If you’re a grandparent or family member who cares for a child on behalf of their parent, and you’re under State Pension age, you could be entitled to extra National Insurance credits to top up your pension
For decades, parents who receive Child Benefit have been able to get help towards their State Pension in the form of National Insurance credits. These credits mean parents with children under the age of 12 can protect their National Insurance record because it treats them as though they’d been paying into the system, even if they’re not working.
But what’s not so well known is that there’s a related system which can also benefit grandparents and other family members who look after children, perhaps so the children’s parents can go out to work. It’s important to note that this ‘Specified Adult Childcare’ scheme only applies to grandparents and family members who are under State Pension age, as it’s all about building up credits towards their own State Pensions.
How it works
Consider a typical case of a family where a grandparent, Mary, is looking after her young grandchild so her daughter, Jane, can go back to work. Let’s say that Mary is in her early 60s and has retired from her paid job.
If Jane’s receiving Child Benefit, then she’ll automatically get National Insurance credits towards her State Pension. But, as she’s in paid work, she’s likely to be paying National Insurance Contributions (NICs) on her wages. So the National Insurance credits that come with her Child Benefit are effectively going spare.
In this situation, Jane can fill in an application form through HM Revenue & Customs to say that she doesn’t need her National Insurance credits and wishes to sign them over to her mother. This is because Mary’s looking after her grandchild for part of the week, which has allowed Jane to go back to work. There’s no minimum number of hours during which Mary has to be looking after the child, but Jane can only sign over the credits to one person.This whole process costs Jane nothing, but could be of considerable benefit to Mary.
Suppose, for example, that without the Specified Adult Childcare credits scheme, Mary would be one year short of the 35 years of NICs she needs to get the new full State Pension. If Mary spends one year looking after her grandchild, she can now benefit from a year of National Insurance credits. This will add 1/35 of the maximum amount to her future State Pension. At current rates (2019-20 tax year), this adds roughly £250 to her annual pension, or £5,000 over a typical 20-year retirement.
Things to remember
There are a few key things to be aware of when it comes to Specified Adult Childcare credit:
- The National Insurance credit belongs to the parent receiving Child Benefit. We’ve assumed in this case that it’ll be the child’s mother who’s claiming Child Benefit, as that’s the most common situation, but it could be a father who receives Child Benefit and signs over the credit.
- The person receiving the credit could be a grandparent, but it could also be another family member, such as an uncle or aunt.
- The credit will be of no value to someone who’s already on track for a maximum State Pension. In our example we assumed that the grandmother (rather than the grandfather) would receive the credit, as women are more likely than men to have incomplete National Insurance records, but the credit can be signed over to men or women.
A few years ago there were only around 1,000 families claiming the Specified Adult Childcare credit. Royal London has worked hard to publicise and change this, and there are now over 10,000 people taking advantage of the scheme. But we think that lots more people could potentially benefit.
More on thinking about retirement
Five ways to take your pension pot
The options for using your pension pot are more flexible than ever. But it’s important to understand how your decisions will affect your retirement income in the future.
Getting the insurance you need
As we get older, it gets harder and more expensive to buy things like car or travel insurance. Thankfully, most of us can get what we need, if we know where to look.
Understanding pension tax relief
Pension tax relief can seem like an alien concept, but it pays to make the most of it.
Supporting yourself and your family
Grandparents are playing a bigger role in supporting families financially, but it's important to take your future needs into account.
Helping your grandchildren financially
If you can afford to help out, there are a number of ways you can give money to your grandchildren.
Planning a funeral for you or your loved one
While it’s not something we like to think about, having funeral plans in place can help remove the worry of costs later on for both you and your loved ones.
The pros and cons of flexible retirement
Flexible retirement may sound like great option for people wanting to take things easier in later life, but it’s important to weigh up the practicalities.