UK State Pension
To be eligible for the New State Pension in the UK, an individual needs to have a minimum of ten qualifying years. Individuals with at least 35 years will be entitled to the full basic New State pension.
It is possible to top up your National Insurance (NI) record to purchase additional qualifying years for the UK State Pension, outlined inour article from last week.
Currently the age at which you can start to draw a state pension in the UK is 66, however, the age is gradually increasing from 6 May 2026 and will be age 67 by 2029. It is important to note that the State Pension age will remain under review, meaning it could change again in the future depending on various factors such as changes in life expectancy. As of the 2023/24 tax year, the maximum annual benefit amounts to £10,600 or £203 per week.
If you have a UK Government Gateway ID, you can easily check your state pension recordhere.
US Social Security
To be eligible for Social Security, you must contribute to the system by paying the Old-Age, Survivors, and Disability Insurance program (OASDI) tax on earned income. An individual receives one credit for each $1,640 (2023) in net earnings during the year and can earn a maximum of four credits per year. After attaining a minimum of 40 credits, you will qualify for a Social Security benefit as well as access to premium-free Medicare Part A (hospital insurance) for you and your spouse. This ultimately equals a minimum of ten years of eligible credits.
Benefits are calculated using average indexed monthly earnings. The average includes 35 years of an individual’s highest earnings and, if you have less than 35 years in US earnings, the excess years get marked at zero, decreasing your average. The maximum annual benefit in 2023 at full retirement age is $43,524 per year or $3,627 per month. By setting up an account on theSocial Security website, you can view your projected benefits and contribution history (you will require a US mobile phone number and US social security number to do this).
Currently, the full retirement age (FRA) is 67 for people born 1960 and later. However, you are first entitled to start drawing benefits as early as age 62 and can delay your pension as late as age 70. The timing of beginning your retirement benefits is important: the longer you delay, the larger the monthly benefit. By starting Social Security before full retirement age, your benefits will be permanently reduced. The chart below illustrates the impact of collecting your pension early versus delaying until the FRA of age 67.
Totalization Agreement
The US and UK have an agreement in place to provide additional credits to reach qualification of benefits in their respective countries. This would apply to individuals who spent part of their careers in the US and UK and require gap-fill to reach the minimum requirements of ten years. The agreement between the two nations allows these individuals to still obtain a benefit. In this case, the US and UK benefits will each pay out pro-rata based on the time spent working (i.e. accruing credits) in each jurisdiction.
Windfall Elimination Provision (WEP)
If, over the course of your career, you have sufficient credits in each jurisdiction to be entitled to both US Social Security as well as the UK State Pension, then the WEP may have an impact on the level of benefits you will receive from your US Social Security. To our knowledge, WEP does not apply to company pension schemes. The reduction will vary depending on how many years you have worked in the US and contributed to social security taxes. Below is an overview of the scenarios applicable for 2023:
10-20 years | 20-30 years | 30+ years |
| Social Security benefits will be reduced by the lower of $6,690 (2023) per year or 50% of the UK State Pension entitlement. | A sliding scale applies for the reduction to US Social Security benefits. The closer you get to 30 qualifying years, the less WEP will apply. | WEP will not apply for individuals that have at least 30 qualifying years of US Social Security Benefits. |
The US Social Security Administration has made anonline calculator available to help estimate the WEP reduction and provide an updated view of your social security payments.
What next?
Given the potential impact of the WEP, we suggest that if you are considering topping up your UK NI contributions (in order to increase your UK State Pension credits) that you first check that you are not going to be impacted by WEP on your US Social Security benefits, which could ultimately outweigh the increased UK State Pension income.
We would also suggest that you speak with your regulated financial adviser or tax adviser before making any big financial decisions.
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