Spending quality time with your grandchildren might be one of the things you’ve been most looking forward to as you approach retirement. And you may have been able to do more of this during the school summer holidays.
MoneyWeek reports that an increasing number of grandparents providing free childcare have supported working parents during school holidays in recent years. The article estimates that grandparents save their adult children £18 billion a year in holiday costs, £7.7 billion of which is saved during the summer holidays.
Though you may be pleased to help your family however you can, you might find there’s a financial cost in doing so. Indeed, the MoneyWeek report suggests that looking after grandchildren during the school holidays could have a detrimental effect on your retirement savings.
Read on to find out more about how to strike a balance between supporting your family and continuing to save towards your long-term goals.
Spending quality time with your family may be a priority, but providing free childcare could affect your retirement savings
In recent years, childcare has become more and more expensive, leading many parents to rely on family members such as grandparents to help.
According to the MoneyWeek article, 43% of grandparents are providing free childcare in 2024. For 67% of them, this includes paying to provide food and snacks for the children, and 59% pay to take the children out for activities during the day.
On average, grandparents are giving up 18 hours a week to look after their grandchildren, which amounts to around two working days. While many may already be retired, some choose to reduce their hours at work or retire early so that they can help.
This could have a significant impact on your retirement savings. If you reduce your working hours in order to provide childcare, your earnings are likely to be lower, meaning you may not be able to contribute as much to your pension.
As well as missing out on the pension contributions that you would have made yourself, you’ll also lose out on:
- Tax relief
- Investment growth
- Employer-matched contributions that you may be eligible for.
This means that when you come to retire, you might have a smaller pension pot to draw from than if you had continued working full-time.
Moreover, if you choose to retire early to provide childcare for your grandchildren, your pension will need to last longer as you’ll be spending more years in retirement than anticipated.
So, swapping employment for childcare could cause a significant shortfall in your pension savings later on.
3 practical ways to balance supporting your family with your financial needs
Fortunately, you don’t need to choose between saving towards the future and supporting your family. Here are some practical tips that could help you to balance these two priorities.
1. Claim any tax benefits you may be entitled to when caring for your grandchildren
If you are below the State Pension Age when you look after your grandchildren, you may be entitled to National Insurance credits. National Insurance credits are automatically added to your record if you’re employed, but you could also be eligible if you were looking after children under the age of 12 instead of working.
To be eligible for any State Pension, you need to have 10 years’ worth of National Insurance credits on your record. For the full State Pension, you’ll need to have at least 35 years’ worth of credits.
Your planner can help you to check your State Pension forecast to see how much you could receive based on your existing record. If this is below the full State Pension, they can help you to apply for additional credits for the time you have spent looking after your grandchildren.
2. Consider taking income from other sources before drawing from your pension
If you do choose to retire early to support your family with childcare, it may be sensible to consider leaving your pension invested, if you’re able to. For example, taking income from any ISAs you have saved means your pension could continue to generate investment returns. As a result, it may be able to provide you with a retirement income for longer than it would have done if you accessed it immediately.
Moreover, investments that you hold in an ISA aren’t liable for Capital Gains Tax or Income Tax, so this could be a tax-efficient way to fund your early retirement.
3. Consult your planner for advice about your retirement plan
Before reducing your hours or retiring early to offer childcare support, it may be sensible to consult your financial planner for guidance. They can help you to see how much you have already saved towards retirement, and how a change in your circumstances might affect your ability to achieve your long-term goals.
If you’ve decided that you’d like to reduce your hours or retire, your planner can help you to make the most sensible decisions for your wealth to allow you to do this. Moreover, you can meet with them regularly to review your progress and tweak your financial plan if needed.
As such, you can rely on a trusted partner to support you in managing your wealth while you support your family.
Get in touch
Our team of independent financial advisers in Lewes is here to help you build a life and retirement that you love.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
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