My mum might be due more state pension – will she lose pension credit?

I am writing on behalf of my mother who has recently received a letter from HMRC stating that she may be eligible for Home Responsibilities Protection.

Her National Insurance record shows five years of full contributions and 20 years where she did not contribute enough. For 13 of these years she would’ve been claiming child benefit for myself until I reached 18 years old.

Her current weekly state pension is £93.85 and she reached state pension age in June 1995.

However my concern is that if she is eligible for HRP this will increase her weekly state pension and then she will not be eligible for pension credit (which she has only just started claiming since my father has moved into a nursing home) and its additional benefits.

But also if she is due an increase in her pension would this be backdated? If so, it would probably outweigh what she would lose if she could not claim pension credit any more.

Lots of dilemmas and questions, and I would be very grateful for any advice you could give me.

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR PENSION QUESTION

Steve Webb replies: Over the coming months, tens of thousands of women will be receiving letters from HMRC like the one that your mother has received.

For most this will be good news, resulting in them getting a higher pension and possibly a backdated lump sum. But you are right to suggest that in your mother’s case she should think carefully before responding.

These letters relate to potential errors in people’s National Insurance records for time spent out of paid work raising children.

I explained more about the issue in a previous column: I’m being underpaid state pension and HMRC is doing nothing.

The group who have missed out appears to be those who claimed child benefit before 2000 where there was no National Insurance number on their child benefit claim.

> Have YOU received a letter about HRP? Scroll down for Steve’s handy tips

Without an NI number, it can be difficult to link the child benefit computer record to the separate National Insurance computer.

As a result, this group may be missing out on ‘Home Responsibilities Protection’ – a vital protection to their NI record for time at home with children.

The challenge with fixing this issue is that HM Revenue and Customs no longer know who was getting child benefit all those years ago.

For that reason, they are now writing ‘speculative’ letters to people who may have been getting child benefit, but who do not have HRP on their NI record. This is why your mother has had a letter.

Ordinarily, the recipient of the letter should simply answer the questions, providing details of their child or children, including dates of birth and NI numbers, and confirmation that they were receiving child benefit.

If everything looks right, HMRC will add Home Responsibilities Protection to the individual’s record. The DWP will then recalculate their state pension, potentially increasing the weekly amount that they receive and paying any arrears due, back to when they first started drawing their pension.

However, there are a few reasons why your mother’s situation is slightly different.

The first is that even if her state pension were to increase, she might be no better off.

As you have noted, she is now receiving pension credit, and in many cases this means that any increase in her state pension would result in a pound-for-pound reduction in her pension credit.

If she was only getting a small amount of pension credit in the first place (perhaps because she has other income on top of her state pension), an increase in her state pension could even mean she is no longer entitled to pension credit at all.

Given that pension credit is a ‘passport’ to lots of other forms of help including assistance with energy bills, free TV licences for the over 75s and so on, she might be worse off overall.

Anyone on a relatively small amount of pension credit might want to think carefully before claiming for missing HRP.

The second point that you raise is also a good one – namely that there could be arrears of state pension to take into consideration.

In your mother’s case, she has been on a state pension since the mid 1990s, so in theory there could be a large lump sum of back payment owing to her.

On the plus side, for some women this will be a large amount of money and would be worth having even if it meant not getting pension credit.

As you point out, your mother has only just started getting pension credit and for most of her retirement she was not receiving the benefit.

There could in theory be a large lump sum available with very little ‘claw back’ of pension credit in those past years, subject only to any income tax which was due.

However, because of your mother’s individual circumstances this is unlikely to be the case.

You have told me that your mother has just five years of actual paid NI contributions.

For a woman of her generation, the target for a full pension would have been 39 years.

The way HRP worked was that each year of HRP was deducted from the 39 years target. If we suppose you are right that she would be entitled to HRP for 13 years (though bear in mind that HRP stops in the year in which the youngest child turns 16), then this makes her revised target 26 years.

As she only has five years of contributions, her NI record is 5/26 or 20 per cent (rounded up).

As this is below the minimum of 25 per cent, your mother would not actually have been entitled to a state pension in her own right even with the inclusion of HRP.

The pension your mother currently gets is the standard rate for a married woman (plus a 25p age addition) based on her husband’s contributions.

It is also the standard rate for anyone aged 80 plus who can get a non-contributory pension, provided they satisfy some basic residency requirements.

Either way, your mother’s pension is not currently based on her own NI record and would not be even if she claimed HRP.

In practice therefore, there is probably little to be gained by going through all of this process.

I suppose, in theory, the recipient of such a letter could be challenged for not taking up the opportunity to (potentially) improve their state pension, especially if the reason for not replying was to avoid any impact on their benefit.

But in your mother’s case her pension wouldn’t change even if she was given HRP, so it’s hard to see the point in responding.

I should stress that for most people who receive such a letter – and particularly those who are not on benefit – the outcome is likely to be to their advantage. 

But I’m grateful to you for flagging your concerns as this will not always be the case.

Have YOU received a letter about missing HRP? Handy checklist

HMRC has created a tool which allows you to check if you might be entitled to HRP which can be found here: Why do you want to apply for Home Responsibilities Protection.

The key points are:

– HRP started in 1978/79, so years at home with children before then do not count;

– You need to have been receiving child benefit in your name (that is, not paid to your spouse or partner);

– The child needs to have been under 16 for the full financial year;

– You must not have been paying the reduced ‘married woman’s stamp’ at the time.

For most people, getting HRP will boost their state pension. This could be especially true if:

– Your pension is already more than 60 per cent of the standard state pension rate or would be if you got HRP; and/or

– You are a married woman who had a period of state pension receipt in your own right (eg after you turned 60 but before your husband turned 65) where the amount could be boosted for that period by the inclusion of HRP.

However, the benefit to you is likely to be reduced if:

– You are on a benefit such as pension credit (where you could lose help on a pound-for-pound basis) or housing benefit (where some of the increased pension could be clawed back); and/or:

– You receive a lump sum which would be treated as ‘capital’ by the benefits system; in particular, if you get housing benefit only and have capital over £16,000 you may be disqualified from benefit completely.