WEP and the SSA
 

Hello All,

This is my first post, and I'm sorry it is so long, but I’m hoping that some of you might have some suggestions on how to go about dealing with the WEP (and the Social Security Administration). I searched for some of this on the forum, but I can’t find exactly what I’m looking for. First off, below is an excerpt from a letter I sent the Social Security Administration back in May. Yesterday, they responded simply with a copy of their Windfall Elimination Provision form and no cover letter or any attempt to provide any answers, which was disappointing and frustrating.

This what I sent (after being unable to reach them by phone)

“I am a U.S. citizen, and my SSN is ___________. Prior to becoming a citizen, I lived and worked for a number of years in the United Kingdom as a British subject, and I qualified for 42 % of a British State Pension. Upon marrying an American and moving to the United States, I made voluntary National Insurance contributions to my British pension credits for 23 years to bring them to the level required to collect the British State Pension, which I will begin to collect in 2017. These contributions were made using funds from my husband's and from my earnings, upon which U.S. Social Security taxes were paid. We have complete documentation of all such payments and have copies of all correspondence with the British government regarding the pension.


I have also gained enough Social Security credits while employed in this country to qualify for U.S. Social Security benefits, and realizing that the Windfall Elimination Provision will affect these benefits. I would like to understand exactly how they will be affected. I would also like to know how the effects of my British pension on U.S. benefits will be prorated, in view of the fact that U.S. Social Security taxes were paid on more than half of the credits used to qualify for the British pension. Lastly, I’d like to know whether the Totalization Agreement between the U.S. and the UK pertains to my case.

We reside in the greater Washington D.C. area, so if scheduling an appointment with the Office of International Operations were possible, we could readily come to Baltimore.”

So . . . were my questions unreasonable or not clearly stated? Has anyone of you dealt with the situation I describe above of making voluntary contributions to qualify for a British pension using funds for which U.S. Social Security taxes had been paid?

In advance, thanks for any answers or advise you can provide. The SSA certainly hasn’t been helpful!

Sandra

Re: WEP and the SSA
 

All this is detailed in the previous threads on the subject, if you need more comprehensive information to that below.

If you have paid 30 years of contributions into SS, WEP does not apply.

If you do not have 30 years of contributions in SS, that part of your UK State pension which is derived from the voluntary contributions is not taken into account when the WEP is calculated.

Re: WEP and the SSA
 

Sorry, your letter seems a bit long-winded, and even having read it twice I am not sure what you expected the SS Administration to do with it. :unsure:

You need to identify the key numbers that the SSA uses to calculate WEP - telling them that you had earned "42% of a British state pension" and you "paid for 23 years of voluntary contributions" makes no sense to the SSA, and even if I was going to do anything with them I would need hard numbers, in dollars, and it would take quite a bit of digging to get from your information to get the numbers to do the calculation to get to the numbers the SSA needs.

So, how much is your state pension, ..... in dollars?

How much is WEPable (the 42% presumably), .... in dollars?

How many years of "substantial" earnings did you have, for the purposes of receiving Social Security?

With those numbers you should be able to calculate WEP for yourself.

Further to Lansbury's comment - if you paid 23 years of voluntary NI contributions, how many years of "substantial" earnings do you have, because if you have thirty years of SS'able earnings, you escape WEP entirely.

Re: WEP and the SSA
 

There isn't any need to write to them to work the WEP amount out, just use the online WEP calculator.

https://www.ssa.gov/planners/retire/anyPiaWepjs04.html

Re: WEP and the SSA
 

The WEP'able fraction of your UK state pension will be 12/35ths (assuming you have paid 35 years of NI in total).

Re: WEP and the SSA
 

Useful, thank you for posting.

Is there any way one can work out the effect of a lump sum withdrawal from one's pension?

Re: WEP and the SSA
 

The value of the annuity you can purchase will be reduced by exactly the same percentage as the lump sum you draw. So if you could use the full value of your pension fund to buy an annuity of £1,000/mth, but instead drew a lump sum of 20% of the fund, the annuity you could buy would be 20% less, being £800/mth.

Re: WEP and the SSA
 

I was thinking of the WEP reduction in SS from reporting a lump sum withdrawal to SSA. Entering an amount for monthly pension in Lansbury's table shows the reduction in SS. I was wondering if there's a similar table where one can enter a lump sum withdrawal and see how much it would reduce one's SS. Or if there isn't one, how does SSA work out the WEP reduction in your SS when you report a lump sum withdrawal to them? Suppose I withdraw 20,000 pounds from my pension, is there any way I can estimate how much that would reduce my SS through WEP?

Re: WEP and the SSA
 

One is linked directly to the other - if you take a 10% lump sum your pension will be 10% less, then put that figure into the WEP calculator. ..... It's a two step process (i) reduce your pension by the percentage of the lump sum, then (ii) put the reduced pension figure in the WEP calculator.

The SSA has no interest in your lump sum withdrawals - WEP is based on pension payments, and you need to calculate your post lump sum pension.

Re: WEP and the SSA
 

Are you talking about a lump sum from UK state pension or a UK private pension? Make sure you understand the difference interpretation of "lump sum" in the UK and US as it might change how you are taxed.

If you receive a single large payment from a non SS pension the IRS will use standard interest rates and mortality tables to calculate an income for WEP purposes. So do the annuity calculation for the lump sum and stick that income into the WEP calculator.

Re: WEP and the SSA
 

Is this correct? If it is WEP could be avoided by taking the entire pension as a lump sum.

Re: WEP and the SSA
 

That. That right there is the info I was looking for--so it's a straight ratio of years worked in the UK over years required to qualify for the pension to determine the "WEP-able" portion of my British pension. The ratio represents the value of that portion of the pension upon which U.S. SS taxes were not paid (and, therefore subject to the WEP). The rest of the pension's value was earned through voluntary payments in the U.S., which were paid after U.S. taxes and exempt from the WEP. Now I can use the WEP calculator. Thanks so much.

BTW, Inland Revenue now requires only 30 years of National Insurance stamps payment to qualify for a pension, so my ratio is 21/30.

Thanks again, and thanks to those others who answered!

Sandra

Re: WEP and the SSA
 

I'll be making withdrawals from my UK personal stakeholder pension. I won't be getting a monthly pension because annuity rates are low so I'll be taking my pension by making withdrawals till it's finished. I received an annuity quote one or two years ago and there were many different rates (fixed, rising with inflation, choosing survivor benefit, etc), I could request a current quote but how would I know which one, if any of them, would be similar to the US's calculation that you mention. Is this interest and mortality table that you mention online so I can use it to get an estimate? There's also a complication that originally I had 2 pensions, an employment and a non-employment stakeholder pension that I continued to contribute to for 5 years after coming to the US, I closed my employment pension and transferred the proceeds to my stakeholder pension after I left my job, so I'll have to think about how to work out how much of my withdrawal originates from the employment pension which I understand is what I have to report to SSA.

Re: WEP and the SSA
 

It is not correct, they workout what your pension would have been if the lump sum wasn't taken. As you outline in post #10. On the paper forms there is/was a specific question about lump sums taken. I can't remember seeing a similar question in the online application.

Re: WEP and the SSA
 

Remember the WEP is only calculated once, when you apply for SS. In your case when you are coming up to claim SS get a quote for an annunity that your UK pension fund would buy. That figure is what you base your UK pension on. Decide how much of that is from your employment and give the SS office that figure.

As long as you can show SS how that figure was obtained and that it meets the WEP rules I doubt they will dispute it. When Mrs L claimed she found them very accommodating in respect to WEP.

Re: WEP and the SSA
 

If you qualify for the new UK state pension after 6th April 2016 you'll need 35 years of NICs to get the full amount.

Re: WEP and the SSA
 

This could be a can of worms. Hopefully you made those contributions more than 6 years ago and I wouldn't mention them in an open forum again.

If you are doing drawdown over a number of years you won't be liable to any UK tax, just US and your 25% UK tax free amount will also be tax free in the US.

Re: WEP and the SSA
 

I meant 12/30

Re: WEP and the SSA
 

I applied for SS online and stated that I wasn't getting a pension (as I haven't made any withdrawals yet so cannot be considered to have received or be receiving a pension) but that I would be at a future date. A couple of days later I got a phone call and they asked the same question and I confirmed no, he then said that on the application you've stated that you'll start getting a pension (my first withdrawal) on such future date, when you do phone us and let us know so you'll get the correct payment. At the moment I'm getting SS with no WEP reduction. When I make my first withdrawal I'll phone them to get WEP applied and bear in mind what you said, thank you.

I had thought that each time I make a withdrawal I have to phone them and they will make a WEP reduction based only on that withdrawal, it hadn't occurred to me that they may apply a one-time WEP reduction based on the value of the whole pension fund when I make my first withdrawal.
Thanks for the replies.

Re: WEP and the SSA
 

That's good.

Re: WEP and the SSA
 

Double check your contribution years. After 6th April 2016 the new state pension is being phased in and your pension will be calculated using your pension amount up to 6th April 2016 and then each contribution year after that
adds £4.45 to the weekly amount. You might not get the most you can with just 30 years of contributions.

Re: WEP and the SSA
 

Yes, and it is also a one-time calculation for exchange rate purposes. So if the pound falls in value against the dollar after your WEP has been deternined, you will lose out, but if the pound gains in value, you will win. If your WEP is calculated today you will be significantly better off than if your WEP had been calculated two years ago when the GBP/USD rate was $1.70.

Re: WEP and the SSA
 

I was wrong about that (thank you Lansbury for straightening me out), but your post reminded me, there is another strategy for reducing WEP that others have pursued - of delaying claiming SS while depleting other pension savings so that they are gone, or at least reduced before a claim for SS is made. .... Can you live on the 25% lump sum for a while, and then make other drawings on your non-US pension savings so that they are all gone before you claim SS?

Re: WEP and the SSA
 

Isn't there a foreign pension income threshold that WEP applies to? So in effect there is a limit to how much your SS payments will be reduced. I'd need to run the WEP calculator again but I thought there was a maximum dollar amount or % you could get hit with.

Re: WEP and the SSA
 

The WEP reduction is limited to one-half of your pension from non-covered employment.

Very bottom of this page https://www.ssa.gov/planners/retire/wep-chart.html

Re: WEP and the SSA
 

Thanks,
and by 'non covered employment' they mean UK State Pension? or any pension income from a non US SS source?

also on the chart...do you read the years of substantial earnings subject to WEP at your age 62 year? or use the number at the age you actually draw the benefit.

eg: Hit 62 in 1996 but didn't draw benefit at that time and had less than 20 years SS accrued, but continued working and ended up drawing SS in 2026 with 29 years lets say, paid into SS. I'm assuming they have to use the years count that you accrued when you finally wave the white flag (29) and then use the table to look up the WEP deduction based on the year you hit 62?

Re: WEP and the SSA
 

I just re -read it. The baseline has to be the year you turned 62 and that is your WEP deduction based upon how many years SS you have. It's Monday!

Re: WEP and the SSA
 

The "62" in that advice is wrong (it was discussed a few weeks ago on BE). The applicable date is when you apply for social security, whenever that is - you could be 65, 68, 70, or even older.

Re: WEP and the SSA
 

Pulaski is right. When Mrs L claimed at 65 they worked her pension out for that age and then deducted the WEP based on the UK pensions she was already receiving. The amount of those was based on the last payment she received, at the then current exchange rate.

Re: WEP and the SSA
 

Very confusing blurb from the SS. It makes it sound like the year you turn 62 will be your baseline WEP numbers as and when you finally apply. I thought it sounded a bit too good to be true.
How To Use The Chart



The chart is easy to use.

1. Go to the Eligibility Year (ELY) column to find the year you reach age 62 or became totally disabled (if earlier). If your birthday is on January 1st, use the year before you reach age 62.
   
2. Go to the column that shows the number of years you paid Social Security tax on substantial earnings. The amount shown is the maximum your benefit can be reduced in your Eligibility Year because of the Windfall Elimination Provision (WEP).

Re: WEP and the SSA
 

For SSA policy on WEP recalculation and related questions, see:
https://drive.google.com/open?id=0Bz...W1UVVl5NWxRdnM

Please note that US Rep. Sarbanes represents only constituents in the 3rd district in Maryland. If you have questions about the information in the above-linked document, please contact your congressman, not Rep. Sarbanes (unless he happens to be your congressman).

Re: WEP and the SSA
 

If I apply for SS at age 62 and I am not eligible for UK state pension until age 67, should I wait until I start receiving my UK state pension before I inform SSA?
Obviously I won't be in receipt of non SS pension for 5 years, so surely they don't apply WEP reduction until the point I am eligible for my UK state pension???

Do I have this correct?

Thanks

Re: WEP and the SSA
 

Yes.

SSA should be informed of your UK pension only when you start to receive it (or shortly before).

Are you sure that you want to start taking SS at age 62? If you don't actually need the money at age 62, you might be better holding off until "full retirement age" (probably age 67 for you). Or maybe not.

The absolutely best free analyzer that I know of to help optimize your SS is at:

http://www.bedrockcapital.com/ssanalyze/

This particular calculator takes WEP into consideration.

Re: WEP and the SSA
 

When my wife and I applied I can't remember if it was part of the online application, or when we were interviewed by the person at SS handling our application, but we were both asked about future pensions. If you are asked you would need to give whatever information is asked for.

Re: WEP and the SSA
 

Yes, I believe you are right. I (maybe foolishly) told them about my future entitlement to the British state pension at the time I filled out the form to commence SS payments. The result was they bombarded me with form letters asking about foreign pensions, from then on. I simply ignored these letters, until such time as I actually became entitled to receive the British state pension.

Re: WEP and the SSA
 

What about the other way around from the OP? Can I collect my UK pension at my state retirement age (66) without it affecting my Social Security in any way in the intervening four years if I wait until age 70 to file for Social Security?

I confess to struggling through the maze of WEP.

Re: WEP and the SSA
 

If you are not collecting SS there is nothing to be affected for those 4 years.

How it affects the eventual calculation of WEP I recall is answered somewhere in this thread. http://britishexpats.com/forum/usa-5...curity-733297/

Re: WEP and the SSA
 

Has this been established conclusively? I have seen you and others state that you believe this is how it should work, on more than one forum, but at that time nobody had any evidence that the IRS would agree with this approach. Has anyone successfully established this?

I am doing drawdowns, which will continue for several years, but currently declaring it all as taxable, I do not want to be the guinea pig that becomes the court case to establish what is correct. If I see proof that the drawdown approach allows 25% to be non-taxable, then I will issue amended returns (I have only been doing this for 2 years).

Re: WEP and the SSA
 

I have the option to pay additional class 3 NICs in the UK to increase my UK pension. I have only 25 years of NI and so the payments would make economic sense to top me up to say 35 years EXCEPT that I am unlikely to reach 30 years of SS. Am I right in understanding that effectively half of any pension increase I achieve( due to additional voluntary NICs) would be used to reduce my SS due to WEP? Thanks in advance

Re: WEP and the SSA
 

No, because that portion of your British state pension that is derived from voluntary NICs is exempt from WEP.