Currency risk in retirement planning: why it matters more than ever

Retirement planning has always carried an element of uncertainty, but for clients living internationally, one risk has become increasingly important: currency fluctuations. Exchange rates change constantly and while short-term shifts may appear minor, over the course of a 20- or 30-year retirement they can significantly affect the real value of income.

When someone draws a pension in one currency but spends in another, they are immediately exposed to this volatility. A familiar example is a UK national who receives retirement income in pounds but lives in Spain, where their daily costs are in euro. If the sterling weakens, their pension buys less, often without warning. This is not confined to Europe. Australians living in Asia, Canadians in Portugal, or South Africans in the Middle East can all face the same issue when income and expenses are denominated differently.

The long-term effect of these shifts can be considerable. Purchasing power may erode gradually, making it harder to maintain a consistent standard of living. Budgeting becomes more challenging as exchange rate swings introduce an extra layer of uncertainty. For those drawing down investments overseas, the timing of conversions can also affect overall returns. Clients often expect retirement to bring stability, yet currency fluctuations can add an unexpected and sometimes unwelcome variable.

The international pensions industry has developed a range of responses to this challenge. One is the increasing use of multi-currency functionality, where certain international pensions allow investments to be held in different currencies aligned to a clients needs, and income to be paid in  a suitable currency. This can reduce risk and reliance on constant conversions. Another approach is the availability of funds and financial instruments in a range of currencies, designed to soften the impact of exchange rate movements, though they carry their own considerations. A further factor is jurisdictional choice: some international pension centres offer greater flexibility in the currencies they support, which can make long-term planning much easier.

None of these approaches is a universal solution, but together they demonstrate a wider flexibility  within the international pensions industry to meet the needs of clients exposed or who wish to take advantage of currency fluctuations. For advisers, part of the role is helping clients appreciate that exchange rates can have just as much impact on their lifestyle as tax treatment or investment performance.

As more people move abroad for retirement, this topic will only become more significant. While the right solution will vary by individual, acknowledging the reality of currency risk—and making it part of the broader retirement conversation—is an important step in ensuring clients are prepared for the financial realities of life overseas.

We understand the challenges currency movements create for internationally mobile clients. Our pension structures across multiple jurisdictions are designed to offer flexibility in currency options, helping advisers frame strategies that reflect clients’ lifestyles and long-term goals. By combining robust governance and international expertise, we provide a platform that supports advisers in addressing currency risk as part of holistic retirement planning.