The Russian invasion of Ukraine and the response to severe economic sanctions means pension funds are reviewing their portfolios and considering exclusion policies.
Industry body the Pensions and Lifetime Savings Association (PLSA) believes that UK pension funds will have an “extremely low level” of direct exposure to Russian companies in their portfolios.
However, pension schemes will need to review any direct or indirect investment holdings and then take appropriate action to comply with UK sanctions against Russia.
The PLSA represents pension schemes with more than £1.3 trillion invested on behalf of more than 30 million UK savers.
Nigel Peaple, director of policy and advocacy at the PLSA, said:
“Typically, UK pension schemes will have an extremely low level of direct investment in Russia – less than 0.5% of assets in the case of the schemes we have consulted.
“In response to the events of the last week, schemes are currently assessing the levels of any direct or indirect holdings they have in their investment portfolios, taking action to comply with the UK sanctions, and considering whether to enact any exclusion policies they have in place.
“There have been higher than normal price movements on financial markets in reaction to the conflict in Ukraine as investors interpret the economic impact.
“Pensions schemes have very long-term horizons and invest in a broad range of globally diversified assets to lessen the impact of unexpected shocks such as this.”
Pension schemes will need to consider the financial and moral case of divestment of any Russian holdings.
One example of action already taken was the Church of England Pensions Board, instructing fund managers to sell any direct holdings in Russian companies.
A spokesperson for the Church of England said:
“On February 24, in response to the attack on Ukraine by Russia and supporting the sanctions announced by the UK and other Governments the Church Commissioners and the Church of England Pensions Board issued instructions to our managers to exit all of our current direct holdings in Russian companies and to make no further investments in Russian companies.
“Prior to the instruction, holdings across portfolios in Russian companies represented approximately 0.16% of total investments. No investments were held in Russian sovereign debt.”
A spokesman for the Association of British Insurers (ABI) said:
“The events in Ukraine are deeply disturbing, and our thoughts are with those affected.
“Our members are monitoring closely and reacting to developments in this fast-moving situation, including continuing to support the implementation of any sanctions put in place.
“Anyone who has any concerns over their insurance and long-term savings policies in the current situation should contact their insurer or independent financial adviser.”
While reviewing holdings in pension and other funds in the wake of the Ukraine situation is essential to investors, it’s also vital to avoid making any knee-jerk reactions with your portfolio.
Investing is best done slowly, with considered and strategic decisions rather than reacting to short-term events or volatility.