3. Understand Your UK State Pension And US Social Security Entitlements
Anyone working in the UK and making National Insurance contributions will be building up an entitlement to a future State Pension benefit. You must have 10 qualifying years of contributions to earn a benefit, but you will not maximise your benefit under the New State Pension until you have 35 qualifying years. It is beneficial to review your National Insurance record (via Government Gateway) periodically as there is often opportunity to voluntarily pay a fixed amount to fill any gaps in your record. You can usually only pay gaps in your record from the last 6 tax years. However, there is currently an opportunity to make voluntary contributions before 5 April 2023 related to gaps in your record between April 2006 and April 2016. Paying voluntar y contributions is relatively cheap in relation to the extra benefit that is picked up over the course of your retirement years. It is also relevant to note that it can be possible to gain credits on your record for years that you spend as a carer, so you want to make sure you are given credits on your record where warranted. Conversely, anyone who has worked in the US for 10 years or more (and gained 40 credits) likely has a future US Social Security entitlement. While there is no easy way to make voluntary contributions to fill in gaps in your US Social Security record, it is important to factor in this projected benefit into your overall planning. Individuals living in the UK with a built-up Social Security benefit are entitled to receive that benefit alongside a UK State Pension benefit. However, you should be aware of something called the Windfall Elimination Provision (WEP) which may impact your eventual US benefit should you have more than 10 qualifying years but less than 30 qualifying years of substantial earnings in the US. Should the WEP apply, there is a maximum reduction that can be applicable and despite any possible reduction it is always still beneficial to still collect both entitlements. If you are unsure about the benefit of making voluntary contributions it can be beneficial to speak with the Future Pension Centre for any questions, and it can also be helpful to seek financial advice to apply any rules to your individual situation.
4. Remain In Some Kind Of Work For As Long As Possible
The UK State Pension age is currently age 66 (with it set to increase to age 67 in 2029). While you can collect your benefit from that point, it should be noted that you have the option to delay the start of your State Pension benefit 14
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payments. Should you delay, your State Pension benefit will increase by the equivalent of 1% for every 9 weeks you defer which translates to an increase of just under 5.8% every year. For individuals who are born in 1960 or later, your US Social Security full retirement age is age 67. While you can begin to take benefits as early as age 62, your benefits will be reduced permanently during your retirement years. Similarly, you can defer your benefits from full retirement age and begin collecting any time between full retirement age and age 70. For every year that you defer your payments your benefit will increase by 8%. For individuals who have limited assets elsewhere, are looking to maximise their pension income provision during their retirement years, and are healthy enough to maintain some level of work into their 60’s, it can be materially beneficial to continue some earned income stream for a few extra years and delay the receipt of both pension benefits. This will allow you to pick up on the increases in pension annuity income that the government offers for deferring the start of your payments. No matter your current financial situation, small steps can be taken to close the pension savings gap as much as possible in an efficient manner and help prepare you for your retirement years. If you have never undergone retirement planning, it is never too early or late to start. The earlier you have a handle on whether your retirement savings are sufficient for your desired needs, the more opportunity you will have to allow your savings to work for you rather than against you.
information contained herein is subject to copyright with all rights reserved. MASECO LLP (trading as MASECO Private Wealth) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at Burleigh House, 357 Strand, WC2R 0HS. For your protection, telephone calls may be recorded. MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered in the US with the Securities and Exchange Commission as a Registered Investment Adviser. References 1. www.ssa.gov/policy/docs/researchsummaries/education-earnings.html 2. www.ssa.gov/policy/docs/researchsummaries/education-earnings.html 3. www.imdiversity.com/diversity-news/ women-see-their-wages-peak-earlier-andlower-than-men/ 4. www.adviser.scottishwidows.co.uk/ assets/literature/docs/2020-womenretirement-report.pdf
Risk Warnings And Important Information
Nothing in this article constitutes investment, tax or any other type of advice and should not be construed as such. The information in this article is provided for information purposes only. You should consult with your financial adviser before making investment decisions. All investments involve risk and may lose value. The value of investments can go down depending upon market conditions and you may not get back the original amount invested. Your capital is always at risk. Information is based on data which MASECO considers reliable, however, MASECO gives no assurance or guarantee that the information is accurate, current or complete and it should not be relied upon as such. Information about tax benefits is based on our understanding of current tax law and practice (which may be subject to change). The levels and bases of, and reliefs from, taxation is subject to change. However, MASECO Private Wealth is not a tax specialist. We recommend that anyone considering investing seeks their own tax advice. The tax treatment of any investment or particular strategy will depend on the individual circumstances of each person and may be subject to change in the future. The
Andrea Solana is Head of Advanced Planning at MASECO Private Wealth where she helps to provide financial planning and wealth structuring advisory services to US expatriates in the UK and British nationals in the US. Before joining MASECO, Andrea spent the first part of her career with a wellknown Washington DC based international tax and global wealth management firm where she gained considerable experience advising high net worth individuals with multi-jurisdictional financial interests to design and implement strategies for taxefficient and risk-managed asset growth. She has written numerous white papers regarding fundamental financial planning and investment strategies for US connected individuals and has previously been a speaker on financial planning topics at numerous places including both The World Bank and International Monetary Fund (IMF). Andrea graduated from University of Virginia’s McIntire School of Commerce with a degree in Finance and Management and completed her MBA at Imperial College London. Visit www.masecoprivatewealth.com for further information.
