The number of families opting out of receiving child benefit has hit an all-time high, according to new government data. But opting out of child benefit could have serious consequences when it comes to your pension.
The latest government statistics, based on those claiming child benefit as of August 2023, show that fewer families were claiming and receiving the benefit compared to the previous year. In August 2023, 7.65 million families were claiming child benefit, 47,000 fewer than in August 2022. Similarly, 6.91 million families actually received the benefit, 106,000 fewer than in the previous year.
The decline in families receiving the benefit is down to the controversial High Income Child Benefit Charge that was introduced in 2013, by then Chancellor of the Exchequer, George Osbourne. Aspects of child benefit, including the High Income Child Benefit Charge, have long been thought to be unfair. This tax charge means that once you start earning over a certain amount (in the last tax year, this was £50,000, but is now £60,000), you effectively have to start repaying some of the child benefit you receive in the form of the High Income Child Benefit Tax. In the current tax year, by the time you earn £80,000, you are effectively repaying all of the child benefit you receive.
Parents can choose to claim child benefit, receive the payments and pay the charge, or they can opt out of child benefit altogether. The number of families opting out of child benefit payments, hit 741,000 in August 2023, almost double those who opted out in 2013.
Child benefit in a nutshell
Introduced in 1977, child benefit is a payment from the government to help families with the costs of raising a child. If you are responsible for raising a child, you are eligible to claim. As of 6 April 2024, it is paid at a rate of £25.60 per week, which works out as £1,331.20 per year, for your first child. For any subsequent children, you will receive £16.97 per week, which equates to £882.44 per year.
While some benefits are subject to the two-child benefit cap, child benefit isn't - there is no limit on how many children you can claim for.
What happens if you opt out of child benefit payments?
Parents can choose to opt out of receiving child benefit payments, especially if they have to pay some or all of it back, but this can have serious repercussions. This is because claiming child benefit will earn you national insurance credits that work to build your entitlement to the state pension (and you need 35 years of national insurance contributions to get the full state pension).
According to analysis from our sister brand MoneyWeek, 'Just one year of missed credits could lead to a reduction of £329 a year in state pension, or around £6,500 over a typical 20-year retirement.
'Someone who doesn’t go back to work until their child is of primary school age, and therefore misses out on four years of National Insurance, could end up £1,316 per year short on their state pension if they don’t claim their credits. Over 20 years, this would be worth £26,320.'
But it is possible to claim the NI credits without getting the money - there's a box you can tick on the child benefit form to that affect.
If you have previously opted out of receiving child benefit, you may also find that due to threshold changes that came into effect in April 2024, you might now be eligible to receive the full amount without repaying any of it, or now be entitled to tapered payments where previously you had to repay it all. The threshold at which you have to start repaying any of the child benefit has been raised from £50,000 to £60,000, and the upper limit at which you repay the whole amount raised from £60,000 to £80,000. You can find out about how to restart your child benefit payments here.
If you have missed out on NI credits by not claiming child benefit, all is not lost. From April 2026, parents will initially be able to claim credits dating back to 2013 - after that they will only be able to backdate claims by six years.
To better manage your family budget, make sure you factor in average childcare costs. You might also be interested in whether it's financially worth returning to work after having a baby, and how you might be impacted by the motherhood penalty.
