State pension: TWO ways to boost your pension that won’t cost you a penny

Upcoming changes to state pension in 2022

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The reason for this is that by claiming Child Benefit, non-working parents can receive National Insurance Contributions (NICs) which go towards their state pension, but many are failing to claim the benefit.

In 2018/19 there were 354,000 families paying the tax, but over 620,000 are opting out of receiving child benefit completely as of August 2020.

The FOI request showed that High Income Child Benefit Tax (HICBT) receipts have decreased from 2018/19 to 2019/20. The HICBT takes a chunk out of the Child Benefit when income exceeds £50,000 a year.

The amount taken increases according to income until it reached £60,000 a year, after which point all of the child benefit is lost to the tax.

However, even those families who won’t gain anything right away from claiming child benefit because their income exceeds £60,000 could lose out financially by not claiming.

This is because by filling in the form to claim child benefit, even if someone opts out of payments, will entitle a non-working parent to NICs, which go towards their state pension.

State pension boost

The two ways you can easily boost retirement income (Image: Getty)

Sean McCann, chartered financial planner at NFU Mutual, said: “It’s crucial families who don’t want the hassle of repaying child benefit still register a claim before opting out of receiving payment.

“This ensures that a non-working parent receives a national insurance credit, helping to protect their state pension entitlement.”

He added further that it is essential that the claim is made by the non-working parent, not the high-earning partner as this could lead to lost income further down the road.

The £50,000 to £60,000 thresholds haven’t changed since 2013, “meaning more and more families are being caught out.

However, for those on the cusp of these thresholds, there is another way to use the system to their advantage.

Mr McCann said: “As the tax charge is based on income after pension contributions, many families could take themselves out of the charge and continue to receive child benefit by increasing the amount they pay into their pensions.”

Such a choice would confer two advantages – it would allow people to contribute extra funds into their pension and mean there is no drop in current income.

Furthermore, by putting the extra cash into a pension scheme, this money will be tied to various assets, which will see its value grow over the years.

The Government collected £409million from the HICBT in 2019/20, which took the total amount collected by the tax since 2013 to £2.92billion.

This is on top of the estimated £4.89billion collected from families simply opting out of child benefit to avoid the charge, taking total savings to £7.81billion.

Infographic

What is the state pension? (Image: Express)

Figures have shown that the take-up rate of child benefit has fallen since its introduction in 2013, from roughly 96 percent to 92 percent.

This four percentage point decrease may seem small, but will potentially affect millions of people.

The amount of money collected by HICBT began at £116million in 2013, but shot up quickly and has stayed around the £400million mark every year since.

This indicates that the number of families earning over £50,000 has increased markedly in that time.

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