UK pension exchange rates: When and how to get the best outcome

When dealing with a UK pension when living in NZ you are faced with the age old question of pension exchange rates.  Having transferred thousands of UK pensions over the past 20 years and seen exchange rates ranging from $3.50 to the pound to $1.70 to the pound we’ve heard the oh too familiar statements

“I won’t transfer my pension now because of the exchange rate”
“I remember back when the exchange rate was $3 to the pound”

Thanks Google finance

So, let’s talk about pension exchange rates and ways they can be managed when transferring a UK pension, so you get maximum control and maximum value out of your UK pension

A pension transfer doesn’t convert your funds into dollars

There’s a myth: transferring a UK pension to New Zealand automatically converts it to NZ dollars

A transfer from a UK scheme to a New Zealand scheme is always in pounds, directly from your UK scheme to the NZ scheme – you can clearly see pounds sent equals pounds received.  Once received you can convert to New Zealand dollars, if you want.

Most New Zealand schemes offer pounds denominated funds run by large international fund managers so you can continue to leave your funds in pounds, fully invested – 95% of our clients leave their funds invested in UK pounds funds after transferring.

Once the funds are invested you can choose when and how much you want to convert  into New Zealand dollars.  For example you can dollar cost average, set an exchange rate that you convert all or some of the funds at, you have all the flexibility to convert as and when suits you.

Because New Zealand schemes are set-up to receive and transact in large amounts of foreign currency, they usually get very sharp pension exchange rates (which most of them pass on directly to their members – be warned there are some that don’t – check out hidden fees in schemes).  These exchange rates are usually a lot lower than foreign exchange brokers meaning you don’t lose money to unnecessary fees.

Timing a UK transfer to get a better pension exchange rate usually doesn’t work

“I won’t transfer because the exchange rate is no good, I’ll transfer when it’s more in my favour”

The biggest challenge is when the exchange rate gets “better” a pension transfer doesn’t happen overnight.  A transfer usually takes between three and six months and the exchange rate when the transfer arrives is likely to be completely different from when you started the transfer. You actually have very little control over how long a pension transfer takes. With more and more conditions needing to be met for transferring, actually timing a pension transfer is becoming more difficult by the day.

Having your pension paid from the UK gives you little exchange rate control or value

If you’re living in New Zealand when your pension comes due, you’ll want it in dollars – like your expenses are.  There are two considerations:

  • When do I change my funds from pounds into dollars – control
  • How do I get the best rate when doing it – value

Your UK pension provider will pay out to your nominated bank account.  If that account is in New Zealand the payment to it will be converted by the bank at their rate of the day plus a large margin.  You have little control and get ‘poor value’ on the exchange rate. 

Even if you have a UK scheme that allows you to invest in New Zealand dollar funds, those funds will still need to be liquidated back into sterling and then sent to you (meaning that you have two pension exchange rate conversions).

If you have a sterling bank account you could have the funds sent there and use a money broker to onward transfer to a New Zealand bank account, saving money on the rate. But you’re still exposed to exchange fluctuations in the future leaving you uncertain about what you’ll actually end up with.

Managing the exchange rate hotspots for UK pensions and transfers

Our table below shows where you might be exposed to pension exchange rates based on your decision to leave a pension in the UK or transfer it to New Zealand, the goal being to limit your exposure to pension exchange rate events, and where you to have them to get the best deal on currency conversion.  Doing this will typically maximise the value of your UK pension.

pension exchange rates

If you’re struggling with pension exchange rates, for example:

  • Converting pension payments and the banks are taking too much, or 
  • Delaying transferring your UK pension because of what you see as unfavourable exchange rates

Then have a chat to us to explain why pension exchange rates shouldn’t be worrying you.

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