FBAR on foreign pensions

[HikerMark 5]

You are required to report defined contribution pensions on the FBAR, not defined benefit pensions or Social Security pensions.

So, for the UK that means reporting personal pensions, RAPs etc. If your pension is based on your final salary then you do not need to report it on the FBAR.

However, both types of pension need to be reported on Form 8938.

[Shari 6]

HikerMike - thanks but I am not even sure what that means - ha ha. I think my question is will the US deduct my husband's UK monthly state pension and monthly shipbuilding pension (from when he worked there before he came over here permanently) from his monthly US social security benefit? THANKS!

[Owen_London 65]

HikerMike - thanks but I am not even sure what that means - ha ha. I think my question is will the US deduct my husband's UK monthly state pension and monthly shipbuilding pension (from when he worked there before he came over here permanently) from his monthly US social security benefit? THANKS!

I think Mike must have been replying to the original thread, rather than your question.

To try to answer it, I think the person at the SSA is confused. Any reduction you see in social security would be due to the Windfall Elimination Provision (WEP), as I mentioned earlier in the thread. They seem to be answering the question "Would a paid salary reduce social security payments?", which isn't what you asked.

The WEP is specifically for situations where pensions are paid from employment that was not subject to social security. That basically means either people who worked in certain US federal or state jobs, or people who have foreign pensions. Strangely, because of the phrasing of the provision, that fraction of UK pensions that come from national insurance payments made by the state when the person was unemployed are not subject to WEP, and neither is the fraction from any voluntary NI payments made while not resident in the UK, because they don't come from actual working.

However, the WEP rules can get confusing. For example, the longer your husband has been working in the US, the less his social security would be reduced.

[Shari 6]

"Any reduction you see in social security would be due to the Windfall Elimination Provision (WEP) ... " "The WEP is specifically for ... people who have foreign pensions."

Owen_London - thank you . . . but . . . and I am sorry if I seem ignorant on the subject, what's the answer to my question? Lets say my husband got a UK state pension of an equivalent of $600 US dollars a month, a shipbuilding pension of an equivalent of $400 US dollar a month, would this $1000 a month be deducted from his $1500 (just guessing on a figure) monthly social security benefit? If yes, then we are no better off with his two pensions.

$1500 social security a month alone $ 500 social security REDUCED a month

600 UK state pension a month

400 UK shipbuilding pension a month

$1500

Thanks!

[Shari 6]

I found this Windfall Elimination Provision and Foreign Pensions screening tool on US SS site. Let me know if you think this is correct.

Are you entitled to or eligible for a U.S. Social Security benefit on your own Social Security number?

YesNo

The answer here would be YES.

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?

YesNo

I THINK the answer is no because my husband was not entitled to a US SS benefit before 01/01/86 because he did not move here until 2005.

Are you entitled to a foreign pension based on employment and were you eligible before January 1, 1986?

YesNo

I THINK the answer to this is yes because my husband started working in the UK in 1974; BUT does "were you eligible before January 1, 1986" mean that is when he began in the pension? If so, this would be yes since he started in 1974.

WEP DOES NOT APPLY TO YOUR U.S. SOCIAL SECURITY BENEFIT.

This was the answer after the above questions and answers. So, does this mean his monthly pension amounts WILL NOT be deducted from his monthly social security benefit and he will have his full SS benefit PLUS his two pensions?

[Owen_London 65]

I found this Windfall Elimination Provision and Foreign Pensions screening tool on US SS site. Let me know if you think this is correct.

Are you entitled to or eligible for a U.S. Social Security benefit on your own Social Security number?

YesNo

The answer here would be YES.

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?

YesNo

I THINK the answer is no because my husband was not entitled to a US SS benefit before 01/01/86 because he did not move here until 2005.

Are you entitled to a foreign pension based on employment and were you eligible before January 1, 1986?

YesNo

I THINK the answer to this is yes because my husband started working in the UK in 1974; BUT does "were you eligible before January 1, 1986" mean that is when he began in the pension? If so, this would be yes since he started in 1974.

WEP DOES NOT APPLY TO YOUR U.S. SOCIAL SECURITY BENEFIT.

This was the answer after the above questions and answers. So, does this mean his monthly pension amounts WILL NOT be deducted from his monthly social security benefit and he will have his full SS benefit PLUS his two pensions?

I think the answer to those questions are yes / no / no, I'm afraid. The questions are phrased in a confusing way, but from the info pdf, I think "eligibility" means actually able to receive the pension.

http://www.ssa.gov/pubs/EN-05-10045.pdf

The way I interpret that booklet, he will have less than 20 years of substantial earnings with SS contributions in the US, so will be subject to the maximum level of WEP. Unless, that is, some of his UK state pension comes from paying Class 3 NICs from the US, or NICs while unemployed in the UK.

And that brings me to another point - if he isn't making voluntary UK National Insurance Contributions (NICs), he probably should be, and he should probably try to make some back-dated NICs, as far back as the day he's allowed to (I think 5 years, but not certain).

[Nich-Nick 3,354]

I was also wondering about these answers. I thought it was a way to say if you were really old (that 1986 eligibility talk) then you were grandfathered under a system before they thought up WEP. Maybe not. It was just my first impression of a typical government way to say that kind of situation.

I too get hung up on eligible. First thought was already age eligible. Then I switched to --no they mean paid in long enough eligible. Shari's husband can't be SSA eligible yet. It takes at least 10 years of working. But she was probably answering for the future. If I think about it next week, I may just go to a SS office and ask a lot of questions. Wonder of they understand it?

[Shari 6]

Owen-London and Nich-Nick - It is correct I was answering in the future for my husband. He has worked 8 years in the U.S. He is 55 years old now and will work another probably 10 years.

There was a link on this forum somewhere about calculating your UK state pension. I think the maximum amount is 110 pounds (cannot find pound sign on here) a week and with him working 22 years in the UK that put him at getting 87 pounds a week. We do not know how much he would have to pay voluntary contributions now to catch back up and to be honest with you, we didn't even realize we could do this until a couple years ago and figured it was too late now (Keith has been here 8 years) plus I would think that would cost a lot to go back and add to it and then make monthly payments and would it be worth it if they are going to reduce his SS based on his monthly pension?

I think I read, correct me if I'm wrong, that SS can only subtract 50% of his state pension. So if he were to get the equivalent of $400 US dollars a month for his pension, they could only reduce his SS by $200 a month? True or false.

And one more thing (sorry), is his shipbuilding pension done the same way his state pension is in regards to SS benefits? I only read about the UK state pension and have not really read about private pensions though I would think it follows the same rules since obviously no SS taxes were taken out of that.

[Shari 6]

Duh - I just searched through the forums and found on a topic I had started last year (I totally forgot about this) a reply that Rebecca Jo posted that I believe answers all my questions even though all the links are so confusing.

"If your husband draws his US Social Security AND his UK State Pension, they won't reduce his Social Security by half. They will reduce his Social Security by half the amount of his UK pension. His private pension from the UK will not affect his Social Security. After all, you can draw a pension from a US company and it doesn't affect Social Security. Private pensions aren't funded with tax dollars, so they don't affect government pensions."

So if he were allowed $1500/month US SS, $500/month UK Pension, and $500/month UK Private Pension he would actually get $1250/month US SS plus all his UK state pension and private pension.

Edited September 14, 2013 by Shari

[Owen_London 65]

Duh - I just searched through the forums and found on a topic I had started last year (I totally forgot about this) a reply that Rebecca Jo posted that I believe answers all my questions even though all the links are so confusing.

"If your husband draws his US Social Security AND his UK State Pension, they won't reduce his Social Security by half. They will reduce his Social Security by half the amount of his UK pension. His private pension from the UK will not affect his Social Security. After all, you can draw a pension from a US company and it doesn't affect Social Security. Private pensions aren't funded with tax dollars, so they don't affect government pensions."

So if he were allowed $1500/month US SS, $500/month UK Pension, and $500/month UK Private Pension he would actually get $1250/month US SS plus all his UK state pension and private pension.

I'm afraid the UK private pension will be subject to WEP, because it wasn't subject to US social security. A US private pension would have been, so isn't counted as a windfall.

Edited September 14, 2013 by Owen_London

[TBoneTX 46,122]

A recent post has been split from this thread, moved to the Tax & Finances forum, and titled "FBAR on UK Pension -- how to handle?  [split topic]."

 

Thread from 2013 is now closed to further comment.