State Pension Forecast accurate if previously contracted out?
Jan 9th 2022, 11:58 am
#31
Forum Regular
Joined: Feb 2006
Location: Nashville,TN
Posts: 81
Re: State Pension Forecast accurate if previously contracted out?
Glasgow Girl..l wonder if you (and any other experts on the subject) could give some advice, or comment on my situation. Trying to read and understand the WEP on the SSA website, is like trying to read Mandarin !
I have 26 years contributions in the UK, and just coming up to 24 yrs (In Feb) in social security. I'm already claiming my social security, as l retired early..don't know if that makes any difference or not. I'm trying to figure out if it's even worth claiming my UK pension, in June, if the SSA are going to take 40% (if that's the correct amount ?) of it under WEP. I get around $800 a month social security. The last UK pension forecast said, the estimate up to 5 Apr 2020 was 119.76GBP a week, and the most l could get would be 130.02 a week, presumably if l make voluntary contributions to make up the shortfall. I might come out a little ahead by claiming the UK pension, but l wonder if it might be better to just not claim it and let it build up for a few more years. (I'm 65 at the moment). If l read it correctly, SSA don't deduct any WEP if you have 30 yrs of social sec contributions ? Should l defer my UK pension for another 6 yrs, until l have 30 yrs of social security, or would it pay me to start claiming it this year. I can start claiming it in June. Also, what would be your advice on making up the outstanding NI voluntary contributions ?
Thanks for any advice/comments/help.
I have 26 years contributions in the UK, and just coming up to 24 yrs (In Feb) in social security. I'm already claiming my social security, as l retired early..don't know if that makes any difference or not. I'm trying to figure out if it's even worth claiming my UK pension, in June, if the SSA are going to take 40% (if that's the correct amount ?) of it under WEP. I get around $800 a month social security. The last UK pension forecast said, the estimate up to 5 Apr 2020 was 119.76GBP a week, and the most l could get would be 130.02 a week, presumably if l make voluntary contributions to make up the shortfall. I might come out a little ahead by claiming the UK pension, but l wonder if it might be better to just not claim it and let it build up for a few more years. (I'm 65 at the moment). If l read it correctly, SSA don't deduct any WEP if you have 30 yrs of social sec contributions ? Should l defer my UK pension for another 6 yrs, until l have 30 yrs of social security, or would it pay me to start claiming it this year. I can start claiming it in June. Also, what would be your advice on making up the outstanding NI voluntary contributions ?
Thanks for any advice/comments/help.
Jan 9th 2022, 2:54 pm
#32
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 892
Re: State Pension Forecast accurate if previously contracted out?
Lots to unravel. I am simplifying the following, leaving out lots of details, and what if’s, because otherwise this would be a book.😬.
First, for 2022 the maximum WEP to your social security if you have 24 years of social security contributions is $307.20, or half of your UK pension whichever is less. Your UK pension of 120 GBP per week is about $700 per month, half of that is $350 therefore they will reduce your US social security by $307.20 which is the maximum they can do. You will be about $400 per month better off taking your UK pension now (a reduced US social security of $800 minus the $307.20) plus your UK pension of $700. Of course you will have to pay tax on the additional $400 but you will still be better off.
Second, I assume you are still working and making social security contributions even though you are receiving benefits. If that is the case and your annual earnings are more than what they call substantial earnings, which for 2022, is $26,500 then each additional full year of contributions will reduce the maximum WEP by approximately $50 per month. Do that for another 6 years and you will be WEP free.
Next, they calculate WEP once only in your lifetime, so if you are planning to continue to work and meet the substantial earnings limit, then I would delay taking your UK pension until you stop working here, or have reduced your WEP to zero, whichever comes sooner. If you claim it now they will reduce your Social Security by $307.20 which you can reduce by $50 or so for every year you continue to work, plus the UK will increase your UK pension up until age 70 by about 5% I think, so a win on all sides. If you will not earn enough to meet the substantial earnings limit then I would take my UK pension now.
i would make voluntary contributions to make up the shortfall. Normally, any contributions you make for years after 2016 increase your pension by about 5 GBP A week, so I assume they will only let you make contributions for another 2 or 3 years because of your age. I would ask them about backfilling prior years as well, normally you can do up to 6 years, sometimes more depending upon your circumstances. If you do that you should increase your UK pension by another 30 GBP above the maximum they quoted you. Talk to them about that. If you qualify for Class 2 rates it is an outstanding return on investment, if you have to pay Class 3 it is still a good deal.
First, for 2022 the maximum WEP to your social security if you have 24 years of social security contributions is $307.20, or half of your UK pension whichever is less. Your UK pension of 120 GBP per week is about $700 per month, half of that is $350 therefore they will reduce your US social security by $307.20 which is the maximum they can do. You will be about $400 per month better off taking your UK pension now (a reduced US social security of $800 minus the $307.20) plus your UK pension of $700. Of course you will have to pay tax on the additional $400 but you will still be better off.
Second, I assume you are still working and making social security contributions even though you are receiving benefits. If that is the case and your annual earnings are more than what they call substantial earnings, which for 2022, is $26,500 then each additional full year of contributions will reduce the maximum WEP by approximately $50 per month. Do that for another 6 years and you will be WEP free.
Next, they calculate WEP once only in your lifetime, so if you are planning to continue to work and meet the substantial earnings limit, then I would delay taking your UK pension until you stop working here, or have reduced your WEP to zero, whichever comes sooner. If you claim it now they will reduce your Social Security by $307.20 which you can reduce by $50 or so for every year you continue to work, plus the UK will increase your UK pension up until age 70 by about 5% I think, so a win on all sides. If you will not earn enough to meet the substantial earnings limit then I would take my UK pension now.
i would make voluntary contributions to make up the shortfall. Normally, any contributions you make for years after 2016 increase your pension by about 5 GBP A week, so I assume they will only let you make contributions for another 2 or 3 years because of your age. I would ask them about backfilling prior years as well, normally you can do up to 6 years, sometimes more depending upon your circumstances. If you do that you should increase your UK pension by another 30 GBP above the maximum they quoted you. Talk to them about that. If you qualify for Class 2 rates it is an outstanding return on investment, if you have to pay Class 3 it is still a good deal.
Last edited by Glasgow Girl; Jan 9th 2022 at 3:01 pm.
Jan 9th 2022, 3:06 pm
#33
Forum Regular
Joined: Feb 2006
Location: Nashville,TN
Posts: 81
Re: State Pension Forecast accurate if previously contracted out?
Lots to unravel. I am simplifying the following, leaving out lots of details, and what if’s, because otherwise this would be a book.😬.
First, for 2022 the maximum WEP to your social security if you have 24 years of social security contributions is $307.20, or half of your UK pension whichever is less. Your UK pension of 120 GBP per week is about $700 per month, half of that is $350 therefore they will reduce your US social security by $307.20 which is the maximum they can do. You will be about $400 per month better off taking your UK pension now (a reduced US social security of $800 minus the $307.20) plus your UK pension of $700. Of course you will have to pay tax on the additional $400 but you will still be better off.
Second, I assume you are still working and making social security contributions even though you are receiving benefits. If that is the case and your annual earnings are more than what they call substantial earnings, which for 2022, is $26,500 then each additional full year of contributions will reduce the maximum WEP by approximately $50 per month. Do that for another 6 years and you will be WEP free.
Next, they calculate WEP once only in your lifetime, so if you are planning to continue to work and meet the substantial earnings limit, then I would delay taking your UK pension until you stop working here, or have reduced your WEP to zero, whichever comes sooner. If you claim it now they will reduce your Social Security by $307.20 which you can reduce by $50 or so for every year you continue to work, plus the UK will increase your UK pension up until age 70 by about 5% I think, so a win on all sides. If you will not earn enough to meet the substantial earnings limit then I would take my UK pension now.
i would make voluntary contributions to make up the shortfall. Normally, any contributions you make for years after 2016 increase your pension by about 5 GBP A week, so I assume they will only let you make contributions for another 2 or 3 years because of your age. I would ask them about backfilling prior years as well, normally you can do up to 6 years, sometimes more depending upon your circumstances. If you do that you should increase your UK pension by another 30 GBP above the maximum they quoted you. Talk to them about that. If you qualify for Class 2 rates it is an outstanding return on investment, if you have to pay Class 3 it is still a good deal.
First, for 2022 the maximum WEP to your social security if you have 24 years of social security contributions is $307.20, or half of your UK pension whichever is less. Your UK pension of 120 GBP per week is about $700 per month, half of that is $350 therefore they will reduce your US social security by $307.20 which is the maximum they can do. You will be about $400 per month better off taking your UK pension now (a reduced US social security of $800 minus the $307.20) plus your UK pension of $700. Of course you will have to pay tax on the additional $400 but you will still be better off.
Second, I assume you are still working and making social security contributions even though you are receiving benefits. If that is the case and your annual earnings are more than what they call substantial earnings, which for 2022, is $26,500 then each additional full year of contributions will reduce the maximum WEP by approximately $50 per month. Do that for another 6 years and you will be WEP free.
Next, they calculate WEP once only in your lifetime, so if you are planning to continue to work and meet the substantial earnings limit, then I would delay taking your UK pension until you stop working here, or have reduced your WEP to zero, whichever comes sooner. If you claim it now they will reduce your Social Security by $307.20 which you can reduce by $50 or so for every year you continue to work, plus the UK will increase your UK pension up until age 70 by about 5% I think, so a win on all sides. If you will not earn enough to meet the substantial earnings limit then I would take my UK pension now.
i would make voluntary contributions to make up the shortfall. Normally, any contributions you make for years after 2016 increase your pension by about 5 GBP A week, so I assume they will only let you make contributions for another 2 or 3 years because of your age. I would ask them about backfilling prior years as well, normally you can do up to 6 years, sometimes more depending upon your circumstances. If you do that you should increase your UK pension by another 30 GBP above the maximum they quoted you. Talk to them about that. If you qualify for Class 2 rates it is an outstanding return on investment, if you have to pay Class 3 it is still a good deal.
I don't fully understand the second part,where u mentioned substantial earnings. I no longer work,l retired in Nov 2021 and started claiming my SS pension. I took a lower amount to retire early. Does that affect anything that you said,in the first part of your reply ?
Once WEP starts,do they take it for life, or just until l have 30 years in the system ?
Thanks again.
Jan 10th 2022, 2:47 am
#34
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 892
Re: State Pension Forecast accurate if previously contracted out?
For the WEP calculation the only years that count are the years that you earned more then the substantial earnings amount ($26,500 for 2022, it increases slightly each year from the year prior to reflect cost of living changes) and PAID social security taxes on those earnings. If you are no longer working you won’t increase the number of years that you currently have. Hopefully your 24 years meet that criteria.
The WEP calculation does take into account early or late retirement. If you retire early, or late, they modify your social security amount accordingly. The same happens to the maximum WEP that can be applied and they adjust it by the same percentage. For example of your social security benefit is decreased by 30% because of early retirement then the maximum WEP will be reduced by 30%. If that was the case then the maximum WEP that might apply to you would be 70% * $307.20, saving you about another $90 a month. Had you delayed your retirement they would increase the maximum WEP by the same percentage that they increased your social security benefit.
They take WEP for life. I would definitely do as many voluntary contributions for prior years as you can to the UK. Because you are at the maximum WEP you will reap the benefit with no further WEP impact. If you worked before you left the UK and were employed in the US for the missing years, you will likely qualify for the outstanding Class 2 rate.
The WEP calculation does take into account early or late retirement. If you retire early, or late, they modify your social security amount accordingly. The same happens to the maximum WEP that can be applied and they adjust it by the same percentage. For example of your social security benefit is decreased by 30% because of early retirement then the maximum WEP will be reduced by 30%. If that was the case then the maximum WEP that might apply to you would be 70% * $307.20, saving you about another $90 a month. Had you delayed your retirement they would increase the maximum WEP by the same percentage that they increased your social security benefit.
They take WEP for life. I would definitely do as many voluntary contributions for prior years as you can to the UK. Because you are at the maximum WEP you will reap the benefit with no further WEP impact. If you worked before you left the UK and were employed in the US for the missing years, you will likely qualify for the outstanding Class 2 rate.
Last edited by Glasgow Girl; Jan 10th 2022 at 2:50 am.
Jan 10th 2022, 3:05 am
#35
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 892
Re: State Pension Forecast accurate if previously contracted out?
Another strategy is to delay taking your UK pension until age 70. The UK will increase your pension by about 5% per annum, and your US social security will be WEP free until you take your UK pension. Whether or not that is a good idea depends upon your life expectancy, and how much you value having the money now versus later. Taking the UK pension later will give you some WEP free years plus a larger UK pension. Taking it earlier will result in a lower UK pension and
more years of WEP but you also have more overall cash in the short term. It’s a personal call, delaying the UK pension will work best for some, but not for others. There are all sorts of detailed financial arguments you can make one way or another but that is it in a nutshell.
more years of WEP but you also have more overall cash in the short term. It’s a personal call, delaying the UK pension will work best for some, but not for others. There are all sorts of detailed financial arguments you can make one way or another but that is it in a nutshell.
Jan 10th 2022, 3:06 am
#36
BE Forum Addict
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,188
Re: State Pension Forecast accurate if previously contracted out?
Great advice from GlasgowGirl, and I would definitely pay as many voluntary contributions that I can as it will not affect WEP for the reasons she explained.
I would also probably delay taking my UK pension until age 70 which will give you 5 more years of no WEP applied to your SS plus the OAP will increase each year.
https://www.gov.uk/deferring-state-pension
I would also probably delay taking my UK pension until age 70 which will give you 5 more years of no WEP applied to your SS plus the OAP will increase each year.
https://www.gov.uk/deferring-state-pension
Your State Pension will increase every week you defer, as long as you defer for at least 5 weeks.
Your State Pension increases by the equivalent of 1% for every 5 weeks you defer. This works out as 10.4% for every 52 weeks.
The extra amount is paid with your regular State Pension payment.
Example:You get £137.60 a week (the full basic State Pension).
By deferring for 52 weeks, you’ll get an extra £14.31 a week (10.4% of £137.60).
This example assumes there is no annual increase in the State Pension. If there is an annual increase, the amount you could get could be larger.
.
.
Your State Pension increases by the equivalent of 1% for every 5 weeks you defer. This works out as 10.4% for every 52 weeks.
The extra amount is paid with your regular State Pension payment.
Example:You get £137.60 a week (the full basic State Pension).
By deferring for 52 weeks, you’ll get an extra £14.31 a week (10.4% of £137.60).
This example assumes there is no annual increase in the State Pension. If there is an annual increase, the amount you could get could be larger.
.
.
Annual increases
After you claim your State Pension, the extra amount you get because you deferred will usually increase each year based on the Consumer Price Index.
Jan 10th 2022, 3:12 am
#37
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 892
Re: State Pension Forecast accurate if previously contracted out?
I believe the current rate of increase for delaying the UK pension has been recently reduced to 5.8% per annum. It used to be 10.4% but they decided that was too generous, which it probably was!
Jan 10th 2022, 3:35 am
#38
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Joined: Aug 2013
Location: Eee Bah Gum
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Re: State Pension Forecast accurate if previously contracted out?
Your State Pension will increase every week you defer, as long as you defer for at least 9 weeks.
Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every 52 weeks
example:You get £179.60 a week (the full new State Pension).
By deferring for 52 weeks, you’ll get an extra £10.42 a week (just under 5.8% of £179.60).
Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every 52 weeks
example:You get £179.60 a week (the full new State Pension).
By deferring for 52 weeks, you’ll get an extra £10.42 a week (just under 5.8% of £179.60).
Last edited by durham_lad; Jan 10th 2022 at 3:39 am.
Jan 10th 2022, 3:43 am
#39
Forum Regular
Joined: Feb 2006
Location: Nashville,TN
Posts: 81
Re: State Pension Forecast accurate if previously contracted out?
Thanks again Glasgow Girl, and Durham Lad for the advice and excellent info. That's given me something to think about. Much appreciated.
Jan 13th 2022, 4:06 am
#40
Just Joined
Thread Starter
Joined: Apr 2020
Location: California
Posts: 18
Re: State Pension Forecast accurate if previously contracted out?
Hi everyone, I just wanted to update this thread with the final outcome of my husband's quest to increase his state pension by backfilling past years.
In a previous post I wrote: "Before making the payment, we phoned HMRC on the +44 (0)191 203 7010 number and told them the amount of the payment and which years it was for. The representative said he would add a note to the account so that the payment will be applied to the correct years. He said that if payments do get applied to the wrong years, this can be corrected with another phone call. He said to check online after 6-8 weeks to see if the record has been updated."
Well, 8 weeks after sending the payment (which was intended to backfill 5 pre-2016 years and 5 post-2016 years), we checked and saw that ONLY the 5 post-2016 years were now full. The 5 pre-2016 years showed no change. We waited another month and checked again and it was still the same. So we had to phone the same number again, and spoke to a helpful chap who explained that applying payments to pre-2016 years is a two-step process on their end, and they had failed to do the second part. He said he would take care of it straight away. And he did! Checking back later the same day, the payments were correctly applied.
His pension forecast now shows that he can contribute two future years to reach the maximum. Thank you again to all who helped us and special thanks to Glasgow Girl tdrinker and durham_lad !
In a previous post I wrote: "Before making the payment, we phoned HMRC on the +44 (0)191 203 7010 number and told them the amount of the payment and which years it was for. The representative said he would add a note to the account so that the payment will be applied to the correct years. He said that if payments do get applied to the wrong years, this can be corrected with another phone call. He said to check online after 6-8 weeks to see if the record has been updated."
Well, 8 weeks after sending the payment (which was intended to backfill 5 pre-2016 years and 5 post-2016 years), we checked and saw that ONLY the 5 post-2016 years were now full. The 5 pre-2016 years showed no change. We waited another month and checked again and it was still the same. So we had to phone the same number again, and spoke to a helpful chap who explained that applying payments to pre-2016 years is a two-step process on their end, and they had failed to do the second part. He said he would take care of it straight away. And he did! Checking back later the same day, the payments were correctly applied.
His pension forecast now shows that he can contribute two future years to reach the maximum. Thank you again to all who helped us and special thanks to Glasgow Girl tdrinker and durham_lad !
Last edited by Frugal_Squirrel; Jan 13th 2022 at 4:16 am.
Jan 13th 2022, 5:45 am
#41
BE Forum Addict
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,188
Re: State Pension Forecast accurate if previously contracted out?
Excellent news, thanks for the update.
Jan 14th 2022, 2:05 am
#42
Furby
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 892
Re: State Pension Forecast accurate if previously contracted out?
👍 Glad it all worked out well. It’s good to get feedback so that we know we are still giving good current advice.
