TexanScot

I appreciate the background knowledge, thank you so much.

Based on how I understand it, my worry is that us older migrants who won't have the full 35 years before retirement are going to be hit somewhat harder by this, as we'll have less qualifying years and so a lower base Social Security entitlement to begin with before WEP comes into play.

I can certainly understand the intent behind the regulation, as I can see how it's not really fair for people to get a higher payout from the taxpayer when the taxman hasn't had the same opportunity to have his cut.

I don't want to have to rely on the State Pension or Social Security to fund my retirement but they are both entitlement programs that I've paid into, and I'd still like to maximize my eventual payout as far as the law will allow.

TexanScot

I had to obtain a tax and earnings statement from HMRC for USCIS, and the columns on the document are:

Tax Year, Employer, Earnings, Tax, NI

I would assume that on any year where you've paid voluntary contributions the Earnings column would show 0, which I'd hope would be sufficient evidence that the contributions weren't based on employment that year.

Glasgow Girl

That is true, but because the payment is so heavily skewed to the first $12,000 or so in average annual earnings you likely wont lose out on too much, which is back to why they introduced it in the first place. Like you, I get the reasoning, but I don’t like it!

Something to take into account which may or may not apply to you is that WEP applies to all foreign pensions. Therefore if you have a UK company pension of any kind (unless 100% funded by only you) then they are going to WEP that as well. The maximum income from all sources subject to WEP in 2021 is $996 per month (resulting $498 per month deduction).

I moved all of my UK pensions into a SIPP to avoid getting WEP’d on that income since I do not intend to draw from that on anything close to a regular basis,

Glasgow Girl

Good to know. I was not aware of that.

TexanScot

I had private pension provision in the UK yes, but it was Defined Contribution rather than Defined Benefit.

I'd always planned to take it on a lump sum basis post-retirement, on the understanding that the entirety of the amount would be classed as taxable income in the year of crystallization.

In any event it won't be a life changing amount, but it will be enough to buy me a very nice and extended holiday in the year when I retire

TexanScot

For reference I don't think it's a standard document that they make available online - I had to submit a SAR under GDPR in order to request it, but it at least confirms that they have systems or processes internally that are capable of extracting the information.

tht

I need to look at this a little closer, my situation may be slightly more complicated. When I first because a PR I commuted to the UK for work for a few years. So I was taxed and paid NI in the UK, but then as a US resident all that income was declared in the US and taxed again (with a credit against federal income tax). But I think I then paid SS on it as well, in addition to state and city tax. So while I may have a full year of NI, I may have paid full / max SS on that same income as well.

TexanScot

I'm pretty sure I skimmed something in the WEP guidance regarding the Social Security Totalization Agreement, the provisions of which might cover you if you were a tax resident in the US (which you would have been as a Permanent Resident) yet paying foreign Social Security contributions on earnings in the UK.

I skimmed over it was it wasn't relevant to me, but it sounds like it might be to you.

newadventure

Sorry, can you clarify? When you say WEP applies to all foreign pensions, you mean that the amount of SS is reduced, not that the foreign pension is reduced?

tht

Yes I need to take a look, but my plan A is to hit the 30 years of “substantial earnings”. I have been paying SS since age 30 so it should be doable if I don’t spend to much time not working at-least part time.

Glasgow Girl

Yes, the SS amount is reduced not the foreign pension. The point was that the WEP calculation will aggregate all foreign pensions based upon earnings on which SS was not deducted and use that total to determine how much WEP to deduct from SS. So it is not just the UK state pension that goes into the calculation, it includes private pensions from all sources unless you had SS deducted from those earnings, or the pension is derived solely from personal contributions. If your company contributed to your pension in anyway whatsoever then it goes into the WEP calculation. The only pensions that I know of that escape being used in the WEP calculation are those that are the results of Free Standing Additional Voluntary Contributions, FSAVCs, Additional Voluntary Contributions, AVCs, or Voluntary NI’s.

Anyone with a UK pension subject to WEP that exceeds approximately $12K per year is going to hit the maximum WEP regardless of the UK State Pension.

durham_lad

exactly my position.

However, I will have 28 years of SS contributions so the WEP hit should be pretty small.