fsm

Actually according to the information available as I can pay class 2, it would appear that I only need to live approx 14 months after pension age to have made my money back.

Approx figures full pension £113 a week, if I was retirement age now I would get £60 a week with out any extra contributions.

Trying to look at financial planning cannot find anywhere what if any my wife would be entitled to it.

durham_lad

Regardless of whether or not the rules on your wife benefiting are the same in 20 years time it looks as good an investment as any unless you have reason to believe you can expect a short life expectancy.

Giantaxe

Remember that you're paying the contributions with after tax income whereas pension payments will likely be taxed. Also, money contributed now is money you can't invest elsewhere between now and retirement.

Having said all that, I think Class 2 contributions are a bargain, just not quite as much a bargain as you're suggesting.

nun

Because you are using after tax money to pay your NI contributions you get a tax break of US taxes when you start receiving the UK state pension. The portion attributable to those already taxed contributions is US tax free.

Giantaxe

Interesting! Do you have to provide said calculation to the IRS, or do you just declare as income the percentage of your pension that was earned using pre-tax contributions?

Westham

Thanks, I will send off my check to the good old British Tax Man It will only take 23 weeks to get my money back at an increase of 6.03 GBP (3.77 for me and 60% of that for my wife) per week added to my UK pension for the additional year. It does not sound much but every little bit helps.

Thanks to everyone on here for the real time help, I appreciate it as I'm sure many others also do.

Westham

Excellent news!
I just paid up six years and about to pay another, this if I understand you correctly reduces my US taxable income by the seven year amount of 3.77 per week x 7 years = 26.39 x 52 = 1,372.28 GBP
I don't suppose I can do the same calculation with the 60% my wife receives, but I'm going to ask on here anyway?

Pulaski

No, I think the tax break is on what you receive when you retire. So if you paid in for twenty years before you emigrated, and paid a further 10 years AVCs, and retired today under the current rules (full pension after 30 years) you would get a full pension, of which 10/30ths would be tax free, being the proportion paid for out of after tax contributions (AVCs).

nun

That's not correct. The US tax break happens when you start receiving the UK state pension income. As it is taxed like an annuity you have to do the IRS annuity calculation and you don't have to pay tax on the portion of the UK state pension that is attributable to the already taxed contributions you made.

Westham

OK, thanks for the clarification, I have just started to receive my UK pension (received 3 weeks on May 20th) calculated at 14 years worked in the UK before emigrating and a further 6 years paid up last year as a catch up making my pension 20 yrs. (I am hoping to pay another 140.40 GBP for an additional 1 year) so I pay US tax on the 14 years but not the additional 6 yrs. catch up contribution. How does that translate to my wife's UK pension of 60% the value of my pension? Is she taxed in the USA the full amount or can she take the same tax deduction as I am allowed?

UK2US1979

Hi, I recently discovered this forum and glad to join. I do have a couple of questions related to the UK state Pension and it's treatment in the US SS. I think, regardless of whether the UK state pension related to the employment there prior to immigration to the US, UK state pension would be taken into account for WEP purposes. Anyone ( NUN) could please comment on this. It would be nice if it is not!

The other question I have relates to option of the Lump sum payment for the deferred pension. I did not apply for the UK pension when I became eligible in 2011. Therefore, I have a deferred pension of a few thousand pounds. I would like to take the lump sum but I am not sure how it may or may not affect the US Social Security benefit that I have been receiving for the past 3 years or so. Would the Lump sum also be subject to the WEP? Hope not. I know I will have to show it as Other Income on 1040, though.

Did anyone had similar situation to mine.? i.e, Did not apply for the UK pension when became eligible and took the Lump Sum, instead of extra pension? Kindly respond at your earliest. NUN, Any comments?

nun

Any pension you get that is from non SS earnings will be subject to WEP. However, the portion of UK state pension attributable to voluntary payments is not counted for WEP.

Any tax free UK pension lump sum will be fully taxable by the IRS if you are a US resident or citizen. I'm not sure how the IRS will treat the lump sum she it comes to WEP. I imagine they'll simply tax it as income and then do the WEP calculation using your reduced UK pension payment.

UK2US1979

Thanks for the prompt response, Nun. Don't quite understand this <I'm not sure how the IRS will treat the lump sum she it comes to WEP. I imagine they'll simply tax it as income and then do the WEP calculation using your reduced UK pension payment>. IRS would of course, tax it as it would be shown as income. WEP comes into play when US social security is calculating the SS monthly payment.
What I meant to ask was, would the lump sum affect my US social security monthly payments in any manner which I have been getting for the past couple of years. For example, the UK monthly pension (even though small, in my case) when I start taking it would be subject to WEP (from social security point of view) and would result in a lower US SS monthly payment going forward, as been discussed here in varius posts. My question is how would the Lump sum ( which relates to previous UK monthly pension not taken) affect the SS payment because of the WEP provision. Wonder if any one here had a similar situation of receiving lump sum from the UK.

I am not even sure if the UK informs the Social security here of any lump sum one may be getting.

nun

I don't know, but I can offer a guess. They might want to know what your payment would have been without the lump sum and use that for WEP. They might also just ignore the lump sum and use your reduced UK pension to calculate WEP. That's a question you should ask SSA.

UK2US1979

Nun, thanks again. Just to clarify, my UK pension is not going to be "reduced" because of the lump sum. Lump Sum relates to the pension payments for the past 3 years, which I did not take because I did not apply for the UK pension. I didn't know until recently that I was eligible. I havent yet applied. When I apply, my UK pension would be the regular amount ( in my case their estimate is around 50 pounds a week. They also mentioned extra pension of 15 pounds).
I guess I need to check with SS about the lump sum treatment. I hope my US pension is not going to be reduced (WEPd) further because of this Lump sum when I do take it.