Are two state pensions better than one?
October 11, 2010 8:10 AM   Subscribe

Long term American ex-pat with question regarding foreign state pensions.

I've been living and working in England since 1997. Brief European stints abroad of various durations (Germany, Netherlands, France, less than six months each), all over Africa for a little over three years in total, some time in The Middle East but aside from that all my time outside America has been living in the UK.

Worked in the United States before emigrating to England, and according to my annual Social Security statement I'm entitled benefits once I reach retirement age.

Last week I received a statement from HM Revenue & Customs regarding my NI Contributions. Specifically I left banking in 2008 (to take another Masters) and have made the decision to not return as I'm having too much fun doing what I now do (teaching finance at Universities across Europe and selling my market commentary to banks and hedge funds). Because of the way I've structured my affairs wrt UK tax law (working as a contractor to my own limited company which bills for my services), I'm apparently not paying myself enough to cover NI contributions, and they've asked if I'd like to top up so I'll continue to be entitled once I reach retirement age here in England.

Has anyone reading either purposely purchased a UK (or other nation's) pension or know someone who has? I've asked for a quote from HM Revenue & Customs to cover my expected shortfall for a full state pension, and as a banker I realise the earlier I pay this off the better due to the magic of compound interest.

But that's not the question - I'm just curious what other ex-pats have done. As a long term ex-pat I've heard stories of folks doing just this but, now that I want to speak with someone, I can't find a reliable source.

I don't have to depend upon UK or US retirement benefits, but I do like the idea of diversifying a little, and there is nothing wrong with some income paid back by The State since I've paid into both systems. I'm not interested in hearing opinions regarding whether or not Social Security or the UK's NI plan will be around in twenty years (I've clearly got my own ideas). I'm just curious what other long term ex-pats have done in similar situations, and how they've gone about it.
posted by Mutant to Law & Government (4 answers total) 4 users marked this as a favorite
Best answer: Maybe I'm just dense, but won't the totalization treaty between the US and UK mean that your US SocSec credits get applied to your UK pension, and that you only get the UK one? Or at least only get one pension or the other?
posted by ROU_Xenophobe at 8:56 AM on October 11, 2010

Response by poster: Thanks for replying ROU_Xenophobe; as far as I understand the totalization treaty (and this is for all intents and purposes lay opinion), it's purpose is to insure you are credited in one country for employment while abroad. The credits are transferable, in other words.

I don't believe this transfer is mandatory as from the US side Social Security knows I've been living in England and they have never broached transfer as an option in their statements to me (please correct as necessary). They've simply told me how much I'd be entitled to under various scenarios.

It seems this falls through the cracks somewhat as I'm interested in maintaining the US entitlement while adding the UK's NI State Pension to the mix and I don't mind paying.
posted by Mutant at 2:44 AM on October 12, 2010

Best answer: I hate weighing in on Ask Me based on amateur googling, but I'm interested in this topic. I don't know anything about the UK side of things, but it looks like the Windfall Elimination Provision might mean that your US benefits do depend somewhat on your UK benefits. Which in turn might make invoking totalization more attractive.
posted by yarrow at 7:11 AM on October 13, 2010

Response by poster: Here's what my tax man has to say on the subject; please take this with a (healthy) grain of salt, as he hadn't heard of totalization before ROU_Xenophobe broached the subject in thread and I pushed the info across to him:

Topping up on the UK side is indeed possible. You need thirty credits to realise a full state pension upon retirement. I could utilise totalization to achieve the full UK pension by migrating US credit to the UK system (or vice versa, I guess), but then I wouldn't be entitled to Social Security on the US side. And I'd rather have two instead of one if at all possible. Totalization isn't mandatory, you've got to request it and it seems the process is relatively new and obscure so most staff (SS or NI) won't have heard of it.

So we're engaging HM Revenue & Customs to top up my current year NI Contributions, and we have asked for a quote to put me on course to realise full state pension here in the UK. In other words, you clearly can purchase a full state pension here in the UK by making voluntary contributions intended to cover for missing earnings. As part of his explanation he's sent across this link, which sorta begs the question why I'm paying him for his advise at all but he's not only got the time to wade through this stuff but he's a nice guy to boot so what the hell.
posted by Mutant at 2:45 AM on October 22, 2010

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