The little-known trick to boost your state pension by up to £20,000 with ‘grandparent credits’

Mike Wagner has a busy but fun few weeks ahead of him as he will be babysitting his three granddaughters three days a week during the summer holidays.

“I take them to parks and playgrounds because their parents both work,” says the married grandfather of five from Clayton, Surrey.

When Mike started looking after his grandchildren shortly after the birth of his first nine years ago, he did it to help out his daughter and son-in-law and to spend more time with his newest family members. He never imagined that it would also boost his State Pension income by almost £20,000.

Mike, now 70, took early retirement in 2015 at the age of 60 as a government project manager.

He soon discovered that he would be entitled to a state pension at the age of 65, but that he had not paid enough years of National Insurance contributions to qualify for a full benefit.

He was four years short of the maximum new state pension, which requires 35 years of National Insurance to get the full payment of £221.20 a week. This would leave him short by around £25 a week, or £1,300 a year because of the gaps in his records.

After scouring the internet for ways to make up the missing years, Mike discovered the answer was right under his nose.

He was entitled to the so-called grandparent discount for caring for his grandchildren.

These credits can be claimed by relatives who are caring for a child under 12, as long as their help means the parent can continue to work. The parent must also be registered for child benefit and pay national insurance.

Parents earning up to £60,000 a year are entitled to the full child benefit, which is a maximum of £1,331 a year for the first child and a maximum of £881 a year for each subsequent child.

After this threshold, the benefit decreases and parents lose it completely if they earn more than £80,000.

If one parent earns more than this threshold, applying for the benefit will still generate National Insurance credits that count towards entitlement to a state pension.

However, they must repay the child benefit they receive by filing a tax return.

The care provided by a grandparent does not have to be full-time, but can also include, for example, picking up children from school or taking children on a day out during the school holidays.

Anyone who is eligible and has gaps in their national insurance details can apply for these tax breaks to qualify for the full new state pension.

Each year of credits is equivalent to a year of National Insurance contributions, or one 35th of the full state pension. At the current rate, this works out at £6.32 a week, £328.64 a year, or £6,572.80 over a 20-year pension.

Mike could claim three years of missing contributions, which would give him an additional £18.96 a week, or £986 a year, to his state pension.

After 20 years of retirement, this would be worth approximately £19,718.

Mike was able to claim three years of missing state pension contributions to help care for his young family, giving him an extra £18.96 a week, or £986 a year, on top of the amount he would receive (stock image)

“The credits were a godsend because I could now spend time with my grandchildren, which I was going to do anyway,” he says.

‘Filling out the forms was very easy and within a few weeks I received a letter back confirming that I was eligible for the payments.’

Although the tax relief can significantly boost recipients’ state pension payments, only 22,701 people took advantage of it last year, data obtained by HM Revenue and Customs and asset manager Quilter shows.

Former pensions minister Sir Steve Webb of consultancy Lane Clark and Peacock estimates that this could leave tens of thousands of grandparents and relatives in dire straits.

He said: ‘With the high cost of childcare or the lack of suitable childcare, many working parents rely on grandparents or relatives to help out. Working-age grandparents can claim these valuable National Insurance credits to ensure their own state pension is protected, and I would encourage them to do so.’

Former investment banker Joseph Denham*, 63, decided to take early retirement in 2020 when his first grandchildren were born. He now cares for his two three-year-old granddaughters two days a week.

The married father of three, from Harrow in Greater London, said: ‘I didn’t pay National Insurance contributions for seven years, leaving me with a gap in my record and unable to claim the full state pension. Then a friend told me that because I was a childcare provider I could apply for these loans.’

Joseph was originally forecast to receive £153.79 a week in state pension. However, if he continues to use the tax breaks until his retirement date, he could be entitled to £174.95 a week.

If Joseph took advantage of the tax benefits, his state pension would increase by £1,100 a year, or £22,006 over a 20-year retirement.

“My wife and I started doing childcare so that our daughter and son could get back to work,” says Joseph. “We love taking our granddaughters on days out to the zoo, playgroups and the park. These are things we would do anyway, but when we found out we could claim credit for it, it was a no-brainer.”

Miles Wickham*, 63, is set to receive a welcome boost to his state pension, which he says will help him cover everyday living expenses and bills.

About two years ago he was able to increase his state pension by £328.64 a year after claiming childcare benefit.

The married grandfather of one of them retired at the age of 57 after working in a bank for more than 30 years. He now cares for his granddaughters 20 hours a week so that his daughter can work as a healthcare professional.

For the funds to appear, the child’s parent will need to sign an HMRC document confirming that you have cared for their child and that they are willing to transfer the National Insurance credits they receive for claiming child benefit to you.

Miles, who lives in south London, is also hoping to apply this year and next. That means his state pension could be boosted by a further £657.28 a year by the time he is eligible for a state pension in 2027.

Once the credits are approved, Miles could see the value of his state pension increase by £985.92 a year, or £19,718 over 20 years of retirement.

Rebecca O’Connor, director at pensions company PensionBee, said: ‘To be eligible, parents receiving the help must be registered for child benefit, even if they are not claiming it. ‘National Insurance benefits are effectively being transferred from the working parent who does not need them because they are working, to the parent who does.’

To claim the Specified Adult Chilldcare credits for a State Pension, you must complete a form online and send it to the Tax Office.

The child’s parent must also sign the document to confirm that you are caring for the child and that he/she agrees to transfer any National Insurance credits he/she receives for the purpose of claiming child benefit.

There is no minimum number of hours you must care for a child to qualify, but you must be younger than the state pension age. The current age is 66.

You only receive one tax credit per household. So if you care for multiple children living in the same home, you can only claim this amount once.

Claims can be made retrospectively to 6 April 2011. You cannot make a claim for the 2023/2024 tax year until after 31 October.

For more information visit gov.uk/guidance/apply-for-specified-adult-childcare-credits.

a.cooke@dailymail.co.uk

*Names have been changed.