Looking after the grandchildren can be a big help especially when their parents go back to work. Many grandparents look after the little ones for free – but did you know that in return you could get extra money from the government when you retire?
If you are under state pension age and looking after a family member under the age of 12 while their parent or main carer goes back to work, you could qualify for extra National Insurance (NI) credits, which could give your state pension a big boost.
But more than 150,000 grandparents could be missing out on this state pension uplift, according to the wealth adviser St. James’s Place.
Your state pension payments could go up by more than £1,500 each year by claiming these NI credits through the Specified Adults Childcare credits scheme.
If you are a grandparent, or other family member, who cares for a child under 12, you may be entitled to receive these credits.
Data obtained by St. James’s Place shows that the number of people who applied to HMRC between October 2021 and September 2022 for these particular NI credits was just 21,523, with 17,329 of these accepted.
The firm estimates that this is just a fraction of people who are eligible though; in fact, it reckons the number of applications is just 10% of the number of grandparents who could be eligible to receive the NI credits.
Claire Trott, divisional director for retirement and holistic planning at St. James’s Place, said: “The state pension is the cornerstone for many when planning for retirement, so it is crucial to make sure you have accrued enough NI credits.
"With so many grandparents helping out with childcare it’s important to remember you don’t have to sacrifice your state pension to lend a hand and support your family."
How does it work?
You must make an application to receive the NI credits.
The credits were introduced in 2011, and you can backdate claims as far back as that year.
If your application is approved, you will receive a Class 3 NI credit for each week or part week that you cared for the child. Class 3 NI credits help to build entitlement to the state pension and, until April 2017, certain bereavement benefits.
Specified Adult Childcare credits transfer the NI credit attached to child benefit from the child benefit recipient to the family member who is providing care for a related child under 12.
How much could you increase your state pension by?
You must have at least 10 qualifying years on your NI record to get any state pension. You need 35 qualifying years to get the full new state pension, or a proportion between 10 and 35 qualifying years to get part of the new state pension.
St James’s Place calculated that if you boosted your NI credits from 30 to 35 years, you could get an extra £1,514 per year when you retire.
Trott explained that each year of NI credits is equivalent to 1/35 of the state pension, based on the current amount of £10,636.60 per annum. This is an extra £303.90 payable for the rest of your life for each extra year you have.
“For example, if you cease work when you are 60 and look after your grandchildren for the seven years until you are eligible for your state pension, this would be an additional £2,127 per year that you could increase your payments by [as long as you claim the extra credits], assuming you were not already at the maximum 35 years,” she said.
Are you eligible to apply?
You are eligible to apply for Specified Adult Childcare credits if:
- you are a grandparent or other family member caring for a child under 12
- you were over 16 and under state pension age when you cared for the child
- you are ordinarily resident in the United Kingdom
- the child’s parent (or main carer) is entitled to child benefit and has a qualifying year for NI without needing the parent’s class 3 NI credits which they receive automatically from child benefit
- the child’s parent (or main carer) agrees to your application by confirming that you cared for their child for the period stated and that you can have the class 3 NI credit for the period stated
You cannot apply if you:
- already have a qualifying year of NI for that particular year, usually because you work or receive other NI credits
- receive child benefit for the child
- are the partner of, and live with, the child benefit recipient and you want to transfer the parent’s credits from your spouse or partner to yourself
How to apply
You need to complete an application form online. Be ready to enter the following details:
- personal details of the applicant – the family member caring for the child
- child’s details and the periods of care
- personal details of the child’s parent or main carer
- applicant and the parent must both sign their declarations on the application
If you need help, you can call the National Insurance helpline on 0300 200 3500 (Monday to Friday, 8am to 8pm, Saturday, 8am to 4pm).
Other ways to top up your state pension
There are many other ways to top up your state pension.
For example, you can choose to pay National Insurance by direct debit to build ongoing credits up until your state pension age, said Trott. Or, if you have missing years dating back to 2006 then you can fill these until July this year.
However, she said it is important you do not buy more than you need using these additional options because your state pension will not be increased above the maximum.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said if you can spare the cash, you can plug gaps in your NI record by buying voluntary class 3 NI contributions, but it is important to check with the Department for Work and Pensions to see if it is worth paying the money.
“Buying a full extra year costs around £800, though partial years will be cheaper,” Morrissey said.
