The Pensions Regulator said it remains unclear how the conflict in Ukraine and the sanctions imposed on Russian President Vladimir Putin's regime will affect British pensions schemes, as it published its 2022 Annual Funding Statement.
The watchdog for workplace pensions said that a significant risk is the impact that the conflict may have on the global economy.
"Schemes need to be alert to changes in liquidity demands and cyber risks; the longer term impact on funding positions could be significant," the watchdog said.
Various western states have hit Russia with restrictive measures after it invaded Ukraine in February, triggering countries such as the U.K. to slap asset freezes against its banks. Putin's government has responded with a series of steps designed to stabilize the Russian economy.
TPR also said trustees will be approaching their triennial valuations at a time of high energy prices, higher interest rates and slower economic growth — factors that could hit a retirement plan's assets and liabilities, as well employer covenants.
Triennial valuations involve pension trustees carrying out a valuation at least every three years to check if they have adequate funds to meet members' benefits.
The watchdog's annual funding statement is for trustees and sponsoring employers of defined benefit, or DB, occupational pension schemes, especially those with valuation dates between Sept. 22, 2021, and Sept. 21, 2022, and retirement plans undergoing changes that require a review of their funding.
Employer covenants, which are employer obligations to support their DB scheme, could also be affected by factors such as financing costs, the regulator added. Such factors will come on top of ongoing challenges of COVID-19 and Brexit, the watchdog said.
David Fairs, the regulator's executive director of regulatory policy, said many schemes' funding levels are ahead of plan because of favorable investment conditions over the last three years — but he cautioned that "now is not the time for complacency."
"Conditions remain challenging for some schemes and employers, and so we urge trustees to continue to focus on their long-term funding target and strategy," Fairs said. "An actuarial valuation is an opportunity for trustees to review their funding plans, and it may be a good time to seek future protections such as contingency plans and dividend-sharing mechanisms."
The annual funding statement also noted that the watchdog has seen a rise in employers returning cash to shareholders such as through restarting dividends after a break during the COVID-19 crisis.
"Trustees should be alert to this and consider whether their scheme is being treated fairly," the regulator said.
Laura McLaren, a partner at financial services consultancy Hymans Robertson, said it is unsurprising that Russia's invasion of Ukrainian and the lingering effects of COVID-19 and Brexit are notable themes.
"High inflation and slowing economic growth will impact the outlook for scheme assets and liabilities. They will also be key drivers of employer covenant and how much employers can pay in pension contributions," McLaren said.
--Additional reporting by Najiyya Budaly and Ronan Barnard. Editing by Alyssa Miller.
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