Every parent is unique and is aware that children need opportunities and enrichment at every age stage, and the decision whether to remain in employment or not, after the birth of child is decided upon differently.
For mothers who decide to terminate employment for some time to rear their children, their social security contribution will not be paid and gaps in their contributory history will eventually affect the pension rate. They may not qualify for a pension; or if they do qualify, the will receive a pension which would have been negatively affected by the gaps.
Hence, to address this issue of gaps in the mothers’ contributory history, as a result of child rearing, the government has introduced a new legislation – child credits for child rearing with effect from 1 January 2016. Fathers too are entitled to child credits instead of mothers, provided they stop working to take care of children instead of their spouses. Same conditions as mothers apply.
We spoke to Pamela Pace from the Retirement and Financial Capability Group to clarify how child credits are worked out. Pamela is the content editor of the Group’s portal www.financialcapability.com and also works at the Pensions Section in the Department of Social Security.
What are child credits?
Child credits can be seen as contributions paid by the government, as outlined below, which credits would be keyed in for retirement pension claims to fill in gaps and increase the contribution average, hence, the pension rate. Child credits are credited as per below, independently of income gained.
Therefore if a mother has two children and terminated work to rear them, she is entitled to a maximum of 4 or 8 years of credits, depending on when she was born. If a mother resumes work prior the elapse of six years, any gaps will be filled in with credits, provided the number of credits credited to the mother would not exceed the amount of credits to which she is entitled.
How does it work if she goes back to work with reduced hours, will she be compensated with child credits too?
Child credits for the first three children are not influenced or controlled by the type of employment. It is just subject to having worked prior giving birth and terminated career for child rearing.
Are child credits applicable to mothers who don’t go back to work?
Yes, up to and including the third child.
So how does it work with the 4th child?
Mothers born between 1952 and 1961 (both years included) and terminated employment on the birth of their child or during the first six years from the child’s birth, for child rearing, from the 4th child onwards, according to the number of contributions paid after the birth of the 4th child up to a maximum of 52 credits per child.
For example, if a mother gives birth to a fourth child and works and pays 10 weeks thereafter and prior to retirement age, only 10 credits will be awarded. In case of a child with a disability, the same conditions apply but the mother is awarded up to a maximum of four years child credits instead of two.
The same conditions apply for mothers born on or after 1962. However, the maximum amount of child credits awarded from the 4th child onward is two years, whilst in the case of a severly disabled child; it is a maximum of eight years.
A retirement pension claim is assessed on two main computations:
- the contribution average
- the pensionable income
The contribution average is calculated on the number of contributions or credits paid. To be eligible to a full two-thirds pension, the contribution average must be at least 50. Gaps in the contribution sheet will result in a contribution average from 15 to 49.99 and will result in a decreased amount of the two-thirds pension rate, thus affecting the pension rate. Child credits for child rearing will help fill in these gaps, increase the contribution average and hence, better the pension rate.