lansbury

I will say that I have discovered, since this thread started, there is in fact quite good information about WEP on the AARP web site.

dunroving

I think the old-style defined benefits schemes are peculiar in that way. The newer-style defined benefits schemes, based on career average salary make more sense as although the benefit is somewhat linear (1/80th or 1/60th), it is rescaled to take into account the amount of the contribution (which is proportional to the salary in each year) at each career point.

I just want a £10,000 pay rise in my final year. I'll even pay for it myself.

durham_lad

The folks in my company that were getting close to retirement would be volunteering for as much overtime as they could get because the pension was based on the average of the last 5 years earnings, excluding bonuses but including overtime.

dunroving

I'm pretty sure that colleagues in the Tennesee State retirement system (essentially a defined benefit scheme) also gained from teaching summer school classes for similar reasons. Amazing when you consider full-time SS pay was about 25% of annual salary!

WEBlue

Good to know, thanks!

FatFrank

So, does it work the other way around too then? I.e. If my SS benefits in the US are less than they would be had I not worked abroad, will they top it up for me?

No, of course not.

Giantaxe

I don't think this is correct. The formula is skewed towards a higher percentage replacement of lower income earners as opposed to higher, and calculates the "average monthly index earnings" assuming a 35 year record of earnings. But I see see nothing in the formula that would weight things in terms of earlier years of employment. See pages 2 and 3 in the WEP section of this link:

https://www.copera.org/pdf/5/5-36.pdf

durham_lad

I'm sure that you are correct. My assumption was based purely on my playing with the SS estimator after logging onto the SS site on the run up to my planned retirement age. The increase in SS for working an extra few years was very small and certainly made the decision to retire at 55 much easier.

Giantaxe

Presumably because the UK pension is a flat amount regardless of earnings (assuming you have the number of years needed for a "full" pension) whereas the US formula is based both on years and income. With the skewing of the formula to lower income earners the WEP attempts to deal with the perceived advantage the formula gives people who have paid less years into SS. The problem is it does it in a completely arbitrary and unfair manner, as some of the examples from theOAP illustrate.

robin1234

You'd probably be getting another pension for the years you didn't work in the US and pay FICA. For instance, British State Pension.

So no, not only would they not top it up for you, you'd probably be WEPed.

However, if you worked abroad and got no pension for it, then you wouldn't be WEPed but neither would you be topped up.

As you are discovering, life isn't always fair.

robin1234

Isn't the other big difference that the British state pension is not strictly based on years of earnings that pay a tax (FICA in the US SS case.). In Britain there is an element of social fairness or whatever, in that you get credit for years of unemployment, and I believe years of child care, elder care etc?

Giantaxe

That's true, you do get credit for certain "non-employment" years. But the big difference with the US system is that the amount of UK pension you get is based on contribution years only, not on contribution years and income as is the case with US SS.

nun

US SS does have some "social fairness" as low wage workers get a larger SS payment in proportion to their lifetime earnings than highly paid people. Of course you don't pay FICA tax on wages over $117k so that's a break for the highly paid.

The new UK state pension will advantage the low paid and stay at home carers as it will be a flat rate based on years of contributions, not the size of the contribution. It is also a great benefit to those who pay voluntary NICs which might be of interest to a few folks here

hutchiebug

Hopefully we may have the chance to make up some Voluntary NI Payments next year.
http://www.telegraph.co.uk/finance/p...ion-boost.html

dunroving

Just in case people get too excited, this is restricted to people who will retire before the flat rate pension comes in (i.e., people who will reach state retirement age before April 2016). I think it is ostensibly to give a chance for those folks to make up somewhat for missing out on the higher flat rate pension.

It would have been a logistical nightmare, but I'd have thought they would have graduated the introduction of this rather than having people with birth dates within a few weeks of each other getting such a drastically different pension.

There seem to have been some very drastic changes in pensions in such a short time (three changes in how many years of contributions needed for full pension, change in retirement age, and a change from the dual-band pension to the flat rate pension). Some unfortunate people are getting stuck in the middle of it all.