Thousands of grandparents looking after their children's children are missing out on a valuable opportunity to boost their pensions, according to a former pensions minister. Last year, just 1,300 people took advantage of a scheme to help grandparents and other close relatives taking on childcare duties, even though as many as 100,000 might be eligible, says Steve Webb, the former Liberal Democrat MP who works as director of policy at insurance company Royal London.
The scheme, known as "specified adult childcare", is based on rules that enable parents of children aged under 12 to claim national insurance (NI) credits during periods when they're caring for their children rather than working. Since 2011, parents who return to work while asking grandparents or other close relatives to take on such childcare duties have been entitled to transfer these credits to the carers. For grandparents of working age, the scheme ensures they will go on building up a record of NI contributions during a period when they're not themselves working because of their childcare responsibilities. Since people must have a record of having made NI contributions for 35 years or more to qualify for a full state pension, this could be crucial to their financial security in retirement.
Although the scheme is relatively simple to use, few people know about it, says Webb. "The fact that there is a scheme to make sure that grandparents do not lose out... is a very good thing. But the scheme is not much use if hardly anyone takes it up." He has called for a government campaign to publicise people's potential eligibility, believing such a campaign would have the potential to increase hugely the number of people claiming these benefits. Almost two-thirds of grandparents in the UK now provide regular childcare to their children, suggests research published last year by the Trades Union Congress (TUC), and many of these grandparents are still of working age.
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A grandparent taking part in the scheme for a full year would be able to claim an extra 1/35th of the state pension under the specified adult childcare rules the equivalent currently of £231 a year, or £4,600 over a 20-year retirement. The good news for those who have missed out is that it is possible to backdate claims for the credits to 2011, the year the scheme was introduced, as well as to make new claims. Details of the scheme and claim forms are available online at Gov.uk.
Be prepared to work into your 70s
Looking forward to retiring in your 60s? If you were born after 1970, you may be disappointed, warns the Resolution Foundation, a think tank. Without an increase in the state pension age to at least 70 by 2040, the cost of providing state pensions will become unsustainable, it claims, due to a projected decline in the ratio of working age people to non-workers. While the UK's ratio is currently ten workers to seven non-workers, the latter group will start to grow as large numbers of "baby boomers" move into retirement and life expectancy continues to increase. Hence the ratio is likely to have shifted to around 10:9 by 2050.
The result, based on current plans for the state retirement age, would be a £15bn increase in the cost of providing state benefits.The state pension age for both men and women is already set to rise to 69 by 2056. However, the Resolution Foundation said a rise to 70 by the late 2030s and to 72 by the 2060s would be a more affordable option. Ministers have said they will keep the state pension age under review, with the option to move faster on raising it should demographic trends make this necessary, so future governments are likely to consider further rises.
Have you lost a pension?
More than one in five people with money invested in several pension schemes have lost track of at least one of them, new research reveals, underlining the complications facing people as they plan for retirement while moving from job to job. The fact that the average person now has 11 jobs during their working career makes it almost inevitable that many people will forget about one or more pension policy, says insurance company Aegon. As many as 21% of people have pension savings they no longer have details of, or access to, Aegon claims, while 39% of people do not know the true value of their savings.
The problem of lost pensions may have been exacerbated by the introduction of auto-enrolment rules, which require all employers to enrol their staff in a private pension scheme, unless they have specifically opted out. While the rules have promoted a substantial increase in the number of people making pension savings, they've also resulted in many employees building up several small pots of cash as they have moved from one job to another, making it harder to keep track of their savings.
The government has previously said it believes there are now around £400m worth of unclaimed pension savings held in several million forgotten policies. The Pension Tracing Service, an initiative launched by the Department of Work and Pensions, is intended to help reunite people with lost pensions, but it has been criticised as difficult to use.
New technology may hold part of the solution. The Association of British Insurers is working to meet the 2019 deadline set by the government for the launch of a new "pensions dashboard", which would give savers a single online snapshot of all their pensions, including state, private and employer arrangements. Separately, individual pension providers are exploring their own solutions. Aviva said last week that it was working with social media platform LinkedIn to develop a pension tracing service that would build on the latter's database of employers and employees. The LinkedIn tie-up could be launched later this year.
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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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