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Davewave

UK voluntary tax contributions

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I have worked and lived in the states for 6 years now currently a US citizen. I have around 10 years of full NHS contributions. Is it worth to pay voluntary taxes to the UK government + backdate the last 6 years so i can recieve a full pension there? I don't currently intend on returning in the next 5 years but starting to think out the box.

 

I see there is CLASS 2 and CLASS 3 which i don't understand.

 

Thanks for your help

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NHS contributions? Do you mean NI (national insurance)? Pensions are based on national insurance contributions, not taxes. So I think you mean you want up backdate your NI contributions, it would be class 2 that you would need to pay although I read somewhere that this was being abolished. 

Edited by JFH

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1 hour ago, Davewave said:

I have worked and lived in the states for 6 years now currently a US citizen. I have around 10 years of full NHS contributions. Is it worth to pay voluntary taxes to the UK government + backdate the last 6 years so i can recieve a full pension there? I don't currently intend on returning in the next 5 years but starting to think out the box.

 

I see there is CLASS 2 and CLASS 3 which i don't understand.

 

Thanks for your help


There is a provision that anything you collect in a foreign state pension will reduce your monthly Social Security check. You can’t double dip old age government pensions from two countries. Private pensions are different.

 

So you will have to determine if what you pay over the next 20 years will be worth it since you could probably collect the same amount of money via Social Security. 
 

Another consideration is NI state pension pays everybody the same...whether a high wage earner or a minimaI wage earner.  Whereas Social Security will pay you a much bigger monthly check if you move up and earn a big salary. So if you think you might have a pretty sweet US income whenever you retire, your monthly check might well exceed anything you get from State pension. So maybe not worth paying more to collect something that will reduce your SS check.i hope that makes sense.  It’s really hard to predict. But as an example...I came to the US already eligible for a full UK state pension.  I work a little in the US and will be eligible for SS but not much because of having a low yearly income and only for 10 years. My state pension will benefit me and be higher that a SS check.  But a young guy with many years to work under Social Security contributions and a chance to build a sweet career and increasing salary, stands to do better by going with SS and forgetting UK.  If you are somewhere in the middle, then ???  
 

Lots to guess on since you don’t know what the rules will be when you retire. Best advice is build a 401k.

Edited by Wuozopo

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where can I locate the methodology used to calculate the "WEP' (Windfall Elimination Provision", as it probably means that we dont get good pensions in either UK or USA.

 

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2 hours ago, Wildhaggis said:

where can I locate the methodology used to calculate the "WEP' (Windfall Elimination Provision", as it probably means that we dont get good pensions in either UK or USA.

 

 

Some explanation here https://www.ssa.gov/policy/docs/program-explainers/windfall-elimination-provision.html


Benefit calculator with WEP https://www.ssa.gov/benefits/retirement/planner/anyPiaWepjs04.html

 

Benefit calculator without WEP https://www.ssa.gov/benefits/retirement/planner/AnypiaApplet.html

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Class 2 voluntary contributions are about £180 for a contributory year. Each year will give around £6 a week. It's easy to do and HMRC will deduct via DD in arrears, or annually if you like, the form is available to download, print and mail back to the U.K. 

 

WEP is only a problem with less than 30 years of U.S substantial earnings. Worst case would be a maximum WEP of about $480 a month, or half of your SS, whichever is less, (based on less than 20 years). Voluntary contributions to the U.K are exempt though, only through work will be subject to WEP. You can get a rough idea of the provision by adding up your contribution years and figuring out which were via work or otherwise. 

 

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24 minutes ago, Tesco said:

Class 2 voluntary contributions are about £180 for a contributory year. Each year will give around £6 a week. It's easy to do and HMRC will deduct via DD in arrears, or annually if you like, the form is available to download, print and mail back to the U.K. 

 

WEP is only a problem with less than 30 years of U.S substantial earnings. Worst case would be a maximum WEP of about $480 a month, or half of your SS, whichever is less, (based on less than 20 years). Voluntary contributions to the U.K are exempt though, only through work will be subject to WEP. You can get a rough idea of the provision by adding up your contribution years and figuring out which were via work or otherwise. 

 


I never paid much attention to Class 2 contributions since I already had my full years plus. Does it pay the same full weekly pension at retirement?  Also can you quit paying when you hit the 30 year mark and wait for retirement?

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7 minutes ago, Wuozopo said:


I never paid much attention to Class 2 contributions since I already had my full years plus. Does it pay the same full weekly pension at retirement?  Also can you quit paying when you hit the 30 year mark and wait for retirement?

You get the same, currently about £175 a week. You need more the 30 years though, legislation changed about 4 years ago. Anyone that has NI contribution years should get a Government Gateway number and account. You can then see everything HMRC has on you with income and pension summary and estimates. 

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Couple of things - when it comes to WEP and a UK state pension the water is very murky as WEP was really designed to deal with foreign employer pensions which dodged US social security payments, but there is certainly no specific exemption for state pensions.

 

When I used the analysis tool and answered “No” to the question - 

Are you entitled to a U.S. Social Security benefit and a foreign pension that is based on employment, and were you eligible for both before January 1, 1986?

 

answering in the negative as I only moved to the US in 2001 - the tool advised me that WEP was not applicable for me.

 

Finally you shouldn’t need to buy additional UK catch up credits (which aren’t worth it in my opinion anyway as the UK state pension is paltry compared to US Social Security - at least for my numbers) as apparently there is a mutual agreement between the US and the UK where US SSA contributions can be used for credit in the UK system.  More on that here:


https://maximizemysocialsecurity.com/will-my-foreign-pension-affect-my-social-security-benefits

 

Caveat - I really haven’t fully researched that topic myself, so any additional input appreciated.

 

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So I did some additional research on this subject and found the following, refer to page 7:

 

https://www.ssa.gov/pubs/EN-05-10199.pdf

 

Quote:

 

How credits get counted
You do not have to do anything to have your credits in one country counted by the other country. If we need to count your credits under the U.K. system to help you qualify for a U.S. benefit, we will get a copy of your U.K. record directly from the United Kingdom when you apply for benefits. If U.K. officials need to count your U.S. credits to help you qualify for a U.K. benefit, they will get a copy of your U.S. record directly from the Social Security Administration when you apply for the U.K. benefit.
Although each country may count your credits in the other country, your credits are not actually transferred from one country to the other. They remain on your record in the country where you earned them and can also be used to qualify for benefits there.

—————

I read that as meaning that the process for gaining credit is automatic at the time of retirement (presumably you have to declare dual nationality and provide your SSN) and also that the credits allow you to “double dip” the pensions in both countries, which surprises me.

 

Anyone reading this differently ?

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MikeMinusWife - 

 

My husband (originally from UK with dual citizenship) has been in the U.S. since 2005.  He will only have 19 years of work in the U.S. when he retires in 2025 so obviously the Windfall Provision will be in force.  He is not planning on retiring from his job here in the US until 2005 (when he turns 67) but he is eligible to begin his UK job pension in March of 2023, again, before he starts collecting US Social Security.  Do you know if this will be an issue with the US - him getting UK pension then?  

 

Also, he is really aggravated that the WEP exists because he states he will only get a portion of his US Social Security even though he will have worked in the US for 19 years when he retires and "why should the US take away any of my SS when I have been PAYING into SS"?  I know he knows the WEP laws but is just aggravated that he will be cut SS benefits due to having outside pensions.  He wanted to keep his pension money in the UK but I told him that the US will be aware of his UK monies wherever they are so it would do him no good.  

 

Any suggestions or comments?  Thank you in advance!

 

Shari


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1 hour ago, Shari said:

he is eligible to begin his UK job pension in March of 2023, again, before he starts collecting US Social Security.  Do you know if this will be an issue with the US - him getting UK pension then?  

Do you mean private pension(s) Or his state pension in March 2023?

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19 minutes ago, Wuozopo said:

Do you mean private pension(s) Or his state pension in March 2023?

His private pension.  He can't get his state pension until July of 2025.  


K1 PROCESS:

04/08/05 . . . . Sent I-129F to TSC

08/31/05 . . . . London Interview - APPROVED

AOS PROCESS:

10/06/05 . . . . Sent AOS/EAD/AP to Chicago Lockbox

05/16/06 . . . . APPROVED.

REMOVING CONDITIONS PROCESS:

03/03/08 . . . . Sent I-751 packet to TSC.

02/27/09 . . . . APPROVED.

CITIZENSHIP PROCESS:

05/21/12 . . . . Sent N-400 packet to Dallas lockbox

09/11/12 . . . . Interview in Atlanta. Oath ceremony same day. Keith is a U.S. Citizen!

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57 minutes ago, Shari said:

His private pension.  He can't get his state pension until July of 2025.  

He can collect his private pension which will be taxable as income just like a US pension. It is the state pension which compares to Social Security that is part of the WEP and may affect his Social Security benefits. 
 

This is an IRS link about taxation of pensions. https://www.irs.gov/businesses/the-taxation-of-foreign-pension-and-annuity-distributions

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3 hours ago, Wuozopo said:

He can collect his private pension which will be taxable as income just like a US pension. It is the state pension which compares to Social Security that is part of the WEP and may affect his Social Security benefits. 
 

This is an IRS link about taxation of pensions. https://www.irs.gov/businesses/the-taxation-of-foreign-pension-and-annuity-distributions

 

Edited by Shari
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K1 PROCESS:

04/08/05 . . . . Sent I-129F to TSC

08/31/05 . . . . London Interview - APPROVED

AOS PROCESS:

10/06/05 . . . . Sent AOS/EAD/AP to Chicago Lockbox

05/16/06 . . . . APPROVED.

REMOVING CONDITIONS PROCESS:

03/03/08 . . . . Sent I-751 packet to TSC.

02/27/09 . . . . APPROVED.

CITIZENSHIP PROCESS:

05/21/12 . . . . Sent N-400 packet to Dallas lockbox

09/11/12 . . . . Interview in Atlanta. Oath ceremony same day. Keith is a U.S. Citizen!

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