charge by topping up their pension.

“Our calculations show that a parent earning £53,000 paying 5% (the minimum employee pension contribution under automatic enrolment rules) of their income (£2,650) into their workplace pension could contribute an additional £350 to their pension to bring their taxable income down to £50,000 (£2,650 minus £350). In this scenario, parents with two children could potentially save a total of £566 in child benefit, with net cost of top up pension contribution of £198 (pension contribution £350, tax saved £86, child benefit saved £66). When factoring the pension tax relief and the Child Benefit savings, the pension contribution is effectively boosted by 77%.”

Key points

On 31 August 2022, there were:

• 7.70 million families claiming Child Benefit, with 7.01 million families in receipt of Child Benefit payments. This is a decrease of 43,000 claiming families and 75,000 families in payment when compared to August 2021
• 683,000 families opted out of receiving payments
• 13.20 million children in families claiming Child Benefit and 12.16 million children in payment recipient families. This is a fall of approximately 116,000 children in claiming families, and 154,000 children for whom payment is received since August 2021.