Author Topic: Deferral and cost of living  (Read 912 times)

Jeff_In_TN

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Deferral and cost of living
« on: Sep 17, 2021, 05:16:34 PM »
Hi this is my first post and I am hoping my question is a simple one to answer. I am receiving a state pension in the USA but because of the effect the Windfall Elimination Provision is going to have on my total income I made the decision to defer my UK state pension for 5 years which draws to an end in March 2022. I calculate this will add an additional 29% to my basic UK pension but my question is will there be any cost of living increase for the 5 years I deferred and if so what would that look like for the years 2017 to 2022.


thanks
Jeff

klondike

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Re: Deferral and cost of living
« Reply #1 on: Sep 17, 2021, 06:11:46 PM »

Hi Jeff welcome.

This is more of a chat forum that a technical advice forum although it is always possible that somebody may be able to answer your question. Unfortunately I'm not that somebody.


You can just get a pension forecast from https://www.gov.uk/check-state-pension which may answer your question.
Ah sorry it won't. Just saw this..
You cannot use this service if you’re already getting your State Pension or if you’ve delayed (‘deferred’) claiming it.

So long and thanks for all the fish

crabbyob

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Re: Deferral and cost of living
« Reply #2 on: Sep 17, 2021, 09:36:30 PM »
i have a friend abroad and i dont think he gets any of the raises we get...
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Michael Rolls

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Re: Deferral and cost of living
« Reply #3 on: Sep 17, 2021, 10:22:46 PM »
A friend of ours, with whom we lost contact, moved to Canada. Whilst we were in contact she didn’t get any of the increases to the state pension, just what it was when she moved, but I don’t know if that is still the case
Mike
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Jeff_In_TN

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Re: Deferral and cost of living
« Reply #4 on: Sep 18, 2021, 02:12:02 AM »
Thanks for taking the time to reply guys, it does seem difficult info to come by. The USA is one among a list of countries that has an agreement where increases in the UK are passed on to the pension recipient in the US, I just wondered if that was included during the time of deferral, it's not a deal breaker just something I am curious about. Thanks again for the replies.


Jeff

Michael Rolls

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Re: Deferral and cost of living
« Reply #5 on: Sep 18, 2021, 02:13:59 AM »
You’re welcome, Jeff
Mike
Thank you for the days, the days you gave me.
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Diasi

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Re: Deferral and cost of living
« Reply #6 on: Sep 18, 2021, 09:45:08 AM »
Hi this is my first post and I am hoping my question is a simple one to answer. I am receiving a state pension in the USA but because of the effect the Windfall Elimination Provision is going to have on my total income I made the decision to defer my UK state pension for 5 years which draws to an end in March 2022. I calculate this will add an additional 29% to my basic UK pension but my question is will there be any cost of living increase for the 5 years I deferred and if so what would that look like for the years 2017 to 2022.

thanks
Jeff

You'll receive the annual increases to your UK State Pension if you are living in the UK or in one of the countries where you can get the increase.

My understanding is that you'll get the increases from when you could have drawn your pension until you actually draw it.

I have to say that I didn't realise that the USA was one of those countries.
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Jeff_In_TN

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Re: Deferral and cost of living
« Reply #7 on: Jun 29, 2023, 03:40:39 AM »

@Diasi your understanding was correct, here we are over a year and a half later and I am much wiser, whether I made the right choice or not is debatable but I can say I am ok with the outcome. This is how the final figures were calculated, to recap I made contributions for 30 years and opted out of SERPS in the late 80's so that ammount is not included in these figures, I was eligible for retirement in March 2017.


When I initially contacted the UK pensions in 2015 I was told that my "basic" pension ammount is £120, I can get increases but the basic will allways be £120. Deferring a pension accrues 1% every 9 weeks or 5.8% yearly, I deferred for just short of 6 years for which I gained 34% or approximately £40 which they call "additional pension" so combined with the basic that made a total of £160. When I received the letter notifying me that my application had been accepted they stated that my payments would be £195 per week paid every 4 weeks, that is an increase slightly greater than 20% of the total basic + additional which I assume is due to cost of living increases. Finally in May I got an increase of 10% on the weekly payment taking it to £215 and on top of that is the payment for opting out of SERPS.


This is only possible because of the agreement on pensions between the US and UK.


The reason it was important as part of my retirement plan is due to a law in the States called the Windfall Elimination Provision, I believe this provision was formed in the Reagan era and was designed to prevent an individual drawing a full state pension in addition to a pension that was earned by contributions that did not include payments to the US social security department. This includes American born citizens just as it does immigrants or naturalized citizens.


The way WEP works they use your retirement eligibility year (for me 62) and the number of years you made qualifying social security  contributions, simply put these two values cross reference a dollar amount which is deducted from your US state pension. The dollar amount can be as much as $557 per month and if your spouse claims their retirement benefit from your earnings (this is how it works over here) they get 50% of what you get which also means if you got a $550 a month reduction they would get a $275 a month reduction a whopping $9,900 a year.


WEP does not kick in until you are actually drawing both state pensions which allowed me to defer without penalty.



So my plan of which my original question was a part, was to keep drawing the additional ~$9,900 a year until the balance swung from the US to the UK, not only in my favor but in a noticable amount, in May that amount went in my favor by ~$5,500 yearly which I took as acceptable.


Quite a wordy response considering the original question, the main point was to view what the Windfall Elimination Provision is about, there are many out there from the UK that WEP takes completely by surprise as it did me but if your aware of it early enough you can make preparations and turn the tables in your favor.


Where I am they might call an older man "Sir" or an older woman "Maam" so I say to you all take care "young uns" 


Jeff