Monday, August 21, 2017
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How could the currency market affect my overseas pension payments?

The recession first hit the financial markets in winter 2008 and once this happened we saw the pound lose significant value against a host of major currencies.

However towards the middle of last year (2014) we saw the pound experience a significant rally hitting levels not seen for 18 months; this was short lived as investors’ risk appetites were reduced once the focus moved back towards the fragile nature of the UK’s recovery.

Later in 2015 we saw focus move towards the debt problems in Greece and this caused sterling exchange rates to improve as the Euro weakened. Once this happened we thought sterling may experience the rally that expats hoped for. However due to the UK’s exposure to the Euro economies as a member of the EU, the UK General Election uncertanties, other currencies and more specifically those that are related to commodities, or seen as historic safe havens, benefited whereas the pound only saw a marginal improvement.

In early 2015 financial growth in the UK been continuing to rise and this has driven speculation that interest rates may rise in the UK. When interest rates improve investment in an economy will rise as well and this is therefore seen as a positive for that country’s exchange rates.

So what could weaken sterling in 2015?

  • The new majority Conservative governement have promised a reforendum on the EU so there is still uncertanty. We cannot yet predict what other measures they will implement, now there is no coalition partner.

  • Any uncertainty surrounding the future of the UK’s economy – the currency market does not react well to uncertainty so if any indication that the future of the economy is still uncertain then we will see movement in the market.

What could strengthen sterling in 2015?

  • The big factor that could aid sterling will be a rise in UK interest rates as this will encourage investors to pump money into our economy; this is however a double edged sword as raising interest rates will make mortgages, loans and borrowing money much more expensive than it has been previously.

  • The Euro Debt Crisis – this could also cause strength for the pound against the Euro as the markets react aggressively to weak economic data, especially the on-going situation in Greece.

How could these factors affect my pension?

Any of the above has the potential to cause swings in the market either way. If you currently have your pension paid overseas then you will have probably noticed the value of this change since the start of the recession. For example a pension transfer of £500 at the average high would’ve achieved a Euro figure of €760.75 whereas last year this would’ve achieved €551.40.

As you can see there is a large difference between the two and I am sure that some of you will have noticed this difference when receiving your monthly income.

What is the best way to save money when making overseas transfers?

The most costly method tends to be using your UK bank; the majority of them will charge up to £20 to make an overseas transfer regardless of the transfer size, as well as offering tourist level exchange rates.

Currency brokers on the other hand will be able to transfer the funds free of charge and will be able to achieve commercial level exchange rates; these are wholesale rates typical of what a corporate client will achieve and are around 4-8% better than a banking exchange rate.

Therefore this transfer cost and the saving on the exchange rate could end up totalling around £35 per month based on sending £500 per month. Although this figure does not sound like much it does of course mount up over the course of the year, totalling £420 per year. I am sure for the majority of you this will pay for a very substantial night out and is a worthy saving.

The majority of these services will work via standing order and therefore eliminating the need for a physical transfer each month so once set up you can sit back and relax knowing that your payments are being conducted automatically without your input.

If you wish to find out more information or are interested in sending smaller amounts overseas then please feel free to contact our representative, Steve Eakin on 0800 328 5884 or if calling from overseas 0044 1494 725 353. Don't forget to mention 'Hey Portugal'.

This article was prepared by Foreign Currency Direct plc.


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