Millions of people each week benefit from an extensive system of National Insurance credits designed to protect their state pension during periods of out of paid work. But new analysis from pension consultants LCP has shown that hundreds of thousands more are missing out, and the amounts lost could run into billions of pounds in missing state pension rights.

LCP has today [22nd Nov] published a simple guide to all the National Insurance credits that are available. The guide: “Would you credit it – making the most of the National Insurance credits that can protect your state pension” covers the full range of credits for everything from bringing up children, caring for a disabled person, being in low paid work and even serving overseas as a military spouse. It is estimated that through a combination of families with children under 12, those claiming universal credit and related benefits, carers and those in low-paid work, over 7 million people are building up credits at any point in time.

The guide covers important ‘little known facts” about NI credits, including:

• Claims for some credits can be backdated for many years; one credit (sometimes nicknamed ‘grandparents credits’) can be backdated nearly a decade, whilst another (for military spouses) can be claimed all the way back to the mid 1970s;
• Some people can miss out on credits because the ‘wrong’ person claims the qualifying benefit; there is a particular problem with child benefit where it may be a mistake for the higher earner in a couple to be the main recipient of the benefit; around 200,000 couples are thought to be in this position;
• Those caring for disabled people do not have to be in receipt of a carers benefit to be entitled to carers credit; those doing 20 hours per week or more of caring can also qualify in certain circumstances.

Because 35 years of contributions or credits are needed for a full state pension, reaching retirement with one year short can cost 1/35 of the full pension. At current rates this is £5 per week or roughly £250 per year or £5,000 in lost pension over a twenty-year retirement. Some people who have been missing out on credits for years could easily lose tens of thousands of pounds in state pension payments as a result. Because those missing out are often carers and parents not in paid work, these losses fall most heavily on women.

Major areas of non take-up of NI credits are:

1. Better off couples who have started a family since 2013 when the ‘high income child benefit charge’ was introduced; HMRC figures show that the number of families claiming child benefit has fallen every year since 2013, with a particular fall among families with young children; by not claiming child benefit at all (to avoid a tax charge) such couples lose out on NI credits; the right approach for those in this position is to claim just for the credits; there is no time to be lost for these families, as new claims can only be backdated for 3 months;
2. Couples where the higher earner is also claiming the child benefit – in general NI credits are useful to those out of paid work so if the higher earner in a couple has their name on the child benefit claim, the person who needs the credit may be missing out; HMRC has estimated that there are around 200,000 couples where the ‘wrong’ person is claiming benefit and where the other partner is missing out on the credit as a result; although a form can be filled in after the event to transfer the credit back, this often does not happen;
3. Carers not on Carers Allowance – people caring for 35 hours per week and claiming Carers Allowance automatically get NI credits; those doing 20 hours of caring can also claim a credit, but take-up is poor; DWP estimates that at any one time only 10,000-15,000 people are claiming this carers credit out of over 100,000 who it has estimated could benefit;

If just 250,000 people are missing out on credits at any point in time, and typically miss out for four years (eg a mother who only goes back to work when the child starts primary school], thereby losing £20,000 in state pension payments in retirement, then the gross amount lost by these people would be as much as £5 billion.

This would overstate the true loss because some people will get 35 years of contributions even without credits, and in some cases people will ‘fix’ the missing credits after the event. But it still seems likely that the true cost of missed credits runs into billions of pounds.

Commenting, Steve Webb, author of the guide and a partner at LCP said:

“The system of National Insurance credits is vital in helping millions of people to protect their state pension at times when they are not in well paid work. But far too many people – and women in particular - are missing out on the credits that are there to help them. If we want to reduce the gender pension gap, we need to raise awareness of these important credits. Parents need to make sure that they claim NI credits even if they are on a high income, and couples need to make sure that they put their child benefit in the name of the lower earner. Carers should also claim credits even if they are not on carers allowance, as long as they are spending 20 hours per week looking after someone. There are billions of pounds in state pension rights being thrown away every year and the government needs to do much more to make sure people take up what they are entitled to”.