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Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Old Dec 31st 2010, 2:02 am
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by LindseyAM View Post

For those of you who have got the US citizenship - how long did it take after filling in the paperwork, till you got your citizenship? And also, do you have to keep coming in and out of the US to keep the citizenship?
Mine took 18 months but I gather they're faster now.

You don't have to keep coming to the US to keep your citizenship. Once you have it, it's forever. But you do have to file a tax return in the US every year for the rest of your life. You won't owe any money, but the US is the only country in the world that requires this of ex-pats.
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Old Dec 31st 2010, 8:56 am
  #32  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by sallysimmons View Post
So just to make sure I understand .... if you're entitled to US social security payments, you can receive your money in the UK. Meantime, the UK doesn't care what you're getting from anywhere else and will also pay you your pension?

So if I earned 1/3 pension in the UK, and full SS, I could receive both those amounts when I am in England? With no penalties for what the other country is paying me?

I'm confused
Mostly right Sally,

yes, you can receive your US SS directly in UK converted to pounds and deposited in your UK bank of choice by US SSA (I don't know how they apply the exchange rate)

correct, The UK doesn't care that you are receiving a US SS and it doesn't impact your UK NI pension
- but all your worldly income does count towards UK tax liability so if the total takes you over the tax personal allowance then you will be liable to find the tax to pay to HMRC (tax bands http://www.hmrc.gov.uk/rates/it.htm)

yes, you can collect both US and UK pensions in England.

However the US does apply a 'penalty' because of what the other country is paying you.
Roughly figured, your US SS will be cut by about half the $value of your UK pension.
The US SSA will possibly (read likely) reduce your US SS under the rules of Windfall Elimination (WEP). There is a paragraph on WEP in your US SS Statement.
(there are WEP conditions to limit the damage: no WEP if you have 30 yrs in US paying into SS, also WEP cannot take more than 50% of your US SS.)

Last edited by J.J; Dec 31st 2010 at 9:15 am. Reason: clarity, tried to make this clear and unconfusing
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Old Dec 31st 2010, 1:53 pm
  #33  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by dunroving View Post
This is one for all of you who have returned, or will return, from a lengthy stay in the US.

Here is what I believe is correct:

Accruing at least 40 quarters of US Soc Sec makes you eligible for a US "state pension". The amount depends on how much you paid in (not only for how many years, but how much each year - people who had higher salaries get more security pension).

Accruing 30 years of UK NI payments makes you eligible for a full UK state pension. No matter what your salary was, or whether you paid in for 30 or 45 years, you get the same amount of pension.

The US-UK totalization agreement allows you to use US SS payments to gain credit towards UK NI/pension payments, and vice versa.

I have two (no, three!) questions for anyone who has experience or knowledge in this area:

Do you have to be a US citizen or LPR to claim US state pension? I accrued my 40 quarters of US SS, and recently have read a few posts saying you can only get US state pension if you are a USC or LPR ...

If you use US SS payments to contribute towards UK NI accrual, how is the "transfer value" calculated?

If you already have 30 years of UK NI payments, wouldn't "transferring" US SS payments make no difference to your UK state pension (because you are already at the 30 years needed for a full pension?)

I have other questions, but I'll hold off and wait for answers, thanks in advance.
This is very interesting.

I will already get my U.S. pension when I return to the UK but how do I go about using my U.S. pension to contribute towards UK NI accrual so that at some point I may also receive a UK pension?

I am assuming this means I would take a chunk of my US SS payment and then make payments to the UK NI. Is that right?
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Old Dec 31st 2010, 2:01 pm
  #34  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by LindseyAM View Post
I have spent a few hours on the phone with both the US social security admin and the UK end. This is what I have found out:-

I called the UK first, talked to a gentleman with the International Caseworker Team. The telephone number is 01144 1912 254811. I told him that I was returning to the UK and had been looking at the UK/US Totalization agreement. He said that things have changed, as far as the UK is concerned, what is paid into the UK stays in the UK, what is paid into the US stays in the US. If you are entitled to a US pension, that is ok that would not affect a UK pension and they couldn't care less about it. But - what I had thought before (what the US told me) about the US credits being counted to the UK system, this will not apply.
One years NI contributions entitle you to 1/3 of a pension. 30 years is needed for a full pension etc. He advised me to go to www.direct.gov.uk/pensions and fill out br19 and get a pension forecast. The telephone number is 001144 1912 183600.
He said that obviously agreements can change and stop. He also told me to look at the n138 booklet on hmrc.go.uk site.

Ok the US administration - had to go away and get the right info. Yes I am entitled to a US pension. They said that what the UK does is up to them and I have to listen to their rules. I pointed out that their website said that credits would be counted from the US to the UK and that this was incorrect and she said to go with what the UK is saying.
I asked if when I return to the UK with no US citizenship and no permanent resident card, am I still entitled to the Pension/benefits etc. She said oh, this doesn't sound right and then went off again. She came back and said yes, the UK is on the list of countries that allows residents to be entitled to benefits without having to be a citizen/resident of the US. So, as its stands currently you can receive pension from the US, without the citizenship or residency etc. Once again though, this is under the Totalization agreement, which could change.

The UK guy told me that class 3 contributions are currently 12.05 pounds for a week, to catch up on - no questions are asked if you want to pay these. Class 2 is different.

So, sounds quite daunting and unstable if you ask me, especially if you haven't worked much in the UK, like I haven't.

For those of you who have got the US citizenship - how long did it take after filling in the paperwork, till you got your citizenship? And also, do you have to keep coming in and out of the US to keep the citizenship?

What are your thoughts on all this?
It sounds like it's definitely worth paying one year's NI payments to get 1/3 of a UK pension.

Does anyone know how much one year's contributions amount to? Okay, I just saw this - Class 3 is about 12 pounds a week. What is class 1 and 2 and what is the difference between the classes?

Last edited by windsong; Dec 31st 2010 at 2:03 pm.
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Old Dec 31st 2010, 2:09 pm
  #35  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by J.J View Post
One thing to bear in mind when trying to figure out the total of what you might eventually get from both US SS and UK NI retirement pensions is USA Windfall Elimination provision (WEP).

WEP rules for every $2 of 'non-SS subscribed' pension you are eligible for, your US SS pension will be reduced by $1, (but no greater than half your US), unless you have achieved 30 yrs of subscription to US SS.

This is significant, consider if you get a UK SS pension equal to US$100 plus a US SS of $100 then you will receive a total of $150, not $200, losing $50 off your US SS pension because of WEP (you are excluded if you have 30 years of credit to US SS)

The application of WEP rules is a presumption on my part, the WEP rules state "if you receive a pension from work where [US] Social Security taxes were not taken out of your pay." - which I am presuming would include any work in the UK or eslewhere, in addition to any non-subscribing work within the US, http://www.ssa.gov/pubs/10045.html
It is not clear to me if WEP applies 'upon eligibility' or 'upon receipt' of the other pension.

We are trying to understand this WEP because we are on the cusp, I have stopped working and DH is working, we are trying to estimate our income if he were to stop working / made redundant, and start taking Pensions as and when we become eligible.
I hate this Windfall Provision. Why the US SS payment would be reduced because of another pension in another country is typical US BS. One country's pension should not impact any pension you get from another country - ethically, that is.

Now I am wondering if I should pay one year's worth of NI payments to get a 1/3 UK pension.
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Old Dec 31st 2010, 2:13 pm
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by sallysimmons View Post
So just to make sure I understand .... if you're entitled to US social security payments, you can receive your money in the UK. Meantime, the UK doesn't care what you're getting from anywhere else and will also pay you your pension?

So if I earned 1/3 pension in the UK, and full SS, I could receive both those amounts when I am in England? With no penalties for what the other country is paying me?

I'm confused
I am confused by this dratted Windfall Provision. I will be in a similar situation to you, and I am wondering if my US SS payment and/or company pension will be reduced, per the provision, by $2 for every $1 received from a UK pension.

Does anyone know at what figures this Windfall Provision kicks in?

Okay, I just read that if you have paid in 30 yrs SS payments to the US, which I have, no Windfall Provision.

Last edited by windsong; Dec 31st 2010 at 2:21 pm.
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Old Dec 31st 2010, 2:17 pm
  #37  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by J.J View Post
Mostly right Sally,

yes, you can receive your US SS directly in UK converted to pounds and deposited in your UK bank of choice by US SSA (I don't know how they apply the exchange rate)

correct, The UK doesn't care that you are receiving a US SS and it doesn't impact your UK NI pension
- but all your worldly income does count towards UK tax liability so if the total takes you over the tax personal allowance then you will be liable to find the tax to pay to HMRC (tax bands http://www.hmrc.gov.uk/rates/it.htm)

yes, you can collect both US and UK pensions in England.

However the US does apply a 'penalty' because of what the other country is paying you.
Roughly figured, your US SS will be cut by about half the $value of your UK pension.
The US SSA will possibly (read likely) reduce your US SS under the rules of Windfall Elimination (WEP). There is a paragraph on WEP in your US SS Statement.
(there are WEP conditions to limit the damage: no WEP if you have 30 yrs in US paying into SS, also WEP cannot take more than 50% of your US SS.)
JJ, does this mean that you have to pay the UK tax rate of 40% (I believe that's right) on the grand total of your US SS, US company pension and UK pension? Good grief, that means I would only receive 60% of that total. Ugh!
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Old Dec 31st 2010, 2:49 pm
  #38  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

The UK tax rate isn't 40% unless you earn over £37,500, and then it's only 40% on the extra earned over and above that.

Here are the current UK tax rates: http://www.scopulus.co.uk/taxsheets/...omeTaxRates4-5

Don't forget that you no longer have state tax to pay. I recommend not freaking out until you have all the facts - I had an accountant do a work up for me, and found I would be slightly better off in the UK because of the self-employment tax here in the US.

Of course, for those UK taxes we'll be getting free health care, so there's actually a tax reduction in moving back for most of us.

Last edited by sallysimmons; Dec 31st 2010 at 2:51 pm.
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Old Dec 31st 2010, 2:58 pm
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by sallysimmons View Post
The UK tax rate isn't 40% unless you earn over £37,500, and then it's only 40% on the extra earned over and above that.

Here are the current UK tax rates: http://www.scopulus.co.uk/taxsheets/...omeTaxRates4-5

Don't forget that you no longer have state tax to pay. I recommend not freaking out until you have all the facts - I had an accountant do a work up for me, and found I would be slightly better off in the UK because of the self-employment tax here in the US.

Of course, for those UK taxes we'll be getting free health care, so there's actually a tax reduction in moving back for most of us.
Thanks Sally. That's not too bad then, plus there is quite a high personal allowance before you pay anything.

At some point I may try to find an accountant who knows about both US and UK financial affairs but where to find one that knows both countries is the problem.

I forgot you had a business. Do you know anything about starting a business in the UK or perhaps a web site to visit to find information? I am considering doing a website/graphic design business out of my residence when I get there. I know I will be 62 but my brain is very much alive and I have really good skills. I may as well put it to work.
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Old Dec 31st 2010, 3:09 pm
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by windsong View Post
Thanks Sally. That's not too bad then, plus there is quite a high personal allowance before you pay anything.

At some point I may try to find an accountant who knows about both US and UK financial affairs but where to find one that knows both countries is the problem.

I forgot you had a business. Do you know anything about starting a business in the UK or perhaps a web site to visit to find information? I am considering doing a website/graphic design business out of my residence when I get there. I know I will be 62 but my brain is very much alive and I have really good skills. I may as well put it to work.
You could try Googling small business grants ... I think there is start-up money available in the UK for this kind of thing.

From your flurry of emails, I think you are stressing out about things that may not happen. The US/UK pension thing is confusing, as evidenced by the conflicting posts on the topic that crop up on BE from time to time. As you have discovered, the Windfall Provision does not affect you.

At least these days we have the internet to conveniently find information (even if the information is confusing!) - I can't imagine how people figured these things out in the old days of snail mail and costly international phone calls.
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Old Dec 31st 2010, 3:14 pm
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by windsong View Post
This is very interesting.

I will already get my U.S. pension when I return to the UK but how do I go about using my U.S. pension to contribute towards UK NI accrual so that at some point I may also receive a UK pension?

I am assuming this means I would take a chunk of my US SS payment and then make payments to the UK NI. Is that right?
I think if you elect to start receiving US SS pension, you can not subsequently use your US SS contributions to count towards UK state pension.

You probably should hire an expert to determine the relative worth of US SS and UK NI contributions and then decide whether you want to apply some of your US SS contributions towards a UK pension. I've never seen a post on here about how they "equate" US SS and UK NI contributions - does 1 year of US SS count as 1 year of UK NI? If so, I'd imagine for higher earners it wouldn't make sense to convert US SS to UK NI, because in the UK it doesn't matter whether you pay NI on an £80k salary or a £20k salary, the state pension for that one year is the same (whereas in the US, government/SS pension is linked to how much you paid in, as well as how many years).
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Old Dec 31st 2010, 3:20 pm
  #42  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by dunroving View Post
I think if you elect to start receiving US SS pension, you can not subsequently use your US SS contributions to count towards UK state pension.

You probably should hire an expert to determine the relative worth of US SS and UK NI contributions and then decide whether you want to apply some of your US SS contributions towards a UK pension. I've never seen a post on here about how they "equate" US SS and UK NI contributions - does 1 year of US SS count as 1 year of UK NI? If so, I'd imagine for higher earners it wouldn't make sense to convert US SS to UK NI, because in the UK it doesn't matter whether you pay NI on an £80k salary or a £20k salary, the state pension for that one year is the same (whereas in the US, government/SS pension is linked to how much you paid in, as well as how many years).
Dunroving, I probably had no need to mention the US SS at all in my post. I merely am wondering how I can begin to make payments for one year into the NI system, whether I do it when I am already in the UK collecting US SS payments or whether I do it from the US before I leave.
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Old Dec 31st 2010, 3:27 pm
  #43  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by windsong View Post
Dunroving, I probably had no need to mention the US SS at all in my post. I merely am wondering how I can begin to make payments for one year into the NI system, whether I do it when I am already in the UK collecting US SS payments or whether I do it from the US before I leave.
This Web page probably answers a lot of your questions:

http://www.direct.gov.uk/en/MoneyTax...ngup/DG_190077

(I Googled "making NI payments")
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Old Dec 31st 2010, 3:29 pm
  #44  
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by dunroving View Post
This Web page probably answers a lot of your questions:

http://www.direct.gov.uk/en/MoneyTax...ngup/DG_190077

(I Googled "making NI payments")
Thanks, Dunroving
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Old Dec 31st 2010, 3:34 pm
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Default Re: Retirement - US Soc Sec, UK Nat Ins, and the Totalization Agreement

Originally Posted by windsong View Post
Thanks, Dunroving
You'll probably find this out in the information on the page, but I think the following is correct:

There is a time limit on how far back you can make up for - so depending on how many years you want to buy in, it may be a case of the sooner you start looking into this, the better.

I don't think you can buy extra NI years after reaching statutory UK retirement age (which for you will be 65), so again, the sooner the better.

Almost every financial page I have read on the topic says that buying extra UK NI years in order to bump your state pension beats just about any other retirement investment.
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