dunroving

I just went back into the site Nun linked to and tried different permutations of answers and I think the one that is making the difference, so to speak, is the one asking "Do you or will you receive a foreign pension because of need, voluntary contributions, citizenship, or residency that is based in part on your earnings?"

Answering "No" leads to the page that says WEP does not apply, and answering Yes, leads you to a page that says WEP will apply. (all previous questions seemed to lead either to a page saying WEP does not apply (for a Yes answer), or to another question (for a No answer).

This is the question I find a bit unclear because of semantics. So:

Is a UK state pension received "because of need"? (for most people, I assume "No")

Is a UK state pension received "because of voluntary contributions"? (for people working in the UK, I assume "No" - NI deductions are not "voluntary", but for people paying Class II, the answer would be "Yes" - you choose to pay them and for Class III, they are even called "voluntary")

Is a UK state pension received "because of citizenship"? (for most people, I assume "No" - UK state pension is not received "because" of citizenship; indeed citizens of other countries can receive UK state pension if they paid into the system)


Is a UK state pension received "because of residence"? (for most people, I assume "No" - UK state pension is not received "because" of UK residence; indeed people resident in other countries can receive UK state pension if they paid into the system)

- the logic above would mean that expats in the US receiving UK state pension resulting from Class II's would be WEP'd (though on here the consensus seems to be they would not be WEP'd).

- Similarly, the logic above would mean that expats in the US receiving UK state pension resulting from Class I's (via salary deductions) would not be WEP'd (though on here the consensus seems to be they would be WEP'd).

Can someone point out the error in my interpretation?

theOAP

One place to look for the mismatch; is your age at retirement on the online calculator the same as your age at retirement on your statement?

nun

You need to focus on the final clause in the question the "that is based in part on your earnings?" bit. The bits before that are just covering all the ways that you might qualify for a pension, the important bit for WEP is whether the pension has an earnings related component ie whether you get a bigger pension if you earned more.

So if all you get is the basic state pension then there is no earnings related bit and no WEP. If you get SERPS or S2P those are related to earnings and WEP would apply. The next question is whether you can split the basic pension out from the earnings related bit and only use the SERPS or S2P amount in the WEP calculation, that would certainly be my inclination and I would present it to SSA as two separate pensions. If you contracted out you will get the basic state pension and an increased UK employer pension and that private UK pension will count towards WEP.

If all your NICs have been voluntary you will only qualify for the basic state pension so there will be no WEP. Also from 2016 onwards the UK has eliminated all earnings related components in the state pension and gone to a new flat rate that everyone gets whatever they earn......so there's no WEP on that new pension.

nun

Another issue might be whether you have the output set at "today's dollars" rather than "future inflated dollars".

Giantaxe

I think the statement from the SS assumes that you will earn whatever you earned in the latest year you had income until your full retirement age.

theOAP

I've completed both options on the page nun linked to in his previous post:
The Payments Abroad Screening Tool and Nonresident Alien Tax Screening Tool, on the Windfall Elimination Provision and Foreign Pensions page.

I answered the questions in line with a (my) company pension. I know for a fact that US SS does have WEP applied. It has been applied to the pension for the past 6 years.

The questions appear to be straightforward:

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

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?
Straightforward, and clear.

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

Do you have 30 or more years of substantial work under the U.S. Social Security system?
Straightforward, and clear.

Are you entitled to a U.S. Social Security benefit or a foreign pension based on a totalization agreement after December 1994?
Straightforward, and clear.

Are you a U.S. citizen or resident who receives a foreign pension entirely based on the Social Security taxes you paid to both the U.S. and a foreign country on the same earnings?
Seems to be straightforward, and clear.

Do you or will you receive a foreign pension because of need, voluntary contributions, citizenship, or residency that is based in part on your earnings?
Company pension(s):
Not because of need. (was not "assistance" or a social benefit)
Wasn't voluntary, enrollment was automatic for any company employee.
It was a (British or French) pension. I was a US citizen both when contributing and when I started receiving the pension, and not British or French at the time.
Residency; I was resident in the UK for 2 of the 7 years on which the French pension is based.

Was it based on my earnings. If I answer "no" then no WEP is applied. If I answer "yes", the pension(s) are WEPed.

I believe the correct answer is "yes", the pension(s) were based on earnings. How much earnings isn't the question, it's whether it's a pension based solely on having earnings.

I agree with nun. It's the earnings related component, but the question IS NOT clear. It's the "because of" that throws you and implies that if the foreign pension is not based on one of the four options, then the answer would be "no", it's NOT paid due to one of the options.

My summation: because of the ambiguous last question, the Tool is worthless! The only point of debate as to the Tool's accuracy is whether a company pension, even with automatic enrolment, is a voluntary pension.

nun

Here are my answers. My UK NICs are made up of 3 that I got for being in sixth form college between 1978 and 1980 and 29 years of voluntary contributions. I will get the new flat rate pension......the new pension will not be WEPed.

Are you entitled to or eligible for a U.S. Social Security benefit on your own Social Security number?
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?
No

Are you entitled to a foreign pension based on employment and were you eligible before January 1, 1986?
No

Do you have 30 or more years of substantial work under the U.S. Social Security system?
No

Are you entitled to a U.S. Social Security benefit or a foreign pension based on a totalization agreement after December 1994?
No

Are you a U.S. citizen or resident who receives a foreign pension entirely based on the Social Security taxes you paid to both the U.S. and a foreign country on the same earnings?
No.....those 3 years of NICs as a student mean I can't answer yes

Do you or will you receive a foreign pension because of need, voluntary contributions, citizenship, or residency that is based in part on your earnings?
No.......I will get the new flat rate pension and there is no earnings related component.

theOAP

I've not commented before when this has been mentioned, but I'm very uneasy with the conclusion.

The UK State Pension has always been based on a flat rate. When I started, it was X/44ths where each year you contributed (X) was divided by the same 44ths. The SERPs part was miniscule, and was only deducted after the pension had been calculated by 44ths. I was contributing the maximum amount under law to the State Pension each year. Someone who contributed the minimum amount for the same years would receive the same initial calculated State Pension as I do, prior to the SERPs calculation.

nun

Well the current UK state pension has two parts......basic state pension that does not depend on earnings and SERPS or S2P (depending on when you retired) that give you an additional pension related to how much you earned. That's why I suggested that people with existing UK pensions should separate out the basic state pension from SERPS or S2P so the only the earnings related pension is used for WEP. People who opted out of SERPS or S2P won't have to do that, theri basic state pension won't be WEPed, but their higher private pension will be.

Under the new rules there are no income related components to the UK state pension so no WEP.....I don't see the worry.

dunroving

Yes, that was the first thing that came to mind. SS statement gives you estimation of pension at retirement age (for me, 66 yr 6 mths), and also if you take it at 62.

Both figures were different when I put these ages into the calculator.

nun

Did you enter your SS earnings for 2014 and 2015?

dunroving

Hmmm, I know you are far better than I at spotting the Devil in the details but, from my reading on several threads about this:

The term "flat rate" pension is a misnomer and implies that everyone will get the same if they have 35 years' contributions, but this isn't the case (all the following AFAIK).

People who opted out (because they were in employer pension schemes) won't get the full amount.

People who have fewer than 35 years but who, under the old system, would have more (due to SERPS/S2P) than they would under the new system, get the higher amount - thus getting an amount that is affected by/related to earnings.

You and theOAP are raising very important points about the interpretation of the WEP questions, which IMO are somewhat ambiguous and open to various interpretations. I do see your point about the Class II's though.

But I prefer theOAP's interpretation that if you answer "No" to the "because" questions (as per my email and theOAP's subsequent breakdown), then the answer is "No" - because if you don't satisfy the first part, then the second part is irrelevant. I also think the point about whether company pensions are "voluntary" is also interesting.

dunroving

Yes, I have been at zero since 2007 and IIRC, the calculator has zeroes unless you change them. My SS statement also assumes the same income as past year (or year before? Can't remember) will continue to retirement and for me this is correctly zero (unless I can be dragged back to the US to work again before retire!)

dunroving

I think the correct situation is that (to borrow your text and change) "the statement from the SS assumes that you will earn whatever you earned in the latest year until your full retirement age"

- the latest year I had income was 2006 and I am pretty sure the statement assumes I will continue earning at the same rate as the latest year "period" (i.e., in my case, $0). I recall reading that in the statement and will try to find it.

ETA: It says "For 2015 and later (up to retirement age), we assumed you'll continue to work and make about the same as you did in 2013 or 2014."

theOAP

The current basic state pension may have two parts, it depends on the individual and how (and when) they contributed. A possibility exists for having two parts. Prior to 2002, SERPS existed as a possibility for a second element, but only those who were working could qualify. After 2002 the Second State Pension came into existence, and the number of those who could contribute increased. Those who couldn't contribute to S2P were the self employed and those who were "contracted out". Both SERPS and S2P were earnings related, but only once you earned a certain level of income.

As for the earnings, today, if you earn £150/week (and not contracted out), you will not contribute to the state pension via earnings. If you earn £160/week, you do contribute to the state pension. Earnings related???

I've checked a yearly statement for a state pension:

HOW YOUR BENEFIT IS MADE UP
basic State Pension................................ £XX.00
additional State Pension............ £ZZ.90 (not miniscule)
less contracted out deduction..... £ZZ.00
...........................Total payable £00.90 (miniscule)

......................Amount of weekly pension £XX.90

Line 1, the basic State Pension is calculated on Y/44 where Y = the number of years of contributions. Anyone with an equal Y number of years will receive the same amount, regardless of how the contributions were made. The contracted out amount is included on the company pension, increasing it by £ZZ.00.

We're back to the old question; for SS, does the SSA consider line 1 as a foreign pension subject to WEP, where in this case, it exists due to Class 1 contributions via employment (earnings), and not voluntary contributions (or other)?