One of the most common questions my clients ask me is “when is a good time to convert my pension from pounds to euros?” If you made the move from the UK to Europe, you’ll likely need to spend euros rather than pounds. You may have worked most of your life in the UK, so your assets and pensions would be denominated in pounds. This raises a number of issues that are important for you to consider.

Currency Challenges

Whether it’s a property purchase, an investment, or general living expenses, you could be exposed to currency exchange rates. You need to convert from one currency to another.

Let’s look at an example:

John lives in France and has a UK pension which pays him 2000 GBP per month. In February 2020, the pound to euro exchange rate was around 1.20. His monthly payment was therefore worth 2400 EUR. In September 2020, the pound to euro exchange rate was around 1.08. His monthly payment in euros was therefore worth less, only 2160 EUR. This is a reduction in income of 240 EUR per month within the same calendar year. His pension payments were the same amount in pounds, but his spending power in euros went down.

These fluctuations have an even greater impact on large purchases, such as property. A 5% change in currency value could be worth tens of thousands of euros. This can have a significant impact on your retirement planning or future budgeting.

Another issue to consider is the cost of currency conversion. Banks typically charge large fees, possibly up to around 5%, simply to convert money from pounds to euros. That means it could cost up to 50 GBP to convert 1000 pounds into euros, and even more for much larger amounts. They might tell you that it doesn’t cost anything, but you need to be aware that their margin is built into the rate they offer. The rate they offer you will generally not be as attractive as the interbank exchange rates.

So what can I do about this?

With any luck, you’ll be receiving your pension income for a long time. You will therefore need some level of predictability in order to plan and budget for the future. That can be difficult in normal circumstances, but even more complicated when you live abroad. It’s important to know about all the options available to you. That could be a low cost currency exchange service or a more flexible pension plan when compared with your current personal or workplace pension.

“I need to convert my pension from pounds to euros, but how and when?”

International SIPP

You may have heard of a SIPP before. It stands for self invested personal pension. An International SIPP basically gives you more flexibility of investment choice, currency and potential tax benefits. By being able to hold different currencies you can mitigate against currency risk. With the help of a financial adviser you can plan and work out an appropriate time to convert your pension from pounds to euros at the most favourable rates. 

Who can help me convert my pension from pounds to euros?

There is no one size fits all approach to these currency challenges. This is one of the many reasons why it’s important to speak to a financial adviser following your move abroad. At Harrison Brook, we specialise in helping expats find flexible pension and investment solutions. Our independence and low-cost fee-based model means we can find the most cost effective solution for you. If you are facing challenges like these, feel free to get in touch with us here to discuss your options.