Are grandkids harming your retirement plans?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

If you picture your retirement as the years when you get to potter around the garden, spend most of the year in sunnier climes, indulging your love of painting/knitting/writing/whatever, then it might be time to face the reality of retirement in the 21st century. Especially if you have grandchildren.

A new survey shows that far from switching to a life of leisure and self-invested pursuits, as many as 50% of retirees - whose own children have long since flown the nest - end up in a second round of child-rearing. When they’re officially supposed to be retired.

There’s no doubt that help from grandparents is enabling cash-strapped parents to juggle the costs of childcare with their working lives. Figures show that one in four working families and one in three working mothers rely on their parents or in-laws for childcare. That means that 65% of grandparents with grandchildren under the age of 16 help out and one in five grandmothers provide at least 10 hours a week of childcare.

However, in the run-up to retirement many people who are stepping in to look after grandchildren may also be inadvertently damaging their own retirement finances.

As well as being a drain on your free-time, caring for your grandchildren can also have a damaging effect on your retirement income. If you take time away from work to care for your grandchildren, then make sure you don’t damage your state pension entitlement in the process.

The fact is that for every year that you don't claim sufficient National Insurance (NI) credits to qualify for the full state pension, you could lose £231/year from your state pension.

If you retired or will retire after April 2016, you now need 35 qualifying working years to get the full state pension, so every year counts.

Claim credits for childcare

There is a government scheme in place though that can help bridge the gap and stop you losing out in later years. Officially known as 'specified adult childcare credits', it was introduced five years ago, and is designed to protect the pensions of grandparents who retire early to help care for grandchildren so their parents can go back to work.

How it works

A parent who gets child benefit for a child under 12 automatically gets NI credits towards their state pension. But a parent who goes back to work and pays NI doesn't need the credit because they get a qualifying year anyway. So, under the scheme, that parent can sign a form and pass the NI credit to the grandparent who is actually looking after the child. This means the grandparent benefits from the NI credit and it goes towards their state pension instead.

You can apply for specified adult childcare credits if:

  • You're a grandparent, or other family member, caring for a child under 12.
  • You're under state pension age.
  • You live in the UK (and not the Channel Islands or the Isle of Man).
  • The child's parent (or main carer) is entitled to child benefit and has a qualifying NI year meaning he or she doesn't need the NI credit you receive automatically with child benefit.
  • The child's parent (or main carer) agrees to your application.

Go to the government website to claim your NI credits.


Don’t forget too that, even if you’re not working, you can still pay into a self-invested personal pension (SIPP) and have the government top-up your pension contributions, ensuring you save as much as you can for your future.

Everyone can pay into a pension. You get the same tax benefits as with a workplace pension, so for every £80 you pay in,  your SIPP will be topped up to £100 once  tax relief has been added.

By  drip-feeding small sums regularly, into either an  ISA or a  SIPP, you can save for your future without sacrifice today. For more on the power of small sums and how to save for your future, even if you haven’t got a lot of cash to spare today, take a look at this clip from our latest episode of MoneyTalk.

Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. If you invest in an ISA or pension there is no capital gains tax on growth and no income tax on interest. The value of tax savings and eligibility to invest in an ISA or self-invested personal pension (SIPP) depend on personal circumstances. All tax rules may change in future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.