Q & A

Ask Rusty – Will My U.K. Pension Affect My Social Security?

Dear Rusty: I lived and worked in the United Kingdom prior to coming to the US at age 45, which qualified me for a UK State Pension worth the equivalent of about $740 US dollars per month. Since moving to the US I have contributed to the US Social Security system for 14 years and my estimated US Social Security benefit is $1,643 per month. I have heard about something called “WEP” and must be honest and say I don’t fully understand. Can you provide some advice or references so I can understand what happens to these sums when I retire? I don’t have any other pension income, so understanding these numbers is important. FYI, I hold both US and UK passports and will retire in the USA. Signed: Blessed from the UK

Dear Blessed: The “WEP” provision you refer to is known as the “Windfall Elimination Provision.” It affects anyone who is eligible to collect Social Security benefits, but who also has a pension from another entity (corporation, public agency, or foreign country) which did not participate in the U.S. Social Security program (meaning that SS FICA payroll taxes weren’t paid during that employment). WEP will reduce your US Social Security benefit by using a special formula to compute your benefit amount. Generally, the WEP reduction is determined either by the number of years of substantial SS-covered earnings that you have, or the WEP maximums (one of which is that your U.S. Social Security can’t be reduced by more than half of your non-covered pension). With less than 20 years paying into the US system, you will incur one of the maximum WEP reductions.

Something else important to understand is that the current estimate you have from Social Security doesn’t include the WEP reduction. That estimate assumes that you will continue to earn at your current level until you reach your full retirement age. You haven’t shared your birthdate, but from your email I assume you are now about 60 years old. If you were born in 1959, your full retirement age (FRA) for U.S. Social Security purposes is 66 years and 10 months (if you were born after that your FRA is 67, and if you were born before that subtract 2 months for each year prior to 1959). Your FRA is when you will get your “full” SS benefit. If you claim before that (age 62 is the earliest you can claim) your benefit will be reduced (even before WEP), and if you wait beyond your FRA you’ll earn Delayed Retirement Credits (DRCs) which will increase your benefit amount. DRCs stop at age 70.

Based upon what you’ve told me, I believe that your WEP reduction will probably be limited to one of the maximums, either half of your monthly U.K. pension, or the maximum for your “eligibility year” (2022?). We don’t yet know what the standard maximum WEP reduction for 2022 will be, but for 2020 it is $480. That is the most that your Social Security benefit could normally be reduced. But if your U.K. pension is about $740 USD then your maximum reduction should be about $370, because the WEP reduction can’t be more than half of your non-covered (U.K.) pension. So, your US Social Security benefit of $1643 will most likely be reduced by about $370 to about $1303.You will need to contact the UK pension system to see if any of your UK pension will be offset by your US Social Security benefits.

 

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.

Comments On This Topic

  1. Hi Rusty,

    I lived in the US for 17.5 years and qualify for a small SS pension of – according to today’s calculation – $1,190 per month. I have lived in the UK since 1996 and have worked variously though that period – although a lot of the time I was doing charitable pursuits without a salary. It appears I am applicable – JUST – for a very small UK state pension. At MOST this would be about £50 per week or £200/$278 per month. (It will probably be less.) In the letter I received from the (UK) Department of Works and Pensions it clearly stated that I don’t need to apply for this if I don’t wish. I will be 66 in mid July and that is the date I could start receiving that small UK state pension payment. I can receive the full SS pension payment in September when I am 66 years and two months. I don’t really understand about WEP … but I’m thinking it may be best just NOT to take the UK pension at all. If I leave it would I be able to take the full SS pension payment? That is what I had planned on as I didn’t think I would get anything from the UK. OR … will the SS Authorities take a WEP figure from me even if I do not action the UK pension (i.e., receive no income from it whatsoever). Much thanks for your brilliant service.

    • The “WEP” (Windfall Elimination Provision) will only apply if you actually claim your UK benefits – if you don’t, your SS benefit will not be reduced by WEP and that, of course, is a decision only you can make. But I would offer you this additional information for consideration: the maximum reduction that WEP would inflict to your US SS benefit is 50% of your UK pension amount. Thus, if you take your UK pension, your SS benefit will be reduced by somewhere between $138 – $187 USD (depending on conversion rate). However, if you do take your UK pension you’ll gain the full amount of your UK pension (somewhere between $277 & $385 USD), which will offset your US SS benefit by half of that amount. In other words, your net gain will be about half of your UK pension amount. The bottom line is this: if you don’t take your UK pension then you’ll get your full US SS benefit (WEP won’t apply); if you do take your UK pension WEP will apply, but the offset to your US benefit will only be half of the full amount of your UK pension, yielding you a net gain.
      Russell Gloor
      National Social Security Advisor
      The AMAC Foundation

  2. Dear Rusty, I have 17 or 18 years of substantial earnings. I have reached FRA and receive a UK pension calculated by Social Security (exchange rate on 1/4/2021) of $770. Am I correct in thinking the most they can apply to WEP is 50% of this amount? Thanks in advance

    • Yes, the maximum WEP reduction to your U.S. Social Security benefit will be 50% of your UK pension amount, or $385 (using your number). The WEP reduction to your SS benefit is computed using a special formula based upon the number of years of substantial SS earnings you have, but the reduction cannot be more than half of your “non-covered pension” (your UK pension).
      Russell Gloor
      National Social Security Advisor
      The AMAC Foundation

      • I was told by an advisor that the 50% was actually taken from your number at age 62. Then, your final amount was based on how many months you worked after that before claiming.

        • The actual computation of your WEP reduction isn’t done until you claim, but when it’s done it will use factors (known as “bend points”) from the year you turned 62 to figure your WEP reduction. Just like if WEP didn’t apply, the longer you wait to claim the higher your benefit will be, but the WEP reduction will use “bend points” from your “eligibility year” (the year you turn 62) to compute the reduction applied when you claim.
          Russell Gloor
          National Social Security Advisor
          The AMAC Foundation

  3. Dear Rusty: As I prepare to file with US Social Security for retirement I too am researching the impact of WEP. My situation is as follows: (a) – I left the UK in 1975 (age 24) for US graduate school. I had no meaningful employment history in the UK (permanent student) but my family insisted I make minimum voluntary UK national insurance contributions (post-tax, no employer contribution, not employment-related) which over the years since have qualified me to receive the UK “Basic” state pension of circa $750 per month. Is this pension WEP-relevant? (b) Following graduate school in the US, I lived and worked in Australia 1980-1991 where I was a participant in employment-related superannuation schemes. Departing Australia, I received lump-sum payouts “rolled over” into tax-advantaged superannuation accounts. Are these payouts WEP-relevant, and if so at what point? When received, or now, after circa 30 years accumulation? (c) Since 1/1/92 I have been in continuous employment in the US without any employment elsewhere. I have been planning to file in April 2021 (when I turn 70) but will continue in full-time employment for a period of years beyond that date. Given the circumstances I have reported under (a) and (b) above, should I delay filing until I have reached the 30-year US Social Security threshold when, as I understand it, the circumstances of employment history elsewhere no longer apply, or would that make no difference in my case? I apologize for the length of this query. If it is too specialized, I would appreciate your suggestions where I should seek advice.

    • a) If your U.K. pension is (or was) based entirely on your voluntary contributions to the U.K. program, your U.K. pension will not cause the Windfall Elimination Provision (WEP) to apply to your U.S. Social Security benefits.
      b) Since your Australia “pension” is employment-based, those lump sum pension deposits by your Australian employer into tax-advantaged annuities will be considered a pension for WEP purposes. U.S. Social Security will make a determination of how to convert the lump sum payouts to a monthly pension equivalent for WEP purposes, but I believe they will use the original deposited amounts, not the higher amounts those accounts now hold due to growth. You will need to contact U.S. Social Security to find out how they will convert your lump sum Australian pension deposits into a monthly equivalent to be used for WEP purposes. FYI, a residence-based (non-employment) Australian Social Security pension does not cause WEP to be invoked for your U.S. Social Security benefit.
      c) Assuming that all of your 29 years of employment in the U.S. have been for an employer (or employers) who participated in the U.S. Social Security program (both you and your employer(s) contributed to the Social Security program), if you claim U.S. Social Security benefits in April 2021 the WEP effect (reduction) would be minimal. WEP does not apply at all if you have at least 30 years of SS-covered substantial earnings, and with 29 years your reduction would be small compared to what you would get if WEP didn’t apply. At age 70 in April 2021, your U.S. Social Security benefit will reach maximum (which will be about 32% more than your benefit would have been at your full retirement age). If you claim your maximum SS at 70, WEP will still apply (because you don’t yet have the full 30 years) and initially reduce your maximum benefit by about $39. But, when you finally achieve your full 30 years of contributing to the U.S. Social Security program through your substantial earnings, WEP will no longer apply and your benefit amount will be recomputed without WEP.
      I hope this answers your questions, but if you need additional information please contact us via email to ssadvisor@amacfoundation.org (or by phone at 1.888.750.2622).
      Russell Gloor
      National Social Security Advisor
      The AMAC Foundation

  4. Dear Rusty, my question is similar to the previous question re UK/US retirement benefits.
    I turned 66 years of age in September sadly that was the month I lost my job due to the restrictions put on my employer because of the Covid virus.
    I have worked here in the USA for the past 31 years and have been notified I qualify for full retirement here in the USA. I also qualified for a small UK pension roughly $350, my question is how will the WEP reduction affect my UK/US retirement benefits if I sign on to Social Security benefits.

    • Since you turned 66 in September, you have already reached your full retirement age (FRA) and your SS benefit will be the full (100%) amount you’ve earned by contributing to the U.S. Social Security program. If at least 30 of your years of U.S. earnings while contributing to Social Security have been “substantial” then you will not be subject to the WEP reduction as a result of your U.K. pension. Social Security’s definition of “substantial” is a bit different for each year, but if you were working full time for at least 30 years, each year would almost certainly qualify as substantial. But just so you have it, here is a link to what SS considers substantial earnings for each year. As long as you earned at least the base substantial amount for 30 years, WEP won’t apply to you. Here is the link to Social Security’s Substantial Earnings chart: https://www.ssa.gov/pubs/EN-05-10045.pdf
      Russell “Rusty” Gloor
      National Social Security Advisor
      The AMAC Foundation

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