Parents missing out on state pension should have national insurance contributions boosted, urges government think tank

PARENTS who are missing out on their state pension should have their national insurance contributions boosted, a government think tank has urged.

The Office for Tax Simplification (OTS) says it would help the tens of thousands of parents who took time off work to care for children and add up to £30,000 to their retirement fund.

To claim a state pension, you need 35 years worth of National Insurance contributions (NICs), which you typically build up by working, to get the full amount of £8,767.20 a year.

But where parents are out of work because they're caring for children, they may still be able to claim these NICs.

The problem is, that rules introduced in January 2013 say that if parents don't claim child benefit, they won't get these vital NICs.

It means that those who don't claim the benefit while they're not working will end up with a smaller state pension pot compared to if they'd stayed in a job.

The issue largely affects stay-at-home parents, usually mums, whose partner claims child benefits on behalf of the family - as here the government doesn't know that the mum is missing out on NICs and the partner is claiming despite already getting NICs from work.

It also impacts families that don't bother claiming the benefit because one parent earns more than the £50,000 per parent threshold and as a result are considered a higher earner.

A working parent who earns more than the threshold pays a higher rate of tax on the benefit - 1 percent for every £100 worth of income between £50,000 and £60,000, while at £60,000 they don't gain anything from the benefit at all.

Often, parents don't claim the welfare payment to avoid paying the tax but actually it leaves the stay-at-home parent worse off in retirement because they won't be able to claim NICs.

The OTS says that the confusing system doesn't make the impact of not claiming child benefit clear enough.

In its latest report, the think tank proposes that the government repays parents who missed out NICs over the past six years as a result.

As it stands, child benefit claims can only be back-dated by three months but the OTS suggests that this should be extended to 2013 when the rule change was introduced.

Commenting on the research, Steve Webb, director of policy at Royal London said: "Credits towards your state pension are of great value.

"It is quite wrong that if people find they have missed out they can only backdate by three months.

"Ultimately, the government needs to fix a broken system, but for now it needs to be easier for people to put things right when they have gone wrong."

The OTS also suggests that the government should consider an age cut-off or cap on the amount of NICs that can be restored if it does decide to go ahead and issue a back pay system.

It is also urging the government make the repercussions of not claiming the benefit more transparent.

A government spokesperson told The Sun that it has recently improved the child benefit forms included in Bounty Packs, which are given to parents after the birth of their child, to make them clearer.

It added: "[HMRC] is continuously considering ways in which communications can be improved further, both at the birth of a child and for existing child benefit claimants.

"It has therefore recently improved child benefit forms, guidance and communications, so that it better sets out the options to claim child benefit but elect not to receive payments."

Last week, we reported how the state pension is set to rise by 3.9 per cent in April giving pensioners an extra £343 a year.