Everyone likes free money and over the past year I have researched no fewer than five different areas where clients and/or their families could either improve their pensions or reduce their tax bill at no cost to themselves.
As we move into a new year, this seems like a good time to remind you of some of the areas to keep an eye out for in conversation with clients.
Starting with pensions, under the new state pension system, you need 35 years of National Insurance contributions or credits to get the full rate of around £160 per week (ignoring the complexities of contracting out and so on).
Being just one year short can cost you 1/35 of a pension, which works out at roughly £237 per year in retirement or over £4,700 over the course of a typical 20-year retirement. With this in mind, it is important to make sure no one builds up unnecessary gaps in their NI record.
To try to help with this, governments have created a range of complex credits so that groups of people who may not be in paid work can still build up a “qualifying year” towards their pension.
These schemes are generally created with the best of intentions but, after an initial burst of publicity, they get so little attention and are so complex that few people apply for them.
So, which ones should you be looking out for?
1. Grandparents credit
The first is for any clients who are grandparents under state pension age. Many people stop work before pension age in order to help a son or daughter go back to work after the birth of a grandchild. To help protect their state pension record, the government introduced something known colloquially as a “grandparents credit” (or more technically, a “specified adult childcare credit”).
In brief, the working parent no longer needs the NI credit associated with receiving Child Benefit for a young child. So they can simply sign over their NI credit to the grandparent. It costs the working parent nothing (because they do not need the credit) but may help the grandparent to build up a full pension.
2. Military spouse credit
A second credit with poor take-up is a very specialised one, designed to help military spouses and civil partners. Under the new state pension, women can no longer claim a state pension based on their husband’s record of NI contributions. This is a problem if you are a military wife who spent a number of years with your husband stationed outside the UK.
Those years are almost certainly gaps in your own NI record. However, under this scheme, women who reach pension age after 6 April 2016 can claim NI credits for years all the way back to 1975 if they were stationed outside the UK.
3. Carers credit
A third credit with poor take-up is the carers credit for those doing more than 20 hours per week. Those doing 35 hours a week can often claim a benefit called carers allowance, and this gives automatic credits for the state pension. But many more people are doing 20 to 35 hours of caring a week in a way that probably stops them earning enough to do much paid work but does not qualify them for the carers allowance. Since 2010, there has been a special NI credit specifically for this group.
In all of these cases, the gov.uk website is a mine of usual information about the rules and how to claim.
4. High income child benefit tax charge
A fourth area to flag to clients is the impact of the high income child benefit tax charge. Since 2013, couples with one partner earning more than £50,000 a year can face a tax charge which wipes out some or all of their child benefit.
As a result, growing numbers of new parents are simply not bothering to claim child benefit. This means they are missing out on vital credits towards their state pension. Make sure your clients claim their child benefit, even if they tick the box to say they do not actually want the cash paid, to make sure they protect their pension record.
5. Marriage allowance
Finally, around two million married couples are missing out on the recently created marriage allowance. It applies to married couples and civil partners where one partner pays standard rate tax and the other is a non-taxpayer. The non-taxpayer can sign over 10 per cent of his or her personal allowance to the higher earning spouse. The allowance is worth over £200 per year and claims can be backdated to 2015/16. Many reasonably well off pensioners with lower income spouses could benefit.
I hope these hints and tips will bring a happy new year to some of your clients.
Steve Webb is director of policy at Royal London and former pensions minister