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Pensions: What Russia's invasion of Ukraine means for your savings

·Finance Reporter, Yahoo Finance UK
·4-min read
Some 86% of people believe UK pensions should not be invested in Russia. Photo: Getty
Some 86% of people believe UK pensions should not be invested in Russia. Photo: Getty

UK companies are rushing to ditch Russian assets amid the ongoing invasion of Ukraine, with the market turbulence leaving savers worried about their pension pots.

The average value of a self-invested personal pension has fallen by 12% from £221,713 at the end of December 2021 to £202,134 at the end of February and the start of the Russian invasion of Ukraine, to £196,109 now, according to Interactive Investor data — a drop of over £25,000.

Becky O’Connor, head of pensions and savings at Interactive Investor, said: “The war in Ukraine has consequences for global stock markets, which in turn could affect the value of pension funds.

“For those years away from retirement, this should not be too concerning — they may have decades left for markets to recover enough to restore their pension value to rude health.

“It is more concerning for people who are close to or in retirement. But how consequential it will be for older people depends on a number of factors, including their individual exposure to global equities.

Some 86% of people believe UK pensions should not be invested in Russia, according to a survey carried out for Make My Money Matter.

Read more: ISA: Five global fund ideas for investors to have on their radar

The Pensions and Lifetime Savings Association (PLSA) said UK pension schemes will have an “extremely low level” of direct investment in Russia.

Pension plans are invested in Russian bonds and stocks directly or through asset managers’ investment funds.

The Church of England issued instructions to their managers to exit all of the funds’ current direct holdings in Russian companies and to make no further investments in Russian companies.

NEST, the state-backed pension fund, said it will pull around £46m from Russia, effectively divesting from any Russian assets within its holdings.

The UK’s largest private scheme, the Universities Superannuation Scheme, is to sell £500m worth of investments in Russian organisations, equivalent to 0.5% of its £90bn portfolio.

The TfL Pension Fund said it had instructed its investment managers to freeze all existing direct holdings in Russian-domiciled investments.

The £13bn scheme said its current exposure to Russia was currently around £28m, of which £25m is held in direct investments.

Read more: What Ukraine invasion means for consumer prices in the UK

The Pension Protection Fund (PPF) said it would eliminate its exposure to Russian assets when liquidity in the market improves.

As retirement funds account for tens of millions of pounds being pulled from the country, Russia’s equity market has dropped massively in value.

Even with minimal exposure to the Russian economy, pension investments are exposed to the general global uncertainty caused by the war.

Looking at NEST's top ten holdings, all but one of them have lost value, most of them registering a two digit drop. Between January and March only Berkshire Hathaway managed to increase its share price.

NEST top ten holdings December 2021. Table: NEST via Interactive Investor
NEST top ten holdings December 2021. Table: NEST via Interactive Investor

It is a similar case with the People’s Pension, with all the top holdings losing value as the far-reaching and destabilising economic effects of an escalating Russia-Ukraine conflict leaves markets in turmoil.

The People’s Pension top ten holdings. Table: The People’s Pension via Interactive Investor
The People’s Pension top ten holdings. Table: The People’s Pension via Interactive Investor

O’Connor said: “The bottom line for anyone now, regardless of what they have or haven’t already done to stem losses, is not to panic.

"Selling locks in losses. If you don’t need to sell now and can wait to draw an income, you are likely to be rewarded by a recovery in values, when it comes. This is more important for retirees or people close to retirement than anyone."

Concerns about slow and volatile investment growth may scare some people from investing their savings, which O'Connor considers a mistake.

“It’s also especially important for younger pension investors, who have started to show signs of becoming more engaged in their pension investments, not to worry."

Read more: Five ways for investors to make the most out of capital gains tax exemptions

For those currently working and several years away from retirement, there is no need to respond to or act on the market conditions as they have years left to make up for any losses experienced in the first few months of this year.

Those approaching or already in retirement can leave their money in their pension pot for as long as possible to allow time for its value to rise again. They might also consider whether other assets, either from savings or ISAs, could help tide you over to keep your pension invested for longer.

Those seeking independent financial advice can book an appointment with Pension Wise, the free government guidance service.

Watch: When should I start paying into a pension?

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