Pound Poses Pension Exchange Rate Problems

The Pound is pummelling the Euro and US Dollar regularly hitting new highspots – but the exchange rate is a headache for expats with pensions.

The Pound may be giving a sterling performance against other currencies, but expats living in Europe or the US need to consider whether to switch their pension payments from UK bank accounts to sweep up trading profits or leave them a once or twice yearly intervals.

With the Euro slumping to 79p and the Pound commanding as much as $1.66, the temptations to exchange wads of cash are great – but expats need to look beyond the headline rates.

The problem for retired expats is they need to access their cash to pay day-to-day living costs in the currency of the country they are living in. For many, this will be the US Dollar or Euro – but don’t forget the Australian, Canadian and New Zealand dollars as well.

QROPS currency exchange solution

Although dipping foreign currency rates are favourable to British expats, high commission rates and fees imposed by banks can eat in to any gains – and with monthly transactions, can wipe out any benefits from exchange rate fluctuations.

Banks and building charges can add fees of up to 5% of the transaction amount for transfers over £1,000, but up to a staggering 20% for smaller amounts – sometimes disguised as 0% commission, but levied as administration or other additions.

The UK Office of Fair Trading has stepped in and ordered financial institutions to give clear statements of any charges for exchanging currency from the start of 2013.

One solution for expats who have taken the plunge to move abroad permanently is considering moving a UK pension offshore to a qualifying recognised overseas pension (QROPS) that will pay out in most major currencies.

A QROPS offers no hedge against fluctuating exchange rates, but does eliminate the middleman and the fees they charge.

Cheap currency exchange

Besides offering global currencies, specialist QROPS based in places like India and Hong Kong will pay out in local denominations, like rupees.

For Brits abroad, foreign exchange for state pension payments is still a problem, but can be left to build and transfer in one go, keeping commissions to a minimum.

For cheaper currency exchange rates, expats can look to the Post Office or specialist foreign exchange companies.

Michael Gibbon, head of Post Office International Payments, said: “People who send funds in larger amounts once or twice a year might be tempted to transfer smaller amounts more frequently in the hope that the sterling rate against the euro will rise further in the coming months.

“However, if they do that through a bank they will pay hefty transaction charges.”

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