According to current statistics, approximately one million households in the UK could lose up to £6,500 in state pension due to a simple oversight in claiming child benefit.
Shockingly, child benefit claims have fallen by one million households since 2012, when the High Income Child Benefit (HICBC) was introduced.
With the introduction of the HICBC, the situation for child benefit claimants has changed. This tax applies if the income of a parent or carer exceeds £60,000 a year.
For every £200 of income over the £60,000 threshold, a refund of 1% of child benefit received is required. This applies until annual income reaches £80,000, at which point the full amount of child benefit must be repaid.
However, following recent changes announced by the Chancellor in this year's Spring Budget, child benefit is no longer payable. Previously, the load applied from an annual income of £50,000.
The Unseen Impact of Child Benefit Mistakes on Your State Pension
Unfortunately, the impact of these changes is quite significant, as many families are choosing to give up their child benefit to avoid large tax bills.
By choosing to forego claiming child benefit, most families unknowingly deprive themselves of National Insurance (NI) credits which would have contributed to their state pension and thus could reduce their retirement income.
For those unfamiliar with the term, NI credits are allocated to anyone who claims child benefit while not working. This guarantees the continuity of their NI record, thereby contributing to the amount of State Pension they will receive on retirement.
Failing to claim these credits may lead to gaps in your pension file which, in turn, could result in you losing your entitlement to the state pension due to an insufficient number of qualifying years to receive the full amount.
A single year of missing credits can result in an annual reduction of £329 in your state pension. Over a typical 20-year pension, this equates to a loss of around £6,500.
The good news is that you can claim your credits by only checking a box on the child benefit form, even if you don't receive the cash benefit. But many families unfortunately are unaware of this possibility.
Steve Webb, former pensions minister and current partner at consultancy LCP, expressed his concern at the figures.
These latest figures show the dramatic impact of the HICBC, knocking a million families off child benefit in just over a decade,
Should You Claim NI Credits?
If you have stopped paid work to look after children under the age of 12, claiming tax credits may enable you to retain your entitlement to State Pension.
To qualify for the old state pension of £169.50 a week, you need to have accumulated 30 years of old-age insurance. For the new state pension, currently £221.20 per week, 35 years are required.
You can apply for child benefit and NI credits on the official government website or by downloading the paper form.
Bear in mind that you don't have to claim child benefit in order to benefit from the credits, you simply need to indicate this on the form.