How can parents prevent their pensions from being affected if they stop working to care for their children?

State pensions and tax benefits can generate up to an extra £410,000 in retirement for parents who take time off work to care for their children, new analysis reveals.

Claiming child benefit gives you free credits towards your state pension for the first 12 years of your child’s life, if they don’t go back to work and pay National Insurance to boost their record that way.

A 30-year-old parent doing this today would have £201,500 more over a 20-year retirement, taking into account triple-lock state pension increases of at least 2.5 per cent a year, according to Interactive Investor’s number-crunching.

Meanwhile, those with no income can pay up to £2,880 a year into a pension, which is topped up with tax relief up to an annual total of £3,600.

This would cost a 30-year-old £34,600 over 12 years, but could increase their final pension pot by £208,400 by the time they are 68, assuming investment growth of 5 per cent net of fees.

Interactive Investor says its calculations highlight how, for couples who can afford it, it is worthwhile for the working partner to make contributions to the non-earning parent’s pension, as it increases their joint wealth in retirement.

The parent who takes a career break to raise children is often (but not always) a mother, and caring obligations plus lower pay are the main reasons why women reach retirement with much smaller pensions than men.

Many women get off to a good start with their retirement savings, but fall behind when they have children.

Even short breaks in retirement saving can make a difference, especially when you’re young, as you lose out not only on the sums involved but also on the immensely valuable compound growth in your pension investments that builds up over time.

> How to maximise pension contributions during maternity leave or increase them when returning to work

“Planning your finances as a couple is vital, especially when it comes to long-term wealth,” says Alice Guy, Head of Pensions and Savings at II.

‘Once couples have children, there is often a large income gap for women and this has an impact on pension wealth.’

Claiming child benefit to get state pension credits costs nothing, but couples should also consider paying into the private pension of a non-earner because of the “free money” supplement that comes from tax relief, Guy says.

“It’s a rare quirk in our system, which is designed to help non-earners build up their own retirement wealth. It’s a great tax trick, as it means you can get your taxes back, even when you don’t pay them.”

State pension: Why is it vital to apply for child benefit?

The number of families claiming child benefit has fallen since a controversial reform in 2013 made wealthier parents ineligible for child benefit payments.

Until recently, child benefit was reduced for those earning £50,000 or more a year, or scrapped entirely for those earning £60,000 or more.

But the rules were relaxed in April this year, and now child benefit begins to be phased out if a household member earns £60,000, with payments stopping altogether when they reach £80,000.

This has caused problems because of a poorly understood relationship between claiming child benefit and the state pension.

By claiming, you’ll get free State Pension credits if you need them.

Parents who do not qualify for the child benefit and therefore do not apply for it lose valuable credits.

At current state pension levels, these credits are worth £329 each a year, or £6,500 over a 20-year retirement.

But when multiplied by the maximum years of credits until the child turns 12, and adjusted for triple-lock increases at the time of a future retirement, the figure is much higher, as II has calculated.

After rejecting parents’ pleas for years, the latest government has promised to allow parents who lost their state pensions to repair their records by creating a new National Insurance credit they can claim from April 2026.

Until the fix is ​​in place, parents who do not qualify for child benefit are advised to apply anyway, but tick a box to opt out of the payments and only get the state pension credits.

The option of ticking one box is usually the easiest. Another option is to accept both child benefit payments and credits, but in that case the higher earner has to file a tax return to get the money back.

Alice Guy, from II, said: “Complicated child benefit rules mean that spouses of high earners may be tempted not to claim child benefit because they will have to pay it back through the High Earner Child Benefit Charge. But that decision could have a devastating impact on their state pension down the road.

‘Stay-at-home parents could boost their state pension income by a staggering £200,000 when they reach retirement age if they claim child benefit.

‘The £200,000 is free, so claiming child benefit is a no-brainer.’

Private pension: Can you afford to pay £240 a month into a retirement scheme?

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As explained above, non-earners can pay up to £2,880 per year into a pension, and when tax relief is added, this equates to a pension contribution of £3,600 per year.

II calculates that if a 30-year-old father does this for 12 years, he would increase his pension pot by £208,400 by the time he reaches 68, assuming investment growth of 5 per cent net of fees.

The “free” tax relief element amounts to £42,000 on reaching retirement age, II says.

The pension contribution limit for non-earners has been frozen at £3,600 a year since 2001.

In order to use it, you must be in a good enough financial situation to have savings available to allocate to a pension.

However, women on maternity leave and fathers raising children are among the key groups who can benefit from this retirement savings advantage. The working spouse can pay the contribution to improve joint finances in retirement.

Children can also benefit from this if parents set up a self-invested personal pension plan (Sipp) for them.

It is also useful for anyone who has to take time off work for other reasons, such as a career break, illness, unemployment or becoming an unpaid carer.