Let’s not take for granted the vital role of our grandparents - Sarah Coles

My husband is probably looking forward to Father’s Day a bit too much. He seems to have been swayed by the endless deluge of marketing emails suggesting it’s the kind of event that calls for an annual pork scratchings subscription or an expensive watch.

He’s getting a saucepan. And even that feels a bit extravagant given that my actual father never received anything fancier than a cup of tea while I was growing up. Of course, this year, I’m getting my dad a huge hamper of treats, because it’s really only when parents become grandparents that we realise that they’re the ones that make everything work.

For enormous numbers of people, without grandparents, none of the family finances would add up. This is especially true while the children are young. An estimated two thirds of grandparents look after their grandchildren for an average of over 11 hours a week, saving them a combined total of more than £16bn a year.

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The cost of childcare is eye-watering – and rising. This week the TUC found that having a child under two full-time in nursery would cost £7,212 – up by more than £2,000 since 2010. As a result, around a third of parents with young children spend more than a third of their wages on childcare.

helping out: So many families need grandparents to step into the breach.helping out: So many families need grandparents to step into the breach.
helping out: So many families need grandparents to step into the breach.

It’s no wonder that so many families need grandparents to step into the breach, and offer free childcare for one or two days a week. Even once they’re in school, there’s every chance that grandparents are needed for wrap-around care, before and after school, and in the school holidays.

This comes at no small cost to them. Some will move house to be close to grandchildren, while others will give up work in order to care. And as anyone who is currently caring for young children will know, it takes a toll on their time, energy and patience too.

If you’re in this position, and you don’t have enough National Insurance credits to get the full state pension, it’s worth knowing that there’s some payback for all this effort, because you might be able to claim NI credits.

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If both parents are working, and pay enough NI to make that year count towards their state pension, they can sign over the credits due for childcare to you. It’s called the Specified Adult Childcare system, and can mean you build up more credits towards your pension.

But grandparents aren’t just asked to offer their time and care without reward, they’re also increasingly likely to be asked to help out financially. The Bank of Mum and Dad remains open for life, until it eventually becomes the Bank of Gran and Grandad.

According to one equity release company, around a third of grandparents have either already helped out with school or university costs, or expect to do so in future. Others are asked for help raising cash for a property deposit. Grandparents may be in a reasonable position to help. They’re more likely to have a final salary pension than younger generations, which gives them security over their income, and confidence it will be protected to some extent from inflation.

It means they may feel comfortable handing over some savings or investments. It also means they may have some income to spare for regular gifts to grandchildren.

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Both of these can help to save inheritance tax. After your death, you have a £325,000 tax-free allowance, plus £175,000 if you plan to leave your home to children or grandchildren. If couples leave everything to one another, their inheritance tax allowances pass too, so the last survivor could have £1m of assets before tax is due.

However, with property prices rising so much, there’s a chance you will still have tax to pay, in which case giving some of it away during your lifetime could save you money. Any regular gifts from your income fall out of your estate immediately, as do gifts of up to £3,000 a year.

Larger sums will be considered to have been given away entirely if you live for at least seven years after making the gift. For many people, the real benefit is that you get to see your grandchildren enjoy the fruits of your labours.

Some grandparents will consider using equity release to make these gifts. However, it’s essential to understand what you’re giving up. You need to get to grips with any charges and costs – plus the fact that interest will roll up until it’s repaid when you leave the property. It’s an expensive option that will seriously eat into the value of your home, and your debt could double in 15 years.

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Of course, not all grandparents are in a position to help, and it’s equally important for those who can’t help to say so. It’s easy to feel pressured into helping out with your time and money, but this is your money and your life, and you don’t have to give up anything you don’t want to.

Over time, we’re likely to see more grandparents unable to help out as much. Today’s generation of parents are far less likely to retire on final salary pensions, so they may not be able to afford to help their own children and grandchildren.

Increasingly, we’re also seeing generations of parents who cannot afford to buy a home until significantly later in life – and in many cases will never be able to afford a property. When they have grandchildren, they’ll face higher costs in retirement because they’re paying rent or a mortgage.

It means that nobody can utterly rely on the bank of Gran and Grandad, especially as time goes on. So this Father’s Day, parents should be grateful for what they have, while they have it, but not assume that in return for a flimsy card and a cup of tea they can call on boundless resources forever.

Wages are falling fast

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Figures out this week show that wages are falling faster than they have for over a decade – with wages excluding bonuses down 2.2% once you take inflation into account.

It’s particularly bad for the 5.72 million public sector workers, who’ve seen pay up just 1.5% while inflation was at 6.5%. That’s a massive effective pay cut at a time of runaway price rises.

It’s a huge contrast to pay growth in the private sector (which is at 8%), especially the business services and finance sector, where strong bonus payments meant pay was up 10.6% over the same period.

While many companies have been increasing pay to help employees keep their heads above water, the Government is determined to keep a lid on public sector pay rises.

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It means the gap between pay rises in the public and private sector is among the biggest the Office for National Statistics has ever recorded.

Sarah Coles is personal finance analyst at Hargreaves Lansdown

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