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Russia and Ukraine - issues for pension scheme trustees

Russia and Ukraine - issues for pension scheme trustees


The Russian invasion of Ukraine presents issues for pension scheme trustees to consider. Alongside clear implications regarding investments and the need to comply with sanctions, these may include questions about covenant, funding, cyber security and scam risks.

This briefing addresses the issues most likely to arise, some of which are also noted by the Pensions Regulator in its guidance.


Breaching UK or international sanctions is a criminal offence which can result in criminal or civil penalties, so taking steps to ensure compliance with them should be an immediate priority. Note that additional sanctions have been implemented against Belarusian as well as Russian entities and individuals in response to the invasion. Some entities in Ukraine are also sanctioned (for example in occupied Crimea).

Trustees should check with (as applicable) their investment managers, custodians and fiduciary managers that they have proportionate controls in place to ensure compliance with government sanctions as regards their investments. FCA guidance sets out its expectations for such firms in this regard.

If any benefits are paid to accounts with banks based in the relevant locations, or even (however unlikely) to potentially sanctioned Russian or Belarusian individuals anywhere in the world, trustees should urgently check the implications of financial sanctions with their administrators and payroll providers.

Our website includes materials on sanctions from our Export Control and Sanctions team.


Trustees should take investment advice to understand the new risks that the war has created and the scheme's exposure to them. These include indirect aspects, such as rising inflation and the prospect of rising interest rates. They should consider whether their investment strategy remains appropriate and in line with their risk tolerance. In doing so, they should consider their statement of investment principles, including ESG (environmental, social and governance) matters.
There has been a natural desire among many investors to divest their Russian holdings. There may be pressure from members for trustees to do so. Trustees, however, have overriding fiduciary and other duties. Some key factors here are as follows:

  • Trustees should ensure that they comply with financial services legislation by ensuring (unless they are FCA-authorised) that their decisions in this area are at a strategic level and do not involve any day-to-day decisions about specific investments.

  • Trustees' investment decisions should be based on financial factors and investment advice should be taken. Pension scheme investments are long-term and any short-term reactions to events should be considered very carefully. It is generally safest (as a starting point at least) to focus on financial factors. Criteria based on wider non-financial considerations (such as political or ethical beliefs) must meet additional legal tests before they may influence pension scheme investment decisions. We note, however, that there may be some close alignment between financial factors and non-financial factors (including members views) in the current circumstances. We provide further analysis on these issues in this article.

  • The extent to which trustees can control investments depends on the nature of the holdings. Within pooled funds, trustees may have no or limited decision-making role as to the investments held and will be reliant on manager policies. With segregated discretionary investment mandates, the trustees should be able to impose strategic guidelines (and exclusions) which limit the manager's discretion. The trustees may, however, first want to understand what the manager is itself doing: financial factors may mean that the manager has already adopted an approach which aligns with what the trustees would wish to see. If the trustees have any direct holdings (such as property) then they are likely to need specific investment advice about what to do with those assets.

    • There may be practical issues with divestment, for example market suspensions or a lack of non-sanctioned buyers. Trustees may therefore in some cases have no choice but to hold on to certain assets.

    • Decisions as to the timing of any divestment should in any event be based on financial considerations, as discussed above. Investment advice will again be needed here.

The Pensions Regulator also tells defined benefit scheme trustees to be watchful for potential short-term liquidity issues, referring to the need to meet margin calls and make benefit payments.


For a defined benefit scheme, trustees will need to understand if there is any impact on covenant. This may, of course, be the case if a scheme employer or guarantor has any Russian (or Ukrainian or Belarusian) operations or other interests, or is otherwise exposed to supply chains affected by the invasion. That might include the presence of significant customers or suppliers in those countries. Less directly, depending on the nature of the business there might be an impact due to rising inflation, especially fuel and energy prices, and changing rates of economic growth.


Defined benefit scheme trustees should take actuarial advice on funding implications, to consider in particular rising inflation and the prospect of rising interest rates.

Cyber security and scam risks

The Pensions Regulator notes a potential heightened risk of cyber-attacks (i.e. hacking etc.). It urges trustees to consider whether their cyber safety procedures remain adequate or need further consideration. Trustees may wish to undertake further training or planning sessions on how they would respond to a cyber-attack which affected their scheme.
Similarly, the Pensions Regulator also notes the potential for heightened risk of financial crime, including scams, and urges trustees to consider whether relevant processes and procedures should be reviewed.

Communicating with members

The Pensions Regulator says that trustees should consider whether to communicate with members to let them know the steps being taken to manage risks to the scheme.
For a defined contribution scheme, it says that trustees might urge members not to rush decisions and provide them with clear, relevant and timely information so they can make informed decisions.
At the least, trustees should be prepared to be able to answer members' queries about scheme investments.

How we can help

Our Pensions team benefits from the close support of colleagues who variously specialise in financial services, cyber security and sanctions law. We are well placed to help trustees to navigate all legal aspects of these issues.

For further information, please contact

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