Why it’s critical to understand currency conversion when considering a pension transfer to Australia

Category: News & United Kingdom

If you’re planning to transfer your accrued UK pension to an Australian super, you’ll already be aware that it’s a key financial decision. You’ll also be aware that it’s not a straightforward process.

One often overlooked factor when it comes to transferring a pension to Australia is currency conversion. In other words, the number of Australian dollars your UK sterling denominated pension will buy.

Read on to discover some of the key issues, and why fluctuating exchange rates and currency conversion can be such important issues.

Why do exchange rates fluctuate?

To begin with, let’s look at why currency exchange rates fluctuate.

The primary reason is that you’re dealing with the relative health of two different economies.

In a healthy economy, lots of money will be flowing into the country. This could be because it’s seen as a good investment opportunity, for example, or because there’s a demand for the goods it’s producing and it’s therefore attracting a lot of international trade.

A strong perception of economic security will result in the currency being popular as a safe hedge against other, more volatile, currencies.

All these factors will mean that there’s a high demand for that currency, which will result in a higher price payable.

If some, or even all, of those factors aren’t applicable, then the currency will be cheaper, as demand for it is lower. The exchange rate will therefore fluctuate as the two different currencies go up and down in value.

The impact of fluctuating exchange rates on your pension

If you have a UK pension, up to now you’ll have considered its value in pounds sterling. You may have had half an eye on what that value related to in Australian dollars, but ultimately you’ll have seen it as a sterling value.

Once you make the decision to transfer it to Australia, you’ll want to start using both eyes to consider the value of it in both sterling and dollars.

For example, as of 13 August 2021, the current exchange rate is $1.88 to the pound. This means that a transfer value of £250,000 will buy you $470,000.

A look at the exchange rate in the last month shows how much the rate can fluctuate.

The highest rate has been $1.895. This would have given you $473,050.

The lowest rate has been $1.826. This would have given you $456,500.

That’s a difference of $17,250 in a month – quite a substantial sum.

The difference a fluctuating exchange rate can have on a pension transfer value becomes even more stark if we go back five years.

Over that period the highest rate was $2.04, meaning a value of $510,000. The lowest rate was $1.59 resulting in a transfer value of $397,500.

That’s a substantial difference of $112,500.

If you throw in external forces as well, such as the impact of inflation on the value of your money, and comparative interest rates between the UK and Australia it becomes clear that currency exchange is something to take very seriously, and not be left to chance.

It’s a substantial sum – not holiday money

When you’ve previously exchanged currency, it may well have been buying euros for a (pre-Covid) holiday in Spain or Portugal, or US dollars for a trip to Florida. You’ll notice the difference between trips, but generally it’s a relatively small amount, so you grin and bear it.

Transferring your pension is a different matter. Your pension fund is the money you’ll be living on in retirement.

You should therefore take steps to ensure you get the most favourable exchange rate possible.

The importance of using a currency broker

Having stressed the importance of your pension fund, and how crucial it is to get the best possible exchange rate when you convert your currency, we would strongly caution you against a “do it yourself” approach.

Exchange rates can fluctuate quickly and if you’re moving a large sum of money, the difference in the amount of currency your money will buy you from one day to the next can be substantial.

We would therefore recommend that you use an experienced currency broker to ensure you get the best possible rate.

Using different currency exchange mechanisms

A currency broker can watch exchange rates for you and help you time your purchase to meet your specific requirements. They can also use different exchange mechanisms to help you make the most of your money.

A limit order

A limit order will target a specific range within which you’re happy to exchange your money. For example, you may be happy to buy dollars when the rate is between $1.85 and $1.90. The currency broker will then do this when the exchange rate is between these figures.


A “stop-loss” arrangement allows you to set a minimum value at which you’re prepared to exchange currency.

This mechanism will be very important if you’re buying a property in Australia, for example. You may well have already paid a deposit and agreed a price. By setting a minimum amount you can ensure you’ll have enough dollars to complete the purchase.

Watch order

In this scenario, you will purchase currency when the exchange rate reaches a pre-agreed level.

A forward contract

This allows you to obtain currency on a “buy now and pay later” agreement. You can lock into a specific exchange rate up to two years ahead.

Regular transfers

By buying small amounts of currency on a regular basis – usually monthly – you can spread the risk of rate fluctuation. A regular transfer contract can also be useful once you’ve emigrated if you’re still earning money back in the UK.

Check out our recent webinar

Our latest client webinar includes a section on the importance of currency conversion.

Halo Financial, one of the leading currency exchange brokers in the UK, went through the whole exchange process and talked in detail about the mechanisms we’ve outlined in this article.

If you’re thinking of moving to Australia in the near future or are considering transferring large sums of money from the UK abroad, we’d strongly recommend watching it.

Get in touch

As a cross-border financial planning firm with offices in both the UK and Australia, we’re uniquely placed to help you with your financial arrangements.

Get in touch to find out how we can help.