Go Back  British Expats > Living & Moving Abroad > USA
Reload this Page >

Which of my UK “pensions” are subject to WEP?

Which of my UK “pensions” are subject to WEP?

Old Oct 6th 2023, 1:12 pm
  #1  
Forum Regular
Thread Starter
 
Joined: Apr 2012
Location: Cumbria to Northern Michigan
Posts: 30
trirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nice
Default Which of my UK “pensions” are subject to WEP?

I keep thinking I understand this area, but then get confused. I am a dual UK/US citizen living in the US. I have the following UK pension type sources:

- Basic state pension, with about 7 years of “work” contributions and the rest voluntary class 2 or school/university contributions. I will have 35 years by retirement age.
- personal pension that was just a few years of personal contributions while working in the UK (no employer contributions)
- personal pension that was funded by contracting out of SERPS.

My thinking is the latter two are not WEP’able since they were not related to employment, although I had to have earnings to make the contributions, so maybe that makes them related to employment?

I understand that the basic state pension is subject to WEP to the extent it was based on years I was working, so in this case 7/35ths of it would be subject to WEP.

It is unlikely I will have 30 years of social security contributions when I retire - more like 25.

So am I understanding this right, or am I hopelessly confused?
trirod is offline  
Old Oct 6th 2023, 1:26 pm
  #2  
BE Forum Addict
 
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,131
durham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

Originally Posted by trirod
I keep thinking I understand this area, but then get confused. I am a dual UK/US citizen living in the US. I have the following UK pension type sources:

- Basic state pension, with about 7 years of “work” contributions and the rest voluntary class 2 or school/university contributions. I will have 35 years by retirement age.
- personal pension that was just a few years of personal contributions while working in the UK (no employer contributions)
- personal pension that was funded by contracting out of SERPS.

My thinking is the latter two are not WEP’able since they were not related to employment, although I had to have earnings to make the contributions, so maybe that makes them related to employment?

I understand that the basic state pension is subject to WEP to the extent it was based on years I was working, so in this case 7/35ths of it would be subject to WEP.

It is unlikely I will have 30 years of social security contributions when I retire - more like 25.

So am I understanding this right, or am I hopelessly confused?
I'm sure you are correct about the State pension, only 7/35 (1/5th) of it will be used in the WEP calculation, and you are almost certainly correct about your other pensions as well. If you were living in the USA and contributing to a personal IRA while working at a job that did not pay into SS then the IRA is not included in WEP calculations, just any pension paid by that employer so I would expect a similar treatment to UK style retirement accounts.

The other 2 UK pensions will probably depend on whether they are paid as a monthly "final salary" style pension or only exist as a pot of money such as that in a SIPP. I believe that a pension pot of money that you can make withdrawals from as when you like is not included in the WEP calculation.
durham_lad is offline  
Old Oct 6th 2023, 1:28 pm
  #3  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,446
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

Any pension that results from "employment income that was not subject to SS deductions" is WEP-able, which effectively means all non-US pensions, unless you were contributing while working in the US, with voluntary NI contributions towards a UK state pension being a rare example of that. This includes pensions resulting from certain US federal and state government jobs where the employee is exempt from making SS contributions because the employee is covered by an alternative retirement pension scheme.

That said, Durham Lad makes an interesting point, that if you can hold off on claiming SS and fully draw down any private pension funds entirely to live on for a few months or years, then they'll be gone (not counted) for WEP purposes, and your SS payments will also be boosted a little too.

Last edited by Pulaski; Oct 6th 2023 at 1:35 pm.
Pulaski is offline  
Old Oct 6th 2023, 1:52 pm
  #4  
BE Forum Addict
 
Joined: Aug 2013
Location: Eee Bah Gum
Posts: 4,131
durham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond reputedurham_lad has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

Originally Posted by Pulaski
That said, Durham Lad makes an interesting point, that if you can hold off on claiming SS and fully draw down any private pension funds entirely to live on for a few months or years, then they'll be gone (not counted) for WEP purposes, and your SS payments will also be boosted a little too.
To expand on this idea. Actuarially the total money you receive from SS is the same regardless of whether you take it at any age from age 62 through 70. However, on death the surviving spouse will receive the higher of their own SS or the spouses' SS, so holding off on taking SS and funding your expenses by spending down other sources could be a good plan as that other spent money will definitely not be used in a WEP calculation and the surviving spouse may benefit for having a higher SS, and if you don't have a surviving spouse then the break even point for taking it later is whatever SS believe your expectancy was.





durham_lad is offline  
Old Oct 6th 2023, 3:41 pm
  #5  
 
Pulaski's Avatar
 
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,446
Pulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond reputePulaski has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

Originally Posted by durham_lad
To expand on this idea. Actuarially the total money you receive from SS is the same regardless of whether you take it at any age from age 62 through 70. .....
Meaning, estimated based on life expectancy statistics, which is why people should claim SS at an age which makes sense for them given their own personal health and life expectancy. In other words if you are in poor health, or your family (especially parents and siblings) has a history of premature death, then claiming early will maximize your expected aggregate lifetime SS income.

However, as noted in an article I read very recently, most people (who have made SS contributions during their working life) will maximize their aggregate lifetime income from SS by postponing drawing SS until the last possible date.

Last edited by Pulaski; Oct 6th 2023 at 3:44 pm.
Pulaski is offline  
Old Oct 6th 2023, 4:33 pm
  #6  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 874
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

The portion of your UK state pension that is based upon voluntary contributions is not subject to WEP. So in your case only 7/35 will be WEP’d.

The personal pension won’t be WEP’d so long as it is clear that there were no employer contributions.

The personal pension associated with contracting out of SERPS will be almost certainly be WEP’d, whether taken as a lump sum or a monthly amount because either way it is based upon a lump sum which itself is comprised of rebates from your NI contributions that were earnings based. It is similar to the UK state pension which is WEP’d. If cashed out as a lump sum an equivalent monthly amount will be computed and that is the amount what will be WEP’d.

It is possible to avoid WEP on any pension that would otherwise be subject to WEP if you forfeit all rights to the pension before you become eligible for that particular pension. Transferring company pensions into a SIPP before becoming eligible for any payment would achieve that, as would transferring a SERPs lump sum before meeting eligibility age which technically is 55 as of today. Transferring these pensions into a SIPP after you reach eligibility age for that pension will not protect them because when you apply for SS they will determine the monthly pension that you would have received from these pensions on the first date of eligibility and WEP that.

Note now that the AJ Bell SIPP has closed the door to non UK residents, there are no UK based SIPP providers left that will open an account to US based residents. There are some overseas providers that will do so but their fees are high and most require that they manage the funds on your behalf (with additional mandatory fees), so that strategy will be a calculated risk for anyone that does not have an existing UK based SIPP.

Glasgow Girl is offline  
Old Oct 6th 2023, 5:27 pm
  #7  
Forum Regular
Thread Starter
 
Joined: Apr 2012
Location: Cumbria to Northern Michigan
Posts: 30
trirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nice
Default Re: Which of my UK “pensions” are subject to WEP?

Thanks for the information - very helpful. A further question regarding the personal pension associated with contracting out of SERPS. I did recently turn 55. The balance in there is not that large (around £10,000 IIRC). I assume I could just cash that out now in its entirety under UK pension rules? Obviously I would be taxed on this in the US, but shouldn’t be in the UK as a nonresident.

if I defer taking social security until 70, will that lump sum taken 15 years previously come into the WEP calculation at that point?
trirod is offline  
Old Oct 6th 2023, 6:20 pm
  #8  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 874
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

Yes, you can cash out if you are over 55.I’m. I’m not sure how you go about getting it paid free of UK tax but there are others who can help you out on that one. However it is done you should just be liable for US tax, and the end result will be paying tax on that amount at your highest ordinary income rate because it will be treated as ordinary income.

Whether the lump sum is taken into account for WEP calculations is a grey area. One set of rules states they apply WEP to any pension, or lump sum received in lieu of a pension, on the amount that would have been received on the first date of eligibility which would be age 55 for a SERPS fund. In the case of a lump sum they would calculate a monthly equivalent using a standard formula and use for that amount for WEP purposes when you eventually receive SS. On the other hand it can be argued that a SERPS pension never entitled you to a pension, it is simply a lump sum and not a lump sum in lieu of a pension (which would be the case if you cash in a defined benefit pension) and therefore that rule does not apply. There are other ambiguities in the process that make lumps sums taken prior to receiving SS not at all clear cut.

In your case it sounds like WEP will only apply at 50% of what normally applies because you have 25 years of contributions, so about 25 cents on the dollar rather than 50 cents. If it was me, I would cash it in (or move it to a SIPP if possible) and see what what happens down the road. The likelihood of being WEP’d in the future if you cash it in now is much less than if you keep it until you apply for SS, but the truth is you won’t know until then.

Glasgow Girl is offline  
Old Oct 7th 2023, 6:30 am
  #9  
Forum Regular
Thread Starter
 
Joined: Apr 2012
Location: Cumbria to Northern Michigan
Posts: 30
trirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nice
Default Re: Which of my UK “pensions” are subject to WEP?

Originally Posted by Glasgow Girl
In your case it sounds like WEP will only apply at 50% of what normally applies because you have 25 years of contributions, so about 25 cents on the dollar rather than 50 cents. If it was me, I would cash it in (or move it to a SIPP if possible) and see what what happens down the road. The likelihood of being WEP’d in the future if you cash it in now is much less than if you keep it until you apply for SS, but the truth is you won’t know until then.
That makes a lot of sense to me. Thanks.
trirod is offline  
Old Oct 7th 2023, 7:36 am
  #10  
Forum Regular
Thread Starter
 
Joined: Apr 2012
Location: Cumbria to Northern Michigan
Posts: 30
trirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nicetrirod is just really nice
Default Re: Which of my UK “pensions” are subject to WEP?

Originally Posted by trirod
That makes a lot of sense to me. Thanks.
Although the way I read the rules for the situation where you have between 20 and 30 years of substantial earnings is that the maximum WEP reduction is reduced by 10% for every year over 20 years, but that would not necessarily matter if the reduction was limited by the years of work in the foreign country and this was lower than the maximum reduction.

So say my maximum monthly WEP reduction amount was $550. If I have 25 years of substantial earnings then that maximum reduction is reduced by 50% to $275. Say my UK state pension is $1,000 per month, but only 20% of that arose from work contributions and the rest were class 2 voluntary contributions. That means my maximum WEP reduction is $100 per month. This is less than the maximum of $275 due to having 25 years of substantial earnings but I don’t think that $100 per month is further reduced by 50%. So overall, my SS is reduced by $200 per month.

if I had 29 years of substantial earnings, then the max WEP reduction would be $55, which is less than 50% of the UK pension arising from work, so the SS would just be reduced by the $55

That is my understanding, but I’m happy to hear if that is mistaken.

Last edited by trirod; Oct 7th 2023 at 7:40 am. Reason: Fixed calculation error
trirod is offline  
Old Oct 7th 2023, 1:47 pm
  #11  
Furby
 
Glasgow Girl's Avatar
 
Joined: Apr 2016
Location: St. Louis, MO.
Posts: 874
Glasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond reputeGlasgow Girl has a reputation beyond repute
Default Re: Which of my UK “pensions” are subject to WEP?

You are correct. My comment about being WEP’d 25 cents for every SS dollar, rather than 50 cents was incorrect. Thanks for pointing that out, the more complex rules are hard enough to get your head around without mangling the easy ones.
Glasgow Girl is offline  

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Contact Us - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service -

Copyright © 2024 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.