Yes, I admit it. I have written about this before. And, no, you’re not having some form of déjà vu. But there is a reason why I’m repeating myself, so please read on.
Let me start with a statement that will hardly come as a revelation… Governments have a habit of changing rules.
They change rules in many aspects of our life but, in particular for this article, I am talking about changes to the State Pension. The modus operandi applied by Government is that they publish details of the changes and, therefore, the public have been informed. The fact that the whereabouts of the details of these changes is rarely generally disseminated and that the public can hardly find the answers to questions when they don’t know what question to ask (try Googling “What recent changes to the State Pension will affect me?”) is immaterial in the eyes of the policymakers.
And, so, here we are, with changes made in 2013 that will affect many people, predominantly women, and a brewing furore (again) over how rules were changed and people were not given the information to act appropriately (along the lines of changes to SERPS death benefits many years ago and, more recently, State Pension Age increases for women).
The changes I refer to were a cost cutting measure that also, serendipitously, showed Government were not prepared to give public money away to higher earners who didn’t need (possibly, or deserve) it. In short, in a family unit, if one adult partner earned more than £50,000 a year and a claim was being made for Child Benefit, then the Child Benefit would be progressively clawed back and that if either partner earned £60,000 or more, it would be clawed back entirely.
Typically, these family units are made up of a man who goes out to work and earns the money while the woman stays at home to look after the children. Of course, that is not true in all cases.
On many occasions, where one partner earns in excess of £60,000 a year, the decision has been made to simply not claim the Child Benefit. I mean, what is the point of asking for something that is simply going to be taken back from you later?
What the Government has failed to spell out clearly enough, and what these couples haven’t been able to find out, is that it’s not just Child Benefit that is at stake. With the Child Benefit comes a National Insurance credit for each year Child Benefit is claimed, and these National Insurance credits are used to determine State Pension entitlement.
You now need 35 years of National Insurance credits to get a full State Pension. Of these 35, 12 can be when Child Benefit was being received. If you don’t get the full 35 years, you only get a proportionate State Pension (having more than 35 years of credits doesn’t get you any additional money, I’m afraid). So, if you don’t claim the Child Benefit, you may not get what you expect at your State Pension Age. Up to now, this situation has only been highlighted by the media. Government has done almost nothing to make people aware of the risk they are running. But now, there is something we can all do.
A petition has been put on the Government Petitions website calling for proactive communications to identify and explain to affected couples the situation. It also calls for people affected by this change to be allowed to retrospectively buy back the National Insurance credits so their State Pension will not be affected. The petition can be found at https://petition.parliament.uk/petitions/231761
Even if you don’t feel strongly about the particular issue being raised in the petition, I would strongly urge you to sign it just to send the signal to Government that they can’t make background changes to pensions, that will have a significant impact in the long-term, without communicating clearly and honestly about them to those affected by the changes.
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.
Peter Murphy Dip PFS