Pension tricks: NI Credits for childcare, State Pension payment dates, becoming mortgage-free, and more

Here are four little-known strategies to help you get more from your pension.

The more you know about pensions, the more useful they become. 

With this in mind, we've put four lesser-known strategies that can help make your pension work harder for you and your loved ones.

Pay into your child/grandchild’s pension

Most people are probably aware that you can cut the size of your own tax bill by paying into your pension.

As pension payments qualify for tax relief, any contributions you make will therefore reduce the amount of your taxable income.

But did you know that you can also pay into your children’s or grandchildren’s pensions?

And that these contributions could qualify for more generous tax relief if the recipient is a Higher or Additional Rate taxpayer?

Let’s imagine that you’re a Basic Rate taxpayer and decide to make a payment into your daughter’s pension, who is a Higher Rate taxpayer.

Although you pay tax at a rate of 20% on your own income, the contributions you make into your daughter’s pension will qualify for relief at 40%.

This is because the rate of tax paid by the pension owner (and not the person making the contributions) determines the level of relief.

What to watch out for

Although pension contributions will automatically receive relief at 20%, the recipient can claim a further tax refund by completing a Self Assessment tax return or writing to HMRC – therefore reducing the size of their tax bill.

Surprising things you can claim on your Self Assessment tax return

On top of this, paying into your child or grandchild’s pension can also potentially reduce the size of your estate, which could help your beneficiaries avoid Inheritance Tax (IHT) in the future.

As with all gifts, these pension contributions will be exempt from IHT if they are made more than seven years before you pass away or are of less than £3,000 per year.

Also bear in mind that there is an annual allowance on the amount of a tax relief a person can receive on their pension contributions. For most people, this is £60,000 in the 2024/25 tax year.

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Receive weekly payments on your State Pension

Although the State Pension is typically paid into your account every four weeks, you can ask to receive your payments on a weekly basis.

While you’ll still receive the same amount per month, spreading your payments could help you better manage your money if you have certain expenses at different points every month.

If you’re already claiming State Pension, you can contact the Pension Service by phone on 0800 731 0469 or in writing to request the change to your payments.

If you’re about to start claiming your pension for the first time, you can request that you to receive weekly payments.

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Use your pension to help clear your mortgage

You may assume that making overpayments on your loan is the best way to clear your mortgage debt before retirement.

However, increasing your pension contributions could have the same result and also give you access to Government tax breaks.

With the government providing relief on any payments to your pension, you effectively get free money on top of any contributions you make to your retirement pot – which doesn’t happen with mortgage payments.

Say you’re a Basic Rate taxpayer and would like to put £1,000 towards paying off your mortgage. If you decide to make overpayments on your mortgage, you’d need to pay the full £1,000.

If, however, you decide to stash £1,000 away through your pension, you’ll only need to contribute £800 and the Government will top up the rest.

And bear in mind, you’ll receive more relief on your pension if you’re a Higher or Additional Rate taxpayer.

Once you’ve reached the age of 55 (increasing to 57 in April 2028), you can usually take up to 25% of your pension as a tax-free lump sum.

You can use this money to clear any outstanding debt on your mortgage.

You can learn more about this technique in our comprehensive article.

Grandparents who help with childcare can boost their State Pension

If you’re looking after a child under the age of 12, you may be able to boost your State Pension by earning additional National Insurance (NI) credits.

Under the Specified Adult Childcare initiative, a parent or carer who receives Child Benefit can transfer their weekly NI credit to an eligible family member.

For example, you might qualify if you provide childcare while a parent is working.

If you qualify, you’ll receive a Class 3 National Insurance credit (designed to cover gaps in your National Insurance record) for every week – or part week – that you provide care.

This is important as NI credits help determine the amount of your State Pension, with MoneyHelper estimating that a full year of credits can easily equal £5,000 or more over a typical retirement.

Another particularly attractive feature is that you can backdate your claim to 6 April 2011.

What to watch out for

To qualify for Specified Adult Childcare credits, you’ll need to be an eligible family member, which includes a grandparent, aunt, uncle, and sibling.

The child you care for also needs to be under the age of 12 (or 17 if they have a disability).

Likewise, you can only receive the additional credit if you have yet to reach State Pension age.

Also, be aware that you’ll only receive one credit per Child Benefit claim regardless of how many children are in your care.

Only one credit is available if more than one person provides care for a child.

Say, you and your partner both looked after your grandchild, you could only receive one credit (transferred to just one member of the couple).

You can apply for Specified Adult Childcare credits by filling in form CA9176.