3 Actions You Can Take to Prevent Currency Risk Costing You up to 56% of Your UK Pension’s Potential Value
Currency risk is an important consideration for anybody holding a UK pension who plans to retire abroad
With the Pound having fallen in value by 33% in relation to the New Zealand Dollar since January 2001¹, 23% in relation to the Australian Dollar¹, and 56% in relation to the Swiss Franc over the same period¹, currency risk has the potential to significantly impact the value of your UK pension funds held in Pounds Sterling (GBP), diminishing their buying power and the lifestyle they afford you, when you retire abroad.
Source: OFX.com
As a British expat moving to a Eurozone country in January 2001, you would have enjoyed an exchange rate of 1 GBP: 1.58 EUR¹. That compares with 1 GBP: 1.15 EUR on 4 August 2025¹, a reduction of 27% over that period.
In effect therefore it would now cost you 27% more to buy the same goods or services in EUR using GBP, and the contributions made to your UK pension in 2001 would effectively be affording you less than three-quarters of the lifestyle you had planned for when you made the investment, before you even account for inflation.
And the impact is equally acute for UK schemes that pay a guaranteed pension income in GBP. You would no doubt be asking serious questions of your financial advisor if your investments had lost 27% of their value over the same 24-year period.
Suddenly, a guaranteed retirement income is not quite as ‘guaranteed’ as it seemed.
Case Study
- Robert worked for a UK company and paid into their UK pension scheme for 15 years.
- When he left the company in January 2001 the value of the funds in this scheme was £500,000.
- For the following 24 years Robert lived and worked in a number of different countries.
- Now, in August 2025, he plans to retire in France, where his expenses will be in euros.
Let's examine how the depreciation of the Pound (GBP) in relation to the Euro (EUR) over this 24 year period has affected his pension's real value.
A) Robert's Pension Growth in GBP
Assuming Robert's UK pension has achieved an average annual growth rate of 7% since January 2001, its value by August 2025 would be:
£500,000 × (1.07)^(24.7) = £2,307,500
Robert is pleased, as his pension has grown significantly in nominal GBP terms.
However, what happens when we take currency fluctuations into account?
B) Robert's Pension if Transferred into an international SIPP (EUR)
If Robert had transferred his UK pension into an international SIPP held in euros, back in 2001, achieving the same 7% annual growth rate, its value by August 2025 would be:
€790,000 × (1.07)^(24.7) = €3,645,850
Comparing the Two Scenarios
A) The value of Robert's UK Pension in GBP (2025): £2,307,500.
Converting this into euros in August 2025 (at 1 GBP = 1.15 EUR¹): €2,653,625
B) If Robert had transferred into an international [EUR] SIPP in 2001
the 2025 value of his pension would be: €3,645,850
Despite Robert's UK pension achieving strong nominal growth, its real purchasing power in euros is significantly lower than if he had originally transferred it into an international SIPP denominated in euros. Due to the decline of the pound, Robert's pension, when converted into euros, has lost substantial value over the years.
This highlights the crucial impact of currency risk: even strong pension growth can be undermined by exchange rate fluctuations, reducing retirement spending power.
3 Actions You Can Take to Mitigate Currency Risk
1. Align your retirement savings with your future currency needs
A key strategy to reduce currency risk is to hold and invest your retirement funds in the currency of the country where you plan to retire. This helps protect your purchasing power and minimizes the impact of exchange rate fluctuations on your long-term financial security. Holding your retirement funds in GBP while planning to retire in the Eurozone, for example, exposes you to long-term fluctuations that could erode your purchasing power. By structuring your pension and investment portfolio in the currency of your future expenses, you can better protect your financial security and avoid the pitfalls of unpredictable exchange rates.
2. Limit cash holdings to an emergency fund - Cash is a tool, not an investment
Cash should be seen as a short-term tool, not a long-term investment. Inflation, interest rate changes, and central bank policies can erode the real value of cash holdings over time. Holding more than six months' worth of living expenses in cash can result in lost investment opportunities and increased exposure to devaluation. Instead, it is advisable to deploy excess funds into diversified investments that can preserve and grow wealth over time.
3. Invest in assets to preserve and grow your wealth amid currency fluctuations
When government and central bank monetary policies lead to increased money supply or prolonged low interest rates, currencies often lose value. In contrast, tangible assets such as equities, bonds, real estate, and commodities typically appreciate over time, helping to protect and grow your wealth. Investing in a mix of stocks, bonds, property, and commodities can act as a hedge against inflation and currency depreciation. Tangible assets provide long-term value appreciation and reduce reliance on the strength of any single currency.
Forth Capital provides its clients with exclusive access to an award-winning range of multi-currency risk-rated Next Generation Global Investment Strategies² designed by Morningstar - the world's largest fund analytics company. These portfolios are available in multiple international currencies, helping to protect your wealth from the negative impact of currency fluctuations. By investing in a globally diversified portfolio, structured in the currency of your retirement country, we can help ensure that your pension retains its value in real terms, safeguarding your purchasing power over the long term.
Take Action to Secure Your Retirement
Currency risk can significantly impact the value of your UK pension when retiring abroad.
To protect your wealth and secure your financial future, it's essential to implement a strategic financial plan tailored to your circumstances. At Forth Capital, our dual-qualified international financial planners specialise in helping expats navigate these challenges.
Contact Us Today to schedule an initial consultation with one of our international financial planners to discuss how we can assist you in protecting your wealth from exposure to currency risk.
Download Our Guide to UK Pension Transfers to understanding your pension transfer options and how we can help you to maximise your retirement income and benefits.
FAQs
Currency risk refers to the potential loss in real value of a UK pension when changes in exchange rates reduce its purchasing power. Between January 2001 and August 2025, the British pound (GBP) has depreciated by 27 % against the euro, 33 % against the New Zealand dollar, 23 % against the Australian dollar, and 56 % against the Swiss franc*, meaning pensions paid in GBP but spent in these currencies would have lost a significant proportion of their buying power in real terms.
* Source: OFX.com [4 August 2025]
Individuals holding pensions in British pounds (GBP) but planning to retire outside the UK, face the greatest potential risk.
Holding and drawing a pension in British pounds (GBP) while expenses are incurred in euros or Australian dollars for example, exposes daily living costs to exchange rate volatility and a potential loss of buying power in real terms.
Since January 2001, the British pound (GBP) has depreciated substantially against many major currencies:
-
EUR: down 27%
-
NZD: down 33%
-
AUD: down 23%
-
CHF (Swiss franc): down 56%
This decline means that even a pension that grew steadily in GBP terms would have significantly less spending power in these countries today than it would have had 24 years ago.
Source: OFX.com [4 August 2025]
Start by reviewing and confirming in which currency your pensions are held, and where you plan to spend your retirement income. If there's a mismatch, you're likely to be exposed to currency risk.
The next step is to consult a dual qualified international financial advisor who can help you to realign your investments with your long-term goals.
¹ Source: OFX.com
² International Adviser Best Practice Awards 2016 - Excellence in Investment Planning Award; Investment Strategies
- This communication is for information purposes only and does not constitute financial, legal, or tax advice.
- All content is based on current UK legislation and is subject to change. All planning arrangements should be regularly reviewed in consideration of legislative updates.
- Pension regulation and tax treatment vary between jurisdictions. Any reference to UK or international pension rules is portrayed in general terms and is not intended to reflect individual circumstances. Any examples provided are hypothetical and for illustrative purpose only. Outcomes will differ based on individual circumstances and local law and regulation.
- Pension transfers carry specific risks and may not be appropriate for everyone. The suitability of any transfers or investments should be assessed on an individual basis.
- Past performance is not a reliable indicator of future results. The value of investments can fall and rise, and you may not get back the amount originally invested.
Last updated 4 August 2025
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