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I spent 30 years working for a US megacorp: however, I joined the company in the UK. I was on the UK payroll for about six years, and therefore a very small part of my pension is paid by the UK company (with COLA). I was astounded, when I applied for Social Security, to find that the US government was going to reduce my benefit by the amount of my UK pension.
How did that make sense? I had not paid into SS during those years, so they were excluded from the calculation of my benefit. If, instead of working in the UK, I had stayed home with a small child in the US, I would have the same number of missing years in my SS record, but I would have kept the entire payment.
There wasn’t anything I could do about it, and I figured it wasn’t a large sum, but it was annoying. Obviously, I was pleased by the repeal of this “Windfall Elimination Provision” (Windfall? What windfall?) effective January of 2024. My monthly payment has increased by $50 and last month SS deposited an additional $700 in my checking account, for January 2024 through February 2025. I had written the deduction off as a lost cause, and not much money, but it actually works out that the government kept $6,300.
I seem to remember someone complaining about the elimination of the WEP here recently. I am not complaining.
Hello Kathy,
I am new to humbledollar.
I think the crux of the matter is that Social Security is designed to replace a greater percentage of a low wage earner’s income than a higher wage earner’s income. It’s graduated (just like the income tax) to give more to those who earned less.
Social Security is looking at your average earnings. The zeros in your calculation make it look as if you earned no money those years. Someone who stayed home with children would actually have earned zero and would have less overall earnings.
Your experience is perhaps a little atypical.
A better example would be someone who worked 20 years as a police officer (they don’t pay social security taxes) and then worked 15 years as a security officer as a college (they do pay social security taxes). His average earnings would look smaller because there would be 20 zeros and only 15 years of earnings. He would be given a greater percentage of his earnings because the average looks smaller.
Another point to note is that because police don’t pay social security taxes the FOP union usually negotiate larger pensions for them.
That would make some sense, except they simply deducted the amount of my UK pension.
Glad to hear your good news, Kathy. I’m sure you’ll spend it wisely. 😉
Lol. I should arrange dinner out to celebrate. 😌
Or she could invest it, and if the average historical market return is earned in __ years it would be worth…😂
But where did the money come from to pay the WEB, especially the retro portion? It is coming from the already depleted Trust. So far $7.5 billion has been paid.
For people who benefit it’s great, but it’s fiscally irresponsible as would be all SS payments being made tax free.
It shifts more needed funding to middle class working Americans.
Please explain the justification for withholding the money in the first place. My UK pension had nothing to do with SS. If I had spent those six years working in the US I would have kept the $50 AND had a larger SS benefit. Why penalize me because I was working for the UK company?
It was targeted at people who worked government or foreign jobs that provided pension plans and whose income was not subject to social security taxation. It was more complicated to read about than I expected, but it had something to do with the ratio of AIME to PIA being higher for people who worked such jobs for a portion of their career compared than for workers whose whole career was spent paying into social security. I’m sure the motivations had less to do with actual fairness and more to do with targeting workers with pensions considering this was a Reagan era policy.
To offer clarification, I found this fairly straight forward explanation which I copied from SmartAsset.
”The WEP and Government Pension Offset (GPO) both reduced Social Security benefits for retirees with pensions from non-covered employment, but they applied in different ways.
The WEP reduced personal Social Security benefits – such as retirement or disability benefits – for individuals who worked in both covered and non-covered jobs. It adjusted the benefit formula, often lowering payments for those with fewer than 30 years of substantial earnings under Social Security.
The GPO affected spousal, widow and widower benefits distributed by the Social Security Administration, reducing them by two-thirds of the retiree’s non-covered pension. This often left individuals with little or no spousal benefits.”
My husband was affected by the WEP provision. In addition to his government job, he also worked several part time jobs over the years and paid SS taxes into the system. The WEP basically eliminated any SS payment based on his own earnings for which he was taxed and the GPO portion eliminated any spousal benefit he might apply for based on my earnings. Spousal benefits are available to both spouses who worked outside the home as well as those who stayed home to raise families.
i have no idea, though, how or why Kathy was affected by a non-US pension. That’s a head scratcher.
Because the WEP applies to foreign pension systems as well.
I came under the WEP, but I don’t believe it affected the benefit formula – they simply withheld the amount of my UK pension. I do wonder how they would have found out about the pension if I had denied having one.
Did you pay FICA taxes on the earnings accumulating your UK pension?
Of course not, which is why the earnings and the quarters didn’t count towards my SS benefit. My complaint is that the SS benefit was reduced by the amount of the UK pension, which had nothing to do with SS. As I said, if I simply hadn’t worked for those years, my SS benefit would have been the same (before the deduction).
Fair or not, I don’t know, but the question of where the money is coming from and what it means for the SS trust is still important.
“I had written the deduction off as a lost cause, and not much money, but it actually works out that the government kept $6,300.”
There’s a reverse investing lesson here. This shows that a little invested each month results in a much larger amount.
True, and I didn’t even calculate what it would be worth if I’d invested it each month.
Update: depending on the calculator, if I had invested $50/month in VTSAX, Vanguard’s Total US Stock fund, and reinvested dividends, I would have just over or just under $15,000 today. Not so insignificant.
Why is this getting down voted? If you have a better calculation, please share it.
Every little bit helps. 👍 Chris
Absolutely!