Yes, since your wife is now a resident alien, all of her worldwide income is taxable. This includes income for the pension that was related to income not earned in the U.S. Since the services were performed while a nonresident alien, you are correct that any contributions of her own income would not be considered cost (making the basis zero and the entire distribution taxable).
However, there are some specific allowances in the Income Tax Treaty between the U.S. and the U.K. related to pension income that allow some of the income to follow the same rules in the United States as the income would follow in the U.S.
To take advantage of the provisions in the Tax Treaty, you would need to file Form 8833, which is not supported in the TurboTax program.
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