From this autumn the Government will be introducing changes to the way child maintenance payments are calculated and handled under the new Child Maintenance Service (CMS).
The changes are intended to encourage parents to make their own 'Family-based Arrangements' (FBAs), outside of the statutory system. With disincentives aplenty, it may be that the number of CMS cases decreases, but to what ends?
The current scheme
There are currently two systems used by the Child Support Agency: the 1993 regime and the 2003 regime. The aim is to have a single system in place by 2015. In order to achieve this, cases under the old regimes will be closed on a staggered basis. However, there will be no automatic enrolment into the new scheme, and parents will be forced to reapply.
Application to the new scheme
As of 2013, applicants to the new scheme will have to pass through a gateway assessment, and parents will be encouraged to consider an FBA. If proceeding through the CMS, there will be a £20 charge to use the system.
Applicant parents will choose one of two options:
- The collections service
The CMS will calculate the required level of payment, collect the payment from the non resident parent (NRP), ensure that it is paid to the parent with care (PWC) and, where necessary, enforce payment.
- Direct pay
Under this option, the CMS will calculate the required level of payment, but collection, payment and enforcement must then be made between the parents themselves.
There is an option to transfer from direct pay to the collections service; however, this comes at a price
There will be ongoing charges for parents who use the collections service, namely a 20% charge on top of the NRP's calculated liability, and a further 7% deduction before the payment reaches the PWC.
The assessment will now be based on gross, rather than net, income. The nil rate for certain NRPs will continue (e.g. full-time students) and a flat rate of £7 a week will be applied to those with gross incomes lower than £100 per week. There will be a reduced rate for those with incomes between £100 and £200 per week.
For a gross annual income of up to £41,600 (or £800 per week) the following percentages will apply:
- 12% for one child;
- 16% for two children; and
- 19% for three or more children.
However, any excess of income over £41,600 per annum will be subject to the following rates:
- 9% for one child;
- 12% for two children; and
- 15% for three or more children.
Gross income above £3,000 per week (£156,000 per annum) will be outside of the jurisdiction of the CMS.
As under the 2000 regime, there will be deductions for overnight stays, with a maximum deduction of 3/7 for over 156 nights per year. Where the NRP cares for other children in his/her new family further reductions will apply.
- The age limit for qualifying children will rise to 20 years of age, provided they are still in full time education.
- There will also be stronger enforcement procedures, including surrender of passports and curfews, together with an obligation for the NRP to declare any increase in earnings.
- Benefit claimants will no longer be required to make an application for child support and there will be no power to reduce the benefits of NRPs who fail to cooperate.
With new hurdles such as the initial payment to join the scheme, an increase in the minimum weekly payment (from 5% to 7%) and continuing charges to both parents for the collections service, it is easy to see why an FBA may seem preferable. Increasing numbers of parents making their own arrangements may mean that those who do opt to use the CMS will receive more efficient case management, but pushing parents away from the scheme may well cause new problems.
If parents choose the calculation-only service and it proves unsuccessful, they may face a delay whilst waiting to be transferred across to the collections system for enforcement.
There is also a risk that the pressure to agree to an FBA may see parents entering into an agreement that fails to provide sufficient financial support for their children. Further to this, as FBAs are not enforceable, some may lose out altogether if payments are not made.
Ultimately, whilst an increase in FBAs will inevitably reduce the Government's cost of running the system, there is a risk that this may be at a cost to the children, who the system is designed to benefit.