The Currency Risk of Drawing From Your UK Pension in Australia

Australia remains an extremely popular destination for people moving from the United Kingdom. The stunning nature, friendly local communities and vibrant culture make Australia a top choice for those moving overseas.

Many emigrating Brits and also Australian residents who have worked in the UK at some point in their career are likely to have a UK pension scheme, which understandably will be invested in Pounds Sterling (GBP). For people who are intending on retiring in Australia and drawing down from a UK pension scheme, there is considerable foreign exchange risk.

Defined benefit pension schemes pay a fixed ongoing monthly income in retirement. As a result, many people have no choice but to convert their GBP income into AUD each month.

The graph shows the currency volatility between GBP and AUD over the last 30 years. In 2013 1 GBP = 1.46 AUD whilst in 2008 1 GBP = 2.50 AUD. The rate as of 26/03/2020 is 1 GBP = 1.99 AUD.

If you apply those exchange rates to an ongoing pensionable income of £30,000, from a defined benefit scheme, the above currency movements will have had the following effect:

2008: GBP 30,000 = AUD 75,000
2013: GBP 30,000 = AUD 43,800
2020: GBP 30,000 = AUD 59,724

This calculation shows that converting from GBP to AUD on a regular basis can be an inefficient way to manage your retirement income, as your lifestyle and security will be at the mercy of currency fluctuations.

Moreover, the figures listed above are based upon a spot transfer rate without exchange fees included, bank to bank exchange fees will further reduce your AUD income.

The graph below shows the GBP/AUD currency volatility over the last 12 months.

What are my options? You will need advice!

As highlighted above, keeping your money within your UK scheme in GBP poses a significant currency risk, as the amount you will receive each year will fluctuate in line with currency markets, making long term financial planning difficult.

A self-invested personal pension (SIPP) is one option which can remove currency risk. A SIPP allows a member of a pension scheme to exchange their annual pension income for a one-off lump-sum. For example, instead of £30,000 per year income, you may be offered a cash equivalent transfer value of around £750,000/$1,453,488 AUD.

This cash equivalent transfer value can be transferred into a SIPP which can be held and invested in Australian dollars allowing for the member to live off the investment growth. If the investment grew by a conservative amount of 4% per annum after charges this would provide the holder with a pension income of $58,139 AUD per annum without reducing the initial capital value.

By adding currency control to your UK Pension, not only will you reduce foreign exchange risk, but you also have the ability to lock in profit at the same time. These valuable additions to a UK Pension will be available to you via a specialised Australian financial advisor.

Why now?

As this blog has indicated, exchange rates between AUD and GBP have the ability to make or break your retirement income. Currently, we see a five year high in exchange rates between AUD and GBP meaning that it is a great time to move your pension into AUD. Exchange rates fluctuate regularly, so it’s imperative you take advantage of the favourable market conditions before they change.


Currency security is just one of the many advantages of using a SIPP. If you would like to explore your options please click on the link below to register for a complimentary pension review.


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