Australian Interest Cuts And The Impact On Pension Transfers From The UK To Australia

Posted by Simon Harvey on 11/02/15 13:17

On 3rd February 2015, the Reserve Bank of Australia (RBA) cut its interest rate from 2.50% to 2.25%. This drop in interest rate was the first in Australia for 18 months.

With this is mind, how does this interest rate cut effect UK pension transfers to Australia?

Exchange Rate

The main consideration is the exchange rate. This is important with anyone considering a UK pension transfer to Australia. We have immediately seen, with the drop in Australian interest rates, that the Australian dollar has weakened against the Pound Sterling. The exchange rate, at one point, hit over A$1.96 to £1. This exchange rate is the highest that it has been in over 5 years.

This emphasises how the exchange can influence the value of someone’s UK pension fund in terms of the value both in UK GBP and Australian dollars.

For example, on 23rd January 2015, the exchange rate was circa A$1.84 to £1. Therefore a UK pension member with a £100,000 UK pension fund – who was looking at a UK pension transfer to Australia – effectively would have A$184,000 to transfer in Australian Dollar terms. That same individual, when Australian interest rates were cut to 2.25%, would have A$196,000 – if they were in a position to “lock in” at this rate with their fund.

Of course, economic and political circumstances, in both Australia and UK would mean the exchange rate can rise and fall at any moment, therefore you would want to be in a position to capture a favourable rate when available.

If you would like more information on the best way to capitalise on positive changes in the exchange rate or guard against a drop in the exchange rate, whilst considering a UK pension transfer to Australia, please contact us immediately and we will be happy to advise.