Tax credits for grandparents
The specified adult childcare credits were introduced with effect from the 2011-12 tax year. The credits allow for grandparents or other family members who care for a child aged under 12 whilst their parent (or main carer) is working to receive a Class 3 National Insurance (NI) credit. The Class 3 NI credit is available for each week or part week the grandparent (or other family member) cared for the child.
Class 3 NICs are a voluntary contribution usually paid by those wishing to fill gaps in their NICs’ record and can be used by those who have not made enough compulsory contributions in order to benefit from the full basic State Pension and until April 2017 for certain bereavement benefits.
A freedom of information request to HMRC from Royal London, the largest mutual insurer in the United Kingdom has shown that this benefit is hardly being used. Royal London themselves have estimated that more than 100,000 grandparents of working age could benefit if the scheme was more widely known. The figures published by HMRC have revealed that in the year to September 2016 only 1,298 grandparents (and other family members) benefited from the scheme. This figure was even less than the 1,725 who benefited two years earlier.
According to figures published by Royal London, if a working age grandparent misses out on one year of state pension rights because they are spending time with a grandchild instead of doing paid work, this would cost them 1/35th of the full rate of the state pension or £231 per year. Over a 20 year retirement this would be a loss of over £4,500.
Royal London Director of Policy, Steve Webb said:
‘Many families rely heavily on the support provided by grandparents to enable them to combine paid work and family life. The fact that there is a scheme to make sure that grandparents do not lose out, by protecting their state pension rights, is a very good thing. But the scheme is not much use if hardly anyone takes it up. The Government needs to act quickly to alert mothers to the fact that they can sign over the National Insurance credits that they do not need.’