Child benefit rule change could see half a million parents boost their pension pots by £10,000s - here's what we know so far

Parents and carers could see themselves thousands of pounds better off in retirement as part of a wave of measures introduced by the Government to simplify and modernise the tax system. It involves a change to child benefit rules that would allow eligible parents and carers to claim National Insurance Credits for the years they weren't claiming child benefit, to ensure they maximise their state pension eligibility. The new rules are set to come into force in 2026.

Child benefit is paid to eligible parents and carers to help them with the cost of raising a child. It's currently paid at a rate of £24 a week for the first child and £15.90 for any subsequent children, but child benefit is due to increase in April 2024, to £25.60 per week for the first child, and £16.97 for any subsequent children.

By claiming child benefit, parents can earn National Insurance Credits which help to build up their entitlement to the state pension (you need 35 years of credits to be eligible for the full state pension). However, some parents who earn over the £50,000 threshold stop claiming the benefit as they find themselves facing a high income child benefit charge, which effectively means some of the child benefit has to be repaid. This charge is equivalent to 1% of every £100 you earn over £50,000 and means that once your income is over £60,000 you (or your partner) are effectively repaying all of your child benefit.

According to the Government, half a million parents had stopped claiming Child Benefit since the High Income Child Benefit Charge was introduced. But by not claiming child benefit, and earning those National Insurance credits, parents could find themselves losing out on potentially tens of thousands of pounds in their state pension. The Mirror has reported that this figure could be as high as £66,000.

The government first proposed this rule change back in April 2023, stating that it 'recognises concerns that some eligible parents who have not claimed Child Benefit could miss out on their future entitlement to a full State Pension. The government will address this issue to enable affected parents to receive a National Insurance credit retrospectively.'

But now new details have been released, stating that the government will legislate to introduce a way that eligible parents and carers will be able to apply for the National Insurance credits they missed out on. The government says: 'As announced on 27 April 2023, the government will legislate to introduce a route for people to apply for National Insurance Credits for parents and carers for tax years where they have not claimed Child Benefit, to ensure that people do not miss out on their State Pension entitlement. The credit will add qualifying years of National Insurance where eligible which will support future State Pension eligibility.'

But qualifying parents will have to wait quite a while before they can claim any missing National Insurance Credits as the changes aren't due to come into force until the 2026/27 tax year, which starts in April 2026. While this might sound like worrying news, those who qualify will be able to backdate their claims all the way back to 2013.

If you are a new parent, and haven't yet applied for child benefit, good news if you can benefit from a major change to the application process, that will see you get your money sooner. Those planning to start or expand their family should also check what happens to their pension while on maternity leave and understand average childcare costsso you can plan your finances accordingly.