Thousands of working-age grandparents could be entitled to Class 3 National Insurance credits for looking after children aged 12 and under.

Half of Britain’s seven million working-age grandparents have a grandchild under the age of 16, and are likely to be looking after them at some point over the summer break, according to a government report.

Steve Webb, the pensions minister, said: “Many grandparents are working hard all year round looking after their grandchildren, and it is important that they do not damage their own state pension rights as a result. Such grandparents are contributing to society just as much as someone in a paid job and should therefore be entitled to the same protection for their state pension as if they were in work.

“The new system of transferable National Insurance credits means that grandparents need no longer lose out on building up a full state pension just because they are caring for a grandchild.

“Working parents can give up the Child Benefit credits they receive and donate them to their child’s grandparents or other adult family members for the previous tax year. Grandparents and parents must apply for the credits to be transferred.”

Applications for NI credits for caring for children under 12 need to be made to HM Revenue & Customs (HMRC) and must be signed by both the adult carer and the Child Benefit recipient. Applications need to be made in the October following the end of the tax year in which the caring took place.

Grandparents who have cared for their grandchildren during the tax year 2011/12 are able to apply for their credits now.