Could he have seen that TV advert with the young boys playing football and they call over to 'Grandad' (Bobby Charlton, Bobby Moore??? - don't know my footballers) and say " 'ere grandad, on the head' " which I would take to be a bit derogative towards Bobby Charlton/Moore (Grandad) and then 'Grandad' does a fantastic kick with the football (don't know what the advert is for!).
If I put myself in your shoes, and it was my nan (my children's grandma - now 88) I would not have been impressed. I probably would NOT have said anything to the child but would have probably said in a rather loud voice to my 'nan' (grandma) about how silly/rude children can be sometimes.
If a child ever says anything nasty to my youngest child (say, they could both be the same age and in the same class at mainstream school) (daughter has special needs, but not obviously so), I would again just say (rather pathetically really) to my DD that sometimes children can be so rude and don't know how to behave.
Although this boy was only 5, all 'little' boys like to think they are grown up but, even with my son (aged 11), if he thinks that by being 'lairy' or rude or swearing (not that he does) makes him look grown up, I tell him to look at his dad, uncles, grandad(s) (or any other adult males in the family/friends) who are grown up in the true sense of the word and ask are they 'lairy', rude or swearing. No!