Giantaxe

That's funny; I have the same combination

Yep, got to love those Geordie accents on the 'phone.

nun

The regional accents are the best bit about devolving the civil service.

mattlmt

You are right regarding the focus not being on Foreign Pensions, but if we can get rid of WEP it will include (I hope) WEP on foreign pensions. Of course if nobody supports the repeal by actively showing support for it, then it stays!

For my part, my WEP deduction will be very minimal if at all, but the repeal is a good cause in helping the United States move socially out of the Nineteenth Century!

Giantaxe

I would be very surprised if the WEP got repealed. Such a repeal would primarily benefit past or present public sector workers. Given that one party in Congress has essentially declared war on such workers, that party is highly unlikely to vote for it.

mattlmt

Unfortunately you are probably correct for the time being, but it's a process that should be maintained. Right now it has co-sponsorship in the House of around 167 reps, and about 19 Senators in the Senate.

What I understand is that the Senate bill (S.2010), introduced by Senators Kerry and Collins last December, is getting bi-partisan support and is now under review by the Finance Committee of the Senate. The Bill, Social Security Fairness Act, if passed would cut out the need for a Sustainable Earnings threshold and delete everything that is currently on the Social Security Administration's website regarding WEP. By inference that means Foreign Pensions - at least I hope so!

From what I have heard not many reps know of the repeal or WEP in general. A brief email to your rep (mine is Kurt Schrader of Oregon) and Senators asking them to co-sponsor the House bill (HR 1332) and Senate bill (S.2010) would help.

You can check to see if your rep has sponsored the bill HR 1332 at:

http://www.nea.org/home/16491.htm

and of course the Petition I've been touting. We need fifty signatures and currently have thirty-four!

nun

Why would repeal of WEP increase fairness? Given the current system WEP seems fair to me. Now if removal of WEP was accompanied with a proposal to remove the income linkage to SS completely and give the same basic benefit to everyone according to years of contributions I could get behind that.

mattlmt

Hi Nun,

If you read the act repeal and looked at the actual law, the Sustained Earnings Threshold would be eliminated. I agree with you that benefits based on years of contribution are the best way, not a penalty to reduce those benefits because someone has not reached some arbitrary income figure!

I also believe to be fair that there should not be a FICA tax upper income limit on earned income. Right now as a percentage of earned income, upper paid workers get full SS benefits that are maintained, after the high paid worker's investment is used up, by a bigger pool of lower paid workers.

If someone is making $300,000 per year and paying 7.2% FICA on the first $110,000, they pay the equivalent of 2.6% of earned income to FICA.

Someone makes $25,000 per year they pay 7.2% to FICA.

The upper income person gets a higher check by far from SS and that's fine if they pay into the system on all earned income, but they don't!

What happens is a pool of low paid workers, paying 7.5%, end up supporting the higher paid workers while at the same time being penalized, sometimes with WEP, for not making the Sustainable Earnings threshold.

I'm with you on this. You get out what you put in, or you have system where you make a standard weekly contribution and everyone gets paid the same pension on retirement.

nun

I see WEP differently. Those on low income get a larger SS benefit proportional to their salary that those with higher incomes. WEP stops people with less than 30 years of contributions from being treated as lower income and thus getting a disproportionally large SS check. It sounds as if we'd like to see similar things coming out of reform, I just don't agree with removal of WEP on it's own.

mattlmt

I agree with you on US reform. In principle, I'd prefer a standard weekly or monthly NI contribution divorced from earnings and a standard benefit amount on retirement based on years contributed.

So if a Federal worker wants to work beyond their Federal retirement they receive exactly what they are entitled to. A person who has fifteen years work in the US and fifteen years work in the UK is not penalized by WEP because they don't reach some actuarial amount.

On your point about WEP's readjustment we obviously don't agree 180 degrees with the logic. People contributing to the system at 7.2% should get a proportionately higher check relative to their income than those with a higher income paying only 2.6%, or 1%, or 0.001% of their earned income.

There is no need for WEP on lower paid people, just a meaningful upward adjustment on higher paid people. People like Bill Gates will get, ironically, a Windfall!

theOAP

Just to stir things up:

I've read most of the published arguments about the 'fairness' of WEP pertaining to varying levels of retirement income due to foreign pensions. Bullshit! WEP is particularly 'unfair' to those with foreign pensions on low retirement incomes.

To start with, as has been noted, foreign pensions and 'nonFICA employment in the US' are two completely different subjects. Where foreign pensions are concerned, IMHO, WEP is about the US expat living abroad and the loss of tax revenues to other countries due to totalisation agreements and the use of FTCs (tax credits). To compensate for the few who might benefit without WEP the vast majority now lose benefits, whether US expat or UK expat in the US. WEP is a win/win for the SSA where foreign pensions are involved.

I agree that a discussion about a State pension (SS) based solely on years of contributions (as the UK State pension) and not including computations on 'income/contribution level' as well is the subject for US SS reform only. WEP is a different topic.

The UK expat resident in the US loses on both the reduction of SS due to WEP and the taxation of worldwide income. The US expat resident in the UK offsets any tax due the IRS on US SS by either the treaty or FTCs, with all tax revenues going to HMRC (albeit at 20, 40, or 50%).

I'll offer my opinion about what would happen if WEP were eliminated. The treaties would be re-written to void exemption on US SS (the US/UK treaty), and FTCs would not be allowed as an offset. The US would tax all US SS benefits (which is the case for US expats in most countries outside the UK). Stopping payments to US expats would be a step too far (they've made the contributions), but freezing the SS benefit to US expats, ala the UK State pension in some countries, could happen. The UK expat resident in the US could benefit, the US expat resident in the UK may roughly breakeven with a situation where WEP is in place (and dependent on inflation). The only concern is the increased tax revenues collected by the IRS would not go to the SSA to offset increased payments.

I agree with Giantaxe, it won't happen. But, I would be pleased if I were proved wrong.

mattlmt

I think I read somewhere in the UK Pension literature online about a Special Provision that you use Class 3 Contributions if you are expecting to reach State Pension age by April 2015, and you have to backpay for a lot of missing years.

If so you can backpay 12 years of Class 3 NI Voluntary Contributions for the years stretching back to 1975. You pay the rate in effect on each year.

I hadn't paid anything since my emigration in December 1975, so this was an easy decision. Class 2 rates I think you can backpay for up to six years maximum, but who really knows! The Class 3 rates have only really jumped and almost doubled over the last three or four years.

If you have a bit of time before you reach UK State Pension age then it looks as, from what people are saying on the forum, Class 2 is the way to go.

However, if you were employed here and paying US FICA from employment and also contributing Class 2 Self-Employment Contributions voluntarily, I'm not convinced you won't be seen by the SSA as paying an earned income contribution to both the UK and US systems for the same "work", and it will be included in a possible WEP calculation. I hope not! The US/UK Reciprocal Agreement is supposed to relieve the possibility of double taxation.

nun

A UK state pension from voluntary NICs is not taken into account for WEP.

https://secure.ssa.gov/poms.nsf/lnx/0200307290

Section 5 is relevant and states

mattlmt

Not to flog this thing to death, but I read this from SSA as:

Class 2 Self-employment NI Contributions are not applicable as Voluntary Contributions (but seen as worked contributions as Class 1) if you are working in the United States in covered employment, or self-employment that normally requires payroll taxes (to the USA) as a resident of the United States.

It's just my take on it and I maybe completely wrong, but it would be good if we could have someone who has actually gone through the process let us know their experience!

I didn't qualify for Class 2, but it's still a great deal with Class 3 especially if you claim on a spouse!

nun

I'd make a distinction between Class 2 contributions paid as someone self employed in the UK and Class 2 voluntary NICs paid while living abroad.

mattlmt

Nun, I'm having a bit of a time understanding Part 3 of the SSA document you linked in that the US does have a Totalization Agreement with the UK.

Does this mean that any portion of a UK pension earned from work before January 1, 1995 is not calculated in WEP?

My main work in the UK was pre-1975, but after 1956.

Any feedback much appreciated.

Thanks,

Matt