Great News for British Expats - US Windfall Elimination Provision (WEP) to be abolished
British expats living in the United States could benefit significantly from the proposed abolition of the Windfall Elimination Provision (WEP) under the Senate’s 'Social Security Fairness Act.'
This long-awaited reform could reshape retirement planning for many expatriates, particularly those who have worked in both the UK and the US.
In this article I'll explain what this means for British expats and how it could positively impact your financial future.
What Is the Windfall Elimination Provision (WEP)?
The WEP, introduced in 1983, reduces Social Security benefits for individuals who receive pensions from non-covered employment - jobs not subject to Social Security taxes. This has historically impacted British expats who qualify for both the UK State Pension and US Social Security, often resulting in a significant reduction in their American benefits.
For example, a British expat who worked 20 years in the UK and 15 years in the US may receive a reduced Social Security benefit because the WEP formula assumes they are “double-dipping”. While the original intention was to prevent excessive benefits for certain workers, the provision has historically been widely criticized for unfairly penalizing expatriates and public-sector employees.
The Social Security Fairness Act: What’s Changing?
The Social Security Fairness Act aims to repeal the WEP and the Government Pension Offset (GPO), another provision that reduces spousal or survivor benefits. The Act (which now only requires the President's [widely anticipated] signature to be enacted) will restore full Social Security benefits to those affected, ensuring a fairer system for expatriates and other workers – and is particularly beneficial for British expats, who have often been caught in the crosshairs of these provisions due to their dual pension entitlements.
Worked Example
Scenario Overview
John, a 55-year-old British expat living in Texas, has worked in the US for 15 years as a senior executive in a multinational corporation.
Before moving to the US, he worked in the UK for 15 years, accruing entitlement to the UK State Pension. John plans to continue working in Texas for another 10 years before retiring at 65.
John’s retirement goal is to achieve a monthly income of $9,000.
His projected retirement income will consist of
- US Social Security Benefits: With 25 years of US work history, John expects to receive $2,800 per month in Social Security benefits. However, under the current Windfall Elimination Provision (WEP), this amount would be reduced by the maximum penalty of $587 per month, leaving him with $2,213.
- UK State Pension: Based on his 15 years of National Insurance contributions, John expects to receive a partial UK State Pension of £6,000 per year (approximately $500 per month at current exchange rates).
- Private Retirement Savings: John has $800,000 in a US-based 401(k) plan and £400,000 (about $500,000) in a UK private pension. He plans to draw $6,000 monthly from these savings to supplement his retirement income.
Current Retirement Income with WEP Applied
If John retires at 65 and the WEP remains in place, his monthly retirement income will be:
- US Social Security (post-WEP): $2,213
- UK State Pension: $500
- Private Savings Drawdown: $6,000
- Total Monthly Income: $8,713
This leaves John $287 short of his $9,000 goal.
Positive Impact of WEP Abolition
- If the Social Security Fairness Act passes and the WEP is abolished, John’s US Social Security benefit would increase to the full $2,800.
- John’s updated retirement income would be:
- US Social Security (without WEP): $2,800
- UK State Pension: $500
- Private Savings Drawdown: $6,000
- Total Monthly Income: $9,300
With WEP abolished, John would exceed his target by $300 per month, improving his retirement income projections and enabling him to potentially secure his financial freedom earlier than his previously targeted age of 65.
Next Steps
With the potential abolition of the WEP, now is the time to revisit your retirement strategy.
To schedule an initial consultation with me to discuss your financial planning, wealth management or pensions please get in touch today.
![Claire Taylor [ALIBF, CPFA] UK Chartered International Financial Planner](https://www.forthcapital.com/files/_small/173596/Claire-Taylor_Grey-Background.jpg)
Claire Taylor ALIBF CPFA
UK Chartered International Financial Planner
As a dual-qualified and dual-licenced Chartered Financial Planner, I offer tailored financial planning services to US-connected private clients. I help them understand their options, optimise their UK pensions and investments, and create a robust financial plan for their future lives. If you want to discuss your financial planning needs, please contact me or schedule an initial, no-obligation meeting through my online calendar.
- View my profile
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This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on financial planning, wealth management, and pension solutions.
FAQs
British expats and other individuals with dual pension systems or public-sector employment are among the primary beneficiaries.
The Act is currently under Senate review. If passed, changes could be implemented as early as the next fiscal year.
Working with a financial advisor, like Forth Capital, ensures your retirement plan adapts to legislative changes, maximizing your income streams.
No. The repeal only impacts US Social Security benefits; Your UK State Pension remains unchanged.
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