School’s out for summer, and while the kids might be delighted by the prospect of endless days of sunshine, adventure and ice cream, it is unlikely to fill working parents with the same sense of joy.
To cover the school holidays, many parents have to cobble together a mix of holiday clubs, childminders and nannies – often taking a hefty amount of annual leave and relying on friends and family for help too.
Even with a large support network, it could cost hundreds or even thousands of pounds.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
An army of grandparents will be the real heroes this summer, swooping in to provide free childcare and enjoying some quality time with their loved ones in the process.
New data from financial services company SunLife suggests 43% of UK grandparents look after their grandkids in the holidays and on school inset days, giving up around 18 hours a week.
With the average nanny costing just under £12 per hour, SunLife reveals UK grandparents are saving families £18bn in holiday costs every year, £7.7bn of which is saved during the summer break.
While this can be a lifesaver for parents, the bad news is that it is often costing grandparents instead, with some shelling out hundreds of pounds on food and activities. Sixty-three per cent say they are happy to do it, but 11% say they can’t really afford it.
The bigger and more concerning long-term hit, though, could be that felt by their pension pots if younger grandparents are swapping work for childcare responsibilities.
The impact of sky-high childcare costs
“Holiday clubs can be really expensive, and childminders or nannies even more so. So it’s lucky that so many parents are able to rely on grandparents to help out,” says Mark Screeton, chief executive at SunLife.
Concerns about childcare costs are by no means a new issue, but cost-of-living pressures haven't helped in recent years.
Recent research from family and childcare charity Coram reveals that holiday childcare costs have risen by 6% since last summer. Working parents are now facing an average bill of £175 per child per week – over £1,000 for the six-week break.
A shortage of places is also contributing to cost pressures. A place at a holiday club now costs 2.5 times more than an after-school club during term time, Coram has said.
With this in mind, it is unsurprising that grandparents are volunteering their services – and this goes beyond just babysitting in some cases. According to SunLife, 67% pay for food and snacks and 59% pay for activities out and about.
Pension shortfall: the bigger cost associated with unpaid care
Grandparents and grandchildren can benefit enormously from spending quality time together however, as we have established, there is a financial downside. And the biggest cost is not holiday expenses, but lost hours of work.
The standard working day is eight hours long – so with the average grandparent giving up 18 hours a week during the holiday period, that’s equivalent to just over two working days every week.
While grandparents are relied upon more than ever during the summer period, many volunteer to help out with childcare responsibilities all year long.
Some are retired already, but others reduce their hours or retire early because they want to spend more quality time with the family. As many as one in four could be doing this, according to a study last year from childcare app Bubble.
The downside is that those swapping employment for childcare could be losing out on valuable income and pension contributions at a time when retirement costs have skyrocketed.
Recent analysis from pensions company Scottish Widows revealed a third of pension savers could face hardship after retirement – and some choose early retirement without assessing the full scale of the consequences. Many have no idea just how much money they’ll need.
Figures from investment platform Interactive Investor earlier this year suggested younger savers would need to build a £1 million pension pot to fund a comfortable retirement, once inflation and housing costs are taken into consideration.
That sounds like an incredibly large sum – but it might not go as far as you would expect, particularly given some pensioners are still renting or paying off a mortgage in retirement.
With this in mind, it is important to claw back any financial benefits where you can, if you have given up work to help with childcare responsibilities. For example, there could be tax benefits to looking after the grandkids if you are under state pension age.
We share further details in a recent piece: “How to boost your state pension by looking after the grandkids this summer”.
You should also think carefully about whether you have enough money to retire early before accessing your pension pot, as the tax perks on pension contributions are less attractive once you have triggered something known as the money purchase annual allowance. This means “unretiring” is not always the best option.
Of course, an economy which relies heavily on unpaid carers and “granny day care” is not particularly sustainable. And while the current situation could hurt some grandparents’ finances, it isn’t exactly ideal for parents either.
Recent Zoopla data shows that 52% of parents feel “trapped” into living near grandparents because they are so reliant on childcare support – even though house prices and rents are sometimes higher in those areas.
Meanwhile, some grandparents feel resentful about being lumbered with excessive childcare responsibilities in their golden years, when they would like to make travel plans or live a more carefree life.
Finally, many families aren’t lucky enough to have grandparents who live nearby or who are in good enough health to help out. This means they are forced to shoulder the costs or rely on friends or other family members for support.
This suggests further reform could be needed. While the government is slowly phasing in more free childcare support, it only covers term-time and so the school holidays (around 13 weeks a year) will still prove challenging.
“The new Government has a real opportunity to change the experience of school-aged children and families during the school breaks,” says Ellen Broomé, managing director at Coram.
“Full reform will take time, but meeting the needs of disadvantaged children and those with SEND [special educational needs and disabilities] should be an early priority, followed by reform of the system to provide the year-round support that families need,” she adds.
Zoopla: House prices slows to 1.4% in May as rate of sales at four year high
FCA reveals 'once in a generation' advice changes - what the reforms mean for you
