Social Security

I'm moving back to the UK after 11 years in the US. Assuming I don't return until retirement in approx 30 years, my monthly average for my Social Security payment calculation will plummet.

Although the UK pension qualification period has been reduced to 30 years, it may be a struggle for me to reach that now. Especially if I move back to the US before 30 years.

I know the UK allows voluntary NI payments, but I can't find any information on if the US does. Any ideas?

Note: I'm not interested in debating the solvency of Social Security and my wife and I have our own retirement savings that we are building. Thanks.

Andy

I know the UK allows voluntary NI payments, but I can't find any information on if the US does. Any ideas?

The US does not allow voluntary contributions.

I'm  in a similar situation to you but closer to retirement; I'm 60 years old and have 16 qualifying years in the UK system and 23 years in the US Social Security system. You are right, in the UK you can make voluntary payments for missing years.  Some years cost £600 odd, other years only about £300; not sure why the prices are different.  On the face of it, making voluntary payments is a good investment since each extra year purchased gives you over £3 a week extra -- certainly pays of if you live a long life.

In both systems you will get a retirement benefit that is proportionate, based on the number of qualifying years. 

One big problem is the SSA Windfall Elimination Provision; you may be penalised if you build up a good benefit in more than one system. http://www.ssa.gov/pubs/10045.html

Here are a couple more readings on the Windfall Elimination Provision.  To quote from one of them, "While a client may know he or she is subject to the WEP, they may have little or no idea how much the potential reduction may be."

To me, this is the big problem.  I'm aware of the WEP, but, for retirement planning, it's important to be able to figure out the impact of various choices.  For instance, I'd hate to spend a thousand or more pounds on voluntary contributions to the UK State Pension, only to find that the US SS then reduces my Social Security payment in response!  As far as I know, the WEP can affect you if you have a State Employee pension in the US, or a foreign old age pension such as the UK State Pension.

I'd be pleased to hear from anyone who has really figured this out!  It seems to be an important factor in the original question in this thread..

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2010/CPA/Jan/WindfallEliminationProvision.jsp

http://aging.senate.gov/crs/ss11.pdf

Gee, maybe it's good I was only eligible to collect 45p on UK pension. (Never claimed)

Hello NightDragon;

http://www.ssa.gov/OACT/anypia/anypia.html

The detailed calculator at the above link gave me a very accurate (within a dollar a month) projection.

You do have to download it in order to use it. I haven’t checked the latest version, but the old version required the completion of several different drop-downs. They were found in one of the “top bar” items. Until you complete them, the calculator is useless. Be very careful that you follow the instructions for each separate drop-down. Be sure that all amounts are in US dollars. The result will also be in US dollars. And, you will be paid in US dollars, but the deposit to your bank account in the UK (once a month) will be in Pounds Sterling, computed at the daily exchange rate (if it is to be paid in the UK).

You have the option to enter future scenarios. If you’re still working, it’s an estimate of what you think you will contribute between now and when you stop contributing (or age 66?). Once it’s completed, you can vary your estimates and print off different scenarios for comparison. Or, in your case, how different UK pension payouts may vary the US Social Security amounts.   

You will also need your last yearly statement from the Social Security Administration. If you don’t have one to hand, you can use your own records if they are accurate for all your contributions.

The calculator utilizes/calculates “bend points”. The Social Security Administration’s computer uses the first bend point to determine the basic amount of the reduction for WEP. If you have 30 or more years of “substantial earning for US Social Security”, you will have no reduction in benefits. That’s a very rough description, but there are many factors that go into the calculation, including different ways of doing the calculation itself.

The most important figure is on the first page of the report. You are looking for the “Primary Insurance Amount”. That’s what you receive in US dollars per month. I’ve taken a quick glance at my records to refresh my memory. I lost 35% of what the total amount would have been without applying WEP.

Please, I’m basing this on how the calculator used to work a few years ago. It may have changed. But I imagine the result would be much the same.

Hey thanks, theOAP ... this Detailed Calculator looks useful.  I admit I'd looked at it before, but did not realise that it would get at complex details like the Windfall Elimination.  I'll download it and spend more time on it this time.  Again thanks!

One big problem is the SSA Windfall Elimination Provision; you may be penalised if you build up a good benefit in more than one system. http://www.ssa.gov/pubs/10045.html

WEP isn't a problem, it adjusts your SS payment to be in line with your wages. SS is calculated on 35 years of salary and lower wage earners receive a payment that is a higher proportion of their earnings than a better paid person. So with less than 35 years of payments your average earnings would be artificially low and you'd get an inflated SS check. WEP takes into account any retirement accounts you have that were paid for with non-SS wages. Many States in the US opt out of SS and have their own retirement plans and any state worker who has previously paid into SS is also subject to WEP.

WEP isn't a problem,

I understand the intention of WEP, and I understand your explanation. I also understand the 'blurb' explaining all on the SSA site.

I just don't understand the fairness for recipients residing abroad, or more specifically, what is included in the calculations for recipients residing abroad, such as personal/company pensions. But, they are limited to 50% of your first break point amount (varies according to year born) so they can only be unfair up to that amount.

It seems that the original premise of my question is flawed. Between the US and the UK there is something called the Totalization Agreement.

My understanding from an accountant is that payments made into one country's system gives some credit to the other country's system. So NI payments that I make in the UK will have some value in the US if I later move back to the US. Apparently it is not possible to receive both US and UK pensions, instead you get one that is a combination of payments made to both countries over a lifetime of working.

Regarding making voluntary payments to the US system. It is actually possible in certain situations, such as mine. I am in the UK but I continue to work for and receive payment by a US company. Also I am a US citizen so I have to file tax returns there. Essentially I can now choose whether to pay US Social Security and Medicare or UK NI, and HMRC has various arrangements to help with this (i.e. if payments are made, getting refunds, etc.).

The bottom line - don't make assumptions, find an accountant if you are a similar position as I am.

Andy

Apparently it is not possible to receive both US and UK pensions, instead you get one that is a combination of payments made to both countries over a lifetime of working.

ajayre, If this is the advice your accountant gave you, then perhaps it's time to seek a new accountant. It is not true. You may be able to claim a pension from both US Social Security and the UK State pension, and 'almost certainly**' if you normally qualify under the pension rules from one.  You cannot receive a 'combination' pension from just one country using the combined contributions from both.

** based on the presumption that you meet the minimum requirements to apply for the under-provisioned pension. (6 credits (1 and 1/2 years) for US, 1 year for UK)

You cannot receive a 'combination' pension from just one country using the combined contributions from both.

Do you have a reference you can point me to for that?

This page: http://www.ssa.gov/international/Agreement_Pamphlets/uk.html

says:

You may have some Social Security credits in both the United States and the United Kingdom but not enough to be eligible in one country or the other.  The agreement makes it easier to qualify for benefits by letting you add together your Social Security credits in both countries

and:

You don't have to do anything to have your credits in one country counted by the other country.  If we need to count your credits under the U.K. system to help you qualify for a U.S. benefit, we will get a copy of your U.K. record directly from the United Kingdom when you apply for benefits.  If U.K. officials need to count your U.S. credits to help you qualify for a U.K. benefit, they will get a copy of your U.S. record directly from the Social Security Administration when you apply for the U.K. benefit.

Although each country may count your credits in the other country, your credits are not actually transferred from one country to the other.  They remain on your record in the country where you earned them and can also be used to qualify for benefits there.

Andy

Which accountant do you use so I can get a second opinion on my specific situation

http://www.dwp.gov.uk/international/benefits/state-pension/state-pension-arrangements-in-social/#usa

http://www.ssa.gov/international/Agreement_Pamphlets/uk.html#monthly

You may be able to claim a pension from both US Social Security and the UK State pension, and 'almost certainly' if you normally qualify under the pension rules from one.

The SSA page I referenced in my above post says this:

If you qualify for Social Security benefits from both the United States and the United Kingdom and didn’t need the agreement to qualify for either benefit, the amount of your U.S. benefit may be reduced.

That says to me that if you get a UK pension then your US pension is reduced by some unknown amount. Possibly resulting in only one pension?

So far nothing I've read in the SSA information that you and I have both cited contradicts what the accountant told me. Still I don't automatically assume every accountant is right, especially with international treaties.

Andy

Hello again Andy. It's confusing, isn't it!

I'll try to simplify for both our sakes, as much as I can. If you receive a UK State pension, your US SSA payment will always be reduced thanks to WEP. I cannot clarify what additional reductions may be made by the US SSA if UK credits are used to qualify you for the US SSA pension.

The Totalization Agreement deals strictly with 'credits', and the credits from one country are used to qualify you for a pension in the second country if you do not normally qualify in the second country. Both pensions are paid based on the actual contributions made to that country, and not the total 'credit' amount used to calculate the qualification period. The UK site explains this in a much more understandable way.

I qualified in both countries, and I receive both the US SSA pension, reduced by WEP, and a UK State pension. Both are based only on the amount/years/quarters I contributed to each scheme. I also receive a State pension from a third EU country in which I would normally not have qualified. The EU (EEA?) Agreement covering that country and the UK allowed me to qualify in that country, similar to the US/UK Agreement, albeit at an amount only commensurate to the amount contributed to that country.

I end up with three smaller State pensions which, when added together, are not all that bad. To ease any doubts, all were facilitated by the DWP in the UK, the FBU at the US Embassy, and the pension service of the EU country.