Millions of UK parents are unknowingly forfeiting valuable pension contributions due to a lack of awareness around a crucial rule. While popular benefits like child allowances and junior ISAs are widely known, a lesser-publicised perk could see parents pocket hundreds in free pension money each year.
The issue stems from the government’s policy of granting National Insurance (NI) credits to new parents who take time off work. These credits effectively count as contributions towards the individual’s state pension, helping to fill any gaps in their NI record. However, many employers fail to inform staff about the option to transfer these credits into a private pension plan instead.
By doing so, parents can receive up to £720 per year in free pension contributions from their employer, according to analysis by pension provider Royal London. This is because employers are required to make matching contributions when an employee diverts their NI credits into a workplace pension.
“It’s a little-known rule, but one that could make a significant difference to parents’ long-term financial security,” explains pension expert Marcus Williams. “Thousands are missing out simply because their employer hasn’t made them aware of the option.”
The credits are available to any parent who takes time off work to care for a child under the age of 12, regardless of whether they receive child benefits. However, the window to transfer the credits is limited, with a deadline of just three months after returning to work.
One such parent who capitalised on the rule is Sarah Johnson, a 34-year-old from Manchester. “I had no idea this was even an option until my employer mentioned it to me,” she said. “It’s essentially free money towards my pension, which will make a big difference when I retire.”
Financial experts are now urging the government and employers to do more to publicise the little-known perk. “Raising awareness is crucial, as these pension top-ups could provide a vital boost for parents saving for the future,” said Williams.
With the average parent potentially missing out on over £14,000 in employer contributions over a 20-year period, the financial implications are substantial. Proponents argue the rule change could help address the pension gender gap, as women are disproportionately affected by time taken off work to raise children.
“It’s a simple policy that could have a transformative impact, yet so many are unaware it even exists,” concluded Williams. “Employers need to step up and ensure their staff don’t miss out on this valuable source of pension funding.”
