Drawdown Strategies: Should You Withdraw Pension Income in Sterling or Euro?

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If you hold a Self-Invested Personal Pension (SIPP) (Learn all about SIPPs) while resident in Europe, you face a crucial decision every time you make a withdrawal: do you take the cash in Sterling and convert it yourself, or do you convert within the pension wrapper?

Many expatriates default to withdrawing Sterling simply because that is how their SIPP was originally set up in the UK.

However, relying on your SIPP provider’s default FX rates or withdrawing GBP to a high-street bank account can result in unnecessary friction, cost, and risk.

The "Currency Drag" on Your Pension

When accessing your pension from abroad, your withdrawal strategy generally falls into two camps, each with distinct implications for your wealth.

• Option 1: Withdraw in GBP. You take the income in Sterling into a UK account, and then use a specialist currency broker to convert it to Euros and transfer it to your local bank. This gives you control over the exchange rate and timing, but it adds an administrative layer to your monthly income.
• Option 2: Convert within the SIPP. Some international SIPPs allow you to hold Euros directly or invest in Euro-denominated share classes. This eliminates FX risk at the point of withdrawal, as you are already holding the currency you need to spend.

Why Structure Matters

There is no 'one size fits all' answer. If you anticipate moving back to the UK, keeping the majority of your assets in GBP makes sense. However, if you are retired permanently in Spain, Portugal, or France, holding 100% GBP assets creates a permanent mismatch between your assets and your needs.

This is where the distinction between execution (moving the money) and structuring (holding the money) becomes vital. A currency broker is essential for the former, but the latter requires a deep dive into your pension transfer and consolidation options. (Learn more in your international pension transfer guide).

The Role of Investment Wrappers

A common mistake is assuming that a UK SIPP is the only vehicle available. For many  expats, moving to a QROPS (Qualifying Recognised Overseas Pension Scheme) (QROPs explained) or an International SIPP may offer greater currency flexibility.

These structures often allow for multi-currency accounts, meaning you can divest from Sterling when the rate is high and hold Euros within the pension, ready to be withdrawn without further conversion costs when the rate is low.

Conclusion

Your pension is likely your most valuable asset; it deserves more than a 'default' setting. By aligning your pension’s currency exposure with your actual living requirements, you can remove a significant layer of uncertainty from your financial future.

If you are unsure if your current setup is optimised for life in Europe, consult PCC Wealth to structure your currency exposure and receive great international pension advice correctly.