theOAP

For comparison of required pension contributions and benefits:
Look at two individuals, one working in the UK contributing NIC's, and one in the US contributing to FICA. The UK employee earns £79,000/year. The US employee earns $118,500. (Use USD1.50:UK£1.00 on all calculations.)

Contributions:
UK:
The rate for class 1 contributions is 12%, per week, for amounts between £153 and £805 (or £652), plus 2% for amounts over £805/week.

At £79,000/year, contributions are (805-153=652) X 12% = £78.24/Week or £4,068/year, plus excess over £805/week (1519.23-805=714.23) X 2% = 14.28/week or £743/year.

£4,068 + £743 = £4,811 ($7,216)/year class 1 contribution.

US:
The rate is 6.2% SS = 6.2% (does not include medicare at 1.45%)

$118,500 X 6.2% = $7,347 (£4,898)/year SSA contribution


Benefits:
UK:
Estimated under the new rules is £144/week or £7,488 ($11,232)/year.

US:
Under max benefit for 2014 (retire at age 66) is $2,642/month or $31,704 (£21,136)/year.


The yearly US contribution is roughly equal to the yearly UK contribution.
The yearly US benefit is 2.80 times larger than the yearly UK benefit.

(For max US benefit)
https://faq.ssa.gov/ics/support/KBAn...+4&docID=13009

(For US contribution)
Contribution and Benefit Base

(For UK class 1 contributions)
https://www.gov.uk/government/public...-contributions

This is for discussion, but I'm sure there will be disagreement somewhere. Fire away.

UK2US1979

nun wrote <....So all you need to do is find out the different components of your pension. The earnings related component of the UK state pension is now being phased out completely so if you get the new state pension, IMHO, none of it will count towards WEP. If the SSA questions that point to the Spanish case linked above....>

If pension relates to NHI paid in earlier working years (even though being paid now), how can this fall under "new state pension"? Also not quite sure if the NHI contributions that were deducted were "voluntary". Wasn't it a requirement to make such deductions from the payroll? Also, I dont remeber how the NHI contributions were calculated. Did every one pay the same amount as others regardless the amount of of their salary?

kodokan

Interesting discussion, as always. Just musing... even before the impending changes to the UK pension, arguably most of it was never 'earnings related' in the way that SS is? Sure, the contributions are earnings-related - someone on £100k will pay a lot more in than someone on £10k - but the derived pension from that contribution was flat for everyone, except for the earnings-related part. So earnings-related contribution, but NOT earnings-related pension. Has it always been the case that people could exclude the flat rate bit from WEP?

durham_lad

At the end of the day, what is the voting power, and the PAC power of US Ex-Pats? Not enough to cause a politician to give it a second thought. Fair or not, you need a big block of voters with influence to change something like this.

I'll be WEP'ed to the max because of my UK private pensions so I'm very interested in the discussion but am not expecting any change.

Lin_NJ

Yes, the UK basic state pension is the same whether a high or low earner. The POMS ( the Social Security "Programs Operations Manual System" ) guidance on applying the WEP describes the UK state pension as one which permits voluntary contributions and finds that such contributions cannot be included for WEP purposes, and then it shows how to calculate it. But that does not address the flat rate issue and the disconnect to level of earnings. POMS is guidance only for SSA employees when they process claims and does not have force of law. I do not know if anyone that is UK state pension eligible has challenged it.

Loaded4th

When I discussed private pensions (non-government) the SSA was not interested in what an individual receives. The IRS is interested of course!

durham_lad

I do report my UK private pensions to the IRS, but I thought that I would also have to report them to the SSA the year I start to claim SS otherwise how would they know if WEP applies?

Loaded4th

Well, it may be that my pension is from a company whose parent is an American company, yet my wife did not get hit as she has a private pension from a UK institute. Maybe they only focus on the government pension and ignore the other. I think it highlights what the SSA choose to interpret from a vague law. Not sure how this applies in your case, I assume it depends on the date you receive a UK pension and the date you receive US social security?

nun

The law isn't vague, but the knowledge of it probably is. When you apply for SS you should definitely declare all pensions due to non-SS earnings. How SSA deals with that information might well vary. Personally I will not tell them about my UK state pension, but I will mention my MA state pension....although they will already know about that as MA contacts SSA when I officially retire form state service.

nun

I would definitely tell SSA about any UK private pensions.

Loaded4th

I would beg to differ. I do not see the word foreign in the SSA's pdf document. If a law can be interpreted in different ways, it is simply vague!

kodokan

Luckily almost all of ours are defined contribution, and can be fully withdrawn between the ages of 55 and 70.

(Assuming they don't change the darn rules again in the intervening couple of decades, mutter mutter...)

theOAP

Spot on.

Large contributions, tiny contributions, awarded contributions, 30 years, 20 years, 10 years, class 1, class2, voluntary; any combination of the above will use £144/week as the base factor for the calculation of the benefit.

Sadly, I agree. As is happening with CBT, only threatened legal action will gain attention. Until then, "massive deficit", "goose", and "golden egg" will control all conversations.

+1

When applying for SS, the interviewer (Federal Benefits Unit at the Embassy in London) wanted to know all pensions I was currently receiving and all pensions I would be receiving in the future.

There are 5 foreign pensions. The UK State Pension came at least 1/2 way to the first break point. The UK company pension took the total way beyond the first break point. After that, the interviewer noted the other 3 pensions were payable but wanted no further details as to amounts.

50% is the arbitrary figure for all WEP calculations. The Max WEP is 50% of the amount of the first break point. Pensions totalling less than the Max break point are calculated at 50% of the pension amount. All the talk of "readjusting" the break points, and recalculating SS due to the amount of the pension is BS. Whether the foreign pension is $5,000 or $200,000, the guarantee is no more than Max WEP (50% of first break point) or 50% of the pension amount if less. So much for the published BS of WEP compensating those individuals with smaller SS benefits. The "hit" to total pension income as a percentage of funds available in retirement is much more devastating for someone on the $5,000 figure with a smaller SS benefit than for someone on the $200,000 figure with a larger SS benefit.

dunroving

As usual, very thorough and helpful in your contributions to the discussion. I have often assumed that US SS would yield a higher "pension" for a middle-earner than would UK state pension (because the US SS pension benefit is earnings-related whereas UK state pension is, broadly-speaking, not).

Your illustration makes that point strikingly well, thanks.

- so, does anyone claiming US SS "pension" have to have an interview at the US Embassy?

dunroving

Nun, it looks like you are deciding what is and is not covered by WEP, based on your interpretation of the law regarding the definition of "non-SS pensions"

From my recollection, this recent discussion is the first time that UK state pension has been presented as not classed as a non-SS earnings-related pension (other than the fact that the voluntary NICs has been discussed as not included, IIRC).

Other posters here have given their rationale for why 401k-type pensions in the UK should not be counted, albeit there has been some rebuttal of the rationale.

When you have your SS interview, as described by the OAP above, what would you say if asked, "So you don't have a UK state pension, then?" Will you have a rationale ready for them in the case of that scenario?

[I agree with several posters about the unfairness if the system. I accept the principle that life isn't fair but in the case of many expats, WEP does something that it wasn't originally intended to, IMO]