When UK pension holders leave the UK one thing is certain – that they won’t be using pounds sterling in their day to day life.
It’s a fact of life that if your income is in sterling, yet you expenditure is in another, your life will be affected by the day to day fluctuations of currency exchange rates.
You can’t control this, but with the right pension option, there are ways to mitigate the risk.
Leaving your pension in the UK: An overview
Leaving the UK pension scheme within the country means it is held in British pounds, and that your pension income has to be paid out in such.
This leaves the possibility that pensioners may have to convert the sterling into the local currency at a time when the rate is poor – leaving them with less money.
Compounding this is the fact that regularly exchanging amounts is not as efficient as exchanging one bulk amount – meaning costs are higher when you take pension income this way.
This is again exasperated if you withdraw your cash via cash machines, which charge high commission rates.
Dollar pegging
Governments and central banks across the world do not peg their currencies against the UK pound.
Most are managed against the US dollar, which can make a dramatic difference for an expat retiree.
Take for example a pensioner retiring to Thailand in 2008. If they continued to receive their income in sterling, the amount of baht (Thai currency) they could receive now would be 25% lower.
Pegged against the US dollar, the retiree would only have seen a drop of 10%.
Whilst past currency developments do not spell what will happen in the future, the lesson is if you have the choice between the major currencies – including the US Dollar and Euro – you may be able to mitigate the risk.
The QROPS solution
QROPS, or Qualifying Recognised Overseas Pension Schemes – offer many convenient benefits to UK pension holders either living or planning to life abroad, such as the ability to consolidate multiple pensions, greater investment choice, and protection against UK taxes.
In addition, if a pension holder transfers their pension into a Gibraltar or Malta QROPS, for example, they are able to choose which currency they would like to invest and receive income in.
In addition, most of the best QROPS providers/trustees utilise foreign exchange dealers to give you the best available rates when you initially transfer your fund.
Your pension income can then be received and spent in the currency of your choice – giving you the ability to mitigate loses against exchange rate fluctuations and giving certainty of income.
To learn more, you should speak to a regulated independent financial advisor with experience in your jurisdiction to learn if a QROPS could be the right option for you.
