High Income Earning £80k and Foregoing Child Benefit Wonders About Potential Impact on Future State Pension
Starting a Family and National Insurance: What You Need to Know
Heading into parenthood can be a nerve-wracking time, filled with sleepless nights, new responsibilities, and, naturally, financial implications. Here's a breakdown of everything you need to understand about National Insurance (NI) contributions and your state pension when starting a family.
Our journey began in 2018 when we welcomed our first child, and last year saw the arrival of our second. Initially, we didn’t claim child benefit as both of our salaries were well over £80,000. However, after the birth of our second child, I left my job just before Christmas, and am now considering the impact on my NI contributions and future state pension.
Beyond ensuring our children are well-cared for, caring for them can also help fill gaps in your NI record. Although, depending on your income, you may need to take additional steps to actively claim credits. As a couple, when both incomes exceed the child benefit threshold, navigating this can be tricky.
As Angharad Carrick of This Is Money puts it, starting a family comes with numerous financial challenges. With nursery costs and fiscal drag pushing more people into higher tax brackets, families must also face the lesser-known issue of state pension eligibility related to gaps in NI records.
In the case of parents, the arrival of a child can impact NI contributions in several ways. If you are entitled to statutory maternity pay for 39 weeks, you'll receive 90% of your average weekly earnings for the first six weeks. Thereafter, you'll earn the lower of £187.18 a week or your average wage. Many employers may offer higher payments.
General NI contributions and any pay increases during paternity leave will be based on your actual pay throughout this time. If you’re not entitled to Statutory Maternity Pay, you may be eligible for Maternity Allowance for up to 39 weeks, whether working or self-employed, although contributions will only be payable if it's stated in your scheme rules or employment contract after 26 weeks.
Should you return to work part-time with a lower salary, your pension will grow at a slower rate, possibly prompting you to consider making extra contributions to catch up.
If you decide not to work for a few years, like I have, you'll cease making NI contributions, although your pension will remain invested. While you may be able to make extra contributions to cover any period of unpaid leave, they'll be subject to the annual allowance.
If you're above the child benefit threshold and your partner still earns an annual salary exceeding the limit, you may still be eligible for NI credits. According to Holly Tomlinson, financial planner at Quilter, it's essential to proactively safeguard your NI record, particularly when not earning through employment.
If you haven’t already, register for child benefit and opt out of payments to secure NI credits. Making extra contributions through a spouse or personal pension may also be wise to supplement your retirement savings during this time.
When navigating the intricacies of starting a family, ensuring a solid financial foundation for both you and your children is crucial. Speaking with financial advisors and keeping up to date with rules and regulations can help you make informed decisions.
The government has also confirmed plans to let parents fix holes in their state pension records if they didn’t claim child benefit, which should provide added reassurance. Until the specifics are revealed, it's essential to stay informed and proactive to secure a secure financial future.
- Throughout our journey into parenthood, we've had to consider the impact of leaving a job on National Insurance (NI) contributions and future state pension.
- Navigating NI contributions and state pension eligibility can be tricky when both incomes exceed the child benefit threshold for a couple.
- Starting a family can present lesser-known financial challenges, such as state pension eligibility related to gaps in NI records.
- If you're not entitled to Statutory Maternity Pay and opt for Maternity Allowance instead, contributions will only be payable after 26 weeks, as specified in your scheme rules or employment contract.
- To secure NI credits when not earning through employment, financial advisors recommend registering for child benefit and opting out of payments.
- Keeping up to date with rules and regulations, speaking with financial advisors, and making extra contributions through a spouse or personal pension can help ensure a solid financial foundation for both you and your children.
