The £720 annual pension top-up millions of parents are missing – and how to claim it

Most parents know about the child advantageShared parental leave and maybe even junior isa,

But a much less familiar benefit – one that offers a 25 percent guarantee Government Boost – Ignored by millions of families.

Nearly two-thirds (63 percent) of parents are unaware that they can make payments to a non-earning partner pension Octopus Money says there’s up to £720 a year in automatic top-ups from the government during parental leave.

The rules are simple, the profits are significant… and yet the take-up is extremely low – one more thing Example of underuse of comprehensive pension by Britons,

Here we look at how Non-Earner Pension Allowance works, why it is so often overlooked, and who benefits most.

How non-earner pension top-up works

Anyone who is a UK tax resident can receive a pension of up to £3,600 (gross) per year, even if they have no earnings.

To access the allowance, a partner or family member pays £2,880 into the pension. The provider then claims £720 in basic-rate tax relief From HMRC, the total contribution came to £3,600. No paperwork or tax returns required.

This makes the allowance particularly valuable:

One caveat is that if a higher or additional rate taxpayer pays on behalf of a partner or child, they Cannot claim additional rates relief Normally available on their own pension contributions.

Why do families often miss out?

Awareness remains the biggest issue around the perk. “Many people are not aware that pension contributions can be made for someone who is not earning, and this provides tax relief,” says Gary Smith, senior partner of financial planning at Evelyn Partners.

“That’s the main reason the allowance is not used.”

Parents may lack extra cash at a time when child care, mortgage repayments and rising household costs take priority. Grandparents are more active users of the allowance as they often have greater financial capacity and prefer the stricter access rules associated with pensions compared to Junior ISAs, which can be accessed at the age of 18.

But the long-term benefits of the uplift are substantial. Smith says: “If someone has £1,000 and they pay it into an ISA, £1,000 is invested. If they pay it into a pension, £1,250 is invested. When the capital is eventually needed, an immediate 25 per cent increase could lead to a far higher value.”

How much is it worth and why does compound growth matter?

This is where early planning pays off: Combining supercharges in your favor when deadlines are long,

Smith says families often use allowances for children or grandchildren because of the time limit.

“To illustrate the power of early saving and compound returns,” he says, “if you contributed the full £240 per month (£2,880 per year, which becomes £3,600 with tax relief) into a pension growing at five per cent of the fees from birth, the pot would be worth around £105,200 by the age of 18. If you then stopped making payments and invested it until the age of 57 If left, it could reach around £736,400.”

He added: “This is a great retirement start at a cost of just £51,840 in individual contributions.”

Ideas and how to get started

Before setting up partner contributions, families should consider some factors:

The simplest way to start is to open a personal pension online or top up an existing pension in the name of a non-earner.

The tax relief process may take several weeks. Some pension providers invest the net contributions immediately and add the relief when it arrives, while others wait until the HMRC payment is received – which usually takes six to eight weeks.

Although this allowance is designed for non-earners of any age, Smith says it is most commonly used for grandchildren, with contributions for stay-at-home parents being the next most common scenario.

Should contributions be invested or left in cash?

“Due to increased tax relief, most people will want to invest contributions rather than keeping them in cash, especially for periods longer than five years,” says Smith.

For savers planning to access their pot within three years, keeping some or all of it in cash may make more sense.

The general rule is that if your household income allows it, and one partner has little or no earnings this year, paying £2,880 to secure the guaranteed £720 top-up could be one of the most efficient retirement moves for a family.

When investing, your capital is at risk and you may get back less than you invested. Past performance does not guarantee future results.