Helping people
secure a life of
possibilities
Phoenix Group Holdings plc
Annual Report and Accounts 2021
Phoenix Group are proud to be the UK’s largest
long-term savings and retirement business.
We are driven by our purpose of helping people
secure a life of possibilities. By growing a strong,
sustainable business we will help more people
on their journey to and through retirement.
Other reports
Our new brand look
Our new brand stems from our
purpose of helping people secure
a life of possibilities. Clear and
open, it reflects our focus on the
best outcomes for our customers
and wider society.
Scan the code to view
a video about our new
brand look and feel
View our Sustainability Report 2021
thephoenixgroup.com/sustainability/
sustainability-report
View our Climate Report 2021
thephoenixgroup.com/
sustainability/climate-report
Performance
Contents
Key
performance
indicators
Operating companies’
cash generation
£1,717m
(2020: £1,713m)
REM APM
Other
performance
indicators
Total ordinary
dividend per share
48.9p
(2020: 47.5p)
Group Solvency II surplus
(estimated)
IFRS operating
profit
£5.3bn
(2020: £5.3bn)
REM
£1,230m
(2020: £1,199m)
APM
Group Solvency II shareholder
capital coverage ratio (estimated)
IFRS (loss)/profit
after tax
180%
(2020: 164%)
REM APM
Incremental new business
long-term cash generation
£1,184m
(2020: £766m)
REM APM
All amounts throughout the report marked with
REM are KPIs linked to Executive remuneration.
See Directors’ remuneration report on page 106.
All amounts throughout the report marked with
APM are alternative performance measures.
Read more on page 320.
£(709)m
2020: £834m
Fitch financial
leverage ratio
28%
(2020: 28%)
REM APM
Assets under
administration
£310bn
(2020: £307bn*)
APM
* Pro forma for the disposal of £29 billion of
assets from the Wrap SIPP, TIP and Onshore
Bond businesses sold to abrdn plc in 2021, as
well as £2 billion of assets from Ark Life which
was sold to Irish Life in 2021.
The Strategic report was approved by the Board of Directors
on 12 March 2022 and signed on its behalf by
Andy Briggs
Group Chief Executive Officer
Strategic report
About Phoenix
Our investment case
Chairman’s statement
Group Chief Executive Officer’s report
Our business model
Our strategic priorities and KPIs
Business review
Stakeholder engagement
Non-financial information statement
Our sustainability strategy
Streamlined Energy and Carbon
Reporting (SECR) statement
Task Force on Climate-Related Disclosures
Risk management
Viability statement
Corporate governance
Chairman’s introduction
Robust governance
Our Board of Directors
(and Executive Committee)
Our governance framework and the Board’s role
Bringing together our purpose, strategy, culture
and values
Our Board in action
A clear model of virtuous decision-making
Stakeholder engagement from the top
Board Directors’ fulfilment of the duty
under Section 172 Companies Act 2006
Engagement in action – listening to
the colleague voice
Valuing diversity of thought and independence
on the Board
Board composition and development
(including Board education)
Nomination Committee report
Audit Committee report
Risk Committee report
Sustainability Committee report
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
Financials
Independent auditor’s report
IFRS consolidated financial statements
Notes to the consolidated financial statements
Parent company financial statements
Notes to the parent company financial statements
Additional Life Company asset disclosures
Additional capital disclosures
Alternative performance measures
Additional information
Shareholder information
Glossary
Online resources
Forward-looking statements
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Phoenix Group Holdings plc Annual Report and Accounts 2021
1
Strategic
report
About Phoenix
Our investment case
Chairman’s statement
Group Chief Executive Officer’s report
Our business model
Our strategic priorities and KPIs
Business review
Stakeholder engagement
Non-financial information statement
Our sustainability strategy
Streamlined Energy and Carbon
Reporting (SECR) statement
Task Force on Climate-Related Disclosures
Risk management
Viability statement
4
6
8
10
14
18
28
42
44
46
48
51
54
66
2
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
3
About Phoenix
At a glance
Who we are
Phoenix Group is the UK’s largest long-
term savings and retirement business.
We offer a broad range of pensions
and savings products to support people
across all stages of the savings life cycle.
Our vision
To grow a strong and sustainable
business to help more people on their
journey to and through retirement.
Our purpose drives everything we do:
Helping people
secure a life
of possibilities.
Our business
Our key consumer brands
Open business brands
Heritage business brands
c.£310bn
total assets under
administration
c.8,000
colleagues
c.£6.5bn
market capitalisation as
at 31 December 2021
c.13m
customers
FTSE 100
and FTSE All World
£17.0bn
of estimated cash that will
emerge from our current
in-force business
Our values
Growth
We grow our business
through finding
new ways to develop
our expertise
and innovate.
Passion
We are passionate
about understanding
and acting on what’s
important to our
customers, colleagues
and society.
Responsibility
We build trust by
taking accountability
and empowering
others to do the
right thing.
Courage
We’re ambitious in
the challenges we
solve and we always
speak up.
Difference
We collaborate across
boundaries and
embrace difference
to deliver the best
customer and
colleague outcomes.
4
Phoenix Group Holdings plc Annual Report and Accounts 2021
Our business has two customer divisions…
Find out more about our
business model and how
we generate cash on
pages 14–17
Heritage
What we do
• Phoenix is the
market leader
in the safe
and efficient
management of
Heritage in-force
life and pensions
policies to deliver
better customer
outcomes.
• Products include
with-profits and
unit-linked funds,
and annuities.
How we do it
• We acquire
Heritage books
through our
dedicated M&A
function.
• We then migrate
customers onto
a more modern
platform with
enhanced digital
capabilities
to improve
the customer
experience.
Who are our
customers
• Primarily
individuals at or
near retirement
age who own
legacy products
that are no
longer actively
marketed to
new customers.
What
distinguishes
us
• Market-leader in
M&A integration
with a scalable
operating model
that enables us to
more efficiently
manage legacy
products.
• We are a highly
trusted partner
for M&A vendors.
Why do insurers sell their Heritage books?
The capital intensive nature of Heritage books combined with the
increasing costs of administering old legacy product systems results in
insurers looking to sell these books to specialists such as Phoenix.
How does Phoenix run them more efficiently?
Our cost-efficient operating model for customer administration utilises
our outsourced customer platform to transform the traditional fixed cost
of managing legacy portfolios in run-off into a best-in-market variable
cost. We also leverage our scale to realise significant capital synergies.
How we make an
economic return
We support
c.13m
customers in total
Open
What we do
• We offer and
manage long-
term savings
and pensions
products on
behalf of our
customers.
• Our primary
products include
Bulk Purchase
Annuities (BPA),
Workplace
pensions and
individual savings
& retirement
solutions.
How we do it
• We support
people in their
journey to
and through
retirement
by providing
solutions to their
long-term savings
and retirement
needs.
• We provide the
right guidance
and products, at
the right time,
to support the
right decisions.
Who are our
customers
• Corporates
looking to de-risk
their balance
sheets with a BPA.
• Employers
looking for a
trusted partner
to manage their
Workplace
scheme.
Individuals at
different stages
of the savings
life cycle.
•
What
distinguishes
us
• We have a
strong range of
products and
brands across the
savings life cycle.
• Our Heritage
business provides
significant cost
and capital
synergies to the
Open business
and access to
c.13m customers.
ergies ge n e r a t e c
Herita
g
a
Assets und
s h
e d i v i s ion assets: £15
er a
d
7
b
n
n
y
f s
o
n
o
i
t
a
s
i
l
a
e
r
d
n
a
l
a
t
i
p
a
c.£310bn
Assets under administration
O
p
e
f c
Release o
n division as s e t
s : £ 1 5 3 b n
nt r
e
e
turns
m
i
n
i
s
t
r
a
t
i
o
n
g
e
n
e
r
a
t
e
f
e
e
s and investm
I
n
v
e
s
t
m
e
n
t
c
a
s
e
What are Bulk Purchase Annuities (BPA)?
Companies are increasingly de-risking their balance sheets by insuring
their defined benefit pension scheme liabilities through BPAs in order
to focus on their core businesses. Phoenix provides BPA risk removal
products for trustees and sponsors of pension schemes.
What are Workplace schemes?
A Workplace pension scheme is a way of saving for retirement through
contributions deducted directly from salaries and supplemented by
employers. Phoenix manages these schemes on behalf of employers.
Phoenix Group Holdings plc Annual Report and Accounts 2021
5
Strategic report
Our investment case
How we generate shareholder value
Through our value
creation model...
...we deliver on our
financial framework...
Organic growth
Open
• Acquire new customers
Grow
in-force
business
through our multiple Open
business channels primarily
under the Standard Life brand
Cost and capital efficiencies,
and access to c.13m customers
In-force business
Heritage
• Market leader in optimising in-force
business for cash and resilience
• Generates surplus cash to reinvest
into growth opportunities
Grow
in-force
business
Supports higher M&A synergies
Inorganic growth
M&A & Integration
• Market leader in
UK Heritage M&A
• Integrate onto Phoenix
Group’s platform to unlock
cost and capital synergies
6
Phoenix Group Holdings plc Annual Report and Accounts 2021
Reinvest
surplus
cash to
grow our
Open
business
Reinvest
surplus
cash to
fund
M&A
Cash
We deliver high levels of
dependable cash generation
which supports our dividend
over the long term
Resilience
Our unique risk management
framework delivers resilience
to our Solvency II capital and
certainty to cash generation
Growth
Growth from our Open
business and through M&A
will offset our Heritage
business run-off
...we deliver on our
financial framework...
…which underpins our sustainable
dividend approach
Dividend growth
when the business
grows organically
Strong dividend track record
+4% CAGR
45.2p
46.0p 46.8p
47.5p
48.9p
40.8p 40.8p 40.8p
41.9p
36.5p
32.2p
H2: 24.8p
+3%
H1: 24.1p
In-force business
funds our current
dividend over
the long term
2011
2012
2013
2014
2015
2016
2017
2018
2019 2020 2021
Dividend per share
Future dividend approach
Potential
for
dividend
growth
Dividend growth
when the business
grows inorganically
Base
dividend
level
Organic
dividend
growth
Inorganic
dividend
growth
Potential total
dividend
Phoenix Group’s dividend policy:
The Board intends to pay a dividend that is
sustainable and grows over time
Phoenix Group Holdings plc Annual Report and Accounts 2021
7
Strategic report
Chairman’s statement
Embracing
our purpose
2021 has seen Phoenix make significant
strategic progress as we fully embraced
our purpose of ‘helping people secure
a life of possibilities’.”
Nicholas Lyons
Chairman
Scan the code to
watch the video
from our Chairman
2021 has been another landmark year for
Phoenix Group with our strong financial
and operational performance enabling us
to deliver on our ambition of ‘proving the
wedge’. This means that organic growth
from our Open business has more than
offset the run-off of our Heritage business
for the first time. It is a pivotal moment for
Phoenix as it transforms us from a business
that was in long-term run-off to a business
that is now growing and sustainable.
Importantly, the investment we are making
into our business is directly benefiting all of
our stakeholders, including our customers,
colleagues, investors and wider society.
We are delivering our vision of growing
a strong and sustainable business that
helps more people on their journey to and
through retirement.
better financial futures. We therefore
have three core pillars that underpin our
comprehensive sustainability strategy
which is aligned to our purpose.
Our first pillar is ‘investing in a sustainable
future’, where we will use our scale to
drive real change and invest in the things
that help to build a more sustainable
world. We are responsible for looking
after c.£310 billion of customer and
shareholder assets, which requires us to
keep their money safe and provide them
with strong long-term financial returns.
We will do this by integrating sustainability
into every investment decision we make,
through investing responsibly, by tracking
our performance to deliver our ambitious
decarbonisation goals and through
engaging to drive wider system change.
Our purpose drives our actions
As the UK’s largest long-term savings
and retirement business we can make
a significant difference to society and
we are committed to making change
happen today to support people in having
Our second pillar is ‘engaging people in
better financial futures’, which is about
providing our customers with the right
guidance and products, at the right
time, to support the right decisions. We
will do this through delivering fund and
product innovation to develop sustainable
retirement income solutions that help
close the pension savings gap and by
empowering our customers to plan
their financial futures. We also want to
drive a national conversation about the
implications of longer lives, through our
new think tank, Phoenix Insights. While
Phoenix Group will continue to advocate
for change, using our scale and influence.
Our third pillar is ‘building a leading
responsible business’. We will do this by
continuing to invest in our people and
culture, working responsibly with our
supply chain, supporting our communities
and reducing the environmental impact of
our own operations.
Against each pillar we have set clear
targets, including our ambitious 2025 and
2030 interim decarbonisation targets for
our investment portfolio, as part of our
roadmap to net zero by 2050. We also
have a commitment for being net zero
across our own operations by 2025. You
can find out more about our strategy and
targets in our 2021 Sustainability Report.
8
Phoenix Group Holdings plc Annual Report and Accounts 2021
Inaugural organic dividend increase
As a result of the Group’s strong financial
performance in 2021, I am delighted to
announce that the Board is recommending
Phoenix Group’s inaugural organic
dividend increase. The Board had
previously set two clear conditions for
considering an organic dividend increase,
both of which have been met in 2021. The
Board has therefore determined that a 3%
increase in the Group’s 2021 Final dividend
to 24.8 pence per share is appropriate,
meaning the Group’s total dividend
for 2021 will be 48.9 pence per share.
Importantly, the Board has always been
clear that any organic dividend increase
must maintain our existing long-term
dividend sustainability, which the growth in
our business in 2021 has ensured.
Going forward, we now expect the
business to continue growing organically
and we also remain committed to M&A,
where we see significant opportunities in
the marketplace. As a result, the Board has
evolved the Group’s dividend policy to
reflect that it now has two potential drivers
of future dividend increases; organic and
inorganic growth. However, the Board will,
as ever, continue to prioritise the Group’s
long-term dividend sustainability, which
is why our dividend policy is to pay a
dividend that is sustainable and grows
over time.
Board changes
We recently announced a series of Board
changes that will take effect this year,
which are a result of my having received
the great honour of being elected as the
next Lord Mayor of the City of London. It
is due to the support I have received from
the Board, our major shareholders and our
regulators that I will be able to commence
this role in November 2022. However, in
order to assume this full-time position, I
will need to take a 14-month sabbatical
from my role as Phoenix Group Chairman,
commencing 1 September 2022. As a
result, the Board has decided that, subject
to regulatory approval, our current Senior
Independent Director, Alastair Barbour,
will assume the role of interim Chairman
during my sabbatical. Alastair will in turn
step down as Chair of the Board Audit
Committee in September and given that
he will have served for 10 years by 2023,
he will then leave the Board upon my
return in November 2023. In his place,
Karen Green has been chosen, subject to
regulatory approval, to become our new
Senior Independent Director.
I am also delighted to welcome Katie
Murray to Phoenix Group, who is joining
the Board as an independent Non-
Executive Director in April 2022. Katie is
currently Group Chief Financial Officer of
Sustainability: The power
of pensions – accelerating
action towards net zero
The overall pension savings pot in the UK is estimated at £2.6 trillion.
This means that people’s pensions have the power to shape the future
we all want to retire into by investing their long-term savings sustainably.
Our pensions can drive real change if we collaborate and work together.
As the UK’s largest asset owner, we recognise that we are in a unique position
to foster this collaboration and in the run up to COP26 we convened our
partners from across the financial ecosystem to explore how we can work
together to accelerate action towards net zero. Our virtual event brought
together key figures from across the industry and focused on the tangible
actions our industry and government can take. These include reform of
Solvency II regulations that would enable the billions of pounds of investment
required for the transition to a low carbon economy to flow at scale.
Scan the code
to watch the
video
the NatWest Group and brings a wealth of
relevant experience to the Group.
Finally, I would like to thank Christopher
Minter from Swiss Re for his insightful
counsel while on the Board. Christopher
left the Board in 2021 following Swiss Re’s
initial disposal of shares which reduced
their stake below the 10% threshold that
entitled them to a Board seat.
Outlook
As we enter 2022, the Board and I believe
that Phoenix is well-positioned to execute
our ambitious strategy at pace and to
continue embracing our purpose.
Thank you
Finally, I would like to take the opportunity
to thank the Board, our colleagues, our
partners and our wider stakeholders for
their hard work, dedication and support in
delivering what has been a pivotal year for
Phoenix Group.
Nicholas Lyons
Chairman
Phoenix Group Holdings plc Annual Report and Accounts 2021
9
Strategic report Chief Executive Officer’s report
Phoenix is a growing,
sustainable business
2021 was a pivotal year for Phoenix as
we demonstrated that we are a growing,
sustainable business with our Open
business delivering organic
growth that more than
offsets the Heritage
run-off for the first time.”
Andy Briggs
Group Chief Executive Officer
Scan the code to
watch the video
from our CEO
I am delighted with our performance in
2021, which has seen us deliver record
financial results and make significant
progress against our strategic objectives,
as we continued to embrace our purpose.
I passionately believe that the best
businesses have a core social purpose,
and at Phoenix ours is ‘helping people
secure a life of possibilities’. As a purpose-
led organisation we are committed to
delivering better outcomes for all of our
stakeholders, including our customers,
colleagues, investors and wider society.
A pivotal year for Phoenix
2021 marked a pivotal moment in Phoenix
Group’s evolution as our Open business
delivered annual organic growth that,
for the first time, will more than offset
the natural run-off of our Heritage book.
This is what we refer to as proving ‘the
wedge’ and it means that Phoenix has
now demonstrated that it is a growing,
sustainable business.
This has been enabled by the strong
momentum we have built in our Open
business, driven by the investment we have
made into developing our capabilities
and through leveraging the Standard Life
brand that we acquired earlier this year.
We operate a clear financial framework
that delivers Cash, Resilience and Growth.
During 2021 we delivered record cash
generation of £1,717 million, exceeding our
2021 target range of £1.5-to-£1.6 billion.
We maintained our resilient Solvency II
(‘SII’) capital position with a SII Surplus
of £5.3 billion (2020: £5.3 billion) and
increased our Shareholder Capital
Coverage Ratio (‘SCCR’) to 180% (2020:
164%). Our Open business has also
delivered record new business long-term
cash generation of £1,184 million, an
increase of 55% from 2020 (£766 million).
This strong financial performance means
that we have once again exceeded our
public financial targets.
As a result, I am delighted that the Board
is recommending Phoenix Group’s
inaugural organic dividend increase of
3%. Importantly, the Board has always
been clear that an organic dividend
increase would only be implemented if the
increased level of dividend remained every
bit as sustainable over the long term as it
previously was. Owing to the growth in our
business, that is the case in 2021.
Phoenix is unique for the dependable
cash and resilience our operating model
delivers. As a result, we can be confident
that our in-force business can pay our
current, increased dividend over the very
long term. And growth, whether through
the investment in our Open business or
through further M&A, has the ability to
increase this dividend further over time,
whilst fully maintaining its sustainability.
Market trends offer growth opportunities
As the UK’s largest long-term savings and
retirement business, it is critical that we
understand the major drivers of change
in the market. There are four key drivers,
as outlined overleaf which offer Phoenix
Group significant growth opportunities.
10
Phoenix Group Holdings plc Annual Report and Accounts 2021
Looking forward, we see four major market trends
which represent significant growth opportunities
for Phoenix Group:
Insurers are disposing
of their Heritage
books through M&A
Pressure on insurance companies to
focus their strategies, free-up capital
trapped in Heritage books and to
deal with cost inefficient legacy
platforms makes further Heritage book
consolidation in the UK market likely.
Trend Accelerating
Corporates are de-
risking through BPAs
Corporates are de-risking their defined
benefit pension scheme liabilities
through Bulk Purchase Annuity (‘BPA’)
transactions in order to focus on
their core businesses. This is fuelling
increased demand for BPAs with
>£2 trillion of liabilities uninsured.
Trend Accelerating
Auto-enrolment
is driving strong
Workplace growth
The Workplace pension scheme
market is growing rapidly, driven
by auto-enrolment, an ageing
population and the move from defined
benefit pension schemes to defined
contribution pension schemes.
Trend Accelerating
Responsibility for
retirement planning is
shifting to individuals
Responsibility for retirement planning
has shifted to the individual in the age
of pensions freedoms and defined
contribution schemes, resulting in
people seeking guidance on their
journey to and through retirement.
Trend Accelerating
Phoenix response
As the market leader in Heritage M&A
we have the capability and scale to
integrate businesses onto our platform
to unlock significant cost and capital
synergies to create shareholder value.
We have a strong track record of
delivery and are trusted by vendors.
c.£480bn
Estimated Heritage M&A
opportunity in the UK market
Phoenix response
We are now an established player
in the BPA market reflecting the
investment we are making to build a
comprehensive market proposition.
This is enabled by the strong asset
management and wider supporting
capabilities we are also building.
£40bn
Estimated future market
flows per annum
Phoenix response
We are a significant player in the
Workplace market with a c.13% market
share. We are investing in this business
and will leverage the Standard Life
brand and our improved capabilities
to retain and grow our customer
assets over time.
£40bn
Estimated future market
flows per annum
Phoenix response
By engaging our c.13 million customers
to better understand their savings
needs we have the opportunity to
encourage customers to consolidate
their pension pots with Phoenix and
to decumulate with us through
their retirement.
£40bn
Estimated future market
flows per annum
Delivering our strategy
We have a clear strategy, as outlined
on pages 6–7. Our Heritage business
is the bedrock of the Group. It delivers
high levels of predictable cash that both
funds our dividend over the long term
and generates surplus cash to reinvest
into organic Open business growth
and inorganic M&A. We are already the
market-leaders in Heritage and M&A,
which create significant shareholder
value, while the investment we are making
into our Open division is building market-
leading businesses here too. At Phoenix,
the whole really is greater than the sum
of the parts. This is because our Heritage
business provides our Open business with
significant cost and capital efficiencies
as well as access to c.13 million customers,
and simultaneously it also supports us in
delivering higher synergies from M&A.
If our strategy is the what, then our
strategic priorities are the how. These are
the key programmes and initiatives that
will differentiate us, building distinctive
capabilities to win in our chosen markets,
and support us in delivering on our
strategy and our purpose. We have five
strategic priorities as outlined below.
Optimise our in-force business
Phoenix is the market leader in managing
in-force business for cash and resilience,
which in turn underpins our sustainable
dividend. It is the in-force business that
delivered our record cash generation and
ongoing resilience during 2021.
A key driver of this is our expertise in
optimising for cost and capital efficiencies,
the output of which we call ‘management
actions’. During 2021 we delivered total
management actions of £1.5 billion for
the year. This included the UK’s first
approved internal model harmonisation
of two legacy models which delivered
in-year capital benefits of c.£550 million
and unlocks a pipeline of further value-
accretive management actions as well as
supporting future M&A.
Another aspect of optimising our in-force
business is to continually assess whether
our portfolio of assets is maximising
value for shareholders. We therefore
undertook a strategic review of our
European operations in 2021, in response
to unsolicited expressions of interest. This
culminated with the sale of Ark Life, an
Irish closed-book business acquired as
part of ReAssure, for £198 million, which
completed in November 2021.
This transaction accelerated the cash
release from the business and allows us
to reinvest the capital into higher return
growth opportunities.
Phoenix Group Holdings plc Annual Report and Accounts 2021
11
Strategic report Chief Executive Officer’s report continued
We have also made significant progress
in building a strong asset management
function which supports us in enhancing
our capital efficiency. We do this through
the proactive management of our
c.£40 billion shareholder credit portfolio
including the origination of more capital
efficient illiquid assets to back our illiquid
liabilities, with £3 billion originated in 2021.
Meanwhile, we continue to operate our
unique dynamic hedging approach which
protects our SII balance sheet by hedging
the majority of our market risks.
Enhance our operating model
and culture
Phoenix is the market-leader in delivering
M&A integrations and customer migrations
that realise substantial cost and capital
synergies. During 2021 we have, once
again, demonstrated how good we are at
realising cost and capital synergies from
our integrations.
We have delivered £590 million of further
synergies from Standard Life in the year,
meaning we have now realised over £1.6
billion of synergies, which is £400 million
more than the revised target we set
post-acquisition. While on ReAssure, we
have delivered £234 million of synergies
in 2021, which is a total of £930 million to
date, in just 18 months, against a revised
target of just over £1 billion. With £2.5
billion of total synergies delivered to date,
this demonstrates the significant value we
create through M&A.
Phoenix Insights
Phoenix Insights is a new think tank set up to transform the way
society responds to the possibilities of longer lives. We will use
research to lead fresh debate, prompt a national conversation,
and inspire the action needed to make better longer lives a reality
for all of us. The core of our work will look at financial security,
employment and learning and skills, but we will also look at health
and care, and homes and communities. Reimagining longer lives
means making changes in all these areas. Having been established
in 2021, during 2022 we will publish our initial research findings
and begin our work to advocate for change.
Scan the code
to watch
the video
12
Phoenix Group Holdings plc Annual Report and Accounts 2021
This is underpinned by our unique
capability of delivering multiple
integrations concurrently, as we delivered
both the migration of 170,000 Old Mutual
Wealth customers onto our ALPHA
platform, and the ongoing migration of
Phoenix customers from Capita to TCS,
to realise synergies and improve the
customer experience.
A crucial component for delivering on our
purpose and strategy is attracting and
retaining the best talent. That is why we
are committed to making Phoenix the best
place our colleagues have ever worked,
by creating a workforce that is reflective
of our community and which enables
colleagues to bring their whole self to
work. We therefore introduced a refreshed
people and culture strategy in 2021 and
strengthened our teams through the
hiring of market-leading talent. Achieving
cultural cohesion and inclusiveness is
even more critical as we navigate our new
ways of working. For this reason we made
a significant investment into the latest
technology to enhance collaboration and
inclusion in the hybrid workplace.
It is therefore great to see our efforts
reflected in a further increase in our
employee engagement, with our average
score currently 7.5 of 10, meeting our
target for the year. I am also pleased
that our focus on increasing female
representation is beginning to develop
momentum, with the number of females
in our Top 100 leadership positions
increasing from 21 to 31.
Grow our business to support both
new and existing customers
We delivered record new business long-
term cash generation of £1,184 million
in 2021, a 55% increase on 2020. This
reflects the significant investment we have
made into our Open business and asset
management capabilities, as well as the
acquisition of the Standard Life brand
which the majority of our Open business
now operates under.
Our Retirement Solutions business was
the largest contributor in 2021 with
£950 million of new business long-term
cash generation, having contracted £5.6
billion of BPA premiums in the year. This
was more than double the £2.5 billion of
premiums in 2020. Importantly, we have
also reduced our capital strain from 9%
in 2020 to 6.5% in 2021, primarily due
to the benefits of our internal model
harmonisation as well as the strong illiquid
asset origination overseen by our asset
management function. The Standard
Life brand has already begun to deliver
benefits in the BPA business where the
brand is resonating strongly amongst
pension trustees and their advisers, thus
opening up more opportunities for us.
Meanwhile, the multi-year investment we
are making into our Workplace pensions
proposition is beginning to deliver
momentum, as we look to balance our
growth from BPA over time. We were
delighted to win 41 new schemes during
the year. While these new schemes are
small in terms of assets, it is an important
milestone, with advisers giving us the
opportunity to prove ourselves on these
smaller schemes before we hopefully
begin winning the larger schemes in time.
In addition, positive net flows of £0.6 billion
during the year provide a good platform to
build on. This success has been supported
by our investment and commitment to
the Standard Life brand, as we reignite
its reputation amongst employee benefit
consultants and advisers.
It is also pleasing to see that the investment
in our propositions and customer service
platforms is reflected in our continued
high customer satisfaction scores, which
once again exceeded our targets. We
delivered a Combined Group telephony
customer satisfaction score of 92% (target:
90%) and a Standard Life digital journeys
satisfaction score of 95% (target: 92%).
Innovate to provide our customers
with better financial futures
Engaging and supporting people in
improving their financial futures is crucial
to fulfilling our purpose of ‘helping people
secure a life of possibilities’. The UK faces
a significant retirement savings gap which
we are committed to helping close by
engaging with our customers. We want to
provide people with the right guidance
and products, at the right time, to support
the right decisions.
We are investing into fund and product
innovation to develop flexible retirement
solutions and sustainable fund choices. Key
successes in 2021 include transitioning our
Workplace Master Trust to a sustainable
default fund and the launch of our new
range of innovative Lifetime Mortgage
products through Standard Life. We are
also developing our digital capabilities to
deliver broader engagement options, with
a 16% increase in customer log-ins across
our Standard Life digital platforms in 2021
and the launch of our Homebuyer Hub
and Money Mindset pilots. This was also
underpinned by new initiatives to enhance
digital literacy skills and better support
vulnerable customers.
The UK’s ageing society does present
significant long-term challenges for people
in being able to realise the potential of their
longer lives, which is why we established a
new think-tank, Phoenix Insights, in 2021.
More details on this can be found in the
spotlight box on page 12.
We are also committed to being net zero
in our own operations by 2025, which we
remain on track to achieve, with strong
progress made in 2021 through a 34%
year-on-year reduction in premises
emissions per FTE intensity.
Invest in a sustainable future
As the UK’s largest long-term savings and
retirement business we are responsible
for managing c.£310 billion of assets on
behalf of our c.13 million customers. Our
customers and shareholders trust us to
reflect their priorities in how we invest.
That means keeping their money safe
and providing them with strong long-term
financial returns, while using our scale
to play our part in delivering a
sustainable future.
That is why we are integrating sustainability
across our business. This requires us
to collaborate closely with our asset
management partners to fully integrate
ESG across our third-party managed assets
and we are embedding best-in-class data
analytics and capabilities to support this.
We also need to invest responsibly and
are doing this in three ways. Firstly, we are
designing decarbonising portfolios that
deliver reduced carbon emissions, but
maintain the broad risk and return profile.
We must then use our position of influence
to bring about corporate change through
active stewardship. And we also need to
evolve our investment decisions to increase
the sustainable assets held within both our
shareholder and policyholder funds.
We have made great progress on this
journey in 2021 by putting in place
the core foundations to deliver on our
ambitions. A great example of this is the
£1.3 billion of investment we allocated
to sustainable assets in 2021, which
represents 67% of our illiquid asset
origination (excluding ERM). This included
£542 million of investment into affordable
housing, £364 million into healthcare and
education, and £220 million into projects
with positive environmental impacts.
In 2020 we committed to being net
zero carbon across our investment
portfolio by 2050 and during 2021 we
set ambitious new interim investment
portfolio decarbonisation targets too. This
includes our target for a 25% reduction
by 2025 in the carbon emission intensity
of our c.£160 billion of listed equity and
credit assets where we exercise control
and influence, as well as a >50% reduction
in the carbon emission intensity of the
c.£250 billion of assets directly within our
control by 2030.
Outlook
Phoenix has a clear and differentiated
strategy, which creates shareholder value
through leveraging the major market
trends, and where the whole is greater than
the sum of the parts.
Heritage is the bedrock of our business,
which delivers high levels of predictable
cash, that covers our current dividend into
the long term. And it also generates surplus
cash, that we can re-invest into both our
Open business, and into M&A, to support
future dividend increases.
We continue to see M&A as a key priority
and are ready to consider transactions
today. We estimate the UK Heritage market
is c.£480 billion with a small number of
large portfolios, as well as a larger number
of small-to-mid size portfolios that we
could acquire for cash. We are the market-
leader in Heritage M&A and a trusted
partner for vendors, which gives us great
confidence in the outlook for M&A.
Thank you
Phoenix Group’s strong 2021 performance
could not have been achieved without our
exceptional people and I would therefore
like to thank my colleagues throughout the
Group for their hard work in 2021.
Andy Briggs
Group Chief Executive Officer
2022 is going to be an
exciting year as we execute
on our strategic priorities
in support of our purpose
and to deliver our financial
framework of Cash,
Resilience and Growth.”
Andy Briggs
Group Chief Executive Officer
Phoenix Group Holdings plc Annual Report and Accounts 2021
13
Strategic report
Our business model
Building a growing, sustainable business
We leverage
our key inputs…
Financial
• We allocate our capital in
a disciplined way to deliver
strong returns from both our
in-force business and new
growth opportunities
Human
• Our experienced colleagues
are experts in managing our in-
force business and integrations
and we are building a strong
new business capability as well
Reputational
• We are the market-leader in
Heritage and M&A with our
strong track record making
us a trusted counterparty for
vendors, regulators & suppliers
Relationships
• Our brands are trusted by our
customers and utilise a range
of partners to deliver better
customer outcomes and an
efficient operating model
Responsibilities
• We have a duty to operate
within the insurance
industry’s regulatory and
capital frameworks, as well as
contributing to wider society
…through our differentiated
operating model…
Dividends
and interest
Invest in
growth
Group
The Group function manages corporate and strategic activity
including M&A. Cash remitted to the Group is used to pay
interest and dividends, with surplus cash reinvested into growth.
Cash generation is
remitted to Group
Cash generation is
remitted to Group
Life Companies
Our Life Companies manage the financial assets of our
customers and integrate acquired businesses. This simplifies
the operating model and ensures the efficient use of capital.
The Life Companies remit cash to the Group.
Heritage
Earns margins on legacy
life & pensions products
and releases capital
over time
Open
Earns margins on new
business life & pensions
products and releases
capital over time
In-house services
Outsourced services
Asset management team
oversees investment portfolio
Asset management services
for our investment portfolio
Customer service through
our ALPHA platform
Customer service through
TCS Diligenta / BaNCS
Capital management and
risk management
14
Phoenix Group Holdings plc Annual Report and Accounts 2021
…in line with our strategic priorities…
See following
pages 16–17 to
find out how we
generate cash
Read more
pages 18–27
Optimise
our in-force
business
Enhance
our operating
model and culture
Grow
our business
to support both
new and existing
customers
Innovate
to provide our
customers with
better financial
futures
Invest
in a sustainable
future
…to deliver our financial framework…
Read more
pages 28–41
Cash
Resilience
Growth
We deliver high levels of dependable
cash generation which supports our
dividend over the long term
Our unique risk management framework
delivers resilience to our Solvency II
capital and certainty to cash generation
Growth from our Open business and
through M&A will offset our Heritage
business run-off
…and better outcomes for our all of our stakeholders…
Read more
pages 42–45
Customers
92%+
customer satisfaction
scores exceeded our
targets in 2021
Investors
48.9p
2021 total dividend
per share (inclusive of
3% increase in final)
Colleagues
7.5 out of 10
average colleague
engagement score
for 2021
Community
2,650hrs
volunteered by our
colleagues to support
local communities
Society
Net zero
carbon commitment
by 2050
…in support of our purpose of:
Helping people secure a life of possibilities
Phoenix Group Holdings plc Annual Report and Accounts 2021
15
Strategic report
Our business model continued
How we
generate cash
Management
actions
Cash remitted to
the holding
companies
Organic
surplus
emergence
Any assets which the Life
Companies hold in excess
of overall internal capital
buffers required are
known as free surplus
Opening
free
surplus
Closing
free
surplus
Cash generation within our Life Companies
Opening free
surplus
Sources of Life Company
cash generation
What is the opening free surplus?
How is free surplus generated?
Life Company Own Funds
Life Companies hold capital in accordance with Solvency II
regulations, providing appropriate security for policyholders.
This capital is known as Solvency II Own Funds.
Less Solvency Capital Requirement
The level of regulatory capital required is known as
the Solvency Capital Requirement.
Less Capital Management Policy
The Life Companies hold internal capital buffers above
the regulatory capital requirement for prudence.
Organic surplus emergence
Life Companies earn margins on different types of life
and pensions products increasing Own Funds. In addition,
as our in-force business runs off the Solvency Capital
Requirements reduce as they are released.
Management actions
These can either increase Own Funds or reduce Solvency
Capital Requirements.
16
Phoenix Group Holdings plc Annual Report and Accounts 2021
Cash remitted
from the Life
Companies
Head office
costs
Pensions
Debt
interest and
repayments
Cash at the holding
company level provides
resources for future
growth and resilience
for the Group
Dividends
Remaining
cash at
holding
company
level
Opening
cash at
holding
company
level
Cash utilisation at holding company level
Uses of holding company
cash generation
Uses of remaining cash –
growth opportunities
What is the cash remitted from the
life companies used for?
Head office costs
Including salaries and other administration costs.
Pensions contributions
To the Group’s employee Defined Benefit schemes.
Debt interest and repayments
On outstanding Group shareholder debt.
Dividends
The Group operates a dividend policy which is to pay a
dividend that is sustainable and grows over time.
What is the remaining cash used for?
Mergers and acquisitions (M&A)
As well as providing a clear strategic fit, M&A transactions must
meet our key criteria of being value accretive, supporting the
dividend level and maintaining our investment grade rating.
BPA transactions
Generate increased cash flows over the longer term and
are value accretive.
Investment in asset-based organic growth
Investment into our Workplace and CS&I propositions will
further develop our capabilities and support us in growing our
Open business assets over time.
Phoenix Group Holdings plc Annual Report and Accounts 2021
17
Strategic report Our strategic priorities and KPIs
Optimise our
in-force business
Phoenix Group is the market leader in
managing in-force business for cash and
resilience, which in turn underpins our
sustainable dividend over the long term.
The majority of the Group’s cash
generation stems from the run-off of in-
force business, which we further enhance
by delivering management actions and
through realising integration synergies
from completing value-accretive M&A.
II Shareholder Capital Coverage Ratio
(‘SCCR’) of 180% increased 16 percentage
points in the year (2020: 164%) primarily
due to the overdelivery of management
actions and remains comfortably within
our target range of 140% to 180%. Our
ongoing resilience reflects the unique
dynamic hedging approach we employ,
which means we are comparatively
more resilient to market stresses than the
majority of our peers.
In parallel, we deploy our unique approach
to risk management across our in-force
business and we hedge the majority of
our market risks. This brings resilience
to our Solvency II capital position, and
in turn helps us deliver dependable
cash generation.
Record cash generation in 2021
Phoenix delivered record cash generation
in 2021 of £1,717m (2020: £1,713m), which
exceeded the Group’s 2021 target range
of £1.5bn to £1.6bn. This reflects our
continued focus on optimising our in-force
business to deliver dependable cash. Cash
generation in 2021 included c.£0.8bn
of management actions that have been
distributed as cash during the year. This
included c.£0.4bn of synergies realised
from the Standard Life and ReAssure
acquisitions, which are expected to be
lower going forward as those integration
programmes complete.
Resilient balance sheet maintained
The Group’s Solvency II surplus of
£5.3bn remained strong during the year
(2020: £5.3bn). This largely reflects the
proactive investment we have made into
growth opportunities this year which
was largely funded by our over-delivery
of management actions. Our Solvency
We also maintained our Fitch leverage
ratio at 28%, which is within our target
range of 25% to 30%, as we continue to
optimise our capital structure.
Enhancing our capital efficiency
We enhance cash generation from our
in-force business by delivering value-
accretive management actions. In 2021,
we delivered total management actions
of £1.5bn, which included c.£550m of
capital synergies from the harmonisation
of the legacy Phoenix Life and Standard
Life internal models, the first of its kind
undertaken in the UK. The harmonisation
creates a single, more efficient model that
will further strengthen the Group’s risk
and capital management capabilities, and
offers a host of future benefits for ongoing
optimisation and M&A synergies. Other
management actions in the year included
c.£300m of capital benefits from our
illiquid asset origination and c.£100m from
our ongoing asset risk management.
Value accretive portfolio optimisation
In November, we completed the sale of
Ark Life, the Irish closed-book Heritage
business acquired as part of ReAssure, for
£198m. This followed a strategic review
of our European operations in response
to expressions of interest in late 2020.
18
Phoenix Group Holdings plc Annual Report and Accounts 2021
We concluded from this that we should
dispose of Ark Life, but retain our Standard
Life International business and implement
a range of management actions to deliver
a more efficient platform that provides
longer-term strategic optionality. The sale
of Ark Life enabled us to accelerate the
cash release from this business and the
capital will be reinvested into higher return
growth opportunities.
Investment in asset management
We also made significant progress in
building a best-in-class asset management
function with further key hires and
infrastructure build in 2021. This supported
us in originating £3bn of new illiquid
assets, which are used to back our illiquid
liabilities, an increase of 48% on 2020.
These assets were originated at an
attractive c.70bps illiquidity premium,
demonstrating our strong capability here.
Priorities for 2022
In 2022, we will maintain our focus on
optimising our in-force business for
cash and resilience, with clear targets
as outlined overleaf in the KPIs.
Other strategic focus areas include
continuing to deliver a range of
management actions as we realise further
cost and capital synergies.
We will also further enhance our asset
management capability to enable us to
continue originating illiquid assets to
back our growing annuity business and
further diversify our credit portfolio
geographically through an increased
proportion of US credit assets.
How we measure delivery
Cash generation
£1,717m
Solvency II surplus
£5.3bn
Solvency II Shareholder
Capital Coverage Ratio (SCCR)
Fitch leverage ratio
180%
28%
2021 target: £1.5bn to £1.6bn
2021 target: no target
2021 target: 140 to 180%
2021 target: 25 to 30%
£707m
2019
2020
2021
£1,713m
£1,717m
20191
2020
2021
£4.4bn
£5.3bn
£5.3bn
20191
2020
2021
152%
164%
180%
2019
2020
2021
22%
28%
28%
Definition
Cash generation represents
cash remitted by the Group’s
operating companies to the Group
holding company in the current
period. Cash remitted reflects the
generation of Free Surplus within
the life companies and the benefit
of value-accretive management
remitted in the period.
Why it matters?
Cash at the Group holding
company is used to pay dividends,
interest and various corporate
costs, with any surplus cash
available for reinvestment into
growth opportunities.
Future target
One-year 2022 cash generation of
£1.3bn to £1.4bn.
Three-year 2022–2024 cash
generation of £4.0bn.
Definition
The Solvency II surplus is
calculated as the excess of
eligible Solvency II Own Funds
over the Group’s Solvency
Capital Requirements.
Definition
The Solvency II SCCR is defined
as the ratio of the Group Own
Funds to Group Solvency Capital
Requirements, after adjusting to
exclude amounts relating
to unsupported with-profit
funds and unsupported Group
Pension Schemes.
Definition
Calculated by Phoenix using Fitch
Ratings’ stated methodology,
being debt as a percentage of the
sum of debt and equity.
Why it matters?
The Solvency II surplus is the
regulatory assessment of capital
adequacy of the Group. We pay
our dividends from our surplus and
so retaining a significant surplus
ensures the sustainability of our
dividend over the long term.
Why it matters?
The SCCR demonstrates the
extent to which shareholders’
Eligible Own Funds cover the
Solvency Capital Requirements.
It therefore measures the capital
adequacy of the Group from a
shareholder perspective.
Why it matters?
The Fitch leverage ratio is a
measure of the Group’s debt
gearing level. Our target ratio
range is a key input into the
Group’s Fitch investment
grade rating.
Future target
Maintain a Solvency II surplus that
enables us to operate within our
SCCR target range.
Future target
Maintain a SCCR within our target
range of 140% to 180%.
Future target
Maintain a Fitch leverage ratio
within our target range of 25%
to 30%.
Links
REM APM
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REM
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REM APM
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REM APM
1 Pro forma for acquisition of ReAssure
Phoenix Group Holdings plc Annual Report and Accounts 2021
19
Strategic report
Our strategic priorities and KPIs continued
Enhance our operating
model and culture
Enhancing our operating model and
culture is a key enabler for delivering our
purpose and strategy, as it requires the
best people and an efficient operating
model to truly deliver on our ambitions.
Phoenix Group is the market-leader
in Heritage M&A integration, with the
significant progress made on both the
Standard Life and ReAssure acquisitions in
2021 further evidence of this.
Continued M&A integration progress
Phase 2 of the Standard Life integration
comprising Finance and Actuarial is
now complete, with £590m of synergies
delivered in 2021, primarily due to the
Group’s internal model harmonisation.
Having now delivered £1,632m of synergies
from the Standard Life integration, 134% of
our revised target, we have now concluded
our synergy tracking for external reporting.
We have also submitted the partial internal
model application for our Standard Life
International DAC business as we seek to
enhance its capital efficiency.
On the ReAssure integration, we
completed the Phase 1 group function
integrations in 2021 and have now
commenced the Phase 2 integration. This
activity generated £234m of synergies
in the year, taking the total synergies
delivered to date to £930m in just 18
months, against our target for £1,050m.
Experts in delivering multiple
integrations concurrently
We also continued to progress with our
Phase 3 customer migration programmes,
with two key migrations in the year that
demonstrated our expertise in delivering
multiple integrations concurrently.
This included the migration of c.170,000
Old Mutual Wealth customers onto our
in-house ALPHA platform. In parallel, the
ongoing migration of our Phoenix Capita
customers to the outsourced TCS platform
has seen us, to date, migrate c.1.1 million
customers onto the Diligenta customer
service platform..
Both migrations will enhance the customer
experience through access to new digital
channels and improved customer journeys.
Standard Life heritage policy migration
re-phased to support future growth
We have also taken the strategic decision
to re-phase our Standard Life customer
and IT migration programme, as we look to
accelerate our future Workplace growth.
TCS are now developing new capabilities
for us that will significantly enhance
our Workplace proposition, and as a
consequence, we are deferring some
of the legacy pension and savings
migrations, all of which we now expect to
complete by 2025. This will enable us to
accelerate the new business capabilities
onto TCS BaNCS and drive our future
Workplace growth.
Aspiring to be the best place our
colleagues have ever worked
A crucial component for delivering on our
purpose and strategy is attracting and
retaining the best talent. That is why we
are committed to our ambition of making
Phoenix the best place our colleagues
have ever worked.
In 2021, we therefore introduced a
refreshed people strategy structured
around evolving our culture, building talent
and capabilities, and driving organisational
effectiveness. Our focus in 2021 centred
on talent and capabilities, diversity and
inclusion, mental health and wellbeing, and
employee engagement, underpinned by
our ways of working.
During 2021, we have invested in our
people capabilities by strengthening our
teams with the hiring of top talent from the
external market and further developing
our strong existing talent. We have also
invested in the latest remote working
technology and software to support a
collaborative and inclusive hybrid working
model that is fit for the long term.
Another key success has been our Group-
wide ‘Who We Are’ survey, which provided
us with a clear understanding of our
colleague demographic and will support
us in better targeting our diversity and
inclusion initiatives. This has also enabled
us to set clear targets for female and ethnic
minorities representation.
The progress we are making is reflected in
our increased employee engagement in
2021, with our average score currently
at 7.5 out of 10, meeting our target for
the year.
Priorities for 2022
In 2022, we are focused on completing
the Phase 2 ReAssure integration, making
further progress on our various regulatory
applications, delivering the TCS BaNCS
enhancements and completing our
ongoing migrations.
We will also continue to invest in our
employer brand, further develop our
people and build a more diverse and
inclusive workplace.
20
Phoenix Group Holdings plc Annual Report and Accounts 2021
How we measure delivery
Total Standard Life
integration synergies
£1,632m
Total target: £1,220m
(134% delivered to date)
Total ReAssure
integration synergies
£930m
Total target: £1,050m
(89% delivered to date)
Colleague engagement
(average)
7.5 out of 10
2021 target: 7.5 out of 10
Females in
leadership
roles
38%
Ethnic
minorities
representation
9%
Definition
The total cost and capital
integration synergies realised from
the acquisition of Standard Life
which completed in 2018.
Definition
The total cost and capital
integration synergies realised from
the acquisition of ReAssure which
completed in 2020.
Definition
Colleague engagement is a holistic
measure of how our colleagues
feel about working at Phoenix
Group which is assessed monthly.
Definition
The proportion of females
represented in leadership roles.
The proportion of people from an
ethnic minority background in our
total colleague population.
Why it matters?
We acquire companies which
we then integrate onto our
operating platform in order to
realise significant cost and capital
synergies, which in turn deliver
incremental cash and capital to
increase shareholder value.
Why it matters?
We acquire companies which
we then integrate onto our
operating platform in order to
realise significant cost and capital
synergies, which in turn deliver
incremental cash and capital to
increase shareholder value.
Why it matters?
We are seeking to make Phoenix
the ‘best place our colleagues
have ever worked’ and so getting
regular colleague feedback is
important to enable us to track
progress and respond to feedback
as we deliver on our ambition.
Why it matters?
At Phoenix Group we want to
ensure our colleagues represent
our wider community and so we are
committed to promoting diversity
and inclusion across the business,
which enables colleagues to bring
their whole self to work.
Future target
We had a target of £1,220m which
we have exceeded with £1,632m
to date and given the time elapsed
and significant overdelivery we will
no longer report these synergies
in future.
Future target
We have a target to realise total
cost and capital integration
synergies of £1,050m from the
ReAssure acquisition, with 89%
of this target already delivered
to date.
Future target
We have a target to increase our
average colleague engagement
score to 7.8 out of 10 in 2022.
Future targets
40% of women in leadership roles
by the end of 2023.
Increase our ethnic minorities
representation to 11% by the end of
2023, and 13% by the end of 2025.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
21
Strategic report
Our strategic priorities and KPIs continued
Grow our business to support
both new and existing customers
We are investing into our business to
better support both our new and existing
customers with solutions that will help them
on their journey to and through retirement,
as we leverage the major market trends
that offer Phoenix Group significant
growth opportunities.
Record new business growth in 2021
Our Open business delivered record
new business long-term cash generation
(‘LTCG’) of £1,184m in 2021, a 55% increase
on 2020 (£766m). This strong performance
means the Group has now proven ‘the
wedge’ with new business LTCG more than
offsetting the run-off of our Heritage book
(c.£800m). This demonstrates that Phoenix
is a growing, sustainable business.
Retirement Solutions was the largest
contributor with £950m of new business
LTCG in 2021, representing an 82%
increase year-on-year (2020: £522m). This
reflects £5.6bn of BPA premiums written
in the year which included two external
transactions with values in excess of £1.5bn,
which establishes us as a major BPA market
player. Importantly, we also became more
capital efficient as we reduced the capital
strain from 9% to 6.5%, contributing to
us delivering an Internal Rate of Return
(‘IRR’) that exceeded our double-digit
hurdle rate. This was despite a competitive
market with low credit spreads. Our strong
performance reflects the investment we
are making to build both a market-leading
BPA business and a best-in class asset
management capability, enabling us to
now quote on c.90% of BPA transactions
in the market by volume.
flows of £0.6bn in the year. The multi-
year investment we are making into our
Workplace proposition is building clear
business momentum, with 41 new schemes
won during the years. This was supported
by our acquisition of the Standard Life
brand in 2021 which we are reinvigorating
through targeted investments and by
offering sustainability focused products,
which in turn is reigniting our reputation
amongst EBCs and advisers.
Our Customer Savings & Investments
(‘CS&I’) business delivered £29m of LTCG
(2020: £56m which is lower year-on-year
primarily due to the impact of the sale of
the platform businesses to abrdn plc in
2021, which had previously contributed
£23m in LTCG. We are engaging with our
CS&I customers to better understand
their savings needs to enable us to provide
innovative retirement solutions to support
them across their savings life-cycle.
Finally, both our European business and
SunLife delivered increased LTCG of
£31m and £35m respectively.
Maintaining strong customer satisfaction
Our focus on delivering better customer
outcomes is reflected in our continued
strong customer satisfaction scores in
2021. Our Combined Group customer
satisfaction telephony score was 92% and
our Standard Life digital journeys score
was 95% (2020: 94%), both of which
exceeded their respective targets. This
is due to the investment we are making
across our business to deliver a market-
leading omni-channel customer service
offering and strong product propositions.
and are particularly proud that our new
vulnerable customer e-learning offering
won ‘Best Customer and Employee
Engagement Programme’ at the 2021
Engage Awards and has been shortlisted
in the 2021 British Quality Foundation
UK Excellence Awards for ‘Excellence in
People Development and Engagement’.
Priorities for 2022
We are investing in our Open business and
are confident of ongoing organic growth
more than offsetting the Heritage run-off.
In our Retirement Solutions business we
now have a clear appetite to invest around
£300m of capital per annum into BPA, and
we already have a strong 2022 pipeline
in what is expected to be a £30bn–40bn
total market. However, we will maintain our
discipline in prioritising value over volume
to deliver our target IRRs.
In our Workplace business we want to build
on the momentum from 2021 to win further
schemes and increase our customer assets
over time. This is designed to balance our
growth in the more capital-intensive BPA
business, with capital-light Workplace
asset growth over the longer term.
M&A remains a key priority and we are
ready to transact today. We estimate the
UK Heritage market is c.£480bn. This
includes a small number of large portfolios
and a larger number of small-to-mid sized
portfolios with estimated consideration of
less than £1bn that we could fund from our
own resources. We are a trusted partner
for vendors and are therefore confident in
the outlook for M&A.
Meanwhile, LTCG from our capital-light
Workplace business was stable year-on-
year, contributing £139m, with positive net
In addition, we continued to find ways
to better support vulnerable customers
22
Phoenix Group Holdings plc Annual Report and Accounts 2021
How we measure delivery
New business long-term
cash generation (‘LTCG’)
Combined Group customer
satisfaction – telephony
Customer satisfaction Standard
Life – digital journeys
£1,184m
2021 target: >£800m
92%
2021 target: 90%
95%
2021 target: 92%
£483m
£766m
2019
2020
2021
£1,184m
During 2021 we evolved the way
we measure customer satisfaction
to capture all of our Group
telephony brands. This is the first
year of reporting this new measure.
2019
2020
2021
94%
94%
95%
Definition
New business LTCG represents
the operating companies’ cash
generation that is expected to arise
in future years as a result of new
Open business transacted in the
current period.
Why it matters?
Our strategy seeks to leverage
the major market trends that offer
significant growth opportunities to
deliver incremental new business
LTCG. This in turn can offset the
run-off of our in-force business
(currently c.£800m of cash
generation) to ensure that Phoenix
is a growing, sustainable business.
Future target
Continue proving ‘the wedge’ by
generating >£800 million of new
business LTCG to more than offset
the Heritage run-off.
Definition
Customer satisfaction as reported
through a survey immediately
following a telephony service
call, where customers can rate us
between 1 and 5.
Definition
Customer satisfaction as gathered
immediately following a customer
digital journey, where customers
can rate their experience between
1 and 5.
Why it matters?
This measure highlights how
satisfied our customers are with
Phoenix Group’s telephony
servicing propositions across
our various brands.
Why it matters?
This measure highlights how
satisfied our customers are
with Standard Life’s digital
service proposition.
Future target
To maintain a customer satisfaction
score of 90% or above in 2022.
Future target
To maintain a customer satisfaction
score of 92% or above in 2022.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
23
Strategic report
Our strategic priorities and KPIs continued
Innovate to provide our customers
with better financial futures
We want to help our customers secure a
life of possibilities by providing the right
guidance and products, at the right time,
to support the right decisions. We are
committed to meeting our customers’
needs through innovative product
offerings and fund solutions, and engaging
them in their financial futures by providing
the right education, tools and guidance
that promote financial inclusion for all.
We recognise that there are a number
of barriers that need to be overcome
to help close the pension savings gap.
We therefore want to drive a national
conversation on better longer lives through
Phoenix Insights and are advocating for
the wider change that will achieve this.
Empowering better financial
decision making
We recognise that there is a range of
understanding and confidence that our
customers have when planning their
financial future, which means different
levels of support are required. This is
particularly important for customers with
lower digital literacy skills and vulnerable
customers. That’s why we are innovating
to find new ways of empowering our
customers to plan their financial futures
and contribute to the closure of the UK’s
growing pensions savings gap.
During 2021 we launched several new
initiatives aimed at fostering innovation
and improving customer financial
understanding. This included our digital
pilots such as Money Mindset, Homebuyer
Hub and Voice Your Investment View.
We have also undertaken several research
and customer insight projects during the
year that are providing clear insights into
how we can promote financial inclusion for
all, support our vulnerable customers and
increase digital literacy.
Enhancing our fund and product offering
Our customers want us to keep their
money safe and provide them with
strong long-term financial returns, but
increasingly they also want their money
to play its part in delivering a sustainable
future. We have therefore been exploring
and developing new ways to engage
people on the impact of their savings to
help them invest responsibly.
retirement provider, we also have a critical
role to play in advocating for change
directly. By listening to our customers,
we can understand the social issues that
impact them the most and we have a
dedicated team working with decision
makers and wider stakeholders to affect
policy change.
For example, in 2021 we published
our Menopause & Employment report
advocating for more clinical support for
women with menopausal symptoms and
more appropriate sick leave policies.
We also want to make it easy for customers
through delivering sustainability by default.
That is why our popular Standard Life
Sustainable Multi-Asset Solution is now
our default fund for any new workplace
pension scheme.
While our CEO, Andy Briggs, co-chaired
an Employer Group with the Minster for
Employment comprising the leading
employer groups in the UK in order to
tackle the issues impacting employment
choices for people who are 50+.
Finally, we have been investing in fund and
product innovation in order to develop
flexible retirement solutions, a broader
range of savings options and to ensure that
we can offer the sustainable fund choices
that meet our customers’ differing needs.
Creating a national conversation
People are living for longer, but longer lives
are not yet always better lives and we want
to change this. That is why we launched
Phoenix Insights in November 2021. It is
a new think tank set up to transform the
way society responds to the possibilities
of longer lives. It will focus on two core
activities; public engagement and the
use of high-quality research and analysis
to develop ideas, policies and practical
actions that will make a difference.
Advocating for change
As the UK’s largest long-term savings and
Priorities for 2022
We plan to launch further new initiatives
to help people manage their finances and
save for the future.
We will also deliver a broader range of
savings and retirement solutions, which
includes the launch of a new range of
Lifetime Mortgage solutions. While in
our CS&I business our focus remains on
developing innovative and sustainably-led
solutions, to help more customers on their
journey to and through retirement.
Meanwhile, Phoenix Insights will be
launching its inaugural research and an
exciting programme of engagement in
2022. With Phoenix Group also continuing
to advocate for change with several
targeted campaigns planned, including
the recent launch of our ‘guidance
gap’ campaign.
24
Phoenix Group Holdings plc Annual Report and Accounts 2021
How we measure delivery
2022 Key Initiative 1
Enhancing our fund and
product offering
2022 Key Initiative 2
Creating a national
conversation
Initiative:
move c.£15bn of Assets under Administration and c.1.5m
customers invested in Active Plus and Passive Plus
Workplace default solutions to our new sustainable strategy.
Purpose:
to increase the proportion of customer assets invested in
sustainable investment funds while maintaining their broad
risk and returns profile. This is designed to help more of
our customers invest responsibly in response to the clear
feedback we have received.
Initiative:
Phoenix Insights to launch its inaugural Longer Lives Index
in 2022.
Purpose:
to explore and report publicly on the UK’s readiness for
longer lives.
How:
Working with Frontier Economics, we have conducted a
new survey of over 16,000 people aged over 25 across
the UK who are not yet retired, exploring their financial
readiness for retirement and later life. We have explored five
critical dimensions of financial readiness, looking at savings
and housing but also work, health, and support from and to
family and friends.
Phoenix Group Holdings plc Annual Report and Accounts 2021
25
Strategic report Our strategic priorities and KPIs continued
Invest in a
sustainable future
As the UK’s largest long-term savings and
retirement business we are responsible for
managing c.£310 billion of assets on behalf
of our 13 million customers. Our customers
and shareholders trust us to reflect their
priorities in how we invest. That means
keeping their money safe and providing
them with strong long-term financial
returns, while using our scale to play our
part in delivering a secure and sustainable
future. By investing sustainably we can
help to deliver the future that we all want.
Integrating sustainability considerations
into investment decision making
We are integrating consideration of
environmental, social and governance
issues into our investment decision making
process and have identified four key areas
where we can make a difference: Climate
Change, Regional Development and
Levelling-Up, Nature and Biodiversity
Loss, and Human Rights.
With the majority of our assets under
administration outsourced to our asset
management partners, we need to work
closely with them to fully integrate ESG.
That is why during 2021 we sent an open
letter to all of our asset management
partners outlining the clear expectations
we have of them to support us in delivering
our ambitious decarbonisation targets.
In 2021, we also fully embedded material
climate-related risks into all Group Risk
Policies, and the Board have agreed a new
suite of climate risk metrics to support our
net zero ambitions and provide ongoing
monitoring of our exposure to climate risk.
We are committed to providing meaningful
climate risk disclosures and have published
our first Climate Report in line with the
Task Force on Climate-related Financial
Disclosures (‘TCFD’). We were also the
first UK insurance company to sign up to
the Partnership for Carbon Accounting
financials (‘PCAF’).
Investing responsibly
We are committed to investing responsibly
and are doing this in three ways. We are
redesigning our portfolios in line with our
sustainability goals, while maintaining the
broad risk and return profile. We have the
potential to drive real world impact on key
issues such as climate change and human
rights through the active stewardship of
our investments and we are committed
to putting our long-term money to work
today to build a better future for all our
stakeholders through increasing our
investment in sustainable assets.
We made good progress in 2021, including
investing £1.3bn into sustainable assets,
equating to 67% of our new illiquid asset
origination (excluding ERM), to exceed
our 60% target. This included £542m
invested into affordable housing, £364m
into healthcare & education, £220m into
assets promoting a positive environmental
impact and £168m in to other sustainable
investments. These investments made
tangible differences to society, including
supporting 16 housing associations who
manage >190,000 homes for some of
society’s most vulnerable people
Tracking our decarbonisation goals
We are committed to reducing the
greenhouse gas emissions of our
investment portfolio to net zero by 2050.
Recognising that urgent action is required
now, we strengthened our commitment
in 2021 and announced ambitious interim
decarbonisation targets for the Group’s
investment portfolio. This includes our
target for a 25% reduction in the carbon
emission intensity of our c.£160 billion of
listed equity and credit assets where we
exercise control and influence by 2025
and a >50% reduction in the carbon
emission intensity of the c.£250 billion of
assets directly within our control by 2030.
In 2021 we focused on measuring the
baseline carbon footprint of our c.£160bn
of listed credit and equities, enabling us to
now track and monitor our progress.
Reducing our environmental impact
Phoenix is also committed to achieving
net zero for our own operations by
2025 and in 2021 we achieved a 34%
year-on-year reduction in Scope 1 and 2
emissions from occupied premises per FTE
intensity. We also issued an open letter to
c.1,500 suppliers asking them to set clear
sustainability targets for their businesses
that are aligned with Phoenix’s goals.
Engaging to drive system change
We also want to use our insight and
knowledge to lead the debate around key
challenges as we work with government,
NGOs, and across our industry and the
economy to remove the barriers to net zero
investment and define best practice. With
our leading role in developing the ABI’s
Climate Change Roadmap one example.
Priorities for 2022
We will continue to execute on our
sustainability strategy at pace. This
includes developing a clear transition
plan to deliver our net zero targets,
further enhancing our emission tracking
frameworks and by continuing to increase
our investment in sustainable assets. We
will also be aligning to the Stewardship
Code in readiness for full certification
in 2023.
26
Phoenix Group Holdings plc Annual Report and Accounts 2021
How we measure delivery
60% of illiquid asset
origination (excluding ERM)
in sustainable assets
67%
2021 target: 60%
Definition
The proportion of our annual
new illiquid asset origination
(excluding ERM) that is invested
into sustainable assets.
Net zero carbon across
our own operations
by 2025
34% year-on-year
reduction in
emissions intensity
2021 target: 20% y-o-y reduction
Net zero carbon across
our investment portfolio
by 2050
Interim targets set
Definition
Net zero carbon emissions from
our own Scope 1 and Scope 2
operational emissions by 2025.
Definition
Net zero carbon emissions across
our entire investment portfolio
by 2050.
Why it matters?
Responsible investment is at the
core of our strategy and will deliver
benefits to policyholders, investors
and wider society. Increasing our
investment in sustainable assets
will support a better world for us
all to live in.
Why it matters?
We are committed to the need to
reduce greenhouse gas emissions
and accelerate the transition to a
low-carbon future. We recognise
this begins with our own operations
and have plans in place to achieve
net zero by 2025.
Why it matters?
We are committed to the need to
reduce greenhouse gas emissions
and accelerate the transition to a
low-carbon future. We recognise
the need for a clear transition plan
to achieve our ambition for net
zero carbon across our c.£310bn
investment portfolio.
Future target
At least 60% of illiquid asset
origination (excluding ERM) to be
in sustainable assets in 2022.
Future target
20% reduction (2022 vs. 2021
target) in Scope 1 and 2 emissions
from occupied premises per
FTE intensity.
Future target
In 2022 – we will develop and
submit for validation emission
reduction targets in line with the
SBTi financial sector guidance.
By 2025 – we will deliver a 25%
reduction in the carbon emission
intensity of c.£160bn of listed
equity and credit assets where we
exercise influence and control.
By 2030 – we will deliver a >50%
reduction in the carbon emission
intensity of the c.£250bn of assets
directly within our control.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
27
Strategic report
Business review
Delivering cash,
resilience and growth
It was a pivotal year for Phoenix as
we proved ‘the wedge’ for the first
time and announced our inaugural
dividend increase of 3% for 2021.”
Rakesh Thakrar
Group Chief Financial Officer
Scan the code to
watch the video
from our CFO
A strong financial performance in 2021
Key financial metrics:
Cash
Solvency II
Capital
New Business
Dividends
Cash generation
PGH Solvency II
surplus
PGH Shareholder Capital
Coverage Ratio (‘SCCR’)
Incremental long-term
cash generation
Total dividend per share
Final dividend per share
Other financial metrics:
Assets
Leverage
IFRS
Assets under
administration
Fitch leverage
ratio
(Loss)/profit after tax
Operating profit
before tax
2021
£1,717m
£5.3bn
2020
£1,713m
£5.3bn
YOY change
0%
–
180%
164%
+16%pts
£1,184m
£766m
55%
48.9p
24.8p
47.5p
24.1p
+3%
2021
£310bn
2020
£307bn¹
YOY change
+1%
28%
28%
£(709)m
£1,230m
£834m
£1,199m
–
N/A
3%
1 Proforma for the disposal of £29 billion of assets from the Wrap SIPP, TIP and Onshore Bond businesses sold to abrdn
plc in 2021, as well as £2 billion of assets from Ark Life which was sold to Irish Life in 2021
28
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix has delivered another strong
financial performance in 2021. We
reported record cash generation of
£1.7 billion, exceeding our target range
of £1.5bn-to-£1.6bn for the year, and
maintained our resilience through a strong
Solvency II (SII) balance sheet with a SII
surplus of £5.3 billion and SII SCCR
of 180%.
In 2018 we set out a strategy to prove ‘the
wedge’ hypothesis, by investing to deliver
new business growth which would allow us
to offset the natural run-off of the Heritage
business cash generation (currently
c.£800 million). I am therefore delighted
that we have delivered £1.2 billion in new
business long-term cash generation in
2021 to more than prove ‘the wedge’.
Having met our two conditions for
organic dividend growth, the Board has
recommended our inaugural organic
dividend increase of 3%, which remains
just as sustainable over the long-term
owing to our business growth in 2021.
.
Phoenix Group’s unique hedging approach
We operate a unique risk management framework which sees us hedge what we deem the “unrewarded” market risks from equities, currency,
inflation and interest rates. This is designed to protect our Solvency II capital position to deliver dependable cash generation and balance sheet
resilience, which underpins our sustainable dividend over the long-term. We see this as a key differentiator for Phoenix compared to other
insurance companies and this is evidenced by our significantly lower sensitivities to these market risks than our UK and European peers. However,
as a result of our hedging approach, we do see significant accounting volatility (as illustrated below) which distort the IFRS metrics. Importantly
though this does not impact our cash generation delivery or dividend paying capacity, which is funded from our Solvency capital position.
This is why we utilise a range of alternative performance metrics to track the performance of our business, as described below.
Illustrative hedge offset to
mitigate market risk volatility
Solvency II
balance
sheet
• Assets
• Liabilities
• SII future profits
• SII Solvency
Capital
Requirements
• Assets
• Liabilities
IFRS
balance
sheet
IFRS balance sheet is, in effect,
“over-hedged” as the additional
SII balance sheet items are not
valued.
Impact of market rise
• Solvency II – loss on hedge provides an offset to the positive
market risk impact to stabilise our Solvency II capital position
• IFRS – loss on the hedging instrument is recognised but the
gain on revaluation of the additional Solvency II balance sheet
items is not.
Impact of market fall
• Solvency II – gain on hedge provides an offset to the adverse
market risk impact to stabilise our Solvency II capital position
• IFRS – gain on the hedging instrument is recognised but the
loss on revaluation of the additional Solvency II balance sheet
items is not.
Our key performance indicators
With our financial framework designed
to deliver cash, resilience and growth,
we recognise the need to use a broad
range of metrics to measure and report
the performance of our company, some
of which are not defined or specified in
accordance with Generally Accepted
Accounting Principles (‘GAAP’) or the
statutory reporting framework. The IFRS
results are discussed on page 38 and the
IFRS financial statements are set out from
page 155 onwards.
Alternative performance measures
In prioritising the generation of sustainable
cash flows from our operating companies,
performance metrics are monitored
where they support this strategic
purpose, which includes ensuring that the
Solvency II capital strength of the Group is
maintained. We use a range of alternative
performance measures (‘APMs’) to evaluate
our business, which are summarised below.
Cash generation
Cash generation remains our key
performance metric. It represents free
surplus above capital requirements
distributed from the life companies to the
Group, generated through margins earned
on different life and pension products and
the release of capital requirements.
This cash generation is used by the Group
to fund expenses, interest costs and
shareholder dividends, with any surplus
then available to reinvest into organic
and inorganic growth opportunities.
Solvency II
Solvency II is a key metric by which
the Group makes business decisions
and measures capital resilience. It is a
regulatory measure that prescribes the
measurement of value on a Solvency II
basis and the calculation of the solvency
capital requirement (‘SCR’). The excess
value above the SCR is reported as both a
financial amount, “Solvency II surplus”, and
as a ratio “Solvency II Shareholder Capital
Coverage Ratio (‘SCCR’)”.
Fitch leverage
The Group seeks to manage the level of
debt on its balance sheet by monitoring
its financial leverage ratio. This is to ensure
we maintain our investment grade rating
issued by Fitch Ratings and optimise
our financial flexibility to support future
acquisitions. Our financial leverage is
calculated (using Fitch Ratings’ stated
methodology) as debt as a percentage
of the sum of debt and equity.
Incremental long-term cash generation
Incremental long-term cash generation
is a key metric for measuring growth. It
represents the operating companies’
cash generation that is expected to arise
in future years as a result of new business
transacted in the current period within our
Open business, including Bulk Purchase
Annuities (‘BPA’). By generating sufficient
incremental long-term cash generation to
offset the run-off of our Heritage business
cash flows (currently c.£800 million per
annum), we can bring sustainability to
future cash generation to prove what we
describe as ‘the wedge’ hypothesis.
Assets under Administration
The Group’s Assets under Administration
(‘AUA’) is another measure of growth.
It represents our assets administered
by or on behalf of the Group, covering
both shareholder and policyholder, and
indicates the potential long-term earnings
capability of the Group arising from its
insurance and investment business.
Operating profit
The Group uses operating profit as
a further performance measure to
demonstrate longer-term performance
on an IFRS basis. Operating profit is less
affected by the short-term market volatility
driven by Solvency II hedging (as illustrated
above) and non-recurring items than
IFRS profit. A more detailed definition of
operating profit is set out on page 321.
Phoenix Group Holdings plc Annual Report and Accounts 2021
29
Strategic report Business review continued
Why is Solvency II important to
us in measuring performance?
Own funds =
SII assets less
liabilities
Group
Shareholder SII
Own Funds
Group SII
surplus
Shareholder
capital available
Group
SCR
Solvency Capital
Requirement (SCR)
What are Own Funds?
Solvency II Own Funds represent the
Group’s net assets on a regulatory basis.
Assets and non-technical liabilities are
valued on a fair value basis, and technical
provisions (policyholder liabilities) are
calculated on a best estimate basis
(weighted average of future cash flows),
with an adjustment for risk known as the
‘risk margin’.
Own Funds also include a value for future
profits expected to arise from in-force
policies, and any debt that meets the
definition of capital under Solvency
II rules.
Shareholder Own Funds reflects a
restriction for any excess over SCR in the
Group’s with-profit funds and pension
schemes as this excess doesn’t belong to
shareholders and so cannot be included.
What causes Own Funds to change?
Own Funds can grow through writing
profitable new business and through the
delivery of value accretive management
actions and synergies. Group expenses,
financing costs, changes in assumptions
and dividends cause own funds to fall.
Own Funds are also sensitive to market
movements. Our hedging strategy seeks
to stabilise the Solvency II surplus, but
this means hedge values can move Own
Funds up or down, to offset the market
movements impact on surplus, which can
also arise from movements in the SCR.
What is the Solvency Capital
Requirement (‘SCR’)?
Why is Solvency II surplus a key
measure for Phoenix?
The SCR is a capital buffer held to ensure
that the Group can meet its obligations over
the next 12 months with a probability of at
least 99.5%. The calculation stresses both
assets and liabilities in line with 1-in-200 year
risk events to establish how much additional
capital we would require to remain solvent. It
is a risk-based approach, requiring Phoenix
to hold capital against a range of risks, not
just insurance risks.
The SCR can be calculated using a ‘standard
formula’ or ‘internal model’. We use an
approved internal model for Phoenix Life
and Standard Life, with ReAssure and
Standard Life International DAC currently
on standard formula.
What causes the SCR to change?
SCR is impacted by both market risk
and demographic risk in roughly equal
proportions (see page 319 for a breakdown).
Markets will cause changes in SCR as our
investment mix changes (some assets are
more risky than others) or asset values
change (increased assets can mean
increased risk). Demographic risks, such as
longevity or persistency, can change the
SCR depending on experience, assumption
changes or any change in business mix.
The excess of Group Own Funds above
the Group SCR is the Solvency II surplus.
It indicates how much shareholder
capital we have available to deliver
shareholder returns in the form of
dividends, and to reinvest to grow the
business organically and inorganically.
In order to maintain a resilient Solvency II
balance sheet to protect our sustainable
dividend, Phoenix operates a dynamic
risk management framework which seeks
to manage our exposure to each of the
risks that the Group faces within its
risk appetite.
Shareholder Capital Coverage
Ratio (‘SCCR’)
The SCCR represents Group Own
Funds divided by the SCR, adjusted to a
shareholder view through the exclusion
of amounts relating to ring-fenced
with-profit funds and Group pension
schemes whose Own Funds exceed their
SCR. This is because these Own Funds
do not belong to the shareholder and
the corresponding SCR is not in respect
of shareholder risk. We articulate our
risk appetite through an SCCR target
operating range of 140% – 180%.
This allows us to focus on a shareholder
view of the capital coverage ratio that
provides a more accurate reflection of
the capital strength of the Group.
30
Phoenix Group Holdings plc Annual Report and Accounts 2021
Our unique hedging approach delivers a resilient Solvency II surplus
regardless of market volatility and growth in company size
The success of our hedging approach is demonstrated below, which shows our limited Solvency II economic
variances through a period of significant market volatility and growth in the company through M&A transactions.
+16% pts
180%
SCCR
ReAssure acquisition
(Jul 20)
SLAL acquisition
(Aug 18)
£3.2bn
£3.1bn
£5.3bn
£5.3bn
£(0.2)bn
FY18
£(0.2)bn
FY19
£(0.2)bn
FY20
£0.1bn
FY21
164%
SCCR
£1.8bn
£(0.1)bn
FY17
Group SII Surplus
SII Economic variance
Solvency II resilience underpins
our dependable cash generation
and sustainable dividend
Phoenix is the market leader in managing in-force business
for cash and resilience, which in turn underpins our
sustainable dividend over the long term. We have a strong
track record of delivering high levels of cash generation
over many years. The majority of the Group’s cash generation
stems from the run-off of in-force business, which we further
enhance by delivering management actions and through
realising integration synergies from completing value-
accretive M&A.
In parallel, we deploy our unique approach to risk
management across our in-force business and we hedge
the majority of our market risks. This brings resilience to
our Solvency II capital position, and in turn helps us deliver
dependable cash generation.
We estimate that our in-force business will generate
£11.8 billion of Group long-term free cash (after repaying
debt maturities and deducting expected interest costs),
that is available to our shareholders or for growth. With an
annual dividend cost of c.£0.5 billion, this level of Group free
cash sustains our dividend over the long term and
this dividend dependability differentiates us.
Long term dividend sustainability
£11.8bn
In-force cash covers
our increased
dividend over the
long-term
Long-term free
cash after future
debt interest
£0.5bn
Current
dividend cost
Phoenix Group Holdings plc Annual Report and Accounts 2021
31
Strategic report Business review continued
Cash
£1,717m
Operating companies’
cash generation
£13.2bn
Group Long-Term Free Cash
Cash generation & group liquidity
Operating companies’ cash generation
represents cash remitted by the Group’s
operating companies to the holding
companies. Please see the APM section on
page 321 for further details of this measure.
Cash generation from the operating
companies’ is principally used to fund
the Group’s shareholder dividends, debt
interest and repayments, and its various
operating costs. Any surplus remaining is
available for reinvestment into organic and
inorganic growth opportunities. The cash
flow analysis that follows reflects the cash
paid by the operating companies to the
Group’s holding companies, as well as the
uses of those cash receipts.
Cash receipts
Cash generated by the operating
companies during 2021 was £1,717 million
(2020: £1,713 million). This exceeded the
Group’s target range of £1.5bn-to-£1.6bn
million for the year.
Uses of cash
Operating expenses of £80 million (2020:
£42 million) represent corporate office
costs, net of income earned on holding
company cash and investment balances.
The increase relative to 2020 reflects the
inclusion of a full year of costs borne by
the ReAssure corporate entities, together
with increased LTIP costs and the costs
associated with the development of
capabilities across our Group functions as
we execute our growth strategy.
Annual pension scheme contributions of
£11 million (2020: £80 million). 2021 only
reflects contributions into the Abbey
Life Scheme, due to the completion
of contributions into the Pearl Pension
Scheme during 2020.
Debt interest of £250 million (2020: £184
million) increased in the year due to the
inclusion of a full year’s coupon on the
three debt instruments substituted to
the Group as part of the acquisition of
the ReAssure businesses in August 2020
Group cash flow analysis
£m
Cash and cash equivalents at 1 January
Operating companies cash generation:
Cash receipts from life companies
Cash remittances to Standard Life international
Total cash receipts¹
Uses of cash:
Operating expenses
Pension scheme contributions
Debt interest
Non-operating cash outflows
Uses of cash before debt repayments
and shareholder dividend
Debt repayments
Shareholder dividend
Total uses of cash
Debt issuance (net of fees)
Cost of acquisitions
ReAssure Holding Company cash acquired
Support of BPA activity
Closing cash and cash equivalents at 31 December
2021
1,055
1,717
–
1,717
(80)
(11)
(250)
(305)
(646)
(322)
(482)
(1,450)
–
–
–
(359)
963
2020
275
1,073
(50)
1,023
(42)
(80)
(184)
(66)
(372)
–
(403)
(775)
1,445
(1,265)
580
(228)
1,055
1 Total cash receipts include £95 million received by the holding companies in respect of tax losses surrendered (2020:
£108 million). 2020 excludes £690 million of cash generation from ReAssure arising in period prior to completion.
(£250 million Tier 2, £500 million Tier 2
and £250 million Tier 3), and additional
debt raised to help fund the acquisition.
Non-operating cash outflows of £305
million (2020: £66 million) include £230
million of Group project expenses
including transition activity, and the £68
million settlement of a creditor recognised
at 31 December 2020 with abrdn plc
(‘abrdn’) relating to amounts due under
indemnity arrangements pertaining to
FCA Thematic Review findings in Standard
Life. Other items included £49 million
of net cash received from abrdn upon
entering into a new agreement to simplify
the strategic partnership, including
consideration for the disposal of the Wrap
SIPP, Onshore Bond and TIP businesses,
and £56m of net other items, including
hedge collateral posted and one-off
ReAssure costs.
Shareholder dividend
The shareholder dividend of £482 million
represents the payment of £241 million in
May for the 2020 final dividend and the
payment of the 2021 interim dividend of
£241 million in September.
Debt repayments & issuance (net of fees)
£322 million of debt repayments in
2021 include the £200 million Tier 2
subordinated bond in April and £122
million senior bond in July. (2020: debt
issuance of £1,445 million net of fees).
Support of BPA activity
Funding of £359 million (2020: £228
million) has been provided to the life
companies to support a strong year in BPA
with £5.6 billion of premiums written. With
the capital strain on BPAs having reduced
to 6.5% in 2021 (2020: 9%).
32
Phoenix Group Holdings plc Annual Report and Accounts 2021
Future sources and uses of cash
Looking over the period 2022–24, we
expect to have significant Group cash
resources of around £5.0 billion. This will
more than cover the Group’s expected
uses of c.£3.3 billion for operating and
integration costs, debt interest and
repayments, and our shareholder dividend
cost at its new, increased level. As a result,
the Group expects to have a significant
amount of surplus cash of around £1.7
billion available for investment into organic
growth through BPA and inorganic growth
opportunities through further M&A.
Group Long-Term Free Cash
£bn
Long-term in-force cash generation
Less M&A and transition costs
Plus closing Holding Company cash
Long-term Group cash
Less shareholder debt
Group Long-Term Free Cash
Illustrative 2022–2024 HoldCo sources and uses of cash
FY21 HoldCo cash
2022–2024 cash generation
Sources
£1.0bn
£4.0bn
£1.1bn
Operating costs and interest
£1.5bn
Dividend
£0.7bn
Debt maturities and call dates
£1.7bn
Uses
Excess of
sources
over uses
Group LTFC
Year ended 31 December 2021
17.0
(0.2)
1.0
17.8
(4.6)
13.2
Group LTFC Pro forma
Year ended 31 December 20201
17.7
(0.3)
1.0
18.4
(5.0)
13.4
1 Stated on a pro forma basis to reflect the impact of the sale of Wrap SIPP, Onshore Bond and TIP products to SLA (£0.2bn) and the impact of the increase in the rate of corporation tax from
April 2023 to 25% announced in the March 2021 budget (£0.3bn).
Group long-term free cash
Group Long-Term Free Cash (‘LTFC’) is
comprised of long-term cash generation
expected to emerge from our in-force
business plus existing Group holding
company cash, less an allowance for costs
associated with our M&A integration
activity and a deduction for our
shareholder debt outstanding.
LTFC is an important measure for
demonstrating the business is growing,
as we seek to ensure that our recurring
sources of cash exceed our recurring uses.
This is one of the two conditions we had
set for considering an inaugural organic
dividend increase.
I am therefore delighted that the
investment in our capabilities has enabled
us to deliver £1.2 billion of incremental
long-term cash generation during the
year. When combined with our £0.2 billion
over-delivery of management actions in
2021 and an additional year of estimated
management actions now reflected for
2024 in our targets, we have seen our
recurring sources of cash exceed our
recurring uses by c.£0.3 billion in the year.
This means we met our second dividend
condition, which supported our decision to
increase our shareholder dividend for 2021.
Group long-term free cash was £13.2
billion at the end of 2021, slightly down on
2020 (£13.4 billion) due to some non-
recurring expenses. The first of these is
the significant investment we are making
into the capabilities needed to deliver
our continued growth ambitions, where
the capitalised impact of future costs has
decreased LTFC by c.£0.2 billion. The
second non-recurring expense was from
the industry-wide transition from LIBOR-
to-SONIA which had a c.£0.2 billion
adverse impact.
With £13.2 billion of LTFC available, we
have a significant amount of dependable
cash that will emerge from our current in-
force book, which supports our increased
dividend over the very long term.
2021 change in Group Long-Term Free Cash
Recurring sources less recurring uses = +0.3bn
Non-recurring uses
£1.2bn
£0.2bn
£0.1bn
£13.4bn
£(0.8)bn
£(0.4)bn
£(0.2)bn
£(0.2)bn
£(0.1)bn
£13.2bn
After deducting £1.4 billion of interest
on debt until maturity
£11.8 billion remains to support
our sustainable dividend
over the long term
FY20
New business
LTCG
Overdelivery
of own funds
management
actions
Additional
own funds
management
actions in 2024
Operating
costs, interest
& dividends
BPA funding
Investment
in growth
LIBOR
to SONIA
Other
FY21
Sources of long-term free cash
Uses of long-term free cash
Phoenix Group Holdings plc Annual Report and Accounts 2021
33
Strategic report
Business review continued
Resilience
£5.3bn
Group Solvency II
surplus (estimated)
180%
Group Shareholder Capital
Coverage ratio (estimated)
Capital management
A Solvency II capital assessment involves a
valuation in line with Solvency II principles
of the Group’s Own Funds and a risk-
based assessment of the Group’s Solvency
Capital Requirement (‘SCR’). The Group’s
Own Funds differ materially from the
Group’s IFRS equity for a number of
reasons, including the recognition of future
shareholder transfers from the with-profit
funds and future management charges
on investment contracts, the treatment of
certain subordinated debt instruments as
capital items, and a number of valuation
differences, most notably in respect of
insurance contract liabilities, taxation and
intangible assets.
Group Solvency II capital position
Our Solvency II capital position remains
strong, with a resilient surplus of £5.3
billion, which includes the deduction of
our 2021 final dividend. Our Shareholder
Capital Coverage Ratio (‘SCCR’) has
increased from 164% to 180%, and is
currently at the top-end of our 140%-to-
180% target range, providing the capacity
to invest into both organic and inorganic
growth opportunities.
Change in Group Solvency II surplus
(estimated)
The Group Solvency II Surplus has
remained stable at £5.3 billion year-on-
year. Our ongoing surplus emergence of
£0.6 billion and significant over-delivery
of management actions at £1.5 billion
provided us with the capacity to pay our
operating costs, dividends and interest of
£0.8 billion, with surplus then available for
reinvestment into growth, and headroom
to absorb several non-recurring impacts.
We delivered a record level of
management actions in 2021, which
included around £0.7 billion from “BAU”
activity, including illiquid asset origination
and asset risk management actions. In
addition, our internal model harmonisation
success provided a significant contribution,
at around £0.6 billion, the majority of which
was a reduction in SCR.
As a result of our unique hedging strategy,
designed to stabilise our capital position,
we saw a small £0.1 billion positive
economic variance This extends our
track record of small economic variances
through periods of market volatility.
We invested £0.4 billion of capital into
growth, primarily for the funding of £5.6
billion of BPA premiums written in the year.
Elsewhere, assumptions, model and
methodology changes were negative £0.2
billion and we repaid debt of £0.2 billion.
There was also an adverse impact of £0.3
billion from the industry-wide transition
from LIBOR-to-SONIA and the change in
the UK Corporation Tax rate. A range of
other items totalled a negative £0.3 billion.
Change in SCCR (estimated)
While the surplus remained stable year-on-
year, our SCCR has increased by 16%pts
to 180% as at 31 December 2021 with a
number of contributing factors.
£5.3 billion Group Regulatory Solvency II surplus
£5.3 billion Group Shareholder Solvency II surplus
147%
156%
164%
180%
Surplus
£5.3bn
£16.8bn
£11.5bn
Surplus
£5.3bn
Surplus
£5.3bn
£14.8bn
£9.5bn
£13.6bn
£8.3bn
Surplus
£5.3bn
£11.9bn
£6.6bn
FY20
Own Funds
SCR
FY21
FY20
Own Funds
SCR
FY21
2021 change in Group Solvency II Surplus (£bn)
164%
11%
£0.6bn
28%
£1.5bn
6%
£0.1bn
(2)%
(12)%
(10)%
(3)%
(1)%
(1)%
£(0.2)bn
£(0.8)bn
£(0.4)bn
£(0.2)bn
£(0.3)bn
£(0.3)bn
£5.3bn
Surplus as
at FY20
Surplus
emerging and
release of capital
requirements
Management
actions
Economics
Assumptions,
model and
methodology
changes
Financing and
corporate
costs and
2021 dividends
New business
strain
Debt
repayment
Other
LIBOR
to SONIA
and change in
Corporation Tax
180%
£5.3bn
Surplus
as at FY21
34
Phoenix Group Holdings plc Annual Report and Accounts 2021
The largest single contributor was the £1.5
billion of management actions delivered,
which increased the SCCR by 28%pts.
We have also reflected the future change
in the Corporation Tax rate, which had a
positive impact on the SCCR primarily due
to an increase in loss absorbing capacity
of deferred taxes in the SCR, and the
transition from LIBOR-to-SONIA. The net
combination of these two impacts has
decreased our SCCR by 1%pt.
Further adverse SCCR movements include
the strain borne from the writing of new
BPA business which decreased the SCCR
by 10%pts and the c.£0.2 billion debt
repayment which reduced the SCCR
by 3%pts.
Sensitivity and scenario analysis
As part of the Group’s internal risk
management processes, the Own Funds
and regulatory SCR are tested against
a number of financial scenarios.
While there is no value captured in the
Group stress scenarios for recovery
management actions, the Group does
proactively manage its risk exposure.
Therefore in the event of a stress, we
would expect to recover some of the
loss reflected in the illustrative stress
impacts shown.
Unrewarded market risk sensitivities
We have a particularly low appetite to
equity, interest rate, inflation and currency
risks, which we see as unrewarded i.e. the
return on capital for retaining the risk is
lower than for hedging it. We use a range
of hedging instruments to hedge these
risk exposures in order to stabilise the
SII surplus. This translates into the low
sensitivities presented in the table above.
Equity risk primarily arises from our
exposure to a variation in future
management fees on policyholder assets
exposed to equities, while our currency
exposure primarily arises from our foreign
currency denominated debt.
Life company free surplus
Life Company Free Surplus represents
the Solvency II surplus of the Life
Companies that is in excess of their
Board-approved capital management
policies. It is this Free Surplus from
which the life companies remit cash
to Group. As at 31 December 2021,
the Life Company Free Surplus is £2.6
billion (2020: £2.9 billion). The table
shown analyses the movement in 2021.
Illustrative risk exposure stress testing
Estimated impact1 on PGH Solvency II
Surplus
SCCR
£bn
5.3
0.1
(0.2)
0.2
Nil
(0.2)
Solvency II base
Equities: 20% fall in markets
Long-term rates: 80bps rise in interest rates2
Long-term rates: 70bps fall in interest rates2
Long-term inflation: 70bps rise in inflation3
Property: 12% fall in values4
Credit spreads: 150bps widening with no allowance
for downgrades5
Credit downgrade: immediate full letter downgrade
on 20% of portfolio6
Lapse: 10% increase/decrease in rates7
Longevity: 6 months increase8
1 Assumes stress occurs on 1 January 2022 and that there is no market recovery.
2 Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which is
(0.4)
(0.2)
(0.7)
(0.4)
%
180
4
3
(3)
(1)
(3)
(4)
(10)
(1)
(11)
performed on a continuous basis to minimise exposure to the interaction of rates with other correlated risks including
longevity.
3 Stress reflects a structural change in long-term inflation with an increase of 70bps across the curve
4 Property stress represents an overall average fall in property values of 12%.
5 Credit stress varies by rating and term and is equivalent to an average 150bps spread widening. It assumes the impact
6
of a dynamic recalculation of transitionals and makes no allowance for the cost of defaults/downgrades.
Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g. from
AAA to AA, AA to A, etc). This sensitivity assumes no management actions are taken to rebalance the annuity portfolio
back to the original average credit rating and makes no allowance for the spread widening which would be associated
with a downgrade.
7 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups.
8 Applied to the annuity portfolio.
Demographic risk sensitivities
We also have two key demographic risks
that we manage. Lapse risk arises from
customers surrendering policies early or
keeping policies with valuable guarantees
for longer. While our longevity risk
principally arises from our annuity book,
but this is managed through reinsurance,
where we retain around half of the risk
across our current in-force book, and
reinsure most of this risk on new business.
Our interest rate exposure principally
relates to our shareholder credit portfolio,
while our inflation exposure arises from
both cost inflation expectations and
inflation-linked policies.
Rewarded credit risk sensitivities
We do however retain the credit risk in our
c.£40 billion shareholder credit portfolio,
where we see the risk as rewarded. The
shareholder credit assets are primarily
used to back the Group’s annuity portfolio.
However, we actively manage our credit
portfolio to ensure it remains high quality
and diversified, and to maintain our
sensitivities within risk appetite.
The key sensitivity we focus on here is
a full letter downgrade of 20% of our
credit portfolio, which reduced slightly in
2021 to £0.4 billion and is therefore small
in the context of the Group’s £5.3 billion
Solvency II surplus.
Opening Free Surplus
Surplus generation and run-off of capital requirements
Management actions
Economics, financing and other
Free Surplus before cash remittances
Cash remittances to holding companies
Closing Free Surplus
Estimated
position as at
31 December
2021
£bn
2.9
0.8
1.2
(0.7)
4.2
(1.6)
2.6
Phoenix Group Holdings plc Annual Report and Accounts 2021
35
Strategic report
Business review continued
Growth
£1,184m
Incremental new business
long-term cash generation
c.£310bn
Assets under
Administration
Incremental new business long-term cash
generation reflects the impact on the
Group’s future cash generation arising as
a result of new business transacted in the
year. It is stated on an undiscounted basis.
Assets under administration (‘AUA’) provide
an indication of the potential earnings
capability of the Group arising from its
insurance and investment business, whilst
AUA flows provide a measure
of the Group’s ability to deliver new
business growth.
A reconciliation from the Group’s IFRS
statement of consolidated financial
position to the Group’s AUA is provided
on page 314.
Please see the APM section on page 321
for further details of these measures.
Incremental new business long-term
cash generation
We have delivered a record level of
incremental new business long-term cash
generation of £1,184 million in 2021, with a
55% increase on 2020 (£766 million).
This means that for the first time we have
delivered new business growth which
allows us to offset the natural run-off of
the Heritage business cash generation of
c.£800 million, thus more than proving ‘the
wedge’ (as depicted above to the right).
This is a pivotal moment for Phoenix
as it demonstrates we are a growing,
sustainable business.
Retirement Solutions
The investment we have made into
developing our Bulk Purchase Annuity
(‘BPA’) business and asset management
capabilities has supported Phoenix in
writing £5.6 billion of BPA premiums in
2021. Having completed two significant
transactions of £1.7 billion and £1.8 billion,
it is clear we have become an established
BPA market player.
We have proven ‘the wedge’ hypothesis in 2021
n
o
i
t
a
r
e
n
e
g
h
s
a
C
M&A
Management actions
Open
Heritage
Time
Incremental new business long-term cash generation analysis
+55%
£1,184m
£766m
£522m
£23m
£221m
FY20
Wrap SIPP, TIP
and Onshore
Bond products
to abrdn
Asset based businesses
Retirement Solutions
£950m
£234m
FY21
36
Phoenix Group Holdings plc Annual Report and Accounts 2021
Workplace net flows
Net inflows within our Workplace business
were a positive £0.6 billion in 2021 (2020:
£1.7 billion). Gross inflows were £4.9 billion,
slightly up on 2020 (£4.7 billion). However,
2021 outflows of £4.3 billion (2020: £3.0
billion) were impacted by c.£2 billion of
historic scheme losses delayed partly due
to the pandemic and reflect decisions
taken on our legacy proposition that has
since been improved substantially.
Positive net flows in the year provide a
platform to build upon, and the 41 schemes
won in 2021, while small, are testament
to the reignited market interest in the
Standard Life proposition following our
brand acquisition and investment.
Other asset businesses net flows
We have seen net outflows of £0.7 billion
businesses (2020: £0.3 billion net inflows)
from our other asset based businesses.
Gross inflows were £4.7 billion in the year
(2020: £6.3 billion), primarily reflecting
our individual retirement products sold in
the UK and Europe, while outflows of £5.4
billion in the year (2020: £6.0 billion) are
largely due to the natural run-off of our
CS&I and Europe businesses.
Other movements including markets
AUA increased by £11.6 billion (2020: £18.5
billion) as a result of other movements,
largely driven by the net positive impacts
of market movements, largely due to a rise
in equity markets.
This in turn has delivered £950 million
of long-term cash generation, an 82%
increase on 2020 (£522 million). We also
successfully reduced our capital strain
from 9% in 2020 to 6.5% in 2021, largely
reflecting the capital efficiency benefit
from our new harmonised internal model.
Despite a competitive market and low
credit spreads, we have maintained our
pricing discipline which is evidenced by
our delivery of a double-digit IRR in 2021.
Importantly though, we are not growing
in BPA at the expense of our resilience,
with a balanced portfolio and low credit
risk sensitivity remaining our long-term
ambition here.
Workplace
Our Workplace business has delivered
broadly stable incremental long-term
cash generation of £139 million in the year
(2020: £140 million), which largely reflects
several large scheme losses offsetting new
business growth.
However, I was delighted that we saw clear
momentum building in our Workplace
business, with 41 new schemes won during
2021. While these schemes are small in
terms of assets, it is an important milestone,
with advisers giving us the opportunity to
prove ourselves on these smaller schemes,
before we hopefully begin winning the
larger schemes in time.
Customer savings and investment
(‘CS&I’)
The 2021 incremental long-term cash
generation of £29 million from our CS&I
business is down on the prior year (2020:
£56 million) primarily due to the sale of
the platform businesses to abrdn which
contributed £23 million of incremental
long-term cash generation in 2020.
Movement in AUA (£bn)
Europe
We have seen an increase in the
incremental long-term cash generation
from our European business at £31 million
(2020: £25m), reflecting a marked increase
in Offshore Bond sales in the Irish business.
SunLife
Our incremental long-term cash
generation from SunLife of £35 million has
increased year-on-year (2020: £23 million)
due to strong new business in the period.
Group AUA
Group AUA as at 31 December 2021
was £310.4 billion (2020: £337.7 billion).
The decrease in the year is driven by the
removal of £29.1 billion of AUA relating
to the disposal of the Wrap SIPP, TIP and
Onshore Bond business to abrdn, and the
removal of £1.8 billion of Ark Life assets
following its disposal to Irish Life.
Heritage net flows
UK Heritage net outflows of £11.2 billion
(2020: £7.3 billion) reflect policyholder
outflows on claims such as maturities and
surrenders, net of total premiums received
in the period from in-force contracts.
This increase year-on-year is due to the
inclusion of a full years’ experience of
ReAssure Heritage net flows compared
with five months post acquisition that were
reported in 2020.
Retirement Solutions net flows
Net flows in Retirement Solutions, which
encompasses our individual annuity and
BPA businesses, were £3.3 billion (2020:
£0.9 billion). in 2021. Gross inflows during
the period were £6.2 billion (2020: £3.2
billion), inclusive of £5.6 billion of new BPA
premiums written in the year. Outflows of
£2.9 billion in the period (2020 £2.3 billion)
primarily reflect the natural run-off of our
in-payment annuity policies.
(29.1)
(1.8)
(11.2)
3.3
0.6
(0.7)
11.6
337.7
306.8
310.4
AUA
as at
1 Jan 2021
Pro forma
adjustment for
removal of
Wrap & TIP1
Pro forma
adjustment for
removal of
Ark Life2
Pro forma AUA
as at 1 Jan 2021
UK Heritage
Net Flows
Retirement
Solutions
Net Flows
Workplace
Net Flows
Other Asset
Businesses
Net Flows
Other movements
including markets
AUA as at
31 Dec 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
37
Strategic report
Business review continued
IFRS
results
£1,230m
Operating profit
£(709)m
IFRS loss after tax
28%
Fitch leverage ratio
IFRS (loss) / profit is a GAAP measure of
financial performance and is reported in
our statutory financial statements on page
155 onwards.
Operating profit is a non-GAAP financial
performance measure based on expected
long-term investment returns. It is stated
before amortisation and impairment of
intangibles, other non-operating items,
finance costs and tax.
Please see the APM section on page 321
for further details of this measure.
IFRS (loss)/profit after tax
The Group generated an IFRS loss after
tax attributable to owners of £709 million
(2020: profit of £834 million), which
primarily reflects £1,125 million of adverse
investment return variances and economic
assumption changes and £639 million of
charges for amortisation and impairment
of intangibles, as well as several other
movements shown in the table to the right.
Operating profit
The Group generated an increased
operating profit of £1,230 million (2020:
£1,199 million), reflecting the contribution
of a full year of profits from the ReAssure
business and increased Bulk Purchase
Annuity (‘BPA’) new business in the
period, offset by the adverse impact
of strengthened expense assumptions
required to reflect our growth ambitions.
The 2020 split of operating profit by
segment has been restated to reflect
that the management and reporting of
ReAssure has been aligned with that of the
other Group businesses. In 2020 ReAssure
was shown as a separate segment, whereas
this is now allocated within our Heritage
and Open business segments.
Basis of operating profit
Operating profit generated by our
Heritage and Open business segments is
based on expected investment returns on
financial investments backing shareholder
and policyholder funds over the reporting
IFRS profit and loss statement
£m
Heritage
Open
Service company
Group costs
Operating profit before tax
Investment return variances and economic assumption changes
Amortisation and impairment of intangibles
Other non-operating items
Finance costs
Profit before tax attributable to non-controlling interest
(Loss)/profit before tax attributable to owners
Tax charge attributable to owners
(Loss)/profit after tax attributable to owners
2021
537
788
(24)
(71)
1,230
(1,125)
(639)
(65)
(217)
128
(688)
(21)
(709)
2020
431
817
6
(55)
1,199
101
(482)
281
(191)
36
944
(110)
834
period, with consistent allowance for the
corresponding expected movements in
liabilities (being the release of prudent
margins and the interest cost of unwinding
the discount on the liabilities).
The principal assumptions underlying the
calculation of the long-term investment
return are set out in note B2.1 to the IFRS
consolidated financial statements.
Operating profit includes the effect
of variances in experience for non-
economic items, such as mortality and
persistency, and the effect of changes in
non-economic assumptions. Any impact
from market movements is shown outside
of operating profit. Operating profit is
net of policyholder finance charges and
policyholder tax.
Heritage operating profit
Our Heritage business segment does not
actively sell new life or pension policies
and runs-off gradually over time. Our
Heritage segment delivered operating
profit of £537 million (2020: £431 million¹),
including a full year of profits for ReAssure,
partly offset by a strengthening of
expense assumptions.
Open operating profit
The Group’s Open business segment
delivered an operating profit of £788
million (2020: £817 million¹). This includes
operating profits generated in the Group’s
Retirement Solutions, Workplace and CS&I
business units, as well as new business
distributed through the Group’s SunLife
brand and our European operations. 2021
includes stronger Retirement Solutions
new business profits of £291 million (2020:
£216 million). This was more than offset
by a reduced longevity benefit that was
c.£100 million lower than in 2020 due to
an element of positive one-off updates to
ReAssure longevity assumptions last year,
and strengthening of expense assumptions
to reflect the investment into our growth
ambitions.
Service company
The operating loss for management
services from the service company of
£24 million (2020: profit of £6 million)
comprises income from the life and
holding companies in accordance with
the respective management services
agreements less fees related to the
outsourcing of services and other
operating costs. The decrease compared
to the prior period reflects additional costs
38
Phoenix Group Holdings plc Annual Report and Accounts 2021
incurred, driven by investment in the Open
division and the development of asset
management capabilities in support of our
growth strategy. This partly reflects that
these costs have not yet been factored into
the management service agreements for
recharging back to the life companies.
Group costs
Group costs in the period were £71 million
(2020: £55 million¹). They mainly comprise
project recharges from the service
companies and the returns on the scheme
surpluses/deficits of the Group staff
pension schemes. The increase in costs
compared to the prior period principally
reflects the inclusion of a full year of
corporate and project costs associated
with the ReAssure businesses (versus five
months in 2020) and costs associated with
developing out our Group capabilities to
support our growth ambitions.
Investment return variances and
economic assumption changes
The net adverse investment return
variances and economic assumption
changes of £1,125 million (2020: £101
million positive) have primarily arisen
as a result of rising yields, increasing
inflation and rising global equity markets.
Movements in yields, inflation and
equity markets are hedged to protect
our Solvency II surplus from volatility,
but our IFRS balance sheet is, in effect,
“over-hedged” as it is not impacted by the
additional SII balance sheet items (see
illustration on page 29) . Therefore, the
impact of the adverse hedging instrument
values, which offset the positive market
movements in the period gives rise
to losses in the IFRS results. However,
importantly the Group’s cash generation
and dividend capacity are broadly
unaffected by this due to the Group’s
continued resilient Solvency
balance sheet.
Amortisation and impairment of acquired
in-force business and other intangibles
The previously acquired in-force business
is being amortised in line with the
expected run-off profile of the profits to
which it relates.
Amortisation and impairment of acquired
in-force business during the year totalled
£572 million (2020: £464 million) with
the increase from the prior year driven
by a full year’s amortisation charges on
intangible assets recognised on acquisition
of ReAssure and an impairment charge of
£40 million primarily arising from the sale
of Ark Life and an update to the reserving
methodology on a specific block of
European unit-linked insurance contracts.
Amortisation and impairment of other
intangible assets totalled £67 million in the
year (2020: £18 million), including a £47
million impairment charge in relation to
goodwill associated with the management
services companies.
Tax charge attributable to owners
The Group’s approach to the management
of its tax affairs is set out in its Tax Strategy
document which is available in the
corporate responsibility section of the
Group’s website.
Other non-operating items
The previously acquired in-force business
Other non-operating items had an adverse
impact of £65 million in the year (2020:
£281 million positive).
The Group tax charge for the period
attributable to owners is £21 million
(2020: £110 million) based on a loss (after
policyholder tax) of £688 million (2020:
profit of £944 million).
The tax credit of £131 million arising on the
loss (after policyholder tax) is primarily
offset by a £147 million tax charge arising
from the impact of the new 25% corporate
tax rate effective from 1 April 2023 on
deferred tax. A reconciliation of the tax
charge is set out in note C6.4 to the Group
financial statements.
Financial leverage
The Group seeks to manage the level of
debt on its balance sheet by monitoring
its financial leverage ratio. The financial
leverage ratio as at 31 December 2021 (as
calculated by the Group in accordance
with Fitch Ratings’ stated methodology)
is 28% (2020: 28%). This is within the
target range management considers to be
associated with maintaining an investment
grade rating of 25% to 30%.
1 2020 operating profit split has been restated to split
ReAssure across Open, Heritage and Group costs
segments as appropriate
Positive impacts include the £110 million
net gain recognised on the transaction
to simplify the strategic relationship
with abrdn plc, including the disposal of
the Wrap SIPP, Onshore bond and TIP
businesses, and the acquisition of the
Standard Life brand. Also included is
an £83 million policyholder tax benefit
recognised following the favourable
conclusion of discussions with HMRC in
respect of excess management expenses
attached to the L&G Mature Savings
business acquired as part of ReAssure.
These positive non-operating items are
offset by a number of non-recurring
expenses. Integration costs of £119
million across both the Standard Life and
ReAssure programmes, including delivery
of the harmonised internal model, were
incurred and are inclusive of internal costs.
There was also a £58m impact of providing
for the costs of implementation of the new
IFRS 17 insurance accounting standard.
While we also incurred a loss of £23 million
recognised on disposal of Ark Life, which
includes the recycling of £14 million of
foreign exchange (‘FX’) losses that had
been accumulated in the FX reserve on
consolidation.
The remaining non-recurring expenses
of £58 million relate to various Group
projects. The large variance to the prior
year is largely due to a sizeable gain that
was recognised on acquisition of the
ReAssure business of £372 million
during 2020.
Finance costs
Finance costs of £217 million (2020: £191
million) have increased by £26 million,
reflecting a full year of interest charges
on the three debt instruments which were
substituted to the Group as part of the
acquisition of the ReAssure businesses in
July 2020 and the additional debt issued
by the Group to finance the ReAssure
acquisition.
Phoenix Group Holdings plc Annual Report and Accounts 2021
39
Strategic report Business review continued
Dividend 48.9p
Total 2021 dividend per share
+3%
organic dividend increase in
the Final 2021 dividend
Inaugural organic dividend increase
Phoenix has a strong dividend track record
as demonstrated in the graph and we have
significantly outperformed the wider FTSE
100 over the past seven years. However,
until now our historical dividend increases
had only come from M&A.
We had outlined two clear conditions
that would act as triggers for the Board to
consider an organic dividend increase.
The first was to prove ‘the wedge’ through
organic growth that would more than
offset the run-off of our Heritage business
(currently c.£800 million p.a.). The second
was that the Group’s recurring sources of
cash exceeded our recurring uses.
I am delighted that we have met these two
conditions in 2021, having proven ‘the
wedge’ with new business long-term cash
generation of £1.2 billion and with our
recurring sources of cash exceeding our
recurring uses by around £300 million.
As a result, the Board has assessed that
a dividend increase is appropriate and
is therefore recommending the Group’s
inaugural organic dividend increase of 3%
in the Final 2021 dividend to 24.8 pence
per share, This equates to a Total 2021
dividend of 48.9 pence per share.
This increase reflects both the growth in
our business and our strong overdelivery
of management actions in 2021. Our
new, increased level of dividend is just as
sustainable as it was previously.
Future dividend policy and approach
Having proven ‘the wedge’ for the first
time and announced our inaugural organic
increase, the Board has evolved our
dividend policy to reflect the growing,
sustainable business that Phoenix now is.
We have evolved our previous policy that
was for a “stable and sustainable dividend”
to a policy which is to pay a dividend that is
sustainable and grows over time.
Strong dividend track record
+4% CAGR
45.2p
46.0p 46.8p
47.5p
48.9p
40.8p 40.8p 40.8p
41.9p
36.5p
32.2p
H2: 24.8p
+3%
H1: 24.1p
2011
2012
2013
2014
2015
2016
2017
2018
2019 2020 2021
Dividend per share
Phoenix Group’s dividend policy
The Board intends to pay a dividend that is sustainable
and grows over time
Future dividend approach
Potential
for
dividend
growth
Base
dividend
level
Organic
dividend
growth
Inorganic
dividend
growth
Potential total
dividend
It is important to emphasise that the
Board will, above all else, prioritise the
sustainability of our dividend over the
long term.
Phoenix Group can now grow both
organically through its Open business
and inorganically through M&A. The
Board will therefore now assess annually
whether business growth can fund a
dividend increase that is sustainable
over the long term.
We are confident that the cash from
today’s in-force business, without any
new business or any M&A, can pay our
current, increased dividend over the long
term. What is really exciting is that we now
have two sources of potential dividend
increases, through both organic growth
and inorganic growth.
The Board and I believe this is an important
milestone in the evolution of the Phoenix
Group investment case.
40
Phoenix Group Holdings plc Annual Report and Accounts 2021
Outlook
Phoenix is a growing,
sustainable business
Looking ahead
We have a differentiated strategy, which
leverages the major market trends, and
where the whole is greater than the sum of
the parts.
Starting with cash, Phoenix has set two
new cash generation targets. The first is a
one-year target range for 2022 of £1.3-to-
£1.4 billion. And the second is a three-year
target of £4.0 billion across 2022 to 2024.
Heritage is the bedrock of our business,
which delivers high levels of predictable
cash that covers our dividend into the
very long term. And it also generates
surplus cash, that we can re-invest into
both our Open business and into M&A,
to support future dividend increases.
We remain focused on optimising every
pound of shareholder capital through
a rigorous capital allocation framework
that ensures we only invest in growth
opportunities that drive real value.
Phoenix continues to offer an attractive
dividend, covered into the very long term
by today’s in-force business. And that now
has the potential to grow both organically
and inorganically.
New financial targets
We have a clear set of targets as we
continue to prioritise the delivery of cash,
resilience and growth.
In terms of resilience, we will continue
to maintain a strong Solvency II surplus
through our unique, dynamic hedging
approach. This will see us continue to
operate within our Solvency II SCCR target
range of 140%-to-180% and continue to
manage our key individual risk sensitivities
on an absolute surplus basis. Despite the
difficult ongoing economic backdrop
and volatile markets, our uniquely resilient
Solvency II balance sheet is strongly
positioned to enable us to deliver on our
ambitions in 2022.
In addition, we will continue to manage the
Group’s gearing level by operating within
our Fitch financial leverage ratio target
range of 25%–30%.
Looking to growth. The investment we
are making into our Open business
proposition, along with setting aside
around £300 million of capital per annum
for new BPA, means that we are now
confident of delivering ongoing organic
growth, which will more than offset the
Heritage run-off, year-after-year. As a
result, we expect to prove ‘the wedge’
again in 2022, by delivering >£800 million
of incremental new business long-term
cash generation.
Inorganic growth through M&A also
remains a key priority for Phoenix. In terms
of the market opportunity, we believe that
the c.£480 billion UK Heritage market is
split between a small number of large deals
and a larger number of small-to-mid sized
deals. We stand ready to do our next deal,
enabled by our scalable platforms, and our
£1.3 billion of available firepower.
I look forward to an exciting year in 2022
as we continue to deliver on our purpose
and our strategy.
Rakesh Thakrar
Group Chief Financial Officer
2022 targets
Cash
Resilience
Growth
• Deliver £1.3–1.4 billion of cash
• Maintain SCCR within
generation in 2022
140%–180% target range
• Deliver £4.0 billion of cash
generation across 2022–24
• Manage Fitch leverage ratio
within 25%–30% range
• Prove ‘the wedge’ again with
new business long-term cash
generation >£800 million
• Complete value accretive M&A
Phoenix Group Holdings plc Annual Report and Accounts 2021
41
Strategic report
Stakeholder engagement
Improving stakeholder outcomes
As a purpose-led business we seek to address the needs of a broad group of
stakeholders. Positive engagement and meaningful outcomes are key to ensuring a
strong and sustainable business. All of our interactions are governed by the Group’s
Code of Business Ethics and Ethical Conduct which sets out how we maintain a high
standard of integrity across all engagements.
Key stakeholder groups
Customers
Suppliers
Colleagues
Community
Investors
Government, trade
bodies and regulators
Phoenix has c.13 million customers and manages
c.£310 billion of assets. We offer a broad range
of long-term savings and retirement products to
support people across the entire savings life cycle.
What matters to them
We seek to ensure that our c.1,500 partners and
suppliers adhere to the highest environmental
and ethical standards.
We have 8,045 colleagues based across the
UK, Ireland and Germany. Our operational sites
include London, Wythall, Edinburgh, Telford,
Hitchin, Norwich, Bristol, Dublin and Frankfurt.
We are committed to making a difference in the
We maintain an active dialogue with our financial
We engage with various political stakeholders at
communities in which we are based, interacting
audiences who include institutional equity and
Westminster and Holyrood, along with key trade
with schools, charities, community groups and
debt investors, individual investors, rating agencies
bodies representing the industry, and regulators
through our direct investments.
and sell side research analysts.
including the PRA, FCA ,CBI and TPR.
• Products and services that meet their needs at
• A collaborative approach and long-term
different stages of their savings life cycle
relationships based on trust
• Clear communication and integrity as well as trust in
their funds being managed safely
• Customer service and support that helps them
• Clear mutual expectations and ESG standards for
all suppliers covering carbon reduction targets,
modern slavery and health and safety
• Having a sense of belonging and connection
to Phoenix’s purpose and values, and being
empowered to make a difference
• Having opportunities for personal and
career development
to make better financial decisions
• Deliver support at times of vulnerability
• Enabling brand consistency in social responsibility
• Being appropriately recognised and rewarded
through supply chain
for performance
• Engaging in effective two-way feedback
• We maintain an active dialogue with our
• We are embedding our purpose and
How we engage
• We engage with our customers through a variety of
channels and are adapting our service and product
propositions to help more customers on their journey
to and through retirement
suppliers and partners and develop mutually
beneficial partnerships
• Our Supplier Code of Conduct guides how we
• We continuously seek new ways to better support
engage with our suppliers and partners
vulnerable customers
• We conduct direct customer research and regularly
collate feedback on how we can
improve performance
• We offer an increased range of sustainable
investment funds and are developing innovative
customer solutions with sustainability at their core
• In 2021, we rolled out a set of sustainable supply
chain standards to our key suppliers, who
represent approximately 80% of our spend
• We joined the ABI Sustainable Supply Chain
Working Group, the CDP Supplier Survey and
Sustainable Markets Initiative Sustainable Supply
Chain Pledge
ambition through clear colleague objectives
and career goals
• Our colleagues are enabled to speak up through
a continuous listening culture, including regular
engagement surveys
• We also engage through our colleague advisory
forum, colleague representation groups,
colleague-led networks and Phoenix
Together events
Outcomes of engagement
• We sustained our high customer satisfaction scores
of 92% for Combined Group telephony and 95% for
Standard Life digital journeys, exceeding our 2021
targets of 90% and 92% respectively
• In 2021, we continued to realise increases in digital
adoption across the Group and launched Digital
Essentials, a digital literacy initiative to improve
customers’ confidence to embrace digital options
• Our new vulnerable customer e-learning offering
won ‘Best Customer and Employee Engagement
Programme’ at the 2021 Engage Awards and has been
shortlisted in the 2021 British Quality Foundation
UK Excellence Awards for ‘Excellence in People
Development and Engagement’
Read more
On pages 22 to 25
In our 2021 Sustainability Report on pages 28–36
www.standardlife.co.uk
www.phoenixlife.co.uk
www.reassure.co.uk
www.sunlife.co.uk
• We issued an Open letter to c.1,500 suppliers
asking all existing partners and suppliers to set
clear sustainability targets for their businesses that
are aligned with Phoenix’s goals of being net zero
carbon in our own operations by 2025
• 2021 activity has focused on improving our
• We are embedding an enhanced people strategy
aligned to our vision of becoming the best place
colleagues have ever worked
• We are undertaking initiatives to progress our
Diversity, Equity & Inclusion strategy which will
help us foster a more diverse and inclusive culture
systems to enable us to pay 95% of our suppliers
within 60 days
• We have enhanced access to mental health &
wellbeing tools and resources across the Group
• Over 80% of our key suppliers set a carbon
reduction target
• 96% of key suppliers published a Modern
Slavery Statement
• We are investing in the latest technology to
support an inclusive hybrid working model
• In 2021, we ranked 41st on the Social Mobility
index and were voted a UK top employer for the
10th consecutive year
In our 2021 Sustainability Report on pages 49–50
Our website:
www.thephoenixgroup.com/our-suppliers
On pages 20 to 21
In our 2021 Sustainability Report on pages 41-45
Our website:
www.thephoenixgroup.com/corporateresponsibility
On pages 26 to 27
On our website:
In our 2021 Sustainability Report on pages 55–59
In our 2021 Sustainability Report on pages 51-53
www.thephoenixgroup.com/investor-relations
On our website:
www.thephoenixgroup.com/corporateresponsibility
42
Phoenix Group Holdings plc Annual Report and Accounts 2021
• Investment into local innovation, infrastructure and
• Receiving regular updates on the Group’s strategy,
• Effective regulatory engagement, transparency
sustainable communities
operations and performance
and compliance
• Providing fulfilling work and economic growth,
• Clearly communicating our investment proposition
• Evidencing the regulators’ key areas of interest
including social mobility
to enable investors to appropriately evaluate
(outlined annually) have been addressed
• Financial and volunteering support to our
Phoenix Group as an investment
• Actively contributing to policy developments
local charities
• A named and clear point of contact for queries,
impacting long-term savings and insurance
• Educational support to our local schools
with quick responses to questions
• Collaboration with a range of trade associations,
• Using our scale and influence to take action on key
• Regular engagement on business performance
such as the Association of British Insurers,
societal and environmental concerns
and governance matters
Confederation of British Industry, and TheCityUK
• We hold regular meetings with charity partners
• Through a comprehensive communications and
• Through a comprehensive and robust programme
and partnership schools, and stay connected
engagement programme, which includes investor
of proactive engagement across all regulators,
with other causes
roadshows, results presentations and conferences
which is coordinated through our centralised
• We invite our colleagues to input on matters
• We conducted 255 investor interactions
Regulatory Relationships Team
important to them in their communities
• We routinely undertake surveys and
collect feedback
through primarily virtual meetings with
shareholders, debt investors, financial
• Andy Briggs, Group CEO, is Chair of the ABI
Climate Change Board Committee, co-chairs an
analysts and also attended numerous conferences
employer trade organisation roundtable with the
• We conducted a comprehensive investor
Minister for Employment and sits on a number of
consultation in June 2021 the findings of which
other industry forums
were presented to the Board and ExCo
• Andy Curran, CEO Savings and Retirement UK
• The Chairman held a stewardship roadshow in
& Europe, is chair of the ABI’s Long-Term Savings
January 2022 with our major institutional investors
Committee, and also sits on the ABI Board
• Ongoing investment into our UK cities and
• Ongoing engagement enables a two-way dialogue
• Our regulated subsidiaries have approved
infrastructure to promote sustainable communities
between Phoenix and its investors, ensuring a good
capital policies for distributions which protect
– £542 million invested in social housing, £220
understanding of the company strategy in the
our customers
million in renewable energy and £168 million in
market and investor feedback to be considered in
• We obtained the approval of the PRA for the
other sustainability assets
strategic decision-making
harmonisation of the legacy Phoenix Life and
• £1 million donated to registered charities
• The directors recommended the Group’s first ever
Standard Life Assurance internal models which was
• We committed to supporting the Government’s
organic dividend increase of 3% resulting in a total
the first of its kind in the UK
Kickstart initiative to offer six-month placements
2021 dividend of 48.9p
• Facilitation of our Bulk-Purchase-Annuity growth
paying the Real Living Wage
• The Group maintained its Fitch Insurer Financial
ambitions, through engagement with regulators on
• During the year, colleagues have volunteered
Strength Ratings of A+ and increased several ESG
deals completed throughout the year
c.2,650 hours to support our communities
ratings during the year
• We have taken a lead role in supporting the
Pensions Scams Industry Group to prevent
instances of pension fraud
Section 172 statement
During the year, Directors have applied section 172 of the
Companies Act 2006 in a manner consistent with the Group’s
purpose, values and strategic priorities. When, the Directors
have acted in a way which they consider, in good faith, is most
likely to promote the success of the Company for the benefit of
its members as a whole. In doing so the Directors have paid due
regard to the matters set out in section 172(1) (a) to (f), namely:
• the likely consequences of decisions in the long term;
• the interests of our employees;
• the need to foster business relationships with suppliers,
customers and others;
• the impact of our operations on the community and
the environment;
• the desirability of maintaining our reputation for high
standards of business conduct; and
• the need to act fairly between members of the Company.
Examples of how Directors have considered these
matters in connection with key decisions linked to
our strategic priorities are detailed on pages 79 to 80
of the Corporate Governance Report.
Key stakeholder groups
Customers
Suppliers
Colleagues
Community
Investors
Government, trade
bodies and regulators
Phoenix has c.13 million customers and manages
We seek to ensure that our c.1,500 partners and
We have 8,045 colleagues based across the
c.£310 billion of assets. We offer a broad range
suppliers adhere to the highest environmental
UK, Ireland and Germany. Our operational sites
of long-term savings and retirement products to
and ethical standards.
support people across the entire savings life cycle.
include London, Wythall, Edinburgh, Telford,
Hitchin, Norwich, Bristol, Dublin and Frankfurt.
We are committed to making a difference in the
communities in which we are based, interacting
with schools, charities, community groups and
through our direct investments.
We maintain an active dialogue with our financial
audiences who include institutional equity and
debt investors, individual investors, rating agencies
and sell side research analysts.
We engage with various political stakeholders at
Westminster and Holyrood, along with key trade
bodies representing the industry, and regulators
including the PRA, FCA ,CBI and TPR.
• Investment into local innovation, infrastructure and
• Receiving regular updates on the Group’s strategy,
• Effective regulatory engagement, transparency
sustainable communities
operations and performance
and compliance
• Providing fulfilling work and economic growth,
• Clearly communicating our investment proposition
• Evidencing the regulators’ key areas of interest
including social mobility
• Financial and volunteering support to our
local charities
to enable investors to appropriately evaluate
Phoenix Group as an investment
• A named and clear point of contact for queries,
(outlined annually) have been addressed
• Actively contributing to policy developments
impacting long-term savings and insurance
• Educational support to our local schools
• Using our scale and influence to take action on key
with quick responses to questions
• Regular engagement on business performance
societal and environmental concerns
and governance matters
• Collaboration with a range of trade associations,
such as the Association of British Insurers,
Confederation of British Industry, and TheCityUK
• We hold regular meetings with charity partners
and partnership schools, and stay connected
with other causes
• We invite our colleagues to input on matters
important to them in their communities
• We routinely undertake surveys and
collect feedback
• Through a comprehensive communications and
engagement programme, which includes investor
roadshows, results presentations and conferences
• We conducted 255 investor interactions
through primarily virtual meetings with
shareholders, debt investors, financial
analysts and also attended numerous conferences
• We conducted a comprehensive investor
consultation in June 2021 the findings of which
were presented to the Board and ExCo
• The Chairman held a stewardship roadshow in
January 2022 with our major institutional investors
• Through a comprehensive and robust programme
of proactive engagement across all regulators,
which is coordinated through our centralised
Regulatory Relationships Team
• Andy Briggs, Group CEO, is Chair of the ABI
Climate Change Board Committee, co-chairs an
employer trade organisation roundtable with the
Minister for Employment and sits on a number of
other industry forums
• Andy Curran, CEO Savings and Retirement UK
& Europe, is chair of the ABI’s Long-Term Savings
Committee, and also sits on the ABI Board
• Ongoing investment into our UK cities and
infrastructure to promote sustainable communities
– £542 million invested in social housing, £220
million in renewable energy and £168 million in
other sustainability assets
• £1 million donated to registered charities
• We committed to supporting the Government’s
Kickstart initiative to offer six-month placements
paying the Real Living Wage
• During the year, colleagues have volunteered
c.2,650 hours to support our communities
• Ongoing engagement enables a two-way dialogue
between Phoenix and its investors, ensuring a good
understanding of the company strategy in the
market and investor feedback to be considered in
strategic decision-making
• The directors recommended the Group’s first ever
organic dividend increase of 3% resulting in a total
2021 dividend of 48.9p
• The Group maintained its Fitch Insurer Financial
Strength Ratings of A+ and increased several ESG
ratings during the year
• Our regulated subsidiaries have approved
capital policies for distributions which protect
our customers
• We obtained the approval of the PRA for the
harmonisation of the legacy Phoenix Life and
Standard Life Assurance internal models which was
the first of its kind in the UK
• Facilitation of our Bulk-Purchase-Annuity growth
ambitions, through engagement with regulators on
deals completed throughout the year
• We have taken a lead role in supporting the
Pensions Scams Industry Group to prevent
instances of pension fraud
In our 2021 Sustainability Report on pages 28–36
Our website:
In our 2021 Sustainability Report on pages 41-45
In our 2021 Sustainability Report on pages 49–50
On pages 20 to 21
www.thephoenixgroup.com/our-suppliers
Our website:
www.thephoenixgroup.com/corporateresponsibility
On pages 26 to 27
In our 2021 Sustainability Report on pages 51-53
On our website:
www.thephoenixgroup.com/investor-relations
In our 2021 Sustainability Report on pages 55–59
On our website:
www.thephoenixgroup.com/corporateresponsibility
Phoenix Group Holdings plc Annual Report and Accounts 2021
43
What matters to them
• Products and services that meet their needs at
• A collaborative approach and long-term
• Having a sense of belonging and connection
different stages of their savings life cycle
relationships based on trust
to Phoenix’s purpose and values, and being
• Clear communication and integrity as well as trust in
• Clear mutual expectations and ESG standards for
empowered to make a difference
their funds being managed safely
all suppliers covering carbon reduction targets,
• Having opportunities for personal and
• Customer service and support that helps them
modern slavery and health and safety
career development
to make better financial decisions
• Deliver support at times of vulnerability
• Enabling brand consistency in social responsibility
• Being appropriately recognised and rewarded
through supply chain
for performance
• Engaging in effective two-way feedback
How we engage
• We engage with our customers through a variety of
• We maintain an active dialogue with our
• We are embedding our purpose and
channels and are adapting our service and product
suppliers and partners and develop mutually
ambition through clear colleague objectives
propositions to help more customers on their journey
beneficial partnerships
and career goals
to and through retirement
• Our Supplier Code of Conduct guides how we
• Our colleagues are enabled to speak up through
• We continuously seek new ways to better support
engage with our suppliers and partners
a continuous listening culture, including regular
vulnerable customers
• In 2021, we rolled out a set of sustainable supply
engagement surveys
• We conduct direct customer research and regularly
chain standards to our key suppliers, who
• We also engage through our colleague advisory
collate feedback on how we can
improve performance
represent approximately 80% of our spend
forum, colleague representation groups,
• We joined the ABI Sustainable Supply Chain
colleague-led networks and Phoenix
• We offer an increased range of sustainable
Working Group, the CDP Supplier Survey and
Together events
investment funds and are developing innovative
Sustainable Markets Initiative Sustainable Supply
customer solutions with sustainability at their core
Chain Pledge
Outcomes of engagement
• We sustained our high customer satisfaction scores
• We issued an Open letter to c.1,500 suppliers
• We are embedding an enhanced people strategy
of 92% for Combined Group telephony and 95% for
asking all existing partners and suppliers to set
aligned to our vision of becoming the best place
Standard Life digital journeys, exceeding our 2021
clear sustainability targets for their businesses that
colleagues have ever worked
targets of 90% and 92% respectively
are aligned with Phoenix’s goals of being net zero
• We are undertaking initiatives to progress our
• In 2021, we continued to realise increases in digital
carbon in our own operations by 2025
Diversity, Equity & Inclusion strategy which will
adoption across the Group and launched Digital
• 2021 activity has focused on improving our
help us foster a more diverse and inclusive culture
Essentials, a digital literacy initiative to improve
systems to enable us to pay 95% of our suppliers
• We have enhanced access to mental health &
customers’ confidence to embrace digital options
within 60 days
wellbeing tools and resources across the Group
• Our new vulnerable customer e-learning offering
• Over 80% of our key suppliers set a carbon
• We are investing in the latest technology to
won ‘Best Customer and Employee Engagement
reduction target
support an inclusive hybrid working model
Programme’ at the 2021 Engage Awards and has been
• 96% of key suppliers published a Modern
• In 2021, we ranked 41st on the Social Mobility
shortlisted in the 2021 British Quality Foundation
Slavery Statement
index and were voted a UK top employer for the
UK Excellence Awards for ‘Excellence in People
Development and Engagement’
10th consecutive year
Read more
On pages 22 to 25
www.standardlife.co.uk
www.phoenixlife.co.uk
www.reassure.co.uk
www.sunlife.co.uk
Strategic report Non-financial information statement
Non-
financial
information
statement
As required by the
Companies Act 2006
sections 414CA and 414CB,
this table outlines our
non-financial information
statement with a reference
to relevant policies and
additional documents.
This section primarily covers our
non-financial information as required
by the regulations. Other related
information can be found as follows:
For further details on our key
performance indicators,
see pages 18 to 27.
For further details on our business
model see pages 14 to 17.
For further details on our principal
risks and how they are managed,
see pages 58 to 65.
Environment
Our policies
Phoenix Group is committed to protecting
the environment; the health and wellbeing
of our colleagues and the customers and
communities in which we operate. We aim to
reduce the impact on the environment from
our operations and demonstrate leadership
in minimising emissions that contribute to
climate change.
Our environmental strategy focuses on four
key areas:
Our Net Zero Commitment – We are
committed to addressing climate change
and limiting global warming to 1.5°C. Our
operations will be Net Zero by 2025.
Waste and Recycling – We will implement
sustainable waste management practices
including the removal of all single use plastics
from our operations by 2030.
Conservation – We are committed to
supporting conservation in our communities.
Employee Engagement – We will support
colleague understanding of environmental
issues and promote engagement in
environmental action.
We have a range of policies including our
Group Environmental policy, Environment
Risk policy, our Responsible Investment
Philosophy and Sustainability Risk policy.
In addition, an exercise is ongoing to
update all Group risk policies to consider
sustainability matters.
Due diligence
Andy Briggs, the Group’s Chief Executive
Officer, is responsible for the embedding of
sustainability within Phoenix Group, in line
with the strategy set by the Group Board. The
Group CEO reports directly to the Board on
all sustainability activity across the business
including the environmental policy. We
will monitor and review our environmental
performance against our environmental
commitments set out in our policy and the net
zero requirements.
We report on our environmental performance
annually and review the policy to ensure
that it remains relevant and appropriate.
We are committed to working with our key
suppliers to develop best practice carbon
management, including net zero targets, and
robust waste minimisation including reduction
of single-use plastic strategies.
Outcomes
Read more about our net zero and climate-
related reporting commitments and KPIs on
pages 26-27, and our sustainability actions
in the 2021 Sustainability Report. Our GHG
emissions and energy consumption disclosure
can be found on pages 48-53.
For further information
Colleagues
Social and community
Human rights
Anti-bribery and corruption
The Group’s Human Resources (‘HR’) policy defines people risk, which,
if unmanaged, could result in a reduction in earnings or value, through
financial or reputational loss. Our Group approach to support the Health
and Wellbeing of colleagues is a key enabler to build an inclusive, attractive,
and safe working environment that can adapt and respond quickly to
change. We are keen to create a sense of belonging, so colleagues feel
connected to our purpose and values, empowered to make a difference
and motivated and proud to be part of our story.
A key priority for our business is to ensure diversity at the Phoenix Group to
create a workplace that is inclusive and reflective of our communities and
enables colleagues to bring their whole self to work.
We champion gender equity through promoting a strong pipeline of female
executive talent for the future
The table below outlines our gender diversity metrics1:
All colleagues
Board members
Executive Committee2 (‘ExCo’)
ExCo3, their direct reports & subsidiary
directors
Senior management4 and their
direct reports
Female
Male
Female
Male
Female
Male
Female
Male
Female
Male
4,146
3,899
4
8
2
8
38
43
43
51
52%
48%
33%
67%
20%
80%
47%
53%
46%
54%
1 These figures are provided as required by the Companies Act 2006
s414C(8)(i)–(iii) and provision 23 of the UK Corporate Governance Code
2 Figures exclude Andy Briggs and Rakesh Thakrar
3 Figures exclude Andy Briggs and Rakesh Thakrar, and include Group
Company Secretary Gerald Watson
4 The figures include Andy Briggs, Rakesh Thakrar and the Group
Company Secretary, Gerald Watson as required by provision 23 of the
UK Corporate Governance Code
Adherence to the HR policy is managed by the Group’s HR function via
quarterly assessment of the minimum control standards. There were no
material issues raised during the year.
All colleagues are required to complete annual computer-based health and
safety training. Arrangements are in place to manage onsite facilities across
all sites, ensuring the working environment is compliant and fit for purpose.
We have a range of tools and resources available to support our colleagues,
their dependents, family members and loved ones to help look after their
personal health and wellbeing.
We were one of the first companies to sign the Government’s Women in
Finance Charter.
Customers
At Phoenix Group, we recognise that modern
Phoenix Group has a zero-tolerance policy to bribery
The Group’s Customer Treatment Risk policy covers risks arising from the design
slavery and human rights violations exist in
and corruption in all its forms.
or management of products, or from the failure to meet or exceed reasonable
all stages of the supply chain, including the
customer expectations, taking account of regulatory requirements.
The Group continually improves communications with customers to make it easy
for them to interact with us in connection with their policy and go on to make an
informed decision should they wish to take any action. This includes enhancing
the customer experience and vulnerable customer support.
Suppliers
We set out strict standards of corporate behaviour for all our people to follow.
This includes complying with all applicable laws and regulations, protecting human
rights, providing a safe place of work, and minimising our direct and indirect
environmental impact. We also expect our suppliers to adhere to high standards
in the way that they operate. The Supplier Code of Conduct outlines the minimum
conduct standards to which suppliers must adhere when doing business with
us. Suppliers must be able to demonstrate adherence to this Code of Conduct
if requested and failure to demonstrate compliance will lead to a review of the
supplier contract.
We expect robust health and safety conditions for all workers in the supply chain,
and to comply with the Health and Safety at Work Act UK or local equivalent.
Suppliers are expected to have health and safety staff training and management
systems in place and to publish their health and safety performance externally.
Communities
Our community engagement programme aims to address pressing societal issues
and make a positive and lasting difference within our local communities where
we operate. Colleagues Group-wide are entitled to take two days for individual
volunteering and a further one day with their team. In addition, we offer a range of
ways for colleagues to donate to registered charities across the UK and Europe.
Colleagues can support our four charitable partners or ‘give back’ through payroll
giving schemes, personal fundraising or straight-forward donations to any charity
of their choice.
manufacturing of goods such as hardware
for mobile phones or cleaning services in
office buildings. We recognise the challenges
of tackling these critical issues and are
continuously working with our suppliers
to improve practises, offer training and
raise awareness.
Phoenix Group is committed to countering bribery
and corruption with suitable policies and procedures.
We have an anti-bribery programme in place designed
to prevent the occurrence of bribery. This includes,
for example:
• An Anti-Bribery Policy at Group level.
• A Code of Ethics for ethical behaviour
and general standards.
In line with the Equality Act 2010 and to
• Mandatory training for our employees covering
ensure that the Group is aligned to relevant
compliance with the Bribery Act.
Articles of the United Nations Universal
Declaration of Human Rights, the Group has
a Dignity at Work policy in place. The policy
covers bullying and harassment of and by
managers, employers, contractors, suppliers,
agency staff and other individuals engaged
with the Group.
We have identified Human Rights as one
of three key stewardship priorities for our
dialogue with investee companies and asset
managers. We joined the PRI Advisory Group
on Human Rights and Social issues to help
shape a global collaboration on the topic and
integrated more human rights questions in our
due diligence process to monitor and appoint
asset managers.
The Group’s Financial Crime Prevention and
Anti-Bribery policy addresses risks such as money
laundering, terrorist financing, fraud, bribery and
corruption risks and the facilitation of tax evasion.
In 2021, we have adopted a Group Stewardship Policy
which details our stewardship approach.
The Group also operates a Whistleblowing policy,
prompting colleagues to disclose information where
they believe wrongdoing, malpractice or risk exists
across any of Phoenix Group’s operations.
Our Data Protection Officer monitors compliance with the GDPR and DPA 2018,
In 2022, we will be rolling out modern slavery
Colleagues are required to complete annual computer-
providing advice on the Group’s data privacy obligations and acting as the point of
training to our commercial partnerships
based training around both financial crime prevention
contact for data subjects and regulatory authorities. The Data Protection Officer
function including our procurement
and adherence with the Code of Business Ethics and
owns the Group Privacy policy and Data Protection Risk policy and maintains
colleagues and supplier relationship
Ethical Conduct.
oversight of ongoing privacy compliance. Security controls to protect the Group
managers throughout our business.
from cyber-related incidents have also been deployed and a dedicated security
operations team responds to emerging cyber threats. The Group has had no
significant cyber-related incidents over the year.
As a first step on the continuous journey to
Hospitality Register which is overseen and managed by
Colleagues are also required to complete a Gifts and
tackling modern slavery and human rights
the Financial Crime team.
violations we commenced an independent
Complaint activity including those referred to the Financial Ombudsman Service
ESG risk assessment to determine high risk
or the Pensions Ombudsman Service is monitored, and a significant proportion of
areas. Impacted suppliers will be informed in
complaints are resolved across the Group in less than three days.
The Supplier Code of Conduct outlines the minimum ESG requirements for all
the second half of 2022 and required to meet
our Sustainable Supply Chain Standards.
our suppliers. In December 2021, we accelerated our expectations of all 1,500
We've identified Human Rights as one of three
partners and suppliers and published our Supplier Open Letter which set out our
key stewardship priorities for our dialogue
ESG requirements.
with investee companies and asset managers.
We have also integrated more human rights
questions in our due diligence process to
monitor and appoint asset managers.
Other relevant colleague engagement, Diversity and Inclusion data can be
found on pages 20-21 as well as in our 2021 Sustainability Report.
Information on our customer satisfaction scores and initiatives can be found on
During 2021, the Group effectively resolved
The Group’s governance processes for financial crime
pages 22-23 and in our Sustainability Report.
Information on relevant supply chain metrics such as engagement on climate
change and communities metrics including donations can be found in our 2021
Sustainability Report on pages 49-53 and 64-66.
all colleague disputes and as a result has not
prevention, anti-bribery and anti-corruption, ethics and
been subject to any adverse Employment
compliance training, whistleblowing and speaking up
Tribunals judgements or awards.
can be found on our Group website.
Our human rights/modern slavery disclosures
can be found in our Sustainability Report.
• Group environmental strategy: https://
• Health and Wellbeing approach: https://www.thephoenixgroup.com/
• Privacy policy: https://www.thephoenixgroup.com/site-services/privacy
• Phoenix Group Modern Slavery &
• Anti-bribery statement: https://www.
www.thephoenixgroup.com/sustainability/
environment
• Group environmental policy: https://www.
thephoenixgroup.com/sites/phoenix-
group/files/phoenix-group/sustainability-
and-responsibility/environment/2021-
environmental-policy.pdf
sustainability/people-and-culture/wellbeing
• Health and Wellbeing Statement: https://www.thephoenixgroup.
com/sites/phoenix-group/files/phoenix-group/sustainability-and-
responsibility/people-and-culture/Wellbeing/health-and-wellbeing-
statement-2021.pdf
• Diversity and Inclusion Strategy: https://www.thephoenixgroup.com/
sustainability/people-and-culture/diversity-and-inclusion
• HR Frameworks: https://www.thephoenixgroup.com/sites/phoenix-
group/files/phoenix-group/sustainability-and-responsibility/people-
and-culture/workplace-metrics/employment-equal-opp-diversity-
recruitment-learning-dev-frameworks.pdf
• Supplier Code of Conduct: https://www.thephoenixgroup.com/sustainability/
working-responsibly-suppliers
Human Rights Statement: https://www.
thephoenixgroup.com/site-services/
modern-slavery-and-human-trafficking
thephoenixgroup.com/about-us/governance
44
Phoenix Group Holdings plc Annual Report and Accounts 2021
Environment
Our policies
Colleagues
Phoenix Group is committed to protecting
The Group’s Human Resources (‘HR’) policy defines people risk, which,
the environment; the health and wellbeing
if unmanaged, could result in a reduction in earnings or value, through
of our colleagues and the customers and
financial or reputational loss. Our Group approach to support the Health
communities in which we operate. We aim to
and Wellbeing of colleagues is a key enabler to build an inclusive, attractive,
reduce the impact on the environment from
and safe working environment that can adapt and respond quickly to
our operations and demonstrate leadership
change. We are keen to create a sense of belonging, so colleagues feel
in minimising emissions that contribute to
connected to our purpose and values, empowered to make a difference
climate change.
and motivated and proud to be part of our story.
Our environmental strategy focuses on four
A key priority for our business is to ensure diversity at the Phoenix Group to
key areas:
Our Net Zero Commitment – We are
create a workplace that is inclusive and reflective of our communities and
enables colleagues to bring their whole self to work.
committed to addressing climate change
We champion gender equity through promoting a strong pipeline of female
and limiting global warming to 1.5°C. Our
executive talent for the future
The table below outlines our gender diversity metrics1:
operations will be Net Zero by 2025.
Waste and Recycling – We will implement
sustainable waste management practices
including the removal of all single use plastics
from our operations by 2030.
All colleagues
Conservation – We are committed to
Board members
supporting conservation in our communities.
Employee Engagement – We will support
colleague understanding of environmental
issues and promote engagement in
environmental action.
We have a range of policies including our
Group Environmental policy, Environment
Risk policy, our Responsible Investment
Philosophy and Sustainability Risk policy.
In addition, an exercise is ongoing to
update all Group risk policies to consider
sustainability matters.
Female
Male
Female
Male
Female
Male
Male
Female
Male
4,146
3,899
4
8
2
8
38
43
43
51
52%
48%
33%
67%
20%
80%
47%
53%
46%
54%
Executive Committee2 (‘ExCo’)
ExCo3, their direct reports & subsidiary
Female
directors
Senior management4 and their
direct reports
1 These figures are provided as required by the Companies Act 2006
s414C(8)(i)–(iii) and provision 23 of the UK Corporate Governance Code
2 Figures exclude Andy Briggs and Rakesh Thakrar
3 Figures exclude Andy Briggs and Rakesh Thakrar, and include Group
Company Secretary Gerald Watson
4 The figures include Andy Briggs, Rakesh Thakrar and the Group
Company Secretary, Gerald Watson as required by provision 23 of the
UK Corporate Governance Code
Andy Briggs, the Group’s Chief Executive
Adherence to the HR policy is managed by the Group’s HR function via
Officer, is responsible for the embedding of
quarterly assessment of the minimum control standards. There were no
sustainability within Phoenix Group, in line
material issues raised during the year.
All colleagues are required to complete annual computer-based health and
safety training. Arrangements are in place to manage onsite facilities across
all sites, ensuring the working environment is compliant and fit for purpose.
We have a range of tools and resources available to support our colleagues,
their dependents, family members and loved ones to help look after their
personal health and wellbeing.
We were one of the first companies to sign the Government’s Women in
Finance Charter.
Due diligence
with the strategy set by the Group Board. The
Group CEO reports directly to the Board on
all sustainability activity across the business
including the environmental policy. We
will monitor and review our environmental
performance against our environmental
commitments set out in our policy and the net
zero requirements.
We report on our environmental performance
annually and review the policy to ensure
that it remains relevant and appropriate.
We are committed to working with our key
suppliers to develop best practice carbon
management, including net zero targets, and
robust waste minimisation including reduction
of single-use plastic strategies.
Outcomes
pages 26-27, and our sustainability actions
in the 2021 Sustainability Report. Our GHG
emissions and energy consumption disclosure
can be found on pages 48-53.
For further information
Read more about our net zero and climate-
Other relevant colleague engagement, Diversity and Inclusion data can be
related reporting commitments and KPIs on
found on pages 20-21 as well as in our 2021 Sustainability Report.
• Group environmental strategy: https://
• Health and Wellbeing approach: https://www.thephoenixgroup.com/
www.thephoenixgroup.com/sustainability/
sustainability/people-and-culture/wellbeing
environment
• Group environmental policy: https://www.
com/sites/phoenix-group/files/phoenix-group/sustainability-and-
thephoenixgroup.com/sites/phoenix-
responsibility/people-and-culture/Wellbeing/health-and-wellbeing-
group/files/phoenix-group/sustainability-
statement-2021.pdf
and-responsibility/environment/2021-
environmental-policy.pdf
• Diversity and Inclusion Strategy: https://www.thephoenixgroup.com/
sustainability/people-and-culture/diversity-and-inclusion
• HR Frameworks: https://www.thephoenixgroup.com/sites/phoenix-
group/files/phoenix-group/sustainability-and-responsibility/people-
and-culture/workplace-metrics/employment-equal-opp-diversity-
recruitment-learning-dev-frameworks.pdf
Social and community
Human rights
Anti-bribery and corruption
Customers
The Group’s Customer Treatment Risk policy covers risks arising from the design
or management of products, or from the failure to meet or exceed reasonable
customer expectations, taking account of regulatory requirements.
The Group continually improves communications with customers to make it easy
for them to interact with us in connection with their policy and go on to make an
informed decision should they wish to take any action. This includes enhancing
the customer experience and vulnerable customer support.
Suppliers
We set out strict standards of corporate behaviour for all our people to follow.
This includes complying with all applicable laws and regulations, protecting human
rights, providing a safe place of work, and minimising our direct and indirect
environmental impact. We also expect our suppliers to adhere to high standards
in the way that they operate. The Supplier Code of Conduct outlines the minimum
conduct standards to which suppliers must adhere when doing business with
us. Suppliers must be able to demonstrate adherence to this Code of Conduct
if requested and failure to demonstrate compliance will lead to a review of the
supplier contract.
We expect robust health and safety conditions for all workers in the supply chain,
and to comply with the Health and Safety at Work Act UK or local equivalent.
Suppliers are expected to have health and safety staff training and management
systems in place and to publish their health and safety performance externally.
Communities
Our community engagement programme aims to address pressing societal issues
and make a positive and lasting difference within our local communities where
we operate. Colleagues Group-wide are entitled to take two days for individual
volunteering and a further one day with their team. In addition, we offer a range of
ways for colleagues to donate to registered charities across the UK and Europe.
Colleagues can support our four charitable partners or ‘give back’ through payroll
giving schemes, personal fundraising or straight-forward donations to any charity
of their choice.
At Phoenix Group, we recognise that modern
slavery and human rights violations exist in
all stages of the supply chain, including the
manufacturing of goods such as hardware
for mobile phones or cleaning services in
office buildings. We recognise the challenges
of tackling these critical issues and are
continuously working with our suppliers
to improve practises, offer training and
raise awareness.
In line with the Equality Act 2010 and to
ensure that the Group is aligned to relevant
Articles of the United Nations Universal
Declaration of Human Rights, the Group has
a Dignity at Work policy in place. The policy
covers bullying and harassment of and by
managers, employers, contractors, suppliers,
agency staff and other individuals engaged
with the Group.
We have identified Human Rights as one
of three key stewardship priorities for our
dialogue with investee companies and asset
managers. We joined the PRI Advisory Group
on Human Rights and Social issues to help
shape a global collaboration on the topic and
integrated more human rights questions in our
due diligence process to monitor and appoint
asset managers.
Phoenix Group has a zero-tolerance policy to bribery
and corruption in all its forms.
Phoenix Group is committed to countering bribery
and corruption with suitable policies and procedures.
We have an anti-bribery programme in place designed
to prevent the occurrence of bribery. This includes,
for example:
• An Anti-Bribery Policy at Group level.
• A Code of Ethics for ethical behaviour
and general standards.
• Mandatory training for our employees covering
compliance with the Bribery Act.
The Group’s Financial Crime Prevention and
Anti-Bribery policy addresses risks such as money
laundering, terrorist financing, fraud, bribery and
corruption risks and the facilitation of tax evasion.
In 2021, we have adopted a Group Stewardship Policy
which details our stewardship approach.
The Group also operates a Whistleblowing policy,
prompting colleagues to disclose information where
they believe wrongdoing, malpractice or risk exists
across any of Phoenix Group’s operations.
Our Data Protection Officer monitors compliance with the GDPR and DPA 2018,
providing advice on the Group’s data privacy obligations and acting as the point of
contact for data subjects and regulatory authorities. The Data Protection Officer
owns the Group Privacy policy and Data Protection Risk policy and maintains
oversight of ongoing privacy compliance. Security controls to protect the Group
from cyber-related incidents have also been deployed and a dedicated security
operations team responds to emerging cyber threats. The Group has had no
significant cyber-related incidents over the year.
Complaint activity including those referred to the Financial Ombudsman Service
or the Pensions Ombudsman Service is monitored, and a significant proportion of
complaints are resolved across the Group in less than three days.
The Supplier Code of Conduct outlines the minimum ESG requirements for all
our suppliers. In December 2021, we accelerated our expectations of all 1,500
partners and suppliers and published our Supplier Open Letter which set out our
ESG requirements.
In 2022, we will be rolling out modern slavery
training to our commercial partnerships
function including our procurement
colleagues and supplier relationship
managers throughout our business.
As a first step on the continuous journey to
tackling modern slavery and human rights
violations we commenced an independent
ESG risk assessment to determine high risk
areas. Impacted suppliers will be informed in
the second half of 2022 and required to meet
our Sustainable Supply Chain Standards.
We've identified Human Rights as one of three
key stewardship priorities for our dialogue
with investee companies and asset managers.
We have also integrated more human rights
questions in our due diligence process to
monitor and appoint asset managers.
Colleagues are required to complete annual computer-
based training around both financial crime prevention
and adherence with the Code of Business Ethics and
Ethical Conduct.
Colleagues are also required to complete a Gifts and
Hospitality Register which is overseen and managed by
the Financial Crime team.
Information on our customer satisfaction scores and initiatives can be found on
pages 22-23 and in our Sustainability Report.
Information on relevant supply chain metrics such as engagement on climate
change and communities metrics including donations can be found in our 2021
Sustainability Report on pages 49-53 and 64-66.
During 2021, the Group effectively resolved
all colleague disputes and as a result has not
been subject to any adverse Employment
Tribunals judgements or awards.
The Group’s governance processes for financial crime
prevention, anti-bribery and anti-corruption, ethics and
compliance training, whistleblowing and speaking up
can be found on our Group website.
Our human rights/modern slavery disclosures
can be found in our Sustainability Report.
• Health and Wellbeing Statement: https://www.thephoenixgroup.
working-responsibly-suppliers
• Supplier Code of Conduct: https://www.thephoenixgroup.com/sustainability/
Human Rights Statement: https://www.
thephoenixgroup.com/site-services/
modern-slavery-and-human-trafficking
thephoenixgroup.com/about-us/governance
• Privacy policy: https://www.thephoenixgroup.com/site-services/privacy
• Phoenix Group Modern Slavery &
• Anti-bribery statement: https://www.
Phoenix Group Holdings plc Annual Report and Accounts 2021
45
Strategic report Sustainability
Our sustainability strategy
We believe that Phoenix Group has a significant opportunity to make a
difference in creating the sustainable future we all want. That is why we have set
a comprehensive sustainability strategy which is fully aligned to our purpose.
Our strategy has three focus areas:
Investing in a
sustainable future
Our customers and shareholders trust us
to reflect their priorities in how we invest.
That means keeping their money safe and
providing them with strong long-term
financial returns, while using our scale
to play our part in delivering a secure
and sustainable future. That is why we
are integrating environmental, social
and governance issues into our investment
decision making process. By investing
sustainably we can help deliver the
future we all want.
Integrating sustainability considerations into investment
decision making
We are integrating ESG considerations into our investment
decision making, collaborating closely with our asset management
partners and embedding best in class data analytics capability.
Investing responsibly
We are redesigning our portfolios in line with our sustainability
goals, driving real world impact on key issues through the active
ownership of our investments and are committed to putting our
long-term money to work today to build a better future for all
through increasing our investment in sustainable assets.
Tracking our decarbonisation goals
We are measuring the carbon footprint of our investments and
are aligning our portfolio to decarbonisation pathways in line with
global temperature goals.
Engaging to drive system change
We are using our insight and knowledge to lead the debate around
key challenges: working with government, non-governmental
organisations, and across our industry and the economy to remove
the barriers to net zero investment and define best practice.
You can find out more about our new sustainability
strategy and ambitious targets in our 2021
Sustainability Report
View our Sustainability Report 2021
thephoenixgroup.com/sustainability/
sustainability-report
Scan the code to watch the video
from our CEO introducing our
sustainability strategy
46
Phoenix Group Holdings plc Annual Report and Accounts 2021
Engaging people in
better financial futures
We are committed to meeting our customers’
needs through innovative product and fund
solutions, and engaging them in their
financial futures by providing the right
education, tools and guidance that promote
financial inclusion. There are a number of
barriers that need to be overcome to help
close the pension savings gap. We therefore
want to drive a national conversation on
better longer lives through Phoenix Insights
and are advocating for the societal change
that will achieve this.
Empowering better financial decision making
We are supporting our customers to make good decisions about
their financial futures by providing education and guidance tools.
We recognise customers have different needs and are therefore
implementing financial inclusion initiatives.
Enhancing our fund and product offering
We are responding to our customers’ demands to offer financially
attractive sustainable products. We are developing a portfolio of
products that offer customers flexibility in their retirement.
Creating a national conversation
We have established our new research centre, Phoenix Insights, to
transform the way society responds to the possibilities of longer
lives. Our ambition is to take the opportunities that longevity
presents to the forefront of public debate and the political agenda.
Advocating for change
We have a critical role to play in advocating for the changes to
unlock the barriers that limit people’s ability to provide for their
financial futures. By listening to our customers, we understand the
social issues that impact them the most and are collaborating with
industry, partners and government to deliver change.
Building a leading
responsible business
We are committed to embedding
sustainable best practice as the foundation
that enables us to achieve our purpose of
helping people secure a life of possibilities.
It is important that we adopt the highest
sustainability standards across our
business, and lead by example for the
stakeholders we engage with to drive real
world change and deliver positive impact.
Investing in our people and culture
Our purpose of helping people secure a life of possibilities
doesn’t just apply to our customers and society; it applies to
our colleagues too. Our vision is to make Phoenix the best
place any of us have ever worked and provide every colleague
with endless possibilities, support and positive experiences
throughout their time at Phoenix.
Reducing the environmental impact of our operations
We are reducing the impact of our operations, and are making
changes in the way we work to achieve a net zero carbon
operational footprint by 2025. We are committed to promoting
good environmental practice.
Building a sustainable supply chain
We are working with our partners and suppliers who share
our commitment to sustainability. We are collaborating with
them to adopt our stretching supply chain standards across
climate change, modern slavery and human rights and health
and safety.
Supporting our communities
We are aligning our community engagement programme with
our purpose and aim to address pressing societal issues and
make a positive and lasting difference within the communities
where we operate.
Phoenix Group Holdings plc Annual Report and Accounts 2021
47
Strategic report Streamlined Energy and Carbon Reporting (SECR) statement
Greenhouse Gas (GHG)
Emissions and Energy
Consumption Disclosure
This is Phoenix Group’s Streamlined Energy and Carbon Reporting
(SECR) statement on the Group’s UK and global energy consumption
and GHG emissions for the financial year 1 January 2021 to
31 December 2021, and the 2020 comparative year.
Introduction
Emissions disclosed here relate to energy
consumption, facilities, activities and
property investment portfolios where
Phoenix Group has operational control.
Methodology
Phoenix Group has used the GHG
Protocol Corporate Standard (revised
edition) and emissions factors from the
International Energy Agency (IEA), DEFRA
UK Government Conversion Factors,
and Association of Issuing Bodies (AIB)
European Residual Mix as the basis to
report on any GHG emissions in tonnes
of carbon dioxide equivalent (tCO2e).
This expresses multiple greenhouse
gases in terms of carbon dioxide based
on their global warming potential
(including methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons
and sulphur hexafluoride).
Emissions considered relate to activities
both in the UK and globally for which
Phoenix Group is responsible and include
as applicable: combustion of any fuel and
operation of its facilities; fugitive emissions
released from refrigerants purchased
(based on refrigerant top-ups); and annual
emissions from the purchase of electricity,
heat, steam or cooling by Phoenix Group
for its own use. In addition to reporting
estimated employee homeworking
emissions (using the EcoAct Homeworking
Emissions Whitepaper 2020) as part of
Scope 3 emissions, Phoenix Group has
also chosen to estimate employee
commuting, as well as reporting on
business travel from other third party
owned/operated sources, including air,
taxi and rail travel, to provide a complete
picture on this category of emissions.
Reported data relates to property
investment portfolios as well as the
occupied premises in UK, Ireland,
Germany, Austria, and the Netherlands,
where Phoenix Group procures energy.
Where energy consumption is sub-
metered to or procured by tenants (where
data is available and shared) and in
occupied assets that Phoenix Group
does not directly own or operate (i.e.
serviced offices), this falls into Scope 3
reporting, whereas all other landlord-
obtained consumption remains as Scope 1
or 2 emissions.
Phoenix Group reports Scope 2 emissions
using the GHG Protocol dual-reporting
methodology, stating two figures, location
and market-based, to reflect the GHG
emissions from purchased electricity:
• A location-based method that reflects
the average emissions intensity of the
national electricity grids from which
consumption is drawn.
• A market-based method that reflects
emissions from electricity specific to
each supply/contract. Where electricity
supplies are known to be from a certified
renewable source, a zero emissions
factor is used, otherwise residual mix
factors are used.
Energy consumption and greenhouse gas emissions
Table 1a. Absolute energy consumption in GWH
Consumption, GWh2 from:
Building Electricity
Building Natural Gas
Business Travel
Homeworking Electricity
Homeworking Natural Gas
Total consumption
a GHG emissions and energy consumption statement pursuant to the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (the SECR
2021
45.4
31.0
0.1b
1.7
26.1
104.3
2020
41.9
24.1
0.4c
1.3
20.2
87.9
Regulations).
b Business travel (GWh) in 2021 does not include air, taxi or rail due to the spend-based methodology and lack of applicable conversion factors for this data, however GHG emissions from these
sources are still included in Table 1b.
c Business travel (GWh) in 2020 only included travel in employee/company-owned cars. In 2021 this has been expanded above the mandatory requirements to include all modes of travel (including
air, taxi and rail).
48
Phoenix Group Holdings plc Annual Report and Accounts 2021
Table 1b. Absolute GHG emissions in tonnes of CO2e
Emissions, tonnes of CO2e, from:
Scope 1—Combustion of fuels, business travel (in company owned and operated vehicles), and
fugitive emissions of refrigerant gases
Scope 2—Electricity purchased for landlord shared services and own use (purchase of heat,
steam and cooling not applicable)
Scopes 1 + 2—Mandatory carbon footprint disclosure
Scope 3—Category 3: Fuel and Energy Related Activities (T&D)
Scope 3—Category 6: Business Travel
Scope 3— Category 8: Upstream Leased Assets
Scope 3—Category 13: Downstream Leased Assets
Scope 3—Category 7: Employee Commuting (incl. Homeworking Emissions)
Scopes 1 + 2 + 3—Voluntary carbon footprint
Carbon Offsets Purchased
2021
2020
(market-
based)
(location-
based)
(market-
based)
(location-
based)
4,812
4,812
4,913
4,913
21
4,833
1
356
2,051
312
5,487
13,040
2,453
8,342
13,154
722
356
1,765
2,723
5,294
24,014
3,266
8,178
10,065
14,978
1,040d
3,129d
4,272e
13,490
N/A
4,129e
22,236
1 Emissions factors – IEA (for location-based Scope 2 and Scope 3 T&D losses), AIB (for market-based residual mix factors for non-renewable electricity), and DEFRA (fuels, refrigerants and travel).
There is a significant time-lag in the availability of IEA factors –2021 factors will not be published until late 2022. Therefore all 2020 consumption data are converted using the factors actually
arising in 2017 (except car travel which uses DEFRA factors as published in 2021.
2 Energy Units: 1 GWh = 1,000,000 kWh
Commentary on Phoenix
Group’s performance
Overall, in 2021 there was 76.5 GWh
of Phoenix Group global energy
consumption (building energy and
business travel in either employees’ cars
or company cars) as shown in Table 1a,
97% of which was from UK operations.
This is an increase on the 66.4 GWh of
global energy consumption reported in
2020. Separately, in 2021 27.8 GWh has
been estimated and can be attributed
to employee homeworking energy
consumption, of which 92% occurred
within the UK. In GHG emissions terms
(Scopes 1+2+3), 94% of Phoenix Group
emissions occurred at UK sites.
In 2021, amidst a dynamic, continually
growing workforce and portfolio, Phoenix
Group’s absolute emissions (location-
based Scope 1+2) have decreased by 12%.
This reduction is largely attributed to the
ongoing impacts of COVID-19, resulting
in continued hybrid working. This has
caused Phoenix Group to reassess its
office utilisation and consolidate buildings
to improve occupancy and remove less
efficient assets in which there is lower
control. This is also reflected in the
intensity metrics, expressing GHG
emissions in kilogrammes per floor area
and full-time equivalent employee (FTE)
in Table 2. Importantly, we achieved a
34% year-on-year reduction in Scope 1
& 2 emissions per FTE intensity, on our
path towards being net zero in our own
operations by 2025.
Approximately 89% of all electricity
consumption, and 100% within Phoenix
Group’s occupied premises, is from
certified renewable sources. This clarifies
why the market-based emissions for Scope
2 are significantly less than the location-
based emissions as shown in Table 1b.
This is an increase in the percentage of
renewable energy procured compared
to 2020, significantly reducing the
proportion of market-based emissions
compared to location-based emissions in
2021. Additionally, Phoenix is purchasing
gold-standard certified carbon offsets for
natural gas consumed in its owned and
occupied assets, constituting 2,453 tCO2e
in 2021, recognising the environmental
impact of this emissions source which is
challenging to reduce.
Energy intensity metrics
Phoenix Group’s chosen operational
intensity metrics detail GHG emissions
per occupied floor area (m2) and per FTE
in occupied premises (Table 2). Emissions
from occupied premises only considers
buildings where emissions are considered
Scope 1 and 2 and where 12 months of data
is available in the reporting year, meaning
some sites were excluded from this
calculation. To calculate the intensity for
both per occupied floor area and per FTE
per occupied premises, the occupied floor
area and FTEs respectively were summed
and divided by the total Scope 1 and 2
emissions for these buildings.
The intensity for both m2 and FTE has
decreased from 2020 to 2021, largely
driven by Phoenix’s ongoing efforts to
improve energy efficiency and reduce
its impact on the environment through
its operations, as described below in
the Energy Efficiency Action section.
Additionally, a market-based intensity has
also now been disclosed to highlight the
efforts made to procure renewable energy
across the portfolio (this intensity does not
include any purchased carbon offsets).
Table 2. Phoenix Group’s chosen intensity measurement
Emissions (kilogrammes and tonnes) of CO2e per chosen intensity metric:
Scope 1+2 emissions from occupied premises per floor area (kg CO2e/m2)
Scope 1+2 emissions from occupied premises per full-time
equivalent employee (tCO2e/FTE)
2021
2020
(market-
based)
30
0.38
(location-
based)
62 kg
CO2e/m2
0.81 tonnes
CO2e/FTE
(market-
based)
N/Af
N/Af
(location-
based)
80 kg
CO2e/m2
1.23 tonnes
CO2e/FTE
d Scope 3 emissions were reported as an aggregated figure in 2020 (except for estimated homeworking emissions) and did not include employee commuting or business travel outside
of employee-owned cars, therefore this has not been separated for consistency.
e Scope 3 emissions for Category 7 only included estimated emissions from employee homeworking in 2020, and not employee commuting estimates, which have also been included
in the 2021 figure.
f Market-based intensity metrics were not reported in Phoenix Group’s 2020 SECR statement as they are not a mandatory requirement, and are therefore not retrospectively disclosed.
Phoenix Group Holdings plc Annual Report and Accounts 2021
49
Strategic report Streamlined Energy and Carbon Reporting (SECR) statement continued
Energy efficiency action
(climate change actions)
In 2020, Phoenix Group set out its
ambition to eliminate emissions from its
own operations (Scope 1 and 2, and Scope
3 (GHG Protocol Category 6: Business
Travel)) by 2025. It is understood that this
represents a relatively small share of the
value chain emissions; however, it forms a
first step on the overall journey to the
1.5ºC aligned climate change target. These
are also the emissions over which Phoenix
Group have the most direct control. The
100% renewable grid electricity target was
achieved in 2020, and the focus is now on
the transition to renewable/non fossil fuel
heat sources, increasing energy efficiency,
and reducing refrigerant emissions.
During 2021, Phoenix Group aligned its
capital expenditure programme to its net
zero target, by re-prioritising expenditure
based on the potential carbon impact
of the projects considered. A select and
non exhaustive list of the most impactful
projects carried out is listed below. Many
of these projects are carried out in offices
that need to stay operational throughout
the year and are phased over a number
of years to minimise disruption to the
occupants. As such, the energy and
carbon savings identified may fluctuate
depending on the extent of works carried
out in a particular year.
Key energy efficiency activities
in 2021 were:
• A significant project at the Wythall
office to replace roof glazing with
photovoltaic glass (the largest of its
kind in Europe) has been initiated
and will span three years. This will
provide renewable electricity as well
as significant improvements to energy
efficiency and thermal and visual
comfort for the building
• Office building consolidation plans from
multiple to single offices in London and
Dublin
• LED lighting roll out – high-efficiency
lighting programmes across applicable
buildings, ensuring that any new lighting
installations are the most energy
efficient (e.g. Old Bailey, London)
• Building and ventilation control systems
upgrades to allow for greater flexibility
and operational efficiency (e.g. Wythall,
Standard Life House, Edinburgh)
• Additional electrical vehicle charging
points installed across many sites
• Roof insulation materials have been
upgraded in three offices (Wythall,
Basingstoke and Hitchin)
• Electric ‘point of use’ water heaters have
replaced gas storage systems across
many offices
• Half-hourly data (HHD) gas meters
have been installed to allow better
understanding of heating energy
requirements, and to measure and
report accurate consumption
• Sub-metering installations have
been carried out to allow for greater
data granularity and management
going forwards
• Boilers have been upgraded or replaced
as necessary at the Bournemouth site
• Heat pumps, electric boilers or hybrid
combinations are being considered
(to replace gas boilers) in applicable
properties
• Chillers have been replaced with
modern, less intensive equivalents
• Adoption of a more robust travel
policy, whereby the emphasis is on trip
avoidance and carbon efficiency
Going forward and in line with Phoenix
Group’s Eliminate-Reduce-Substitute-
Compensate model, applicable
opportunities within operations will be
assessed to manage the carbon footprint.
For example, continually considering
building consolidation opportunities
by improving the effectiveness of the
current use of space. A number of new
technologies are being reviewed to
further reduce business travel by
facilitating working and better remote
collaborations between employees.
Throughout 2022, Phoenix Group will be
continuing its extensive carbon reduction
actions with the view of minimising
carbon emissions. This includes building
improvement works to include efficiency
measures, such as improved controls, more
efficient equipment, and improvement of
building fabric where necessary.
New roof at Wythall office allows for greater flexibility,
power generation and operational efficiency
50
Phoenix Group Holdings plc Annual Report and Accounts 2021
Task Force on Climate-Related Financial Disclosures
Task Force on
Climate-Related
Financial Disclosures
(TCFD) – summary report
Climate change is one of the greatest global challenges
we face today. We aim to be a net zero business by 2050
and we believe Phoenix Group has a significant role to
play in helping to address the climate emergency
and accelerating the transition to a net zero economy.
Governance
The Group’s strategic approach to
sustainability (including climate change) is
overseen by the Group Board and climate
related responsibilities are delegated to
certain Board Committees dependent
on their overall purpose and remit.
The allocation of responsibilities is
summarised below:
• The Board Risk Committee considers
climate risk as part of its bi-annual
review of principal and emerging risks
and oversees climate related risks
within the Group Risk Management
Framework (including oversight of
the Group’s climate related stress
and scenario testing).
• The Board Audit Committee is
responsible for overseeing material ESG
reporting, including climate-related
reporting.
• The Board Sustainability Committee is
responsible for monitoring performance
against the Group’s sustainability
strategy, including climate strategy
and related opportunities.
• The Board Remuneration Committee
is responsible for ensuring appropriate
ESG elements (including climate-
related targets) are included within the
Group remuneration framework. More
detail about the Group’s remuneration
framework can be found on pages
106 to 136 of the Directors’
Remuneration Report.
Cross-committee membership and
engagement between the Board
Committees listed above drive consistency
of climate strategy and risk management
across the Group’s governance framework.
The Group’s Chief Executive Officer
is responsible for implementation and
delivery of the Group’s overall strategy.
The sustainability strategy, including
climate strategy (to address risks and
opportunities), forms part of the Group
strategy. The Group’s Chief Financial
Officer (‘CFO’) and Chief Risk Officer
(‘CRO’) are appointed as joint Senior
Managers responsible for climate-related
financial risk under the Senior Managers
and Certification Regime. The Group
CFO is responsible for reporting metrics
and targets and external disclosures; and
as part of wider risk responsibilities, the
Group CRO is responsible for ensuring that
climate-related risks are incorporated into
the existing risk management framework.
A number of key management groups also
have specific responsibilities for climate-
related activities, including:
Executive Sustainability Committee
– comprised of key executives who
meet at least five times a year and are
responsible for ensuring implementation
of the Phoenix sustainability strategy
and associated opportunities (including
related to climate change); and monitoring
progress against strategy, KPIs and targets.
TCFD Steering Committee – comprised
of key executives with functional climate
responsibilities who meet monthly to
oversee the TCFD implementation
programme, including progress against the
recommendations and the publication of
the annual disclosure.
Climate Report –
prepared in line with
the recommendations
of the Taskforce on
Climate-Related
Financial Disclosures
(TCFD)
Phoenix fully supports the
recommendations of the TCFD
and transparent climate reporting
to allow all stakeholders to better
understand the impact of climate-
related risks and opportunities
and how these are measured
and managed.
In 2021, we have made significant
progress in implementing
and embedding all of the
recommendations of the
taskforce and complying with
the requirements of the PRA’s
Supervisory Statement 3/191. Given
our progress and the increasing
need for transparent climate
reporting, we have opted to publish
a standalone Climate Report which
is available on our Group website.
We have therefore included a
summary in this Annual Report
of how we have complied with
all of the recommendations the
recommendations of the TCFD
framework, the progress we have
made during 2021 and the key
priorities for the future. For any
recommendations where we have
further detail in other sections of
the Annual Report or the Climate
Report, we have included the
required cross references.
1 PRA’s Supervisory Statement on enhancing banks’
and insurers’ approaches to managing the financial
risks from climate change
Scan the code to access
detailed information about
our approach to climate
change in our first
standalone Climate Report
Phoenix Group Holdings plc Annual Report and Accounts 2021
51
Strategic report Task Force on Climate-Related Financial Disclosures continued
Both the Executive Sustainability
Committee and TCFD Steering
Committee indirectly support the Board
Committees through updates on progress
against strategy, KPIs and targets.
TCFD Working Group – responsible
for ensuring the implementation and
embedding of the recommendations of
the TCFD and delivery of locally agreed
climate related action.
These management groups are not
delegated decision making authority from
the Board or its Committees. They operate
to ensure the day-to-day embedding
of climate-related activities across
the business, aligned with the Group
sustainability strategy.
During the year, the Board approved the
Group’s 2021 Sustainability Strategy,
including key climate-related targets to
decarbonise our investment portfolio.
A positive effectiveness review of the
Board Sustainability Committee was
completed and enhancements were made
to the Group’s remuneration framework
by integrating climate-related targets
within the Executive Directors’ Strategic
Scorecard. Further enhancements are
expected for 2022 targets (see the
Directors’ remuneration report on pages
106 to 136). Phoenix has continued to
upskill the Board, Executive and the wider
Group through tailored education sessions
on sustainability and climate change.
In 2021, the Group Board formally met
eight times where it considered climate
change and TCFD on seven occasions
(including education sessions and updates
on TCFD implementation).
Looking ahead
Phoenix will continue to enhance climate
related knowledge and understanding
across the business through further Board
and Management education sessions
and implementation of a Group-wide
climate change education programme.
Ongoing enhancement of the governance
framework and embedding of climate
within decision making across the Group
will continue, ensuring our governance is
future fit.
and opportunities as those derived from:
transition risks (arising from exposure
to the transition to a net zero economy
through policy, legal, market, technology
changes and reputational impacts); and
physical risks (arising from the acute and
chronic impacts of changing climate on
the short and long term). For Phoenix, we
have identified four areas of climate risk/
opportunity considered most material:
our investment portfolio, the changing
demand for products, funds and solutions
given evolving customer needs, emerging
government policy, regulatory and legal
changes; and reputational damage if
climate risks not appropriately managed.
Further details of the risks identified and
their potential impacts on Phoenix are
included in the Risk and Strategy sections
of the Climate Report.
In developing our strategy, we have
considered the risks/opportunities across
three time horizons: short term ( 0–1 year),
medium term (1–5 years) and long term
(over 5 years). To deliver our 2050 net zero
ambition, we have set three key priorities
in response to climate response to climate
change to consider both risks
and opportunities.
Invest
Invest for the future by decarbonising
our investment portfolio and applying
our exclusions policy, being an effective
steward of our assets by supporting investee
companies’ action towards transitioning to
net zero; and investing in climate solutions.
We are focused on providing savings and
insurance products that can enable our
policyholders to direct finance to help
accelerate the transition to a low carbon
economy and in 2021, we transitioned the
default fund of our workplace Master Trust
to a climate aware ESG fund.
Lead
Lead by example by decarbonising our
operations through energy efficiency,
technology and financial planning through
the delivery of specific projects; and
cutting emissions from our supply chain,
by requiring that all suppliers have a
carbon reduction target and that our key
suppliers have a SBTi committed target
and procure renewable energy.
Strategy
In 2021, we completed a strategic
implication assessment of climate-related
risks and opportunities to help inform the
development of our climate strategy.
We have identified climate change risks
Engage
Engage to multiply our impact by
working collaboratively with partners to
deliver cross-sector change and thought
leadership; and engaging with our
customers and employees on the role they
can play in delivering net zero. This priority
in particular helps mitigate our reputational
risk as we take a positive public stance on
climate change and continue to
work collaboratively with peers and
industry bodies.
These are anchored by the strength of
our people capabilities in investment,
risk management, scenario analysis and
governance and the ongoing investment in
our climate data and technology platforms.
In particular, for regulatory risk, our Group
Risk Management Framework (‘RMF’)
ensures appropriate monitoring within
existing regulatory horizon scanning
frameworks and metrics are updated as
required for adjustments to risk appetite
and tolerances.
During the year we successfully completed
Round 1 of the Bank of England’s Climate
Biennial Exploratory Scenario (‘CBES’)
exercise, which is designed to assess the
financial risks arising from climate change,
and we completed a pilot quantitative
climate scenario exercise to further
develop our methodology and modelling
capabilities and assess the resilience of
our climate strategy. We have used three
climate scenarios (early action, late action
and no additional action) to model the
potential impact of a range of possible
future climate pathways and help inform
actions needed to reduce the impact of
climate change risks on our investment
portfolio (considered the most material risk
area for the Group). Details of these impacts
are included within the Climate Report.
Our analysis (which assumes a fixed
balance sheet with no management
actions) confirms the need to transition
our investment portfolio to align to a net
zero position at pace. This action will be
delivered through our investment transition
plan and will mitigate the Group’s exposure
to the transition risk that most clearly arises
in the early and late action scenarios. It will
also position the Group to better exploit
the new investment opportunities that will
arise in a net zero world.
Looking ahead
We will be rolling out our decarbonisation
strategy,increasing stewardship activity
and investing in sustainable opportunities;
in addition to working with industry and
Government to advocate for sustainable
policy and regulation. In 2022 an
independent assessment of the climate
change risk in our supply chain will be
undertaken to ensure we work with our
high risk suppliers to meet our standards.
52
Phoenix Group Holdings plc Annual Report and Accounts 2021
Timeline of climate action
2020
2021
2022
and beyond
• Supported TCFD framework
• First TCFD disclosure
published
• Established a TCFD
Implementation Programme
• Establishment of Responsible
Investment Philosophy
• Committed to be a net
zero business by 2050
• Committed to becoming
operationally net
zero by 2025
• Signatory to the PRI
• Achieved 34% reduction in operational emissions
intensity from 2020
• Published 2nd TCFD report
• Became member of Net Zero Asset Owners Alliance
• First life insurer to sign up to PCAF UK
• Published open letter to financial partners, including asset
management partners.
• First insurer to publish open letter on ESG to 1,500 suppliers
• Published Investments exclusion policy
• Set 2025 and 2030 investments decarbonisation targets
• Completed the Bank of England’s CBES exercise
• Strategic partner for Green Horizon Summit at COP 26
• ‘B’ CDP grade awarded
• Publish first standalone Climate report
• Complete Round 2 of CBES exercise
• Roll out decarbonisation investment strategy,
increase stewardship activity and increase sustainable
investments
• Establish supply chain emissions baseline and roll out
decarbonisation strategy
• SBTi validation of targets
• Develop and publish net zero transition plan capturing
investments, operations and supply chain
• Aim to meet all interim net zero targets
• Aim to be a Net Zero Group by 2050
We will further develop our internal
scenario analysis process, addressing
known limitations and reflecting evolving
market best practice. This will include
making allowance for the expected impact
of the Group’s action to reduce the carbon
emissions of its investment portfolio, in
line with our net zero commitment and
enhancing our analysis of physical risks.
Risk management
Climate change was identified as an
emerging risk in 2018 and subsequently
added as a principal risk by the Board in
2019 to recognise the potential adverse
impacts it can have on our business.
Climate change is considered cross-
cutting as it impacts all categories of
our Risk Universe and our approach to
climate risk (including how it is identified,
managed, monitored and reported on) is
integrated into the overall Group RMF.
Further details of climate as a principal
risk, its impact and our mitigating actions
are included within the Risk Management
Report on page 54.
In 2021, we have continued to enhance
our assessment of climate-related risks
across a number of dimensions of the
RMF. For example, we have undertaken
a quantitative assessment of the financial
climate change risks impacting Phoenix’s
business, confirming that the Group is
most exposed to transition risk (compared
to physical risk). The relative significance
of climate change-related risks has
been determined by a combination of
quantitative and qualitative assessment.
More detailed climate change risk appetite
statements have been agreed by the
Board and we have completed the work to
fully embed material climate-related risks
into all Group risk policies and supporting
processes such as minimum control
standards. A number of internal climate-
related metrics have also been developed
to improve the Group’s understanding and
management of these climate risks.
Looking ahead
We aim to enhance the data strategy and
model for collecting and reporting on
climate change risk and further develop
our internal climate change risk reporting,
reflecting the evolution of market best
practice and tracking the progress made
in meeting interim net zero targets.
Ongoing review and enhancement of the
RMF will continue as further information
is developed, including through scenario
analysis work.
Metrics and targets
We measure our operational carbon
footprint (Scopes 1, 2 and selected
categories in Scope 3), and Scope 1 and 2
emissions intensity per floor area and full
time employee. The details of which are
included with the Group’s Streamlined
Energy and Carbon Reporting (SECR)
statement on page 48.
For the investment portfolio, we measure
the absolute emissions and emissions
intensity for our listed asset sub-portfolio
as well as the percentage of this portfolio
exposed to high-carbon risk sectors and
aligned with science-based targets.
Using a baseline from 2019, our Scope 3
investment portfolio economic emissions
intensity for the listed asset sub-portfolio
was 105 tCO2e per £1 million invested and
the revenue emissions intensity was 158
tCO2e per $1 million revenue. This gives a
carbon footprint of 15.0 million tonnes of
CO2 emissions for the listed asset portfolio.
The four high transition risk sectors
(energy, utilities, materials and industrials)
only account for 23% of the listed portfolio
AUM, however they account for 87% of all
listed portfolio emissions. As at year end
2019, over a quarter of the listed portfolio
was invested in counterparties that had
committed to set or already set approved
science-based targets.
Phoenix has set a number of targets to
align to the goals of the Paris agreement.
We have committed to reach net zero
across our Group by 2050 and we are
committed to reach net zero in our direct
operations (Scope 1 and 2 and selected
Scope 3) by 2025.
For our supply chain, we have set a 50%
emissions intensity reduction target by
2030 and a net zero target by 2050. For
our investment portfolio, we are targeting:
• a 25% reduction in the carbon emission
intensity of investments by 2025 (this will
cover £160 billion of listed equity and
credit assets where Phoenix can exercise
control and influence)
• a 50% reduction in the carbon emission
intensity of investments by 2030 (this will
cover £250 billion of listed equity and
credit assets where Phoenix can exercise
control and influence)
• to be net zero by 2050.
Looking ahead
We aim to measure Scope 3 financed
emissions for the remaining asset classes
in the investment portfolio, starting with
real estate and sovereign debt in 2022.
As data quality improves, we want to
broaden the scope to capture the Scope
3 emissions of underlying companies. We
will be developing science-based targets
and further developing operational and
investment metrics with a focus on physical
risk. We will be establishing our supply
chain emissions baseline and ensuring
and that all suppliers are on track to set a
carbon reduction target. In line with recent
announcements, we will be developing
and publishing our Net Zero Transition
Plan.
Phoenix Group Holdings plc Annual Report and Accounts 2021
53
Strategic report Risk management
The Group’s risk
management framework
The Group’s Risk Management Framework (‘RMF’) embeds proactive and effective
risk management. It seeks to ensure that all material risks are identified, assessed,
controlled, monitored, managed within approved risk appetites and reported through
agreed governance routes in line with delegated authorities. The RMF is an enabler to
delivering the Group’s risk strategy; to take rewarded risks that are understood,
managed effectively and consistent with its purpose and Enterprise Strategy.
The Group successfully completed the
integration and alignment of ReAssure plc
to the RMF in September 2021, in line with
expected timescales. This has enhanced
the consistency of oversight of risks across
the enlarged Group.
The Group’s RMF is aligned to the
principles of ISO31000, the International
Organisation of Standardisations risk
management guidelines.
The nine components of the RMF are
outlined in the diagram to the right, with
further information in the sections below.
Risk environment
The overall risk environment remains
uncertain and is dominated by the
developing conflict in Ukraine and
COVID-19 implications; both have the
potential to impact the economy, our
customers and our colleagues.
The conflict in Ukraine, and the
introduction of sanctions against Russia
and Belarus, is being closely monitored
by the Group, particularly in relation
to customer, asset and operational
implications; further detail can be found
in the Principal Risks section below. The
conflict has increased cyber-attack threat
levels from a State actor, particularly on
supply chains and the wider financial
services sector. The Group’s cyber controls
are designed and maintained to repel the
full range of cyber-attack scenarios and
have been enhanced in areas over 2021.
Whilst many potential operational impacts
of COVID-19 can now be effectively
mitigated, and the COVID-19 vaccination
programme has been successful, there
remains potential for vaccine resistant
Risk Management Framework
Risk
strategy
and culture
Risk appetite
Risk universe
Risk
policies
Governance and
organisation
Emerging
risk
Strategic risk
management
Risk and
capital
models
Risk and control processes and reporting
mutations which could impact business
operations and the wider economy. To
date there has been minimal disruption
to the Group’s operations. The Group’s
colleagues, and those of our outsourcers,
can work from home and were encouraged
to do so to mitigate risk. The application
of the Group’s Business Continuity
Framework continues to work effectively.
Regular engagement across the Group’s
in-house and outsourced operations is
used to monitor the ongoing position; this
has supported any prioritisation decisions.
The Group considers inflation a risk over
the short to medium-term with a shortage
of labour in key industries and ongoing
supply chain issues increasing costs. The
Bank of England is faced with a balancing
act of managing inflation and aiding
the post-COVID recovery. Unexpected
moves in inflation or interest rates are
likely to impact asset values. However, the
Group’s strategy involves hedging the
major market risks and in 2021 the Group’s
Stress and Scenario Testing Programme
demonstrated the resilience of its balance
sheet to such market stresses.
54
Phoenix Group Holdings plc Annual Report and Accounts 2021
Attracting and retaining a diverse,
engaged and skilled workforce is essential
for delivering the Group’s strategy. Skills
essential to the Group are currently in
high-demand in the wider marketplace
and recruitment and retention has the
potential to be impacted by post-Brexit,
COVID-19 and inflationary factors. The
Group continues to monitor this closely but
remains confident in the attractiveness of
its colleague proposition.
The financial and non-financial impacts of
climate change present material risks to the
Group and its customers. The insurance
sector has an instrumental role in the fight
against climate change. The Group was
an active participant in COP26 and is
committed to playing its part in creating a
green and sustainable future. The Group’s
Climate Report and TCFD disclosures
in the ARA (pages 51–53) provide an
overview of the Group’s progress to
date and planned future priorities across
each of the TCFD focus areas including,
developing internal climate risk appetites
linked to metrics and targets, embedding
climate risk considerations within the
Group’s RMF and the enhancement of
internal climate risk reporting.
The Group’s ambitions bring with it a
significant change agenda which will
have to be managed carefully in order to
deliver the Group’s five strategic priorities.
In 2021 the Group strengthened its
Change Management Framework that
aims to improve resource management,
prioritisation and promotes the delegation
of responsibility.
Own risk and solvency assessment
(‘ORSA’)
The Group’s ORSA cycle brings together
inter-linked risk management, capital
and strategic processes. The ORSA
plays an important role in supporting
strategic decision-making and strategy
development at the Group’s Boards and
risk committees. It provides:
• processes to identify, assess, control and
monitor risks that the Group faces;
• an understanding of current and
potential risks to the business; including
financial and non-financial risks under
base and stressed scenarios;
• the Group’s appetite to accept these
risks and how it manages them; and
• a forward-looking internal assessment
of the Group’s solvency position in
respect of its current risk profile and how
it is likely to change with the proposed
business plans, strategy, or changes in
the economic environment.
ORSA process cycle
ORSA
reporting
Strategy and
business plan
Stress and
scenario testing
Risk exposure
and appetite
Risk management
and monitoring
Risk capital
Assessment
Risk strategy and culture
Risk strategy
The Group’s Risk Strategy is to take
rewarded risks that are understood,
managed effectively and consistent with
its purpose and Enterprise Strategy.
The Group’s Risk Strategy supports a
more stable, well-managed business
with improved customer, shareholder,
colleague and societal outcomes in line
with the Phoenix strategy.
The Group achieves its overall purpose
and Enterprise Strategy not by avoiding
risks, but through the identification and
management of an acceptable level of risk
(the Group’s ‘risk appetite’) which ensures
that it is appropriately rewarded for the
risks that are taken.
Risk culture
Risk culture is the sum of our shared values,
behaviours and attitudes towards the risks
faced by our customers, shareholders,
colleagues and society. The Group’s risk
culture reflects the way its colleagues think
and act, both individually and collectively.
The Group’s risk culture vision is to
promote an environment that supports
informed decision-making and controlled
risk-taking.
The creation of this environment is enabled
through the Group’s values of passion,
responsibility, growth, courage and
difference. Underpinning each of these
are the individual and collective attitudes
and behaviours that support the realisation
of this environment.
The Group regularly assesses itself against
its risk culture vision, doing this through
a comprehensive dashboard with a suite
of measures on people, governance,
customers and leadership.
Risk appetite
Risk appetite is used to define the amount
of risk that the Group is willing to accept
in the pursuit of enhancing customer and
shareholder value, and the attainment
of its strategic objectives. The Group’s
risk appetite statements establish the risk
boundaries within which it is prepared
to operate, set the tolerance for delivery
against Group objectives, and are a key
tool in balancing the interests of different
stakeholders. The following risk appetite
statements are adopted by the Group:
Capital – The Group and each Life
Company will hold sufficient capital to
meet business requirements including
those of key stakeholders in a number of
Board-approved asset and liability stress
scenarios.
Phoenix Group Holdings plc Annual Report and Accounts 2021
55
Strategic report Risk management continued
Liquidity – The Group and each Life
Company will seek to ensure that it has
sufficient liquidity to meet its financial
obligations under a range of Board
approved scenarios.
Shareholder value – The Group only
has appetite for risks that are rewarded,
adequately understood and controlled
and consistent with the Group’s strategy.
The Group will take action to grow and
protect shareholder value.
Control – The Group and each Life
Company will, at all times, operate a strong
control environment to ensure compliance
with all internal policies, applicable
laws and regulations, in a commercially
effective manner.
Conduct – The Group maintains the
highest conduct standards which are in
line with customer, market and regulatory
expectations. The standards the Group is
expected to achieve are included in the
Group Code of Conduct. Any deliberate
or negligent actions leading to unfair
customer outcomes, poor market conduct,
reputational damage or regulatory
censures are not acceptable. If unfair
outcomes should arise, the Group will put it
right in a fair and prompt manner.
Sustainability – The Group will deliver on
the Board’s sustainability commitments
to foster responsible investment, reduce
our environmental impact, follow our
corporate purpose and be a good
corporate citizen.
Risk universe
A key element of effective risk
management is ensuring the business
understands the risks it faces. These
risks are defined in the Risk Universe.
The Risk Universe allows the Group to
deploy a common language, allowing for
meaningful comparison to be made across
the business. There are three levels of
Risk Universe categories. The highest Risk
Universe category is Level 1 and includes:
• strategic risk;
• customer risk;
• financial Soundness risk;
• market risk;
• credit risk;
•
• operational risk.
insurance risk; and
The Group treats climate change risk and
conduct risk as cross-cutting risks that
impact all aspects of the Risk Universe.
Risk policies
The Group Risk Policy Framework supports
the delivery of the Group’s purpose and
Enterprise Strategy by establishing the
operating principles and expectations
for managing the key risks to the Group’s
business. Each of the risk policies defines:
• the individual risks the policy is intended
to manage;
• the degree of risk the Group is willing to
accept, which is set out in the policy risk
appetite statements;
• the minimum control standards required
in order to manage the risk to an
acceptable level; and
• the frequency of the control’s operation.
Risk policies are mapped to either Level
1 or 2 Risk Universe categories to ensure
complete coverage of all material risks.
The Group Risk Policy Framework further
supports the Group in operating within the
boundaries of its Risk Appetite statements
by seeking to limit volatility under a range
of Board-approved adverse scenarios.
Quantitative and qualitative appetite limits
are chosen which specify the acceptable
likelihood for breaching the agreed
appetite statements (e.g. less than x%
chance of a breach in regulatory capital)
and assessment against appetite targets is
undertaken through scenario testing.
Breaches of appetite are corrected
through management actions where
appropriate. The effective use of risk
mitigation techniques such as reinsurance,
hedging and outsourcing are key to
ensuring the Group remains within risk
appetite and are described in the relevant
Group Risk Policies.
Key performance indicators for risk
categories are considered in each
corresponding Group Risk Policy.
A Group Conduct Risk Framework and
Climate Risk Framework overarches all
risk policies to provide a holistic view of
conduct and climate change risk. This
provides a consistent and comprehensive
approach in the application of the RMF
in order to manage these risks across the
Group.
Governance and organisation
The RMF sets out a consistent three lines of
defence model with clearly defined roles
and responsibilities for all components.
Risk accountability and ownership are
embedded in the first line, with first line
assurance teams established to support
the business by providing substantiated
evidence that controls are fit for purpose.
Overall responsibility for approving
the RMF rests with the Board, with
maintenance and review of the effective
operation of the RMF delegated to
the Group Board Risk Committee. This
delegation also includes approval of the
overall risk management strategy and the
review and recommendation to the Board
of the relevant risk policies, risk appetite
statements, risk profile and any relevant
emerging risks.
Group Risk conducts an annual assessment
of the effectiveness of each function in the
business in adhering to the requirements
of the RMF. This provides assurance to
management and the Boards that the RMF
has been implemented consistently and is
operating effectively across the Group.
First line: Management
Management of risk is delegated from
the Board to the Group Chief Executive
Officer, the Executive Committee
members and through to business
managers. The first line is responsible
for implementation of the RMF, ensuring
risks to the Group and its customers,
shareholders, colleagues and society are
identified, assessed, controlled, monitored,
managed and reported.
Second line: Risk oversight
Independent oversight of risk management
is provided by the Group Risk Function
through advice, guidance, review,
challenge, opinion and assurance; its views
are reported to the Board Risk Committee.
Group Risk’s purpose and responsibilities
are set out in the Risk Mission, Mandate
and Plan, which is presented to the Board
Risk Committee for approval annually.
Third line: Independent assurance
Independent verification of the adequacy
and effectiveness of internal controls and
risk management is provided by the Group
Internal Audit function, reporting its output
to the Group Board Audit Committee.
The governance framework in operation
throughout the Group can be found in the
chart to the right.
56
Phoenix Group Holdings plc Annual Report and Accounts 2021
Governance framework
Board
Phoenix Group
Holdings plc Board
Board
Remuneration
Committee
Board
Nomination
Committee
Board
Sustainability
Committee
Board Risk
Committee
Board Audit
Committee
First Line of Defence
Second Line
of Defence
Third Line
of Defence
Executives
Management
Group Chief
Executive Officer
Group Chief
Financial Officer
Group
Functions
Business Unit
Management
Emerging risk
The Group defines an emerging risk (or
opportunity) as an event that is perceived
to be potentially significant but is not yet
fully understood. Mitigating action may
not be necessary until further information
is known about the possible impact.
Emerging risks could either be completely
new risks or connected with existing risks in
unfamiliar conditions.
The distinction between a current risk and
an emerging risk predominantly relates to
the amount of available information. Fewer
details tend to be available for emerging
risks meaning the likelihood and severity
impacts must be estimated. Emerging
risks or opportunities can take longer to
crystallise, but in many cases immediate
action is required to pre-emptively mitigate
risks or fully maximise opportunities.
Whilst any estimates have an element
of subjectivity, they are validated
during Management Board and Board
Risk Committee discussions. These
conversations help drive out potential
new risks and opportunities, drawing on
the collective expertise and experiences
of senior individuals. The Group captures
emerging risks and opportunities in
a detailed log, examples of these are
outlined in the table on page 65.
Strategic risk management
Strategic risks threaten the achievement
of the Group’s purpose and enterprise
strategy. The Group recognises that core
strategic activity brings with it exposure to
strategic risk.
A Strategic Risk Policy is maintained and
reported against regularly, with a particular
focus on risk management, stakeholder
management, corporate activity and
against the Life Companies’ and Group’s
strategic ambitions.
Risk and capital models
A continuous process is followed for
identification and assessment of risk
types and the corresponding resilience of
the Group’s capital position. The Group
continually strives to enhance its internal
risk and capital models and the related
modelling must be sufficiently accurate
to enable appropriate ranking and
management of risks.
A key milestone in the Standard Life
Assurance integration was delivered in
September 2021 when the Group received
PRA approval for its harmonised Internal
Model, bringing together the Internal
Models of Standard Life Assurance
and Phoenix. Harmonisation brings the
Group a material enhancement to its risk
management and modelling capabilities;
fundamentally underpinning the security
of the Group’s customers.
Chief Risk
Officer
Group
Risk and
Compliance
Group
Internal
Audit
Under Solvency II, the development
and production of any Internal Model
output contributing to regulatory
capital requirements must comply with
validation standards. This is supported by
a Model Governance Policy, which sets
out the standards that must be satisfied
to demonstrate meeting Solvency II
requirements. The Internal Model output is
used within the ORSA process to provide
insight into risks associated with the
Group’s objectives.
The Group’s Stress and Scenario Testing
Programme uses the Internal Model to
assess the capital impact of a range of
plausible and extreme stresses.
Risk control processes and reporting
Identification, assessment, management
and reporting of risks, including learning
lessons from incidents, is undertaken
across the three lines of defence, and
is reported through business and
management governance to the relevant
Boards and Committees.
Phoenix Group Holdings plc Annual Report and Accounts 2021
57
Strategic report Risk management continued
Principal risks and uncertainties
facing the Group
The Group’s principal risks and uncertainties are detailed in this section, together with
their potential impact, mitigating actions in place and any change in risk exposure
since the Group’s 2020 Annual Report and Accounts, published in March 2021.
The Board Risk Committee has carried out
a robust assessment of principal risks and
emerging risks. As a result of this review,
‘Cyber Resilience’, which was previously
considered under the ‘Operational
Resilience’ principal risk, is now treated as
a separate principal risk in its own right.
As highlighted in the 2021 Interim Report,
this recognises the growing importance of
managing Cyber risk to enable the Group
to effectively deliver its strategic
objectives. Further details of the Group’s
exposure to financial and insurance risks
and how these are managed are provided
in note E6 and F4 (to the IFRS consolidated
financial statements).
58
Phoenix Group Holdings plc Annual Report and Accounts 2021
Strategic
priorities:
Optimise our
in-force business
Enhance our operating
model and culture
Grow our business to support
both new and existing customers
Innovate to provide our customers
with better financial futures
Invest in a
sustainable future
Risk
Impact
Mitigation
Strategic
priorities
Change from 2020 Annual Report and Accounts
No change
Significant progress has been made in 2021 on
the Standard Life Assurance and ReAssure plc
integrations, with further integration of a number of
key business areas, including Finance and Actuarial.
The Group has also made the strategic decision to re-
phase the remaining legacy Standard Life migrations
in order to build new capability to support future new
business growth, which means the legacy Standard
Life migrations will now complete by 2025.
A key milestone in the Standard Life Assurance
integration was delivered in September 2021
when the Group received PRA approval for its
harmonised Internal Model, bringing together the
Internal Models of Standard Life Assurance and
Phoenix. Harmonisation brings the Group a material
enhancement to its risk management and modelling
capabilities. This fundamentally underpins the security
of the Group’s customers.
The alignment to and embedding of the Group’s Risk
Management Framework within ReAssure plc was
successfully completed in 2021.
The Group’s ongoing investment in technology and
enhancing the technological infrastructure of the
Group is informed by lessons learned from completed
integration activities. Investments aim to deliver a
stable and scalable environment to deliver market
leading migrations and integrations as the Group
delivers its strategic objectives through acquisitions.
No change
Whilst the Group has strengthened and simplified
its strategic partnerships over 2021, ‘No Change’
is reflective of the Group’s ongoing reliance on its
strategic partners to deliver the volume of change
needed to deliver the Group’s strategic objectives.
The Group continues to develop the partnership with
TCS to support its strategic deliverables. Both parties
have managed the impacts of COVID-19 with actions
being taken to protect strategic and BAU activity.
Actions include the implementation of hybrid working
models and the strengthening of change management
and prioritisation processes.
The simplified and extended partnership with
abrdn plc continues to progress towards the Target
Operating Model with key milestones such as the
transfer of specialist colleagues back to the Group
alongside the purchase of the Standard Life brand
from abrdn plc completed in 2021.
Strategic risk
The Group fails to
make further value
adding acquisitions
or effectively
transition acquired
businesses
The Group’s
strategic
partnerships fail
to deliver the
expected benefits
The Group is exposed to the risk
of failing to drive value through
inorganic growth opportunities,
including acquisitions of life and
pensions books of business.
The Group continues to assess
and execute new inorganic
growth opportunities and
applies a clear set of criteria to
assessing these opportunities.
The Group’s acquisition strategy
is supported by the Group’s
financial strength and flexibility,
strong regulatory relationships
and its track record of
generating value and delivering
good customer outcomes that
are in line with expectations.
The financial and operational
risks of target businesses are
assessed in the acquisition phase
and potential mitigants are
identified.
Integration plans are
developed and resourced
with appropriately skilled staff
to ensure target operating
models are delivered in line with
expectations.
Customer migrations are
planned thoroughly with robust
execution controls in place.
Lessons learned from previous
migrations are applied to
future activity to continuously
strengthen the Group’s
processes.
The Group has in place
established engagement
processes with abrdn plc
to oversee and develop the
strategic partnership. These
processes reflect the simplified
and extended strategic
partnership between the
Group and abrdn plc that was
announced in February 2021.
The Group’s engagement
with Diligenta, and its parent
TCS, adheres to a rigorous
governance structure, in line
with the Group’s Supplier
Management Model. As a result,
productive and consistent
relationships have been
developed with TCS, which will
continue to develop throughout
future phases of the enlarged
partnership.
The Group has in place
established processes to oversee
services provided by HSBC.
The transition of acquired
businesses into the Group,
including customer migrations,
could introduce structural or
operational challenges that
result in the Group failing to
deliver the expected outcomes
for customers or value
for shareholders.
Strategic partnerships are a
core enabler for delivery the
Group’s strategy; they allow it to
meet the needs of its customers
and clients and deliver value for
its shareholders. The Group’s
end state operating model
will leverage the strengths of
its strategic partners whilst
retaining in-house key skills
which differentiate it from
the market.
There is a risk that the Group’s
strategic partnerships do not
deliver the expected benefits.
Some of the Group’s key
strategic partnerships include:
abrdn plc: Provides investment
management services to
the Group including the
development of investment
solutions for customers. abrdn
plc manages c. £165 billion
of the Group’s assets under
administration, at January 2022.
TCS: The Group’s enlarged
partnership with TCS is
expected to support growth
plans for the Open business,
enabling further market-
leading digital and technology
capabilities to be developed to
support enhanced customer
outcomes.
HSBC: Provides fund accounting
services to the Group.
Phoenix Group Holdings plc Annual Report and Accounts 2021
59
Strategic report Risk management continued
Risk
Impact
Mitigation
Strategic risk (continued)
Strategic
priorities
Change from 2020 Annual Report and Accounts
No change
Long-term cash generation, driven by BPA activity, in
the Open business in 2021, offset the run-off of the
in-force business for the year. However, ‘No Change’
reflects that there is still uncertainty (both in internal
and external environments) around the delivery of
consistent long-term growth.
Over 2021 the Group completed BPA transactions
with a combined premium of £5.6 billion, more than
double the premiums of 2020.
This demonstrates the Group has the ability to
compete and win in the BPA market.
In 2021 the Group purchased the Standard Life brand
from abrdn plc. The brand is central to the Group’s
plans, will elevate its market presence and enhance
the Standard Life experience for customers, clients,
financial advisers and employee benefit consultants.
The Group continues to develop its Workplace
propositions under the Standard Life brand and
strengthen the Group’s position as a leading pensions
provider. In addition to the brand purchase, 68 roles
in marketing, retail adviser distribution and data were
also transferred from abrdn plc, bringing considerable
subject matter expertise into the Group and
enhancing its Open business capabilities.
No change
In 2022, the Group will continue to manage a
significant volume of change, consistent with 2021.
A strengthening of the Change Management
Framework has been delivered over the last 12 months.
Following an external review, the Group has delivered
improvements to resource management practices and
introduced a new portfolio and hub model to simplify
the management of a complex change stack. This
promotes the delegation of responsibility; avoiding
bottlenecks at senior management.
The Group fails to
deliver long-term
growth in its
Open business
The Open business has strong
foundations and is central
to the Group’s purpose of
helping people secure a
life of possibilities. It is also
fundamental to the Group’s plans
of proving ‘the wedge’ which
assumes that Open business
growth can offset the run-off
from the in-force business and
bring sustainability to organic
cash generation.
Confidence in the Group might
be diminished if the Open
business fails to deliver against
its strategic objectives,
particularly as the Group seeks to
promote a ‘customer obsessed’
mind-set underpinned by strong
retention and consolidation
as customers journey to and
through retirement.
The Group does
not have sufficient
capacity and
capability to
fully deliver its
significant change
agenda which is
required to execute
the Group’s
strategic objectives
The Group’s ability to deliver
change on time and within
budget could be adversely
impacted by insufficient
resource and capabilities as
well as inefficient prioritisation,
scheduling and oversight
of projects. The risk could
materialise both within the
Group and its strategic partners.
This could result in the benefits
of change not being realised
by the Group in the timeframe
assumed in its business plans
and may result in the Group
being unable to deliver its
strategic objectives.
The Group’s Open Division
Business Unit structure brings
focus and accountability to its
Open ambitions, particularly in
key growth areas of Retirement
Solutions (including Bulk
Purchase Annuities (BPA)) and
Pensions and Savings.
The Open Division holds an
annual strategy setting exercise
to consider customer needs,
interests of shareholders, the
competitive landscape and
the Group’s overall purpose
and objectives.
As part of its Annual Operating
Plan the Group is committed to
making significant investment
in its Open business that will
include propositions which are
driven by customer insight.
The Group is established in the
BPA market and continues to
invest in its operating model to
further strengthen its capability
to support its growth plans.
For new BPA business, the
Group continues to be selective
and proportionate, focusing on
value not volume, by applying
the Group’s rigorous Capital
Allocation Framework.
The Group’s Change
Management Framework
was strengthened in 2021
with an enhanced change
model, consistent with
ensuring empowerment and
accountability within Business
Units to effectively deliver
change. The Group continues
to assess the prioritisation of
change to ensure there
is clear alignment to the
Group’s strategy.
Information setting out the levels
of resource demand and supply,
both a current and forecast view,
will continue to be provided to
accountable senior management
so that informed decision-
making can take place. This
aims to ensure all material risks
to delivery are appropriately
identified, assessed, managed,
monitored and reported.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Strategic
priorities:
Optimise our
in-force business
Enhance our operating
model and culture
Grow our business to support
both new and existing customers
Innovate to provide our customers
with better financial futures
Invest in a
sustainable future
Risk
Impact
Mitigation
Strategic risk (continued)
Strategic
priorities
Change from 2020 Annual Report and Accounts
The Group fails
to appropriately
prepare for and
manage the effects
of climate change
and wider ESG risks
The Group is exposed to market
risks related to climate change
as a result of the potential
implications of a transition to a
low carbon economy.
In addition, there are long-term
market, insurance, reputational,
propositional and operational
implications of physical risks
resulting from climate change
(e.g. the impact of physical risks
on the prospects of current and
future investment holdings,
along with potential impacts on
future actuarial assumptions).
The Group is also exposed to
the risk of failing to respond to
wider Environmental, Social and
Governance (‘ESG’) risks and
delivering on its social purpose;
for example, failing to meet its
sustainability commitments.
A failure to deliver could result
in adverse customer outcomes,
reduced colleague engagement,
reduced proposition
attractiveness and reputational
risks.
Customer risk
The Group fails
to deliver fair
outcomes for its
customers or fails to
deliver propositions
that continue to
meet the evolving
needs of customers
The Group is exposed to the
risk that it fails to deliver fair
outcomes for its customers,
leading to adverse customer
experience and potential
customer detriment. This could
also lead to reputational damage
for the Group and/or financial
losses.
In addition a failure to deliver
propositions that meet the
evolving needs of customers
may result in the Group’s failure
to deliver its purpose of helping
people secure a life
of possibilities.
A Group-wide project was
undertaken to enhance the
approach to managing the
financial risks of climate
change, including embedding
climate risk considerations
within the Group’s RMF, to
meet the requirements of the
PRA Supervisory Statement
3/19 (SS3/19). The Group’s
disclosures, in line with the
Task Force on climate-related
Financial Disclosures (‘TCFD’)
are outlined in the Group’s
Climate Report. The report
also includes planned future
priorities across each of the
TCFD focus areas.
Consideration of material
climate-related risks has been
embedded into the Group’s risk
policies.
The Group’s sustainability
strategy has continued to
evolve to respond to the
changing needs of stakeholders,
resulting in the Group setting
targets to monitor progress
towards its sustainability
commitments. Further details on
the sustainability strategy are
available in the Sustainability
Report.
The Group continues to actively
engage with regulators on
progress with all climate change
and sustainability-related
deliverables.
The Group’s Conduct Risk
Appetite sets the boundaries
within which the Group expects
customer outcomes to be
managed.
The Group Conduct Risk
Framework, which overarches
the Risk Universe and all risk
policies, is designed to detect
where customers are at risk
of poor outcomes, minimise
conduct risks, and respond
with timely and appropriate
mitigating actions.
The Group has a suite of
customer policies which set out
key customer risks and minimum
control standards in place to
mitigate them.
The Group maintains a strong
and open relationship with
the FCA and other regulators,
particularly on matters involving
customer outcomes.
The Group’s Proposition
Development Process ensures
consideration of customer
needs and conduct risk when
developing propositions.
No change
A number of positive initiatives are underway to
deliver against the Group’s Net-Zero targets and
social purpose. However, ‘No Change’ is driven by
the Group’s recognition that significant work, over
a number of years, is required to deliver on these
commitments.
In 2021 the Group made a commitment to reducing
carbon intensity for £250 billion of its investment
portfolio by at least 50% by 2030. In addition, an
interim de-carbonisation target of a 25% reduction
in the carbon emission intensity of its investments by
2025 has been set. The Group has been working with
its key partners and suppliers to encourage them to
adopt Science Based Targets (SBTi) carbon reduction
targets.
The TCFD disclosures in the Group’s Climate
Report provide an overview of progress to date in
achieving compliance with SS3/19 and planned
future priorities across each of the TCFD focus areas.
This includes internal climate risk appetites linked to
metrics and targets, further embedding of climate
risk considerations within the Group’s RMF and
enhancement of internal climate risk reporting.
The Group has taken an active approach in
understanding the requirements to deliver on its social
purpose; including the launch of a new think tank,
Phoenix Insights.
No change
In 2021, the Group continued to make significant
investments in its propositions; launching Investment
Pathways and announcing a partnership with
Key Group to launch a lifetime mortgage range,
supporting customers with the later stages of financial
planning.
Throughout the pandemic the Group has continued
to provide ongoing support to customers, including
those most vulnerable, both when paying out on their
protection plans and when making decisions about
their life savings during this period of uncertainty.
As noted in the 2020 Annual Report and Accounts
and the 2021 Interim Report, following the acquisition
of ReAssure plc the Group completed a Part VII
transfer of business acquired from L&G. Customers in
this book of business were migrated to the Group’s in-
house administration platform. Over 2021, the Group
monitored the service levels delivered to migrated
customers to ensure alignment to internal customer
service standards.
In light of the situation in Ukraine a review of the legal
and regulatory requirements from the sanctions has
been performed. The review concluded that , at the
time of writing, a low level of risk exists given that the
Group has a low volume of customers that reside in
Russia and Belarus. In addition, no Russian banks have
employer schemes or products with the Group.
Phoenix Group Holdings plc Annual Report and Accounts 2021
61
Strategic report Risk management continued
Risk
Impact
Mitigation
Strategic
priorities
Change from 2020 Annual Report and Accounts
Operational risk
The Group or its
outsourcers are
not sufficiently
operationally
resilient
The Group is
impacted by
significant changes
in the regulatory,
legislative
or political
environment
The Group has established
an Operational Resilience
Framework that identifies
important business services,
accountability, sets tolerances
for disruption and describes
the processes that will deliver
the required level of resilience.
This enhances the protection
of customers and stakeholders,
preventing intolerable harm and
supports compliance with the
regulations. The Group works
closely with its outsourcers to
ensure that the level of resilience
delivered is aligned to the
Group’s impact tolerances.
The Group and its outsourcers
have well established business
continuity management and
disaster recovery frameworks
that are subject to an annual
refresh and regular testing.
The Group continues to actively
manage operational capacity
and monitor service continuity
required to deliver its strategy,
including transition activities.
Rigorous planning and stress
testing is in place to identify
and develop pre-emptive
management strategies should
services be impacted as a result
of customer migrations.
The Group and its outsourcer’s
implemented a hybrid working
model significantly reducing
exposure to a number
of physical risks caused by
COVID-19.
The Group undertakes
proactive horizon scanning to
understand potential changes
to the regulatory and legislative
landscape. This allows the Group
to understand the potential
impact of these changes to
amend working practices to
meet the new requirements by
the deadline.
The Group is exposed to the
risk of causing intolerable levels
of disruption to its customers
and stakeholders if it cannot
maintain the provision of
important business services
when faced with a major
operational disruption to core
IT systems and operations. This
could occur either in-house
or within the Group’s primary
and downstream outsourcers
and includes a range of
environmental and
climatic factors.
The Group regularly conducts
customer migrations as part of
transition activities in delivering
against its strategic objectives.
The fundamental risk faced
when executing migrations is an
interruption to the safe, stable
and secure customer services
delivered by the Group. Any
service interruption may result
in the Group failing to deliver
expected customer outcomes.
Regulatory requirements in
respect of operational resilience
were published in March 2021,
together with a timetable to
achieve full compliance. Whilst
the specific requirement to work
within set impact tolerances
takes effect in March 2025, the
Group is already exposed to
regulatory censure in the event
of operational disruption where
the Regulator determines that
the cause was, fully or in part, a
breach of existing regulation.
Changes in regulation could
lead to non-compliance with new
requirements that could impact
the Group’s fair treatment of its
customers. These could require
changes to working practices
and have an adverse impact
on resources and financial
performance..
Political uncertainty or changes
in the government could see
changes in policy that could
impact the industry in which
the Group operates.
62
Phoenix Group Holdings plc Annual Report and Accounts 2021
No change
This principal risk was rated as ‘Heightened’ in the
2020 Annual Report and Accounts; there has been no
change to the position since. There remain two core
drivers for this risk assessment: COVID-19 uncertainty
and strategic customer transformation.
Whilst many potential exposures to COVID-19 can
now be effectively mitigated, a large-scale loss of
colleagues due to illness or incapacity, in the UK or
globally, on a temporary or more permanent basis is
more challenging to resolve in the short-term as there
remains uncertainty around the efficacy of vaccines
against future COVID-19 mutations.
The Group aims to deliver considerable customer
transformation activity in 2022, consistent with the
quantum of change in 2021. Although the scale of
change exposes the Group to significant risk, this
is mitigated through strengthened Resilience and
Change Management Frameworks.
The Group has taken action through previous
strategic transformation activity to reduce exposure
to technological redundancy and key person
dependency risk, increasing resilience of our
customer service.
Heightened
There is uncertainty around future Solvency II
reforms; expected to be proposed by HM Treasury
in April 2022. The scope is expected to include a
60–70% reduction to the Risk Margin, a review of the
Fundamental Spread component of the Matching
Adjustment and a relaxation of Matching Adjustment
eligibility rules. Detail on potential reforms to Solvency
Capital Requirement has not yet featured. While there
are potential upsides for the Group (including broader
investment opportunities to advance the Group’s
growth and sustainability objectives), there remains
significant uncertainty as to what the final package of
reforms will look like, how it will impact the Group, and
the timing for implementation.
Broader financial services regulation is also being
consulted on by HM Treasury, which aims to establish
how much rule-making power will pass from legislation
to the UK’s regulators.
The FCA has proposed a new Consumer Duty,
designed to give a higher level of protection to
consumers. The aim is to drive culture change and
instil consumer trust, an aim welcomed by the Group.
The FCA is consulting on draft rules and plans to
publish final rules by 31 July 2022. An internal project
has been initiated to support this work.
Strategic
priorities:
Optimise our
in-force business
Enhance our operating
model and culture
Grow our business to support
both new and existing customers
Innovate to provide our customers
with better financial futures
Invest in a
sustainable future
Risk
Impact
Mitigation
Operational risk (continued)
Strategic
priorities
Change from 2020 Annual Report and Accounts
New principal risk
Heightened
Cyber Resilience was previously a component
considered under the ‘Operational Resilience’
principal risk.
The key driver for the heightened rating is the conflict
in Ukraine which has increased cyber threat levels
and the likelihood of a cyber-attack from a State actor,
particularly on supply chains and the wider Financial
Services industry which the Group relies upon. The
Group regularly monitors National Cyber Security
Centre guidance.
The Group’s cyber controls are designed and
maintained to repel the full range of the cyber-
attack scenarios; although the Group’s main threat
is considered to be Cyber Crime, from Individuals
or Organised Crime Groups, the same controls are
utilised to defend against a State level cyber-attack.
In H2 2021 the Group continued to strengthen its
cyber controls, including in areas such as Detect and
Respond capabilities and infrastructure scanning
capabilities.
No change
Whilst there have been strong engagement scores in
colleague surveys during 2021, ‘No Change’ is driven
by uncertainty regarding the longer term social and
marketplace impacts of the pandemic on colleague
attrition and sickness. Skills essential to the Group are
currently in high-demand in the wider marketplace
and recruitment and retention has the potential to be
impacted by post-Brexit, COVID-19 and inflationary
factors. The Group continues to monitor this closely
but remains confident in the attractiveness of its
colleague proposition.
The Group has opted to implement a hybrid working
model. The approach is focused on empowerment by
enabling leaders and colleagues to agree together
the right working arrangements which meet individual,
team and business needs.
Strategic investments in technology and other
resources have been made to maximise the efficacy of
the hybrid model implementation.
The increased scale and presence of the Group, and
success in multi-site and remote working, gives greater
access to a larger talent pool to attract in the future. In
addition, the Group’s Graduate Programmes restarted
in 2021, helping to support the talent pipeline.
The Group or its
Supply Chain are
not sufficiently
cyber resilient
The Group fails to
retain or attract
a diverse and
engaged workforce
with the skills
needed to deliver
its strategy
As the Group continues to grow
in size and profile this could lead
to increased interest from cyber
criminals and a greater risk of
cyber-attack which could have
significant impact on customer
outcomes, strategic objectives,
regulatory obligations and the
Group’s reputation and brand.
Based on external events
and trends, the threat
posed by a cyber security
breach remains high and the
complexity of the Group’s
increasingly interconnected
digital ecosystem exposes it to
multiple attack vectors. These
include phishing and business
email compromise, hacking,
data breach and supply chain
compromise.
Increased use of online
functionality to meet customer
preferences and future ways
of working including remote
access to business systems adds
additional challenges to cyber
resilience and could impact
service provision and Customer
security.
Delivery of the Group’s strategy
is dependent on a talented,
diverse and engaged workforce.
Periods of prolonged
uncertainty can result in a loss
of critical corporate knowledge,
unplanned departures of key
individuals or the failure to
attract individuals with the
appropriate skills to help deliver
the Group’s strategy.
This risk is inherent in the
Group’s business model given
the nature of acquisition activity
and specialist risk management
skillsets.
Potential areas of uncertainty
include: the ongoing transition
of the Standard Life Assurance
and ReAssure businesses into the
Group, the expanded strategic
partnership with TCS and the
introduction of the hybrid
working model.
The Group is continually
strengthening its cyber security
controls, attack detection and
response processes, identifying
weaknesses through ongoing
assessment and review.
The Information/Cyber Security
Strategy includes a continuous
Information Security and Cyber
Improvement Programme,
which is driven by input from the
Annual Cyber Risk Assessments.
The Group continues to assess
and utilise cyber security tools
and capabilities. The specialist
Line 2 Information Security
& Cyber Risk team provides
independent oversight and
challenge of information security
controls; identifying trends,
internal and external threats
and advising on appropriate
mitigation solutions.
Comprehensive outsourced
service provider and third
party oversight and assurance
processes are in place. Regular
Board, Executive, Risk and Audit
Committee engagement occurs
within the Group.
Timely communications to
colleagues aim to provide clarity
around corporate activities.
Communications include details
of key milestones to deliver
against the Group’s plans.
The Group regularly benchmarks
terms and conditions against the
market. The Group maintains and
reviews succession plans for key
individuals, ensuring successors
bring appropriate diversity
of thought, backgrounds and
experiences.
The Group continues to
manage colleague uncertainty
of integration activities
through cross-organisational
collaboration, health and
wellbeing support and regular
communications to staff.
The Group conducts monthly
colleague surveys to monitor
engagement levels and identify
any concerns; appropriate
actions are taken following
analysis of the results.
The Group continues to actively
manage operational capacity
required to deliver its strategy
with ongoing focus on senior
bandwidth, attrition and
sickness.
A move to hybrid working offers
colleagues greater flexibility in
both where and how they choose
to work in future.
Phoenix Group Holdings plc Annual Report and Accounts 2021
63
Strategic report Impact
Mitigation
Strategic
priorities
Change from 2020 Annual Report and Accounts
Risk management continued
Risk
Market risk
Adverse market
movements
can impact the
Group’s ability to
meet its cash flow
targets, along with
the potential to
negatively impact
customer sentiment
The Group and its customers are
exposed to the implications of
adverse market movements. This
can impact the Group’s capital,
solvency, profitability and
liquidity position, fees earned
on assets held, the certainty
and timing of future cash flows
and long-term investment
performance for shareholders
and customers.
There are a number of drivers
for market movements including
government and central bank
policies, geopolitical events,
market sentiment, sector specific
sentiment, global pandemics and
financial risks of climate change,
including risks from the transition
to a low carbon economy.
Insurance risk
The Group may be
exposed to adverse
demographic
experience which
is out of line with
expectations
The Group has guaranteed
liabilities, annuities and other
policies that are sensitive to
future longevity, persistency and
mortality rates. For example, if
annuity policyholders live for
longer than expected, then the
Group will need to pay their
benefits for longer.
The amount of additional capital
required to meet additional
liabilities could have a material
adverse impact on the Group’s
ability to meet its cash flow
targets.
No change
Market stability improved in 2021, driven by a
successful COVID-19 vaccine rollout. However, there
remains significant market uncertainty as a result of the
developing conflict in Ukraine which has resulted in
economic sanctions being introduced against Russia
and Belarus as well as the risks presented by further
mutations of the COVID-19 virus.
The Group continues to monitor its exposure to
markets affected by the conflict in Ukraine and the
effects of the conflict on markets in which the Group
transacts.
Inflation is considered a risk over the short to medium-
term, with a shortage of labour in key industries
and ongoing supply chain issues increasing costs.
The Bank of England is faced with a balancing act
of managing inflation and aiding the post-COVID
recovery. Changes in inflation have, to date, followed
market predictions; however, any unexpected moves
in interest rates are likely to impact asset values
significantly. The Group’s strategy involves hedging
the major market risks and in 2021 the Group’s Stress
and Scenario Testing Programme demonstrated the
resilience of its balance sheet to market stresses.
Contingency actions remain available to help manage
the Group’s capital and liquidity position if any
unanticipated market movements occur.
No change
‘No Change’ is driven by remaining uncertainty
around future demographic experience as a result of
COVID-19 impacts.
Demographic experience and the latest views on
future trends are considered in regular assumption
reviews although, for most products, experience over
the COVID-19 pandemic has been given little weight
given its anomalous nature.
The Group completed bulk annuity transactions with a
combined premium of £5.6 billion in 2021. Consistent
with previous transactions, the Group continues to
reinsure the vast majority of the longevity risk with
existing arrangements that are reviewed regularly.
The Group undertakes regular
monitoring activities in relation to
market risk exposure, including
limits in each asset class, cash
flow forecasting and stress and
scenario testing. In particular,
the Group’s increase in exposure
to residential property and
private investments, as a result
of its BPA investment strategy, is
actively monitored. The Group’s
exposures are currently relatively
small in the context of the
Group’s AUM and remain within
risk appetite.
The Group continues to
implement de-risking strategies
to mitigate unwanted customer
and shareholder outcomes from
certain market movements,
such as equities, interest rates,
inflation and foreign currencies.
The Group maintains cash
buffers in its holding companies
and has access to a credit facility
to reduce reliance on emerging
cash flows.
The Group’s excess capital
position continues to be closely
monitored and managed.
The Group regularly discusses
market outlook with its asset
managers.
The Group undertakes regular
reviews of experience and
annuitant survival checks to
identify any trends or variances
in assumptions.
The Group regularly reviews
assumptions to reflect the
continued trend of reductions in
future mortality improvements.
The Group continues to manage
its longevity risk exposures,
which includes the use of
longevity swaps and reinsurance
contracts to maintain this risk
within appetite.
The Group actively monitors
persistency risk metrics and
exposures against appetite
across the Open and Heritage
businesses.
Where required, the Group
continues to take capital
management actions to
mitigate adverse demographic
experience.
64
Phoenix Group Holdings plc Annual Report and Accounts 2021
Strategic
priorities:
Optimise our
in-force business
Enhance our operating
model and culture
Grow our business to support
both new and existing customers
Innovate to provide our customers
with better financial futures
Invest in a
sustainable future
Risk
Credit risk
The Group is
exposed to the
risk of downgrade
or failure of
a significant
counterparty
Impact
Mitigation
Strategic
priorities
Change from 2020 Annual Report and Accounts
The Group is exposed to the risk
of downgrades and deterioration
in the creditworthiness or default
of investment, reinsurance or
banking counterparties.
This could cause immediate
financial loss, or a reduction in
future profits.
The Group is also exposed to
trading counterparties, such as
reinsurers or service providers
failing to meet all or part of
their obligations.
The Group regularly monitors
its counterparty exposures and
has specific limits relating to
individual counterparties, sector
concentration and geography.
The Group undertakes regular
stress and scenario testing of
the credit portfolio. Where
possible, exposures are
diversified through the use of a
range of counterparty providers.
All material reinsurance
and derivative positions are
appropriately collateralised.
The Group regularly discusses
market outlook with its asset
managers.
For mitigation of risks associated
with stock-lending, additional
protection is provided through
indemnity insurance.
No change
Over the last 12 months the Group has continued to
undertake de-risking action to increase the overall
credit quality of the portfolio and mitigate the impact
of future downgrades on risk capital. Furthermore, the
Group has enhanced its counterparty concentration
limits framework to better manage counterparty
failure risk. This positive progress is balanced by
residual uncertainty, due to the wider economic
and social impacts arising from COVID-19, and the
developing conflict in Ukraine which presents an
increased risk of downgrades and defaults. This results
in ‘No Change’ overall.
The Group has immaterial credit exposure to Russia
and no shareholder exposure to sanctioned Russian
banks.
The Group continues to increase investment in illiquid
credit assets as a result of BPA transactions. This is in
line with the Group’s strategic asset allocation plan
and within risk appetite.
Emerging risks and opportunities
The Group’s senior management and Board take emerging risks and opportunities into account when considering potential outcomes.
This determines if appropriate management actions are in place to manage the risk or take advantage of the opportunity. Key risks
discussed by senior management and the Board during 2021 include:
Risk Title
Description
Consumer Duty
The FCA has set out plans for a higher level of consumer protection in retail financial markets,
where firms are competing vigorously in the interests of consumers. Consultation underway to
introduce a new ‘Consumer Duty’, setting higher expectations for the standard of care that firms
provide to consumers.
Risk universe category
Customer
Artificial Intelligence
Risk in late adoption of operational efficiency opportunities that AI capabilities could present,
e.g. by not keeping up with emerging machine learning and perception systems.
Operational
Solvency II Reforms
HM Treasury issued Call for Evidence on potential reforms to SII for the UK, post-Brexit. The
scope is expected to include a 60–70% reduction to the Risk Margin, a review of the Fundamental
Spread component of the Matching Adjustment and a relaxation of Matching Adjustment
eligibility rules. Detail on potential reforms to Solvency Capital Requirement has not yet featured.
Operational, Financial
Soundness
Pension Superfunds
Pension Superfunds could offer a cheaper or easier option than Bulk Purchase Annuities (BPAs)
for Defined Benefit schemes looking to de-risk and transfer their liabilities.
Strategic
Phoenix Group Holdings plc Annual Report and Accounts 2021
65
Strategic report Viability statement
Viability statement
In accordance with provision 31 of the 2018 UK Corporate
Governance Code, the Board has completed an assessment
of the prospects and viability of the Group over a five-year
period to December 2026.
Assessment process and key assumptions
The Group’s prospects are assessed
primarily through its strategic and financial
planning process. This strategy is outlined
within the Strategic Report of the Annual
Report and Accounts. The Board activities
include an annual strategy session and
full participation in the annual strategic
planning process by means of Board
meetings to review, challenge and approve
the Annual Operating Plan (‘AOP’).
The output of the AOP is a set of strategic
priorities, detailed financial forecasts,
and risks and contingent actions to be
considered. The latest AOP was approved
by the Board in February 2022. This
considered the Group’s current position
and its prospects over a medium-term
horizon, reflecting the Group’s
stated strategy.
Progress against the AOP is reviewed
monthly by both the Group’s Executive
Committee and the Board.
The Board has determined that the
five-year period to December 2026 is an
appropriate period for the assessment,
being the period covered by the AOP.
The Board has also made certain
assumptions when making the assessment
and these include the following:
• no further dividend increase beyond the
proposed 3% increase to the 2021 Final
dividend is assumed throughout the
viability assessment period;
• that corporate acquisitions are not
relevant, as any acquisition would only
be progressed on the basis it meets
the Group’s stated criteria and capital
allocation framework; and
• the stresses calculated occur on 1
January 2022 and are informed by
the Group’s Solvency II internal model,
assessment of the economic outlook and
the principal risks facing the business.
No allowance is made for any recovery,
but the projections will take into account
the impact of any appropriate Solvency
II transitionals recalculation and the
availability of contingent actions to
increase resilience.
Assessment of viability
In making the viability assessment, the
Board has undertaken the following
process:
•
•
•
•
It defined that viability is maintaining the
capability to satisfy mandatory liabilities
and meet external targets;
It considered the impact of the evolution
of the Group’s strategy, notably the
increased investment in the growth of
the Open business. Any such investment
needs to comply with the Group’s
capital allocation framework and risk
appetite, and the Board retains flexibility
to manage the level of investment to
support the Group’s strategic priorities.
In the absence of new business growth,
the Group maintains a significant cash
generation capacity from its in-force
business which remains resilient under
stress, supporting longer-term viability;
It reviewed the AOP which considers
profits, liquidity, solvency and
strategic priorities and the impacts of
management actions on the Group. The
AOP was finalised in February 2022 and
reaffirmed the Group’s strategy;
It completed stress testing to assess
viability under severe but plausible
scenarios, including two adverse
stresses, which are deemed to be
representative of the key financial risks
to the Group as follows:
1. Market stress – a combined market
stress broadly equivalent to a 1 in 10-
year event, calibrated to the Phoenix
internal model, incorporating a fall
in equity, property values and yields,
with a widening of credit spreads.
2. Longevity stress – longevity and yield
stress broadly equivalent to a 1 in
10-year event, which implies a 1.2 year
increase in life expectancy for a 65
year old male and 1.2 year increase for
a 65 year old female, alongside a fall
in yields.
• Consistent with 2020 the Board
considered further the potential impacts
of COVID-19 on the Group including
additional stress and scenario testing;
• The Board considered the impact of
•
potential climate change scenarios and
mitigating actions;
It considered the principal medium
to long term risks facing the Group
which have the potential to impact
on viability as discussed in the Risk
report above; and
• The Board reviewed quantitative and
qualitative stress tests covering the
Group’s principal risks, including reverse
stress tests, and contingent actions
available that could be implemented
should any risk materialise that threatens
the Group’s resilience.
The results of the stress testing, including
a combination of individual scenarios,
as disclosed in the Business Review,
demonstrated that due to the Group’s
strong and resilient capital position, and its
access to additional funding (including the
Group’s undrawn £1.25 billion unsecured
revolving credit facility), the Group is able
to withstand the impact in each case with
regards to meeting all mandatory liabilities
as they fall due, and continue to track
towards meeting external targets.
COVID-19
The Group’s business has remained
resilient during the COVID-19 pandemic.
Operational capacity across the Group,
and within our outsourcing partners,
has been and continues to be actively
managed to meet business demands and
prevent any adverse impact to customer
outcomes and business performance.
Despite the easing of restrictions across
the UK, case rates remain high with a risk
that this impacts sickness rates. Rates of
inflation are high which is placing pressure
on household incomes, increasing costs
and tightening the labour market. Such
factors may contribute to continued
macroeconomic volatility and slow the
66
Phoenix Group Holdings plc Annual Report and Accounts 2021
Scenario exercise and additionally
developed our internal climate change
scenario analysis, which considered
key management actions, such as
decarbonisation of our investment
portfolio as we transition towards the
net zero target.
The Board also reviewed qualitative
reverse stress tests and tail risk analyses,
covering financial and non-financial
impacts (including impacts on strategy,
reputation, customers and operations),
and mitigating actions. These covered a
range of risks including for example the
failure of a key counterparty or a cloud
computing issue.
Considering the uncertain environment,
the Board believes that the market stress
applied as part of the viability assessment
(which assumes no economic recovery)
represents a severe but plausible scenario
covering the macroeconomic risks to which
the Group is exposed over the period of
the viability assessment. The results of
the additional economic scenario testing
described above have been considered as
ancillary information in the Board’s overall
assessment of the viability of the Group.
Statement of viability
Based on the results of the procedures
outlined above, the Board has a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the five-year
period of assessment.
pace of recovery. Whilst the Group’s
hedging strategy provides resilience
in this regard, the Group’s financial
position retains exposure to volatile
economic conditions.
Additional economic stress testing has
been performed to demonstrate the
impact of further downside scenarios on
the Group’s financial position, including
severe and prolonged recessionary
scenarios and a significant credit loss event
(incorporating a full letter downgrade
on 50% of the Group’s bond portfolio).
Although the assumptions applied in these
scenarios are possible, they are considered
low likelihood and do not represent our
view of the likely outturn. Furthermore,
whilst economic recovery under such
scenarios is delayed, it is assumed to take
place before the end of the Group’s five
year projection period.
Ukraine conflict
Russia’s invasion of Ukraine has led to
increased market and economic volatility
and the imposition of political and
economic sanctions on Russia and Belarus.
The Group has minimal direct exposure
to Russian-based assets, however there
is the potential of indirect impacts from
exposure to sectors that have investment
in Russian interests. Whilst the Group has
not performed any additional scenario
analysis to assess potential wider economic
impacts, the downside and severe
downside recession scenarios described
above capture similar risks to those that
could arise.
Additional stress testing
The Group’s wider Stress and Scenario
Testing programme has covered more
onerous scenarios with a very low
likelihood of occurring.
The Group’s Recovery Plan includes
a range of contingency actions and
demonstrated how these could be used
to recover from an extreme scenario
combining market and longevity risks,
and an extreme liquidity scenario
involving reduced access to money
market funds. Contingency actions are
reviewed quarterly.
The Group’s Contingency Liquidity Plan
provides a framework for analysing and
responding to an event that threatens the
liquidity of the Group, mitigating actual
and potential liquidity stresses.
We successfully completed the Bank of
England Climate Biennial Exploratory
Phoenix Group Holdings plc Annual Report and Accounts 2021
67
Strategic report Corporate
governance
Chairman’s introduction
Robust governance
Our Board of Directors
(and Executive Committee)
Our governance framework and the Board’s role
Bringing together our purpose, strategy,
culture and values
Our Board in action
A clear model of virtuous decision-making
Stakeholder engagement from the top
Board Directors’ fulfilment of the duty
under Section 172 Companies Act 2006
Engagement in action – listening to the
colleague voice
Valuing diversity of thought and independence
on the Board
Board composition and development
(including Board education)
Nomination Committee report
Audit Committee report
Risk Committee report
Sustainability Committee report
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
70
72
74
77
78
79
81
82
84
88
90
92
94
96
101
103
106
137
141
68 Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021 69
Chairman’s introduction
Continued resilience in
a dynamic environment
Our robust governance
remains a solid bedrock and
protection for our customers
and shareholders. It is a
fundamental factor
supporting the growth
and success of our business.”
Nicholas Lyons
Chairman
Our Board has overseen a year of
achievement at Phoenix as the fruits of our
Open business growth strategy have
started to emerge at the same time as our
Heritage business has continued to
provide strong cash generation. Board
focus is firmly on delivering cash, resilience
and growth which continue to serve our
customers and investors well.
It has been a pivotal year for Phoenix as we
have ‘proven the wedge’, with growth from
our Open business more than offsetting
the run-off of our Heritage business for the
first time. This means that Phoenix is now a
growing, sustainable business. As a result,
with the Group having met its two publicly
stated dividend growth conditions, the
Board has determined that the organic
growth in the business during the year can
sustainably fund a 3% increase in the Final
2021 dividend. I am delighted that Phoenix
has been able to deliver this strong
outcome for our shareholders and believe
it underlines the Board’s confidence in our
future trajectory.
Our purpose is “helping people secure
a life of possibilities.” That cannot be
achieved if we do not take action to make
a positive contribution to our local
communities and to wider society. You can
read all about our sustainability activity in
the Group Sustainability Report. My wish
here is to underline the absolute
commitment and drive of our Board and
management to optimise the impact we
make. We have £310 billion of assets under
management and we know the influence
we can have with how those assets are
invested. Integrating sustainable objectives
for the benefit of our customers,
shareholders and society is a core aspect
of our asset management strategy,
approved by the Board.
I am very pleased that we established a
dedicated Board Sustainability
Committee, with Karen Green as Chair.
This committee has been very active in
2021 in its oversight of our sustainability
activity which goes much further than
simply how we invest our assets.
The Board is strongly behind our three
strategic capabilities of Heritage, Open
and M&A. During 2021, the Board
approved the allocation of more capital to
the successful growth of our Bulk Purchase
Annuity business. This is an example of how
we deliver long-term cash generation as
well as investing in sustainable assets which
support the ‘impact investing’ agenda.
Our Board and Sustainability Committee
have been very focused on leading the
right culture, driven from the Board and
senior management; a culture linked to our
purpose of helping people secure a life of
possibilities and to our strategy and values
with integrity, transparency and inclusivity
at the core.
Management information on risk culture
and culture more generally is reviewed by
our Board Risk Committee and Board
Sustainability Committee respectively on a
regular basis through the year. I am very
pleased that the external Board
effectiveness review by Consilium Board
Review which reported in December 2020
stated “culture and cohesion” as a strength
of the Board, also describing it as “open,
selfless, thorough and diligent, unpolitical,
respectful and independent.” We have
built on that in 2021 and a session on
building culture and capabilities was
featured at the start of our Board’s strategy
offsite in July 2021.
Our Board effectiveness review (more
detail contained in the Nomination
Committee Report on page 94),
undertaken internally in the latter part of
2021, concluded that the Board is
“constructive, supportive and challenging
to management and functions strongly as a
unit” and that “there is a healthy respect for
different views and recognition of the
different skills brought to the Board table.”
However, we noted that “the Board is aware
of the significant challenges for a business
of the size and ambition of Phoenix and
continues to look for improvement and
greater diversity in its composition.”
70
Phoenix Group Holdings plc Annual Report and Accounts 2021
Board highlights 2021
Approval of the Group
sustainability strategy.
Colleague engagement:
two-way dialogue.
A strong programme of
Board education sessions.
Read more
page 85
Bringing together our
purpose, strategy,
culture and values.
Read more
page 78
Read more
pages 88 to 89
Action beyond
the boardroom.
Scan the QR code
to watch our video
Read more
page 93
Strategy offsite and
approval of the
Group’s strategy
Read more
page 78 and 91
AGM votes in favour of all
resolutions May 2021
96%
96% in 2020
FTSE position as at 31 Dec 2021
75
70 in 2020
UK Corporate Governance Code
Fully
compliant
in 2021
Fully compliant in 2020
UK Corporate Governance Code
As summarised on page 73
and detailed in the Corporate
Governance Report on pages
72 to 105, we complied in 2021
with all the provisions of the UK
Corporate Governance Code
(‘the Code’). We have complied
with all the provisions of the
Code in its appropriate version
in each of the last seven years.
This leads me to comment on our desire
continually to make the Board more
diverse in all respects, better to reflect our
changing society and also to drive stronger
performance by welcoming different
views and experiences. I am pleased that
we comply with the Hampton-Alexander
guidance for at least 33% of the Board
to be female and the Parker guidance for
at least one Director to be from an ethnic
minority. We undertook a skills review of
the Board in the second half of 2021 and
our succession planning is designed to
deliver an evolving Board with the right
skills, experience and diversity. We don’t
regard these measures as a destination
though and we are working to standards of
quality and proportionality.
I am therefore very pleased that Katie Murray
will be joining our Board from 1 April 2022.
She not only brings great skills and
experience but, as importantly, a good fit
with our values and culture. Katie, as the
current CFO of NatWest, adds an exciting
dimension of current, relevant executive
experience and also age diversity.
I do not expect to be writing this report
next year as I plan to take a sabbatical from
my role as Phoenix Chair from September
2022 to November 2023 in order to
devote my time to my anticipated position
as Lord Mayor of the City of London from
November 2022 following my previously
announced nomination to that role. The
Board have been very supportive of my
accepting this position as they see it as
consistent with Phoenix’s wider societal
responsibility. I am extremely pleased that
our Senior Independent Director, Alastair
Barbour, has been appointed by the Board
as Interim Chair, subject to regulatory
approval, during my sabbatical. Alastair has
substantial chairing and technical skills and
experience which make him eminently
capable for this role.
I am also delighted that Karen Green, again
subject to regulatory approval, has been
appointed as our Senior Independent
Director to succeed Alastair. Karen is our
designated Non-Executive Director for
workforce engagement and the chair of our
Board Sustainability Committee. She will be
an excellent support to Alastair and to me.
In June 2021, one of our strategic
shareholders, Swiss Re, reduced their
shareholding in Phoenix Group to below
the 10% level at which they were entitled
to appoint a Non-Executive Director to the
Phoenix Board. As a consequence, their
nominated representative, Chris Minter,
resigned from the Phoenix Board. I wish
to thank Chris for the significant
contribution he made since joining the
Board in July 2020 and Swiss Re for its
support during its time as a significant
strategic shareholder. I am very grateful for
the continuing support we receive from
our biggest shareholders and strategic
partners, abrdn and MS&AD.
I am, as ever, also grateful for the continued
strong support of our shareholders who
approved all 24 resolutions at our AGM
in May 2021 with at least 96% votes cast
in favour.
Finally, I wish to thank our amazing people
for their continued commitment and
dedication to Phoenix, our customers
and shareholders. We approach 2022
with confidence.
Nicholas Lyons
Chairman
Phoenix Group Holdings plc Annual Report and Accounts 2021
71
Corporate governance Corporate governance
Robust governance
The foundation enabling our purpose, strategy, values
and culture. Providing reassurance to our stakeholders.
The Board of Phoenix Group Holdings plc
provides strong leadership for the Group,
working to ensure cohesion between our
purpose, strategy, values and culture.
Phoenix’s purpose, to help people secure
a life of possibilities, is deeply rooted in our
desire to be a force for good. Our strategy
is designed to help us achieve this purpose.
Our values set the tone for expected
behaviours and our culture is the thread
that ties this all together.
How the Board brings cohesion between
our purpose, strategy, values and culture
As reported last year, during 2020, the
Board played a key role in overseeing the
redefining of the Company’s purpose.
During 2021, the Board continued its focus
on our purpose by setting a strategy for
the Group designed to drive progress
towards this goal. Each year the Board
undertakes a review of Group strategy at
its two-day strategy session. The Board and
its Committees then monitor performance
and ensure that management put in place
resources required to deliver the strategy.
The achievement of our social purpose
and strategy is dependent on behaviours
that work in alignment therewith. Our
values described on page 78 of this
Corporate Governance Report provide
a clear framework for the behaviours
required to achieve our purpose and
deliver our strategy. The Board oversees
the Company’s culture through the means
described on page 78 of this report. The
right culture is essential to bring our values
to life. Phoenix’s culture is the thread
that not only intertwines our purpose,
strategy and values, but also ties together
governance, colleagues and wider
stakeholders.
Read more about the way in which the
Board has ensured the alignment of the
Company’s purpose, strategy, values
and culture during 2021 on page 78 of
this Corporate Governance Report.
Compliance with the UK
corporate governance
code in 2021
It is the Board’s view that during 2021
the Company has been fully compliant
with the principles and provisions set
out in the Code. This 2021 Corporate
Governance Report (set out on pages
72 to 136) illustrates how Phoenix Group
Holdings plc has applied the principles
and complied with the provisions of the
2018 UK Corporate Governance Code
(the ‘Code’) during 2021. The schedule
on the following page provides
signposting of where this report
illustrates Phoenix Group Holdings plc’s
compliance with the Code and a high
level overview of that compliance.
72
Phoenix Group Holdings plc Annual Report and Accounts 2021
Board leadership
and company purpose
Composition, succession
and evaluation
page 77
page 77
pages 74 to 76
Our Board of Directors
Principle A
Our governance framework and the Board’s role
Principle C
Provision 1
(see also: ‘Bringing Together Our Purpose, Strategy, Culture And Values’ on page 78;
and ‘Our Board In Action – What The Board Did This Year’ on pages 79 to 80)
Conflicts of interest
Provision 7
Bringing together our purpose, strategy, culture and values page 78
Principle B
Provision 2
(see also: ‘Matters Reserved’ on page 77)
Our Board in action – what the Board did this year
Principle E
(see also: ‘Engagement In Action – Listening To The Colleague Voice’ on pages 88 to
89; ‘Bringing Together Our Purpose, Strategy, Culture And Values’on page 78; and
‘Audit Committee Report’ on page 96 to 100)
Provisions 3 and 4
A clear model of virtuous decision making
Principle C
Stakeholder engagement from the top
Principle D and Provision 3
Board Directors’ fulfilment of their duty
under section 172 Companies Act 2006
Provision 5
(see also Section 172 Statement on page 43 of the Strategic Report)
Colleague engagement
Provision 5
(see also ‘Stakeholder Engagement From The Top’ on page 82)
Whistleblowing arrangements
Provision 6
(see also: ‘Bringing Together Our Purpose, Strategy, Culture And Values’ on page 78)
pages 88 to 89
pages 79 to 80
pages 82 to 84
page 96
page 81
pages 84 to 87
Division of responsibilities
Valuing diversity of thought and independence
on the Board – clear roles and responsibilities
Division of responsibilities on the Board
Principle F
Principle G and Provision 9
(see also: ‘Our Board of Directors’)
Provision 11
(see also: ‘Board Composition and Development’)
Provisions 10, 12 and 14
2021 Board and committee meeting attendance
Principle H
Provision 13
Board support
Principle I; and Provisions 8 and 16
Board member appointment terms
Provision 15
page 90
page 90
page 91
page 91
page 91
Board composition and development
Principle K and Principle L
Provision 19
Nomination Committee report
Principle J and Principle L
Provisions 17, 18, 20 to 23
page 92
pages 94 to 95
Audit, risk and internal control
pages 96 to 100
Audit Committee report
Principles M and N
Provisions 24, 25, 26 and 29
Provisions 27 and 30
(see also Directors’ Report on pages 137 to 140 and Statement of Directors’
Responsibilities on page 141)
Provision 31
(see also Directors’ Report on pages 137 to 140 and the Group’s Viability
Statement on pages 66 to 67 of the Strategic Report)
Risk Committee report
Principle O
Provision 28 and 29
(see also Principle risks and uncertainties faced the Group on pages 58 to 65 of
the Strategic Report)
pages 101 to 102
Remuneration
Remuneration Committee report
Principles P, Q and R
(see also Directors’ Remuneration Report on pages 106 to 136)
Provisions 32, 33, 40 and 41
(see also Directors’ Remuneration Report on pages 106 to 136)
Provisions 34 to 39
(see Directors’ Remuneration Report on pages 106 to 136)
pages 106 to 107
Phoenix Group Holdings plc Annual Report and Accounts 2021
73
Corporate governance Board leadership and Company purpose
Our Board of Directors
Leading from the top to drive robust
governance and a clear social purpose.
The Board comprises the Non-Executive Chairman, Group Chief Executive Officer, the
Group Chief Financial Officer, one abrdn-nominated Director, one MS&AD-nominated
Director and seven independent Non-Executive Directors.
Alastair Barbour
Senior Independent
Director
(Appointed 1 October 2013)
Committee:
Experience and role on the Board
“I have a significant amount of audit
experience (gained at KPMG) which
enables me to effectively lead as Chair
of the Phoenix Group Holdings plc
Audit Committee. My experience as
a Non-Executive Director enables me
to perform the role of Senior Non-
Executive Independent Director of the
Board, a role which I was honoured to
take on in 2018.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
mergers and acquisitions; capital
markets; regulation; finance; asset
management; risk management and
FTSE 100 Board experience.
• Over 30 years of audit experience.
Key external appointments
Chairman of Liontrust Asset
Management plc and Lead
Independent Director of The Bank of
N. T. Butterfield & Son Limited.
Andy Briggs
Group Chief
Executive Officer
Rakesh Thakrar
Group Chief
Financial Officer
(Appointed 10 February 2020)
(Appointed 15 May 2020)
Experience and role on the Board
“As Group CEO of Phoenix, I have a
passion for our Group purpose and
believe that my experience in the
insurance industry will help drive our
achievement thereof. Prior to Phoenix,
I was CEO, UK Insurance at Aviva plc;
and prior to that worked as Group Chief
Executive of Friends Life; Managing
Director of Scottish Widows; Chief
Executive of the Retirement Income
division at Prudential; and Chair of
the ABI.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
mergers and acquisitions; capital
markets; regulation; finance; life
assurance; risk management;
customer service and solutions;
change; IT/digital; sales/distribution;
marketing and operations.
• FTSE 100 Board experience.
• Over 30 years of experience in the
insurance industry.
Key external appointments
Board member of the Association of
British Insurers, Trustee of the NSPCC
and Chair of their Income Generation
Committee. Also the government’s
Business Champion for Older Workers
and for the Ageing Society Grand
Challenge. Awarded an MBE in 2021.
Experience and role on the Board
“I was appointed as Group CFO in May
2020, following six years as Deputy
CFO and 20 years with Phoenix. My
experience has spanned a breadth
of finance and strategy-related roles,
as well as numerous acquisitions
and integrations, enabling me to
develop a deep understanding of
both Phoenix and the wider insurance
industry. I see my primary role as
being to ensure Phoenix continues
to deliver the dependable cash
generation and resilient balance
sheet that we are known for, while
overseeing the disciplined capital
allocation and investment into our
growing Open business, the outcome
of which will fund our sustainable
shareholder dividend, which now has
the opportunity for both organic and
inorganic growth over time.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
mergers and acquisitions; capital
markets; regulation; finance; life
assurance; asset management; and
risk management.
• FTSE 100 Board experience.
• Over 20 years’ experience working
in insurance.
Key external appointments
None.
Nicholas Lyons
Chairman
(Appointed 31 October 2018)
Committee:
Experience and role on the Board
“As Chairman of Phoenix, I lead the
Board for the benefit of all stakeholders.
My business and leadership experience
has been developed by various senior
management roles in investment
banking over 22 years, including at JP
Morgan and at Lehman Brothers where,
as Managing Director in the European
financial institutions group, I advised
banks and insurance companies on
mergers and acquisitions and capital
raising; and numerous non-executive
roles including at the Pension Insurance
Corporation (as Senior Independent
Director); Catlin Group Limited
(as Senior Independent Director),
Miller Insurance Services LLP (as
Chairman); and Friends Life Group
amongst others.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
mergers and acquisitions; capital
markets; regulation; strategy;
sustainability; human resources;
governance and leadership.
• FTSE 100 Board experience and
FTSE 250 Board experience (with
Phoenix, Catlin and Friends Life
Group) and in privately owned
companies such as BUPA, including
oversight and implementation of short
and medium term strategic plans;
safeguarding of robust governance;
and communication of organisational
culture and values.
• Over 40 years of experience in
financial services.
Key external appointments
Board of Miller Insurance Services LLP
and Convex Group Limited. Sheriff and
Alderman in the City of London.
74
Phoenix Group Holdings plc Annual Report and Accounts 2021
2021 Board changes
Following the sale of 66,199,917 shares in Phoenix by Swiss
Re (and resulting ownership falling below 10% of Phoenix’s
issued share capital), Mr Christopher Minter resigned from
the Board as Swiss Re’s nominated Non-Executive Director
on 25 June 2021.
Committee membership key
Audit
Nomination
Remuneration
Risk
Sustainability
Denotes Chairman
Karen Green
Independent
Non-Executive Director
Hiroyuki Iioka
Non-Executive
Director
Wendy Mayall
Independent
Non-Executive Director
John Pollock
Independent
Non-Executive Director
(Appointed 1 July 2017)
Committee:
(Appointed 23 July 2020)
(Appointed 1 September 2016)
Committee:
(Appointed 1 September 2016)
Committee:
Experience and role on the Board
“Since becoming a Non-Executive
Director of Phoenix in 2020, the
Group’s purpose and values have
resonated strongly with me and I
believe that my experience in the
global insurance industry supports
the achievement thereof. I have held
a series of senior roles within the
MS&AD (an insurance group operating
globally), including executive and
director positions at its UK insurance
subsidiaries.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
mergers and acquisitions; capital
markets; finance; asset management;
and risk management.
• Experience in the global insurance
Experience and role on the Board
“I was appointed as a Non-Executive
Director of Phoenix in 2016. My role
enables me to utilise my experience in
governance, insurance and investments.
My previous experience, which
supports my contribution as a Phoenix
Board member, includes being Chief
Investment Officer at Unilever, Group
Chief Investment Officer at LV=, and
Chair of the Investment Committee at
The Mineworkers Pension Scheme, a
Government appointment to one of the
largest pension schemes in the UK.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
capital markets; life assurance; asset
management; risk management;
sustainability/ESG; and change.
Experience and role on the Board
“After 35 years in insurance with Legal
& General, ultimately as CEO of LGAS,
my appointment to Phoenix in 2016
was a very natural next step for me. It
has been extremely rewarding, helping
Phoenix grow from the FTSE250 when
I joined. My position as Chair of the
Risk Committee has allowed me to be
closely involved in helping govern this
growth, ensuring sustainability for our
stakeholders.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas
of regulation; life assurance; risk
management; customer service and
solutions; operations and FTSE 100
Board experience.
• Over 35 years of experience in
industry.
• Experience in governance, insurance
insurance.
Key external appointments
Senior General Manager, Head
of Global Business Development
Department for MS&AD Insurance
Group Holdings, Inc.
Alternate Non-Executive director
of Challenger Limited, listed on the
Australian Stock Exchange.
and investment matters.
Key external appointments
Non-Executive Independent Director of
the Handelsbanken ACD, Independent
Member of the Quilter Investment
Oversight Council, and Chair of the
Investment Committee of Renewity.
Key external appointments
None.
Experience and role on the Board
“I have a broad experience base in
financial services and insurance,
encompassing M&A, corporate
finance and private equity (Baring
Brothers, Schroders, GE Capital and
MMC Capital) and senior executive
roles in the insurance industry (Aspen
Insurance Holdings) including strategy,
corporate development and as CEO
of Aspen UK. My knowledge of the
insurance industry and expertise in
M&A and corporate finance enables me
to contribute to the development and
execution of the Group’s strategy as a
Non-Executive Director of the Board.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in the areas
of mergers and acquisitions; capital
markets; regulation; finance; risk
management and FTSE 100 Board
experience.
• Over 30 years of experience in
financial services and insurance.
Key external appointments
Non-Executive Director and Audit
Committee Chair at Admiral Group
plc; Non-Executive Director of Miller
Insurance Services LLP; Non-Executive
Director and Chair of the Risk
Committee of Asta Managing Agency
Limited; and a Council Member and
Investment Committee Chair of Lloyd’s
of London. Advisor to Cytora Limited
(Insurtech) and a member of the
Development Council of the Almeida
Theatre Company.
Phoenix Group Holdings plc Annual Report and Accounts 2021
75
Corporate governance
Board leadership and Company purpose continued
Belinda Richards
Independent
Non-Executive Director
Nicholas Shott
Independent
Non-Executive Director
Kory Sorenson
Independent
Non-Executive Director
Mike Tumilty
Non-Executive
Director
(Appointed 1 October 2017)
Committee:
(Appointed 1 September 2016)
Committee:
(Appointed 1 July 2014)
Committee:
(Appointed 1 September 2019)
Committee:
Experience and role on the Board
“My position as a Non-Executive
Director of the Phoenix Board enables
me to use my strategic and operational
experience gained in both an executive
and non-executive capacity. As the
Global Head of Merger Integration
Services at Deloitte, and previously at
EY, I have led over 50 major acquisition
integrations – many of which were in
the insurance and banking sectors.
This experience has helped me to add
value to Phoenix and its stakeholders;
and support the achievement of the
Group’s purpose.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas
of mergers and acquisitions;
regulation; finance; life assurance; risk
management; customer service and
solutions; change; IT/digital; sales/
distribution; marketing; operations;
and FTSE 100 Board experience.
• Strategic and operational experience;
and previous history leading over 50
major acquisition integrations.
Key external appointments:
Non-Executive Director, currently on
the boards of Avast plc, The Monks
Investment Trust plc and Schroder
Japan Growth Fund plc. Also the
Audit Chair and a Trustee of Youth
Sport Trust.
Experience and role on the Board
“My experience includes 30 years
as an investment banker at Lazard.
Specifically, this experience has
included running the European Media
practice, and acting as a generalist
banker in a wide range of sectors and
countries. I became European Vice
Chairman in 2007 and Head of UK
Investment Banking in 2009. I am now
a Senior Adviser to the firm. My M&A
experience has been very relevant to
Phoenix since I joined the Board and
has supported the Group’s purpose
and strategy.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas
of mergers and acquisitions; and
capital markets.
• 30 years of experience as an
investment banker.
Key external appointments:
Joined Lazard in 1991 and became
a Partner in 1997; European Vice
Chairman from 2007 and Head of UK
Investment Banking from 2009 (both
relinquished in mid-2021 on becoming
Senior Adviser); Non-Executive Director
on the Board of the Home Office from
March 2017 to June 2020.
Our business, led by
the Executive Committee
The Executive Management of the
Group is led by the Group Chief
Executive Officer, who is supported
by the Executive Committee
(‘ExCo’). During 2021, ExCo played
a key role in driving Phoenix’s
year of significant progress,
striving to help people secure
a life of possibilities. Roles and
responsibilities of each member
of ExCo can be found on the
Company’s website.
Andy Briggs
Group Chief Executive Officer
Rakesh Thakrar
Group Chief Financial Officer
Matt Cuhls
Managing Director, ReAssure
Operations/ALPHA Platform
Andy Curran
Chief Executive, Savings and
Retirement, UK and Europe
Mike Eakins
Group Chief Investment Officer
Anna Franekova
Corporate Development Director
Claire Hawkins
Corporate Affairs and Investor
Relations Director
76
Phoenix Group Holdings plc Annual Report and Accounts 2021
Experience and role on the Board
“My experience and expertise in
insurance, finance and human capital
enables me to effectively serve Phoenix
and its stakeholders as a Non-Executive
Director and Chair of the Remuneration
Committee. My experience includes
performing the role of Managing
Director, Head of Insurance Capital
Markets, at Barclays Capital – a role
which covered the optimisation of
capital resources via equity, hybrid
and debt capital management as well
as M&A, risk management, and life
insurance securitisation. My external
appointments outlined below provide
me with a wide perspective of the
insurance market.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas of
mergers and acquisitions; capital
markets; regulation; finance; life
assurance; risk management; and
FTSE 100 Board experience.
• Close to 30 years of experience
in finance.
Key external appointments
Non-Executive Director and Chair of
the Audit Committee of SCOR SE;
a Non-Executive Director and Chair
of the Remuneration Committee of
Pernod Ricard SA; a Non-Executive
Director and Chair of the Audit
Committee of SGS SA; a Non-Executive
Director of Basing TopCo Limited; a
member of the supervisory board of the
privately-owned bank Gutmann AG;
and a member of the Board of Partners
of privately-owned COMGEST.
Tony Kassimiotis
Group Chief Operating Officer
John McGuigan
Group Customer Director
Andy Moss
Life Companies CEO and Group
Director, Heritage Business
Jonathan Pears
Group Chief Risk Officer
Sara Thompson
Group HR Director
Quentin Zentner
General Counsel
Gerald Watson
Group Company Secretary
(Secretary to ExCo)
Experience and role on the Board
“My role as Non-Executive Director on
the Board at Phoenix enables me to
utilise my experience of over 25 years
at abrdn. I have spent the majority of
my career in the Change, Technology
and Operations arena. My experience
enables me to support Phoenix’s
change agenda for the benefit of the
Group and all of our stakeholders.”
Skills and attributes supporting
achievement of purpose and strategy
• Core skills and expertise in areas
of mergers and acquisitions; asset
management; risk management;
customer service and solutions;
change; IT/digital; operations; and
FTSE 100 Board experience.
• Experience in change, technology
and operations.
Key external appointments
Global Chief Operating Officer of
abrdn.
Kulbinder Dosanjh
Incoming Group Company Secretary
(Secretary to ExCo with effect from 1
April 2022)
Scan the code to
access the roles and
responsibilities
of the ExCo
Our governance framework and the Board’s role: Governing Phoenix
to help people secure a life of possibilities, to and through retirement
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Phoenix Group Holdings plc Board
• Group Strategy
• Group Risk Appetite
• Performance Monitoring
• Major Transactions
• External Debt
• Group Budget
• External/Shareholder Reporting
Audit
Committee
Risk
Committee
Sustainability
Committee
Remuneration
Committee
Nomination
Committee
• Financial Reporting
•
Internal Controls
• External Audit
•
Internal Audit
• Whistleblowing
• Risk Appetite and
high-level risk matters
• The Group’s Risk
Management
Framework
• Sustainability strategy
• ESG reporting
• Culture monitoring
• Group remuneration
• Board and senior
framework
• Executive director
remuneration
• Employee share
schemes
executive
appointments
• Diversity and
inclusion
• Board and senior
executive succession
planning
See pages 96 to 100
See pages 101 to 102
See pages 103 to 105
See pages 106 to 107
See pages 94 to 95
Phoenix Group Holdings plc Executive Committee
• Formulation of objectives
and strategy
• Embedding of culture
• Management development
and succession
• Business division objectives and budgets
• Business performance
• Recommendation of major capital
expenditure proposals
• Operational capacity, resourcing and
priorities monitoring
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The Phoenix Group Holdings plc governance
framework is the foundation upon which the Group
is directed and controlled. Our framework provides
adaptability and agility to enable Phoenix to operate
as a successful and sustainable business, responding
to the needs of stakeholders (including future
generations of stakeholders) and the ever evolving
market conditions in which we operate. The Group
Board expects robust governance which is monitored
through a number of mechanisms, including:
engagement with stakeholders, effectiveness reviews,
control reviews, risk culture surveys and support from
the Group Company Secretary and their team. To
ensure the adaptability, agility and accountability
required to achieve our purpose, the Board drives a
modern culture of empowerment through delegation
to its Board Committees and individuals within
management. Empowerment fosters diversity of
thought and innovation to ensure we achieve our
strategy and purpose, whilst always under the guiding
watch of our Board.
Role of the Board
The Board is responsible to the shareholders and
wider stakeholders for the overall performance
of the Group. The Board’s role is to provide leadership,
promoting the long-term sustainable success of the
Company, generating value for shareholders and
positively contributing to wider society, within a
framework of prudent and effective controls, which
enables risk to be assessed and managed.
Matters reserved for the Board
The Board has a schedule of matters reserved for
its consideration and approval supported by a set
of operating principles.
These matters include:
• Group strategy and business plan;
• oversight of the Group’s culture;
• major acquisitions, investments
and capital expenditure;
• financial reporting and controls;
• dividend policy;
• capital structure;
• the constitution of Board committees;
• appointments to the Board and Board committees;
• senior executive appointments; and
• key Group policies.
Throughout 2021, the Board has acted in accordance
with its matters reserved and its key activities during
the year are shown on pages 79 to 80 of this report.
The full schedule of matters reserved for the Board
is available on the Company’s website.
Operation of the Board and
our governance framework
The Group’s high standards of corporate governance
and our governance framework are anchored to
compliance with the Code which sets standards of
good governance for UK listed companies.
Phoenix’s governance framework is structured in
three layers. The Board oversees the Group – setting
the purpose and strategy; ensuring appropriate
resources are in place to achieve that strategy;
establishing a framework of effective controls aligned
with suitable risk appetites; holding management to
account (including through monitoring of behaviours
and culture); and, ultimately, promote the long-term
sustainable success of the Group.
The Board delegates certain matters to its five Board
Committees. The Phoenix Group Holdings plc Board
Committees support the Board in line with the Code
and have established roles and responsibilities
prescribed in terms of reference, approved by the
Board. High level roles and responsibilities of Board
Committees can be found within the governance
framework diagram above. Full terms of reference
for each of the Board Committees are available
on the Company’s website.
Matters which are not reserved for the Board,
delegated to its Board Committees or for shareholders
in general meetings, are delegated to the executive
management under a schedule of delegated
authorities approved by the Board.
More detailed operational and policyholder matters
are addressed at the subsidiary board and committee
level, including the Phoenix Life Companies Board
and Board Committees.
Conflicts of interest
A register of conflicts of interest is maintained by
Company Secretariat on behalf of the Board. The
Directors each understand their responsibility to
identify and manage conflicts of interest, bringing
conflicts to the attention of the Board and the Group
Company Secretary as required under the Companies
Act 2006. Conflicts of interest are managed in three
clear steps:
• Declare: conflicts are noted, considered and
recorded.
• Discussion: the conflicted Director does not take
part in discussions relating to the conflict.
• Decision: the conflicted Director does not take
part in decisions relating to the conflict.
Due care and process is, of course, applied in respect
of shareholder nominated Board Directors
as appropriate.
Phoenix Group Holdings plc Annual Report and Accounts 2021
77
Corporate governance
Board leadership and Company purpose continued
Bringing together our purpose, strategy, culture
and values, through resilient governance and
effective Board action for today and tomorrow.
Purpose
Strategy
Our purpose, established by the Board (to help people secure
a life of possibilities) is why Phoenix exists; what we do as an
organisation; and what we strive to achieve. As the pensions
landscape and societal needs evolve, the Group strives to be
a secure and dependable ally in the journey to and through
retirement for millions of customers. As the UK’s largest long-
term savings and retirement business, we believe Phoenix
has an important role to play in society. This means ensuring
robust and virtuous decision-making from the Board down;
investing responsibly and sustainably; driving forward a strong
sustainability strategy and using our presence and voice to be
an advocate on behalf of the UK’s savers.
Our strategy, is set to ensure we continually progress towards
the achievement of our purpose and our aim to provide
customers with the best possible outcomes. The Group’s
strategic priorities (including to optimise our in-force business;
enhance our operating model and culture; grow our business to
support both new and existing customers; innovate to provide
our customers with better financial futures; and invest in a
sustainable future) provide management with clear direction
to deliver the successful achievement of targets for the benefit
of stakeholders. The Board is responsible for establishing the
right strategy for the Group, ensuring that this is aligned with
not only our purpose but also with the values and culture of the
business. Without cohesion between all four of these elements,
the Group’s ability to achieve success will be limited.
Values
Culture
Our values (passion, responsibility, courage, growth and
difference) articulate the behaviours and qualities Phoenix
colleagues are expected to demonstrate throughout all levels
of the Group. Our values are embedded within our policies
(approved by the Board), operational practices (overseen by
the Board) and our culture (role modelled by the Board).
• We are passionate about understanding and acting on what’s
important to our customers, colleagues and society.
• We build trust by taking accountability and empowering
others to do the right thing.
• We’re ambitious in the challenges we solve and we always
speak up.
• We grow our business through finding new ways to develop
our expertise and innovate.
• We collaborate across boundaries and embrace difference to
deliver the best customer and colleague outcomes.
Our culture defines us and has, and continues to be, developed
through our values being lived by colleagues each day. Phoenix
has a strong culture which is modern, inclusive and brave. We
are customer obsessed and drive the Group to be a force for
good. The Board sets the cultural tone from the top and acts as
the guardian of our values and culture which, together, support
the achievement of our strategy, driving our purpose to help
people secure a life of possibilities. Board Directors reinforce
our culture and values through their conduct (individually and
collectively), decisions and strategic oversight. The 2021 Board
effectiveness review concluded that the Board “provides an
energetic sense of optimism and determination to succeed”
and has a “healthy respect of different views” – signalling
role modelling of the attitudes and behaviours needed for an
inclusive, innovative and sustainable business.
During the year, the Board received updates on the evolution of
the Group’s culture to drive enhanced levels of empowerment
throughout the business and make Phoenix the best place
colleagues have ever worked. The Board Sustainability
Committee has supported the Board’s oversight of culture
during the year and received updates on the Group’s people
strategy and engagement data from the Group HR Director
during 2021.
Governance is key to bringing together our purpose, strategy, values and culture in a cohesive way to better equip the Group to
create a positive and lasting impact for our stakeholders and wider society. The Board is central to binding these four elements
together through overseeing the alignment, and monitoring management’s achievement, of a clear link to each within our
workforce policies and practices.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Our Board in action
The Board has overseen the Group’s high standards of
corporate governance and business performance
throughout 2021.
During a year of significant progress,
the Board has continued to ensure
a progressive cycle of continuous
improvement and championed the
Group’s commitment to high standards
of corporate governance – the foundation
enabling cash generation, resilience and
growth for the long-term success
of Phoenix for stakeholders and
wider society.
The Board discharging Section 172
Companies Act 2006 duties
When making decisions, the Board has
paid due regard to the matters set out
in Section 172 of the Companies Act
2006; the furtherance of steps towards
the Company’s purpose; insights from
stakeholder engagement and the impact
on wider society. The Company’s Section
172 statement can be found on page 43 of
the Strategic Report. The way in which the
Directors have exercised their Section 172
duties is explained on pages 84 to 87
of this report, illustrated in the context
of key strategic decisions made during
the year.
Strategic priorities key
Optimise our
in-force business
Enhance our operating
model and culture
Grow our business to
support both new and
existing customers
Innovate to provide our
customers with better
financial futures
Invest in a sustainable future
Areas of focus
Board activities
Purpose, values and strategy
• Approval of Annual Operating Plan and five-year strategic plan.
• Approval of additional funding for the advancement of Bulk Purchase Annuities (‘BPA’) activity.
• Consideration of the Phoenix Master Brand architecture.
• Approval of management action to acquire the Standard Life brand.
• Monitoring launch of Phoenix Insights.
• Consideration of Phoenix’s strategy for Europe.
• Approval of a strategic framework for future acquisitions.
Overseeing operational
performance against strategy
• Monitoring progress against 2021 targets.
• Consideration of and challenge to CEO updates on strategic performance.
• Consideration of and challenge to the Phoenix Change Management Framework.
• Monitoring of performance against the Group’s Balanced Scorecard.
Financial management and
performance
• Monitoring of the Group’s solvency and liquidity positions.
• Monitoring of capital resilience, financial performance and growth in Heritage and
Open divisions.
• Recommendation of the 2020 Final Dividend and 2021 Interim Dividend.
• Approval of funding and capital strategy.
• Approval of the Group’s tax strategy.
Engagement with
Stakeholders
• Monitoring of customer service, operational resilience and colleague wellbeing.
• Monitoring of investor engagement activities.
• Consideration of investor and media reaction to YE20 and HY21 results.
• Consideration of investor feedback and analyst reports, including investor sentiment
on the future of Phoenix.
• PRA/FCA meeting with the Board.
• Interaction with colleagues, through the Phoenix Colleague Representation Forum
and Designated Non-Executive Director for Workforce Engagement (see pages 88 to 89
for more detail) and an interactive Board/Colleague lunch.
• Customer calls listening session.
Phoenix Group Holdings plc Annual Report and Accounts 2021
79
Corporate governance Board leadership and Company purpose continued
Areas of focus
Board activities
Sustainability
Workforce policies
and culture oversight
People strategy,
diversity & inclusion and
succession planning
• Approval of the Group sustainability strategy.
• Monitoring progress against the Group’s sustainability agenda and strategy.
• Approval of the Group’s Modern Slavery Statement.
• Approval of Phoenix’s Climate Biennial Exploratory Scenario results submission.
• Participation in a significant programme of education on the Taskforce on Climate related
Financial Disclosure.
• Monitoring the ongoing COVID-19 situation – impact on workforce and return to the office
roadmap.
• Approval of Group risk policies.
• Whistleblowing oversight.
• Monitoring of internal perception of culture and alignment with the Phoenix purpose and values.
• Oversight of engagement scores from monthly pulse surveys.
• Monitoring of empowerment initiatives and approval of enhanced delegated authorities to
support an empowered culture within risk appetite.
• Monitoring of progress towards targets aligned with the Women in Finance Charter.
• Monitoring of data collation through the ‘Who We Are’ application (including data on social
mobility, ethnicity, gender and sexual orientation within Phoenix).
• Oversight of people capability requirements and management actions to enhance capabilities.
• Monitoring of diversity in ExCo +1 (Business Leadership) and ExCo +2 (Senior Leadership) role
hires.
• Approval of Board and Executive Succession Plans.
• Approval of appointment of Group and material subsidiary Board changes.
• Reviewing changes to the Executive Management Team and succession planning.
Risk management
and assurance
• COVID-19 monitoring and stress and scenario testing.
• Monitoring of the Group’s risk culture.
• Approval of the Group’s Risk Appetite, agreement on Principal Risks and assessment of the
approach to identifying and managing emerging risks.
• Monitoring performance against the Group’s operational risk management framework.
Corporate governance
and reporting
• Simplification of governance continued.
• Monitoring compliance with the Code.
• Internal Board effectiveness review.
• Subsidiary oversight.
• External reporting.
• Annual General Meeting – held on 14 May 2021.
Additional activities have been
undertaken by the PGH plc Board
Committees during the year, in line with
their terms of reference. Key activities
and decisions of these committees are
highlighted in each respective Board
Committee report on pages 94 to 107.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
A clear model of virtuous decision-making
Our purpose to help people secure a life of possibilities is at
the centre of decision-making. This drives our strategy and
underpins our culture to be a customer obsessed force for
good – a business with a forward looking and clear sense
of responsibility for stakeholders. The Group’s defined
values are enablers for our culture with consistent
application permeating throughout the Group, role
modelled by the Board.
The views and needs of stakeholders (including those of
future generations) are central to Board decisions because
stakeholders are at the core of our purpose. Effective decision-
making is key to the success of our Group and the achievement
of sustainable long-term growth. The diagram below illustrates
how various considerations are connected and brought
together by the Board to deliver robust and virtuous decisions
for the short, medium and long-term success of the Group.
O u r governance
s
Customers G
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Culture
Who we are and
the behaviours and
approach to achieve our
purpose and strategy
Values
How we foster the right
behaviours needed to
drive sustainable long
term success
Strategy
Direction to achieve
our purpose
Purpose
Why we exist, what
we do and what we
want to achieve
ov
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C
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The Board must balance a number of requirements when making decisions. The UK Corporate Governance Code (the ‘Code’)
places significant importance on the effectiveness of Board decision-making and subsequent impact. Phoenix Group Holdings
plc fully endorses the principles and provisions of the Code and the Board ensures an inclusive approach to stakeholders, taking
into account the needs and considerations of a variety of stakeholder groups, when making decisions. This approach to decision-
making is coupled with a strong focus to deliver outcomes aligned with the Group’s purpose and the achievement of our strategy.
Phoenix Group Holdings plc Annual Report and Accounts 2021
81
Corporate governance
Board leadership and Company purpose continued
Stakeholder engagement
from the top
Helping people secure a life of possibilities by
understanding what matters to them.
The Directors of Phoenix Group Holdings
plc are required, by the Companies Act
2006, to act in a way that is most likely to
promote the success of the Company for
the benefit of its members as a whole. In
doing so, they must also consider the
impact of the Board decisions on wider
stakeholders and the environment.
Directors require a clear understanding
of the interests of Phoenix’s stakeholders
to assess the impact of the Group and its
activities. As such, the Board ensures
engagement with key stakeholders
throughout the year, through direct Board
engagement and oversight of engagement
undertaken by the management. The
Board considers the following to be the
Group’s key stakeholders.
Stakeholder
Group
Key strategic link- why the Board
considers our stakeholder to be key
How the Board has engaged with, and overseen the Group’s
attention to, its stakeholders
Customers
Our customers are core to our
purpose and strategic priorities.
By listening to their needs and
what matters most, the Group is
able to truly progress towards
helping people to secure a life of
possibilities. Without our customers
we would not exist and the Board
recognises the responsibility it
has to oversee the success of the
business for all customers.
• The Board received regular updates from management on the
potential impact on customer service as a result of projects
undertaken, with detailed oversight of customer service being
undertaken by the subsidiary Board for the Phoenix Life
Companies and its committees.
• The Board monitored the impact of the Group’s change agenda,
including sufficient resource to maintain focus on customer
outcomes and conduct risk management.
• The Board Remuneration Committee (which reported to the
Board on a regular basis) focused on customer outcomes during
the year, allocating 25% of the 2021 Annual Incentive Plan to be
aligned with customer satisfaction metrics (see the Directors’
Remuneration Report on page 106 to 136 for more detail).
• A customer call listening session was held in response to a request
from the Board Sustainability Committee, with an invitation open
to all Board members to attend. The session involved listening
to real customer calls, including examples of management’s
approach to supporting vulnerable customers.
The Board’s role in
promoting positive
relationships with
stakeholders
The Board held
management to account
throughout the year,
ensuring due care and
attention was given to
customer outcomes
and needs, especially in
the context of data and
platform migration work
and projects to grow and
develop the Group.
Colleagues
Our colleagues are a key asset to
the Group and their dedication,
commitment and capabilities are
integral to the Group’s success.
Colleagues glue our common
values together and champion a
culture that genuinely strives for
the achievement of our purpose
and strategy. The Board is clear
that colleagues are key to the
achievement of our strategic
priorities and long-term success.
• The Board received updates on colleague wellbeing,
engagement levels and additional support measures provided
to mitigate the impact of the pandemic and periods of lockdown,
such as additional carers’ leave and IT equipment for children
being home-schooled.
• The Board monitored the impact of projects and the Group’s
change agenda on colleagues, including potential areas of
stretch on resource.
• Members of management, beyond the Executive Committee,
were invited to join the Board to present and take part in
discussions at meetings throughout the year.
• The Board and Board Sustainability Committee received updates
from the Designated Non-Executive for Workforce Engagement
following engagement sessions with colleagues, including
meetings with the Phoenix Colleague Representation Forum.
• Once in-person restrictions were eased, Board members met
with colleagues for an interactive lunch to discuss a range of
issued including the Group’s purpose, culture and impact on
wider society and the environment.
The Board sets the
cultural tone from the
top and engages with
colleagues (both directly
and indirectly) which is
key to ensuring positive
relationships. Two-way
engagement enables
colleagues to be kept
informed of how the Board
is driving the Group in
the right direction and
enables the Board to
stay connected to what’s
important to colleagues
and how the decisions
it makes impacts their
working lives.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Stakeholder
Group
Key strategic link- why the Board
considers our stakeholder to be key
How the Board has engaged with, and overseen the Group’s
attention to, its stakeholders
• The Board received regular updates from the Group Chief
Executive Officer on investor relations activities and feedback/
questions received from investors.
• The Board engaged with investors on the topic of ‘Phoenix of
the future’ as part of the Group’s bi-annual investor consultation
process. Following interviews with investors (representing c.40%
of the Company’s issued share capital), the Board received an
in-depth report containing investor feedback and opinions for
consideration. The report highlighted consensus of opinions
between investors and areas with a broader range of views;
enabling the Board to understand where investors might benefit
from enhanced communication in future.
• Investor feedback from the Group’s results announcements and
investor roadshows was reported to the Board during the year.
• Board members, including the Board Chairman and Non-
Executive Directors acting in the capacity of Committee
Chairs, were available to investors for engagement, including to
answer questions on significant matters related to their areas of
responsibility. Prior to, and at, the Company’s Annual General
Meeting (which was video webcast), investors were able to submit
questions to be answered by each of the above.
• The Chairman has, since the end of 2021 (January 2022),
undertaken a schedule of meetings with major investors to
discuss topical matters of importance to them.
• The Board received regular updates from the Group Chief
Executive Officer on customer service performance and
outsourced services (including any ongoing impact of the
pandemic thereto), with additional detailed oversight being
undertaken by the subsidiary Board for the Phoenix Life
Companies and its committees.
• The Board and its Risk Committee monitored risks related to
suppliers, including the potential for poor customer service and
risks connected with the migration of acquired books of business.
Such monitoring included discussions with regulators to ensure
clarity of Phoenix’s focus on positive customer outcomes.
• The Board Risk Committee received updates from the Group
Chief Risk Officer on service levels provided by suppliers and
considered fulfilment of Service Level Agreement terms in
the year, with detailed oversight of customer service being
undertaken by the subsidiary Board for the Phoenix Life
Companies and its committees.
• The Board approved the Group’s Modern Slavery and Human
Rights Statement which outlines steps that Phoenix took, in the
financial year ended 31 December 2020, to ensure slavery and
human trafficking has not taken place in our supply chain; and
sets out an expectation for suppliers to meet the Group’s Supplier
Code of Conduct.
• The Board Sustainability Committee received updates on
progress against KPIs and targets aligned with the Group’s
community engagement strategy, with relevant highlights
reported to the Board.
• The Board Sustainability Committee participated in a community
engagement deep dive session which focused on the Group’s
approach to engaging with our communities, progress made
during 2021, future goals and embedded connection with
Phoenix’s culture.
Investors
Our investors are vital to the future
success of the Company and
have played an essential key role
in the growth and achievements
of the Group to date. Phoenix is
dedicated to delivering long-term
value to our shareholders and
intends to provide a dividend that
is sustainable and grows over time.
The Board understands the value
our investors add to safeguarding
the Group’s governance through
monitoring of performance, the re-
election of Directors on an annual
basis and dialogue with Phoenix
throughout the year.
Suppliers
We depend on our suppliers in
order to deliver services to our
customers and provide the Group
with operational support, working
in partnership with Phoenix to
achieve our strategic priorities.
The relationships we maintain
and develop with our suppliers,
strategic or otherwise is of vital
importance in our drive to achieve
our ultimate purpose of helping
people secure a life of possibilities.
Communities
Our purpose to help people secure
a life of possibilities extends to our
communities. These communities
comprise our colleagues (including
future colleagues), customers
(including future generations of
customers), suppliers and many
other stakeholders. The Board
understands the importance
of building trust and inspiring
confidence through community
engagement and partnerships.
As the UK’s largest long-term
savings and retirement business,
it is vital that Phoenix understands
the needs of communities and
provides support to close the
pensions and savings gap in society
in order to achieve our purpose.
The Board’s role in
promoting positive
relationships with
stakeholders
The Board monitors
investor sentiment and
feedback throughout the
year to ensure Phoenix is
able to respond to investor
concerns, which is key to
the success of the Group.
The Board also ensures
that the Group’s strategy
and purpose are set to
ensure the long-term
success of the business
and generation of value
for shareholders.
The Board monitors the
performance of suppliers
and the relationships
held therewith to ensure
Phoenix is able to provide
the best customer
outcomes possible and
deliver on its operational
and financial targets.
Positive relationships with
suppliers are key to the
success of both Phoenix
and our suppliers
The Board, through the
Board Sustainability
Committee, has
monitored management’s
engagement activities with
our communities, ensuring
that Phoenix is able to fulfil
its purpose and colleagues
have the opportunity to
participate in charitable
giving and volunteering
within the community. It
is the Board’s role to hold
management to account
in maintaining sufficient
resources needed to
support our communities.
Phoenix Group Holdings plc Annual Report and Accounts 2021
83
Corporate governance
Board leadership and Company purpose continued
Stakeholder
Group
Key strategic link- why the Board
considers our stakeholder to be key
How the Board has engaged with, and overseen the Group’s
attention to, its stakeholders
Government,
trade bodies
and regulators
As the UK’s largest long-term
savings and retirement business,
our business is subject to financial
services regulation. As a FTSE
100 constituent, Phoenix Group
Holdings plc is subject to listed
entity regulation. The way we
operate and interact with our
regulators provides the trust
and reassurance needed by
stakeholders to enable Phoenix
to deliver its purpose. Our
relationships with the Government,
trade bodies and regulators is also
of vital importance in facilitating
the Group’s role as a thought leader
and our ability to communicate
the views and concerns of our
customers and society generally.
• The Board as a whole met with the FCA and PRA during the year
to discuss routine regulatory matters.
• Board directors met with the FCA/PRA on an individual basis
to undertake ‘close and continuous’ meetings required by
the regulator.
• The Board received updates on management’s interactions
with regulators and any feedback received from those bodies,
including on matters such as acquisitions and the Group’s
harmonised internal model application. The Board Audit
Committee and Board Sustainability Committee considered the
Group’s Climate Biennial Exploratory Scenario submission prior
to its release to the Bank of England, holding management to
account with regard to the reliability and value of the content.
• The Board Risk Committee ensured oversight of regulatory
relationships, supported by regular reporting from the Group
Chief Risk Officer.
The Board’s role in
promoting positive
relationships with
stakeholders
The Board plays an
important role in
overseeing and enriching
the relationships
between Phoenix and
Government, trade
bodies and regulators.
As the guardian of the
Group, (ensuring robust
governance, controls
and risk management)
the Board is responsible
for holding management
to account for day to
day compliance with
regulation and legislation;
ensuring transparent
communication of such
compliance to maintain
trust in Phoenix as
a responsible
corporate citizen.
Details of the Group’s broader
stakeholder engagement can be
found in the Strategic Report
on pages 42 to 43.
Board Directors’ fulfilment of their duty
under Section 172 Companies Act 2006
during 2021 Section 172 of the Companies
Act 2006 (the ‘Act’) requires each director
of a company to act in the way he or she
considers, in good faith, would most likely
promote the success of the Company for
the benefit of its members as a whole. In
doing so, each director must have regard,
amongst other matters, to the:
•
likely consequences of any decisions in
the long term;
•
interests of the Company’s employees;
• need to foster the Company’s business
relationships with suppliers, customers
and others;
impact of the Company’s operations on
the community and the environment;
• desirability of the Company maintaining
•
a reputation for high standards of
business conduct; and
• need to act fairly as between members
of the Company.
Pages 85 to 87 contain examples of key
decisions of the Board, their alignment
to the Group’s strategy, how the
Board reached its decision (including
consideration of matters set out in Section
172; the interests of stakeholders; related
risks and opportunities; and challenges
it faced) and the outcome of those
considerations. The examples shown are
provided to demonstrate how the Directors
of the Company have carried out their
duties under Section 172 of the Act.
During the year, the Directors of Phoenix
Group Holdings plc have acted in a way
that they considered, in good faith, to be
most likely to promote the success of the
Company as a whole – having regard to
the matters set out in Section 172 (1)(a) – (f)
of the Act. The Directors also considered
the impact on, and interests of, Phoenix’s
stakeholders when making decisions and
providing oversight and leadership of
the Group. The Directors have applied
Section 172 of the Companies Act 2006
in a manner consistent with the Group’s
purpose, values and strategic priorities,
having due regard to the Group’s
ongoing regulatory responsibilities
as a financial services operation. To
support the fulfilment of the Directors’
duties outlined above, each paper
prepared for consideration by the Board
contains an analysis of the potential impact
of proposals to be considered by the
Board in light of the factors contained
in Section 172.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Example key Board
decision
Strategic priorities
connection
Enhance our
operating model and
culture
Innovate to provide
our customers with
better financial
futures
Approval of the Group Sustainability Strategy
How the Board reached its decision
Consideration of matters set out in Section 172 of the Act
When approving the Group sustainability strategy, the Board considered the direct link that the strategy had to the
Group’s purpose and strategy, both of which support the long-term success of Phoenix.
The Board was able to correlate the sustainability strategy with the impact on colleagues as a result of the ‘People and
Culture’ element forming part of that strategy. The Board considered the impact of the strategy on customers, noting
the commitment being made to improve financial and social wellbeing of customers of today and tomorrow. The Board
also noted the impact on suppliers which was likely to increase accountability for this group of stakeholders to meet ESG
standards expected by Phoenix. As standalone elements of the sustainability strategy, the Board was able to pay due
regard to the impact that approving the strategy would have on the environment and our communities, noting the positive
commitments within the strategy to reduce Phoenix’s impact on the environment and to support communities.
The Board noted the importance of the sustainability strategy for the Group’s investors. The adoption, and publication, of
a strong strategy in this area is key to enabling investors’ understanding of Phoenix’s approach to the long term success of
the Group and its role as a responsible business.
Invest in a
sustainable future
Consideration of wider stakeholders
The Board considered the UK Government’s decarbonisation commitment by 2050 and the alignment between the
sustainability strategy therewith (i.e. the goal to decarbonise the Group’s investment portfolio and achieve net zero
carbon by 2050).
Relevant risks and opportunities
When considering the sustainability strategy, Board members (through the Board Sustainability Committee) considered
the risks associated with setting KPIs and external commitments which may not be met, versus the risk of not setting a
sufficiently stretching strategy to enable Phoenix to drive forward the achievement of our purpose.
Challenges faced when making the decision
Prior to the Board’s approval, the Board Sustainability Committee challenged management to ensure that the strategy
was sufficiently stretching and would enable Phoenix to keep pace amidst shifts in expectations in the market and from
stakeholders. The sustainability strategy was modified following the Board Sustainability Committee’s initial review,
brought back to the Committee and challenged again to ensure that outcomes were appropriate prior to Board approval.
Committee reporting to the Group Board supported its decision for approval.
Outcome and impact
of the decision
The Board approved the 2021 Group sustainability strategy following due consideration of the matters set out in Section
172 of the Act and wider stakeholders.
Approval of the sustainability strategy enabled management to act in accordance with agreed boundaries set by
the Board. The approval of this strategy also enabled relevant KPIs and targets to be set and approved by the Board
Sustainability Committee. Together, the strategy, KPIs and targets have driven the delivery of strong results for 2021.
More detail can be found in the 2021 Group Sustainability Report.
Phoenix Group Holdings plc Annual Report and Accounts 2021
85
Corporate governance Board leadership and Company purpose continued
Example key Board
decision
Strategic priorities
connection
Grow our business
to support both
new and existing
customers
Invest in a
sustainable future
Approval of allocation of additional capital for Bulk Purchase Annuity (‘BPA’) investment transactions
How the Board reached its decision
Consideration of matters set out in Section 172 of the Act
When determining whether to approve the allocation of additional capital for investment in external BPA transactions
during the year, the Board considered the long-term impact of its decision. It was noted that the further investment
would increase the Group’s long-term cash generation for 2021 and support growth of long-term free cash. The Board
recognised that the decision to approve the allocation would support the Group’s overall growth strategy and the long-
term success of the business. The long-term success of the business directly impacts a continued sense of job security for
colleagues, thus the decision to approve the allocation could be seen to positively support the interests of employees.
When considering the request for additional capital, the Board reflected on the expected long-term benefit of the Group
writing significant volumes of BPA business in future on the Group’s resilience and positive long-term impact for investors
and customer security.
The Board noted the indirect impact of the decision on the Group’s sustainability strategy (specifically for ‘Responsible
Investment’ through investment in illiquid assets) and resulting positive impact on the environment.
By considering financial analyses relating to the additional capital request (provided by management), the potential
impact of the decision to the Group’s reputation for high standards of business conduct could be ascertained and
associated potential risks and opportunities understood.
The Group’s investors were, of course, considered by the Board through consideration of the required Internal Rate
of Return.
Consideration of wider stakeholders
Prior to the Board’s decision, the Board Risk Committee considered regulatory expectations relating to the
Group’s solvency capital ratio, noting that there would be no related regulatory issues if the planned BPA
transactions were completed.
Relevant risks and opportunities
Prior to the Board’s decision, the Board Risk Committee reviewed risks relating to the increased allocation of capital,
including potential impact on liquidity. The Board Risk Committee noted that appropriate mitigation existed to enable
the Board to approve the request and ensure the Group remained within risk appetite.
The associated opportunities are outlined above under ‘Consideration of matters under section 172 of the Act’.
Challenges faced when making the decision
The Board challenged the potential capital strain resulting from the allocation of additional capital, including in relation
to future BPA transactions. The balance between temporary capital strain, long-term cash generation and growth of the
Group was well considered as a result.
Outcome and impact
of the decision
After due consideration of the matters set out in Section 172 of the Act, related risks and opportunities and the impact
on wider stakeholders, the Board approved the allocation of additional capital for BPA investment transactions. This
supported Phoenix achieving £950 million of new business long-term cash generation through the Group's Retirement
Solutions business, having contracted £5.6 billion of BPA premiums during the year.
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Example key
Board decision
Strategic priorities
connection
Enhance our
operating model and
culture
Grow our business
to support both
new and existing
customers
Innovate to provide
our customers with
better financial
futures
Approval of the acquisition of the Standard Life brand and wider transaction to simplify the Group’s strategic
partnership with abrdn.
How the Board reached its decision
Consideration of matters set out in Section 172 of the Act
When considering the proposal to acquire the Standard Life (‘SL’) brand, as part of a wider transaction to simplify the
Group’s strategic partnership with abrdn, the Board considered the strategic benefits of the transaction, including
enhanced competitiveness of the Group’s Open business as part of the long-term direction for Phoenix in support of the
Company’s ‘wedge’ hypothesis (see page 36 for more detail).
The Board considered the impact of the decision on customers, noting the consequence of a more consistent customer
experience, additional digital service capabilities for customers and faster delivery of propositions designed to meet
changing customer needs. This would enhance customer outcomes and service, thus supporting a reputation for high
standards of business conduct.
The Board noted the resulting impact on colleagues, including removal of operational complexity associated with the
Phoenix-abrdn cross-company working arrangements at that time. The Board also considered a subsequent increase
in control for management in relation to sales and marketing processes for the Open business, supporting the Group’s
culture of empowerment and innovation.
The Board considered the interests of investors and need to ensure clear communication of the rationale for action. The
Board noted that the impact of the decision would include sustainable long-term cash generation and support for the
Group’s ‘wedge’ hypothesis – an important message for investors to understand the future potential success of the business.
Consideration of wider stakeholders
A key stakeholder considered as part of the Board’s decision to approve the transaction referred to above was abrdn as
a strategic partner of Phoenix. The Board reflected on the ability to enhance the relationship with abrdn by significantly
simplifying the arrangements of the strategic partnership between both parties. The new arrangements would enable
continued use of abrdn’s asset management services in support of Phoenix’s growth strategy, for the benefit of the
Group’s stakeholders.
Relevant risks and opportunities
Prior to the Board’s decision, the Board Risk Committee considered the impact on operational and conduct risks for the
business. It was noted that the transaction would reduce the Group’s exposure to these risks and also exposure to strategic
risk in respect of the Open business strategy.
The associated opportunities are outlined above under ‘Consideration of matters under Section 172 of the Act’.
Challenges faced when making the decision
The Board Risk Committee noted the challenges expected as a result of the Board’s decision to approve the transaction,
including the complexity of the transaction itself and subsequent activity required for the separation of processes and
implementation of the associated change programme. The Board considered these challenges as reported by the Board
Risk Committee.
Outcome and impact
of the decision
After due consideration of the matters set out in Section 172 of the Act, related risks and opportunities and the impact on
wider stakeholders, the Board approved the acquisition of the Standard Life brand and wider transaction to simplify the
Group’s strategic partnership with abrdn. The Group was able to announce that Phoenix Group Holdings plc and abrdn
had entered into a new binding strategic partnership agreement in February 2021, including the Group’s ownership of the
Standard Life brand. Since this announcement, the Group has continued to enhance our Open business and customer
propositions for the benefit of stakeholders.
Phoenix Group Holdings plc Annual Report and Accounts 2021
87
Corporate governance Board leadership and Company purpose continued
Engagement in action –
listening to the colleague voice
Report from the Designated Non-Executive Director for Workforce Engagement
Engagement with colleagues is integral to our strategy and vision to be the best
company that colleagues have ever worked for. Our colleagues are what enable
Phoenix to grow and succeed, and through regular two-way dialogue, the Board
seeks to understand the issues that matter most to our colleagues.
Evolving our culture
The business has grown significantly
over the past few years, and it has been
important for Phoenix to create a single
culture for our colleagues to identify with.
A key strategic priority for the business
has been to evolve the different heritages
that our colleagues have come from into a
common and clear purpose-led culture.
Throughout 2021 we have continued to
support our colleagues in navigating the
unprecedented external environment,
with colleague wellbeing at the heart of
this. This year we launched our future
ways of working model, which centred
on enabling colleagues to work in a more
agile way whilst managing the needs of
the business and maintaining a strong
customer service proposition. Alongside
this, significant focus has been placed
around our sustainability agenda, which is
a topic that is incredibly important for both
our colleagues and customers.
A further strategic priority is ensuring
that we create a culture and environment
where all colleagues feel that they belong,
they are valued, and they can speak up
confidently. Through the rollout of our
‘Who We Are’ app, and by moving to a
monthly engagement survey that enables
continuous listening, the Executive Team
and the Board have been able to gain a
more granular level of insight into how our
colleagues are experiencing working at
Phoenix. This insight has enabled us
to understand better and act quickly
to support our colleagues.
How the Board has engaged with,
and monitored the Group’s approach
towards support and inclusivity for
colleagues in 2021
The Board sets the cultural tone for the
organisation and seeks to engage with
colleagues, both directly and indirectly,
throughout the year. The Board recognises
that colleagues are central to the
achievement of our strategic priorities and
the Group’s ability to provide customers
and wider stakeholders with the best
possible outcomes.
In my role as the Designated Non-
Executive Director for Workforce
Engagement, I carried out a programme
of virtual and in-person visits and sessions
across the business this year. In early 2021
the Phoenix Colleague Representation
Forum (PCRF) was established. This is a
colleague-led forum made up of colleague
representatives from each of our functions
that I meet with quarterly to speak directly
to colleagues. Partnering with the PCRF
has resulted in improved engagement with
colleagues, enabling direct, honest and
open conversations and more frequent
feedback promoting continuous listening
through a variety of channels.
The following key themes discussed with
colleagues throughout the year.
• Organisational change agenda: The
impact of large-scale change projects
and the Group’s overall change agenda.
• Sustainability: The Group’s evolving
approach and key actions towards
becoming a market leader in this space.
• Diversity & Inclusion: The steps we are
taking to recognise our differences,
making sure everyone feels valued
and to build out our demographic
understanding of our colleague base.
• Continuing our support in response to
COVID-19 and colleague wellbeing:
Focusing on colleague wellbeing,
engagement levels and additional
support measures provided to mitigate
the impact of the pandemic and periods
of lockdown.
• Future Ways Of Working: Our approach
and the value of empowerment.
A broad spectrum of colleagues were
invited to join to present and take part
in the various discussions and meetings
throughout the year. After the quarterly
meetings, the PCRF representatives share
feedback with colleagues and key items
are included within a PCRF newsletter. I
also share regular feedback from these
sessions to the Board, which provides
additional perspective and insights
on colleagues to the Board, including
colleague wellbeing, their views on the
change agenda and the evolution of the
Group’s strategy as a sustainable business,
underpinned by a clear purpose to help
people secure a life of possibilities.
Continuing to develop two-way
communication enables colleagues to
be kept informed of how the Board is
engaged in overseeing the development
and execution of the Group’s strategy and
enables the Board to stay connected to
what’s important to our colleagues and the
impact of Board the decisions.
Quote from Sara Thompson, Group HR
Director: “As the Group’s HR Director,
I regularly update the Board on our
people and culture agenda. All of our
colleagues are core members of our team,
and together we continually enable the
business to grow and succeed. Phoenix
isn’t just our employer, it is ‘our place’,
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Phoenix Group Holdings plc Annual Report and Accounts 2021
It’s been brilliant to hear things directly
from Karen as it brings some of the
initiatives to life a bit more as well as
showing her personal interest in the items
she raises. This allows us to put questions
directly that may not come up via the
usual channels in an unfettered manner.”
Ted Batham
Lead Rep – ALPHA IT
and that’s the experience we endeavour
to give all of our colleagues – a place in
which everyone dreams to be, a place
in which everyone belongs, and where
they can be authentic and happy, a place
in which everyone leads, and a place in
which everyone helps to create. Working
closely with Karen has been a key enabler
this year. Our partnership means that we’re
also able to leverage the feedback cycle.
By using insights from our continuous
listening strategy, we effectively share and
distribute updates. Karen shares insights on
the Board’s activities and hears feedback
from colleagues, escalation of matters
raised at engagement sessions to Group
Chief Executive Officer/ExCo comes via
me, and I also attend with Karen, and our
PCRF reps share feedback/insights from
colleagues with Karen.”
“Meetings with Karen have enabled really
great two-way engagement between the
Board and colleagues. We’ve been able
to hear about the Board’s activities and
priorities as well as provide questions and
insights from colleagues in our areas. I
think the ability for lead reps to share so
openly with Karen speaks volumes about
the culture at Phoenix. We really are able
to be honest about the good and the not
so good times even with the most senior
members of the business. I think that
credit is due to the Board and our senior
leaders for creating an environment where
there is a genuine sense of psychological
safety. Credit is also due to colleagues for
being brave enough to ensure dialogue
about things that matter to us in our
working lives. Personally, I was able to
collate colleague insights ahead of the
meeting by circulating the agenda topics
and letting people know that this was a
great opportunity to let the Board know
our thoughts, feelings and ideas. I had a
good response rate and even from more
senior members of my areas. Following
the meeting, I wrote to each colleague
who contacted me to loop back on the
feedback they provided and informed
them of relevant highlights from the
meeting.” Sarah O’Reilly Lead Rep –
Corporate Affairs & Investor Relations/
General Counsel
Karen Green
Designated Non-Executive Director for
Workforce Engagement
Phoenix Group Holdings plc Annual Report and Accounts 2021
89
Corporate governance
Division of responsibilities
Valuing diversity of thought and
independence on the Board
Clear roles and responsibilities to drive forward our purpose and strategy.
The Directors of Phoenix Group Holdings
plc understand the role they play as
individuals, and as a collective, to ensure
the long-term success of the Company and
achievement of the Group’s purpose.
As a matter of good governance, the
Board ensures the appropriate division of
responsibilities on the Board, ensuring no
existence of unfettered power nor
over-reliance on any one person. The
independence of Directors not only
supports good governance, but also
facilitates diversity of thought and
inclusion on the Board.
Division of responsibilities on the Board
Chairman
Chief Executive Officer
Senior Independent Director
Nicholas Lyons is Chairman of the Board of
Phoenix Group Holdings plc.
Andy Briggs is Group Chief Executive Officer of
the Company.
Alastair Barbour is the Senior Independent
Director (‘SID’) of the Board.
The Chairman is responsible for:
The Chief Executive Officer is responsible for:
The SID is responsible for:
• overall management and operation of the Group
within the limits delegated by the Board; and
• operational matters relating to:
- Business Strategy and Management
- Investment and Financing
- Risk Management and Controls
- Regulation
- Communication
- HR Policies.
The Group Chief Executive Officer’s external
commitments are set out on page 74 within
this report.
• the leadership and effective operation of
the Board;
• chairing, and overseeing the performance of
the role of the governing body of the firm;
• leading the development of and monitoring
the effective implementation of policies and
procedures for the induction, training and
professional development of all members of
the firm’s governing body;
• leading the development of the firm’s culture
by the governing body as a whole; and
• ensuring an orderly succession process for
the Group CEO and the Board as a whole.
The Chairman’s external commitments
are set out on page 74 within this report.
The Chairman was independent upon
appointment and was appointed on the
basis of committing two days per week
to the Group.
Designated Non-Executive Director
for workforce engagement
Independent Non-Executive Directors
Karen Green is the Designated Non-Executive
Director for Workforce Engagement.
The Board considers the following Directors to be
independent:
The Designated Non-Executive Director for
Work-force Engagement is responsible for:
• acting as the primary Board contact in
facilitating and developing communication
between colleagues across the Group and
the Board;
• providing the “Employee Voice” to the
Board by raising relevant matters, or issues
of concern, highlighted by engagement with
the workforce; and
• challenging the Executive Directors, as
needed, as to the way in which workforce
engagement is undertaken and steps taken
to address workforce concerns.
• Alastair Barbour
• Karen Green
• Wendy Mayall
• John Pollock
• Belinda Richards
• Nicholas Shott
• Kory Sorenson.
The Board has considered the criteria proposed
by the UK Corporate Governance Code in
assessing the independence of the Directors.
• being available to shareholders whose concerns
are not resolved through the normal channels
or when such channels are inappropriate;
• leading the annual appraisal of the
Chairman’s performance by the Non-
Executive Directors (For 2021, the process
concluded with a meeting of the Non-
Executive Directors without the Chairman
present. The review determined that the
Chairman was a very effective leader of
the Board.);
• acting as the sounding board for the Chairman;
• serving as an intermediary between the
Chairman and the other Directors as
necessary; and
• ensuring an orderly succession process
for the Chairman.
The Senior Independent Director’s external
commitments are set out on page 74 within
this report.
Shareholder nominated
Non-Executive Directors
Hiroyuki Iioka and Mike Tumilty are
Shareholder Nominated Non-Executive
Directors. Hiroyuki Iioka is appointed to the
Board on behalf of MS&AD Insurance Group
Holdings Inc. and Mike Tumilty is appointed to
the Board on behalf of abrdn plc.
As substantial shareholders with holdings of
over 10% of Phoenix’s issued share capital,
MS&AD Insurance Group Holdings Inc. and
abrdn plc are each entitled to appoint a
representative Non-Executive Director to
the Group Board.
Full descriptions of the roles and responsibilities of the Chairman, Group Chief Executive Officer, Senior Independent Director and
Designated Non-Executive for Workforce Engagement are available on the Company’s website.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Board member appointment terms
Terms and conditions of appointment
of our Non-Executive Directors are
on the Group’s website. The terms
of appointment for Directors state
that they are expected to attend in-
person regular (at least six per year)
and additional Board meetings and
to devote appropriate preparation
time ahead of each meeting. The
remuneration of the Directors is shown
in the Directors’ Remuneration Report
on pages 106 to 136.
2021 Board and Committee
meeting attendance
The Board met formally eight times
during 2021, including for a two-day
strategy setting meeting. The Board met
additionally for regular briefing meetings
to continue to monitor the impact of
the pandemic on Phoenix and ensure
oversight of achievement of the Group’s
strategic objectives. The Non-Executive
Directors met with the Chairman six times
without Executive Directors present.
The following Board and Board
Committee attendance is for all formal
Board and Board Committee meetings
held during 2021. The Nomination
Committee has confirmed its absolute
satisfaction with the time and
commitment given to Phoenix by
all Directors.
Board
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
Sustainability
Committee
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Chairman
Nicholas Lyons
Executive Directors
Andy Briggs (CEO)
Rakesh Thakrar (Group CFO)
Non-Executive Directors
Alastair Barbour
Karen Green
Hiroyuki Iioka
Wendy Mayall
Christopher Minter1
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Michael Tumilty
8/8
8/8
8/8
8/8
8/8
8/8
8/8
4/4
8/8
8/8
8/8
8/8
8/8
10/10
10/10
9/10
10/10
11/12
12/12
12/12
12/12
12/12
7/7
7/7
7/7
7/7
7/7
7/7
6/7
7/7
7/7
7/7
7/7
7/7
6/7
1 Christopher Minter resigned from the
Board on 25 June 2021
In addition to the above, the Board’s ad-hoc M&A Advisory Committee, comprised of Nicholas Shott (Chair), Alastair
Barbour, Karen Green and Belinda Richards, met eight times during 2021.
Board support
All Board Directors have access to the advice and services of the Group Company Secretary and their team to support the discharge of their duties and on
matters of governance. Appropriate policies, processes, information, time and resources are available to the Board to ensure its effective and efficient operation.
During the year, the Board reported ‘strong satisfaction’ with support provided by Company Secretariat. Company Secretariat ensure accurate and timely
records of Board and Board Committee meetings throughout the year, enabling unresolved concerns of Directors (about the operation of the Board or the
management of the Company) to be duly recorded. No such concerns were communicated during 2021.
Phoenix Group Holdings plc Annual Report and Accounts 2021
91
Corporate governance
Composition, succession and evaluation
Board composition and
development – set up for success
The composition of the
Board ensures a diverse
mix of backgrounds, skills,
knowledge and expertise
to enhance decision-
making; reduce the risk of
‘group-think’; and support
robust management of risk.
An overview of the Board’s
composition is set out
within the charts on
this page.
Board evaluation highlights
• The Board is constructive,
supportive and challenging to
management and functions
strongly as a unit, led by its well-
regarded Chairman, who has the
clear support of the Board.
• There is a healthy respect of
different views and recognition of
the different skills brought to the
Board table.
• The Board provides an
energetic sense of optimism
and determination to succeed,
with strong support for, and
confidence in, the CEO and
also the CFO and wider
management team.
• Good discussions are held in
relation to ESG and culture,
strongly supported by the
creation of the Board
Sustainability Committee.
• There is a desire for continual
improvement, and there is a strong
succession process, led by the
Chairman, supported by the Skills
Review undertaken during
the year.
• Board gender diversity is good;
greater ethnic and age diversity
is desired.
Gender balance
(including Chairman)
Ethnicity
(including Chairman)
Female 40% (outer) 33.3% (inner)
White (English/Irish/Other) 83.3%
Male
60% (outer) 66.7% (inner)
Asian (Indian)
Asian (Other)
8.3%
8.3%
Outer Ring – Excludes
shareholder nominated Directors.
Inner ring – Full Board including
shareholder nominated Directors.
Independence of
Non-Executive Directors
(not including Chairman)
Tenure of Directors
(including Chairman)
Independent
Non-Independent
77.8%
22.2%
0–3 years
3–6 years
6–9 years or more
33.3%
50%
16.7%
Board Skills and Expertise
The Board skills and expertise below shows a high level of skills in the expected categories and
a wide breadth of skills across the Board. The assessment of Board skills and areas of expertise
feeds into its succession planning and the ongoing recruitment of Non-Executive Directors,
with action being taken to address areas highlighted for strengthening.
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92
Phoenix Group Holdings plc Annual Report and Accounts 2021
Timeline of Board education
Each year, through its annual performance
review, the Board ensures a continuous
improvement cycle and clear focus on personal
and collective development through a formal
programme of education/deep-dive sessions.
The following education/deep-dive sessions were
provided for the Board during 2021.
Jan 2021
Taskforce on Climate related Financial Disclosure (‘TCFD’)
Current climate science, risks and opportunities; market,
regulatory and investor expectations; insurance sector
response to climate risk; potential impact and relevance
to purpose; progress and next steps; and board roles and
responsibilities on climate risk.
Senior Managers and Certification Regime (‘SMCR’)
Refresh on SMCR and business update; individual conduct
rules; reasonable steps, including the statutory duty
of responsibility; and Q&A.
Mar 2021
Jul 2021
Strategy
Various matters considered within the
context of the two-day strategy offsite.
Cyber
‘Cyber security’ and ‘cyber resilience’; the threat
landscape (ransomware; impacts of cyber-crime;
and threat scenarios); and the role of the Board
(governing cyber risk and regulatory focus).
Phoenix Harmonised Internal Model
An update on the Group’s Harmonised Internal Model
Application; material limitations of the Harmonised
Internal Model; and an update on Risk’s Harmonised
Internal Model Validation activity.
Aug 2021
Oct 2021
Nov 2021
TCFD
Climate scenario analysis and
the journey so far; Climate
Biennial Exploratory Scenario
(‘CBES’) exercise; regulatory
expectations with regards
to Governance and Board
engagement; and how the
CBES exercise will support
Phoenix’s wider climate
scenario work.
Digital
The Group’s Digital
strategy, covering
culture; process;
business model
and technology.
TCFD
Climate-related metrics and targets landscape;
approach to developing the Group’s climate-related
metrics and targets framework; recommended metrics
for FY21 disclosure and plans for FY22 disclosure; the
Group’s implementation plan; and target setting.
Cyber
The Group’s IT architecture; the Group’s Cyber
strategy and approach; benchmarking and driving
improvement; the cyber threat landscape; and
a Board ransomware workshop.
Phoenix Group Holdings plc Annual Report and Accounts 2021
93
Corporate governance
Nomination Committee report
Nomination Committee report
Q&A
with the Nomination
Committee Chair,
Nicholas Lyons
Q. What do you see as the
Nomination Committee’s key
areas of focus in 2022?
A. Continued forward-looking
succession planning as well as being
agile in changing current plans if
appropriate. Broadening our skill set
and cognitive diversity as we refresh the
Board, the Senior Independent Director
and chairs of committees of the Board.
We will continue to monitor the
excellent progress of the Sustainability
Committee as we embrace our
stewardship and broad societal
responsibilities.
Q. How has the Nomination
Committee considered Board
composition and diversity and
inclusion during the year?
A. We undertook a Board skills review
to ensure we have the breadth of skills
needed to oversee our strategy and
have enhanced the quality of the Board
and senior management through hiring
candidates that add diversity of
experience, skills and perspective.
We prioritise this in all mandates with
search firms and ensure that they, as
suppliers of services to Phoenix, are
aligned with these aims. To that end,
changes to our Board in 2022 will all
bring an element of diversity that will
enhance performance.
Q. What were the key highlights of the
Nomination Committee activity
during 2021?
A. Strong progress of our dynamic
succession planning, considering the
skills we need to keep driving our Board
performance higher against an evolving
background and looking to enhance
diversity in all respects.
Q. What challenges has the
Nomination Committee faced
during 2021?
A. The Board and Committees
responded with agility to the challenges
of the pandemic which required us to
adapt the format of our meetings
quickly. This we did seamlessly with
outstanding commitment from the
Board and extremely high attendance
levels. We have placed additional
emphasis on our strong cultural values
as we integrated new colleagues from
ReAssure and many other new hires in
our Open and Investment business
especially when so much of the year
required virtual communications and
remote working.
Q. How has the Nomination
Committee approached
succession planning during 2021?
A. By focusing on the skills required to
oversee our growing Open business
and Investment Oversight division, on
enhancing diversity of all kinds at senior
levels of the firm and on planning for
Board changes early, we have ensured
that we have identified excellent
candidates in good time to provide a
helpful period of overlap with the
upcoming departure of Directors and
senior executives.
Members
Nicholas Lyons (Chair)
Alastair Barbour
Nicholas Shott
Kory Sorenson
Key Nomination Committee
activities in 2021
• Board and senior executive succession
planning.
• Board Skills Review.
• Non-Executive Director recruitment –
actual and planned.
• Talent, capability, diversity and
inclusion reviews.
• Review of Directors’ time commitment
to Phoenix.
The composition of the Nomination
Committee is in accordance with the
requirements of the UK Corporate
Governance Code (“the Code”) that a
majority of its members should be
Independent Non-Executive Directors.
The Nomination Committee is responsible
for considering the size, composition and
balance of the Board; the retirement and
appointment of Directors; succession
planning for the Board and senior
management, focused on the development
of a diverse succession pipeline; and
making recommendations to the Board
on these matters.
The Nomination Committee met seven
times in 2021. Non-Executive Director
recruitment in 2021 paid heed to the
externally-facilitated December 2020
Board evaluation review which concluded
as follows:
“The Board is quite large, partly because
it includes three shareholder appointees.
The Board should not get bigger, yet it
will need to manage some conflicting
objectives, over time, including:
• Continuity, especially given the current
excellent performance, technical skills
and balance
Increasing the degree of real diversity (in
backgrounds, age and ethnicity)
•
• Strengthening open book experience
and instincts, customer insights and
digital skills.
The Board should remain largely settled as
it oversees this critical period in PGH’s
development.”
94
Phoenix Group Holdings plc Annual Report and Accounts 2021
Barbour the best appointee for this interim
role, but also that his longstanding
knowledge and commitment to Phoenix
will ensure a consistent approach to
Board matters.
Board evaluation review
In accordance with the Code, an
evaluation of the performance of the
Board and that of its Committees and
individual Directors was undertaken in the
latter part of 2021. The process was led by
the Chairman and internally facilitated by
the Company Secretary. The process
involved completion by Directors of a
questionnaire covering various aspects of
Board, Committee and Director
effectiveness followed by individual
meetings between the Chairman and each
Director, concluding in a Board report
which was discussed by the Board in
November 2021. The focus of the review
was to consider ways for the Board to
manage its time most effectively to drive
strategy and monitor performance in a
robustly compliant manner. The review
concluded that the Board is constructive,
supportive and challenging to
management and functions strongly as a
unit, led by its well-regarded Chairman,
who has the clear support of the Board;
and that there is a healthy respect of the
different views and recognition of the
different skills brought to the Board table.
Actions arising from the review were
consistent with this theme, underlining the
Board’s desire to continue to focus on
strategy and the Group’s future as a
growing Heritage and Open business.
The Directors emphasised that nothing is
materially wrong in the Board dynamic or
process. However, we strive to be a Higher
Performing Organisation in all areas and
there are several recommendations to
secure incremental improvements. These
largely focus on driving strategy, achieving
the most from the Board’s time together
and providing the Board with the right
information succinctly. These process-
centred actions are being taken forward
in 2022.
Nicholas Lyons
Chairman
The Board skills review, which we
undertook internally during the second
half of 2021 concluded as follows: “This is a
strong skills review, showing the high level
of skills in the expected categories and the
wide breadth of skills across the Board.“
The review then highlighted areas for
strengthening the Board which broadly
aligned to those raised by Consilium and
feature very strongly in our succession
planning and ongoing recruitment of
Non-Executive Directors.
During 2021, the Nomination Committee
was very active in its consideration of
non-executive succession, which following
further consideration by the full Board,
has led to:
• The appointment of Alastair Barbour as
Interim Chair during the Chairman’s
anticipated sabbatical as Lord Mayor of
the City of London from September
2022 to November 2023, subject to
regulatory approval.
• The appointment of Karen Green as
Senior Independent Director from
our AGM in May 2022, subject to
regulatory approval.
• The appointment of Katie Murray as a
new Non-Executive Director from April
2022, bringing not only excellent and
relevant skills and experience but also
diversity of age and gender and through
holding a current executive position as
the CFO of a major UK bank.
The standard process used by the
Committee for Board appointments
involves the use of an external search
consultancy to source candidates external
to the Group and, in the case of executive
appointments, also considers internal
candidates. Detailed assessments of
shortlisted candidates are undertaken by
the search consultancy, followed by
interviews with Committee members and
other Directors and the sourcing of
references before the Committee
recommends the appointments to
the Board.
The Board supports and complies with the
Hampton-Alexander guidance for FTSE
350 companies that the Board should be
comprised of at least 33% female
directors. The Board supports and
complies with the guidance of the Parker
Review for FTSE 100 companies that there
should be at least one “director of colour”
on the Board by 2021 (see pages 74 to 76
for Our Board of Directors).
The Board’s policy on diversity is as follows:
• The Board promotes the enhancement
of diversity, including gender, as
a consideration when recruiting
new Directors.
• The Board intends to comply on a
continual basis with the Hampton-
Alexander guidance that the Board
should be comprised of at least 33%
female directors and with the guidance
of the Parker Review for FTSE 100
companies that there should be at least
one “director of colour” on the Board.
• The Board’s overriding aim is to appoint
the right Directors to the Board to drive
forward the Group’s strategy within a
robustly compliant framework.
• The Board will undertake regular skills
audits to ensure the Board’s skills remain
appropriate for its strategy and
providing diversity where possible.
The Nomination Committee has been
instrumental in increasing gender diversity
on the Board and continues to take an
active role in oversight and guidance of the
executive diversity and inclusion process
including a focus on the development of a
diverse succession pipeline. Details of the
diversity and inclusion initiatives for
Phoenix colleagues (including the
executives) are contained in the Group’s
Sustainability Report. The Group’s senior
management gender diversity data is
contained in the Strategic Report on
page 44.
A further activity for the Nomination
Committee was to review the time spent by
Directors in fulfilling their duties. This
concluded that the time given by Directors
in 2021 exceeded the level expected in
their appointment terms.
To ensure that the Directors maintain
up-to-date skills and knowledge of the
Group, all Directors receive regular
presentations on different aspects of the
Group’s business and on financial, legal
and regulatory issues. All Directors receive
a tailored induction on joining the Board in
accordance with a process approved by
the Board.
In accordance with the provisions of the
Company’s Articles of Association and the
Code, all Directors will submit themselves
for election or re-election at the
Company’s AGM on 5 May 2022.
Alastair Barbour will reach a tenure of nine
years on the Board in October 2022. As
stated above and in the Group’s market
announcement of 23 February 2022, the
Board has agreed that, subject to
regulatory approval, Alastair Barbour will
assume the role of interim Chairman from 1
September 2022 until November 2023,
being the term of Mr Lyons’ sabbatical
from the Board while he undertakes the
role of Lord Mayor of the City of London.
The Board believes that not only is Alastair
Phoenix Group Holdings plc Annual Report and Accounts 2021
95
Corporate governance Audit, risk and internal control
Audit Committee report
Q&A
with the Audit
Committee Chair,
Alastair Barbour
Q. What were the key activities
of the Audit Committee activity
during 2021?
A. Foremost on our agenda has been:
ensuring that our financial reporting
whether publicly or for regulatory
purposes is accurate and transparent
for our shareholders and investors;
oversight of the assessment of internal
financial controls and, planning ahead,
a successful audit tender for 2024
recognising that our current auditors,
EY, will be leaving us after the 2023
audit. Clarity of reporting is an ongoing
area of focus for the Committee and we
believe that this continues to be
enhanced, as is a focus on the control
environment. I am comfortable that an
extremely thorough audit tender
process has occurred with KPMG LLP
being recommended to the Board
as our preferred auditor for 2024,
subject of course to the approval of
shareholders at the AGM following
the 2023 year end.
Q. What challenges has the Audit
Committee faced during 2021?
A. The key challenges have included
the oversight of the Risk Management
Framework and the control environment
supporting it in a period when
substantially all of our staff have been
working from home, together with the
pressures from an expanded Group
and our ambitious integration plans
plus a background of a very volatile
economic environment.
Q. How has the Audit Committee
engaged with Internal Audit
during 2021?
A. Interaction with the Internal Audit
function has always been extremely
important for the Audit Committee as it
provides an independent view and
perspective on our business, plus
important guidance on which the
Committee can rely. There is regular
formal reporting from Internal Audit to
the Committee, plus ongoing dialogue
held outside of the scheduled meetings
for me with the Head of Internal Audit
who is also accessible to all Committee
members.
Q. What do you see as the Audit
Committee’s key areas of focus
in 2022?
A. In addition to financial reporting and
ensuring the control framework remains
fit for purpose as our ambitions and key
projects evolve, the main focus will be
on the preparation for and
implementation of IFRS 17.
Q. How has the Audit Committee
monitored the Group’s whistleblowing
arrangements during the year?
A. Biannually, the Committee receives
formal updates from the Group’s
General Counsel on whistleblowing
activities and the operation of our
processes to enable confidential
reporting plus, if necessary, involvement
in the assessment and resolution of
individual matters raised in accordance
with our established policy.
96
Phoenix Group Holdings plc Annual Report and Accounts 2021
Members
Alastair Barbour (Chair)
Karen Green
John Pollock
Nicholas Shott
Key Audit Committee activities in 2021
and to the date of this report
• Reviewed the Company’s 2021
Annual Report and 2021 Interim
Financial Statements.
• Group External Audit Tender process
undertaken with KPMG LLP being
recommended for appointment
as the Group’s External Auditor
for the financial year ending
31 December 2024.
• Considered and reviewed the
actuarial processes, methodologies
and assumptions.
• Considered regular updates on the
2021 Internal Audit Plan.
• Reviewed and monitored the
effectiveness and independence of
the Company’s External Auditors.
Audit Committee role and focus
The composition of the Audit Committee
(also referred to as the ‘Committee’) is
detailed above and is in accordance with
the requirements of the UK Corporate
Governance Code 2018 (‘Code’) and also
with DTR 7.1.1AR. The Board has confirmed
that all four members of the Committee are
considered to be Independent Non-
Executive Directors. In accordance with
the Code, Alastair Barbour and Karen
Green are considered to have recent and
relevant financial experience. Also, in
accordance with DTR 7.1.1AR, at least one
member of the Committee has competence
in accounting and/or auditing as well as the
members as a whole having competence
relevant to the insurance industry.
The Committee met ten times during 2021.
Its meetings are attended by the Chair of
the Risk Committee (who is also a member of
the Audit Committee), the Group Chief
Financial Officer, the Group Financial
Controller, the Group Head of Internal
Audit, the external auditors and usually also
by the Group Board Chairman and Group
Chief Executive Officer. The Committee
holds private meetings at least annually
with each of the Group Chief Financial
Officer, the Group Head of Internal Audit
and the External Auditors. The Committee
acts independently of management, and
engages closely with both the Group
Risk Committee and the Phoenix Life
Companies Board Audit Committee to
ensure there is a good understanding
of the work undertaken by each and
enable efficient communication between
the committees.
Audit Committee’s principal
activities during 2021
Throughout 2021 the Group has been
going through a period of change and
challenge with the ongoing transition
activities arising from the acquisition of
both Standard Life Assurance and the
ReAssure Group as well as the impact
on the Group of COVID-19. Oversight
of the impact of these on the control
environment and financial reporting has
been a key activity of the Committee as well
as considering and taking into account the
continued turbulence surrounding various
macroeconomic factors, leading to
volatility in the financial markets and their
consequent impact on the Group’s financial
assets and liabilities. Against this backdrop,
the main focus for the Audit Committee
continues to be oversight of the integrity of
the Company’s financial statements and
the soundness and effectiveness of the
Group’s systems and controls, together
with monitoring the effectiveness of both
the Internal and External Auditors.
In December 2021, following a robust and
thorough tendering process, the Group
Board formally approved the appointment
of KPMG LLP as the Group’s External
Auditor for the financial year ending
31 December 2024. More detail on the
process undertaken is shown below under
the section ‘Auditor’s Appointment’.
The following were the key areas of focus
for the Audit Committee during 2021 and
to the date of this report:
• Receiving and reviewing the Annual
Report and Accounts, the Solvency and
Financial Condition Report and other
financial results, statements and
disclosures, and recommending their
approval to the Board.
• Monitoring the overall integrity of
financial reporting by the Company and
its subsidiaries and the effectiveness of
the Group’s internal controls.
• Provision of advice to the Board to
enable the Board to report on whether
the Annual Report and Accounts, taken
as a whole, are fair, balanced and
understandable and provide the
information necessary for shareholders
to assess the Group’s position,
performance, business model
and strategy.
including approval of External Auditor
fees and non-audit services and for
reviewing the performance, objectivity
and independence of the External
Auditors.
• Considering and approving the remit
of the Internal Audit function and
reviewing its effectiveness.
• Receiving regular updates on the
implementation of IFRS 17 and on the
changes within the Finance and
Actuarial function which has been
required to ensure that the resource
framework aligns with the strategic
direction of the Group.
• Oversight of activities of subsidiary audit
committees through receipt and review
of minutes, discussions between the
Chairs of the Committee and subsidiary
audit committees, and the Committee
Chair’s attendance at the Phoenix Life
Companies Board Audit Committee on
an occasional basis, as well as his receipt
of all papers going to the Phoenix Life
Companies Board Audit Committee.
This oversight has been enhanced
further through the attendance at the
Committee’s meetings, at least annually,
by the chair of the Phoenix Life
Companies Board Audit Committee.
External reporting and controls
Throughout 2021 and up to the date of this
report, the Audit Committee has carried
out the following activities in relation to
the Group’s external reporting and the
effectiveness of its internal controls:
• Reviewed the Company’s 2020 and
2021 Annual Report and Accounts, and
2021 Interim Financial Statements,
recommending their approval to the
Board, as well as related disclosures and
the financial reporting process, supported
by reports from management and the
External Auditors.
• Reviewed the Group’s annual Solvency II
results and the Solvency and Financial
Condition Report, recommending their
approval by the Board.
• Reviewed a number of significant
matters in relation to the Group’s IFRS
and Solvency II reporting as summarised
in the table on page 100. These matters
were considered by the Committee to
be areas subject to the most significant
levels of judgement or estimation, and
identified with regard to the key audit
matters assessed by the Group’s
External Auditors as set out in their audit
opinion on pages 144 to 154. They were
assessed by the Committee in conjunction
with the External Auditors and on the
basis of initial review by the Phoenix Life
Companies Board Audit Committee.
• Reviewed the financial forecasts and
• Making recommendations to the Board
on the appointment of the External
Auditors and their terms of engagement
target setting prepared by management,
supported by the sensitivity analysis on
the key assumptions underpinning the
forecasts, in support of the assumption
that the Group will continue as a going
concern, the Group’s ongoing viability
and in support of dividend payments.
• Reviewed Line 1 risk and controls reports
from management, Line 2 internal
control assessments from Group Risk,
and Line 3 internal control environment
opinions from Internal Audit and
considered the appropriateness of
consequential proposed actions.
• Reviewed reports from Internal Audit on
the control environment in the Group’s
outsource service providers and on the
effectiveness of the Internal Audit work
undertaken within the outsourced
service providers, noting that this was
addressed in more detail by the Phoenix
Life Companies Board Audit Committee.
• Received dedicated briefings on matters
including Equity Release Mortgages,
Matching Adjustment considerations,
Taskforce on Climate-related Financial
Disclosures reporting and IFRS
Acquisition Balance Sheets.
• Received regular briefings as to the
progress of the IFRS 17 implementation
project and held focused education
sessions on the impacts of the revised
accounting standard.
• Received regular updates from
Company management, Internal Audit
and External Audit as to the impacts of
COVID-19 and the implementation of
remote working practices on the
Company’s accounting, reporting and
internal control activities. Assessed that
those processes remained fit for
purpose in supporting the Company’s
financial reporting and disclosure
obligations throughout 2021.
• The Group’s Annual Report and
Accounts 2020 were included in the
FRC’s sample for its limited scope
thematic review on IAS 37 Provisions,
Contingent Liabilities and Contingent
Assets disclosures. The Group
subsequently received a letter from the
FRC’s Corporate Reporting Review team
noting they had no questions or queries
that they wished to raise at this stage and
recommending improvements for
consideration in the 2021 financial
statements. The Committee noted that
further enhancements have been made
to disclosures in relation to provisions in
the 2021 financial statements in line with
the recommendations made. An FRC
review provides no assurance that the
Group’s Annual Report and Accounts
2020 were correct in all material
respects. The FRC’s role was not to
verify the information provided but to
consider compliance with reporting
requirements. Its letters are written on
the basis that the FRC (which includes
the FRC’s officers, employees and
agents) accepts no liability for reliance
Phoenix Group Holdings plc Annual Report and Accounts 2021
97
Corporate governance Audit, risk and internal control continued
on them by the Group or any third
party, including but not limited to
investors and shareholders
External Audit
A key part of the role of the Audit
Committee is the review and oversight of
the work of the Group’s External Auditor.
The Committee reviewed and discussed
various reports from the External Auditor
throughout 2021, including the 2021 Audit
Plan, progress reports against that plan,
and a report on their audit procedures on
the 2021 annual IFRS and Solvency II
results, and their interim review of the half
year 2021 IFRS results.
The Committee considered throughout
2021 and for the 2021 audit, the
effectiveness, engagement and
remuneration of the current External
Auditors. See ‘Assessment of the
effectiveness of the external audit process’
and ‘Auditor’s Appointment’ on this page
and page 99.
The External Auditor partner attended all
Audit Committee meetings during 2021
and to the date of this report, presenting
reports on the external audit process,
2021 year end and 2021 interim results,
a hot-topics survey and assessments on
methodology and actuarial assumptions.
The External Auditor provided details on
benchmarking with regard to assumptions
setting as well as challenging and providing
guidance on reporting matters and disclosure
requirements. Where necessary the External
Auditor challenged management’s view
on certain assumptions and reporting
requirements which were reported to and
discussed with the Committee.
The External Auditor’s independence was
reviewed and monitored against the
Group’s External Auditor policy, including
their provision of non-audit services – see
Auditor’s Independence and External
Auditor Policy on page 99. This included
an assessment of their independence and
a review of services provided by EY during
the 2020 and 2021 financial years.
The Audit Committee also considered
matters pertaining to the mandatory
rotation of the external audit firm – see
Auditor’s Appointment on page 99.
Internal audit
During 2021, the Audit Committee
continued to receive regular updates from
the Head of Internal Audit on all Internal
Audit-related matters. This included the
annual update of the Group Internal Audit
Charter and the Group Internal Audit Plan
both of which were approved plus
developments in the use of data analytical
techniques to support and enhance
Internal Audit’s operations. The Committee
received regular reports to monitor
progress against the plan. The Committee
also reviewed the Internal Audit control
environment opinion which included
Internal Audit’s view of the risk
management framework across the Group
at both the half year and full year end in 2021.
Internal control
The Committee is responsible for supporting
the Board in ensuring a robust system of
internal control and risk management
systems is in place. In supporting this
framework, the Committee receives
regular reports on the status of the control
environment and updates on the
management of the risks and controls
across the Group’s Risk Management
Framework. The Committee receives
biannually control reports from Line 2
(Risk) through the internal control
assessments from Group Risk as well as the
Line 3 (Internal Audit) internal control
environment opinions. These reports
provide assessments of the control
environment metrics including: any risks
that are reported to be outside of appetite;
the action plan to bring within appetite; the
status of Internal Audit opinions and any
key issues identified and emerging trends
and themes for the Committee to focus
on going forward.
The Committee throughout 2021 reviewed
the internal control environment regularly
and challenged management to ensure
clear rectification plans were incorporated
where there were any weaknesses or
failings reported. The Committee will
continue to monitor closely the internal
control framework throughout 2022 to
ensure it is appropriate as the Company
continues to deliver on its strategic aims.
Audit Committee’s performance
In 2020, Consilium were appointed to
undertake an external effectiveness review
of the Board and its Committees which
included positive feedback that the Audit
Committee operated extremely effectively.
In 2021, the Committee undertook an
internal effectiveness review whereby
aside from the members of the Committee,
members of management were also
requested to provide input including regular
attendees. From that review it was
concluded that overall the Committee works
effectively and focuses on the right issues.
General
The other areas that the Audit Committee
covered throughout 2021 included
the following:
• Whistleblowing arrangements within the
Group as well as any whistleblowing
activity where an employee raised
concerns, in confidence, about any
possible improprieties. During 2021
there were a total of 12 concerns
reported to the Speak-Up Office of
which five were triaged as “whistleblows”,
it was noted that there appeared to be
no material wrongdoing, however
on-going oversight/monitoring has
been put in place.
• Reviewed and approved updates to the
Group Tax policy, Group Tax strategy,
Group External Auditor policy and the
Group Liquidity & Funding policy.
Auditor’s appointment
During 2021, the Audit Committee
continued to review the requirements for
tendering of audit services for the Group
and its subsidiary companies. Recognising
that the mandatory rotation of EY as
auditor for one of the Group’s major Life
Companies would be required for the
2024 financial period, the Committee
approved an external audit competitive
tender process to take place in 2021.
The Committee considers that early
identification of the future Group
auditor would facilitate safeguarding
of independence and cooling in
requirements, given the Group’s extensive
finance agenda. An early selection of a
new auditor is deemed important as it
will allow the Group to carefully manage
the services performed by the selected
firm in the run-up to their assuming
appointment as External Auditor, and in
addition to manage the fact that there
have been certain commercial insurance
relationships as workplace pension
scheme provider that create challenges
in this regard. The process undertaken
was carried out in accordance with the
Phoenix Group policies for the evaluation
and selection of critical services and
suppliers and the guidance issued by the
Financial Reporting Council. To ensure
a transparent, independent, impartial
and robust tender process, a three-level
Governance model was put in place with
clearly defined roles and responsibilities
for each group, comprising:
• the Audit Committee,
• a Selection Committee (chaired by the
Chair of the Audit Committee and
comprising members of the Phoenix Life
Companies Board and Group Audit
98
Phoenix Group Holdings plc Annual Report and Accounts 2021
Committee, and members of the Group,
Life and European management) and
• the management team.
as the Group’s External Auditor for the
financial period ending 31 December
2024, subject to shareholder approval.
Any conflicts of interest for parties
contributing to the evaluation process
were considered and conflicted parties
were not involved in the decision process.
As part of planning for the tender process,
the Group Chief Financial Officer and Group
Financial Controller met with a number of
firms to discuss the tender process, business
requirements and independence
considerations; these included
representatives from the ‘big four’
accountancy firms, and also a number
of mid-tier firms. To meet the Group’s
requirements from a timetabling, resourcing
and industry specific knowledge perspective,
it was concluded following such meetings,
and with the agreement of the parties
consulted, that the performance of the
Group audit would likely be unfeasible
for the mid-tier firms consulted who
subsequently were not invited to the
tender process.
Invitations to tender were sent out to two
firms in August 2021. This was followed in
October 2021 by the issue of formal
Requests for Proposals and a programme
of Management meetings which were
held in November 2021 with the two
tendering firms. Each firm had separate
meetings with senior members of the key
functions of the Group and the Group and
Phoenix Life Companies Board Audit
Committee Chairs.
The Committee approved a scoring
methodology based on predefined criteria
each weighted according to relative
importance and management completed
the scorecard based on their experiences
with each of the firms at the management;
the methodology was also used to assess
written proposals submitted by the
tendering firms. Presentations were made
by the two firms in December 2021 to
the Selection Committee. Key factors
considered in assessing the firms included:
• capability of key team members;
• communication and presentation skills
• audit quality
• the Group’s change agenda
• commitment; and
independence.
•
Having considered the scoring criteria, key
factors, input and observations from the
Selection Committee and the presentations
themselves, the Committee recommended
to the Board that KPMG LLP be appointed
EY LLP
Under the Audit Ethical Standards, signing
audit partners for public interest entities
should retain the role for up to five years.
Although Stuart Wilson has acted as
signatory for the Phoenix Group audit for
only three years, prior to his current role he
was audit partner for Phoenix Life Limited,
meaning his association with the Group is
now five years. In view of the extensive
change programme within the Group, the
Committee have requested an extension
to Stuart Wilson’s tenure as group audit
partner in order to safeguard the quality of
the audit, which is permissible under the
Audit Ethical Standards. EY have confirmed
that Stuart Wilson could continue as lead
audit engagement partner for the 2022
financial period, subject to shareholder
approval of EY as auditor for that financial
period at the next AGM.
EY has been auditor to the Company since
December 2018. EY has indicated its
willingness to continue in office and
shareholders’ approval will be sought at
the AGM on 5 May 2022.
Assessment of the effectiveness of
the external audit process
The effectiveness of the external audit
process has been considered throughout
the year by the Committee and included
the following activities:
• a review of the detailed audit plan and
consideration of its coverage and
approach to identified risks;
• an assessment of the quality of
interactions between the Audit team and
the Committee, including the provision
of technical and industry knowledge;
• consideration of the level of insight
provided by the audit findings in the key
areas of judgment, including quality of
benchmarking with regard to
insignificant valuation assumptions and
supporting analysis, and the ability of the
audit team to demonstrate that they had
applied professional scepticism in their
dealings with management;
• a comprehensive assessment and review
of the External Auditor where feedback
was received from management,
Phoenix Life Companies Directors as
well as members of the Committee;
• meeting privately with EY to discuss in
depth their approach to quality
assurance and internal assurance
processes across the audit firm
that ensure the quality of the audit
service; and
• consideration of the findings of external
evaluations of EY, notably the findings
from the Financial Reporting Council’s
Audit Quality Inspection Report.
Auditor’s independence
and External Auditor policy
The Company has an External Auditor
policy which requires the Company and
the external auditors to take measures
to safeguard the objectivity and
independence of the External Auditors.
These measures are in respect of specific
areas, such as secondments to
management positions, or those which
could create a conflict or perceived
conflict. It also includes details of the
procedures for the rotation of the external
engagement partner.
The engagement of EY to perform any
non-audit service is subject to a process of
pre-approval by the Committee.
Furthermore, the Group’s External Auditor
policy prescribes a limit for fees associated
with non-audit services of 70% of the
average statutory audit fee for the
three preceding years in line with
statutory requirements.
In 2021, total fees of £13.9 million were
paid to EY. Of this amount £11.5 million
related to statutory audit fees of the
parent and its subsidiaries, with a
further £1.7 million incurred in relation to
services provided pursuant to legal or
regulatory requirements.
The remaining fees of £0.7 million relate to
other services including review of the
Group's interim report and the provision of
assurance services over the internal
controls relevant to financial reporting
operating within certain of the Group's
outsourced service providers. This gives
rise to a non-audit to audit fee ratio under
the EU Directive and Regulations of 6% for
the 2021 year, and 8% based on a three
year average audit fee. This lies well within
the limits prescribed in the Group’s policy.
In light of the above, the Committee is
satisfied that the non-audit services
performed during 2021 have not impaired
the independence of EY in its role as
External Auditor.
Alastair Barbour
Chair of Audit Committee
Phoenix Group Holdings plc Annual Report and Accounts 2021
99
Corporate governance Audit, risk and internal control continued
Significant matters considered by the Audit Committee in relation to the financial statements
Significant matters in relation
to the 2021 IFRS financial
statements
Review of the IFRS and
Solvency II actuarial valuation
process, to include the setting
of actuarial assumptions
and methodologies, and the
robustness of actuarial data
Valuation of complex and
illiquid financial assets
How these issues were addressed
Management presented papers to the Phoenix Life Companies Board Audit Committees detailing recommendations for
the actuarial assumptions and methodologies to be used for the interim and year-end reporting periods with justification
and benchmarking as appropriate. This included assumptions related to longevity, mortality, persistency and policyholder
behaviour, as well as economic assumptions. These assumptions and methodologies were debated and challenged by the
Phoenix Life Companies Board Audit Committees, prior to their approval.
A summary of these papers was presented for oversight review by the Committee, and the Life Companies Board Audit
Committees’ conclusions were reported to the Committee through minutes of its meeting and a discussion between the
Chairmen of the committees. The Committee discussed, and questioned management and EY on, the content of the summary
papers and the Phoenix Life Companies Board Audit Committee’s conclusions.
The Audit Committee considered the results of a detailed review of the Group’s maintenance expense assumptions in light
of the increased investment in the Group’s growth strategy. Key judgments including the impact of expense inflation and the
allowance for cost efficiency initiatives were debated and challenged by the Committee as part of the approval process.
Pension assumptions for use in the IAS 19 Employee Benefits valuations were reviewed and approved by the Committee.
The Committee received and considered detailed written and verbal reporting from the External Auditors setting out their
observations and conclusions in respect of the assumptions, methodologies and actuarial models including benchmarking analysis.
Management presented papers setting out the basis of valuation of financial assets, including changes in methodology and
assumptions, for the interim and year-end reporting periods to the Phoenix Life Companies Board Audit Committees. The
assumptions, valuations and processes, particularly for financial assets determined by valuation techniques using significant
non-observable inputs (Level 3), were debated and challenged by the Phoenix Life Companies Board Audit Committee prior to
being approved. This included management’s assessment of the impacts of economic volatility arising as a result of the global
COVID-19 pandemic and separately of the impact of climate change.
The valuation information was then presented for oversight review by the Committee who considered and further challenged
the information prior to confirmation of the appropriateness of the basis of valuation.
Valuation and recoverability
of intangible assets
The accounting adopted for the acquisition of the Standard Life brand that took place during the year was considered.
The methodology and assumptions applied in determining the fair value of the brand were reviewed and approved by
the Committee.
Provisions
Operating profit
Climate risk
In addition, management presented papers detailing the results of annual impairment testing carried out in respect of goodwill
balances and reviews for indicators of impairment performed in respect of finite life intangibles. This included assessing the
potential impact of the risk if climate change.
The Committee considered the results of the work performed and confirmed the appropriateness of the conclusions reached.
Management presented papers detailing the basis of recognition and measurement of accounting provisions recognised by the
Group. The Committee considered the results of the analysis performed, the uncertainties surrounding measurement adopted
and confirmed the appropriateness of the conclusions reached.
The Committee reviewed the allocation of key items to operating profit to ensure the allocations were in line with the Group’s
operating profit framework and consistent with previous practice.
The Audit Committee considered a paper from management as to the consideration of the effects of climate-related matters on
the financial statements and the resultant disclosures.
Assessment of whether the Annual
Report and Accounts are fair,
balanced and understandable
The Committee considered and confirmed agreement with the analysis of the processes and conclusions in support of
management’s conclusions that the Annual Report and Accounts are fair, balanced and understandable. As part of the year-end
procedures, the Committee discussed with management and EY the review processes that operated over the production of the
Annual Report and Accounts.
Going concern and
viability analysis
The Committee reviewed information on the capital and liquidity position of the Group, together with a review of the associated
risks and supporting stress and scenario testing, including the impacts of COVID-19. This was part of a comprehensive
assessment undertaken prior to the Committee recommending to the Board that the Group financial statements should be
prepared on a going concern basis and that the disclosures with regard to the long-term viability of the Group were sufficient
and appropriate.
100
Phoenix Group Holdings plc Annual Report and Accounts 2021
Risk Committee report
Q&A
with the Risk
Committee Chair,
John Pollock
Q. What were the key highlights of the
Risk Committee activity during 2021?
A. The Committee has focused on the
key risks impacting operational resilience
and the control environment. Oversight
and review of strategic and emerging
risks has also been important to ensure
that the Group meets it strategic
priorities whilst ensuring delivery of
appropriate customer outcomes.
Q. What challenges has the Risk
Committee faced during 2021?
A. 2021 has been a challenging year as
the ongoing pandemic has impacted the
economy, customers and colleagues.
Our control environment remains robust
but continues to be enhanced to ensure
that the Group’s evolving business
operating model provides support and
delivers for our new and existing
customers. The Group’s sustainability
initiatives and associated customer and
conduct risks have remained high on the
agenda. Remote working has been a key
feature of the operating model this year
and emphasis has been placed on
colleagues’ wellbeing and ensuring that
the risk culture remains strong and
embedded in managing internal risk and
internal controls. Cyber risk exposure
has been heightened during the
pandemic due to remote working and
through the growth of the open business
– the impact of this on the risk profile has
been considered by the Committee.
Q. How has the Risk Committee
approached the Group’s risk
appetite monitoring during 2021?
A. The Group’s risk appetite framework
comprises of six risk appetite statements
that are adopted by the Group. The
Committee receives and regularly
reviews the consolidated risk report
which provides a view of the overall
principal risks, risk environment, risk
profile and assessment against
the risk appetite.
Q. What do you see as the Risk
Committee’s key areas of focus
in 2022?
A. The Committee will continue to focus
on the wider impacts of COVID-19 and
how this affects the risk profile; cyber
resilience; conduct and customer risks;
changes to the risk appetite and risk
profile as the Group progresses with
its strategic priorities; operational
resilience; sustainability and climate
change risks.
The conflict in Ukraine and related
sanctions are being closely monitored
by the Group, particularly in relation to
customer, asset and operational
implications. Whilst the conflict has
increased cyber-attack threat levels,
the Group’s cyber controls are
designed to repel a range of cyber-
attack scenarios.
Q. How has the Risk Committee
monitored the Group’s Operational
Resilience during the year?
A. We receive regular updates from the
Group Chief Risk Officer and the Chief
Operating Officer in respect of the
Group’s operational resilience.
Furthermore, the Operational
Resilience Framework is being
progressed and embedded to align
with the Regulators’ rules and guidance
published in March 2021. The Group’s
scenario and stress testing programme
is regularly reviewed by the Committee
to also help identify operational
resilience vulnerabilities and drive
improvement where weaknesses are
found. Our Group’s Recovery and
Resolution Plan was considered by
the Committee during the year and
adds a further layer to the robustness
of the framework.
Members
John Pollock (Chair)
Alastair Barbour
Wendy Mayall
Belinda Richards
Kory Sorenson
Key Risk Committee activities in 2021
• Reviewed the development and
embedding of the Operational
Resilience Framework.
• Monitored the Group’s risk appetite and
the wider impact of COVID-19 on the
risk profile.
• Reviewed the Group’s Annual Own Risk
and Solvency Assessment report.
• Reviewed and challenged the Group’s
Biennial Exploratory Scenario
submission (jointly with the Board
Sustainability Committee).
• Approved the Climate Change
Risk Framework.
• Reviewed and approved the Group’s
Resolution Plan.
• Considered enhancements to
further strengthen the Internal
Control Framework.
The role of the Risk Committee
The role of the Risk Committee is to advise
the Board on risk appetite and tolerance in
setting the future strategy, taking account
of the Board’s overall degree of risk
aversion, the current financial situation of
the Group and the Group’s capacity to
manage and control risks within the agreed
strategy. It advises the Board on all
high-level risk matters.
The Committee met a total of 12 times in
2021 including six out of cycle meetings.
The Committee is comprised of five
Independent Non-Executive Directors.
The Committee’s meetings are attended
by the Chair of the Audit Committee,
Alastair Barbour, which allows the review
of internal control effectiveness to be
managed through collaborative working
and oversight.
A set of ‘Operating Principles’ are in place
to define the responsibilities and
accountabilities of the Risk Committees of
Phoenix Group and its subsidiary company
boards to mitigate overlap of focus or
assurance activity and reviewed on annual
basis to ensure that they remain appropriate.
Phoenix Group Holdings plc Annual Report and Accounts 2021
101
Corporate governance practice. Enhancements are being made to
further strengthen the ICF to meet the
needs of the growing scale and complexity
of the Group’s structure and risk profile.
There is an ongoing process for
identifying, evaluating and managing the
significant risks faced by the Group, which
has been in place throughout the period
covered by this report and up to the date
of approval of the Annual Report and
Accounts for 2021, in accordance with the
‘Guidance on Risk Management, Internal
Control and Related Financial and
Business Reporting’ published by the
Financial Reporting Council. The
assessment for 2021 was presented to the
Board, following review by both Group
Audit and Risk Committees, on 5 March
2021. Where any significant weaknesses
were identified, corrective actions have
been taken, or are being taken and
monitored by both the business and the
Committees accordingly.
John Pollock
Chair of Risk Committee
Audit, risk and internal control continued
The Chair of the Phoenix Life Companies
Board Risk Committees and Model
Governance Committee is a regular
attendee to the Committee’s meetings and
provides members with regular updates on
the risk matters pertinent to relevant
subsidiaries and the matters being dealt
with at the Model Governance Committee.
The Chair of the Phoenix Life Companies
Board Investment Committee, Nick
Poyntz-Wright, also periodically attends
the Committee meetings to provide key
updates, which helps to facilitate
discussions relating to investment risk.
The Group Chief Risk Officer, Jonathan
Pears, has full access to the Chair and the
Committee and attends all Committee
meetings. The Committee receives
frequent reporting from the Group Chief
Risk Officer and Group risk function on
consolidated risk matters affecting
Phoenix including risk profile assessments
and emerging risks.
Other regular attendees to the Committee
include the Group Chief Actuary, Group
Chief Financial Officer, the Chief
Executives of the Phoenix Life Companies,
the Group General Counsel and the
Group Head of Internal Audit.
The evaluation of the performance of the
Committee during 2021 was an internally
facilitated review. The conclusions
demonstrate that the Committee continues
to operate effectively, has the appropriate
skills set and structure with good interaction
between Group and the Phoenix Life
Companies Board Risk Committee.
Risk Committee’s principal
activities during 2021
In addition to the key activities discussed in
2021, the Committee also:
• Reviewed adherence to the Group Risk
Management Framework and
considered the appropriateness of the
Group’s overall risk appetite statements.
• Received a number of updates and
briefing sessions which covered cyber
risk including a ransomware attack
workshop that was undertaken by the
full Board; customer and conduct risk;
governance process around Bulk
Purchase Annuity transactions; the
Resolution Plan, as well as a deep dive
session on emerging risks and
opportunities that could impact
the Group.
• Monitored progress against the 2021
Group risk function plan.
• Approved the Group market risk
appetite limits.
• Considered the Group’s risk appetite
and capital risk appetite framework.
• Monitored compliance with the Group’s
principal risk policies, satisfying itself
that action plans to address policy
breaches were sufficient.
• Reviewed the Group’s risk profile,
monitoring it against the risk categories
of Market, Insurance, Credit, Financial
Soundness, Customer and Operational
with particular attention to risk appetite,
risk trends, risk concentrations,
provisions, experience against budget
and key performance indicators for risk
as well as contingency planning.
• Reviewed the operation of the Risk
Management Framework. Details of the
Risk Management Framework (‘RMF’),
for which the Risk Committee has
oversight, are provided in the Risk
Management section of the Strategic
Report on pages 54 to 57.
• Reviewed the Operating Principles
to ensure that they remained fit
for purpose.
• Considered risks, issues and matters that
are escalated from the Phoenix Life
Companies Board Risk Committee.
• Reviewed reverse stress-testing analysis,
completed and provided oversight of,
and challenge to, the design and
execution of the Group’s stress and
scenario testing, including any changes
of assumptions.
Informed the Remuneration Committee
regarding the management of the
Group’s material risks to support their
consideration of executives’ Annual
Incentive Plan awards.
•
Review of system of internal controls
The Board has overall responsibility for the
Group’s risk management and internal
control systems and for reviewing their
effectiveness in accordance with the UK
Corporate Governance Code. The
Group’s systems of internal controls are
designed to manage rather than eliminate
the risk of failure to achieve business
objectives and can provide only
reasonable and not absolute assurance
against material misstatement or loss. The
Board (and its subsidiary companies’
boards) monitor internal controls on a
continual basis, in particular through the
Audit and Risk Committees. An external
review of the Internal Control Framework
(‘ICF’) was undertaken during the year. The
outcome of the review was presented to
the Committee, concluding that the ICF
remained robust and in line with industry
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Sustainability governance
Sustainability Committee report
Q&A
with the Sustainability
Committee Chair,
Karen Green
Q. What were the key highlights
of the Committee’s activity
during 2021?
A. 2021 was the first year of the Board
Sustainability Committee’s operation.
The Committee was focused on
ensuring Phoenix is set up for success in
realising and delivering on its
sustainability strategy. The Committee
also focused on developing its
knowledge and understanding of key
topics and external perspectives of the
same; and evolving best practice.
Q. What challenges has the
Committee faced during 2021?
A. The Committee undertook a half
year review of its terms of reference to
ensure the appropriateness thereof and
refined its role and responsibilities after
six months in operation. As a fast and
ever evolving area, the Committee
sought to put appropriate mechanisms
in place to ensure that it is well advised
on matters of sustainability as
developments in this area emerge. This
has been aided by a number of key
management hires during the year,
including our Chief Sustainability
Officer and Head of Climate Change.
Q. How has the Committee
approached monitoring the Group’s
culture during 2021?
A. The Committee has received
updates from the Group HR Director on
the Group’s people strategy and action
being taken to enhance diversity and
inclusion within the business. The
Committee also received colleague
engagement management information
to understand how colleagues felt in
relation to topics such as ‘mental
wellbeing’, ‘delivering for our customers
and stakeholders’ and support offered
to colleagues by the business.
Q. What do you see as the
Committee’s key areas of focus
in 2022?
A. The Committee will continue to drive
the Group’s ambition to be a leader in
sustainability and ensure tangible,
measurable progress against the
Group’s sustainability strategy. The
Committee will also continue to monitor
developments in sustainability and
provide oversight of regulatory
compliance and actions being taken to
enhance the Group’s contribution to a
more sustainable world.
Members
Karen Green (Chair)
Wendy Mayall
Nicholas Shott
Kory Sorensen
Mike Tumilty
Key Sustainability Committee activity
highlights in 2021
• Review and challenge of the Group’s
sustainability strategy, for approval
by the Board.
• Approval of the Group’s Sustainability
KPIs.
• Review of the Group’s people strategy
and monitoring of the Group’s culture.
• Review and challenge of the Group’s
Climate Biennial Exploratory Scenario
submission (jointly with the Board
Risk Committee).
• Approval of the Group’s Exclusions
Policy, which enables Phoenix to exclude
assets that do not align with our
sustainability strategy (see the Group
Sustainability Report for more details).
• Monitoring the implementation of the
Group’s Taskforce for Climate Related
Disclosure (‘TCFD’) programme.
• Reviewing the Group’s Modern Slavery
and Human Rights Statement, for
approval by the Board.
• Education sessions undertaken,
including ‘People Alpha’, ‘Carbonomics’,
‘Outcomes of COP26 and the UK’s
Climate Change Strategy’ and a
‘Customer Calls listening session’.
• Deep dive sessions undertaken,
including discussions on the Group’s
approach and progress to the
Community, Customer and
Responsible Investment pillars of
the sustainability strategy.
Phoenix Group Holdings plc Annual Report and Accounts 2021
103
Corporate governance Sustainability governance continued
Role of the Sustainability Committee
The Committee, which met seven times
during 2021, is responsible for assisting the
Board in overseeing the Group’s
sustainability strategy, related activity and
approach to Environmental, Social and
Governance (‘ESG’) matters.
The Committee’s duties include:
• ensuring the appropriateness of the
Group’s sustainability strategy;
• supporting the Board and Board Audit
Committee in respect of the Group’s
sustainability related reporting
(including TCFD reporting);
• reviewing and challenging activities
carried out within the Group
to monitor alignment with the
sustainability strategy, ensuring
the embedding thereof;
• keeping sustainability best practice and
market insights under review; and
• assisting the Board with its oversight
of the Group’s culture and values.
Key Committee activities
Impact/Outcome
Engaging people in their financial future
Held a Customer Deep Dive session, focused
on the Group’s approach to improve financial
education and digital literacy aimed at
supporting financial wellness and inclusion and
preventing the exclusion of sections of society.
Attendance at a Customer Calls listening
education session to observe customer
experience feedback directly. This session
involved a sample of calls, including how
vulnerable customers were supported by the
Group’s dedicated vulnerable customer team.
Consideration of benchmarking of Phoenix’s
sustainability related approach to customers
when reviewing proposals for the 2021
sustainability strategy.
Approval of customer related targets and
KPIs for 2021.
Investing in the future we all want
Improved understanding of steps being taken
by management to address financial inclusion
and improve customer outcomes.
Management were encouraged to set
stretching targets to enable Phoenix to
enhance customer outcomes.
Strong results were delivered against the 2021
targets (see the Group’s Sustainability Report
for more detail).
Review of the Group’s Stewardship Policy,
prior to approval by the Phoenix Life
Companies Board.
The policy was approved by the Phoenix Life
Companies Board in Q4 2021. The policy can
be found on the Company’s website.
The Committee’s terms of reference are
available on the Company’s website.
Approval of the Group’s Exclusion Policy,
following a review of the related principles
and cost versus benefit of the policy.
The Committee is comprised of five
Non-Executive Directors of the Board,
selected to ensure cross-Board Committee
membership to facilitate engagement on
sustainability matters across the Group’s
governance framework. This is further
supported by attendance of a nominated
Non-Executive Director of the Phoenix Life
Companies Board as a standing attendee.
Other standing attendees of the
Committee include the Group Chief
Executive Officer, Group HR Director,
Director of Corporate Affairs and Investor
Relations and the Chief Sustainability
Officer. During the year, the Group
Chairman regularly attended
Committee meetings.
Ensuring the success of
our sustainability strategy
The Committee’s activities, during 2021,
covered all elements of the Group’s
sustainability strategy (covering our five
pillars: customers; responsible investment;
and our people, environment, suppliers
and communities), grouped into the three
focus areas set out in the table to the right
and on the following page.
Approval of responsible investment related
targets and KPIs for 2021 and monitoring of
progress against these commitments during
the year.
Held a Responsible Investment Deep Dive
session, covering the Group’s responsible
investment road map for 2021 and activities
such as external industry collaborations.
External presentation on and focused
discussion of Carbonomics.
Review of interim carbon reduction targets for
2025 and 2030 for investment portfolios; and
an overarching framework for decarbonisation.
Clear direction for management to embed
the Group’s sustainability strategy and
approach to responsible business within
our investment portfolio.
Management were encouraged to set
stretching targets to enable the Group to
progress its responsible investment objectives
and delivered strong results against those
targets (see the Group’s Sustainability Report
for more detail).
Increased understanding of management
actions with respect to the Group’s related
strategy and governance; stewardship;
integrated ESG management and
decarbonisation of investment portfolios; and
insights into wider decarbonisation trends and
the connected geopolitical landscape.
Interim de-carbonisation targets have been set
for Phoenix, including: (i) by 2025 a reduction
of 25% in the carbon emission intensity of its
investments; and (ii) by 2030 a reduction of at
least 50% in the carbon emission intensity of
its investments.
Leading by example
People and culture – Investing in our people and culture
Review of the Group people strategy, designed
to support, and act as an ‘enabler’ for, the
Group’s purpose and 2021 enterprise strategy.
Consideration of the Group’s ‘people vision’ (‘to
make Phoenix the best place any of us have ever
worked’) and its connection with the Phoenix
purpose to help people (including colleagues)
secure a life of possibilities.
Consideration of colleague engagement
management information.
Enhanced understanding of the people
strategy as an ‘enabler’ of the Group’s
purpose and strategy and the impact of this
on existing colleagues.
Understanding of colleagues’ perspectives in
relation to topics such as ‘mental wellbeing’,
‘delivering for our customers and stakeholders’
and support offered by the business; and
insights into the tone of the Group’s culture from
the ground up.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Key Committee activities
Impact/Outcome
Leading by example (continued)
People and culture – Investing in our people and culture (continued)
External presentation on and discussion of
‘People Alpha’, focused on interpretations of
diversity and enablers of psychological safety
and creative collaboration.
Received reports from the Designated Non-
Executive for Workforce Engagement.
Approval of people related targets and KPIs
for 2021.
Greater understanding of best practice on
diversity and inclusion – breaking diversity
down into representational, experience,
and cognitive; and means to encourage
psychological safety in the business.
Insights into the colleague voice, including
areas of concern and positives experienced by
colleagues ; and an enhanced understanding of
the two-way engagement process between the
Board and colleagues.
Management delivered strong results against
the 2021 targets (see the Group’s Sustainability
Report for more detail).
Net zero operations – reducing our environmental impact
Approval of environment targets and KPIs.
Management delivered strong results against
the 2021 targets (see the Group’s Sustainability
Report for more detail).
Working responsibly with Suppliers
Review of the Group’s Modern Slavery and
Human Rights Statement, recommended
for approval by the Board.
Approval of the Group’s statement by the
Board, published in June 2021 (see the
Company’s website for more detail).
Approval of supplier targets and KPIs.
Supporting our Communities
Held a community deep dive discussion
focused on Phoenix’s community engagement
strategy, including progress during 2021,
future goals and connection to our culture.
Approval of community related targets
and KPIs
Management delivered strong results against
the 2021 targets (see the Group’s Sustainability
Report for more detail).
Enhanced understanding of steps being taken
by management in relation to community
engagement, including charitable partnerships,
initiatives in the community and methods to
quantify the impact of these activities; and
insights into the cohesion between Phoenix’s
culture and community engagement (to create
the foundations of a ‘giving’ culture).
Management delivered strong results against
the 2021 targets (see the Group’s Sustainability
Report for more detail).
Climate change
In addition to the above, the Committee
received regular reports relating to the
Group’s compliance with cliamte change
regulation. This included progress being
made on the implementation of TCFD
recommendations within the Group; a
review of the Group’s Climate Biennial
Exploratory Scenario submission content
in collaboration with the Board Risk
Committee; completion of the Chapter
Zero ‘Board Readiness Check’ as part of
the Committee’s annual effectiveness
review; and participation in a discussion on
the outcomes of COP 26 and the UK’s
climate change strategy. The Board Risk
Committee has monitored the Group’s
compliance with the Prudential Regulation
Authority’s supervisory statement SS3/19,
supplementing the Sustainability
Committee’s oversight of climate change
related activities undertaken by the Group.
This activity resulted in enhanced
Committee awareness and understanding
of climate change risks and opportunities;
and a clearer view of the impact that
different climate change scenarios might
have on Phoenix, enabling the
development of strategies and actions to
address the risk of climate change.
The Board Sustainability Committee is
committed to ensuring the success of the
Group’s sustainability strategy which plays
a key role in the fulfilment of the Group’s
purpose to help people secure a life of
possibilities. The strategy has been
developed to align with the Group’s
enterprise strategy, our values and culture.
I hope you find this report informative.
Karen Green
Chair of the Board Sustainability
Committee
Phoenix Group Holdings plc Annual Report and Accounts 2021
105
Corporate governance Directors’ remuneration report
Remuneration Committee report
acquired as part of ReAssure, for an
attractive price.
In terms of growth, 2021 has proven to be a
pivotal year for Phoenix with new business
long-term cash generation of c.£1.2 billion
more than offsetting the run-off of policies
within our Heritage business (currently
c.£800 million). Phoenix is now a growing,
sustainable business.
Our BPA business is the near-term driver
of our Open business growth. Momentum
is also building in our Workplace business,
with positive net flows of £0.6 billion and
41 new scheme wins in 2021 providing a
platform for future growth.
Alongside this, the continued development
of our in-house asset management
capability has enabled us to increase our
illiquid asset origination by 48% year-on-
year to £3.0 billion. Importantly, nearly
£1.3 billion of this was long-term investment
into ESG-related assets, an increase of
nearly 50% in investment in sustainable
assets year-on-year.
Within the business as a whole we have
been pleased with the progress made
in diversity and inclusion in particular.
When including contracted new joiners
we have achieved our target, under the
Women in Finance Charter, of having
over of 30% women in Top 100 salaried
roles. This includes an additional Executive
Committee member, who will be joining us
from March 2022, which will mean that 3
out of 13 on the Committee (23%) are now
female. This is not the end point, but solid
progress towards our diversity ambitions.
Executive remuneration outcomes
for 2021
The incentive outcomes for 2021 reflect
the strong financial and non-financial
performance and progress on key strategic
objectives during the year.
During the year, the Committee approved
certain adjustments to the AIP targets in
respect of the Long-term Cash Generation
and Shareholder Value metrics, in line with
its agreed principles. The Committee was
satisfied that as a result of the adjustments,
the targets remained as stretching as
originally intended. Details of these are set
out on page 112. Based on its assessment
of the corporate metrics the Committee
determined that the Annual Incentive
Plan (‘AIP’) outcome should be 77% of
the maximum opportunity. With regard
to the achievements under the Strategic
Scorecard which represents 20% of the
Executive Directors’ AIP, the Committee
determined outcomes should be 82.5%
for Andy Briggs and 81.25% for Rakesh
Thakrar. This results in total awards of 78%
of the maximum bonus opportunity for
both Executive Directors in line with the
overall assessment.
The 2019 Long-Term Incentive Plan (‘LTIP’)
award covering the years 2019–2021 was
based on Cumulative Cash Generation,
Return on Solvency II Shareholder Own
Funds and relative TSR. Performance was
particularly strong on Return on Solvency
II Shareholder Own Funds. The overall
vesting outcome is 78% of the maximum
opportunity. Further details are set out
on page 114.
The resulting single total figure of
remuneration for Andy Briggs was £1,831k
and for Rakesh Thakrar was £1,228k. Full
details are set out on page 111.
The Committee is satisfied that the
remuneration outcomes for 2021 are
an appropriate reflection of the year’s
business performance and its trajectory
providing strong alignment between pay
and performance and with appropriate
regard to both the management of risk
within our incentives and the broader
stakeholder experience.
Remuneration changes for 2022
Phoenix continues to evolve and change
as a business and in this context the
Committee reviews Phoenix’s approach
to remuneration annually, both for
the senior leadership team and for the
wider organisation in the context of the
policies and practices which apply to the
wider workforce.
Inclusion of ESG metrics into the LTIP
Phoenix puts sustainability at the heart
of its strategy. In 2021, we committed to
achieving net-zero carbon by 2025 across
our operations and by 2050 across our
investment portfolio.
Remuneration
committee chair,
Kory Sorenson
Dear Shareholder,
On behalf of the Board and its
Remuneration Committee (‘Committee’),
I am pleased to present the Directors’
remuneration report for the year ended
31 December 2021.
Summary of the year
Phoenix has made strong progress against
its strategic priorities in 2021. We have
once again delivered on our financial
framework of cash, resilience and growth,
while continuing to support our customers
and colleagues, and ensuring that
sustainability is at the heart of our business.
Both the Standard Life and ReAssure
integrations continue to progress to
plan, with cumulative synergies realised
to date of £1.6 billion from Standard Life
(134% of target) and £0.9 billion from
ReAssure (89% of target). This includes
the integration of ReAssure onto our HR
grading architecture and T&Cs, effective 1
January 2022.
The Group delivered £1.7 billion of cash
generation in the year, beating our target
range of £1.5 billion-to-£1.6 billion for
the year. Our Solvency II balance sheet
remained resilient with a £5.3 billion
SII surplus and a 180% Solvency II
shareholder capital coverage ratio.
The Group delivered strong management
actions of £1.5 billion from our in-force
business in 2021, primarily due to the
successful completion of the Group’s
internal model harmonisation programme.
The Group also optimised its portfolio
through the disposal of Ark Life, the
European closed book Heritage business
106
Phoenix Group Holdings plc Annual Report and Accounts 2021
Annual incentive plan
2021
2022
Cash Generation
24%
Shareholder Value
20%
Cash Generation
24%
Shareholder Value
20%
Long Term Cash
Generation less
New Business Strain
16%
Long Term Cash
Generation less
New Business Strain
16%
Customer
Experience
20%
Customer
Experience
20%
Strategic Scorecard
20%
Strategic Scorecard
20%
Deferral 50%
for a period
of 3 years
Deferral 50%
for a period
of 3 years
Long term incentive plan
Corporate Element – 80% of AIP metrics
2021
2022
Net Operating Cash Receipts
Return on Shareholder Value
35%
25%
Persistency
20%
Net Operating
Cash Receipts
20%
Return on
Shareholder Value
20%
Decarbonisation
20%
Persistency
20%
TSR
20%
TSR
20%
COVID-19 crisis and the difference of
experience with his predecessor as well
as his market peers. Over the period,
Phoenix has also grown into a solid
mid-FTSE 100 company.
The Committee decided to provide
the Group CEO, who continues to
demonstrate exceptional performance,
with an increase of 1.5% in line with that
provided to other senior managers in the
wider workforce. The average increase for
all employees for 2022 was 3.6%. No other
adjustments have been proposed.
Looking forward
The Board and Committee believe that our
remuneration policy transparently provides
strong alignment between pay and
performance and appropriately reflects
the experience of our stakeholders. This
said, it continues to be refined to adapt
to evolutions in our environment and our
businesses, as well as the input from
our shareholders.
We hope that the 2021 pay decisions
and proposed implementation for 2022
outlined above and detailed in the Annual
Report on Remuneration will meet our
shareholders’ clear expectations for an
appropriate remuneration approach
and will be voted for favourably in the
resolution proposed at the 2022 AGM.
Kory Sorenson
Remuneration Committee Chair
From 2022, the Committee is therefore
introducing an ESG element with 20%
weighting to the long-term plan, linked
to quantitative achievements against
our external commitments for the
decarbonisation of both our operations
and our investment portfolio. Targets
for the 2022 LTIP will focus on progress
towards our interim targets to:
• Achieve a reduction of 25% in the
carbon emission intensity of our
investments by 2025, to cover all listed
equity and credit assets where we can
exercise control and influence (c. £160
billion), and
• Achieve Net Zero carbon emissions
in the Group’s operations by 2025 –
the scope for this target is scope 1 and
2 emissions from our occupied
premises and scope 3 emissions
from business travel.
The 2022 LTIP outcomes will be set by
reference to delivery as at the end of 2024.
We will review the nature of the measure
each year to ensure we achieve the best
alignment with our ESG ambitions as
they evolve.
Our broad ESG targets currently form a
significant part of the strategic scorecard
element of the Executive Director and
Executive Committee AIP, representing
10% of the overall AIP for the CEO. Going
forward, to avoid double counting, the
weighting of ESG metrics in the AIP
will stay the same, but will be focused
on social and governance measures,
or environmental measures not
including decarbonisation.
The Committee believes that our other
current performance measures are well
aligned with the Group’s long-term
strategy, and as such, no other changes
are being proposed to the AIP or LTIP. A
summary of the metrics is set out below.
Base salary adjustments
The Committee reviewed the
remuneration arrangements for Rakesh
Thakrar following his appointment as
Group Chief Financial Officer (‘CFO’) in
May 2020. Rakesh has had an excellent
start in his role as Group Chief Financial
officer (‘CFO’) and despite taking on
the role in challenging circumstances as
the COVID-19 pandemic took hold, the
business has continued to demonstrate its
resilience under his leadership with Andy,
delivering strong performance as detailed
above. Rakesh has embraced the role
and clearly demonstrated his exceptional
competencies in finance, execution,
strategy and leadership.
In accordance with the remuneration
policy, base salaries are reviewed each
year against companies of similar size
and complexity and taking into account
corporate and individual performance.
On this basis, and due to exceptional
performance, the Committee decided
to award Rakesh a salary increase from
£430,000 to £485,000 which positions
him in line with roles at companies of a
comparable size in the FTSE 100.
Whilst salary increases are not normally
awarded above the level of the workforce,
the Board was unanimous in its decision
that this increase was in the best
interests of the shareholders in order to
appropriately position the salary against
market norms and continue to retain
and motivate a highly regarded CFO
with unparalleled knowledge of the
Phoenix business. The increase awarded
to Rakesh is within the range of salary
increases awarded during the year to high-
performing individuals below the Board
where there was also a market rationale
to do so. It is also important to note that
Rakesh’s salary upon appointment during
2020 was positioned conservatively
given the significant uncertainty of the
Phoenix Group Holdings plc Annual Report and Accounts 2021
107
Corporate governance
Directors’ remuneration report continued
Directors’ remuneration report
At a glance 2022
Alignment to strategy
This table demonstrates how each of our performance measures for AIP and LTIP align with the Group’s strategic priorities.
Phoenix’s Strategic Priorities for 2022
Optimise our
in-force
business
Enhance our
operating
model
and culture
Grow our
business to
support both
new and
existing
customers
Innovate to
provide
people with
better financial
futures
Invest in a
sustainable
future
2022 Corporate Metrics
AIP Cash Generation
Incremental Long-Term Cash Generation less New Business Strain
Shareholder Value
Customer Experience
Strategic Scorecard
LTIP Net Operating Cash Receipts
Return on Shareholder Value
Decarbonisation – Operations
Decarbonisation – Investment Portfolio
Persistency
Relative TSR
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
All employees participate in a common incentive plan ensuring consistency of corporate goals and individual performance
management. This AIP for 2022 aligns to Phoenix’s Strategic KPIs as shown above.
Alignment to shareholders
Our Executive remuneration is designed to align with shareholder interests to deliver long-term sustainable value. The diagram below
shows how a significant portion of Executive remuneration under the remuneration policy is delivered in shares and deferred for up to
five years. Under the maximum scenario, 65% of the Group CEO’s maximum remuneration is delivered in shares.
65% of total maximum remuneration for Group CEO is paid in shares
3 year
performance period
50% awarded
in cash
50% awarded
in shares
LTIP
CEO: 275%
CFO: 200%
AIP
CEO: 150%
CFO: 150%
Pension1
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: £812k
CFO: £485k
1 year
performance
period
Pension1
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: £812k
CFO: £485k
Shares
vested
Shares
released
2 year
holding period
3 year deferral period
Shares
vested
Maximum
2022
2023
2024
2025
2026
2027
Performance period
Deferral
Holding period
1 Full pension contribution of 12% is reduced for the effect of employers’ National Insurance Contributions if taken as a cash supplement in lieu of contributions.
108
Phoenix Group Holdings plc Annual Report and Accounts 2021
At a glance 2021
Group performance measures
Annual Incentive Plan (‘AIP’):
Below we show the target ranges and outturn against the metrics within the 2021 AIP. More details of the 2021 AIP can be found on
pages 112 to 114. AIP metrics that are stated Group KPIs are flagged below and evidences the direct link between Group strategy
and remuneration outcomes. Those metrics that are not stated KPIs were felt by the Committee to be appropriate metrics which are
reflective of the shareholder experience. Further information on how the Committee determined the AIP outcomes in the context of
the wider stakeholder experience this year is set out on pages 113 to 114.
Cash generation (£m)
KPI
Shareholder value (£m)
KPI
1,517
7,813
Incremental long-term cash
generation less new business strain (£m)
668
Customer satisfaction –
Telephony (%)
KPI
Demand processed
within service level (%)
Customer satisfaction –
Digital (%)
KPI
Complaints resolved
in <8 weeks (%)
90
90
92
91
7,913
7,919
92
1,617
718
768
91
94
93
93
94
95
1,717
8,113
1,717
777
92
92
96
96
95
Threshold to target
Target to maximum
Outturn
Group performance measures
Long-Term Incentive Plan (‘LTIP’):
Below we show outturn against the measures which applied for the 2019 LTIP awards which are reflected in the Single Figure Table
on page 111. Cumulative Cash Generation, Return on Adjusted Shareholder Solvency II Own Funds and Relative Total Shareholder
Return (‘TSR’) performance are shown over the three-year performance period (financial years 2019, 2020 and 2021). TSR is measured
against the constituents of the FTSE 250 (excluding Investment Trusts), with median being the 50th percentile and upper quintile
being the 80th percentile.
3.584
4.5
50th
Cumulative cash
generation (£bn)
KPI
Return on Adjusted Shareholder
Solvency II Own Funds (%)
Relative total shareholder
return (percentile)
Read more on page 112
AIP weighted
performance outturn
£3.835bn
6.5
3.949
6.9
80th
Threshold
Outturn
60th
LTIP weighted performance outturn
Outturn
14.1%
Outturn
30.0%
Outturn
12.7%
25%
30%
25%
Outturn
30.7%
40%
20%
25%
35%
Outturn
20.0%
Cash generation
Shareholder value
Outturn
12.8%
Outturn
35.0%
Cumulative cash generation
Return on adjusted shareholder solvency II own funds
Incremental long-term cash less new business
Relative total shareholder return (percentile)
Customer experience
Phoenix Group Holdings plc Annual Report and Accounts 2021
109
Corporate governance Directors’ remuneration report continued
2021 Single Figure
The outcomes under the AIP and LTIP resulted in a single figure outcome for Andy Briggs of £1,831k and for Rakesh Thakrar of £1,228k.
Further details are on page 111.
11
84
936
1,831
CEO
2021
CFO
800
11
46
2021
428
499
244
1,228
£000
£'000
Salary
Salary
Benefits
Benefits
Pension
Pension
AIP
AIP
LTIP
LTIP
Shareholding guidelines (‘SOGS’)
A significant proportion of executive remuneration is delivered in shares which are released over a period of five years. In combination
with our shareholding guidelines, this aligns Executive Directors with shareholders over the long term. As at 31 December 2021,
shareholdings for Andy Briggs and Rakesh Thakrar are shown below.
Further details on shareholding guidelines, including post-cessation requirements are included in the Remuneration Policy attached as
Appendix to this report on page 133.
Group CEO
Andy Briggs
Guideline
Actual
Group CFO
Rakesh Thakrar
300%
300%
Guideline
Actual
250%
200%
Shareholding Guidelines percentage shown for Andy Briggs and Rakesh Thakrar includes the value of shares held based on a share price of £6.532 (as at close of business on 31 December 2021).
Shares included are those shares held directly and beneficially, any vested LTIP awards that have not been exercised and unvested DBSS options taking into account tax liabilities.
110
Phoenix Group Holdings plc Annual Report and Accounts 2021
Section A
This section contains the annual report on remuneration which forms part of the
Directors’ remuneration report to be proposed for approval by the Company’s
shareholders at the Company’s 2022 AGM on 5 May 2022.
Introduction
This report contains the material required to be set out as the Directors’ remuneration report (‘Remuneration Report’) for the purposes
of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008 (as amended) (‘the
DRR regulations’).
Directors’ remuneration policy
The Remuneration Policy approved by the shareholders at the 2020 AGM is attached in full as Appendix to this remuneration report.
Implementation report – Audited information single figure table
Salary/fees3
Benefits4
Pension5
Total Fixed
Pay
Annual
Incentive6
Long-term
incentives
Total
Variable Pay
Total
£000
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
20217
20208
(restated)
2021
2020
2021
20208
(restated)
Executive Directors
Andy Briggs1
Rakesh Thakrar2
800
428
7171
2632
11
11
261
72
84
46
761
282
895
485
8191
2982
936
499
8871
3232
–
244
–9
308
936
743
8871
6312
1,831
1,228
1,7061
9292
1 Andy Briggs joined the Board of Phoenix Group Holdings plc on 10 February 2020 as Group CEO Designate and became CEO on 10 March 2020. Figures for 2020 reflect the period from his
Board appointment to 31 December 2020.
2 Rakesh Thakrar joined the Board of Phoenix Group Holdings plc on 15 May 2020. Figures for 2020 reflect the period from his Board appointment to 31 December 2020.
3 The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before individual elections.
4 Benefits for Executive Directors include car allowance and private medical insurance and other taxable allowances. The 2020 benefits figure for Andy Briggs also included legal fees relating
to his appointment.
5 Executive Directors are entitled to each receive a Company pension contribution of 12% which may be paid as a cash supplement, reduced for the effect of employers’ National Insurance
contributions. Andy Briggs received his whole contribution as a cash supplement (10.5%) and Rakesh Thakrar received a combination of cash supplement and contribution (10.8%). No Director
participated in a defined benefit pension arrangement in the year and none have any prospective entitlement to a defined benefit pension arrangement.
6 Annual incentive amounts are presented inclusive of any amounts which must be deferred into shares for three years (i.e. 50% of the AIP award for 2021). In 2021 £468,120 of Andy Briggs’s incentive
7
payment is subject to three-year deferral delivered in shares (2020: deferral of £443,653), and £249,350 of Rakesh Thakrar’s incentive payment is subject to a similar deferral (2020: deferral
of £161,713).
In accordance with the requirements of the DRR regulations, the 2021 value for long-term incentives is an estimate of the vesting outcomes for LTIP awards granted in 2019 and which are due to vest
on 11 March 2022 for Rakesh Thakrar. This vesting level is at 78.4% reflecting outcomes against the Cumulative cash generation, return on adjusted shareholder Solvency II own funds, and Relative
TSR performance measures to 31 December 2021 (see page 114). This vesting outcome is then applied to the average share price between 1 October 2021 and 31 December 2021 (652.406p) to
produce the estimated long-term incentives figures shown for 2021 in the above table. The assumptions will be trued up for actual share price at the day of vesting in the report for 2022. For Rakesh
Thakrar, the disclosed LTIP figure of £244k comprises the disclosed LTIP figure of £200,804 for the value of the proportion of the original LTIP award which ultimately vested, plus the value of
dividend roll-up on those shares of £43,619. All values are calculated using the three month average share price to 31 December 2021 (652.406p). There was no increase in the value of Rakesh’s
vested 2019 LTIPs due to share price movement with the award based on a share price of 700.4p.
8 For 2018’s LTIP awards which are reflected in the 2020 long-term incentives column above, the performance conditions were met as to 99.9% of maximum. The 2020 long-term incentives values
in the above table reflect the value of the Company’s shares on the date of vesting which was 21 March 2021 (716.4p per share) multiplied by the number of shares vesting whereas the equivalent
figure within the published 2020 Single Figure Table was an estimate which reflected the average share price between 1 October 2020 and 31 December 2020 (718.08 p per share) and certain
assumptions regarding the cumulative value of dividends on the number of shares vesting.
9 The disclosed LTIP figure of £nil relates to the 2018 Aviva LTIP buy-out award granted to Andy Briggs which lapsed as the Aviva award had a performance outturn of 0% over the
performance period.
Phoenix Group Holdings plc Annual Report and Accounts 2021
111
Corporate governance
Directors’ remuneration report continued
AIP outcomes for 2021 – Audited information
Against the specific Corporate measures, outturns were as follows:
Performance measure
Cash Generation
Incremental Long-Term Cash Generation
less New Business Strain
Shareholder Value
Customer Experience
Customer Satisfaction – Telephony1
Demand Processed within Service Level2
Customer Satisfaction – Digital3
Complaints Resolved in < 8 Weeks4
Total
Threshold
performance
level of
2021 AIP
Target
performance
level for
2021 AIP
Maximum
performance
level for
2021 AIP
Performance
level attained
for 2021 AIP
£1,517m
£1,617m
£1,717m
£1,717m
£668m
£7,813m
90.0%
92.0%
92.0%
91.0%
£718m
£7,913m
91.0%
94.0%
94.0%
93.0%
£768m
£8,113m
92.0%
96.0%
96.0%
95.0%
£777m
£7,919m
92.0%
90.0%
95.0%
93.0%
% of
incentive
potential
based on
Performance
Measure
30.00%
20.00%
25.00%
6.25%
6.25%
6.25%
6.25%
100.00%
%
achieved
30.00%
20.00%
12.80%
6.25%
0.00%
4.68%
3.12%
76.85%
1 Customer satisfaction scores from entities across the Group are combined, each entity currently takes different approaches to measurement. Standard Life telephone customer feedback surveys
are delivered to customers after key interactions using the Rant & Rave solution, either by SMS or email, the question asks “Using a scale of 5 (excellent) to 1 (very poor) reply to tell us how you would
rate your call experience today?” and the score is calculated as the % of responses of 4 or 5. For Phoenix Life, the rating is a customer satisfaction score based on the results of a satisfaction survey
following telephony interaction managed by Ipsos MORI, customers surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions (with a rating of 4 or 5 regarded as
satisfied). ReAssure surveys use the Feedback Ferret solution to ask customers a similar question rated on a scale of 1–5, with 4 or 5 regarded as satisfactory.
2 The percentage of all back office manual workflow completed within service level (services levels vary across entities). Across entities this includes Claims & Servicing, with Standard Life also
including new business acquisition and straight through processing.
3 Digital customer satisfaction surveys are offered to customers on Standard Life secure customer platforms, including the Standard Life mobile app, asking them to rate their experience after
completing a key transaction. Digital transactions measured include Payments, Retirement, Subsequent Withdrawal and Fund Switch. Customer Satisfaction (CSAT) is measured as the percentage
of responses rating their experience as ‘good’ or ‘excellent’.
4 The rating is a percentage based upon the total volume of all complaints resolved within eight weeks from date of receipt divided by the total number of complaints resolved. This is a strategic
requirement to allow for external benchmarking within the complaints peer group.
In respect of the Long-term Cash Generation metric, the Committee approved an adjustment to increase the related target by £117
million to reflect the uplift in actual capital investment during the year in the BPA business compared to that assumed in the setting of
the original targets. The Committee believed the adjustment was important to ensure that management were incentivised to ensure the
additional capital investment delivers value-accretive returns for shareholders. This had no impact on the outcome of the measure.
During the year the Remuneration Committee were advised of an error during the target setting process for the Shareholder Value
metric. The Committee approved the correction on the basis that it applied to the baseline figure from which both the target and
the outturn are calculated and therefore had no impact on the level of stretch within the target. The Committee also approved an
adjustment to reflect the amendment of the categorisation of two with-profit funds as no longer falling under the Shareholder Value
definition, in line with the internal model harmonisation exercise. This had no impact on the level of stretch within the target.
In reviewing all of the adjustments, the Committee was satisfied that as a result the targets remained as stretching and motivating to
management as originally intended.
As described in the Committee Chairman’s covering letter (page 106), Phoenix has made strong progress against its strategic priorities
in 2021 and has once again delivered on its financial framework of cash, resilience and growth. Prior to confirming the outcomes for the
2021 AIP, the Committee reviewed in detail the extent to which the Group had operated within its stated risk appetite during the year
and determined that no moderation of the 2021 formulaic outcome was necessary.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
The Strategic Scorecard represents 20% of the overall incentive opportunity with the Corporate (financial and customer) measures
representing 80%. Metrics and targets relating to this scorecard were agreed by the Remuneration Committee at the start of the year.
The table below details the outcome against targets of the Strategic Scorecard with the exception of those which are considered as
commercially sensitive, together with respective weightings for the Group CEO and Group CFO.
CEO CFO Description
25% 20% Reduce environmental impact
Base
0.96 tonnes CO2e/FTE
Performance
0.81 tonnes CO2e/FTE
Objective
ESG –
Committing
to a sustainable
future
Foster responsible investment
Set carbon reduction pathways
Completed
Delivering for our customers
>=60% ratio of shareholder
investments in sustainable assets
within the illiquid portfolio
Launch >=3 initiatives to improve
financial understanding
Review workplace default
solutions
67%
3 pilots launched
Review complete and
customer mailings
underway
Launch digital literacy initiative
Launched digital literacy pilot
Supporting our communities
>=40% of colleagues engaged
Work responsibly with
our suppliers
Brand awareness
35% despite COVID-19
restrictions curtailing
activities
84%
>=75% engaged with Phoenix
on their carbon management
programme and commitments
Launch of Phoenix Institute and
Qualitative assessment
Launched and receiving
strong support
Engagement,
diversity
and inclusion
25% 20% Engagement survey results
‘Who we are’ data tracking
Women in Finance gender pay gap
eNPS 18 or
Average 7.5/10
>= 85%
<= 22% by 2021
(positive trend 2020)
Percentage of females in top 100
>= 30% by 2021
(positive trend by 2020)
Percentage of females named
as Green or Amber Successors
>= 40%
(maintain)
Risk
management
15% 20% Open action plans
<=10% overdue
Customer incidents management
80% Cat.A resolved in 2 mths
72.5% Cat.B resolved in 9 months
Review of RMF effectiveness
Qualitative ORMF report
Regulator action tracking
Qualitative assessment based on
quality and timeliness
Financial
resilience
10% 20% Long-term free cash
Shareholder ratio
>=£13.5bn
>=165%
eNPS 23
Average 7.5/10
73%
22.9%
(not adjusted for contracted
hires)
31%
(including contracted hires
and known leavers, 27%
actual)
42%
(not including contracted
hires)
13%
87%
78%
Satisfactory
Satisfactory
13.2bn
180%
Maintain investment grade rating
Maintain at A+
upgraded from A+ to AA-
Fitch leverage ratio
>=28%
Credit downgrade sensitivity
Maintain at FY20 level
Share placement strategy
Strategic investors
Develop a significant share
placement strategy and execute
as required
Enhance strategic shareholder
relationships
Sustainable
Operating
Model &
Business
Integration
10% 10% Cost synergies in year (SLAL) net of tax
>=£4.6m
Cost synergies in year (ReAssure) net
of tax
Capital synergies in year (SLAL)
Capital synergies in year (ReAssure)
>=£16m
>=£227m
>=£40m
Total BAU expenses (excluding SunLife) <=£750m
% of key projects reporting green
Platform availability
>=80%
>=99.5%
Strategy
15% 10% 2024–26 strategic plans
Mobilise 2024–26 strategic plans
Strategic projects
Quality execution of 3 strategic
projects
28%
Maintained
Achieved
Achieved
£8.1m
£5.6m
£557m
£209m
£808m including Board
approved activities
51%
99.9%
Achieved
Achieved
Outcome
100%
Significant over-delivery
compared to plan. Established
capability and embedding in the
organisation. Increasing voice
in the industry. Demonstrably
putting our money to work in
sustainable assets.
75%
Excellent progress made in 2021
against our gender metrics. We
have seen strong improvement
in female representation and
continue with a positive outlook
in 2022. Our engagement result
reflects how we have continued
to support colleagues through
an uncertain year as a result
of the continued COVID-19
pandemic and our move to
hybrid working.
50%
Consistent focus on risk
management with good
progress. Significant investment
but a recognition of the need
to continue to build robust
automated controls that support
the ambitions of the business.
100%
Met or beat consensus on a
number of our key metrics,
with a stronger balance sheet
due to management actions
and initiatives delivered in the
period. Fitch leverage ratio
adversely impacted by hedging
strategy. Supported Swiss Re
sell down of half of its strategic
stake in June, with strong
ongoing relationship with other
strategic investors.
62.5%
Strong delivery of capital and
cost synergies for the SLAL
and ReAssure acquisitions.
BAU expense increase reflects
investment in the business for
future growth. Change agenda
reflects the growth ambitions,
with ongoing management
of interdependencies and
scheduling of delivery.
100%
Strategy agreed with the Board
and embedded in the Annual
Operating Plan.
Phoenix Group Holdings plc Annual Report and Accounts 2021
113
Corporate governance Directors’ remuneration report continued
In light of the above achievements during the year, the Committee determined it was appropriate to pay the following outcomes under
the Strategic Scorecard element for the Group CEO and Group CFO:
Andy Briggs
Rakesh Thakrar
% outturn
of maximum
20%
opportunity
82.50%
81.25%
The Committee was also satisfied that it was appropriate to pay out the incentives according to the formulaic outcomes in the context of
the experience of Phoenix’s stakeholders during the year.
The table below shows the actual outturn against the annual incentive maximum.
Andy Briggs
Rakesh Thakrar
Corporate
Strategic Scorecard
Total
Maximum
Total
As a % of
maximum
Corporate
element
76.9
76.9
As a %
of maximum
scorecard
element
82.5
81.3
As a %
of salary
92.3
92.3
As a %
of salary
24.8
24.4
As a %
of salary
117.0
116.7
As a %
of salary
150.0
150.0
As a %
of maximum
opportunity
78.0
77.8
As described in the Remuneration Policy, 50% of 2021 AIP outcomes will be delivered as an award of deferred shares under the DBSS
which will vest after a three-year deferral period subject to continued employment or good leaver status.
Whilst the performance measures for the 2022 AIP have been disclosed (see Implementation of Remuneration Policy for 2022 on page
121), the actual performance targets for these measures are regarded as commercially sensitive at the current time and accordingly are
not disclosed. However, as in previous years, the Group intends to disclose the performance targets for 2022’s AIP retrospectively in
next year’s Remuneration Report on a similar basis to the disclosures made above in respect of 2021’s AIP.
LTIP outcomes for 2019 awards – Audited information
Performance measure
and weighting
Cumulative cash
generation (40%)
Return on Solvency II
Shareholder Own Funds
(35%)
Relative TSR (25%)
Total
Target range
Target range between Cumulative cash generation of £3.584 billion and
Cumulative cash generation of £3.949 billion.
Target range between 4.5% CAGR and 6.5% CAGR.
Target range between median performance against the constituents of the FTSE
250 (excluding Investment Trusts) rising on a pro rata basis until full vesting for
upper quintile performance. In addition, the Committee must consider whether
the TSR performance is reflective of the underlying financial performance of the
Company.
Performance
achieved
Vesting
outcome
%
achieved
£3.835bn
76.7%
30.7%
6.9
100.0%
35.0%
60.4th
50.8%
12.7%
78.4%
The above targets were all measured over the period of three financial years 1 January 2019 to 31 December 2021.
Following the acquisition of ReAssure Group plc by the Group on 22 July 2020, the LTIP targets for Cumulative cash generation were
amended to reflect the new organisation. The adjustments were made in line with the Committee’s established principles for target
setting in the event of an acquisition and the Committee was satisfied that the revised targets were equally stretching as those originally
set. The previous targets for the Cumulative Cash Generation metric were £2.097 billion at threshold (where 25% of this part of the
award vests) and £2.397 billion at maximum (full vesting of this part of the award).
In addition to the above targets, the Committee confirmed that the underpin performance condition relating to risk management within
the Group, customer satisfaction and, in exceptional cases, personal performance had been achieved in the performance period.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Payments for loss of office – Audited information
No payments were made to Directors in 2021 for loss of office.
Payments to past directors – Audited information
Clive Bannister, who resigned from the Board on 10 March 2020, received title to shares during 2021 in respect of the 2018 LTIP. The
value of these shares at the point of vesting on 21 March 2021 was £1,131,985. Taking into account the performance outturn of 99.9%
and time pro-rating, this reflected a grant of 130,451 shares with a value of £934,553 plus dividend accrual of 27,559 shares with a value
of £197,432. As disclosed in the 2020 Directors’ remuneration report, Clive Bannister received an amount of £161,796 in respect of his
2020 AIP award for the portion of the year in which he remained employed by the Group, which was paid in March 2021 and subject to
50% deferral in line with remuneration policy adopted in 2020.
James McConville, who resigned from the Board on 15 May 2020, received title to shares in 2021 in respect of the 2018 LTIP. The value
of these shares at the point of vesting on 21 March 2021 was £777,737. Taking into account the performance outturn of 99.9% and
time pro-rating, this reflected a grant of 89,628 shares with a value of £642,097, plus dividend accrual of 18,934 shares with a value of
£135,640. As disclosed in the 2020 Directors’ remuneration report, James McConville received an amount of £202,432 in respect of his
2020 AIP award for the portion of the year in which he remained employed by the Group, which was paid in March 2021 and subject to
50% deferral in line with remuneration policy adopted in 2020.
Non-executive fees – Audited information
The emoluments of the Non-Executive Directors for 2021 based on the current disclosure requirements were as follows:
Name
Non-Executive Chairman
Nicholas Lyons2
Non-Executive Directors
Alastair Barbour
Karen Green
Hiroyuki Iioka3
Wendy Mayall
Chris Minter4
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty5
Total
Directors’ salaries/fees
Benefits1
2021
£000
2020
£000
2021
£000
2020
£000
Total
2021
£000
2020
£000
370
325
161
141
–
111
–
141
111
129
141
–
1,305
145
125
–
105
–
135
105
105
125
–
1,170
1
10
1
–
–
–
–
–
–
–
–
12
–
6
–
–
–
–
–
–
1
–
–
7
371
171
142
–
111
–
141
111
129
141
–
1,317
325
151
125
–
105
–
135
105
106
125
–
1,177
1 The amounts within the benefits columns reflect the fact that the reimbursement of expenses to Non-Executive Directors for travel and accommodation costs incurred in attending Phoenix
Group Holdings plc Board and associated meetings represent a taxable benefit. This position has been clarified with HMRC and the amounts shown are for reimbursed travel and accommodation
expenses (and the related tax liability which is settled by the Group).
2 The fee for Nicholas Lyons increased to £460k with effect from 1 September 2021.
3 Hiroyuki IIoka is a nominated appointed director of MS&AD and has waived all current and future emoluments with regard to his Directors’ fees.
4 Chris Minter resigned from the Board on 25 June 2021. He was a nominated appointed director of Swiss Re and waived all current and future emoluments with regard to his Directors’ fees.
5 Mike Tumilty is a nominated appointed director of abrdn plc and has waived all current and future emoluments with regard to his Directors’ fees.
The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu
of pensions and annual incentive was £4.376 million (2020: £4.537 million).
Phoenix Group Holdings plc Annual Report and Accounts 2021
115
Corporate governance Directors’ remuneration report continued
Share-based awards – Audited information
As at 31 December 2021, Directors’ interests under long-term share-based arrangements were as follows:
LTIP
Name
Andy Briggs
LTIP Buyout Award
LTIP Buyout Award
LTIP
LTIP
Rakesh Thakrar
LTIP
LTIP
LTIP
LTIP
Date of
grant
Share price
on grant
No. of
shares
as at
1 Jan
2021
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
granted
in 2021
No. of
shares
exercised2
No. of
shares not
vested3
No. of
shares
as at
31 Dec
2021
7 Nov 2019
7 Nov 2019
13 Mar 2020
12 Mar 2021
751.5p
751.5p
620.5p
736.2p
87,221
101,158
354,529
–
542,908
–
–
–
298,831
298,831
–
–
–
–
–
–
–
–
–
–
–
(101,158)
–
–
(101,158)
87,221
–
354,529
298,831
740,581
Vesting
date4
27 Mar 2020
26 Mar 2021
13 Mar 2023
12 Mar 2024
21 Mar 2018
11 Mar 2019
13 Mar 2020
12 Mar 2021
703.6p
700.4p
620.5p
736.2p
35,527
39,259
135,365
–
210,151
–
–
–
116,816
116,816
7,502
–
–
–
7,502
(42,985)
–
–
–
(42,985)
(44)
–
–
–
(44)
–
39,259
135,365
116,816
291,440
21 Mar 2021
11 Mar 2022
13 Mar 2023
12 Mar 2024
1
In addition to the shares awarded under the LTIP presented above, participants receive an additional number of shares (based on the number of LTIP awards which actually vest) to reflect the
dividends paid during the vesting period (and which for awards made from 2015, will include dividends paid during any applicable holding period).
2 Gains of Directors from share options exercised and vesting shares under the LTIP in 2021 were £306,053 (2020: £2,426,388). Rakesh Thakrar’s gain was £306,053 arising from an LTIP award
exercised on 23 March 2021 at a share price of £7.12. The figure for 2020 included exercises by former Executive Directors.
3 The 2018 LTIP award vested at 99.9% of maximum. The 2019 LTIP award vested at 78.4% of maximum.
4 All LTIP awards are now subject to a holding period so that any LTIP awards for which the performance vesting requirements are satisfied will not be released for a further two years from the third
anniversary of the original award date.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
LTIP targets
The performance conditions for the 2019, 2020 and 2021 awards are set out below. These targets reflect adjustments made following
the acquisition of ReAssure in July 2020 as described on page 136 of the 2020 Annual Report and Accounts.
2019 award
(40% Cumulative cash generation,
35% Return on Adjusted Shareholder
Solvency II Own Funds and
25% Relative TSR)
Target range
of £3.584bn to £3.949bn.
2020 award
(35% Net Operating Cash Receipts,
25% Return on Shareholder Value,
20% Relative TSR, 20% Persistency)
n/a
2021 award
(35% Net Operating Cash Receipts,
25% Return on Shareholder Value,
20% Relative TSR, 20% Persistency)
n/a
n/a
Target range
of £4.411bn to £4.966bn.
Target range
of £4.330bn to £4.780bn.
Between 4.5%
CAGR and 6.5% CAGR.
n/a
n/a
n/a
Between 2% CAGR
and 4% CAGR.
Between 2% CAGR
and 4% CAGR.
Target range between median
performance against the
constituents of the FTSE 250
(excluding Investment Trusts)
rising on a pro rata basis until
full vesting for upper quintile
performance.
Target range between median
performance against the
constituents of the FTSE 350
(excluding Investment Trusts)
rising on a pro rata basis until
full vesting for upper quintile
performance.
Target range between median
performance against the
constituents of the FTSE 350
(excluding Investment Trusts)
rising on a pro rata basis until
full vesting for upper quintile
performance.
n/a
Target range between
8.0% and 6.5%
Target range between
7.4% and 6.1%
Performance measure
Cumulative cash generation
25% of this part vests at threshold
performance rising on a pro rata
basis until 100% vests. Measured
over three financial years commencing
with the year of award.
Net Operating Cash Receipts
25% of this part vests at threshold
performance rising on a pro rata
basis until 100% vests. Measured
over three financial years commencing
with the year of award.
Return on Adjusted Shareholder
Solvency II Own Funds 25% of this part
vests at threshold performance rising
on a pro rata basis until 100% vests.
Measured over three financial years
commencing with the year of award.
Return on Shareholder Value
25% of this part vests at threshold
performance rising on a pro rata basis
until 100% vests. Measured over three
financial years commencing with the
year of award.
Relative TSR
25% of this part vests at threshold
performance rising on a pro rata
basis until 100% vests. In addition,
the Committee must consider whether
the TSR performance is reflective of the
underlying financial performance of the
Company, measured over three financial
years commencing with the year of award.
Persistency
25% of this part vests at threshold
performance rising on a pro rata
basis until 100% vests. Measured
over three financial years commencing
with the year of award.
Underpin:
2019 and 2020 LTIP – notwithstanding the Return on Adjusted Shareholder Solvency II Own Funds, Cumulative cash generation and
TSR performance targets, if the Committee determines that the Group’s debt levels and associated interest costs have not remained
within parameters acceptable to the Committee over the performance period, and that the Group has not made progress considered to
be reasonable by it in executing any strategy agreed by the Board on debt management, capital structuring and Risk Management, the
level of awards vesting will either be reduced or lapse in full. The underpin also includes consideration of customer satisfaction and, to
meet Solvency II requirements, in exceptional cases, personal performance.
2021 LTIP – awards are subject to an underpin relating to risk management within the Group, consideration of customer satisfaction
and, to meet Solvency II requirements, in exceptional cases, personal performance. This underpin relating to the formulaic outturn of
the LTIP has been revised to better reflect the extent to which the Group has operated within its stated Risk Appetite and ensures that
management is not incentivised to accept risk outside of appetite in the pursuit of improved delivery against LTIP performance targets.
It also offers a broader assessment than the previous focus on the management of the Group’s debt position.
Phoenix Group Holdings plc Annual Report and Accounts 2021
117
Corporate governance Directors’ remuneration report continued
DBSS– Audited information
No. of
shares
granted
as at
1 Jan 2021
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
granted
in 2021
No. of
shares
exercised2
No. of
shares
lapsed/waived
No. of
shares as at
31 Dec 2021
Andy Briggs
DBSS
Rakesh Thakrar
DBSS
DBSS
DBSS
DBSS
Date
of grant
Share price
on grant
12 March 2021
736.2p
_
_
67,269
67,269
21 Mar 2018
11 Mar 2019
13 Mar 2020
12 March 2021
703.6p
700.4p
620.5p
736.2p
6,863
11,740
15,262
–
33,865
–
–
–
27,381
27,381
–
–
1,445
–
–
–
1,445
–
–
(8,308)
–
–
–
(8,308)
–
–
–
–
–
–
–
67,269
67,269
–
11,740
15,262
27,381
54,383
Vesting
date
12 Mar 2024
15 Mar 2021
11 Mar 2022
13 Mar 2023
12 Mar 2024
1
In addition to the shares awarded under the DBSS presented above, participants receive an additional number of shares (based on the number of DBSS awards which actually vest) to reflect the
dividends paid during the vesting period.
2 Gains of Directors from share options exercised and vesting shares under the DBSS in 2021 were £59,922 (2020: £532,034). Rakesh Thakrar’s gain was £59,922 (2020: £54,297) arising from an
award exercised on 16 March 2021 at a share price of £7.212553. The figure for 2020 included exercises by former executive directors.
The DBSS is the share scheme used for the deferral of AIP. No performance conditions apply therefore, although awards are subject to
continued employment or good leaver status.
Scheme interests awarded in the year – Audited information
Recipient
Andy Briggs
Andy Briggs
Rakesh Thakrar
Rakesh Thakrar
Date
of award
12 March
2021
12 March
2021
12 March
2021
13 March
2021
Type
of award
LTIP
DBSS
LTIP
DBSS
Nature
of the Award
Nil Cost
Option
Nil Cost
Option
Nil Cost
Option
Nil Cost
Option
How the
award is
calculated
275%
of salary
50%
of AIP
200%
of salary
50%
of AIP
Percentage
vesting at
threshold
performance1
Face value
of award
£2,199,994
25%
£495,234
–
£859,999
25%
£201,579
–
Vesting
date
12 March
2024
12 March
2024
12 March
2024
12 March
2024
Performance
Measures1
See page 117
None
See page 117
None
1 The DBSS awards have no threshold performance level.
The face value represents the maximum vesting of awards granted (but before any credit for dividends over the period to vesting) and is
calculated using a share price of the average of the closing middle market prices of Phoenix shares for the three dealing days preceding
the award date (2021 LTIP and DBSS award share price was 736.2p).
Sharesave – Audited information
Andy Briggs
Rakesh Thakrar
Rakesh Thakrar
As at
1 Jan 2021
–
1,604
2,546
Options
granted
3,056
–
–
Options
exercised
–
–
–
Options
lapsed
–
–
–
As at
31 Dec
2021
3,056
1,604
2,546
Exercise
price
£5.89
£5.61
£5.89
Exercisable
from
1 June 2024
1 June 2022
1 June 2026
Date of
expiry
1 Dec 2024
1 Dec 2022
1 Dec 2026
There were nil gains of Directors from share options exercised under Sharesave during 2021 (2020: £4,838). Sharesave options are
granted with an option price that is a 20% discount to the three-day average share price when invitations are made. This is permitted by
HMRC regulations for such options.
Aggregate gains of Directors from share options exercised under all share plans in 2021 were £365,975 (2020: £2,963,260).
118
Phoenix Group Holdings plc Annual Report and Accounts 2021
During the year ended 31 December 2021, the highest mid-market price of the Company’s shares was 732.37p and the lowest mid-
market price was 623.40p. At 31 December 2021, the Company’s share price was 653.20p.
Directors’ interests – Audited information
The number of shares and share plan interests held by each Director and their connected persons are shown below:
Andy Briggs
Rakesh Thakrar
Alastair Barbour
Karen Green
Hiroyuki Iioka
Nicholas Lyons
Wendy Mayall
Chris Minter
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Michael Tumilty
Share interests
as at
1 January 2021
or date of
appointment
if later
216,830
75,131
9,716
–
–
65,990
40,000
–
14,666
–
38,995
26,600
–
Share interests
as at
31 December
2021 or
retirement
if earlier
285,897
102,822
9,716
–
–
65,990
55,000
–
14,666
–
38,995
38,300
–
Total share plan
interests as at
31 December
2021
– Subject
to performance
measures
653,360
291,440
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2021
– Not subject
to performance
measures
67,269
54,383
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2021
– Vested but
unexercised
scheme interest
87,221
–
–
–
–
–
–
–
–
–
–
–
–
The Directors’ share interests of the following Directors have increased between 31 December 2021 and 21 February 2022 (being one
month prior to the date of the notice of the AGM). Kory Sorenson purchased 6,700 shares post year end and Andy Briggs and Rakesh
Thakrar each acquired an additional 60 shares each following purchases under the Group’s Share Incentive Plan. There were no other
changes between these dates.
Shareholding requirements – Audited information
As explained in the Remuneration Policy under the Shareholding Guidelines section, the Executive Directors are subject to shareholding
requirements during their employment with the Group and for a period of two years post termination of employment.
Andy Briggs and Rakesh Thakrar are subject to a post-cessation shareholding of 100% of their in-employment shareholding for a period
of two years post-employment.
The extent to which Executive Directors have achieved the requirements by 31 December 2021 (using the share price of 653.20 pence
as at 31 December 2021) is summarised below. Unvested share awards no longer subject to performance conditions (discounted for tax
liabilities) are included within the Guidelines. In addition to the unvested share awards and shares previously acquired, Andy Briggs has
also purchased 68,691 shares privately throughout 2021.
Position
Andy Briggs
Rakesh Thakrar
Shareholding
Guideline
(minimum
% of salary)
300%
250%
Value of
shares held at
31 December
2021
(% of salary)
300%
200%
The post cessation shareholding requirement is monitored and enforced by direct liaison and confirmation with the Directors and their
brokers, all trades and transfers are discussed and notified to the Group by the relevant Director.
The Executive Directors are required to sign a declaration that they have not and will not at any time during their employment with
Phoenix, enter into any hedging contract in respect of their participation in the AIP, LTIP, Sharesave, SIP or any other incentive plan of
the Company, or pledge awards in such plans as collateral, and additionally that they will neither enter into a hedging contract in respect
of, nor pledge as collateral, any shares which are required to be held for the purposes of the Company’s Shareholding requirements or
any vested LTIP award shares subject to a LTIP holding period.
Phoenix Group Holdings plc Annual Report and Accounts 2021
119
Corporate governance Directors’ remuneration report continued
Implementation of remuneration policy in 2022 – Non-auditable
A summary of the packages of the Executive Directors is set out in the table below.
Salary
Pension
Benefits
Annual bonus
LTIP
Rakesh Thakrar
£485,000, a 12.8% salary increase as detailed on
page 107.
Andy Briggs
£812,000, a 1.5% increase aligned to senior
managers in the wider workforce.
Benefits in line with the rest of the workforce including car allowance of £10,000 and Private Medical
Insurance cover for self only. Executive Directors are also entitled to receive benefits in accordance with
our Directors’ Remuneration Policy which will be reported in the Single Figure Table each year.
Contribution rate of 12% of base salary (reduced for the impact of employers’ NIC if taken as a cash
payment), aligned to our wider workforce.
150% of base salary at maximum. Details of the 2022 AIP are set out below.
275% of base salary.
200% of base salary.
Details of the 2022 LTIP awards are set out overleaf.
300% of base salary.
Where any performance vested LTIP awards are subject to a holding period requirement, the relevant LTIP
award shares (discounted for anticipated tax liabilities) will count towards the shareholding requirements.
Unvested awards under the DBSS which are not subject to performance conditions are included in this
assessment on a net of tax basis. Unvested awards under the LTIP are not included in this assessment.
Post cessation shareholding requirement Executive Directors are expected to retain the lower of their shareholding on termination or their full
in-employment shareholding requirement for two years.
Shareholding requirement
250% of base salary.
Element of Remuneration Policy
Annual Incentive Plan (‘AIP’)
Deferred Bonus Share Scheme
(‘DBSS’)
As described in the Committee Chairman’s covering letter on page 106, the Committee regularly reviews
the performance measures of the incentive plans to ensure they remain aligned with our strategy. The
Committee believes the current performance metrics remain well aligned with the Group’s strategy and as
such no changes are proposed for the 2022 metrics.
The Strategic Scorecard will reflect 20% of the Executive Directors’ AIP. This will include a number of the
strategic priorities for the year (but avoiding duplication with any outcomes under the Corporate element)
and which can be clearly articulated and measured. Sustainability is at the heart of our purpose and ESG
continues to form part of the Strategic Scorecard elements of the Executive Directors.
The overall weightings between Corporate measures and Strategic Scorecard for AIP in 2022 are:
• Corporate (financial and customer) performance measures – 80%; no change from 2021.
• Strategic Scorecard (strategic company priorities ) – 20%; no change from 2021.
The weightings of the AIP performance measures for 2022 are summarised below:
Performance measure
Corporate measure
Cash Generation
Shareholder Value
Incremental Long Term-Cash Generation
less New Business Strain
Customer Experience
Strategic Scorecard
Total
% of incentive potential
24% (30% of Corporate component)
20% (25% of Corporate component)
16% (20% of Corporate component)
20% (25% of Corporate component)
20%
100%
Outcomes from performance measures for 2022’s AIP may be moderated by the Remuneration Committee
in line with the approved Remuneration Policy. This will include a review by the Remuneration Committee
of the extent to which the Group has operated within its stated risk appetite and that there are no other risk-
related concerns that would necessitate moderation before any 2022 AIP outcomes are confirmed.
The targets for the specific performance measures for the AIP in 2022 are regarded as commercially
sensitive by the Group but will be disclosed retrospectively in the Remuneration Report for 2022.
50% of AIP outcomes for 2022 will be delivered as an award of deferred shares under the DBSS which will
vest after a three-year deferral period.
DBSS awards made in 2022 (in respect of 2021’s AIP outcome) will be made automatically on the fourth
dealing day following the announcement of the Group’s 2021 annual results in accordance with the
Remuneration Policy.
The number of shares for DBSS awards will be calculated using the average share price for the three
dealing days before the grant of the DBSS awards. The three-year deferral period will run to the three-year
anniversary of the making of the DBSS awards. Dividend entitlements for the shares subject to DBSS awards
will accrue over the three-year deferral period.
120
Phoenix Group Holdings plc Annual Report and Accounts 2021
Long-Term Incentive Plan
(‘LTIP’)
Awards under the LTIP will be made automatically on the fourth dealing day following the announcement
of the Group’s 2021 annual results under a procedure similar to that described above for awards under the
DBSS.
The number of shares for LTIP awards will be calculated using the average share price for the three dealing
days before the grant of the LTIP awards. The initial three-year vesting period will run to the three-year
anniversary of the granting of the LTIP awards. At this time, the performance conditions will be determined.
All annual LTIP awards made to Executive Directors are subject to a holding period so that any LTIP awards
for which the performance conditions are satisfied will not be released for a further two years from the third
anniversary of the original award date. Dividend accrual for LTIP awards will continue until the end of the
holding period.
The performance measures for the 2022 LTIP have been amended to incorporate metrics relating to the
Group’s progress in delivering its external commitments to decarbonise its operations and investment
portfolio as described on page 106 of the Committee Chairman’s covering letter. The performance
measures are measured over a period of three financial years, commencing with financial year 2022. Details
of the 2022 LTIP measures, weightings and targets are shown below:
Performance measure and weighting
Net Operating Cash Receipts (20%)
Return on Shareholder Value (return above risk free
on Shareholder value (pre shareholder dividends) over
a three-year period) (20%)
Persistency (20%)
Decarbonisation – Investment Portfolio (10%)
Net Zero strategy applied to 75–85% of assets in scope by 2025.
18–22% reduction in portfolios where a Net Zero strategy has
been applied
Decarbonisation – Operations (10%)
Scope 1 and 2 emissions from our occupied premises and scope 3
emissions from business travel
Relative TSR measure against the constituents of the FTSE 350
(excluding Investment Trusts), subject to an underpin regarding
underlying financial performance (20%)
Threshold target Full vesting target
£4,100 million
£3,800 million
5% CAGR in
3% CAGR in
excess of the
excess of the
risk-free rate
risk-free rate
7.6%
75% of
listed equity
and credit
assets in scope
18% reduction
for those
in scope
15% reduction
year on year,
against 2019
carbon intensity
6.2%
85% of
listed equity
and credit
assets in scope
22% reduction
for those
in scope
25% reduction
year on year,
against 2019
carbon intensity
Median Upper quartile
All 2022 LTIP awards are subject to an underpin relating to risk management within the Group,
consideration of customer satisfaction and, to meet Solvency II requirements, in exceptional cases, personal
performance. This underpin relating to the formulaic outturn of the LTIP reflects the extent to which the
Group has operated within its stated Risk Appetite and ensures that management is not incentivised to
accept risk outside of appetite in the pursuit of improved delivery against LTIP performance targets. It also
offers a broader assessment than the previous focus on the management of the Group’s debt position.
For the Group CEO, awards vesting under the LTIP will be subject to a cap on threshold performance of the
lower of 50% of salary or 25% of maximum vesting.
The rules of the Company’s LTIP reserves discretion for the Committee to adjust the outturn for any LTIP
performance measures (from zero to any cap) should it consider that to be appropriate. The Committee may
operate this discretion having regard to such factors as it considers relevant, including the performance of
the Group, any individual or business.
Executive Directors have the opportunity to participate in HMRC tax advantaged Sharesave and Share
Incentive Plans on the same basis as all other UK employees.
The fee levels as at 1 January 2022 are: £460,000 for the Chairman, £75,000 for the role of Non-Executive
Director with additional fees of: (i) £20,000 payable for the role of SID; and/or (ii) £30,000 payable
where an individual also chairs the Audit, Remuneration, Risk or Sustainability Committee; and £18,000
for the other members of those committees, the Model Governance Committee and attendees to the Life
Company Investment Committee.
All-Employee Share Plans
Chairman and Non-Executive
Directors’ fees
All incentive plans are subject to malus/clawback. See page 134 ‘Notes to the Remuneration Policy Table’ for details.
Phoenix Group Holdings plc Annual Report and Accounts 2021
121
Corporate governance Directors’ remuneration report continued
Distribution statement
The DRR Regulations require each quoted company to provide a comparison between profits distributed by way of dividend and overall
expenditure on pay.
Relative Importance (£m)
Profits ditributed by way of
dividend (% change +3%)
475
489
Overall expenditure on
pay (% change +23%)
531
433
2020
2021
2020
2021
Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial year. For
2021 this is the interim dividend paid (£241 million) and the recommended final dividend of 24.8 pence per share multiplied by the
total share capital issued at the date of the Annual Report and Accounts as set out in note D1 in the notes to the consolidated financial
statements. No share buy-backs were made in the year.
Overall expenditure on pay has been taken as employee costs as set out in note C3 ‘Administrative expenses’ in the notes to the
consolidated financial statements. Expenditure on pay has increased by 23% in the period reflecting the inclusion of a full year’s ex-
penditure in relation to the ReAssure businesses (2020: five months’ expenditure). The increase, excluding the impact of the ReAssure
businesses, is 5% which is primarily driven by the increased headcount across the Open and Customer segments of the business and
the impact of the salary increase for staff during the year, partly offset by cost of the crystallisation of the SunLife four-year long-term
equity plan included in 2020.
Voting outcomes on remuneration matters
The table below shows the votes cast to approve the Directors’ remuneration report for the year ended 31 December 2020 and the
Directors’ Remuneration Policy at the 2021 AGM held on 14 May 2021.
To approve the Directors’ remuneration report for
the year ended 31 December 2020 (2021 AGM)
855,447,252
99.76
2,070,112
To approve the Directors’ remuneration policy (2020 AGM)
563,455,466
99.31
3,899,742
0.24
0.69
246,422
744,467
For
Against
Abstentions
Number
% of votes cast
Number
% of votes cast
Number
Dilution
The Company monitors the number of shares issued under the Group’s employee share plans and their impact on dilution limits. The
Company’s practice is for all the executive share plans to use market purchase shares on exercise of any awards. For the Company’s
all-employee Sharesave scheme only, new shares are issued. Therefore the usage of shares compared to the 10% dilution limits (in any
rolling ten-year period) set by the Investment Association in respect of all share plans as at 31 December 2021 is 0.75% and no shares
count towards the dilution limit for executive plans only (5% in any rolling ten-year period).
Consideration of employee pay
When determining the Remuneration Policy and the approach to pay for our Executive Directors, the Committee considers pay and
incentive plan design throughout the Group to ensure that arrangements remain appropriate and suitably aligned. The Group has a
reward policy that is broadly consistent for all levels of employees, with the same remuneration principles guiding reward decisions
for all Group colleagues, including Executive Directors. The AIP and LTIP performance metrics are the same for Executive Directors
as other eligible colleagues, however, a higher proportion of total remuneration for the Executive Directors is linked to corporate
performance. The Group also offers all colleagues a choice of share schemes (Sharesave and Share Incentive Plan) on the same basis as
those offered to Executive Directors.
Pay for the wider colleague base is driven primarily by market practice and there is a standard benefit offering across all levels, except
where external market drives differences based on role accountability. During 2021, colleagues who joined from ReAssure were
aligned to the Group remuneration principles and common incentive plan. The Group’s HR vision is to make Phoenix the best place
any colleagues have ever worked and provide colleagues with endless possibilities, support and positive experiences. Amongst others,
initiatives in 2021 included enhancements to the Group’s financial wellbeing offering, continued support during the pandemic and
122
Phoenix Group Holdings plc Annual Report and Accounts 2021
practices that foster a truly equal and inclusive environment. The Committee also considers feedback on pay matters from other
sources, such as through Colleague Insights, a continuous listening survey, where colleagues anonymously share their views on various
people matters including pay and reward, and through the Phoenix Colleague Representation Forum (PCRF), a colleague led forum
made up of representatives from different functions. The designated Non-Executive Director for workforce engagement1 regularly
meets with the PCRF and provides feedback to the Board on key people themes, including diversity and inclusion, support in response
to COVID-19, pay and benefits and terms and conditions. Phoenix Group is a proud Real Living Wage employer and champions an
inclusive and diverse culture. Equal pay and consistency of treatment for all colleagues, irrespective of gender² or ethnicity are integral
guiding principles of the reward practices across the Group. The remuneration principles and framework are reviewed on a regular
basis to ensure these are aligned with the Group’s cultural values, ESG and diversity strategy.
1 Full details of the designated Non-Executive Director’s activities during the year are given on page 88 under the Corporate Governance Report.
2 Further details on the Women in Finance Charter figures can be found on pages 43 and 63 of the Sustainability Report. Further details on the statutory Gender Pay Gap figures can be found on the
Phoenix Group website.
CEO pay ratio
In accordance with the DRR regulations we have provided in the table below the ratio of the CEO single figure total of remuneration
for 2021 (as detailed on page 111) as a ratio of the equivalent single figure for the lower quartile, median and upper quartile employee
(calculated on a full-time equivalent basis).
Phoenix Group has calculated the CEO pay ratio using Option A which is the most statistically robust of the methodologies permitted
by the regulation. Under this option, the full-time equivalent pay and benefits of all Group employees as at 31 December 2021 has been
calculated using the same methodology as for the Group CEO and includes:
• The full-time equivalent annualised salary data.
• The full-time equivalent value of taxable benefits and pension contributions.
• Amounts due from incentive plans.
The Group reviewed the pay of the three identified employees at 25th percentile, 50th percentile (median) and 75th percentile and
concluded that they were a fair representation of pay at the relevant quartiles of the UK employee base. Each individual was a direct
employee on a permanent or fixed-term contract during 2021 and received remuneration in line with Group wide remuneration policies.
None received exceptional pay.
The table below sets out the salary and total single figure remuneration for the Group CEO and percentile employees included in the
above ratios.
Salary
Total remuneration (single figure)
2021 Ratio
2020 Ratio
2019 Ratio
Year
2021
2021
Methodology
Option A
Option A
CEO
800,000
1,831,483
25th
percentile
22,500
27,577
66:1
78:1
94:1
50th
percentile
(median)
32,189
39,878
46:1
54:1
62:1
75th
percentile
50,681
69,901
26:1
31:1
40:1
This ratio has reduced in part due to the year-on-year increase in the quartiles for employee salary and total remuneration but more
significantly due to the fact that Andy Briggs had no LTIP vesting in 2021 due to the timing of his appointment. We expect this ratio to
increase next year as his 2020 LTIP vests. The 2020 ratio was based on the combined figures for Andy Briggs and Clive Bannister, the
outgoing CEO.
The philosophy for pay and progression at the Phoenix Group is the same for our Executives as it is for our wider workforce. We are
committed to attracting best in class talent at all levels with a compelling and competitive total reward proposition supported by a
refreshed corporate brand. This includes a holistic core and flexible benefits approach as well as a compelling suite of people policies
which ensure our compensation elements can be competitive but without over paying given the varied nature of the full proposition. We
also encourage and provide opportunities for growth and development to all colleagues to enable everyone to thrive throughout their
career at Phoenix.
The pay ratio reflects how different remuneration arrangements progress as the accountability and complexity increase with the
seniority of the jobs. In particular, the ratio reflects the weighting towards long-term cash, resilience and growth generation for our
Group CEO, that ultimately contribute to positive financial outcomes for our shareholders.
We are confident that the median pay ratio reported this year is consistent with our approach to pay, reward, career progression and
growth for all colleagues. All colleagues have the opportunity for annual pay awards, performance driven pay and recognition as well as
access to opportunities to develop their careers at Phoenix ensuring we create an environment for everyone to feel it is the best place
our colleagues have ever worked.
Phoenix Group Holdings plc Annual Report and Accounts 2021
123
Corporate governance Directors’ remuneration report continued
Performance graph and table
The graph below shows the value to 31 December 2021 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 31 December
2011 compared with the value of £100 invested in the FTSE 100 Index (excluding Investment Trusts).
The FTSE 100 Index (excluding Investment Trusts) is considered to be an appropriate comparator for this purpose as it is a broad equity
index of which the Company is a constituent.
Total shareholder return
Value of a 100 unit investment made on 31 December 2011.
400
350
300
250
200
150
100
50
0
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
0
0
0
0
£
n
o
i
t
a
r
e
n
u
m
e
r
O
E
C
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
Dec 2021
Phoenix Group CEO remuneration
Phoenix Group Holdings / Phoenix Group Holdings plc share price
FTSE 100 Index
The total figure of remuneration for 2020 shown above is a combination of the single figures for Clive Bannister and Andy Briggs to
reflect the change in CEO in 2021. The DRR regulations also require that this performance graph is supported by a table summarising
aspects of the Group CEO’s remuneration for the period covered by the above graph. The table below details the individual single
figures of remuneration for Clive Bannister and Andy Briggs in 2020.
Group chief executive officer remuneration
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Andy Briggs
Andy Briggs2
Clive Bannister2,4
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Annual variable
element award
rates against
maximum
opportunity
(‘AIP’)
78%
83%
81%
92%
86%
86%
84%
82%
68%
69%
69%
Long-term
incentive vesting
rates against
maximum
opportunity
(‘LTIP’)
n/a1
0.0%3
n/a 5
68.5%
49.5%
64.0%
55.0%
57.0%
57.0%7
67.0%7
n/a8
Single figure
of total
remuneration
(£000)
1,831
1,706
321
2,7156
2,567
2,888
2,878
2,867
3,104
2,737
1,583
1 Andy Briggs was not in receipt of a 2019 LTIP due to the timing of his appointment.
2 Clive Bannister left the role of Group Chief Executive Officer on 10 March 2020 and left Phoenix Group on the same date. Andy Briggs was appointed to the Board on 10 February 2020 and
remained as CEO-designate until 10 March 2020.
3 See footnote 11 on page 130 of the 2020 Annual Report and Accounts for details of Andy Briggs’s LTIP vesting.
4 Clive Bannister’s 2020 single figure of total remuneration does not include compensation for loss of office.
5 Clive Bannister’s 2020 single figure of total remuneration does not include any value in respect of the 2018 LTIP. LTIP awards which vested after Clive Bannister stepped down from the Board of the
Company have been reported as Payments to Past Directors on page 115 and are not included in the single figure of total remuneration, in line with the reporting regulations.
6 The single figure of total remuneration for 2019 has been restated and now reflects the actual price of shares on the day the 2017 LTIP vested (24 March 2020, 557.4p per share) rather than the
three-month average share price to 31 December 2019 (717.09p per share) which was required to be used last year for the single figure of total remuneration.
7 The long-term incentive vesting rate for 2013 is shown at 67% and for 2014 is shown as 57%. In both years the Group CEO decided to waive voluntarily any entitlement in excess of two-thirds of the
shares which would otherwise have vested.
8 Long-term incentive vesting rates against maximum opportunity values are not applicable for 2012 due to no awards vesting in those financial years.
124
Phoenix Group Holdings plc Annual Report and Accounts 2021
Percentage change in pay of the Group Chief Executive Officer 2020 to 2021
In accordance with the DRR regulations, the table below provides a comparison of the percentage change in the prescribed pay
elements of each individual who was a Director during the year (salary, taxable benefits and annual incentive outcomes) between
financial years 2020 and 2021 and the equivalent percentage changes in the average of all staff employed by Phoenix Group.
As no staff are employed directly by Phoenix Group Holdings plc, we have disclosed information for an appropriate group that is
representative of the employees of Phoenix Group and its subsidiaries, in line with the regulatory guidance for this disclosure). This
group was selected as being representative of the wider workforce using the same process as was used for this comparison in last year’s
Annual Report and Accounts.
Year-on-year
% change
Executive Directors1
Andy Briggs2
Rakesh Thakrar
Non-Executive Directors3
Alastair Barbour
Karen Green
Hiroyuki Iioka
Nicholas Lyons
Wendy Mayall
Chris Minter
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty
Wider Employee Population
Salary
Taxable Benefits
Annual incentive
2021
2020
2021
2020
2021
2020
0.0%
2.3%
11.0%
12.8%
0.0%
13.8%
5.7%
0.0%
4.4%
5.7%
22.8%
12.8%
0.0%
4.7%
–
–
0.0%
6.8%
–
0.0%
0.0%
–
0.7%
0.0%
0.0%
0.0%
0.0%
3.94%
3.3%
3.3%
66.6%
n/a4
0.0%
n/a4
0.0%
0.0%
0.0%
0.0%
(100)%
0.0%
0.0%
1.4%
–
–
(5.5)%
(3.3)%
(60)%
(100)%
–
(100)%
(100)%
–
(100)%
(100)%
(80)%
(100)%
(100)%
7.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
9.1%
–
–
–
–
–
–
–
–
–
–
–
–
–
5.2%
1 To permit appropriate comparison, full time equivalent figures have been used for Executive Directors.
2 The Taxable Benefits figure used for Andy Briggs includes ongoing taxable benefits only.
3 See page 115 for further details on fees and taxable benefits for Non-Executive Directors.
4 Karen Green and Nicholas Lyons received no taxable benefit in the prior year and therefore it is not possible to show the percentage change.
The Benefits figure for both Executive Directors has increased purely as a result of the increase in premium for providing medical
insurance cover. Annual Incentive figures for the Executive Directors are lower than in 2020 due to the lower outturn under the 2021 AIP
compared with the 2020 AIP.
The figures for staff more generally are higher than for 2020 due to a number of factors:
• Colleagues from ReAssure and SunLife Limited have been included in the figures for the first year.
• Pay review was operated under a consistent approach with a median increase of 2.4%. In light of the integration of ReAssure
colleagues, a number of additional salary increases were awarded to ensure consistency and internal relativities.
• The benefit change is largely as a result of the introduction of the allowance in 2020 in response to COVID-19 to support an increase
in costs for colleagues working from home; this figure for 2021 reflects a full 12 month period of payment. Also, as the integration
of ReAssure colleagues onto the Group benefits package was not effective until 2022, these colleagues remained on legacy
arrangements during 2021.
• The 2021 bonus figure reflects the first full year when all colleagues were under consistent bonus arrangement which included a
higher bonus target for certain colleagues. The 2020 figure reflected this change for part of the year only.
Non-Executive Directors fees changed in 2021 following the restructure of Non-Executive fees in order to align more closely with the
current external market.
As detailed on page 121 the fee structure is as follows: £75,000 for the role of Non-Executive Director with additional fees of: (i) £20,000
payable for the role of SID; and/or (ii) £30,000 payable where an individual also chairs the Audit, Remuneration, Risk or Sustainability
Committee; and £18,000 for the other members of those committees, the Model Governance Committee and attendees to the Life
Company Investment Committee. These changes are reflected in the table above.
Phoenix Group Holdings plc Annual Report and Accounts 2021
125
Corporate governance Directors’ remuneration report continued
Directors’ service contracts
The dates of contracts and letters of appointment and the respective notice periods for Directors are as follows:
Executive Directors’ contracts
Name
Andy Briggs
Rakesh Thakrar
Date of
appointment
1 January 2020
15 May 2020
Date of
contract
7 November 2019
6 March 2020
Notice period
from either
party (months)
12
12
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards as long as these
are not deemed to interfere with the business of the Group. They are also entitled to retain any external fees. Andy Briggs is a board
member of the Association of British Insurers, a UK Government’s Business Champion for the Ageing Society Grand Challenge and for
Older Workers, and a Trustee of the NSPCC. Rakesh Thakrar is a director of Mythili Megha Limited. Neither Executive Director received
any payment for these appointments.
Non-Executive Directors’ contracts
Name
Alastair Barbour
Karen Green
Hiroyuki Iioka
Nicholas Lyons
Wendy Mayall
John Pollock
Nicholas Shott
Belinda Richards
Kory Sorenson
Mike Tumilty
Date of letter
of appointment
1 November 2018
1 November 2018
23 July 2020
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
14 August 2019
Date of
joining the
Phoenix Group
Holdings Plc Board1
1 October 2013
1 July 2017
23 July 2020
31 October 2018
1 September 2016
1 September 2016
1 September 2016
1 October 2017
1 July 2014
1 September 2019
Appointment
end date
5 May 2022
5 May 2022
23 July 2023
5 May 2022
5 May 2022
5 May 2022
5 May 2022
5 May 2022
5 May 2022
1 September 2022
Unexpired term
(months)
1
1
16
1
1
1
1
1
1
5
1 All Directors above, other than Hiroyuki Iioka and Mike Tumilty, joined the Phoenix Group Holdings plc Board on 15 October 2018 and services are considered to have commenced with effect from
13 December 2018.
2 The unexpired term is from date of the signing of the accounts and includes whole months only.
The tables above have been included to comply with UKLA Listing Rule 9.8.8. In the event of cessation of a Non-Executive Director’s
appointment (excluding the Chairman) they would be entitled to a one-month notice period. The Chairman, as detailed in his letter of
appointment, would be entitled to a six-month notice period.
Remuneration Committee governance
The terms of reference of the Committee are available at www.thephoenixgroup.com. The main determinations of the Committee
in 2021 in respect of the application of the Remuneration Policy are summarised in the Committee Chairman’s letter to shareholders
at the start of the Remuneration Report.
The table below shows the independent Non-Executive Directors who served on the Committee during 2021 and their date of
appointment:
Member
Kory Sorenson (Committee Chair from 11 May 2017)
Karen Green
Belinda Richards
Nicholas Shott
From
3 July 2014
1 July 2017
2 July 2019
20 October 2016
To
To date
To date
To date
To date
Under the Committee’s Terms of Reference, the Committee meets at least twice a year but more frequently if required. During 2021,
seven formal Committee meetings were held and details of attendance at meetings are set out in the Corporate Governance Report
on page 91.
Consistent with the requirements of Solvency II, the Committee is responsible for establishing, implementing, overseeing and
reviewing the Company-wide remuneration policy in the context of business strategy and changing risk conditions. The Company-
wide remuneration policy focuses on ensuring sound and effective risk management so as not to encourage risk-taking outside of the
Company’s risk appetite. None of the Committee members have any personal financial interest (other than as shareholders), conflicts of
interests arising from cross-directorships or day-to-day involvement in running the business.
The Committee makes recommendations to the Board. No Director plays a part in any discussion about his or her own remuneration.
126
Phoenix Group Holdings plc Annual Report and Accounts 2021
26 January
19 Feb
4 March
13 May
3 August
12 October 24 November
Remuneration committee activities in 2021
Committee activities
Terms of Reference & Committee activities review
Consideration of risk, control and conduct matters
Summary of engagement with shareholders
and consideration of feedback
Executive Directors’ remuneration
Review of fixed and variable remuneration
Annual and long-term incentive performance
measures, targets and outcomes
Senior management remuneration
Review remuneration proposals on recruitment
and termination of senior employees
Review of fixed and variable remuneration
Annual and long-term incentive performance
measures, targets and outcomes
All employee remuneration
All employee discretionary incentive schemes
Advice
During the year, the Committee received independent remuneration advice from its appointed adviser, PwC, who is a member
of the Remuneration Consultants Group (the professional body for remuneration consultants) and adheres to its code of conduct.
The Remuneration Committee was satisfied that the advice provided by PwC was objective and independent.
PwC also provided general consultancy services to management during the year including support on other Board and Risk matters
and technical advice regarding share schemes. Separate teams within PwC provided unrelated services in respect of tax, assurance, risk
consulting, sustainability and transaction support during the year. The Committee is satisfied that these activities did not compromise
the independence or objectivity of the advice it has received from PwC as remuneration committee advisers.
PwC’s fees for work relating to the Committee for 2021 were £165,496. These were charged on the basis of the firm’s standard terms
of business for advice provided.
The Committee assesses the performance of its advisers regularly, the associated level of fees and reviews the quality of advice
provided to ensure that it is independent of any support provided to management.
The Group CEO, Group HR Director, Executive Reward Director and Group Financial Controller and delegates, attend by invitation,
various Committee meetings during the year. No executive is ever permitted to participate in discussions or decisions regarding his
or her own remuneration.
The Committee consults with the Chief Risk Officer (without management present) on a regular basis. The Chief Risk Officer is asked
to detail the extent to which the Group has operated within its stated risk appetite during the year and to keep the Committee informed
of any risk-related concerns that required the Committee to consider using its judgement to moderate incentive plan outcomes.
The Chair of the Remuneration Committee also sits on the Risk Committee to enable additional linkage between risk matters and
remuneration outcomes.
Approval
This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by:
Kory Sorenson
Remuneration Committee Chair
Approved by the Board on 12 March 2022
Phoenix Group Holdings plc Annual Report and Accounts 2021
127
Corporate governance Directors’ remuneration report continued
Section B
Appendix – remuneration policy
This appendix contains the Directors’ remuneration policy approved by the Company’s
shareholders at the Company’s 2020 AGM on 15 May 2020.
General policy
The Remuneration Policy for Executive Directors is summarised in the table below along with the policy on the Chairman’s and
the Non-Executive Directors’ fees.
Overall positioning*
The Company’s overall positioning on remuneration for Executive Directors has been updated to reflect the provisions of the new UK
Corporate Governance Code, best practice and feedback received from shareholders during consultation.
An appropriate balance is maintained between fixed and variable components of remuneration.
Our updated Remuneration Policy benchmarks the total target remuneration for the Executive Directors using appropriate
market data sets.
* This section does not form part of the Remuneration Policy and is for information only.
How our policy addresses the following factors set out in the UK Corporate Governance Code 2018
Factor
Clarity
and simplicity
How this has been addressed
• The reward framework seeks to embed simplicity and transparency in the design and delivery of remuneration. We have
proposed changes to our AIP performance measures (to replace the Personal Performance assessment with a Strategic
Scorecard with transparent, measurable metrics, and to replace Management Actions with Net Flows (Workplace)) in order
to simplify the AIP assessment process while enhancing alignment to Group strategy.
• We have included additional diagrams and charts in this year’s Remuneration Report to improve clarity for readers regarding
the alignment of Executive remuneration with shareholders and our strategy.
Risk
• The Committee undertakes an annual review of risk before confirming the outcomes for the AIP to ensure that there are no risk-
related concerns that require the moderation of AIP outcomes.
• Malus and clawback operate in respect of the AIP and LTIPs (see page 134 for details on trigger events).
• The Committee may apply discretion to override formulaic outcomes if they are considered inconsistent with the underlying
performance of the Group.
Predictability
• The range of potential award levels to individual Executive Directors are set out in the scenario chart on page 129 which also
demonstrates the impact of potential share price growth by 50% over the three-year performance period until LTIP vesting.
Proportionality
• A high percentage of rewards are delivered in the form of shares, meaning Executive Directors are strongly aligned with
shareholders. We have increased the share ownership guidelines to 300% for the CEO and 250% for the CFO and introduced
a post-employment shareholding requirement for our Executive Directors to ensure that they are aligned to the long-term
performance of the Group.
• Executive Directors are required to hold shares from LTIP awards for two years following vesting which provides focus on
sustainable share price growth. We have also extended deferral levels under the AIP to further align to shareholders.
Alignment
to culture
• We have engaged with our employees through our Colleague Insight Survey and Employee Networks (see further details on
page 40 and 44 of our Sustainability Report to develop our values and to improve our understanding of what is required to
become a high-performing organisation. Our remuneration philosophy supports our purpose and core values.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Potential rewards under various scenarios (£000)
The charts below compare the maximum levels of Total Remuneration payable under the Directors’ Remuneration Policy.
CEO – Andy Briggs
£000
CFO – Rakesh Thakrar
£000
5,487
20%
4,367
51%
41%
28%
22%
21%
17%
1,931
21%
32%
47%
908
100%
2,741
18%
2,252
43%
36%
32%
27%
24%
20%
1,161
22%
31%
47%
547
100%
Total fixed pay
AIP
LTIP
Share price growth
and dividends
Minimum
On-target Maximum Maximum
with growth
Minimum On-target Maximum Maximum
with growth
Minimum, on-target and maximum represent the scenario charts required under the Directors’ Remuneration Policy – see the data
assumptions below.
‘Maximum with growth’ is the maximum scenario, but with the LTIP element increased to reflect a 50% share price growth assumption
over the three-year period until LTIP vesting. The element of the total representing the value from these assumptions on share price
growth and dividends is shown separately
Name
Andy Briggs
Rakesh Thakrar
Minimum
On-target
Maximum
Base salary
£000
812
485
Benefits
£000
11
11
Pension
£000
85
51
Total fixed
£000
908
547
Consists of base salary, benefits and pension:
• Base salary is the salary to be paid in 2022.
• Benefits measured as benefits to be paid in 2022.
• Pension measured as the full entitlement of approximately 10.5% of base salary receivable (after the reduction to payments made
in cash for employers’ National Insurance Contributions).
Based on what the Executive Director would receive if performance was on-target:
• AIP: consists of the on-target annual incentive (75% of base salary).
• LTIP: consists of the threshold level of vesting (50% of base salary for CEO and CFO). In addition, the potential value of Sharesave
and Share Incentive Plan (‘SIP’) participation is also recognised.
Based on the maximum remuneration receivable:
• AIP: consists of the maximum annual incentive (150% of base salary).
• LTIP: assumes maximum vesting of awards and valued as on the date of grant (award of 200% of base salary for CFO and 275% of
base salary for CEO). Sharesave and SIP valued on the same basis as in the on-target row.
Phoenix Group Holdings plc Annual Report and Accounts 2021
129
Corporate governance Directors’ remuneration report continued
Remuneration policy table
Element and purpose in supporting strategic objectives
Base Salary
This is the core element of pay which supports the recruitment and retention of Executive Directors and reflects the individual’s role and
position within the Group as well as their capability and contribution.
Policy and operation
• Base salaries are reviewed each year against companies of similar size and complexity. Both salary levels and overall remuneration
are set by reference to the median data of comparators which the Remuneration Committee considers to be suitable based on index,
size and sector.
• The Remuneration Committee uses this data as a key reference point in considering the appropriate level of salary. Other relevant
factors including corporate and individual performance and any changes in an individual’s role and responsibilities, and the level of
salary increases awarded to other employees of the Group are also considered.
• Base salary is paid monthly in cash.
• Changes to base salaries normally take effect from 1 April.
Maximum
• Salary levels are specific to the role and individual.
• Maximum salary will be the median level of salaries for CEOs in the FTSE31-100 (currently £800,000), provided that this figure may
be increased in line with UK RPI inflation for the duration of this policy.
• However, when reviewing salaries for Executive Directors, the Remuneration Committee will also review the salaries, and salary
increases, for senior management and employees in relevant countries to maintain consistency. Percentage increases for Executive
Directors will not exceed that of the broader employee population, other than in specific circumstances identified by the
Remuneration Committee (e.g. in response to a substantial change in responsibilities).
Performance measures
• N/A
Element and purpose in supporting strategic objectives
Benefits
• To provide other benefits valued by recipient.
Policy and operation
• The Group provides market competitive benefits in kind. Details of the benefits provided in each year will be set out in the
Implementation Report. The Remuneration Committee reserves discretion to introduce new benefits where it concludes that it is in
the interests of the Group to do so, having regard to the particular circumstances and to market practice.
• Where appropriate, the Group will meet certain costs relating to Executive Director relocations and other exceptional expenses.
Maximum
•
It is not possible to prescribe the likely change in the cost of insured benefits or the cost of some of the other reported benefits year-
to-year, but the provision of benefits will normally operate within an annual limit of 10% of an Executive Director’s base salary.
• The Remuneration Committee will monitor the costs in practice and ensure that the overall costs do not increase by more than the
Remuneration Committee considers to be appropriate in all the circumstances.
• Relocation expenses are subject to a maximum limit of £50,000.
Performance measures
• N/A
Element and purpose in supporting strategic objectives
Pension
• To provide retirement benefits which keep Phoenix Group competitive within the marketplace and provide for the future of our
employees.
Policy and operation
• The Group provides a competitive employer sponsored defined contribution pension plan.
• All Executive Directors are eligible to participate in the Defined Pension Contribution plan available to all new joiners or they may opt
to receive the contribution in cash if they are impacted by the relevant lifetime or annual limits. Any such cash payments are reduced
for the effect of employers’ National Insurance Contributions.
• Phoenix will honour the pensions obligations entered into under all previous policies in accordance with the terms of such obligations.
Maximum
• Pension contributions for Executive Directors are aligned with the wider workforce rate which is currently 12% of salary (reduced to
10.5% when taken as cash in lieu of contribution).
Performance measures
• N/A
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Element and purpose in supporting strategic objectives
Annual Incentive Plan (‘AIP’) and Deferred Bonus Share Scheme (‘DBSS’)
• To motivate employees and incentivise delivery of annual performance targets aligned to strategy.
Policy and operation
• AIP levels and the appropriateness of measures are reviewed annually to ensure they continue to support the Group’s strategy.
• AIP outcomes are paid in cash in one tranche (less the deferred share award).
• At least 50% of any annual AIP award is to be deferred into shares for a period of three years although the Remuneration Committee
reserves discretion to alter the current practice of deferral (whether by altering the portion deferred, the period of deferral or
whether amounts are deferred into cash or shares). Such alterations may be required to ensure compliance with regulatory guidelines
for pay within the insurance sector, but will not otherwise reduce the current deferral level or the period of deferral.
• Deferral of AIP outcomes into shares is currently made under the DBSS.
• Awards under DBSS will be in the form of awards to receive shares for nil-cost (with the shares either being delivered automatically
at vesting or being delivered at a time following vesting at the individual’s choice).
• DBSS awards are made automatically each year on the fourth dealing day following the announcement of annual results, using the
average of the preceding three dealing days’ share prices to calculate the number of shares in awards.
• The three-year period of deferral will run to the third anniversary of the award date.
• Dividend entitlements will accrue over the three-year deferral period and be delivered as additional vesting shares.
• Malus/clawback provisions apply to the AIP and to amounts deferred under DBSS as explained in the notes to this table.
Maximum
• The maximum annual incentive level for an Executive Director is 150% of base salary per annum.
Performance measures
• The performance measures applied to AIP will be set by the Remuneration Committee and may be financial or non-financial
and corporate, divisional or individual and in such proportions as it considers appropriate. However, the weighting of financial
performance measures will not be reduced below 60% of total AIP potential in any year for the duration of this policy.
In respect of the financial and non-financial performance measures, attaining the threshold performance level produces a £nil annual
incentive payment.
•
• On-target performance on all measures produces an outcome of 50% of maximum annual incentive opportunity. However,
the Remuneration Committee reserves the right to adjust the threshold and target levels for future financial years in light of
competitive practice.
• The AIP operates subject to three levels of moderation:
i. The Committee seeks to set suitable ranges for each measure in the context both of the Group’s own internal budgets and of
external projections (whether through management guidance or consensus forecasts). Recognising that the business of the Group is
to engage in corporate activity, the Remuneration Committee may adjust targets during the year to take account of such activity and
ensure the targets continue to reflect performance as originally intended.
ii. There is a specific adjustment factor of 80%–120% of the provisional outturn whereby the Remuneration Committee may adjust
the provisional figure (but subject to any over-riding cap) to take account of its broad assessment of performance both against pre-
set targets, risk considerations, and more generally, of the wider universe of stakeholders. With respect to financial performance
measures, this assessment will include consideration of the quality of how particular outcomes were achieved.
The AIP remains a discretionary arrangement and the Remuneration Committee reserves discretion to adjust the outturn (from zero to
any cap) should it consider that to be appropriate. In particular, the Remuneration Committee may operate this discretion in respect of
any risk concern.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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Corporate governance Directors’ remuneration report continued
Element and purpose in supporting strategic objectives
Long-Term Incentive Plan (‘LTIP’)
• To motivate and incentivise delivery of sustained performance over the long-term in line with our strategy and purpose, and to
promote alignment with shareholders’ interests, the Group operates the Phoenix Group Holdings plc LTIP.
Policy and operation
• Awards under the LTIP may be in any of the forms of awards to receive shares for nil-cost (as described for DBSS above).
• LTIP awards are made automatically each year on the fourth dealing day following the announcement of annual results, using
the average of the preceding three dealing days’ share prices to calculate the number of shares in awards.
• The vesting period will be at least three years and run until the third anniversary of the award date (unless a longer vesting period
is introduced).
• A holding period will apply so that Executive Directors may not normally exercise vested LTIP awards until the fifth anniversary of
the award date.
• Dividend entitlements will accrue until the end of the holding period in respect of performance vested shares and be delivered
as additional vesting shares.
• Malus/clawback provisions apply on a basis consistent with the equivalent provisions in the AIP and DBSS and as explained in the
notes to this table.
• The Group will honour the vesting of all awards granted under previous policies in accordance with the terms of such awards.
Maximum
• The formal limit under the LTIP is 300% of base salary per annum (and 400% per annum in exceptional cases).
• The Remuneration Committee’s practice is to make LTIP awards to Executive Directors each year over shares with a value (as at the
award date) of up to 275% of the CEO’s annual base salary and 200% of the CFO’s annual base salary although discretion is reserved
to make awards up to the maximum levels for the policy as stated above.
Performance measures
• The Remuneration Committee may set such performance measures for LTIP awards as it considers appropriate (whether financial or
non-financial and whether corporate, divisional or individual). The measures for the 2020 LTIP are as set out below:
Measure
Net Operating Cash Receipts
Return on Shareholder Value
Total Shareholder Return
Persistency
Weighting
35%
25%
20%
20%
• The Remuneration Committee retains discretion to adjust the weightings or substitute metrics but would expect to consult with its
major shareholders regarding any material changes of the current performance measures applied for LTIP awards made to Executive
Directors or the relative weightings between these performance measures.
• For every LTIP award, appropriate disclosures regarding the proposed performance conditions will be made in the annual
Implementation Report.
• Once set, performance measures and targets will generally remain unaltered unless events occur which, in the Remuneration
Committee’s opinion, make it appropriate to make adjustments to the performance measures to ensure alignment with strategic
objectives, provided that any adjusted performance measure is, in its opinion, neither materially more nor less difficult to satisfy than
the original measure.
• For each part of an LTIP award subject to a specific performance condition, the threshold level of vesting will be no more than 25% of
that part of the LTIP award.
• The performance period for LTIP awards will be at least three years, but the Remuneration Committee reserves discretion to lengthen
the applicable performance periods for LTIP awards.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Element and purpose
All-employee share plans
To encourage share ownership by employees, thereby allowing them to participate in the long-term success of the Group and align their
interests with those of the shareholders.
Policy and operation
• Executive Directors are able to participate in all-employee share plans on the same terms as other Group employees as required by
HMRC legislation.
Maximum
• Sharesave – the Remuneration Committee has the facility to allow individuals to save up to a maximum of £500 each month (or
such other level as permitted by HMRC legislation) for a fixed period of three or five years. At the end of the savings period,
individuals may use their savings to buy ordinary shares in the Company at a discount of up to 20% of the market price set at the
launch of each scheme.
• Share Incentive Plan (‘SIP’) – the Remuneration Committee has the facility to allow individuals to have the opportunity to purchase,
out of their pre-tax salary, shares in the Company and receive up to two matching shares for every purchased share. Maximum
saving is £150 each month (or up to such level as permitted by the Company in line with HMRC legislation). SIP also has the facility
to allow for reinvestment of dividends in further shares, or the award of additional free shares (up to the limits as permitted by
HMRC legislation).
Performance measures
• Consistent with normal practice, such awards are not subject to performance conditions.
Element and purpose
Shareholding guidelines
• To encourage share ownership by the Executive Directors over the long term, including post cessation of employment, and ensure
interests are aligned.
Policy and operation
• Executive Directors are expected to retain all shares (net of tax) which vest under the DBSS and under the LTIP (or any other
discretionary long-term incentive arrangement introduced in the future) until such time as they hold a minimum of 300% of base
salary in shares for the CEO and 250% of base salary in shares for the CFO.
• Only beneficially owned shares, vested share awards, and unvested share awards not subject to performance conditions (discounted
for anticipated tax liabilities), may be counted for the purposes of the guidelines. Share awards subject to performance conditions do
not count prior to vesting.
• Once shareholding guidelines have been met, individuals are expected to retain these levels as a minimum. The Remuneration
Committee will review shareholdings annually in the context of this policy.
• Post cessation of employment, Executive Directors are expected to retain the lower of their full level of employment shareholding
guideline or their actual shareholding at termination for a period of two years.
Maximum
• N/A
Performance measures
• N/A
Element and purpose
Chairman and Non-Executive Director fees
Policy and operation
• The fees paid to the Chairman and the fees of the other Non-Executive Directors are set to be competitive with other listed
companies of equivalent size and complexity.
• The Group does not adopt a quantitative approach to pay positioning and exercises judgement as to what it considers to be
reasonable in all the circumstances as regards quantum.
• Additional fees are paid to Non-Executive Directors who chair a Board committee, or sit on the board of a subsidiary company or on
the Solvency II Model Governance Committee, and to the Senior Independent Director (‘SID’) and dedicated Workforce Director of
Engagement. No separate Board committee membership fees are currently paid.
• Fees are paid monthly in cash.
• Fee levels for Non-Executive Directors are reviewed annually with any changes normally taking effect from 1 January. Additional
reviews may take place in exceptional circumstances, such as following major corporate events, to ensure that fees remain appropriate
in the context of the Group’s size and complexity.
Maximum
• The aggregate fees of the Chairman and Non-Executive Directors will not exceed the limit from time to time prescribed within the
Company’s Articles of Association for such fees (currently £2 million per annum in aggregate).
• The Company reserves the right to vary the structure of fees within this limit including, for example, introducing time-based fees or
reflecting the establishment of new Board committees.
Performance measures
• N/A
Phoenix Group Holdings plc Annual Report and Accounts 2021
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Corporate governance Directors’ remuneration report continued
Notes to the remuneration policy table
1. Differences between the Policy on Remuneration for Directors and the Policy on Remuneration of other employees
When determining Executive Directors’ remuneration, the Committee takes into account pay throughout the Group to ensure that the
arrangements in place remain appropriate.
The Group has (as required by Solvency II regulations) one consistent reward policy for all levels of employees and this policy is made
available to all staff. Therefore, the same reward principles guide reward decisions for all Phoenix employees, including Executive
Directors, although remuneration packages differ to take into account appropriate factors in different areas of the business as follows:
• AIP – all Phoenix employees participate in the AIP, although the quantum and balance of corporate to individual objectives varies
by level. The most senior staff are subject to the regulatory requirements of Solvency II, and these individuals also receive part
of their bonus in Company shares deferred for a period of three years. A different scorecard of AIP performance measures
applies for Solvency II Identified staff in ‘control functions’ (risk, compliance, internal audit and actuarial) to exclude financial
performance measures.
• LTIP – our most senior employees participate in the LTIP currently based on the same performance conditions as those for Executive
Directors, although the Committee reserves the discretion to vary the performance conditions for awards made to employees below
the Board for future awards.
• All-employee share plans – the Committee considers it is important for all employees to have the opportunity to become
shareholders in the Company. The Company offers two HMRC tax advantaged arrangements in which all UK employees can
participate and acquire shares on a discounted and tax advantaged basis (Sharesave and SIP), and equivalent arrangements in foreign
jurisdictions (including on a tax advantaged basis permitted under local laws). In addition, selected individuals may receive ad-hoc
share awards under the Chairman’s Award programme in recognition of exceptional commercial outcomes and is contingent on
continued employment.
2. Stating maximum amounts for the Remuneration Policy
The DRR regulations and related investor guidance encourages companies to disclose a cap within which each element of remuneration
policy will operate. Where maximum amounts for elements of remuneration have been set within the Remuneration Policy, these will
operate simply as caps and are not indicative of any aspiration.
3. Malus and clawback
Malus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to claim repayment of paid amounts as
a debt) provisions apply to the AIP, DBSS and LTIP. These provisions may be applied where the Remuneration Committee considers it
appropriate to do so following:
• a review of the conduct, capability or performance of an individual;
• a review of the performance of the Company or a Group member;
• any material misstatement of the Company’s or a Group member’s financial results for any period;
• any material failure of Risk Management by an individual, a Group member or the Company; or
• any other circumstances that have a sufficiently significant impact on the reputation of the Company or Group.
4. Travel and hospitality
While the Remuneration Committee does not consider this to form part of benefits in the normal usage of that term, it has been advised
that corporate hospitality (whether paid for by the Company or another) and certain instances of business travel (including any related
tax liabilities settled by the Company or another Group company) for Directors may technically be considered as benefits and so the
Remuneration Committee expressly reserves the right to authorise such activities and reimbursement of associated expenses within its
agreed policies.
5. Discretions reserved in operating incentive plans
The Remuneration Committee will operate the AIP, DBSS and LTIP according to their respective rules and the above Remuneration
Policy table. The Remuneration Committee retains certain discretions, consistent with market practice, in relation to the operation and
administration of these plans including:
• (as described in the Remuneration Policy table) the determination of performance measures and targets and resulting vesting and
pay-out levels;
• (as described in the Remuneration Policy table) the ability to adjust performance measures and targets to reflect events and/or to
ensure the performance measures and targets operate as originally intended;
• (as described in the Termination Policy) determination of the treatment of individuals who leave employment, based on the rules of the
incentive plans, and the treatment of the incentive plans on exceptional events, such as a change of control of the Company;
• the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e.g. rights issues,
corporate restructurings or special dividends). Any exercise of discretion will be disclosed in the Implementation Report for the year.
• consistent with the latest Corporate Governance Code, the Remuneration Committee may apply discretion to override formulaic
outcomes if they are considered inconsistent with the underlying performance of the Group (see pages 128 and 131).
134
Phoenix Group Holdings plc Annual Report and Accounts 2021
Recruitment remuneration policy
The Group’s recruitment remuneration policy aims to give the Remuneration Committee sufficient flexibility to secure the appointment
and promotion of high calibre executives to strengthen the management team and secure the skill sets to deliver our strategic aims.
In terms of the principles for setting a package for a new Executive Director, the starting point for the Remuneration Committee will be
to apply the general policy for Executive Directors as set out above and structure a package in accordance with that policy.
The AIP and LTIP will operate (including the maximum award levels) as detailed in the general policy in relation to any newly appointed
Executive Director.
For an internal appointment, any variable pay element awarded in respect of the prior role may either continue on its original terms or be
adjusted to reflect the new appointment as appropriate.
For external and internal appointments, the Remuneration Committee may agree that the Company will meet certain relocation
expenses as it considers appropriate.
For external candidates, it may be necessary to make awards in connection with the recruitment to buy out awards forfeited by
the individual on leaving a previous employer. For such buy-out awards, Phoenix Group will not pay more than is, in the view of the
Remuneration Committee, necessary and will in all cases seek, in the first instance, to deliver any such awards under the terms of the
existing incentive pay structure. It may, however, be necessary in some cases to make such awards on terms that are more bespoke than
the existing annual and equity-based pay structures in Phoenix Group in order to secure a candidate. Details of any buy-out awards will
be appropriately disclosed.
All such buy-out awards, whether under the AIP, LTIP or otherwise (for example, specific arrangements made under Listing Rule
9.4.2), will take account of the service obligations and performance requirements for any remuneration relinquished by the individual
when leaving a previous employer. The Remuneration Committee will seek to make buy-out awards subject to what are, in its opinion,
comparable requirements in respect of service and performance. However, the Remuneration Committee may choose to relax this
requirement in certain cases (such as where the service and/or performance requirements are materially completed), and where the
Remuneration Committee considers it to be in the interests of shareholders and where such factors are, in the view of the Remuneration
Committee, reflected in some other way, such as a significant discount to the face value of the awards forfeited. Exceptionally, where
necessary, this may include a guaranteed or non pro-rated annual incentive in the year of joining.
• For the avoidance of doubt, such buy-out awards are not subject to a formal cap.
• A new Non-Executive Director would be recruited on the terms explained in the Remuneration Policy for such Directors.
Directors’ service contracts
Executive Directors
Executive Director service contracts, which do not contain expiry dates, provide that compensation provisions for termination without
notice will only extend to 12 months of salary, certain fixed benefits and pension (which may be payable in instalments and subject to
mitigation). By excluding any entitlement to compensation for loss of the opportunity to earn variable pay, the Remuneration Committee
believes the contracts to be consistent with best practice. The Remuneration Committee also has discretion to mitigate further by
paying on a phased basis with unpaid instalments ceasing after the initial period of six months if the Executive Director finds alternative
employment. Contracts do not contain change of control provisions. The template contract is reviewed from time to time and may be
amended provided it is not overall more generous than the terms described above.
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards as long as these are
not deemed to interfere with the business of the Group.
Non-Executive Directors
The Non-Executive Directors, including the Chairman, have letters of appointment which set out their duties and responsibilities.
Appointment is for an initial fixed term of three years (which may be renewed), terminable by one month’s notice from either side (six
months in the case of the Chairman). Non-Executive Directors are not eligible to participate in incentive arrangements or receive
pension provision or other benefits such as private medical insurance and life insurance.
Copies of Executive Director service contracts and Non-Executive Director letters of appointment are available for inspection at the
Company’s registered office.
Phoenix Group Holdings plc Annual Report and Accounts 2021
135
Corporate governance Directors’ remuneration report continued
Termination policy summary
In practice, the facts surrounding any termination do not always fit neatly into defined categories for good or bad leavers. Therefore, it
is appropriate for the Remuneration Committee to consider the suitable treatment on a termination having regard to all of the relevant
facts and circumstances available at that time. This policy applies both to any negotiations linked to notice periods on a termination and
any treatment which the Remuneration Committee may choose to apply under the discretions available to it under the terms of the AIP,
DBSS and LTIP plans. The potential treatments on termination under these plans are summarised below.
Incentives
AIP
DBSS
LTIP
Bad Leaver
A participant would typically be
considered a Bad Leaver following
a voluntary resignation or leaving for
disciplinary reasons
No awards made
Deferred awards normally lapse
All awards will normally lapse
Good Leaver1
A participant is considered a Good Leaver
if leaving through redundancy, serious
ill health or death or otherwise at the
discretion of the Remuneration Committee
Pro-rated annual incentive. Pro-rating to
reflect only the period worked. Performance
metrics determined by the Remuneration
Committee
Deferred awards vest at the end of the
original vesting period
Will receive a pro-rated award subject
to the application of the performance
conditions at the normal measurement
date and, generally, any holding period will
continue to apply Remuneration Committee
discretion to disapply pro-rating or to
accelerate vesting to the date of leaving
(subject to pro-rating and performance
conditions) and/or the release of any
holding period
Exceptional Events
For example change in control or
winding-up of the Company
Either the AIP will continue for the year or
there will be a pro-rated annual incentive.
Performance metrics determined by the
Remuneration Committee
Deferred awards vest
Will receive a pro-rated award subject to the
application of the performance conditions
at the date of the event. Remuneration
Committee discretion to disapply pro-rating
1 Where the reason for leaving is retirement, the individual will be required to provide confirmation of their continued retirement before any payments are released to them after the end of the
vesting period.
The Group has power to enter into settlement agreements with executives and to pay compensation to settle potential legal claims. In
addition, and consistent with market practice, in the event of termination of an Executive Director, the Group may pay a contribution
towards the individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees would be
disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on
the cost of termination payments.
In the event of cessation of a Non-Executive Director’s appointment (excluding the Chairman) they would be entitled to a one month’s
notice period. The Chairman, as detailed in his letter of appointment, would be entitled to a six months’ notice period.
Consideration of employment conditions elsewhere in the Group
As explained in the notes to the Remuneration Policy table, the Remuneration Committee takes into account Group-wide pay and
employment conditions. The Remuneration Committee reviews the average Group-wide base salary increase and annual incentive
costs and is responsible for all discretionary and all-employee share arrangements.
Consistent with previous practice, the Remuneration Committee did not consult with employees in preparing the 2020 Remuneration
Policy although has established further employee engagement in 2019 in accordance with the requirement under the Corporate
Governance Code.
Consideration of shareholders’ views
Each year the Remuneration Committee takes into account the approval levels of remuneration-related matters at our AGM in
determining that the current Remuneration Policy remains appropriate for the Company.
The Remuneration Committee also seeks to build an active and productive dialogue with investors on developments in the
remuneration aspects of corporate governance generally and any changes to the Company’s executive pay arrangements in particular.
The Remuneration Committee consulted with shareholders prior to submission of this policy. The previous Remuneration Policy was
submitted to shareholders at the 2019 AGM due to the completion of a Scheme of Arrangement in 2018 and this was approved with
99.7% support.
136
Phoenix Group Holdings plc Annual Report and Accounts 2021
Directors’ report
Directors’ report
The Directors present their report for the year ended
31 December 2021. Phoenix Group Holdings plc is
incorporated in the United Kingdom (registered no.
11606773) and has a Premium Listing on the London
Stock Exchange.
Shareholders
Dividends
Dividends for the year
ended 31 Dec 2021
Share capital
Issued Share
Capital
Dividends for the year are as follows:
Ordinary shares
Paid interim dividend
Recommended final dividend
Total ordinary dividend
24.1p per share (2020: 23.4p per share)
24.82p per share (2020: 24.1p per share)
48.92p per share (2020: 47.5p per share)
As a result of regulatory changes applicable to the Group under Solvency II, dividends declared in respect of the Company’s ordinary shares
must be capable of being cancelled and withheld or deferred at any time prior to payment. This is in order that the Company’s ordinary
shares can be counted towards Group capital. Accordingly, the final dividend will be declared on a conditional basis and the Directors
reserve the right to cancel or defer the recommended dividend. The Directors do not expect to exercise this right other than where they
believe that it may be necessary to do so as a result of legal or regulatory requirements.
The issued share capital of the Company was increased by 303,914 during 2021 which related to shares issued under the Company’s
Sharesave Scheme.
At 31 December 2021, the issued ordinary share capital totalled 999,536,058. Subsequently, 18,212 ordinary shares have been issued in
2022 in connection with the Group’s Sharesave Scheme to bring the total in issue to 999,554270 at the date of this Directors’ Report.
Full details of the issued and fully paid share capital as at 31 December 2021 and movements in share capital during the period are presented
in note D1 to the IFRS consolidated financial statements.
Authority to Purchase
Own Shares
At the Company’s 2021 AGM, shareholders approved the renewal of the Company’s authority to make purchases of up to 99,923,742 of
its own shares and make payment for the redemption or purchase of its own shares in any manner permitted by the Companies Act 2006
including without limitation, out of capital, profits, share premium or the proceeds of a new issue of shares. The authority was not used and
none of the Company’s ordinary shares were purchased by the Company during 2021. The authority will expire at the 2022 AGM.
A resolution to renew this authority shall be proposed in the 2022 AGM Notice of Meeting.
Treasury Shares
The Company held no treasury shares during the year or up to the date of this Directors’ Report.
Rights and Obligations
Attached
The rights and obligations attaching to the Company’s ordinary shares are set out in the Company’s Articles of Association (the ‘Company’s
Articles’) which are available on the Company’s website at www.thephoenixgroup.com/about-us/corporate-governance/articles-of-
association.aspx
Phoenix Group
Employee Benefit Trust
(‘EBT’)
Restrictions on transfer
of shares
Where the Phoenix Group Employee Benefit Trust (‘EBT’) holds shares for unvested awards, the voting rights for these shares are exercisable
by the trustees of the EBT at their discretion, taking into account the recommendations of the Group.
Under the Company’s Articles, the Directors may in certain circumstances refuse to register transfers of shares. Certain restrictions on the
transfer of shares may be imposed from time to time by applicable laws and regulations (for example, insider trading laws), and pursuant
to the Listing Rules of the Financial Conduct Authority (‘FCA’) and the Group’s own share dealing rules whereby Directors and certain
employees of the Group require individual authorisation to deal in the Company’s ordinary shares.
Substantial
shareholdings
Information provided to the Company pursuant to Chapter 5 of the FCA’s Disclosure Guidance and Transparency Rules (‘DTR 5’) is
published on a Regulatory Information Service and on the Company’s website. As at 8 March 2022, the following interests with voting rights
in the Ordinary share capital of the Company had been notified to it under DTR 5.
Name
MS&AD Insurance Group Holdings Inc.
abrdn plc
BlackRock, Inc.
Number of voting
rights in shares
Percentage
of shares in issue
144,877,304
107,046,350
51,251,518
14.50%
10.71%
5.12%
Phoenix Group Holdings plc Annual Report and Accounts 2021
137
Corporate governance Directors’ report continued
Our Going Concern Statement, detailed on the following
page, is made following a rigorous assessment of whether
the Group and Company have adequate resources to
continue in operational existence over the next 12
months, based on severe but plausible scenarios.”
Rakesh Thakrar
Group Chief Financial Officer
Shareholders
Annual General Meeting (‘AGM’)
2022 AGM
The AGM of the Company will be held at 9th Floor, 20 The Old Bailey, London, EC4M 7AN on Thursday 5 May 2022 at 10.00am.
A separate notice convening this meeting will be distributed to shareholders in due course and will include an explanation of the items of
business to be considered at the meeting.
Investor communications
Investor
communications
Board
Board membership
The Company’s Annual Report and Accounts, together with the Company’s Interim Report and other public announcements and
presentations, are designed to present a fair, balanced and understandable view of the Group’s activities and prospects. These are available
on the Company’s website at www.thephoenixgroup.com, along with a wide range of relevant information for private and institutional
investors, including the Company’s financial calendar.
The membership of the Board of Directors during 2021 is given within the Corporate Governance Report on pages 74 to 76, which is
incorporated by reference into this Directors’ Report.
During 2021 and up to the date of this Directors’ Report, the following change to the Board took place:
• Christopher Minter, Swiss Re Nominated Director, resigned from the Board on 25 June 2021.
Related party
transactions
Details of related party transactions which took place during the year with Directors of the Company and consolidated entities where
Directors are deemed to have significant influence, are provided in note I4 to the IFRS consolidated financial statements.
Appointment,
re-election and
removal of Directors
The rules about the appointment and replacement of Directors are contained in the Company’s Articles. These state that a Director may be
appointed by an ordinary resolution of the shareholders or by a resolution of the Directors. If appointed by a resolution of the Directors, the
Director concerned holds office only until the conclusion of the next AGM following the appointment.
In accordance with the UK Corporate Governance Code, Directors must stand for election/re-election annually.
The Board of Directors will be unanimously recommending that all of the Directors should be put forward for election/re-election at the
forthcoming AGM to be held on 5 May 2022.
The Company’s Articles give details of the circumstances in which Directors will be treated as having automatically vacated their office and
also state that the Company’s shareholders may remove a Director from office by passing an ordinary resolution.
Director powers and
authorities
The powers of the Directors are determined by the Companies Act 2006, the provisions of the Company’s Articles and by any valid
directions given by shareholders by way of special resolution.
The Directors have been authorised to allot and issue securities and grant options over or otherwise dispose of shares under the
Company’s Articles.
Directors’ remuneration
and interests
A report on Directors’ remuneration is presented within the Directors’ Remuneration Report including details of their interests in shares
and share options or any rights to subscribe for shares in the Company.
Directors’ indemnities
The Company has entered into deeds of indemnity with each of its Directors whereby the Company has agreed to indemnify each Director
against all losses incurred by them in the exercise, execution or discharge of their powers or duties as a Director of the Company, provided
that the indemnity shall not apply when prohibited by any applicable law.
The deeds of indemnity remain in-force as at the date of signature of this Directors’ Report.
Directors’ conflicts of
interest
The Board has established procedures for handling conflicts of interest in accordance with the Companies Act 2006 and the Company’s
Articles. See page 77 of the Corporate Governance Report for more detail.
On an ongoing basis, Directors are responsible for informing the Group Company Secretary of any new, actual or potential conflicts that
may arise.
Directors’ and Officers’
liability insurance
The Company maintains Directors’ and Officers’ liability insurance cover which is renewed annually.
138
Phoenix Group Holdings plc Annual Report and Accounts 2021
Governance
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The
Strategic Report also provides details of any key events affecting the Company (and its consolidated subsidiaries) since the end of the financial year. The Strategic
Report includes details of the Group’s cash flow and solvency position, including sensitivities for both. Principal risks and their mitigation are detailed on pages 58 to
65. In addition, the IFRS consolidated financial statements include, amongst other things, notes on the Group’s borrowings (note E5), management of its financial risk
including market, credit and liquidity risk (note E6), its commitments and contingent liabilities (notes I5 and I6) and its capital management (note I3). The Strategic Report
(on pages 14 to 17) sets out the business model and how the Group creates value for shareholders and policyholders.
The Board has followed the requirements of the UK Financial Reporting Council’s (‘FRC’) ‘Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting (September 2014)’ and taken into account the requirements of the pronouncement from the FRC’s Financial Reporting Lab, ‘COVID-19 – Going
concern, risk and viability’, when performing its going concern assessment. As part of its comprehensive assessment of whether the Group and the Company are a going
concern, the Board has considered financial projections over the period to 31 March 2023, which demonstrate the ability of the Group to withstand market shocks in a
range of severe but plausible stress scenarios. Further details of these stress scenarios are included in the viability statement on pages 66 to 67.
In assessing the appropriateness of the going concern basis, the Board considered base case liquidity and solvency projections that incorporate a best estimate of
credit downgrade experience. In addition, severe but plausible stress scenarios were also modelled. The projections demonstrate that appropriate levels of capital
would remain in the Life Companies under both the base and reasonably foreseeable stress scenarios, thus supporting cash generation in the going concern period,
and note the Group’s access to additional funding through it’s undrawn £1.25 billion Revolving Credit Facility.
The Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence over the period to
31 March 2023, the period covered by the going concern assessment. Thus, they continue to adopt the going concern basis of accounting in preparing the annual
financial statements.
The Directors have acknowledged their responsibilities in the Statement of Directors’ Responsibilities in relation to the IFRS financial statements for the year ended
31 December 2021.
Viability statement
The Viability Statement, as required by the UK Corporate Governance Code, has been undertaken for a period of five years to align to the Group’s business planning
and is contained in the Risk Management section on pages 66 to 67.
Corporate governance statement
The disclosures required by section 7.2 of the FCA’s Disclosure Guidance and Transparency Rules can be found in the Corporate Governance Report on pages 72 to
105 which is incorporated by reference into this Directors’ Report and comprises the Company’s Corporate Governance Statement.
The 2018 UK Corporate Governance Code (the ‘Code’) applies to the Company and full details on the Company’s compliance with the Code are included in the
Corporate Governance Report on pages 72 to 105. The Code is available on the website of the Financial Reporting Council – www.frc.org.uk.
The disclosures required by the Companies Act 2006 in respect of the following matters are set out in the Strategic Report, as below:
Our strategy and future
developments
Our people and diversity
Disability
Our people and engagement
Our business relationships
Greenhouse gas emissions
The Company’s strategy and priorities for 2022 are highlighted in the ‘Strategy
and KPIs’ section of the Strategic Report.
The Company’s People strategy for colleagues is detailed in the Group’s
Sustainability Report. The Company’s diversity and inclusion targets for
colleagues are also detailed in the Group Sustainability Report, with highlights
set out in the Strategic Report.
The Group has an Equal Opportunities and Diversity Framework which ensures
full and fair consideration is given to applications from, and the continuing
employment and training of, disabled people. The Group also has a Reasonable
Adjustments Policy which sets out Phoenix’s duty to make reasonable
adjustments to help ensure that all colleagues can access opportunities and
thrive in employment. In addition, the Group has a Dignity at Work policy
which sets out Phoenix’s commitment to creating a work environment free
of discrimination where everyone is treated with dignity and respect. Our
colleague inclusion networks includes a group ‘Enable’ which promotes the
interests of colleagues with disabilities and other long-term health conditions.
Details of how the Company has engaged with employees during the year
can be found in the Stakeholder Engagement section of the Strategic Report
and ‘Engagement in Action’ section of the Corporate Governance Report.
In addition, details of how the Board has considered the interests of employees
in key decision making can be found in the section 172 statement included in
the Strategic Report and the Corporate Governance Report. Information
about how the Board has engaged with the workforce can also be found in
the Corporate Governance Report.
During the year, information about the Group’s performance and market
trends impacting Phoenix was shared via an all-employee intranet. In addition,
colleagues were invited to participate in the Group’s Sharesave scheme,
advertised through the all-employee intranet.
Details of how the Company has engaged with its customers, suppliers and
others can be found in the Stakeholder Engagement section of the Strategic
Report. In addition, details of how the Board has considered the need to
foster the Company’s business relationships with suppliers, customers and
others can be found in the section 172 statement included in the Strategic
Report on page 43 and Corporate Governance Report on pages 84 to 87.
All disclosures concerning the Group’s greenhouse emissions
are contained in the Group’s Streamlined Energy and Carbon
Reporting (‘SECR’) Statement forming part of the Strategic Report.
See pages 18 to 27 of the Strategic Report
See the Company’s Sustainability Report
See also pages 20 to 21 the Strategic Report
See the Company’s website for more information
See page 42 of the Strategic Report and page 82 of
the Corporate Governance Report (for colleague
engagement) and 43 (for section 172 statement) of
the Strategic Report
See pages 42 to 43 (stakeholder engagement)
and 43 (for section 172 statement) of the Strategic
Report
See pages 48 to 50 of the Strategic Report
Phoenix Group Holdings plc Annual Report and Accounts 2021
139
Corporate governance Directors’ report continued
Governance
Other disclosures required within this corporate governance statement are set out below:
Task Force on Climate-related
Financial Disclosures (‘TCFD’)
In accordance with LR 9.8.6R, climate-related financial disclosures consistent with the TCFD Recommendations and
Recommended Disclosures are contained in the Group’s Climate Report, a summary of which has been included in the
Strategic Report on pages 51 to 53 due to their strategic importance.
Energy usage and Carbon Emissions
under the Companies (Directors’
Report) and Limited Liability
Partnerships (Energy and Carbon
Report) Regulations 2018 (SI 2018/1155)
Branches
During 2021, significant progress has been made in implementing and embedding the recommendations of the TCFD
and complying with the requirements of the Bank of England’s PRA’s Supervisory Statement 3/19. In light of this progress,
the recognised strategic importance of climate risks and opportunities and the increasing need for transparent climate
reporting, Phoenix has published a standalone Climate Report which is available on the Company’s website.
The Group’s Streamlined Energy and Carbon Reporting (SECR) statement on the Group’s UK and global energy consumption
and GHG emissions for the financial year 1 January 2021 to 31 December 2021, and the 2020 comparative year is contained in
the Strategic Report on pages 48 to 50.
The Company, through its subsidiaries, has established branches in Hong Kong and Ireland as countries in which the
Group operates.
Political donations
During 2021, the Group made no political donations. (2020: no political donations made)
Articles of Association
Changes to the Company’s Articles require prior shareholder approval by special resolution.
The Company’s Articles are available on the Company’s website at www.thephoenixgroup.com/about-us/corporate-
governance/articles-of-association.aspx
Re-appointment of
the Auditors
Ernst & Young LLP (‘EY’) has indicated its willingness to continue in office and shareholders’ approval will be sought at the
AGM on 5 May 2022.
Disclosure of information
to Auditors
There is no cap on auditor liability in place in relation to audit work carried out on the IFRS consolidated financial statements
and the Group’s UK subsidiaries’ individual financial statements.
Details of fees paid to EY during 2021 for audit and non-audit work are disclosed in note C4 to the IFRS consolidated financial
statements.
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are aware, there is
no relevant audit information of which the Company’s auditor is unaware and that each Director has taken all the steps that
they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
Group Company Secretary
The Group Company Secretary throughout the 2021 financial period was Gerald Watson.
Fair, balanced and understandable
In accordance with the UK Corporate Governance Code, the Directors confirm that they have reviewed the Annual Report and consider that it is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy.
Contractual/Other
Significant agreements
impacted by a change
of control of the Company
Important post balance
sheet events
Disclosures under
Listing Rule 9.8.4R
The £1.25 billion revolving credit facility has provisions which would enable the lending banks to require repayment of all
amounts borrowed following a change of control.
All of the Company’s employee share and incentive plans contain provisions relating to a change of control. Outstanding
awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any
performance conditions and pro rata reduction as may be applicable under the rules of the employee share incentive plans.
Apart from the aforementioned, there are a number of agreements that take effect, alter or terminate upon a change of
control of the Company, such as commercial contracts. None is considered to be significant in terms of their potential impact
on the business of the Group.
Details of important events affecting the Company which have occurred since the end of the financial year are contained in
note I7 to the IFRS consolidated financial statements.
For the purposes of Listing Rule 9.8.4CR, the information required to be disclosed under Listing Rule 9.8.4R can be found
within the following sections of the Report and Accounts:
Section
Requirement
Location
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Statement of interest capitalised
Note E5 to the Consolidated Financial
Statements
Publication of unaudited financial information
Not applicable
Deleted
Not applicable
Details of long-term incentive schemes
Directors’ Remuneration Report
Waiver of emoluments by a Director
Directors’ Remuneration Report
Waiver of any future emoluments by a Director
Directors’ Remuneration Report
Non pre-emptive issue of equity for cash
Not applicable
As per 7, but for major subsidiary undertakings
Not applicable
Parent participation in any placing of a subsidiary
Not applicable
Contracts of significance
Not applicable
Controlling shareholder provision of services
Not applicable
Shareholder dividend waiver
Not applicable
Shareholder dividend waiver – future periods
Not applicable
Controlling shareholder agreements
Not applicable
140
Phoenix Group Holdings plc Annual Report and Accounts 2021
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect of the
Annual Report and Accounts of Phoenix Group Holdings plc
The Directors are responsible for preparing the Annual Report,
consolidated financial statements and the Company financial
statements in accordance with applicable United Kingdom law
and regulations.
The Board has prepared a Strategic Report which provides an
overview of the development and performance of the Group’s
business for the year ended 31 December 2021, covers the future
developments in the business of Phoenix Group Holdings plc and
its consolidated subsidiaries and provides details of any important
events affecting the Company and its subsidiaries after the year-
end. For the purposes of compliance with DTR 4.1.5R(2) and DTR
4.1.8R, the required content of the ‘Management Report’ can
be found in the Strategic Report and this Directors’ Report,
including the sections of the Annual Report and Accounts
incorporated by reference.
Company law requires the Directors to prepare the consolidated
and the Company financial statements for each financial
year. Under that law the Directors have elected to prepare the
consolidated and Company financial statements in accordance
with UK-adopted international accounting standards (‘IASs’) in
conformity with the requirements of the Companies Act 2006.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group and the Company for that period.
In preparing these financial statements the Directors are
required to:
• select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IASs is insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the Group and Company financial position
and financial performance;
in respect of the consolidated financial statements, state
whether UK-adopted international accounting standards have
been followed, subject to any material departures disclosed and
explained in the consolidated financial statements;
in respect of the Company financial statements, state whether
UK-adopted international accounting standards, have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
•
•
• prepare the consolidated and the Company financial
statements on the going concern basis unless it is inappropriate
to presume that the Company and/or the Group will continue
in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s and
Group’s transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group, and
enable them to ensure that the Company and the consolidated
financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Group and Company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that comply with that law and those regulations. The
Directors are responsible for making, and continuing to make,
the Company’s Annual Report and Accounts available on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors as at the date of this Directors’ Report, whose names
and functions are listed in the Board of Directors section on pages
74 to 76, confirm that, to the best of their knowledge:
• the consolidated financial statements, prepared in accordance
with UK-adopted international accounting standards give a
true and fair view of the assets, liabilities, financial position and
profit or loss of the Company and undertakings included in the
consolidation taken as a whole;
• the Annual Report, including the Strategic Report, includes a
fair review of the development and performance of the business
and the position of the company and undertakings included in
the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face; and
• they consider the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for users (who have a reasonable knowledge of
business and economic activities) to assess the Company’s
position, performance, business model and strategy.
The Strategic Report and the Directors’ Report were approved by
the Board of Directors on 12 March 2022.
By order of the Board
Andy Briggs
Group Chief
Executive Officer
12 March 2022
Rakesh Thakrar
Group Chief
Financial Officer
Phoenix Group Holdings plc Annual Report and Accounts 2021
141
Corporate governance
Financials
Independent auditors’ report
IFRS consolidated financial statements
Notes to the consolidated financial statements
Parent company financial statements
Notes to the parent company financial statements
Additional Life Company asset disclosures
Additional capital disclosures
Alternative performance measures
144
155
163
294
297
313
318
320
142 Phoenix Group Holdings plc Annual Report and Accounts 2021
Photography TBC
Phoenix Group Holdings plc Annual Report and Accounts 2021 143
Independent auditor’s report
Independent auditor’s report
to the members of Phoenix
Group Holdings plc
Opinion
In our opinion:
• Phoenix Group Holdings plc’s consolidated financial statements
and Parent Company financial statements (the ‘financial
statements’) give a true and fair view of the state of the Group’s
and of the Parent Company’s affairs as at 31 December 2021
and of the Group’s loss for the year then ended;
• the consolidated financial statements have been properly
prepared in accordance with UK-adopted international
accounting standards;
• the Parent Company financial statements have been properly
prepared in accordance with UK- adopted international
accounting standards as applied in accordance with section
408 of the Companies Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Phoenix Group
Holdings plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2021 which comprise:
Parent Company
Statement of changes in equity for
the year ended 31 December 2021
Statement of cash flows for the
year ended 31 December 2021
Statement of financial position as
at December 2021
Related notes 1 to 22 to the
financial statements, including
a summary of significant
accounting policies
Group
Consolidated income statement for
the year ended 31 December 2021
Statement of comprehensive
income for the year ended
31 December 2021
Statement of consolidated financial
position as at 31 December 2021
Statement of consolidated changes
in equity for the year ended
31 December 2021
Statement of consolidated cash
flows for the year ended
31 December 2021
Related notes A1 to I7 to the
consolidated financial statements
(except for note I3 where it is marked
as unaudited), including a summary
of significant accounting policies
The financial reporting framework that has been applied in their
preparation is applicable law and UK- adopted international
accounting standards and as regards the Parent Company
financial statements, as applied in accordance with section 408
of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We are independent of the Group and Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company and we
remain independent of the Group and the Parent Company in
conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. In
evaluating the Directors’ assessment of the Group and Parent
Company’s ability to continue to adopt the going concern basis of
accounting we:
• confirmed our understanding of management’s going concern
assessment process and obtained management’s assessment
which covers the period to 31 March 2023;
• with support from our actuarial team, challenged the key
actuarial assumptions used in management’s five-year Annual
Operating Plan (‘AOP’) and determined that the models are
appropriate to enable management to make an assessment on
the going concern of the Group. We have observed that
assumptions used in the five-year AOP form the basis for
management’s going concern projections;
• assessed the accuracy of management’s analysis by testing the
inputs and the clerical accuracy of the models used;
• evaluated the liquidity and solvency position of the Group by
reviewing base case liquidity and solvency projections that
incorporate an estimated view of the potential future economic
downturn that is anticipated to be experienced due to the
ongoing impacts of COVID-19;
• challenged the key assumptions, such as expense assumptions
underlying mandatory obligations of the Group and property
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Overview of our audit approach
Audit scope • We performed an audit of the complete financial
information of the Group Function, Phoenix Life Division
(which includes Phoenix Life Limited and Phoenix
Life Assurance Limited), Standard Life Assurance
Limited and ReAssure Limited and audit procedures on
specific balances for Other Companies (the ‘reporting
components’). Our scope is explained further on pages
146 and 147.
• The components where we performed full or specific
audit procedures accounted for more than 99% of the
equity and profit before tax of the Group.
• Valuation of insurance contract liabilities, comprising the
following risk areas:
- actuarial assumptions;
- actuarial modelling; and
- data.
Key audit
matters
• Valuation of certain complex and illiquid financial
investments.
• Recoverability of intangible assets arising from the
acquisition of ReAssure Limited, Standard Life Assurance
Limited and other acquired entities.
Materiality
• Overall Group materiality of £116 million (2020: £140
million) which represents 2% (2020: 2%) of total equity
attributable to owners of the Parent (‘adjusted Group
equity’).
market forecasts up to 31 March 2023, used in management’s
stress scenarios, based on our understanding of the Group, and
the available external data, respectively;
• evaluated management’s forecast analysis to understand
how severe the downside scenarios would have to be to result
in the elimination of solvency headroom and concluded it to
be remote;
• assessed management’s considerations of operational risks,
including those related to Outsourced Service Providers
(‘OSPs’) and their impact on the going concern assessment;
• assessed the plausibility of available management actions to
mitigate the impact of the key risks by considering the success
of previous similar management actions and the robustness of
the plans in the context of our understanding of the Group;
• checked that all mandatory debt and interest payments are
forecast to be met under the base case and adverse stress
scenarios and that the Group is able to meet target debt
repayments throughout the going concern period;
• performed enquiries of management and those charged with
governance to identify risks or events that may impact the
Group’s ability to continue as a going concern. We also
reviewed management’s assessment approved by the Board
and minutes of meetings of the Board and its committees; and
• assessed the appropriateness of the going concern disclosures
by comparing the disclosures with management’s assessment
and considering their compliance with the relevant
reporting requirements.
Based on management’s assessment, we have observed that the
Group continues to have surplus cash and solvency above its
Solvency Coverage Ratio in a number of extreme downside
scenarios and the Group continues to service customers and
meet its commitments in the current environment.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and Parent Company’s ability to continue as a going
concern for the period to 31 March 2023.
In relation to the Group and Parent Company’s reporting on how
they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
Directors’ statement in the financial statements about whether the
Directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events
or conditions can be predicted, this statement is not a guarantee
as to the Group and Parent Company’s ability to continue as a
going concern.
Phoenix Group Holdings plc Annual Report and Accounts 2021
145
Financials Independent auditor’s report continued
An overview of the scope of the Parent Company
and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope
for each company within the Group. Taken together, this enables
us to form an opinion on the consolidated financial statements.
We take into account size, risk profile, the organisation of the
Group and effectiveness of Group-wide controls, changes in
the business environment and other factors such as recent
Internal audit results when assessing the level of work to be
performed at each company.
In assessing the risk of material misstatement to the consolidated
financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, we
identified five reporting components of the Group. The Group
reporting components consist of Phoenix Life Division, Standard
Life Assurance Limited, ReAssure Limited, the Group Function
and Other Companies.
In the Phoenix Life Division component, the most significant
insurance companies are Phoenix Life Assurance Limited and
Phoenix Life Limited. Standard Life Assurance Limited and
ReAssure Limited are the most significant companies of those
respective components. The Group Function consists of Group
entities that primarily hold external debt and the pension schemes
of the Group. The Other Companies include the Phoenix Life and
Standard Life service companies, ReAssure Life Limited, ReAssure
UK Services Limited, ReAssure MidCo Limited, ERIP Limited
Partnership and Standard Life International Designated Activity
Company (‘SLIDAC’).
Four of the reporting components were audited by component
teams as set out below:
Component
Phoenix Life Division
(includes Phoenix Life
Limited and Phoenix
Life Assurance Limited)
(collectively known as
‘PLD’)
Standard Life
Assurance Limited
(‘SLAL’)
ReAssure Limited
(‘RAL’)
Group Function
Other Companies
Scope
Full
Auditor
EY component team
Full
Full
Full
Specific (including
specified procedures)
EY component team
EY component team
EY primary team
EY component team
Of the five reporting components selected, we performed an
audit of the complete financial information of four components
(‘full scope components’) which were selected based on their size
or risk characteristics. For the remaining Other Companies
component, we performed audit procedures on specific accounts
of Phoenix Life and Standard Life service companies (provisions,
accruals and deferred income, administrative expenses excluding
acquisition costs), ReAssure Life Limited (collective investment
schemes), ReAssure UK Services Limited (administrative expenses
excluding acquisition costs), ReAssure MidCo Limited (pension
scheme surplus) and ERIP Limited Partnership (derivative
liabilities). We also instructed the SLIDAC component audit team
to perform specified procedures over insurance contract liabilities
relating to the contracts in the entity prior to the business transfer
from SLAL in 2019.
The reporting components where we performed audit
procedures accounted for 99% (2020: 99%) of the Group’s
equity and 98% (2020: 99%) of the Group’s loss before tax.
For the current year, the full scope components contributed 87%
(2020: 84%) of the Group’s equity and 75% (2020: 88%) of the
Group’s loss before tax. The specific scope components,
including the component with specified procedures, contributed
12% (2020: 15%) of the Group’s equity and 23% (2020: 11%) of the
Group’s loss before tax. The audit scope of these components may
not have included testing of all significant accounts of the
component but will have contributed to the coverage of
significant accounts tested for the Group.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
The charts below illustrate the coverage obtained from the work
performed by our audit teams.
Equity
Loss before tax
For the specific scope component, the primary audit team have
reviewed the audit procedures performed by the component
team on the specific accounts, by reviewing relevant workpapers
and holding meetings with the component teams as necessary.
Full scope
Specific scope
Out of scope
87%
12%
1%
Full scope
Specific scope
Out of scope
75%
23%
2%
Changes from the prior year
During the year the Group disposed of Ark Life Assurance
DAC. Therefore, this is no longer in scope for the year ended
31 December 2021.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at
each of the components by us, as the primary audit engagement
team, or by component auditors from other EY global network
firms operating under our instruction.
The primary audit team provided detailed audit instructions to the
component teams which included guidance on areas of focus,
including the relevant risks of material misstatement detailed
above, and set out the information required to be reported to the
primary audit team.
Of the four full scope components, audit procedures were
performed on one of these directly by the primary audit team
whilst the remaining three components were audited by the
component audit teams. For Other Companies, where the work
was performed by component auditors, we determined the
appropriate level of involvement to enable us to determine that
sufficient audit evidence had been obtained as a basis for our
opinion on the Group as a whole.
For all full scope components, the primary audit team reviewed
key working papers and participated in the component teams’
planning, including the component teams’ discussion of fraud and
error. The primary audit team attended the closing meetings with
the management of the Phoenix Life Division, Standard Life
Assurance Limited and ReAssure Limited and the Audit
Committee meetings at the components.
The work performed on the components, together with the
additional procedures performed at the Group level, gave us
appropriate evidence for our opinion on the consolidated
financial statements as a whole.
Climate change
There has been increasing interest from stakeholders as to how
climate change will impact Phoenix. The Group has determined
that the most significant future impacts from climate change on
their operations will be from financial assets and in insurance and
investment contract liabilities. These are explained on pages 51 to
53 in the required Task Force for Climate related Financial
Disclosures, and on page 61 in the principal risks and uncertainties,
which form part of the “Other information” rather than the audited
financial statements. Our procedures on these disclosures
therefore consisted solely of considering whether they are
materially inconsistent with the financial statements or our
knowledge obtained in the course of the audit or otherwise
appear to be materially misstated.
As explained in note A3.8 within the accounting policies,
governmental and societal responses to climate change risks are
still developing, and are interdependent upon each other, and
consequently financial statements cannot capture all possible
future outcomes as these are not yet known. The degree of
certainty of these changes may also mean that they cannot be
taken into account when determining asset and liability valuations
and the timing of future cash flows in accordance with UK-
adopted international accounting standards. As explained in the
note management believe that reasonably possible changes
arising from climate risks would only have a limited impact on asset
and liability valuations at the year-end date.
Our audit effort in considering climate change was focused on
validating this assertion, through considering the potential effects
of climate risks on asset values and associated disclosures where
values are determined through modelling future cash flows.
We also challenged the Directors’ considerations of climate
change in their assessment of going concern and viability and
associated disclosures.
Whilst the Group have stated their commitment to the aspirations
of the Paris Agreement to achieve net zero emissions by 2050, the
Group are currently unable to determine the full future economic
impact on their business model, operational plans and customers
to achieve this and therefore, as set out above, the potential
impacts are not fully incorporated in these financial statements.
Phoenix Group Holdings plc Annual Report and Accounts 2021
147
Financials Independent auditor’s report continued
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Valuation of insurance contract liabilities (£130.7bn; 2020: £135.7bn)
Refer to the Audit Committee Report (page 100); Critical accounting estimates (page 164); Accounting policies and note F1 of the
consolidated financial statements (pages 221 to 224)
We considered the valuation of insurance contract liabilities to be a significant risk for the Group. Specifically, we considered the
actuarial assumptions and modelling that are applied, as these involve complex and significant judgments about future events, both
internal and external to the business, for which small changes can result in a material impact to the resultant valuation. Additionally, the
valuation process is reliant upon the accuracy and completeness of the data.
We have split the risks relating to the valuation of insurance contract liabilities into the following component parts:
• actuarial assumptions;
• actuarial modelling; and
• data.
The specific audit procedures performed to address the significant risk are set out below. In addition, we assessed management’s
analysis of movements in insurance contract liabilities and obtained evidence to support large or unexpected movements as this
provided important audit evidence over the valuation of insurance contract liabilities.
Key observations
communicated
to the Audit Committee
We determined that the
actuarial assumptions
used by management
are reasonable based
on the analysis of the
experience to date,
industry practice
and the financial
and regulatory
requirements.
Risk area
Actuarial assumptions
Refer to the Audit Committee Report (page 100);
There has been no change in our assessment
of this risk from the prior year other than in
respect of expenses where we consider the risk
to have increased.
Economic assumptions are set by management
taking into account market conditions as at the
valuation date and require minimal judgment.
Non-economic assumptions are set based on the
Group’s past experience, market experience and
practice, regulations and expectations
about future trends.
The assumptions that we consider to have the
most significant impact are the base and trend
longevity, persistency, assured mortality and
expenses. Management has performed a review
of expense assumptions reflecting the change
in strategic direction of the Group resulting in a
decrease in expense assumptions of £200m.
Our response to the risk
To obtain sufficient audit evidence to conclude on the appropriateness
of actuarial assumptions, using EY actuaries as part of our audit team,
we performed the following procedures:
• obtained an understanding and tested the design and operating
effectiveness of key controls over management’s process for setting
and updating key actuarial assumptions;
• challenged and assessed whether the methodology and
assumptions applied were appropriate based on our knowledge
of the Group, industry standards and regulatory and financial
reporting requirements;
• reviewed and challenged the results of management’s experience
analysis, including the base longevity, persistency and assured
mortality, to assess whether these justified the adopted assumptions;
• challenged and assessed management’s decisions on the inclusion
or exclusion of data relating to COVID-19 when setting individual
assumptions, including longevity, mortality, morbidity
and persistency;
in respect of longevity improvements, we evaluated the results of
management’s analysis on longevity trend, challenged the judgments
applied by management in setting the parameters and benchmarked
the output against other industry participants and the results from
the industry standard Continuous Mortality Investigation (‘CMI’);
• assessed the expense assumptions adopted by management. Our
•
focus has been on the change in the nature of the cost base arising in
the increase in volumes of new insurance business written. We have
challenged the assumed development of expenses including inflation
across the AOP period, the allocation of those expenses between
acquisition and maintenance and the resulting calculation of unit
costs, as well as the inclusion of benefits arising from planned future
management actions;
• performed procedures to test that the assumptions used in the year
end valuation were consistent with the approved basis; and
• benchmarked the demographic and economic assumptions, against
those of other comparable industry participants.
We performed full scope audit procedures over this risk area in four
components representing 99% of the risk amount.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Risk area
Actuarial modelling
The migration of the SLAL business to a
new actuarial model this year increases the risk
of error.
We consider the integrity and appropriateness
of models to be critical to the overall valuation of
insurance contract liabilities.
Over £120bn of the £130.7bn (2020: over
£126.0bn of £135.7bn) insurance contract
liabilities are modelled using the core actuarial
modelling systems, with the residual balance
modelled outside these systems to cater for
any additional required liabilities not reflected
in the models.
We consider the key risks to relate to:
i. model developments applied to the core
actuarial models and
ii. the appropriateness of the core
actuarial model.
Data
There has been no change in our assessment
of this risk from the prior year.
The insurance contract data held on policy
administration systems (‘the policyholder
data’) is a key input into the valuation process.
The valuation of insurance contract liabilities
is therefore reliant upon the accuracy and
completeness of the data used.
Key observations
communicated
to the Audit Committee
We determined that
the models used are
appropriate, that
changes to the models
were implemented
as intended, and
that controls over
management’s
processes for modelling
insurance contract
liabilities using the core
actuarial modelling
systems were operating
effectively.
We also determined
that liabilities modelled
outside these core
actuarial modelling
systems are reasonable.
We determined based
on our audit work that
the data used for the
actuarial model inputs
is materially complete
and accurate.
Our response to the risk
To obtain sufficient audit evidence to conclude on core actuarial
modelling systems and balances calculated outside these systems,
using EY actuaries as part of our audit team we performed the
following procedures:
• obtained an understanding of management’s process for model
changes to the core actuarial system and tested the design,
implementation and operating effectiveness of key controls over
that process;
• challenged and evaluated the methodology, inputs and assumptions
applied to model changes made in the core actuarial modelling
systems over the year;
• reviewed the governance process around model changes by review
of the relevant committee minutes;
• with respect to the migration of SLAL business on to a new model we
tested management’s process with a focus on both the robustness of
the outputs and ensuring that the differences between current and
previous models were understood;
• assessed the results of management’s analysis of movements in
insurance contract liabilities to corroborate that the actual impact
of changes to models was consistent with that expected when the
model change was implemented; and
• stratified the components of the balance modelled outside the
core actuarial system as at the balance sheet date and focused our
testing on those that, in our professional judgment, present a higher
risk of material misstatement. As part of the testing, we gained an
understanding of the rationale for balances calculated outside of
the core actuarial system and assessed the appropriateness of the
applied calculation methodology.
We performed full scope audit procedures over this risk area in four
components representing 99% of the risk amount.
To obtain sufficient audit evidence to assess the integrity of
policyholder data we performed the following procedures:
• obtained an understanding and tested the design and operating
effectiveness of the key controls, including information technology
general controls, over management’s data collection, extraction and
validation process;
• for Outsourced Service Providers (‘OSP’) where we have placed
reliance on the ISAE 3402 Service Organisation Controls (‘SOC’)
reports, we have reviewed the ISAE 3402 SOC reports where
relevant to determine the impact of any identified control exceptions;
• for OSPs where we do not receive an ISAE 3402 SOC report we have
obtained an understanding of the process over data extraction and
input into the actuarial models and performed direct testing of the
design and operating effectiveness of the key controls;
• confirmed that the actuarial data extracted from policy administration
systems and those provided by the OSPs were those used as an input
to the actuarial model;
• assessed the appropriateness of management’s grouping of data for
•
input into the actuarial model;
through the use of our data visualisation and analytics techniques,
performed focussed substantive testing over the completeness
and accuracy of the policyholder data and the appropriateness of
management’s data cleansing rules; and
• performed the comparison of policy level data between data in the
actuarial models and that contained within the policy administration
systems. We evaluated the accuracy of policyholder data by agreeing
a sample back to the policyholder documents.
We performed full scope audit procedures over this risk area in four
components representing 99% of the risk amount.
Phoenix Group Holdings plc Annual Report and Accounts 2021
149
Financials Key observations
communicated
to the Audit Committee
Based on our
procedures performed
on the ERM financial
investments and
the modelled debt
securities, we are
satisfied that the
valuation of these
complex and illiquid
financial investments
is reasonable.
Independent auditor’s report continued
Risk area
Valuation of certain complex and illiquid financial
investments (Equity release mortgages £4.2bn;
2020: £3.5bn); (Modelled debt securities £7.0bn;
2020: £5.7bn)
There has been no change in our assessment of
this risk from the prior year.
Refer to the Audit Committee Report (page
100); Critical accounting estimates (page 164);
Accounting policies and notes E1 and E2 of the
consolidated financial statements (pages 189 to
201).
•
•
The extent of judgment applied by management
in valuing the Group’s financial investments varies
with the nature of securities held, the markets
in which they are traded and the valuation
methodology applied.
Observable inputs are not readily available
for the valuation of equity release mortgages
(‘ERM’) financial investments and the modelled
debt securities, such as private placements,
local authority loans, infrastructure loans and
commercial real estate loans. Consequently,
management use models with other inputs to
estimate their value.
We consider that the key risks on the valuation
of ERM financial investments relate to:
i. assumptions, as these are largely based
on non-observable inputs and are highly
judgmental, and
ii. the completeness and accuracy of data
feeding the valuation model.
We consider that the key risks related to valuation
of modelled debt securities to be:
i. the use of complex valuation methodologies as
opposed to observable prices;
ii. significant judgments involved in setting the
spread above risk-free rate;
iii. the subjectivity surrounding the selection of
the comparable bonds to derive that spread;
and
iv. the reasonableness of credit ratings
considering the ongoing impact of COVID-19.
Our response to the risk
We used EY valuation specialists and actuaries to test the valuation
of ERM financial investments and modelled debt securities. To obtain
sufficient audit evidence to conclude on the valuation of ERM financial
investments, we:
•
tested the design and operating effectiveness of key controls
over management’s assumption setting processes for valuing
these instruments;
tested the completeness of the ERM financial investments
and underlying data at the period end through independent
confirmations;
tested the accuracy of mortgage data used in the valuation model
by agreeing a sample of new loans to supporting evidence and
validating any movements on static data over the period;
• evaluated the methodology, inputs and assumptions used to value
the ERM financial investments including the No Negative Equity
Guarantee (‘NNEG’) (such as house price inflation, residential house
price volatility, longevity improvement and base mortality, as well as
economic assumptions such as discount rate);
• validated the key assumptions by comparing them to published
market benchmarks and demographic and economic assumptions
used by other industry participants, to confirm that key valuation
inputs were consistent with industry norms and our understanding of
the instrument type; and
• developed our own independent model to value the ERM financial
investments and compared the output to the results produced by
the Group.
To obtain sufficient audit evidence to conclude on the valuation of
modelled debt securities, we:
• reviewed the ISAE 3402 SOC report of the OSPs covering the period
to 30 September 2021, including those controls over the valuation
of modelled debt securities outsourced to the third party, and
determined the impact of any identified control exceptions;
• obtained the bridging letter for the period 1 October 2021 to 31
December 2021 to review that the controls over the valuation of
modelled debt securities were operating during the period. In
addition, we tested a sample of these controls in the bridging
period to confirm they were operating effectively;
inspected evidence of the operation of management’s oversight
controls over the OSPs;
•
• understood the valuation process of modelled debt securities
applied by the OSP of the Phoenix Life Division, Standard Life
Assurance Limited and ReAssure Limited components and assessed
the appropriateness of any methodology and assumption changes
during the year;
• for modelled debt securities overseen by the in-house Independent
Pricing Valuation (‘IPV’) and Credit and Valuation Committee, we
have obtained an understanding of the valuation methodology and
tested the design and operating effectiveness of the key controls;
• engaged EY valuation specialists to evaluate the appropriateness
of the valuation methodology, calculate an independent range of
comparable values for a sample of modelled debt securities using an
independent valuation model and considered reasonable alternative
key assumptions based on comparable securities;
• validated the accuracy of security related inputs to the valuation
of modelled debt securities by tracing a sample of inputs to the
underlying agreements and documentation;
• performed independent calibration on securities by reviewing the
implied rate and sector credit spreads to validate the reasonableness
of credit ratings used in the comparable values assessment; and
• considered the downgrade of credit ratings or changes of spread
in management’s credit watchlist and known market risks in our
independent comparable values assessment.
We performed full scope audit procedures over this risk area in three
components, which covered 100% of the risk amount.
150
Phoenix Group Holdings plc Annual Report and Accounts 2021
Our response to the risk
To obtain sufficient audit evidence to assess recoverability of AVIF
intangible assets arising from the acquisition of ReAssure and Standard
Life, using EY actuaries as part of the audit team we performed the
following procedures:
• understood and evaluated management’s process, model and
•
assumptions supporting the recoverability assessment;
tested the controls over the completeness and accuracy of the data
used in the recoverability assessment;
• challenged management’s assessment of impairment indicators
by considering current market factors and assumption changes
not modelled in the fair value exercise at the acquisition date and
assessed their impact on the ReAssure and Standard Life AVIF values
as at 31 December 2021; and
• obtained management’s expectations of future profitability of
the acquired entities and challenged the assumptions applied by
management by comparing key assumptions and judgments with
our independent view and experience of the wider market.
Key observations
communicated
to the Audit Committee
Based on our
procedures performed
on the recoverability of
intangible assets arising
from the acquisition of
ReAssure and Standard
Life, we are satisfied
that the impairment
recorded is necessary
and sufficient at
31 December 2021.
Risk area
Recoverability of AVIF intangible assets arising
from the acquisition of ReAssure Limited,
Standard Life Assurance Limited, and other
associated entities (£3,846m; 2020: £4,457m)
Refer to the Audit Committee Report (page
100), critical accounting estimates (page 165),
the accounting policies and note G2 of the
consolidated financial statements (pages 253 to
256).
On 22 July 2020, the Group acquired ReAssure
Limited, ReAssure Life Limited, ReAssure UK
Services Limited, Ark Life Assurance Company
and other related entities (collectively ‘ReAssure’)
from Swiss Re Finance Midco (Jersey) Limited for
total consideration of £3.1bn.
On 31 August 2018, the Group acquired Standard
Life Assurance Limited and other associated
entities (collectively ‘Standard Life’) from
Standard Life Aberdeen plc (‘SLA plc’) for total
consideration of £3 bn.
These acquisitions gave rise to the recognition of
intangible assets relating to the acquired in force
business (‘AVIF’)
Each reporting period management is required
to perform an assessment on the acquired
intangible assets to identify any indicators
of impairment. Where such indicators exist,
management performs a recoverability
assessment. This entails the application of a
number of assumptions and judgments.
Recoverability assessment of these intangible
assets involves consideration of a number of
judgmental and sensitive assumptions such as:
• market movements and their impact on
economic assumptions such as cost of capital;
• significant changes to core valuation
assumptions, being: lapses, longevity, late
retirements.
As a result, we consider valuation of the acquired
intangible assets to have a higher risk of material
misstatement.
In the prior year, we included a key audit matter in relation to the “Accounting for the acquisition of ReAssure Limited and other
associated entities”. In the current year, this risk has been removed and incorporated within our ongoing review of Recoverability of
intangible assets.
Phoenix Group Holdings plc Annual Report and Accounts 2021
151
Financials Independent auditor’s report continued
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or
in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group to be £116 million (2020:
£140million), which is 2% (2020: 2%) of adjusted Group equity.
Whilst profit before tax or operating profit are common bases
used across the life insurance industry and might be an
appropriate measure for an open business, we believe that the use
of equity as the basis for assessing materiality remains more
appropriate given that the Group is primarily a closed life
assurance consolidator and as such equity provides a more stable,
long-term measure of value. We note also that equity more closely
correlates with key Group performance metrics such as Solvency
II capital requirements and Own Funds. However, as these
measures are non-GAAP measures, we consider equity to be
more appropriate.
We determined materiality for the Parent Company to be £148
million (2020: £143 million), which is 2% (2020: 2%) of equity of
the Parent Company equity attributable to owners. We have used
a capital based measure for determining materiality considering
the nature of the Parent Company as a holding company. This is
also consistent with the approach taken for the Group where
we consider equity to be the most appropriate basis when
considering against other measures such as IFRS profit before
tax. For the Group audit purposes, we performed our audit
procedures to the lower of the Parent Company and the Group
allocated performance materiality.
Starting basis
• Starting point – £6,769m (Total equity)
• Based on 31 December 2021
Adjustments
• Details of adjustments – £954m
• Removal of NCI and Tier 1 loan notes
Materiality
• Totals £5,815m (Adjusted equity)
• Materiality of £116m (2% of equity)
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement was
that performance materiality was 50% (2020: 50%) of our
planning materiality, namely £58 million (2020: £70 million).
Audit work at component locations for the purpose of obtaining
audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance
materiality. The performance materiality set for each component
is based on the relative scale and risk of the component to the
Group as a whole and our assessment of the risk of misstatement
at that component. In the current year, the range of performance
materiality allocated to components was £12 million to £32 million
(2020: £14 million to £38 million).
Reporting threshold
An amount below which identified misstatements are considered
as being clearly trivial.
We agreed with the Audit Committee that we would report to
them all uncorrected audit differences in excess of £6 million
(2020: £7 million), which is set at 5% of planning materiality, as well
as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the
annual report set out on pages 1 to 141 and 313 to 330, other than
the financial statements and our auditor’s report thereon. The
Directors are responsible for the other information contained
within the Annual Report.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly
stated in this report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
152
Phoenix Group Holdings plc Annual Report and Accounts 2021
Opinions on other matters prescribed by the Companies
Act 2006
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Corporate Governance Statement
We have reviewed the Directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group and Company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any
material uncertainties identified set out on page 139;
• Directors’ explanation as to its assessment of the Group's
prospects, the period this assessment covers and why the
period is appropriate set out on page 66;
• Director’s statement on whether it has a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities set out on page 67;
• Directors’ statement on fair, balanced and understandable set
out on page 140;
• Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 58;
• The section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 97; and;
• The section describing the work of the audit committee set out
on pages 96 to 100.
Responsibilities of Directors
As explained more fully in the Directors’ statement of
responsibilities set out on page 141, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group and Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance
of the Company and management.
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined
that the relevant laws and regulations related to elements of
company law and tax legislation, and the financial reporting
framework. Our considerations of other laws and regulations
that may have a material effect on the financial statements
included permissions and supervisory requirements of the
Prudential Regulation Authority (‘PRA’), the Financial Conduct
Authority (‘FCA’) and the UK Listing Authority (‘UKLA’).
• We understood how Phoenix Group Holdings plc is complying
with those frameworks by making enquiries of management and
those responsible for legal and compliance matters. We also
reviewed correspondence between the Company and UK
regulatory bodies; reviewed minutes of the Group Board and its
Committees; and gained an understanding of the Group’s
approach to governance, demonstrated by the Board’s
approval of the Group’s governance framework.
Phoenix Group Holdings plc Annual Report and Accounts 2021
153
Financials Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Stuart Wilson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
12 March 2022
Independent auditor’s report continued
• We assessed the susceptibility of the consolidated financial
statements to material misstatement, including how fraud might
occur by considering the controls that the Group has
established to address risks identified by the entity, or that
otherwise seek to prevent, deter or detect fraud. Our
procedures over the Group’s control environment included
assessment of the consistency of operations and controls in
place within the Group and the OSPs as they continued to
operate remotely throughout 2021.
• The fraud risk was considered to be higher within the valuation
of insurance contract liabilities We considered management
override risk to be higher in this area due to the significant
judgments and estimates involved.
Our procedures, as detailed in the key audit matters
above, included:
- Reviewing accounting estimates for evidence of management
bias. Supported by our actuarial team and specialists, we
assessed if there were any indicators of management bias in
the valuation of insurance contract liabilities;
- Testing the appropriateness of journal entries recorded in the
general ledger, with a focus on manual journals; and
- evaluating the business rationale for significant and/or
unusual transactions.
• Our procedures involved: making enquiries of those charged
with governance and senior management for their awareness of
any non-compliance of laws or regulations, enquiring about the
policies that have been established to prevent non-compliance
with laws and regulations by officers and employees, enquiring
about the Company’s methods of enforcing and monitoring
compliance with such policies, and inspecting significant
correspondence with the PRA and FCA.
• The Company operates in the insurance industry which is a
highly regulated environment. As such the Senior Statutory
Auditor considered the experience and expertise of the
engagement team to ensure that the team had the appropriate
competence and capabilities, which included the use of
specialists where appropriate.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description forms part of our
Auditor’s Report.
Other matters we are required to address
• Following the recommendation from the Audit Committee, we
were appointed by the Company on 13 December 2018 to audit
the financial statements for the period ending 31 December
2018 and subsequent financial periods.
The period of total uninterrupted engagement including
previous renewals and reappointments is four years, covering
the years ending 31 December 2018 to 2021.
• The audit opinion is consistent with the additional report to the
Audit Committee.
154
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials
Consolidated income statement
For the year ended 31 December 2021
Gross premiums written
Less: premiums ceded to reinsurers
Net premiums written
Fees and commissions
Total revenue, net of reinsurance payable
Net investment income
Other operating income
Gain on completion of abrdn plc transaction
Loss on disposal of Ark Life
Gain on acquisition of ReAssure businesses
Gain on L&G Part VII portfolio transfer
Net income
Policyholder claims
Less: reinsurance recoveries
Change in insurance contract liabilities
Change in reinsurers’ share of insurance contract liabilities
Transfer from/(to) unallocated surplus
Net policyholder claims and benefits incurred
Change in investment contract liabilities
Amortisation and impairment of acquired in-force business
Amortisation of other intangibles
Impairment of goodwill
Administrative expenses
Net income/(expense) under arrangements with reinsurers
Net income attributable to unitholders
Total operating expenses
(Loss)/profit before finance costs and tax
Finance costs
(Loss)/profit for the year before tax
Tax charge attributable to policyholders’ returns
(Loss)/profit before the tax attributable to owners
Tax charge
Add: tax attributable to policyholders’ returns
Tax charge attributable to owners
(Loss)/profit for the year attributable to owners
Notes
2021
£m
2020
£m
7,455
F3
(2,079)
5,376
1,001
6,377
C1
4,706
(796)
3,910
794
4,704
C2
18,001
16,935
A6.1
H3
H2.1
H2.2
F2
G2
G2
G2
C3
F3.3
C5
C6
C6
C6
C6
76
110
(23)
–
–
121
–
–
372
85
24,541
22,217
(9,656)
(7,808)
1,597
3,076
(177)
106
1,613
(3,249)
(568)
(113)
(5,054)
(10,125)
(16,812)
(577)
(20)
(47)
(7,991)
(469)
(18)
–
(2,056)
(1,674)
22
(185)
(219)
(217)
(24,729)
(20,713)
(188)
1,504
(242)
(430)
(258)
(688)
(279)
258
(21)
(709)
(234)
1,270
(326)
944
(436)
326
(110)
834
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
155
155
Financials
Financials continued
Consolidated income statement
Continued
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per ordinary share
Basic (pence per share)
Diluted (pence per share)
Notes
2021
£m
2020
£m
D5
(837)
128
(709)
798
36
834
B3
B3
(86.4)p
(86.4)p
91.8p
91.5p
156
156
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Statement of comprehensive income
For the year ended 31 December 2021
(Loss)/profit for the year
Other comprehensive income/(expense):
Items that are or may be reclassified to profit or loss:
Cash flow hedges:
Fair value gains arising during the year
Reclassification adjustments for amounts recognised in profit or loss
Exchange differences on translating foreign operations
Foreign currency translation reserve recycled to profit or loss on disposal of Ark Life
Items that will not be reclassified to profit or loss:
Remeasurements of net defined benefit asset/liability
Tax charge relating to other comprehensive income items
Total other comprehensive income for the year
Total comprehensive (expense)/income for the year
Attributable to:
Owners of the parent
Non-controlling interests
Notes
2021
£m
(709)
2020
£m
834
44
(36)
(45)
14
281
(138)
120
129
(79)
33
–
(21)
(37)
25
(589)
859
(717)
128
(589)
823
36
859
H3
G1
C6
D5
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
157
157
Financials
Financials continued
Statement of consolidated financial position
As at 31 December 2021
Notes
2021
£m
2020
£m
G1
G1
36
212
11
–
10
4,323
232
4,565
57
5,013
171
5,241
130
119
G2
G3
G4
5,283
7,128
E3
475
4,567
86,981
431
647
6,880
82,634
400
104,761
109,455
85,995
89,248
9,982
9,559
E1
293,192
298,823
F1
8,587
9,542
69
70
141
94
8,726
9,777
419
373
1,805
9,112
9,946
263
343
1,622
10,998
–
333,799
334,325
G8
G5
G6
A6.1
Assets
Pension scheme asset
Reimbursement rights
Intangible assets
Goodwill
Acquired in-force business
Other intangibles
Property, plant and equipment
Investment property
Financial assets
Loans and deposits
Derivatives
Equities
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
Insurance assets
Reinsurers’ share of insurance contract liabilities
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
158
158
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Equity and liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Shares held by employee benefit trust
Foreign currency translation reserve
Merger relief reserve
Other reserves
Retained earnings
Total equity attributable to owners of the parent
Tier 1 Notes
Non-controlling interests
Total equity
Liabilities
Pension scheme liabilities
Insurance contract liabilities
Liabilities under insurance contracts
Unallocated surplus
Financial liabilities
Investment contracts
Borrowings
Deposits received from reinsurers
Derivatives
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Provisions
Deferred tax
Reinsurance payables
Payables related to direct insurance contracts
Current tax
Lease liabilities
Accruals and deferred income
Other payables
Liabilities classified as held for sale
Total liabilities
Total equity and liabilities
Notes
2021
£m
2020
£m
D1
D2
D1
D3
D4
D5
100
6
(12)
71
1,819
56
3,775
5,815
494
460
100
4
(6)
102
1,819
48
4,970
7,037
494
341
6,769
7,872
G1
3,103
2,036
F1
F2
128,864
133,907
1,801
1,768
130,665
135,675
E5
E3
160,417
165,106
4,225
3,569
1,248
3,568
3,442
4,567
4,080
1,001
3,791
5,205
E1
176,469
183,750
G7
G8
G9
G8
G10
G11
G12
A6.1
235
1,399
143
1,864
19
99
567
721
11,746
282
1,036
134
1,669
–
84
521
1,266
–
327,030
326,453
333,799
334,325
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
159
159
Financials
Financials continued
Statement of consolidated changes in equity
For the year ended 31 December 2021
Shares
held
by the
employee
benefit
trust
(note D2)
£m
Share
capital
(note D1)
£m)
Share
premium
(note D1)
£m
Foreign
currency
translation
reserve
£m
Merger
relief
reserve
(note D1)
£m
Other
reserves
(note D3)
£m
Retained
earnings
£m
Tier 1
Notes
(note D4)
£m
Non-
controlling
interests
(note D5)
£m
Total
£m
Total
equity
£m
At 1 January 2021
100
(Loss)/profit for the year
Other comprehensive
(expense)/income for the year
Total comprehensive
(expense)/income for the year
Issue of ordinary share capital,
net of associated commissions
and expenses
Dividends paid on ordinary shares
Dividends paid to non-controlling
interests
Credit to equity for equity-settled
share-based payments
Shares distributed by the
employee benefit trust
Shares acquired by the employee
benefit trust
Coupon paid on Tier 1 Notes,
net of tax relief
–
–
–
–
–
–
–
–
–
–
At 31 December 2021
100
4
–
–
–
2
–
–
–
–
–
–
6
(6)
102
1,819
48
4,970
7,037
494
341
7,872
–
–
–
–
–
–
–
10
(16)
–
(12)
–
(31)
(31)
–
–
–
–
–
–
–
71
–
–
–
–
–
–
–
–
–
–
–
8
8
–
–
–
–
–
–
–
(837)
(837)
143
120
(694)
(717)
–
2
(482)
(482)
–
14
(10)
–
14
–
–
(16)
(23)
(23)
–
–
–
–
–
–
–
–
–
–
128
(709)
–
120
128
(589)
–
–
2
(482)
(9)
(9)
–
–
–
–
14
–
(16)
(23)
1,819
56
3,775
5,815
494
460
6,769
160
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
160
Financials continued
Statement of consolidated changes in equity
For the year ended 31 December 2020
Shares
held by
employee
benefit
trust
(note D2)
£m
Share
capital
(note D1)
£m
Share
premium
(note D1)
£m
Foreign
currency
translation
reserve
£m
Merger
relief
reserve
(note D1)
£m
Other
reserves
(note D3)
£m
Retained
earnings
£m
Tier 1
Notes
(note D4)
£m
Non-
controlling
interests
(note D5)
£m
Total
£m
Total
equity
£m
(7)
69
(2)
4,651
4,785
494
314
5,593
At 1 January 2020
Profit for the year
Other comprehensive
income/(expense) for the year
Total comprehensive
income for the year
Issue of ordinary share capital,
net of associated commissions
and expenses
Dividends paid on ordinary shares
Dividends paid to non-controlling
interests
Credit to equity for equity-settled
share-based payments
Shares distributed by employee
benefit trust
Shares acquired by employee
benefit trust
Coupon paid on Tier 1 Notes,
net of tax relief
72
–
–
–
28
–
–
–
–
–
–
At 31 December 2020
100
2
–
–
–
2
–
–
–
–
–
–
4
–
–
–
–
1,819
–
–
–
–
–
–
–
33
33
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
(7)
–
(6)
–
798
798
50
(58)
25
50
740
823
–
1,849
(403)
(403)
–
13
(8)
–
–
13
–
(7)
(23)
(23)
–
–
–
–
–
–
–
48
–
–
–
–
–
–
–
–
–
–
36
834
–
25
36
859
–
–
1,849
(403)
(9)
(9)
–
–
–
–
13
–
(7)
(23)
102
1,819
4,970
7,037
494
341
7,872
161
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161
Financials
Statement of consolidated cash flows
For the year ended 31 December 2021
Cash flows from operating activities
Cash (utilised)/generated by operations
Taxation paid
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from completion of abrdn plc transaction
Disposal of Ark Life, net of cash disposed
Acquisition of ReAssure businesses, net of cash acquired
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses
Ordinary share dividends paid
Dividends paid to non-controlling interests
Repayment of policyholder borrowings
Repayment of shareholder borrowings
Repayment of lease liabilities
Proceeds from new shareholder borrowings, net of associated expenses
Proceeds from new policyholder borrowings, net of associated expenses
Coupon paid on Tier 1 Notes
Interest paid on policyholder borrowings
Interest paid on shareholder borrowings
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Notes
I2
A6
H3
H2.1
B4
D5
E5.2
E5.2
G10
E5.2
E5.2
Less: cash and cash equivalents of operations classified as held for sale
A6.1
2021
£m
(871)
(149)
2020
£m
7,316
(562)
(1,020)
6,754
115
189
–
304
–
–
(979)
(979)
2
2
(482)
(403)
(9)
(18)
(322)
(16)
–
17
(29)
–
(237)
(1,094)
(1,810)
10,998
(76)
(9)
(55)
–
(18)
1,445
–
(29)
(5)
(171)
757
6,532
4,466
–
Cash and cash equivalents at the end of the year
9,112
10,998
162
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162
Financials continued
Notes to the consolidated financial statements
A. Significant accounting policies
A1. Basis of preparation
The consolidated financial statements for the year ended 31 December 2021 set out on pages 155 to 293 comprise the financial
statements of Phoenix Group Holdings plc (‘the Company’) and its subsidiaries (together referred to as ‘the Group’), and were authorised
by the Board of Directors for issue on 12 March 2022.
The consolidated financial statements have been prepared under the historical cost convention, except for investment property,
owner-occupied property and those financial assets and financial liabilities (including derivative instruments) that have been measured
at fair value.
The consolidated financial statements are presented in sterling (£) rounded to the nearest million except where otherwise stated.
Assets and liabilities are offset and the net amount reported in the statement of consolidated financial position only when there is
a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets
and settle the liability simultaneously. Income and expenses are not offset in the consolidated income statement unless required or
permitted by an International Financial Reporting Standard (‘IFRS’) or interpretation, as specifically disclosed in the accounting policies
of the Group.
Statement of compliance
The consolidated financial statements have been prepared in accordance with UK-adopted international accounting standards.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings, including
collective investment schemes, where the Group exercises overall control. In accordance with the principles set out in IFRS 10
Consolidated Financial Statements, the Group controls an investee if and only if the Group has all the following:
• power over the investee;
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
The Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including relevant activities,
substantive and protective rights, voting rights and purpose and design of an investee. The Group reassesses whether or not it controls an
investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Further details about
the consolidation of subsidiaries, including collective investment schemes, are included in note H1.
Going concern
The consolidated financial statements have been prepared on a going concern basis. In assessing whether the Group is a going concern
the Directors have taken into account the guidance issued by the Financial Reporting Council (‘FRC’), Guidance for Directors of UK
Companies Going Concern and Liquidity, in October 2009. The considerations and approach are consistent with FRC provisions issued
in September 2014 and the assessment has taken into account the requirements of the pronouncement from the Financial Reporting Lab,
‘Covid-19 – Going concern, risk and viability’. Further details of the going concern assessment for the period to 31 March 2023 are included
in the Directors’ Report on page 139.
The Directors have, at the time of approving the consolidated financial statements, a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the period covered by the assessment.
A2. Accounting policies
The principal accounting policies have been consistently applied in these consolidated financial statements. Where an accounting policy
can be directly attributed to a specific note to the consolidated financial statements, the policy is presented within that note, with a view
to enabling greater understanding of the results and financial position of the Group. All other significant accounting policies are
disclosed below.
163
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163
Financials
Notes to the consolidated financial statements
Continued
A. Significant accounting policies continued
A2. Accounting policies continued
A2.1 Foreign currency transactions
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in sterling,
which is the Group’s presentation currency.
The results and financial position of all Group companies that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities are translated at the closing rate at the period end;
• income, expenses and cash flows denominated in foreign currencies are translated at average exchange rates; and
• all resulting exchange differences are recognised through the statement of consolidated comprehensive income and taken to the
foreign currency translation reserve within equity.
Foreign currency transactions are translated into the functional currency of the transacting Group entity using exchange rates prevailing
at the date of the translation. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement.
Translation differences on debt securities and other monetary financial assets measured at fair value through profit or loss are included in
foreign exchange gains and losses. Translation differences on non-monetary items at fair value through profit or loss are reported as part
of the fair value gain or loss.
A3. Critical accounting estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities, income and expenses. Disclosures of judgements made by management in
applying the Group’s accounting policies include those that have the most significant effect on the amounts that are recognised in the
consolidated financial statements. Disclosures of estimates and associated assumptions include those that have a significant risk of
resulting in a material change to the carrying value of assets and liabilities within the next year. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis of the judgements as to the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. The areas of
the Group’s business that typically require such estimates are the measurement of insurance and investment contract liabilities,
determination of the fair value of financial assets and liabilities, valuation of pension scheme assets and liabilities and valuation of
intangibles on initial recognition.
The application of critical accounting judgements that could have the most significant effect on the recognised amounts include
classification of contracts to be accounted for as insurance or investment contracts, recognition of pension surplus, the determination
of operating profit, identification of intangible assets arising on acquisitions, the recognition of an investment as an associate and
determination of control with regards to underlying entities. Details of all critical accounting estimates and judgements are included below.
A3.1 Insurance and investment contract liabilities
Insurance and investment contract liability accounting is discussed in more detail in the accounting policies in note F1 with further detail
of the key assumptions made in determining insurance and investment contract liabilities included in note F4. Economic assumptions are
set taking into account market conditions as at the valuation date. Non-economic assumptions, such as future expenses, longevity and
mortality are set based on past experience, market practice, regulations and expectations about future trends.
The valuation of insurance contract liabilities is sensitive to the assumptions which have been applied in their calculation. Details of
sensitivities arising from significant non-economic assumptions are detailed on page 228 in note F4.
Classification of contracts as insurance is based upon an assessment of the significance of insurance risk transferred to the Group.
Insurance contracts are defined by IFRS 4 as those containing significant insurance risk if, and only if, an insured event could cause an
insurer to make significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception
of the contract.
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164
Financials continued
A3.2 Fair value of financial assets and liabilities
Financial assets and liabilities are measured at fair value and accounted for as set out in the accounting policies in note E1. Financial
instruments valued where valuation techniques are based on observable market data at the period end are categorised as Level 2
financial instruments. Financial instruments valued where valuation techniques are based on non-observable inputs are categorised
as Level 3 financial instruments. Level 2 and Level 3 financial instruments therefore involve the use of estimates.
Further details of the estimates made are included in note E2. In relation to the Level 3 financial instruments, sensitivity analysis is
performed in respect of the key assumptions used in the valuation of these financial instruments. The details of this sensitivity analysis
are included in note E2.3.
A3.3 Pension scheme obligations
The valuation of pension scheme obligations is determined using actuarial valuations that depend upon a number of assumptions,
including discount rate, inflation and longevity. External actuarial advice is taken with regard to setting the financial assumptions
to be used in the valuation. As defined benefit pension schemes are long-term in nature, such assumptions can be subject to
significant uncertainty.
Further details of these estimates and the sensitivity of the defined benefit obligation to key assumptions are provided in note G1.
A3.4 Recognition of pension scheme surplus
A pension scheme surplus can only be recognised to the extent that the sponsoring employer can utilise the asset through a refund of
surplus or a reduction in contributions. A refund is available to the Group where it has an unconditional right to a refund on a gradual
settlement of liabilities over time until all members have left the scheme. A review of the Trust Deeds of the Group’s pension schemes
that recognise a surplus has highlighted that the Scheme Trustees are not considered to have the unilateral power to trigger a wind-up
of the Scheme and the Trustees’ consent is not needed for the sponsoring company to trigger a wind-up. Where the last beneficiary
died or left the Scheme, the sponsoring company could close the Scheme and force the Trustees to trigger a wind-up by withholding its
consent to continue the Scheme on a closed basis. This view is supported by external legal opinion and is considered to support the
recognition of a surplus. Management has determined that the scheme administrator would be subject to a 35% tax charge on a refund
and therefore any surplus is reduced by this amount. Further details of the Group’s pension schemes are provided in note G1.
A3.5 Operating profit
Operating profit is the Group’s non-GAAP measure of performance and provides stakeholders with a comparable measure of the
underlying performance of the Group. The Group is required to make judgements as to the appropriate longer-term rates of investment
return for the determination of operating profit based on risk-free yields at the start of the financial year, as detailed in note B2, and as to
what constitutes an operating or non-operating item in accordance with the accounting policy detailed in note B1.
A3.6 Acquisition of the ReAssure businesses
The identification and valuation of identifiable intangible assets, such as acquired in-force business, arising from the Group’s acquisition
of the ReAssure businesses during the prior year, required the Group to make a number of judgements and estimates. Further details are
included in notes G2 ‘Intangible assets’ and H2 ‘Acquisitions and portfolio transfers’.
A3.7 Control and consolidation
The Group has invested in a number of collective investment schemes and other types of investment where judgement is applied in
determining whether the Group controls the activities of these entities. These entities are typically structured in such a way that owning
the majority of the voting rights is not the conclusive factor in the determination of control in line with the requirements of IFRS 10
Consolidated Financial Statements. The control assessment therefore involves a number of further considerations such as whether the
Group has a unilateral power of veto in general meetings and whether the existence of other agreements restrict the Group from being
able to influence the activities. Further details of these judgements are given in note H1.
A3.8 Impact of climate risk on accounting judgments and estimates
In preparation of these financial statements, the Group has considered the impact of climate change across a number of areas,
predominantly in respect of the valuation of financial instruments, insurance and investment contract liabilities and goodwill and other
intangible assets.
Many of the effects arising from climate change will be longer-term in nature, with an inherent level of uncertainty, and have been
assessed as having a limited effect on accounting judgments and estimates for the current period.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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165
165
Financials
Financials continued
Notes to the consolidated financial statements
Continued
A. Significant accounting policies continued
A3. Critical accounting estimates and judgements continued
The majority of the Group’s financial assets are held at fair value and use quoted market prices or observable market inputs in their
valuation. The use of quoted market prices and market inputs to fair value is assumed to include current information and knowledge
regarding the effect of climate risk. For the valuation of Level 3 financial instruments, there are no material unobservable inputs in relation
to climate risk. Note E6 provides further risk management disclosures in relation to financial risks including sensitivities in relation to credit
and market risk. In addition, further details on managing the related climate change risks are provided in the Task Force for Climate-
related Financial Disclosures (‘TCFD’) on page 51 of the Annual Report and Accounts.
Insurance and investment contract liabilities use economic assumptions taking into account market conditions at the valuation date as
well as non-economic assumptions such as future expenses, longevity and mortality which are set based on past experience, market
practice, regulations and expectations about future trends. Due to the level of annuities written by the Group, it is particularly exposed to
longevity risk. At 31 December 2021, there are no adjustments made to the longevity assumptions to specifically allow for the impact of
climate change on annuitant mortality. Further details as to how assumptions are set and of the sensitivity of the Group’s results to
annuitant longevity and other key insurance risks are set out in note F4.
The assessment of impairment for goodwill and intangibles is based on value in use calculations. Value in use represents the value of
future cash flows and uses the Group’s five year annual operating plan and the expectation of long-term economic growth beyond this
period. The five year annual operating plan reflects management’s current expectations on competitiveness and profitability, and reflects
the expected impacts of the process of moving towards a low-carbon economy. Note G2 provides further details on goodwill and other
intangible assets and on impairment testing performed.
A4. Adoption of new accounting pronouncements in 2021
In preparing the consolidated financial statements, the Group has adopted the following standards, interpretations and amendments
effective from 1 January 2021:
• Amendment to IFRS 16 Leases COVID-19-Related Rent Concessions beyond 30 June 2021 (1 June 2020): The amendment permits
lessees, as a practical expedient, not to assess whether particular rent concessions occurring as a direct consequence of the COVID-19
pandemic are lease modifications and instead to account for those rent concessions as if they are not lease modifications. The Group
does not expect to make use of this practical expedient.
• Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (1 January 2021): The
changes introduced in Phase 2 of the Interest Rate Benchmark Reform project relate to the modification of financial assets, financial
liabilities and lease liabilities (introducing a practical expedient for modifications required by the IBOR reform), specific hedge
accounting requirements to ensure hedge accounting is not discontinued solely because of the IBOR reform, and disclosure
requirements applying IFRS 7 to accompany the amendments regarding modifications and hedge accounting. The IASB also amended
IFRS 4 to require insurers that apply the temporary exemption from IFRS 9 to apply the amendments in accounting for modifications
directly required by IBOR reform.
Additional disclosures have been included in note E6.1 to provide details of the derivative and non-derivative financial instruments
affected by the interest rate benchmark reform together with a summary of the actions taken by the Group to manage the risks relating
to the reform.
• Amendments to IFRS 4 Insurance Contracts – Extension of the Temporary Extension for applying IFRS 9 Financial Instruments
(1 January 2021): Following the issue of IFRS 17 Insurance Contracts (Revised) in June 2020, the end date for applying the two options
under the IFRS 4 amendments (including the temporary exemption from IFRS 9) was extended to 1 January 2023, aligning the date
with the revised effective date of IFRS 17. The Group has taken advantage of this extension to align the implementation of IFRS 9 and
IFRS 17.
A5. New accounting pronouncements not yet effective
The IASB has issued the following standards or amended standards and interpretations which apply from the dates shown. The Group
has decided not to early adopt any of these standards, amendments or interpretations where this is permitted.
• IFRS 9 Financial Instruments (1 January 2023): Under IFRS 9, all financial assets will be measured either at amortised cost or fair value
and the basis of classification will depend on the business model and the contractual cash flow characteristics of the financial assets.
In relation to the impairment of financial assets, IFRS 9 requires the use of an expected credit loss model, as opposed to the incurred
credit loss model required under IAS 39 Financial Instruments: Recognition and Measurement. The expected credit loss model will
require the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect
changes in credit risk since initial recognition.
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Financials continued
The Group has taken advantage of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts from applying IFRS 9
until 1 January 2023 as a result of meeting the exemption criteria as at 31 December 2015. As at this date the Group’s activities were
considered to be predominantly connected with insurance as the percentage of the total carrying amount of its liabilities connected
with insurance relative to the total carrying amount of all its liabilities was greater than 90%. Following the acquisition of the ReAssure
businesses on 22 July 2020, this assessment was re-performed and the Group’s activities were still considered to be predominantly
connected with insurance.
IFRS 9 will be implemented at the same time as the new insurance contracts standard (IFRS 17 Insurance Contracts) effective from
1 January 2023. During the year, the Group continued its implementation activities in respect of IFRS 9 and expects to continue to
value the majority of its financial assets at fair value through profit or loss on initial recognition, either as a result of these financial assets
being managed on a fair value basis or as a result of using the fair value option to irrevocably designate the assets at fair value through
profit or loss. A number of additional disclosures will be required by IFRS 7 Financial Instruments: Disclosures as a result of
implementing IFRS 9.
Additional disclosures have been made in note E1.2 to the consolidated financial statements to provide information to allow
comparison with entities who have already adopted IFRS 9.
• IFRS 3 Business Combinations (1 January 2022): The amendments update a reference in IFRS 3 to the Conceptual Framework for
Financial Reporting without changing the accounting requirements for business combinations. There are no impacts from this
amendment.
• IAS 16 Property, Plant and Equipment (1 January 2022): The amendments prohibit the Group from deducting from the cost of
property, plant and equipment amounts received from selling items produced while the Group is preparing the asset for its intended
use. Instead, such sales proceeds and related costs should be recognised in profit or loss. These amendments do not currently have any
impact on the Group.
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets (1 January 2022): The amendments specify which costs a company
includes when assessing whether a contract will be loss making. These amendments are not expected to have any impact on the
Group.
• Annual Improvements Cycle 2018 – 2020 (1 January 2022): Minor amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16
Leases. These amendments do not currently have any impact on the Group.
• IFRS 17 Insurance Contracts (1 January 2023): Once effective IFRS 17 will replace IFRS 4 the current insurance contracts standard
and it is expected to significantly change the way the Group measures and reports its insurance contracts. The overall objective of the
new standard is to provide an accounting model for insurance contracts that is more useful and consistent for users.
IFRS 17 applies to insurance contracts (including reinsurance contracts) an entity issues, reinsurance contracts an entity holds and
investment contracts with discretionary participation features an entity issues provided it also issues insurance contracts. The scope of
IFRS 17 for the Group is materially consistent with that of IFRS 4. Investment contracts will be measured under IFRS 9.
IFRS 17 requires that contracts are divided into groups for the purposes of recognition and measurement. Portfolios of contracts
are identified by grouping together contracts which have similar risks and are managed together. These groups are then further
divided into groups based on their expected profitability. Contracts which are onerous at inception cannot be grouped with contracts
which are profitable at inception. Contracts which are issued more than one year apart are not permitted to be included within the
same group, although there is some relief from this requirement for business in-force at the date of transition under the transitional
arrangements.
The standard introduces three measurement approaches, of which two, the general model and the variable free approach, are
applicable to the Group’s business. The main features of these models are the measurement of an insurance contract as the present
value of expected future cash flows including acquisition costs, plus an explicit risk adjustment, remeasured at each reporting period
using current assumptions, and a contractual service margin (‘CSM’).
The risk adjustment represents the compensation the Group requires for bearing the uncertainty about the amount and timing of cash
flows that arise from non-financial risk as the obligations under the insurance contract are fulfilled.
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167
167
Financials
Financials continued
Notes to the consolidated financial statements
Continued
A. Significant accounting policies continued
A5. New accounting pronouncements not yet effective continued
The CSM represents the unearned profit of a group of insurance contracts and is recognised in profit or loss as the insurance service is
provided to the customer using coverage units. Coverage units are a measurement of the quantum of service provided across the life
of the contract and are used to measure the service provided in the reporting period and release a corresponding amount of profit to
the income statement. If a group of contracts becomes loss-making after inception the loss is recognised immediately in the income
statement. This treatment of profits and losses in respect of services is broadly consistent with the principles of IFRS 15 and IAS 37
applicable to other industries.
Under the general model the CSM is adjusted for non-economic assumption changes relating to future periods. For certain contracts
with participating features the variable fee approach is applied, this allows changes in economic assumptions and experience to adjust
the CSM as well as non-economic assumptions, reflecting the variable nature of the entity’s earnings driven by investment returns.
IFRS 17 requires the standard to be applied retrospectively. Where this is assessed as impracticable the standard allows the application
of a simplified retrospective approach or a fair value approach to determine the contractual service margin.
The measurement principles set out in IFRS 17 will significantly change the way in which the Group measures its insurance contracts
and investment contracts with discretionary participation features (‘DPF’), and associated reinsurance contracts. These changes will
impact the pattern in which profit emerges when compared to IFRS 4 and add complexity to valuation processes, data requirements
and assumption setting.
The introduction of IFRS 17 will simplify the presentation of the statement of financial position. It requires the presentation of groups
of insurance (or reinsurance) contracts that are in an asset position separately from those in a liability position. The presentation of
the income statement will change more significantly with IFRS 17 setting out how components of the profitability of contracts are
disaggregated into an insurance service result and insurance finance income/expenses. IFRS 17 also requires extensive disclosures
on the amounts recognised from insurance contracts and the nature and extent of risks arising from them.
The Group’s implementation project continued through 2021 with a focus on finalising methodologies and developing the operational
capabilities required to implement the standard including data, systems and business processes. The focus for 2022 is on embedding
the operational capabilities and determining the transition balance sheet and comparatives required for 2023 reporting.
• Classification of Liabilities as Current and Non-current (Amendments to IAS 1 Presentation of Financial Statements) (1 January
2023): The amendments clarify rather than change existing requirements and aim to assist entities in determining whether debt and
other liabilities with an uncertain settlement date should be classed as current or non-current. It is currently not expected that there will
be any reclassifications as a result of this clarification.
• Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2
Making Materiality Judgements) (1 January 2023): The amendments are intended to assist entities in deciding which accounting
policies to disclose in their financial statements and requires an entity to disclose ‘material accounting policy information’ instead
of its ‘significant accounting policies’. Accounting policy information is material if, when considered together with other information
included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general
purpose financial statements make on the basis of those financial statements. The IASB has also developed guidance and
examples to explain and demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2.
The amendments to IFRS Practice Statement 2 do not contain an effective date or transition requirements. These amendments are
not expected to have any impact on the Group.
• Definition of Accounting Estimates (Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)
(1 January 2023): The amendments replace the definition of a change in accounting estimates with a definition of accounting
estimates. Under the new definition, accounting estimates are ‘monetary amounts in financial statements that are subject to
measurement uncertainty’. The Board has retained the concept of changes in accounting estimates in the Standard by including
a number of clarifications. These amendments are not expected to have any impact on the Group.
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 Income Taxes)
(1 January 2023): The amendments narrow the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 so that it
no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The IASB
expects that the amendments will reduce diversity in reporting and align the accounting for deferred tax on such transactions with the
general principle in IAS 12 of recognising deferred tax for temporary differences. There will potentially be some additional disclosures
required in relation to the Group’s leasing arrangements as a result of implementing these amendments.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
(Effective date deferred): The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control
of a subsidiary that is sold or contributed to an associate or joint venture. These amendments are not expected to have any impact
on the Group.
On 31 January 2020, the UK left the EU and effective from 1 January 2021, the European Commission will no longer endorse
international accounting standards for use in the UK. UK legislation provides that all IFRSs that had been endorsed by the EU on or before
31 December 2020 became UK-adopted international accounting standards. From 1 January 2021, any new IFRSs or amended IFRSs will
require independent endorsement in the UK to be part of the suite of UK-adopted international accounting standards that can be
applied by UK companies. On 21 May 2021 the powers to endorse and adopt IFRSs for the UK were delegated by the Secretary of State
to the UK Endorsement Board.
The following amendments to standards listed above have been endorsed for use in the UK by the Secretary of State:
• Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16);
• Amendment to IFRS 16 Leases COVID-19-Related Rent Concessions; and
• Amendments to IFRS 4 Insurance Contracts – Extension of the Temporary Extension for applying IFRS 9 Financial Instruments.
The amendments to IFRS 9 Financial Instruments formed part of the EU-adopted IFRSs which were adopted by the UK on 1 January 2021
and have previously been endorsed by the EU.
A6. Significant transactions during the year
The Group classifies disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction
rather than through continuing use. Disposal groups classified as held for sale are measured at the lower of their carrying amount and
fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of the disposal group, excluding
finance costs and income tax expense. Assets and liabilities classified as held for sale are presented separately in the statement of
consolidated financial position.
A6.1 New agreement with abrdn plc (formerly Standard Life Aberdeen plc)
On 23 February 2021, the Group entered into a new agreement with abrdn plc to simplify the arrangements of their Strategic
Partnership, enabling the Group to control its own distribution, marketing and brands, and focusing the Strategic Partnership on using
abrdn plc’s asset management services in support of Phoenix’s growth strategy.
Under the terms of the transaction, the Group will sell its UK investment and platform-related products, comprising Wrap Self Invested
Personal Pension (‘Wrap SIPP’), Onshore Bond and UK Trustee Investment Plan (‘TIP’) to abrdn plc and effective from 1 January 2021 has
transferred the economic benefit of this business to abrdn plc. The Group has also acquired ownership of the Standard Life brand and as
part of this acquisition, the relevant marketing, distribution and data team members transferred to the Group. As a result, the Client
Service and Proposition Agreement (‘CSPA’), entered into between the two groups following the acquisition of the Standard Life
businesses in 2018, has been dissolved. In addition, Phoenix and abrdn plc resolved all legacy issues in relation to the Transitional Service
Agreement (‘TSA’) entered into at the time of the acquisition of the Standard Life businesses and the CSPA.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
169
169
Financials
Financials continued
Notes to the consolidated financial statements
Continued
A. Significant accounting policies continued
A6. Significant transactions during the year continued
A6.1 New agreement with abrdn plc (formerly Standard Life Aberdeen plc) continued
The Group received cash consideration for the overall transaction of £115 million, £62 million of which has been deferred as detailed
below. On completion of the agreement the Group recognised a net gain on the transaction of £89 million which has been recognised in
the consolidated income statement as follows:
Sale of Wrap SIPP, Onshore and TIP business
Transfer of marketing services and termination of CSPA1
Value attributed to acquisition of the brand (note G2.5)
Resolution of legacy issues and project costs
Gain on completion of abrdn plc transaction
Attributable tax charge
2021
£m
(51)
14
111
36
110
(21)
89
1
Includes the impact of derecognising the CSPA related intangible asset. Further details are included in note G2.5.
The sale of the Wrap SIPP, Onshore Bond and TIP business currently within Standard Life Assurance Limited, will be effected through a
Part VII transfer targeted for completion in late 2023. The economic risk and rewards for this business transferred to abrdn plc effective
from 1 January 2021 via a profit transfer arrangement. Consideration received of £62 million in respect of this business has been deferred
until completion of the Part VII and the payments to abrdn plc in respect of the profit transfer arrangement are being offset against the
deferred consideration balance.
The balances in the statement of consolidated financial position relating to the Wrap SIPP, Onshore Bond and TIP business have been
classified as a disposal group held for sale. The total proceeds of disposal are not expected to exceed the carrying value of the related
net assets and accordingly the disposal group has been measured at fair value less costs to sell. At the date of the transaction an
impairment loss of £59 million was recognised upon classification of the business as held for sale in respect of the acquired in-force
business (‘AVIF’). The major classes of assets and liabilities classified as held for sale are as follows:
Acquired in-force business
Investment property
Financial assets
Cash and cash equivalents
Assets classified as held for sale
Assets in consolidated funds1
Total assets of the disposal group
Investment contract liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Accruals and deferred income
Liabilities classified as held for sale
2021
£m
54
3,309
6,507
76
9,946
1,788
11,734
(11,676)
(4)
(2)
(10)
(54)
(11,746)
1
Included in assets of the disposal group are assets in consolidated funds, which are held to back investment contract liabilities of the Wrap SIPP, Onshore bond and TIP business and are disclosed within
financial assets in the consolidated statement of financial position. The Group controls these funds at 31 December 2021 and therefore consolidates 100% of the assets with any non-controlling interest
recognised as net asset value attributable to unitholders.
A6.2 Disposal of Ark Life
On 1 November 2021, the Group completed the sale of Ark Life Assurance Company DAC (‘Ark Life’) to Irish Life Group Limited for gross
cash consideration of €230 million (£198 million). Further details of the transaction are provided in note H3.
170
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
B. Earnings performance
B1. Segmental analysis
The Group defines and presents operating segments in accordance with IFRS 8 ‘Operating Segments’ which requires such segments
to be based on the information which is provided to the Board, and therefore segmental information in this note is presented on a
different basis from profit or loss in the consolidated financial statements.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses relating to transactions with other components of the Group.
As at 31 December 2020, following the acquisition of the ReAssure businesses, a separate operating segment was reported which
included all of the ReAssure businesses. During the year, the Group has again reassessed its operating segments to reflect that the
management and reporting of the ReAssure businesses have been aligned with that of the other Group businesses. Consequently,
the results previously reported within the ReAssure segment are all now reported within the UK Heritage and UK Open segments and
within Unallocated Group. The Group now has four reportable segments comprising UK Heritage, UK Open, Europe and Management
Services, as set out in note B1.1.
For management purposes, the Group is organised into business units based on their products and services. For reporting purposes,
business units are aggregated where they share similar economic characteristics including the nature of products and services, types
of customers and the nature of the regulatory environment. No such aggregation has been required in the current year.
The UK Heritage segment contains UK businesses which no longer actively sell products to policyholders and which therefore run-off
gradually over time. These businesses will accept incremental premiums on in-force policies.
The UK Open segment includes new and in-force life insurance and investment policies in respect of products that the Group
continues to actively market to new and existing policyholders. This includes products such as workplace pensions and Self-Invested
Personal Pensions (‘SIPPs’) distributed through the Group’s Strategic Partnership with abrdn plc, products sold under the SunLife
brand, and annuities, including Bulk Purchase Annuity contracts.
The Europe segment includes business written in Ireland and Germany. This includes products that are actively being marketed to new
policyholders, and legacy in-force products that are no longer being sold to new customers.
The Management Services segment comprises income from the life and holding companies in accordance with the respective
management service agreements less fees related to the outsourcing of services and other operating costs.
Unallocated Group includes consolidation adjustments and Group financing (including finance costs) which are managed on a Group
basis and are not allocated to individual operating segments.
Inter-segment transactions are set on an arm’s length basis in a manner similar to transactions with third parties. Segmental results
include those transfers between business segments which are then eliminated on consolidation.
The business of Ark Life, which was disposed of during the year (see note H3), was allocated to the Heritage operating segment.
The Wrap SIPP, Onshore Bond and TIP businesses that have been classified as a disposal group held for sale as at 31 December 2021
(see note A6.1) are allocated to the Open operating segment.
Segmental measure of performance: Operating Profit
The Group uses a non-GAAP measure of performance, being operating profit, to evaluate segment performance. Operating profit is
considered to provide a comparable measure of the underlying performance of the business as it excludes the impact of short-term
economic volatility and other one-off items. This measure incorporates an expected return, including a longer-term return on financial
investments backing shareholder and policyholder funds over the period, with consistent allowance for the corresponding expected
movement in liabilities. Annuity new business profits are included in operating profit using valuation assumptions consistent with the
pricing of the business (including the Group’s expected longer-term asset allocation backing the business).
Operating profit includes the effect of variances in experience for non-economic items, such as mortality and expenses, and the effect
of changes in non-economic assumptions. It also incorporates the impacts of significant management actions where such actions are
consistent with the Group’s core operating activities (for example, actuarial modelling enhancements and data reviews). Operating
profit is reported net of policyholder finance charges and policyholder tax.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
171
171
Financials
Financials continued
Notes to the consolidated financial statements
Continued
B. Earnings performance continued
B1. Segmental analysis continued
Operating profit excludes the impact of the following items:
• the difference between the actual and expected experience for economic items and the impacts of changes in economic
assumptions on the valuation of liabilities (see notes B2.1 and B2.2);
• amortisation and impairments of intangible assets (net of policyholder tax);
• finance costs attributable to owners;
• gains or losses on the acquisition or disposal of subsidiaries (net of related costs);
• the financial impacts of mandatory regulatory change;
• the profit or loss attributable to non-controlling interests;
• integration, restructuring or other significant one-off projects; and
• any other items which, in the Directors’ view, should be disclosed separately by virtue of their nature or incidence to enable a full
understanding of the Group’s financial performance. This is typically the case where the nature of the item is not reflective of the
underlying performance of the operating companies.
Whilst the excluded items are important to an assessment of the consolidated financial performance of the Group, management
considers that the presentation of the operating profit metric provides useful information for assessing the performance of the Group’s
operating segments on an ongoing basis. The IFRS results are significantly impacted by the amortisation of intangible balances arising
on acquisition, the one-off costs of integration activities and the costs of servicing debt used to finance acquisition activity, which are
not indicative of the underlying operational performance of the Group’s segments.
Furthermore, the hedging strategy of the Group is calibrated to protect the Solvency II capital position and cash generation capability
of the operating companies, as opposed to the IFRS financial position. This can create additional volatility in the IFRS result which is
excluded from the operating profit metric.
The Group therefore considers that operating profit provides a good indicator of the ability of the Group’s operating companies to
generate cash available for the servicing of the Group’s debts and for distribution to shareholders. Accordingly, the measure is more
closely aligned with the business model of the Group and how performance is managed by those charged with governance.
Restatement of prior period information
As noted above, during the year the Group reassessed its operating segments to reflect the way the ReAssure businesses are now
managed and reported. Consequently, the results previously reported within the ReAssure segment are now reported within the UK
Heritage and UK Open segments and within Unallocated Group. UK Heritage and UK Open operating profit for the year ended
30 December 2020 has been increased by £153 million to £431 million and £301 million to £773 million respectively and Unallocated
Group has decreased by £10 million to an operating loss of £55 million. UK Heritage segmental revenue has been increased by
£251 million to £939 million and UK Open segmental revenue has been decreased by £69 million to £2,529 million.
172
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
B1.1 Segmental result
Operating profit
UK Heritage
UK Open
Europe
Management Services
Unallocated Group
Total segmental operating profit
Investment return variances and economic assumption changes
on long-term business and owners' funds
Amortisation and impairment of acquired in-force business
Amortisation and impairment of other intangibles and goodwill
Other non-operating items
Finance costs on borrowing attributable to owners
(Loss)/profit before the tax attributable to owners of the parent
Profit before tax attributable to non-controlling interests
(Loss)/profit before the tax attributable to owners
1 See note B1 for details of the restatement
Notes
B2.2
G2
2021
£m
537
701
87
(24)
(71)
1,230
(1,125)
(572)
(67)
(65)
(217)
2020
restated1
£m
431
773
44
6
(55)
1,199
101
(464)
(18)
281
(191)
(816)
908
128
36
(688)
944
Other non-operating items in respect of 2021 include:
• a net £110 million gain arising on the transaction with abrdn plc, which included the sale of the Group’s UK investment and platform
related products and the acquisition by the Group of the Standard Life brand (see note A6.1 for further details);
• a loss on disposal of £23 million arising on the sale of Ark Life Assurance Company DAC (‘Ark Life’) (see note H3 For further details);
• £35 million related to the increase in provision for costs associated with the delivery of the Group Target Operating Model for IT
and Operations;
• £45 million of costs associated with the ongoing ReAssure integration programme; costs of £27 million associated with the integration
of the Old Mutual Wealth business acquired by ReAssure Group plc in December 2019 and costs of £12 million associated with the
integration of the acquired L&G mature savings business;
• an £83 million policyholder tax benefit recognised following the favourable conclusion of discussions with HMRC in respect of certain
excess management expenses associated with the L&G mature savings business;
• £58 million of costs associated with the implementation of IFRS 17, which will be effective from 1 January 2023;
• £44 million of other corporate project costs; and
• net other one-off items totalling a cost of £14 million.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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173
173
Financials
Financials continued
Notes to the consolidated financial statements
Continued
B. Earnings performance continued
B1. Segmental analysis continued
B1.1 Segmental result continued
Other non-operating items in respect of 2020 include:
• a gain on acquisition of £372 million reflecting the excess of the fair value of the net assets acquired over the consideration paid for the
acquisition of ReAssure Group plc (see note H2.1 for further details);
• a gain of £85 million arising on completion of the Part VII transfer of the mature savings liabilities and associated assets from the L&G
Group (see note H2.2 for further details);
• a net £43 million of additional costs associated with the delivery of the Group Target Operating Model for IT and Operations,
comprising a £74 million increase in expenses recognised within liabilities under insurance contracts and partly offset by a £31 million
release within the Transition and Transformation restructuring provision;
• costs of £37 million associated with the acquisition of ReAssure Group plc, and £19 million incurred under the subsequent integration
programme;
• costs of £20 million associated with the ongoing integration of the Old Mutual Wealth business acquired by ReAssure Group plc in
December 2019, incurred since the Group’s acquisition of ReAssure Group plc in July 2020;
• costs of £16 million associated with the transfer and integration of the L&G mature savings business;
• £34 million of other corporate project costs; and
• net other one-off items totalling a cost of £7 million.
Further details of the investment return variances and economic assumption changes on long-term business, and the variance on owners’
funds are included in note B2.
B1.2 Segmental revenue
2021
Revenue from external customers:
Gross premiums written
Less: premiums ceded to reinsurers
Net premiums written
Fees and commissions
Income from other segments
Total segmental revenue
2020 restated1
Revenue from external customers:
Gross premiums written
Less: premiums ceded to reinsurers
Net premiums written
Fees and commissions
Income from other segments
Total segmental revenue
1 See note B1 for details of the restatement
UK Heritage
£m
UK Open
£m
Management
Services
£m
Unallocated
Group
£m
Europe
£m
880
(284)
596
634
–
5,034
(1,739)
3,295
297
–
1,541
(56)
1,485
70
–
1,230
3,592
1,555
–
–
–
–
–
–
–
–
1,146
1,146
(1,146)
(1,146)
UK Heritage
£m
UK Open
£m
Management
Services
£m
Unallocated
Group
£m
Europe
£m
765
(267)
498
441
–
939
2,726
(500)
2,226
303
–
1,215
(29)
1,186
50
–
2,529
1,236
–
–
–
–
737
737
–
–
–
–
(737)
(737)
Total
£m
7,455
(2,079)
5,376
1,001
–
6,377
Total
£m
4,706
(796)
3,910
794
–
4,704
Of the revenue from external customers presented in the table above, £5,448 million (2020: £3,818 million) is attributable to customers in
the United Kingdom (‘UK’) and £929 million (2020: £886 million) to the rest of the world. The Europe operating segment comprises
business written in Ireland and Germany to customers in both Europe and the UK. No revenue transaction with a single customer external
to the Group amounts to greater than 10% of the Group’s revenue.
174
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
The Group has total non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under
insurance contracts) of £5,245 million (2020: £7,042 million) located in the UK and £410 million (2020: £433 million) located in the rest of
the world.
B2. Investment return variances and economic assumption changes
The long-term nature of much of the Group’s operations means that, for internal performance management, the effects of short-term
economic volatility are treated as non-operating items. The Group focuses instead on an operating profit measure that incorporates an
expected return on investments supporting its long-term business. The accounting policy adopted in the calculation of operating profit
is detailed in note B1. The methodology for the determination of the expected investment return is explained below together with an
analysis of investment return variances and economic assumption changes recognised outside of operating profit.
B2.1 Calculation of the long-term investment return
The expected return on investments for both owner and policyholder funds is based on opening economic assumptions applied to the
funds under management at the beginning of the reporting period. Expected investment return assumptions are derived actively, based
on market yields on risk-free fixed interest assets at the start of each financial year.
The long-term risk-free rate used as a basis for deriving the long-term investment return is set by reference to the swap curve at the
15-year duration plus 10bps at the start of the year. A risk premium of 349bps is added to the risk-free yield for equities (2020: 349bps),
249bps for properties (2020: 249bps), 55bps for corporate bonds (2020: 55bps) and 15bps for gilts (2020: 15bps). The reduction in the
risk-free rate reflected the lower expected return for these assets at the beginning of the period due to the lower fixed interest yields
experienced in 2020.
The principal assumptions underlying the calculation of the long-term investment return are:
Equities
Properties
Gilts
Corporate bonds
2021
%
4.1
3.1
0.8
1.2
2020
%
4.7
3.7
1.4
1.8
B2.2 Investment return variances and economic assumption changes recognised outside of operating profit
Operating profit for life assurance business is based on expected investment returns on financial investments backing owners’ and
policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities.
Operating profit includes the effect of variance in experience for non-economic items, for example mortality, persistency and expenses,
and the effect of changes in non-economic assumptions. Changes due to economic items, for example market value movements and
interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in
economic assumptions on liabilities, are disclosed separately outside operating profit.
The movement in liabilities included in operating profit reflects both the change in liabilities due to the expected return on investments
and the impact of experience variances and assumption changes for non-economic items.
The effect of differences between actual and expected economic experience on liabilities, and changes to economic assumptions used
to value liabilities, are taken outside operating profit. For many types of long-term business, including unit-linked and with-profit funds,
movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. For other long-term
business, the profit impact of economic volatility depends on the degree of matching of assets and liabilities, and exposure to financial
options and guarantees. For non-long-term business including owners’ funds, the total investment income, including fair value gains,
is analysed between a calculated longer-term return and short-term fluctuations.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
175
175
Financials
Financials continued
Notes to the consolidated financial statements
Continued
B. Earnings performance continued
B2. Investment return variances and economic assumption changes continued
B2.2 Investment return variances and economic assumption changes recognised outside of operating profit continued
The investment return variances and economic assumption changes excluded from operating profit are as follows:
Investment return variances and economic assumption changes on long-term business and owners' funds
2021
£m
(1,125)
2020
£m
101
The net adverse investment return variances and economic assumption changes on long-term business and owners’ funds of
£1,125 million in 2021 (2020: positive £101 million) primarily reflect IFRS losses arising on life company hedging positions.
The impact of equity, interest rate and inflation movements on future profits in relation to with-profit bonuses and unit linked charges is
hedged in order to benefit the regulatory capital position rather than the IFRS net assets. The impact of market movements on the value
of the related hedging instruments is reflected in the IFRS results, but the corresponding change in the value of future profits is not. Such
future profits are actively valued under Solvency II requirements but are either not recognised on an IFRS basis or are not revalued unless
there is evidence of impairment (e.g. AVIF). This leads to volatility in the Group’s IFRS results.
As a result of improving equity markets, rising yields and increasing inflation in the year, losses have been experienced on hedging
positions held by the life companies. Continued strategic asset allocation initiatives undertaken by the Group, including investment in
higher yielding assets and credit management actions provided a partial offset to the adverse variances experienced.
In 2020, declines in certain equity markets and falling yields gave rise to net gains on hedging positions, partially offset by adverse
variances relating to movements in credit spreads and credit downgrades. The prior year result also included gains arising on derivative
instruments entered into on announcement of the ReAssure acquisition to protect the Group’s exposure to equity risk in the period prior
to completion.
B3. Earnings per share
The Group calculates its basic earnings per share based on the present shares in issue using the earnings attributable to ordinary equity
holders of the parent, divided by the weighted average number of ordinary shares in issue during the year.
Diluted earnings per share are calculated based on the potential future shares in issue assuming the conversion of all potentially dilutive
ordinary shares. The weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive share awards
granted to employees.
The basic and diluted earnings per share calculations are also presented based on the Group's operating profit net of financing costs.
Operating profit is a non-GAAP performance measure that is considered to provide a comparable measure of the underlying
performance of the business as it excludes the impact of short-term economic volatility and other one-off items.
The result attributable to ordinary equity holders of the parent for the purposes of determining earnings per share has been calculated as
set out below.
Operating
earnings
net of
financing
costs
£m
Other non-
operating
items
£m
Operating
profit
£m
Financing
costs
£m
1,230
(243)
987
–
–
987
(217)
44
(173)
(23)
–
(196)
1,013
(199)
814
(23)
–
791
(1,701)
178
(1,523)
–
(128)
(1,651)
Total
£m
(688)
(21)
(709)
(23)
(128)
(860)
2021
Profit/(loss) before the tax attributable to owners
Tax (charge)/credit attributable to owners
Profit/(loss) for the year attributable to owners
Coupon paid on Tier 1 notes, net of tax relief
Deduct: Share of result attributable to non-controlling interests
Profit/(loss) for the year attributable to ordinary equity holders of the parent
176
176
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
Profit/(loss) before the tax attributable to owners
Tax (charge)/credit attributable to owners
Profit/(loss) for the year attributable to owners
Coupon paid on Tier 1 notes, net of tax relief
Deduct: Share of result attributable to non-controlling interests
Operating
earnings net
of financing
costs
£m
Financing
costs
£m
Other non-
operating
items
£m
Operating
profit
£m
1,199
(199)
1,000
–
–
(191)
48
(143)
(23)
–
(166)
1,008
(151)
857
(23)
–
834
(64)
41
(23)
–
(36)
(59)
Total
£m
944
(110)
834
(23)
(36)
775
Profit/(loss) for the year attributable to ordinary equity holders of the parent
1,000
The weighted average number of ordinary shares outstanding during the period is calculated as follows:
Issued ordinary shares at beginning of the year
Effect of ordinary shares issued
Own shares held by the employee benefit trust
Weighted average number of ordinary shares
2021
Number
million
999
–
(1)
998
2020
Number
million
722
123
(1)
844
The diluted weighted average number of ordinary shares outstanding during the period is 1,001 million (2020: 846 million). The Group’s
long-term incentive plan, deferred bonus share scheme and sharesave schemes increased the weighted average number of shares
on a diluted basis by 2,702,934 shares for the year ended 31 December 2021 (2020: 2,316,109 shares). As losses have an anti-dilutive
effect, none of the share-based awards have a dilutive effect in the calculation of basic earnings per share for the year ended
31 December 2021.
Earnings per share disclosures are as follows:
Basic earnings per share
Diluted earnings per share
Basic operating earnings net of financing costs per share
Diluted operating earnings net of financing costs per share
2021
pence
(86.4)
(86.4)
79.2
79.0
2020
pence
91.8
91.5
98.8
98.5
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
177
177
Financials
Financials continued
Notes to the consolidated financial statements
Continued
B. Earnings performance continued
B4. Dividends
Final dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Group’s
owners. Interim dividends are deducted from equity when they are paid.
Dividends for the year that are approved after the reporting period are dealt with as an event after the reporting period. Declared
dividends are those that are appropriately authorised and are no longer at the discretion of the entity.
Dividends declared and paid in the year
2021
£m
482
2020
£m
403
On 5 March 2021, the Board recommended a final dividend of 24.1p per share in respect of the year ended 31 December 2020.
The dividend was approved at the Group’s Annual General Meeting, which was held on 14 May 2021. The dividend amounted to
£241 million and was paid on 18 May 2021.
On 10 August 2021, the Board declared an interim dividend of 24.1p per share for the half year ended 30 June 2021. The dividend
amounted to £241 million and was paid on 3 September 2021.
C. Other income statement notes
C1. Fees and commissions
Fees related to the provision of investment management services and administration services are recognised as services are provided.
Front end fees, which are charged at the inception of service contracts, are deferred as a liability and recognised over the life of the
contract. No significant judgements are required in determining the timing or amount of fee income or the costs incurred to obtain or
fulfil a contract.
The table below disaggregates fees and commissions by segment.
2021
Fee income from investment contracts without DPF
Initial fees deferred during the year
Revenue from investment contracts without DPF
Other revenue from contracts with customers
Fees and commissions
2020 restated1
Fee income from investment contracts without DPF
Initial fees deferred during the year
Revenue from investment contracts without DPF
Other revenue from contracts with customers
Fees and commissions
UK Heritage
£m
UK Open
£m
Europe
£m
606
–
606
28
634
291
–
291
6
297
81
(11)
70
–
70
UK Heritage
£m
UK Open
£m
Europe
£m
429
–
429
12
441
293
–
293
10
303
58
(8)
50
–
50
Total
£m
978
(11)
967
34
1,001
Total
£m
780
(8)
772
22
794
1 The comparative information for fee income from investments without DPF has been restated. The ReAssure fee income of £145 million has been included within the UK Heritage fee income total of £441
million. For further details of the restatement see note B1.
178
178
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Remaining performance obligations
The practical expedient under IFRS 15 has been applied and remaining performance obligations are not disclosed as the Group has the
right to consideration from customers in amounts that correspond with the performance completed to date. Specifically management
charges become due over time in proportion to the Group’s provision of investment management services.
In the period no amortisation or impairment losses from contracts with customers were recognised in the statement of comprehensive
income.
C2. Net investment income
Net investment income comprises interest, dividends, rents receivable, net interest income/(expense) on the Group defined benefit
pension scheme asset/(liability), fair value gains and losses on financial assets (except for reinsurers’ share of investment contract
liabilities without DPF, see note E1), financial liabilities and investment property at fair value and impairment losses on loans and
receivables.
Interest income is recognised in the consolidated income statement as it accrues using the effective interest method.
Dividend income is recognised in the consolidated income statement on the date the right to receive payment is established, which in
the case of listed securities is the ex-dividend date.
Rental income from investment property is recognised in the consolidated income statement on a straight-line basis over the term
of the lease. Lease incentives granted are recognised as an integral part of the total rental income.
Fair value gains and losses on financial assets and financial liabilities designated at fair value through profit or loss are recognised in the
consolidated income statement. Fair value gains and losses includes both realised and unrealised gains and losses.
Investment income
Interest income on loans and deposits at amortised cost
Interest income on financial assets designated at FVTPL on initial recognition
Dividend income
Rental income
Net interest expense on Group defined benefit pension scheme (liability)/asset
Fair value gains/(losses)
Financial assets and financial liabilities at FVTPL:
Designated upon initial recognition
Held for trading – derivatives
Investment property
Net investment income
2021
£m
2020
£m
1
2,647
4,384
365
(37)
8
2,313
3,525
325
(29)
7,360
6,142
12,354
(2,908)
1,195
10,641
18,001
8,021
2,824
(52)
10,793
16,935
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
179
179
Financials
Financials continued
Notes to the consolidated financial statements
Continued
C. Other income statement notes continued
C3. Administrative expenses
Administrative expenses
Administrative expenses are recognised in the consolidated income statement as incurred.
Deferred acquisition costs
For insurance and investment contracts with DPF, acquisition costs which include both incremental acquisition costs and other direct
costs of acquiring and processing new business, are deferred.
For investment contracts without DPF, incremental costs directly attributable to securing rights to receive fees for asset management
services sold with unit-linked investment contracts are deferred.
Trail or renewal commission on investment contracts without DPF where the Group does not have an unconditional legal right to avoid
payment is deferred at inception of the contract and an offsetting liability for contingent commission is established.
Deferred acquisition costs are amortised over the life of the contracts as the related revenue is recognised. After initial recognition,
deferred acquisition costs are reviewed by category of business and are written off to the extent that they are no longer considered to
be recoverable.
2021
£m
531
209
–
321
178
150
528
–
28
18
–
6
58
–
59
2020
£m
433
175
(31)
230
152
124
437
4
25
28
2
5
58
16
45
2,086
1,703
(38)
8
(34)
5
2,056
1,674
Employee costs
Outsourcer expenses
Movement in provision for transition and transformation programme (see note G7)
Professional fees
Commission expenses
Office and IT costs
Investment management expenses and transaction costs
Direct costs of life companies
Direct costs of collective investment schemes
Depreciation
Pension service costs
Pension administrative expenses
Advertising and sponsorship
Stamp duty payable on acquisition of ReAssure businesses
Other
Acquisition costs deferred during the year
Amortisation of deferred acquisition costs
Total administrative expenses
180
180
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Employee costs comprise:
Wages and salaries
Social security contributions
Average number of persons employed
C4. Auditor’s remuneration
During the year the Group obtained the following services from its auditor at costs as detailed in the table below.
Audit of the consolidated financial statements
Audit of the Company’s subsidiaries
Audit-related assurance services
Reporting accountant assurance services
Total fee for assurance services
Other non-audit services
Total fees for other services
Total auditor’s remuneration
2021
£m
483
48
531
2020
£m
390
43
433
2021
Number
7,885
2020
Number
5,752
2021
£m
1.8
9.8
11.6
2.3
–
13.9
–
–
2020
£m
2.1
9.6
11.7
2.3
0.1
14.1
0.4
0.4
13.9
14.5
No services were provided by the Company’s auditors to the Group’s pension schemes in either 2021 or 2020.
Audit of the consolidated financial statements in 2020 included amounts in respect of reporting to the auditor of abrdn plc given their
status as a significant investor. The 2020 balance also includes amounts in respect of the audit of the acquisition balance sheet of the
acquired ReAssure Group businesses.
Audit related assurance services includes fees payable for services where the reporting is required by law or regulation to be provided by
the auditor, such as reporting on regulatory returns. It also includes fees payable in respect of reviews of interim financial information and
services where the work is integrated with the audit itself.
Reporting accountant services relate to assurance reporting on historical information included within investment circulars. In 2020, this
included public reporting associated with the acquisition of ReAssure Group.
There were no other non-audit services provided during the year (2020: £0.4 million). The 2020 fees related to services provided to
ReAssure Group where the engagement occurred prior to completion of the acquisition and which were terminated within the three-
month grace period.
Further information on auditor’s remuneration and the assessment of the independence of the external auditor is set out in the Audit
Committee report on pages 96 to 100.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
181
181
Financials
Financials continued
Notes to the consolidated financial statements
Continued
C. Other income statement notes continued
C5. Finance costs
Interest payable is recognised in the consolidated income statement as it accrues and is calculated using the effective interest method.
Interest expense
On financial liabilities at amortised cost
On leases
Attributable to:
• policyholders
• owners
2021
£m
239
3
242
2
240
242
2020
£m
230
4
234
10
224
234
182
182
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
C6. Tax charge
Income tax comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the extent
that it relates to items recognised in the statement of consolidated comprehensive income or the statement of consolidated changes in
equity, in which case it is recognised in these statements.
Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws enacted or substantively enacted at
the date of the statement of consolidated financial position together with adjustments to tax payable in respect of previous years.
The tax charge is analysed between tax that is payable in respect of policyholders’ returns and tax that is payable on owners’ returns.
This allocation is calculated based on an assessment of the effective rate of tax that is applicable to owners for the year.
C6.1 Current year tax charge
Current tax:
UK corporation tax
Overseas tax
Adjustment in respect of prior years
Total current tax charge
Deferred tax:
Origination and reversal of temporary differences
Change in the rate of UK corporation tax
Adjustments in respect of prior years
Total deferred tax charge
Total tax charge
Attributable to:
• policyholders
• owners
Total tax charge
2021
£m
2020
£m
(9)
114
105
(66)
39
120
147
(27)
240
279
258
21
279
306
59
365
(4)
361
111
(37)
1
75
436
326
110
436
The Group, as a proxy for policyholders in the UK, is required to pay taxes on investment income and gains each year. Accordingly,
the tax credit or expense attributable to UK life assurance policyholder earnings is included in income tax expense. The tax charge
attributable to policyholder earnings was £258 million (2020: £326 million).
The current tax prior year adjustment relates principally to the utilisation of excess management expenses transferred with the Legal
& General business transfer in 2020. The benefit of the excess management expenses was not recognised in 2020 as discussions
were ongoing with HMRC as to the appropriate tax treatment of the business transfer and associated transactions. Discussions with
HMRC concluded late in 2021 and in accordance with IAS 12 and IFRIC 23 it is now considered appropriate to recognise the benefit
of the excess management expenses. The expenses were utilised in full in the 2020 period reducing the current tax charge in 2020
by £57 million and increasing the utilisation of the capital losses in the company generating a further reduction to the current tax
charge of £9 million, resulting in a prior year tax credit of £66 million in total. This comprises a policyholder tax credit of £79 million
and a shareholder tax charge of £13 million.
C6.2 Tax charged to other comprehensive Income
Current tax charge
Deferred tax charge on defined benefit schemes
2021
£m
1
137
138
2020
£m
12
25
37
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
183
183
Financials
Financials continued
Notes to the consolidated financial statements
Continued
C. Other income statement notes continued
C6. Tax charge continued
C6.3 Tax credited to equity
Current tax credit on Tier 1 Notes
Deferred tax credit on share schemes
C6.4 Reconciliation of tax charge
(Loss)/profit for the year before tax
Policyholder tax charge
(Loss)/profit before the tax attributable to owners
Tax (credit)/charge at standard UK rate of 19%1
Non-taxable income, gains and losses2
Disallowable expenses3
Prior year tax credit for shareholders4
Movement on acquired in-force amortisation at less than 19%
Profits taxed at rates other than 19%5
Recognition of previously unrecognised deferred tax assets6
Deferred tax rate change7
Current year losses not valued
Other
Owners’ tax charge
Policyholder tax charge
Total tax charge for the year
2021
£m
(6)
(1)
(7)
2021
£m
(430)
(258)
(688)
(131)
(10)
19
(7)
34
(22)
(13)
147
1
3
21
258
279
2020
£m
(6)
–
(6)
2020
£m
1,270
(326)
944
179
(78)
9
(17)
77
(10)
(25)
(37)
9
3
110
326
436
1 The Phoenix operating segments are predominantly in the UK. The reconciliation of tax charge has, therefore, been completed by reference to the standard rate of UK tax.
2 The balance primarily relates to the release of provisions no longer required following the resolution of legacy matters with abrdn plc and non-taxable dividends.
3 Disallowable expense deductions are primarily in relation to goodwill impaired in the year and the loss on disposal of Ark Life Assurance Company DAC.
4 The 2021 prior year tax credit recognised in the current period predominately relates to the recognition of a £(17) million deferred tax credit on fair value adjustments on external loans, a £(5) million
current tax credit arising on the release of an overprovision for tax on shareholder profits within Standard Life Assurance Limited and a £13 million charge arising from the shareholder tax impact of the
utilisation of excess management expenses transferred in 2020 with the Legal and General business.
5 Profits taxed at rates other than 19% relates to overseas profits, consolidated fund investments and UK life company profits subject to marginal shareholder tax rates.
6 The 2021 tax credit predominately represents the recognition of tax credits of £(9) million in relation to tax losses, £(2) million in relation to intangible assets within Standard Life International DAC and
£(2) million in relation to capital losses within the ReAssure group.
7 The 2021 deferred tax rate change relates to the impact of the new 25% corporation tax rate effective from 1 April 2023.
184
184
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
D. Equity
D1. Share capital
The Group has issued ordinary shares which are classified as equity. Incremental external costs that are directly attributable to the issue
of these shares are recognised in equity, net of tax.
Issued and fully paid:
999.5 million ordinary shares of £0.10 each (2020: 999.2 million)
2021
£m
2020
£m
100
100
The holders of ordinary shares are entitled to one vote per share on matters to be voted on by owners and to receive such dividends, if
any, as may be declared by the Board of Directors in its discretion out of legally available profits.
Movements in issued share capital during the year:
2021
Shares in issue at 1 January
Ordinary shares issued in the year
Shares in issue at 31 December
Number
999,232,144
303,914
999,536,058
£
99,923,214
30,391
99,953,605
During the year, 303,914 shares were issued at a premium £2 million in order to satisfy obligations to employees under the Group’s
sharesave schemes (see note I1).
2020
Shares in issue at 1 January
Ordinary shares issued to Swiss Re and MS&AD
Other ordinary shares issued in the year
Shares in issue at 31 December
Number
721,514,944
277,277,138
440,062
999,232,144
£
72,151,494
27,727,714
44,006
99,923,214
On 22 July 2020, the Group acquired 100% of the issued share capital of ReAssure Group plc from Swiss Re Finance Midco (Jersey)
Limited, an indirect subsidiary of Swiss Re Limited, for total consideration of £3.1 billion. The consideration consisted of £1.3 billion
of cash, funded through the issuance of debt and own resources, and the issue of 277,277,138 shares (‘the Acquisition Shares’) to
Swiss Re Group on 23 July 2020.
Pursuant to an agreement between Swiss Re Group and MS&AD Insurance Group Holdings (‘MS&AD’), MS&AD transferred its entire
shareholding in ReAssure Group plc to the Swiss Re Group prior to 22 July 2020 in consideration for the transfer of 144,877,304 of
the Acquisition Shares at completion. The equity stake in the Group held by Swiss Re Group and MS&AD was valued at £1,847 million,
based on the share price at that date.
The Group has applied the relief in section 612 of the Companies Act 2006 to present the difference between the consideration
received and the nominal value of the shares issued of £1,819 million in a merger relief reserve as opposed to in share premium. A merger
relief reserve is required to be used as a result of the Group having issued equity shares as part consideration for the shares of ReAssure
Group plc and securing at least a 90% holding in that entity.
During 2020, 440,062 shares were issued at a premium of £2 million in order to satisfy obligations to employees under the Group’s
sharesave schemes (see note I1).
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
185
185
Financials
Financials continued
Notes to the consolidated financial statements
Continued
D. Equity continued
D2. Shares held by the employee benefit trust
Where the Phoenix Group Employee Benefit Trust (‘EBT’) acquires shares in the Company or obtains rights to purchase its shares, the
consideration paid (including any attributable transaction costs, net of tax) is shown as a deduction from owners’ equity. Gains and
losses on sales of shares held by the EBT are charged or credited to the own shares account in equity.
The EBT holds shares to satisfy awards granted to employees under the Group’s share-based payment schemes.
At 1 January
Shares acquired by the EBT
Shares awarded to employees by the EBT
At 31 December
2021
£m
6
16
(10)
12
2020
£m
7
7
(8)
6
During the year 1,490,492 (2020: 1,230,763) shares were awarded to employees by the EBT and 2,423,407 (2020: 1,087,410) shares were
purchased. The number of shares held by the EBT at 31 December 2021 was 1,885,918 (2020: 953,003).
The Company provided the EBT with an interest-free facility arrangement to enable it to purchase the shares.
D3. Other reserves
The other reserves comprise the owner-occupied property revaluation reserve and the cash flow hedging reserve.
Owner-occupied property revaluation reserve
This reserve comprises the revaluation surplus arising on revaluation of owner-occupied property. When a revaluation loss arises on a
previously revalued asset it should be deducted first against the previous revaluation gain. Any excess impairment will then be recorded
as an impairment expense in the consolidated income statement.
Cash flow hedging reserve
Where a cash flow hedging relationship exists, the effective portion of changes in the fair value of derivatives that are designated and
qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging
reserve. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement, and is
reported in net investment income.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the
periods when the hedged item affects profit or loss, in the same line as the recognised hedged item.
Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold,
terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive
income and accumulated in equity at that time is recycled to profit or loss over the period the hedged item impacts profit or loss.
Further details of the Group’s hedge accounting policy are included in note E1.
Owner-
occupied
property
revaluation
reserve
£m
5
–
5
Cash flow
hedging
reserve
£m
Total other
reserves
£m
43
8
51
48
8
56
2021
At 1 January 2021
Other comprehensive income for the year
At 31 December 2021
186
186
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
At 1 January 2020
Other comprehensive income for the year
At 31 December 2020
Owner-
occupied
property
revaluation
reserve
£m
Cash flow
hedging
reserve
£m
Total other
reserves
£m
5
–
5
(7)
50
43
(2)
50
48
In June 2021, the Group entered into four cross currency swaps which were designated as hedging instruments in order to effect cash
flow hedges of the Group’s Euro and US Dollar denominated borrowings. Hedge accounting has been adopted effective from the date
of designation of the hedging relationship.
In April 2020, the Group terminated the derivative instruments which had previously been designated as hedging instruments in its cash
flow hedging relationships. Hedge accounting was discontinued from the point of termination of the derivative instruments. The
remaining cash flow hedging reserve will continue to be reclassified to profit or loss over the remaining term of the hedged items.
D4. Tier 1 notes
The Fixed Rate Reset Perpetual Restricted Tier 1 Contingent Convertible Notes (‘Tier 1 Notes’) meet the definition of equity and
accordingly are shown as a separate category within equity at the proceeds of issue. The coupons on the instruments are recognised as
distributions on the date of payment and are charged directly to the statement of consolidated changes in equity.
Tier 1 Notes
2021
£m
494
2020
£m
494
On 26 April 2018, Old PGH (the Group’s ultimate parent company up to December 2018) issued £500 million of Tier 1 Notes, the
proceeds of which were used to fund a portion of the cash consideration for the acquisition of the Standard Life Assurance businesses.
The Tier 1 Notes bear interest on their principal amount at a fixed rate of 5.75% per annum up to the ‘First Call Date’ of 26 April 2028.
Thereafter the fixed rate of interest will be reset on the First Call Date and on each fifth anniversary of this date by reference to a 5 year
gilt yield plus a margin of 4.169%. Interest is payable on the Tier 1 Notes semi-annually in arrears on 26 October and 26 April. The coupon
paid in the year was £29 million (2020: £29 million).
At the issue date, the Tier 1 Notes were unsecured and subordinated obligations of Old PGH. On 12 December 2018, the Company was
substituted in place of Old PGH as issuer.
The Tier 1 Notes have no fixed maturity date and interest is payable only at the sole and absolute discretion of the Company; accordingly
the Tier 1 Notes meet the definition of equity for financial reporting purposes and are disclosed as such in the consolidated financial
statements. If an interest payment is not made, it is cancelled and it shall not accumulate or be payable at any time thereafter.
The Tier 1 Notes may be redeemed at par on the First Call Date or on any interest payment date thereafter at the option of the Company
and also in other limited circumstances. If such redemption occurs prior to the fifth anniversary of the Issue Date, such redemption must
be funded out of the proceeds of a new issuance of, or exchanged into, Tier 1 Own Funds of the same or a higher quality than the Tier 1
Notes. In respect of any redemption or purchase of the Tier 1 Notes, such redemption or purchase is subject to the receipt of permission
to do so from the PRA.
On 27 October 2020, the terms of the Tier 1 Notes were amended and the consequence of a trigger event, linked to the Solvency II
capital position, was changed. Previously, the Tier 1 Notes were subject to a permanent write-down in value to zero. The amended terms
require that the Tier 1 Notes would automatically be subject to conversion to ordinary shares of the Company at the conversion price of
£1,000 per share, subject to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest
would be cancelled. Following any such conversion there would be no reinstatement of any part of the principal amount of, or interest on,
the Tier 1 Notes at any time.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
187
187
Financials
Financials continued
Notes to the consolidated financial statements
Continued
D. Equity continued
D5. Non-controlling interests
Non-controlling interests are stated at the share of net assets attributed to the non-controlling interest holder at the time of acquisition,
adjusted for the relevant share of subsequent changes in equity.
At 1 January 2021
Profit for the year
Dividends paid
At 31 December 2021
At 1 January 2020
Profit for the year
Dividends paid
At 31 December 2020
SLPET
£m
341
128
(9)
460
SLPET
£m
314
36
(9)
341
The non-controlling interests of £460 million (2020: £341 million) reflects third party ownership of Standard Life Private Equity Trust
(‘SLPET’) determined at the proportionate value of the third party interest in the underlying assets and liabilities. SLPET is a UK Investment
Trust listed and traded on the London Stock Exchange. As at 31 December 2021, the Group held 55.2% of the issued share capital of
SLPET (2020: 55.2%).
The Group’s interest in SLPET is held in the with-profit and unit-linked funds of the Group’s life companies. Therefore, the shareholder
exposure to the results of SLPET is limited to the impact of those results on the shareholder share of distributed profits of the relevant fund.
Summary financial information showing the interest that non-controlling interests have in the Group’s activities and cash flows is
shown below:
2021
£m
2020
£m
452
19
471
11
134
128
128
10
335
9
344
3
41
36
36
(19)
SLPET
Statement of financial position:
Financial assets
Other assets
Total assets
Total liabilities
Income statement:
Net income
Profit after tax
Comprehensive income
Cash flows:
Net increase/(decrease) in cash equivalents
188
188
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
E. Financial assets & liabilities
E1. Fair values
Financial assets
Purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits to purchase or sell
the asset.
Loans and deposits are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market
and only include assets where a security has not been issued. These loans and deposits are initially recognised at cost, being the fair
value of the consideration paid for the acquisition of the investment. All transaction costs directly attributable to the acquisition are also
included in the cost of the investment. Subsequent to initial recognition, these investments are carried at amortised cost, using the
effective interest method.
Derivative financial instruments are largely classified as held for trading. They are recognised initially at fair value and subsequently are
remeasured to fair value. The gain or loss on remeasurement to fair value is recognised in the consolidated income statement. Derivative
financial instruments are not classified as held for trading where they are designated and effective as a hedging instrument. For such
instruments, the timing of the recognition of any gain or loss that arises on remeasurement to fair value in profit or loss depends on the
nature of the hedge relationship.
Equities, debt securities and collective investment schemes are designated at FVTPL and accordingly are stated in the statement of
consolidated financial position at fair value. They are designated at FVTPL because this is reflective of the manner in which the financial
assets are managed and reduces a measurement inconsistency that would otherwise arise with regard to the insurance liabilities that
the assets are backing.
Reinsurers share of investment contracts liabilities without DPF are valued, and associated gains and losses presented, on a basis
consistent with investment contracts liabilities without DPF as detailed under the ‘Financial liabilities’ section below.
Impairment of financial assets
The Group assesses at each period end whether a financial asset or group of financial assets held at amortised cost are impaired.
The Group first assesses whether objective evidence of impairment exists. If it is determined that no objective evidence of impairment
exists for an individually assessed financial asset, the asset is included in a group of financial assets with similar credit risk characteristics
and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is, or continues to be recognised, are not included in the collective assessment of impairment.
Fair value estimation
The fair values of financial instruments traded in active markets such as publicly traded securities and derivatives are based on quoted
market prices at the period end. The quoted market price used for financial assets is the applicable bid price on the period end date.
The fair value of investments that are not traded in an active market is determined using valuation techniques such as broker quotes,
pricing models or discounted cash flow techniques. Where pricing models are used, inputs are based on market related data at the
period end. Where discounted cash flow techniques are used, estimated future cash flows are based on contractual cash flows using
current market conditions and market calibrated discount rates and interest rate assumptions for similar instruments.
For units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published bid-values.
The fair value of receivables and floating rate and overnight deposits with credit institutions is their carrying value. The fair value of fixed
interest-bearing deposits is estimated using discounted cash flow techniques.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
189
189
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E1. Fair values continued
Associates
Investments in associates that are held for investment purposes are accounted for under IAS 39 Financial Instruments: Recognition and
Measurement as permitted by IAS 28 Investments in Associates and Joint Ventures. These are measured at fair value through profit or
loss. There are no investments in associates which are of a strategic nature.
Derecognition of financial assets
A financial asset (or part of a group of similar financial assets) is derecognised where:
• the rights to receive cash flows from the asset have expired;
• the Company retains the right to receive cash flows from the assets, but has assumed an obligation to pay them in full without material
delay to a third party under a ‘pass-through’ arrangement; or
• the Company has transferred its rights to receive cash flows from the asset and has either transferred substantially all the risks and
rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
Financial liabilities
On initial recognition, financial liabilities are recognised when due and measured at the fair value of the consideration received less
directly attributable transaction costs (with the exception of liabilities at FVTPL for which all transaction costs are expensed).
Subsequent to initial recognition, financial liabilities (except for liabilities under investment contracts without DPF and other liabilities
designated at FVTPL) are measured at amortised cost using the effective interest method.
Financial liabilities are designated upon initial recognition at FVTPL and where doing so results in more meaningful information
because either:
• it eliminates or significantly reduces accounting mismatches that would otherwise arise from measuring assets or liabilities or
recognising the gains and losses on them on different bases; or
• a group of financial assets, financial liabilities or both is managed and its performance is evaluated and managed on a fair value basis,
in accordance with a documented risk management or investment strategy, and information about the investments is provided
internally on that basis to the Group’s key management personnel.
Investment contracts without DPF
Contracts under which the transfer of insurance risk to the Group from the policyholder is not significant are classified as investment
contracts and accounted for as financial liabilities.
Receipts and payments on investment contracts without DPF are accounted for using deposit accounting, under which the amounts
collected and paid out are recognised in the statement of consolidated financial position as an adjustment to the liability to the
policyholder.
The valuation of liabilities on unit-linked contracts are held at the fair value of the related assets and liabilities. The liability is the sum of
the unit-linked liabilities plus an additional amount to cover the present value of the excess of future policy costs over future charges.
Movements in the fair value of investment contracts without DPF and reinsurers’ share of investment contract liabilities are included in
the ‘change in investment contract liabilities’ in the consolidated income statement.
Investment contract policyholders are charged for policy administration services, investment management services, surrenders and
other contract fees. These fees are recognised as revenue over the period in which the related services are performed. If the fees are
for services provided in future periods, then they are deferred and recognised over those periods. ‘Front end’ fees are charged on
some non-participating investment contracts. Where the non-participating investment contract is measured at fair value, such fees
which relate to the provision of investment management services are deferred and recognised as the services are provided.
190
190
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Deposits received from reinsurers
It is the Group’s practice to obtain collateral to cover certain reinsurance transactions, usually in the form of cash or marketable
securities. Where cash collateral is available to the Group for investment purposes, it is recognised as a ‘financial asset’ and the collateral
repayable is recognised as ‘deposits received from reinsurers’ in the statement of consolidated financial position. The ‘deposits
received from reinsurers’ are measured at amortised cost.
Net asset value attributable to unitholders
The net asset value attributable to unitholders represents the non-controlling interest in collective investment schemes which are
consolidated by the Group. This interest is classified at FVTPL and measured at fair value, which is equal to the bid value of the number
of units of the collective investment scheme not owned by the Group.
Obligations for repayment of collateral received
It is the Group's practice to obtain collateral in stock lending and derivative transactions, usually in the form of cash or marketable
securities. Where cash collateral received is available to the Group for investment purposes, it is recognised as a 'financial asset' and
the collateral repayable is recognised as 'obligations for repayment of collateral received' in the statement of consolidated financial
position. The 'obligations for repayment of collateral received' are measured at amortised cost, which in the case of cash is equivalent
to the fair value of the consideration received. Further details of the Group's collateral arrangements are included in note E4.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, or cancelled or expires.
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle
the liability simultaneously. When financial assets and liabilities are offset any related interest income and expense is offset in the
income statement.
Hedge accounting
The Group designates certain derivatives as hedging instruments in order to effect cash flow hedges. At the inception of the hedge
relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on
an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash
flows of the hedged item attributable to the hedged risk.
Where a cash flow hedging relationship exists, the effective portion of changes in the fair value of derivatives that are designated
and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow
hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in net
investment income.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the
periods when the hedged item affects profit or loss, in the same line as the recognised hedged item.
Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold,
terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive
income and accumulated in equity at that time is recycled to profit or loss over the period the hedged item impacts profit or loss.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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191
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E1. Fair values continued
E1.1 Fair values analysis
The table below sets out a comparison of the carrying amounts and fair values of financial instruments as at 31 December 2021:
2021
Financial assets
Financial assets at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Equities1
Investment in associate (see note H4)1
Debt securities
Collective investment schemes1
Reinsurers’ share of investment contract liabilities1
Financial assets measured at amortised cost:
Loans and deposits
Total financial assets
Less amounts classified as financial assets held for sale (see note A6.1)2
Total financial assets less financial assets classified as held for sale
Financial liabilities
Financial liabilities at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Borrowings
Net asset value attributable to unitholders1
Investment contract liabilities1
Financial liabilities measured at amortised cost:
Borrowings
Deposits received from reinsurers
Obligations for repayment of collateral received
Total financial liabilities
Less amounts classified as financial liabilities held for sale3
Total financial liabilities less financial liabilities held for sale
Carrying value
Amounts
due for
settlement
after 12
months
£m
Total
£m
Fair value
£m
4,571
3,208
4,571
87,059
431
–
–
87,059
431
106,990
88,965
106,990
90,164
10,009
–
–
90,164
10,009
475
48
475
299,699
(6,507)
293,192
299,699
(6,507)
293,192
Carrying value
Amounts
due for
settlement
after 12
months
£m
Total
£m
Fair value
£m
1,252
989
1,252
70
3,568
172,093
4,155
3,569
3,442
188,149
(11,680)
176,469
70
–
–
70
3,568
172,093
3,688
3,150
–
4,564
3,569
3,442
188,558
(11,680)
176,878
1 These assets and liabilities have no specified settlement date.
2 Amounts classified as financial assets held for sale include derivatives of £4 million, equities of £78 million, debt securities of £2,229 million, collective investment schemes of £4,169 million and reinsurers’
share of investment contract liabilities of £27 million.
3 Amounts classified as financial liabilities held for sale include derivative liabilities of £4 million and investment contract liabilities of £11,676 million.
192
192
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Financials continued
2020
Financial assets
Financial assets at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Equities1
Investment in associate (see note H4)1
Debt securities
Collective investment schemes1
Reinsurers' share of investment contract liabilities1
Financial assets measured at amortised cost:
Loans and deposits
Total financial assets
Financial liabilities
Financial liabilities at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Borrowings
Net asset value attributable to unitholders1
Investment contract liabilities1
Financial liabilities measured at amortised cost:
Borrowings
Deposits received from reinsurers
Obligations for repayment of collateral received
Total financial liabilities
1 These assets and liabilities have no specified settlement date.
Carrying value
Amounts
due for
settlement
after 12
months
£m
Total
£m
Fair value
£m
6,880
6,429
6,880
82,634
400
–
–
82,634
400
109,455
94,070
109,455
89,248
9,559
–
–
89,248
9,559
647
60
647
298,823
298,823
Carrying value
Amounts
due for
settlement
after 12
months
£m
Total
£m
Fair value
£m
1,001
727
1,001
84
3,791
165,106
4,483
4,080
5,205
183,750
84
–
–
4,161
3,381
–
84
3,791
165,106
5,016
4,080
5,205
184,283
Phoenix Group Holdings plc Annual Report and Accounts 2021
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193
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E1. Fair values continued
E1.2 IFRS 9 Temporary exemption disclosures
Following application of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts from applying IFRS 9 Financial
Instruments (see note A5) the table below separately identifies financial assets with contractual cash flows that are solely payments of
principal and interest (‘SPPI’) (excluding those held for trading or managed on a fair value basis) and all other financial assets, measured
at fair value through profit or loss.
Financial assets with contractual cash flows that are SPPI excluding those held for trading or managed on a fair value basis:
Loans and deposits
Cash and cash equivalents1
Accrued income
Other receivables2
All other financial assets that are measured at fair value through profit or loss3
2021
£m
2020
£m
475
9,112
282
1,697
647
10,998
251
1,541
292,717
298,176
1 Cash and cash equivalents excludes assets classified as held for sale of £76 million (2020: £nil).
2 Other receivables excludes deferred acquisition costs.
3 The change in fair value during 2021 of all other financial assets that are measured at fair value through profit or loss is a £5,881 million gain (2020: £11,087 million gain). The balance excludes
£6,507 million (2020: £nil) of financial assets that are measured at fair value through profit or loss classified as held for sale.
An analysis of credit ratings of financial assets with contractual cash flows that are SPPI, excluding those held for trading or managed on
a fair value basis, is provided below:
BB and
below
£m
Non-rated1
£m
Unit-linked
£m
2021
Carrying value
Loans and deposits
Cash and cash
equivalents
Accrued income
Other receivables
AAA
£m
–
AA
£m
6
A
£m
–
382
1,686
5,161
–
–
–
–
–
–
382
1,692
5,161
2020
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
AAA
£m
–
30
–
–
30
1 The Group has assessed its non-rated assets as having a low credit risk.
BBB
£m
–
181
–
–
181
AA
£m
6
–
–
–
–
–
A
£m
195
414
3
282
1,697
2,396
BBB
£m
–
173
–
–
173
1,728
7,049
–
–
–
–
1,734
7,244
Less amounts
classified as
held for sale
(see note
A6.1)
£m
–
(76)
–
–
Total
£m
475
9,188
282
1,697
Total
£m
475
9,112
282
1,697
55
1,775
–
–
1,830
11,642
(76)
11,566
BB and
below
£m
Non-rated1
£m
Unit-linked
£m
–
–
–
–
–
368
10
251
1,541
2,170
Total
£m
647
78
2,008
10,998
–
–
251
1,541
2,086
13,437
194
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
E2. Fair value hierarchy
E2.1 Determination of fair value and fair value hierarchy of financial instruments
Level 1 financial instruments
The fair value of financial instruments traded in active markets (such as exchange traded securities and derivatives) is based on quoted
market prices at the period end provided by recognised pricing services. Market depth and bid-ask spreads are used to corroborate
whether an active market exists for an instrument. Greater depth and narrower bid-ask spread indicate higher liquidity in the instrument
and are classed as Level 1 inputs. For collective investment schemes, fair value is by reference to published bid prices.
Level 2 financial instruments
Financial instruments traded in active markets with less depth or wider bid-ask spreads which do not meet the classification as Level 1
inputs, are classified as Level 2. The fair values of financial instruments not traded in active markets are determined using broker quotes
or valuation techniques with observable market inputs. Financial instruments valued using broker quotes are classified as Level 2, only
where there is a sufficient range of available quotes. The fair value of over the counter derivatives is estimated using pricing models or
discounted cash flow techniques. Collective investment schemes where the underlying assets are not priced using active market prices
are determined to be Level 2 instruments. Where pricing models are used, inputs are based on market related data at the period end.
Where discounted cash flows are used, estimated future cash flows are based on management’s best estimates and the discount rate
used is a market related rate for a similar instrument.
Level 3 financial instruments
The Group’s financial instruments determined by valuation techniques using non-observable market inputs are based on a combination
of independent third party evidence and internally developed models. In relation to investments in hedge funds and private equity
investments, non-observable third party evidence in the form of net asset valuation statements is used as the basis for the valuation.
Adjustments may be made to the net asset valuation where other evidence, for example recent sales of the underlying investments in
the fund, indicates this is required. Securities that are valued using broker quotes which could not be corroborated across a sufficient
range of quotes are considered as Level 3. For a small number of investment vehicles and debt securities, standard valuation models are
used, as due to their nature and complexity they have no external market. Inputs into such models are based on observable market data
where applicable. The fair value of loans, derivatives and some borrowings with no external market is determined by internally
developed discounted cash flow models using appropriate assumptions corroborated with external market data where possible.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) during each reporting period.
Fair value hierarchy information for non-financial assets measured at fair value is included in note G3 for owner-occupied property and in
note G4 for investment property.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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195
195
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E2. Fair value hierarchy continued
E2.2 Fair value hierarchy of financial instruments
The tables below separately identify financial instruments carried at fair value from those measured on another basis but for which fair
value is disclosed.
2021
Financial assets measured at fair value
Derivatives
Financial assets designated at FVTPL upon initial recognition:
Equities
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
Total financial assets measured at fair value
Less amounts classified as held for sale (see note A6.1)
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
161
4,173
237
4,571
85,108
431
57,992
86,244
10,009
52
–
1,899
87,059
–
431
36,546
12,452
106,990
3,634
–
286
90,164
–
10,009
239,784
40,232
14,637
294,653
239,945
44,405
14,874
299,224
(5,194)
(421)
(892)
(6,507)
Total financial assets measured at fair value, excluding amounts classified as held for sale
234,751
43,984
13,982
292,717
Financial assets for which fair values are disclosed
Loans and deposits at amortised cost
2021
Financial liabilities measured at fair value
Derivatives
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings
Net asset value attributable to unit-holders
Investment contract liabilities
Total financial liabilities measured at fair value
Less amounts classified as held for sale (see note A6.1)
–
464
11
475
234,751
44,448
13,993
293,192
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
155
972
125
1,252
–
3,568
–
–
–
172,093
3,568
172,093
3,723
173,065
–
(11,680)
70
–
–
70
195
–
70
3,568
172,093
175,731
176,983
(11,680)
Total financial liabilities measured at fair value, excluding amounts classified as held for sale
3,723
161,385
195
165,303
Financial liabilities for which fair values are disclosed
Borrowings at amortised cost
Deposits received from reinsurers
Obligations for repayment of collateral received
Total financial liabilities for which fair values are disclosed
–
–
–
–
4,564
3,484
3,442
11,490
–
85
–
85
4,564
3,569
3,442
11,575
3,723
172,875
280
176,878
196
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
Financial assets measured at fair value
Derivatives
Financial assets designated at FVTPL upon initial recognition:
Equities
Investment in associate
Debt securities
Collective investment schemes
Reinsurers' share of investment contract liabilities
Total financial assets measured at fair value
Financial assets for which fair values are disclosed
Loans and deposits at amortised cost
2020
Financial liabilities measured at fair value
Derivatives
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings
Net asset value attributable to unitholders
Investment contract liabilities
Total financial liabilities measured at fair value
Financial liabilities for which fair values are disclosed
Borrowings at amortised cost
Deposits received from reinsurers
Obligations for repayment of collateral received
Total financial liabilities for which fair values are disclosed
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
320
6,362
198
6,880
81,024
400
74,043
86,677
8,962
47
–
1,563
82,634
–
400
25,248
10,164
109,455
2,170
597
401
–
89,248
9,559
251,106
28,062
12,128
291,296
251,426
34,424
12,326
298,176
–
632
15
647
251,426
35,056
12,341
298,823
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
119
720
162
1,001
–
3,791
–
–
–
165,106
3,791
3,910
165,106
165,826
–
–
–
–
4,812
3,983
5,205
14,000
3,910
179,826
84
–
–
84
246
204
97
–
301
547
84
3,791
165,106
168,981
169,982
5,016
4,080
5,205
14,301
184,283
E2.3 Level 3 financial instrument sensitivities
Level 3 investments in equities (including private equity and unlisted property investment vehicles) and collective investment schemes
(including hedge funds) are valued using net asset statements provided by independent third parties, and therefore no sensitivity analysis
has been prepared.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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197
197
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E2. Fair value hierarchy continued
E2.3 Level 3 financial instrument sensitivities continued
E2.3.1 Debt securities
Analysis of Level 3 debt securities
Unquoted corporate bonds:
Local authority loans
Private placements
Loans guaranteed by export credit agencies
Infrastructure loans
Equity release mortgages
Commercial real estate loans
Income strips
Bridging loans to private equity funds
Corporate transactions
Other
Total Level 3 debt securities
Less amounts classified as held for sale
Total Level 3 debt securities excluding amounts classified as held for sale
2021
£m
2020
£m
917
3,120
159
1,491
4,214
1,317
886
339
–
9
646
2,297
54
1,564
3,484
1,075
692
320
29
3
12,452
10,164
(892)
–
11,560
10,164
The Group holds unquoted corporate bonds comprising investments in local authority loans, loans guaranteed by export credit agencies,
private placements and infrastructure loans with a total value of £5,687 million (2020: £4,561 million). These unquoted corporate bonds
are secured on various assets and are valued using a discounted cash flow model. The discount rate is made up of a risk-free rate and
a spread. The risk-free rate is taken from an appropriate gilt of comparable duration. The spread is taken from a basket of comparable
securities. The valuations are sensitive to movements in this spread. An increase of 65bps would decrease the value by £468 million
(an increase of 35bps in 2020: £246 million) and a decrease of 65bps would increase the value by £513 million (a decrease of 35bps
in 2020: £190 million).
During 2020, as a result of the effects of the COVID-19 pandemic, the credit ratings for a small number of unquoted corporate bonds
were downgraded and the impacts of this were reflected in the fair values at 31 December 2021 and 31 December 2020. There remains
some ongoing uncertainty in respect of the credit ratings for unquoted corporate bonds and commercial real estate loans. Internal review
processes are in place to closely monitor credit ratings and additional reviews are carried out as required, for example when triggered by
credit performance or market factors. The financial impact of reasonable movements in spreads has been quantified above.
Included within debt securities are investments in equity release mortgages with a value of £4,214 million (2020: £3,484 million). The loans
are valued using a discounted cash flow model and a Black-Scholes model for valuation of the No-Negative Equity Guarantee (‘NNEG’).
The NNEG caps the loan repayment in the event of death or entry into long-term care to be no greater than the sales proceeds from
the property.
The future cash flows are estimated based on assumed levels of mortality derived from published mortality tables, entry into long-term
care rates and voluntary redemption rates. Cash flows include an allowance for the expected cost of providing a NNEG assessed under
a real world approach using a closed form model including an assumed level of property value volatility. For the NNEG assessment,
property values are indexed from the latest property valuation point and then assumed to grow in line with an RPI based assumption.
Cash flows are discounted using a risk-free curve plus a spread, where the spread is based on recent originations, with margins to allow
for the different risk profiles of Equity Release Mortgage (‘ERM’) loans.
Considering the fair valuation uses certain inputs that are not market observable, the fair value measurement of these loans has been
categorised as a Level 3 fair value. The key non-market observable input is the voluntary redemption rate, for which the assumption
varies by the origin, age and loan to value ratio of each portfolio. Experience analysis is used to inform this assumption, however where
experience is limited for more recently originated loans, significant expert judgement is required.
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Financials continued
The significant sensitivities arise from movements in the yield curve, inflation rate, house prices, mortality and voluntary redemption rate.
An increase of 100bps in the yield curve would decrease the value by £443 million (2020: £351 million) and a decrease of 100bps would
increase the value by £512 million (2020: £397 million). An increase of 1% in the inflation rate would increase the value by £26 million
(2020: £29 million) and a decrease of 1% would decrease the value by £43 million (2020: £48 million).
E2.3.1 Debt securities continued
An increase of 10% in house prices would increase the value by £13 million (2020: £16 million) and a decrease of 10% would decrease
the value by £23 million (2020: £26 million). An increase of 5% in mortality would decrease the value by £10 million (2020: £11 million)
and a decrease of 5% in mortality would increase the value by £9 million (2020: £7 million). An increase of 15% in the voluntary
redemption rate would decrease the value by £22 million (2020: £24 million) and a decrease of 15% in the voluntary redemption rate
would increase the value by £23 million (2020: £22 million).
The Group also holds investments in commercial real estate loans with a value of £1,317 million (2020: £1,075 million). The loans are
valued using a model which discounts the expected projected future cash flows at the risk-free rate plus a spread derived from a basket
of comparable securities. The valuation is sensitive to changes in the discount rate. An increase of 65bps in the discount rate would
decrease the value by £24 million (an increase of 35bps in 2020: £15 million) and a decrease of 65bps would increase the value by
£24 million (a decrease of 35bps in 2020: £16 million).
Also included within debt securities are income strips with a value of £886 million (2020: £692 million). Income strips are transactions
where an owner-occupier of a property has sold a freehold or long leasehold interest to the Group, and has signed a long lease
(typically 30-45 years) or a ground lease (typically 45-175 years) and retains the right to repurchase the property at the end of the lease
for a nominal sum (usually £1). The income strips are valued using an income capitalisation approach, where the annual rental income
is capitalised using an appropriate yield. The yield is determined by considering recent transactions involving similar income strips.
The valuation is sensitive to movements in yield. An increase of 35bps would decrease the value by £94 million (2020: £68 million)
and a decrease of 35bps would increase the value by £121 million (2020: £86 million).
E2.3.2 Borrowings
Included within borrowings measured at fair value and categorised as Level 3 financial liabilities are property reversion loans with a value
of £70 million (2020: £84 million), measured using an internally developed model. The valuation is sensitive to the key assumption of the
discount rate. An increase in the discount rate of 1% would decrease the value by £1 million (2020: £1 million) and a decrease of 1% would
increase the value by £1 million (2020: £1 million).
E2.3.3 Longevity swap contracts
Included within derivative assets and derivative liabilities are longevity swap contracts with corporate pension schemes with a fair value of
£230 million (2020: £155 million) and £49 million (2020: £85 million) respectively. These derivatives are valued on a discounted cash flow
basis, key inputs to which are the interest rate swap curve and RPI and CPI inflation rates.
An increase of 100bps in the swap curve would decrease the net value by £28 million (2020: £15 million) and a decrease of 100bps would
increase the net value by £35 million (2020: £17 million). An increase of 1% in the RPI and CPI inflation rates would increase the value by
£8 million (2020: £11 million) and a decrease of 1% would decrease the value by £8 million (2020: £12 million).
E2.3.4 Derivatives
Included within derivative assets are forward local authority loans, forward private placements and forward infrastructure loans with
a value of £7 million (2020: £43 million). These investments include a commitment to acquire or provide funding for fixed rate debt
instruments at specified future dates. These investments are valued using a discounted cash flow model that takes a comparable UK
Treasury stock and applies a credit spread to reflect reduced liquidity. The credit spreads are derived from a basket of comparable
securities. The valuations are sensitive to movements in this spread. An increase of 65bps would decrease the value by £25 million
(an increase of 35bps in 2020: £19 million) and a decrease of 65bps would increase the value by £27 million (a decrease of 35bps in
2020: £20 million).
Also included within derivative liabilities is the Equity Release Income Plan (‘ERIP’) total return swap with a value of £67 million
(2020: £75 million), under which a share of the disposal proceeds arising on a portfolio of property reversions is payable to a third party
(see note E.3.3 for further details). The carrying value of the financial liability is the discounted present value of the relevant share of all
future property sales that will be passed to the counterparty as part of the swap arrangement. The valuation is sensitive to the discount
rate applied. An increase of 1% in the discount rate would decrease the value by £2 million (2020: £3 million) and a decrease of 1% in the
discount rate would increase the value by £2 million (2020: £3 million).
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
199
199
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E2. Fair value hierarchy continued
E2.4 Transfers of financial instruments between Level 1 and Level 2
2021
Financial assets measured at fair value
Derivatives
Financial assets designated at FVTPL upon initial recognition:
Equities
Debt securities
Collective investment schemes
Total financial assets measured at fair value
2020
Financial assets measured at fair value
Financial assets designated at FVTPL upon initial recognition:
Debt securities
Collective investment schemes
From
Level 1 to
Level 2
£m
From
Level 2 to
Level 1
£m
51
33
1,742
32
1,807
1,858
–
17
1,006
42
1,065
1,065
From
Level 1 to
Level 2
£m
From
Level 2 to
Level 1
£m
492
1
10,174
–
Consistent with the prior year, all the Group’s Level 1 and Level 2 assets have been valued using standard market pricing sources.
The application of the Group’s fair value hierarchy classification methodology at an individual security level, in particular observations
with regard to measures of market depth and bid-ask spreads, resulted in an overall net movement of debt securities from Level 1 to
Level 2 in the current period.
In the prior period, there was an overall net movement of financial assets from Level 2 to Level 1 and this movement was the result of an
exercise to harmonise the approach to determining the fair value hierarchy for Level 1 and Level 2 debt securities across the Group. The
methodology was updated to consistently use spread data and trade volume data to determine the activeness of the market. This resulted
in assets being moved from Level 2 to Level 1, and from Level 1 to Level 2.
E2.5 Movement in Level 3 financial instruments measured at fair value
2021
Financial assets
Derivatives
Financial assets designated at FVTPL upon
initial recognition:
Equities
Debt securities
Collective investment schemes
At
1 January
2021
£m
Net
(losses)/gains
in income
statement
£m
Purchases
£m
Sales
£m
Transfers
from Level 1
and Level 2
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
20211
£m
Unrealised
(losses)/gains
on assets
held at end of
period
£m
198
(74)
113
–
–
–
237
(82)
1,563
10,164
401
12,128
436
88
(70)
454
269
6,394
34
(368)
(4,210)
(94)
6,697
(4,672)
–
26
15
41
41
(1)
(10)
–
(11)
1,899
12,452
286
14,637
278
115
22
415
(11)
14,874
333
Total financial assets
12,326
380
6,810
(4,672)
1 Total financial assets of £14,874 million includes £892 million of assets classified as held for sale.
200
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2021
Financial liabilities
Derivatives
At
1 January
2021
£m
Net
(gains)/losses
in income
statement
£m
162
(19)
Financial liabilities designated at FVTPL upon
initial recognition:
Borrowings
Total financial liabilities
84
246
4
(15)
Purchases
£m
Sales/
repayments
£m
Transfers
from Level 1
and Level 2
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
2021
£m
Unrealised
(gains)/losses
on liabilities
held at end of
period
£m
–
–
–
(18)
(18)
(36)
–
–
–
–
–
–
125
(29)
70
195
5
(24)
At
1 January
2020
£m
Net
gains/(losses)
in income
statement
£m
Effect of
acquisitions/
purchases
£m
Transfers
from Level 1
and Level 2
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
2020
£m
Sales
£m
Unrealised
gains/(losses)
on assets held
at end of
period
£m
175
23
–
–
–
–
198
36
2020
Financial assets
Derivatives
Financial assets designated at FVTPL upon
initial recognition:
Equities
Debt securities
Collective investment schemes
1,596
6,026
646
8,268
113
432
(161)
384
213
6,301
1
(361)
(2,635)
(85)
6,515
(3,081)
2
63
–
65
65
–
(23)
–
(23)
1,563
10,164
401
12,128
44
471
(100)
415
(23)
12,326
451
Total financial assets
8,443
407
6,515
(3,081)
2020
Financial liabilities
Derivatives
Financial liabilities designated at FVTPL upon
initial recognition:
Borrowings
Total financial liabilities
At
1 January
2020
£m
Net gains in
income
statement
Effect of
acquisitions/
purchases
£m
Sales/Repay
ments
£m
Transfers
from Level 1
and Level 2
£m
Transfers to
Level 1
and Level 2
£m
31 December
2020
£m
At
Unrealised
losses on
liabilities held
at end of
period
£m
74
99
173
17
4
21
78
–
78
(7)
(19)
(26)
–
–
–
–
–
–
162
84
246
13
4
17
Gains and losses on Level 3 financial instruments are included in net investment income in the consolidated income statement.
There were no gains or losses recognised in other comprehensive income in either the current or comparative period.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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201
201
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E3. Derivatives
The Group purchases derivative financial instruments principally in connection with the management of its insurance contract
and investment contract liabilities based on the principles of reduction of risk and efficient portfolio management. The Group
does not typically hold derivatives for the purpose of selling or repurchasing in the near term or with the objective of generating
a profit from short-term fluctuations in price or margin. The Group also holds derivatives to hedge financial liabilities denominated
in foreign currency.
Derivative financial instruments are largely classified as held for trading. Such instruments are recognised initially at fair value and are
subsequently remeasured to fair value. The gain or loss on remeasurement to fair value is recognised in the consolidated income
statement. Derivative financial instruments are not classified as held for trading where they are designated as a hedging instrument
and where the resultant hedge is assessed as effective. For such instruments, any gain or loss that arises on remeasurement to fair value
is initially recognised in other comprehensive income and is recycled to profit or loss as the hedged item impacts the profit or loss.
See note E1 for further details of the Group’s hedging accounting policy.
E3.1 Summary
The fair values of derivative financial instruments are as follows:
Forward currency
Credit default swaps
Contracts for difference
Interest rate swaps
Total return bond swaps
Swaptions
Inflation swaps
Equity options
Stock index futures
Fixed income futures
Retrocession contracts
Longevity swap contracts
Currency futures
Cross-currency swaps
Equity Release Income Plan total return swap
Less amounts classified as held for sale (see note A6.1)
Assets
2021
£m
Liabilities
2021
£m
180
63
8
1,509
3
1,722
232
408
41
46
–
230
7
122
–
58
39
2
506
–
11
98
254
122
33
–
49
1
12
67
Assets
2020
£m
286
108
7
2,754
52
2,643
59
543
53
63
–
155
1
156
–
4,571
1,252
6,880
(4)
(4)
–
4,567
1,248
6,880
Liabilities
2020
£m
134
13
4
98
–
27
132
322
90
20
1
85
–
–
75
1,001
–
1,001
E3.2 Corporate transactions
The Group has in place longevity swap arrangements with corporate pension schemes which do not meet the definition of insurance
contracts under the Group’s accounting policies. Under these arrangements the majority of the longevity risk has been passed to third
parties. Derivative assets of £230 million and derivative liabilities of £49 million have been recognised as at 31 December 2021 (2020:
£155 million and £85 million respectively).
E3.3 Equity Release Income Plan ('ERIP') total return swap
ERIP contracts are an equity release product under which the Group holds a reversionary interest in the residential property of
policyholders who have been provided with a lifetime annuity in return for the legal title to their property (see note G4). The Group is
party to an ERIP total return swap under which a share of the future generated cash flows arising under the ERIP contracts is payable to a
third party. Over time, as the property reversions are realised, the relevant share of disposal proceeds is transferred to a third party who
also holds a beneficial interest in these residential properties. The carrying amount of the derivative liability is the present value of all
future cash flows due to the third party under the total return swap.
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Financials continued
E4. Collateral arrangements
The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lending transactions, derivative
contracts and reinsurance arrangements in order to reduce the credit risk of these transactions. The amount and type of collateral
required where the Group receives collateral depends on an assessment of the credit risk of the counterparty, but is usually in the form
of cash and marketable securities.
Collateral received in the form of cash, where the Group has contractual rights to receive the cash flows generated and is available
to the Group for investment purposes, is recognised as a financial asset in the statement of consolidated financial position with a
corresponding financial liability for its repayment. Non-cash collateral received is not recognised in the statement of consolidated
financial position, unless the counterparty defaults on its obligations under the relevant agreement.
Non-cash collateral pledged where the Group retains the contractual rights to receive the cash flows generated is not derecognised
from the statement of consolidated financial position, unless the Group defaults on its obligations under the relevant agreement.
Cash collateral pledged, where the counterparty has contractual rights to receive the cash flows generated, is derecognised from the
statement of consolidated financial position and a corresponding receivable is recognised for its return.
E4.1 Financial instrument collateral arrangements
The Group has no financial assets and financial liabilities that have been offset in the statement of consolidated financial position as at
31 December 2021 (2020: none).
The table below contains disclosures related to financial assets and financial liabilities recognised in the statement of consolidated
financial position that are subject to enforceable master netting arrangements or similar agreements. Such agreements do not meet the
criteria for offsetting in the statement of consolidated financial position as the Group has no current legally enforceable right to offset
recognised financial instruments. Furthermore, certain related assets received as collateral under the netting arrangements will not be
recognised in the statement of consolidated financial position as the Group does not have permission to sell or re-pledge, except in the
case of default. Details of the Group’s collateral arrangements in respect of these recognised assets and liabilities are provided below.
2021
Financial assets
OTC derivatives
Exchange traded derivatives
Stock lending
Total
Financial liabilities
OTC derivatives
Exchange traded derivatives
Total
Related amounts not offset
Gross and net
amounts of
recognised
financial assets
£m
Financial
instruments
and cash
collateral
received
£m
4,394
177
1,587
6,158
3,600
5
1,587
5,192
Derivative
liabilities
£m
Net
amount
£m
487
6
–
493
307
166
–
473
Related amounts not offset
Gross and net
amounts of
recognised
financial liabilities
£m
Financial
instruments
and cash
collateral
pledged
£m
1,096
156
1,252
319
24
343
Derivative
assets
£m
487
6
493
Net
amount
£m
290
126
416
Phoenix Group Holdings plc Annual Report and Accounts 2021
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203
203
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E4. Collateral arrangements continued
E4.1 Financial instrument collateral arrangements continued
2020
Financial assets
OTC derivatives
Exchange traded derivatives
Stock lending
Total
Financial liabilities
OTC derivatives
Exchange traded derivatives
Total
Related amounts not offset
Gross and net
amounts of
recognised
financial assets
£m
Financial
instruments
and cash
collateral
received
£m
6,523
357
2,435
9,315
5,389
9
2,435
7,833
Derivative
liabilities
£m
219
17
–
236
Related amounts not offset
Gross and net
amounts of
recognised
financial liabilities
£m
886
115
1,001
Financial
instruments
and cash
collateral
pledged
£m
328
31
359
Derivative
assets
£m
219
17
236
Net
amount
£m
915
331
–
1,246
Net
amount
£m
339
67
406
E4.2 Derivative collateral arrangements
Assets accepted
It is the Group’s practice to obtain collateral to mitigate the counterparty risk related to over-the-counter (‘OTC’) derivatives usually in the
form of cash or marketable financial instruments.
The fair value of financial assets accepted as collateral for OTC derivatives but not recognised in the statement of consolidated financial
position amounts to £945 million (2020: £885 million).
The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2021 are set out below.
Financial assets
Financial liabilities
OTC derivatives
2021
£m
3,442
2020
£m
5,205
(3,442)
(5,205)
The maximum exposure to credit risk in respect of OTC derivative assets is £4,394 million (2020: £6,523 million) of which credit risk of
£4,087 million (2020: £5,608 million) is mitigated by use of collateral arrangements (which are settled net after taking account of any
OTC derivative liabilities owed to the counterparty).
Credit risk on exchange traded derivative assets of £177 million (2020: £357 million) is mitigated through regular margining and the
protection offered by the exchange.
Assets pledged
The Group pledges collateral in respect of its OTC derivative liabilities. The value of assets pledged at 31 December 2021 in respect of
OTC derivative liabilities of £1,096 million (2020: £886 million) amounted to £942 million (2020: £1,216 million).
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Financials continued
E4.3 Stock lending collateral arrangements
The Group lends listed financial assets held in its investment portfolio to other institutions.
The Group conducts stock lending only with well-established, reputable institutions in accordance with established market conventions.
The financial assets do not qualify for derecognition as the Group retains all the risks and rewards of the transferred assets except for the
voting rights.
It is the Group’s practice to obtain collateral in stock lending transactions, usually in the form of cash or marketable financial instruments.
The fair value of financial assets accepted as such collateral but not recognised in the statement of consolidated financial position
amounts to £1,749 million (2020: £2,686 million).
The maximum exposure to credit risk in respect of stock lending transactions is £1,587 million (2020: £2,435 million) of which credit risk
of £1,587 million (2020: £2,435 million) is mitigated through the use of collateral arrangements.
E4.4 Other collateral arrangements
Details of collateral received to mitigate the counterparty risk arising from the Group’s reinsurance transactions is given in note F3.
Collateral has also been pledged and charges have been granted in respect of certain Group borrowings. The details of these
arrangements are set out in note E5.
E5. Borrowings
The Group classifies the majority of its interest bearing borrowings as financial liabilities carried at amortised cost and these are
recognised initially at fair value less any attributable transaction costs. The difference between initial cost and the redemption value is
amortised through the consolidated income statement over the period of the borrowing using the effective interest method.
Certain borrowings are designated upon initial recognition at fair value through profit or loss and measured at fair value where doing so
provides more meaningful information due to the reasons stated in the financial liabilities accounting policy (see note E1). Transaction
costs relating to borrowings designated upon initial recognition at fair value through profit or loss are expensed as incurred.
Borrowings are classified as either policyholder or shareholder borrowings. Policyholder borrowings are those borrowings where there
is either no or limited shareholder exposure, for example, borrowings attributable to the Group’s with-profit operations.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
205
205
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E5. Borrowings continued
E5.1 Analysis of borrowings
£200 million multi-currency revolving credit facility (note a)
Property reversions loan (note b)
Total policyholder borrowings
£200 million 7.25% unsecured subordinated loan (note c)
£300 million senior unsecured bond (note d)
£428 million Tier 2 subordinated notes (note e)
£450 million Tier 3 subordinated notes (note f)
US $500 million Tier 2 bonds (note g)
€500 million Tier 2 bonds (note h)
US $750 million Contingent Convertible Tier 1 notes (note i)
£500 million Tier 2 notes (note j)
US $500 million Fixed Rate Reset Tier 2 notes (note k)
£500 million 5.867% Tier 2 subordinated notes (note l)
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note m)
£250 million 4.016% Tier 3 subordinated notes (note n)
Total shareholder borrowings
Carrying value
Fair value
2021
£m
17
70
87
–
–
427
450
368
416
551
485
368
550
266
257
2020
£m
–
84
84
200
122
426
449
364
442
545
484
364
556
272
259
2021
£m
17
70
87
–
–
498
457
408
490
581
593
389
598
269
264
2020
£m
–
84
84
204
125
517
470
416
516
585
622
395
620
280
266
4,138
4,483
4,547
5,016
Total borrowings
4,225
4,567
4,634
5,100
Amount due for settlement after 12 months
3,758
4,245
a. Standard Life Private Equity Trust has in place a £200 million syndicated multi-currency revolving credit facility of which £17 million
(2020: £nil) had been drawn down as at 31 December 2021. The facility expires on 6 December 2024. Interest accrues on this facility
at a margin over the reference rate of the currency drawn.
b. The Property Reversions loan from Santander UK plc (‘Santander’) was recognised in the consolidated financial statements at fair
value. It relates to the sale of Extra-Income Plan policies that Santander finances to the value of the associated property reversions.
As part of the arrangement Santander receive an amount calculated by reference to the movement in the Halifax House Price
Index and the Group is required to indemnify Santander against profits or losses arising from mortality or surrender experience
which differs from the basis used to calculate the reversion amount. During 2021, repayments totalling £18 million were made
(2020: £19 million). Note G4 contains details of the assets that support this loan.
c. Scottish Mutual Assurance Limited issued £200 million 7.25% undated, unsecured subordinated loan notes on 23 July 2001
(‘PLL subordinated debt’). With effect from 1 January 2009, following a Part VII transfer, these loan notes were transferred into
the shareholder fund of PLL. On 25 March 2021, PLL redeemed this subordinated debt in full. The notes were redeemed at their
principal amount together with interest accrued to the repayment date.
d. On 7 July 2014, the Group’s financing subsidiary, PGH Capital plc (‘PGHC’), issued a £300 million 7 year senior unsecured bond at
an annual coupon rate of 5.75% (‘£300 million senior bond’). On 20 March 2017, Old PGH (the Group’s ultimate parent company up
to December 2018) was substituted in place of PGHC as issuer of the £300 million senior bond. On 5 May 2017, Old PGH completed
the purchase of £178 million of the £300 million senior bond at a premium of £25 million in excess of the principal amount and
accrued interest on the purchased bonds was settled on this date. On 18 June 2019, the Company was substituted in place of Old
PGH as issuer of the £300 million senior bond. On 7 July 2021, the senior bond matured and the £122 million outstanding balance
was repaid in full along with the final coupon of £7 million.
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Financials continued
e. On 23 January 2015, PGHC issued £428 million of subordinated notes due 2025 at a coupon of 6.625%. Fees associated with
these notes of £3 million were deferred and are being amortised over the life of the notes in the statement of consolidated
financial position. Upon exchange £32 million of these notes were held by Group companies. On 27 January 2017, £17 million of
the £428 million subordinated notes held by Group companies were sold to third parties and a further £15 million were sold to third
parties on 31 January 2017, thereby increasing external borrowings by £32 million. On 20 March 2017, Old PGH was substituted
in place of PGHC as issuer of the £428 million subordinated notes and then on 12 December 2018 the Company was substituted
in place of Old PGH as issuer.
f. On 20 January 2017, PGHC issued £300 million Tier 3 subordinated notes due 2022 at a coupon of 4.125%. On 20 March 2017,
Old PGH was substituted in place of PGHC as issuer of the £300 million Tier 3 subordinated notes. On 5 May 2017, Old PGH
completed the issue of a further £150 million of Tier 3 subordinated notes, the terms of which are the same as the Tier 3 subordinated
notes issued in January 2017. The Group received a premium of £2 million in excess of the principal amount. Fees associated with
these notes of £5 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was
substituted in place of Old PGH as issuer.
g. On 6 July 2017, Old PGH issued US $500 million Tier 2 bonds due 2027 with a coupon of 5.375%. Fees associated with these notes
of £2 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was substituted
in place of Old PGH as issuer.
h. On 24 September 2018, Old PGH issued €500 million Tier 2 notes due 2029 with a coupon of 4.375%. Fees associated with these
notes of £7 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was
substituted in place of Old PGH as issuer.
i. On 29 January 2020, the Company issued US $750 million fixed rate reset perpetual restricted Tier 1 contingent convertible notes
(the ‘Contingent Convertible Tier 1 Notes’) which are unsecured and subordinated. The Contingent Convertible Tier 1 Notes have
no fixed maturity date and interest is payable only at the sole and absolute discretion of the Company. The Contingent Convertible
Tier 1 Notes bear interest on their principal amount at a fixed rate of 5.625% per annum up to the ‘First Reset Date’ of 26 April 2025.
Thereafter the fixed rate of interest will be reset on the First Reset Date and on each fifth anniversary of this date by reference to the
sum of the yield of the Constant Maturity Treasury (‘CMT’) rate (based on the prevailing five year US Treasury yield) plus a margin
of 4.035%, being the initial credit spread used in pricing the notes. Interest is payable on the Contingent Convertible Tier 1 Notes
semi-annually in arrears on 26 April and 26 October. If an interest payment is not made it is cancelled and it shall not accumulate
or be payable at any time thereafter.
The terms of the Contingent Convertible Tier 1 Notes contain a contingent settlement provision which is linked to the occurrence
of a ‘Capital Disqualification Event’. Such an event is deemed to have taken place where, as a result of a change to the Solvency II
regulations, the Contingent Convertible Tier 1 Notes are fully excluded from counting as own funds. On the occurrence of such
an event and where the Company has chosen not to use its corresponding right to redeem the notes the Company shall no longer
be able to exercise its discretion to cancel any interest payments due on such Contingent Convertible Tier 1 Notes on any interest
payment date following the occurrence of this event. Accordingly the Contingent Convertible Tier 1 Notes are considered to meet
the definition of a financial liability for financial reporting purposes.
The Contingent Convertible Tier 1 Notes may be redeemed at par on the First Reset Date or on any interest payment date thereafter
at the option of the Company and also in other limited circumstances. If such redemption occurs prior to the fifth anniversary of the
Issue Date such redemption must be funded out of the proceeds of a new issuance of, or exchanged into, Tier 1 Own Funds of the
same or a higher quality than the Contingent Convertible Tier 1 Notes. In respect of any redemption or purchase of the Contingent
Convertible Tier 1 Notes, such redemption or purchase is subject to the receipt of permission to do so from the PRA. Furthermore,
on occurrence of a trigger event, linked to the Solvency II capital position and as documented in the terms of the Contingent
Convertible Tier 1 Notes, the Contingent Convertible Tier 1 Notes will automatically be subject to conversion to ordinary shares of the
Company at the conversion price of US $1,000 per share, subject to adjustment in accordance with the terms and conditions of the
notes and all accrued and unpaid interest will be cancelled. Following such conversion there shall be no reinstatement of any part of
the principal amount of, or interest on, the Contingent Convertible Tier 1 Notes at any time.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
207
207
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E5. Borrowings continued
E5.1 Analysis of borrowings continued
j. On 28 April 2020, the Company issued £500 million fixed rate Tier 2 Notes (the ‘Tier 2 Notes’) which are unsecured and
subordinated. The Tier 2 Notes have a maturity date of 28 April 2031 and include an issuer par call right for the three-month period
prior to maturity. The Tier 2 Notes bear interest on the principal amount at a fixed rate of 5.625% per annum payable annually in
arrears on 28 April each year.
k. On 4 June 2020, the Company issued US $500 million fixed rate reset callable Tier 2 notes (the ‘Fixed Rate Reset Tier 2 Notes’)
which are unsecured and subordinated. The Fixed Rate Reset Tier 2 Notes have a maturity date of 4 September 2031 with an optional
issuer par call right on any day in the three-month period up to and including 4 September 2026. The Fixed Rate Reset Tier 2 Notes
bear interest on the principal amount at a fixed rate of 4.75% per annum up to the interest rate reset date of 4 September 2026. If the
Fixed Rate Reset Tier 2 Notes are not redeemed before that date, the interest rate resets to the sum of the applicable CMT rate
(based on the prevailing five year US Treasury yield) plus a margin of 4.276%, being the initial credit spread used in pricing the notes.
Interest is payable on the Fixed Rate Reset Tier 2 Notes semi-annually in arrears on 4 March and 4 September each year.
l. On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £500 million 5.867% Tier 2 subordinated
notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £500 million
5.867% Tier 2 subordinated notes have a maturity date of 13 June 2029 and were initially recognised at their fair value as at the date
of acquisition of £559 million. The fair value adjustment will be amortised over the remaining life of the notes. Interest is payable semi-
annually in arrears on 13 June and 13 December.
m. On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £250 million fixed rate reset callable
Tier 2 subordinated notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes.
The £250 million fixed rate reset callable Tier 2 subordinated notes have a maturity date of 13 June 2029 and were initially
recognised at their fair value as at the date of acquisition of £275 million. The fair value adjustment will be amortised over the
remaining life of the notes. The notes include an issuer par call right exercisable on 13 June 2024. Interest is payable semi-annually
in arrears on 13 June and 13 December. These notes initially bear interest at a rate of 5.766% on the principal amount and the rate of
interest will reset on 13 June 2024, and on each interest payment date thereafter, to a margin of 5.17% plus the yield of a UK Treasury
Bill of similar term.
n. On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £250 million 4.016% Tier 3 subordinated
notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £250 million
4.016% Tier 3 subordinated notes have a maturity date of 13 June 2026 and were initially recognised at their fair value as at the date
of acquisition of £259 million. The fair value adjustment is being amortised over the remaining life of the notes. Interest is payable
semi-annually in arrears on 13 June and 13 December.
o. The Group has in place a £1.25 billion unsecured revolving credit facility (the ‘revolving facility’), maturing in June 2026. The facility
accrues interest at a margin over SONIA that is based on credit rating. The facility remains undrawn as at 31 December 2021.
E5.2 Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes
(with the exception of lease liabilities, which have been included in note G10). Liabilities arising from financing activities are those for
which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from
financing activities.
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Financials continued
Cash movements
Non-cash movements
At
1 January
2021
£m
New
borrowings,
net of costs
£m
Repayments
£m
Changes in
fair value
£m
Movement
in foreign
exchange
£m
Other
movements1
£m
Movements
in fair value
£m
At
31 December
2021
£m
£200 million multi-currency revolving
credit facility
Property Reversions loan
£200 million 7.25% unsecured
subordinated loan
£300 million senior unsecured bond
£428 million Tier 2 subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
US $750 million Contingent Convertible
Tier 1 notes
£500 million Tier 2 notes
US $500 million Fixed Rate Reset Tier 2 notes
£500 million 5.867% Tier 2
subordinated notes
£250 million Fixed Rate Reset Callable
Tier 2 subordinated notes
£250 million 4.016% Tier 3
subordinated notes
Derivative assets 2
Derivative liabilities 2
–
84
200
122
426
449
364
442
545
484
364
556
272
259
–
–
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(18)
(200)
(122)
–
–
–
–
–
–
–
–
–
–
–
–
4,567
17
(340)
–
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
4
(26)
5
–
4
–
–
–
–
–
–
–
–
–
1
1
–
–
1
1
–
(6)
(6)
(2)
–
–
(13)
(10)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
48
(5)
43
17
70
–
–
427
450
368
416
551
485
368
550
266
257
48
(5)
4,268
1 Comprises amortisation under the effective interest method applied to borrowings held at amortised cost. No interest was capitalised in the year.
2 Cross currency swaps to hedge against adverse currency movements in respect of Group’s Euro and US Dollar denominated borrowings.
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209
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E5. Borrowings continued
E5.2 Reconciliation of liabilities arising from financing activities continued
Limited recourse bonds 2022 7.59%
Property Reversions loan
£200 million 7.25% unsecured
subordinated loan
£300 million senior unsecured bond
£428 million Tier 2 subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
US $750 million Contingent
Convertible Tier 1 notes
£500 million Tier 2 notes
US $500 million Fixed Rate Reset
Tier 2 notes
£500 million 5.867% Tier 2
subordinated notes
£250 million Fixed Rate Reset
Callable Tier 2 subordinated notes
£250 million 4.016% Tier 3
subordinated notes
Cash movements
Non-cash movements
At
1 January
2020
£m
New
borrowings,
net of costs
£m
Repayments
£m
Changes in
fair value
£m
Movement
in foreign
exchange
£m
Other
movements1
£m
Movements in
fair value
£m
At
31 December
2020
£m
35
99
196
121
426
449
376
417
–
–
–
–
–
–
–
–
–
–
–
–
–
–
566
483
396
–
–
–
2,119
1,445
(36)
(19)
–
–
–
–
–
–
–
–
–
–
–
–
(55)
–
–
–
–
–
–
–
–
–
–
–
559
275
259
1,093
–
4
–
–
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
(12)
24
(23)
–
(32)
–
–
–
(43)
1
–
4
1
–
–
–
1
2
1
–
(3)
(3)
–
4
–
84
200
122
426
449
364
442
545
484
364
556
272
259
4,567
1 Comprises amortisation under the effective interest method applied to borrowings held at amortised cost. No interest was capitalised in the year.
E6. Risk management – financial and other risks
This note forms one part of the risk management disclosures in the consolidated financial statements. An overview of the Group’s
approach to risk management is outlined in note I3 and the Group’s management of insurance risk is detailed in note F4.
E6.1 Financial risk and the Asset Liability Management (‘ALM’) framework
The use of financial instruments naturally exposes the Group to the risks associated with them, chiefly market risk, credit risk and financial
soundness risk.
Responsibility for agreeing the financial risk profile rests with the board of each life company, as advised by investment managers,
internal committees and the actuarial function. In setting the risk profile, the board of each life company will receive advice from the
Chief Investment Officer, the relevant with-profit actuary and the relevant actuarial function holder as to the potential implications of that
risk profile with regard to the probability of both realistic insolvency and of failing to meet the regulatory Minimum Capital Requirement.
The Chief Actuary will also advise the extent to which the investment risk taken is consistent with the Group’s commitment to deliver fair
customer outcomes.
Derivatives are used in many of the Group’s funds, within policy guidelines agreed by the board of each life company and overseen by
investment committees of the boards of each life company supported by management oversight committees. Derivatives are primarily
used for risk hedging purposes or for efficient portfolio management, including the activities of the Group’s Treasury function.
More detail on the Group’s exposure to financial risk is provided in note E6.2 below.
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Financials continued
The Group is also exposed to insurance risk arising from its Life, Pensions and Savings business. Life insurance risk in the Group arises
through its exposure to longevity, persistency, mortality and to other variances between assumed and actual experience. These variances
can be in factors such as administrative expenses and new business pricing. More detail on the Group’s exposure to insurance risk is
provided in note F4.
The Group’s overall exposure to market and credit risk is monitored by appropriate committees, which agree policies for managing each
type of risk on an ongoing basis, in line with the investment strategy developed to achieve investment returns in excess of amounts due
in respect of insurance contracts. The effectiveness of the Group’s ALM framework relies on the matching of assets and liabilities arising
from insurance and investment contracts, taking into account the types of benefits payable to policyholders under each type of contract.
Separate portfolios of assets are maintained for with-profit business funds (which include all of the Group’s participating business), non-
linked non-profit funds and unit-linked funds.
LIBOR transition
The Group has largely completed its transition from LIBOR to the replacement Risk Free Rates. The programme has gone through a
systematic process to identify and address balance sheet exposures with LIBOR dependencies. All derivative exposures and the majority
of non-derivative asset exposures have successfully been transitioned over the course of the programme. Insurance contract liabilities
and related items have transitioned to the SONIA Solvency II curve published by the PRA with an adjustment of 36bps. The remaining
residual exposures relate to indirect exposures in a small proportion of liquid and illiquid credit assets, and a direct exposure of £55
million in relation to two illiquid credit assets referencing Sterling LIBOR. These residual exposures do not give rise to material solvency
or liquidity risks for the Group.
The indirect liquid credit exposures are in relation to fixed rate loans, with LIBOR only relevant if the issuer cannot repay the debt at the
expected maturity date. Cessation of LIBOR will have no impact on trading or liquidity. The indirect illiquid credit exposure relates to two
loans where LIBOR is only relevant on a prepayment. The Group does not anticipate a prepayment and this issue does not affect the fair
value of the loans.
The liquid indirect exposures will be resolved through liability management transactions launched by issuers, which either already
include sufficient fallback provisions or the asset managers will continue to engage directly with the issuers to amend the fallback clauses.
For all of the remaining illiquid exposures, progress on transitioning away from LIBOR is well advanced and is expected to complete
before the next interest rate reset date.
E6.2 Financial risk analysis
Transactions in financial instruments result in the Group assuming financial risks. These include credit risk, market risk and financial
soundness risk. Each of these are described below, together with a summary of how the Group manages the risk, along with sensitivity
analysis where appropriate. The sensitivity analysis does not take into account second order impacts of market movements, for example,
where a market movement may give rise to potential indicators of impairment for the Group’s intangible balances.
A Group-wide project was undertaken to enhance the Group’s approach to managing the financial risks of climate change, including
embedding climate risk considerations into the Group’s overall Risk Management Framework. The project has enabled the Group
to embed the requirements and demonstrate compliance with the PRA Supervisory Statement SS3/19. Further details on managing
the related climate change risks are provided in the Task Force for Climate-related Financial Disclosures (‘TCFD’) on page 51 of the
Annual Report and Accounts and details of the impact of climate change on the financial statements are included in note A3.8.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
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211
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E6. Risk management – financial and other risks continued
E6.2 Financial risk analysis continued
E6.2.1 Credit risk
Credit risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, as a result of the default of a
counterparty or an associate of such a counterparty to a financial transaction (i.e. failure to honour their financial obligations, or failing to
perform them in a timely manner), whether on or off balance sheet.
There are two principal sources of credit risk for the Group:
• credit risk which results from direct investment activities, including investments in debt securities, derivatives counterparties, collective
investment schemes, hedge funds and the placing of cash deposits; and
• credit risk which results indirectly from activities undertaken in the normal course of business. Such activities include premium
payments, outsourcing contracts, reinsurance agreements, exposure from material suppliers and the lending of securities.
The amount disclosed in the statement of consolidated financial position in respect of all financial assets, together with rights secured
under off balance sheet collateral arrangements, but excluding the minority interest in consolidated collective investment schemes and
those assets that back policyholder liabilities, represents the Group’s maximum exposure to credit risk.
The impact of non-government debt securities and, inter alia, the change in market credit spreads during the year is fully reflected in the
values shown in these consolidated financial statements. Credit spreads are the excess of corporate bond yields over gilt yields to reflect
the higher level of risk. Similarly, the value of derivatives that the Group holds takes into account fully the changes in swap rates.
There is an exposure to spread changes affecting the prices of corporate bonds and derivatives. This exposure applies to with-profit
funds (where risks and rewards fall wholly to shareholders), non-profit funds and shareholders’ funds.
The Group holds £21,668 million (2020: £23,799 million) of corporate bonds which are used to back annuity liabilities in non-profit
funds. These annuity liabilities include an aggregate credit default provision of £1,036 million (2020: £1,156 million) to fund against the risk
of default.
A 100bps widening of credit spreads, with all other variables held constant and no change in assumed expected defaults, would result
in an increase in the profit after tax in respect of a full financial year, and in equity, of £28 million (2020: decrease £5 million).
A 100bps narrowing of credit spreads, with all other variables held constant and no change in assumed expected defaults, would result
in a decrease in the profit after tax in respect of a full financial year, and in equity, of £37 million (2020: increase £2 million).
Credit risk is managed by the monitoring of aggregate Group exposures to individual counterparties and by appropriate credit risk
diversification. The Group manages the level of credit risk it accepts through credit risk tolerances and limits. Additional controls for
illiquid asset concentration risk are set out via specific risk limits within the risk appetite framework. Credit risk on derivatives and
securities lending is mitigated through the use of collateral with appropriate haircuts. The credit risk borne by the shareholder on
with-profit policies is dependent on the extent to which the underlying insurance fund is relying on shareholder support.
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Financials continued
Credit quality of assets
An indication of the Group’s exposure to credit risk is the quality of the investments and counterparties with which it transacts.
The following table provides information regarding the aggregate credit exposure split by credit rating.
AAA
£m
–
–
AA
£m
6
A
£m
–
965
1,737
BBB
£m
–
388
BB and
below
£m
–
–
9,097
40,142
22,782
16,290
3,292
Non-rated
£m
Unit-linked
£m
55
138
2021
Loans and deposits
Derivatives
Debt securities1,2
Reinsurers’ share of insurance
contract liabilities
Reinsurers’ share of
investment contract liabilities
Cash and cash equivalents
382
1,686
5,161
–
–
4,963
3,539
–
–
37
–
181
–
–
–
Less
amounts
classified as
held for sale
£m
–
(4)
Total
£m
475
4,571
Total
£m
475
4,567
8,599
106,990
(2,229)
104,761
–
8,587
–
8,587
10,009
10,009
1,775
9,188
(27)
(76)
9,982
9,112
414
1,343
6,788
48
–
3
9,479
47,762
33,219
16,896
3,292
8,596
20,576
139,820
(2,336)
137,484
1 For financial assets that do not have credit ratings assigned by external ratings agencies, the Group assigns internal ratings for use in management and monitoring of credit risk. £110 million of AAA, £1,110
million of AA, £2,556 million of A, £2,480 million of BBB and £518 million of BB and below debt securities are internally rated. If a financial asset is neither rated by an external agency nor internally rated,
it is classified as ‘non-rated’.
2 Non-rated debt securities includes equity release mortgages with a value of £4,214 million (further details are set out in note E2.3) and non-rated bonds.
2020
Loans and deposits
Derivatives
Debt securities1,2
Reinsurers’ share of insurance
contract liabilities
Reinsurers’ share of investment
contract liabilities
Cash and cash equivalents
AAA
£m
–
–
9,041
–
–
30
AA
£m
6
A
£m
195
BBB
£m
–
1,220
35,184
2,263
24,747
1,967
14,960
BB and
below
£m
–
–
Non-rated
£m
Unit-linked
£m
368
1,231
78
199
Total
£m
647
6,880
2,497
6,658
16,368
109,455
6,524
2,966
16
1,728
–
7,049
–
1
173
17,101
–
–
–
52
–
10
–
9,542
9,542
2,008
9,559
10,998
2,497
8,319
28,195
147,081
9,071
44,678
37,220
1 For financial assets that do not have credit ratings assigned by external ratings agencies, the Group assigns internal ratings for use in management and monitoring of credit risk. £117 million of AAA, £963
million of AA, £2,446 million of A, £1,741 million of BBB and £219 million of BB and below debt securities are internally rated. If a financial asset is neither rated by an external agency nor internally rated, it
is classified as ‘non-rated’.
2 Non-rated debt securities includes equity release mortgages with a value of £3,484 million (further details are set out in note E2.3) and non-rated bonds.
Credit ratings have not been disclosed in the above tables for the assets of the unit-linked funds since the shareholder is not directly
exposed to credit risks from these assets. Included in unit-linked funds are assets which are held as reinsured external fund links.
Under certain circumstances, the shareholder may be exposed to losses relating to the default of the reinsured external fund link.
Credit ratings have not been disclosed in the above tables for holdings in unconsolidated collective investment schemes and investments
in associates. The credit quality of the underlying debt securities within these vehicles is managed by the safeguards built into the
investment mandates for these vehicles.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
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213
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E6. Risk management – financial and other risks continued
E6.2 Financial risk analysis continued
E6.2.1 Credit risk continued
The Group maintains accurate and consistent risk ratings across its asset portfolio. This enables management to focus on the applicable
risks and to compare credit exposures across all lines of business, geographical regions and products. The rating system is supported
by a variety of financial analytics combined with market information to provide the main inputs for the measurement of counterparty risk.
All risk ratings are tailored to the various categories of assets and are assessed and updated regularly.
The Group operates an Internal Credit Rating Committee and a Portfolio Credit Committee to perform oversight and monitoring
of internal credit ratings for externally rated and internally rated assets. A variety of methods are used to validate the appropriateness
of credit assessments from external institutions and fund managers. Internally rated assets are those that do not have a public rating
from an external credit assessment institution. The internal credit ratings used by the Group are provided by fund managers or for certain
assets (in particular, equity release mortgages) determined by the Life Companies. The Committees review the policies, processes and
practices to ensure the appropriateness of the internal ratings assigned to asset classes, in line with regulatory requirements.
Throughout 2021, the Group has continued to take de-risking action to increase the overall credit quality of its asset portfolio and
mitigate the impact of future downgrades on risk capital. Further details are included in the Risk Management section of the
Strategic Report.
The Group has increased exposure to an array of illiquid credit assets such as equity release mortgages, local authority loans, social
housing, infrastructure and commercial real estate loans with the aim of achieving greater diversification and investment returns,
consistent with the Strategic Asset Allocation approved by the Board.
A further indicator of the quality of the Group’s financial assets is the extent to which they are neither past due nor impaired. All of the
amounts in the table above for the current and prior year are neither past due nor impaired.
Additional life company asset disclosures are included on page 313 and include information on the Group’s market exposure analysed by
credit rating, sector and country of exposure for the shareholder debt portfolio. In light of developments regarding the Russia-Ukraine
conflict, this includes the shareholders’ debt exposure to Russia and Ukraine. The Group’s exposure to Russia and Ukraine is small when
compared to the size of its overall investment portfolio.
Concentration of credit risk
Concentration of credit risk might exist where the Group has significant exposure to an individual counterparty or a group of
counterparties with similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected
by changes in economic and other conditions. The Group has most of its counterparty risk within its life business and this is monitored
by the counterparty limit framework contained within the Group Credit Risk Policy and further provided in investment management
agreements, overlaid by regulatory requirements and the monitoring of aggregate counterparty exposures across the Group against
additional Group counterparty limits. Counterparty risk in respect of OTC derivative counterparties is monitored using a Potential Future
Exposure (‘PFE’) value metric.
The Group is also exposed to concentration risk with outsource partners. This is due to the nature of the outsourced services market.
The Group operates a policy to manage outsourcer service counterparty exposures and the impact from default is reviewed regularly
by executive committees and measured through stress and scenario testing.
Reinsurance
The Group is exposed to credit risk as a result of insurance risk transfer contracts with reinsurers. The Group’s policy is to place
reinsurance only with highly rated counterparties. The Group is restricted from assuming concentrations of risk with individual external
reinsurers by specifying limits on ceding and minimum conditions for acceptance and retention of reinsurers. However, due to the nature
of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings, some concentration risk does arise
with individual reinsurers. The Group manages its exposure to reinsurance credit risk through the operation of a credit policy,
collateralisation where appropriate, and regular monitoring of exposures at the Reinsurance Management Committee.
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Financials continued
Collateral
The credit risk of the Group is mitigated, in certain circumstances, by entering into collateral agreements. The amount and type
of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the
acceptability of types of collateral and the valuation parameters. Collateral is mainly obtained in respect of stock lending, certain
reinsurance arrangements and to provide security against the daily mark to model value of derivative financial instruments. Management
monitors the market value of the collateral received, requests additional collateral when needed, and performs an impairment valuation
when impairment indicators exist and the asset is not fully secured (and is not carried at fair value). See note E4 for further information
on collateral arrangements.
E6.2.2 Market risk
Market risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, from unfavourable market
movements. The risk typically arises from exposure to equity, property and fixed income asset classes and the impact of changes in
interest rates, inflation rates and currency exchange rates.
The Group is mainly exposed to market risk as a result of:
• the mismatch between liability profiles and the related asset investment portfolios;
• the investment of surplus assets including shareholder reserves yet to be distributed, surplus assets within the with-profit funds and
assets held to meet regulatory capital and solvency requirements; and
• the income flow of management charges derived from the value of invested assets of the business.
The Group manages the levels of market risk that it accepts through the operation of a market risk policy and an approach to investment
management that determines:
• the constituents of market risk for the Group;
• the basis used to fair value financial assets and liabilities;
• the asset allocation and portfolio limit structure;
• diversification from and within benchmarks by type of instrument and geographical area;
• the net exposure limits by each counterparty or group of counterparties, geographical and industry segments;
• control over hedging activities;
• reporting of market risk exposures and activities; and
• monitoring of compliance with market risk policy and review of market risk policy for pertinence to the changing environment.
All operations comply with regulatory requirements relating to the taking of market risk.
Markets remain volatile, particularly given concerns over inflation and how quickly central banks will act to reduce these pressures on
economies whilst balancing the need to aid post pandemic recovery. This is discussed in more detail on page 64 of the Risk Management
section of the Annual Report and Accounts.
Interest rate and inflation risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate relative to the respective liability
due to the impact of changes in market interest rates on the value of interest-bearing assets and on the value of future guarantees
provided under certain contracts of insurance. The paragraphs in this section also apply to inflation risk, but references to fixed rate
assets and liabilities would be replaced with index-linked assets and liabilities.
The Group is required to manage its interest rate exposures in line with qualitative risk appetite statements, quantitative risk metrics and
any additional hedging benchmarks. Interest rate risk is managed by matching assets and liabilities where practicable and by entering
into derivative arrangements for hedging purposes where appropriate. This is particularly the case for the non-participating funds and
supported participating funds. For unsupported participating business, some element of investment mismatching is permitted where it
is consistent with the principles of treating customers fairly. The with-profit funds of the Group provide capital to allow such mismatching
to be effected. In practice, the life companies of the Group maintain an appropriate mix of fixed and variable rate instruments according
to the underlying insurance or investment contracts and will review this at regular intervals to ensure that overall exposure is kept within
the risk profile agreed for each particular fund. This also requires the maturity profile of these assets to be managed in line with the
liabilities to policyholders.
The sensitivity analysis for interest rate and inflation risk indicates how changes in the fair value or future cash flows of a financial
instrument arising from changes in market interest and inflation rates at the reporting date result in a change in profit after tax and in
equity. It takes into account the effect of such changes in market interest and inflation rates on all assets and liabilities that contribute to
the Group’s reported profit after tax and in equity. Changes in the value of the Group’s holdings in swaptions as a result of time decay or
changes to interest rate volatility are not captured in the sensitivity analysis.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
215
215
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E6. Risk management – financial and other risks continued
E6.2 Financial risk analysis continued
E6.2.2 Market risk continued
With-profit business and non-participating business within the with-profit funds are exposed to interest rate risk as guaranteed
liabilities are valued relative to market interest rates and investments include fixed interest securities and derivatives. For unsupported
with-profit business the profit or loss arising from mismatches between such assets and liabilities is largely offset by increased or
reduced discretionary policyholder benefits dependent on the existence of policyholder guarantees. The contribution of unsupported
participating business to the Group result is largely limited to the shareholders’ share of the declared annual bonus. The contribution of
the supported participating business to the Group result is determined by the shareholders’ interest in any change in value in the capital
advanced to the with-profit funds.
In the non-participating funds, policy liabilities’ sensitivity to interest rates are matched primarily with debt securities and hedging if
necessary to match duration, with the result that sensitivity to changes in interest rates is very low. The Group’s exposure to interest rates
principally arises from the Group’s hedging strategy to protect the regulatory capital position, which results in an adverse impact on profit
on an increase in interest rates.
The Group is exposed to inflation risk through certain contracts, such as annuities, which may provide for future benefits to be paid
taking account of changes in the level of experienced and implied inflation, and also through the Group’s cost base. The Group seeks
to manage inflation risk within the ALM framework through the holding of derivatives, such as inflation swaps, or physical positions in
relevant assets, such as index-linked gilts, where appropriate.
Due to the correlation between interest rates and inflation, a combined sensitivity has been presented. Comparative information has
been restated to incorporate a movement in the rate of inflation.
An increase of 1% in interest rates and 0.6% in the rate of inflation, with all other variables held constant, would result in a decrease in
profits after tax in respect of a full financial year, and in equity, of £364 million (2020 restated: £399 million).
A decrease of 1% in interest rates and 0.6% in the rate of inflation, with all other variables held constant, would result in an increase in
profits after tax in respect of a full financial year, and in equity, of £415 million (2020 restated: £585 million).
Equity and property risk
The Group has exposure to financial assets and liabilities whose values will fluctuate as a result of changes in market prices other than
from interest rate and currency fluctuations. This is due to factors specific to individual instruments, their issuers or factors affecting all
instruments traded in the market. Accordingly, the Group limits its exposure to any one counterparty in its investment portfolios and to
any one foreign market.
The portfolio of marketable equity securities and property investments which is carried in the statement of consolidated financial
position at fair value, has exposure to price risk. The Group’s objective in holding these assets is to earn higher long-term returns by
investing in a diverse portfolio of equities and properties. Portfolio characteristics are analysed regularly and price risks are actively
managed in line with investment mandates. The Group’s holdings are diversified across industries and concentrations in any one
company or industry are limited.
Equity and property price risk is primarily borne in respect of assets held in with-profit funds, unit-linked funds or equity release
mortgages in the non-profit funds. For unit-linked funds this risk is borne by policyholders and asset movements directly impact unit
prices and hence policy values. For with-profit funds policyholders’ future bonuses will be impacted by the investment returns achieved
and hence the price risk, whilst the Group also has exposure to the value of guarantees provided to with-profit policyholders. In addition
some equity investments are held in respect of shareholders’ funds. For the non-profit fund property price risk from equity release
mortgages is borne by the Group with the aim of achieving greater diversification and investment returns, consistent with the Strategic
Asset Allocation approved by the Board. The Group as a whole is exposed to price risk fluctuations impacting the income flow of
management charges from the invested assets of all funds; this is primarily managed through the use of derivatives.
Equity and property price risk is managed through the agreement and monitoring of financial risk profiles that are appropriate for each
of the Group’s life funds in respect of maintaining adequate regulatory capital and treating customers fairly. This is largely achieved
through asset class diversification and within the Group’s ALM framework through the holding of derivatives or physical positions in
relevant assets where appropriate.
216
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued The sensitivity analysis for equity and property price risk illustrates how a change in the fair value of equities and properties affects the
Group result. It takes into account the effect of such changes in equity and property prices on all assets and liabilities that contribute
to the Group’s reported profit after tax and in equity (but excludes the impact on the Group’s pension schemes).
A 10% decrease in equity prices, with all other variables held constant, would result in an increase in profits after tax in respect
of a full financial year, and in equity, of £294 million (2020: £281 million).
A 10% increase in equity prices, with all other variables held constant, would result in a decrease in profits after tax in respect of a full
financial year, and in equity, of £263 million (2020: £263 million).
A 10% decrease in property prices, with all other variables held constant, would result in a decrease in profits after tax in respect
of a full financial year, and in equity, of £6 million (2020: £25 million).
A 10% increase in property prices, with all other variables held constant, would result in an increase in profits after tax in respect
of a full financial year, and in equity, of £4 million (2020: £16 million).
The sensitivity to changes in equity prices is primarily driven by the Group’s equity hedging arrangements over the value of future
management charges that are linked to asset values.
Currency risk
Currency risk is the risk that changes in the value of currencies could lead to reductions in asset values which may result in losses
for policyholders and shareholders. With the exception of Standard Life International business sold in Germany and the Republic
of Ireland, some historic business written in the Republic of Ireland and Ark Life business (until sold on 1 November 2021), the
Group’s principal transactions are carried out in sterling. The assets for these books of business are generally held in the same currency
denomination as their liabilities, therefore, any foreign currency mismatch is largely mitigated. Consequently, the foreign currency risk
relating to this business mainly arises when the assets and liabilities are translated into sterling.
The Group’s financial assets are primarily denominated in the same currencies as its insurance and investment liabilities. Thus, the main
foreign exchange risk arises from recognised assets and liabilities denominated in currencies other than those in which insurance and
investment liabilities are expected to be settled and, indirectly, from the non-UK earnings of UK companies.
Some of the Group’s with-profit funds have an exposure to overseas assets which is not driven by liability considerations. The purpose
of this exposure is to reduce overall risk whilst maximising returns by diversification. This exposure is limited and managed through
investment mandates which are subject to the oversight of the investment committees of the boards of each life company. Fluctuations
in exchange rates from certain holdings in overseas assets are hedged against currency risks
During the year, the Group entered into four hedging relationships to hedge the currency risk on its Euro and US dollar denominated
hybrid debt (US $500 million Tier 2 bonds, €500 million Tier 2 notes, US $750 million contingent convertible Tier 1 notes and
US $500 million Fixed Rate Reset Tier 2 notes as set out in note E5) through cross currency rate swaps.
Sensitivity of profit after tax and equity to fluctuations in currency exchange rates is not considered significant at 31 December 2021,
since unhedged exposure to foreign currency was relatively low (2020: not considered significant).
E6.2.3 Financial soundness risk
Financial soundness risk is a broad risk category encompassing capital management risk, tax risk and liquidity and funding risk.
Capital management risk is defined as the failure of the Group, or one of its separately regulated subsidiaries, to maintain sufficient
capital to provide appropriate security for policyholders and meet all regulatory capital requirements whilst not retaining unnecessary
capital. The Group has exposure to capital management risk through the requirements of the Solvency II capital regime, as implemented
by the PRA, to calculate regulatory capital adequacy at a Group level. The Group’s UK life subsidiaries have exposure to capital
management risk through the Solvency II regulatory capital requirements mandated by the PRA at the solo level. The Group’s approach
to managing capital management risk is described in detail in note I3.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
217
217
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E6. Risk management – financial and other risks continued
E6.2 Financial risk analysis continued
E6.2.3 Financial soundness risk continued
Tax risk is defined as the risk of financial failure, reputation damage, loss of earnings/value arising from a lack of liquidity, funding or
capital, and/or the inappropriate recording, reporting, understanding of tax legislation and disclosure of financial, taxation and
regulatory information. Tax risk can be caused by:
• the Group, or one of its subsidiaries, making a material error in its tax reporting;
• incorrect calculation of tax provisions;
• failure to implement the optimum financial arrangements to underpin a commercial transaction; and
• incorrect operation of policyholder tax requirements.
Tax risk is managed by maintaining an appropriately staffed tax team who have the qualifications and experience to make judgements on
tax issues, augmented by advice from external specialists where required. In addition, the Group has a formal tax risk policy, which sets
out its risk appetite in relation to specific aspects of tax risk, and which details the controls the Group has in place to manage those risks.
Liquidity risk is defined as failure to maintain adequate levels of financial resources to meet obligations as they fall due. Funding risk
relates to the potential inability to raise additional capital or liquidity when required in order to maintain the resilience of the balance
sheet. The Group has exposure to liquidity risk as a result of servicing its external debt and equity investors, and from the operating
requirements of its subsidiaries. The Group’s subsidiaries have exposure to liquidity risk as a result of normal business activities,
specifically the risk arising from an inability to meet short-term cash flow requirements and to meet obligations to policy liabilities.
The Board of Phoenix Group Holdings plc has defined a number of governance objectives and principles and the liquidity risk
frameworks of each subsidiary are designed to ensure that:
• liquidity risk is managed in a manner consistent with the subsidiary company boards’ strategic objectives, risk appetite and
Principles and Practices of Financial Management (‘PPFM’);
• cash flows are appropriately managed and the reputation of the Group is safeguarded; and
• appropriate information on liquidity risk is available to those making decisions.
The Group’s liquidity risk management strategy is based on a risk appetite of less than a 1 in 200 chance of having insufficient liquid
or tangible assets to meet financial obligations as they fall due and is supported by:
• holding appropriate assets to meet liquidity buffers;
• holding high quality liquid assets to support day to day operations;
• an effective stress testing framework to ensure survival horizons are met under different plausible scenarios;
• effective liquidity portfolio management; and
• liquidity risk contingency planning.
The Group’s funding strategy aims to maintain the appropriate level of debt and equity in order to support the Group’s acquisition
ambitions, while maintaining sufficient headroom for hybrid capital under Solvency II rules.
Liquidity forecasts showing headroom against liquidity buffers are prepared regularly to predict required liquidity levels over both the
short and medium-term allowing management to respond appropriately to changes in circumstances. In the event of a liquidity shortfall,
this would be managed in line with the Group’s Contingency Liquidity Plan where the latest available contingency management actions
would be considered.
In extreme circumstances, the Group could be exposed to liquidity risk in its unit-linked funds. This could occur where a high volume of
surrenders coincides with a tightening of liquidity in a unit-linked fund to the point where assets of that fund have to be sold to meet
those withdrawals. Where the fund affected consists of less liquid assets such as property, it can take several months to complete a sale
and this would impede the proper operation of the fund. In these situations, the Group considers its risk to be low since there are steps
that can be taken first within the funds themselves both to ensure the fair treatment of all investors in those funds and to protect the
Group’s own risk exposure.
The vast majority of the Group’s derivative contracts are traded OTC and have a two-day collateral settlement period. The Group’s
derivative contracts are monitored daily, via an end-of-day valuation process, to assess the need for additional funds to cover margin or
collateral calls.
Some of the Group’s commercial property investments, cash and cash equivalents are held through collective investment schemes.
The collective investment schemes have the power to restrict and/or suspend withdrawals, which would, in turn, affect liquidity.
218
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
The following table provides a maturity analysis showing the remaining contractual maturities of the Group’s undiscounted financial
liabilities and associated interest. Liabilities under insurance contract contractual maturities are included based on the estimated
timing of the amounts recognised in the statement of consolidated financial position in accordance with the requirements of IFRS 4
Insurance Contracts:
2021
1 year or less
or on
demand
£m
1–5 years
£m
Greater than
5 years
£m
No fixed
term
£m
Liabilities under insurance contracts
14,319
36,061
78,484
Less amounts
classified as
held for sale
(see note
A6.1)
£m
Total
£m
–
128,864
(11,676)
160,417
Total
£m
128,864
172,093
4,886
3,608
1,359
3,568
3,442
143
1,864
142
621
721
–
–
70
–
–
–
–
–
–
–
7
–
–
–
(4)
–
–
–
–
–
(54)
–
172,093
664
419
259
3,568
3,442
80
1,864
11
548
721
–
1,380
834
517
–
–
13
–
59
59
–
–
2,772
2,355
583
–
–
50
–
72
7
–
4,886
3,608
1,355
3,568
3,442
143
1,864
142
567
721
Total
£m
133,907
165,106
5,441
4,100
1,024
3,791
5,205
134
1,669
132
521
1,266
1 year or less
or on demand
£m
1–5 years
£m
Greater than
5 years
£m
No fixed
term
£m
20,027
165,106
551
699
274
3,791
5,205
134
1,669
12
509
1,265
32,703
81,177
–
1,661
832
526
–
–
–
–
36
4
–
–
3,145
2,569
224
–
–
–
–
84
8
1
–
–
84
–
–
–
–
–
–
–
–
–
Investment contracts
Borrowings1
Deposits received from reinsurers1
Derivatives1
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Reinsurance payables
Payables related to direct insurance contracts
Lease liabilities1
Accruals and deferred income
Other payables
2020
Liabilities under insurance contracts
Investment contracts
Borrowings1
Deposits received from reinsurers1
Derivatives1
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Reinsurance payables
Payables related to direct insurance contracts
Lease liabilities1
Accruals and deferred income
Other payables
1 These financial liabilities are disclosed at their undiscounted value and therefore differ from amounts included in the statement of consolidated financial position which discloses the discounted value.
Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or
transfer value of their policies. Although these liabilities are payable on demand, and are therefore included in the contractual maturity
analysis as due within one year, the Group does not expect all these amounts to be paid out within one year of the reporting date.
A significant proportion of the Group’s financial assets are held in gilts, cash, supranationals and investment grade securities which the
Group considers sufficient to meet the liabilities as they fall due. The vast majority of these investments are readily realisable immediately
since most of them are quoted in an active market.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
219
219
Financials
Financials continued
Notes to the consolidated financial statements
Continued
E. Financial assets & liabilities continued
E6. Risk management – financial and other risks continued
E6.2 Financial risk analysis continued
E6.2.4 Strategic risk
Strategic risks threaten the achievement of the Group strategy through poor strategic decision-making, implementation or response to
changing circumstances. The Group recognises that core strategic activity brings with it exposure to strategic risk. However, the Group
seeks to proactively review, manage and control these exposures.
The Group’s strategy and business plan are exposed to external events that could prevent or impact the achievement of the strategy;
events relating to how the strategy and business plan are executed; and events that arise as a consequence of following the specific
strategy chosen. The identification and assessment of strategic risks is an integrated part of the Risk Management Framework. Strategic
risk should be considered in parallel with the Risk Universe as each of the risks within the Risk Universe can impact the Group’s strategy.
A Strategic Risk Policy is maintained and reported against regularly, with a particular focus on risk management, stakeholder
management, corporate activity and overall reporting against the Group’s strategic ambitions.
E6.2.5 Operational risk
Operational risk is the risk of reductions in earnings and/or value, through financial or reputational loss, from inadequate or failed internal
processes and systems, or from people related or external events. Operational risk arises due to failures in one or more of the following
aspects of our business:
• indirect exposures through outsourcing service providers and suppliers;
• direct exposures through internal practices, actions or omissions;
• external threats from individuals or groups focused on malicious or criminal activities, or on external events occurring which are not
within the Group’s control; and
• negligence, malpractice or failure of employees, or suppliers to follow good practice in delivering operational processes and practices.
It is accepted that it is neither possible, appropriate nor cost effective to eliminate operational risks from the business as operational risk is
inherent in any operating environment particularly given the regulatory framework under which the Group operates. As such the Group
will tolerate a degree of operational risk subject to appropriate and proportionate levels of control around the identification,
management and reporting of such risks. A set of operational risk policies are maintained that set out the nature of the operational risk
exposure and minimum control standards in place to control the risk.
E6.2.6 Customer risk
Customer risk is the risk of financial failure, reputational loss, loss of earnings and/or value through inappropriate or poor customer
treatment (including poor advice). It can arise as a result of:
• Customer Treatment: Failure to have a customer centric culture which drives appropriate behaviours and decisions leading to
customer interactions and outcomes which meet or exceed reasonable customer and regulator expectations and which take account
of potential customer vulnerability.
• Customer Transformation: The design, governance and oversight of Strategic Customer Transformation Activity in retained functions
and service providers, fails to deliver on reasonable customer expectations, taking account of the Group’s customer treatment risk
appetite and regulatory requirements.
• Product and Propositions: Failure to design and/or manage products/propositions appropriately, or failure of the manufacturer to
ensure that products/propositions are distributed to the appropriate target market, perform as intended and in line with the
expectations set.
• Sales and Distribution: Inappropriate (unclear, unfair or misleading) financial promotions, sales practices and/or distribution
agreements resulting in poor customer outcomes leading to reputational, financial and/or operational detriment.
The Group’s Conduct Risk Appetite, sets the boundaries within which the Group expect customer outcomes to be managed. In addition,
the Group Conduct Risk Framework, which overarches our Risk Universe and all risk policies, consists of a set of outcomes, intents and
standards for all staff to follow to ensure that we have embedded and effective controls in place across our business activities to detect
where our customers are at risk of poor outcome, minimise conduct risks, and respond with timely and appropriate mitigating actions.
From a qualitative perspective, the customer risks for the Group are regularly reported to management oversight committees.
220
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued F. Insurance contracts, investment contracts with DPF and reinsurance
F1. Liabilities under insurance contracts
Classification of contracts
Contracts are classified as insurance contracts where the Group accepts significant insurance risk from the policyholder by agreeing
to compensate the policyholder if a specified uncertain event adversely affects the policyholder.
Contracts under which the transfer of insurance risk to the Group from the policyholder is not significant are classified as investment
contracts or derivatives and accounted for as financial liabilities (see notes E1 and E3 respectively).
Some insurance and investment contracts contain a Discretionary Participation Feature (‘DPF’). This feature entitles the policyholder to
additional discretionary benefits as a supplement to guaranteed benefits. Investment contracts with a DPF are recognised, measured
and presented as insurance contracts.
Contracts with reinsurers are assessed to determine whether they contain significant insurance risks. Contracts that do not give rise
to a significant transfer of insurance risk to the reinsurer are classified as financial instruments and are valued at fair value through profit
or loss.
Insurance contracts and investment contracts with DPF
Insurance liabilities
Insurance contract liabilities for non-participating business, other than unit-linked insurance contracts, are calculated on the basis of
current data and assumptions, using either a net premium or gross premium method. Where a gross premium method is used, the
liability includes allowance for prudent lapses. Negative policy values are allowed for on individual policies:
• where there are no guaranteed surrender values; or
• in the periods where guaranteed surrender values do not apply even though guaranteed surrender values are applicable after a
specified period of time.
For unit-linked insurance contract liabilities the provision is based on the fund value, together with an allowance for any excess of future
expenses over charges, where appropriate.
For participating business, the liabilities under insurance contracts and investment contracts with DPF are calculated in accordance
with the following methodology:
• liabilities to policyholders arising from the with-profit business are stated at the amount of the realistic value of the liabilities, adjusted
to exclude the owners’ share of projected future bonuses;
• acquisition costs are not deferred; and
• reinsurance recoveries are measured on a basis that is consistent with the valuation of the liability to policyholders to which the
reinsurance applies.
The With-Profit Benefit Reserve (‘WPBR’) for an individual contract is determined by either a retrospective calculation of ‘accumulated
asset share’ approach or by way of a prospective ‘bonus reserve valuation’ method. The cost of future policy related liabilities is
determined using a market consistent approach, mainly based on a stochastic model calibrated to market conditions at the end of the
reporting period. Non-market related assumptions (for example, persistency, mortality and expenses) are based on experience adjusted
to take into account future trends.
The realistic liability for any contract is equal to the sum of the WPBR and the cost of future policy-related liabilities. The cost of future
policy-related liabilities includes the unallocated surplus attributable to policyholders for the Group’s with-profit funds.
Where policyholders have valuable guarantees, options or promises in respect of the with-profit business, these costs are generally
valued using a stochastic model.
In calculating the realistic liabilities, account is taken of the future management actions consistent with those set out in the Principles
and Practices of Financial Management (‘PPFM’).
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
221
221
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F1. Liabilities under insurance contracts continued
Standard Life Assurance Limited (‘SLAL’), a wholly owned subsidiary of the Group, includes the Heritage With Profits Fund (‘HWPF’).
In 2006, the Standard Life Assurance Company demutualised. The demutualisation was governed by its Scheme of Demutualisation
(‘the Scheme’). Under the Scheme substantially all of the assets and liabilities of the Standard Life Assurance Company were transferred
to SLAL.
The Scheme provides that certain defined cash flows (recourse cash flows) arising in the HWPF on specified blocks of UK and Ireland
business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the
Shareholder Fund (‘SHF’) or the Proprietary Business Fund (‘PBF’) of SLAL, and thus accrue to the ultimate benefit of equity holders of
the Company. Under the Scheme, such transfers are subject to certain constraints in order to protect policyholders. The Scheme also
provides for additional expenses to be charged by the PBF to the HWPF in respect of German branch business in SLAL.
Under the realistic valuation, the discounted value of expected future cash flows on participating contracts not reflected in the
WPBR is included in the cost of future policy related liabilities (as a reduction where future cash flows are expected to be positive).
The discounted value of expected future cash flows on non-participating contracts not reflected in the measure of non-participating
liabilities is recognised as a separate asset (where future cash flows are expected to be positive). The Scheme requirement to transfer
future recourse cash flows out of the HWPF is recognised as an addition to the cost of future policy related liabilities. The discounted
value of expected future cash flows on non-participating contracts can be apportioned between those included in the recourse cash
flows and those retained in the HWPF for the benefit of policyholders.
Applying the policy noted above for the HWPF:
• The value of participating investment contract liabilities on the consolidated statement of financial position is reduced by future
expected (net positive) cash flows arising on participating contracts.
• Future expected cash flows on non-participating contracts are not recognised as an asset of the HWPF on the consolidated
statement of financial position. However, future expected cash flows on non-participating contracts that are not recourse cash flows
under the Scheme are used to reduce the value of participating insurance and participating investment contract liabilities on the
consolidated statement of financial position
Present value of future profits on non-participating business in the with-profit funds
For UK with-profit life funds, an amount may be recognised for the present value of future profits (‘PVFP’) on non-participating business
written in a with-profit fund where the determination of the realistic value of liabilities in that with-profit fund takes account, directly or
indirectly, of this value.
Where the value of future profits can be shown to be due to policyholders, this amount is recognised as a reduction in the liability
rather than as an intangible asset. This is then apportioned between the amounts that have been taken into account in the measurement
of liabilities and other amounts which are shown as an adjustment to the unallocated surplus.
Where it is not possible to apportion the future profits on this non-participating business to policyholders, the PVFP on this business is
recognised as an intangible asset and changes in its value are recorded as a separate item in the consolidated income statement (see
note G2).
The value of the PVFP is determined in a manner consistent with the realistic measurement of liabilities. In particular, the methodology
and assumptions involve adjustments to reflect risk and uncertainty, are based on current estimates of future experience and current
market yields and allow for market consistent valuation of any guarantees or options within the contracts. The value is also adjusted
to remove the value of capital backing the non-profit business if this is included in the realistic calculation of PVFP. The principal
assumptions used to calculate the PVFP are the same as those used in calculating the insurance contract liabilities given in note F4.
Embedded derivatives
Embedded derivatives, including options to surrender insurance contracts, that meet the definition of insurance contracts or are
closely related to the host insurance contract, are not separately measured. All other embedded derivatives are separated from the
host contract and measured at fair value through profit or loss.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Liability adequacy
At each reporting date, liability adequacy tests are performed to assess whether the insurance contract and investment contract
with DPF liabilities are adequate. Current best estimates of future cash flows are compared to the carrying value of the liabilities.
Any deficiency is charged to the consolidated income statement.
The Group’s accounting policies for insurance contracts meet the minimum specified requirements for liability adequacy testing
under IFRS 4 Insurance Contracts, as they allow for current estimates of all contractual cash flows and of related cash flows such as
claims handling costs. Cash flows resulting from embedded options and guarantees are also allowed for, with any deficiency being
recognised in the consolidated income statement.
Reinsurance
Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims
associated with the reinsured policy.
Reinsurance ceded
The Group cedes insurance risk in the normal course of business. Reinsurance assets represent balances due from reinsurance
providers. Reinsurers’ share of insurance contract liabilities is dependent on expected claims and benefits arising under the related
reinsured policies.
Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises
during the reporting period. Impairment occurs when there is objective evidence, as a result of an event that occurred after initial
recognition of the reinsurance asset, that the Group may not receive all outstanding amounts due under the terms of the contract
and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is
recognised in the consolidated income statement. The reinsurers’ share of investment contract liabilities is measured on a basis that
is consistent with the valuation of the liability to policyholders to which the reinsurance applies.
Reinsurance premiums payable in respect of certain reinsured individual and group pensions annuity contracts are payable by
quarterly instalments and are accounted for on a payable basis. Due to the period of time over which reinsurance premiums are payable
under these arrangements, the reinsurance premiums and related payables are discounted to present values using a pre-tax risk-free
rate of return. The unwinding of the discount is included as a charge within the consolidated income statement.
Reinsurance accepted
The Group accepts insurance risk under reinsurance contracts. Amounts paid to cedants at the inception of reinsurance contracts in
respect of future profits on certain blocks of business are recognised as a reinsurance asset. Changes in the value of the reinsurance
assets created from the acceptance of reinsurance are recognised as an expense in the consolidated income statement, consistent with
the expected emergence of the economic benefits from the underlying blocks of business.
At each reporting date, the Group assesses whether there are any indications of impairment. When indications of impairment exist,
an impairment test is carried out by comparing the carrying value of the asset with the estimate of the recoverable amount. When the
recoverable amount is less than the carrying value, an impairment charge is recognised as an expense in the consolidated income
statement. Reassurance assets are also considered in the liability adequacy test for each reporting period.
Consolidated income statement recognition
Gross premiums
In respect of insurance contracts and investment contracts with DPF, premiums are accounted for on a receivable basis and exclude
any taxes or duties based on premiums. Funds at retirement under individual pension contracts converted to annuities with the Group
are, for accounting purposes, included in both claims incurred and premiums within gross premiums written.
Reinsurance premiums
Outward reinsurance premiums are accounted for on a payable basis. Reinsurance premiums include amounts receivable as refunds
of premiums in cases where the Group cancels arrangements for the reinsurance of risk to another reinsurer.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
223
223
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F1. Liabilities under insurance contracts continued
Gross benefits and claims
Claims on insurance contracts and investment contracts with DPF reflect the cost of all claims arising during the period, including
policyholder bonuses allocated in anticipation of a bonus declaration. Claims payable on maturity are recognised when the claim
becomes due for payment and claims payable on death are recognised on notification. Surrenders are accounted for at the earlier
of the payment date or when the policy ceases to be included within insurance contract liabilities. Where claims are payable and the
contract remains in-force, the claim instalment is accounted for when due for payment. Claims payable include the costs of settlement.
Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.
Gains or losses on purchasing reinsurance are recognised in the consolidated income statement at the date of purchase and are not
amortised. They are the difference between the premiums ceded to reinsurers and the related change in the reinsurers’ share of
insurance contract liabilities.
The table below shows a summary of the liabilities under insurance contracts and the related reinsurers’ share included within assets
in the statement of consolidated financial position.
Life assurance business:
Insurance contracts
Investment contracts with DPF
Gross
liabilities
2021
£m
Reinsurers’
share
2021
£m
Gross
liabilities
2020
£m
Reinsurers’
share
2020
£m
99,169
29,695
8,587
103,012
9,542
–
30,895
–
128,864
8,587
133,907
9,542
Amounts due for settlement after 12 months
114,545
7,472
113,880
8,546
Reinsurers’
share
2020
£m
7,324
796
(1,613)
4
–
Gross
liabilities
2021
£m
133,907
7,455
Reinsurers’
share
2021
£m
9,542
2,079
Gross
liabilities
2020
£m
95,643
4,706
(9,656)
(1,597)
(7,808)
(1,168)
(799)
–
–
(48)
(730)
–
–
(875)
(659)
851
–
24,606
2,782
9,558
6,351
–
249
128,864
8,587
133,907
9,542
At 1 January
Premiums
Claims
Foreign exchange adjustments
Disposal of Ark Life (see note H3)
Acquisition of ReAssure businesses (see note H2.1)
L&G Part VII portfolio transfer (see note H2.2)
Other changes in liabilities1
At 31 December
1 Other changes in liabilities principally comprise changes in economic and non-economic assumptions and experience.
224
224
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
F2. Unallocated surplus
The unallocated surplus comprises the excess of the assets over the policyholder liabilities of the with-profit business of the Group’s life
operations. For the Group’s with-profit funds this represents amounts which have yet to be allocated to owners since the unallocated
surplus attributable to policyholders has been included within liabilities under insurance contracts.
If the realistic value of liabilities to policyholders exceeds the value of the assets in the with-profit fund, the unallocated surplus is valued
at £nil.
In relation to the HWPF, amounts are considered to be allocated to shareholders when they emerge as recourse cash flows within
the HWPF.
• The unallocated surplus of the HWPF comprises the value of future recourse cash flows in participating contracts (but not the
value of future cash flows on non-participating contracts), the value of future additional expenses to be charged on German branch
business and the effect of any measurement differences between the realistic value and the IFRS accounting policy value of all assets
and liabilities other than participating contract liabilities recognised in the HWPF.
• The recourse cash flows are recognised as they emerge as an addition to shareholders’ profits if positive or as a deduction if negative.
As the additional expenses are charged in respect of the German branch business they are recognised as an addition to equity
holders’ profits.
At 1 January
Transfer (to)/from consolidated income statement
Acquisition of ReAssure businesses (see note H2.1)
L&G Part VII transfer (see note H2.2)
Foreign exchange movements
At 31 December
2021
£m
1,768
(106)
–
–
139
1,801
2020
£m
1,367
113
136
261
(109)
1,768
F3. Reinsurance
This section includes disclosures in relation to reinsurance. Further disclosures and accounting policies relating to reinsurance are
included in note F1.
F3.1 Premiums ceded to reinsurers
Premiums ceded to reinsurers during the period were £2,079 million (2020: £796 million).
Phoenix Group Holdings plc Annual Report and Accounts 2021
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225
225
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F3. Reinsurance continued
F3.2 Collateral arrangements
It is the Group’s practice to obtain collateral to mitigate the counterparty risk related to reinsurance transactions usually in the form of
cash or marketable financial instruments.
Where the Group receives collateral in the form of marketable financial instruments which it is not permitted to sell or re-pledge except
in the case of default, it is not recognised in the statement of consolidated financial position. The fair value of financial assets accepted
as collateral for reinsurance transactions but not recognised in the statement of consolidated financial position amounts to £4,882 million
(2020: £4,324 million).
Where the Group receives collateral on reinsurance transactions in the form of cash it is recognised in the statement of consolidated
financial position along with a corresponding liability to repay the amount of collateral received, disclosed as ‘Deposits received from
reinsurers’. Where there is interest payable on such collateral, it is recognised within ‘Net expense under arrangements with reinsurers’
(see note F3.3). The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2021 are set
out below.
Financial assets
Financial liabilities
Reinsurance transactions
2021
£m
373
373
2020
£m
427
427
F3.3 Net income/(expense) under arrangements with reinsurers
The Group has reinsured the longevity and investment risk related to a portfolio of annuity contracts held within the HWPF. At inception
of the reinsurance contract the reinsurer was required to deposit an amount equal to the reinsurance premium with the Group.
The amount recognised in the statement of consolidated financial position in respect of this deposit is £3.2 billion as at 31 December
2021 (31 December 2020: £3.7 billion). Interest is payable to the reinsurer on the deposit at a floating rate. The Group maintains a
ring fenced pool of assets to back this deposit liability. Annuity payments under the reinsured contracts are made by the Group from the
ring-fenced assets and the deposit liability is reduced by the amount of these payments. Periodically the Group is required to pay to the
reinsurer or receive from the reinsurer Premium Adjustments defined as the difference between the fair value of the ring-fenced assets
and the deposit amount, such that the deposit amount equals the fair value of the ring-fenced assets. This has the effect of ensuring that
the investment risk on the ring-fenced pool of assets falls on the reinsurer. The investment return on the ring-fenced assets included
within net investment return in the consolidated income statement is equal to an equivalent amount recognised in net expense under
arrangements with reinsurers.
Interest payable on deposits from reinsurers
Premium adjustments
Net income/(expense) under arrangements with reinsurers
2021
£m
(11)
33
22
2020
£m
(13)
(206)
(219)
226
226
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
F4. Risk management – insurance risk
This note forms one part of the risk management disclosures in the consolidated financial statements. An overview of the Group’s
approach to risk management is outlined in note I3 and the Group’s management of financial and other risks is detailed in note E6.
Insurance risk refers to the risk of reductions in earnings and/or value, through financial or reputational loss, due to fluctuations
in the timing, frequency and severity of insured/underwritten events and to fluctuations in the timing and amount of claim
settlements. This includes fluctuations in profits due to customer behaviour. The Life businesses are exposed to the following
elements of insurance risk:
Mortality
Longevity
Morbidity/Disability
Expenses
Persistency
higher than expected death claims on assurance products or lower than expected improvements in mortality;
lower than expected number of deaths experienced on annuity products or greater than expected
improvements in annuitant mortality;
higher than expected number of inceptions on critical illness or income protection policies and lower than
expected termination rates on income protection policies;
unexpected timing or value of expenses incurred;
adverse movement in surrender rates, premium paying rates, premium indexation rates, cash
withdrawal/drawdown rates, GAO surrender rates, GAO take-up rates, policyholder retirement dates,
propensity to commute benefits, transfer out rates or the occurrence of a mass lapse event leading to losses;
New business pricing
inappropriate pricing of new business that is not in line with the underlying risk factors for that business.
Objectives and policies for mitigating insurance risk
Insurance risks are managed by monitoring risk exposure against predefined appetite limits. If a risk is moving out of appetite, the Group
can choose to mitigate it via reinsurance in the case of longevity, mortality and morbidity risks, or by taking other risk reducing actions.
This is supported by additional methods to assess and monitor insurance risk exposures for both individual types of risks insured and
overall risks. These methods include internal risk measurement models, experience analyses, external data comparisons, sensitivity
analyses, scenario analyses and stress testing. Assumptions that are deemed to be financially significant are reviewed at least annually
for pricing and reporting purposes.
The profitability of the run-off of the Heritage business within the Group depends, to a significant extent, on the values of claims paid in
the future relative to the assets accumulated to the date of claim. Typically, over the lifetime of a contract, premiums and investment
returns exceed claim costs in the early years and it is necessary to set aside these amounts to meet future obligations. The amount of such
future obligations is assessed on actuarial principles by reference to assumptions about the development of financial and insurance risks.
It is therefore necessary for the Directors of each life company to make decisions, based on actuarial advice, which ensure an appropriate
accumulation of assets relative to liabilities. These decisions include investment policy, bonus policy and, where discretion exists, the level
of payments on early termination.
For the Group’s Open business, longevity risk exposures continue to increase as a result of the Bulk Purchase Annuity deals it has
successfully acquired, however the vast majority of these exposures are reinsured to third parties. New business growth driven by product
segments such as Workplace unit-linked pensions exposes the Group to persistency and expense risks.
There remains uncertainty around future demographic experience as a result of COVID-19, as outlined in page 64 of the Annual Report
and Accounts. The impact over the longer term continues to be monitored, however given the uncertainty no adjustments to assumptions
as a result of the impacts of COVID-19 have been deemed necessary to date.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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227
227
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F4. Risk management – insurance risk continued
Sensitivities
Insurance liabilities are sensitive to changes in risk variables, such as prevailing market interest rates, currency rates and equity prices, since
these variations alter the value of the financial assets held to meet obligations arising from insurance contracts and changes in investment
conditions also have an impact on the value of insurance liabilities themselves. Additionally, insurance liabilities are sensitive to the
assumptions which have been applied in their calculation, such as mortality and lapse rates. Sometimes allowance must also be made for
the effect on future assumptions of management or policyholder actions in certain economic scenarios. This could lead to changes in
assumed asset mix or future bonus rates. The most significant non economic sensitivities arise from mortality, longevity and lapse risk.
A decrease of 5% in assurance mortality, with all other variables held constant, would result in an increase in the profit after tax in respect
of a full year, and an increase in equity of £70 million (2020: £70 million).
An increase of 5% in assurance mortality, with all other variables held constant, would result in a decrease in the profit after tax in respect
of a full year, and a decrease in equity of £70 million (2020: £70 million).
A decrease of 5% in annuitant longevity, with all other variables held constant, would result in an increase in the profit after tax in respect
of a full year, and an increase in equity of £517 million (2020: £619 million).
An increase of 5% in annuitant longevity, with all other variables held constant, would result in a decrease in the profit after tax in respect
of a full year, and a decrease in equity of £530 million (2020: £627 million).
A decrease of 10% in lapse rates, with all other variables held constant, would result in a decrease in the profit after tax in respect of a full
year, and a decrease in equity of £27 million (2020: £40 million).
An increase of 10% in lapse rates, with all other variables held constant, would result in an increase in the profit after tax in respect of a full
year, and an increase in equity of £27 million (2020: £44 million).
F4.1 Assumptions
For participating business which is with-profit business (insurance and investment contracts with DPF), the insurance contract liability
is calculated on a realistic basis, adjusted to exclude the shareholders’ share of future bonuses and the associated tax liability. This is a
market consistent valuation, which involves placing a value on liabilities similar to the market value of assets with similar cash flow patterns.
The non-participating insurance contract liabilities are determined using either a net premium or gross premium valuation method.
The assumptions used to determine the liabilities, under these valuation methods are updated at each reporting date to reflect recent
experience. Material judgement is required in calculating these liabilities and, in particular, in the choice of assumptions about which
there is uncertainty over future experience. The principal assumptions are as follows:
Discount rates
The Group discounts participating and non-participating insurance contract liabilities at a risk-free rate derived from the swap yield
curve, plus an illiquidity premium of 36bps.
For certain non-participating insurance contract liabilities (e.g. annuities), the Group makes a further explicit adjustment to the risk-free
rate to reflect illiquidity in respect of the assets backing those liabilities.
Expenses
Insurance contract liabilities include an allowance for the best estimate of future expenses associated with the administration of in-force
policies. This requires the allocation of the Group’s future expenses between those that relate to the administration of in-force policies,
those attributable to the acquisition of new business and other costs, such as corporate costs. There is a level of judgement applied in the
analysis that supports this allocation. Additionally, judgement is applied in the determination of the projected costs of the Group, in
particular where those projections include the impact of transition and integration activity.
Expenses are assumed to increase at either the rate of increase in the Retail Price Index (‘RPI’), or a rate derived from the UK inflation
swaps curve, plus fixed margins in accordance with the various management service agreements (‘MSAs’) the Group has in place with
outsource partners. For with-profit business the rate of RPI inflation is determined within each stochastic scenario. For other business it is
based on the Bank of England inflation spot curve. For MSAs with contractual increases set by reference to national average earnings
inflation, this is approximated as RPI inflation or RPI inflation plus 1%. In instances in which inflation risk is not mitigated, a further margin
for adverse deviations may then be added to the rate of expense inflation.
228
228
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Mortality and longevity rates
Mortality rates are based on company experience and published tables, adjusted appropriately to take account of changes in the
underlying population mortality since the table was published, company experience and forecast changes in future mortality.
Where appropriate, a margin is added to assurance mortality rates to allow for adverse future deviations. Annuitant mortality rates
are adjusted to make allowance for future improvements in pensioner longevity.
Lapse and surrender rates (persistency)
The assumed rates for surrender and voluntary premium discontinuance depend on the length of time a policy has been in force and the
relevant company experience. Surrender or voluntary premium discontinuances are only assumed for realistic basis funds. Withdrawal
rates used in the valuation of with-profit policies are based on observed experience and adjusted when it is considered that future
policyholder behaviour will be influenced by different considerations than in the past. In particular, it is assumed that withdrawal rates
for unitised with-profit contracts will be higher on policy anniversaries on which Market Value Adjustments do not apply.
Discretionary participating bonus rate
For realistic basis funds, the regular bonus rates assumed in each scenario are determined in accordance with each company’s PPFM.
Final bonuses are assumed at a level such that maturity payments will equal asset shares subject to smoothing rules set out in the
PPFM and the value of guaranteed benefits.
Policyholder options and guarantees
Some of the Group’s products give potentially valuable guarantees, or give options to change policy benefits which can be exercised
at the policyholders’ discretion. These products are described below.
Most with-profit contracts give a guaranteed minimum payment on a specified date or range of dates or on death if before that date or
dates. For pensions contracts, the specified date is the policyholder’s chosen retirement date or a range of dates around that date. For
endowment contracts, it is the maturity date of the contract. For with-profit bonds it is often a specified anniversary of commencement,
in some cases with further dates thereafter. Annual bonuses when added to with-profit contracts usually increase the guaranteed amount.
There are guaranteed surrender values on a small number of older contracts.
Some pensions contracts include guaranteed annuity options. The total amount provided in the with-profit and non-profit funds in
respect of the future costs of guaranteed annuity options are £1,968 million (2020: £2,590 million) and £111 million (2020: £131 million)
respectively.
In common with other life companies in the UK which have written pension transfer and opt-out business, the Group has set up provisions
for the review and possible redress relating to personal pension policies. These provisions, which have been calculated from data derived
from detailed file reviews of specific cases and using a certainty equivalent approach, which give a result very similar to a market
consistent valuation, are included in liabilities arising under insurance contracts. The total amount provided in the with-profit funds and
non-profit funds in respect of the review and possible redress relating to pension policies, including associated costs, are £349 million
(2020: £374 million) and £6 million (2020: £6 million) respectively.
With-profit deferred annuities participate in profits only up to the date of retirement. At retirement, a guaranteed cash option allows the
policyholder to commute the annuity benefit into cash on guaranteed terms.
Demographic prudence margin
For non-participating insurance contract liabilities, the Group sets assumptions at management’s best estimates and recognises an
explicit margin for demographic risks. For participating business in realistic basis funds, the assumptions about future demographic
trends represent ‘best estimates’.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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229
229
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F4. Risk management – insurance risk continued
F4.1 Assumptions continued
Assumption changes
During the year a number of changes were made to assumptions to reflect changes in expected experience or to reflect transition
activity. The impact of material changes during the year was as follows:
Change in longevity assumptions
Change in persistency assumptions
Change in mortality assumptions
Change in expenses assumptions
2021:
(Decrease)/
increase in
insurance
liabilities
2021
£m
(Decrease)/
increase in
insurance
liabilities
2020
£m
(272)
(12)
(7)
275
(369)
6
31
(36)
The £272 million positive impact of changes in longevity assumptions reflects updates to base and improvement assumptions to reflect
latest experience analyses and the most recent Continuous Mortality Investigation 2020 projection tables.
The £12 million and £7 million positive impact of changes in persistency and mortality assumptions respectively reflects the results of the
latest experience investigations.
The £275 million negative impact of changes in expense assumptions principally reflects the impact of investment in the Group’s growth
agenda on the maintenance cost base, including the development of capabilities within the Group’s Open business, asset management
capabilities and within certain Group functions. The increase in reserves also reflects provision for the anticipated costs associated with
the implementation of IFRS 17 and delivery of the Group Target Operating Model for IT and Operations.
2020:
The £369 million positive impact of changes in longevity assumptions reflects updates to base and improvement assumptions to reflect
latest experience analyses and the most recent Continuous Mortality Investigation 2019 projection tables.
The £6 million and £31 million negative impact of changes in persistency and mortality assumptions respectively reflects the results of the
latest experience investigations.
The £36 million positive impact of changes in expense assumptions principally reflects synergies generated upon the completion of the
Part VII transfer of the L&G Mature Savings business, partially offset by an increase in reserves in respect of expected costs associated
with the delivery of the Group Target Operating Model for IT and Operations and updates to investment expense assumptions,
principally reflecting changes to asset mix.
230
230
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Financials continued
F4.2 Managing product risk
The following sections give an assessment of the risks associated with the Group’s main life assurance products and the ways in which the
Group manages those risks.
2021
With-profit funds:
Pensions:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Unitised with-profit
Total pensions
Life:
Immediate annuities
Unitised with-profit
Life with-profit
Total life
Other
Non-profit funds:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Protection
Unit-linked
Other
1 £9,864 million (2020: £7,883 million) of liabilities are subject to longevity swap arrangements.
Gross1
Reinsurance
Insurance
contracts
£m
Investment
contracts
with DPF
£m
Insurance
contracts
£m
Investment
contracts
with DPF
£m
8,746
1,753
6,506
53
341
–
13,344
27,078
30,349
27,472
348
9,364
2,166
11,878
–
1,137
–
1,137
728
–
3,787
–
4,515
1
–
6
7
1,245
(1)
192
555
983
37,329
2,076
14,891
(137)
–
–
–
–
1,084
3
–
158
2,885
876
22
(68)
99,169
29,695
8,587
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Phoenix Group Holdings plc Annual Report and Accounts 2021
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231
231
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F4. Risk management – insurance risk continued
F4.2 Managing product risk continued
2020
With-profit funds:
Pensions:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Unitised with-profit
Total pensions
Life:
Immediate annuities
Unitised with-profit
Life with-profit
Total life
Other
Non-profit funds:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Protection
Unit-linked
Other
Gross
Reinsurance
Insurance
contracts
£m
Investment
contracts with
DPF
£m
Insurance
contracts
£m
Investment
contracts with
DPF
£m
10,095
1,835
7,478
14,375
33,783
365
9,869
2,445
12,679
1,348
636
1,966
35,641
3,012
14,062
(115)
62
340
–
28,210
28,612
–
1,210
–
1,210
–
–
–
–
–
1,064
9
917
–
4,377
–
5,294
2
–
7
9
212
–
(115)
2,459
1,713
31
(61)
103,012
30,895
9,542
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
With-profit fund (unitised and traditional)
The Group operates a number of with-profit funds in which the with-profit policyholders benefit from a discretionary annual bonus
(guaranteed once added in most cases) and a discretionary final bonus. Non-participating business is also written in some of the with-
profit funds and some of the funds may include immediate annuities and deferred annuities with Guaranteed Annuity Rates (‘GAR’).
The investment strategy of each fund differs, but is broadly to invest in a mixture of fixed interest investments and equities and/or
property and other asset classes in such proportions as is appropriate to the investment risk exposure of the fund and its capital resources.
The Group has significant discretion regarding investment policy, bonus policy and early termination values. The process for exercising
discretion in the management of the with-profit funds is set out in the PPFM for each with-profit fund and is overseen by with-profit
committees. Advice is also taken from the with-profit actuary of each with-profit fund. Compliance with the PPFM is reviewed annually
and reported to the PRA, Financial Conduct Authority (‘FCA’) and policyholders.
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Financials continued
The bonuses are designed to distribute to policyholders a fair share of the return on the assets in the with-profit funds together with other
elements of the experience of the fund. The shareholders of the Group are entitled to receive one-ninth of the cost of bonuses declared
for some funds and £nil for others. For the HWPF, under the Scheme, shareholders are entitled to receive certain defined cash flows
arising on specified blocks of UK and Irish business.
Unitised and traditional with-profit policies are exposed to equivalent risks, the main difference being that unitised with-profit policies
purchase notional units in a with-profit fund whereas traditional with-profit policies do not. Benefit payments for unitised policies are then
dependent on unit prices at the time of a claim, although charges may be applied. A unitised with-profit fund price is typically guaranteed
not to fall and increases in line with any discretionary bonus payments over the course of one year.
Deferred annuities
Deferred annuity policies are written to provide either a cash benefit at retirement, which the policyholder can use to buy an annuity on
the terms then applicable, or an annuity payable from retirement. The policies contain an element of guarantee expressed in the form
that the contract is written in, i.e. to provide cash or an annuity. Deferred annuity policies written to provide a cash benefit may also
contain an option to convert the cash benefit to an annuity benefit on guaranteed terms; these are known as GAR policies. Deferred
annuity policies written to provide an annuity benefit may also contain an option to convert the annuity benefit into cash benefits on
guaranteed terms; these are known as Guaranteed Cash Option (‘GCO’) policies. In addition, certain unit prices in the HWPF are
guaranteed not to decrease.
During the last decade, interest rates and inflation have fallen and life expectancy has increased more rapidly than originally anticipated.
The guaranteed terms on GAR policies are more favourable than the annuity rates currently available in the market available for cash
benefits. The guaranteed terms on GCO policies are currently not valuable. Deferred annuity policies which are written to provide
annuity benefits are managed in a similar manner to immediate annuities and are exposed to the same risks.
The option provisions on GAR policies are particularly sensitive to downward movements in interest rates, increasing life expectancy and
the proportion of customers exercising their option. Adverse movements in these factors could lead to a requirement to increase reserves
which could adversely impact profit and potentially require additional capital. In order to address the interest rate risk (but not the risk
of increasing life expectancy or changing customer behaviour with regard to exercise of the option), insurance subsidiaries within the
Group have purchased derivatives that provide protection against an increase in liabilities and have thus reduced the sensitivity of profit
to movements in interest rates (see note E6.2.2).
The Group seeks to manage this risk in accordance with both the terms of the issued policies and the interests of customers, and has
obtained external advice supporting the manner in which it operates the long-term funds in this respect.
Immediate annuities
This type of annuity is purchased with a single premium at the outset, and is paid to the policyholder for the remainder of their lifetime.
Payments may also continue for the benefit of a surviving spouse or partner after the annuitant’s death. Annuities may be level, or escalate
at a fixed rate, or may escalate in line with a price index and may be payable for a minimum period irrespective of whether the
policyholder remains alive.
The main risks associated with this product are longevity and investment risks. Longevity risk arises where the annuities are paid for
the lifetime of the policyholder, and is managed through the initial pricing of the annuity and through reinsurance (appropriately
collateralised) or transfer of existing liabilities. Annuities may also be a partial ‘natural hedge’ against losses incurred in protection
business in the event of increased mortality (and vice versa) although the extent to which this occurs will depend on the similarity of the
demographic profile of each book of business. In addition, the Group has in place longevity swaps that provide downside protection over
longevity risk.
The pricing assumption for mortality risk is based on both historic internal information and externally generated information on mortality
experience, including allowances for future mortality improvements. Pricing will also include a contingency margin for adverse deviations
in assumptions.
Market and credit risk is influenced by the extent to which the cash flows under the contracts have been matched by suitable assets
which is managed under the ALM framework. Asset/liability modelling is used to monitor this position on a regular basis.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
233
233
Financials
Financials continued
Notes to the consolidated financial statements
Continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F4. Risk management – insurance risk continued
F4.2 Managing product risk continued
Protection
These contracts are typically secured by the payment of a regular premium payable for a period of years providing benefits payable on
certain events occurring within the period. The benefits may be a single lump sum or a series of payments and may be payable on death,
serious illness or sickness.
The main risk associated with this product is the claims experience and this risk is managed through the initial pricing of the policy (based
on actuarial principles), the use of reinsurance and a clear process for administering claims.
Market and credit risk is influenced by the extent to which the cash flows under the contracts have been matched by suitable assets
which is managed under the ALM framework. Asset/liability modelling is used to monitor this position on a regular basis.
G. Other statement of consolidated financial position notes
G1. Pension schemes
Defined contribution pension schemes
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the consolidated income
statement as incurred.
Defined benefit pension schemes
The net surplus or deficit (the economic surplus or deficit) in respect of the defined benefit pension schemes is calculated by estimating
the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is
discounted to determine its present value and the fair value of any scheme assets is deducted.
The economic surplus or deficit is subsequently adjusted to eliminate on consolidation the carrying value of insurance policies issued
by Group entities to the defined benefit pension schemes (the reported surplus or deficit). A corresponding adjustment is made to the
carrying values of insurance contract liabilities and investment contract liabilities.
As required by IFRIC 14, IAS 19 – ‘The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’, to the
extent that the economic surplus (prior to the elimination of the insurance policies issued by Group entities) will be available as a
refund, the economic surplus is stated after a provision for tax that would be borne by the scheme administrators when the refund is
made. The Group recognises a pension surplus on the basis that it is entitled to the surplus of each scheme in the event of a gradual
settlement of the liabilities, due to its ability to order a winding up of the Trust.
Additionally under IFRIC 14 pension funding contributions are considered to be a minimum funding requirement and, to the extent
that the contributions payable will not be available to the Group after they are paid into the Scheme, a liability is recognised when the
obligation arises. The net pension scheme asset/liability represents the economic surplus net of all adjustments noted above.
The Group determines the net interest expense or income on the net pension scheme asset/liability for the period by applying the
discount rate used to measure the defined benefit obligation at the beginning of the annual period to the opening net pension scheme
asset/liability. The discount rate is the yield at the period end on AA credit rated bonds that have maturity dates approximating to the
terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
The movement in the net pension scheme asset/liability is analysed between the service cost, past service cost, curtailments and
settlements (all recognised within administrative expenses in the consolidated income statement), the net interest cost on the net
pension scheme asset/liability, including any reimbursement assets (recognised within net investment income in the consolidated
income statement), remeasurements of the net pension scheme asset/liability (recognised in other comprehensive income) and
employer contributions.
This note describes the Group’s four main defined benefit pension schemes for its employees, the Pearl Group Staff Pension Scheme
(‘Pearl Scheme’), the PGL Pension Scheme, the Abbey Life Staff Pension Scheme (‘Abbey Life Scheme’) and the ReAssure Staff Pension
Scheme (‘ReAssure Scheme’) and explains how the pension scheme asset/liability is calculated.
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Financials continued
An analysis of the pension scheme (liability)/asset for each pension scheme is set out in the table below and also includes the net pension
scheme liability in respect of the Group operated unapproved retirement benefit scheme (‘ReAssure Private Retirement Trust’):
Pearl Group Staff Pension Scheme
Economic surplus
Adjustment for insurance policies eliminated on consolidation
Net economic deficit
Provision for tax on that part of the economic surplus available as a refund on a winding-up of the Scheme
Net pension scheme liability, as reported
Reimbursement right in respect of reinsurance, as reported
Add: value attributed to assets held by PLL within financial assets1
Adjusted net pension scheme asset
PGL Pension Scheme
Economic surplus
Adjustment for insurance policies eliminated on consolidation
Net pension scheme liability, as reported
Add: assets held by PLL within financial assets1
Adjusted net pension scheme asset
Abbey Life Staff Pension Scheme
Economic surplus/(deficit)
Provision for tax on that part of the economic surplus available as a refund on a winding-up of the Scheme
Minimum funding requirement obligation
Net pension scheme asset/(liability)
ReAssure Staff Pension Scheme
Economic surplus
Provision for tax on that part of the economic surplus available as a refund on a winding-up of the Scheme
Net pension scheme asset
ReAssure Private Retirement Trust
Net pension scheme liability
2021
£m
2020
£m
263
(1,680)
(1,417)
(92)
(1,509)
212
1,896
599
26
(1,618)
(1,592)
2,084
492
12
(4)
(7)
1
54
(19)
35
527
(596)
(69)
(185)
(254)
–
756
502
30
(1,749)
(1,719)
2,177
458
(61)
–
–
(61)
16
(5)
11
(2)
(2)
1 The Pearl Scheme and the PGL Pension Scheme have both executed buy-in transactions with a Group life company and subsequently assets supporting the Group's actuarial liabilities are recognised on
a line by line basis within financial assets in the statement of consolidated financial position. Further details are included in notes G1.1 and G1.2 below.
In the current and prior periods, an adjusted net pension scheme asset has been presented for the first time in relation to both the pension schemes. The value of the assets held by PLL within financial
assets in respect of the PGL Pension Scheme buy-ins is equal to the assets posted to a ring-fenced collateral account. For the Pearl Scheme the assets held by PLL supporting the buy-ins are not ring-
fenced and the value has been determined as the value of the insurance contract liability within the PLL financial statements less the value of the associated reinsurance asset.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
235
235
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
Risks
The Group’s defined benefit schemes typically expose the Group to a number of risks, the most significant of which are:
Asset volatility – the value of the schemes’ assets will vary as market conditions change and as such is subject to considerable volatility.
The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this
will create a deficit. The majority of the assets are held within a liability driven investment strategy which is linked to the funding basis
of the schemes (set with reference to government bond yields). As such, to the extent that movements in corporate bond yields are out
of line with movements in government bond yields, volatility will arise.
Inflation risk – a significant proportion of the schemes’ benefit obligations are linked to inflation, and higher inflation will lead to higher
liabilities (although in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority
of the assets are held within a liability driven investment strategy which allows for movements in inflation, meaning that changes in
inflation should not materially affect the surplus.
Life expectancy – the majority of the schemes’ obligations are to provide benefits for the life of the member therefore increases in life
expectancy will result in an increase in the liabilities. For the Pearl and PGL schemes, this is partially offset by the buy-in policies that move
in line with the liabilities. These buy-in policies are eliminated on consolidation (see sections G1.1 and G1.2 for further details).
Information on each of these schemes is set out below.
Guaranteed Minimum Pension (‘GMP’) equalisation
GMP is a portion of pension that was accrued by individuals who were contracted out of the State Second Pension prior to 6 April 1997.
Historically, there was an inequality of benefits between male and female members who have GMP. A High Court case concluded
on 26 October 2018 and confirmed that GMPs needed to be equalised. A further ruling in November 2020 clarified requirements in
respect of transfers out. During 2020, the Group updated the initial assessment of its allowance for the potential cost of equalising GMP
for the impact between males and females included its IAS 19 actuarial liabilities. At 31 December 2021 the GMP equalisation reserve was
calculated as a percentage uplift to the defined benefit obligation for each scheme as follows: PGL Scheme: 0.5% (2020: 0.5%); Pearl
Scheme: 0.37% (2020: 0.37%); Abbey Life Scheme: 0.37% (2020: 0.37%); and the ReAssure Scheme: 0.1% (2020: 0.1%).
G1.1 Pearl Group Staff Pension Scheme
Scheme details
The Pearl Scheme comprises a final salary section, a money purchase section and a hybrid section (a mix of final salary and money
purchase). The Pearl Scheme is closed to new members and has no active members.
Defined benefit scheme
The Pearl Scheme is established under, and governed by, the trust deeds and rules and has been funded by payment of contributions
to a separately administered trust fund. A Group company, Pearl Group Holdings No.2 Limited (‘PGH2’), is the principal employer of the
Pearl Scheme. The principal employer meets the administration expenses of the Pearl Scheme. The Pearl Scheme is administered by a
separate trustee company, P.A.T. (Pensions) Limited, which is separate from the Company. The trustee company is comprised of four
representatives from the Group, three member nominated representatives and one independent trustee in accordance with the trustee
company’s articles of association. The trustee is required by law to act in the interest of all relevant beneficiaries and is responsible for the
investment policy with regard to the assets.
To the extent that an economic surplus will be available as a refund, the economic surplus is stated after a provision for tax that would be
settled by the scheme administrators when the refund is made.
The valuation has been based on an assessment of the liabilities of the Pearl Scheme as at 31 December 2021, undertaken by
independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured
using the projected unit credit method.
236
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
A triennial funding valuation of the Pearl Scheme as at 30 June 2018 was completed in 2019. This showed a surplus as at 30 June 2018
of £104 million, on the agreed technical provisions basis. The triennial funding valuation of the Scheme as at 30 June 2021 commenced
during the year and is ongoing as at 31 December 2021. The funding and IFRS accounting bases of valuation can give rise to different
results for a number of reasons. The funding basis of valuation is based on general principles of prudence whereas the accounting
valuation is based on best estimates. Discount rates are derived from government bond yields for the funding valuation whereas the rate
used for IFRS valuation purposes is based on a yield curve for high quality AA-rated corporate bonds. In addition the values are prepared
at different dates which will result in differences arising from changes in market conditions and employer contributions made in the
subsequent period.
Pension scheme commitment agreement and buy-in
On 17 November 2020, the Pearl Scheme entered into a Commitment Agreement with PGH2 to complete a series of buy-ins that are
scheduled to be executed by 31 December 2023. At the same time, the Pearl Scheme completed the first buy-in with Phoenix Life
Limited (‘PLL’) covering 25% of the Scheme’s pensioner and deferred member liabilities, transferring the associated risks, including
longevity improvement risk, to PLL effective from 30 September 2020.
Two further buy-in transactions were completed in July 2021 and October 2021 covering 35% and 15% respectively of the Scheme’s
pensioner and deferred member liabilities. Risks, including longevity improvement risk, were transferred to PLL effective from 28 May
2021 and 31 August 2021 respectively.
Upon completion of each buy-in transaction the Scheme transferred the following plan assets to PLL:
• in November 2020, £731 million of plan assets were transferred to PLL in satisfaction of the premium of £735 million and was net
of a £4 million payment by PLL to the Scheme in respect of members’ benefits for October and November 2020;
• in July 2021, £1,049 million of plan assets were transferred to PLL in satisfaction of the premium and a further £12 million cash payment
was paid by the Scheme in August 2021. PLL paid £5 million to the Scheme in respect of members’ benefits for June and July 2021;
and
• in October 2021, £433 million of plan assets were transferred to PLL in satisfaction of the premium of £435 million and was net of a
£2 million payment by PLL to the Scheme in respect of members’ benefits for September and October 2021. A further £1 million cash
payment in respect of the premium was paid by the Scheme in December 2021.
The assets transferred to PLL are recognised in the relevant line within financial assets in the consolidated statement of financial position.
The economic effect of the buy-in transactions in the Scheme is to replace the plan assets transferred with a single line insurance policy
reimbursement right asset which is subsequently eliminated on consolidation. The value of this insurance policy at 31 December 2021
was £1,680 million (2020: £596 million) which includes an amount owed by PLL of £12 million (2020: £nil).
The Commitment Agreement replaced the 2012 Pensions Agreement, which had previously included provisions covering contribution
payments, additional contributions payable should agreed funding targets not be met, share charge over certain Group entities and
covenant tests. The main terms of the Commitment Agreement are detailed below.
The new agreement contains provisions under which payments by PGH2 to the Scheme are required in the event that the Group does
not meet the minimum buy-in completion schedule. There are two different types of payments as detailed below:
• gilts deficit recovery contributions: These operate in a similar way to the security under the 2012 Pension Agreement. Contributions
calculated as amounts required to reach full funding on a gilts-basis by 30 June 2027; and
• contingent contributions: These represent a new form of security for the trustee. The amount of these contributions was initially
capped at £200 million, with the cap running off in line with completion of the buy-ins. Following the completion of the recent buy-in
transactions the cap is £50 million.
The new agreement also introduces a new form of security provided by PGH2 to the trustee which will be in place until the final buy-in
is completed. The share charges over certain Group entities have been replaced by a new surety bond arrangement. The surety bonds
have been written by two external third-party insurers, each providing £100 million of cover payable to the Scheme following any one of
the following trigger events:
• insolvency of the Company, PGH2, PGS, Standard Life Assurance Limited, PLL, or Phoenix Life Assurance Limited; and
• failure to pay any contributions to the Scheme due under the terms of the Commitment Agreement.
The cover provided by the surety bonds will be reduced from £200 million to £100 million (in aggregate) once the completed aggregate
buy-in proportion exceeds 75%. The cover remains at £200 million following completion of the October 2021 buy-in transaction.
The agreements between the trustee and the surety providers are backed by a guarantee and an indemnity from the Company, PGH2
and PGS to the surety providers to repay them in the event of a claim under the surety bond.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
237
237
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.1 Pearl Group Staff Pension Scheme continued
Contributions totalling £70 million were paid into the Pearl Scheme in 2020. Following the signing of the new Commitment Agreement
PGH2 paid the balance of the remaining contributions under the 2012 Pensions Agreement (£37 million) in addition to the monthly
instalments paid up to the date of the agreement. No further contributions are to be paid to the Pearl Scheme however, PGH2 will
continue to meet the administrative and non-investment running expenses of the Scheme as set out in the schedule of contributions.
Reimbursement right asset in respect of reinsurance arrangement
In November 2021, PLL entered into a quota share reinsurance arrangement with an external insurer to reinsure c.64% of the risks
transferred to PLL upon completion of the third buy-in transaction with the Pearl Scheme. A premium of £261 million was paid by PLL to
the reinsurer. As PLL expects to use the claims received to pay for its obligations under the insurance contract between it and the Pearl
scheme (i.e. to settle the defined benefit obligation) the reinsurance arrangement is considered to be a non-qualifying insurance policy
and is classified as a reimbursement right. The reinsurance arrangement is expected to match a proportion of the defined benefit
obligation of the Pearl Scheme therefore the valuation of the reimbursement right is consistent with the valuation of the associated
defined benefit obligation.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as a
refund
£m
2,315
(2,384)
(185)
Pension
Scheme
Liability
Reimburse-
ment right
asset
24
24
27
–
–
–
–
27
46
(108)
(1,497)
–
807
(33)
(33)
–
22
89
(26)
–
85
–
108
–
–
(2)
(2)
–
–
–
–
95
95
–
–
–
–
(2,224)
(92)
(1,509)
£m
(254)
(11)
(11)
27
22
89
(26)
95
207
46
–
(1,497)
–
£m
–
–
–
(49)
–
–
–
–
(49)
–
–
–
261
212
2021
At 1 January
Interest income/(expense)
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Gain from changes in financial assumptions
Experience loss
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Income received from insurance policies
Benefit payments
Assets transferred as premium for Scheme buy-in
Assets transferred as premium for reinsurance arrangement
At 31 December
238
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
At 1 January
Interest income/(expense)
Past service cost
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience gain
Change in provision for tax on economic surplus available as a refund
Change in minimum funding requirement obligation
Included in other comprehensive income
Employer’s contributions
Income received from insurance policies
Benefit payments
Assets transferred as premium for Scheme buy-in
At 31 December
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as a
refund
£m
Minimum
funding
requirement
obligation
£m
2,834
(2,313)
(183)
(24)
53
–
53
198
–
–
–
–
–
(45)
(1)
(46)
–
51
(205)
19
–
–
198
(135)
70
5
(110)
(735)
–
–
110
–
(4)
–
(4)
–
–
–
–
2
–
2
–
–
–
–
2,315
(2,384)
(185)
(1)
–
(1)
–
–
–
–
–
25
25
–
–
–
–
–
Total
£m
314
3
(1)
2
198
51
(205)
19
2
25
90
70
5
–
(735)
(254)
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
239
239
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.1 Pearl Group Staff Pension Scheme continued
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
2021
2020
Hedging portfolio
Fixed interest gilts
Other debt securities
Properties
Private equities
Hedge funds
Cash and other
Obligations for repayment of stock lending collateral received
Reported scheme assets
Add back:
Insurance policies eliminated on consolidation
Economic value of assets
Of which not
quoted in an
active market
£m
23
–
–
104
4
4
–
–
135
Total
£m
438
–
349
104
4
4
67
(159)
807
1,680
2,487
1,680
1,815
Of which not
quoted in an
active market
£m
(30)
–
–
140
5
5
–
–
120
596
716
Total
£m
1,505
50
1,301
140
5
5
98
(789)
2,315
596
2,911
The Group ensures that the investment positions are managed within an Asset Liability Matching (‘ALM’) framework that has been
developed to achieve long-term investments that are in line with the obligations under the Pearl Scheme. Within this framework an
allocation of the scheme assets is invested in collateral for interest rate and inflation rate hedging where the intention is to hedge 100% of
the interest rate and inflation rate risk measured on a gilts-basis.
The Pearl Scheme uses swaps, UK Government bonds and UK Government stock lending to hedge the interest rate and inflation
exposure arising from the liabilities which are disclosed in the table above as ‘Hedging Portfolio’ assets. Under the Scheme’s stock lending
programme, the Scheme lends a Government bond to an approved counterparty and receives a similar value in the form of cash in return
which is typically reinvested into other Government bonds. The Scheme retains economic exposure to the Government bond, hence
the bonds continue to be recognised as scheme assets with a corresponding liability to repay the cash received as disclosed in the
table above.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme’s members as follows:
• deferred scheme members: 40% (2020: 40%); and
• pensioners: 60% (2020: 60%)
The weighted average duration of the defined benefit obligation at 31 December 2021 is 16 years (2020: 16 years).
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2021
Assumptions
Sensitivity level
2020
Assumptions
Sensitivity level
Principal assumptions
The principal financial assumptions of the Pearl Scheme are set out in the table below:
Rate of increase for pensions in payment (5% per annum or RPI if lower)
Rate of increase for deferred pensions (‘CPI’)
Discount rate
Inflation – RPI
Inflation – CPI
2021
%
3.20
2.70
2.00
3.30
2.70
2020
%
2.85
2.10
1.40
2.90
2.10
The discount rate and inflation rate assumptions have been determined by considering the shape of the appropriate yield curves and the
duration of the Pearl Scheme’s liabilities. This method determines an equivalent single rate for each of the discount and inflation rates,
which is derived from the profile of projected benefit payments.
The post-retirement mortality assumptions are in line with a scheme-specific table which was derived from the actual mortality
experience in recent years based on the SAPS standard tables for males and for females based on year of use. Future longevity
improvements from 1 January 2021 are based on amended CMI 2020 Core Projections (2020: From 1 January 2017 based on amended
CMI 2019 Core Projections) and a long-term rate of improvement of 1.70% (2020: 1.70%) per annum for males and 1.20% (2020: 1.20%)
per annum for females. Under these assumptions, the average life expectancy from retirement for a member currently aged 40 retiring at
age 60 is 29.8 years and 30.6 years for male and female members respectively (2020: 30.1 years and 31.0 years respectively).
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
Impact on the defined benefit obligation (£m)
2,224
(87)
93
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
70
25bps
decrease
(68)
1 year increase 1 year decrease
80
(80)
Impact on the defined benefit obligation (£m)
2,384
(95)
98
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
76
25bps
decrease
(87)
1 year increase
1 year decrease
86
(86)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method has been applied as when calculating the pension asset recognised
within the statement of consolidated financial position.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
241
241
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.2 PGL Pension Scheme
The PGL Pension Scheme comprises a final salary section and a defined contribution section.
Scheme details
Defined contribution scheme
On 1 July 2020 the Group closed the defined contribution section of the PGL Scheme and ceased making contributions from this date.
Contributions in the period to 1 July 2020 were £5 million.
Defined benefit scheme
The defined benefit section of the PGL Pension Scheme is a final salary arrangement which is closed to new entrants and has no active
members.
The PGL Scheme is administered by a separate trustee company, PGL Pension Trustee Ltd. The trustee company is comprised of two
representatives from the Group, three member nominated representatives and one independent trustee in accordance with the trustee
company’s articles of association. The trustee is required by law to act in the interest of all relevant beneficiaries and is responsible for the
day to day administration of the benefits.
The valuation has been based on an assessment of the liabilities of the PGL Pension Scheme as at 31 December 2021, undertaken by
independent qualified actuaries.
To the extent that an economic surplus will be available as a refund, the economic surplus is stated after a provision for tax that would be
borne by the scheme administrators when the refund is made.
A triennial funding valuation of the PGL Pension Scheme as at 30 June 2018 was completed in 2019. This showed a surplus as at
30 June 2018 of £246 million. The IFRS valuation cash flows reflect current available data and are not limited to being updated following
the completion of each funding valuation.
There are no further committed contributions to pay in respect of the defined benefit section of the Scheme.
Insurance policies with Group entities
In March 2019, the PGL Pension Scheme entered into a ‘buy-in’ agreement with PLL which covered the remaining pensioner and
deferred members of the Scheme not covered by the first such agreement concluded in December 2016. The plan assets transferred
to PLL as premium are held in a collateral account and are recognised in the relevant line within financial assets in the statement of
consolidated financial position. The economic effect of these transactions in the Scheme is to replace the plan assets transferred with a
single line insurance policy reimbursement asset which is eliminated on consolidation along with the relevant insurance contract liabilities
in PLL.
The value of the insurance policies with Group entities at 31 December 2021 is £1,618 million (2020: £1,749 million).
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2021
At 1 January
Interest income/(expense)
Administrative expenses
Past service cost
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Gain from changes in financial assumptions
Experience loss
Included in other comprehensive income
Income received from insurance policies
Benefit payments
At 31 December
2020
At 1 January
Interest income/(expense)
Administrative expenses
Past service costs
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience gain
Included in other comprehensive income
Income received from insurance policies
Benefit payments
Assets transferred as premium for 2019 scheme buy-in
At 31 December
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Total
£m
35
(1,754)
(1,719)
–
(4)
–
(4)
–
–
–
–
–
73
(73)
31
(25)
–
–
(25)
–
16
70
(3)
83
–
73
(25)
(4)
–
(29)
–
16
70
(3)
83
73
–
(1,623)
(1,592)
Fair value of
scheme assets
£m
Defined
benefit
obligation
£m
Total
£m
54
(1,691)
(1,637)
1
(3)
–
(2)
(4)
–
–
–
(4)
75
(75)
(13)
35
(31)
–
(1)
(32)
–
7
(154)
41
(106)
–
75
–
(30)
(3)
(1)
(34)
(4)
7
(154)
41
(110)
75
–
(13)
(1,754)
(1,719)
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
243
243
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.2 PGL Pension Scheme continued
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
Cash and other
Reported scheme assets
Add back:
Insurance policies eliminated on consolidation
Economic value of assets
2021
2020
Of which not
quoted in an
active market
£m
–
–
1,610
1,610
Total
£m
31
31
1,618
1,649
Of which not
quoted in an
active market
£m
–
–
1,749
1,749
Total
£m
35
35
1,749
1,784
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme’s members as follows:
• deferred scheme members: 36% (2020: 36%); and
• pensioners: 64% (2020: 64%)
The weighted average duration of the defined benefit obligation at 31 December 2021 is 16 years (2020: 16 years).
Principal assumptions
The principal financial assumptions of the PGL Pension Scheme are set out in the table below:
Rate of increase for pensions in payment (7.5% per annum or RPI if lower)
Rate of increase for deferred pensions (‘CPI’)
Discount rate
Inflation – RPI
Inflation – CPI
2021
%
3.30
2.70
2.00
3.30
2.70
2020
%
2.90
2.10
1.40
2.90
2.10
The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the
duration of the PGL Pension Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation
rates, which is derived from the profile of projected benefit payments.
The post-retirement mortality assumptions are in line with 86%/94% of S1P Light base tables for males and females. Future longevity
improvements from 1 January 2017 to 31 December 2020 are based on modified CMI 2019 Core Projections and from 1 January 2021
are based on modified CMI 2020 Core Projections (2020: From 1 January 2017 based on modified CMI 2019 Core Projections) with a
long-term rate of improvement of 1.70% (2020: 1.70%) per annum for males and 1.20% (2020: 1.20%) per annum for females. Under
these assumptions, the average life expectancy from retirement for a member currently aged 40 retiring at age 62 is 28.0 years (2020:
28.4 years) and 28.9 years (2020: 29.3 years) for male and female members respectively.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2021
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
1,623
(62)
66
54
(52)
60
(60)
2020
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
1,754
(67)
70
55
(53)
65
(65)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised
within the statement of consolidated financial position.
G1.3 Abbey Life Staff Pension Scheme
Scheme details
On 30 June 2017, the Abbey Life Scheme was transferred from Abbey Life to Pearl Life Holdings Limited (‘PeLHL’), a fellow subsidiary.
PeLHL assumed the scheme covenant together with all obligations of the scheme following implementation of the transfer. The Abbey
Life Scheme is a registered occupational pension scheme, set up under trust, and legally separate from the employer PeLHL. The scheme
is administered by Abbey Life Trust Securities Limited (the trustee), a corporate trustee. There are three trustee directors, one of whom is
nominated by the Abbey Life Scheme members and two of whom are appointed by PeLHL. The trustee is responsible for administering
the scheme in accordance with the trust deed and rules and pensions laws and regulations. The Abbey Life Scheme is closed to new
entrants and has no active members.
The valuation has been based on an assessment of the liabilities of the Abbey Life Scheme as at 31 December 2021 undertaken by
independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured
using the projected unit credit method.
Funding
The last funding valuation of the Abbey Life Scheme was carried out by a qualified actuary as at 31 March 2021 and showed a deficit of
£86 million. Following completion of the funding valuation a recovery plan was agreed between the Group and the trustee of the Abbey
Life Scheme and a revised schedule of contributions was agreed effective from November 2021, for PeLHL to pay the following amounts
in respect of deficit contributions:
• fixed monthly contributions of £400,000 payable from 30 April 2021 to 30 June 2026;
• monthly contributions in respect of administration expenses of £106,295 payable up to 31 March 2022, then increasing annually in line
with the Retail Prices Index assumption to 30 June 2028; and
• annual payments of £4 million into the New 2016 Charged Account by 31 July each year, with the next payment being made by
31 July 2022, and the last payment due by 31 July 2025.
The charged accounts are Escrow accounts which were created in 2010 to provide the trustees with additional security in light of the
funding deficit. The amounts held in the charged accounts do not form part of Abbey Life Scheme assets.
Under the terms of the 2013 Funding Agreement the funding position of the Scheme was assessed as at 31 March 2021 and this
assessment revealed a shortfall, calculated in accordance with the terms of the New 2013 Funding Agreement, which exceeded the
amount held in the New 2013 Charged Account. As such, the entire balance of £42 million was paid from the New 2013 Charged
Account to the Abbey Life Scheme in December 2021.
Under the terms of the New 2016 Funding Agreement the funding position of the Abbey Life Scheme will be assessed as at 31 March 2027.
A payment will be made from the New 2016 Charged Account to the Scheme if the results of the assessment reveal a shortfall calculated
in accordance with the terms of the New 2016 Funding Agreement. The amount of the payment will be the lower of the amount of the
shortfall and the amount held in the New 2016 Charged Account.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
245
245
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.3 Abbey Life Staff Pension Scheme continued
An additional liability of £7 million (2020: £nil) has been recognised reflecting a charge on any refund of the resultant IAS 19 surplus
that arises after adjustment for discounted future contributions of £21 million in accordance with the minimum funding requirement.
A deferred tax asset of £4 million (2020: £nil) has also been recognised to reflect tax relief at a rate of 19% that is expected to be
available on the contributions once paid into the Scheme.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2021
At 1 January
Interest income/(expense)
Administration expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Experience loss
Gain from changes in demographic assumptions
Gain from changes in financial assumptions
Change in minimum funding requirement obligation
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Employer's contributions
Benefit payments
At 31 December
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
280
(341)
4
(1)
3
11
–
–
–
–
–
11
48
(12)
330
(5)
(5)
–
(5)
6
15
–
–
16
–
12
(318)
Provision for
tax on the
economic
surplus
available as a
refund
£m
Minimum
funding
requirement
obligation
£m
–
–
–
–
–
–
–
–
–
(4)
(4)
–
–
(4)
–
–
–
–
–
–
–
–
(7)
–
(7)
–
–
(7)
Total
£m
(61)
(1)
(1)
(2)
11
(5)
6
15
(7)
(4)
16
48
–
1
246
246
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience gain
Included in other comprehensive income
Employer’s contributions
Benefit payments
At 31 December
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
Diversified income fund
Fixed interest government bonds
Corporate bonds
Derivatives
Cash and cash equivalents
Pension scheme assets
Fair value of
scheme assets
£m
Defined
benefit
obligation
£m
254
(329)
5
(1)
4
28
–
–
–
28
6
(12)
280
(7)
–
(7)
–
6
(31)
8
(17)
–
12
Total
£m
(75)
(2)
(1)
(3)
28
6
(31)
8
11
6
–
(341)
(61)
2021
2020
Of which
not quoted
in an active
market
£m
–
–
–
1
–
1
Total
£m
139
68
118
1
4
330
Of which
not quoted
in an active
market
£m
–
–
–
2
–
2
Total
£m
118
70
86
2
4
280
Derivative values above include interest rate and inflation rate swaps and foreign exchange forward contracts. The Abbey Life Scheme
has hedged its inflation risk through an inflation swap. It is currently exposed to interest rate risk to the extent that the holdings in bonds
are mismatched to the scheme liabilities. The long-term intention is to fully hedge this risk through an interest rate swap. Further key risks
that will remain are longevity and credit spread exposures.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
247
247
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.3 Abbey Life Staff Pension Scheme continued
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the Abbey Life Scheme’s members as follows:
• deferred scheme members: 44% (2020: 49%); and
• pensioners: 56% (2020: 51%)
The weighted average duration of the defined benefit obligation at 31 December 2021 is 16 years (2020: 17 years).
Principal assumptions
The principal financial assumptions of the Abbey Life Scheme are set out in the table below:
Rate of increase for pensions in payment (5% per annum or RPI if lower)
Rate of increase for deferred pensions (‘CPI’ subject to caps)
Discount rate
Inflation – RPI
Inflation – CPI
2021
%
3.20
2.70
2.00
3.30
2.70
2020
%
2.85
2.10
1.40
2.90
2.10
The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the
duration of the Abbey Life Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation
rates, which is derived from the profile of projected benefit payments.
The post-retirement mortality assumptions are in line with a scheme-specific table which was derived from the actual mortality
experience in recent years, performed as part of the actuarial funding valuation as at 31 March 2021, using the SAPS S3 ‘Light’ tables for
males and for females based on year of use. Future longevity improvements from 1 January 2020 are based on amended CMI 2020
Core Projections (2020: From 1 January 2017 based on amended CMI 2019 Core Projections) and a long-term rate of improvement of
1.70% (2020: 1.70%) per annum for males and 1.20% (2020: 1.20%) per annum for females. Under these assumptions the average life
expectancy from retirement for a member currently aged 45 retiring at age 65 is 24.9 years and 25.7 years for male and female members
respectively (2020: 25.4 years and 26.5 years respectively).
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2021
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
318
(12)
13
8
(9)
12
(12)
2020
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
341
(14)
15
10
(11)
13
(13)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised
within the statement of consolidated financial position.
248
248
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
G1.4 ReAssure Life Staff Pension Scheme
Scheme details
The ReAssure Scheme was consolidated within the Group financial statements following the acquisition of the ReAssure businesses
on 22 July 2020. The ReAssure Scheme is a registered occupational pension scheme, set up under trust, and legally separate from the
employer ReAssure Midco Limited (‘RML’). The scheme is administered by ReAssure Pension Trustees Limited, a corporate trustee.
There are six trustee directors, two of whom are nominated by the ReAssure Scheme members and four of whom are appointed by RML.
The trustee is responsible for administering the scheme in accordance with the trust deed and rules and pensions laws and regulations.
The ReAssure Scheme is closed to new entrants and to future accrual for active members.
The valuation has been based on an assessment of the liabilities of the ReAssure Scheme as at 31 December 2020 undertaken by
independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured
using the projected unit credit method.
Funding
The last funding valuation of the ReAssure Scheme was carried out by a qualified actuary as at 31 December 2020 and showed a deficit
of £77 million.
Following the completion of the 2020 valuation a recovery plan was agreed in September 2021 between the trustee and RML in order
to make good the deficit. RML has agreed to pay contributions of £17.7 million into the existing Custody Account spread over four annual
payments of £4.425 million payable on 1 April 2022, 1 April 2023, 1 April 2024 and 1 April 2025. It is anticipated that these payments will
be sufficient to cover the difference between the funding shortfall and the balance of the Custody Account at 31 December 2020 and
to remove any remaining deficit at 31 December 2025.
The amounts held in this account do not form part of the Scheme’s plan assets and instead are held in the Custody Account and are
included within financial assets in the statement of consolidated financial position.
The Group agrees to cover those expenses incurred by the ReAssure Scheme and the cost of the death-in-service benefits for those
members of the scheme entitled to those benefits. Payments of £1 million (2020: £1 million) have been made during the year to cover
these costs.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
249
249
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.4 ReAssure Life Staff Pension Scheme continued
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2021
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Gain from changes in financial assumptions
Experience loss
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Employer’s contributions
Benefit payments
At 31 December
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as
a refund
£m
477
(461)
(5)
6
(1)
5
19
–
–
–
–
19
(6)
–
(6)
–
1
20
(2)
–
19
1
(10)
492
–
10
(438)
–
–
–
–
–
–
–
(14)
(14)
–
–
(19)
Total
£m
11
–
(1)
(1)
19
1
20
(2)
(14)
24
1
–
35
250
250
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
At 1 January
Acquisition of ReAssure businesses
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Loss from changes in demographic assumptions
Loss from changes in financial assumptions
Experience gain
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Employer’s contributions
Benefit payments
At 31 December
Fair value of
scheme assets
£m
–
459
Defined
benefit
obligation
£m
–
(424)
Provision for
tax on the
economic
surplus
available as
a refund
£m
–
(12)
4
(1)
3
19
–
–
–
–
19
1
(5)
(4)
–
(4)
–
(15)
(25)
2
–
(38)
–
5
–
–
–
–
–
–
–
7
7
–
–
477
(461)
(5)
Total
£m
–
23
–
(1)
(1)
19
(15)
(25)
2
7
(12)
1
–
11
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
251
251
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
G1.4 ReAssure Life Staff Pension Scheme continued
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
Equities
Government bonds
Corporate bonds
Real Estate
Managed funds
Other Quoted Securities
Cash and cash equivalents
Pension scheme assets
2021
2020
Of which not
quoted in an
active market
£m
Total
£m
62
151
173
–
60
43
3
492
–
–
–
–
–
–
–
–
Of which not
quoted in an
active market
£m
–
–
–
–
–
–
–
–
Total
£m
56
121
181
41
–
70
8
477
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the ReAssure Scheme’s members as follows:
• deferred scheme members: 66% (2020: 74%); and
• pensioners: 34% (2020: 26%).
The weighted average duration of the defined benefit obligation at 31 December 2021 is 21 years (2020: 21 years).
Principal assumptions
The principal assumptions of the ReAssure Scheme are set out in the table below:
Rate of increase for pensions in payment (5% per annum or RPI if lower)
Rate of increase for deferred pensions
Rate of increase in salaries
Discount rate
Inflation – RPI
Inflation – CPI
2021
%
3.20
2.70
3.70
2.00
3.30
2.70
2020
%
2.85
2.10
3.10
1.40
2.90
2.10
The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the
duration of the ReAssure Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation rates,
which is derived from the profile of projected benefit payments.
The post-retirement mortality assumptions are in line with SAPS Series 3 light base tables with a 102% (2020: 96%) multiplier for males
and a 95% (2020: 92%) multiplier for females, with CMI 2019 projections in line with a 1.50% per annum long-term trend up to and
including 31 December 2020. Future longevity improvements from 1 January 2021 onwards are in line with CMI 2020 Core Projections
(2020: From 1 January 2015 in line with CMI 2019 Core Projections) with a long-term trend of 1.7% per annum (2020: 1.5%) for males and
1.2% (2020: 1.5%) for females.
Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 60 is 30.1 years
and 31.4 years for male and female members respectively (2020: 29.8 years and 31.4 years for male and female members respectively).
252
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2021
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
438
(21)
23
18
(17)
18
(17)
2020
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
461
(25)
25
21
(21)
18
(18)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised
within the statement of consolidated financial position.
G2. Intangible assets
Goodwill
Business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the cost
of the acquisition and the fair value of the net identifiable assets acquired.
Goodwill is measured on initial recognition at cost. Following initial recognition, goodwill is stated at cost less any accumulated
impairment losses. Goodwill is not amortised but is tested for impairment annually or when there is evidence of possible impairment.
For impairment testing, goodwill is allocated to relevant cash generating units. Goodwill is impaired when the recoverable amount is
less than the carrying value.
In certain acquisitions an excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities, contingent
liabilities and non-controlling interests over cost may arise. Where this occurs, the surplus of the fair value of net assets acquired over
the fair value of the consideration is recognised in the consolidated income statement.
Acquired in-force business
Insurance and investment contracts with DPF acquired in business combinations and portfolio transfers are measured at fair value at
the time of acquisition. The difference between the fair value of the contractual rights acquired and obligations assumed and the
liability measured in accordance with the Group’s accounting policies for such contracts is recognised as acquired in-force business.
This acquired in-force business is amortised over the estimated life of the contracts on a basis which recognises the emergence of the
economic benefits.
The value of acquired in-force business related to investment contracts without DPF is recognised at its fair value and is amortised on a
diminishing balance basis.
An impairment review is performed whenever there is an indication of impairment. When the recoverable amount is less than the
carrying value, an impairment loss is recognised in the consolidated income statement. Acquired in-force business is also considered
in the liability adequacy test for each reporting period.
The acquired in-force business is allocated to relevant cash generating units for the purposes of impairment testing.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
253
253
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G2. Intangible assets continued
Customer relationships
The customer relationship intangible asset includes vesting pension premiums and is measured on initial recognition at cost. The cost
of this intangible asset acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition,
the customer relationship intangible asset is carried at cost less any accumulated amortisation and any accumulated impairment losses.
The intangible asset is amortised on a straight-line basis over its useful economic life and assessed for impairment whenever there is an
indication that the recoverable amount of the intangible asset is less than its carrying value. The customer relationship intangible asset
is allocated to relevant cash generating units for the purposes of impairment testing.
Present value of future profits on non-participating business in the with-profit fund
The present value of future profits (‘PVFP’) is determined in a manner consistent with the realistic measurement of insurance contract
liabilities. The Group’s accounting policy for PVFP is described in note F1.
Brands and other contractual arrangements
Brands and other contractual arrangements are measured on initial recognition at cost. The cost of an intangible asset acquired in
a business combination is the fair value as at the date of the acquisition. The cost of an intangible asset acquired in exchange for
a non-monetary asset is measured at fair value as at the date of the transaction. Following initial recognition, the brand and other
contractual arrangement intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses.
Amortisation is calculated using the straight-line method to allocate the cost of brands and other contractual arrangements over their
estimated useful lives. They are tested for impairment whenever there is evidence of possible impairment. For impairment testing,
they are allocated to the relevant cash generating unit. Brands and other contractual arrangements are impaired when the recoverable
amount is less than the carrying value.
2021
Cost or valuation
At 1 January
Additions
Disposal of Ark Life
Termination of Client Services and Proposition Agreement
At 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
Impairment charge for the year1
Disposal of Ark Life
Termination of Client Services and Proposition Agreement
At 31 December
Carrying amount
Less amounts classified as held for sale (see note A6.1)
Carrying amount at 31 December
Amount recoverable after 12 months
Other intangibles
Acquired
in-force
business
£m
Goodwill
£m
Customer
relationships
£m
Brands and
other
£m
Total other
intangibles
£m
57
7,028
297
–
–
–
–
(21)
–
–
–
–
57
7,007
297
–
–
(47)
–
–
(2,015)
(537)
(99)
21
–
(168)
(15)
–
–
–
56
111
–
(36)
131
(14)
(5)
–
–
6
353
111
–
(36)
428
(182)
(20)
–
–
6
Total
£m
7,438
111
(21)
(36)
7,492
(2,197)
(557)
(146)
21
6
(47)
(2,630)
(183)
(13)
(196)
(2,873)
10
–
10
10
4,377
(54)
4,323
3,834
114
–
114
99
118
–
118
112
232
–
232
4,619
(54)
4,565
211
4,055
1 An impairment charge of £59 million to acquired in-force business has been included within the ‘gain on completion of abrdn plc transaction’ in the consolidated income statement, see note G2.2 for
further details.
254
254
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
2020
Cost or valuation
At 1 January
Acquisition of ReAssure businesses
Reclassification to investment contract liabilities
At 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
At 31 December
Carrying amount at 31 December
Amount recoverable after 12 months
Other intangibles
Acquired
in-force
business
£m
Customer
relationships
£m
Present value
of future
profits
£m
Brands and
other
£m
Total other
intangibles
£m
Goodwill
£m
57
–
–
57
–
–
–
57
57
5,197
1,831
–
7,028
(1,546)
(469)
(2,015)
297
–
–
297
(154)
(14)
(168)
5,013
129
4,457
115
82
–
(82)
–
–
–
–
–
–
56
–
–
56
(10)
(4)
(14)
42
10
Total
£m
5,689
1,831
(82)
7,438
(1,710)
(487)
(2,197)
435
–
(82)
353
(164)
(18)
(182)
171
5,241
125
4,639
G2.1 Goodwill
The carrying value of goodwill has been tested for impairment at the year end and the results of this exercise are detailed below.
Goodwill with a cost of £47 million is attributable to the Management Services segment. Value in use has been determined as the present
value of certain future cash flows associated with this business. The cash flows used in this calculation have been valued using a risk
adjusted discount rate of 9.5% (2020: 9.2%) and are consistent with those adopted by management in the Group’s 5 year operating plan
and, for the period 2027 and beyond, reflect the anticipated run-off of the Phoenix Life insurance business. The underlying assumptions
of these projections include management’s best estimates with regards to longevity, persistency, expenses, mortality and morbidity,
determined on the basis as described in note F4.1.
The Management Services segment generates income solely from the services provided to other operating segments within the Group.
As a result of planned investment in the Group’s growth agenda, including the development of capabilities of the Open segment and
certain Group functions, it is anticipated that the Management Services segment will generate short-term losses in the period until service
agreements can be renegotiated. Together with the effect of the expected run-off of the relevant Phoenix Life insurance business, these
anticipated short-term losses resulted in an assessment that the recoverable amount of the goodwill was £nil as at 31 December 2021.
Accordingly, an impairment charge of £47 million has been recognised in the year. Management considers that any reasonable change
in key assumptions would not cause the recoverable amount to exceed its carrying value.
The remaining £10 million relates to the goodwill recognised on the acquisition of AXA Wealth during 2016 and has been allocated
to the UK Open segment. This represents the value of the workforce assumed and the potential for future value creation, which relates
to the ability to invest in and grow the SunLife brand. Value in use has been determined as the present value of certain future cash flows
associated with that business. The cash flows used in the calculation are consistent with those adopted by management in the Group’s 5
year operating plan, and for the period 2027 and beyond, assume a zero growth rate. The underlying assumptions of these projections
include market share, customer numbers, commission rates and expense inflation. The cash flows have been valued at a risk adjusted
discount rate of 11% (2020:11%) that makes prudent allowance for the risk that future cash flows may differ from that assumed.
This test demonstrated that value in use was greater than carrying value. Given the magnitude of the excess of the value in use over
carrying value, management does not believe that a reasonably foreseeable change in key assumptions would cause the carrying value
to exceed value in use.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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255
255
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G2. Intangible assets continued
G2.2 Acquired in-force business
Acquired in-force business (‘AVIF’) on insurance contracts and investment contracts with DPF represents the difference between the fair
value of the contractual rights under these contracts and the liability measured in accordance with the Group’s accounting policies for
such contracts. This intangible is being amortised in accordance with the run-off of the book of business.
AVIF on investment contracts without DPF is amortised in line with emergence of economic benefits.
AVIF balances are assessed for impairment where an indicator of impairment has been identified. The following paragraphs set out the
impairment indicators identified and the results of the impairment tests carried out.
On 23 February 2021, the Group entered into an agreement with abrdn plc to simplify the arrangements of their Strategic Partnership
(see note A6 for further details). Under the terms of the transaction, the Group will sell its UK investment and platform related products,
comprising Wrap SIPP, Onshore bond and UK TIP to abrdn plc and this will be effected through a Part VII transfer. The balances in the
statement of consolidated financial position relating to this business were classified as a disposal group held for sale in February 2021.
The total proceeds of disposal for this business are not expected to exceed the carrying value of the related net assets and accordingly
the disposal group has been recognised at fair value less costs to sell. The value of the AVIF at 23 February 2021 was £122 million and an
impairment charge of £59 million was recognised on classification of the AVIF balance as held for sale. This charge has been included
within the ‘gain on completion of abrdn plc transaction’ in the consolidated income statement. A further impairment of £8 million has
been recognised at 31 December 2021. The AVIF balance classified as held for sale is not being amortised.
In June 2021, following the Group Board’s approval to dispose of Ark Life Assurance Company DAC, the entity was initially classified
as a disposal group held for sale. The proceeds of disposal were not expected to exceed the carrying value of the related net assets and
accordingly the disposal group was measured at fair value less costs to sell. An impairment charge of £18 million has been recognised
in respect of the AVIF upon classification of the business as held for sale and recognised within ‘amortisation and impairment of acquired
in-force business’ in the consolidated income statement.
During the year, updates to the reserving methodology in respect of a certain block of unit-linked insurance contracts within the Europe
operating segment resulted in a release of reserves of £20 million. This release of reserves was considered to be an indicator of
impairment in relation to a component of the AVIF recognised on acquisition of the Standard Life Assurance businesses as it represented
an acceleration of the recognition of profits that had been capitalised within the AVIF asset. Accordingly, an impairment test was
performed.
The value in use of the AVIF was determined using present value techniques applied to the best estimate cash flows expected to arise
from the relevant policies that were in-force at the date of initial recognition of the AVIF, adjusted to reflect an internal view of the
required compensation for bearing the uncertainty associated with those cash flows. The key underlying assumptions were
management’s best estimates with regards to persistency and expenses, which were determined on the basis as described in note F4.1.
It was determined that the carrying value exceeded value in use by £14 million and consequently an impairment charge has been
recognised in the year, the impact of which partly offsets the release of reserves described above. The resultant net carrying value
of this component of the Standard Life Assurance AVIF was £49 million.
Acquired in-force business of £1,831 million was recognised during the prior year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer relationships
The customer relationships intangible at 31 December 2021 relates to vesting pension premiums which captures the new business arising
from policies in-force at the acquisition date, specifically top-ups made to existing policies and annuities vested from matured pension
policies. The total value of this customer relationship intangible at acquisition was £297 million and has been allocated to the UK Heritage
segment. This intangible is being amortised over a 20 year period, and had a remaining useful life as at 31 December 2021 of 7.9 years
(2020: 8.9 years).
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Financials continued
G2.4 Present value of future profits on non-participating business in the with-profit fund
The principal assumptions used to calculate the present value of future profits (‘PVFP’) are the same as those used in calculating the
insurance contract liabilities given in note F4.1.
The PVFP held in intangibles represented future profits on specific blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note E5). As a consequence, the value of future profits was not attributable
solely to policyholders and the PVFP was therefore presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the prior year, the PVFP is shown as fully attributable to policyholders
and consequently in 2020 the PVFP has been represented within investment contract liabilities.
G2.5 Brands and other intangibles
Other intangibles include £20 million which was recognised at cost on acquisition of the AXA Wealth businesses and £36 million
recognised at cost on acquisition of the Standard Life Assurance businesses.
The amount recognised in respect of AXA Wealth represents the value attributable to the SunLife brand as at 1 November 2016.
The intangible asset was valued on a ‘multi-period excess earnings’ basis. Impairment testing was performed in a combined test with the
AXA goodwill (see section G2.1). The value in use continues to exceed its carrying value. This brand intangible is being amortised over
a 10 year period.
Following the acquisition of the Standard Life Assurance businesses in 2018 an intangible asset was recognised in respect of the Client
Services and Proposition Agreement (‘CSPA’) with abrdn plc and represented the value of the Group’s contractual rights to use the
Standard Life brand. The CSPA formalised the Strategic Partnership between the two companies and established the contractual terms
by which abrdn plc was previously to continue to market and distribute certain products to be manufactured by Group companies.
On 23 February 2021, the Group entered into an agreement to acquire ownership of the Standard Life brand as part of the transaction
with abrdn plc, which transferred to the Group in May 2021. At 31 December 2021, ‘brands and other intangibles’ includes £111 million in
respect of the Standard Life brand and represents the fair value attributable to the brand as at the transaction date. The intangible asset
was valued on a ‘multi-period excess earnings’ basis and is being amortised over a period of 30 years. The carrying value of the Standard
Life brand as at 31 December 2021 is £108 million.
As part of the transaction with abrdn plc, the CSPA has been significantly amended prior to being dissolved. As a consequence, the
CSPA intangible included within ‘other intangibles’ has been derecognised. At that time, its carrying value was £30 million and this has
been included in the calculation of the ‘gain on completion of abrdn plc transaction’ recognised in the consolidated income statement.
This intangible was valued on a ‘multi-period excess earnings’ basis and was being amortised over a period of 15 years.
G3. Property, plant and equipment
Owner-occupied property is stated at its revalued amount, being its fair value at the date of the revaluation less any subsequent
accumulated depreciation and impairment. Owner-occupied property is depreciated over its estimated useful life, which is taken as
20 – 50 years. Land is not depreciated. Accumulated depreciation as at the revaluation date is eliminated against the gross carrying
amount of the owner-occupied property and the net amount is restated to the revalued amount of the asset. Gains and losses on
owner-occupied property are recognised in the statement of consolidated comprehensive income.
The right-of-use assets are initially measured at cost, and subsequently at cost less any accumulated depreciation and impairments,
and adjusted for certain remeasurements of the lease liability. The right-of-use assets are depreciated over the remaining lease term
which is between 1 and 11 years (2020: 1 and 11 years).
Equipment consists primarily of computer equipment and fittings. Equipment is stated at historical cost less deprecation. Where
acquired in a business combination, historical cost equates to the fair value at the acquisition date. Depreciation on equipment is
charged to the consolidated income statement over its estimated useful life of between 2 and 15 years.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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257
257
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G3. Property, plant and equipment continued
2021
Cost or valuation
At 1 January 2021
Additions
Remeasurement of Right-of-use assets
Disposals
At 31 December 2021
Depreciation
At 1 January 2021
Depreciation
Disposals
At 31 December 2021
2020
Cost or valuation
At 1 January 2020
Acquisition of ReAssure businesses
Additions
At 31 December 2020
Depreciation
At 1 January 2020
Depreciation
At 31 December 2020
Owner-
occupied
properties
£m
Right-of-use
assets –
property
£m
Right-of-use
assets –
equipment
£m
Equipment
£m
Total
£m
33
1
–
(5)
29
–
–
–
–
78
22
3
(9)
94
(23)
(9)
8
(24)
25
8
–
33
–
–
–
75
3
–
78
(11)
(12)
(23)
2
–
–
–
2
–
(1)
–
(1)
1
54
12
–
(7)
59
(25)
(8)
4
(29)
167
35
3
(21)
184
(48)
(18)
12
(54)
30
130
2
–
–
2
–
–
–
2
27
4
23
54
(9)
(16)
(25)
129
15
23
167
(20)
(28)
(48)
29
119
Owner-
occupied
properties
£m
Right-of-use
assets –
property
£m
Right-of-use
assets –
equipment
£m
Equipment
£m
Total
£m
Carrying amount at 31 December 2021
29
70
Carrying amount at 31 December 2020
33
55
Owner-occupied properties have been valued by accredited independent valuers at 31 December 2021 on an open market basis in
accordance with the Royal Institution of Chartered Surveyors’ requirements, which is deemed to equate to fair value. The fair value
measurement for the properties of £29 million (2020: £33 million) has been categorised as Level 3 based on the non-observable inputs
to the valuation technique used. Unrealised gains for the current and prior years are £nil.
The fair value of the owner-occupied properties was derived using the investment method supported by comparable evidence.
The significant non-observable inputs used in the valuations are the expected rental values per square foot and the capitalisation rates.
The fair value of the owner-occupied properties valuation would increase (decrease) if the expected rental values per square foot were
to be higher (lower) and the capitalisation rates were to be lower (higher).
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Financials continued
G4. Investment property
Investment property, including right of use assets, is initially recognised at cost, including any directly attributable transaction costs.
Subsequently investment property is measured at fair value. Fair value is the price that would be received to sell a property in an orderly
transaction between market participants at the measurement date. Fair value is determined without any deduction for transaction costs
that may be incurred on sale or disposal. Gains and losses arising from the change in fair value are recognised as income or an expense
in the statement of comprehensive income.
Investment property includes right-of-use assets, where the Group acts as lessee. Leases, where a significant portion of the risks and
rewards of ownership are retained by the lessor, are classified as operating leases. Where investment property is leased out by the
Group, rental income from these operating leases is recognised as income in the consolidated income statement on a straight-line basis
over the period of the lease.
At 1 January
Acquisition of ReAssure businesses
L&G Part VII portfolio transfer
Additions
Improvements
Disposals
Remeasurement of right-of-use asset
Movement in foreign exchange
Gains/(losses) on adjustments to fair value (recognised in consolidated income statement)
Less amounts classified as held for sale (see note A6.1)
At 31 December
Unrealised gains/(losses) on properties held at end of year
2021
£m
7,128
–
–
819
22
2020
£m
5,943
556
1,221
157
9
(550)
(709)
(1)
(22)
1,196
8,592
(3,309)
5,283
529
(1)
4
(52)
7,128
–
7,128
(43)
As at 31 December 2021, a property portfolio including amounts classified as held for sale of £8,412 million (2020: £6,927 million) is held
by the life companies in a mix of commercial sectors and spread geographically throughout the UK and Europe.
Investment properties also includes £73 million (2020: £86 million) of property reversions arising from sales of the NPI Extra Income Plan
(see note E5 for further details) and £86 million (2020: 98 million) from the Group’s interest in the residential property of policyholders
who have previously entered into an Equity Release Income Plan (‘ERIP’) policy.
Certain investment properties held by the life companies possess a ground rent obligation which gives rise to both a right-of-use asset
and a lease liability. The right-of-use asset associated with the ground rent obligation is valued at fair value and is included within the total
investment property valuation. The value of the ground rent right-of-use asset as at 31 December 2021 was £21 million (2020: £17 million).
The remeasurement gives rise to a reduction of £1 million (2020: £1 million). There were no disposals of ground rent right-of-use assets
during the period (2020: £nil).
Commercial investment property is measured at fair value by independent property valuers having appropriate recognised professional
qualifications and recent experiences in the location and category of the property being valued. The valuations are carried out in
accordance with the Royal Institute of Chartered Surveyors (‘RICS’) guidelines with expected income and capitalisation rate as the key
non-observable inputs.
The NPI residential property reversions, an interest in customers’ properties which the Group will realise upon their death, are valued
using a discounted cash flow model based on the Group’s proportion of the current open market value, and discounted for the expected
lifetime of the policyholder derived from published mortality tables. The open market value is measured by independent local property
surveyors having appropriate recognised professional qualifications with reference to the assumed condition of the property and local
market conditions. The individual properties are valued triennially and indexed using regional house price indices to the year end date.
The discount rate is a risk-free rate appropriate for the duration of the asset, adjusted for the deferred possession rate of 3.7% (2020:
3.7%). Assumptions are also made in the valuation for future movements in property prices, based on a risk-free rate. The residential
property reversions have been substantially refinanced under the arrangements with Santander as described in note E5.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
259
259
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G4. Investment property continued
The ERIP residential property reversions, an interest in the residential property of policyholders who have previously entered into an ERIP
policy and been provided with a lifetime annuity in return for the legal title to their property, are valued using unobservable inputs and
management’s best estimates. As the inward cash flows on these properties will not be received until the lifetime lease is no longer in
force, which is usually upon the death of the policyholder, these interests are valued on a reversionary basis which is a discounted current
open market value.
The open market values of the properties are independently revalued every two years by members of the Royal Institution of Chartered
Surveyors and in the intervening period are adjusted by reference to the Nationwide Building Society regional indices of house prices.
The discount period is based on the best estimates of the likely date the property will become available for sale and the discount rate
applied is determined by the general partner as its best estimate of the appropriate discount rate. The mortality assumption is based on
the PMLO8HAWP table for males and the PFLO8HAWP table for females, adjusted to reflect the historic experience of the business
concerned. The mortality rates are projected using future mortality improvements from the CMI Mortality Projection Model. No explicit
allowance is made for house price inflation in the year through to their realisation. Therefore, the key assumptions used in the valuation
of the reversionary interests are the interest discount rate and the mortality assumption. The interest discount rate was 5% (2020: 5%).
The fair value measurement of the investment properties has been categorised as Level 3 based on the inputs to the valuation techniques
used. The following table shows the valuation techniques used in measuring the fair value of the investment properties, the significant
non-observable inputs used, the inter-relationship between the key non-observable inputs and the fair value measurement of the
investment properties:
Description
Valuation techniques
Significant
non-observable inputs
Weighted average
2021
Weighted average
2020
Commercial
Investment Property
RICS valuation
Expected income per sq. ft.
£21.36
Estimated rental value per
hotel room
Estimated rental value per
parking space
Capitalisation rate
£8,534
£1,097
4.65%
£22.55
£8,689
£1,169
5.26%
The estimated fair value of commercial properties would increase (decrease) if:
• the expected income were to be higher (lower); or
• the capitalisation rate were to be lower (higher).
The estimated fair value of the NPI residential property reversions would increase (decrease) if:
• the deferred possession rate were to be lower (higher);
• the mortality rate were to be higher (lower).
The estimated fair value of the ERIP residential property reversions would increase (decrease) if:
• the discount rate were to be lower (higher);
• the mortality rate were to be higher (lower).
Direct operating expenses (offset against rental income in the consolidated income statement) in respect of investment properties
that generated rental income during the year amounted to £41 million (2020: £13 million). The direct operating expenses arising from
investment property that did not generate rental income during the year amounted to £1 million (2020: £1 million).
Future minimum lease rental receivables in respect of non-cancellable operating leases on investment properties were as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
2021
£m
323
1,032
3,128
2020
£m
304
959
2,820
Financials continued
G5. Other receivables
Other receivables are recognised when due and measured on initial recognition at the fair value of the amount receivable. Subsequent
to initial recognition, these receivables are measured at amortised cost using the effective interest rate method.
Investment broker balances
Cash collateral pledged and initial margins posted
Property related receivables
Deferred acquisition costs
Other debtors
Amount recoverable after 12 months
G6. Cash and cash equivalents
2021
£m
249
958
177
108
313
2020
£m
362
608
139
81
432
1,805
1,622
100
76
Cash and cash equivalents comprise cash balances and short-term deposits with an original maturity term of three months or less at the
date of placement. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are
deducted from cash and cash equivalents for the purpose of the statement of consolidated cash flows.
Bank and cash balances
Short-term deposits (including notice accounts and term deposits)
Less amounts classified as held for sale (see note A6.1)
2021
£m
5,246
3,942
9,188
(76)
9,112
2020
£m
6,355
4,643
10,998
–
10,998
Deposits are subject to a combination of fixed and variable interest rates. The carrying amounts approximate to fair value at the period
end. Cash and cash equivalents in long-term business operations and consolidated collective investment schemes of £8,707 million
(2020: £10,584 million) are primarily held for the benefit of policyholders and so are not generally available for use by the owners.
G7. Provisions
A provision is recognised when the Group has a present legal or constructive obligation, as a result of a past event, which is likely to
result in an outflow of resources and where a reliable estimate of the amount of the obligation can be made. If the effect is material, the
provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
A provision is recognised for onerous contracts when the expected benefits to be derived from the contracts are less than the related
unavoidable costs. The unavoidable costs reflect the net cost of exiting the contract, which is the lower of the cost of fulfilling it and any
compensation or penalties arising from failure to fulfil it.
Where it is expected that a part of the expenditure required to settle a provision will be reimbursed by a third party the reimbursement
is recognised when, and only when, it is virtually certain that the reimbursement will be received. This reimbursement is recognised as a
separate asset within other receivables and will not exceed the amount of the provision.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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261
261
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G7. Provisions continued
Leasehold
properties
£m
Staff
related
£m
Known
incidents
£m
Input VAT
recovery
provision
£m
FCA
thematic
reviews
provision
£m
Operational
tax provision
£m
Transition and
Transformation
provision
£m
Transfer of
policy
administration
provision
£m
Restructuring provisions
2021
At 1 January
Additions in
the year
Utilised
during the
year
Released
during the
year
At 31
December
10
–
(1)
(1)
8
17
–
–
(8)
9
35
30
(12)
(7)
46
15
2
–
–
17
4
–
(1)
(3)
–
12
–
–
–
12
ReAssure
provision
£m
7
–
Other1,2
£m
38
27
Total1
£m
282
68
109
–
35
9
(17)
(9)
(3)
(28)
(71)
–
92
–
35
(2)
2
(23)
(44)
14
235
1 Other and total provisions excludes amounts classified as held for sale as at 31 December 2021 of £2 million (2020: £nil).
2 Other provisions includes PA(GI) provision of £2 million (2020: £1 million) previously shown separately.
Leasehold properties
The leasehold properties provision includes a £7 million (2020: £9 million) dilapidations provision in respect of obligations under
operating leases and £1 million (2020: £1 million) in respect of the excess of lease rentals and other payments on properties that are
currently vacant or are expected to become vacant, over the amounts to be recovered from subletting these properties.
Staff related
Staff related provisions include provisions for unfunded pensions of £5 million (2020: £13 million), and private medical and other
insurance costs for former employees of £4 million (2020: £4 million).
Known incidents
The known incidents provision was created for historical data quality and administration systems problems and process deficiencies on
the policy administration, financial reconciliations and operational finance aspects of business outsourced. These balances represent the
best estimates of costs payable to customers. Additional information has been given below in respect of the more significant balances
within this provision.
During the year, a £15 million provision was recognised in relation to errors in final encashment calculations for With-Profits Trustee
Investment Plans. It is expected that the provision will be utilised within one year. In addition, an £11 million provision was recognised
following identification that certain customers who have a protected pension age or a protected tax free lump sum may not have had
their benefits settled correctly. The provision is expected to be utilised within one year.
In 2020, following completion of the Part VII transfer of the Legal & General business, a £12 million provision was recognised in respect
of amounts owed to customers due to various system and processing errors resulting in incorrect rules having been applied to policies.
During the year, £2 million of the provision was utilised and a further £1 million was released. It is expected that the remaining balance of
£9 million will be fully utilised within one year.
The balance also includes a provision of £1 million (2020: £10 million) which reflects the Group’s exposure in relation to a an historical
underpayment of guaranteed payments to certain pension customers as a result of a systems error. During the year, £7 million was utilised
and a further £2 million was released. It is expected that the remaining balance will be fully utilised within one year.
The remaining provisions of £10 million as at 31 December 2021 (2020: £13 million) are expected to be utilised within one to five years. As
at the balance sheet date, there are no significant uncertainties which could give rise to a material change in the value of the provisions
held for current known incidents.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Input VAT recovery provision
The provision of £17 million (2020: £15 million) reflects the potential outcome of ongoing negotiations with HMRC in relation to the
changes to the Partial Exemption Special Method (PESM) necessitated by the addition of the Standard Life Entities to the Phoenix VAT
Group. The provision reflects the fact that whilst Phoenix considers its proposal for the recovery of VAT on costs incurred by SLAESL to
be fair and reasonable, the revised PESM remains to be agreed and HMRC may take a different view. The current provision is based upon
a likely alternative basis for recovery considered to reflect the Group’s maximum exposure as at the reporting date, and was increased by
£2 million in the year to reflect input VAT recovered in the period. It is currently expected that the provision will be utilised within one to
two years.
FCA thematic reviews provision – ReAssure
On acquisition of the ReAssure businesses on 22 July 2020, £9 million of obligations were recognised on a fair value basis, in respect
of ReAssure Life Limited (‘RLL’) to reflect the costs of voluntary remediation to customers of certain legacy products. Following the
acquisition, £2 million of the provision was utilised and £3 million was released. During the year, £1 million of this provision was utilised as
final remediation payments were made and the remaining provision of £3 million was released.
Operational tax provision
The operational tax provision relates to potential tax penalties payable to HMRC following failure to notify certain customers of changes
to their lifetime allowance usage. The Group is currently in discussion with HMRC in respect of these items and the provision represents
the Group’s best estimate of the maximum exposure as at the reporting date. The balance at 31 December 2021 of £12 million is expected
to be utilised within one to two years.
Restructuring provisions
Transition and Transformation provision
Following the acquisition of the Standard Life Assurance businesses in August 2018, the Group established a transition and
transformation programme which aims to deliver the integration of the Group’s operating models via a series of phases. During 2019, the
Group announced its intention to extend its strategic partnership with TCS to provide customer servicing, to develop a digital platform
and for migration of existing Standard Life policies to this platform by 2022 which raised a valid expectation of the impacts in those
likely to be affected.
An initial provision of £159 million was established in 2019 and included migration costs, severance costs and other expenses.
Migration costs are considered a direct expenditure necessarily entailed by the restructuring and represent an obligation arising from
arrangements entered into with TCS during 2019. No costs have been provided for that relate to the ongoing servicing of policies.
Migration costs payable to TCS are subject to limited uncertainty as they are fixed under the terms of the agreement entered into. The
severance costs are subject to uncertainty and will be impacted by the number of staff that transfer to TCS, and the average salaries and
number of years’ service of those affected. A 10% increase in the number of staff subject to redundancy, based on an average length of
service and salary, would increase the provision by £4 million.
During the year, £17 million of the provision has been utilised, and the remaining £92 million is expected to be utilised within two years.
Transfer of policy administration
A significant proportion of the Group’s policy administration is outsourced to Diligenta Limited (‘Diligenta’), a UK-based subsidiary
of Tata Consultancy Services (‘TCS’). Diligenta provide life and pension business process services to a large number of the Group’s
policyholders. During 2018, the Group announced its intention to move to a single outsourcer platform and to transfer a further 2 million
of the Group’s legacy policies to Diligenta by 31 December 2021.
An initial provision of £76 million was recognised in 2018 for the expected cost of the platform migration and for severance and other
costs associated with exiting from the current arrangements. Migration costs are considered a direct expenditure necessarily entailed
by the restructuring and represent an obligation arising from arrangements entered into with TCS during 2018. No costs have been
provided for that relate to the ongoing servicing of policies. The migration elements of the provision are subject to limited uncertainty
as a consequence of the signed agreements that are in place. There is a higher degree of uncertainty in relation to the severance and
associated exit costs which will be impacted by the number of staff that ultimately transfer to Diligenta. A 10% increase in the level of
severance and exit costs would increase the provision by £1 million. During the year the provision was increased by £9 million and a
further £9 million was utilised. The remaining provision of £35 million is expected to be utilised within one year.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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263
263
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G7. Provisions continued
ReAssure restructuring provision
During 2020 a £7 million restructuring provision was established in respect of RLL to cover severance costs. £3 million of the provision
was utilised and a further £2 million was released during the year. The remaining balance of £2 million is expected to be utilised within
one year.
Other provisions
During the year, the £23 million provision in respect of indemnities and obligations arising under agreements entered into by the Group
in association with corporate activity was released following completion of the transaction with abrdn plc in February 2021. Further
details of this transaction are included in note A6.1.
Other provisions includes £4 million (2020: £6 million) of obligations arising under a gift voucher scheme operated by the SunLife
business and a commission clawback provision which represents the expected future clawback of commission income earned by the
SunLife business as a result of assumed lapses of policies or associated benefits.
The remaining other provisions of £10 million (2020: £8 million) consist of a number of small balances all of which are less than £2 million
in value.
Discounting
The impact of discounting on all provisions during the year from either the passage of time or from a change in the discount rate is
not material.
G8. Tax assets and liabilities
Deferred tax is provided for on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not provided in respect of temporary differences arising from
the initial recognition of goodwill and the initial recognition of assets or liabilities in a transaction that is not a business combination
and that, at the time of the transaction, affects neither accounting nor taxable profit. The amount of deferred tax provided is based
on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted
or substantively enacted at the period end.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Current tax:
Current tax receivable
Current tax payable
Deferred tax:
Deferred tax liabilities
2021
£m
2020
£m
419
(19)
263
–
(1,399)
(1,036)
264
264
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Movement in deferred tax liabilities
2021
Trading losses
Capital losses
Expenses and deferred acquisition costs carried forward
Provisions and other temporary differences
Non-refundable pension scheme surplus
Pension scheme deficit
Accelerated capital allowances
Intangibles
Acquired in-force business
Customer relationships
Unrealised gains
IFRS transitional adjustments
Other
2020
Trading losses
Capital losses
Expenses and deferred acquisition costs carried forward
Provisions and other temporary differences
Non-refundable pension scheme surplus
Committed future pension contributions
Pension scheme deficit
Accelerated capital allowances
Intangibles
Acquired in-force business
Customer relationships
Unrealised gains
IFRS transitional adjustments
Other
Recognised
in
consolidated
income
statement
£m
Recognised
in other
comprehensi
ve income
£m
Less amounts
classified as
held for sale
(see note
A6.1)
£m
Other
movements
£m
1 January
£m
31 December
£m
30
36
42
129
(128)
13
8
39
(798)
(33)
(365)
(10)
1
80
(4)
15
5
13
(16)
8
(2)
(90)
(24)
(230)
5
–
–
–
–
–
(140)
3
–
–
–
–
–
–
–
(1,036)
(240)
(137)
Recognised
in
consolidate
d income
statement
£m
Recognised
in other
comprehens
ive income
£m
Acquisition
of ReAssure
businesses
£m
1 January
£m
14
–
20
32
(68)
12
14
8
40
(691)
(33)
(199)
(24)
2
(873)
15
14
(90)
(27)
(36)
(13)
1
(1)
(3)
123
–
(65)
5
2
–
–
–
–
(24)
1
(2)
–
–
–
–
–
–
–
(75)
(25)
–
22
102
124
–
–
–
1
–
(230)
–
(72)
9
(3)
(47)
(1)
–
–
1
–
–
–
(2)
–
–
2
–
4
4
–
–
–
–
–
–
–
–
10
–
–
–
–
109
32
57
135
(255)
–
16
35
(878)
(57)
(593)
(5)
5
10
(1,399)
L&G Part VII
transfer
Other
movements
£m
–
–
10
–
–
–
–
–
–
–
–
(28)
–
–
(18)
£m
1
–
–
–
–
–
–
–
2
–
–
(1)
–
–
2
31
December
£m
30
36
42
129
(128)
–
13
8
39
(798)
(33)
(365)
(10)
1
(1,036)
The standard rate of UK Corporation tax for the year ended 31 December 2021 is 19% (2020: 19%).
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
265
265
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G8. Tax assets and liabilities continued
An increase from the current 19% UK corporation tax rate to 25%, effective from 1 April 2023, was announced in the Budget on
3 March 2021, and substantively enacted on 24 May 2021. Accordingly, shareholder deferred tax assets and liabilities, where provided,
are reflected at rates between 19% and 25% depending on the expected timing of the reversal of the relevant temporary difference.
Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit
is probable.
Deferred tax assets have not been recognised in respect of:
Tax losses carried forward
Excess expenses and deferred acquisition costs
Intangibles
Deferred tax assets not recognised on capital losses1
1 These can only be recognised against future capital gains and have no expiry date.
2021
£m
2020
£m
55
9
9
29
52
7
14
42
There is a technical matter which is currently being discussed with HMRC in relation to the Legal and General Assurance Society Limited
transfer to ReAssure Limited. These discussions are not sufficiently progressed at this stage for recognition of any potential tax benefit arising.
There is an ongoing tax dispute with HMRC in relation to the tax treatment of an asset formerly held by Guardian Assurance Limited
(before the business was transferred to ReAssure Limited). The current tax liability includes an accrual for the total tax under dispute on
the basis that there is sufficient risk that the tax treatment will not be accepted. The matter is scheduled to be heard in the First Tier
Tribunal in May 2022.
The Group in conjunction with a number of other companies has challenged HMRC’s position on the corporation tax treatment of
overseas portfolio dividends from companies resident in the EU (‘EU dividends’) using a Group Litigation Order (‘GLO’). The issue relates
to whether the UK tax rules, which taxed EU dividends received prior to 1 July 2009, was contrary to EU law given that dividends received
from UK companies were exempt from tax. In 2009 UK tax law was changed with both overseas and UK dividends being treated as
exempt from corporation tax.
In July 2018, the Supreme Court concluded in favour of the tax payer and a tax benefit of £13 million was recognised at the end of 2018
in relation to enhanced double tax relief claims which the Group is entitled to in accordance with the Court judgement. As a result of the
insurance business transfer from Legal and General Assurance Society during 2020, the tax refund for the benefit of the Group’s with-
profit and unit-linked funds increased to £45 million and £23 million respectively. In the case of the with-profit funds there was an
increase in unallocated surplus and for the unit-linked funds there was a corresponding increase in investment contract liabilities as a
result of the recognition of the tax asset.
In January 2020, HMRC issued a communication to taxpayers who are affected by the dividend GLO but are not direct participants of it,
setting out HMRC’s intended approach to settling enquiries into the amount of double tax relief available for statutory protective or other
claims. The Group has been progressing claims with HMRC during the course of 2021, but due to the significant number of cases and
years affected, no amounts have as yet been repaid. The level of tax refund expected is currently unchanged as at the end of 2021.
Some companies of the Group were late joiners or not members of the GLO but have made statutory protective tax claims totalling circa
£14 million for the benefit of unit-linked life funds based on the Supreme Court decision. HMRC has challenged the validity of such
claims and is currently considering further tax litigation in this area against other third parties. Some progress through the courts has been
made in the course of 2021, but it is expected that the litigation will continue to run. Due to the uncertainty around the potential success
of the claims a tax asset has not been recognised in respect of these claims.
266
266
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
G9. Payables related to direct insurance contracts
Payables related to direct insurance contracts primarily include outstanding claims provisions. Outstanding claims under insurance
and investment contracts with DPF are valued using a best estimate method under IFRS 4 Insurance Contracts. Outstanding claims
under investment contracts without DPF are measured at full settlement value in accordance with IAS 39 Financial Instruments:
Recognition and Measurement.
Payables related to direct insurance contracts
G10. Lease liabilities
2021
£m
1,864
2020
£m
1,669
The operating lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the Group’s incremental borrowing rate as the interest rate implicit in the lease cannot be readily determined.
For ground rent leases classified as finance leases, the incremental borrowing rate of investment funds holding the associated
investment properties is used as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability
and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from, for example,
rent reviews or from changes in the assessment of whether a termination option is reasonably certain not to be exercised. The Group
has applied judgement to determine the lease term for some lease contracts with break clauses.
At 1 January
Acquisition of ReAssure businesses
Leases incepted during the year
Termination of leases following the disposal of associated investment properties
Interest expense
Lease payments
Remeasurement of leases
At 31 December
Amount due within 12 months
Amount due after 12 months
2021
£m
2020
£m
84
–
27
(1)
3
(16)
2
99
10
89
84
5
10
–
4
(18)
(1)
84
11
73
The Group has elected not to apply the measurement requirements of IFRS 16 to its low value leases and as such costs of these leases are
recognised on a straight-line basis as expense within administrative expenses. The expense for the year was £nil (2020: £1 million). Details
of the related right-of-use assets are included in notes G3 and G4.
G11. Accruals and deferred income
This note analyses the Group’s accruals and deferred income at the end of the year.
Accruals
Deferred income
Accruals and deferred income including amounts classified as held for sale
Less amounts classified as held for sale (see note A6.1)
At 31 December
Amount due for settlement after 12 months
2021
£m
498
123
621
(54)
567
2020
£m
452
69
521
–
521
26
12
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
267
267
Financials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G12. Other payables
Other payables are recognised when due and are measured on initial recognition at the fair value of the consideration payable.
Subsequent to initial recognition, these payables are measured at amortised cost using the effective interest rate method.
Investment broker balances
Property related payables
Investment management fees
Amount due to abrdn plc on deed of indemnity
Other payables
Amount due for settlement after 12 months
H. Interests in subsidiaries and associates
H1. Subsidiaries
2021
£m
228
73
77
–
343
721
2020
£m
746
37
3
68
412
1,266
–
1
Subsidiaries are consolidated from the date that effective control is obtained by the Group (see basis of consolidation in note A1) and
are excluded from consolidation from the date they cease to be subsidiary undertakings. For subsidiaries disposed of during the year,
any difference between the net proceeds, plus the fair value of any retained interest, and the carrying amount of the subsidiary
including non-controlling interests, is recognised in the consolidated income statement.
The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair
value of the consideration. Any excess of the cost of acquisition over the fair value of the net assets acquired is recognised as goodwill.
In certain acquisitions an excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities, contingent
liabilities and non-controlling interests over cost may arise. Where this occurs, the surplus of the fair value of net assets acquired over
the fair value of the consideration is recognised in the consolidated income statement.
Directly attributable acquisition costs are included within administrative expenses, except for acquisitions undertaken prior to 2010
when they are included within the cost of the acquisition. Costs directly related to the issuing of debt or equity securities are included
within the initial carrying amount of debt or equity securities where these are not carried at fair value. Intra-group balances and income
and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.
The Group has invested in a number of collective investment schemes such as Open-ended Investment Companies (‘OEICs’), unit
trusts, Société d’Investissement à Capital Variable (‘SICAVs’), investment trusts and private equity funds. These invest mainly in equities,
bonds, property and cash and cash equivalents. The Group’s percentage ownership in these collective investment schemes can
fluctuate according to the level of Group and third party participation in the structures.
When assessing control over collective investment schemes, the Group considers those factors described under the ‘Basis of
consolidation’ in note A1. In particular, the Group considers the scope of its decision-making authority, including the existence of
substantive rights (such as power of veto, liquidation rights and the right to remove the fund manager) that give it the ability to direct
the relevant activities of the investee. The assessment of whether rights are substantive rights, and the circumstances under which the
Group has the practical ability to exercise them, requires the exercise of judgement. This assessment includes a qualitative
consideration of the rights held by the Group that are attached to its holdings in the collective investment schemes, rights that arise
from contractual arrangements between the Group and the entity or fund manager and the rights held by third parties. In addition,
consideration is made of whether the Group has de facto power, for example, where third party investments in the collective
investment schemes are widely dispersed.
Where Group companies are deemed to control such collective investment schemes they are consolidated in the Group financial
statements, with the interests of external third parties recognised as a liability (see the accounting policy for ‘Net asset value attributable
to unitholders’ in note E1 for further details).
268
268
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Certain of the collective investment schemes have non-coterminous period ends and are consolidated on the basis of additional
financial statements prepared to the period end.
Portfolio transfers
When completing an acquisition, the Group first considers whether the acquisition meets the definition of a business combination
under IFRS 3 Business Combinations. IFRS 3, and the use of acquisition accounting, does not apply in circumstances where the
acquisition of an asset or a group of assets does not constitute a business, and is instead a portfolio of assets and liabilities. In such cases,
the Group’s policy is to recognise and measure the assets acquired and liabilities assumed in accordance with the Group’s accounting
policies for those assets and liabilities. The difference between the consideration and the net assets or liabilities acquired is recognised
in the consolidated income statement.
H1.1 Significant restrictions
The ability of subsidiaries to transfer funds to the Group in the form of cash dividends or to repay loans and advances is subject to local
laws, regulations and solvency requirements.
Each UK life company and the Group must retain sufficient capital at all times to meet the regulatory capital requirements mandated by
or otherwise agreed with the relevant national supervisory authority. Further information on the capital requirements applicable to Group
entities are set out in the Capital Management note I3. Under UK company law, dividends can only be paid if a UK company has
distributable reserves sufficient to cover the dividend.
In addition, contractual requirements may place restrictions on the transfer of funds as follows:
• Pearl Life Holdings Limited (‘PeLHL’) is required to make payments of contributions into charged accounts on behalf of the Abbey
Life Scheme. These amounts do not form part of the pension scheme assets and at 31 December 2021, PeLHL held £11 million
(2020: £50 million) within debt securities and £14 million (2020: £13 million) within cash and cash equivalents in respect of these
charged accounts. In December 2021, following completion of the 31 March 2021 funding valuation £42 million of assets were
transferred from the charged accounts to the Abbey Life Pension Scheme. Further details of when the remaining amounts may
become payable to the pensions scheme are included in note G1.3.
• ReAssure Midco Limited (‘RML’) is required to make payments of contributions into a ring-fenced account on behalf of the ReAssure
Staff Pension Scheme. These amounts do not form part of the pension scheme assets and at 31 December 2021, RML held £57 million
(2020: £57 million) within debt securities and £1 million (2020: £2 million) within cash and cash equivalents in respect of this account.
Further details of when these amounts may become payable to the pensions scheme are included in note G1.4.
The Pearl Pension Scheme funding agreement included certain covenants which restricted the transfer of funds within the Group.
As detailed further in note G1.1, these covenants were terminated under the Commitment Agreement entered into with the Pearl Pension
Scheme in November 2020.
H2. Acquisitions and portfolio transfers
H2.1 Acquisition of ReAssure businesses
On 22 July 2020, the Group acquired 100% of the issued share capital of ReAssure Group plc from Swiss Re Finance Midco (Jersey)
Limited, an indirect subsidiary of Swiss Re Limited, for total consideration of £3.1 billion. The consideration consisted of £1.3 billion of
cash, funded through the issuance of debt and own resources, and the issue of 277,277,138 shares (‘the Acquisition Shares’) to Swiss Re
Group on 23 July 2020.
Pursuant to an agreement between Swiss Re Group and MS&AD Insurance Group Holdings (‘MS&AD’), MS&AD transferred its entire
shareholding in ReAssure Group plc prior to 22 July 2020 to the Swiss Re Group in consideration for the transfer of 144,877,304 of the
Acquisition Shares at completion. The equity stake in the Group held by Swiss Re Group and MS&AD was valued at £1,847 million,
based on the share price at that date.
H2.2 L&G portfolio transfer
On 6 December 2017, ReAssure Limited, a subsidiary of ReAssure Group plc, entered into an agreement to acquire the mature savings
business of Legal and General Assurance Society (‘LGAS’). The mature savings book consists of a block of unit-linked and with-profit
business, predominantly comprising traditional insurance based pensions, savings and protection products which are closed and in
run-off. On that date, ReAssure Limited entered into a risk transfer agreement (‘RTA’) under which it assumed the risk and rewards
associated with the business for cash consideration of £650 million. The RTA was in-force as at the date of the Group’s acquisition of
the ReAssure businesses.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
269
269
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H2. Acquisitions and portfolio transfers continued
H2.2 L&G portfolio transfer continued
On 7 September 2020, the Group completed a Part VII transfer of the mature savings liabilities and associated assets with LGAS, which
resulted in the cancellation of the RTA. No further consideration was payable in respect of the Part VII transfer. This transfer was not
deemed to be an acquisition of a business and consequently the requirements of IFRS 3 have not been applied.
The Part VII transfer directly resulted in an increase in net assets of £85 million, which included £110 million associated with reduced
expense assumptions used for insurance contract liabilities arising upon migration of the business to the Group’s operating model
partially offset by the recognition of net liabilities transferred of £25 million. The gain arising upon the transfer has been recognised
in the consolidated income statement.
H3. Disposal of Ark Life
On 1 November 2021, the Group completed the sale of its entire interest in Ark Life Assurance Company DAC (‘Ark Life’) to Irish Life
Group Limited for gross cash consideration of €230 million (£198 million). The carrying value of the net assets disposed of was
£201 million which is after an impairment loss of £18 million in respect of AVIF that was recognised upon classification of the business
as held for sale.
Carrying value of net assets disposed of
Financial assets
Reinsurers’ share of insurance contract liabilities
Reinsurance receivables
Other receivables
Cash and cash equivalents
Insurance contract liabilities
Investment contract liabilities
Deferred tax liabilities
Other liabilities
Net assets disposed of
Cash consideration received
Less: transaction costs
Net consideration received
Foreign currency translation reserves recycled to the consolidated income statement
Loss on disposal
2021
£m
1,880
730
5
9
9
(799)
(1,598)
(4)
(31)
201
198
(6)
192
(14)
(23)
H4. Associates: Investment in UK Commercial Property Trust Limited (‘UKCPT’)
UKCPT is a property investment company which is domiciled in Guernsey and is admitted to the official list of the UK Listing Authority
and to trading on the London Stock Exchange.
The Group’s interest in UKCPT is held in the with-profit funds of the Group’s life companies. Therefore, the shareholder exposure to
fair value movements in the Group’s investment in UKCPT is limited to the impact of those movements on the shareholder share of
distributed profits of the relevant fund.
As at 31 December 2021, the Group held 44.5% (2020: 44.6%) of the issued share capital of UKCPT and the value of this investment,
measured at fair value and included within financial assets, was £431 million (2020: £400 million). Management has concluded that
the Group did not control UKCPT in either the current or comparative periods. The Group does not hold a unilateral power of veto in
general meetings and voting is subject to certain restrictions in accordance with the terms of an existing relationship agreement it has
with UKCPT.
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270
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Summary consolidated financial information (at 100%) for the UKCPT group is shown below:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
Profit/(loss) for the year after tax
H5. Structured entities
2021
£m
2020
£m
1,508
90
(248)
(25)
1,325
58
236
1,183
170
(198)
(28)
1,127
65
(10)
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who
controls the entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of
contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities; (b) a
narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated
with the assets of the structured entity to investors; (c) insufficient equity to permit the structured entity to finance its activities without
subordinated financial support; and (d) financing in the form of multiple contractually linked instruments to investors that create
concentrations of credit or other risks (tranches).
The Group has determined that all of its investments in collective investment schemes are structured entities. In addition, a number of
debt security structures and private equity funds have been identified as structured entities. The Group has assessed that it has interests
in both consolidated and unconsolidated structured entities as shown below:
• Unit trusts;
• OEICs;
• SICAVs;
• Private Equity Funds;
• Asset backed securities;
• Collateralised Debt Obligations (‘CDOs’);
• Other debt structures; and
• Phoenix Group EBT.
The Group’s holdings in the investments listed above are susceptible to market price risk arising from uncertainties about future values.
Holdings in investment funds are subject to the terms and conditions of the respective fund’s prospectus and the Group holds
redeemable shares or units in each of the funds. The funds are managed by internal and external fund managers who apply various
investment strategies to accomplish their respective investment objectives. All of the funds are managed by fund managers who are
compensated by the respective funds for their services. Such compensation generally consists of an asset-based fee and a performance-
based incentive fee and is reflected in the valuation of each fund.
H5.1 Interests in consolidated structured entities
The Group has determined that where it has control over funds, these investments are consolidated structured entities.
The EBT is a consolidated structured entity that holds shares to satisfy awards granted to employees under the Group’s share-based
payment schemes.
During the year, the Group granted further loans to the EBT of £16 million (2020: £7 million).
As at the reporting date, the Group has no intention to provide financial or other support to any other consolidated structured entity.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
271
271
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H5. Structured entities continued
H5.2 Interests in unconsolidated structured entities
The Group has interests in unconsolidated structured entities. These investments are held as financial assets in the Group’s consolidated
statement of financial position held at fair value through profit or loss. Any change in fair value is included in the consolidated income
statement in ‘net investment income’. Dividend and interest income is received from these investments.
A summary of the Group’s interest in unconsolidated structured entities is included below. These are shown according to the financial
asset categorisation in the consolidated statement of financial position.
Equities
Collective investment schemes
Debt securities1
2021
Carrying
value of
financial
assets
£m
871
85,995
10,991
2020
Carrying
value of
financial
assets
restated
£m
467
89,248
12,613
97,857
102,328
1 Comparative figures have been restated to include £4,545 million debt securities that have been classified as structured entities.
The Group’s maximum exposure to loss with regard to the interests presented above is the carrying amount of the Group’s investments.
Once the Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group’s holdings in
the above unconsolidated structured entities are largely less than 50% and as such the size of these structured entities are likely to be
significantly higher than their carrying value.
Details of commitments to subscribe to private equity funds and other unlisted assets are included in note I5.
H6. Group entities
The table below sets out the Group’s subsidiaries (including consolidated collective investment schemes), associates and significant
holdings in undertakings (including undertakings in which the holding amounts to 20% or more of the nominal value of the shares or units
and they are not classified as a subsidiary or associate).
Subsidiaries:
Phoenix Life Limited (life assurance company)
Phoenix Life Assurance Limited (life assurance company)
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Wythall2
Wythall2
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Standard Life Assurance Limited (life assurance company – directly owned by
the Company)
Standard Life International Designated Activity Company (life assurance
company – directly owned by the Company)
Edinburgh3
Ordinary Shares
100.00%
Dublin4
Ordinary Shares
100.00%
Standard Life Pension Funds Limited (life assurance company)
ReAssure Life Limited (life assurance company)
ReAssure Limited (life assurance company)
Pearl Group Management Services Limited (management services company)
Pearl Group Services Limited (management services company)
Standard Life Assets and Employee Services Limited (management services
company)
ReAssure Companies Services Limited (management services company)
PGMS (Ireland) Limited (management services company)
ReAssure UK Services Limited (management services company)
Edinburgh3
Telford5
Telford5
Wythall2
Wythall2
Edinburgh3
Telford5
Dublin6
Telford5
272
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Limited by
Guarantee
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Financials continued
PA (GI) Limited (non-trading company)
103 Wardour Street Retail Investment Company Limited (investment company)
3 St Andrew Square Apartments Limited (property management company)
Abbey Life Assurance Company Limited (non-trading company) 1
Abbey Life Trust Securities Limited (pension trustee company)
Abbey Life Trustee Services Limited (dormant company) 1
Alba LAS Pensions Management Limited (dormant company) 1
Alba Life Trustees Limited (non-trading company)
Registered
address of
incorporated
entities
Wythall2
Telford5
Edinburgh7
Wythall2
Wythall2
Wythall2
Glasgow8
Edinburgh3
Axial Fundamental Strategies (US Investments) LLC (investment company)
Delaware9
BA (FURBS) Limited (dormant company)
BL Telford Limited (dormant company) 1
Britannic Finance Limited (finance and insurance services company) 1
Britannic Group Services Limited (dormant company)
Britannic Money Investment Services Limited (investment advice company) 1
Century Trustee Services Limited (dormant company) 1
CH Management Limited (investment company)
Cityfourinc (dormant company) 1
ERIP General Partner Limited (General Partner to ERIP Limited Partnership)
ERIP Limited Partnership (Limited Partnership)
G Assurance & Pensions Services Limited (non-trading company) 1
G Financial Services Limited (dormant company) 1
G Life H Limited (holding company)1
G Park Management Company Limited (property management company)
G Trustees Limited (trustee company)
Gallions Reach Shopping Park (Nominee) Limited (dormant company)
Gresham Life Assurance Society Limited (dormant company) 1
Iceni Nominees (No. 2) Limited (dormant company)
IH (Jersey) Limited (dormant company)
Impala Holdings Limited (holding company)
Impala Loan Company 1 Limited (dormant company)
Inesia SA (investment company)
Inhoco 3107 Limited (dormant company)
London Life Limited (dormant company) 1
London Life Trustees Limited (dormant company)
Namulas Pension Trustees Limited (dormant company)
National Provident Institution (dormant company)1
National Provident Life Limited (dormant company) 1
NM Life Trustees Limited (dormant company)
NM Pensions Limited (dormant company) 1
Northampton General Partner Limited (dormant company) 1
NP Life Holdings Limited (dormant company) 1
NPI (Printworks) Limited (dormant company)
Wythall2
Telford5
Wythall2
Wythall2
Wythall2
Wythall2
Delaware10
Wythall2
Telford5
Telford5
Telford5
Telford5
Telford5
London11
Telford5
London11
Telford5
London11
Jersey12
Wythall2
Edinburgh3
Luxembourg13
London11
Wythall2
Wythall2
Telford5
Wythall2
Wythall2
Telford5
Telford5
Telford5
Wythall2
Wythall2
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Liability
Company
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited with
Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited
without Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
80.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
273
273
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H6. Group entities continued
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
NPI (Westgate) Limited (dormant company)
Phoenix (Barwell 2) Limited (dormant company)
Phoenix (Chiswick House) Limited (dormant company)
Pearl (Covent Garden) Limited (dormant company)
Pearl (Martineau Phase 1) Limited (dormant company)
Pearl (Martineau Phase 2) Limited (dormant company)
Phoenix (Moor House 1) Limited (dormant company)
Phoenix (Moor House 2) Limited (dormant company)
Pearl (Moor House) Limited (dormant company) 1
Phoenix (Printworks) Limited (dormant company)
Phoenix (Stockley Park) Limited (dormant company)
Pearl (WP) Investments LLC (investment company)
Pearl AL Limited (dormant company) 1
Pearl Assurance Group Holdings Limited (investment company) 1
Pearl Customer Care Limited (financial services company) 1
Pearl Group Holdings (No. 1) Limited (finance company)
Pearl Group Holdings (No. 2) Limited (holding company)
Pearl Group Secretariat Services Limited (dormant company)
Pearl Life Holdings Limited (holding company)
Phoenix Group Management Limited (dormant company)
Pearl MP Birmingham Limited (dormant company)
Pearl RLG Limited (dormant company)
Pearl Trustees Limited (dormant company)
Phoenix ULA Limited (dormant company) 1
PG Dormant (No 4) Limited (dormant company) 1
PG Dormant (No 5) Limited (dormant company) 1
PG Dormant (No 6) Limited (dormant company) 1
Phoenix Group Management Services Limited (dormant company)
PGH (LC1) Limited (dormant company) 1
PGH (LC2) Limited (dormant company)
PGH (LCA) Limited (dormant company) 1
PGH (LCB) Limited (dormant company) 1
PGH (MC1) Limited (dormant company) 1
PGH (MC2) Limited (dormant company) 1
PGH (TC1) Limited (dormant company)
PGH (TC2) Limited (dormant company)
PGH Capital plc (finance company – directly owned by the Company)
PGMS (Glasgow) Limited (investment company) 1
PGMS (Ireland) Holdings Unlimited Company (holding company)
PGS 2 Limited (investment company) 1
Phoenix & London Assurance Limited (dormant company) 1
274
274
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Delaware9
Glasgow8
Wythall2
Wythall2
London14
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
London14
London15
London15
London15
London15
London16
London16
London15
London15
Dublin17
Edinburgh3
Dublin6
Wythall2
Wythall2
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Liability
Company
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited with
Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Financials continued
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Phoenix Advisers Limited (dormant company) 1
Phoenix AW Limited (dormant company) 1
Phoenix Customer Care Limited (financial services company) 1
Phoenix ER1 Limited (finance company)
Phoenix ER2 Limited (finance company)
Phoenix ER3 Limited (finance company)
Phoenix ER4 Limited (finance company)
Phoenix ER5 Limited (finance company)
Phoenix ER6 Limited (finance company)
Phoenix Group Capital Limited (dormant company)
Phoenix Group Holdings (non-trading company)
Phoenix Life Assurance Europe DAC (dormant company)
Phoenix Life Holdings Limited (holding company – directly owned
by the Company)
Phoenix Pension Scheme (Trustees) Limited (dormant company)
Phoenix Pensions Trustee Services Limited (dormant company)
Phoenix SCP Limited (dormant company)
Phoenix SCP Pensions Trustees Limited (trustee company)
Phoenix SCP Trustees Limited (trustee company)
Phoenix SL Direct Limited (non-trading company) 1
Phoenix SPV1 Limited (investment company) 1
Phoenix SPV2 Limited (investment company) 1
Phoenix SPV3 Limited (investment company) 1
Phoenix SPV4 Limited (investment company) 1
Phoenix Unit Trust Managers Limited (unit trust manager)
Phoenix Wealth Holdings Limited (holding company) 1
Phoenix Wealth Services Limited (financial services company)
Phoenix Wealth Trustee Services Limited (trustee company)
ReAssure FS Limited (dormant company) 1
ReAssure FSH UK Limited (holding company) 1
ReAssure Group plc (holding company – directly owned by the Company)
ReAssure Life Pension Trustees Limited (dormant company)
ReAssure LL Limited (dormant company) 1
ReAssure Midco Limited (holding company)
ReAssure Nominees Limited (dormant company) 1
ReAssure Pension Trustees Limited (dormant company)
ReAssure PM Limited (dormant company) 1
ReAssure Trustees Limited (dormant company)
ReAssure Two Limited (dormant company) 1
ReAssure UK Life Assurance Company Limited (dormant company) 1
Scottish Mutual Assurance Limited (dormant company) 1
Scottish Mutual Nominees Limited (dormant company) 1
Scottish Mutual Pension Funds Investment Limited (trustee company)
SL (NEWCO) Limited (dormant company)
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Cayman Islands18
Dublin19
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh3
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Telford5
Edinburgh3
Edinburgh3
Edinburgh3
Edinburgh3
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Private Company
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
275
275
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H6. Group entities continued
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
SL Liverpool plc (dormant company) 1
SLA Belgium No.1 SA (investment company)
SLA Netherlands No.1 B.V. (investment company)
SLACOM (No. 10) Limited (dormant company)
SLACOM (No. 8) Limited (dormant company)
SLACOM (No. 9) Limited (dormant company)
SLIF Property Investment GP Limited (General Partner to
SLIF Property Investment)
Pilangen Logistik AB (investment company)
Pilangen Logistik I AB (investment company)
SLA Denmark No.1 ApS (investment company)
SLA Denmark No.2 ApS (investment company)
SLA Germany No.1 S.à.r.l. (investment company)
SLA Germany No.2 S.à.r.l. (investment company)
SLA Germany No.3 S.à.r.l. (investment company)
SLA Ireland No.1 S.à.r.l. (investment company)
Standard Life Assurance (HWPF) Luxembourg S.à.r.l. (investment company)
Standard Life Agency Services Limited (dormant company)
Standard Life Investment Funds Limited (dormant company)
Standard Life Lifetime Mortgages Limited (mortgage provider company)
Standard Life Master Trust Co. Limited (dormant company)
Standard Life Private Equity Trust plc (investment company)
Standard Life Property Company Limited (dormant company)
Standard Life Trustee Company Limited (trustee company)
SunLife Limited (financial services distribution company)
The Heritable Securities and Mortgage Investment Association Ltd
(dormant company)
The London Life Association Limited (dormant company)
The Pathe Building Management Company Limited (dormant company) 1
The Phoenix Life SCP Institution (dormant company) 1
The Scottish Mutual Assurance Society (dormant company) 1
The Standard Life Assurance Company of Europe B.V.
(financial holding company)
Vebnet (Holdings) Limited (holding company) 1
Vebnet Limited (services company) 1
Welbrent Property Investment Company Limited (dormant company)
PC Management Limited (property management company)
Phoenix Group Employee Benefit Trust
330 Avenida de Aragon SL (property management company)
276
276
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Wythall2
Brussels20
Amsterdam21
Edinburgh3
Edinburgh3
Edinburgh3
Edinburgh7
Stockholm22
Stockholm22
Copenhagen23
Copenhagen23
Luxembourg24
Luxembourg24
Luxembourg24
Luxembourg24
Luxembourg24
Edinburgh3
Edinburgh3
Edinburgh3
Wythall2
Edinburgh7
Edinburgh3
Edinburgh3
Wythall2
Edinburgh3
Wythall2
Telford5
Edinburgh3
Glasgow8
Amsterdam21
Wythall2
Wythall2
London11
Dublin25
Jersey26
Madrid27
Type of
investment
(including class
of shares held)
Public Limited
Company
Société
Anonyme
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
% of shares/
units held
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
56.01%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Limited by
Guarantee
Ordinary Shares
Limited by
Guarantee
Limited by
Guarantee
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Trust
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
69.00%
100.00%
100.00%
Financials continued
The Pearl Martineau Limited Partnership
Lynch Wood28
The Pearl Martineau Galleries Limited Partnership
SLIF Property Investment LP
Pearl Private Equity LP
Pearl Strategic Credit LP
European Strategic Partners LP
ASI Phoenix Global Private Equity III LP
Janus Henderson Institutional Short Duration Bond Fund
Janus Henderson Institutional Mainstream UK Equity Trust
Janus Henderson Institutional UK Equity Tracker Trust
Janus Henderson Institutional High Alpha UK Equity Fund
Janus Henderson Global Funds – Janus Henderson Institutional Overseas
Bond Fund
Janus Henderson Strategic Investment Funds – Janus Henderson Institutional
North American Index Opportunities Fund
Janus Henderson Strategic Investment Funds – Janus Henderson Institutional
Asia Pacific ex Japan Index Opportunities Fund
Janus Henderson Diversified Growth Fund
Janus Henderson Strategic Investment Funds – Janus Henderson Institutional
Japan Index Opportunities Fund
PUTM Far Eastern Unit Trust
PUTM UK Stock Market Fund
PUTM UK Stock Market Fund (Series 3)
PUTM UK All-Share Index Unit Trust
PUTM UK Equity Unit Trust
PUTM Bothwell Asia Pacific (Excluding Japan) Fund
PUTM Bothwell Emerging Market Debt Unconstrained Fund
PUTM Bothwell European Credit Fund
PUTM Bothwell Global Bond Fund
PUTM Bothwell Global Credit Fund
PUTM Bothwell Floating Rate ABS Fund
PUTM Bothwell Index-Linked Sterling Hedged Fund
PUTM Bothwell Japan Tracker Fund
PUTM Bothwell Long Gilt Sterling Hedged Fund
PUTM Bothwell Emerging Markets Equity Fund
PUTM Bothwell North America Fund
PUTM Bothwell Sterling Government Bond Fund
PUTM Bothwell Euro Sovereign Fund
PUTM Bothwell Sterling Credit Fund
PUTM Bothwell Tactical Asset Allocation Fund
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Limited
Partnership
Limited
Partnership
Limited
Partnership
Limited
Partnership
Limited
Partnership
Limited
Partnership
Limited
Partnership
Unit Trust
Unit Trust
Unit Trust
Unit Trust
100.00%
100.00%
100.00%
100.00%
100.00%
72.70%
100.00%
100.00%
100.00%
100.00%
90.72%
Wythall2
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
London29
London29
London29
London29
London29 OEIC, sub fund
96.68%
London29 OEIC, sub fund
85.06%
London29 OEIC, sub fund
London29 OEIC, sub fund
London29 OEIC, sub fund
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
88.79%
72.35%
80.39%
99.63%
100.00%
100.00%
99.89%
99.91%
99.63%
100.00%
99.58%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
99.95%
99.32%
99.61%
85.03%
99.94%
100.00%
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
277
277
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H6. Group entities continued
PUTM Bothwell UK All Share Listed Equity Fund
PUTM ACS UK All Share Listed Equity Fund
PUTM Bothwell Uk Equity Income Fund
PUTM Bothwell Sub-Sovereign A Fund
PUTM Bothwell Short Duration Credit Fund
PUTM Bothwell Ultra Short Duration Fund
PUTM ACS Lothian North American Equity Fund
PUTM ACS Lothian European Ex UK Fund
PUTM ACS Lothian UK Listed Equity Fund
PUTM ACS European ex UK Fund
PUTM ACS Japan Equity Fund
PUTM ACS Lothian UK Gilt Fund
PUTM ACS UK Smaller Companies Fund
PUTM ACS North American Fund
ASI (SLI) Strategic Bond Fund
ASI (Standard Life) Multi-Asset Trust
ASI (Standard Life) European Trust II
ASI Emerging Markets Income Equity Fund
ASI (SLI) Emerging Markets Equity Fund
ASI Emerging Markets Local Currency Bond Tracker Fund
ASI Europe Europe ex UK Ethical Equity Fund
ASI (Standard Life) European Trust
ASI (Standard Life) Japan Trust
ASI (Standard Life) North American Trust
ASI (Standard Life) Pacific Basin Trust
ASI (Standard Life) Short Dated UK Government Bond Trust
ASI (Standard Life) Global Equity Trust II
ASI (Standard Life) UK Government Bond Trust
ASI (Standard Life) UK Corporate Bond Trust
ASI (Standard Life) Active Plus Bond Trust
ASI (Standard Life) International Trust
ASI (Standard Life) UK Equity General Trust
ASI Short Dated Corporate Bond Fund
ASI MyFolio Managed I Fund
ASI MyFolio Managed II Fund
ASI MyFolio Managed III Fund
ASI MyFolio Managed V Fund
ASI Dynamic Multi Asset Growth Fund
ASI American Income Equity Fund
Aberdeen Standard SICAV III Global Short Duration Corporate Bond Fund
Aberdeen Standard SICAV II Absolute Return Global Bond Strategies Fund
Aberdeen Standard SICAV II European Equities Fund
278
278
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh7
Edinburgh7
Edinburgh7
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
99.63%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
88.84%
99.99%
100.00%
82.22%
96.86%
75.77%
76.15%
96.79%
80.65%
99.52%
98.11%
100.00%
100.00%
100.00%
100.00%
100.00%
99.86%
99.71%
86.71%
74.49%
74.46%
82.43%
74.34%
96.09%
73.43%
98.12%
76.39%
99.06%
Financials continued
Aberdeen Standard SICAV II European Equity Unconstrained Fund
Aberdeen Standard SICAV II Global Equities Fund
Aberdeen Standard SICAV II European Government All Stocks Fund
Aberdeen Standard SICAV II Japanese Equities Fund
Aberdeen Standard SICAV II Global Bond Fund
Aberdeen Standard SICAV II Global High Yield Bond Fund
Aberdeen Standard SICAV II Global REIT Focus Fund
Aberdeen Standard SICAV II China Equities Fund
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
% of shares/
units held
97.54%
81.65%
99.99%
93.93%
94.19%
82.95%
93.41%
78.71%
Aberdeen Standard SICAV II Global Emerging Markets Unconstrained Fund
Luxembourg30 SICAV, sub fund
100.07%
Aberdeen Standard SICAV II Global Emerging Markets Local CCY Debt Fund
Aberdeen Standard SICAV II Emerging Market Debt Fund
Aberdeen Standard SICAV III Dynamic Multi Asset Growth Fund
ASIMT American Equity Unconstrained Fund
ASIMT Japan Fund
ASIMT Global REIT Fund
ASIMT Sterling Intermediate Credit Fund Launch Fund
Aberdeen Standard Liquidity Fund (Lux) – Seabury Sterling Liquidity 3 Fund
Aberdeen Standard Liquidity Fund (Lux) – Seabury Sterling Liquidity 2 Fund
Aberdeen Standard Liquidity Fund (Lux) – Seabury Euro Liquidity 1 Fund
Ignis Private Equity Fund LP
Ignis Strategic Credit Fund LP
ASI Phoenix Fund Financing SCSp (PLFF)
North American Strategic Partners 2008 L.P.
North American Strategic Partners (Feeder) 2008 Limited Partnership
Crawley Unit Trust
Ignis Strategic Solutions Funds plc – Fundamental Strategies Fund
Ignis Strategic Solutions Funds plc – Systematic Strategies Fund
HSBC Investment Funds – Balanced Fund
IFSL AMR OEIC – IFSL AMR Diversified Portfolio
iShares 350 UK Equity Index Fund UK
Legal & General European Equity Income Fund
Legal & General Growth Trust
ASI Sustainable Index World Equity Fund
ASI Sustainable Index UK Equity Fund
ASI Phoenix Venture Capital Partners LP
CF Macquaries Global Infrastructure Securities Fund
Quilter Investors Diversified Portfolio Fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Luxembourg31 UCITS, sub fund
Luxembourg31 UCITS, sub fund
Luxembourg31 UCITS, sub fund
Cayman Islands18
Cayman Islands18
Limited
Partnership
Limited
Partnership
Luxembourg31
Special Limited
Partnership
Delaware9
Edinburgh7
Jersey32
Limited
Partnership
Limited
Partnership
Unit Trust
Dublin33 OEIC, sub fund
Dublin33 OEIC, sub fund
London34 OEIC, sub fund
Bolton35 OEIC, sub fund
London36 OEIC, sub fund
London37
London37
Edinburgh7
Edinburgh7
Edinburgh7
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Limited
Partnership
London38 OEIC, sub fund
London39 OEIC, sub fund
91.43%
98.39%
79.28%
79.70%
76.69%
81.94%
92.67%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
82.18%
70.08%
90.96%
88.43%
71.19%
100.00%
79.36%
100.00%
77.08%
93.01%
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
279
279
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H6. Group entities continued
Quilter Investors UK Equity Large-Cap Value Fund
Amundi Index Solutions – Amundi MSCI Emerging Ex China
ESG Leaders Select
Associates:
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
London39 OEIC, sub fund
97.59%
Luxembourg40 SICAV, sub fund
61.30%
UK Commercial Property Estates Limited (property investment company)
UK Commercial Property GP Limited (dormant company)
UK Commercial Property Holdings Limited (property investment company)
UK Commercial Property Nominee Limited (dormant company)
Guernsey41
London42
Guernsey41
London42
Moor House General Partner Limited
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
London43
Limited
Partnership
UK Commercial Property REIT Limited (property investment company)
Guernsey41
Ordinary Shares
44.46%
44.46%
44.46%
44.46%
33.30%
44.46%
UK Commercial Property Estates Holdings Limited
(property investment company)
UKCPT Limited Partnership (dormant company)
UK Commercial Property Finance Holdings Limited
(property investment company)
UK Commercial Property Estates (Reading) Limited (dormant company)
Brixton Radlett Property Limited (dormant company)
Duke Distribution Centres S.à.r.l. (investment company)
Duke Offices & Developments S.à.r.l. (investment company)
Significant holdings:
Janus Henderson Institutional Global Responsible Managed Fund
Janus Henderson Institutional UK Index Opportunities Fund
Standard Life Capital Infrastructure I LP
ASI (SLI) Corporate Bond Fund
ASI Global Absolute Return Strategies Retail Acc
ASI Dynamic Distribution Fund
Standard Life Investments UK Real Estate Accumulation Feeder Fund
ASI Global Smaller Company Fund
Aberdeen Standard Global SICAV III Global Equity Impact Fund
Aberdeen Standard SICAV II Total Return Credit Fund
Aberdeen Standard Liquidity Fund (Lux) Sterling Fund
ASI UK High Income Equity Fund
ASI Global Unconstrained Equity Fund
ASI High Yield Bond Fund
ASI UK Opportunities Equity Fund
ASI Investment Grade Corporate Bond Fund
ASI UK Smaller Companies Fund
ASI Europe ex UK Growth Equity Fund
ASI Short Duration Global Inflation-Linked Bond Fund
ASI UK Unconstrained Equity Fund
ASI Ethical Corporate Bond Fund
280
280
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Guernsey41
Ordinary Shares
44.46%
Guernsey41
London42
London42
Luxembourg44
Luxembourg44
London42
Limited
Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
London29 OEIC, sub fund
London29 OEIC, sub fund
Edinburgh7
Limited
Partnership
Edinburgh7 OEIC, sub fund
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg31 UCITS, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
44.46%
44.46%
44.46%
44.46%
44.46%
44.46%
38.18%
60.29%
26.30%
30.28%
60.78%
62.43%
47.85%
20.29%
46.90%
24.22%
21.85%
52.37%
44.98%
38.14%
51.66%
31.98%
31.29%
31.58%
27.06%
54.87%
52.72%
Financials continued
ASI Global Real Estate Share Fund
ASI Global Real Estate Fund
ASI MyFolio Market I Fund
ASI MyFolio Market II Fund
ASI MyFolio Market III Fund
ASI MyFolio Market IV Fund
ASI MyFolio Market V Fund
ASI MyFolio Multi-Manager I Fund
ASI MyFolio Multi-Manager II Fund
ASI MyFolio Multi-Manager III Fund
ASI MyFolio Multi-Manager IV Fund
ASI MyFolio Multi-Manager V Fund
ASI MyFolio Managed IV Fund
Aberdeen Standard SICAV II Euro Smaller Companies Fund
Aberdeen Standard SICAV II European Corporate Bond Fund
Aberdeen Standard SICAV II Global Absolute Return Strategies Fund
Aberdeen Standard SICAV II Global Corporate Bond Fund
ASI American Unconstained Equity Fund
Aberdeen Standard Liquidity Fund (Lux) Euro Fund
ASI Europe ex UK Income Equity Fund
ASI UK Income Unconstrained Equity Fund
Brent Cross Partnership
Castlepoint LP
Gallions Reach Shopping Park Unit Trust
Aberdeen Standard UK Retail Park Trust
Standard Life Investments UK Shopping Centre Trust
Gallions Reach Shopping Park Limited Partnership
Standard Life Investments Brent Cross LP
AXA Fixed Interest Investment ICVC – Sterling Strategic Bond Fund
AXA Global High Income Fund
AQR Global Risk Premium UCITS Fund
Threadneedle Investment Funds ICVC – American Select Fund
Vanguard Investment Series plc – Vanguard Global Short-Term Corporate
Bond Index Fund
Vanguard FTSE U.K. All Share Index Unit Trust
Vanguard Investment Series plc – Vanguard U.K. Short-Term Investment
Grade Bond Index Fund
Vanguard Common Contractual Fund – Vanguard U.S. Equity Index Common
Contractual Fund
Vanguard Investment Series plc – Vanguard Global Corporate Bond
Index Fund
Vanguard Investments Common Contractual Fund – Vanguard FTST
Developed World ex UK Common Contractual Fund
MI Somerset Global Emerging Markets Fund
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Edinburgh7 OEIC, sub fund
Edinburgh7
Unit Trust
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Edinburgh7 OEIC, sub fund
Luxembourg31 UCITS, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
London43
Birmingham45
Jersey32
Jersey46
Jersey46
London11
Edinburgh7
Limited
Partnership
Limited
Partnership
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
London47 UCITS, sub fund
London48 OEIC, sub fund
USA49 UCITS, sub fund
London50 OEIC, sub fund
Dublin51 UCITS, sub fund
London52
Unit Trust
45.32%
46.22%
43.60%
45.66%
54.48%
52.83%
60.55%
53.32%
53.40%
62.97%
57.45%
60.48%
67.17%
23.29%
35.97%
42.94%
71.23%
21.55%
28.60%
37.71%
52.60%
23.83%
34.81%
100.00%
56.60%
40.13%
100.00%
40.13%
48.50%
23.67%
100.00%
21.43%
38.99%
25.38%
Dublin51 UCITS, sub fund
61.57%
Dublin51 UCITS, sub fund
99.47%
Dublin51 UCITS, sub fund
31.10%
Dublin51 UCITS, sub fund
London53 OEIC, sub fund
99.84%
53.84%
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
281
281
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H6. Group entities continued
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
ASI Emerging Markets Equity Enhanced Index Fund
Amundi UCITS Funds – Amundi Global Multi-Factor Equity Fund
AB SICAV I – Emerging Markets Low Volatility Equity Portfolio
Aberdeen Standard SICAV I – GDP Weighted Global Government
Bond Fund
Aberdeen Standard SICAV I – Global Bond Fund
Aberdeen Standard SICAV I – Global Government Bond Fund
Fidelity Multi Asset Open Adventurous Fund
Goldman Sachs SICAV – Emerging Markets Total Return Bond Portfolio
HSBC ETFs PLC – HSBC FTSE EPRA NAREIT Developed UCITS ETF
Invesco US Equity Fund
Legal & General Real Capital Builder Fund
L&G Absolute Return Bond Plus Fund
L&G Emerging Markets Bond Fund
L&G Multi-Asset Target Return Fund
Legal & General Asian Income Trust
Legal & General Dynamic Bond Fund
Legal & General Emerging Markets Government Bond (Local Currency)
Index Fund
Legal & General Emerging Markets Government Bond USD Index Fund
Legal & General European Index Trust
Legal & General Global Real Estate Dividend Index Fund
Legal & General High Income Trust
L&G Euro High Alpha Corporate Bond Fund
Legal & General UK Equity Income Fund
Legal & General UK Smaller Companies Trust
Legal & General UK Special Situations Trust
LGIM Sterling Liquidity Plus Fund
Blackrock ICS Sterling Government Liquidity Fund
Marks and Spencer Worldwide Managed Fund
Quilter Investors Bond 2 Fund
Quilter Investors China Equity Fund
Quilter Investors Cirilium Moderate Blend Portfolio Fund
Quilter Investors Ethical Equity Fund
Quilter Investors Global Equity Growth Fund
Quilter Investors Global Dynamic Equity Fund
Quilter Investors UK Equity Index Fund
BlackRock Market Advantage X
Vanguard Investments Common Contractual Fund – Vanguard FTSE
Developed Europe ex UK Common Contractual Fund
Vanguard Investments Common Contractual Fund – Vanguard FTSE
Developed World Common Contractual Fund
Vanguard Investment Series plc – Vanguard U.K. Investment Grade
Bond Index Fund
282
282
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Edinburgh7 OEIC, sub fund
Luxembourg40 UCITS, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg31 SICAV, sub fund
Luxembourg31 SICAV, sub fund
Luxembourg31 SICAV, sub fund
Surrey54 OEIC, sub fund
Luxembourg55 SICAV, sub fund
Dublin19 UCITS, sub fund
Oxfordshire56 OEIC, sub fund
London37
Unit Trust
Luxembourg57 SICAV, sub fund
Luxembourg57 SICAV, sub fund
Luxembourg57 SICAV, sub fund
London37
London37
London37
London37
London37
London37
London37
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Luxembourg57 SICAV, sub fund
London37
London37
London37
Unit Trust
Unit Trust
Unit Trust
Dublin51 UCITS, sub fund
Dublin58 UCITS, sub fund
London34
Unit Trust
London39 OEIC, sub fund
London39 OEIC, sub fund
London39 OEIC, sub fund
London39
Unit Trust
London39 OEIC, sub fund
London39 OEIC, sub fund
London39 OEIC, sub fund
London36 UCITS, sub fund
22.06%
65.07%
87.52%
84.51%
91.69%
37.28%
55.92%
96.48%
42.34%
27.68%
67.38%
57.79%
33.89%
32.93%
60.75%
52.43%
22.03%
28.93%
24.25%
22.36%
47.75%
45.92%
24.97%
31.88%
58.68%
35.72%
30.87%
42.05%
45.71%
22.00%
34.30%
50.55%
42.26%
22.86%
31.83%
42.68%
Dublin51 UCITS, sub fund
100.00%
Dublin51 UCITS, sub fund
40.50%
Dublin51 UCITS, sub fund
20.59%
Financials continued
Baillie Gifford UK & Balanced Funds ICVC – Baillie Gifford UK and
Worldwide Equity Fund
Baillie Gifford Investment Funds II ICVC – Baillie Gifford UK Equity
Core Fund
ASI Short Dated Sterling Corporate Bond Tracker Fund
ASI Global Inflation-Linked Bond Tracker Fund
ASI Multi-Asset Fund
Aberdeen Standard SICAV I – Diversified Income Fund
ASI Diversified Growth Fund
Amundi Index Solutions – Amundi MSCI China ESG Leaders Select
Amundi Index Solutions – Amundi Global Corp SRI 1-5Y
BNY Mellon Multi-Asset Global Balanced Fund
Aberdeen Japan Equity Fund
ASI European Equity Tracker Fund
ASI UK Responsible Equity Fund
Central Saint Giles Unit Trust
Performance Retail Unit Trust
Registered
address of
incorporated
entities
If
unincorporated,
address of
principal place
of business
Type of
investment
(including class
of shares held)
% of shares/
units held
Edinburgh59 OEIC, sub fund
27.14%
Edinburgh59 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Luxembourg31 SICAV, sub fund
London11
Unit Trust
Luxembourg40 SICAV, sub fund
Luxembourg40 SICAV, sub fund
London60 UCITS, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Jersey61
Jersey62
Unit Trust
Unit Trust
33.61%
41.08%
24.02%
28.22%
32.69%
26.01%
47.71%
29.32%
22.65%
21.56%
20.68%
27.26%
25.66%
50.10%
1 These subsidiaries have been granted audit exemption by parental guarantee.
2 1 Wythall Green Way, Wythall, Birmingham, West Midlands, B47 6WG, United Kingdom
3 Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH, United Kingdom
4 90 St. Stephen’s Green, Dublin, D2, Ireland
5 Windsor House, Telford Centre, Telford, Shropshire, TF3 4NB, United Kingdom
6 Goodbody Secretarial Limited, International Financial Services Centre, 25/28 North Wall Quay, Dublin 1, Ireland
7 1 George Street, Edinburgh, EH2 2LL, United Kingdom
8 301 St Vincent Street, Glasgow, G2 5HN, United Kingdom
9 Corporation Service Company, 2711 Centerville Rd Suite 400, Wilmington, DE 19808, United States
10 Suite 202, 103 Foulk Road, Wilmington, Delaware, 19803, United States
11 Bow Bells House, 1 Bread Street, London, EC4M 9HH, United Kingdom
12 22-24 New Street, St Pauls Gate, 4th Floor, JE1 4TR, Jersey
13 8 Boulevard Royal, L-2449, Luxembourg, Luxembourg
14 20 Old Bailey, London, England, EC4M 7AN, United Kingdom
15 30 Finsbury Square, London, EC2A 1AG, United Kingdom
16 33 Finsbury Square, London, EC2A 1AG, United Kingdom
17 Arthur Cox Building, 10 Earlsfort Terrace, Dublin 2, Dublin, Ireland
18 Ugland House, Grand Cayman, KY1-1104, Cayman Islands
19 25/28 North Wall Quay, Dublin 1, Dublin, Ireland
20 Avenue Louise 326, bte 33 1050 Brussels, Belgium
21 Telestone 8, Teleport, Naritaweg 165, 1043 BW, Amsterdam, Netherlands
22 Citco (Sweden) Ab, Stureplan 4c, 4 Tr, 114 35 Stockholm, Sweden
23 c/o Citco (Denmark) ApS, Holbergsgade 14, 2 .tv, 1057 København K Denmark
24 6B, rue Gabriel Lippmann, Parc d’Activité Syrdall 2, L-5365 Münsbach, Luxembourg
25 5th Floor Beaux Lane House, Mercer Street Lower, Dublin 2, Dublin, Ireland
26 32 Commercial Street, St Helier, Jersey, Channel Islands, JE2 3RU, Jersey
27 Avenida de Aragon 330 – Building 5, 3rd Floor, Parque Empresarial Las Mercedes, 28022 – Madrid, Spain
28 The Pearl Centre, Lynch Wood, Peterborough, PE2 6FY, United Kingdom
29 201 Bishopsgate, London, EC2M 3AE, United Kingdom
30 88 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
31 35a Avenue J.F. Kennedy, L-1855, Luxembourg
32 Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
33 32 Molesworth Street, Dublin 2, Dublin, D02 Y512, Ireland
34 8 Canada Square, London, E14 5HQ, United Kingdom
35 Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP, United Kingdom
36 12 Throgmorton Avenue, London EC2N 2DL, United Kingdom
37 One Coleman Street, London, EC2R 5AA, United Kingdom
38 6th Floor, 65 Gresham Street, London, EC2V 7NQ, United Kingdom
39 Senator House, 85 Queen Victoria Street, London, EC4V 4AB, United Kingdom
40 5, Allée Scheffer, L-2520 Luxembourg, Luxembourg
41 Trafalgar Court, Les Banques, St Peter Port, GY1 3QL, Guernsey
42 1 More London Place, London, SE1 2AF, United Kingdom
43 Kings Place, 90 York Way, London, N1 9GE, United Kingdom
44 1, Allée Scheffer, L-2520 Luxembourg, Luxembourg
45 2 Snowhill, Birmingham, B4 6WR, United Kingdom
46 Elizabeth House, 9 Castle Street, St Helier, JE4 2QP, Jersey
47 155 Bishopsgate, London, EX2M 3JX, United Kingdom
48 22 Bishopsgate, London, EC2N 4BQ, United Kingdom
49 Aqr Capital Management LLC, Greenwich, 06830, United States
50 Cannon Place, 78 Cannon Street, London, EC4N 6AG, United Kingdom
Phoenix Group Holdings plc Annual Report and Accounts 2021
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283
283
Financials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H6. Group entities continued
51 70 Sir John Rogerson’s Quay, Dublin 2, Ireland
52 4th Floor, The Walbrook Building, 25 Walbrook, London, EC4N 8AF, United Kingdom
53 Manning House, 22 Carlisle Place, London, SWIP 1JA, United Kingdom
54 Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP, United Kingdom
55 49, Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg
56 Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom
57 10, Château d’Eau, L-3364 Leudelange, Grand Duchy of Luxembourg
58 1st Floor, 2 Ballsbridge Park, Ballsbridge, Dublin, D04 YW83, Ireland
59 Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom
60 160 Queen Victoria Street, London, EC4V 4LA, United Kingdom
61 Grove House, Green Street, St Helier, JE1 2ST, Jersey
62 44-47 Esplanade, St Helier, JE4 9WG, Jersey
The following subsidiaries were dissolved during the period. The subsidiaries were deconsolidated from the date of dissolution:
• PUTM European Unit Trust
• PUTM Bothwell Europe Fund
• ASI Financial Equity Fund A Inc
The following subsidiaries were either fully disposed of or holdings became insignificant to the Group. The subsidiaries were
deconsolidated from either the date of disposal or from the date when the holdings became insignificant:
• Ark Life Assurance Company DAC
• ASI Japanese Growth Equity Fund
• North American Strategic Partners 2006 L.P.
• North American Strategic Partners (Feeder) 2006
• Standard Life Investments Global SICAV II – MyFolio Multi-Manager II Fund
• Standard Life Investments Global SICAV II – MyFolio Multi-Manager III Fund
• Standard Life Investments Global SICAV II – MyFolio Multi-Manager IV Fund
• Standard Life Investments Global SICAV II – MyFolio Multi-Manager V Fund
• Beresford Funds ICAV – Indexed Emerging Market Equity Fund
• Beresford Funds ICAV – Indexed Euro Large Cap Corporate Bond Fund
• Quilter Investors High Yield Bond Fund
• Legal & General Real Capital B L ACC
The Group no longer has significant holdings in the following undertakings:
• Standard Life UK Investments Real Estate Income Feeder Fund.
• BlackRock Market Advantage X
• AXA Sterling Index Linked Bond Fund
• AQR UCITS Funds – AQR Global Risk Parity C5 GBP (Acc)
• Legal & General European Trust
• Aviva Investors UK Property Feeder Inc Fund
• Jupiter Asset Management Series PLC – Jupiter Merian Global Equity Income Fund (IRL)
• Quilter Investors Monthly Income and Growth Portfolio Fund
• Quilter Investors Sterling Corporate Bond Fund
• Legal & General Ethical Trust
• L&G Emerging Markets Short Duration Bond Fund
• AXA Framlington FinTech Fund
• Quilter Investors Global Equity Index Fund
• Legal & General Authorised Contractual Scheme – L&G Real Income Builder Fund
284
284
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
I. Other notes
I1. Share-based payment
Equity-settled share-based payments to employees and others providing services are measured at the fair value of the equity
instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Further details regarding the
determination of the fair value of equity-settled share-based transactions are set out below.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each period end, the Group revises its
estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The
impact of the revision of the original estimates, if any, is recognised in the consolidated income statement such that the cumulative
expense reflects the revised estimate with a corresponding adjustment to equity.
I1.1 Share-based payment expense
The expense recognised for employee services receivable during the year is as follows:
Expense arising from equity-settled share-based payment transactions
2021
£m
14
2020
£m
13
I1.2 Share-based payment expense
Long-Term Incentive Plan (‘LTIP’)
The Group implemented a long-term incentive plan to retain and motivate its senior management group. The awards under this plan are
in the form of nil-cost options to acquire an allocated number of ordinary shares.
Assuming no good leavers or other events which would trigger early vesting rights, the 2019 LTIP awards are subject to performance
conditions tied to the Group’s performance in respect of cumulative cash generation, return on Adjusted Shareholder Solvency II Own
Funds and Total Shareholder Return (‘TSR’). The 2020 and 2021 LTIP awards are subject to performance conditions tied to the Group’s
performance in respect of net operating cash receipts, return on shareholder value, persistency and TSR.
For all LTIP awards, a holding period applies so that any LTIP awards to Executive Committee members for which the performance
vesting requirements are satisfied will not be released for a further two years from the third anniversary of the original award date.
Dividends will accrue on LTIP awards until the end of the holding period. There are no cash settlement alternatives. All awards have a
contractual life of ten years from the date of grant.
2021 LTIP awards were granted on 12 March 2021 and 17 August 2021, and are expected to vest on 12 March 2024 and 17 August 2024
respectively. The 2018 LTIP awards vested on 21 March 2021. The 2019 awards will vest on 11 March 2022 and the 2020 awards will vest
on 13 March 2023. The number of shares for all outstanding LTIP awards was increased in July 2018 to take account of the impact of the
2018 Group rights issue.
The fair value of these awards is estimated at the average share price in the three days preceding the date of grant, taking into account
the terms and conditions upon which the instruments were granted. The fair value of the LTIP awards is adjusted in respect of the TSR
performance condition which is deemed to be a ‘market condition’. The fair value of the 2019, 2020 and 2021 TSR elements of the LTIP
awards has been calculated using a Monte Carlo model. The inputs to this model are shown below:
Share price (p)
Expected term (years)
Expected volatility (%)
Risk-free interest rate (%)
Expected dividend yield (%)
2021
TSR performance condition
2020
TSR performance condition
2019
TSR performance condition
738.6
3.0
30
0.14
586.3
3.0
20
0.28
694.0
3.0
20
0.74
Dividends are received by holders of the awards therefore
no adjustment to fair value is required
On 17 August 2021, LTIP awards were granted to certain senior management employees. The vesting periods and performance
conditions for these awards are linked to the core 2020 LTIP awards.
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Financials
Financials continued
Notes to the consolidated financial statements
Continued
I. Other notes continued
I1. Share-based payment continued
I1.2 Share-based payment expense continued
LTIP Buy Out awards were granted to the Group Chief Executive Officer in 2019, and finalised in 2020, following forfeiture of a
proportion of his long-term incentive awards held with Aviva plc that had been awarded in March 2017 and May 2018. The Aviva March
2017 LTIP vested on 27 March 2020 with a performance outturn of 50% and the Aviva May 2018 LTIP vested on 26 March 2021 with a
performance outturn of 0%.
On 12 March 2021 and 17 August 2021 LTIP Buy-out awards were granted to certain senior management employees. There are discreet
vesting periods for these awards and these grants of shares are conditional on the employees remaining in employment with the Group
for the vesting period.
On 14 August 2020, LTIP awards were granted to certain senior management employees. The vesting periods and performance
conditions for these awards are linked to the Group’s core 2018, 2019 and 2020 LTIP awards.
On 21 December 2018 LTIP awards were granted to certain employees under the terms of the new PGH plc scheme rules. There are
discreet vesting periods for these awards and the final tranche of awards vested on 28 March 2021. These grants of shares were
conditional on the employees remaining in employment with the Group for the vesting period.
Each year, the Group issues a Chairman’s share award under the terms of the LTIP which is granted to a small number of employees in
recognition of their outstanding contribution in the previous year. The awards are granted on the same dates as the core 2019, 2020 and
2021 LTIP awards. These grants of shares are conditional on the employees remaining in employment with the Group for the vesting
period and achieving an established minimum performance grading. Good leavers will be able to, at the discretion of the Remuneration
Committee, exercise their full award at vesting.
Deferred Bonus Share Scheme (‘DBSS’)
Each year, part of the annual incentive for certain executives is deferred into shares of the parent company. The grant of these shares is
conditional on the employee remaining in employment with the Group for a period of three years from the date of grant. Good leavers
will be able to, at the discretion of the Remuneration Committee, exercise their full award at vesting. Dividends will accrue for DBSS
awards over the three year deferral period. The number of shares for all outstanding DBSS awards was increased in July 2018 to take
account of the impact of the 2018 Group rights issue.
The 2021 DBSS was granted on 12 March 2021 and is expected to vest on 12 March 2024. The 2018 DBSS awards vested on 15 March
2021. The 2019 awards are expected to vest on 11 March 2022 and the 2020 awards are expected to vest on 13 March 2023.
The fair value of these awards is estimated at the average share price in the three days preceding the date of the grant, taking into
account the terms and conditions upon which the options were granted. All awards have a contractual life of three years and six months
from the date of grant.
Sharesave scheme
The sharesave scheme allows participating employees to save up to £500 each month for the UK scheme and up to €500 per month
for the Irish scheme over a period of either three or five years. The 2021 sharesave options were granted on 9 April 2021.
Under the sharesave arrangement, participants remaining in the Group’s employment at the end of the three or five year saving period
are entitled to use their savings to purchase shares at an exercise price at a discount to the share price on the date of grant. Employees
leaving the Group for certain reasons are able to use their savings to purchase shares if they leave prior to the end of their three or five
year period. All awards are required to be exercised within six months of the vesting date.
In 2018, following the scheme of arrangement, participants in the sharesave plans at this time exchanged their options over shares in the
previous parent company for equivalent options over PGH plc ordinary shares. All sharesave options were increased in November 2016
and again in July 2018 following the Group’s rights issues and the exercise price of these awards was also amended as a result of these issues.
The fair value of the options has been determined using a Black-Scholes valuation model. Key assumptions within this valuation model
include expected share price volatility and expected dividend yield.
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Financials continued
The following information was relevant in the determination of the fair value of the 2017 to 2021 UK sharesave options:
Share price (£)
Exercise price (£) (Revised)
Expected life (years)
Risk-free rate (%) – based on UK government gilts commensurate with the expected
term of the award
2021
sharesave
2020
sharesave
2019
sharesave
2018
sharesave
2017
sharesave
7.486
5.890
5.664
4.970
6.800
5.610
7.685
5.629
7.470
5.674
3.25 and
5.25
3.25 and
5.25
3.25 and
5.25
3.25 and
5.25
3.25 and
5.25
0.5 (for
3.25 year
scheme)
and 0.7 (for
5.25 year
scheme)
0.5 (for
3.25 year
scheme)
and 0.5 (for
5.25 year
scheme)
1.0 (for
3.25 year
scheme)
and 1.1 (for
5.25 year
scheme)
1.0 (for
3.25 year
scheme)
and 1.1 (for
5.25 year
scheme)
0.2 (for
3.25 year
scheme)
and 0.4 (for
5.25 year
scheme)
Expected volatility (%) based on the Company’s share price volatility to date
Dividend yield (%)
30.0
6.3
30.0
8.2
30.0
6.8
30.0
6.5
30.0
6.3
The information for determining the fair value of the 2021 Irish sharesave options differed from that included in the table above as follows:
• Share price (€): 8.618 (2020: 6.462)
• Exercise price (€): 6.880 (2020: 5.650)
• Risk-free rate (%): (0.4) (for 3.25 year scheme) and (0.3) (for 5.25 year scheme) (2020: (0.3) (for 3.25 year scheme) and (0.2)
(for 5.25 year scheme))
Share Incentive Plan
The Group operates two Share Incentive Plans (‘SIP’) open to UK and Irish employees which allows participating employees to purchase
‘Partnership shares’ in the Company through monthly contributions. In respect of the UK SIP, the contributions are limited to the lower
of £150 per month and 10% gross monthly salary. In 2019 the matching element of the UK SIP was amended to give the employee one
‘Matching share’ for each ‘Partnership share’ purchased limited to £50. Contributions above £50 are not matched. The Irish SIP,
which was launched in 2019, gives the employee 1.4 ‘Matching shares’ for each ‘Partnership share’ purchased. For this plan monthly
contributions are limited to the lower of €40 per month and 7.5% of gross monthly salary.
The fair value of the Matching shares granted is estimated as the share price at date of grant, taking into account terms and conditions
upon which the instruments were granted. At 31 December 2021, 471,543 Matching shares (including unrestricted shares) were
conditionally awarded to employees (2020: 287,547).
Phoenix Group Holdings plc Annual Report and Accounts 2021
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287
287
Financials
Financials continued
Notes to the consolidated financial statements
Continued
I. Other notes continued
I1. Share-based payment continued
I1.3 Movements in the year
The following tables illustrate the number of, and movements in, LTIP, Sharesave and DBSS share options during the year:
Outstanding at the beginning of the year
Granted during the year
Forfeited/cancelled during the year
Exercised during the year
Outstanding at the end of the year
Outstanding at the beginning of the year
Granted during the year
Forfeited/cancelled during the year
Exercised during the year
Outstanding at the end of the year
Number of share options 2021
LTIP
Sharesave
DBSS
5,488,995
3,569,159
1,267,852
2,984,144
1,729,022
601,944
(290,064)
(240,130)
(5,236)
(882,043)
(307,229)
(314,267)
7,301,032 4,750,822
1,550,293
Number of share options 2020
LTIP
Sharesave
DBSS
4,637,555
2,542,764
905,867
2,634,386
2,233,597
588,925
(1,030,017)
(767,140)
–
(752,929)
(440,062)
(226,940)
5,488,995
3,569,159
1,267,852
The weighted average fair value of options granted during the year was £4.98 (2020: £3.88).
The weighted average share price at the date of exercise for the rewards exercised is £7.06 (2020: £6.74).
The weighted average remaining contractual life for the rewards outstanding as at 31 December 2021 is 5.5 years (2020: 5.6 years).
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Financials continued
I2. Cash flows from operating activities
Operating cash flows include purchases and sales of investment property and financial investments as the purchases are funded
from cash flows associated with the origination of insurance and investment contracts, net of payments of related benefits and claims.
The following analysis gives further detail behind the ‘cash (utilised)/generated by operations’ figure in the statement of consolidated
cash flows.
(Loss)/profit for the year before tax
Non-cash movements in (loss)/profit for the period before tax
Gain on completion of abrdn plc transaction
Loss on disposal of Ark Life, excluding transaction costs
Gain on acquisition
Gain on L&G Part VII portfolio transfer
Fair value (gains)/losses on:
Investment property
Financial assets and derivative liabilities
Change in fair value of borrowings
Amortisation and impairment of intangible assets
Change in unallocated surplus
Share-based payment charge
Finance costs
Net interest expense on Group defined benefit pension scheme liability/asset
Pension past service costs
Other costs of pension schemes
Decrease in investment assets
(Increase)/decrease in reinsurance assets
Decrease in assets classified as held for sale
Increase in insurance contract and investment contract liabilities
Decrease in deposits received from reinsurers
(Decrease)/increase in obligation for repayment of collateral received
Decrease in liabilities classified as held for sale
Net (increase)/decrease in working capital
Other items:
Contributions to defined benefit pension schemes
Cash transferred under L&G Part VII portfolio transfer
Cash (utilised)/generated by operations
Notes
A6.1
H3
H2.2
2021
£m
(430)
(110)
17
–
–
2020
£m
1,270
–
–
(372)
(85)
G4
(1,195)
52
(9,436)
(10,806)
G2
F2
I1.1
C5
G1
G1
G1
(9)
644
(106)
14
242
37
–
6
(39)
487
113
13
234
29
2
5
6,738
8,254
(227)
286
6,354
(521)
(1,762)
(264)
(1,100)
(49)
–
(871)
708
–
6,261
(236)
1,146
–
211
(77)
146
7,316
Phoenix Group Holdings plc Annual Report and Accounts 2021
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289
289
Financials
Financials continued
Notes to the consolidated financial statements
Continued
I. Other notes continued
I3. Capital management
The Group’s capital management is based on the Solvency II framework. This involves a valuation in line with Solvency II principles of
the Group’s Own Funds and risk-based assessment of the Group’s Solvency Capital Requirement (‘SCR’).
This note sets out the Group’s approach to managing capital and provides an analysis of Own Funds and SCR.
Risk and capital management objectives
The risk management objectives and policies of the Group are based on the requirement to protect the Group’s regulatory capital
position, thereby safeguarding policyholders’ guaranteed benefits whilst also ensuring the Group can meet its various cash flow
requirements. Subject to this, the Group seeks to use available capital to achieve increased returns, balancing risk and reward, to
generate additional value for policyholders and shareholders.
In pursuing these objectives, the Group deploys financial and other assets and incurs insurance contract liabilities and financial and other
liabilities. Financial and other assets principally comprise investments in equity securities, debt securities, collective investment schemes,
property, derivatives, reinsurance, trade and other receivables, and banking deposits. Financial liabilities principally comprise investment
contracts, borrowings for financing purposes, derivative liabilities and net asset value attributable to unit holders.
The Group’s risk management framework is described in the risk management commentary on pages 54 to 65 of the Annual Report and
Accounts and the risk universe component of this framework summarises the comprehensive set of risks to which the Group is exposed.
The major risks (‘Level 1’ risks) that the Group’s businesses are exposed to and the Group’s approach to managing those risks are outlined
in the following notes:
• note E6: Credit risk, market risk, financial soundness risk, strategic risk, customer risk and operational risk; and
• note F4: Insurance risk.
The section on risk and capital management objectives is included below.
Capital Management Framework
The Group’s Capital Management Framework is designed to achieve the following objectives:
• to provide appropriate security for policyholders and meet all regulatory capital requirements under the Solvency II regime while not
retaining unnecessary excess capital;
• to ensure sufficient liquidity to meet obligations to policyholders and other creditors;
• to optimise the Fitch Ratings financial leverage to maintain an investment grade credit rating; and
• to maintain a dividend policy to pay an ordinary dividend that is sustainable and grows over time.
The framework comprises a suite of capital management policies that govern the allocation of capital throughout the Group to achieve
the framework objectives under a range of stress conditions. The policy suite is defined with reference to policyholder security, creditor
obligations, owner dividend policy and regulatory capital requirements.
Group capital
Group capital is managed on a Solvency II basis. Under the Solvency II framework, the primary sources of capital managed by the Group
comprises the Group’s Own Funds as measured under the Solvency II principles adjusted to exclude surplus funds attributable to the
Group’s unsupported with-profit funds and unsupported pension schemes.
A Solvency II capital assessment involves valuation in line with Solvency II principles of the Group's Own Funds and a risk-based
assessment of the Group's Solvency Capital Requirement (‘SCR’). Solvency II surplus is the excess of Own Funds over the SCR.
The Group aims to maintain a Solvency II surplus at least equal to its Board-approved capital policy, which reflects Board risk appetite for
meeting prevailing solvency requirements.
The capital policy of each Life Company is set and monitored by each Life Company Board. These policies ensure there is sufficient
capital within each Life Company to meet regulatory capital requirements under a range of stress conditions. The capital policy of each
Life Company varies according to the risk profile and financial strength of the company.
The capital policy of each Group Holding Company is designed to ensure that there is sufficient liquidity to meet creditor obligations
through the combination of cash buffers and cash flows from the Group’s operating companies.
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Financials continued Own Funds and SCR
Basic Own Funds represents the excess of assets over liabilities from the Solvency II balance sheet adjusted to add back any relevant
subordinated liabilities that meet the criteria to be treated as capital items.
The Basic Own Funds are classified into three Tiers based on permanency and loss absorbency (Tier 1 being the highest quality and
Tier 3 the lowest). The Group’s Own Funds are assessed for their eligibility to cover the Group SCR with reference to both the quality of
capital and its availability and transferability. Surplus funds in with-profit funds of the Life companies and in the pension schemes are
restricted and can only be included in Eligible Own Funds up to the value of the SCR they are used to support.
Eligible Own Funds to cover the SCR are obtained after applying the prescribed Tiering limits and availability restrictions to the Basic
Own Funds.
The SCR is calibrated so that the likelihood of a loss exceeding the SCR is less than 0.5% over one year. This ensures that capital is
sufficient to withstand a broadly ‘1 in 200 year event’.
In accordance with the approvals received from the PRA, the Group currently operates a partial Internal Model to calculate Group SCR
and following the approval of the harmonised internal model by the PRA during the year, all Group companies are within the scope
of a single harmonised internal model, with the exception of the acquired ReAssure businesses and the Irish life entity, Standard Life
International Designated Activity Company, which determines their capital requirements in accordance with the Standard Formula.
Group capital resources – unaudited
The Group capital resources are based on the Group's Eligible Own Funds adjusted to remove amounts pertaining to unsupported with-
profit funds and Group pension schemes:
Unaudited
PGH plc Eligible Own Funds
Remove Own Funds pertaining to unsupported with-profit funds and pension schemes
Group capital resources
2021
£bn
14.8
(2.9)
11.9
2020
£bn
16.8
(3.2)
13.6
Solvency II surplus – unaudited
An analysis of the PGH plc Solvency II surplus as at 31 December 2021 is provided in the business review section on pages 34 and 35.
The Group has complied with all externally imposed capital requirements during the year.
Additional information on the PGH plc Own Funds, SCR and MCR is included in the additional capital disclosures on pages 318 and 319.
Phoenix Group Holdings plc Annual Report and Accounts 2021
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291
291
Financials
Financials continued
Notes to the consolidated financial statements
Continued
I. Other notes continued
I4. Related party transactions
In the ordinary course of business, the Group and its subsidiaries carry out transactions with related parties as defined by IAS 24
Related party disclosures.
I4.1 Related party transactions
On 23 February 2021, the Group entered into a new agreement with abrdn plc to simplify the arrangements of their Strategic
Partnership (see note A6.1 for further details). As part of the acquisition of the brand, the relevant marketing, distribution and data
team members transferred to the Group. Consequently, the Client Service and Proposition Agreement (‘CSPA’) entered into between
the two groups following the acquisition of the Standard Life businesses in 2018, has been significantly amended prior to being dissolved.
As a consequence of this transaction, it has been assessed that abrdn plc no longer has significant influence over the Group and as a
result is no longer considered to be a related party of the Group from the date that the Group entered into the new agreement.
Pearl Group Staff Pension Scheme
Payment of administrative expenses
UK Commercial Property Trust Limited
Dividend income
abrdn plc
Investment management fees
Fees under Transitional Services Arrangement and material outsource agreements
Receipts under Transitional Services Arrangement
Net receipts under Client Service Proposition Agreement
Net payments under deed of indemnity
Dividend paid
Transactions
20211
£m
Balances
outstanding
2021
£m
Transactions
2020
£m
Balances
outstanding
2020
£m
(4)
17
(20)
(4)
–
–
–
–
–
–
(3)
13
(125)
(6)
64
16
6
(67)
–
–
(54)
(2)
19
36
(68)
–
1 Transactions with abrdn plc only include those that took place prior to 23 February 2021. Balances outstanding as at the date abrdn plc ceased to be a related party of the Group have all been settled
prior to 31 December 2021.
I4.2 Transactions with key management personnel
The total compensation of key management personnel, being those having authority and responsibility for planning, directing and
controlling the activities of the Group, including the Executive and Non-Executive Directors, are as follows:
Salary and other short-term benefits
Equity compensation plans
2021
£m
5
3
2020
£m
5
5
Details of the shareholdings and emoluments of individual Directors are provided in the Remuneration report on pages 106 to 136.
During the year to 31 December 2021 key management personnel and their close family members contributed £291,546 (2020: £9,100)
to Pensions and Savings products sold by the Group. At 31 December 2021, the total value of key management personnel’s investments in
Group Pensions and Savings products was £3,443,658 (2020: £2,842,300).
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Financials continued
I5. Commitments
This note analyses the Group’s other commitments.
To subscribe to private equity funds and other unlisted assets
To purchase, construct or develop investment property and income strips
For repairs, maintenance or enhancements of investment property
I6. Contingent liabilities
2021
£m
710
206
12
2020
£m
565
89
26
Where the Group has a possible future obligation as a result of a past event, or a present legal or constructive obligation but it is not
probable that there will be an outflow of resources to settle the obligation or the amount cannot be reliably estimated, this is disclosed
as a contingent liability.
Legal proceedings
In the normal course of business, the Group is exposed to certain legal issues, which can involve litigation and arbitration. At the period
end, the Group has a number of contingent liabilities in this regard, none of which are considered by the Directors to be material.
I7. Events after the reporting period
The financial statements are adjusted to reflect significant events that have a material effect on the financial results and that have
occurred between the period end and the date when the financial statements are authorised for issue, provided they give evidence of
conditions that existed at the period end. Events that are indicative of conditions that arise after the period end that do not result in an
adjustment to the financial statements are disclosed.
On 11 March 2022, the Board recommended a final dividend of 24.8p per share for the year ended 31 December 2021 (2020: 24.1p).
Payment of the final dividend is subject to shareholder approval at the AGM. The cost of this dividend has not been recognised as a
liability in the consolidated financial statements for 2021 and will be charged to the statement of consolidated changes in equity in 2022.
The Group is continuing to monitor developments regarding the conflict between Russia and Ukraine. As at 31 December 2021, the
Group had £23 million of shareholder exposure to Russia and Ukraine, which represents less than 0.1% of total shareholder assets. The
exposure relating to assets held to back policyholder liabilities at 31 December 2021 is not considered to be material and the associated
indirect shareholder exposure is minimal.
Nicholas Lyons
Andy Briggs
Rakesh Thakrar
Alastair Barbour
Karen Green
Hiroyuki Iioka
Wendy Mayall
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty
12 March 2022
293
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293
Financials
Financials continued
Financials continued
Parent company financial statements
Statement of financial position
As at 31 December 2021
Assets
Property, plant and equipment
Investments in Group entities
Financial assets
Loans and deposits
Derivatives
Debt securities
Collective investment schemes
Deferred tax
Prepayments and accrued income
Other amounts due from Group entities
Cash and cash equivalents
Total assets
Equity and liabilities
Equity attributable to ordinary shareholders
Share capital
Share premium
Merger relief reserve
Other reserve
Retained earnings
Total equity attributable to ordinary shareholders
Tier 1 Notes
Total equity
Liabilities
Financial liabilities
Borrowings
Derivatives
Obligations for repayment of collateral received
Other amounts due to Group entities
Provisions
Lease liabilities
Accruals and deferred income
Total liabilities
Total equity and liabilities
Notes
2021
£m
2020
£m
10
11
12
6
13
13
14
20
15
3
3
3
3
4
5
6
6
20
7
8
9
21
–
10,031
10,090
1,234
2,119
69
1
690
82
58
616
95
–
1
194
16
–
295
4
12,897
12,719
100
6
1,819
(4)
5,448
7,369
411
7,780
100
4
1,819
(4)
5,211
7,130
411
7,541
4,387
4,521
5
66
415
92
21
131
–
–
448
122
–
87
5,117
12,897
5,178
12,719
The notes identified numerically on pages 297 to 312 are an integral part of these separate financial statements. Where items also appear
in the consolidated financial statements, reference is made to the notes (identified alphanumerically) on pages 163 to 293.
294
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294
Statement of changes in equity
For the year ended 31 December 2021
At 1 January 2021
Total comprehensive income for the year
attributable to owners
Issue of ordinary share capital, net of
associated commissions and expenses
Dividends paid on ordinary shares (note B4)
Coupon paid on Tier 1 Notes, net of tax relief
Credit to equity for equity-settled share-
based payments (note I1)
At 31 December 2021
Share capital
(note 3)
£m
100
–
–
–
–
–
100
Share
premium
(note 3)
£m
Merger relief
reserve
(note 3)
£m
Other
reserve
(note 3)
£m
Retained
earnings
£m
Tier 1 Notes
(note 4)
£m
Total
£m
1,819
(4)
5,211
7,130
411
–
–
–
–
–
–
–
–
–
–
728
728
–
(482)
(23)
2
(482)
(23)
14
14
–
–
–
–
–
4
–
2
–
–
–
6
1,819
(4)
5,448
7,369
411
7,780
For the year ended 31 December 2020
Share capital
(note 3)
£m
Share
premium
(note 3)
£m
Merger relief
reserve
(note 3)
£m
Other
reserve
(note 3)
£m
Retained
earnings
£m
At 1 January 2020
Total comprehensive income for the period
attributable to owners
Issue of ordinary share capital, net of
associated commissions and expenses
Dividends paid on ordinary shares (note B4)
Coupon paid on Tier 1 Notes, net of tax relief
Credit to equity for equity-settled share-
based payments (note I1)
At 31 December 2020
72
–
28
–
–
–
100
2
–
2
–
–
–
4
–
–
1,819
–
–
–
1,819
Total
£m
5,438
Tier 1 Notes
(note 4)
£m
411
(4)
5,368
–
–
–
–
–
(4)
256
256
–
(403)
(23)
13
5,211
1,849
(403)
(23)
13
7,130
–
–
–
–
–
411
Total
equity
£m
7,541
728
2
(482)
(23)
14
Total
equity
£m
5,849
256
1,849
(403)
(23)
13
7,541
295
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
295
Financials
Financials continued
Statement of cash flows
For the year ended 31 December 2021
Cash flows from operating activities
Cash generated/(utilised) by operations
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of ReAssure subsidiaries
Investment income
Interest received from Group entities
Capital contribution to subsidiary
Repayment of amounts due from Group entities
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from issuing ordinary shares
Proceeds from new shareholder borrowings, net of associated expenses
Repayment of shareholder borrowings
Ordinary share dividends paid
Interest paid on borrowings
Lease payments
Coupon paid on Tier 1 Notes
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
16
3
5
5
2021
£m
897
897
–
–
111
(63)
–
48
2
–
(122)
(482)
(222)
(1)
(29)
(854)
91
4
95
2020
£m
(71)
(71)
(1,265)
5
74
(50)
400
(836)
2
1,445
–
(403)
(149)
–
(29)
866
(41)
45
4
296
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
296
Financials continued
Notes to the parent company financial statements
1. Accounting policies
(a) Basis of preparation
The financial statements have been prepared on a going concern basis and under the historical cost convention, except for those
financial assets and financial liabilities that have been measured at fair value.
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income
statement in these financial statements. Profit attributable to owners for the year ended 31 December 2021 was £728 million (2020:
£256 million).
Statement of compliance
The Company’s financial statements have been prepared in accordance with UK- adopted international accounting as applied in
accordance with the Companies Act 2006.
The financial statements are presented in sterling (£) rounded to the nearest million except where otherwise stated.
Assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle
the liability simultaneously.
(b) Accounting policies
Where applicable, the accounting policies in the separate financial statements are the same as those presented in the consolidated
financial statements on pages 163 to 293, with the exception of the two policies detailed below.
The Company’s accounting policy for financial assets is in accordance with the requirements of IFRS 9 Financial Instruments. As the
Group has applied the temporary exemption from IFRS 9 available for entities whose activities are predominantly connected with
insurance contracts, a different accounting policy has been adopted in the preparation of the consolidated financial statements.
In addition, the Company has not adopted the Group’s policy of hedge accounting.
Where an accounting policy can be directly attributed to a specific note to the consolidated financial statements, the policy is presented
within that note. Each note within the Company financial statements makes reference to the note to the consolidated financial statements
containing the applicable accounting policy. The accounting policy in relation to foreign currency transactions is included within note
A2.1 to the consolidated financial statements.
Investments in Group entities
Investments in Group entities are carried in the statement of financial position at cost less impairment.
The Company assesses at each reporting date whether an investment is impaired by assessing whether any indicators of impairment exist.
If objective evidence of impairment exists, the Company calculates the amount of impairment as the difference between the recoverable
amount of the Group entity and its carrying value and recognises the amount as an expense in the income statement.
The recoverable amount is determined based on the cash flow projections of the underlying entities.
Financial assets
Classification of Financial assets
Financial assets are measured at amortised cost where they have:
• contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the
principal amount outstanding; and
• are held within a business model whose objective is achieved by holding to collect contractual cash flows.
These financial assets are initially recognised at cost, being the fair value of the consideration paid for the acquisition of the financial
asset. All transaction costs directly attributable to the acquisition are also included in the cost of the financial asset. Subsequent to initial
recognition, these financial assets are carried at amortised cost, using the effective interest method.
Financial assets measured at amortised cost are included in notes 12 and 15.
Equities, debt securities, collective investment schemes and derivatives are measured at FVTPL as they are managed on a fair value basis.
297
Phoenix Group Holdings plc Annual Report and Accounts 2021
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297
Financials
Financials continued
Notes to the parent company financial statements
Continued
1. Accounting policies continued
(b) Accounting policies continued
Impairment of financial assets
The Company assesses the expected credit losses associated with its loans and deposits, other amounts due from Group entities and
cash carried at amortised cost. The measurement of credit impairment is based on an Expected Credit Loss (‘ECL’) model and depends
upon whether there has been a significant increase in credit risk.
For those credit exposures for which credit risk has not increased significantly since initial recognition, the Company measures loss
allowances at an amount equal to the total expected credit losses resulting from default events that are possible within 12 months after
the reporting date (‘12-month ECL’). For those credit exposures for which there has been a significant increase in credit risk since initial
recognition, the Company measures and recognises an allowance at an amount equal to the expected credit losses over the remaining
life of the exposure, irrespective of the timing of the default (‘Lifetime ECL’). If the financial asset becomes ‘credit-impaired’ (following
significant financial difficulty of issuer/borrower, or a default/breach of a covenant), the Company will recognise a Lifetime ECL.
ECLs are derived from unbiased and probability-weighted estimates of expected loss.
See note 17 for detail of how the Company assesses whether the credit risk of a financial asset has increased since initial recognition
and the approach to estimating ECLs.
The loss allowance reduces the carrying value of the financial asset and is reassessed at each reporting date. ECLs and subsequent
remeasurements of the ECL, are recognised in the income statement. For other receivables, the ECL rate is recalculated each reporting
period with reference to the counterparties of each balance.
2. Financial information
New accounting pronouncements not yet effective
Details of the standards, interpretations and amendments to be adopted in future periods are detailed in note A5 to the consolidated
financial statements, none of which are expected to have a significant impact on the Company’s financial statements.
Note A5 outlines that the Group has taken advantage of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts
from applying IFRS 9 until 1 January 2023 as a result of meeting the exemption criteria as at 31 December 2015. As detailed above, the
Company did not meet the eligibility criteria to defer the application of IFRS 9 and the standard has therefore been adopted by the
Company. The relevant disclosures are included in these financial statements.
3. Share capital, share premium, merger relief reserve and other reserve
During 2021, the Company issued 303,914 shares (2020: 440,062 shares) with a premium of £2 million (2020: £2 million) in order
to satisfy its obligations to employees under the Group’s sharesave schemes.
On 22 July 2020, the Company acquired ReAssure Group plc and as part consideration for the acquisition issued 277,277,138 new
ordinary shares at par to Swiss Re Group, of which 144,877,304 shares were subsequently transferred to MS&AD Insurance Group
Holdings (‘MS&AD’). The equity stake in the Company held by Swiss Re Group and MS&AD was valued at £1,847 million, based on the
share price at that date.
The Company has used the relief in section 612 of the Companies Act 2006 to represent the difference between the consideration and
the nominal value of the shares issued of £1,819 million in a merger relief reserve as opposed to in share premium. A merger relief reserve
is required to be used as a result of the company having issued equity shares as partial consideration for the shares of the ReAssure plc
Group and securing at least a 90% holding in that entity.
On 12 December 2018, the Company became the ultimate parent undertaking of the Group by acquiring the entire share capital of ‘Old
PGH’ (the Group’s ultimate parent company until December 2018) via a share for share exchange. The cost of investment in Old PGH was
determined as the carrying amount of the Company’s share of the equity of Old PGH on the date of the transaction. The difference
between the cost of investment and the market capitalisation of Old PGH immediately before the share for share exchange of £4 million
has been recognised as an Other reserve, and is shown as a separate component of equity.
Issued and fully paid:
999.5 million ordinary shares of £0.10 each (2020: 999.2 million)
2021
£m
2020
£m
100
100
298
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
298
Financials continued
2021
Shares in issue at 1 January 2021
Ordinary shares issued in the period
Ordinary shares in issue at 31 December 2021
2020
Shares in issue at 1 January 2020
Ordinary shares issued to Swiss Re and MS&AD
Other ordinary shares issued in the period
Ordinary shares in issue at 31 December 2020
Number
£
999,232,144 99,923,214
303,914
30,391
999,536,058 99,953,605
Number
£
721,514,944
72,151,494
277,277,138
27,727,714
440,062
44,006
999,232,144 99,923,214
4. Tier 1 notes
The accounting policy and details of the terms for the Tier 1 Notes are included in note D4 to the consolidated financial statements.
Tier 1 notes
2021
£m
411
2020
£m
411
On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the Tier 1 Notes and these were recognised at the
fair value of £411 million in the form of an intragroup loan which was received as consideration.
On 27 October 2020, the terms of the Tier 1 Notes were amended and, following a trigger event linked to Solvency II, the capital position
was revised. Previously, the Tier 1 Notes were subject to a permanent write-down in value to zero. The amended terms require that the
Tier 1 Notes would automatically be subject to conversion to ordinary shares of the Company at the conversion price of £1,000 per share,
subject to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest would be cancelled.
Following such conversion there would be no reinstatement of any part of the principal amount of, or interest on, the Tier 1 Notes at
any time.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
299
299
Financials
Financials continued
Notes to the parent company financial statements
Continued
5. Borrowings
The accounting policy for borrowings is included in note E5 to the consolidated financial statements.
£428 million subordinated loans (note a)
£450 million Tier 3 subordinated notes (note b)
US $500 million Tier 2 bonds (note c)
€500 million Tier 2 notes (note d)
£300 million senior unsecured bond (note e)
Loan due to Standard Life Assurance Limited (note f)
US $750 million Contingent Convertible Tier 1 notes (note g)
£500 million Tier 2 notes (note h)
US $500 million Fixed Rate Reset Tier 2 notes (note i)
£500 million 5.867% Tier 2 subordinated notes (note j)
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note k)
£250 million 4.016% Tier 3 subordinated notes (note l)
Carrying value
Fair value
2021
£m
435
449
337
389
–
300
551
485
368
550
266
257
2020
£m
436
449
329
410
123
294
545
484
364
556
272
259
2021
£m
498
457
408
490
–
300
581
593
389
598
269
264
2020
£m
517
470
416
516
125
294
585
622
395
620
280
266
Total borrowings
4,387
4,521
4,847
5,106
Amount due for settlement after 12 months
4,387
4,398
a. On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the £428 million subordinated notes due 2025
at a coupon of 6.625%, which were initially recognised at fair value of £439 million.
b. On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the £450 million Tier 3 subordinated notes due
2022 at a coupon of 4.125%, which were initially recognised at fair value of £447 million.
c. On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the US $500 million Tier 2 bonds due 2027
with a coupon of 5.375%, which were initially recognised at fair value of £349 million.
d. On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the €500 million Tier 2 notes due 2029 with
a coupon of 4.375%, which were initially recognised at fair value of £407 million.
e. On 18 June 2019, the Company was substituted in place of Old PGH as issuer of the £300 million 7 year senior unsecured bond
due 2021 at an annual coupon of 5.75% with principal outstanding of £122 million, which was initially recognised at fair value of
£131 million. On 7 July 2021, the senior unsecured bond matured and the outstanding balance of £122 million was repaid in full
along with the final coupon of £7 million.
f. On 22 February 2019, the Company recognised a loan due in 2024 to Standard Life Assurance Limited (‘SLAL’), a subsidiary
undertaking, for £162 million. This loan was the initial consideration for the acquisition from SLAL of its investment in Standard Life
International Designated Activity Company (‘SLIDAC’). On 28 March 2019 the purchase price was adjusted by £120 million, which
resulted in an increase in the loan principal. Interest accrues at SONIA plus 1.9366% and during the year interest of £6 million
(2020: £6 million) was capitalised.
300
Phoenix Group Holdings plc Annual Report and Accounts 2021
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300
Financials continued
g. On 29 January 2020, the Company issued US $750 million fixed rate reset perpetual restricted Tier 1 contingent convertible notes
(the ‘contingent convertible Tier 1 Notes’) which are unsecured and subordinated. The contingent convertible Tier 1 Notes have no
fixed maturity date and interest is payable only at the sole and absolute discretion of the Company. The contingent convertible Tier 1
Notes bear interest on their principal amount at a fixed rate of 5.625% per annum up to the ‘First Reset Date’ of 26 April 2025.
Thereafter the fixed rate of interest will be reset on the First Reset Date and on each fifth anniversary of this date by reference to the
sum of the yield of the Constant Maturity Treasury (‘CMT’) rate (based on the prevailing five year US Treasury yield) plus a margin of
4.035%, being the initial credit spread used in pricing the notes. Interest is payable on the contingent convertible Tier 1 Notes semi-
annually in arrears on 26 April and 26 October. If an interest payment is not made it is cancelled and it shall not accumulate or be
payable at any time thereafter. Further details are contained in note E5 to the consolidated financial statements.
h. On 28 April 2020, the Company issued £500 million fixed rate Tier 2 Notes (the ‘Tier 2 Notes’) which are unsecured and
subordinated. The Tier 2 Notes have a maturity date of 28 April 2031 and include an issuer par call right for the three month period
prior to maturity. The Tier 2 Notes bear interest on the principal amount at a fixed rate of 5.625% per annum payable annually in
arrears on 28 April.
i. On 4 June 2020, the Company issued US $500 million fixed rate reset callable Tier 2 notes (the ‘Fixed Rate Reset Tier 2 Notes’)
which are unsecured and subordinated. The Fixed Rate Reset Tier 2 notes have a maturity date of 4 September 2031 with an optional
issuer par call right on any day in the three month period up to and including 4 September 2026. The Fixed Rate Reset Tier 2 Notes
bear interest on the principal amount at a fixed rate of 4.75% per annum up to the interest rate reset date of 4 September 2026. If the
Fixed Rate Reset Tier 2 Notes are not redeemed before that date, the interest rate resets to the sum of the applicable CMT rate
(based on the prevailing five year US Treasury yield) plus a margin of 4.276%, being the initial credit spread used in pricing the notes.
Interest is payable on the Fixed Rate Reset Tier 2 Notes semi-annually in arrears on 4 March and 4 September.
j. On 22 July 2020, the Company was substituted in place of ReAssure Group plc as issuer of the £500 million 5.867% Tier 2
Subordinated Notes. These notes have a maturity date of 13 June 2029 and were initially recognised at their fair value of
£559 million. The fair value adjustment will be amortised over the remaining life of the notes. Interest is payable semi-annually
in arrears on 13 June and 13 December.
k. On 22 July 2020, the Company was substituted in place of ReAssure Group plc as issuer of the £250 million fixed rate reset callable
Tier 2 subordinated notes. The £250 million fixed rate reset callable Tier 2 subordinated notes have a maturity date of 13 June 2029
and were initially recognised at their fair value of £275 million. The fair value adjustment will be amortised over the remaining life of
the notes. The notes include an issuer par call right exercisable on 13 June 2024. Interest is payable semi-annually in arrears on
13 June and 13 December. These notes initially bear interest at a rate of 5.766% on the principal amount and the rate of interest will
reset on 13 June 2024, and on each interest payment date thereafter, to a margin of 5.17% plus the yield of a UK Treasury Bill of
similar term.
l. On 22 July 2020, the Company was substituted in place of ReAssure Group plc as issuer of the £250 million 4.016% Tier 3
subordinated notes. The notes have a maturity date of 13 June 2026 and were initially recognised at their fair value of £259 million.
The fair value adjustment is being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on
13 June and 13 December.
m. The Company has in place a £1.25 billion unsecured revolving credit facility, maturing in June 2026. The facility accrues interest
at a margin over SONIA that is based on credit rating and non-cumulative compounded risk-free rate. The facility remains undrawn
as at 31 December 2021.
Borrowings initially recognised at fair value are being amortised to par value over the life of the borrowings.
For the purposes of the additional fair value disclosures for liabilities recognised at amortised cost, all borrowings have been categorised
as Level 2 financial instruments.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
301
301
Financials
Financials continued
Notes to the parent company financial statements
Continued
5. Borrowings continued
Reconciliation of liabilities arising from financing activities
The table below details changes in the Company’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Company’s
statement of cash flows as cash flows from financing activities.
£428 million subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
£300 million senior unsecured bond
Loan due to Standard Life Assurance Limited
US $750 million Contingent Convertible Tier 1 notes
£500 million Tier 2 notes
US $500 million Fixed Rate Reset Tier 2 notes
£500 million 5.867% Tier 2 subordinated notes
£250 million Fixed Rate Reset Callable Tier 2
subordinated notes
£250 million 4.016% Tier 3 subordinated notes
Derivative assets1
Derivative liabilities1
Cash
movements
Non-cash movements
At
1 January
2021
£m
Repayments
£m
Movement in
foreign
exchange
£m
Amortisation
£m
Capitalised
interest
£m
Movement in
fair value
£m
At
31 December
2021
£m
436
449
329
410
123
294
545
484
364
556
272
259
–
–
–
–
–
–
(122)
–
–
–
–
–
–
–
–
–
–
–
3
(24)
–
–
5
–
4
–
–
–
–
–
4,521
(122)
(12)
(1)
–
5
3
(1)
–
1
1
–
(6)
(6)
(2)
–
–
(6)
–
–
–
–
–
6
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
–
–
–
–
48
(5)
43
435
449
337
389
–
300
551
485
368
550
266
257
48
(5)
4,430
1 Cross currency swaps to hedge against adverse currency movements in respect of Group’s Euro and US Dollar denominated borrowings (see note 6 for further details).
Cash
movements
Non-cash movements
At
1 January
2021
£m
Movement in
foreign
exchange
£m
Repayments
£m
Amortisation
£m
Capitalised
interest
£m
Movement in fair
value
£m
At
31 December
2021
£m
£428 million subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
£300 million senior unsecured bond
Loan due to Standard Life Assurance Limited
US $750 million Contingent Convertible Tier 1 notes
£500 million Tier 2 notes
US $500 million Fixed Rate Reset Tier 2 notes
£500 million 5.867% Tier 2 subordinated notes
£250 million Fixed Rate Reset Callable Tier 2
subordinated notes
£250 million 4.016% Tier 3 subordinated notes
437
448
334
385
128
288
–
–
–
–
–
–
–
–
–
–
–
–
566
483
396
–
–
–
2,020
1,445
–
–
–
–
–
–
–
–
–
559
275
259
1,093
–
–
(10)
22
–
–
(23)
–
(32)
–
–
–
(43)
(1)
1
5
3
(5)
–
2
1
–
(3)
(3)
–
–
1 Loans issued via substitution are a non-cash flow item as consideration was the transfer of loans and deposits (refer to note 12).
–
–
–
–
–
6
–
–
–
–
–
–
6
436
449
329
410
123
294
545
484
364
556
272
259
4,521
302
302
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
6. Derivatives
The accounting policy for derivatives is included in note E3 to the consolidated financial statements.
In June 2021, the Company entered into four cross currency swaps in order to hedge against adverse currency movements in respect of
its Euro and US Dollar denominated borrowings.
From December 2021, the Company also hedged certain Euro and US Dollar exposures to adverse foreign currency movements in
respect of underlying business within two of its subsidiaries, SLAL and SLIDAC.
The fair value of the derivative financial instruments are as follows:
Cross currency swaps
Foreign currency swaps
Asset
2021
£m
48
21
69
2020
£m
–
–
–
Liability
2021
£m
5
–
5
2020
£m
–
–
–
Derivative collateral arrangements
The accounting policy for collateral arrangements is included in note E4 to the consolidated financial statements.
Assets accepted
The maximum exposure to credit risk in respect of OTC derivative assets is £69 million (2020: £nil) of which credit risk of £66 million
(2020: £nil) is mitigated by use of collateral arrangements (which are settled net after taking account of any OTC derivative liabilities
owed by the counterparty).
Assets pledged
The Company has not pledged any collateral in respect of its OTC derivative liabilities.
7. Provisions
In 2019, the Company recognised a Standard Life transition restructuring provision of £159 million, of which £31 million was subsequently
released in 2020. During the year, £17 million (2020: £19 million) of the restructuring provision was utilised, resulting in a provision as at
31 December 2021 of £92 million (2020: £109 million). The remaining provision is expected to be utilised within the next two years.
A further provision of £13 million was recognised for amounts payable to abrdn plc, in respect of obligations arising under agreements
entered into in relation to the acquisition of the Standard Life Assurance businesses in 2018. Following completion of the agreement with
abrdn plc to simplify the arrangements of the Strategic Partnership, the balance of £13 million was released during the year.
Further details are included in note G7 to the consolidated financial statements.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
303
303
Financials
Financials continued
Notes to the parent company financial statements
Continued
8. Lease liabilities
The accounting policy for lease liabilities is included in note G10 to the consolidated financial statements.
Lease liabilities relate to office premises at 20 Old Bailey, London. The lease was assigned on 24 March 2021 for a term of 12 years and
9 months, with an option to break the contract on 25 December 2028. It is currently not expected that the break clause will be exercised.
At 1 January
Inception of lease
Lease payments
At 31 December
Amount due within 12 months
Amount due after 12 months
2021
£m
–
22
(1)
21
2
19
9. Accruals and deferred income
The accounting policy for accruals and deferred income is included in note G11 to the consolidated financial statements.
Accruals and deferred income
Amount due for settlement after 12 months
2021
£m
131
2020
£m
87
–
–
10. Property, plant and equipment
The accounting policy is included in note G3 to the consolidated financial statements.
The right-of-use asset relates to office premises leased at 20 Old Bailey, London. Depreciation is being charged on a straight-line basis
over the term of the lease.
Cost or valuation
At 1 January 2021
Additions
At 31 December 2021
Depreciation
At 1 January 2021
Depreciation
At 31 December 2021
Property
Right-of-use
asset
2021
£m
Total
Property,
Plant and
Equipment
2021
£m
–
22
22
–
(1)
(1)
–
22
22
–
(1)
(1)
Carrying amount at 31 December 2021
21
21
304
304
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
11. Investments in Group entities
Cost
At 1 January
Additions
Acquisition Price Adjustment
At 31 December
Impairment
At 1 January
Charge for the year
At 31 December
Carrying amount
At 31 December
2021
£m
2020
£m
14,236
63
(79)
11,074
3,162
–
14,220
14,236
(4,146)
(4,146)
(43)
–
(4,189)
(4,146)
10,031
10,090
On 23 February 2021, the Group entered into a new agreement with abrdn plc to simplify the arrangements of the Strategic Partnership,
as described further in note A6.1 to the consolidated financial statements. As part of this transaction, settlement of amounts due under the
deed of indemnity by Old PGH resulted in a reduction in the cost of investment in SLAL of £79 million and payment of a capital
contribution of £55 million to Old PGH.
In March 2021, the Company subscribed for 850 million ordinary shares in SLAL at par for a consideration of £8 million.
On 22 July 2020, the Company acquired ReAssure Group plc from Swiss Re Finance Midco (Jersey) Limited, an indirect subsidiary
of Swiss Re Limited, for a total consideration of £3,112 million. The consideration consisted of £1,265 million cash and the issue of
277,277,138 shares to Swiss Re Group on 23 July 2020, of which 144,877,304 shares were subsequently transferred to MS&AD Insurance
Group Holdings. The equity stake in the Group held by Swiss Re Group and MS&AD was valued at £1,847 million, based on the share
price at that date.
During the year ended 31 December 2020, a capital contribution of £50 million was paid into SLIDAC which was provided in order to
strengthen its capital position following adverse market conditions experienced during that year. This increased the carrying value of the
Company’s investment in SLIDAC to £582 million.
Where indicators of impairment are identified, the carrying value of the Company’s investments in its subsidiaries is tested for impairment
at the period end. The value in use is the recoverable amount determined by using the present value of the future cash flows of the
Company’s subsidiaries including the in-force long-term business, the asset management business and the service company. The cash
flows used in an impairment calculation are consistent with those adopted by management in the operating plan and, beyond the period
of this plan, reflect the anticipated run-off of the in-force life insurance business. Future cash flows are valued using discount rates which
reflect the risks inherent to each cash flow. For other subsidiaries, the value in use is determined using net asset values.
As at 31 December 2021 and 31 December 2020, the market capitalisation of the Company was lower than the net asset value, and this
was considered to be an indicator that the Company’s investments in its subsidiaries may have been impaired. Where such indicators
are identified, an impairment test is performed. During the year ended 31 December 2021, an impairment charge of £43 million (2020:
£nil) was recognised to align the carrying amount of certain investments in subsidiaries to their recoverable amount.
For a list of principal Group entities, refer to note H6 of the consolidated financial statements in which the entities directly held by the
Company are separately identified.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
305
305
Financials
Financials continued
Notes to the parent company financial statements
Continued
12. Loans and deposits
Loans due from Phoenix Life Holdings Limited (note a)
Loan due from Phoenix Group Employee Benefit Trust (note b)
Loan due from ReAssure Group plc (note c)
Loans and deposits due from Group entities
Fixed term deposits (note d)
Total loans and deposits
Amounts due after 12 months
Carrying value
Fair value
2021
£m
1,221
13
–
1,234
–
1,234
2020
£m
1,214
6
704
1,924
195
2,119
784
1,924
2021
£m
1,370
13
–
1,383
–
1,383
2020
£m
1,403
6
710
2,119
195
2,314
All loans and deposit balances are due from Group entities and are measured at amortised cost using the effective interest method.
The fair value of these loans and deposits are also disclosed. None of the loans are considered to be overdue.
a) On 12 December 2018, the Company was assigned a £428 million subordinated loan by Phoenix Life Holdings Limited (‘PLHL’).
The loan accrues interest at a rate of 6.675% and matures on 18 December 2025. This loan was initially recognised at fair value of
£439 million and is accreted to par over the period to 2025. At 31 December 2021, the carrying value of the loan was £435 million
(2020: £437 million).
On 12 December 2018, the Company was assigned a £450 million subordinated loan by PLHL. The loan accrues interest at a rate of
4.158% and matures on 20 July 2022. This loan was initially recognised at fair value of £447 million and is accreted to par over the
period to 2022. At 31 December 2021, the carrying value of the loan was £450 million (2020: £449 million).
On 12 December 2018, the Company was assigned a US $500 million loan by PLHL due 2027 with a coupon of 5.375%. This loan was
initially recognised at fair value of £349 million and is accreted to par over the period to 2027. Movement in foreign exchange during
the period decreased the carrying value by £4 million (2020: £10 million). At 31 December 2021, the carrying value of the loan was
£336 million (2020: £328 million).
b) On 18 June 2019, the Company was assigned an interest free facility arrangement with Phoenix Group Employee Benefit Trust
(‘EBT’). As at 31 December 2021, the carrying value of the loan was £13 million (2020: £6 million). In 2021, an additional £17 million
(2020: £7 million) was drawn down against this facility. The loan is fully recoverable until the awards held in the EBT vest to the
participants, at which point the loan is reviewed for impairment. Any impairments are determined by comparing the carrying value to
the estimated recoverable amount of the loan. Following the vesting of awards in 2021, £10 million (2020: £8 million) of the loan was
written off.
c) On 22 July 2020, the Company entered into a £1,099 million loan agreement with ReAssure Group plc, a subsidiary undertaking, as
consideration for the transfer of subordinated loan notes into the Company. The loan accrued interest at a rate of 6 month LIBOR
plus 1.30% and was due to mature on 31 December 2025. During the year, the Company received full repayment of the outstanding
loan balance of £699 million plus interest capitalised to date. As at 31 December 2021, the carrying value of the loan was £nil (2020:
£704 million which also included £5 million of interest previously capitalised).
d) Fixed term deposits include holdings in bank deposits with an initial maturity of more than 3 months at the date the deposit was made.
For the purposes of the additional fair value disclosures for assets recognised at amortised cost, all loans and deposits are categorised as
Level 3 financial instruments. The fair value of loans and deposits with no external market is determined by internally developed
discounted cash flow models using a risk adjusted discount rate corroborated with external market data where possible.
Details of the factors considered in determination of fair value are included in note E2 to the consolidated financial statements.
306
306
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
13. Financial assets
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
Amounts due after 12 months
2021
£m
69
1
690
760
1
Determination of fair value and fair value hierarchy of financial assets
Details of the factors considered in determination of the fair value are included in note E2 to the consolidated financial statements.
Year ended 31 December 2021
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
Year ended 31 December 2020
Financial assets at fair value through profit or loss
Debt securities
Collective investment schemes
Level 1
£m
Level 2
£m
Level 3
£m
–
–
690
690
69
–
–
69
–
1
–
1
Level 1
£m
Level 2
£m
Level 3
£m
–
194
194
–
–
–
1
–
1
2020
£m
–
1
194
195
1
Total
£m
69
1
690
760
Total
£m
1
194
195
There were no transfers between levels in either 2021 or 2020.
Level 3 financial instrument sensitivities
The investment in debt securities is in respect of debt holdings in a property investment structure which was originally transferred
to the Company via an in-specie dividend received from Old PGH during 2019. The holding was disposed of during the year ended
31 December 2020, but a balance of £1 million remains in respect of a potential repayment of cash reserves that may be due to the
Company. The amount recognised has taken account of both the uncertain nature of the value of the proceeds and when they will
be received.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
307
307
Financials
Financials continued
Notes to the parent company financial statements
Continued
14. Deferred tax
The accounting policy for tax assets and liabilities is included in note G8 to the consolidated financial statements.
Movement in deferred tax balances
Provisions and other temporary differences
Provisions and other temporary differences
The standard rate of UK corporation tax for the accounting period is 19% (2020: 19%).
1 January
2021
£m
Credit for
the year
£m
31 December
2021
£m
16
66
82
1 January
2020
£m
Credit for the
year
£m
31 December
2020
£m
15
1
16
Following cancellation of the planned corporation tax rate reduction from 19% to 17% announced in the Chancellor’s Budget of
March 2020, an increase to 25% effective from 1 April 2023 was announced in the Budget of 3 March 2021. Deferred tax assets are
provided at the rate of 19% for tax losses carried forward to the extent that realisation of the related tax benefit is probable before
1 April 2023; otherwise a rate of 25% has been applied.
15. Cash and cash equivalents
The accounting policy for cash and cash equivalents is included in note G6 to the consolidated financial statements.
2021
£m
95
2021
£m
661
10
43
(111)
274
(62)
(11)
14
1
385
(307)
897
2020
£m
4
2020
£m
222
8
–
(78)
189
(45)
(43)
13
–
(116)
(221)
(71)
Bank and cash balances
16. Cash flows from operating activities
Profit for the year before tax
Non-cash movements in profit for the year before tax:
Impairment of loan due from subsidiary
Impairment of investment in subsidiaries
Investment income
Finance costs
Fair value gains on financial assets
Foreign exchange movement on borrowings at amortised cost
Share-based payment charge
Depreciation
Decrease/(increase) in investment assets
Net increase in working capital
Cash generated/(utilised) by operations
308
308
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
17. Capital and risk management
The Company’s capital comprises share capital, the Tier 1 Notes and all reserves as calculated in accordance with International Financial
Reporting Standards (IFRS), as set out in the statement of changes in equity. Under English company law, dividends must be paid from
distributable profits. As the ultimate parent undertaking of the Group, the Company manages its capital to ensure that it has sufficient
distributable profits to pay dividends in accordance with its dividend policy.
At 31 December 2021, total capital was £7,780 million (2020: £7,541 million). The movement in capital in the period comprises the total
comprehensive income for the period attributable to owners of £728 million (2020: £256 million), dividends paid of £482 million
(2020: £403 million), coupon paid on Tier 1 Notes, net of tax relief of £23 million (2020: £23 million), credit to equity for equity-settled
share-based payments of £14 million (2020 £13 million) and issue of ordinary share capital of £2 million (2020: £1,849 million).
In addition, the Group also manages its capital on a regulatory basis as described in note I3 to the consolidated financial statements.
The principal risks and uncertainties facing the Company are interest rate risk, liquidity risk, foreign currency risk and credit risk.
The Company hedges its currency risk exposure arising on foreign currency hybrid debt.
Details of the Group’s financial risk management policies are outlined in note E6 to the consolidated financial statements.
Credit risk management practices
The Company’s current credit risk grading framework comprises the following categories:
Category
Performing
Doubtful
In default
Write-off
Description
The counterparty has a low risk of default and does not have
any past-due amounts
There has been a significant increase in credit risk since initial recognition
There is evidence indicating the asset is credit-impaired
There is evidence indicating that the counterparty is in severe financial
difficulty and the Company has no realistic prospect of recovery
Basis for recognising ECL
12 month ECL
Lifetime ECL – not
credit impaired
Lifetime ECL –
credit impaired
Amount is written off
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
309
309
Financials
Financials continued
Notes to the parent company financial statements
Continued
17. Capital and risk management continued
The table below details the credit quality of the Company’s financial assets, as well as the Company’s maximum exposure to credit risk by
credit risk rating grades:
2021
External
credit rating
Internal
credit rating
12 month or
lifetime ECL
Loans and deposits (note 12)
N/A Performing
Other amounts due from Group entities (note 20)
N/A Performing
Cash and cash equivalents (note 15)
A
N/A
12 month
ECL
12 month
ECL
12 month
ECL
2020
External
credit rating
Internal
credit rating
12 month or
lifetime ECL
Loans and deposits (note 12)
N/A Performing
Other amounts due from Group entities (note 20)
N/A Performing
Cash and cash equivalents (note 15)
A
N/A
12 month
ECL
12 month
ECL
12 month
ECL
Gross
carrying
amount
£m
1,234
616
95
Gross
carrying
amount
£m
2,119
295
4
Loss
allowance
£m
Net carrying
amount
£m
–
–
–
1,234
616
95
Loss
allowance
£m
Net carrying
amount
£m
–
–
–
2,119
295
4
The Company considers reasonable and supportable information that is relevant and available without undue cost or effort to assess
whether there has been a significant increase in risk since initial recognition. This includes quantitative and qualitative information and
also, forward-looking analysis.
Loans and deposits – The Company is exposed to credit risk relating to loans and deposits from other Group companies, which are
considered to be of low risk. Given their low risk, the loss allowance has been set at less than £1 million. The Company assesses whether
there has been a significant increase in credit risk since initial recognition by assessing whether there have been any historic defaults, by
reviewing the going concern assessment of the borrower and the ability of the Group to prevent a default by providing a capital or cash
injection. Specific considerations for the loan to the Employee Benefit Trust are discussed in note 12.
Amounts due from other Group entities – The credit risk from activities undertaken in the normal course of business is considered to be
extremely low. Given their low risk, the loss allowance has been set at less than £1 million. The Company assesses whether there has been
a significant increase in credit risk since initial recognition by assessing past credit impairments, history of defaults and the long-term
stability of the Group.
Cash and cash equivalents – The Company’s cash and cash equivalents are held with bank and financial institution counterparties which
have investment grade ‘A’ credit ratings. The Company considers that its cash and cash equivalents have low credit risk based on the
external credit ratings of the counterparties and, there being no history of default, the impact to the net carrying amount stated in the
table above is therefore considered not to be material.
The Company writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and
there is no realistic prospect of recovery, e.g. when the counterparty has been placed into liquidation or has entered into bankruptcy
proceedings. Financial assets written off may still be subject to enforcement activities under the Company’s recovery procedures, taking
into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.
310
310
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
18. Share-based payments
Detailed information on the long-term incentive plans, sharesave schemes and deferred bonus share schemes is contained in note I1 in
the consolidated financial statements.
19. Directors’ remuneration
Details of the remuneration of the Directors of Phoenix Group Holdings plc is included in the Directors’ Remuneration Report on pages
106 to 136 of the Annual Report and Accounts.
20. Related party transactions
The Company has related party transactions with Group entities and its key management personnel. Details of the total compensation of
key management personnel, being those having authority and responsibility for planning, directing and controlling the activities of the
Group, including the Executive and Non-Executive Directors, are included in note I4 to the consolidated financial statements.
On 23 February 2021, the Group entered into a new agreement with abrdn plc to simplify the arrangements of the strategic partnership.
As part of the acquisition of the brand, the relevant marketing, distribution and data team members were transferred to the Group.
Consequently, the Client Service and Proposition Agreement entered into between the two groups following the acquisition of the
Standard Life businesses in 2018 has been significantly amended prior to being dissolved. It has been assessed that abrdn plc no longer
has significant influence over the Group and as a result is no longer considered to be a related party of the Group from the date that the
Group entered into the new agreement.
During the year ended 31 December 2021, the Company entered into the following transactions with related parties, including
transactions with abrdn plc to 23 February 2021.
Dividend income from other Group entities
Interest income from other Group entities
Impairment of loan due from subsidiary
Impairment of investment in subsidiaries
Expense to other Group entities
Interest expense to other Group entities
Dividends paid to abrdn plc
2021
£m
957
111
1,068
–
43
205
43
248
–
2020
£m
400
73
473
8
–
119
7
134
67
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
311
311
Financials
Financials continued
Notes to the parent company financial statements
Continued
20. Related party transactions continued
Amounts due from related parties at the end of the year:
Loans due from Group entities
Interest accrued on loans due from Group entities
Other amounts due from Group entities
Amount due for settlement after 12 months
Amounts due to related parties at the end of the year:
Loans due to Group entities
Interest accrued on loans due to Group entities
Other amounts due to Group entities
Amount due for settlement after 12 months
2021
£m
1,234
35
616
1,885
2020
£m
1,924
–
295
2,219
784
1,924
2021
£m
300
14
415
729
2020
£m
294
–
448
742
300
294
21. Auditor’s remuneration
Details of auditor’s remuneration for Phoenix Group Holdings plc and its subsidiaries is included in note C4 to the consolidated financial
statements.
22. Events after the reporting period
Details of events after the reporting date are included in note I7 to the consolidated financial statements.
Nicholas Lyons
Andy Briggs
Rakesh Thakrar
Alastair Barbour
Karen Green
Hiroyuki Iioka
Wendy Mayall
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty
12 March 2022
312
312
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Additional life company asset disclosures
The analysis of the asset portfolio provided below comprises the assets held by the Group’s life companies, and it is stated net of
derivative liabilities. It excludes other Group assets such as cash held in the holding and management service companies, the assets
held by the non-controlling interests in consolidated collective investment schemes and assets in consolidated funds held within the
disposal group.
The following table provides an overview of the exposure by asset category of the Group’s life companies’ shareholder and
policyholder funds:
31 December 2021
Carrying value
Cash and cash equivalents
Debt securities – gilts and foreign government bonds
Debt securities – other government and supranational
Debt securities – infrastructure loans4
Debt securities – UK local authority loans and US municipal bonds5
Debt securities – private placements6
Debt securities – loans guaranteed by export credit agencies7
Debt securities – equity release mortgages4
Debt securities – commercial real estate loans4
Debt securities – other debt securities
Equity securities
Property investments
Income strips4
Other investments8
Total Life Company assets
Less assets held by disposal group9
At 31 December 2021
Cash and cash equivalents in Group holding companies
Cash and financial assets in other Group companies
Financial assets held by the non-controlling interest in consolidated
collective investment schemes
Financial assets in consolidated funds held by disposal group9
Total Group consolidated assets excluding amounts classified as held for sale
Comprised of:
Investment property
Financial assets
Cash and cash equivalents
Derivative liabilities
Shareholder
and non-
profit funds1
£m
Participating
supported1
£m
Participating
non-
supported2
£m
5,437
8,687
2,381
1,491
1,069
3,978
208
4,214
1,317
1,644
311
318
7,103
20,623
2,088
–
–
1
–
–
–
–
10
179
–
–
–
Unit-linked2
£m
9,691
14,170
3,051
–
3
33
–
–
–
Total3
£m
23,875
43,791
7,838
1,491
1,082
4,191
208
4,214
1,317
16,713
40,058
1,432
2,062
16,274
39,174
28,218
62,637
45,475
126,769
122
76
–
623
61
26
–
341
20,386
113,779
134,348
2,248
7,906
10,256
–
3,098
886
10,119
886
14,181
46,316
4,134
72,009
187,856
310,315
–
–
–
(11,676)
(11,676)
46,316
4,134
72,009
176,180
298,639
964
793
4,155
1,788
306,339
5,283
293,192
9,112
(1,248)
306,339
Includes assets where shareholders of the life companies bear the investment risk.
Includes assets where policyholders bear most of the investment risk.
1
2
3 This information is presented on a look-through basis to underlying funds where available.
4 All infrastructure and commercial real estate loans, equity release mortgages and income strips are classified as Level 3 debt securities in the fair value hierarchy.
5 Total UK local authority loans and US municipal bonds of £1,082 million include £917 million classified as Level 3 debt securities in the fair value hierarchy.
6 Total private placements of £4,191 million include £3,120 million classified as Level 3 debt securities in the fair value hierarchy.
7 Total loans guaranteed by export credit agencies of £208 million include £159 million classified as Level 3 debt securities in the fair value hierarchy.
8
9 See note A6.1 to the consolidated financial statements for further details.
Includes policy loans of £11 million, other loans of £248 million, net derivative assets of £3,309 million, reinsurers’ share of investment contracts of £10,009 million and other investments of £604 million.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
313
313
Financials
Financials continued
Additional life company asset disclosures
Continued
31 December 2020
Carrying value
Cash and cash equivalents
Debt securities – gilts and foreign government bonds
Debt securities – other government and supranational
Debt securities – infrastructure loans4
Debt securities – UK local authority loans and US municipal bonds5
Debt securities – private placements6
Debt securities – loans guaranteed by export credit agencies4
Debt securities – equity release mortgages4
Debt securities – commercial real estate loans4
Debt securities – other debt securities
Equity securities
Property investments
Income strips4
Other investments7
At 31 December 2020
Cash and cash equivalents in Group holding companies
Cash and financial assets in other Group companies
Financial assets held by the non-controlling interest in consolidated collective
investment schemes
Total Group consolidated assets
Comprised of:
Investment property
Financial assets
Cash and cash equivalents
Derivative liabilities
Shareholder
and non-
profit funds1
£m
Participating
supported1
£m
Participating
non-
supported2
£m
1,854
386
294
8,336
22,295
2,220
Unit-linked2
£m
10,246
14,458
7,815
–
–
51
–
–
–
Total3
£m
26,344
44,138
12,586
1,564
696
3,590
54
3,484
1,075
24,412
46,736
64,692
131,879
106,120
125,899
6,409
692
8,574
692
–
–
262
–
–
–
18,322
43,099
19,621
2,054
–
–
–
1
–
–
–
1,587
2,268
45
30
–
711
5,908
6,999
2,257
1,564
696
3,276
54
3,484
1,075
20,371
39,776
113
81
–
923
4,916
10,009
16,559
46,801
4,908
78,026
180,212
309,947
1,055
776
4,170
315,948
7,128
298,823
10,998
(1,001)
315,948
Includes assets where shareholders of the life companies bear the investment risk.
Includes assets where policyholders bear most of the investment risk.
1
2
3 This information is presented on a look-through basis to underlying funds where available.
4 All infrastructure loans, commercial real estate loans, equity release mortgages, income strips and loans guaranteed by export credit agencies are classified as Level 3 debt securities in the fair value
hierarchy.
5 Total UK local authority loans of £696 million include £646 million classified as Level 3 debt securities in the fair value hierarchy.
6 Total private placements of £3,590 million include £2,297 million classified as Level 3 debt securities in the fair value hierarchy.
7
Includes policy loans of £10 million, other loans of £344 million, net derivative assets of £6,083 million, reinsurers’ share of investment contracts of £9,559 million and other investments of £563 million.
The following table provides a reconciliation of the total life company assets to the Assets under Administration (‘AUA’) as at 31 December
2021 detailed in the Business Review on page 37:
Total Life Company assets excluding amounts classified as held for sale
Off-balance sheet AUA1
Less: Standard Life Trustee Investment Plan assets2
Assets Under Administration
2021
£bn
2020
£bn
298.6
309.9
11.8
–
310.4
37.5
(9.7)
337.7
1 Off-balance sheet AUA represents assets held in respect of certain Group Self-Invested Personal Pension products where the beneficial ownership interest resides with the customer (and which are
therefore not recognised in the consolidated statement of financial position) but on which the Group earns fee revenue.
2 Assets held within the Standard Life Trustee Investment Plan product are excluded from AUA as materially all profits accrue to third party investment managers. As at 31 December 2021, these assets form
part of the disposal group classified as held for sale (see note A6.1 for further details).
314
314
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
All of the life companies’ debt securities are held at fair value through profit or loss under IAS 39, and therefore already reflect any
reduction in value between the date of purchase and the reporting date.
The life companies have in place a comprehensive database that consolidates credit exposures across counterparties, geographies and
business lines. This database is used for credit monitoring, stress testing and scenario planning. The life companies continue to manage
their balance sheets prudently and have taken extra measures to ensure their market exposures remain within risk appetite.
For each of the life companies’ significant financial institution counterparties, industry and other data has been used to assess the
exposure of the individual counterparties. As part of the Group’s risk appetite framework and analysis of shareholder exposure to a
potential worsening of the economic situation, this assessment has been used to identify counterparties considered to be most at risk
from defaults. The financial impact on these counterparties, and the contagion impact on the rest of the shareholder portfolio, is assessed
under various scenarios and assumptions. This analysis is regularly reviewed to reflect the latest economic outlook, economic data and
changes to asset portfolios. The results are used to inform the Group’s views on whether any management actions are required.
The table below shows the Group’s market exposure analysed by credit rating for the debt securities held in the shareholder and non-
profit funds.
BBB
£m
BB & below1
£m
Sector analysis of shareholder and non-profit fund bond portfolio
2021
Industrials
Basic materials
Consumer, cyclical
Technology and telecoms
Consumer, non-cyclical
Structured finance
Banks2
Financial services
Diversified
Utilities
AAA
£m
–
–
11
165
258
–
662
51
–
25
AA
£m
177
1
438
268
315
–
769
281
6
121
Sovereign, sub-sovereign and supranational3
1,465
9,983
Real estate
Investment companies
Insurance
Oil and gas
Collateralised debt obligations
Private equity loans
Infrastructure
Equity release mortgages4
At 31 December 2021
27
30
16
–
–
–
–
2,085
4,795
211
200
428
147
8
–
–
1,144
A
£m
354
166
461
592
986
52
2,750
382
28
1,345
827
3,386
2
426
381
–
–
128
963
970
29
302
735
352
–
578
147
–
1,562
109
727
–
38
81
–
26
1,196
–
14,497
13,229
6,852
Total
£m
1,544
196
1,360
1,763
1,911
52
4,778
866
34
3,055
12,384
4,605
232
930
609
8
26
1,491
4,214
40,058
43
–
148
3
–
–
19
5
–
2
–
254
–
22
–
–
–
167
22
685
Includes unrated holdings of £113 million.
1
2 The £4,778 million total shareholder exposure to bank debt comprised £3,732 million senior debt and £1,046 million subordinated debt.
3
Includes £1,082 million reported as UK local authority loans and US municipal bonds, £165 million reported as private placements and £82 million reported as loans guaranteed by export credit agencies
in the summary table on page 313.
4 The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
315
315
Financials
Financials continued
Additional life company asset disclosures
Continued
Sector analysis of shareholder and non-profit fund bond portfolio
2020
Industrials
Basic materials
Consumer, cyclical
Technology and telecoms
Consumer, non-cyclical
Structured finance
Banks2
Financial services
Diversified
Utilities
AAA
£m
–
–
12
175
270
–
857
92
–
28
AA
£m
148
–
484
288
309
–
805
279
7
130
Sovereign, sub-sovereign and supranational3
1,421
8,149
Real estate
Investment companies
Insurance
Oil and gas
Collateralised debt obligations
Private equity loans
Infrastructure
Equity release mortgages4
At 31 December 2020
37
33
–
–
–
–
–
2,034
4,959
171
193
573
212
8
–
25
657
A
£m
426
201
656
719
1,239
56
3,328
350
31
2,153
483
3,016
–
463
350
–
22
388
626
BBB
£m
BB & below1
£m
1,104
40
347
782
549
–
695
246
–
1,660
85
509
4
84
83
–
5
1,004
149
7,346
47
–
97
–
–
–
66
2
–
–
11
126
–
12
–
–
–
147
18
526
Total
£m
1,725
241
1,596
1,964
2,367
56
5,751
969
38
3,971
10,149
3,859
230
1,132
645
8
27
1,564
3,484
39,776
12,438
14,507
Includes non-rated holdings of £117 million which have been assessed as having a low credit risk.
1
2 The £5,751 million total shareholder exposure to bank debt comprised £4,316 million senior debt and £1,435 million subordinated debt.
3
Includes £696 million reported as UK local authority loans, £171 million reported as private placements and £26 million reported as loans guaranteed by export credit agencies in the summary table on
page 314.
4 The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.
316
316
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
The following table sets out the debt security exposure by country of the shareholder and non-profit funds of the life companies:
Analysis of shareholder debt security exposure by country
UK
Supranationals
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Australia
Canada
Mexico
Other – non-Eurozone1
Other – Eurozone
Sovereign,
sub-
sovereign
and
supranational
2021
£m
Corporate
and other
2021
£m
Total
2021
£m
Sovereign,
sub-
sovereign
and
supranational
2020
£m
Corporate
and other
2020
£m
Total
2020
£m
10,216
17,076
27,292
8,077
17,577
25,654
800
340
112
230
117
–
–
26
60
39
1
99
2
288
54
–
4,881
418
1,207
769
171
57
105
22
111
503
303
192
1,579
280
800
5,221
530
1,437
886
171
57
131
82
150
504
402
194
1,867
334
660
217
188
339
182
–
–
–
86
31
–
65
6
189
109
–
5,614
962
1,440
728
213
155
183
1
152
577
275
219
1,238
293
660
5,831
1,150
1,779
910
213
155
183
87
183
577
340
225
1,427
402
Total shareholder debt securities
12,384
27,674
40,058
10,149
29,627
39,776
1
Includes £2 million sovereign debt and £21 million corporate and other debt with exposure to Russia. There was no exposure to either Ukraine or Belarus.
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
317
317
Financials
Financials continued
Additional capital disclosures
PGH PLC Solvency II Surplus
The PGH plc surplus at 31 December 2021 is £5.3 billion (2020: £5.3 billion).
Own Funds
SCR
Surplus
31 December
2021
Estimated
£bn
31 December
2020
£bn
14.8
(9.5)
5.3
16.8
(11.5)
5.3
Calculation of group solvency
In 2020, the Group used two methods for calculating Group solvency, ‘Method 1’ (being the default accounting based consolidation
method) and ‘Method 2’ (the deduction and aggregation method). Method 2 was used for all entities within the Standard Life Assurance
businesses acquired in 2018 and Method 1 was used for all other entities of the Group (including the ReAssure entities acquired in 2020).
Following the approval of the harmonised internal model by the PRA during the year and as referred to in Article 230 of the Solvency II
directive, the Group now wholly uses Method 1 to calculate Group solvency. The Group continues to determine its capital requirements
on a partial internal model basis.
Composition of own funds
Own Funds items are classified into different Tiers based on the features of the specific items and the extent to which they possess the
following characteristics, with Tier 1 being the highest quality:
• availability to be called up on demand to fully absorb losses on a going-concern basis, as well as in the case of winding-up (‘permanent
availability’); and
• in the case of winding-up, the total amount that is available to absorb losses before repayment to the holder until all obligations to
policyholders and other beneficiaries have been met (‘subordination’).
PGH plc’s total Own Funds are analysed by Tier as follows:
Tier 1 – Unrestricted
Tier 1 – Restricted
Tier 2
Tier 3
Total Own Funds
31 December
2021
Estimated
£bn
9.9
1.1
2.9
0.9
14.8
31 December
2020
£bn
11.7
1.1
3.2
0.8
16.8
PGH plc’s unrestricted Tier 1 capital accounts for 67% (2020: 70%) of total Own Funds and comprises ordinary share capital, surplus
funds of the unsupported with-profit funds which are recognised only to a maximum of the SCR, and the accumulated profits of the
remaining business.
Restricted Tier 1 capital comprises the contingent convertible Tier 1 Notes issued in January 2020 and the Tier 1 Notes issued
in April 2018, the terms of which enable the instruments to qualify as restricted Tier 1 capital for regulatory reporting purposes.
Tier 2 capital is comprised of subordinated notes whose terms enable them to qualify as Tier 2 capital for regulatory reporting purposes.
Tier 3 items include the Tier 3 subordinated notes of £0.7 billion (2020: £0.7 billion) and the deferred tax asset of £0.2 billion (2020:
£0.1 billion).
318
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
Financials continued
Breakdown of SCR
The Group operates one single harmonised PRA approved Internal Model covering all the Group entities, with the exception of the Irish
entity, Standard Life International Designated Activity Company (‘SLIDAC’) and the acquired ReAssure businesses. SLIDAC and the
ReAssure businesses calculate their capital requirements in accordance with the Standard Formula. An analysis of the pre-diversified
SCR of PGH plc is presented below:
Longevity
Credit
Persistency
Interest rates
Operational
Swap spreads
Property
Other market risks
Other non-market risks
Total pre-diversified SCR
31 December 2021
Estimated
31 December 2020
Harmonised
Internal
Model
%
22
18
20
9
6
3
4
12
6
100
ReAssure
and SLIDAC
Standard
Formula
%
21
21
22
8
3
–
1
14
10
100
Standard
Life Internal
Model
ReAssure
and SLIDAC
Standard
Formula
%
18
12
25
6
8
1
1
16
13
%
21
24
20
10
4
–
–
10
11
Phoenix
Internal
Model
%
27
23
12
7
4
3
10
3
11
100
100
100
The principal risks of the Group are described in detail in note E6 and F4 in the IFRS consolidated financial statements.
Minimum capital requirements
Under the Solvency II regulations, the Minimum Capital Requirement (‘MCR’) is the minimum amount of capital an insurer is required to
hold below which policyholders and beneficiaries would become exposed to an unacceptable level of risk if an insurer was allowed to
continue its operations. For Groups this is referred to as the Minimum Consolidated Group SCR (‘MGSCR’).
The MCR is calculated according to a formula prescribed by the Solvency II regulations and is subject to a floor of 25% of the SCR or
€3.7 million, whichever is higher, and a cap of 45% of the SCR. The MCR formula is based on factors applied to technical provisions and
capital at risk.
The MGSCR represents the sum of the underlying insurance companies’ MCRs of the Group. The Group wholly uses Method 1 (the
default accounting based consolidation method) to calculate Group solvency following the approval of the harmonised internal model
by the PRA during the year.
The Eligible Own Funds to cover the MGSCR is subject to quantitative limits as shown below:
• the Eligible amounts of Tier 1 items should be at least 80% of the MGSCR; and
• the Eligible amounts of Tier 2 items shall not exceed 20% of the MGSCR.
PGH plc’s MGSCR at 31 December 2021 is £2.9 billion (2019: Method 1 £1.9 billion and Method 2 £1.4 billion).
PGH plc’s Eligible Own Funds to cover MGSCR is £11.5 billion (2020: Method 1 £8.3 billion and Method 2 £4.9 billion) leaving an excess
of Eligible Own Funds over MGSCR of £8.6 billion (2020: Method 1 £6.4 billion and Method 2 £3.5 billion), which translates to an MGSCR
coverage ratio of 393% (2020: Method 1: 431% and Method 2: 359%).
Phoenix Group Holdings plc Annual Report and Accounts 2021
Phoenix Group Holdings plc Annual Report and Accounts 2021
319
319
Financials
Financials continued
Alternative performance measures
The Group assesses its financial performance based on a number of measures. Some measures are management derived measures
of historic or future financial performance, position or cash flows of the Group; which are not defined or specified in accordance with
relevant financial reporting frameworks such as International Financial Reporting Standards (‘IFRS’) or Solvency II.
These measures are known as Alternative Performance Measures (‘APMs’).
APMs are disclosed to provide stakeholders with further helpful information on the performance of the Group and should be viewed as
complementary to, rather than a substitute for, the measures determined according to IFRS and Solvency II requirements. Accordingly,
these APMs may not be comparable with similarly titled measures and disclosures by other companies.
A list of the APMs used in our results as well as their definitions, why they are used and, if applicable, how they can be reconciled to the
nearest equivalent GAAP measure is provided below. Further discussion of these measures can be found in the business review from
page 28.
APM
Definition
Why this measure is used
AUA indicates the potential earnings
capability of the Group arising from its
insurance and investment business. AUA
flows provide a measure of the Group’s
ability to deliver new business growth.
Reconciliation to
financial statements
A reconciliation from the
Group’s IFRS consolidated
statement of financial
position to the Group’s AUA
is provided on page 314.
Assets under
administration
Fitch
leverage ratio
Incremental
long-term cash
generation
The Group’s Assets under Administration
(‘AUA’) represents assets administered
by or on behalf of the Group, covering
both policyholder fund and shareholder
assets. It includes assets recognised in the
Group’s IFRS consolidated statement of
financial position together with certain
assets administered by the Group for which
beneficial ownership resides with customers.
The Fitch leverage ratio is calculated
by Phoenix (using Fitch Ratings’ stated
methodology) as debt as a percentage of
the sum of debt and equity. Debt is defined
as the IFRS carrying value of shareholder
borrowings. Equity is defined as the sum
of equity attributable to the owners of
the parent, non-controlling interests, the
unallocated surplus and the Tier 1 Notes.
Incremental long-term cash generation
represents the operating companies’ cash
generation that is expected to arise in future
years as a result of new business transacted
in the current period within our UK Open
and Europe segments. It excludes any costs
associated with the acquisition of the
new business.
Life Company
Free Surplus
The Solvency II surplus of the Life
Companies that is in excess of their Board
approved capital management policies.
320
Phoenix Group Holdings plc Annual Report and Accounts 2021
The Group seeks to manage the level of
debt on its balance sheet by monitoring its
financial leverage ratio. This is to ensure the
Group maintains its investment grade credit
rating as issued by Fitch Ratings and
optimises its funding costs and financial
flexibility for future acquisitions.
The debt and equity figures
are directly sourced from the
Group’s IFRS consolidated
statement of financial position
on pages 158 and 159 and
the analysis of borrowings
note on page 206.
This measure provides an indication of the
Group’s performance in delivering new
business growth to offset the impact of
run-off of the Group’s Heritage business
and to bring sustainability to future
cash generation.
Incremental long-term cash
generation is not directly
reconcilable to the financial
statements as it relates to
cash generation expected
to arise in the future.
This figure provides a view of the level of
surplus capital in the Life Companies that
is available for distribution to the holding
companies, and the generation of Free
Surplus underpins future operating
cash generation.
Please see business review
section on page 35 for
further analysis of the
solvency positions of the
Life Companies.
Reconciliation to
financial statements
The metric is not directly
reconcilable to the financial
statements as it includes a
significant component relating
to cash that is expected to
emerge in the future. Holding
company cash included within
LTFC is consistent with the
holding company cash and
cash equivalents as disclosed
in the cash section of the
business review. Shareholder
debt outstanding reflects the
face value of the shareholder
borrowings disclosed on
page 206.
New business contribution is
not directly reconcilable to
the Group’s Solvency II metrics
as it represents an in-year
movement. Further analysis
is provided on page 36.
Operating companies’ cash
generation is not directly
reconcilable to an equivalent
GAAP measure (IFRS
statement of consolidated
cash flows) as it includes
amounts that eliminate on
consolidation.
Further details of holding
companies’ cash flows are
included within the business
review on pages 28 to 41, and
a breakdown of the Group’s
cash position by type of entity
is provided in the additional
life company asset disclosures
section on page 313.
A reconciliation of operating
profit to the IFRS result before
tax attributable to owners is
included in the business
review on page 38.
APM
Definition
Why this measure is used
Long-term Free
Cash (‘LTFC’)
Long-term Free Cash (‘LTFC’) is comprised
of long-term cash to emerge from in-force
business, plus holding company cash, less an
allowance for costs associated with in-flight
mergers and acquisitions and the related
transition activities, and a deduction for
shareholder debt outstanding.
LTFC provides a measure of the Group’s total
long-term cash available for operating costs,
interest, growth and shareholder returns.
Increases in LTFC will be driven by sources
of long-term cash i.e. new business and
over-delivery of management actions.
Decreases in LTFC will reflect the uses of cash
at holding company level, including expenses,
interest, investment in BPA and dividends.
This measure provides an assessment of
the day one value arising on the writing of
new business in the UK Open and Europe
segments, and is stated after applicable
taxation and acquisition costs.
The statement of consolidated cash flows
prepared in accordance with IFRS combines
cash flows relating to shareholders with
cash flows relating to policyholders, but the
practical management of cash within the
Group maintains a distinction between the
two. The Group therefore focuses on the
cash flows of the holding companies which
relate only to shareholders. Such cash flows
are considered more representative of the
cash generation that could potentially be
distributed as dividends or used for debt
repayment and servicing, Group expenses
and pension contributions.
Operating companies’ cash generation
is a key performance indicator used by
management for planning, reporting and
executive remuneration.
This measure provides a more representative
view of the Group’s performance than the
IFRS result after tax as it provides long-term
performance information unaffected by
short-term economic volatility and one-off
items, and is stated net of policyholder
finance charges and tax.
It helps give stakeholders a better
understanding of the underlying
performance of the Group by identifying
and analysing non-operating items.
New business
contribution
Operating
companies’
cash generation
Represents the increase in Solvency II
shareholder Own funds arising from new
business written in the year, adjusted to
exclude the associated risk margin and any
restrictions in respect of contract boundaries
and stated on a net of tax basis.
Cash remitted by the Group’s operating
companies to the Group’s holding companies.
Operating profit
Shareholder
Capital
Coverage Ratio
Operating profit is a financial performance
measure based on expected long-term
investment returns. It is stated before tax and
non-operating items including amortisation
and impairments of intangibles, finance
costs attributable to owners and other
non-operating items which in the Director’s
view should be excluded by their nature or
incidence to enable a full understanding of
financial performance.
Further details of the components of this
measure and the assumptions inherent in the
calculation of the long-term investment return
are included in note B2.1 to the consolidated
financial statements.
Represents total Eligible Own Funds divided
by the Solvency Capital Requirements
(‘SCR’), adjusted to a shareholder view
through the exclusion of amounts relating
to those ring-fenced with-profit funds and
Group pension schemes whose Own Funds
exceed their SCR.
The unsupported with-profit funds and
Group pension funds do not contribute to
the Group Solvency II surplus. However, the
inclusion of related Own Funds and SCR
amounts dampens the implied Solvency II
capital ratio. The Group therefore focuses
on a shareholder view of the capital coverage
ratio which is considered to give a more
accurate reflection of the capital strength
of the Group.
Further details of the
Shareholder Capital Coverage
Ratio and its calculation are
included in the business
review on page 34.
Phoenix Group Holdings plc Annual Report and Accounts 2021
321
Financials Shareholder information
Shareholder information
Annual General Meeting
Our Annual General Meeting (‘AGM’) will be held on 5 May 2022 at 10.00am (BST).
The voting results for our 2022 AGM, including proxy votes and votes withheld will be
available on our website at www.thephoenixgroup.com
Share price performance
Phoenix Group Holdings plc share price performance
Price pence per share (rebased to Phoenix)
900
800
700
600
500
400
300
Jan
2021
Feb
2021
Mar
2021
Apr
2021
May
2021
Jun
2021
Jul
2021
Aug
2021
Sep
2021
Oct
2021
Nov
2021
Dec
2021
Phoenix Group
FTSE 350 Life Assurance
FTSE 100
Shareholder profile as at 31 December 2021
Range of shareholdings
1–1,000
1,001–5,000
5,001–10,000
10,001–250,000
250,001–500,000
500,001 and above
Total
No. of
shareholders
652
730
202
557
92
189
2,422
%
26.92
30.14
8.34
23.00
3.80
7.80
No. of
shares
320,193
1,802,691
1,442,671
36,368,258
32,645,353
926,956,892
999,536,058
%
0.03
0.18
0.14
3.64
3.27
92.74
322
Phoenix Group Holdings plc Annual Report and Accounts 2021
If you deal with an unauthorised firm, you will not be eligible to
receive payment under the Financial Services Compensation
Scheme (‘FSCS’). The FCA can also be contacted by completing
an online form available at www.fca.org.uk/consumers/report-
scam-unauthorised-firm. Details of any share dealing facilities that
the Company endorses will be included in Company mailings.
More detailed information on this or similar activity can be found
on the FCA website available at www.fca.org.uk/consumers.
Share price
You can access the current share price of Phoenix Group
Holdings plc on the Group’s website together with electronic
copies of the Group’s financial reports and presentations at www.
thephoenixgroup.com/investor-relations.aspx
Ordinary shares – 2021 final dividend
Ex-dividend date
Record date
Payment date for the recommended final dividend
31 March 2022
1 April 2022
9 May 2022
Group financial calendar for 2022
Annual General Meeting
Announcement of unaudited
six months’ Interim Results
5 May 2022
15 August 2022
Shareholder services
Managing your shareholding
Our registrar, Computershare, maintains the Company’s register
of members. Shareholders may request a hard copy of this Annual
Report from our registrar and should you have any queries in
respect of your shareholding, please contact them directly using
the contact details set out below.
Registrar details
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ
Shareholder helpline number +44 (0) 370 702 0181
Fax number +44 (0) 370 703 6116
www.investorcentre.co.uk/contactus
Dividend mandates
Shareholders may find it convenient to have their dividends paid
directly to their bank or building society account.
Access Computershare’s web-based enquiry service
www.investorcentre.co.uk to download forms such as a dividend
mandate form or submit dividend mandate details online;
view details of your Phoenix Group shareholding and recent
dividend payments; update your address details and register for
shareholder electronic communications to receive notification of
Phoenix Group shareholder mailings by email.
Alternatively, contact Computershare using the details above.
Scrip dividend alternative
The Company does not currently offer a scrip dividend alternative.
Warning to shareholders
Over recent years, many companies have become aware
that their shareholders have received unsolicited phone calls
or correspondence concerning investment matters. These
are typically from overseas-based ‘brokers’ who target UK
shareholders, offering to sell them what often turn out to be
worthless or high-risk shares in US or UK investments. These
operations are commonly known as ‘boiler rooms’.
Shareholders are advised to be very wary of any unsolicited
advice, offers to buy shares at a discount or offers of free reports
about the Company.
If you receive any unsolicited investment advice:
• make sure you get the correct name of the person
and organisation;
• check that they are properly authorised by the Financial
Conduct Authority (‘FCA’) before getting involved by visiting
www.fca.org.uk/firms/systems-reporting/register;
• report the matter to the FCA by calling the FCA Consumer
Helpline on 0800 111 6768; and
if the calls persist, hang up.
•
Phoenix Group Holdings plc Annual Report and Accounts 2021
323
Additional information Glossary
Glossary
ABI
The Association of British Insurers (‘ABI’) is a trade association made up of
insurance companies in the United Kingdom
Carbon footprint
A carbon footprint is the total greenhouse gas (‘GHG’) emissions caused
by an individual, event, organization, service, place or product, expressed
as carbon dioxide equivalent (CO2e)
ABS
Asset Backed Securities – A collateralised security whose value and
income payments are derived from a specified pool of underlying assets
Acquired value in force (‘AVIF’)
The present value of future profits on a portfolio of long-term insurance
and investment contracts, acquired either directly or through the
purchase of, or investment in, a business
ALM
Asset Liability Management – Management of mismatches between
assets and liabilities within risk appetite
Alternative Performance Measure
An Alternative Performance Measure (’APM’) is a financial measure of
historic or future financial performance, financial position or cash flows,
other than a financial measure defined under IFRS or under Solvency II
regulations. The Group uses a range of these metrics to provide a better
understanding of the underlying performance of the Group. All APMs are
defined within this glossary and the APM section on page 320
Annuity policy
A policy that pays out regular benefit amounts, either immediately and for
the remainder of a policyholder’s lifetime (immediate annuity), or deferred
to commence at some future date (deferred annuity)
Asset management
The management of assets using a structured approach to guide
the act of acquiring and disposing of assets, with the objective of
meeting defined investment goals and maximising value for investors,
including policyholders
Assets under administration (‘AUA’)
Assets administered by or on behalf of the Group, covering both
policyholder funds and shareholder assets. This includes assets
recognised in the Group’s IFRS consolidated statement of financial
position together with certain assets administered by the Group but for
which beneficial ownership resides with customers
Auto-enrolment
Under the Pensions Act 2008, every employer in the UK must put certain
staff into a workplace pensions scheme and contribute towards it. This is
called auto-enrolment
Bulk Purchase Annuities (‘BPA’)
A bulk annuity is an insurance policy that is purchased by pension
scheme trustees to better secure members’ benefits by removing
investment, inflation and longevity risk associated with defined
benefit pension schemes
Brexit
The vote by the people of the United Kingdom to leave the EU in the
referendum held on 23 June 2016
CAGR
Compound annual growth rate, or CAGR, is the mean annual growth rate
of an investment over a specified period of time longer than one year
Carbon offsets
A reduction or removal of emissions of carbon dioxide or other
greenhouse gases made in order to compensate for emissions created
elsewhere
Carbon Disclosure Project (‘CDP’)
Global disclosure system for investors, companies, cities, states and
regions to manage their environmental impacts
Climate Biennial Exploratory Scenario exercise (‘CBES’)
The Bank of England’s exercise to test the resilience of the current
business models of the largest banks, insurers and the financial system
to climate-related risks
Climate-related risks
The potential negative impacts of climate change on an organisation
Climate-related opportunities
The potential positive impacts of climate change on an organisation.
Efforts to adapt to climate change can produce opportunities for
organisations, such as through resource efficiency and cost savings and
the development of new products and services
Climate scenario
A plausible representation of future climate that has been constructed
for explicit use in investigating the potential impacts of anthropogenic
climate change
Closed life fund
A fund that no longer accepts new business. The fund continues to be
managed for the existing policyholders
COP26
The 26th United Nations Climate Change Conference of the Parties held
in Glasgow in November 2021
Customer
Number of customers is measured as number of lead policyholders.
A customer could be a lead policyholder on more than one policy and
some policies could have more than one customer, therefore the customer
number is approximate
Defined benefit pension scheme
A pension scheme that defines the benefits payable to members
irrespective of any contributions paid or investment gains made
Defined contribution pension scheme
A pension scheme where the benefits depend on the amount and
frequency of contributions paid into the scheme, the investment gain on
those contributions, and annuity rates at the time of retirement. The exact
pension valuation will not be known until the point of retirement
EBT
Employee Benefit Trust – A trust set up to enable its Trustee to purchase
and hold shares to satisfy employee share-based incentive plan awards.
The Company’s EBT is the Phoenix Group Holdings plc Employee
Benefit Trust
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Phoenix Group Holdings plc Annual Report and Accounts 2021
Economic assumptions
Assumptions related to future interest rates, inflation, market
value movements and tax
FTE
The full-time equivalent (FTE) is a measure that allows the Group to
calculate the equivalent number of full-time employees for all types
of employees
EEA
European Economic Area – Established on 1 January 1994 and is an
agreement between Norway, Iceland, Liechtenstein and the European
Union. It allows these countries to participate in the EU’s single market
without joining the EU
GAR
Guaranteed Annuity Rate – A rate available to certain pension
policyholders to acquire an annuity at a contractually guaranteed
conversion rate
ERM
An equity release mortgage (‘ERM’) product enables a home owner aged
over 55 to draw a lump sum or regular smaller sums from the value of the
home, while remaining in their home
ESG
Environmental, social, and governance criteria are a set of standards for a
company’s operations that investors use to screen potential investments:
how a company performs as a steward of nature; how it manages
relationships with employees, suppliers, customers, and the communities
where it operates; and a company’s leadership, executive pay, audits,
internal controls and shareholder rights
Experience variances
Current period differences between the actual experience incurred and
the assumptions used in the calculation of IFRS insurance liabilities
Financed emissions
Greenhouse gas emissions that occur as a result of financing, including
lending and investment activity. These activities fall within Scope 3,
category 15 of the GHG protocol
Financial leverage
Calculated by Phoenix (using Fitch Ratings stated methodology) as debt
as a percentage of the sum of debt and equity. Debt is defined as the IFRS
carrying value of shareholder borrowings. Equity is defined as the sum of
equity attributable to the owners of the parent, non-controlling interests,
the unallocated surplus and the Tier 1 Notes
Financial Reporting Council (‘FRC’)
The UK’s independent regulator responsible for promoting high-quality
corporate governance and reporting to foster investment
Free surplus
The amount of capital held in life companies in excess of that needed to
support their regulatory Solvency Capital Requirement, plus the capital
required under the Board approved capital management policy
FCA
Financial Conduct Authority – The body responsible for supervising
the conduct of all financial services firms and for the prudential regulation
of those financial services firms not supervised by the Prudential
Regulation Authority (’PRA’), such as asset managers and independent
financial advisers
FOS
Financial Ombudsman Service – An ombudsman established in 2000,
and given statutory powers in 2001 by the Financial Services and Markets
Act 2000, to help settle disputes between consumers and UK-based
businesses providing financial services
Greenhouse Gas (‘GHG’) emissions
GHGs are atmospheric gases that absorb and emit radiation within the
thermal infrared range and that contribute to the greenhouse effect and
global climate change. They include water vapour, carbon dioxide (CO2),
methane (CH4), nitrous oxide (N2O), hydro chlorofluorocarbons (HCFCs),
ozone (O3), hydrofluorocarbons (HFCs),and perfluorocarbons (PFCs)
Greenhouse Gas Protocol
Global standard for companies and organisations to measure and manage
their GHG emissions
Hampton-Alexander review and guidance
An independent review aimed at ensuring that talented women at the top
of business are recognised, promoted and rewarded. The review focused
on increased female representation on FTSE boards and women in senior
executive positions. The guidance set targets of 33% representation of
women on FTSE 350 Boards and in the executive committee ( including
their direct reports) to be achieved by the end of 2020
HMRC
Her Majesty’s Revenue and Customs
Heritage
The Group’s business segment where products are no longer marketed
to customers, for example with-profits and many legacy unit linked life
and pension products
Holding companies
Refers to Phoenix Group Holdings plc, Phoenix Life Holdings Limited,
Pearl Group Holdings (No. 2) Limited, Impala Holdings Limited, Pearl Life
Holdings Limited, ReAssure Group plc and ReAssure Midco Limited
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards – Accounting standards,
interpretations and the framework adopted by the International
Accounting Standards Board
Incremental long-term cash generation
Represents the increase in the expected future operating companies’
cash generation to arise as a result of new business transacted in a period.
It excludes ‘Day 1’ acquisition costs and is stated on an undiscounted basis
In-force
Long-term business written before the period end and which has not
terminated before the period end
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325
Additional information Glossary continued
Inherited estate
The assets of the long-term with-profit funds less the realistic reserves
for non-profit policies written into the non-profit fund, less asset shares
aggregated across the with-profit policies and any additional amounts
expected at the valuation date to be paid to in-force policyholders in the
future in respect of smoothing costs and guarantees
Master Trust
A master trust is a defined contribution workplace pension scheme that
is established under a trust. A master trust seeks to provide a workplace
pension that can be used by several non-associated employers, as
opposed to traditional schemes that are set up to provide a workplace
pension for a single employer. Master trusts are supervised and authorised
by the Pensions Regulator
Inter-governmental Panel on Climate Change (‘IPCC’)
The United Nations body created to provide policymakers with regular
scientific assessments on climate change, its implications and potential
future risks, as well as to put forward adaptation and mitigation options
Minimum Capital Requirements (‘MCR’)
MCR is the minimum amount of capital that the Group needs to hold to
cover its risks under the Solvency II regulatory framework
Internal Model
The Internal Model is a risk measurement system developed by an insurer
to analyse its overall risk position, to quantify risks and to determine
the economic capital required to meet those risks. Internal models are
a key feature of the Solvency II supervisory system and the Prudential
Regulation Authority (‘PRA’) has authorised certain insurance companies,
upon application, to calculate their solvency capital requirement using
their own internal models as opposed to the prescribed standard formula
IRR
The internal rate of return (IRR) is a metric used in financial analysis
to estimate the profitability of potential investments. IRR is a discount
rate that makes the net present value of all cashflows equal to zero in a
discounted cashflow analysis
LIBOR
London Interbank Offer Rate – The average interbank interest rate at
which a selection of banks on the London money market are prepared
to lend to one another
Life company
A subsidiary providing life and pension products
Longer Lives Index
The Longer Lives Index is the first piece of research by Phoenix Insights,
the Group’s think-tank, and will be launched in 2022. The research will
provide a rich picture of people’s financial readiness for longer lives
across the UK
Long-term Free Cash (‘LTFC’)
A measure of the Group’s long-term cash available for operating costs,
interest, growth and shareholder returns. LTFC is comprised of long-term
cash to emerge from in-force business plus holding company cash less
M&A and transition costs and shareholder debt outstanding
LTIP
Long-Term Incentive Plan – The part of an executive’s remuneration
designed to incentivise long-term value for shareholders through
an award of shares with vesting contingent on employment and the
satisfaction of stretching performance conditions linked to Group
strategy
M&A Advisory Committee
An ad hoc advisory PGH plc Board committee which meets to consider
proposed mergers and acquisitions, including due diligence activities
undertaken by management
Net-zero carbon
A state where no incremental greenhouse gases are added to
the atmosphere, with remaining emissions output being balanced by
the removal of carbon from the atmosphere
Network for Greening the Financial System (‘NGFS’)
A group of central banks, supervisors and observers committed to
sharing best practices, contributing to the development of climate
and environment-related risk management in the financial sector and
mobilising mainstream finance to support the transition towards a
sustainable economy
New business contribution
Represents the increase in Solvency II shareholder Own Funds arising
from new business written in the year (net of associated tax), adjusted
to exclude the associated risk margin and any restrictions recognised in
respect of contract boundaries. It is stated net of ‘Day 1’ acquisition costs
and is calculated as the value of expected cash flows from new business
sold, discounted at the risk free rate
Non-economic assumptions
Assumptions related to future levels of mortality, morbidity, persistency
and expenses
Non-profit fund
The portion of a life fund which is not a with-profit fund, where risks and
rewards of the fund fall wholly to shareholders
Open business
The Group’s business segment where products are actively marketed to
new and existing customers
Operating companies
Refers to the trading companies within Phoenix Group
Operating companies’ cash generation
Operating companies’ cash generation represents cash remitted by the
Group’s operating companies to the holding companies
Operating profit
Operating profit is a non-GAAP measure that is considered a more
representative measurement of performance than IFRS profit or loss after
tax as it is based on expected long-term investment returns
Operations intensity metrics
Metrics based on Scopes 1 and 2 emissions within Phoenix Group’s
occupied premises
Origo
An electronic pensions transfer system
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OTC
Over-the-Counter financial instruments are traded directly between two
parties without a broker or exchange market
Own funds
Basic Own Funds comprise the excess of assets over liabilities valued in
accordance with the Solvency II principles and subordinated liabilities
which qualify to be included in Own Funds under the Solvency II rules.
Eligible Own Funds are the amount of Own Funds that are available to
cover the Solvency Capital Requirements after applying prescribed
tiering limits and transferability restrictions to Basic Own Funds
PRA
Prudential Regulation Authority – The body responsible for the
prudential regulation and supervision of banks, building societies, credit
unions, insurers and major investment firms. The PRA and FCA use a
Memorandum of Understanding to co-ordinate and carry out their
respective responsibilities
Protection policy
A policy which provides benefits payable on certain events. The benefits
may be a single lump sum or a series of payments and may be payable on
death, serious illness or sickness
Own Risk and Solvency Assessment (‘ORSA’)
The processes undertaken to provide a forward looking assessment of the
Group’s risk and capital profile, under normal and stress scenarios, as a
result of its proposed business strategy and Annual Operating Plan
ReAssure
The companies comprising ReAssure Limited, ReAssure Life Limited and
Ark Life Assurance Company dac businesses which were acquired on 22
July 2020
Paris Agreement
A legally binding international treaty on climate change. It was adopted
by 196 parties at COP 21 in Paris on 12 December 2015. Its goal is to
limit global warming to well below 2, preferably to 1.5 degrees celsius,
compared to pre-industrial levels
Parker review and guidance
An independent review which considered how to improve the ethnic and
cultural diversity of UK boards to better reflect their employee base and
the communities they serve. The Parker guidance sets out objectives and
timescales to encourage greater diversity, and provides practical tools to
help business leaders to address the issue. Each FTSE 100 Board should
have at least one “director of colour” by 2021
Partial internal model
The model used to calculate the Group Solvency Capital Requirement
pursuant to Solvency II. It aggregates outputs from the harmonised
internal model and the standard formula with no diversification between
the two
Part VII transfer
The transfer of insurance policies under Part VII of Financial Services
and Markets Act 2000. The insurers involved can be in the same
corporate group or in different groups. Transfers require the consent
of the High Court, which will consider the views of the PRA and FCA
and of an Independent Expert
Participating business
See with-profit fund
PCAF
The Partnership for Carbon Accounting (‘PCAF’) is a global partnership
of financial institutions that work together to develop and implement a
harmonised approach to assess and disclose the greenhouse gas (GHG)
emissions associated with their loans and investments
Peripheral eurozone
Refers to Portugal, Ireland, Italy, Greece and Spain
Physical risks
Risks related to the physical impacts of climate change which can either
be acute or chronic. Acute physical risks refer to those that are event-
driven, including increased severity of extreme weather events, such as
cyclones, hurricanes or floods. Chronic physical risks refer to longer-term
shifts in climate patterns (e.g., sustained higher temperatures) that may
cause sea level rise or chronic heatwaves
Representative Concentration Pathway (‘RCP’)
A GHG concentration trajectory adopted by the IPCC. The pathways
(RCP2.6, RCP4.5, RCP6, and RCP8.5) describe different climate futures,
all of which are considered possible depending on the volume of GHGs
emitted in the years to come. RCP 2.6 is a very stringent pathway.
According to the IPCC, RCP 2.6 requires that carbon dioxide emissions
start declining by 2020 and go to zero by 2100. In RCP 8.5, emissions
continue to rise throughout the 21st century. It is generally taken as the
basis for worst-case climate change scenario
SBT Science Based Targets
An emissions reduction target is defined as ‘science-based’ if it is
developed in line with the scale of reductions required to keep global
warming below 2C from pre-industrial levels, under recommendations by
the SBT Institute (‘SBTi’).
Scope 1, 2 and 3 emissions
Greenhouse gas emissions are categorised into three groups or ‘Scopes’.
Scope 1 covers direct emissions e.g. use of natural gas, company car
vehicle emissions. Scope 2 covers indirect emissions from the generation
of purchased electricity, steam and heating. Scope 3 includes 15 other
categories of indirect emissions in a company’s value chain e.g. business
travel and investments
Shareholder capital coverage ratio
Represents total Eligible Own Funds divided by the Solvency Capital
Requirements (‘SCR’), adjusted to a shareholder view through the
exclusion of amounts relating to those ring-fenced with-profit funds and
Group pension schemes whose Own Funds exceed their SCR
Solvency II
A regime for the prudential regulation of European insurance companies
that came into force on 1 January 2016
Solvency II surplus
The excess of Eligible Own Funds over the Solvency Capital Requirement
Solvency Capital Requirements (’SCR’)
SCR relates to the risks and obligations to which the Group is exposed, and
is calibrated so that the likelihood of a loss exceeding the SCR is less than
0.5% over one year. This ensures that capital is sufficient to withstand a
broadly ’1-in-200-year event’
Phoenix Group Holdings plc Annual Report and Accounts 2021
327
Additional information Glossary continued
SONIA
Sterling overnight interest average – The average of the interest rates that
banks pay to borrow sterling overnight from other financial institutions
and other institutional investors, administered by the Bank of England
2018 UK Corporate Governance Code
Standards of good corporate governance practice in the UK relating
to issues such as board composition and development, remuneration,
accountability, audit and relations with shareholders published by the
Financial Reporting Council
UKCPT
A property investment company which is domiciled in Guernsey and
listed on the London Stock Exchange
UK Endorsement Board (‘UKEB’)
The UKEB was established following the UK’s exit from the EU. The
board’s purpose is to endorse and adopt new and amended international
accounting standards issued by the IASB for use by UK Companies and
has responsibility for influencing the development of those standards
Unit-linked policy
A policy where the benefits are determined by the investment
performance of the underlying assets in the unit-linked fund
With-profit fund
A fund where policyholders are entitled to a share of the profits of the
fund. Normally, policyholders receive their share of the profits through
bonuses. Also known as a participating fund as policyholders have a
participating interest in the with-profit fund and any declared bonuses.
Generally, policyholder and shareholder participations in the with-profit
fund in the UK are split 90:10
Women in Finance Charter
A charter setting out a commitment by HM Treasury and signatory firms
to work together to build a more balanced and fair industry. The Charter
reflects the government’s aspiration to see gender balance at all levels
across financial services firms
Standard formula
A set of calculations prescribed by the Solvency II regulations for
generating the SCR
Standard Life Assurance businesses
Standard Life Assurance Limited, Standard Life Pensions Fund Limited,
Standard Life International Designated Activity Company, Vebnet
(Holdings) Limited, Vebnet Limited, Standard Life Lifetime Mortgages
Limited, Standard Life Assets and Employee Services Limited and
Standard Life Investment Funds Limited (together known as the Standard
Life Assurance businesses) acquired by the Group on 31 August 2018
Stewardship Code
The Financial Reporting Council (‘FRC’) sets the UK Stewardship Code
which sets high stewardship standards for those investing money on
behalf of UK savers and pensioners, and those that support them
Streamlined Energy and Carbon Reporting (SECR)
Reporting of emissions sources required under the Companies (Directors’
Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018
TCS BaNCS
TCS BaNCS is a state of the art Life and Pensions administration platform
operated by Tata Consultancy Services (‘TCS’)
TCFD
The Task Force on Climate-Related Financial Disclosures (‘TCFD’) was
created in 2015 by the Financial Stability Board (‘FSB’) to develop
consistent climate-related financial risk disclosures for use by companies
in providing information to stakeholders
Tier 1 Notes
The £500 million fixed rate reset perpetual restricted Tier 1 write down
Notes issued by Phoenix
Transitional measures on technical provisions
Transitional Measures on Technical Provisions (’TMTP’) is an allowance,
subject to the PRA’s approval, to apply a transitional deduction to
technical provisions. The transitional deduction corresponds to the
difference between net technical provisions calculated in accordance
with Solvency II principles and net technical provisions calculated in
accordance with the previous regime and is expected to decrease linearly
over a period of 16 years starting from 1 January 2016 to 1 January 2032.
TMTP is subject to a mandatory recalculation every two years or on the
occurrence of certain defined events
Transition risks
Climate-related risks associated with the transition to a low-carbon
economy. They include risks related to policy and legal actions, market
and economic responses, technology changes and reputational
considerations
TSR
Total Shareholder Return – The total return, over a fixed period, to an
investor in terms of share price growth and dividends (assuming that
dividends paid are re-invested, on the ex-dividend date, in acquiring
further shares)
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Online resources
Online resources
Reducing our environmental impact
In line with our Corporate Responsibility programme, and as part of our desire to reduce our environmental impact, you can view
key information on our website.
Go online
www.thephoenixgroup.com
Investor relations
Our Investor Relations section includes information such as our most recent news and announcements, results presentations, annual
and interim reports, share-price performance, AGM and EGM information, UK Regulatory Returns and contact information.
Go online
www.thephoenixgroup.com/investor-relations
News and updates
To stay up-to-date with Phoenix Group news and other changes to our site’s content, you can sign up for e-mail alerts, which will notify
you when content is added.
Go online
www.thephoenixgroup.com/site-services/e-mail-alerts.aspx
Phoenix Group Holdings plc Annual Report and Accounts 2021
329
Additional information Forward-looking statements
Forward-looking statements
The 2021 Annual Report and Accounts contains, and the Group may make other statements (verbal or otherwise) containing, forward-
looking statements and other financial and/or statistical data about the Group’s current plans, goals and expectations relating to future
financial condition, performance, results, strategy and/or objectives.
Statements containing the words: ‘believes’, ‘intends’, ‘will’, ’may’, ‘should’, ‘expects’, ‘plans’, ‘aims’, ‘seeks’, ‘targets’, ’continues’ and
‘anticipates’ or other words of similar meaning are forward looking. Such forward-looking statements and other financial and/or
statistical data involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group’s
control. For example, certain insurance risk disclosures are dependent on the Group’s choices about assumptions and models, which
by their nature are estimates.
As such, actual future gains and losses could differ materially from those that the Group has estimated. Other factors which could
cause actual results to differ materially from those estimated by forward-looking statements include, but are not limited to:
• domestic and global economic, social, environmental and business conditions;
• asset prices;
• market-related risks such as fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate
environment, and the performance of financial markets generally;
• the policies and actions of governmental and/or regulatory authorities, including, for example, initiatives related to the financial crisis,
the COVID-19 pandemic, climate change and the effect of the UK’s version of the ‘Solvency II’ requirements on the Group’s capital
maintenance requirements;
• the political, legal, social and economic effects of the COVID-19 pandemic and the UK’s exit from the European Union;
• the impact of inflation and deflation;
•
• the development of standards and interpretations including evolving practices in ESG and climate reporting with regard to the
information technology or data security breaches (including the Group being subject to cyberattacks);
interpretation and application of accounting;
lack of transparency and comparability of climate-related forward-looking methodologies;
• the limitation of climate scenario analysis and the models that analyse them;
•
• climate change and a transition to a low-carbon economy (including the risk that the Group may not achieve its targets);
• market competition;
• changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends,
gender pricing and lapse rates);
• the timing, impact and other uncertainties of proposed or future acquisitions, disposals or combinations within relevant industries;
• risks associated with arrangements with third parties;
•
• the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions
inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and
in which members of the Group operate.
As a result, the Group’s actual future financial condition, performance and results may differ materially from the plans, goals and
expectations set out in the forward-looking statements and other financial and/or statistical data within the 2021 Annual Report
and Accounts. No representation is made that any of these statements will come to pass or that any future results will be achieved.
As a result, you are cautioned not to place undue reliance on such forward-looking statements contained in this 2021 Annual Report
and Accounts.
The Group undertakes no obligation to update any of the forward-looking statements or data contained within the 2021 Annual Report
and Accounts or any other forward-looking statements or data it may make or publish.
The 2021 Annual Report and Accounts has been prepared for the members of the Company and no one else. The Company, its
Directors or agents do not accept or assume responsibility to any other person in connection with this document and any such
responsibility or liability is expressly disclaimed. Nothing in the 2021 Annual Report and Accounts is or should be construed as
a profit forecast or estimate.
Caution about climate and ESG related disclosures
Climate and ESG disclosures in the 2021 Annual Report and Accounts use a greater number and level of judgements, assumptions
and estimates, including with respect to the classification of climate-related activities, than the Group's reporting of historical financial
information. These judgements, assumptions and estimates are highly likely to change over time, and, when coupled with the longer
time frames used in these disclosures, make any assessment of materiality inherently uncertain. In addition, the Group's climate risk
analysis and net zero transition planning will continue to evolve and the data underlying the Group's analysis and strategy remain subject
to change over time. As a result, the Group expects that certain climate and ESG disclosures made in the 2021 Annual Report and
Accounts are likely to be amended, updated, recalculated or restated in the future.
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Phoenix Group Holdings plc Annual Report and Accounts 2021
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Registered address
Phoenix Group Holdings plc
20 Old Bailey
London
England EC4M 7AN
Registered Number
11606773
thephoenixgroup.com