When you plan your retirement in Spain, it is natural to focus on the big numbers: your pension pot, your projected income, your anticipated cost of living. What is less often discussed, but equally important, is what happens to that income when it has to cross a currency border. For British expats drawing pensions, rental income, or investment returns denominated in pounds sterling, the GBP/EUR exchange rate is not just a background statistic. It is a factor that has already, quietly, reduced the real value of UK-sourced income by a significant margin over the past two decades.
To put this in concrete terms: if you had retired to Spain in 2001 and began drawing a fixed sterling pension, the exchange rate of 1.58 euros to the pound would have made your income feel comfortable in euro terms. By mid-2025, with the rate at approximately 1.16, that same sterling income would be buying you roughly 27% fewer euros without any change to your underlying pension. That erosion happened gradually, without any single dramatic event, just the quiet accumulation of exchange rate movements over a period most people associate with relative stability.
The practical consequence is that your financial plan needs to account for this volatility explicitly, not as a footnote. A sustainable income strategy for life in Spain should consider where your assets are held and in which currency you draw your income. An International SIPP, for example, can hold assets denominated in euros and pay income directly in euros, removing the conversion risk at the point of withdrawal. This does not eliminate investment risk, but it does mean that a weakening pound does not immediately translate into a reduction in your purchasing power at the supermarket or with your Spanish utility provider.
Diversifying across currencies is a related strategy, particularly relevant if you hold a mix of UK property, UK pensions, and investments accumulated over a British working life. Structuring your drawdown so that your euro-denominated needs are met from euro-denominated assets, and your sterling needs from sterling assets such as a UK mortgage or ongoing UK costs, can provide meaningful protection against short-term currency volatility.
Currency risk is not something that can be avoided entirely, but it can be managed deliberately. For many UK expats in Spain, doing so is one of the most impactful steps available in retirement planning.
Have questions about your situation?
Book a free 30-minute call to discuss your UK pension and investment position.
Book a Time to Talk