.jpg)
A UK pension scheme that pays an overseas member in sterling hands that member the full currency risk. Each month, what they can spend depends on where the exchange rate sits and what margin their local bank takes, and they have no way to hedge either. Paying in local currency moves the risk, and the cost of conversion, back to where it can be managed at scale.
Take a member who joined a UK defined benefit scheme in 1995. For thirty years they have received a sterling pension. The nominal amount has risen with revaluation, but measured in the currency they actually live on, the income has been far less predictable.
Over the past fifteen years sterling has traded between roughly 1.02 and 1.48 against the euro, 1.52 and 2.10 against the Australian dollar, and 1.15 and 1.70 against the US dollar. The same sterling payment converts to a different amount each month depending on where in that range the rate falls.
For a pensioner whose rent, utilities and groceries are priced in local currency, a weak pound is a direct cut in what they can buy.
Who bears the FX risk on overseas pension payments?
When a UK scheme pays in sterling, its obligation ends once the sterling leaves. The member carries everything after that: the exchange rate applied, the margin charged by whoever converts the money, and any movement between the instruction date and the conversion date.
In practice most overseas members have the conversion done by their local bank, at the bank's rate and with a margin they rarely see and can't negotiate. On smaller monthly payments, below the level where a currency broker makes sense, the bank's rate is the only option.
The scheme sees none of this. As far as its records go, the payment was made in full.
What the sterling model costs overseas pensioners
Retail and private banks typically add 2% to 5% above the interbank rate when converting small amounts. On an £800 monthly pension, a 3% margin is about £24 a payment, or £288 a year, taken out of a fixed retirement income.
Timing adds a second cost. Many overseas members are paid by SWIFT transfer, which can settle several days after the instruction date. The conversion may then happen at the settlement-day rate rather than the rate on the expected payment date, and in a volatile market that gap can be large.
The DWP shows what the alternative looks like. Its International Pensions Direct Payment service converts sterling to local currency before sending, at a bulk rate with a disclosed 0.39% administration fee, so the member receives local currency at a known cost. Few private occupational schemes have matched it.
What local-currency pension delivery requires
Paying overseas members in their own currency needs two capabilities that most UK occupational schemes don't have today.
Multi-currency payment execution
The scheme's payment provider has to convert at scheme level, at competitive bulk rates and with the margin disclosed, then send the local-currency amount over the right local payment rail. Traditional institutional banking arrangements don't usually offer this.
Currency coverage beyond the G10
The 1.7 million UK retirees living abroad are spread across many countries, including ones whose currencies payment platforms support less often: the South African rand, Thai baht, Brazilian real, Egyptian pound and Philippine peso. A provider that only covers G10 currencies serves the biggest populations in France, Germany, Spain, Australia and the US, and leaves a long tail of members still converting through their local bank.
Navro pays in 140+ currencies across 200+ territories, with same-day or real-time settlement in 80+ markets. For schemes weighing local-currency delivery, coverage breadth belongs near the top of the selection criteria, and it is the requirement Navro Life is built around.
The trustee's fiduciary position
UK pensions law does not currently require schemes to pay overseas members in local currency, and no Pensions Regulator guidance mandates it.
The direction of travel still matters. The Pensions Ombudsman has considered complaints involving incorrect or late FX conversion on overseas payments. The MoneyHelper pensions dashboard, expected in 2027, will put payment quality in front of members. And as members compare their scheme with the service they get from modern payment providers, a sterling-only model will get harder to defend.
The fiduciary point is simpler than any of that. If a scheme can pay members in the currency they need and chooses not to, that choice should be documented, considered and defensible, rather than a default nobody has reviewed.
The administrative case for paying in local currency
There is an efficiency argument alongside the member one. When a sterling payment converts to less than expected, members call. When their bank's margin is high, they complain. When the amount moves month to month with the spot rate, administrators spend time explaining something that, from the member's side, looks exactly like being paid short.
Paying in local currency at a transparent rate removes that whole category of query. The converted amount is fixed when the payment is instructed, it arrives as expected, and the helpline call never happens.
For schemes with large overseas memberships, such as LGPS funds with members worldwide or large private sector DB schemes with pensioners and deferreds spread internationally, cutting FX-related exceptions saves a meaningful amount of administrator time.
Where to start
Moving to local-currency delivery doesn't mean replacing the scheme's payment infrastructure wholesale. It means using a provider that can convert at scale, on transparent terms, in the countries where members actually live.
Start with a membership analysis: how many overseas members, in which countries, needing which currencies. Put that next to the current failure and exception rate for overseas payments and the operational case usually makes itself. Our guide to cross-border pension payments covers the rails, and why overseas pension payments fail covers the failure points.
Frequently asked questions
Who bears the FX risk on overseas pension payments?
When a UK scheme pays an overseas member in sterling, the scheme's obligation ends at that point. The member bears all the currency risk that follows: the exchange rate their local bank applies, the margin on that conversion, and any movement between the instruction date and the settlement date.
What FX margin do banks charge on overseas pension payments?
Retail and private banks typically charge 2% to 5% above the interbank rate when converting small amounts. On an £800 monthly pension, a 3% margin costs about £288 a year. The DWP's International Pensions Direct Payment service charges a 0.39% administration fee by comparison.
What is local-currency delivery for pension payments?
Local-currency delivery means the scheme converts sterling into the member's currency before sending the payment, instead of leaving the conversion to the member's bank. The member receives a predictable amount, the rate is fixed and documented when the payment is instructed, and there are no surprise deductions from local bank margins.
Does the Pensions Regulator require local-currency pension payments?
No. No current TPR guidance mandates local-currency delivery for overseas members. The Pensions Ombudsman has, however, considered complaints about incorrect or late FX conversion, and schemes that can pay in local currency but choose not to should document why.
Sources: DWP, International Pensions Direct Payment guidance · Mortality Manifest, Overseas Proof of Life · Currencycloud, SWIFT vs local payment routes
