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Posted September 29th, 2010 by Charles Purdy

On transferring money from UK pensions/regular payments abroad

There are many reasons why people return from their overseas adventure sadder but wiser. These include:

  • The death of a loved one or partner
  • The wrong choice of destination
  • Realising too late that they prefer their homeland after all
  • Their mortgage payments have become too much
  • Not being able to live on their pension.

The final point raises the question of why they can no longer live on their pension. Presumably when they went out they had planned carefully so as to ensure that they could live comfortably for ever and a day, so what changed?

Well, the dramatic events of the last few years have changed things considerably. Northern Rock was a real shock to the currency market which saw sterling fall from the €1.50ish/£1 level to the €1.25ish/£1 level. But surely this was a one off? The UK and the world banking system couldn’t possibly be about to implode – surely they weren’t that stupid…?

Well, were they that stupid? Some certainly were, but greed seems to have been the main catalyst for the worldwide economic collapse. That, plus a lack of government control that would have ensured that the excesses were avoided in both the UK and the US. So we saw Lehman Brothers go bust and RBS and the Halifax/ Lloyds Banks needing to be bailed out by the UK government.

The net result was sterling nearly hitting parity against the euro. This in turn meant that, in the space of 18 months, those receiving their pensions in euros saw its value drop by about one third.
You may ask how a currency company like Smart can help individuals when they make regular transfers and pension payments abroad. They are not miracle workers but there are two things that can and will help:

The first thing is to reduce the cost of each transfer, but how does Smart Currency do this?

By giving you a much better a much better rate than the bank and minimising, if not eliminating altogether, add on costs. Soon after Smart Currency Exchange opened for business in 2004, a client who was emigrating abroad confirmed how much better Smart’s rates were than the bank’s. After completing his initial euro transfer to purchase his new home, he was ecstatic about the excellent service received and confirmed savings of over £20,000 compared to his high street bank. Effectively he had saved enough money to pay his legal costs, removal costs and buy some new furniture for his new home – not bad going.

Since then Smart has transferred his pension each month thus saving him at least £75 each month compared to the rate he would get from his bank. So each year Smart saves him over £900 – he has an extra €1,000 in his pocket rather than the bank’s.

But he has also eliminated the add-on transfer cost that the bank charges for sending funds abroad. This could be as much £25 per transfer. So in fact he has saved in the order of £100 a month or £1,200 per year! In the current climate that extra €1,400 per year is not to be sneezed at!

So let’s work out what he could theoretically save over the lifetime of his relationship with Smart. Assume that he lives for at least another 25 years: using Smart Currency will have saved him £20,000 initially and £30,000 on his pension payments over the 25 years, making a total saving of £50,000. That means an extra €60,000 to spend on his new life abroad – a great result.

The example given above is a good starting point in today’s difficult climate but even more can be done by better forward planning.

Exchange rates have become extremely volatile over the last few years. Within the last twelve months we have seen a minimum exchange rate of €1.06/£1 and a maximum rate €1.19/£1. So if, in the course of the year, if you were transferring say £1,000 a month and you bought all your euros at the peak rate you would receive €14,280. But if you bought at the bottom you would have received €12,720. That’s a difference of €1,560.

Admittedly you would be very lucky to buy at the highest or sell at the lowest rate as no one can be sure when these extremes are reached, even those who have been in the industry for years. Exchange rates move quickly so peak or bottom rates are only available for a fleeting moment.

What Smart suggests is that clients first decide on an exchange rate that is realistic in the current environment and that works for them. Then the client should plan on ‘buying the currency forward’, within say the next 6 or 12 months. This may sound complicated but it’s really quite simple.

‘Buying forward’ means that you agree an exchange rate for a specific amount of euro’s for an agreed period in the future. Smart then phones into the market as the rate changes, trying to meet your exchange rate objective. This option of buying forward is usually not offered by the banks as it would be too time consuming. Generally banks set their rate early in the day and set it so that what ever happens during the day they do not lose money!

Recently we have secured forward contracts for clients making regular transfers to Euroland at rates close to €1.17/£1. If the forward contract was for a full year then the client would receive €1,700 a month for the next 12 months. This is an improvement of €1,320 over the minimum amount as noted above.

Of course exchange rates could improve further but that is a risky assumption in the current climate. And are you willing to forego certainty for potential gain? Many are…and it means that, if rates do improve, you can take advantage of those rates at a future date.

So it could be argued that using the services of a company like Smart Currency Exchange Limited could benefit you up to €100,000 over a 25 year period. And most of us would think that is a benefit worth having.

For more information on Smart Currency Exchange, please call our freephone: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or visit our website at:

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