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In the USA one needs to have accumulated 40 credits in order to become eligible for social security. Does the UK have a similar credit system? What are the eligibility criteria for UK social security? Also, can the UK social security money be received anywhere in the world?

Social security in the USA is a government pension that one can choose to receive any time after age 62. For this pension, one needs to pay a certain percentage of one's annual wages (typically, 6%-7%) as social security tax. For every $1560 of wages in a given year one gets 1 credit for that year, and one can get up to 4 credits per year. One needs to accumulate 40 credits in order to receive this pension. The actual monthly amount of the pension depends on the average of one's wages when the credits were accumulated. There is some complex formula that they use to determine the amount of this pension.

The later one chooses to have this pension started, the more is the amount of the pension. This is like a defined benefit pension plan (benefits are promised and the responsibility to invest the money in the social security funds lies with the government). Apart from this, one can invest one's pre-tax dollars in a defined contribution plan (responsibility for where to invest lies with the contributor and benefits are not promised) such as the traditional IRA and the employer sponsored 401(K) with the money being taxed only when withdrawals are taken from the plan, and can invest one's post-tax dollars into a Roth IRA where they are never taxed - not even at withdrawal. Are there any British equivalents to these?

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    You could clarify what you mean by "social security", since in Britain there are a number of state benefits, contributory or non-contributory, which come under that term. If you mean the State Pension, you have to have accumulated 10 "qualifying years" to get any at all, and 35 qualifying years to get the full pension. You can get it paid if you live outside the UK. State Pension (Citizens Advice) Sep 26 '20 at 11:29
  • Thank you. I meant the British equivalent of U.S social security. Does one have to work for at least 120 months? Is it not a credit based system like that of the USA where one can get up to 4 credits per year each for around $1560 in wages? Can you send a link to the contributory/non-contributory state benefits? Is this the equivalent of 401K in the sense that contributions can be subtracted from one's taxable income? Sep 26 '20 at 13:26
  • Well, I don't know what is US "social security". That's what I asked you to explain. Sep 26 '20 at 13:31
  • I edited the question. Sep 26 '20 at 14:05
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In the UK, there is the State Pension. This is payable to people who reach State Pension age, which is currently 66 years. It is financed by deductions from salary each month. These deductions are called "National Insurance contributions". They are about 12% of salary for most people. To qualify, you have to have a minimum of 10 "qualifying years" in your contribution record. A qualifying year is one during which you paid contributions (in total over the year) equal to 52 times the contributions payable on the "lower earnings limit", currently £118 per week. You pay contributions if you are working, and you are credited with contributions if you are on State benefits. To get the full State Pension, currently £175.20 per week, you have to have 35 qualifying years. If you have between 10 and 35 qualifying years, your State Pension is pro-rata, e.g. if you have 10 years the calculation is to divide £175.20 by 35 and then multiply by 10 (£61.32). In addition, employers must, by law, provide a pension scheme for employees, and you can pay into these in a way that is probably similar to those US methods.

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  • 118*52= 6136. So if one makes 61360 pounds/year, one can pay the national insurance contributions for a given year in 5.2 weeks. So why does one have to work for the whole year to make the contributions for that year? Also, is the amount of the pension capped at 175.2 pounds/week regardless of the salary one draws? In the USA, employers (at least private sector ones) are not required to provide a pension. There are defined contribution plans such as 401(K) where one can make a contribution with pre-tax dollars, and where the responsibility for making investments lies with the contributor. Sep 26 '20 at 14:33
  • I forgot to add, once you reach State Pension Age, if you carry on working, you don't pay National Insurance Contributions. Sep 26 '20 at 15:15
  • You don't have to work the whole year to make it a qualifying year. You have to earn £6136 on which you paid National Insurance Contributions (NICs) in total in the year. That's why I wrote "in total over the year". The State Pension is capped at £175.20 per week but most people have what are called "private pensions", usually operated by their employer, and these pay out additional income. Also you can set up your own pension scheme and pay into it. You can get tax relief on the contributions up to 100% of your earnings in that tax year. This sounds like your 401(K) thing. Sep 26 '20 at 15:18
  • I should further add that if a person had less than 10 qualifying years, or between 10 and 35 years, and they have no other income or savings, they can get their State Pension supplemented by a payment called "Pension Credit" which brings their income up to £175.20 per week. And housing costs also. Sep 26 '20 at 15:49
  • Thank you. You may want to answer money.stackexchange.com/questions/131291/… Sep 26 '20 at 16:36

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