Annual Report and
Accounts 2022
Phoenix Group Holdings plc
We are proud to be the UK’s largest long-term
savings and retirement business. With
approximately £260 billion of assets under
administration, we offer our c.12 million
customers a comprehensive range of products
across our market-leading pensions, savings
and life insurance brands. Together, we’re
helping people secure a life of possibilities.
Our 2022 reporting suite
You can find out more about our activities, financial performance,
sustainability strategy and our progress to becoming a net-zero
business by 2050 on our website and in our reporting suite.
Topics covered
Annual Report
Sustainability Report
Climate Report
Business strategy & performance
Risk management
Board governance
Financial performance
Sustainability strategy
Sustainability governance
ESG materiality
Social issues
Climate-related risks
Climate-related opportunities
Access the full reporting suite at thephoenixgroup.com
Find out more on
our website
In this report
Strategic report
About Phoenix Group
Our investment case
Chair’s statement
Group Chief Executive Officer’s report
Our business model
Our strategic priorities and KPIs
Business review
Stakeholder engagement
Non-financial information statement
Streamlined Energy and Carbon
Reporting (‘SECR’) statement
Task Force on Climate-Related Financial Disclosures
Risk management
Viability statement
Corporate governance
Chair’s introduction to governance
Board leadership and Company purpose
Division of responsibilities
Stakeholder engagement
Composition, succession and evaluation
Audit, risk and internal controls
Sustainability governance
Workforce engagement
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
4
6
8
10
14
18
28
42
44
46
48
52
68
72
74
82
84
88
96
105
108
110
147
153
156
168
175
290
293
307
312
314
318
320
325
326
Performance
Key
performance
indicators
Operating companies’
cash generation
£1,504m
(2021: £1,717m)
REM APM
Other
performance
indicators
Total ordinary dividend
per share
50.8p
(2021: 48.9p)
Group Solvency II surplus
(estimated)
£4.4bn
(2021: £5.3bn)
REM
Adjusted operating profit
£1,245m
(2021: £1,230m)
APM
Group Solvency II shareholder
capital coverage ratio (estimated)
IFRS loss after tax
189%
(2021: 180%)
REM APM
£(1,762)m
(2021: £(709)m)
Incremental new business
long-term cash generation
£1,233m
(2021: £1,184m)
REM APM
Fitch financial leverage ratio
30%
(2021: 28%)
REM APM
All amounts throughout the report
marked with REM are KPIs linked to
Executive remuneration. See Directors’
remuneration report on page 110.
All amounts throughout the report
marked with APM are alternative
performance measures. Read more
on page 314.
Assets under administration
£259bn
(2021: £310bn)
APM
The Strategic report was approved by the Board of Directors
on 10 March 2023 and signed on its behalf by
Andy Briggs
Group Chief Executive Officer
Phoenix Group Holdings plc Annual Report and Accounts 2022
1
Strategic report
Strategic
report
About Phoenix Group
Our investment case
Chair’s statement
Group Chief Executive Officer’s report
Our business model
Our strategic priorities and KPIs
Business review
Stakeholder engagement
Non-financial information statement
Streamlined Energy and Carbon
Reporting (‘SECR’) statement
Task Force on Climate-Related Financial Disclosures
Risk management
Viability statement
4
6
8
10
14
18
28
42
44
46
48
52
68
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
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Strategic report About Phoenix Group
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 family of brands
£259bn
total assets under
administration
c.6,800
colleagues
as at 1 March 2023
c.12m
customers
FTSE 100
and FTSE All World
c.£6.4bn
market capitalisation
as at 1 March 2023
£12.1bn
of Group in-force long-term
free cash to emerge over time
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.
Our in-force business has
c.12m customers, with scale
businesses across the long-
term savings and retirement
markets
c.£140bn
growth
businesses
c.£25bn
c.£33bn
£259bn
AUA
c.£119bn
c.£82bn
Heritage
Pensions
and savings
Retirement
solutions
Europe
and SunLife
We are the market leader in
the safe and efficient
management of legacy
pensions and savings policies
to deliver better customer
outcomes, and in realising
significant cost and capital
synergies through Heritage
backbook M&A.
We help customers journey
“to and through” retirement. Our
Workplace business supports
people who save through their
workplace pension, and our
Retail business supports
individual customers to save
for, transition to, and earn
income in retirement.
We participate across the
key retirement markets, as
we seek to help customers
secure income certainty in
retirement, including Defined
Benefit pensions (including
Bulk Purchase Annuities),
individual annuities, and
home equity release.
Standard Life International,
which operates in Ireland
and Germany, offers a range
of pensions and savings
products, including
international bonds. SunLife
offers protection solutions and
funeral plans direct to the over
50s market in the UK.
c.5.5m
customers
c.3m
customers
c.1.5m
customers
c.2m
customers
We offer a range of customer solutions across our businesses
Long-term savings
Retirement
Legacy
pensions
and savings
products
Defined
contribution
workplace
pensions
Retail
savings for
retirement
Pension
consolidation
Income
drawdown
and individual
annuities
Home
equity
release
Defined
Benefit
pensions
Protection
solutions
and funeral
plans
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Phoenix Group Holdings plc Annual Report and Accounts 2022
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Strategic report Our investment case
How we generate shareholder value
We have a clear and differentiated strategy: we are growing
our in-force business both organically and through M&A…
...to deliver on our
financial framework...
…which underpins our
sustainable dividend approach
Organic growth
M&A growth
Fee-based
businesses
• Workplace
• Retail
• Other
Retirement
solutions
• DB Solutions
• Retirement
Income
Backbook
M&A
• Cost and
capital
synergies
Capability
M&A
• Accelerates
capability
build
Reinvest
surplus
cash
Further
in-force
Further
in-force
Reinvest
surplus
cash
In-force business
Our in-force business provides
three competitive advantages
Capital
efficiency
Customer
access
Cost
efficiency
Phoenix Group’s
dividend policy
The Board intends to pay
a dividend that is sustainable
and grows over time
Our strong dividend track record
+4% CAGR
45.2p 46.0p 46.8p 47.5p 48.9p
50.8p
40.8p 40.8p 40.8p 41.9p
36.5p
32.2p
H2: 26.0p
+5%
H1: 24.8p
2011
2012
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Dividend per share
Cash
In-force business
covers our dividend
over the very long term
Resilience
Highly resilient
capital position
Growth
Growing organically
and through M&A
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
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Strategic report Chair’s statement
A truly purpose-led
business
“Phoenix is fully embracing its purpose
as we help more people on their journey
to and through retirement, while delivering
better outcomes for all of our stakeholders.”
Alastair Barbour, Chair
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video from
our Chair
I am delighted to report that 2022 has
been another year in which Phoenix Group
has delivered both clear strategic progress
and strong financial performance.
During the year, Phoenix Group has once
again continued to produce the high levels
of predictable cash generation it has
always been known for and maintained
its resilient balance sheet despite the
economic turbulence. The Group has also
delivered strong organic growth through
our Standard Life branded businesses and
M&A growth with the announcement of
our first ever cash-funded acquisition of
SLF of Canada UK Limited (‘Sun Life of
Canada UK’). All of which has enabled the
Board to recommend a dividend increase
of 5% for 2022.
At the Group’s Capital Markets Event in
December 2022 the executive team
detailed their clear strategy to meet more
of the needs of our existing customers and
to attract new customers, enabling us to
continue delivering cash, resilience and
growth going forward. The Group also set
its first ever organic growth target, which
reflects both the Board and executive
team’s confidence in Phoenix Group’s
future growth prospects, despite the
challenging economic outlook for 2023.
I am proud to see that the journey Phoenix
Group has been on during the ten years I
have served on its Board is delivering such
clear value to our customers, colleagues,
shareholders and wider society, as we fully
embrace our purpose of ‘helping people
secure a life of possibilities’.
Our purpose drives all that we do
As the UK’s largest long-term savings and
retirement business, managing £259 billion
of assets on behalf of our c.12 million
customers, we have the responsibility and
opportunity to make a real difference to
our customers and to help drive a low
carbon, fair and more secure future.
That is why we are fully embedding ESG
considerations across our business. Our
strategic priorities are therefore informed
by, and in support of, the key ESG themes
where we can make the most difference,
to both the planet, and to people.
If we are really going to help people secure
a life of possibilities, we need to play our
part in tackling the climate crisis affecting
our planet. This means managing the
financial risks that climate change poses to
our customers, as well as maximising the
opportunities it creates. We will do this by
transitioning our business to net zero.
And by being a leading voice, in calling
for action, and driving system change.
We have therefore set clear targets for our
journey to net zero across our investment
portfolio, supply chain and operations, and
with an estimated 24 million tonnes of CO2
emissions from our investment portfolio,
we really can make a difference.
We are taking an active approach
to protecting our customers, by
decarbonising our portfolios at scale, and
through stewardship engagement. We also
want to take advantage of the substantial
investment opportunities, that moving to
a green economy presents, such as
renewable energy and sustainable
transport. A great example of which
is the £330m of policyholders assets
we have invested into an innovative
multi-asset ‘climate solutions’ mandate.
I am also delighted with the progress we
are making to decarbonise our supply
chain and operations, with 82% of our
suppliers committed to science-based
or Race to Zero based targets, and an
80% reduction in the emissions intensity
of our own operations since 2019.
Our second key theme is focused on
people, through promoting financial
wellness and the role of good work and
skills. We are facing a growing pension
savings gap, with research from our think
tank, Phoenix Insights, revealing that only
14% of defined contribution pension
savers are on track for a retirement income
that maintains their current standard of
living. Engaging people in their financial
futures, and advocating for broader
societal action to tackle under-saving,
is a critical part of our commitment to
our purpose. Phoenix is supporting better
financial futures by meeting more of our
customers’ evolving needs on their journey
to and through retirement, through our
range of innovative products and services.
However, for people to have better, longer
lives they also need access to good work
and opportunities to upskill throughout
their careers, increasing their incomes and
ability to save for retirement. Phoenix
Insights advocates for change in working
practices, careers advice and lifelong
learning, as explained in more detail
on pages 24–25. And as an employer,
Phoenix is committed to being an exemplar
inclusive, age-friendly workplace.
Supporting our colleagues
We also have a broader role to play in
society and against the backdrop of
economic uncertainty, a key issue over
the past year has been the Cost of Living
Crisis. The Board has therefore been
focused on ensuring our colleagues are
supported throughout. Central to this has
been a wide-ranging support package to
help colleagues navigate the cost of living
challenges, which included giving all
colleagues, except our most senior staff,
a net £1,000 payment in August 2022.
Shareholder dividend increase
The Group has a clear dividend policy
which is to pay a dividend that is
sustainable and grows over time, with the
Board prioritising the Group’s long-term
dividend sustainability at all times.
I am delighted to announce that the Board
is recommending a 5% increase in the
Group’s 2022 Final dividend to 26.0
pence per share, meaning the Group’s
Total dividend for 2022 will be 50.8 pence
per share. This reflects the Group’s strong
performance across a range of strategic
and financial performance measures. It
comprises a 2.5% organic dividend
increase, and a 2.5% inorganic increase,
reflecting the value from the acquisition of
Sun Life of Canada UK.
Going forward, we expect the business to
continue growing organically and we also
remain committed to M&A. This in turn is
expected to support a dividend that is
sustainable and grows over time.
Board changes
I am delighted to be fulfilling the role
of Chair while Nicholas Lyons is on a
14-month sabbatical, which is enabling him
to undertake the role of Lord Mayor of the
City of London. Nicholas has resigned
from the Board on a temporary basis for his
sabbatical, but remains in contact with
myself and our CEO, Andy Briggs, so that
he can seamlessly resume his role as Chair
from November 2023. In line with good
corporate governance as it relates to the
independence of Non-Executive Directors,
having served ten years on the Phoenix
Group Board, I will sadly be leaving the
Board when Nicholas returns in November.
Elsewhere, during 2022 the Board was
delighted to welcome Katie Murray as an
independent Non-Executive Director and
Chair of the Board Audit Committee, and
The success of our
“Let’s Get Ready” campaign
We’re living longer than our parents and grandparents’ generations,
which presents huge opportunities for us all. To make the most of these
opportunities, we need to think differently about how we work, learn,
save and care for our families, and retire.
We need to reshape the systems that support and enable people to live
better, longer lives. As the UK’s largest long-term savings and retirement
business, we believe we have a critical role to play in helping to achieve this
and are committed to advocating on behalf of our customers to deliver it.
That is why we launched a multi-media campaign during 2022 on
stereotypes and perceptions of retirement to kickstart a national
conversation on retirement and the impact of people living longer
lives, with positive feedback across a variety of stakeholders.
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to watch the
video
Maggie Semple as an independent
Non-Executive Director and the Group’s
Designated Non-Executive Director for
Workforce Engagement. Katie and Maggie
have brought a diversity of experience and
new perspectives, and both are already
making valuable contributions. We also
wished Wendy Mayall a fond farewell, as
she retired from the Board in 2022, after
diligently serving two three year terms and
supporting us in navigating a number of
key strategic initiatives during her time.
economic volatility. While our strategy will
support us in delivering future growth, as
we meet more of the needs of our existing
customers and acquire new customers.
Thank you
Finally, I would like to take the opportunity
to thank the Board, our colleagues, our
partners and all of our wider stakeholders
for their hard work and dedication in
delivering what has been another
successful year for Phoenix Group.
Outlook
As we enter a challenging economic
environment in 2023, the Board and I are
confident that Phoenix’s business model
and risk management approach will ensure
that we remain highly resilient to any
Alastair Barbour
Phoenix Group Chair
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
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Strategic report Group Chief Executive Officer’s report
Phoenix is delivering
sustainable growth
“2022 has seen us execute against all of our
strategic priorities as we delivered both
organic and M&A growth, which demonstrates
that Phoenix is truly a growing business.”
Andy Briggs, Group Chief Executive Officer
Scan the code
to watch the
video from our
Group CEO
2022 has been a strong year of delivery for
Phoenix Group, despite the challenging
economic environment. As we have made
significant progress against our strategic
priorities during the year by continuing to
embrace our purpose. This has supported
us in delivering a strong set of financial
results, in line with our financial framework
of Cash, Resilience and Growth.
Delivering Cash, Resilience and Growth
supports an increased dividend
During 2022, our in-force business
delivered cash generation of £1.5 billion,
exceeding our 2021 target range of
£1.3-to-£1.4 billion. Our resilient Solvency II
(‘SII’) capital position was maintained with a
SII Surplus of £4.4 billion (2021: £5.3 billion)
and an increased Shareholder Capital
Coverage Ratio (‘SCCR’) of 189% (2021:
180%), which is currently above our target
range of 140–180%, providing capacity
for us to invest into growth.
I am delighted we have delivered a second
consecutive year of organic growth with
record incremental new business long-
term cash generation of £1,233 million
(2021: £1,184 million). This means that we
have once again more than offset the
run-off of our in-force business and firmly
established Phoenix as a business that is
growing and sustainable. We are now
confident of growing our incremental new
business long-term cash generation going
forward and have set a target of c.£1.5
billion per annum by 2025, which is the
first organic growth target we have ever
set, which is a clear signal of our ambition.
We have also delivered M&A growth in
2022, with the announcement of our cash
funded acquisition of Sun Life of Canada
UK. This is expected to complete in April
2023, with the key regulatory approvals
now received. The significant value that
will be generated by this transaction has
enabled the Board to recommend a 2.5%
inorganic dividend increase this year,
which demonstrates the significant value to
shareholders of smaller, cash funded M&A.
As a result of our strong overall
performance, I am pleased that the Board
is recommending a dividend increase of
5%, in line with our dividend policy.
This reflects the Board’s determination
to reward our shareholders when our
business performs well.
The sustainability of this increased level of
dividend is underpinned by the £0.3 billion
increase in our Group in-force long-term
free cash to £12.1 billion (2021: £11.8 billion).
This is the cash that will emerge from our
in-force business and will be available to
our shareholders over time. It ensures our
increased level of dividend remains just
as sustainable over the very long term.
In terms of our IFRS reporting, we have
reported an increased adjusted operating
profit of £1,245m for the year (2021:
£1,230m), but the impact of our hedging
approach results in an IFRS loss after tax of
£(1,762)m (2021: £(709)m). As a reminder,
we hedge our Solvency balance sheet
with the aim of delivering resilient cash
generation over the long term, but this
does create IFRS accounting volatility.
This impact has been accentuated by
the significant increase in yields last year,
driving the large accounting loss, but this
does not impact our cash generation or
dividend capacity in any way.
Executing on our clear strategy
Phoenix’s role in society is to help
our customers journey to and
through retirement by meeting their
evolving needs.
Phoenix has a clear and differentiated
strategy as outlined on pages 14–15, which
is in support of our purpose of helping
people secure a life of possibilities.
Our strategy is simple. We are the experts
in optimising a scale in-force business for
cash and resilience, and we grow this both
organically and through M&A.
Our in-force business is the £259 billion
of assets we look after for our c.12 million
existing customers. It is highly cash
generative, and provides surplus cash,
that we can reinvest into growth.
Organic growth comes from meeting more
of our existing customers’ needs as they
save for, transition to, and secure an
income in retirement. We also acquire new
customers, who we can then help through
their life cycles.
In addition, we have attractive M&A growth
opportunities, where we acquire new
customers at scale and deliver better
Significant growth opportunities are available by
meeting more of the evolving needs of our existing
customers and acquiring new customers:
Supporting
corporates to de-risk
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.
c.£1.4 trillion stock
Enabling customers to
save for retirement in
Workplace schemes
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.
c.£0.5 trillion stock
Enabling individuals
to save for, transition
to, and secure
income, in retirement
People are seeking guidance on their
journey to and through retirement, as
responsibility for retirement planning
has now shifted towards individuals.
c.£1.0 trillion stock
Supporting customers
with legacy pensions
and savings products
Pressure on insurance companies to
focus their strategies, free-up capital
trapped in Heritage books, and to deal
with cost inefficient legacy products
and platforms, makes further
consolidation in the UK market likely.
c.£470 billion market
Phoenix response
We are now an established player in
the BPA market reflecting the
investment we have made to build a
comprehensive market proposition.
This is enabled by the strong asset
management and other supporting
capabilities we have built.
£30–60 billion
Market flows per annum
Phoenix response
We have re-established ourselves as a
significant player in the Workplace
market. 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.
£40–50 billion
Market flows per annum
Phoenix response
By engaging our c.12 million customers
to better understand their needs and
delivering the solutions they require,
we have the opportunity to encourage
customers to save with us, consolidate
their pensions with us, and to
decumulate through retirement with us.
£80–100 billion
Market flows per annum
Phoenix response
As the market leader in Heritage M&A
we have the capability and scale to
integrate businesses onto our modern
platform to deliver better outcomes for
customers with legacy products. We
also unlock significant cost and capital
synergies to create shareholder value.
Further M&A
Market activity to continue over time
outcomes for customers with legacy
products. In the process, we transform the
acquired businesses, to deliver significant
cost and capital synergies.
But what’s particularly attractive about our
business model, is that the whole really is
more than the sum of the parts. With our
organic and M&A growth generating more
in-force business, that we then optimise.
We are confident of delivering our strategy
because our scale in-force gives us three
unique competitive advantages.
The first is capital efficiency, where we get
greater diversification from the breadth of
in-force products across our £259 billion of
customer assets. We are also highly
resilient, through our core capabilities in
risk management and capital optimisation.
Secondly, with c.12 million customers we
have an unrivalled level of customer
access, with around 1-in-5 UK adults being
a Phoenix Group customer. This provides
us with deep customer insights and clear
growth opportunities as we look to meet
more of their evolving needs over time.
And thirdly, we have a significant cost
efficiency advantage. This is enabled
through our customer administration and
IT partnership with Tata Consultancy
Services (‘TCS’), and our focus on
delivering a simplified operating model.
Our in-force business therefore gives us
real competitive advantages, that are very
hard to replicate. Which means we are
confident that we can, and will, win in our
chosen markets.
All of which provides us with the
opportunity to drive both organic and
M&A growth through meeting our
customers’ needs, as outlined in the
spotlight box to the left.
Delivering our strategic priorities
Our strategy is delivered on a day-to-day
basis through our three strategic priorities,
which cover the investments and the
programmes of work, that will further
enhance our competitive advantages, and
enable us to help people secure a life of
possibilities. Our progress this year against
each of these priorities is outlined below.
Optimise our in-force business
Our first strategic priority is all about
leveraging our scale in-force business to
deliver capital efficiency and better
returns on our capital, with a strong 2022
performance across our key areas of focus.
Delivering cost and capital synergies,
which we refer to as ‘management actions’,
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
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Strategic report Group Chief Executive Officer’s report continued
remains a core capability of Phoenix.
In 2022, we have once again delivered
a significant level of management actions,
with £739 million of actions achieved.
This was primarily from business-as-usual
management actions, which are not reliant
on cost and capital synergies from M&A
transactions, and are therefore sustainable
over the long term. This included the
ongoing delivery of a range of balance
sheet efficiencies, which remains a
differentiating capability for us, as well
as further illiquid asset origination and
optimisation of our liquid credit portfolio.
Our comprehensive risk management
framework includes our hedging approach,
which differentiates us from other insurance
companies. We hedge the vast majority of
the market risks we are exposed to including
equities, interest rates, inflation and
currency, to minimise volatility in our capital
position during volatile economic periods.
We also operate a conservative credit
portfolio to manage our exposure to credit
risk. This approach enabled us to limit our SII
surplus economic variance to £(0.4) billion
during a volatile economic environment.
We have also continued to enhance our
asset management capabilities, to support
our growth ambitions and efficiently
oversee the management of our customer
assets, and continued to expand our range
of asset management partners to 21, as we
seek to diversify our portfolio globally.
Last year we also started to integrate
decarbonisation strategies into our listed
equity portfolios and we are now in the
process of designing decarbonising equity
benchmarks for UK and US listed equity
exposures. This will help manage our
customers’ exposure to climate risk and
reduce the carbon intensity of our
investment portfolio.
I am also delighted that the work Phoenix
and our peers have done to influence the
SII reform proposals means the insurance
industry should be better placed to help
accelerate the path to net zero by investing
to develop a low carbon economy.
Grow organically and through M&A
Our second strategic priority is focused on
meeting more of our existing customer
needs and acquiring new customers, with
a significant year of achievements in 2022.
Our Retirement Solutions business had
another strong year. Our focus on
improving our capital efficiency in the Bulk
Purchase Annuity (‘BPA’) business enabled
us to generate a broadly similar amount of
incremental new business long-term cash
generation with less capital invested. This
in turn enabled us to deliver an improved
mid-teens IRR. It was also great to see the
success of our launch of the Standard Life
Home Finance products and the ongoing
development of our open market annuity
product, supporting a launch in 2023.
Investing in a sustainable future is the first
key pillar of our sustainability strategy and
we have continued our investment into
sustainable assets with c.£1 billion invested
to support affordable housing, access to
healthcare, and projects with a positive
environmental or social impact.
I am also delighted that the significant
progress we have made in developing our
Workplace proposition and the investment
we have made into the Standard Life brand
is delivering improved performance. We
achieved net flows of £2.4 billion, as we
retained our existing schemes and saw new
members join our existing schemes. This
supported us in delivering a c.50% annual
increase in new business long-term cash
generation. We also won 76 new schemes
across all parts of the market including
small, medium and large schemes.
Elsewhere, our other fee-based businesses
(Retail, Europe and SunLife) remained
resilient during the year.
We are also growing through M&A, having
announced our first ever cash-funded
acquisition, of Sun Life of Canada UK for
consideration of £248 million. This
transaction, which is due to complete in
April 2023, is expected to deliver c.£0.5
billion of incremental long-term cash
generation. This transaction also benefits
from a simplified operational integration
programme, as the majority of their policy
administration is already being outsourced
to our strategic partner (TCS Diligenta).
Engaging people in better financial
futures is the second key pillar of our
sustainability strategy and we have
continued to make great progress here.
In 2022, we transitioned c.1.5 million
customers and c.£15 billion of assets from
our existing default funds to our flagship
Sustainable Multi-Asset default fund, as
we seek to support our customers in
investing their pension assets sustainably.
We also continued to use our influence on
behalf of our customers and colleagues. As
the UK Government’s Business Champion
for Ageing Society, I am passionate about
encouraging older workers to stay in work
or come back to work. Good examples of
Phoenix leading in this area were our
high-profile initiative to make our job
adverts age neutral and the Phoenix
Capital Markets Event: delivering sustainable organic growth
At the event, Phoenix announced its first ever organic growth target of c.£1.5 billion p.a. of incremental new business long-term
cash generation by 2025, comprising c.£1.0 billion from Retirement Solutions and c.£0.5 billion from Pensions & Savings.
In Retirement Solutions, our strategy is to deliver a market-leading customer proposition and to optimise our capital to drive
strong returns for our shareholders. We will remain disciplined in allocating
c.£300 million p.a. of capital into BPA, which will support us in meeting the
growing demand for BPAs from corporates.
In Pensions and Savings, our strategy is to deliver market-leading, comprehensive
and convenient propositions across our Workplace and Retail businesses,
which leverage the Standard Life brand. This will support us in delivering annual
net fund flows of c.£5 billion in Workplace and c.£2 billion in Retail, by 2025.
Scan the code to
watch the Capital
Markets Event
presentation
replay
Leveraging the
Standard Life brand
A key part of our growth strategy is leveraging the power
of the Standard Life brand that we acquired in 2021.
We now utilise the brand across the majority of our
growth businesses, including our Retirement Solutions,
Pensions & Savings and European businesses.
The Standard Life brand has a deep history and heritage,
and is well known and trusted by both advisers and
customers. It has been a key factor in supporting our
strong organic growth over the past few years and will
support us in our future growth ambitions. We are
committed to investing into the brand to support us in
delivering on our future ambitions and growth targets.
Insights ‘The Great Retirement’ report
which identified some of the key factors
driving rising levels of economic inactivity
among the over 50s in the UK.
Enhance our operating model
and culture
Our third strategic priority is focused
on delivering leading cost efficiency and
a modern organisation.
We continued to make great progress with
our integration work, with the migration of
c.400,000 Standard Life annuities to the
TCS BaNCS platform and we transferred
the custody and fund accounting services
for £90 billion of assets to HSBC.
We have also recently announced the
extension of our partnership with TCS, as
we plan to move all c.3 million ReAssure
policies from our Alpha platform to the
TCS BaNCS platform by 2026. This will
enable our customers to benefit from the
clear digital focus, consistent customer
journeys and proposition provided by the
BaNCS platform. It is also fully aligned with
our model of enhancing long-term cost
efficiency, with a further c.£180 million
of ReAssure net cost synergies expected.
As ever, we remain focused on attracting,
developing and retaining the best talent to
drive our business forward. With a range
of initiatives in the year that has supported
an increase in our colleague engagement
eNPS score to +30 (2021: +23). It is also
pleasing to see that we have balanced
female representation on our Group Board
and Executive Committee, in line with our
diversity and inclusion goals.
Leading as a responsible business is the
third key pillar of our sustainability strategy.
Here we are committed to adopting the
highest sustainability standards across our
business and will lead by example for the
stakeholders we engage with to drive real
world change and deliver positive impact
We are committed to being net zero in our
own operations by 2025, which we remain
on track to achieve, with an 80% reduction
in emissions intensity across our own
operations since 2019.
We are also leading the industry with our
approach to our supply chain, where we
have set our pathway to decarbonisation
and launched stretching new ESG supply
chain standards for our partners.
Outlook
Looking forward, it is clear that 2023 will
present a challenging economic backdrop.
However, our business model is designed
to be resilient throughout the economic
cycle. Our comprehensive hedging
approach is designed to protect our
Solvency capital position from the majority
of the market risks we are exposed, while
the key areas of structural market growth
we are focused on remain attractive.
In particular, we expect to see a strong year
of volumes in the BPA market during 2023,
with the recent yields increase having
improved the funding positions of many
schemes, driving increased demand.
Workplace is also a very resilient business
during an economic downturn, with
pension contributions being deducted
direct from salaries by employers, leading
to stable flows through economic cycles.
Finally, there remains c.£470 billion of
UK Heritage assets that we believe
could come to market over time and we
expect further opportunities for M&A
consolidation due to the impact of cost
inflation on backbook portfolios.
All of which means we expect to see
continued organic and M&A growth, to
support us in delivering Cash, Resilience
and Growth, enabling us to pay a dividend
that is sustainable and grows over time.
We are confident in our future growth as
demonstrated by setting our first ever
organic growth target of c.£1.5 billion of
incremental new business long-term cash
generation by 2025.
Thank you
The progress we have made this year is
all down to our exceptional people and
I would like to thank my colleagues
throughout the Group for their continued
contribution and dedication in 2022.
Andy Briggs
Group Chief Executive Officer
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Phoenix Group Holdings plc Annual Report and Accounts 2022
13
Strategic report Our business model
Building a growing, sustainable business
Find out about our
strategic priorities on
pages 18–27
Our strategy drives growth by meeting more of the evolving needs
of our existing customers and through acquiring new customers
Our scale in-force business provides us with three competitive
advantages which enable us to deliver our strategic priorities
Saving for retirement
Transitioning to retirement
Securing income in retirement
h
t
l
a
e
W
Retail savings
for retirement
Defined contribution
workplace pensions
Legacy
pensions
and savings
products
Pension
consolidation
Guidance and advice
Financial wellness
Income drawdown and
individual annuities
Defined benefit
pension income
Home
equity
release
Lifetime
Significant growth opportunities from supporting customers at every stage of their lifecycle
Organic growth
Meet more of our existing customers’
needs and acquire new customers
by helping them to:
• Save for retirement
• Transition to retirement
• Secure income in retirement
M&A growth
We will undertake M&A to:
• Acquire new customers and
transform businesses to deliver
cost and capital synergies
• Accelerate our capability build
Reinvest
surplus
cash
Further
in-force
Further
in-force
Reinvest
surplus
cash
In-force business
Supporting our existing in-force customers’ journey to and through retirement
c.12m
existing in-force
customers
£259bn
customer assets
under administration
£12.1bn
of Group in-force
long-term free cash
to emerge over time
1
2
3
Capital efficiency
• Diversification of risk
• Highly resilient
• Single internal capital model
As a genuinely diversified long-term
savings and retirement business, we
get greater diversification from our
breadth of in-force products. Our
capital position is also highly resilient,
through our core capabilities in risk
management, and capital optimisation,
underpinned by a single internal model.
Customer access
• c.12 million existing customers
• Deep customer insight
• Excellent customer service
With c.12 million customers, we have an
unrivalled level of customer access, with
around 1-in-5 UK adults being a Phoenix
Group customer. This give us deep
customer insights that underpin our
developing propositions, enabling us
to better meet their evolving needs on
their journey to and through retirement.
Cost efficiency
• Market leading
administration & IT
• Simple operating model
• Market-leading
operating costs
We have a significant cost efficiency
advantage, which is enabled through
our customer administration and IT
partnership with TCS, and our focus
on delivering a simplified operating
model. This cost efficiency is
demonstrated in the significant cost
per policy savings we are delivering
across our recent acquisitions.
14
Phoenix Group Holdings plc Annual Report and Accounts 2022
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15
Strategic report Our business model continued
How we
generate cash
Organic
surplus
emergence
Any assets which the Life
Companies hold in excess
of overall internal capital
buffers required are
known as free surplus
Management
actions
Cash remitted to
the holding
companies
Cash remitted
from the Life
Companies
Head office
costs
Cash at the holding
company level provides
resources for future
growth and resilience
for the Group
Debt
interest
Dividends
Remaining
cash at
holding
company
level
Opening
free
surplus
Closing
free
surplus
Opening
cash at
holding
company
level
Cash generation within our Life Companies
Cash utilisation at holding company level
Opening free
surplus
Sources of Life Company
cash generation
Uses of holding company
cash generation
Uses of remaining cash –
growth opportunities
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.
What is the cash remitted from the
life companies used for?
Head office costs
Including salaries and other administration costs.
Debt interest
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?
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
We have a disciplined approach to investing capital into BPA
transactions that generate increased long-term cash flows
and we target a mid-teens Internal Rate of Return (‘IRR’).
Investment into our growth capabilities
Investment into our propositions and capabilities that
will support us in growing our business over time.
16
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17
Strategic report Our strategic priorities and KPIs
Optimise our
in-force business
Leveraging our scale in-force business to
deliver capital efficiency and better returns
Phoenix is the market leader in managing
in-force business for cash and ensuring
a resilient capital position, which in turn
underpins our sustainable dividend over
the long term. The Group’s cash generation
stems from the run-off of our 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 comprehensive
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 are
also focused on optimising our capital to
ensure we deliver enhanced returns for
our shareholders.
Sustainability is embedded throughout our
business and across our strategic priorities.
As a result, investing in a sustainable future
is a key part of optimising our in-force
business, as we are seek to invest our
£259bn of customer assets responsibly.
Strong cash generation in 2022
Phoenix delivered strong cash generation
in 2022 of £1,504m (2021: £1,717m), which
exceeded the Group’s 2022 target range
of £1.3bn to £1.4bn. This reflects our
continued focus on optimising our in-force
business to deliver dependable cash.
Group in-force long-term free cash
underpins our dividend sustainability
The Group increased its in-force long-term
free cash by c.£0.3bn during 2022, driven
by our increased new business long-term
cash generation and management actions,
which more than offset our annual uses
of cash. With £12.1bn of Group in-force
long-term free cash available to our
shareholders over time, our increased
dividend is every bit as sustainable over
the very long term.
Maintaining our comprehensive risk
management approach
The Group maintained a resilient Solvency
II surplus of £4.4bn during the year (2021:
£5.3bn). The reduction in the year primarily
reflects the pro-active management of our
leverage with a £450m debt repayment
and our continued investment into growth.
There was also a small impact from the
significant rise in interest rates during the
second half of the year. However, our
hedging approach mitigated the majority
of the impact, with only a c.£0.4bn adverse
economic variance that was in line with our
expectations, despite a >1-in-1,000
economic shock being experienced.
Our increased Solvency II Shareholder
Capital Coverage Ratio (‘SCCR’) of 189%
(2021: 180%) is above our target range
of 140% to 180%, providing capacity
to invest into growth both organically
and through M&A.
Delivering ongoing management actions
We enhance cash generation from our
in-force business by delivering value-
accretive management actions, and in
2022 we delivered total management
actions of £739m. This included £570m
of actions from BAU activities including
the ongoing delivery of balance sheet
efficiencies, further illiquid asset
origination and the optimisation of our
liquid credit portfolio. This demonstrates
the sustainability of BAU management
actions over the long term, in the absence
of further M&A.
We also realised a further £169m of M&A
synergies from the ReAssure acquisition, as
we delivered the integration programme
across the ReAssure Group Functions and
Finance & Actuarial teams, to deliver
further synergies in line with our plan.
Enhancing our differentiated asset
management model
We continued to invest into developing
a leading in-house asset management
function, which sets the Group’s strategic
asset allocation approach and centrally
oversees the performance of our third
party asset managers.
During 2022, our team helped to originate
c.£3.5 billion of illiquid assets, an increase
of 17% compared to 2021 (c.£3.0 billion).
We also maintained a strong illiquidity
premium (the spread over corporate
bonds) of c.70bps on private debt, despite
the increase in interest rates. This was
enabled by the strong asset management
capability we are building.
Investing in a sustainable future
We are committed to integrating
decarbonisation strategies into both our
listed equity and listed credit portfolios.
We see this as essential to managing the
risk that climate change poses to our
customers and a key step in meeting our
interim 2025 and 2030 decarbonisation
targets on our journey to net-zero.
We have also continued our investment
into sustainable assets within our
shareholder credit portfolio during the
year, with c.£1.0bn invested. This included
£483m into projects with a positive
environmental impact, £228m into
affordable housing, £75m into healthcare/
education, and £207m into social impact
investments and sustainability-linked loans.
We are also investing to scale the required
decarbonisation technology and support
low carbon businesses, such as our recent
£338 million investment into a new multi
asset ‘climate solutions’ mandate.
And we have also implemented a new
stewardship programme to encourage
net zero aligned strategies across the
companies we invest in, with a priority
focus on 25 high emitting companies
that account for c.32% of our total
financed emissions.
Optimise our in-force business – how we measure our delivery
Cash generation
Solvency II surplus
Solvency II Shareholder Capital
Coverage Ratio (‘SCCR’)
Group in-force long-term
free cash
£1,504m
2022 target:
£1.3bn to £1.4bn
£4.4bn
2022 target:
No target
189%
2022 target:
140% to 180%
£12.1bn
2022 target:
No target
2020
2021
2022
£1,713m
£1,717m
£1,504m
2020
2021
2022
£5.3bn
£5.3bn
£4.4bn
2020
2021
2022
164%
180%
189%
2020
2021
2022
N/A
£11.8bn
£12.1bn
Definition
Cash generation represents
cash remitted by the Group’s
operating companies to the
Group holding company in
the current period. Cash
remitted principally 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
surplus cash reinvested into a
range of organic and M&A
growth opportunities.
Future target
• 2023 cash generation of
£1.3bn to £1.4bn.
• Three-year 2023–2025
cash generation of £4.1bn.
Definition
The Solvency II surplus
is calculated as the excess
of eligible Solvency II Own
Funds over the Group’s
Solvency Capital Requirements.
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.
Future target
Maintain a Solvency II surplus
that enables us to operate
within or above our SCCR
target range.
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.
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.
Future target
Maintain a SCCR within or
above our target range of
140% to 180%.
Definition
Group in-force long-term free
cash is the cash available to
shareholders over time. It is
defined as the estimated
lifetime cash generation from
our in-force business, plus
Group cash held in the
HoldCo, less outstanding
shareholder debt, committed
M&A and transition costs, and
interest on debt until maturity.
Why it matters?
Group in-force long-term
free cash is a measure to
demonstrate the sustainability
of our dividend over the
very long term.
Future target
Grow our Group in-force
long-term free cash over time,
to support a dividend that is
sustainable and grows over
time.
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Priorities for 2023
• Continue to deliver value-accretive
management actions.
• Continue to deliver balance sheet resilience through
our comprehensive risk management approach.
• Diversify our asset portfolio into North America
• Publish and implement the Phoenix Group Net Zero
and directly source illiquid assets.
Transition Plan.
18
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Phoenix Group Holdings plc Annual Report and Accounts 2022
19
Strategic report
Our strategic priorities and KPIs continued
Planet: Addressing
climate change and
supporting nature
and bio-diversity
James Wilde, Chief Sustainability Officer
Transitioning our customers to a
Sustainability Multi-Asset Default Fund
The vast majority of our customers keep their money in a default pension
option. In 2022 we transitioned c.1.5m customers and c.£15bn of assets from
our existing default funds to our default Sustainable Multi Asset Universal
Strategic Lifestyle Profile.
We aim to give customers the income they need in retirement and focus on
ESG factors that can positively or negatively affect returns. We have also set
clear targets that aim to:
1. Reduce the carbon intensity (a measure of the carbon emissions of all
companies invested in) by 50% compared to the parent index;
2. Increase green technology revenues by 50% compared to the parent
index; and
3. Enhance ESG scores by 10%–20%.
Our strategy to change members to our
sustainable default solution won ‘ESG
initiative of the year (for corporates)’ at
Environmental Finance’s Sustainable
Investment Awards 2022.
Can you introduce your role and
how Sustainability is embedded
across the company?
My role is to set the direction of our
sustainability strategy and ensure we are
challenging ourselves to drive forward
meaningful action that enables us to
deliver on our purpose. It is incredibly
exciting to be part of Phoenix, with our
scale and ambition, meaning we can truly
make an impact and drive up sustainability
standards across the whole market.
I head up a central sustainability strategy
team and the delivery of our ambitious
programme is carried out across the
business by experts in our functions
embedding our approach business-wide
– from our sustainable investments team
to our sustainable procurement team.
What are the key sustainability
themes that we have the ability
to make the biggest impact on?
Sustainability is now embedded into the
core fabric of our business, and in 2022
we reviewed our areas of focus to ensure
we are directing our attention to the most
material ESG issues that we impact on and
that can impact us. The top environmental
issues for us to take action on are climate
change and nature loss. The most material
social issues are financial wellness and
longevity which together create the need
to tackle the pensions savings gap and
support people to have better financial
futures. These material issues are all clearly
aligned with, and enable us, to deliver on
our purpose of helping people secure a life
of possibilities.
transition presents and ensures continued
stable financial returns.
Through having a focus on the risks and
opportunities related to climate change
and nature loss, we can also make a
difference to our customers as we manage
the risk that they are exposed to by climate
change and nature, while creating a better,
more sustainable future for them.
We have set ourselves a number of
stretching targets to achieve these
aims which are outlined in our 2022
Sustainability Report.
I’m really pleased that our approach
has been recognised by independent
organisations. We have been awarded
the Terra Carta Seal for our commitment
to sustainability and the Tortoise
Responsibility 100 index have placed us
at 12th in the FTSE100 for our approach.
Phoenix manages £259bn of
customer assets – how are you
considering the risks and
opportunities of climate change
and the transition to net zero?
Our core role is to invest and manage
assets on behalf of our customers and
shareholders. In doing so, we must balance
the need for returns with the right level of
risk. Both of those elements – risk and
return – point towards decarbonising our
investments in a way that manages our
customers’ exposure to climate-related risk;
unlocking the financial opportunities the
We have put addressing climate change
at the heart of our investment strategy
and are committed to transitioning our
investment portfolio to net zero by 2050,
as well as hitting ambitious targets to cut
emissions in the next decade.
Our investment portfolio constitutes the
vast majority of our carbon footprint –
around 99% – so we are firmly focusing
on our investments as a priority. We look
at this in three ways: how we decarbonise
our portfolios, active stewardship of our
assets, and investing in climate solutions.
But we can’t do this alone. We need to
accelerate change to transform economies
to combat the climate crisis and so work
with peers and policymakers with the aim
of removing barriers to net zero investment
and defining best practice. We are
an active member of a number of
collaborations and groups including
Climate Action 100+ and the Sustainable
Markets Initiative, and have published
research articles raising awareness of
challenges faced by us and peers and
proposing solutions to overcome these.
It is important we practice what we
preach so we are also very focused on
reducing emissions in our operations
and working with our supply chain.
We have set the goal of being net zero
in our operations by 2025.
Our work has been recognised, with a
move from B to A- for the CDP Climate
Change Questionnaire, putting us in the
“leadership category on climate”.
What progress has Phoenix
made in 2022?
We are committed to integrating
decarbonisation strategies into both our
listed equity and listed credit portfolios.
We see this as essential to managing the
risk that climate change poses to our
customers and a key step in meeting our
interim 2025 and 2030 decarbonisation
targets on our journey to net-zero.
We started this journey in 2022 with the
move of £15bn AUA to our Sustainable
Multi-Asset fund and the development of a
climate transition strategy for liquid credit
assets in our shareholder portfolio (c£13bn
AUA). We expect to expand our scope by
applying customised decarbonising equity
benchmarks to all our equity funds in our
control where this is in the best interest of our
customers, beginning with UK and US-listed
equities. It is critical that all such changes to
listed equity benchmarks are well tested and
managed so that we can continue to protect
customers’ financial outcomes.
During COP15 we also published a nature
statement, confirming our commitment
to act, and we have been piloting the
Taskforce for Nature-related Financial
Disclosures (‘TNFD’) in collaboration with
stakeholders across the industry, with the
aim of producing our first TNFD report.
What should we expect from
Phoenix Group in 2023 in relation
to its Sustainability strategy?
focus to drive our nature investment
opportunities and our activity in our
offices and communities.
Industry wide, we need to move from a
focus on setting targets, to defining clear
plans of action and delivering impact at
scale. We have already defined our net
zero targets, and in 2023 we will be
publishing our first Net Zero Transition
Plan. This will set out our science-based
decarbonisation trajectory consistent with
our interim targets and how we will track
this using a robust framework.
Using a central lens on customer interest,
it will highlight how we will build on the
actions we have taken to date, to deliver
change at the scale and pace required by
the net zero transition both through our
own direct actions and by helping to
inform the system-wide change required
to unlock investment.
We will pull the key levers we have at our
disposal to both drive real economy
change and optimise financial outcomes
for our customers – including stewardship
– and we will work with peers and
policymakers to drive stable policy that
enables us to invest at scale in the sectors
and companies of the future in the best
financial interest of our customers. For
example, we have committed to c.£10bn
of sustainable asset investment between
2022 and 2026.
We are also expanding our work on
nature, setting out our priority areas of
From an investment perspective, we are
continuing to enhance our stewardship
capabilities to hold companies to account,
with defined expectations. In 2023 we are
publishing our first Stewardship Report
with the aim of being a signatory to the
UK Stewardship Code.
I’m looking forward to 2023 and beyond,
and all that we can achieve together.
2023 key targets
• 50–70% of illiquid asset
origination in the shareholder
portfolio to be sustainable and
transition assets
•
Implement decarbonisation for
shareholder liquid credit portfolio
c.£13bn to meet our carbon
reduction targets
• 90% of key suppliers commit to
SBTi or Race to Zero
• Develop our nature strategy
long-term targets.
20
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
21
Strategic report Our strategic priorities and KPIs continued
Grow organically
and through M&A
Meeting more of our existing customers’
needs and acquiring new customers
Phoenix has significant growth
opportunities available, both through
meeting more of the evolving needs of
our existing customers, on their journey to
and through retirement, and by acquiring
new customers, both organically, and
through M&A.
We are also engaging people in their
financial futures, and advocating for
broader societal action to tackle under-
saving, which is a critical part of
our commitment to our purpose.
Record new business growth in 2022
We delivered record new business
long-term cash generation (‘LTCG’) of
£1,233m in 2022 (2021: £1,184m). This
strong performance means the Group
has, once again, more than offset the
run-off of our in-force business and
demonstrates that Phoenix is a growing,
sustainable business.
Developing innovative retirement
income solutions
Retirement Solutions, which includes our
BPA business, was the largest contributor
to our 2022 new business LTCG with
£934m written in 2022. This was broadly
similar to 2021 (£950m), but was achieved
with investing 20% less capital and reflects
our progress in optimising our capital
efficiency in BPA. This enabled us to
deliver an improved mid-teens IRR for the
year. We also continued to develop our
proposition, with the launch of our
Standard Life Home Finance offering, and
development of an open market annuity
product that will be launched in 2023.
Enhancing our Workplace proposition
and developing our Retail channels
Our Pensions and Savings business
comprises our Workplace and Retail
businesses, both of which are capital-light
fee-based businesses that we are looking
to grow over time. In Workplace, the
investment we have made into developing
our proposition and the impact of the
reinvigorated Standard Life brand has
driven a strong year of performance.
Workplace has contributed £212m of new
business LTCG in 2022, up 53% on 2021
(£139m), with positive net fund flows of
£2.4bn in the year, which is an elevenfold
increase on the £0.2bn seen in 2021. This
reflects the strength of our customer
proposition that is enabling us to retain our
existing schemes. Which in turn enables us
to benefit from the natural compounding
growth of the Workplace business model,
with new joiners to existing schemes and
salary inflation increases on contributions.
We are also now consistently winning new
schemes in the market across small,
medium and large-sized schemes, with
76 new schemes won in 2022 covering
c.£2bn of assets (2021: £0.2bn).
In our Retail business, we have now firmly
established our team with our key
leadership hires made and we outlined our
strategy to drive net flows across both the
Retail Direct and Retail intermediated
markets at the Capital Markets Event in
December 2022. The Retail business
remains in net fund outflow at present
(£(1.4)bn), but contributed an increased
new business LTCG of £37m in 2022 (2021:
£29m). As we fully develop our Retail
channels and deliver our strategy this is
expected to grow over the coming years.
Finally, both our European business,
Standard Life International, and SunLife,
continued to deliver for their customers
and contributed LTCG of £29m and £21m
respectively (2021: £31m and £35m).
Executing M&A
We were delighted to announce our first
ever cash funded acquisition, of Sun Life of
Canada UK, for consideration of £248m
during 2022. This transaction, which is
expected to complete in April 2023, adds
c.£10bn of assets under administration and
c.480k policies to Phoenix. It is expected
to deliver c.£0.5bn of incremental
long-term cash generation, which includes
c.£0.1bn of integration synergies, net of
costs. The transaction also benefits from a
simplified operational integration
programme, with the majority of their
policy administration already being
outsourced to our strategic partner TCS
Diligenta. In addition, as part of the
transaction we have agreed a new strategic
asset management partnership with the
Sun Life Financial Inc. Group, which will
support further diversification of our credit
portfolio in North America.
Engaging people in better
financial futures
We are focused on meeting more of our
customers evolving needs on their journey
to and through retirement to support them
in achieving financial wellness.
We offered 1.2 million customers the
chance to review our digital literacy
material: Digital Essentials. Here we
targeted customers of all ages to offer help
to those who need digital assistance and
aid the more digitally savvy who might
want to use these materials to help
someone they know. We also continued
to advocate on behalf of our customers
through the work of our think tank, Phoenix
Insights, with more detail on pages 24–25.
Maintaining strong customer satisfaction
Our focus on delivering better customer
outcomes is reflected in our continued
strong customer satisfaction scores.
Our Combined Group customer
satisfaction telephony score was 92% and
our Standard Life digital journeys score
was 94%, both of which exceeded their
respective targets. This is due to the
investment we are making to deliver a
market-leading customer service offering
and strong product propositions.
Grow organically and through M&A – how we measure delivery
New business long-term
cash generation (‘LTCG’)
Pensions and Savings
net fund flows
Combined Group customer
satisfaction – telephony
Customer satisfaction Standard
Life – digital journeys
£1,233m
2022 target:
>£800m
£1.0bn
2022 target:
No target
92%
2022 target:
90%
94%
2022 target:
92%
2020
2021
2022
£766m
£1,184m
£1,233m
£(1.4)bn
2020
2021
2022
N/A
£1.0bn
2020
2021
2022
N/A
92%
92%
2020
2021
2022
94%
95%
94%
Definition
New business LTCG
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.
Why it matters?
Our strategy seeks to
leverage the significant
growth opportunities from
meeting more of the evolving
needs of our existing
customers across their life
cycle and through acquiring
new customers. This will
enable Phoenix to be a
growing, sustainable business.
Definition
Net fund flows are the gross
inflow less gross outflow
of customers’ assets
across our capital-light
fee-based businesses.
Definition
Customer satisfaction as
reported through a survey
following a telephony call,
where customers can rate
us between 1 and 5.
Definition
Customer satisfaction as
reported through a survey
following an online
interaction, where customers
can rate us between 1 and 5.
Why it matters?
This measure quantifies the
annual level of growth in
customer assets within our
Pensions and Savings
business, with increased
net fund flows driving
increased fee income
from the businesses.
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
Grow our new business
long-term cash generation
from c.£1.2bn in 2022 to
c.£1.5bn per annum by 2025.
Future target
Grow our Pensions and
Savings annual net fund flows
with a target for c.£5bn in
Workplace by 2025 and
c.£2bn in Retail by 2025.
Future target
To deliver a customer
satisfaction score of 88%
or above in 2023.
Future target
To deliver a customer
satisfaction score of 94%
or above in 2023.
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Priorities for 2023
• Grow Retirement Solutions with BPA capital investment of
c.£300m in 2023 and launch an open market annuity.
• Complete the Sun Life of Canada UK acquisition and
assess further M&A opportunities.
• Deliver increased net fund flows in Pensions & Savings to
• Launch an awareness campaign to reach 4m people on
drive our fee-based growth.
longer lives and under-saving
22
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
23
Strategic report
Our strategic priorities and KPIs continued
People: Promoting
financial wellness
and the role of good
work and skills
Catherine Foot, Director of Phoenix Insights
Great Expectations: Are people’s
retirement income expectations adequate
and achievable?
We explored the adequacy and achievability of people’s retirement income
expectations. And we found causes for concern, for different reasons, about most
savers in defined contribution pension schemes.
To bring people on track for their retirement income targets, we explored whether
working longer (to 68) or saving more (12% of salary pension contributions) could be
sufficient, or whether other actions or policies may be needed.
We found that whilst this would bring many more in line with their expectations it mainly
benefits middle and higher earners, and may not be realistic for many. Nearly four in ten
people worry about working for longer because of the impact on their physical health.
We identified that industry and Government must do more to address this mismatch
between expectation and likely reality, including engaging people much more
effectively in their future finances; making working for longer more feasible, attractive
and rewarding; and creating a safety net of support for those unable to work longer
or save more.
Can you introduce yourself and
explain what Phoenix Insights is?
Why is Phoenix Insights interested
in employment and skills?
I’m Catherine Foot, Director of Phoenix
Insights, our in-house longevity think tank
set up to help catalyse the changes
necessary across society to enable
more of us to live better, longer lives.
Why did Phoenix Group choose
to set up Phoenix Insights?
Phoenix Insights is a cornerstone in
our commitment to delivering on our
purpose, of helping people secure
a life of possibilities.
As a country, we need to close the
pensions saving gap, with as many as
18 million UK adults not saving enough
for the retirements they want.
Phoenix Group is uniquely placed to
make a difference here, by innovating for
customers and supporting people to save
and make the most of their retirement
income. But to help many millions more
to be able to save enough for their future,
we also need action in areas like
employment, skills and social security.
Phoenix Insights has been set up to explore
these broader solutions to the under-
saving issue, and to advocate for change.
We use impactful research to drive forward
ideas and greater public engagement
with the need for action, not just from
government, industry or civil society,
but from everyone.
In a major piece of research we published
last year in partnership with Frontier
Economics, we established that only 14%
of defined contribution pension savers
over 25 are currently on track for the
retirement incomes they expect. We also
found that millions of savers simply cannot
afford to save at the sorts of rates that
would bring them on track for a decent
retirement. If we are to tackle the under-
saving issue, it’s therefore critical that we
support people to get and remain in good
quality work and provide more
opportunities for people to upskill, switch
careers, and grow their incomes over their
working lives. You simply can’t improve the
adequacy of retirement incomes for
people without focusing on jobs and skills.
However, we have a situation at the moment
in this country where many people in their
50s and 60s fall out of work before they
are ready to retire, and rates of
participation in adult education and
retraining programmes are much too low.
Part of our work this year is therefore
looking at the actions that government,
employers and others need to take to
enable people to remain in decent
work, return to work when they need
and want to, and get access to
opportunities to re-skill.
What have you learnt from your
research in the first year since
Phoenix Insights was set up?
One of the things we were keen to do in
setting up Phoenix Insights was to ground
our work in real understanding of how
people feel about retirement and living
longer, and what really matters to them.
In partnership with the National Centre
for Social Research and the Policy Institute
at King’s College London, we spent six
months working with people from all walks
of life across the UK to understand their
experiences and attitudes, and work
directly with them to identify the key
actions needed in society to respond to
longer lives. Part of what drives our work
now is these priorities that people
identified for themselves, which is better
access to careers advice, financial advice,
and retraining.
What are the potential solutions
to help solve some of the issues
you have identified?
I think that good information and guidance
for people is absolutely critical. Whether its
our finances and pensions, our careers and
working life, or our wider well-being,
navigating through and actively planning
and preparing for longer lives is not easy.
We need a step change in the accessibility
of good information and guidance about
key decisions during adult life.
We also need to get serious about skills
and adult education in this country. A 40
or 50 year working life in a world of rapid
technological, economic and ecological
change requires us to re-skill and retrain
throughout life.
And we need to make some changes to
our social security safety net. With a state
pension age rising in line with average life
expectancy, we must do more to provide
sufficient state support to those people
who have faced multiple disadvantages
throughout life and who simply cannot
work up until their late sixties.
What can we expect to see from
Phoenix Insights in 2023?
We’ve got a lot of exciting work underway.
We’re working with the Policy Institute at
King’s College London to take a closer look
at the future of the State Pension, using
deliberative work with the public to
explore how this critical element of our
intergenerational social contract can adapt
to the situation we find ourselves in where
healthy life expectancy varies by almost
20 years between the richest and poorest.
In partnership with the Learning and Work
Institute we’ll be setting out the economic
case for investment in lifelong learning and
skills, for individuals, for employers, and
for government, and working with the
International Longevity Centre, Business in
the Community and others to explore how
we can achieve a much-needed radical
increase in adult participation in learning
and retraining in this country.
What is Phoenix Group doing
to help close the pensions
saving gap?
I think Phoenix Group, as the UK’s largest
long-term savings and retirement business,
has a critical role to play in tackling the
pension savings gap, with four key levers
we believe can help to drive real change.
Firstly, we need to raise awareness of the
under-saving issue, which Phoenix Insights
is doing through its ongoing research
programme which is designed to
contribute to the public debate.
Secondly, Phoenix Group is uniquely
placed to help its customers journey
to and through retirement. Here we can
support millions of customers with their
financial wellness throughout their working
lives, engage them in planning for their
future, and ensure they make the most
of their retirement income. We will do this
by developing innovative products and
services, that support their evolving needs.
Which we can distribute through our
well known and trusted consumer brands
such as Standard Life and SunLife.
Thirdly, we need to promote the role of
good work and skills, as to help people
save more, we need to support them to
stay in good work for longer. As an
employer, we can ensure that Phoenix
Group is a fantastic place to work for
people of all ages, and take active steps
to attract, retain and retrain older workers.
For instance, we are working to trial new
ways to support our colleagues to have
career conversations and consider career
switching, advocating for the importance
of increasing access to good quality
flexible and part-time work, and working
with our Behavioural Insights Team on how
holistic advice and support interventions at
mid-life can help people take action on
their finances, work and well-being.
And finally, we need to advocate for and
support societal change for those who
cannot afford to save, or save enough,
We can do this through the work of
Phoenix Insights, and through our work
supporting financial inclusion.
2023 key targets
• Provide access for 1.5 million
Standard Life customers to an
integrated financial wellness
hub, Money Mindset
• All customers supported by
digital literacy hubs.
• Reach 1.5 million customers to
raise awareness about the
impact of their investments.
• 40% of senior leaders will be
women and 13% ethnic
minority representation
in our workforce
24
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
25
Strategic report
Our strategic priorities and KPIs continued
Enhance our operating
model and culture
Delivering leading cost efficiency and a
modern organisation
Enhancing our operating model and
culture are key to our success. We will do
this firstly by completing our planned
migrations, and through driving
simplification to a “single best way of doing
things”. This will support us in maintaining
and enhancing our cost efficiency. We are
also committed to being a leading
responsible business, which attracts and
retains the best talent, through a diverse
and inclusive, high-performance culture.
We are also committed to adopting the
highest sustainability standards across our
business and will lead by example for the
stakeholders we engage with to drive real
world change and deliver positive impact.
Completing our migrations
We have made good progress in delivering
our Customer & IT integration in Standard
Life. For instance, during 2022 we have
successfully migrated c.400k annuity
policies onto the TCS BaNCS platform.
We also transferred c.1,200 colleagues to
TCS Diligenta in February 2023 as we
simplify our operational structure, improve
the customer experience and realise cost
synergies. TCS are also now developing
new capabilities for us that will significantly
enhance our Workplace proposition and
help drive our future Workplace growth.
On the ReAssure integration, we have
completed the Group Functions
integration and are making strong progress
with the integration of the Finance &
Actuarial functions. This helped realise
£331m of further cost and capital
synergies in the year, with total synergies
delivered to date of £1,262m (103%
of our revised target).
We have also recently announced our
decision to transfer all c.3 million ReAssure
policies from our in-house Alpha platform
to the outsourced TCS BaNCS platform
by 2026.
Consolidating all policies onto TCS
BaNCS will allow the business to benefit
from TCS’s significant ongoing investment
in the platform, with Phoenix customers
benefiting from the clear digital focus,
consistent customer journeys and
customer proposition provided by one
platform. This decision is also fully aligned
with our model of enhancing long-term
cost efficiency, with a further c.£180
million of ReAssure net cost synergies
now expected. This increased our target
M&A integration synergies from ReAssure
to £1,230m.
In 2022 we also launched our leadership
capabilities framework, which articulates
eight core capabilities we need our leaders
to demonstrate.
We’ve made good progress against our
targets for female and ethnic minorities,
which are based on the deep insight
gathered from our Group-wide ‘Who
We Are’ survey, which provides us with
a clear understanding of our colleague
demographic and will support us in
better targeting our diversity and
inclusion initiatives.
Driving simplification in our business
A key aspect of enhancing our operating
model is driving simplification across our
business, by migrating to a ‘single best
way of doing things’.
The overall progress we are making is
also reflected in our increased employee
engagement eNPS score of +30 in 2022
(2021: +23), and which was significantly
ahead of our target of +24 for the year.
For instance, during 2022 we have
progressed towards a single unified
employee experience for our colleagues
with a single payroll system and a single,
enhanced Phoenix Group intranet.
We have also transferred the custody and
fund accounting for c.£90bn of assets to
HSBC, as we simplify and centralise our
asset custody model.
Leading as a responsible business
Our objective is for our operations to
be net zero carbon by 2025. This target
covers Scope 1 and 2 emissions from our
occupied premises and Scope 3 emissions
from our business travel. We remain on
track to achieve it with an 80% reduction
in the emissions intensity of our own
operations since 2019.
Attracting, developing and retaining
the best talent, and building our culture
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 2022 we continued to deliver against
our people strategy which is structured
around driving organisational
effectiveness, evolving our culture,
and building talent.
We have continued to build our people
capabilities and have evolved our talent
acquisition model to better enable that.
We also want to work with our supply chain
to generate value for all of our partners
and stakeholders. Central to this is the
transition to a net zero supply chain by
2050 with an interim objective to halve
supply chain emissions by 2030. We
have therefore developed our ESG
Supply Chain Standards to reflect our
expectations for partners around net
zero and ongoing commitments.
During 2022 we have engaged with our
key suppliers to ensure they set out a
climate change plan and targets for their
business, with 82% of our suppliers now
committed to either a Science Based
Target Initiative (‘SBTi’) target, or a target
based on the UN’s Race to Zero initiative.
Enhance our operating model and culture –
how we measure delivery
Total ReAssure
integration synergies
£1,262m
Total target: £1,230m
(103% delivered to date)
Colleague engagement
eNPS score
Female senior leaders
(%)
Ethnic minorities
representation (%)
+30
39%
12%
2022 target: +24
2022 target: none
2022 target: none
2020
2021
2022
£696m
£930m
£1,262m
2020
2021
2022
+23
N/A
+30
2020
2021
2022
N/A
38%
39%
2020
2021
2022
9%
N/A
12%
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.
Definition
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.
Future target
We have a target to realise
total cost and capital
integration synergies of
£1,230m from the ReAssure
acquisition, which we have
already exceeded with 103%
delivered to date.
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.
Future target
Our colleague engagement
eNPS score target for 2023
is +13, which is lower than
2022 due to the expected
impact of the recent
ReAssure integration
organisational changes.
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 targets
40% of women in leadership
roles by the end of 2023.
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 targets
Increase our ethnic minorities
representation to 13% by
the end of 2023.
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Priorities for 2023
• Progress our ongoing migrations to TCS BaNCS and
realise further cost synergies.
• Execute on our regulatory change agenda including the
IFRS 17 accounting change and the Solvency II reforms.
• Further develop our internal talent pool and improve
• Deliver our ambitious sustainability targets including
our colleague engagement.
for Diversity, Equity and Inclusion.
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
27
Strategic report
Business review
Delivering cash,
resilience and growth
“The strong strategic progress we have made
during 2022 has enabled us to continue delivering
on our financial framework and to recommend
a 5% dividend increase for the year.”
Rakesh Thakrar, Group Chief Financial Officer
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A strong financial performance in 2022
Financial performance metrics:
Cash
New Business
Dividends
IFRS
Other financial metrics:
Solvency II Capital
In-force cash
Assets
Leverage
Cash generation
Incremental long-term cash generation
Total dividend per share
Final dividend per share
Adjusted operating profit before tax
Loss after tax
PGH Solvency II surplus
PGH Shareholder Capital Coverage Ratio (‘SCCR’)
Group in-force long-term free cash
Assets under administration
Fitch leverage ratio
2022
£1,504m
£1,233m
50.8p
26.0p
£1,245m
£(1,762)m
2022
£4.4bn
189%
£12.1bn
£259bn
30%
2021
£1,717m
£1,184m
48.9p
24.8p
£1,230m
£(709)m
2021
£5.3bn
180%
£11.8bn
£310bn
28%
YOY change
-12%
+4%
+4%
+5%
+1%
-149%
YOY change
-17%
+9%pts
+3%
-16%
+2%pts
I am delighted that we have once again
delivered a year of strong financial
performance, as we execute on our
strategy and fulfil our purpose.
long-term cash generation of £1,233 million.
This means that for the second consecutive
year we have more than offset the run-off
of our in-force business.
We have delivered another year of resilient
cash generation, with £1.5 billion
generated in 2022, exceeding our target
range of £1.3-to-£1.4 billion for the year.
We have also grown inorganically through
M&A, having announced our first ever cash
funded acquisition of Sun Life of Canada
UK, which we expect to complete in April.
We have also maintained our resilient
capital position with a Solvency II (‘SII’)
surplus of £4.4 billion and a SCCR of 189%,
which is above our target ratio range of
140% to 180%.
Our strong strategic and financial
performance this year has therefore
enabled the Board to recommend a
dividend increase of 5% for the year.
In terms of new business growth, we have
delivered record incremental new business
With £0.3 billion growth in our Group
in-force long-term free cash to
£12.1 billion, our increased level of dividend
remains every bit as sustainable over
the very long term. With this increased
long-term free cash, which will be available
to shareholders over time, proof that
Phoenix is a sustainable, growing business.
In terms of our IFRS reporting, the Group’s
adjusted operating profit remained strong
at £1,245 million, but we have reported
an IFRS loss after tax of £(1,762) million.
This primarily reflects £(2,673) million of
adverse investment return variances from
accounting volatility in relation to our
hedging instruments and includes
economic movements on assets within
our corporate pension schemes that
have been subject to a buy-in. Taking into
account the corresponding decrease in
our pension scheme liabilities of £940
million, Total Comprehensive Expense for
the year was £(1,076) million. This impact
has, in turn, increased our Fitch leverage
ratio to 30%, which remains within our
target operating range of 25–30%.
As a reminder, our hedging approach is
designed to stabilise our SII Surplus and
Group in-force long-term free cash, which
in turn protects our dividend paying
capacity. However, this does cause
significant IFRS volatility due to a mismatch
between our IFRS balance sheet, and the
Solvency balance sheet that we are
hedging (see page 31 for more detail).
However, we accept this as the trade-off
to deliver the resilient cash generation
and dividend we are known for.
I am proud of the strategic progress we
have made this year, particularly in driving
forward our organic growth strategy. At
our Capital Markets Event in December we
outlined the journey we have been on and
our future ambitions.
In Retirement Solutions, we have now firmly
established ourself as a key player in the
BPA market, with another really successful
year of growing our BPA business.
We have also been focused on cultivating
our fee-based businesses, to develop more
balanced organic growth, in particular in
our Pensions and Savings business. I am
therefore delighted to see the progress we
are making in our Workplace business,
where we have seen a renewed trust in our
proposition, enabling us to both retain our
existing schemes and attract new clients.
Our confidence in our future organic
growth strategy has enabled us to set our
first ever incremental new business
long-term cash generation target, of
c.£1.5 billion per annum by 2025.
So looking back on 2022, it has been a
year of clear strategic progress, that
supported us to deliver a strong set of
financial results. Importantly, our business
is growing, as demonstrated by the growth
in our Group in-force long-term free cash
to £12.1 billion, which sustains our increased
dividend over the very long term. Our
Solvency capital position also remains
highly resilient, despite the unprecedented
economic volatility last year, with our
SCCR of 189%. This supports provides us
with significant capacity to invest into growth.
This is Phoenix’s financial framework in
action, as we deliver resilient and
predictable cash generation, which
underpins a dividend that is sustainable
and grows over time.
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 pages 38–39
and the IFRS financial statements are
set out from page 168 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 the
net cash remitted from the operating
entities to the Group, supported by the
free surplus above capital requirements
in the life companies, which is
generated through margins earned
on life and pension products and the
release of capital requirements, and
group tax relief.
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 new business long-term
cash generation
Incremental new business 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 period. By generating sufficient
incremental long-term cash generation
to offset the run-off of our in-force
business cash flows, we can bring
long-term sustainability to future cash
generation to grow the value of our
in-force business.
Group in-force long-term free cash
This represents the cash expected to be
available over time to fund future
dividends from existing business and
supports the sustainability of our
dividend over the very long term. It
comprises the cash expected to emerge
from our in-force business over its
lifetime, plus existing Group holding
company cash, less committed costs
associated with our M&A integration
activity, the repayment of all
shareholder debt and servicing of
interest costs to maturity.
Assets under Administration
The Group’s Assets under
Administration (‘AUA’) 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. Positive net
flows in AUA is another indicator of
growth for the Group.
Adjusted operating profit
The Group uses adjusted operating
profit as a measure of IFRS performance
based on long-term assumptions.
Adjusted operating profit is less
affected by the short-term market
volatility driven by Solvency II hedging
(as illustrated on page 31) and non-
recurring items than IFRS profit.
A more detailed definition of adjusted
operating profit is set out on page 314.
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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, and dividends cause own
funds to fall. Changes in demographic
assumptions and experience will also
impact own funds.
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 Standard Life
International DAC on a partial internal model
and ReAssure 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 313 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.
Phoenix Group’s comprehensive hedging approach
We hedge what we deem to be 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 peers. However, as a result of our hedging approach, we do see significant accounting
volatility (as illustrated below) which distort most of the Group’s IFRS metrics. Importantly though this does not impact our cash generation
delivery or dividend paying capacity, which is funded from our Solvency capital position.
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
on the IFRS balance sheet.
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.
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 – loss on the hedging instrument is recognised but the
gain on revaluation of the additional Solvency II balance
sheet items is not.
•
IFRS – gain on the hedging instrument is recognised but
the loss on revaluation of the additional Solvency II balance
sheet items is not.
Our risk management in action
Our comprehensive risk management approach
ensures we remain resilient through the economic cycle.
During 2022, we have seen unprecedented economic
volatility, with UK political instability leading to
government bond yield increases that were equivalent
to a 1-in-1,000 year economic shock event.
However, our comprehensive hedging approach
resulted in only a limited impact on our capital position,
with a £(0.4) billion SII surplus adverse economic
variance. By protecting the SII capital position in our
life companies, we are able to deliver resilient cash
generation and ensure the long-term sustainability
of our dividend.
We also continue to maintain surplus liquidity in line with
our conservative liquidity framework, which enabled us
to meet all collateral calls on our hedging instruments
during the turbulent markets in the second half of 2022,
with no forced selling of assets required at any point.
Phoenix also has a focused business strategy and does
not participate in the Liability Driven Investment (‘LDI’)
in any way, meaning we were not directly impacted by
the ‘LDI crisis’ during 2022.
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31
Strategic report Business review continued
Cash
Cash generation
Operating companies’ cash generation
represents cash remitted by the Group’s
operating companies to the holding
companies. Please see the APM section on
page 314 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 M&A 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 2022 was £1,504 million
(2021: £1,717 million). This exceeded the
Group’s target range of £1.3-to-£1.4 billion
for the year.
Uses of cash
Operating expenses of £78 million (2021:
£80 million) represent corporate office
costs, net of income earned on holding
company cash and investment balances.
Pension scheme contributions of
£16 million were made in 2022 (2021:
£11 million) with the increase on 2021 due
to the inclusion of a £5 million contribution
into the ReAssure pension scheme
following a triennial review.
Debt interest of £244 million (2021:
£250 million) reflects interest paid in the
period on the Group’s debt instruments.
The small decrease year-on-year is due
to the repayment of debt in June 2022
and elimination of interest thereon.
Operating companies’
cash generation
£1.5bn
Group in-force long-term free
cash
£12.1bn
Group cash flow analysis
£m
Cash and cash equivalents at 1 January
Operating companies cash generation:
Cash receipts from life companies1
Uses of cash:
Operating expenses
Pension scheme contributions
Debt interest
Non-operating cash outflows
Debt repayments
Shareholder dividend
Total uses of cash
Support of BPA activity
Closing cash and cash equivalents at 31 December
2022
963
2021
1,055
1,504
1,717
(78)
(16)
(244)
(395)
(450)
(496)
(1,679)
(285)
503
(80)
(11)
(250)
(305)
(322)
(482)
(1,450)
(359)
963
1
Total cash receipts include £55 million received by the holding companies in respect of tax losses
surrendered (2021: £95 million).
migration, £40 million for other ongoing
integration programmes including
ReAssure, and £33 million for our Finance
Transformation including implementing
the new IFRS 17 accounting standard.
We also incurred £15 million of costs
related to our cost of living colleague
support, £12 million of acquisition costs
related to the Sun Life of Canada UK
transaction, and made a £15 million
equity investment into the open finance
platform Moneyhub.
There was also a further £77 million of
other project costs, £68 million from the
close-outs in respect of Group hedging
instruments and £45 million of other items.
Debt repayments
Debt repayments in 2022 reflect the
repayment of the £450 million Tier 3
subordinated bond in July (2021: £322
million), as the Group manages its leverage.
Support of BPA activity
Funding of £285 million (2021: £359 million)
has been provided to the life companies
to support a strong year in BPA with
£4.8 billion of premiums written (2021:
£5.6 billion).
The decrease relative to 2021 reflects the
Group’s success in optimising its capital
with a reduction in the Group’s capital
strain on BPAs to 5.8% in 2022 (2021:
6.5%). This enabled the Group to write a
similar amount of incremental new business
long-term cash generation, but with 20%
less capital invested.
Future cash targets set
Our business model is designed to deliver
high levels of predictable cash generation,
enabling us to set very clear targets.
We are therefore setting a one-year
target of £1.3 to £1.4 billion again in 2023.
We have also set an increased three-year
cash generation target of £4.1 billion for
2023–2025. This includes £0.1 billion
of expected cash emergence from the
Sun Life of Canada UK acquisition and,
for the first time, cash emergence from
new business we expect to write in 2023
and 2024 of £0.2 billion.
Non-operating cash outflows of
£395 million (2021: £305 million) primarily
comprises centrally funded projects and
investments. £90 million relates to Group
project expenses for the transition activity
in relation to the Standard Life platform
Shareholder dividend
The shareholder dividend of £496 million
represents the payment of £248 million in
May for the 2021 final dividend and the
payment of the 2022 interim dividend of
£248 million in September.
Future sources and uses of cash
Looking over the period 2023–2025, and
after we have invested £248 million to fund
the acquisition of Sun Life of Canada UK,
we expect to have surplus cash of around
£1.45 billion available to invest into growth.
We will therefore continue to invest
into organic growth through BPA and
our fee-based businesses, and will
also continue to assess further
M&A opportunities.
Group in-force long-term free cash
Group in-force Long-Term Free Cash
(‘LTFC’) represents the cash expected
to be available over time to fund future
dividends from today’s in-force business.
This underpins the sustainability of our
c.£0.5 billion annual dividend cost over
the very long term.
Group in-force LTFC was £12.1 billion as
at 31 December 2022 (2021: £11.8 billion).
It comprises 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 and interest to maturity.
Growing our Group in-force LTFC allows
us to demonstrate that we are a growing,
sustainable business. I am therefore
pleased that in 2022 we have increased
our Group in-force LTFC by c.£0.3 billion.
Illustrative 2023–2025 HoldCo sources and uses of cash
Sources
FY22 HoldCo cash
£0.5bn
2023–2025 cash generation
£4.1bn
Uses
£1.0bn
Operating costs and interest
£1.5bn
Dividend
£0.4bn
Planned integration costs
£0.25bn
Sun Life of Canada UK acquisition
£1.45bn
Available
for investment
into growth
Group in-force long-term free cash
£bn
Long-term in-force cash generation
Plus closing Holding Company cash
Less M&A and transition costs
Group in-force long-term cash
Less shareholder debt
Less interest on debt to maturity
Group in-force Long-Term Free Cash
Group in-force
LTFC
Year ended
31 December 2022
17.3
0.5
(0.4)
17.4
(4.1)
(1.2)
12.1
Group in-force
LTFC
Year ended
31 December 2021
17.0
1.0
(0.2)
17.8
(4.6)
(1.4)
11.8
The movement in the year is driven by
c.£1.2 billion of incremental new business
long-term cash generation written in 2022
from organic growth and c.£0.3 billion of
value-creating Solvency II own funds
management actions.
This more than offsets the Group’s
c.£0.8 billion of annual operating costs,
debt interest and dividends, c.£0.3 billion
of capital invested into BPA in 2022, and
c.£0.1 billion of net other uses of cash.
Growth in the Group’s in-force LTFC
supports us in delivering a dividend
that is sustainable and grows over time.
Increase in Group in-force long-term free cash (£bn)
£1.2bn
£1.2bn
Incremental
new business
long-term
cash generation
£0.3bn
£(0.8)bn
£(0.3)bn
Own Funds
management actions
Annual operating
costs, interest &
dividend
Total capital
invested into BPA
£(0.1)bn
Other
£0.3bn
Increase in Group
in-force long-term
free cash
32
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33
Strategic report
Business review continued
Resilience
Group Solvency II
surplus (estimated)
£4.4bn
Group Shareholder Capital
Coverage ratio (estimated)
189%
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 £4.4 billion
(2021: £5.3 billion), which includes the
accrual for the deduction of our 2022 final
dividend of £260 million. Our Shareholder
Capital Coverage Ratio (‘SCCR’) increased
to 189% (2021: 180%). This is currently
above the top-end of our 140%-to-180%
target range, providing the capacity to
invest into both organic and M&A
growth opportunities.
Change in Group Solvency II surplus
and SCCR
Our ongoing surplus emergence and
release of capital requirement increased
the SII surplus by £0.7 billion during the
year, contributing to an increase in the
SCCR of 16%pts.
As a result of our comprehensive hedging
strategy, designed to stabilise our capital
position, we have minimised the adverse
impact from economic variances to just a
£(0.4) billion impact on our Solvency II
surplus, despite unprecedented market
turbulence last year. While this surplus
movement from economics was relatively
small, a consequence of our hedging
approach is that we do see volatility in
the Group’s Own Funds, to offset against
movements in the SCR, and this led to
an 18%pts increase in the SCCR.
We delivered strong management actions
in the period, primarily from ‘business as
usual’ actions as we continue to optimise
our in-force business. Management actions
contributed a further £0.7 billion of surplus
increase and added 7%pts to the SCCR.
Operating costs, dividends and interest
totalled £(0.8) billion, reducing the SCCR
by 16%pts. We also repaid a c.£0.5 billion
Tier 3 bond from our own cash resources in
July 2022, reducing the SCCR by 9%pts.
Importantly though, both the SII Surplus and
SCCR impacts were broadly in line with our
published sensitivities, which means our
hedging operated as we expected it to.
We also invested £0.3 billion of capital into
growth, primarily for the funding of £4.8
billion of BPA premiums written in the year,
which decreased the SCCR by 7%pts.
Other movements represent project
spend to deliver Group initiatives, and a
£4.4 billion Group Regulatory Solvency II surplus
£4.4 billion Group Shareholder Solvency II surplus
156%
166%
180%
189%
Surplus
£5.3bn
Surplus
£5.3bn
£14.8bn
£14.8bn
£9.5bn
£9.5bn
£11.1bn
£11.1bn
Surplus
£4.4bn
Surplus
£4.4bn
£11.9bn
£11.9bn
Surplus
£5.3bn
Surplus
£5.3bn
£6.7bn
£6.7bn
£6.6bn
£6.6bn
£9.3bn
£9.3bn
Surplus
£4.4bn
Surplus
£4.4bn
£4.9bn
£4.9bn
FY21
FY21
Own Funds
SCR
FY22
FY22
FY21
FY21
Own Funds
SCR
FY22
FY22
2022 change in Group Solvency II Surplus (£bn)
180%
£5.3bn
Surplus as
at FY21
16%
£0.7bn
7%
£0.7bn
(16)%
(7)%
18%
(9)%
0%
189%
£(0.8)bn
£(0.3)bn
£(0.4)bn
£(0.5)bn
£(0.3)bn
Surplus
emerging and
release of capital
requirements
Management
actions
Financing and
corporate
costs and
2021 dividends
New business
strain
Economics
Debt
repayment
Other
£4.4bn
Surplus
as at FY22
strengthening of expense assumptions for
the IFRS 17 project and integration delivery.
These movements decreased Solvency II
surplus by £0.3 billion, but had a neutral
impact on the SCCR, due to other
assumption changes providing an offset.
Sensitivity and scenario analysis
As part of the Group’s internal risk
management processes, the Own Funds
and regulatory SCR are regularly tested
against a number of financial scenarios.
The table provides illustrative impacts of
changing one assumption while keeping
others unchanged and reflects the
business mix at the balance sheet date.
Extreme markets movements outside of
these sensitivities may not be linear.
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 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.
In order to stabilise our SII surplus, we
regularly monitor risk exposures and use a
range of hedging instruments to remain
within a Board approved target range.
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.
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.
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. We retain a significant Life
Company Free Surplus of £2.3 billion
which provides resilience to the Group’s
long-term cash generation. The table
shown analyses the movements in 2022.
Illustrative risk exposure stress testing
Estimated impact1 on PGH Solvency II
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: 60bps rise in inflation3
Property: 12% fall in values4
Credit spreads: 135bps 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
Surplus
£bn
4.4
nil
0.1
(0.1)
Nil
(0.2)
(0.2)
(0.3)
(0.1)
(0.5)
SCCR
%
189
3
5
(5)
–
(4)
(4)
(7)
(1)
(10)
1
2
3
4
5
6
Illustrative impacts as at 1 January 2022 assume changing one assumption while keeping others
unchanged, and reflects the business mix at the balance sheet date, and that there is no market
recovery. Extreme markets movements outside of these sensitivities may not be linear.
Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging
which is performed on a continuous basis to minimise exposure to the interaction of rates with other
correlated risks including longevity.
Stress reflects a structural change in long-term inflation with an increase of 60bps across the curve.
Property stress represents an overall average fall in property values of 12%.
Credit stress varies by rating and term and is equivalent to an average 135bps spread widening. It assumes
the impact 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 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.
Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups.
7
8 Applied to the annuity portfolio.
Rewarded credit risk sensitivities
We do however retain the credit risk in our
c.£31 billion shareholder credit portfolio,
and property risk in Equity Release
Mortgages, where we see these risks as
rewarded. The shareholder credit assets
are primarily used to back the Group’s
annuity portfolio. Exposure to these risks
is needed to back growth in the Group’s
annuity portfolio. Stress testing is used to
inform the level of risk to accept and to
monitor exposures against risk appetite.
The key sensitivity we focus on for credit is
a full letter downgrade of 20% of our
credit portfolio, which is £0.3 billion and
is therefore small relative to the Group’s
£4.4 billion Solvency II surplus.
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.
We also actively manage our portfolio to
ensure it remains high quality and diversified,
and to maintain our sensitivities within risk
appetite. Our BBB exposure is just 19% and
we also remain conservative in the sector
positioning of our credit portfolio, with only
3% of our credit portfolio exposed to
cyclical sectors, with an average rating of A-.
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.
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 2022
£bn
2.6
0.8
0.6
(0.2)
3.8
1.5
2.3
34
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35
Strategic report
Business review continued
Growth
Incremental new business
long-term cash generation
£1.2bn
Assets under
Administration
£259bn
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 success in achieving growth
from new business.
A reconciliation from the Group’s IFRS
statement of consolidated financial
position to the Group’s AUA is provided
on page 309.
Please see the APM section on page 314
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 £1,233 million in 2022 (2021:
£1,184 million).
This means that we have once again
delivered new business growth which
allows us to more than offset the
natural run-off of the in-force business
cash generation of c.£800 million,
demonstrating that Phoenix is a business
that is growing organically.
Retirement Solutions
We have written £4.8 billion of BPA
premiums in 2022. While this is a reduction
on £5.6 billion written in 2021, we have
maintained broadly the same level of
incremental new business cash generation
at £934 million (2021: £950 million) with
20% less capital invested. This in turn
supported an increase in the cash multiple
from 2.6x in 2021 to 3.4x in 2022.
We successfully reduced our capital strain
from 6.5% in 2021 to 5.8% in 2022, and
maintained our pricing discipline which is
evidenced by our delivery of an increased
Incremental new business long-term cash generation
+4%
£1,233m
£1,184m
£950m
£934m
£234m
FY21
£299m
FY22
Fee-based businesses
Retirement Solutions
mid-teens IRR and shorter payback of
5.8 years (2021: 8.6 years).
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.
Fee-based businesses
This comprises our capital-light fee-based
businesses of Pensions & Savings, Europe
and SunLife.
Pensions & Savings: Workplace
Our Workplace business has delivered an
improved level of incremental long-term
cash generation at £212 million in the year,
an increase of 53% on 2021 (2021: £139
million). This reflects the increased new
business we get from retaining our existing
corporate customers, through the natural
growth from new members joining existing
schemes and the impact of wage inflation
on contributions. In addition, as part of
TCS Diligenta’s build out of our Workplace
capabilities we have moved to a lower cost
per policy, improving our cost efficiency
further. This reduces the expenses
accounted for in incremental long-term
cash generation and is therefore a
recurring benefit for all future new
business too.
Pensions & Savings: Retail
The 2022 incremental new business
long-term cash generation of £37 million
from our Retail business has increased by
28% on 2021 (2021: £29 million). This
increase has been driven by the move to
a lower cost per policy with TCS Diligenta,
as with the Workplace business, thereby
enhancing cost efficiency here too.
Europe
There was a small decrease in the
incremental new business long-term cash
generation of our European business to
£29 million (2021: £31 million), due to lower
margins on new business in 2022.
SunLife
Our incremental long-term cash
generation from SunLife of £21 million has
decreased year-on-year (2021: £35 million)
reflecting the impact of the cost of living
crisis on our SunLife customer base
leading to lower sales.
Group AUA
Group AUA as at 31 December 2022 was
£259.0 billion (2021: £310.4 billion).
Outflows of £3.0 billion in the period (2021:
£2.9 billion) primarily reflect the natural
run-off of our in-payment annuity policies.
The decrease in the period is largely
driven by £45.7 billion of adverse market
movements, but importantly there is
limited impact from these market
movements on the fees we earn, as they
are hedged, which results in predictable
cash generation.
Heritage net flows
UK Heritage net outflows of £9.6 billion
(2021: £10.8 billion1) reflect policyholder
outflows on claims such as maturities and
surrenders, net of total premiums received
in the period from in-force contracts.
This improvement year-on-year is due to
elevated outflows in 2021 relating to
one-off challenges following the migration
of L&G business to ReAssure. With these
challenges all now resolved, outflows are
reflective of a more normalised steady-
state run-rate.
Retirement Solutions net flows
Net flows in Retirement Solutions, which
encompasses our BPA and individual
annuity businesses, were £2.3 billion (2021:
£3.3 billion). This year-on-year reduction is
due to reduced BPA premiums written, as a
result of our improved capital efficiency
and the impact of higher rates.
Gross inflows during the period were
£5.3 billion (2021: £6.3 billion), inclusive of
£4.8 billion of new BPA premiums written
in the year. This included 12 external
transactions accounting for £4.2 billion
of premiums and £0.6 billion for the
last tranche of the Pearl Pension
Scheme buy-in.
Pensions & Savings: Workplace net flows
Net fund flows within our Workplace
business were £2.4 billion in 2022 (2021:
£0.21 billion), a significant improvement
year-on-year. The investment we have
made into our proposition and our
Standard Life brand has enabled us
to improve the retention of our existing
schemes to benefit from the embedded
growth in Workplace schemes and drive
stronger net fund flows in the year.
Gross inflows were £6.2 billion, up 7%
on 2021 (£5.8 billion1), primarily
reflecting increased flows due to
annual salary increases.
2022 outflows of £3.8 billion improved on
2021 (£5.6 billion1), as we retained more
customers with our enhanced proposition
and the success of our Standard Life
Sustainable Multi-Asset default fund.
Pensions & Savings: Retail net flows
Net fund outflows within our Retail
business were £1.4 billion in 2022 (2021:
£1.6 billion net outflow), a slight
improvement year-on-year.
Gross inflows during the period were
slightly reduced on 2021 at £1.7 billion
(2021: £1.9 billion) due to lower
consolidation into our Self Invested
Personal Pension (‘SIPP’) products.
Importantly, we did see a more significant
decrease in outflows of 11% to £3.1 billion
(2021: £3.5 billion). This demonstrates that
more customers are staying with us as our
proposition is improving.
Other fee-based businesses net
fund flows
We have seen net fund flows of £0.6 billion
in 2022 (2021: £0.8 billion net inflows) from
our Europe and SunLife businesses.
Gross inflows were £2.5 billion in the year
(2021: £2.8 billion), primarily reflecting
our individual retirement products sold
in Europe, while outflows of £1.9 billion
in the year (2021: £2.0 billion) are
largely due to the natural run-off of our
European business.
Other movements including markets
AUA decreased by £45.7 billion (2021:
£11.6 billion increase) driven by the net
adverse impacts of market movements,
largely due to rising yields. This impact
has been seen across the market, but
Phoenix is different to other insurers due
to our comprehensive hedging approach
which mitigates the impact on our Annual
Management Charge, to deliver
predictable fee-based revenues and
underpin our resilient cash generation.
1.
The opening AUA position has been restated for a
reclassification of £10.1 billon in respect of the
Group’s Corporate Trustee Investment Plan (‘CTIP’)
from the Heritage business to the Pensions &
Savings: Workplace business, as this product is
open for new business. Subsequent flows on the
CTIP business in 2022 have been captured within
the Pensions & Savings: Workplace business, with
2021 associated flows restated to reflect this
reclassification and provide a more accurate
reflection of year-on-year comparatives.
Movement in AUA (£bn)
(9.6)
2.3
2.4
(1.4)
0.6
310.4
(45.7)
259.0
AUA
as at
1 Jan 2022
UK Heritage
Net Flows
Retirement
Solutions
Net Flows
Workplace
Net Flows
Retail
Net Flows
Other
fee-based
Net Flows
Other
movement
including
markets
AUA as at
31 Dec 2022
36
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37
Strategic report
Business review continued
IFRS
results
Adjusted operating profit
£1,245m
Fitch leverage ratio
IFRS loss after tax
30%
£(1,762)m
IFRS (loss)/profit is a GAAP measure of
financial performance and is reported in
our statutory financial statements on page
168 onwards.
Adjusted 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 314
for further details of this measure.
IFRS loss after tax attributable to owners
The Group generated an IFRS loss after tax
attributable to owners of £1,762 million
(2021: loss of £709 million), which primarily
reflects £2,673 million of adverse
investment return variances and £522
million of charges for amortisation and
impairment of intangibles.
Investment return variances includes net
losses as a result of economic movements
in the value of assets backing Group
employee pension schemes, where they
are subject to insurance policies with
Group entities. An accounting mismatch
arises as the related decrease in the
defined benefit pension obligation is
recognised in ‘Other Comprehensive
Income’ (‘OCI’), which has seen a gain of
£686 million in the period that partly
offsets the loss.
Basis of adjusted operating profit
Adjusted operating profit is based on
expected investment returns on financial
investments backing shareholder and
policyholder funds over the reporting
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.
IFRS profit and loss statement
£m
Heritage
Open
Service company
Group costs
Adjusted 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 before tax attributable to owners
Tax credit / (charge) attributable to owners
Loss after tax attributable to owners
2022
601
761
(48)
(69)
1,245
(2,673)
(522)
(179)
(199)
67
(2,261)
499
(1,762)
2021
537
788
(24)
(71)
1,230
(1,125)
(639)
(65)
(217)
128
(688)
(21)
(709)
Adjusted 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 adjusted operating profit. Adjusted
operating profit is net of policyholder
finance charges and policyholder tax.
Adjusted operating profit
The Group has reported an increased
adjusted operating profit of £1,245 million
for the year (2021: £1,230 million).
Heritage adjusted 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 adjusted
operating profit of £601 million (2021:
£537 million), which increased year-on-
year. This was primarily due to the
non-recurrence of adverse one-off
assumption changes recognised in 2021.
Open adjusted operating profit
Open adjusted operating profit includes
Retirement Solutions, Pensions and
Savings, SunLife, and is shown here
inclusive of our Europe business segment.
Our Open business delivered an adjusted
operating profit of £761 million (2021:
£788 million). The reduction compared to
the prior year primarily reflects lower new
business profit on BPA due to a lower level
of premiums.
Service company
The adjusted operating loss from the
service company of £48 million (2021: loss
of £24 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 incurred,
driven by investment in our growth
strategy, including the development of
asset management capabilities.
Group costs
Group costs in the period were £69 million
(2021: £71 million). They mainly comprise
project recharges from the service
companies and the returns on the scheme
surpluses/deficits of the Group staff
pension schemes.
Investment return variances and
economic assumption changes
Movements in yields, inflation, currency
and equity markets are hedged to protect
our Solvency II surplus from volatility, but
our IFRS balance sheet is, in effect,
‘over-hedged’. This is because it does not
recognise the additional Solvency II
balance sheet items such as certain future
profits and the Solvency Capital
Requirements (see diagram on page 31).
Therefore, the movements in the value of
certain hedging instruments offset the
market movements in the period, and
gives rise to profits or losses in the IFRS
results. However, importantly the Group’s
cash generation and dividend capacity
are unaffected by this due to the
Group’s continued resilient Solvency
balance sheet.
As a result, the net adverse investment
return variances of £2,673 million (2021:
£1,125 million negative) have primarily
arisen as a result of rising yields, which has
been hedged, and a widening of credit
spreads. This includes economic
movements on assets within our corporate
pension schemes that have been subject
to a buy-in. Taking into account the
corresponding decrease in our pension
scheme liabilities of £940 million, Total
Comprehensive Expense for the year
was £(1,076)m.
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. The amortisation and
impairment of acquired in-force business
during the year of £501 million (2021:
£572 million) has decreased year-on-year
reflecting the impact of the run-off.
Amortisation and impairment of other
intangible assets totalled £21 million in
the period (2021: £67 million).
Other non-operating items
Other non-operating items totalled a
£179 million loss (2021: £65 million loss,
inclusive of a £110 million gain
on the Standard Life brand acquisition).
This includes £187 million of integration
costs related to the strategic decision to
re-phase our Standard Life customer & IT
migration programme to build out our
Open business capabilities on the TCS
Diligenta (‘TCS’) platform. Also included
are costs associated with the implementation
of IFRS 17, ongoing costs in relation to the
ReAssure integration programme,
acquisition costs relating to Sun Life of
Canada UK, as well as other corporate
project costs and other net one-off items.
Finance costs
Finance costs of £199 million (2021: £217
million) reflects the interest paid on the
Group debt instruments. The year-on-year
reduction reflects the removal of interest
on instruments settled in 2021, and
therefore no cost incurred this year.
Tax credit attributable to owners
The Group’s approach to the management
of its tax affairs is set out in its Tax Strategy
document that is available on our website.
The Group tax credit for the period
attributable to owners is £499 million
(2021: £21 million tax charge) based on
a loss (after policyholder tax) of £2,261
million (2021: £688 million loss).
The tax credit of £499 million arising on
the loss (after policyholder tax) includes
a £119 million tax credit arising from the
impact of the 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 2022
is 30% (31 December 2021: 28%).
The increase in leverage year-on-year is
predominantly a result of the material
adverse investment return variance
following significant movements in yields
and credit spreads. As markets recover in
future periods, we would expect to see
positive investment variances to unwind
some of this unrealised loss. In turn this
will result in a reduction in leverage.
The leverage ratio is currently within our
target range of 25% to 30%, and we will
continue to monitor our leverage and
manage it appropriately.
During July 2022, we repaid a £450 million
Tier 3 bond from our own cash resources,
which contributed to a reduction in
outstanding debt leverage to £4.1 billion
at the end of 2022.
Illustrative change in shareholder equity and
recognition of CSM
Our business strategy and financial framework
are not impacted by IFRS 17
CSM
IFRS 17 is a new Financial Reporting Standard that replaces IFRS 4
on accounting for insurance contracts. IFRS 17 is effective from
1 January 2023.
Our strategy of growing our in-force business over time as we
support customers journey to and through retirement remains
unaffected. Our key metrics continue to focus on cash generation
and Solvency II capital resilience, with our dividend paying
capacity and long-term coverage remaining unchanged.
We expect the introduction of IFRS 17 to result in a broadly
neutral impact on IFRS shareholder equity, with a Contractual
Service Margin (‘CSM’) of at least £2 billion to be established.
IFRS 4 shareholder
equity
1 January 2022
Broadly neutral
impact expected
Indicative IFRS 17
shareholder equity
1 January 2022
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Phoenix Group Holdings plc Annual Report and Accounts 2022
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39
Strategic report
Business review continued
Dividend
Organic growth and M&A supports
a sustainable dividend increase
Phoenix has demonstrated a strong
dividend track record over the past
12 years, with a 4% compound annual
growth rate (‘CAGR’) since 2011.
2021 was pivotal in evolving our dividend
story as, for the first time, our dividend
increase came from the strong organic
performance of our new business. It was
a proof of concept that we could deliver
dividend increases outside of M&A.
However, we have always been clear that
we are focused on delivering dividend
growth both organically through our new
business, and through M&A. Which is why
I am delighted that in 2022 we have
achieved both.
Firstly, we announced our first ever
cash funded acquisition of Sun Life
of Canada UK, which we expect to
complete in April 2023. We said on
announcement that the Board had
proposed a dividend increase of 2.5%
for this inorganic growth, funded from
the c.£0.5 billion of cash emerging from
this business over its lifetime.
In terms of organic growth, we said we
were confident we could deliver new
business long-term cash generation to
more than offset the natural run-off of
our business in 2022, and we have.
With a strong strategic and financial
performance in 2022 including record
new business long-term cash generation
of £1.2 billion, we have delivered organic
growth that supports a 2.5% organic
dividend increase.
As a result, the Board has recommended a
dividend increase of 5% in the Final 2022
dividend to 26.0 pence per share, This
equates to a Total 2022 dividend of
50.8 pence per share.
Our increased level of dividend remains
just as sustainable as it was previously,
thanks to the significant levels of cash
Total 2022 dividend per share
50.8p
dividend increase in
the Final 2022 dividend
+5%
Outlook
Phoenix is a growing,
sustainable business
2.5% + 2.5% = 5%
Organic dividend
increase
reflects our strong
strategic and financial
performance in 2022
Inorganic dividend
increase
for the Sun Life
of Canada
UK acquisition
Final dividend
increase
effective from,
and including, the
2022 Final dividend
Phoenix Group’s dividend policy: The Board intends 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
50.8p
40.8p 40.8p 40.8p 41.9p
36.5p
32.2p
H2: 26.0p
+5%
H1: 24.8p
2011
2012
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Dividend per share
generation that will emerge from our
current in-force business, with £12.1 billion
of Group in-force long-term cash that will
be available to fund future dividends.
Dividend policy and approach
We operate a dividend policy which is
to pay a dividend that is sustainable and
grows over time.
It is important to emphasise that the Board
will continue to, above all else, prioritise
the sustainability of our dividend over the
very long term.
We have now demonstrated that
Phoenix can grow both organically and
through M&A. Therefore, going forward,
we will simplify our dividend
communication, with the Board
announcing any potential annual dividend
increase at our full year results, which will
combine both organic growth and
inorganic M&A growth.
Looking ahead
We are helping people secure a life
of possibilities through our clear and
differentiated strategy, as we support
our customers on their journey to and
through retirement.
The scale of the Group’s in-force business
brings three key competitive advantages
of capital efficiency, customer access and
cost efficiency. We will leverage these
to grow our in-force cash generation over
time, both organically and through M&A.
Clear financial targets
We have a clear set of targets as we continue
to prioritise the delivery of cash, resilience
and growth.
Starting with cash, Phoenix has set two
new cash generation targets. The first is
a one-year target range for 2023 of
£1.3-to-£1.4 billion. The second is a
three-year target of £4.1 billion across
2023–2025, which includes the cash
emergence from the new business we
expect to write in 2023 and 2024, of
c.£0.2 billion.
In terms of resilience, we will continue to
maintain a strong SII surplus through our
comprehensive hedging approach. This
will see us continue to operate within or
above our Solvency II SCCR target range
of 140%-to-180% and continue to manage
our key individual risk sensitivities on
a Solvency II 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 2023.
In addition, we will look to manage the
Group’s gearing level by operating within
our Fitch financial leverage ratio target
our target range of 25%–30% over
the long term.
Turning to growth, Phoenix is now
confident of growing its incremental new
business long-term cash generation, and
has set a new target of £1.5 billion per
annum by 2025, which is a 25% increase
on the Group’s strong 2022 performance.
In Retirement Solutions, we will continue
our strategy of optimising our capital and
returns, by investing c.£300 million of
capital per annum into BPA and targeting
mid-teens IRRs.
While in our Fee-based Pensions and
Savings business, we are investing in our
proposition and the Standard Life brand,
to support our target for growth in our net
fund flows. With an ambition for c.£5 billion
of annual net fund flows in our Workplace
business by 2025 and c.£2 billion in our
Retail business by 2025.
Delivering these new growth targets will
enable the Group to generate significant
net growth in our £12.1 billion of Group
in-force long-term free cash, which can
support a dividend that is sustainable and
grows over time, in line with our policy.
I look forward to an exciting year in 2023
as we continue to deliver on our purpose
and our strategy.
This evolution in how we set our cash
targets demonstrates our confidence in
our ability to deliver future organic growth.
This new target is expected to
comprise c.£1.0 billion from Retirement
Solutions and c.£0.5 billion from our
Fee-based businesses.
Rakesh Thakrar
Group Chief Financial Officer
2023 targets
Cash
• Deliver £1.3bn–£1.4 billion of cash generation in 2023
• Deliver £4.1 billion of cash generation across
2023–2025
Resilience
• Maintain SII SCCR within or above our 140%–180%
target range
• Manage Fitch leverage ratio within our 25%–30%
target range
Growth
• Deliver c.£1.5 billion per annum of incremental
new business long-term cash generation by 2025
• Complete Sun Life of Canada UK acquisition in
April 2023
2025 target
We are confident of growing incremental new business
long-term cash generation to £1.5bn per annum in 2025.
c.+25%
c.£1.2bn
c.£0.3bn
c.£1.5bn
c.£0.5bn
c.£0.9bn
c.£1bn
2022
2025 target
Retirement Solutions
Fee-based businesses
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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.
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 84 to 87 of the Corporate
Governance Report.
Key stakeholder groups
Customers
Phoenix Group has c.12 million customers and
manages £259 billion of assets. We offer a broad
range of pensions and savings products to support
people across all stages of the savings life cycle.
What matters to them
Suppliers
Colleagues
Community
Investors
Government, trade
bodies and regulators
We seek to ensure that our c.1,500 partners and
suppliers adhere to the highest environmental
and ethical standards.
We have 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
communities in which we are based, interacting
with educational institutions, charities and local
community groups.
We maintain an active dialogue with 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
• 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 promotes
• Clear mutual expectations and ESG standards
for all suppliers covering carbon reduction
targets, modern slavery and health and safety
positive outcomes and empowers better financial
decision making
• Enabling entity consistency in social
responsibility through supply chain
• Understanding and support for those experiencing
vulnerability, particularly through key life events
and moments of heightened pressures
How we engage
• Having a sense of belonging and connection
to Phoenix’s purpose and values, and being
empowered to make a difference
• A diverse and inclusive workplace
• Flexible ways of working that best suit their needs
• Opportunities for personal and career development
• Recognition and reward for performance
• Engaging in effective two-way feedback
• Support to help navigate the cost of living crisis
• We engage through a variety of channels
and are adapting our service and product
propositions to help more customers journey
to and through retirement
• We continuously seek new ways to better identify,
manage, and support vulnerable customers, driving
consistency and excellence across the Group
• We conduct direct customer research, and
regularly review and integrate feedback into
our decision making
• We continue to integrate ESG into our
investment solutions
•
• We maintain an active dialogue to identify areas
for collaboration and support our suppliers’
progress towards our standards
In 2022, we developed our ESG Supply Chain
Standards for key suppliers in line with best
practice, detailing our expectations of them. The
Standards are due for publication in late March/
early April 2023 and will support the current
Code of Practice
• We continue to engage with the ABI Sustainable
Supply Chain Working Group, the CDP Supplier
Survey and the Indirect Spend Alliance.
• We embed our purpose and 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
representation groups, colleague-led networks,
regular intranet communications and Phoenix
Together events
• Phoenix Colleague Representation Forum have
quarterly engagement meetings with Maggie
Semple, our Director of Workforce Engagement
Outcomes of engagement
• Sustained high customer satisfaction scores of 92%
for Combined Group telephony and 94% for
Standard Life digital journeys, exceeding our
2022 targets of 90% and 92% respectively
• Launched our Vulnerable Customer Centre of
•
Excellence, receiving industry awards
1.2m customers directly offered digital
literacy materials
• 82% of our key suppliers have now committed
to Science Based targets (‘SBTi’) or UN Race
to Zero targets
• 96% of key suppliers have published a Modern
Slavery Statement
• 92% of our suppliers were paid within 60 days
in 2022
• 93% of assigned operations colleagues have
• Responded to cost of living crisis, including
been trained in ESG
financial difficulty pages on our websites and
reviewing products to provide flexibility
• Our 2021 and 2022 Scope 3 emissions have
been mapped against the 2019 baseline
• Transitioned 1.5m customers and c.£15bn of assets
into our new default Sustainable Multi Asset solution
• Launched financial inclusion strategy
• A people strategy aligned to our vision of being
the best place colleagues have ever worked
Initiatives to progress Diversity, Equity & Inclusion
•
• Access to mental health & well-being tools
• Provision of mobile technology to all colleagues
•
to support our flexible ways of working
In 2022, we ranked 24th on the Social Mobility
index (41st in 2021) and we won Employer of the
Year at the FTAdviser Diversity in Finance Awards
• Comprehensive cost of living support package,
including one-off net payment of £1,000 to all
colleagues1, access to free money coaching, free
meals and support with cost of parking
Payment made in August to all employees except our
most senior staff
1
Read more
• On pages 22 to 25
In our 2022 Sustainability Report
•
•
standardlife.co.uk
• phoenixlife.co.uk
reassure.co.uk
•
sunlife.co.uk
•
•
In our 2022 Sustainability Report and 2022
Climate Report, along with our ESG Supply
Chain Standards
• Our website: thephoenixgroup.com/
sustainability/working-responsibly-suppliers
• On pages 108 to 109
•
• Our website:
In our 2022 Sustainability Report
thephoenixgroup.com/sustainability/
people-and-culture
•
Investment into local innovation, infrastructure
and sustainable communities
• Providing fulfilling work and economic growth,
including social mobility
• Financial and volunteering support to our
local charities
• Educational support to our local schools
• Using our scale and influence to take action on
key societal and environmental concerns
• Regular updates on the Group’s strategy,
• Effective regulatory engagement, transparency
operations and performance
and compliance
• Clear communication of investment proposition
and comprehensive financial disclosures to
enable investors and analysts to appropriately
evaluate Phoenix Group as an investment
• Regular engagement with management on
business performance and governance matters
• Annual review meeting with Fitch Ratings
• Named and clear points of contact for queries
• Evidencing the regulators’ key areas of interest
(outlined annually) have been addressed
• Actively contributing to policy developments
impacting long-term savings and insurance
• 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
• Comprehensive engagement programme,
• Comprehensive and robust regulatory
including regular investor roadshows, results
presentations, sales briefings and conferences
• We held a Capital Markets Event in December
to provide a deep-dive into the Group’s organic
growth opportunities and showcase the depth
of our senior management
• We conducted >200 interactions with
shareholders, debt investors and financial analysts,
and also attended numerous conferences in the UK
and overseas
• Our Chair held a Stewardship roadshow in January
2023 with our major institutional investors
engagement programme, co-ordinated through
centralised Regulatory Relationships Team
• Colleagues from all over our business actively
engage on trade association committees
• Andy Briggs, Group CEO, chairs the ABI Climate
Change Board Committee, co-chairs an employer
trade organisation round-table with the Minister
for Employment and sits on a number of other
industry forums
• Andy Curran, CEO Standard Life, chairs the ABI’s
Long-Term Savings Committee, and also sits on
the ABI Board
• c.£815,000 collectively donated to registered
charities by the Group, our colleagues and
third parties
• During the year, colleagues have volunteered
c.6,455 hours to support our communities, up
from c.2,650 hours in 2021
• 42% of colleagues involved in community
engagement activities throughout 2022
• Standard Life became a founding partner for the
new Samaritans Training School, with a donation
enabling around 400 more listening volunteers
to be trained
• Ongoing engagement enables a two-way
• Positive industry outcome on Solvency II,
dialogue between Phoenix and its investors,
analysts and ratings agencies, ensuring a good
understanding of the company strategy in the
market, and enabling feedback to be considered
in our strategic decision-making
• The Directors recommended a 5% increase in
the Group’s 2022 Final Dividend to 26.0p (total
dividend of 50.8p), comprising both organic
and inorganic growth
• The Group’s Insurer Financial Strength rating
is AA- (Fitch rated)
which will help government meet its objective
of increasing insurance capital deployment into
the real economy
• Our regulated subsidiaries have approved capital
policies for distributions which protect customers
• Approval of a new Irish entity (PLAE) by the CBI,
followed by a Part VII transfer of the Irish branch
business, Icelandic, German, Swedish and
Norwegian business which was approved by the
UK and relevant EU regulators and the Courts,
meeting the post-Brexit deadline of YE 2022.
•
In our 2022 Sustainability Report
• On our website:
•
In our 2022 Sustainability Report
thephoenixgroup.com/investor-relations
42
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
43
Strategic report
Non-financial information statement
Environment
Colleagues
Social and community
Human rights
Anti-bribery and corruption
Our policies
Phoenix Group is committed to protecting
the environment; the health and well-being
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 objective is for our operations to be net
zero by 2025.
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 well-being 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 metrics as at 31 December 20221:
Waste and Recycling – We will implement
sustainable waste management practices
including the removal of all single use plastics
from our operations by 2030.
Board members1
Senior managers2
Conservation – We are committed to
supporting conservation in our communities.
All employees3
Female
Male
Female
Male
Female
Male
Female
Male
7
6
27
47
4,301
4,032
44
38
54%
46%
36%
64%
52%
48%
54%
46%
Senior managers and their
direct reports4
1
2
3
4
Companies Act 2006, s.414C(8)(c)(i)
Companies Act 2006, s.414C(8)(c)(ii)
Companies Act 2006, s.414C(8)(c)(iii)
Provision 23, 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 on-site 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 well-being.
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, Supplier Code of Conduct,
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, Group CEO, is responsible for
embedding sustainability within the 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 it
remains relevant and appropriate. We work
with our key suppliers to develop best
practice carbon management, including
science-based 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 48–51 and our sustainability
actions in the 2022 Sustainability Report.
Our GHG emissions and energy consumption
disclosure can be found on pages 46–47.
For further information
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 52 to 67
Customers
The Group’s Customer Outcomes 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.
At Phoenix, we are ambitious in our desire
to lead the way in respecting human rights
and recognise our responsibility to do this
in accordance with:
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.
Suppliers must meet and evidence the standards and obligations in the Modern
Slavery Act 2015 and must respect the human rights of their employees and
comply with all relevant legislation, regulations and directives in the countries
and communities in which they operate.
Communities
We aim to make a positive and lasting difference in the communities in which we
are based, addressing societal issues identified at a micro level. Through our
commitment to being a responsible business our colleagues can participate in
a range of community-based activities, utilising their collective time, skills,
knowledge and resources. Colleagues can take two days for individual
volunteering and a further day with their team, and support any charity of their
choice across the UK and Europe through fundraising and payroll giving schemes.
• The International Bill of Human Rights.
• The International Labour Organization’s
(‘ILO’) Core Conventions.
As an asset owner, we also align with the
Organisation for Economic Co-Operation
and Development (‘OECD’) Guidelines for
Multinational Enterprises, a set of responsible
business conduct standards for multi-national
enterprises, as well as the OECD guidance
on responsible business conduct for
institutional investors.
We are committed to fully aligning with
the United Nations Guiding Principles on
Business and Human Rights (‘UNGPs’), the
authoritative global framework on business
and human rights, and our ambition is to
encourage other organisations to do
the same.
During 2022 we appointed a human rights
consultant to review our alignment to the
UNGPs by conducting an assessment and
identifying opportunities for improvement.
As a result, we have developed a roadmap to
address gaps and are committed to closing
these within the next three years.
During 2023 we will further develop existing
policies and procedures to include human
rights considerations.
Our Data Protection Officer monitors compliance with the GDPR and DPA 2018
and owns the Group Privacy policy and Data Protection Risk policy. Our Chief
Information Security Officer monitors Cyber risks and manages a comprehensive
programme of continuous improvement of Security Controls and a dedicated
Security Operations team to respond to emerging cyber threats. The Group is
well-positioned to resist cyber-attacks and has had no significant cyber-related
incidents in 2022, and there was no compromise to our systems or data as a result
of any cyber events within our supply chain.
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. We accelerated our expectations of all 1,500 partners and suppliers and
published our Supplier Open Letter which set out our ESG requirements that
include adoption of Science-Basted Target initiative (‘SBTi’) carbon reduction
targets; implementing a plan to tackle and report on modern slavery, and meeting
best practice health and safety standards.
During 2022, we commissioned a high-level
saliency scan by an independent third party
to identify and assess our potentially salient
human rights issues that we should prioritise
for further action.
We intend to further advance our ability to
identify and manage our human rights risks,
through conducting human rights saliency
assessments of our operations and value chain
as part of our due diligence processes in the
next two years. This includes undertaking a
supply chain field assessment, portfolio-level
human rights assessment, as well as assessing
human rights risks in countries of operations
and high-risk business relationships on an
ongoing basis.
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.
• A Group Stewardship Policy which details
our stewardship approach.
• 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.
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.
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.
Other relevant colleague engagement, including Diversity, Equity and
Inclusion data can be found on pages 26 to 27 as well as in our 2022
Sustainability Report.
Information on our customer satisfaction scores and initiatives can be found on
pages 22 to 23 and in our Sustainability Report.
Information on relevant supply chain metrics and communities metrics can
be found in our 2022 Sustainability Report.
During 2022, 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.
Reporting on our salient human right issues,
actions, and progress to align with the UNGPs
through our annual sustainability report.
• Our sustainability policies:
• Health and Well-being approach: thephoenixgroup.com/sustainability/
thephoenixgroup.com/sustainability/
reports-and-policies
people-and-culture/wellbeing
• Health and Well-being Statement: thephoenixgroup.com/
HealthWellbeingStatement
• Diversity, Equity and Inclusion: thephoenixgroup.com/sustainability/
people-and-culture/diversity-and-inclusion
• HR Frameworks: thephoenixgroup.com/HRFrameworks
• Privacy Policy: thephoenixgroup.com/site-services/privacy
• Supplier Code of Conduct: thephoenixgroup.com/sustainability/
working-responsibly-suppliers
• Supplier Open Letter: thephoenixgroup.com/SupplierOpenLetter
• Community Statement: thephoenixgroup.com/CommunityStatement
• Phoenix Group 2022 Modern Slavery and
• Governance: thephoenixgroup.com/about-us/
Human Rights Statement:
thephoenixgroup.com/site-services/
modern-slavery-and-human-trafficking
governance
• Anti-bribery statement: thephoenixgroup.com/
about-us/governance/anti-bribery
44
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
45
Strategic report Streamlined Energy and Carbon Reporting (‘SECR’) statement
Energy consumption and greenhouse gas emissions 1
Table 1. Absolute energy consumption in GWh
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 1st January 2022 to 31st December 2022, and the 2021 comparative year. Emissions
disclosed here relate to energy consumption, facilities, and activities 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 the
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 the Group for its
own use. In addition, the Group estimates
Scope 3 emissions associated with
employee homeworking and employee
commuting, as well as business travel from
other third party owned/operated sources,
including air, taxi and rail travel.
Reported data relates to occupied
premises in UK, Ireland, Germany, Austria
and Bermuda, where the Group procures
energy. Where energy consumption is
sub-metered to tenants and in occupied
assets that the Group does not directly
own or operate (i.e. serviced offices),
GHG emissions falls into Scope 3
reporting, whereas all other landlord-
obtained consumption remains as Scope 1
or 2 emissions.
The Group reports Scope 2 emissions
using the GHG Protocol dual-reporting
methodology, stating two figures,
to reflect the GHG emissions from
purchased electricity:
• A location-based method – reflects
the average emissions intensity of the
national electricity grids from which
consumption is drawn.
• A market-based method – 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.
In future, the Group will prioritise market-
based emissions reporting to focus on
the actual carbon impact of its energy
consumption, recognising the organisation’s
actions to promote sustainable procurement
and improve environmental outcomes.
Prior to 2022, emissions from a number of
the Group’s investment properties were
considered Scope 1 and 2, as the approach
for those assets was historically that of
financial control. Properties managed by
other asset management partners were
reported under operational control. As of
2022, to provide a consistent reporting
framework, any direct investment assets
that historically adopted a financial control
approach will now be considered under
operational control and will therefore be
reported within investment related carbon
(scope 3) within the TCFD report.
Commentary on Performance
Overall, in 2022 there was 43.2 GWh of
Group global energy consumption
(building energy and business travel) as
shown in Table 1, 97% of which was from
UK operations. This is a substantial
decrease on the 76.4 GWh of global
energy consumption reported in 2021, and
is primarily due to the change in reporting
methodology. In addition, 24.4 GWh of
energy consumption from employee
homeworking has been estimated in 2022,
of which 92% occurred within the UK.
In GHG emissions terms (Scopes 1+2+3),
94% of Phoenix Group’s emissions
occurred at UK sites.
Due to the continued development and
improvement in the Group’s reporting
methodology, meaningful comparisons
with previous years’ energy consumption
and GHG emission is not possible.
However, in absolute terms, the Group’s
GHG emissions (location-based Scope 1 +
2, per Table 2) have decreased 46%.
Business travel remains comparable with
2021, and a significant increase of 222%
can be observed in 2022. This is the result
of continued easing of worldwide travel
restrictions, following two years of
limitations. The Group is addressing this
opportunity for improvement, and is
continuing to investigate technological
solutions to reduce business travel where
possible. In addition, both intensity metrics
reported in Table 3 show continued
decreases; by 10% on an FTE basis and 9%
on a m2 basis. This reduction shows that the
Group continues to remain on its pathway
to net zero carbon in operations by 2025.
The Group continues to procure
approximately 100% of its electricity from
certified renewable sources meaning
market-based Scope 2 emissions are
significantly less than the location-based
emissions as shown in Table 2. To recognise
the importance of addressing remaining
carbon emissions which cannot yet be
eliminated, the Group has continued to
purchase gold standard certified carbon
offsets for natural gas consumed in its
owned and occupied assets, constituting
an estimated 1,994 tCO2e in 2022.
Consumption, GWh2 from:
Building Electricity
Building Natural Gas
Business Travel
Homeworking Electricity
Homeworking Natural Gas
Total Consumption
2022
24.1
18.7
0.4
1.5
22.9
67.6
2021
45.4
31.0
0.1
1.7
26.1
104.3
a
b
GHG emissions and energy consumption statement pursuant to the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 (the SECR Regulations)
Business travel (GWh) does not include air, taxi or rail due to lack of applicable conversion factors for this data, however GHG emissions from these sources are still
included in Table 2
Table 2. 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 7: Employee Commuting (incl. Homeworking Emissions)
Scope 3 — Category 8: Upstream Leased Assets
Scope 3 — Category 13: Downstream Leased Assets
Scopes 1 + 2 + 3 — Voluntary carbon footprint
Carbon Offsets Purchased
2022
2021
(market-
based)
(location-
based)
(market-
based)
(location-
based)
2,684
2,684
4,812
4,812
7
2,692
356
1,149
4,847
2,018
0
11,062
4,437
7,121
356
1,149
4,631
1,826
313
15,395
21
4,833
1
356
5,487
2,051
312
13,040
1,994
2,453
8,342
13,154
722
356
5,294
1,765
2,723
24,014
1
2
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 –2022 factors will not be published until late 2023. Therefore all 2022
consumption data are converted using the factors actually arising in 2018 (except business travel which uses DEFRA factors as published in 2022).
Energy Units: 1 GWh = 1,000,000 kWh
Table 3. 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)
2022
2021
(market-
based)
26
0.34
(location-
based)
57
0.73
(market-
based)
30
0.38
(location-
based)
62
0.81
Energy Intensity Metrics
The Group’s chosen operational intensity
metrics detail GHG emissions per
occupied floor area (m2) and per FTE in
occupied premises (Table 3). The
methodology to establish whether
buildings should be included in the
intensity metric only covers occupied
buildings where emissions are considered
Scope 1 and 2 and where twelve months of
data is available in the current 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
applicable occupied floor area and FTEs
respectively were summed and then
divided by the total Scope 1 and 2
emissions for these buildings.
Both the m2 and FTEs intensities have
continued to decrease in 2022, which is
the result of the Group’s ongoing efforts to
improve energy efficiency and reduce it’s
impact on the environment through it’s
operations, as described below in the
Energy Efficiency Action section.
Energy Action (Climate Change Actions)
To maximise the environmental impact of
capital expenditure, spending was
prioritised based on the potential carbon
impact of projects across the operational
estate. Many projects were undertaken in
offices that need to stay operational
throughout the year; thus, the work has
been phased over a number of years.
This means that energy and carbon savings
may fluctuate depending on the extent of
works carried out in a particular year.
The following is a selection of projects
for 2022:
• Completed the replacement of roof
glazing with photovoltaic glass. To date
this has produced 1,880 kWh of on-site
renewable electricity.
• Continued to roll out higher efficiency
LED lighting across applicable buildings.
• Upgraded building control systems to
allow for greater flexibility and
operational efficiency.
• Upgraded fans and retrofitted inverter
controls within ventilation systems.
• Replaced inefficient gas boilers in
two buildings giving savings of
1,950 MWh per year.
In line with the Group’s Eliminate-Reduce-
Substitute-Compensate carbon reduction
model, applicable opportunities will continue
to be reviewed. Additionally, technological
solutions are also being investigated in order
to facilitate and improve remote
collaborations between colleagues, enabling
the Group to reduce business travel.
Building improvement works will continue
as needed to include efficiency measures
such as improved controls (to switch
unnecessary equipment and lighting off),
more efficient equipment, and improved
building fabric where necessary.
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47
Strategic report 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 and
we believe Phoenix has a significant role to play in helping to address the
climate emergency, accelerating the transition to a net zero economy and
managing financial risk for our customers and shareholders. We aim to
be a net zero business by 2050.
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
Environmental, Social and Governance
(‘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 on these targets can be
found on pages 129 to 130 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
Management Function holders (‘SMF’s)
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 and
operational groups also have specific
responsibilities for climate-related activities.
Enterprise Sustainability Committee –
comprised of key executives who meet at
least six 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;
and supporting Board Committees.
TCFD Working Group – responsible
for ensuring the implementation and
embedding of the recommendations of
the TCFD and delivery of locally agreed
climate-related action.
During 2022, we evolved our governance
framework to drive greater empowerment,
efficiency and agility across the business.
This resulted in simplifying our
management committee structure which
provide a means for our executive decision
makers, SMFs and controlled function role
holders to gain the information they need
and opportunity to challenge options for
action before signing off important
decisions on behalf of the Group.
As a result, the Enterprise Sustainability
Committee was established to provide
oversight of the implementation and
achievement of the Phoenix Group’s
sustainability and climate strategies,
driving forward the Group’s agenda
covering the breadth of those strategies
and related initiatives.
The TCFD Steering Committee (which was
operational until March 2022 when the
TCFD Implementation Programme
concluded) and TCFD working group
mentioned above now form part of our
on-going local governance forums.
These groups do not have 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 2022 Sustainability Strategy,
including key climate-related targets. The
Board considered climate change on
seven occasions (including education
sessions and updates on TCFD
implementation and the Net Zero
Transition Plan). At each meeting the Chair
of the Board Sustainability Committee
provides a verbal report on the
considerations of the Committee.
opportunities. This has been used to
guide our financial planning and
decision making in 2022.
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
managing the financial risks from climate
change for our policyholders and
providing savings and insurance products
that can enable our policyholders to direct
finance to help accelerate the transition
to a low carbon economy.
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.
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.
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.
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 2023 targets and these will
be disclosed in the Director’s
Remuneration Report for 2023. Phoenix
has continued to upskill the Board,
Executive and the wider Group through
tailored education sessions on
sustainability and climate change and in
2022, sessions were held to deepen
understanding of decarbonisation targets
as part of the SBTi process and
developments in the energy market.
Looking ahead
Ongoing enhancement of the governance
framework and embedding of climate with
decision making across the Group will
continue, ensuring our governance is
future fit, in addition to a continued focus
on education and developing expertise.
There will be further support of the 2023
sustainability targets and priorities
including approval of the Net Zero
Transition Plan and oversight of the
Group’s nature approach and strategy
development and implementation
Strategy
We have identified climate change risks
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
Climate Report –
prepared in line with
Recommendations and
Recommended
Disclosures 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 2022, we have made further
progress in embedding the
recommendations of the taskforce.
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 of the TCFD
framework, the progress we have
made during 2022 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.
Scan the code to find out
more in our Climate Report
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49
Strategic report Task Force on Climate-Related Financial Disclosures continued
During the year we commenced a
quantitative climate scenario exercise to
further develop our methodology and
modelling capabilities and assess the
resilience of our climate strategy. We have
used five climate scenarios 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 indicates there is a need to
transition our investment portfolio to align
to a net zero position at a suitable pace.
This action will be delivered through our
Net Zero Transition Plan and will help
mitigate the Group exposure to transition
risk in particular. 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.
We will further develop our internal
scenario analysis process, addressing
known limitations and reflecting evolving
market best practice. This will include
enhancing our analysis of physical risk.
Risk management
Climate change was identified as an
emerging risk in 2018 and sustainability
risk, of which climate risk is a sub-category,
has been classified as a principal risk by the
Board since 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 52.
In 2022, we have further developed our
internal climate risk reporting, reflecting
the evolution of market best practice and
tracking the progress made in terms of the
Group’s interim net zero targets for both
internal operations and the investment
portfolio. We have continued to review and
enhance the RMF as further information is
developed, including through scenario
analysis work and have enhanced the data
strategy and model for collecting and
reporting on climate risk.
Looking ahead
We aim to enhance the data strategy and
model for collecting and reporting on
climate change risk and further develop
our internal physical risk reporting.
Ongoing review and enhancement of the
RMF will continue as further information is
developed, including through scenario
analysis work.
Metrics and targets
In 2022, we expanded our Scope 3
financed emission baseline to include
sovereign debt and real estate assets. For
the investment portfolio, we measured the
absolute emissions and emissions intensity
for our listed equity, listed credit, sovereign
debt and real estate assets, the percentage
of this portfolio exposed to high-carbon
risk sectors and the fossil fuel industry; and
the percentage of this portfolio aligned
with science-based targets.
Using this expanded baseline Scope 3
investment portfolio absolute emissions
decreased from 24 million tons of carbon
dioxide equivalent (‘tCO2e’) in 2019 to 21
mtCO2e in 2021. The revenue emissions
intensity for listed equity and credit assets
decreased from 158 tCO2e per $1 million
revenue in 2019 to 139 tCO2e per $1 million
revenue in 2021.
The four high transition risk sectors
(energy, utilities, materials and industrials)
only account for 20% of the listed
portfolio AUM, however they account for
71% of all listed portfolio emissions. As at
year end 2021, almost half of the listed
portfolio was invested in counterparties
that had committed to set or already set
approved science-based targets.
Our operational carbon footprint is detailed
in the SECR report on pages 46 to 47.
We have worked with our partners Carbon
Intelligence to set an indicative 2019
baseline for our supply chain of circa 0.2
million tCO2e. We calculated our indicative
2019 baseline using a hybrid methodology,
which involved a combination of extended
input-output (‘EEIO’) analysis, where an
industry average emissions factor is
applied per pound spend. This was
supplemented with (‘CDP’) data inputs
from suppliers where available. Based on
our estimated emissions footprint work
to date using available data, we have
identified that our supply chain emissions
seem to be heavily concentrated in the
top 10 suppliers, with the top 100
suppliers likely accounting for
approximately 95% of our Purchased
Goods and Services emissions.
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 , 2 and selected Scope
3 business travel) 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 our listed equity and credit
assets where we exercise influence and
control by 2025.
• A 50% reduction in the carbon emission
intensity of all assets where we exercise
influence and control by 2030 to be net
zero by 2050.
In 2022 we submitted our internal
decarbonisation targets (which support
the delivery of our external interim
decarbonisation targets) to the
Science Based Targets Initiaitve (‘SBTi’)
for validation.
Looking ahead
We will review our decarbonisation
performance against a net-zero glide path
for 2023 and aim to expand our Scope 3
finance emissions baseline to include
illiquid credit assets in 2023. As data
quality improves, we want to broaden the
scope to consider the Scope 3 emissions
of investee companies.
We will further develop operational and
investment metrics with a focus on physical
risk. We will continue to help set and track
their carbon reduction targets. We will
be publishing our Net Zero Transition
Plan in 2023.
Timeline of climate action
• Supported TCFD framework
• First TCFD disclosure published
2020
• 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 Principles of Responsible Investment
• Achieved 34% reduction in operational emissions intensity from 2020
• Became member of Net Zero Asset Owners Alliance
2021
• First life insurer to sign up to UK Partnership for Carbon Accounting Financials
• 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 Bank of England’s Climate Biennial Exploratory Scenario (‘CBES’) exercise
• Strategic partner for Green Horizon Summit at United Nations Climate Change Conference
•
‘B’ Carbon Disclosure Project (‘CDP’) grade awarded
• Published first standalone Climate report
• Completed Round II of CBES exercise
2022
• Rolled out decarbonisation investment strategy and increased stewardship activity
• Transferred c.1.5 million customers and c. £15 billion of assets into our sustainable
multi-asset default solution
•
Invested £483 million in illiquid assets with positive environmental impact
• £338 million multi-asset climate solutions mandate to deploy policyholder assets
• 80% reduction in operational carbon emissions intensity (per FTE against 2019)
• 82% of suppliers committed to either a SBTi or Race to Zero target
• Developed SBTi targets for validation
• A- CDP grade awarded
• Develop and publish Net Zero Transition Plan capturing investments,
operations and supply chain
• Aim to meet all interim net zero targets across investments, operations and supply chain
• Net Zero Group by 2050
2023
And beyond
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51
Strategic report Risk management
Our risk
management framework
The Group’s Risk Management Framework (‘RMF’) seeks to ensure
that all material risks are identified, assessed, controlled, monitored
and 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 RMF is aligned to the principles of
the International Organisation of
Standardisations’ (‘ISO’) risk management
guidelines, ISO 31000.
The nine components of the RMF are
outlined in the diagram below, with further
information in the sections below.
Risk environment
The overall risk environment remains
uncertain and is dominated by ongoing
inflationary pressures, with implications for
economic stability and the welfare of the
Group’s customers and colleagues. The cost
of living crisis and sustained high inflation
are impacting the lives of the Group’s
customers, particularly those that are most
vulnerable. Increased taxes and reduced
public spending announced in the Autumn
Budget are likely to exacerbate these
impacts. The Group remains focused on
finding ways to support its customers and
has also introduced a number of initiatives
to support colleagues. Central Banks face a
challenging balancing act to control
inflation whilst managing the risk of global
recession. The Group’s Stress and Scenario
Testing programme continues to consider a
range of adverse circumstances to help it
determine any actions needed to respond
to economic pressures.
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
Geopolitical risk remains prominent, including
the effects arising from the ongoing conflict in
Ukraine and post-Brexit factors. The Group
continues to monitor developments across
the political environment.
The regulatory change agenda continues
to have potentially significant implications
for the Group achieving its strategic
priorities. The Group is supportive of the
Solvency II Reforms, but requires detail
on the final rules to determine the
implications for its strategic asset
allocation. Progressing key tasks on the
implementation plan for the FCA’s new
Consumer Duty is another area of primary
focus in order to demonstrate the Group’s
priority of helping customers achieve a life
of possibilities.
The Group is working to implement the
requirements of International Financial
Reporting Standard 17 (‘IFRS 17’). Whilst
plans are in place to deliver the required
disclosures in the interim accounts, there
remain significant delivery risks given the
complexity of the business. The Group
recognises that should it not deliver IFRS 17
reporting for the interim accounts, certain
reputational, regulatory and other market
consequences would arise that could be
material. Management has considered the
risks to executing the plans and identified
actions that could be taken should these
risks materialise.
The Group also maintains a significant
self-initiated change agenda in order to
deliver on its strategic priorities. In 2022 a
number of enhancements were made to the
Group’s Change Management Framework
including to the prioritisation and
scheduling of change, and strengthened
controls around change delivery.
The Group retains focus on delivering on
its strategic operating model. In 2022 this
included migration of a further 530,000
customer policies to Tata Consultancy
Services (‘TCS’) Diligenta, the transfer of
custody and fund accounting services for
£90 billion of assets to HSBC and progress
towards the simplified operating model
with abrdn plc. The Group places
significant focus on the operation of these
partnerships, including the operational
resilience of each, in order to protect the
efficient operation of the business and
delivery of service to its customers.
Own risk and solvency assessment (‘ORSA’)
The ORSA plays an important role in
supporting strategic decision-making and
strategy development at the Group’s
Boards and risk committees. It provides:
• a linkage between strategy, risk, capital
and stress testing, as well as the
effectiveness of management actions
required to meet strategic objectives;
• 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 agreed 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 external environment.
ORSA processes are run regularly
throughout the year and operate within
the Group’s ORSA cycle outlined below.
The Group’s ORSA cycle brings together
inter-linked risk management, capital and
strategic processes.
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 goals 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. To help bring focus to the risks
that it seeks to mitigate, the Group has
ORSA process cycle
ORSA
reporting
Strategy and
business plan
Stress and
scenario testing
Risk exposure
and appetite
Risk management
and monitoring
Risk capital
Assessment
categorised its risk universe into
‘Fundamental’, ‘Consequential – Active’
or ‘Consequential – Passive’.
Risk culture
Risk culture is the sum of the Group’s
shared values, behaviours and attitudes
towards the risks faced by its 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.
The Group utilises qualitative observations
and structured monthly surveys as a rich
quantitative data source to monitor
colleague engagement, health and
well-being, as well as providing a safe
platform to allow colleagues to proactively
identify and report upon potential cultural
risks. To help provide the Group with a more
comprehensive view of culture, a colleague
risk culture self-assessment mechanism is
currently being tested, which aims to
improve the Group’s insight and capability
to better understand risk culture strengths
and development areas. The Group is
working hard to ensure that a psychologically
safe environment exists within Phoenix,
where colleagues are empowered to share
different viewpoints and have an ability to
speak up freely. The Group’s Board of
Directors reinforces its culture and values
through their conduct (individually and
collectively), decisions and strategic oversight.
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:
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53
Strategic report Risk management continued
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.
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 managed, and
deliver added value. The Group will take
action to deliver shareholder value in line with
the Group’s strategy and financial targets.
Control – The Group, including all legal
entities, will protect the interests of its
customers, colleagues, shareholders and
other stakeholders by operating a robust
control environment that meets the
requirements of the approved controls
objectives for all risks within the Phoenix
Risk Universe.
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
address them in a fair and prompt manner.
Sustainability – The Group is committed
to being a leader on sustainability to
help deliver its purpose and to protect
the long-term financial interests
of its customers, colleagues and
shareholders. To manage the risks in
the delivery of its sustainability strategy,
the Group will monitor and take action
to achieve its targets and invest in a
sustainable future, engage people
in better financial futures and build a
leading responsible business.
Risk universe
A key element of effective risk management
is ensuring the business understands the
risks it faces. The Group’s Risk Universe
summarises the comprehensive set of risks
to which the Group is exposed. The Risk
Universe allows the Group to deploy
a common language, allowing for
meaningful comparison to be made across
the business. The risk profile of each is an
assessment of the impact and likelihood
of those risks crystallising and the Group
failing to achieve its strategic objectives.
Changes in the risk profile are influenced
by the commercial, economic and
non-economic environment and are
identified, assessed, managed, monitored
and reported through the Group’s RMF
processes. The Risk Universe presents the
complete set of risks across the Group in
increasing levels of granularity, i.e. Level 1
risks are the high level risk categories,
Level 2 risks are the components of these
categories and, in some instances, Level 3
risks are included, where considered
necessary, as sub-components. 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 day-to-day. 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; and
• the Control Objectives that determine
the Key Controls required to manage
each risk to an acceptable level.
Risk policies are mapped to either
Level 1 or Level 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 (for example
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.
A Group Conduct Strategy and Climate
Change Risk Management Framework
overarch 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 to manage
these risks across the Group.
Governance and organisation
The RMF delivers 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.
immediate action is required to
pre-emptively mitigate risks or fully
maximise opportunities.
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 below.
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.
Emerging Risks draw upon potential
internal and external change drivers to the
organisation, and often stem from changes
in economic, environmental, societal,
technological or political circumstances.
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
Governance framework
Whilst any estimates have an element of
subjectivity, they are validated during
Management Board and Board Risk
Committee discussions. These
conversations help drive out a
comprehensive understanding of potential
new risks and opportunities to which the
organisation is exposed, drawing on the
collective expertise and experiences of
subject matter experts. The Group
routinely captures emerging risks and
opportunities in a detailed log.
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, however it seeks to
proactively identify, manage and monitor
these exposures. A Strategic Risk Policy is
maintained and reported against regularly,
with a particular focus on risk management,
stakeholder management and 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. It is a requirement
that all material risks, and the interactions
between them, are in scope of the Group’s
risk and capital models.
Under Solvency II, the development and
production of any Internal Model output
contributing to regulatory capital
requirements must comply with validation
standards, supported with documentation
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, measurement,
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.
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
Chief Risk
Officer
Group
Risk and
Compliance
Group
Internal
Audit
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55
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 2021 Annual Report and
Accounts, published in March 2022.
A principal risk is a risk or combination of
risks that can seriously affect the
performance, future prospects or
reputation of the Group, including risks
that would threaten its business model,
future performance, solvency or liquidity.
The Board Risk Committee has carried out
a robust assessment of principal risks and
emerging risks. As a result of this review,
the 13 risks noted in the Group’s 2021
Annual Report and Accounts have been
retained. The description of one risk has
been refined to reflect the evolution of
the Group’s strategic priorities to focus
on organic growth.
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.
Strategic priorities
Optimise our
in-force business
Grow organically and
through M&A
Enhance our operating model
and culture
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
Strategic risk
The Group fails
to make further
value adding
acquisitions or
effectively
transition
acquired
businesses
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 transition of acquired
businesses into the Group,
including customer migrations,
could introduce structural or
operational challenges that,
without sufficient controls,
could result in the Group failing
to deliver the expected
outcomes for customers or
value for shareholders.
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. The
Group’s priority at all times is
on delivering for its customers.
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.
This risk was assessed as ‘Heightened’ in the Group’s 2018
Annual Report and Accounts due to the transformational
nature of the Standard Life acquisition. The assessment
of the level of exposure to this risk is unchanged from the
2018 position due to the impact of ongoing acquisition and
transition activity.
The integration of ReAssure Ltd is continuing as planned,
with the integration of key functions, such as Finance and
Actuarial, progressing well.
The Group continues to develop its partnership with TCS
to support its strategic deliverables. The successful
migration of around 400,000 Standard Life Assurance
customer policies to the TCS BaNCS platform was
completed in May 2022, with the migration of a further
130,000 Scottish Mutual customer policies completed in
November 2022. Further customer migrations are planned
through to 2026, which will support delivery of the Group’s
strategic objectives.
On 7 February 2023 the Group announced that a further c.
3 million policies, currently administered on the Alpha
platform, will be transitioned to the BaNCS platform by
2026. This will enable all Phoenix policies to benefit from
TCS’ significant ongoing investment in the platform.
In August 2022 the Group announced the acquisition of
Sun Life of Canada UK, a closed book UK life insurance
company, from Sun Life Assurance Company of Canada
for cash consideration of £248 million. This equates to an
attractive price to shareholder Own Funds ratio of 83%,
in line with the Board’s disciplined approach to the
deployment of shareholder capital. The acquisition is
expected to complete in April 2023.
Risk
Impact
Mitigation
Strategic risk
(continued)
Strategic
priorities
Change from 2021 Annual Report and Accounts
Sun Life of Canada UK operates a predominantly
outsourced business model with the majority of its policy
administration already undertaken by the Group’s strategic
outsourcing partner (TCS Diligenta), which supports a
simplified operational integration programme.
The Sun Life of Canada UK acquisition is expected to
deliver c. £500 million of incremental long-term cash
generation, with 30% expected to emerge in the first
three years.
The Group assessed this risk as ‘Heightened’ in the 2019
Annual Report and Accounts due to the increased
dependency it placed on its strategic partnerships, and
then ‘Improved’ in 2020 due to strengthening controls
around the operation of those partnerships. Whilst the
Group has further strengthened and simplified its strategic
partnerships since that time, its assessment of the level of
risk exposure is unchanged from the 2020 position,
reflecting the Group’s ongoing reliance on its strategic
partners to deliver the volume of change needed to
advance the Group’s strategic objectives.
The Group continues to develop its partnership with
TCS to support its strategic deliverables. The successful
migration of around 400,000 Standard Life Assurance
customer policies to the TCS BaNCS platform was
completed in May 2022, with the migration of a further
130,000 Scottish Mutual customer policies completed in
November 2022. Planning for further migrations in 2023
and beyond is underway, including the further c. 3 million
policies to be transferred from the Group’s Alpha
administration platform as the Group progresses towards
BaNCS being the sole administration platform for all
customer policies.
During 2022 the Group successfully transferred the
custody and fund accounting services for £90 billion
of assets to HSBC. This is a key milestone in the Group’s
journey towards implementing harmonised investment
administration processes, and boosts its strategic
partnership with HSBC.
The simplified and extended partnership with abrdn plc
continues to advance towards the Target Operating Model
with significant progress towards the transfer of Wrap
platform products expected in 2023 ahead of the transfer
occurring in subsequent years.
The Group’s
strategic
partnerships fail
to deliver the
expected
benefits
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 in line with its Supplier
Management Model.
The Group takes steps
to monitor its supplier
concentration risks and has
business continuity plans
to deploy should there be
a significant failure of
a strategic partner.
Strategic partnerships are a core
enabler for delivery of 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.
However, there is a risk that the
Group’s strategic partnerships
do not deliver the expected
benefits leading to adverse
impacts on customer outcomes,
strategic objectives, regulatory
obligations and the Group’s
reputation and brand.
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. £145 billion of
the Group’s assets under
administration, at February 2023.
TCS: The Group’s enlarged
partnership with TCS is
expected to support growth
plans for the Retirement
Solutions and Pensions and
Savings businesses, enabling
further market-leading digital
and technology capabilities to
be developed to support
enhanced customer outcomes.
HSBC: Provides custody and
fund accounting services to the
Group to manage c. £148 billion
of its unit linked operations.
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57
Strategic report Risk management continued
Risk
Impact
Mitigation
Strategic risk
(continued)
Strategic
priorities
Change from 2021 Annual Report and Accounts
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
Strategic risk
(continued)
The Group fails to
deliver long-term
organic growth
The Group aims to deliver
sustainable cash generation
by achieving organic growth
in excess of the run-off from
its in-force business.
Confidence in the Group might
be diminished if it fails to deliver
organic growth in line with
targets shared, 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 time frame
assumed in its business plans
and may result in the Group
being unable to deliver its
strategic objectives. Poor
change delivery could affect the
Group’s ability to operate its core
processes in a controlled
and timely manner.
The Group’s Business Unit
structure brings renewed
focus and accountability.
The key areas of growth
are Pensions & Savings
and Retirement Solutions.
Each Business Unit holds an
annual strategy setting exercise
to consider customer needs,
the interests of shareholders,
the competitive landscape and
the Group’s overall purpose
and objectives.
The Group’s Annual
Operating Plan commits it to
making significant investment
in its Pensions & Savings and
Retirement Solutions
businesses, which will include
propositions that are driven
by customer insight.
The Group is established in
the Bulk Purchase Annuities
(‘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 its rigorous
Capital Allocation Framework.
The Group’s Change
Management Framework
defines a clear set of
prioritisation criteria and
scheduling principles for new
projects. This is to support
the safe and controlled
mobilisation of new change
in line with capacity and risk
appetite and to strengthen
business readiness processes
to deliver change safely into
the operational environment.
Information setting out the
current and forecast levels of
resource supply and demand
continues to be provided
to accountable senior
management to enable
informed decision-making
to take place. This aims to
ensure that all material risks
to project delivery are
appropriately identified,
assessed, managed,
monitored and reported.
Improving
For the second consecutive year the Group has delivered
sustainable organic growth which more than offset the
run-off of in-force business. At its Capital Markets Event the
Group set its first incremental new business long-term cash
generation target as a result of the significant progress
made by both Pensions & Savings and Retirement Solutions.
As a result of this development, the Group views this risk as
‘Improving’, which reflects both the demonstrated success
of the strategy to pursue organic and inorganic growth, and
the challenging nature of the target set.
During 2022, the Group completed BPA transactions
with a combined premium of £4.8 billion. This continues
to demonstrate that the Group has the ability to compete
and win in the BPA market.
The Pensions and Savings Business, operating under the
Standard Life brand, has developed its operating model
to centre around three Trading Channels: Workplace,
Retail Intermediated and Retail Direct.
In Workplace, the Group continues to make progress in
the market, launching new propositional features such as
Workplace ISA. The Group continues to recruit to increase
its capability in terms of proposition and distribution; 76
new scheme wins have been confirmed during 2022
(compared with 41 for 2021), and the Group is actively
managing a number of enquiries.
The operating model and organisational design are being
developed and implemented for the Retail businesses, with
the aim of maximising opportunities for growth, both
directly with customers and through advisers. The Group
is looking to expand the current offering of financial
guidance and advice to support customers in better
preparing for their retirement. The Pensions and Savings
business has established, alongside the Workplace
Business, a Retail Direct Function to mobilise this.
There has been no change to the assessment of exposure
to this risk, which reflects the potential impact of failing
to deliver the Group’s significant strategic and regulatory
change agenda, since its introduction in the 2020 Annual
Report and Accounts.
The Group strengthened its Change Management
Framework during 2022, and expects to see an improving
trend in this risk as those enhancements are seen in project
delivery. In September 2022 the Group appointed Jackie
Noakes as Group Chief Transformation Officer and,
subsequently, as Group Chief Operating Officer. Jackie
will drive further enhancements to evolve and mature the
Group’s change operating model that are planned in 2023.
These should also have a positive impact on this risk.
However, exposure remains until this work is complete.
There has been no change to the assessment of the overall
level of this risk since its introduction in the 2019 Annual
Report and Accounts. While significant progress is being
made to deliver against the Group’s Net-Zero targets and
social purpose, the assessment is driven by the Group’s
recognition that significant work, over a number of years,
is required to deliver on these targets.
The Group is committed to a 50% reduction in the carbon
economic emissions intensity of all assets within its
investment portfolio over which it has control and
influence by 2030. The Group is also committed to
a 25% reduction in the carbon economic emissions
intensity of all listed equity and credit investments over
which it has control and influence by 2025. The Group
has been working with its key partners and suppliers
to encourage them to adopt Science Based Targets
initiative carbon reduction targets.
A Net-Zero Transition Plan, which reflects potential future
management actions and forward-looking investee
company emission objectives, is in development.
The Group is in the process of piloting the Task Force
on Nature-related Financial Disclosures guidance ahead
of the launch of the framework in 2023.
The TCFD disclosures in the Group’s Climate Report
provide an overview of how it is compliant with SS3/19
and its planned future priorities across each of the TCFD
focus areas.
The Group fails
to appropriately
prepare for and
manage the
effects of climate
change and wider
ESG risks
The Group is exposed to the risk
of failing to respond to
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,
reputational risks and litigation.
The Group is exposed to market
risk and credit risk related to
climate change as a result of
the potential implications of
a transition to a low carbon
economy. A failure to manage
these risks could result in a loss in
the value of policyholder and
shareholder assets.
In addition, there are long-term
market, credit, 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).
Sustainability risk and Climate
risk are both embedded into
the Group’s RMF. Its approach
to climate risk management is
in line with the requirements
of the PRA Supervisory
Statement 3/19 (‘SS3/19’).
The Group publishes an
annual Sustainability Report
and an annual Climate Report,
the latter of which is prepared
in line with the Task Force on
Climate-related Financial
Disclosures (‘TCFD’) guidance.
A Sustainability Risk Policy is
in place and updated annually.
Consideration of material
climate-related risks is
embedded across the Group’s
risk policies, with regular
reporting undertaken to
ensure ongoing visibility of
its exposure to these risks.
The Group undertakes annual
climate-related stress and
scenario testing and continues
to build its climate scenario
modelling capabilities.
The Group continues to evolve
its sustainability strategy in
response to the changing
needs of stakeholders and
sets targets to monitor
progress towards its
sustainability commitments.
Further details are available in
the Sustainability Report.
The Group continues
to actively engage with
regulators, suppliers and
asset managers on progress
with all climate change
and sustainability-related
deliverables.
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Strategic report Risk management continued
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
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 harm. 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.
The Group’s Conduct Risk
Appetite sets the boundaries
within which the Group
expects customer outcomes
to be managed.
The Group’s Conduct
Strategy, 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 the
Control Objectives that
determine the Key Controls
required 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.
Since the introduction of this risk in the 2018 Annual
Report and Accounts there has been no change to the
assessment of the overall level of this risk, reflecting
ongoing improvements and challenges.
In 2022, the Group continued to make significant
investments in its propositions, and completed embedding
a range of responsibly invested, sustainable multi asset
funds for Standard Life’s 1.5 million workplace pension
scheme members, with assets of circa £15 billion now
invested in sustainable solutions on their behalf. The
programme to introduce sustainable investment strategies
that are designed to help employers and trustees meet
their member and regulatory needs, and pension
customers to achieve good outcomes, was completed two
months earlier than the end-of-year timeline previously
announced in January 2022. The Group is preparing for
the introduction of the FCA’s Consumer Duty requirements
which set higher and clearer standards of consumer
protection across financial services and require firms to
prioritise their customers’ needs. The Consumer Duty initial
implementation plan was agreed by the Group.
The Group is monitoring the impacts of the cost of living
crisis on its customers, using customer behaviour research
and analysis, to ensure that it provides them with the
support and help that they need during this period of
economic uncertainty. The Group continues to provide
support to customers both when paying out on their
protection plans and when making decisions about their
life savings. Proactive action to support customers,
including those most vulnerable, is a priority.
Operational risk
The Group or its
outsourcers are
not sufficiently
operationally
resilient
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. This could occur
either in-house or within the
Group’s primary and
downstream outsourcers and
be triggered by a range of
environmental and climatic
factors such as the cost of
living crisis and adverse
weather phenomena.
The Group regularly conducts
customer migrations as part of
transition activities in delivering
against its strategic objectives.
In doing so, it faces the risk of
interruption to its customer
services, which may result in
the failure to deliver expected
customer outcomes.
Regulatory requirements for
operational resilience, and a
timetable to achieve full
compliance, were published in
March 2021. 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 should
the regulator determines that
the cause was a breach of
existing regulation.
The Group’s Operational
Resilience Framework
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.
For example, extensive testing
of the power capabilities of
the Group and its critical
suppliers has shown they are
resilient to power cuts from
the National Grid.
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 outsourcers
have a flexible working model
in place. This significantly
reduces exposure to
intolerable disruption
for its customers.
This risk was assessed as ‘Heightened’ in the Group’s 2020
Annual Report and Accounts due to COVID-19 uncertainty
and strategic customer transformation activity. These
factors remain the key drivers of the current assessment
of the level of exposure to this risk, which is unchanged
since the 2020 position.
Whilst uncertainty regarding further COVID-19 related
implications for the Group’s operational resilience has
continued to reduce, the Group has a significant change
and customer migration agenda, effective completion of
which is required to deliver planned strengthening of its
operational resilience both internally and with some
outsourced service providers.
The Group has a programme of work to strengthen
operational resilience ahead of the next key regulatory
deadline of March 2025. Where this is dependent upon
customer migration to an alternative administration
platform, the risk of late delivery is actively managed
by both the relevant change programme and
separate operational resilience remediation
governance and reporting.
As noted in the Group’s 2021 Annual Report and Accounts,
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, is more
challenging to resolve in the short-term as there remains
uncertainty around the efficacy of vaccines against future
COVID-19 variants.
The Group aims to deliver considerable customer
transformation activity in 2023. 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 the resilience of its customer service.
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61
Strategic report Risk management continued
Risk
Impact
Mitigation
Operational risk
(continued)
Strategic
priorities
The Group is
impacted by
significant
changes in the
regulatory,
legislative or
political
environment
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.
Changes in regulation could
lead to non-compliance with
new requirements that could
impact the quality of customer
outcomes, lead to regulatory
sanction, impact financial
performance or cause
reputational damage. 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.
Change from 2021 Annual Report and Accounts
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
Operational risk
(continued)
The Group or its
Supply Chain are
not sufficiently
cyber resilient
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 flexible ways
of working, including remote
access to business systems,
adds additional challenges to
cyber resilience and could
impact service provision and
customer security.
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
Assessment and external
threat intelligence sources.
The Group continues to
consolidate its 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.
The Group continues to
enhance and strengthen its
outsourced service provider
and third party oversight and
assurance processes. Regular
Board, Executive, Risk and
Audit Committee engagement
occurs within the Group.
This risk was assessed as ‘Heightened’ in the Group’s 2021
Annual Report and Accounts due to the conflict in Ukraine.
This remains the key driver for the assessment of the
exposure to this risk, which is unchanged from the 2021
position. The ongoing conflict in Ukraine has resulted in
increased cyber threat levels and the increased likelihood
of a cyber-attack from a State actor; this would most likely
be against the UK’s Critical National Infrastructure,
particularly on supply chains and the wider Financial
Services industry which the Group relies upon. The Group
improved its Threat Intelligence capabilities in 2022 and
monitors National Cyber Security Centre guidance and
other threat intelligence sources on a daily basis. To date,
the Group has not seen a material increase in cyber-attacks
since the conflict started.
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
Nation-State level cyber-attack. Having strengthened and
consolidated its cyber controls, including in areas such as
Vulnerability and Patch Management, Detect and Respond
and infrastructure scanning capabilities in the first half of
2022, the main improvement in the second half of the year
was strengthening the Supply Chain Security Oversight
and Assurance framework. New Cyber Bandings,
Processes and Controls have been implemented and
will continue to be embedded and matured in 2023.
Following a Final Stage Assessment in late June 2022
and recommendation by the British Standards Institution,
Phoenix Group now holds ISO 27001 Information Security
Management Certification for its Workplace Pension
and Benefits schemes.
Heightened
This risk was assessed as ‘Heightened’ in the Group’s 2021
Annual Report and Accounts due to the uncertainty
around Solvency II Reforms and the FCA’s proposed
Consumer Duty. These, and the significant undertaking
to achieve compliance with IFRS 17 in 2023, are the key
drivers of the assessment of risk as further ‘Heightened’
from that position.
The volatile political environment following the UK
Government’s ‘mini-budget’ has stabilised with the election
of Rishi Sunak as Prime Minister, but remains ‘heightened’
due to the economic headwinds facing the new
administration and the implications for the Group’s
customer base, including the cost of living, energy
crisis and the potential increase in vulnerability.
In November 2022, HM Treasury issued a consultation
response that confirmed the UK Government’s intended
Solvency II reforms. The Group supports the PRA and HM
Treasury’s objectives to reform the regulations to better suit
the UK market whilst maintaining the right safeguards for
policyholders. These regulations are an important
component of the changes needed to the wider UK
investment landscape which will enable the Group to
meet its ambition to invest more in the future. However,
uncertainty remains over when the reforms will be
implemented and the quantitative impacts will depend
on the exact detail of the final legislation. The Group will
therefore remain actively involved in industry lobbying
on Solvency II.
The FCA’s proposed new Consumer Duty’s objectives are
to deliver a higher and more consistent level of consumer
protection and for the industry to do more to foresee and
prevent harm before it happens. In July 2022 the FCA
published final rules and guidance, the impact of which the
Group has assessed. As part of Phoenix’s implementation
plan, key priorities have been identified that must be
addressed to ensure compliance with the Consumer Duty
requirements within the relevant timescales. This plan has
been approved by the Board and shared with the FCA.
IFRS 17 aims to standardise insurance accounting across
the industry. Compliance with IFRS 17 is a significant
undertaking, and a complex programme of work to deliver
the Group’s 2023 interim accounts is ongoing and reliant
on the successful completion of significant workstreams
across the Group, resulting in a number of delivery risks.
The Group recognises that, should it not deliver IFRS 17
reporting for the interim accounts, certain reputational,
regulatory and other market consequences would arise
that could be material. Management has considered the
risks to executing the Group’s delivery plans and identified
actions that could be taken should these risks materialise.
The Group expects to continue its finance transformation
programme beyond delivery of the 2023 interim accounts
to further streamline and automate IFRS 17 processes to
support efficient financial reporting in the future.
Following the UK’s Supreme Court judgement in
November 2022 not to allow the Scottish Government to
call a referendum without consent from Westminster, and
the decision of Nicola Sturgeon to resign as Scotland’s First
Minister and leader of the Scottish National Party, the
Group continues to keep a watching brief on how this issue
progresses. As it is not yet clear what impact the death of
Her Majesty Queen Elizabeth II and the succession of His
Majesty King Charles III will have on public sentiment to the
Union, the risk remains under review in the Emerging Risk
and Opportunities Framework.
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63
Strategic report Risk management continued
Risk
Impact
Mitigation
Operational risk
(continued)
Strategic
priorities
The Group fails to
retain or attract
a diverse and
engaged
workforce with
the skills needed
to deliver
its strategy
Delivery of the Group’s strategy
is dependent on a talented,
diverse and engaged workforce.
This risk is inherent in the Group’s
business model given the nature
of acquisition activity and
specialist skill sets.
Potential areas of uncertainty
include: the ongoing transition
of ReAssure businesses into the
Group, the expanded strategic
partnership with TCS and the
introduction of the flexible
working model.
Potential periods of uncertainty
could result in a loss of critical
corporate knowledge,
unplanned departures of key
individuals, or the failure to
attract and retain individuals with
the appropriate skills to help
deliver the Group’s strategy.
This could ultimately impact the
Group’s operational capability,
its customer relationships and
financial performance.
The Group aims to attract and
retain colleagues, building a
sense of belonging by
providing timely
communications to colleagues
that aim to provide clarity and
support employee
engagement for corporate
activities, including details of
key milestones to deliver
against the Group’s plans.
In addition, the Group
regularly benchmarks terms
and conditions against the
market and maintains dynamic
succession plans for key
individuals, ensuring
successors bring appropriate
diversity of thought, capability
and experience. Every six
months, the Group’s CEO and
HR Director meet with the
Executive Committee to
discuss talent, succession
and diversity.
Monthly colleague surveys
help to improve engagement
whilst promoting continuous
listening and rapid
identification of concerns
and actions.
The Group continues to
actively manage operational
capacity required to deliver
its strategy with ongoing focus
on senior bandwidth, attrition
and sickness.
Flexible working offers
colleagues greater flexibility
in their working practices.
The Group looks to
proactively respond to
external social, economic
and marketplace events
that impact colleagues.
Change from 2021 Annual Report and Accounts
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
Whilst there have been strong engagement scores in
colleague surveys during 2021 and 2022, there has been
no change to the overall level of exposure to this risk since
it was introduced in the 2018 Annual Report and Accounts.
This is driven by acknowledgement of the significant
amount of integration activity within the Group and
uncertainty regarding the longer-term social and
marketplace impacts of the pandemic and cost of living
crisis on colleague attrition, sickness, motivation and
engagement. Skills essential to the Group continue to be
in high-demand in the wider marketplace and recruitment
and retention still has the potential to be impacted by
post-Brexit, COVID-19 and inflationary factors. The Group
monitors this closely and continues to remain confident in
the attractiveness of its colleague proposition.
The Group continues to leverage apprenticeships to
support workforce diversity and to fill key skills, creating
bespoke graduate and early careers programmes for
specialist technical areas.
The Group continues to successfully operate a flexible
working model, with strategic investments in technology
and other resources maximising its effectiveness. The
model focuses on empowerment by enabling leaders and
colleagues to agree working arrangements that meet
individual, team and business needs.
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 and retain in the
future. In addition, the Group’s Graduate Programmes
helps to support the talent pipeline.
Market risk
Adverse
investment
market
movements or
broader
economic forces
can impact the
Group’s ability to
meet its cash flow
targets, along
with the potential
to negatively
impact customer
investments or
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.
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 continues to
implement de-risking
strategies and control
enhancements 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 closely monitors
and manages its excess capital
position and it regularly
discusses market outlook
with its asset managers.
This risk was assessed as ‘Heightened’ in the Group’s 2019
Annual Report and Accounts, and then again in 2020 due
to ongoing economic uncertainty, geopolitical tensions,
the impacts of COVID-19 and uncertainty around interest
rates. These remain the key drivers for the current
assessment of exposure to this risk, which is unchanged
from the 2020 position.
The global macro-economic environment remains highly
uncertain, as it did throughout 2022.
The Ukraine conflict and rapid increase in inflation
increased market volatility throughout 2022, with
recession expected throughout Europe and possibly
the wider world. The longer-term impacts of the conflict
have affected the cost and availability of food and
vital commodities such as oil and gas, driving
inflationary pressures.
Inflation is considered a material short to medium-term risk.
Pressures continue and the UK Consumer Price Index hit
11.1% in October 2022, before retreating slightly to 10.1%
in January 2023. The Bank of England base rate increased
from 0.1% in December 2021 to 4% at the time of writing,
with further rate rises expected during 2023. Higher
interest rates, coupled with cost of living rises, are likely
to suppress property prices over the coming year.
The UK mini-budget added further pressure to yield
rises, squeezing liquidity throughout the long-term
savings sector. The tax increases and government
spending cuts announced in the Chancellor’s Autumn
statement helped to stabilise markets but have the
potential to worsen customer sentiment, which may
deepen the expected recession in the UK and affect
the ability of households to save.
The Group continues to monitor and manage its market risk
exposures, including to interest rates and inflation, and to
markets affected by the conflict in Ukraine. The Group’s
strategy continues to involve hedging the major market
risks and in 2022 the Group’s Stress and Scenario Testing
Programme continued to demonstrate the resilience of its
balance sheet to market stresses. Contingency actions
remain available to help manage the Group’s capital and
liquidity position in the event of unanticipated market
movements such as those following the mini-budget.
As noted in the ‘Customer’ risk above, work is underway
across the Group to ensure customers are supported as
the impacts of the cost of living crisis continue to crystallise.
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65
Strategic report 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. Two examples
of key risks and opportunities discussed by senior management and the Board during 2022 are:
Risk universe category
Environmental
Risk Title
Description
ESG Litigation
Ethical Data
Driven Decisions
The growth of ESG-related litigation is becoming a risk. Given the growing prominence of ESG on government,
regulator and corporate agendas, it is increasingly important that all businesses understand and take steps to
mitigate the risks of ESG-related litigation. ESG-related litigation covers a broad range of potential actions,
including those that result from climate-related issues (such as claims of “Greenwashing”), where claimants see the
potential to drive an increase in climate change mitigation activity, and those that are brought by diversity
campaigners seeking to drive faster progress by corporations towards their stated commitments. These actions
could result in legal penalties and reputational damage to the Group if the underlying risks are not mitigated.
The Group has undertaken a risk assessment exercise to identify and collate all potential ESG-related litigation risks.
SMEs are currently assessing these and will report back with recommendations on those risks that are either not
mitigated, have a higher chance of occurring or a greater impact if they do occur. The Group views these risks as
cross-cutting the risk universe, with strategic, financial, operational, reputational and customer implications.
As computing power advances, the use of automated decision making (be that machine learning, Artificial
Intelligence or complex decision trees) has increased throughout the industry, including the use of algorithms to
help customers make decisions about their future. There is a risk that the data used to drive these decisions contains
biases which are not identified or the implications not understood and that, as a result, there is artificial discrimination
in the recommended outcomes. For Phoenix Group, this could manifest through customers failing to achieve good
outcomes and expose the Group to reputational damage and the need to remediate for inappropriate decisions
made following the use of such tools. There is also the risk of regulatory sanction, most notably from the Information
Commissioner’s Office but also from the FCA.
The Group’s priority in this area is in establishing the ethical guardrails and controls which are essential to setting
both expectations and culture of how data is consumed and processed. The principles of the FCA’s new Consumer
Duty, and the Group’s Code of Conduct, will be placed at the heart of the framework.
Strategic
Risk management continued
Risk
Impact
Mitigation
Strategic
priorities
Change from 2021 Annual Report and Accounts
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.
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.
Credit risk
The Group is
exposed to the
risk of downgrade
or failure of a
significant
counterparty
The Group is exposed to the risk
of downgrades and deterioration
in the creditworthiness or default
of investment, derivatives or
banking counterparties.
This could cause immediate
financial loss, or a reduction
in future profits.
The Group regularly monitors
its counterparty exposures
and has specific limits in place
relating to individual
counterparties (with sub-limits
for each credit risk exposure),
sector concentration
and geographies.
The Group is also exposed to
trading counterparties, such as
reinsurers or service providers,
failing to meet all or part of their
obligations. This would
negatively impact the Group’s
operations which may in turn
have adverse effects on
customer relationships and
may lead to financial loss.
The Group undertakes regular
stress and scenario testing of
the credit portfolio. Where
possible, exposures are
diversified using a range of
counterparty providers. All
material reinsurance and
derivative positions are
appropriately collateralised.
The Group regularly discusses
market outlook with its asset
managers in addition to the
Line 2 Risk oversight provided.
For mitigation of risks
associated with stock-lending,
additional protection is
provided through collateral
and indemnity insurance.
This risk was assessed as ‘Heightened’ in the Group’s 2020
Annual Report and Accounts due to the uncertainty
around future demographic experience as a result of
COVID-19 impacts. The residual risks from COVID-19,
in addition to the implications arising from the cost of
living crisis, are key drivers of the assessment of the level
of exposure to this risk, which is unchanged from the
2020 position.
Demographic experience and the latest views on future
trends continue to be considered in regular assumption
reviews although, for most products, experience over the
COVID-19 pandemic has still been given little weight given
its anomalous nature.
The Group is actively monitoring customer behaviour as a
result of the cost of living crisis; this includes the impact
that any change in behaviour could have on demographic
assumptions. As noted elsewhere in this section, work
is underway to ensure support is provided to customers
as the impacts from the cost of living crisis continue
to materialise.
The Group completed BPA transactions with a combined
premium of £4.8 billion in 2022. Consistent with previous
transactions, the Group continues to reinsure the vast
majority of the longevity risk with existing arrangements
that are reviewed regularly.
In the Group’s 2020 Annual Report and Accounts, this risk
was assessed as ‘Heightened’ as a result of the market
volatility and wider economic and social impacts arising
from COVID-19. The residual risks from COVID-19 are a
driver of the current assessment of the level of exposure
to this risk, which is unchanged from the 2020 position,
in addition to ongoing geopolitical tensions and
economic uncertainty.
Over 2022 the Group continued to undertake actions to
increase the overall credit quality of its portfolio and
mitigate the impact on risk capital of future downgrades.
Furthermore, the Group Credit Limit framework was
updated to better manage counterparty failure risk. This
positive progress, and the easing of the economic and
social impacts of COVID-19, is balanced by risks arising
from the Ukraine conflict and UK Government policy.
Uncertainties over the global economic outlook and high
inflation present an increased risk of downgrades and
defaults. In addition, a UK sovereign downgrade, which
is now more probable, would have a negative impact on
UK-related assets including Gilts, Housing Associations
and Local Authority Loans.
The Group has no direct shareholder credit exposure to
Russia or Ukraine and no exposure to sanctioned entities.
The Group continues to increase investment in illiquid
credit assets as a result of BPA transactions. This is within
appetite and in line with the Group’s strategic asset
allocation plans. The growth in illiquid assets will be met
by growth in the overall Group credit portfolio.
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Strategic report Viability statement
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance
Code, the Board is required to conduct an assessment of the viability of
the Group over a specified time horizon.
Assessment Process
In assessing the future viability of the
Phoenix Group, the Board has defined
‘viability’ as maintaining the capability
to satisfy mandatory liabilities and meet
external targets for cash generation.
In doing so, the Board considered whether
the definition of viability should reflect the
success of the Group in delivering against
its strategic priority to invest in the growth
of the business on an organic and
inorganic basis. It concluded that any such
investment needs to comply with the
Group’s capital allocation framework and
risk appetite, and that 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.
The Board has determined that the
three-year time horizon to December 2025
is an appropriate period for the
assessment. The previous year’s viability
statement considered a five year time
horizon but this has been amended to
reflect the period covered by the Group’s
latest Board-approved Annual Operating
Plan (‘AOP’), and align to the period for
which the Group establishes its internal
and external targets.
In making its assessment and assessing
the prospects of the Group over the
short, medium and longer-term, the
Board considered a large range of
information including:
• The Group’s strategic and operational
plans as set out in the AOP, approved
by the Board in January 2023;
• The latest financial results for the Group;
• Financial projections of the Group’s
capital, liquidity and funding positions
over the viability assessment period.
These projections have considered both
base assumptions and severe but
plausible stress scenarios, reflecting the
major risks to which the Group is exposed;
• The results of wider stress and scenario
testing activity, including reverse stress
testing, capturing non-financial risks as
well as more onerous scenarios with
a low likelihood of occurrence;
• The operation of the Group’s Risk
Management Framework (‘RMF’),
including any breaches of risk appetite;
• The principal risks and uncertainties
impacting the Group, together with
an assessment of emerging risks
that may impact on the Group’s
future performance;
• The Own Risk and Solvency Assessment
(‘ORSA’) process which provides a
forward-looking assessment of the
Group’s risk and capital profile as a result
of its business strategy, AOP and the
overall risk environment; and
• An assessment of the wider operating
environment for the Group, including
legal, regulatory, political, climate
and competitive factors.
Assessment of Viability
The Phoenix Group AOP is reviewed and
approved by the Board on an at least
annual basis and results in a set of strategic
priorities, detailed financial forecasts
across multi-year periods, risk assessments
and associated resilience, and available
contingent actions. Those strategic
priorities are outlined in the Strategic
report of the Group’s Annual Report and
Accounts, and progress against the AOP
is reviewed monthly by the Board.
The Board reviewed the results of stress
testing to assess viability under severe
but plausible scenarios, including three
adverse stresses as follows, which are
deemed to be representative of the
key financial risks to the Group:
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. Recessionary economic stress – a
more onerous combined market stress
reflecting a deep recession driven
by a further short-term increase in
inflation and cost of living crisis, falls in
equities, properties, increased credit
spreads, a UK sovereign downgrade
and credit asset downgrades; and
3. 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 1.0 year increase
for a 65 year old female, alongside
a fall in yields.
The calibration and assessment of the
stresses is informed by the Group’s
Solvency II Internal Model. The projections
take into account the impact of any
appropriate Solvency II recalculation
of transitional benefits and allow for
refinancing of certain of the Group’s debt
obligations. In considering the projections,
the Board has assessed the availability of
contingent actions to increase resilience.
The scenarios were applied to the
Solvency II capital, liquidity and funding
positions of the Group, and demonstrated
that the Group could continue to meet its
mandatory obligations without any breach
to regulatory capital requirements, whilst
continuing to track towards meeting
external targets.
Additional stress testing
In addition, through the ORSA and wider
financial resilience processes, the Board
has reviewed a wide range of stress and
scenario testing which has provided
additional insight with regard to the
defined viability assessment period. The
scope of this testing covers the Group’s risk
universe and includes scenarios such as:
• Additional severe downside economic
scenarios with a low likelihood
of occurrence;
meet mandatory obligations and fund
a sustainable dividend;
• Holding company cash of £503m at
the end of 2022, as well as access
to the Group’s undrawn £1.25 billion
unsecured revolving credit facility,
provides assurance over the Group’s
ability to meet mandatory obligations
as they fall due;
• The impact of losses on the IFRS basis
and the implementation of the new
insurance contract accounting standard,
IFRS 17, were considered as part of the
assessment. It was noted that the
Group’s hedging approach prioritises
the protection of the Solvency II capital
position and therefore the dependable
delivery of future cash generation. It is
accepted that this results in volatility in
the IFRS metrics, but this was not
considered to represent a material
threat to the Group’s viability.
Statement of Viability
Based on the factors outlined above,
the output of the Group’s financial
projections and its resilience under
severe but plausible stressed conditions,
and the management of the Group’s
principal risks and associated mitigating
actions, 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
three-year period of assessment.
• Operational disruption or failure of
key third party service providers;
• Cyberattack, and resultant denial of
service to key systems or applications;
• Failure to execute and deliver key
change activities within the Group; and
• Climate-related risks, including those
related to a disorderly climate transition.
In so doing, the Board has considered the
results of reverse stress testing that has
been performed to analyse scenarios that
have a low probability but where, if they
occurred, have the potential to render the
business model unviable. Reverse stress
testing validates and improves, where
necessary, mitigating actions in place to
deal with threats to the Group’s viability
by starting at the point of business failure
and working backwards to identify the
sequence of events that would lead to
that outcome. It supports the development
of actions that can be implemented now
to avoid the failure.
During 2022, reverse stress testing
considered the impact of severe market
stress combined with a longevity stress.
The analysis concluded that a significant
increase in life expectancy (M65 +1.9yrs)
combined with a downgrade of 1 credit
quality step (1 letter) across the whole
portfolio and a widespread market stress to
replicate a severe recession (house prices
falling 10%, equities c.30% and GBP
depreciating c.10% vs USD) is required for
Phoenix Group’s capital coverage to
reduce close to SCR in the absence of
mitigating actions. Such a scenario is
deemed extreme and in the event of such a
scenario, contingency actions are available
to restore coverage above risk appetites
and would be initiated as the stress emerged.
The Board also approved an updated
Group Recovery plan in January 2023.
This plan includes a range of contingency
actions and demonstrated how these
could be used to recover from extreme
market, longevity, liquidity and
operational scenarios.
Over 2022, we have continued to embed
Climate scenarios within the Group’s stress
and scenario testing programme and
carried out a range of quantitative and
qualitative scenario analysis. The results
show that although how and when climate
risk could crystallise continues to be highly
uncertain, it could have a significant
impact on the value of our assets, the assets
of our customers, and our operations.
Phoenix is actively managing this risk
through taking action to appropriately
decarbonise the investment portfolio,
engage with key emitters within the
portfolio, and ensure the portfolio
remains well diversified.
Risk Assessment
The Board reviewed the Group’s principal
risks and uncertainties as set out on pages
56 to 67 of the 2022 Annual Report and
Accounts, and considered the impacts of
changes in the related impact assessments
and the mitigating actions implemented.
This included an assessment of the
potential impacts of emerging risks on
the Group’s business during the viability
assessment period.
As noted in the Risk Management section
of the Annual Report and Accounts, the
Group identifies, assesses and manages
risk through the operation of its RMF.
The Board approves the RMF and monitors
its operation against established risk
appetites through regular reporting
that comes from across the three lines
of defence.
Whilst noting continued macroeconomic
uncertainty and an evolving political and
regulatory landscape, the Board will
continue to monitor risk exposures relative
to risk appetites to ensure the risks are
proactively managed and do not present
a material threat to the Group’s viability.
2022 Financial Results
The latest financial results for the Group
as included within the 2022 Annual
Report and Accounts have been
considered as part of the assessment.
Key factors included:
• The Group’s strong capital position with
a Solvency II surplus of £4.4 billion and
a Shareholder Capital Coverage Ratio
of 189%, providing significant
headroom above regulatory minimum
capital requirements and the Group’s
risk appetite;
• The resilience of the Group’s capital
position and cash generation to
movements in market factors,
as indicated in the sensitivity
analysis included on page 35,
which is reflective of the Group’s
hedging approach;
• Long-term free cash of £12.1 billion after
deduction of debt interest to maturity,
which provides a significant amount of
dependable future cash generation to
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69
Strategic report Corporate
governance
Chair’s introduction to governance
Board leadership and Company purpose
Division of responsibilities
Stakeholder engagement
Composition, succession and evaluation
Audit, risk and internal control
Sustainability governance
Workforce engagement
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
72
74
82
84
88
96
105
108
110
147
153
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71
Corporate governance Chair’s introduction to governance
Continued resilience
in a dynamic
environment
This report sets out our approach to governance,
our key areas of focus during the year, our ways
of working and how we, as your Board, remain
effective as stewards of your company.
As I mentioned earlier, I am delighted to
serve as Chair of the Board whilst Nicholas
Lyons is on sabbatical.
During the year, Phoenix Group has
delivered high levels of cash generation
and maintained its resilient balance sheet
despite the economic turbulence. The
Group has also delivered both strong
organic growth through our Standard Life
branded businesses and inorganic growth
with the announcement of our first ever
cash funded acquisition of Sun Life of
Canada UK. All of which has enabled the
Board to recommend another year of
strong dividend growth in 2022.
As I reflect on the strategic achievements,
board succession activities and high
quality nature of board discussion, I believe
the Board has performed well with
particular reference to the transition of
roles amongst the Board. I am pleased
that these changes have been well-
managed and enabled the Board to
operate effectively.
The Board schedule is planned a year
in advance. Each meeting is balanced
with governance, strategy, financial
performance and emerging matters. The
Board as a whole places great importance
on promoting the success of the Company.
Each member significantly contributes to
board discussions and has sufficient time
to devote to the Board and operation of its
Committees. There are often points during
the year when additional meeting time
is required and I am pleased that each
Director endeavours to be available as
and when required.
The Board have also overseen the
acquisition activities of the Sun Life of
Canada UK transaction which is expected
to complete in April 2023. The Board and
its Committees played an important role in
the decision making process of this
transaction and I thank each of the Board
members for being available to respond to
emerging matters when required.
During the year, Wendy Mayall and Mike
Tumilty (abrdn plc, shareholder nominated
director) retired from the Board and
Maggie Semple, Katie Murray and
Stephanie Bruce (abrdn plc, shareholder
nominated director) joined the Board.
Their induction programme has been
tailored to enable each of them to start
their respective Board roles well
prepared to contribute to the Phoenix
strategy and wider initiatives. Each of
these Board members brings additional
capability, perspective and expertise
to Board discussions and decision
making processes.
Maggie Semple succeeded Karen Green
as Designated Non-Executive Director for
Workforce Engagement and I am
delighted to report that this transition has
been smooth with Maggie being able to
interact with colleagues through the last
quarter of the year. Karen Green
succeeded me as Senior Independent
Director on 1 September 2022 and Katie
Murray succeeded me as Chair of the
Audit Committee on 1 September 2022.
Further information can be found in the
Nomination Committee report on pages
88 to 91.
I am delighted that Mark Gregory has
agreed to join the Phoenix Board, effective
1 April 2023. Mark possesses a wealth of
experience in insurance, financial services
and retail sectors, having worked as Group
CFO at Legal & General Group plc and
through non-executive roles, including
Direct Line Insurance Group plc.
Kory Sorenson will have reached her ninth
year of tenure on 30 June 2023. Kory has
made a significant contribution during her
time on the Board, in particular as Chair of
the Remuneration Committee for the past
5 years. Nicholas Shott will succeed Kory
as Chair of the Remuneration Committee
with effect from the conclusion of the
AGM on 4 May 2023, subject to
shareholder and regulatory approval.
Nicholas is an experienced chair and has
a comprehensive grasp of the executive
remuneration landscape having served on
the Remuneration Committee for almost
7 years. Kory will remain a member of the
Board until she retires on 30 June 2023.
The Nomination Committee has had a
busy year characterised by a focus on
Board progress on diversity (including
gender and ethnicity), board succession
and board evaluation. I am proud to serve
as a Chair of a Board with 50% female
board representation, 25% ethnicity board
representation and a female Senior
Independent Director. This year our board
evaluation was conducted internally
through completion of questionnaires and
individual discussion for each director with
myself, and concluded that the Board is
cohesive, well-balanced and operates as a
team and that the Board and its
Committees operate and are chaired
effectively with appropriate balance of
material discussed at each meeting.
Board highlights 2022
Board induction
Katie Murray and Maggie Semple share their experiences of
the Phoenix Board induction programme.
Read more on page 93
Board evaluation
An internal evaluation of the Board was carried out during
the year. Following discussion, the Board have agreed
several development areas.
Read more on page 91
Board composition and diversity
The composition of the Board is designed to ensure a mix of
backgrounds, skills, knowledge and expertise to enhance
decision-making.
Engagement in action – listening to the colleague voice
Maggie Semple was appointed as the Designated Non-
Executive Director for Workforce Engagement.
Read more on pages 108 to 109
Read more on pages 74 and 92
Further information on the outcomes of the
evaluation can be found on page 91.
Turning to the work of the Remuneration
Committee, our new 3 year Remuneration
Policy will be put to shareholders at our
Annual General Meeting (‘AGM’) on 4 May
2023. The Remuneration Committee has
carried out a review of our current
Remuneration Policy (‘Policy’) and
consulted with our top shareholders on
proposed changes to the current Policy.
The outcome of the consultation exercise
demonstrated that there is strong support
for the changes. Further information can
be found in the Directors’ Remuneration
report on pages 110 to 146.
The Audit Committee continues to focus
on the controls and systems which ensure
delivery of reliable and consistent financial
information and developments in reporting
with a specific focus on IFRS 17
implementation during the year. In
addition, we continue to monitor the
developing outcomes of the Department
for Business & Trade consultation
on “Restoring trust in audit and
corporate governance”.
The Sustainability Committee has had a
very active year in driving our ambitious
ESG agenda. There has been a strong
focus on education matters relating to
sustainability, people, culture and
climate- related topics during the year and
this Committee plays an important role in
shaping the Group’s sustainability strategy,
targets and initiatives.
Alastair Barbour
Chair
AGM votes in favour of all
resolutions May 2022
97%
96% in 2021
FTSE100 ranking – FTSE Women
Leaders ( February 2023)
12th
13th in 2021
UK Corporate Governance Code
Fully compliant
in 2022
Fully compliant in 2021
Committee Chairs1
60%
Female
Karen Green
Chair of the Sustainability Committee
Katie Murray
Chair of the Audit Committee
Kory Sorenson
Chair of the Remuneration Committee
40%
Male
Alastair Barbour
Chair of the Nomination Committee
John Pollock
Chair of the Risk Committee
Board ethnic minority director
representation1
25%
UK Corporate Governance Code
See page 77 for a summary of how
the Company has complied with
the UK Corporate Governance
Code (‘Code’) during 2022 on
pages 72 to 146.
Board female director
representation1
50%
1 As at 10 March 2023
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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.
At 10 March 2023, the Board comprises
the Chair, Group Chief Executive Officer,
the Group Chief Financial Officer, one
abrdn-nominated Director, one
MS&AD-nominated Director and seven
independent Non-Executive Directors.
2022 Board changes
Committee membership key
• Mike Tumilty retired from the Board on
Audit
Risk
30 June 2022
• Wendy Mayall retired from the Board
on 31 December 2022
Nomination
Sustainability
Remuneration
Chair
Alastair Barbour
Chair
Andy Briggs, MBE
Group Chief
Executive Officer
Rakesh Thakrar
Group Chief
Financial Officer
Karen Green
Senior Independent
Director
Hiroyuki Iioka
Non-Executive
Director
John Pollock
Independent Non-
Executive Director
Belinda Richards
Independent Non-
Executive Director
Nicholas Shott
Independent Non-
Executive Director
Chair of the Sustainability Committee
Shareholder appointee
Chair of the Risk Committee
Appointed 1 October 2013
Appointed as Chair, 1 September 2022
Committee:
Experience and role on the Board
“I have extensive experience in advising
on accounting and financial reporting,
corporate governance and
management in the financial service
sector with a primary focus on
insurance and investment management.
This in depth knowledge and
understanding combined with my prior
board roles having served as Senior
Independent Director and Chair of the
Audit Committee enables me to
effectively lead as Chair of the Board
and to perform the role of the Chair
with clear responsibility for boardroom
culture, leadership and stewardship.”
Skills, competencies and contribution
to the Board
• Core skills and expertise in areas of
mergers and acquisitions;
governance; auditing; capital
markets; regulation; finance; asset
management; risk management and
FTSE 100 Board experience.
• Over 30 years of audit experience.
External appointments
Chairman of Liontrust Asset
Management plc; Lead Independent
Director of The Bank of N. T. Butterfield
& Son Limited.
Appointed 10 February 2020
Appointed 15 May 2020
Experience and role on the Board
“As Group Chief Executive Officer
(‘CEO’) of Phoenix, I am passionate
about our core social 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, competencies and contribution
to the Board
• 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.
External appointments
Board member of the Association of
British Insurers.
UK Government’s Business Champion
for Older Workers.
Experience and role on the Board
“With over 25 years of my career at
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, competencies and contribution
to the Board
• 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.
External appointments
Non-Executive Director (‘NED’) and
Chair of the Audit Committee of Bupa
Insurance Services Limited and Bupa
Insurance Limited.
Appointed 1 July 2017
Committee:
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. This enables me to
contribute to the development of the
Group’s strategy. In addition, the
experience I have gained from my
various non-executive director, advisory
and senior executive roles enables me
to act as a strong support and sounding
board for the Chair and the Board as
a whole.“
Skills, competencies and contribution
to the Board
• Core skills and expertise in the areas
of mergers and acquisitions; strategy
and corporate development; finance
and risk management and FTSE 100
Board experience.
• Over 30 years of experience in
financial services and insurance.
External appointments
NED at Admiral Group plc; NED of
Miller Insurance Services LLP; NED
of Asta Managing Agency Limited;
Council Member of Lloyd’s of London;
and Adviser at Cytora Limited.
Appointed 23 July 2020
Appointed 1 September 2016
Committee:
Appointed 1 October 2017
Committee:
Appointed 1 September 2016
Committee:
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, competencies and contribution
to the Board
• 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
insurance.
External appointments
None.
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 of Phoenix’s expansion
strategy. I have held a series of senior
roles within the MS&AD (a global
insurance group), including executive
and director positions at its UK
insurance subsidiaries.”
Skills, competencies and contribution
to the Board
• Core skills and expertise in areas
of mergers and acquisitions; capital
markets; finance; asset management;
and risk management.
• Experience in the global insurance
industry.
External appointments
Senior General Manager, Head of
Global Business Development
Department for MS&AD Insurance
Group Holdings, Inc.
Alternate NED of Challenger Limited,
listed on the Australian Stock Exchange.
Experience and role on the Board
“My experience includes 31 years as an
investment banker at Lazard.
Specifically, this experience included
running the European Media practice,
and acting as a generalist banker in a
wide range of sectors and countries.
My roles at Lazard included serving
as European Vice Chairman, Head
of UK Investment Banking and until
most recently as Senior Adviser and
the Consultant 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, competencies and contribution
to the Board
• Core skills and expertise in areas
of mergers and acquisitions; and
capital markets.
• 31 years of experience as an
investment banker.
External appointments
None.
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, competencies and contribution
to the Board
• 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.
External appointments
NED at The Monks Investment Trust plc
and NED at Schroder Japan Growth
Fund plc.
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75
Corporate governance
Board leadership and Company purpose continued
Kory Sorenson
Independent Non-
Executive Director
Katie Murray
Independent Non-
Executive Director
Chair of the Remuneration Committee
Chair of the Audit Committee
Maggie Semple, OBE
Independent Non-
Executive Director
Designated Non-Executive Director for
Workforce Engagement
Stephanie Bruce
Non-Executive
Director
Shareholder appointee
Appointed 1 July 2014
Committee:
Appointed 1 April 2022
Committee:
Appointed 1 June 2022
Committee:
Appointed 1 July 2022
Experience and role on the Board
“My experience and expertise in
insurance, financial services,
governance, and human capital enable
me to effectively serve Phoenix and its
stakeholders as a Non-Executive
Director and Chair of the Remuneration
Committee. My executive career in
investment banking was focused on
financial services, the optimisation of
capital resources via equity, hybrid and
debt capital management as well as
M&A, risk management, and life
insurance securitisation. My non-
executive portfolio provides me with a
wide perspective on the insurance
market as well as best practice
governance in several jurisdictions and
key issues in audit, risk, investment,
remuneration and sustainability.”
Skills, competencies and contribution
to the Board
• 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.
External appointments
NED and Chair of the Remuneration
Committee of Pernod Ricard SA; NED
and Chair of the Audit and
Sustainability Committees of SGS SA;
member of the supervisory board of the
privately-owned bank Gutmann AG;
member of the Board of Partners of
privately-owned COMGEST; NED and
Chair of the Audit and Risk Committees
of Premium Credit Ltd; NED and Chair
of the Audit and Risk Committees of
the AA.
Experience and role on the Board
“I have gained significant experience of
the financial services industry at a
senior management level and bring
experience of working with boards and
managements teams in respect of
financial and commercial management,
reporting, risk and control frameworks,
assurance and regulatory requirements.
During my career, I have specialised
in the financial services sector
working with organisations across
asset management, insurance and
banking, with national and
international operations.”
Skills, competencies and contribution
to the Board
• Core skills and expertise in areas of;
capital markets; finance; treasury;
reporting; asset management; and
risk management.
• Experience in the global insurance
industry and financial services
sector.
External appointments
Chief Financial Officer of abrdn plc.
Experience and role on the Board
“I am a Chartered Accountant with
nearly 30 years’ experience in finance
and accounting gained through several
roles across the financial services
industry. I have extensive knowledge
and experience in specialist areas
including capital management, investor
relations and financial planning which
enable me to provide valuable input
and expertise during Board discussions.
I joined NatWest Group as Director of
Finance in 2015 and was appointed as
Deputy Chief Financial Officer in
March 2017 and Chief Financial Officer
in January 2019. I was previously the
Group Finance Director for Old Mutual
Emerging Markets, based in
Johannesburg (2011 to 2015), having
held various roles across Old Mutual
from 2002. Prior to this I worked at
KPMG for 13 years. I am also a member
of the Institute of Chartered
Accountants in Scotland.”
Skills, competencies and contribution
to the Board
• Core skills and expertise in areas
of capital management, investor
relations, regulation; finance;
risk management; and FTSE 100
Board experience.
• Close to 30 years of experience in
finance and accounting.
External appointments
Group Chief Financial Officer of
NatWest Group plc.
Experience and role on the Board
“I have a breadth of experience in
executive and non-executive roles and
have enjoyed a varied career to date
across education, government,
non-profit and commercial roles. I am
the co-founder of I-Cubed Group,
which offers one to one coaching to
enhance and release potential of
individuals; I am also the owner of
Maggie Semple Limited, a luxury
bespoke womenswear business; and I
am Chief Executive of The Experience
Corps Limited, a global niche
consultancy firm which provides
strategic advice on leadership learning
products. As a result of my career-long
passion for sustainability, ethics and
inclusivity, I aim to bring a breadth of
experience to support the Group’s ESG
agenda whilst a member of the Board
and also add value on customer, people
and culture related matters.”
Skills, competencies and contribution
to the Board
• Core skills and expertise in public
and private sector organisations as
executive and non-executive roles
with strengths in leadership
development, cultural change,
diversity & inclusion and
organisational development.
External appointments
NED of Jamaica National Bank UK
Limited; HR Committee Member,
University of Cambridge; and
Ambassador, Black British Voices Project.
Our business, led by
the Executive Committee (‘ExCo’)
The Executive Management of the
Group is led by the CEO, who is
supported by the ExCo.
During 2022, 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
CEO
Rakesh Thakrar
CFO
Andy Curran
Chief Executive, Savings and
Retirement, UK and Europe
Brid Meaney
Chief Executive, Heritage Division
Jackie Noakes
Chief Operating Officer
Mike Eakins
Group Chief Investment Officer
Anna Franekova
Corporate Development Director
Claire Hawkins
Corporate Affairs and Investor
Relations Director
Jonathan Pears
Group Chief Risk Officer
Sara Thompson
Group HR Director
Quentin Zentner
General Counsel
Kulbinder Dosanjh
Group Company Secretary
(Secretary to ExCo)
Corporate governance
Compliance with the UK corporate
governance code in 2022
During 2022 the Company has been fully compliant with the
principles and provisions set out in the Code. The tables below
summarise how the Company has complied with the principles
and provisions of the FRC’s 2018 UK Corporate Governance
Code (the ‘Code’) for the year ended 31 December 2022.
The five core elements of the Code are detailed below along
with a high level overview of the Company’s compliance with
the Code
Board leadership
and company purpose
Composition, succession
and evaluation
Nomination Committee report
Principles J, K and L
Provisions 17, 18, 19, 20 to 23
(see also: ‘Non-financial information statement’ page 44 of the Strategic Report
for information on gender balance of those in senior management and their
direct reports)
pages 88 to 91
Audit, risk and internal control
pages 96 to 101
Audit Committee report
Principles M and N
Provisions 24, 25, 26 and 29
Provisions 27 and 30
(see also Directors’ Report on pages 147 to 152 and Statement of Directors’
Responsibilities on page 153)
Provision 31
(see also Directors’ Report on pages 147 to 152 and the Group’s Viability Statement
on pages 68 to 69 of the Strategic Report)
Risk Committee report
Principle O
Provision 28 and 29
(see also Principal risks and uncertainties faced the Group on pages 56 to 67 of
the Strategic Report)
pages 102 to 104
Remuneration
pages 110 to 146
Directors’ remuneration report
Principles P, Q and R
(see also Directors’ Remuneration Report on pages 110 to 146)
Provisions 32, 33, 40 and 41
(see also Remuneration Committee Chair’s letter on pages 110 to 112 and
Remuneration Committee governance and activities on pages 145 to 146)
Provisions 34 to 39
(see Directors’ Remuneration Report on pages 110 to 146)
page 78
page 79
page 80
pages 74 to 76
Our Board of Directors
Principle A
Our governance framework and the Board’s role
Principle C
Provision 1
(see also: ‘Purpose led and integrated governance’ on page 80, Audit Committee
report on pages 96 to 101 and Risk Committee report on pages 102 to 104;
Conflicts of interest
Provision 7
Purpose-led and integrated governance
Principle B
Provision 2
(see also: ‘Matters Reserved’ on page 78)
Stakeholder engagement
Principle D
Provision 3 (see also: ‘Purpose-led and integrated governance’ on page 80.
Provision 5
(see also Section 172 Statement on page 43 of the Strategic Report)
Engagement in action
Principle E
Provision 5
(see also ‘Stakeholder Engagement From The Top’ on page 84, and ‘Audit
Committee report on pages 96 to 101
Whistleblowing arrangements
Provision 6
(see also: ‘Purpose-led and integrated governance’ on page 80 and Audit
Committee report on pages 96 to 101
pages 108 to 109
pages 84 to 87
page 100
Division of responsibilities
Division of responsibilities on the Board
Principles F and G and Provisions 9, 10, 12 and 14
(see also: ‘Our Board of Directors on pages 74 to 76’)
Provision 11
(see also: ‘Board Composition and Diversity, on page 92)
2022 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 82
page 83
page 83
pages 78 to 79
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77
Corporate governance
Board leadership and Company purpose continued
Robust governance
The Board provides strong leadership underpinned by a robust governance
framework enabling cohesion of our purpose, strategy, values and culture.
Our Governance framework
The Phoenix Group Holdings plc
(‘Phoenix’, ‘Group’ or ‘Company’)
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 evolving market
conditions in which we operate.
To ensure the adaptability, agility and
accountability required to achieve our
purpose, the Board drives a culture of
empowerment through delegation to its
Board Committees and other individuals
within Management. Empowerment fosters
diversity of thought and innovation
to ensure we achieve our strategy
and purpose, under the stewardship
of our Board.
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 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 on
page 79.
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 team 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.
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 2022, the Board has acted in
accordance with its matters reserved. The
full schedule of matters reserved for the
Board is available on the Company’s website.
Time Commitment
In order to ensure that the Board and
each of its Committees is able to function
effectively, each Non-Executive Director
(‘NED’) must commit sufficient time to their
respective roles in order to discharge their
responsibilities. Time commitment is
considered on an ongoing basis, for
example, where a new Director is being
considered for appointment to the Board,
any additional external appointments or
an increase in Board responsibilities.
Following an assessment by the
Nomination Committee during the year, it
is expected that on average, each of the
eight scheduled Board meetings is likely to
require two days of participation (including
Committee meetings, education sessions,
travel and Board dinners) and at least a
further day of preparation time. It is further
estimated that each Director is required to
spend at least an additional day each
month reviewing information supplied by
the Company. In addition, a two day
strategy session is held and there are also
regular briefing sessions for the Board
Committees. On this basis, the basic time
commitment required of each Board
member is estimated to be at least 40 days
each year (unless agreed as 24 days for a
full-time executive undertaking a NED role
and chairing one Committee). The basic
time commitment can be significantly
increased on account of transactional or
other activity. The Nomination Committee
confirms that all NEDs have demonstrated
they have sufficient time to devote to their
present roles.
Independence
During the year the Nomination
Committee assessed the independence of
the NEDs to ensure that they are able to
properly fulfil their roles on the Board and
provide constructive challenge to the
Executive Directors.
Our governance framework
Corporate governance
t
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Phoenix Group Holdings plc Board
Chair, Alastair Barbour
• Group Strategy
• Group Risk Appetite
• Performance Monitoring
• Group Budget
• Major Transactions
• External Debt
• External/Shareholder Reporting
Audit
Committee
Chair,
Katie Murray
Nomination
Committee
Chair,
Alastair Barbour
Risk
Committee
Chair,
John Pollock
Remuneration
Committee
Chair,
Kory Sorenson
Sustainability
Committee
Chair,
Karen Green
• Financial Reporting
• Board and
•
Internal Controls
• External Audit
•
Internal Audit
• Whistleblowing
senior executive
appointments
• Diversity and
inclusion
• Board and senior
executive succession
planning
• Risk Appetite and
high-level risk
matters
• The Group’s Risk
Management
Framework
• Group remuneration
• Sustainability
framework
strategy
• Executive director
remuneration
• Employee share
schemes
• ESG reporting
• Culture monitoring
See pages 96 to 101
See pages 88 to 91
See pages 102 to 104
See pages 110 to 146
See pages 105 to 107
Phoenix Group Holdings plc ExCo
Chair, Andy Briggs
• Formulation of objectives and strategy
• Business division objectives and budgets
• Operational capacity, resourcing
• Embedding of culture
• Business performance
• Management development
• Recommendation of major capital
and succession
expenditure proposals
and priorities monitoring
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The independence criteria set out in the
Code were taken into account as part of
the selection process for Katie Murray and
Maggie Semple who joined Phoenix during
2022, both of whom were considered to
be independent.
During 2022, the Committee determined
that all NEDs were free from any
relationship or circumstances that could
affect, or appear to affect, their
independent judgement. In line with the
Code, over half of our Board members,
excluding the Chair, are independent
NEDs. The shareholder nominated
Directors, Hiroyuki Iioka and Stephanie
Bruce do not meet the independence
criteria under the Code. The Chair, Alastair
Barbour was independent on appointment.
However, as a consequence of becoming
Chair whilst Nicholas Lyons is on
sabbatical, Alastair will have served
on the Board for more than nine years
from the date of his first appointment
(1 October 2013). Alastair Barbour will
retire when Nicholas Lyons returns from
his sabbatical which is expected in early
November 2023.
Conflicts of interest
A register of conflicts of interest is
maintained by the Group Company
Secretary. 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 through individual director
declarations, through discussion whereby
the conflicted Director does not
participate in discussions relating to the
conflict and, where the conflicted Director
does not participate in any decision
making relating to the conflict.
The Board continues to monitor and note
any potential conflicts of interest that each
Director may have and recommends to the
Board whether these should be authorised
and whether conditions should be attached
to any such authorisation. Due care and
process is, of course, applied in respect of
shareholder nominated Board Directors.
Additional appointments
If any Director wishes to take on an
additional external appointment, they
are required to seek permission from
the Board. The Board will take into
consideration the additional time
commitments, independence and any
potential conflicts of interest in relation
to the Directors’ current roles and
responsibilities before any permission
is given.
Independent advice
All directors have access to the advice and
services of the Group Company Secretary
in relation to the discharge of their duties
on the Board and any committees they
serve on. Furthermore, any directors may
take independent professional advice at
the Company’s expense. During the year,
no directors sought to do so.
The Company arranges appropriate
insurance cover in respect of legal actions
against its directors and has also entered
into indemnities with its directors as described
in the Directors’ report on page 149.
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79
Corporate governance
Board leadership and Company purpose continued
Purpose-led and
integrated governance
Governance unites our purpose, strategy, values and culture.
The Board has continued to oversee the Group’s high standards
of corporate governance and business performance throughout 2022.
The Group’s purpose is to help people
secure a life of possibilities which is at the
centre of decision-making processes.
The Board considers relevant stakeholder
groups in the decision-making process
whilst remaining focused on ensuring that
outcomes are aligned with the Group’s
purpose, strategy, culture and values.
Purpose
Helping people secure a life of possibilities
As the pensions landscape and societal needs evolve,
Phoenix has an important role in society through its
long-term savings and retirement business. Robust and
purpose-led decision-making from the Board and
throughout the Group drives responsible and sustainable
investment, a strong sustainability strategy and enables
long-lasting impact for our customers.
Strategy
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 Board is responsible for establishing the strategy
for the Group, ensuring that this is aligned with not
only our purpose but also with the values and culture
of the business.
Governance
Governance
Values
Our values articulate the behaviours and qualities Phoenix
colleagues are expected to demonstrate throughout
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).
Culture
Our culture defines us and has, and continues to be,
developed through our values being lived by colleagues
each day. 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.
Corporate governance
Purpose, values and strategy
Sustainability
• Approval of Annual Operating Plan.
• Approval of the Group’s 2022 sustainability strategy.
• Oversight of the launch of the Phoenix Master Brand Visual Identity.
• Monitoring progress against the Group’s sustainability agenda
• Approval of the acquisition of Sun Life of Canada UK.
• Two day strategy meeting.
• Monitoring of internal perception of culture and alignment with the
Phoenix purpose and values.
and strategy.
• Approval of the Group’s 2022 Modern Slavery Statement.
• Approval of Phoenix’s Climate Biennial Exploratory Scenario
round 2 submission.
• Approval of Phoenix’s SBTi targets for submission and
subsequent validation.
• Participation in a significant programme of education on climate
change, decarbonisation, and sustainability. See pages 94 and 95
for further information on Board education activities.
Financial management and performance
Workforce policies and culture oversight
• Monitoring of the Group’s solvency and liquidity positions.
• Approval of Group risk policies.
• Monitoring of capital resilience, financial performance and
• Whistleblowing oversight.
growth in Heritage and Open divisions.
• Approval of the Group’s dividend policy.
• Oversight of insights from colleague engagement surveys and
culture dashboards.
• Recommendation of the 2021 Final Dividend and 2022
• Monitoring of colleague engagement initiatives.
Interim Dividend.
• Regular updates from the Designated Non-Executive Director
• Approval of the Group’s funding and capital strategy.
for Workforce Engagement.
• Approval of the Group’s tax strategy.
Stakeholder engagement
People strategy, diversity & inclusion
and succession planning
• Monitoring of customer service, operational resilience and
colleague well-being.
• Monitoring of investor engagement activities, oversight of the
year-end investor presentation and Capital Markets Event
presentation materials.
• Consideration of investor and media reaction to YE21 and
HY22 results.
• 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 and challenge to the hiring process.
• Consideration of investor feedback and analyst reports, including
• Approval of Board and Executive Succession Plans.
investor sentiment and deep dive session with the corporate brokers.
• Approval of appointment of Group and material subsidiary
• Participating in open and honest dialogue with all
Board changes.
applicable regulators.
•
Interaction with colleagues, through the PCRF and Designated
Non-Executive Director for Workforce Engagement (see pages 108 to
109 for more detail) and the Colleague Interaction Session between
the Board and colleagues at various stages of their career.
• Annual General Meeting.
• Consultation with major shareholders on executive
remuneration policy.
• Reviewing changes to the Executive Management Team and
succession planning.
Risk management and assurance
Corporate governance and reporting
• Climate change Stress and Scenario Testing.
• Monitoring of the Group’s risk culture.
• Simplification of governance continued.
• Monitoring compliance with the Code.
• Approval of the Group’s Risk Appetite and assessment of the
•
Internal Board effectiveness review.
approach to identifying and managing emerging risks.
• Approval of Principal Risk and Uncertainties disclosures.
• Subsidiary governance oversight.
• External reporting including Annual Report & Accounts,
• Monitoring performance against the Group’s operational risk
Sustainability and Climate reports.
management framework.
• Receiving and considering regular updates from the Board Audit
and Risk Committees.
• 2022 Annual General Meeting.
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81
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 (‘Phoenix ’ or the ‘Company’)
understand their role as individuals, and as
a collective, to ensure the long-term
success of the Company and achievement
of the Group’s purpose. 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
Chair
Chief Executive Officer
Senior Independent Director
Alastair Barbour is Chair of the Board
of Phoenix.
Andy Briggs is Group Chief Executive Officer
(‘CEO’) of Phoenix.
Karen Green is the Senior Independent Director (‘SID’)
of the Board.
The Chair 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 CEO’s external commitments are set out
on page 74 within this report.
• 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 Chair’s
performance by the Non-Executive Directors ;
• acting as the sounding board for the Chair;
•
serving as an intermediary between the Chair
and the other Directors as necessary; and
• ensuring an orderly succession process for
the Chair.
The SID’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 Chief Executive Officer
and the Board as a whole.
The Chair’s external commitments are set
out on page 74 within this report.
Independent Non-Executive
Directors
Designated Non-Executive Director
for Workforce Engagement
Shareholder nominated
Non-Executive Directors
The Board considers the following
Non-Executive Directors (‘NEDs’) to
be independent:
• Karen Green
• Katie Murray
• John Pollock
• Belinda Richards
• Maggie Semple
• Nicholas Shott
• Kory Sorenson
As at 10 March 2023, 58% of the Board
are considered to be independent.
The Board uses the independence criteria
as set out in the Code to assess and
confirm independence.
Maggie Semple is the Designated Non-
Executive Director for Workforce Engagement
(‘DNED’).
The DNED 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.
Hiroyuki Iioka and Stephanie Bruce are shareholder
nominated NEDs. Hiroyuki Iioka is appointed to the
Board on behalf of MS&AD Insurance Group Holdings
Inc. and Stephanie Bruce is appointed to the Board on
behalf of abrdn plc.
In accordance with the Phoenix acquisition of
ReAssure from Swiss Re in July 2020, MS&AD were
entitled to appoint a representative Non-Executive
Director to the Phoenix Board. A relationship
agreement between Phoenix and abrdn plc (‘abrdn’)
includes the right for abrdn to appoint a
representative Non-Executive Director, provided they
continue to hold 10% or more of Phoenix’s shares.
Full descriptions of the roles and responsibilities of
the Chair, CEO, SID and DNED are available on the
Company’s website.
Corporate governance
Board support
All Board Directors have access to the
advice and services of the Group
Company Secretary to support the
discharge of their duties and on matters
of governance.
The Group Company Secretary supports
the Chair, ensuring that directors receive
accurate, timely and clear information.
Appropriate policies, processes, time and
resources are available to the Board to
ensure its effective and efficient operation.
The Group Company Secretary ensures
that accurate records of Board and
Committee meetings are prepared on a
timely basis enabling unresolved concerns
of Directors to be duly recorded. No
concerns were recorded during 2022.
2022 Board and Committee meeting attendance
The Board met formally eight times
during 2022, including a two-day
strategy setting meeting. During the
pandemic, the Board met additionally
for regular briefing meetings to
continue to monitor the volatile
macro-economic environment
and oversight of the Group’s
strategic objectives.
The Board have continued with these
briefing calls which serve as a valuable
bridge outside of formal Board meetings.
Additional meetings have also been held
in respect of M&A activity.
The NEDs met with the Chair on
seven occasions without Executive
Directors present.
The following Board and Board
Committee attendance table below
details all formal Board and Board
Committee meetings held during 2022.
The Nomination Committee has
confirmed its absolute satisfaction
with the time and commitment given
to the Phoenix Board and its
Committees by all Directors.
Chair
Nicholas Lyons1
Alastair Barbour2
Executive Directors
Andy Briggs (CEO)
Rakesh Thakrar (Group CFO)
Non-Executive Directors
Karen Green3
Hiroyuki Iioka
Wendy Mayall
Maggie Semple4
John Pollock5
Katie Murray6
Belinda Richards7
Nicholas Shott
Kory Sorenson8
Mike Tumilty9
Stephanie Bruce10
Board
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
Sustainability
Committee
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Actual/Max
6/6
8/8
8/8
8/8
8/8
8/8
8/8
4/4
8/8
4/5
8/8
8/8
8/8
5/5
3/3
7/7
7/7
4/4
5/6
8/9
9/9
3/4
9/9
7/8
2/3
1/1
6/6
6/6
8/8
8/8
8/8
9/9
2/2
9/9
7/9
8/9
5/6
6/6
2/2
6/6
6/6
3/3
1
2
3
4
5
6
Nicholas Lyons commenced his sabbatical on 1 September 2022.
Alastair Barbour commenced his position as Chair on 1 September 2022. Alastair was unable to attend a Nomination Committee meeting due to a
scheduling conflict.
Karen Green was appointed as SID following the conclusion of the Annual General Meeting in May 2022. Karen was unable to attend Committee meetings in
October 2022 due to illness.
Maggie Semple was appointed as a director on 1 June 2022 and became DNED on 1 July 2022 and a member of the Risk and Sustainability Committees on
1 September 2022.
John Pollock joined the Nomination Committee on 1 November 2022 and was unable to attend one Nomination Committee meeting due a pre-existing commitment.
Katie Murray was appointed as a director on 1 April 2022 and became Chair of the Audit Committee on 1 September 2022 . Katie was unable to attend a Board
and Committee meeting due to pre-existing commitments arranged prior to joining the Phoenix Board.
Belinda Richards was unable to attend two meetings of the Risk Committee due to a scheduling conflict and delayed travel.
7
8 Kory Sorenson was unable to attend a Risk Committee meeting due to the meeting being held at short notice and conflict with a previously scheduled engagement.
9 Mike Tumilty retired from the Board on 30 June 2022.
10 Stephanie Bruce was appointed as a director on 1 July 2022.
The above table excludes ad-hoc or additional meetings. 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 three times during 2022. The Board’s ad-hoc Advisory
Committee comprised of Alastair Barbour, Karen Green and Rakesh Thakrar met twice during 2022.
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Corporate governance
Stakeholder engagement
Stakeholder engagement from the top
Strategic priorities key
Optimise our
in-force business
Grow our business to support
both new and existing customers
Enhance our operating
model and culture
Details of the Group’s broader stakeholder engagement and related
outcomes can be found in the Strategic Report on pages 42 to 43.
Section 172 of the Companies Act 2006 (the ‘Act’) requires each director of a
company to act in the way they consider, 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.
The Directors have applied Section 172 of the Act 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.
Pages 86 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.
Key stakeholder groups
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.
The Board recognises its responsibility and
duty to oversee the success of the business for
all customers.
Link to strategic priorities
Suppliers
Colleagues
Community
Investors
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.
Our colleagues are a key asset to the Group and to
the achievement of our strategic priorities and
long-term success. Their dedication, commitment
and capabilities are integral to the Group’s success.
The Board understands that the quality of relationships we
maintain and develop with our suppliers, strategic or otherwise
is a core objective as we seek to fulfil our ultimate purpose of
helping people secure a life of possibilities.
Our values unite our colleagues enabling a
champion led culture to reach our purpose and
achieve our strategy. Oversight of our culture,
purpose, values and colleague initiatives and is a
core focus for the Board. The Board considers
colleagues in the widest sense, including the
Group’s relationships with its pension schemes and
members who are former colleagues as well as
members of the Group’s workforce who are not
employed directly by the Group.
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.
Our investors continue to be crucial to the growth and
achievements of the Group. 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 and engagement with the Board
throughout the year.
Government, trade
bodies and regulators
As the UK’s largest long-term savings and retirement
business, our business is subject to financial services
regulation. Phoenix Group Holdings plc is also 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.
The Board acknowledges the importance of
maintaining positive relationships with the Government,
trade bodies and regulators to enable the Group to act
as a thought leader and to communicate the views and
concerns of our customers and society generally.
• During the year, the Board as a whole met with the
FCA and PRA during the year on a range of issues
relating to the impact of each regulators’ strategic
objectives and routine regulatory matters.
• At the request of the PRA and FCA, certain
Board directors may be required to meet on a
formal basis.
• The Board received updates on management’s
interactions with regulators and any feedback
received from those bodies.
• The Board challenges Management on ensuring
that Phoenix maintains open and honest dialogue
with the FCA, PRA, Central Bank of Ireland, TPR
and other jurisdictional regulators.
• 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.
• Through educational deep dives and
external perspectives, the Board
Sustainability Committee has continued to
broaden and develop Committee members’
understanding of specific community-
related themes such as financial inclusion,
stewardship and public awareness building
activities in sustainability-related areas.
• The Group HR Director provides regular
updates on colleague engagement
activities, initiatives and progress on
community related KPIs which can be found
in the Sustainability Report.
• The Board received regular updates from the CEO on
investor relations activities and feedback/questions
received from investors.
Investor feedback from the Group’s results
announcements and investor roadshows was
reported to the Board during the year.
•
• The Board considered key considerations relating
to investor messaging and various investor
communication approaches.
• The Board considered and provided feedback on
the contents of the year-end investor presentation.
• Board members, including the Board Chair 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 AGM,
investors were able to submit questions to be answered
by each of the above.
• The Capital Markets Event held in December 2022
enabled the Board and Executive management team
to interact with potential and existing investors.
• The Chair has, since the end of 2022 (January 2023),
undertaken a schedule of meetings with major investors
to discuss topical matters of importance to them.
• Major shareholders were consulted as part of the
process in developing Directors’ remuneration policy
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.
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.
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.
How the Board has engaged with and had oversight of stakeholder views during the year?
• 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 approved the Customer
Acceptance Criteria as a part of Phoenix’s
toolkit for future acquisition which provide
details of Group’s plans for inclusion of
an assessment of customer impact and
customer fair treatment benefits in its
acquisition strategy
• The Board Remuneration Committee (which
reported to the Board on a regular basis)
focused on customer outcomes during the
year, allocating 25% of the 2022 Annual
Incentive Plan to be aligned with customer
satisfaction metrics (see the Directors’
Remuneration Report on pages 110 to 146 for
more detail).
• The Board received regular updates from the CEO on
• The Board received updates on colleague
customer service performance and outsourced services
(including any ongoing impact of COVID-19), 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 (‘Modern Slavery statement’)
which outlines steps that Phoenix took, in the financial year
ended 31 December 2021, 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 Modern Slavery
statement is available on the Company’s website.
well-being and engagement levels.
• 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 ExCo,
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 DNED
following engagement sessions with
colleagues, including meetings with the PCRF.
The Board members met a range of colleagues
and listened to their views, ideas and
experiences which will inform Board agenda
and decision-making as a part of the
Colleague Interaction Session.
• Received updates on the cost of living crisis
and the impact on colleagues, including
establishment of cost of living working group
and implementation of a number of incentives
such as free lunches and bonuses.
The Board’s role in promoting positive stakeholder relationships
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.
The Board monitors the performance of suppliers to ensure
Phoenix is able to provide the best customer outcomes to
deliver its operational and financial targets. Positive
relationships with suppliers are vital to the success of both
Phoenix and our suppliers.
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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85
Corporate governance
Stakeholder engagement continued
Key board decisions
Strategic priorities key
Optimise our
in-force business
Grow our business to support
both new and existing customers
Enhance our operating
model and culture
Example key Board decision
Acquisition of Sun Life of Canada UK
Link to strategic priorities
How the Board reached its decision
Example key Board decision
Payment of 2021 final dividend
Link to strategic priorities
How the Board reached its decision
Consideration of section 172 matters
During the year, the Board considered and agreed to acquire the business of SLF of Canada
UK Limited (‘Sun Life of Canada UK’). It was agreed that the Risk Committee and the M&A Advisory
Committee would have oversight of specific elements of the transaction to support the Board in
reaching its decision.
The Board identified customers, colleagues, investors, regulators and suppliers as key stakeholders
in the decision making process. Discussions of the potential risks and opportunities for each
category of stakeholders were considered throughout the acquisition process. During the due
diligence process, the Risk Committee and M&A Advisory Committee had oversight of various risks
including market risks, counterparty risks, regulatory risks, conduct risks and operational risks with
updates provided to the Board on intended mitigation actions being or due to be taken in advance
of the final Board decision. Furthermore, supported by appropriate opinions from the Group Risk
function, a formal acquisition impact assessment and an assessment of any potential barriers to
completion and integration were reviewed. The Board fully considered the Group’s strategic
priorities and duty to promote the success of the Company.
The Board considered the impact of the decision to acquire Sun Life of Canada UK on customers,
existing and future, taking into account Sun Life of Canada UK’s products and the potential to
access a larger portfolio of product choices under the Phoenix brand. The Board also considered
outcomes for Sun Life of Canada UK employees and reflected on the principles of Consumer Duty.
In the wider context of customers and suppliers, the Board sought to understand the viability of
integrating operations, outsourcing partners and potential expense synergies whilst maintaining
appropriate levels of customer service and customer experience. The Board also considered the
long-term interests of shareholders and value creation from smaller M&A transactions with key focus
on valuation and financing (including solvency projections).
Announced the Group’s first ever cash-funded acquisition of Sun Life of Canada UK for
consideration of £248 million. This transaction, which is expected to complete in April 2023, is
expected to deliver c.£0.5 billion of incremental long-term cash generation, including c.£0.1 billion
of integration synergies, net of costs. This transaction also benefits from a simplified operational
integration programme, due to the majority of policy administration already being undertaken by
our strategic outsourcing partner (TCS Diligenta).
The significant value we expect to generate from this transaction enabled the Board to recommend
a 2.5% inorganic dividend increase this year (as part of the 2022 final dividend) which demonstrates
the significant value to shareholders of smaller, cash funded M&A that provides a sustainable
dividend that is growing over time.
Outcome
Consideration of section 172 matters
The Board considered the long-term impact of paying the 2021 Final Dividend on the
Group’s liquidity and solvency positions by reviewing the outcome of market sensitivities
and stress scenarios. The stress scenarios included COVID-19 related uncertainties,
associated economic recovery periods, credit downgrades and impact of a one in ten
market stress calibrated to the Group’s internal model. The Board also considered reverse
stress testing and market volatility associated with the inflationary pressures and impact
of the Ukraine-Russia conflict. The Board also considered the impact of the dividend
decision on shareholder expectations as it relates to the Group’s dividend policy.
In reviewing the appropriateness of the payment or non-payment of the dividend, the
Board considered the impact of its decision on the wider economy, the investment case
and business model.
The Board focused on ensuring a robust review was carried out before making its final
decision to ensure the highest standards of business conduct were maintained, as
expected by all our stakeholders.
Following due consideration of all the matters set out in section 172 of the Act, the Board
determined that the payment of the 2021 Final Dividend was consistent with the Group’s
risk appetite having assessed the likely impact on the business and its stakeholders
(including in the long term).
Outcome
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87
Corporate governance Composition, succession and evaluation
Nomination Committee report
Q&A
with the Nomination Committee
Chair, Alastair Barbour
What were the key highlights of
the Nomination Committee activity
during 2022?
2022 has been a year characterised
by further progress and focus on
succession planning activities taking
into account the skills, experience and
diversity required at Board level. This
progress is underpinned by a clear
intention to continue to harness the
capability, skills and experience of the
Board as a whole in the spirit of
continuous improvement. Further steps
have been taken to enhance diversity in
the broadest sense through the
appointment of Maggie Semple.
What were the key considerations
for the Nomination Committee
during 2022?
The Board was cognisant of the number
of changes that were taking place to the
membership of the Board during the
year, with Nicholas Lyons going on
sabbatical, Wendy Mayall retiring, myself
taking over as Chair, Karen Green
assuming the role of the SID, Katie
Murray becoming the Chair of the Audit
Committee and two new directors
joining the Board; Maggie Semple and
Stephanie Bruce. The Board worked
hard to ensure there was a smooth
handover process with minimum
disruption. All Board members have
adapted to their new roles extremely
efficiently with positive feedback.
How has the Nomination Committee
approached succession planning
during 2022?
In 2021, the Nomination Committee
(‘Committee’) recognised that the skills
and experience on the Board could be
enhanced in respect of the oversight of
our growing Open business, digital and
customer focused businesses and at the
same time continue to develop diversity
in the broadest sense (skills, experience,
ethnicity, gender, background and age)
to support robust decision making,
avoiding ‘group think’ and enabling
consideration of different perspectives
when taking action to drive forward the
Group’s strategic priorities. This process
continued into 2022 and when
appointments were made in the year,
feedback on the succession planning
activities was sought through the Board
Evaluation exercise conducted in late
2022. Additionally, the Committee was
mindful that a number of Board
members would reach their nine year
tenure over the next three years and
has taken steps to maintain orderly
succession where possible by staggering
Board member retirements. This
approach enables the Board to benefit
from stability as well as continuing
to ensure the most appropriate balance
of skills and experience, diversity in
the broadest sense and remains
forward looking.
What do you see as the Committee’s
key areas of focus in 2023?
Continued focus on forward-looking
Board succession planning, enhancing
talent and succession planning for
Executive Directors and senior
Management and continuing to focus on
developing Board skills, capability and
experience in actuarial/life and
investment in line with strategic priorities
to grow the asset Management business.
How has the Committee considered
Board composition and diversity and
inclusion during the year?
A Board skills review was carried out to
ensure we have the right breadth of skills
and capability needed to oversee our
strategic priorities and we have
enhanced the quality of the Board and
senior Management through hiring
individuals that bring additional valued
attributes such as diversity of experience,
skills and perspective. We prioritise this
in all our engagements with search firms
and ensure that they, as suppliers of
services to Phoenix, are aligned with
these aims. In 2022 the focus was on
enhancing diversity in the broadest
sense and the Board continues to focus
on improving diversity and inclusion in
the Boardroom and will continually
mandate search firms to produce diverse
and balanced short lists whilst
recognising at all times that the best
candidate for the role will be appointed.
Members Attendance at
Committee meetings
(actual/maximum eligibility)
Alastair Barbour1
Nicholas Lyons1
Karen Green2
Nicholas Shott
Kory Sorenson
John Pollock3
5/6
4/4
2/3
6/6
6/6
1/2
1
2
3
Alastair Barbour was appointed Chair of the
Committee on 1 September 2022 and was unable
to attend a meeting due to a scheduling conflict.
Nicholas Lyons took up his sabbatical effective 1
September 2022.
Karen Green became a member of the Committee
on 5 May 2022 and was unable to attend a meeting
in October 2022 due to illness.
John Pollock became a member of the Committee
on 1 November 2022 and was unable to attend a
meeting due to a pre-existing arrangement.
2022 highlights
• Board and Executive Director
succession planning
• Board skills review and renewal
of terms of appointment
• Non-Executive Director
recruitment – actual and planned
• Talent, capability, diversity and
inclusion reviews
• The appointment of Alastair Barbour as
Chair for the duration of Nicholas Lyons’
sabbatical as Lord Mayor of the City of
London from September 2022 to
November 2023. Alastair reached a
tenure of nine years on the Board in
October 2022 and is therefore not
considered independent. However, his
appointment as Chair is considered to
be in line with Provision 19 of the Code
where an extension past the nine year
period is deemed acceptable for a
limited time particularly where the Chair
is an existing non-executive director.
• The appointment of Karen Green as
Senior Independent Director from the
conclusion of our AGM on 5 May 2022.
• The appointment of Katie Murray
as a NED from 1 April 2022 and as a
Chair of the Audit Committee from
1 September 2022.
• The appointment of Maggie Semple as
a NED from 1 June 2022 and her
subsequent appointments as Designated
NED for Workforce Engagement on 1
July 2022 and as a member of the Risk
and Sustainability Committees from 1
September 2022.
• The retirement of Wendy Mayall from
the Board from 31 December 2022
and associated succession activity.
• Review of Directors’ time
• Support for the appointment of
commitments and independence
Role of the Committee
The 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.
Composition of the Committee
With the exception of the Chair, all of
the members of the Committee are
Independent Non-Executive Directors.
Board succession
During 2022, the Committee has remained
active in its consideration of Non-Executive
Director (‘NED’) succession, which
following further consideration by the
full Board, has led to:
Stephanie Bruce as the nominated
representative of abrdn adding
valuable and relevant skills through
her executive role as CFO of a major
financial institution.
The standard process used by the
Committee for Board appointments
involves the use of an external search
consultancy to source external candidates
and, in the case of executive appointments,
also considers internal candidates.
Detailed assessments of shortlisted
candidates are undertaken by the search
consultancy and the Committee ensuring
there is a balanced shortlist from a diversity
perspective, followed by interviews with
Committee members and other Directors
and obtaining references prior to the
Committee recommending the
appointment to the Board. The Committee
requires search firms to ensure that both
long-lists and short-lists are balanced from
a diversity and inclusion perspective.
This process was followed for the
appointment of Katie Murray and Maggie
Semple and the search firms engaged
were Sainty Hird & Partners and Korn
Ferry, respectively. Both search firms are
signatories to the Executive Search Firms’
Voluntary Code of Conduct and neither
firm had any other connections with the
Company or its directors during the year.
Executive succession planning is
undertaken by the Committee for
Executive Directors and for ExCo roles
ensuring appropriate succession in an
emergency situation with at least one
successor who is ready now or expected to
be ready in one to two years. The Board
also had a deep dive into the broader
talent, capabilities and broader diversity
agenda. It remains a particular ongoing
area of focus and interest as the Company
continues to build its capabilities and
strengthens the succession pipeline.
Board skills
A Board skills review was undertaken
during the second half of 2022 and
concluded that skills could be expanded
further in actuarial/life company
experience, investment and wider financial
services experience. The search for Wendy
Mayall’s successor was based on this
criteria. Board skills are separated into core
and secondary skills which can be found
on page 92.
Board diversity
The Board supports and complies with the
FTSE Women Leaders Review (formerly
known as the Hampton-Alexander Review)
guidance for FTSE 350 companies that the
Board should be comprised of at least 33%
female directors. As at 10 March 2023,
the Board is comprised of 50% female
directors. In addition, the Board met the
recommendations of the Parker Review
for FTSE 100 companies that there should
be at least one director from an ethnic
minority background on the Board by
2021. As at 10 March 2023, the Board has
three Board members of an ethnic minority
background representing 25% of the total
Board composition. Further information
can be found on page 92.
The Committee meets the requirements
set out in the FCA’s Listing Rules (LR
9.8.6(9)) on diversity, the targets are:
• At least 40% of the board are women
• At least one of the senior board positions
(Chair, Chief Executive Officer, Senior
Independent Director or Chief Financial
Officer is a woman
• At least one member of the board is from
a minority ethnic background
The tables are over the page:
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89
Corporate governance Composition, succession and evaluation
Gender diversity
As at 10 March 2023
Men
Women
As at 31 December 2022
Men
Women
Ethnic diversity
As at 10 March 20231
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/ prefer not to say
As at 31 December 20221
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/ prefer not to say
Number of
board members
Percentage
of the board
Number of senior
positions on the
board (CEO, CFO,
SID and Chair)
Number in
executive
Management
Percentage
of executive
Management
6
6
6
7
50%
50%
46%
54%
3
1
3
1
6
5
7
5
55%
45%
58%
42%
Number of
board members
Percentage
of the board
Number of senior
positions on the
board (CEO, CFO,
SID and Chair)
Number in
executive
Management
Percentage
of executive
Management
9
–
2
1
–
–
10
–
2
1
–
–
75%
–
17%
8%
–
–
77%
–
15%
8%
–
–
3
–
1
–
–
–
3
–
1
–
–
–
10
–
1
–
–
–
11
–
1
–
–
–
91%
–
9%
–
–
–
92%
–
8%
0%
–
–
1 Based on the ONS classification and included: Asian, Black, Mixed/multiple ethnic groups, Other ethnic groups, White and Prefer not to say.
Board diversity policy
Board policy
Progress
The Board’s overriding aim is to appoint the right
Directors to the Board to drive forward the Group’s
strategy within a compliant framework.
During the year, Katie Murray and Maggie Semple joined the Board. Both of their experience,
background and skills are aligned with the Group’s strategy. The Board will endeavour to
appoint the right candidate for the role and seeks to enhance diversity in the broadest sense
at all times.
The Board promotes the enhancement of diversity,
including gender and ethnicity, as a consideration
when recruiting new Directors.
In line with our succession planning processes, we undertake a formal, rigorous and
transparent search process for each appointment, considering the current balance of skills,
experience and diversity amongst our directors. Each appointment is made subject to receipt
of the requisite regulatory approvals (where required).
The Committee strives to achieve balanced recruitment longlists demonstrating diversity
in the broader sense, including gender, ethnicity and other diversity attributes and will
challenge search firms to ensure this aim is achieved.
As at 10 March 2023:
• 6 female directors representing 50% of Board composition.
• 3 minority ethnic directors representing 25% of Board composition.
The Board intends to comply on a continual basis
with the FTSE Women Leaders Review 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 a minority ethnic group
on the Board.
The Board will undertake regular skills audits to
ensure the Board’s skills remain appropriate for its
strategy and providing diversity where possible.
The Board skills review has been carried out during 2022 and concluded that enhancing the
skills in the following areas, actuarial/life company, investment and wider financial services
experience would be valuable going forward.
The Committee has been active in
promoting gender and ethnic 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
(including statutory requirements) is
contained in the Strategic Report
on page 44.
Board independence
With the exception of the Chair and
shareholder appointee directors, all NEDs
are considered independent in character
and judgement. The independence criteria
set out in the Code were taken into
account as part of the selection process for
the NEDs who joined Phoenix during the
year, Katie Murray and Maggie Semple
were considered to be independent.
Stephanie Bruce was not considered to
be independent in her capacity as a
shareholder nominated director. Over
half of our Board members, excluding
the Chair, are independent NEDs. The
independence of NEDs is reviewed and
confirmed annually by the Committee.
Time commitment
All Directors are expected to commit
sufficient time to the Board, and the
Company, as is necessary to carry out their
duties as a Director. Time commitments for
directors are reviewed by the Committee
on a regular basis including: prior to
recommendation for appointment to
the Board, on changes in role (joining
additional committees or taking on further
responsibility) and prior to approving
external appointments.
The Company Secretary maintains a
register of Directors’ commitments which
is regularly reviewed by the Committee.
As part of the Board evaluation process,
the Board, supported by the Committee
considered each individual Director’s
attendance, contribution and external
appointments, and has concluded that the
time given by individual Directors during
2022 exceeded the level expected in their
appointment terms. It is expected that on
average, each of the eight scheduled
Board meetings is likely to require two days
of participation (including Committee
meetings, education sessions, travel
and Board dinners) and at least a day
of preparation time.
Each Director is required to spend at least
an additional day each month reviewing
information provided by the Company. In
addition, a two day strategy session is held
and there are regular briefings for the
Board Committees. On this basis, the
estimated time commitment of each Board
member is approximately 40 days each
year (who serves on more than one
committee). This basic time commitment
can be significantly increased on account
of transaction or other activity.
Board evaluation
An evaluation of the performance of the
Board and its Committees and individual
Directors was carried out in the latter part
of 2022. The process, which was led by
the Chair with the support of the Group
Company Secretary, involved completion
by Directors of a questionnaire covering
all aspects of Board and Committee
operations and Director effectiveness,
education and training followed by
individual meetings with each Director.
The findings were discussed by the Board
in November 2022. The focus of the review
was on ways for the Board to manage
its time effectively, drive strategy and
monitor performance.
The review concluded that the Board is
cohesive, well-balanced and operates as a
team. Management value the nature of
challenge and support from the Board which
Board evaluation –
areas of development
for 2023
• Strategic Topics – further deep dives
into the Open Business, including the
existing European business’ strategy.
• Education/Training – determination of
the topics to be included in 2023 and
ensure compliance/regular required
matters are covered in the most
efficient manner.
• Colleague Engagement – to enhance
colleague engagement for Directors
working with the Designated NED for
Workforce Engagement.
• Talent and Succession Planning –
closer focus as the Group continues to
build its capabilities and strengthens
the succession pipeline.
• Board Information – ongoing
improvement in the quality and
content of information to the Board
building on the progress made
in 2022.
is considered to be open, constructive and
respectful. The 2022 review concluded that
the Board and its Committees operated and
were chaired effectively and the balance of
material discussed at the Committee level
was appropriate.
In line with the recommendations from the
2021 review, the Board continued to focus
and make progress on the strategy and
appropriate time was allocated to
understanding and review of key areas of
business during the Board’s strategy
meeting in June 2022 as well as having
regular strategic matters presented to the
Board during the course of the year.
Information provided to the Board has
improved with a new Board paper template
introduced, clearer executive summaries
and signposting whether papers are for
information, discussion or approval and
short written summaries of Committee
activities provided by the respective Chairs.
Committee Effectiveness
The Committee effectiveness was
undertaken as part of the Board Evaluation
process and concluded that it operates
effectively and performs strongly. All
duties set out in the Committee’s Terms of
Reference were addressed during the year.
The areas of enhancement for the
Committee for 2023 are focused on
continuing to strengthen the talent and
succession planning for the Board,
Executive Directors and the Executive
Committee and ongoing improvement
of information to the Committee.
Assessment of the Chair’s Performance
Led by the SID, two assessments were
conducted to reflect the transition
between Nicholas Lyons and Alastair
Barbour for the respective periods served
as Chair during 2022. A questionnaire was
circulated to the Board and followed by a
Board meeting to assess performance
without the Chair present. Following the
meeting, feedback was provided by the
SID to Nicholas Lyons and Alastair Barbour.
The Board consider Nicholas Lyons to
be a high performing Chair who has made
a significant impact on the Management
of Phoenix. Directors believe Alastair
Barbour has transitioned very effectively
into the role of Chair.
Alastair Barbour
Chair
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Corporate governance Composition, succession and evaluation continued
Board diversity
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.
Overall diversity progress
FTSE Women Leaders
target – female board
representation
Target
33%
Achieved
50%
FCA Listing Rules
target – female board
representation
Target
40%
Achieved
50%
Minority ethnic
background
Female Chair,
CEO, CFO or SID
Target
Achieved
Target
Achieved
Board gender balance1
Board ethnicity
Board tenure
Board induction
The Chair is responsible for leading the
development of, and monitoring the
effective implementation of, training
policies and procedures for the
Directors. On appointment, each
Director receives a formal and tailored
induction. In addition, there is a
programme of ongoing education
and deep dives for Directors.
The Directors are committed to their own
ongoing professional development and
the Chair discusses training with each
NED at least annually. The Group
Company Secretary supports the Chair
in the oversight of the induction and
development plans for the NEDs.
All NEDs are encouraged to suggest
training topics of interest.
All directors are able to access a Board
portal where additional resources
are available.
Katie Murray
Joined the Board on 1 April 2022
Board responsibilities:
Maggie Semple, OBE
Joined the Board on 1 June 2022
• Designated NED for Workforce
• Chair of the Audit Committee
Engagement
“My onboarding experience at
Phoenix was well-structured
and has been characterised
by meetings with relevant
stakeholders and absorbing
relevant information to help me
understand Board and Group
operations, risks and opportunities
and key areas of focus.
The schedule of meetings with
senior Management and other key
internal stakeholders was well-
managed. In addition during my
first year of joining the Board, I
was appointed as Chair of the
Audit Committee and I am grateful
to Alastair Barbour for the smooth
handover of responsibilities. ”
• Member of Risk Committee
• Member of Sustainability Committee
“The induction programme at
Phoenix has been exemplary.
I have been impressed by the
quality of the information and
level of preparation by my new
colleagues in advance of the
meetings. Each person had read
my CV and encouraged me to
contact them after the meeting
for follow up discussions. Each
meeting left me with a strong
sense of support and eagerness
to succeed in my new role.
The impact of these meetings
has enabled me to accelerate
my understanding of the
business, key stakeholders,
risks and opportunities.
In my first year at Phoenix and in
my role as Designated NED for
Workforce Engagement, I continue
to develop my knowledge of the
business and in my interactions
with colleagues, the theme
of living Phoenix values is
regularly demonstrated.”
Female
Male
50%
50%
1
As at 10 March 2023, 50%
Female Board
representation which
exceeds recommendations
of FTSE Women Leaders
and new FCA Listing Rules
Average age of the Board
59
Directors of colour
25%
Directors of non-colour 75%
White (English)
White (Scottish)
Asian (Indian)
Asian (Japanese)
Black (Caribbean)
White (Other)
50%
17%
9%
8%
8%
8%
Less than 1 year
1–3 years
3–6 years
6–9 years
9 years or more
25%
25%
34%
8%
8%
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.
12
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Typical induction programme features
Meetings
Site tours and meetings with Management
Key documents
• Chair
• Group Company Secretary
• Group Head of Internal Audit
• Head of M&A and Corporate Development
• Group treasurer
• Other members of the ExCo, as appropriate
• External stakeholders which may include
Group auditor, brokers, major shareholders or
remuneration consultants.
• London
• Edinburgh
• Birmingham
• Telford
• Board operations, minutes and meeting packs,
framework, policies, delegations of authority,
conduct/regulatory responsibilities
• Financial, strategic and operation plans and priorities
• Directors’ & officers’ liability insurance summary
• Other documents as appropriate in relation to the
level of Board or Board Committee responsibilities
l
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92
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
93
Corporate governance
Composition, succession and evaluation continued
Board development
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
2022. Board Committees may have specific educational or deep dive session which are relevant to the
work of each Committee.
Q1
Q2
Q3
Q4
Customer migration programmes
Programme structure; migration sequencing; new
business enhancements, financial metrics; and
programme costs.
Phoenix Asset Management
Portfolio overview; asset Management strategy;
overview of credit risk governance and oversight;
sustainable investments; and shareholder assets
and direct investments.
Cyber & data security
Bi-annual update of most significant threats,
enhancements to controls implemented in 2022
and intended key areas of focus in 2023.
Colleague insight & engagement
The Group’s strategy and approach to colleague
engagement; dashboard functionality; scoring;
employee engagement and engagement drivers;
benchmarking; key areas of future focus.
Strategy
Various matters considered within the context of the
two-day strategy off-site including Digital and fintech
landscape and Sustainability: decarbonisation and
engaging people in better financial futures.
Committee deep dives and education sessions
Sustainability Committee:
• Diversity and inclusion strategy
• Stewardship code and proxy voting policy
Sustainability Committee:
• Social and economic impact of increased
longevity for UK society
Audit Committee:
IFRS 17 Methodology
•
IFRS 17 Impact assessment
•
Remuneration Committee:
• Remuneration policy review
Cyber & data security
Bi-annual update of most significant threats,
enhancements to controls implemented in 2022
and intended key areas of focus in 2023.
Third Party Risk Management
Supply chain overview; Phoenix’s supplier
Management model; life cycle and risk Management;
Management reporting and escalation; supplier
classification and segmentation.
Solvency II Reforms
Key objectives of PRA and HMT consultations and key
messages underpinning response from Phoenix, BPA
pricing impacts, balance sheet impacts and next steps.
Sustainable supply chain & operations
ESG supply chain strategy, its evolution and standards;
operational climate and environmental strategy;
operational carbon emissions; supply chain emissions;
and the Science Based Target initiative.
Consumer Duty Programme
Background of the new consumer duty and FCA
proposals; gap analysis including recommendations
and observations; strategic issues; next steps and top
priorities for the programme.
Internal Model
Building on previous Board education sessions
and the approach used to calculate Solvency
Capital Requirements and demonstrate effective
risk Management and decision making.
Sustainability Committee:
• Financial inclusion
• SBTi targets
Audit Committee:
• Solvency II regime reforms
Risk Committee:
• Solvency II regime reforms
Remuneration Committee:
• Directors’ remuneration policy
• Wider remuneration review of remuneration
structure and practices
Sustainability Committee:
• Culture & values
Audit Committee:
•
IFRS 17 transition balance sheet
Remuneration Committee:
Investor and proxy guidelines and
•
remuneration principles
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
95
Corporate governance
Audit, risk and internal controls
Audit Committee report
Q&A
with the Audit Committee Chair,
Katie Murray
What challenges has the Committee
faced during 2022?
The volatile economic environment has
produced a variety of challenges for
Group, and the Committee has played a
key role in ensuring that the impact on
the Group’s financial results and internal
control environment has been carefully
monitored and managed. The year has
also seen the further growth of the
Group and with an increased number of
initiatives being undertaken in support
of the Group’s Strategy, clear oversight
of the Risk Management Framework has
been required, especially when
considering the prioritisation of
resources across the various projects.
What do you see as the Committee’s
key areas of focus in 2023?
To ensure the implementation of IFRS 17
reporting processes and a safe landing
of the first Group results under the new
standard. The Committee will also
consider the reporting and control
implications of the inclusion of the
acquired Sun Life of Canada UK
business for the first time within the
Group financial results, and will
continue to monitor the impacts of
anticipated developments in the
regimes for financial reporting,
corporate governance and audit.
How did you navigate the
handover process?
I was appointed on 1 April 2022 to the
Board and on 1 September as Chair of
the Audit Committee (‘Committee’). I
would like to thank the Board for their
support and Alastair Barbour for such
a smooth transition and handover
allowing me to assume the role of Chair
of the Committee.
What were the key activities of the
Committee during 2022?
Financial reporting continues to be a
key focus alongside ensuring that the
internal control environment remains
robust as the Group delivers its strategic
agenda whilst navigating volatile
economic conditions. Through our
calendar of scheduled meetings we
actively engage with Management and
the risk and internal audit functions to
ensure that the Group’s financial results
and accompanying disclosures are
accurate, fair, balanced and
understandable. Underpinning this, the
Committee has continued to monitor
the control environment through
regular reporting of the Internal Control
Self Assessment which provides an
important level of assurance. The
Committee is responsible for
monitoring the impacts of new
governance and financial reporting
requirements for the Group, which
during 2022 included oversight of the
implementation of the new accounting
standard IFRS 17, updates on the reform
of Solvency II rules and the Department
for Business & Trade proposals on
changes to the audit regime and
corporate transparency.
Role of the Committee
To assist the Board by establishing,
reviewing and monitoring the Group’s
financial reporting, internal controls
framework, internal audit framework and
changes in regulatory requirements.
The Committee’s terms of reference set
out the responsibilities and duties of the
Committee, which are reviewed and
approved annually, are available on the
Phoenix Group website.
Members attendance at Committee
meetings (actual/maximum eligibility)
Alastair Barbour1
Katie Murray2
Karen Green3
John Pollock4
Nicholas Shott
7/7
3/4
8/9
9/9
9/9
1
2
3
4
Alastair Barbour stepped down as Chair of the
Committee on 1 September 2022 on his
appointment as Chair of the Board
Katie Murray joined the Board on 1 April 2022 and
became Chair of the Committee on 1 September.
Katie was unable to attend a meeting due to
pre-existing travel commitments arranged prior
to joining Phoenix.
Karen Green was unable to attend a meeting due
to illness.
John Pollock is Chair of the Risk Committee and
member of the Committee
2022 highlights
• Recommended approval
of the Company’s 2022 Annual
Report and 2022 Interim
Financial Statements.
• Approval of audit plans (external
and internal for 2022)
• Monitored the progress of the
IFRS 17 implementation
• Continued oversight on
government reforms relating to
Solvency II and Department for
Business & Trade
• Reviewed and monitored
the effectiveness and
independence of the
Company’s External Auditors.
• Reviewed the adequacy of the
control environment in light of
economic volatility
Committee composition
The Board confirms that all members of
the Committee are Independent Non-
Executive Directors and have been
appointed to the Committee based on
their individual finance and commercial
experience. The Board is satisfied that
Katie Murray, as Chair of the Committee
has recent and relevant financial
experience to chair this Committee
through her current Chief Financial
Officer role at Natwest plc and career
experience. The Committee, as a whole,
has financial and commercial competence
relevant to the insurance sector in which
the Group operates. Further information
on the skills, expertise and experience of
the Committee members can be found
on pages 74 to 76.
Committee meetings
The Committee met nine times during
2022. Meetings are attended by the Chair
of the Risk Committee (who is also a
member of the 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 Chair 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.
During the year, the Committee has also
met jointly with the Risk Committee and/or
Sustainability Committees to consider and
recommend certain matters to the Board.
This collaborative form of governance has
enabled greater agility and effectiveness
around decision making across different
committees. Examples of the collaborative
and integrated approach to governance is
shown in the table at the top of the page.
Activities during 2022
2022 has seen a number of challenges for
the Group, reflective of the volatile
economic and inflationary backdrop, as
well as the ongoing impact of the Russia/
Ukraine conflict.
Examples of collaborative governance:
Audit, Risk & Sustainability Committees (February 2022)
Audit & Risk Committees (April 2022)
• Year end 2021 reporting, including proposed
• SFCR approval (including Risk
2021 final dividend, going concern and
investor presentation
• Sustainability related reporting and disclosures,
including, TCFD update/Climate report and
Sustainability report
Disclosures in Solvency II Pillar III
Reporting)
Interim year reporting and
interim dividend
IFRS17 education sessions
•
•
These events have had a significant impact
on the financial markets which in turn has
implications for the Group’s financial
position and operating environment. As a
result, one of the key areas of focus of the
Committee has been to ensure that careful
monitoring and oversight of the financials
of the Group has occurred and the control
environment has continued to work
effectively. The support of the Risk and
Internal Audit functions as well as the
independent review by the External
Auditors has provided the Committee with
further assurance as to the integrity of the
Company’s financial reporting and the
soundness of its internal controls.
The following were the key areas of focus
for the Audit Committee during 2022 and
to the date of this report:
• Receiving and reviewing the Group’s
external financial reporting, and
recommending their approval to
the Board.
• Received and reviewed the Group’s
sustainability and climate reporting.
• 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.
• Making recommendations to the Board
on the appointment of the External
Auditors and their terms of engagement
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
reviewing key judgements and
accounting policy decisions.
• Monitoring the change activities within
the Finance and Actuarial function to
ensure that the resource framework
aligns with the strategic direction
of the Group.
• Oversight of activities of subsidiary audit
committees through a 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 all Phoenix
Life Companies Board Audit Committee
papers. 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 2022 and up to the date of this
report, the 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 2021 and
2022 Annual Report and Accounts,
2022 Interim Financial Statements, and
related disclosures recommending their
approval to the Board, 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 101. 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
96
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
97
Corporate governance Audit, risk and control continued
matters assessed by the Group’s
External Auditors as set out in their audit
opinion on pages 156 to 167. 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
target setting prepared by Management,
supported by the sensitivity analysis on
the key assumptions underpinning the
forecasts and the impacts of IFRS 17, 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 Business Readiness, Life
Finance Change, Taskforce on Climate-
related Financial Disclosures reporting
and BPA Annuity Buy-Out.
• Through regular briefings during
scheduled meetings and a series of
additional education sessions, the
Committee has overseen the progress
of the IFRS 17 implementation project
and the preparedness for first time
reporting in 2023.
• Reviewed a number of policy,
methodology and assumption related
matters pertinent to the implementation
of IFRS 17, including judgments with
regard to the approach to transition and
the application of the different
measurement models within IFRS 17
to the Group’s insurance contracts.
• Considered and approved the
disclosures on IFRS 17 in Note A.5 of the
IFRS financial statements as appropriate
to be included in the 2022 Annual
report and accounts.
• Reviewed and approved updates to the
Group Tax strategy, Group External
Auditor policy and the Group Liquidity
& Funding policy.
Committee effectiveness
In 2022, the Committee carried out an
internal effectiveness review whereby
aside from the members of the Committee,
members of Management and regular
attendees were also requested to provide
feedback. From the review it was
concluded that overall the Committee
works effectively and focuses on the right
issues. In addition, the transition of the
Committee Chair from Alastair Barbour to
Katie Murray during the year had been a
smooth process and the operation of the
Committee remains constructive. Further
information of the Board evaluation can
be found on page 91.
External Auditor
A key part of the role of the Audit
Committee is the review and oversight of
the work of the Group’s External Auditor.
EY LLP (‘EY’) is the Group’s External
Auditor. The External Auditor partner
attended all Committee meetings during
2022 and to the date of this report,
presenting reports on the external audit
process, 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 Committee reviewed and discussed
various reports from the External Auditor
throughout 2022, including the 2022
Audit Plan, progress reports against
that plan, and a report on their audit
procedures on the 2022 annual IFRS and
Solvency II results, and their interim review
of the half year 2022 IFRS results. The
Committee considered throughout 2022
and for the 2022 audit, the effectiveness,
engagement and remuneration of the
current External Auditors.
Assessment of the effectiveness of
the external audit process
Overall, the Committee has concluded
that EY have carried out their audit
for 2022 effectively. 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 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;
• consideration of the findings of external
evaluations of EY, notably the findings
from the Financial Reporting Council’s
Audit Quality Inspection Report; and
• consideration of the findings of EY’s
‘Transparency and Report and
Audit Quality Report’ which
outlines their governance and risk
Management practices.
Independence of the External Auditor
The External Auditor’s independence
was reviewed and monitored against the
Group’s External Auditor policy, including
their provision of non-audit services.
This included an assessment of their
independence and a review of services
provided by EY during the 2021 and 2022
financial years. The Committee is
satisfied that EY are fully independent
from Management and free from
conflicts of interest.
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. During the year, the Committee
has continued to monitor matters which
could impair the objectivity and
independence of the external audit and is
satisfied that there are no circumstances
that could affect the independence or
objectivity of the auditors.
External Auditor fees
The engagement of EY to perform any
non-audit service is subject to a process of
pre-approval by the Committee to
safeguard the auditor’s objectivity and
independence. 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.
Non-audit fees
Audit fees
Audit related fees
Total
Ratio of non-
audit:audit fees
Rolling 3 year
average audit fee
2022
£m
–
15.5
2.4
17.9
2021
£m
–
11.6
2.3
13.9
2020
£m
0.5
11.7
2.3
14.5
4%
6%
9%
6%
8%
17%
In 2022, total fees of £17.9 million were
paid to EY. Of this amount £15.5 million
related to statutory audit fees of the
parent and its subsidiaries, with a further
£1.8 million incurred in relation to services
provided pursuant to legal or regulatory
requirements.
The remaining fees of £0.6 million relate to
other services including review of the
Group’s interim report, sustainability report
and provision of assurance services over
the internal controls relevant to financial
reporting operating within certain of the
Group’s outsourced services providers.
This gives rise to a non-audit to audit fee
ratio under the EU Directive and
Regulations of 4% for the 2022 year, and
6% 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 2022 have not
impaired the independence of EY in
its role as External Auditor.
Internal audit
During 2022, the 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 as well as
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 and are satisfied
that the internal audit function has
adequate resources to deliver the in-year
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 2022.
Statement of compliance – audit partner
rotation and tender of external audit
The Group’s External Auditor policy also
governs the policy regarding audit partner
rotation with the expectation that the audit
partner will rotate at least every 5 years.
EY have served as auditor to the Company
since December 2018.
Under the Audit Ethical Standards, signing
audit partners for public interest entities
should retain the role for up to five years. In
order to safeguard the quality of the audit,
in light of the Group’s extensive change
programme, the Committee requested a
tenure extension for Stuart Wilson as a
result of reaching his fifth year of tenure
associated with the Group following
completion of the 2021 audit. For two of
those years Stuart Wilson acted as audit
partner for Phoenix Life Limited, with the
remainder as lead audit partner for the
Phoenix Group. Such an extension is
permissible under the Audit Ethical
Standards for a maximum of two additional
years. EY confirmed that Stuart Wilson is
able to continue as lead audit engagement
partner for the 2022 financial period
which was approved by shareholders
at the 2022 AGM. In view of the Group’s
extensive change programme and the
forthcoming acquisition of Sun Life of
Canada UK, a request for a further
extension to allow Stuart Wilson to
continue as lead audit partner for the
Group for the 2023 audit has been made
and confirmed by EY. We note that 2023
will be the last year of EY’s appointment as
Group auditors. EY have confirmed their
willingness to continue in office for 2023
and shareholders’ approval will be sought
at the AGM on 4 May 2023.
As announced, the Committee concluded
an audit tender process in 2021 resulting in
KPMP LLP being appointed as the Group’s
External Auditors commencing for the
financial period starting 1 January 2024.
A transition process will be undertaken in
2023 including regular review meetings
with Management, EY, Internal Audit and
Committee members, prior to their formal
appointment at the AGM in 2024.
The Committee confirms that it has
complied with the provision of The
Statutory Audit Services for Large
Companies Market Investigation
(Mandatory Use Of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014 for the
year ended 31 December 2022.
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Corporate governance Audit, risk and control continued
Internal controls
The Committee, alongside the Risk
Committee, is responsible for supporting
the Board in ensuring a robust system of
internal control and risk Management 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
considers bi-annual control reports from
Lines 1 and Line 2 (Risk) as well as the
annual Line 3 (Internal Audit) internal
control environment opinion. These
reports provide assessments of the design
and operation of the control environment
across the Group’s risk universe.
The Committee throughout 2022
reviewed the internal control environment
regularly and challenged Management to
ensure clear rectification plans were
incorporated where there were any
weaknesses or failings reported. In 2022,
this included a focus on the Group’s
control environment with regard to the
hedging of interest rate risks. In light of the
extent of the economic volatility
experienced in the period, the Committee
considered Management’s findings and
proposed enhancements that will ensure
the control environment in this regard
appropriately reflects the complexity of
the Group’s operations and the macro-
economic outlook. The Committee will
continue to monitor closely the internal
control framework throughout 2023 to
ensure it is appropriate as the Company
continues to deliver on its strategic aims.
Whistleblowing
Bi-annually, the Committee receives formal
updates from the Group’s General
Counsel on whistleblowing activities and
the operation of our processes to enable
confidential reporting. If necessary,
involvement in the assessment and
resolution of individual matters raised in
accordance with our established policy.
Whistleblowing arrangements within the
Group as well as any whistleblowing
activity where an employee raised
concerns, in confidence, about any
possible improprieties.
During 2022 there were a total of 18
notifications reported to the Speak-Up
Office of which five were triaged as
“whistleblows”, 11 notifications related to
people policy matters and two customer
complaints were notified using the system.
Of the five Speak Up matters, one remains
currently open and under investigation.
For the others, no material wrongdoing or
control failures were found, however
on-going oversight/monitoring has
been put in place.
Climate change
Sustainability is a significant area of focus
for the Group. The Committee has a key
oversight role of climate-related reporting
including TCFD and other sustainability
disclosures. Regular updates are received
from our Sustainability team on target
setting and disclosure requirements. The
Committee works with other committees to
ensure our reporting is aligned with
strategy and regulatory requirements.
There will be continued focus on ESG in
2023 with regular updates being provided
on the Group’s Net Zero Transition Plan
and approach to the implementation of
TNFD as well as updates on regulatory
disclosures.
FRC review
During the year, the Company received a
letter from the FRC’s Corporate Reporting
Review team requesting information in
relation to their review of the 2021 financial
statements. The request was for provision
of quantitative details of the significant
unobservable inputs used to measure the
fair value of assets held at level 3 in the fair
value hierarchy. The FRC Review team was
satisfied with the response from the
Company and the proposed
enhancements to disclosures which have
been reflected in the 2022 IFRS financial
statements. The scope of the review by the
FRC was limited to reviewing the 2021
Annual Report to consider compliance
with reporting requirements and does not
provide assurance that the report and
accounts are correct in all material
respects. Letters are written on the basis
that the FRC (which includes the FRC’s
officers, employees and agents) accept no
liability on them by the Group or any third
party, including but not limited to investors
and shareholders.
IFRS 17 implementation
During 2022, Management provided the
Committee with regular updates regarding
its progress with the implementation of
IFRS 17 and its impact on the financial
statements in relation to insurance
contracts, that came into effect from 1
January 2023. The Committee has held
sessions dedicated to IFRS 17, where there
has been discussion of the judgements in
methodology, the financial impacts and
the controls around the transformation
programme. Transition to IFRS 17 will
continue to receive continuous attention
from the Committee through 2023. This
will include oversight of the control
environment as it relates to the transfer of
IFRS 17 into a business as usual production
environment, and also relating to the
continuing transformation activities as the
Group looks to further streamline and
automate its reporting under the new
standard.
Department for Business & Trade
The Committee continues to receive
updates from Management in relation to
the ongoing government proposals
regarding the Department for Business &
Trade reforms on Corporate Governance
and Audit. Management continue to
monitor FRC announcements and maintain
dialogue with external advisers. An internal
cross-functional working group has been
established to prepare for the changes
once published by the FRC.
Audit Committee Standard consultation
Management continue to monitor FRC
announcements and the Group issued a
supportive response in February to the
consultation on a minimum standard for
Audit Committees, the requirements of
which we were already substantively
complying with.
Katie Murray
Chair of the Audit Committee
Significant matters considered by the Committee in relation to the financial statements
Significant matters in
relation to the 2022 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
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, expenses, 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, including consideration
of the impacts of continued economic volatility, expense inflation and the COVID-19 pandemic.
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 Chairs 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 Committee considered and debated the basis of valuation for adjustments to actuarial provisions that
arise at a consolidated Group level. This included consideration of 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 and strategic
transformation initiatives.
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.
Valuation of
complex and illiquid
financial assets
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 a review of judgements made in respect of data and inputs driving
the valuation of equity release mortgages, assumptions utilised in the valuation of modelled debt securities such as bond
spreads, and the impacts of continued economic uncertainty.
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
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 of climate change.
Provisions
Adjusted
operating profit
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 adjusted operating profit to ensure the allocations were in line with
the Group’s adjusted operating profit framework and consistent with previous practice. The Committee also considered
the treatment upon consolidation of the buy in transactions between one of the Group’s Life companies and its staff
pension schemes and the impact this has had on the IFRS loss for the period. The Committee confirmed the approach
to disclosure to explain the resultant movements in the IFRS financial statements and accompanying commentary.
Climate risk
The 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
Going concern and
viability analysis
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.
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. 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.
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Corporate governance Audit, risk and control continued
Risk Committee report
Q&A
with the Risk Committee Chair,
John Pollock
How has the Committee monitored the
Group’s Operational Resilience during
the year?
We receive regular updates from the
Group Chief Risk Officer (‘CRO’) and
the Chief Operating Officer in respect
of the Group’s operational resilience.
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.
Read more on Our Risk Management
Framework on pages 52 to 55
of the Strategic Report
Read more on Principal risks &
uncertainties on pages 56 to 67
of the Strategic Report
How has the Committee approached
the Group’s risk appetite monitoring
during 2022?
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.
What do you see as the Committee’s
key areas of focus in 2023?
The Committee will continue to focus on
the application of the Risk Management
Framework, taking into account the
strategic direction and priorities for the
Group throughout 2023 as well as the
changing economic environment
resulting from the macro economic
impact from the Ukraine-Russian conflict.
In addition, the Committee will continue
to monitor the impacts and associated
risks arising from the regulatory
landscape, including oversight of risks
associated with the implementation of
IFRS 17,climate change and sustainability,
with a particular focus on consideration
of emerging risks.
What were the key highlights of the
Risk Committee activity during 2022?
The Risk Committee (‘Committee’) has
continued to focus on the key risks
impacting operational resilience and the
control environment, including oversight
of capital and liquidity Management
in light of market volatility in 2022.
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.
What challenges has the Committee
faced during 2022?
2022 has been a challenging year for the
Group with the economy, customers and
colleagues all being impacted by the
Ukraine-Russian conflict, the impact of
inflation and the Cost of Living crisis and
the economic turbulence in autumn
2022. The Committee has continued to
monitor our Risk Management
Framework ensuring that it remains
robust and where necessary 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 (including climate
change) and associated customer and
conduct risks have remained high on the
agenda. Remote working and the Cost of
Living crisis have been key features of
the operating model this year and
emphasis has been placed on
colleagues’ well-being and ensuring that
the risk culture remains strong and
embedded in managing internal risk and
internal controls. There will be continued
focus by the Committee on ensuring
these key challenges are monitored
going forward into 2023.
Members attendance at
Risk Committee meetings
(actual/maximum eligibility)
Members
John Pollock (Chair)
Alastair Barbour1,3
Belinda Richards1
Kory Sorenson1
Maggie Semple2
Wendy Mayall4
Attendance
(actual/
maximum
eligibility)
9/9
7/7
7/9
8/9
2/2
9/9
1
2
3
4
Belinda Richards was unable to attend two
meetings of the Risk Committee due to a
scheduling conflict and delayed travel. Kory
Sorenson was unable to attend a meeting due
to a scheduling conflict.
Maggie Semple became a member of the
Committee on 1 September 2022.
Alastair Barbour stepped down as a member of
the Committee on 1 September 2022 on assuming
the role of Board Chair.
Wendy Mayall retired from the Board on
31 December 2022.
2022 highlights
• Monitored the Group’s risk
appetite.
• Reviewed the Group’s annual
ORSA report.
• Reviewed and approved the Risk
Management strategy.
• Considered and discussed the
implications of the Ukraine/Russia
conflict and associated risks.
• Oversight of liquidity and capital
Management in the context of
significant market volatility.
• Reviewed the 2022 Group Annual
Operating Plan, considering the
extent to which it supports the
delivery of Group strategy.
• Considered enhancements arising
from an external review to further
strengthen the Internal Control
Framework, including controls in
respect of liquidity Management
and hedging.
The role of the Committee
The role of the 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.
Committee meetings
The Committee met formally nine times in
2022 and an additional four meetings were
held. The Committee is comprised of four
Independent NEDs.
The majority of the Committee’s meetings
were attended by the Chair of the Audit
Committee 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.
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, also
periodically attends the Committee
meetings to provide key updates, which
helps to facilitate discussions relating
to investment risk.
The CRO has full access to the Chair and
the Committee and attends all Committee
meetings. The Committee receives
frequent reporting from the CRO 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 General Counsel and the Group Head
of Internal Audit.
The evaluation of the performance of the
Committee during 2022 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. Further information on the
internal review can be found on page 91.
Risk Committee’s principal activities
during 2022
In addition to the key activities discussed
in 2022, the Committee also:
• Considered and recommended Terms
of Reference for the Committee.
• Reviewed Conflicts of Interest registers.
• Reviewed and approved the
principal risks disclosures in the
2021 Annual report.
• Considered and recommended the
scenario analysis and risk Management
content of the TCFD report.
• Reviewed the risks associated with the
acquisition of Sun Life of Canada UK
in light of due diligence findings,
acquisition impact assessments and the
report on the acquisition from the CRO.
• Received updates on status
of regulatory relationships.
• Reviewed adherence to the Group Risk
Management Framework (‘RMF’) and
considered the appropriateness of the
Group’s overall risk appetite statements.
• Reviewed and approved changes to
the Liquidity and Funding Policy.
• Received a number of updates which
covered cyber risk, phishing, financial
risks arising from climate change,
customer and conduct risk, and
emerging risks and opportunities that
could impact the Group.
• Approved the Group market risk
appetite limits, taking into account the
affordability of the market risk inherent
in the 2022 Annual Operating Plan.
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Corporate governance Audit, risk and control continued
Sustainability governance
• Considered the Group’s risk appetite
and approved the updated capital risk
appetite framework.
• Discussed and approved the process
and governance related to acquisition
strategy for smaller M&A activity.
• Monitored compliance with, and
• Reviewed and discussed the
performance across Change, Delivery,
Schedule Management and Operational
Capacity for the Group.
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
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.
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 2022, in accordance with the
‘Guidance on Risk Management, Internal
Control and Related Financial and
Business Reporting’ published by the FRC.
The assessment for 2022 was presented to
the Board, following review by both Group
Audit and Risk Committees. 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 the Risk Committee
approved the updates to 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 and discussed the operation
of the RMF and approved the updated
RMF Policy. Details of the RMF, for
which the Committee has oversight,
are provided in the Risk Management
section of the Strategic Report on
pages 52 to 55.
• Considered risks, issues and matters that
are escalated from the Phoenix Life
Companies Board Risk Committee.
• Reviewed reverse stress-testing analysis
results, 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.
• Monitored and received regular updates
on the status of the current relationship
with the regulators including PRA, FCA,
TPR and Central Bank of Ireland.
• Monitored the risk culture within the
Group, including the results of the
Group Audit Annual Risk Culture
Assessment across four categories;
people and purpose, governance,
customers and leadership.
Sustainability Committee report
Q&A
with the Sustainability Committee
Chair, Karen Green
How have Committee members
increased their knowledge
and expertise of sustainability
related matters?
In addition to regular briefings from
the Chief Sustainability Officer, Group
HR Director and Director of Corporate
Affairs and Investor Relations, the
Committee has held a number of
deep dives and external perspective
sessions to enable Committee members
to deepen their understanding of
sustainability related matters. Topics
covered during the year by external
speakers included: building
engagement and awareness around
sustainable focussed pension (Make
My Money Matter), stewardship
(Hermes EOS) and financial inclusion
(Toynbee Hall).
What do you see as the Committee’s
key areas of focus in 2023?
The Committee will continue to focus
on driving the Group’s ambition to be
a leader in sustainability and ensuring
tangible, measurable progress against
the Group’s sustainability strategy.
The Committee will remain focussed
on monitoring the development and
progress of the Groups’ Net Zero
Transition plan ahead of final
publication and ensuring oversight of
progress with TNFD. The Committee
will also continue to monitor
developments in sustainability and
emerging practice, and provide
oversight of regulatory compliance
and actions being taken to enhance
the Group’s contribution to a more
sustainable world.
What were the key highlights of the
Sustainability Committee’s activity
during 2022?
Phoenix has set a clear strategic
ambition to be a leader in sustainability.
As such, the Sustainability Committee
(the ‘Committee’) has continued to
focus on the development of its
sustainability strategy including setting
progressive sustainability KPIs. The
benchmarking and materiality review
carried out in the year enables the
Committee to remain focussed on
prioritising Environmental, Social and
Governance (‘ESG’) themes over the
next few years as well as building a view
of progress by peers and in the wider
financial services sector in sustainability
matters. The Committee has continued
to monitor and challenge the
development of the Group’s Net Zero
Transition Plan which it intends to
publish in 2023.
How has the Committee approached
monitoring the Group’s culture
during 2022?
Phoenix has a clear people vision, to
make Phoenix the best place colleagues
have ever worked. In order to ensure
tangible and measurable progress in this
area, the Committee receives regular
updates from the Group HR Director
on the Group’s people strategy and
the progress of key initiatives including;
diversity and inclusion strategy,
leadership capability, reward, ways of
working and colleague engagement.
The Committee also received regular
briefings on engagement scores and
updates on our core people and culture
metrics. These insights were further
supplemented by regular updates from
the Designated Non-Executive Director
for Workforce Engagement enabling
the Committee as a whole to understand
the views of colleagues and impact of
engagement activities.
Members attendance at
Committee meetings
(actual/maximum eligibility)
Karen Green (Chair)1
Maggie Semple2
Nicholas Shott
Kory Sorenson
Mike Tumilty3
Wendy Mayall4
5/6
2/2
6/6
6/6
3/3
6/6
1
2
3
4
Karen Green was unable to attend a meeting due to
illness, this meeting was chaired by Nicholas Shott
Maggie Semple joined the Committee on
1 September 2022
Mike Tumilty retired from the Board on
30 June 2022.
Wendy Mayall retired from the Board on
31 December 2022
2022 highlights
• Review and recommendation of the
Group’s 2022 sustainability strategy.
• Approval of the Group’s 2022
Sustainability KPIs.
• Approval of the Group’s Science Based
Targets Initiative (‘SBTi’) targets.
• Review of the Group’s people strategy
and monitoring of the Group’s culture
through regular people and culture
Management dashboards.
• Consideration of feedback from the PRA
on Phoenix’s submission for the Climate
Biennial Exploratory Scenarios (‘CBES’) and
review of the Group’s round 2 submission
(jointly with the Board Risk Committee).
• Oversight of the pilot implementation of
mid-life MOT, a new initiative intended to
help colleagues aged 45 and over to plan
for their futures, and consideration of the
impact on the Group’s culture.
• Review and recommendation of he
Group’s 2021 Modern Slavery and Human
Rights Statement.
• Education and external perspectives
sessions undertaken, covering topics
of stewardship, financial inclusion,
culture, SBTi target setting and the
Group’s Net Zero Transition Plan.
• Deep dive sessions covering: the
Group’s D&I Strategy, the strategy and
activities of Phoenix Insights (see pages 24
to 25), the Group’s approach to Stewardship
and Financial Inclusion.
• Review of the Committee’s effectiveness
and terms of reference.
• Updates from the Group’s Designated
Non-Executive for Workforce Engagement
to support two-way engagement between
colleagues and the Board.
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Corporate governance Sustainability governance continued
Role of the Committee
The Committee, which met six times during
2022, is responsible for assisting the Board
in overseeing the Group’s sustainability
strategy and related activity, and approach
to ESG matters. The Committee met jointly
with the Risk Committee to discuss
Phoenix’s CBES submission and
proposed response.
The Committee’s duties include:
• ensuring the appropriateness of the
Group’s sustainability strategy.
• supporting the Board and Board Audit
and Risk Committees 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.
• assisting the Board with its oversight
of the Group’s culture and values.
The Committee’s terms of reference are
available on the Company’s website and
are reviewed annually.
The Committee is comprised of four
Independent NEDs 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
NED of the Phoenix Life Companies Board
as a standing attendee.
Other standing attendees of the
Committee include the CEO, Group HR
Director, Director of Corporate Affairs and
Investor Relations and the Chief
Sustainability Officer. During the year, the
Chair of the Board regularly attended
Committee meetings.
The Committee’s activities during 2022
covered all elements of the Group’s
sustainability strategy which is grouped
into three areas of focus: Investing in a
sustainable future. Engaging people in
better financial futures and Building a
leading responsible business. An overview
of the Committee’s activities is set out
on the following page(s):
Key Committee activities
Impact/Outcome
Key Committee activities
Impact/Outcome
Engaging people in better financial futures
Financial Inclusion Deep Dive
session, considering the ambitions
of the Group against external
research undertaken and
themes from thought leadership
on this topic.
Approval of the Group’s financial
inclusion strategy, as part of the
wider sustainability strategy.
Approval of customer related
targets and KPIs for 2022.
Investing in a sustainable future
Approval of responsible
investment related targets and KPIs
for 2022 and monitoring of
progress against these
commitments during the year.
Stewardship Deep Dive session,
covering the Group’s vision,
current commitments and
assessment of its strategic
asset managers.
External presentation on and
focused discussion of Stewardship.
Review and consideration of the
Group’s Net Zero Transition Plan.
Enhanced understanding of the Group’s
commitment to deliver a financial inclusion
strategy during 2022 and to launch a targeted
pilot for women aged 40 to 55, as an
underserved customer cohort.
Short-term and longer-term goals were set
including areas such as: (i) ensuring the Group’s
colleague offering was comprehensive, (ii)
leveraging and scaling customer initiatives
across the Group and (iii) launching targeted
initiatives for mid-career women aged 40 to 55
as an underserved customer cohort.
Strong results were delivered against the 2022
targets (see the Group’s Sustainability Report
for more detail).
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 strategy,
approach, and governance on stewardship.
Improved clarity on the approach towards and
timeline for developing the Net Zero Transition-
Plan and delivery of Phoenix’s ambitious climate
targets.
Review and approval of
SBTi targets.
SBTi targets have been set for Phoenix across
investments, operations and supply chain.
Building a leading responsible business
Investing in our people and culture
Consideration of the Group’s
‘people vision’ (‘to make Phoenix
the best place any of us have ever
worked’), taking into account that
diversity, equality and inclusion
were key to realising this vision.
Enhanced understanding of the Group’s
‘people vision’ and the importance of diversity,
equality, and inclusion in achieving this vision.
Consideration of colleague
engagement and culture
Management information.
Monitoring/oversight of pilot
implementation of mid-life MOT,
a new colleague initiative intended
to help colleagues aged 45 and
over to plan for their futures,
and consideration of the impact
on the culture.
Received reports from the
Designated NED for Workforce
Engagement and attendance at
the PCRF.
Approval of people related targets
and KPIs for 2022.
Reducing our environmental impact
Approval of environment targets
and KPIs.
Decarbonisation targets under the
SBTi Process education.
Working responsibly with Suppliers
Review of the Group’s Modern
Slavery and Human
Rights Statement for the year
ended 31 December 2021,
recommended for approval
by the Board.
Approval of supplier targets
and KPIs.
Review of the outcomes of the risk
assessment to identify suppliers
deemed to be high risk for
modern slavery.
Supporting our Communities
Approval of community related
targets and KPIs.
Understanding of colleagues’ perspectives in
relation to topics such as ‘mental well-being’,
‘flexible working’, ‘diversity and inclusion’ and
support offered by the business, and insights
into the tone of the Group’s culture from the
ground up.
Pilot launch and implementation of mid-life
MOT, helping colleagues aged 45 and over to
plan for their futures and encouraging them to
make decisions to achieve a life of possibilities
for themselves.
A key element of the two-way engagement
process between the Board and colleagues
enabling colleagues to express areas of
concern and positives directly to members of
the Group Board. Further information on the
role and activities of the Designated NED for
Workforce Engagement is on pages 108 to 109.
Management delivered strong results against
the 2022 targets (see the Group’s Sustainability
Report for more detail).
Management delivered strong results against
the 2022 targets (see the Group’s Sustainability
Report for more detail).
Increased understanding of Science Based
Targets and SBTi, progress monitoring
mechanisms; and consequences of not
meeting the targets.
Approval of the Group’s statement by
the Board, published in August 2022 on
the Phoenix website.
Delivery of strong results against the 2022
targets (see the Group’s Sustainability Report
for more detail).
Direct engagement with suppliers who were
deemed to be high risk for modern slavery
to mitigate such risks, together with action
plans being put in place for relevant
service providers.
Management delivered strong results against
the 2022 targets (see the Group’s Sustainability
Report for more detail).
Committee effectiveness
During the year, the effectiveness of the
Committee was considered as part of the
annual Board evaluation. Overall, it was
concluded that the Committee was
operating effectively. Members of the
Committee agreed that the meetings
are constructive with all members
demonstrating a high level of engagement
in the topics throughout the year. The
agenda remains well balanced with
appropriate information and insight and
the rolling schedule of education on
sustainability related matters and external
perspective sessions remains highly valued
by the Committee to increase and broaden
their knowledge of emerging best practice
and topics. It was agreed that further time
be added for free form discussion. Further
information on the Board evaluation
activity can be found on page 91.
Climate change
In addition to the above, the Committee
received regular reports, including
updates from the Chief Sustainability
Officer, relating to the Group’s compliance
with climate change regulation and other
emerging climate change related topics.
This included continued progress made
on activities aligned to the TCFD
recommendations within the Group and
a review of the Group’s CBES submission
content in collaboration with the Board
Risk Committee. The Board Risk
Committee has monitored the Group’s
compliance with the PRA’s supervisory
statement SS3/19, supplementing the
Committee’s oversight of climate change
related activities undertaken by the Group.
The PRA’s CBES 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 Committee has played a vital role
in developing the strategic ambition of
the Group’s Net Zero Transition Plan which
is expected to be published in 2023.
The 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.
Karen Green
Chair of the Sustainability Committee
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Corporate governance Workforce engagement
Engagement in action
– listening to the
colleague voice
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.
Supporting colleagues
2022 has been another year where
external factors have created challenges
for businesses and for their teams. The
aftermath of the COVID-19 pandemic
together with the wider economic
backdrop and rising rates of inflation
have exacerbated challenges that
colleagues are facing.
Throughout 2022 we have continued to
support our colleagues through these
difficult periods. Central to this has been
a wide-ranging support package to help
colleagues navigate the cost of living
challenges, which included giving all
colleagues, except our most senior staff,
a net £1,000 payment in August, free
personalised financial coaching and
planning, assistance with cost of parking
at work, and assistance with cost of lunch
at work. This was in addition to the robust
well-being support that is available.
Listening to and understanding colleagues
A strategic priority has been to create a
single Phoenix purpose-led culture that
colleagues feel connected to. The creation
of a new visual identity for Phoenix, and
alignment of our customer brands within
this, has helped to enhance the sense of
belonging for colleagues. Further to this,
focus has continued on improving the
day-to-day colleague experience through
our Diversity, Equity and Inclusion strategy,
developed using a data-led approach
following the roll out of our ‘Who We Are’
app in 2021.
Through the monthly colleague
engagement survey, the Executive Team
and the Board are able to gain insight
direct from colleagues into the moments
that matter. This insight has enabled us
to proactively engage with colleagues
and create actions to support our
colleagues across the business.
How the Board has engaged with
colleagues and supported them
throughout 2022
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 outcomes possible.
I joined as the Designated NED for
Workforce Engagement on 1 July 2022,
taking over the role from Karen Green.
I would like to thank Karen for the seamless
handover and support. Between Karen
and myself we carried out a programme
of virtual and in-person visits and sessions
across the business in 2022.
One of our key points of connection with
colleagues has been in meeting with the
Phoenix Colleague Representation Forum
(‘PCRF’) on a quarterly basis. This is an
autonomous forum made up of colleague
representatives from each of our functions.
Our partnership with the PCRF enables
us to have direct, honest and open
discussions about strategic topics
and how they impact colleagues.
“I was delighted to get the
chance to meet Maggie to
hear more about her role
and what she hoped to do for
colleagues. She spent time
listening to our experiences
and exploring ways she can
help Phoenix to innovate
and ensure it remains a
great place to work. I was
impressed by how open the
conversation was and her
willingness and excitement
to meet with colleagues on
a regular basis.”
Alannah Couper,
Sustainability Manager
After the quarterly meetings, the PCRF
representatives share a summary of
the meeting and topics discussed
with colleagues within their regular
PCRF newsletter.
In addition to regularly meeting with the
PCRF, we have taken the opportunity
to invite wider colleagues to informal
meetings to enable them to share what is
on their mind in the moment. Often similar
themes come up through both channels
of engagement, and I am encouraged that
colleagues feel that they can be honest
in these discussions.
The following key themes were discussed
with colleagues throughout the year:
• Pace and volume of change: reflecting
a combination of large-scale change
projects within the overall change
agenda, and the evolution of the
Group Operating Model.
• Ways of Working: embedding our hybrid
working model to get the best out of
people and protect our customers.
• Diversity, Equity & Inclusion: The steps
we are taking to enable everyone to
be their authentic selves at work.
• Cost of living: supporting colleagues
through challenging periods.
• Sustainability agenda: sharing aims
to make Phoenix a responsible
employer and committed to
a sustainability agenda.
In my role as the Designated NED for
Workforce Engagement I share regular
feedback from my sessions to the Board,
which provides additional perspective and
insights on colleagues.
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 is important to our colleagues and
the impact of Board decisions.
Maggie Semple
Designated NED for Workforce
Engagement
“The PCRF work with Maggie, and formerly Karen,
to share the colleague voice with the Board, giving
regular updates of how colleagues feel about the topics
that affect their working lives at Phoenix. Meeting at
regular points throughout the year keeps the colleague
voice relevant and in line with strategic change and
evolution. Colleagues feel heard by the Board and
that their collective views feed into discussions
about their working environment”
PCRF
“The People and Culture agenda is of great importance
to the Phoenix Board, and a topic that I regularly speak
with them on. We have a vision to make Phoenix the
best place any of our colleagues have ever worked,
underpinned by four culture ambitions that make
Phoenix ‘our place’ – 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.
Our partnership this year with Karen Green and now
Maggie Semple meant we have had a true two-way
feedback cycle that benefits our colleagues and Phoenix.
Karen and Maggie have had regular dialogue with
colleagues across Phoenix, across all levels, departments
and locations, and have shared insights on the Board’s
activities at these sessions. Alongside this, our
continuous listening approach to colleague engagement
means we can understand the areas of focus for our
colleagues and respond to the moments that matter
through the Executive Committee.
The regular interaction which our colleagues have
had with Karen and Maggie throughout 2022 have
been open, honest and transparent. This really speaks
to the culture that our Board are interested and
responsive to the challenges our colleagues may
be facing, and that our colleagues know that they are
in a safe environment to know that they will be heard
if they speak up.
Maggie has joined us from outside of the Financial
Services sector, and brings a different perspective to
discussions. Her vast experience in matters relating
to People, and her unique outlook in this area, will set
her up for great success in fulfilling the Designated
Workforce Non-Executive Director role.”
Sara Thompson,
Group HR Director
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Corporate governance Directors’ remuneration report
Directors’
remuneration report
Remuneration Committee Chair
Kory Sorenson
Members
Kory Sorenson (Chair)
Karen Green
Belinda Richards
Nicholas Shott
Key Committee activities in 2022
• Triennial review of Directors’
•
Remuneration Policy
Incentive outcomes for the 2022 AIP
and 2020 LTIP
• Executive Director and Executive
Committee salary decisions for 2023
• Metrics for 2023 variable pay schemes
to align with our/the Group’s evolving
business strategy
• Oversight of wider employee
remuneration review and cost
of living support
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 2022.
Summary of the year
Phoenix has again performed very strongly
in 2022, as it executed against its strategic
priorities and delivered on its financial
framework of cash, resilience and growth.
The Group delivered £1.5 billion of cash
generation, exceeding our 2022 target
range of £1.3 to £1.4 billion. Our Solvency II
balance sheet remains resilient with a £4.4
billion SII surplus and a 189% Solvency II
shareholder capital coverage ratio. We also
delivered c.£1.2 billion of incremental new
business long-term cash generation, with
the Group’s organic growth once again
more than offsetting the run-off of our
in-force business.
At the recent Capital Markets Day, Phoenix
outlined our strategy to deliver sustainable
organic growth, through both meeting
more of the evolving needs of our existing
customers and by acquiring new
customers. The Group set its first ever
organic growth target of c.£1.5 billion
of incremental new business long-term
cash generation by 2025, which is a 25%
increase on the strong performance
in 2022.
Wider workforce and actions to address
the cost of living
As the UK’s largest long-term savings and
retirement business, Phoenix is driven by
its core social purpose of helping people
secure a life of possibilities as demonstrated
by our support for our customers and
colleagues impacted by the current
macro-economic circumstances. In
particular, the Committee supported the
decision to make a £1,000 net payment to
all permanent colleagues (excluding the
Top 100 leaders) in August 2022, and since
September 2022, to provide free lunches
and parking to all UK colleagues on a
temporary basis to support them through
the current cost of living challenges. The
average salary increase for employees in
the next pay round will be 6%, to reflect
the emphasis of supporting the wider
workforce in the cost of living crisis.
Executive remuneration
outcomes for 2022
The incentive outcomes for 2022 reflect
the strong financial and non-financial
performance and progress on key strategic
objectives during the year as described
on pages 128 to 130 of this report.
Based on its assessment of the corporate
metrics, the Committee determined that
the Annual Incentive Plan (‘AIP’) outcome
should be 87.7% 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 83.0%
for Andy Briggs and 74.0% for Rakesh
Thakrar. This results in total awards of
86.8% and 85.0% respectively of the
maximum bonus opportunity in line with
the overall assessment. Further details are
set out on pages 129 to 130.
The 2020 Long-Term Incentive Plan (‘LTIP’)
award covering the years 2020–2022 was
based on Net Operating Cash Receipts,
Return on Shareholder Value, Persistency,
and Relative TSR. The overall vesting
outcome is 44.3% of the maximum
opportunity. Further details are set out
on page 131.
As reported in the FY 2020 Directors’
Remuneration Report, the Committee
reviewed the grant price of the 2020 LTIP
(620.5p) compared to the grant price of
the 2019 LTIP (700.4p) and was satisfied
that no adjustments were required to the
awards on grant for windfall gains. The
Committee has again reviewed the
position ahead of the vesting, taking into
account the Phoenix share price as at
28 February 2023 (633.69p) and is
satisfied that no windfall gains have
occurred and that no adjustment is
required on vesting (see page 131).
The resulting single total figure of
remuneration for Andy Briggs was £3,058k
and for Rakesh Thakrar was £1,555k. Full
details are set out on page 127.
The Committee reviewed market data
against a sector peer group of FTSE 350
insurers, and a sized-based peer group of
FTSE 31–100 companies from all sectors.
Phoenix ranked 68 in the FTSE 100 at the
time of the exercise, consolidating its
position since the last triennial review in
2019 broadly at the median of the FTSE
31–100 peer group in terms of market
capitalisation taking into account
market volatility.
The data evidenced that the current AIP
opportunity for the Group Chief Executive
Officer (‘CEO’) and Group Chief Financial
Officer (‘CFO’) is appreciably behind the
median of our peer group, particularly
given the quality of the executive team.
The Committee is therefore proposing to
increase the maximum AIP opportunity
under the Policy from 150% to 200% of
salary and to implement this opportunity
for both Executive Directors from FY 2023.
50% of AIP outcomes will continue to be
deferred in shares for three years and
malus and clawback provisions will
continue to apply. 80% of executive
director total remuneration is now subject
to the achievement of robust and
stretching performance targets aligned
with value delivered to shareholders.
To reflect the increased AIP opportunity
and to strengthen further the alignment
between the Executive Directors and
shareholders, the Committee proposes to
increase the Share Ownership Guidelines
(‘SOGs’) from 300% to 350% of salary for
the CEO and from 250% to 300% of
salary for the CFO and for two years
post-employment in line with best practice.
This positions the SOGs above the
upper quartile of comparably sized
FTSE companies.
By making these changes, the Committee
believes that the Policy will provide an
effective framework to ensure that the
remuneration structure for the Executive
Directors over the next three year period
is motivating and creates a strong
incentive to deliver sustainable growth
and value to shareholders.
The Committee will continue to review the
performance and development of both
roles over the next three year policy
period. Subject to the Committee’s
assessment of performance, the
Committee may consider further
adjustments to incentive levels but these
would be within the proposed Policy limits
and therefore limited to the LTIP (which has
a maximum of 300% of salary). No further
increases to the AIP would be possible
under the proposed Policy.
Updated metrics to align remuneration
with our evolving strategy
For the 2023 AIP, the Committee has
decided to replace the existing
Shareholder Value metric (25% weighting)
by a Net Flows metric for the Group’s
Pensions and Savings businesses (15%
weighting). The new metric will measure
growth and in-force business retention
within our Open business and is
stakeholder focused and aligned to our
strategy. The Long-Term Cash Generation
from New Business metric has been
amended to include Own Funds
Management Actions and increased from
20% to 30% weighting. This amended
metric will provide a wider assessment of
value creation by including Own Funds
enhancing management actions. This will
provide a holistic view on the sources of
future cash generation driving the Group’s
in-force Long-Term Free Cash metric, and
therefore underpinning the sustainability
of the dividend.
The customer metric relating to the
percentage of complaints resolved in eight
weeks will be replaced by one relating to
the percentage of claims resolved in three
days. This new measure is felt to align more
closely to the direction of travel for
published industry standards and the
Consumer Duty, whilst incentivising
appropriate behaviours for complaint
management in the Group. Resolution of
complaints in eight weeks remains an
important metric for the Group and
continues to be included in the ongoing
dashboard of management information.
The Committee is satisfied that the
remuneration outcomes for 2022 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.
Amendments to the Directors’
Remuneration Policy
This year, the Committee has conducted
its triennial review of the current Directors’
Remuneration Policy which received a vote
in favour of 99.31% at the 2020 AGM.
As part of the review, the Committee
considered market best practices, the
alignment of our existing structures with
our strategy and a comparison of both
structure and quantum to our peers.
Our objective is to ensure that the Group
continues to have a remuneration package
for Executive Directors which motivates
and retains, and is aligned with the Group’s
strategy and Shareholders’ objectives.
Based on the review, the Committee
believes that the remuneration structures
within the current Policy remain fit for
purpose and aligned to business strategy.
The core structure will therefore retain the
market-standard elements of base salary,
benefits, pension aligned to the workforce,
AIP and LTIP. The Policy continues to meet
UK best practice standards with features
such as 50% deferral of AIP outcomes into
shares for three years, 2-year post-vesting
holding periods for LTIP awards, malus
and clawback, and ambitious in-post and
post-employment share ownership
guidelines. For this reason, the Committee
is not intending to make any changes
to our remuneration structure.
Satisfied with the core remuneration
structure, the Committee analysed the
competitiveness of the package in light of
the quality of the executive management
team, their commitment to success for all
stakeholders and the strong progress
made in executing their ambitious growth
strategy. This is clearly demonstrated in the
second consecutive year of strong organic
growth delivered in 2022, as well as the
cash-funded M&A acquisition of SLF of
Canada UK Limited that was announced
in August 2022. Both demonstrate
that Phoenix is now truly a growing,
sustainable business.
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Corporate governance Directors’ remuneration report continued
Annual incentive plan
2022
Cash Generation
24%
Shareholder Value
20%
Incremental Long-term
cash generation less
new business strain
16%
Customer Experience
20%
Strategic Scorecard
20%
2023
Cash Generation
24%
Long-term incentive plan
Incremental New Business
Long-term Cash Generation
(less strain) plus Own Funds
impacting Management Actions
24%
Open (Pensions
and Savings)
net flows
12%
Corporate Element – 80% of AIP metrics
Customer Experience
20%
Strategic Scorecard
20%
Deferral 50%
for a period
of 3 years
Deferral 50%
for a period
of 3 years
2022
2023
Net Operating
Cash Receipts
20%
Return on
Shareholder Value
20%
Persistency
20%
Decarbonisation
20%
Relative TSR
20%
Net Operating
Cash Receipts
20%
Group In-force
Long-term Free Cash
20%
Persistency
20%
Decarbonisation
20%
Relative TSR
20%
For the 2023 LTIP, Group In-force Long-
Term Free Cash replaces the existing
Return on Shareholder Value metric.
This measures the Group’s ability to ensure
its recurring sources of long-term cash
exceed its recurring uses over the
performance period and therefore that
the Group is delivering sustainable growth.
The proposed changes to both the AIP and
LTIP metrics support the ambitions set out
at the Capital Markets Day in December
2022 and are set out above.
A salary increase of 4% effective from
1 April 2023 is proposed for the Executive
Directors, below the average increase
for all employees of 6% to reflect the
emphasis of supporting the wider
workforce in the cost of living crisis
as part of our core purpose.
Looking forward
The Board and Committee believe that our
proposed Remuneration Policy provides
strong alignment between pay and
performance and appropriately reflects
the experience of our stakeholders. We
hope that the revised Remuneration Policy
and the implementation of pay as 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
resolutions proposed at the 2023 AGM.
2022 marks my last full financial year
as Chair of the Remuneration Committee.
I will be succeeded as Chair of the
Committee by Nicholas Shott, who has
been a member of the Remuneration
Committee since 20 October 2016 and is
well qualified for this role. It has been
a privilege to serve as Committee Chair
and I am grateful for the support of the
Committee members during my tenure
as well as the valuable feedback from
our shareholders. I wish Nicholas well
in his new role.
Kory Sorenson
Remuneration Committee Chair
10 March 2023
At a glance 2022
Remuneration for 2022
2022 Single Figure
The outcomes under the AIP and LTIP
resulted in a single figure outcome for
Andy Briggs of £3,058k and for Rakesh
Thakrar of £1,555k. Further details are
on page 127.
£1,100k
Fixed vs variable pay
(% weighting)
Group CEO
Fixed vs variable pay
(% weighting)
Group CFO
£809k
£420k
Fixed Pay
30%
Fixed Pay
34%
Variable Pay
70%
£11k
£85k
Variable Pay
66%
£1,053k
Fixed Pay
Salary
Benefits
Pension
Variable Pay
AIP
LTIP
27%
0%
3%
34%
36%
£601k
Fixed Pay
Salary
Benefits
Pension
Variable Pay
AIP
LTIP
£471k
£13k
£50k
30%
1%
3%
39%
27%
Group performance measures
Annual Incentive Plan (‘AIP’):
Below we show the target ranges and outturn against the Group metrics within the 2022 AIP. More details of the 2022 AIP can
be found on page 128. All metrics align remuneration to the group strategy and were felt by the Committee to be 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 129 to 130.
Weighting
Threshold for
payout
Cash generation (£m)
30.0%
1,301
Target
1,401
20.0%
580
630
Maximum
Outcome
Formulaic
outcome (% of
maximum
incentive)
1,501
680
1,504
30.0%
890
20.0%
Incremental Long-term
cash generation less new
business strain (£m)
Shareholder
value (£m)
Customer satisfaction –
Telephony (%)
Customer satisfaction –
Digital (%)
Complaints resolved in <8
weeks (%)
Service Levels (demand
processed) (%)
Total
25.0%
6,621
6,721
6,921
6,848
20.5%
6.3%
6.3%
6.3%
6.3%
90
92
91
90
91
94
93
92
92
96
95
94
92
94
94
92
6.3%
3.1%
4.7%
3.1%
87.7%
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Directors’ remuneration report continued
Group performance measures
Long-Term Incentive Plan (‘LTIP’):
Below we show outturn against the measures which applied for the 2020 LTIP awards which are reflected in the Single Figure
Table on page 127. Net Operating Cash Receipts , Return on Shareholder Value, Persistency and Relative Total Shareholder
Return (‘TSR’) performance are shown over the three-year performance period (financial years 2020, 2021 and 2022). TSR is
measured against the constituents of the FTSE 350 (excluding Investment Trusts), with threshold vesting achieved for median
(50th percentile) performance and maximum vesting achieved for upper quintile (80th percentile) performance. Further details
are shown on page 131.
Net Operating Cash Receipts (£m)
Return on Shareholder Value (%)
Persistency (%)
Relative TSR (percentile)
Total
2022 AIP weighted
performance outturn
Outturn
17.2%
Outturn
20.5%
25%
30%
25%
20%
Weighting
Threshold
Maximum
Outcome
35.0%
25.0%
20.0%
20.0%
4,411
2.0
8.0
50th
4,966
4,627
4.0
6.5
80th
(1.8)
7.0
57th
Formulaic
outcome (%
of maximum
award)
21.9%
0.0%
13.8%
8.6%
44.3%
2020 LTIP weighted
performance outturn
Outturn
30%
Outturn
8.6%
Outturn
21.9%
35%
20%
20%
Outturn
20%
Outturn
13.8%
25%
Outturn
0%
Operating Cash generation
Net Operating Cash Receipts
Incremental Long-Term Cash Generation (less New Business strain)
Return on Shareholder Value
Shareholder value
Customer satisfaction – Telephony
Customer satisfaction – Digital
Complaints resolved in <8 weeks
Service Levels (demand processed)
Persistency
Relative TSR
Share Ownership 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 2022, 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 on page 121. As set
out on page 137 the SOGs are increasing from 2023 under the new
Remuneration Policy.
Group CEO
Andy Briggs
Group CFO
Rakesh Thakrar
324%
300%
250%
223%
Shareholding Guidelines percentage shown for Andy Briggs and Rakesh Thakrar includes the value of shares held based on a share price of £6.086 (as at close of
business on 30 December 2022). 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.
Guideline
Actual
Guideline
Actual
At a glance 2023
Alignment to strategy
This table demonstrates how each of our performance measures for AIP and LTIP align with the Group’s strategic priorities.
Performance measures 2023
2023 Corporate metrics
AIP
Cash Generation
Incremental New Business Long-Term Cash Generation (less strain)
plus Own Funds impacting Management Actions
Open (Pensions and Savings) Net Flows
Customer Experience
Strategic Scorecard
LTIP
Net Operating Cash Receipts
Group In-force Long-Term Free Cash
Decarbonisation – Operations
Decarbonisation – Investment Portfolio
Persistency
Relative TSR
Optimise
our in-force
business
Enhance our
operating model
and culture
Grow organically
and through
M&A
–
–
–
–
–
–
–
–
–
–
–
–
All employees participate in a common incentive plan ensuring consistency of corporate goals and individual
performance management.
The Committee reviews the performance measures and targets of the AIP and LTIP each year to ensure these are aligned
to Phoenix’s strategic priorities, are appropriately challenging, support the Company’s culture and values, and create value
for stakeholders.
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, over 63% of the Group CEO’s maximum remuneration is delivered in shares.
Over 63% 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: 200%
CFO: 200%
Pension
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: £844k
CFO: £504k
1 year
performance
period
Pension
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: £844k
CFO: £504k
Shares
vested
Shares
released
2 year
holding period
3 year deferral period
Shares
vested
Maximum
2023
2024
2025
2026
2027
2028
Performance period
Deferral
Holding period
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Corporate governance How our policy addresses the following factors set out in the UK Corporate Governance Code
Clarity and simplicity
Risk
• The reward framework seeks to embed simplicity and transparency
in the design and delivery of remuneration. Both the Corporate
Element and the Strategic Scorecard relating to the AIP have
transparent, measurable metrics.
• We have included diagrams and charts in this Remuneration Report
to improve clarity for readers regarding the alignment of Executive
remuneration with shareholders and our strategy.
• 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 123 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.
Proportionality
Predictability
• A high percentage of rewards are delivered in the form of shares,
• The range of potential award levels to individual Executive Directors are set out
meaning Executive Directors are strongly aligned with
shareholders. Executive Directors are required to hold shares from
LTIP awards for two years following vesting which provides focus
on sustainable share price growth. Significant deferral levels under
the AIP further align remuneration outcomes to shareholders.
• We have increased the share ownership guidelines to 350% for the
CEO and 300% for the CFO and have a post-employment
shareholding requirement for our Executive Directors to ensure
that they are aligned to the long-term performance of the Group.
in the scenario chart on page 126 which also demonstrates the impact of
potential share price growth by 50% over the three-year performance period
until LTIP vesting.
Alignment to culture
• We have engaged with our employees through Peakon (our employee
engagement survey), PCRF (our colleague representative forum), our many
employee networks, and our Designated Director for Workforce Engagement
(see page 108) 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.
Directors’ remuneration report continued
Alignment to wider workforce
The Committee considers a range of factors when setting the remuneration for Executive Directors, one of which is the alignment
with remuneration practices across the wider workforce. Phoenix provides colleagues across the Group with a competitive reward
package with details of each element included in the table below. Further details on wider workforce pay are shown on page 140.
Executive Directors & Executive
Committee
Senior Management
Wider workforce
Salary
Salaries are reviewed annually and increases are typically in line with or less
than the wider employee population.
Base salary is the basis for a
competitive total reward package
for all employees, and these are
reviewed annually with engagement
from employee representatives.
Regular benchmarking exercises are
carried out to ensure salaries remain
competitive against the market.
We are an accredited Living Wage
employer and all employees are paid
at least the Real Living Wage.
Benefits & Pension
All employees are eligible to participate in our range of flexible benefits and wellbeing initiatives in respective markets.
Core benefits include private medical cover, 12 times life assurance cover, group income protection and a range of
flexible benefits. The level of core benefits is the same across all grades.
Colleagues can participate in a share matching plan under the Phoenix Share Incentive Plan (‘SIP’) and, in the UK,
the Phoenix Sharesave Scheme.
All employees are automatically enrolled in the Company’s Mastertrust pension scheme with a 10% core
contribution and 2% matching contribution (plus salary sacrifice uplift of 10% of the employee contribution).
Payment in lieu of contribution, reduced for the impact of employer’s NIC is permitted where lifetime or annual
limits are reached. Separate occupational pension schemes with varying contribution rates operate in Ireland and
Germany.
Annual Incentive Plan
(‘AIP’)
All permanent and fixed-term employees are eligible to participate in an AIP which is based on Group measures,
business unit performance (where applicable) and personal objectives. Malus and clawback provisions apply.
Deferral
Half of any AIP award is subject
to deferral into shares for a three
year period.
One third of any AIP award is
subject to deferral into shares
for a three year period.
Malus and clawback
provisions apply.
Malus and clawback provisions apply.
Long-Term Incentive
Plan (‘LTIP’)
Senior executives participate in a LTIP with a three year performance
period and vesting is subject to Group performance outcomes.
Measures and targets for long-term incentive plans are consistent for all
participants and measured over a three year period.
Malus and clawback provisions apply.
Any AIP awards over £50k are subject
to deferral into shares for a three
year period. Deferral is 50% of the
excess above £50k in blocks of £5k.
Threshold varies slightly in Ireland.
Malus and clawback provisions apply.
A number of colleagues with
exceptional achievements and
value-aligned behaviours during the
performance year are considered for
a long-term incentive award in the
form of Phoenix shares with a vesting
period of three years.
Holding period
A two-year holding period after the
vesting date also applies for LTIPs.
No holding period.
Not applicable
Shareholding
requirements (‘SOGs’)
Shareholding requirements ensure
greater alignment with interests of
shareholders.
• 350% of salary for Group CEO
• 300% of salary for Group CFO
150% of salary for Executive
•
Committee members
No SOGs required.
Not applicable
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Corporate governance Directors’ remuneration report continued
Remuneration policy table
The Directors’ remuneration policy
(the ‘Policy’)
Subject to approval from shareholders, the 2023 Directors’ remuneration policy
set out below will be effective from the date of the 2023 AGM. It will apply for
a period of three years, until the 2026 AGM, unless a revised Policy is approved
by shareholders before then.
Comparing the new Policy with the current Policy
The main features of the 2023 Policy are summarised in the table below. The table also includes details of how the Policy is
intended to apply subject to approval by shareholders at the 2023 AGM.
Current
Base salary
Proposed
Base salary
Pension 12% of salary for Group CEO
and Group CFO
Pension 12% of salary for Group CEO and
Group CFO
Annual Incentive 150% of salary for
Group CEO and Group CFO
Annual Incentive 200% of salary for
Group CEO and Group CFO
Long-term Incentive
275% of salary for Group CEO
200% of salary for Group CFO
Shareholding Guidelines
300% of salary for Group CEO
250% of salary for Group CFO
Long-term Incentive
275% of salary for Group CEO
200% of salary for Group CFO
Shareholding Guidelines
350% of salary for Group CEO
300% of salary for Group CFO
General policy
The Remuneration Policy for Executive Directors is summarised in the table below along with the policy on the Chair’s and the Non-
Executive Directors’ fees.
Remuneration Principles
The Company’s overall positioning on remuneration for Executive Directors has been set with reference to the provisions of the 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.
Remuneration is aligned to the long-term success of the Group.
Remuneration takes account of the risk profile of the Group.
Remuneration supports a strong pay for performance culture.
Our updated Remuneration Policy benchmarks the total target remuneration for the Executive Directors using appropriate market data
sets which are consistent with those used for other roles in the Group.
This section does not form part of the Remuneration Policy and is for information only.
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.
Benefits
To provide other
benefits valued
by recipient.
Pension
To provide retirement
benefits which keep
Phoenix Group
competitive within the
marketplace and
provide for the future
of our employees.
Policy and operation
Maximum
Performance measures
• 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.
• N/A
• 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 £812,000),
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).
• The Group provides market
•
• N/A
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.
• 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.
• Pension contributions for
Executive Directors are
aligned with the wider
workforce rate which is
currently 12% of salary
(reduced to 10.6% when
taken as cash in lieu
of contribution).
• N/A
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.
• The Group provides a competitive
employer sponsored defined
contribution pension plan.
• All Executive Directors are eligible
to participate in the Defined
Contribution Pension 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.
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Corporate governance Directors’ remuneration report continued
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
Maximum
Performance measures
• AIP levels and the appropriateness of
measures are reviewed annually to
ensure they continue to support the
Group’s strategy.
• The maximum annual
incentive level for an
Executive Director is 200%
of base salary per annum.
• 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.
• DBSS awards are typically 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.
• 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.
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.
• Awards under the LTIP may be in any
of the forms of awards to receive
shares for nil-cost (as described for
DBSS above).
• The formal limit under the
LTIP is 300% of base salary
per annum (and 400% per
annum in exceptional cases).
• 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 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.
• 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.
• LTIP awards are typically 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.
Element and purpose
in supporting
strategic objectives
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.
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
Maximum
Performance measures
• Executive Directors are able to
• Sharesave – the
• Consistent with normal practice, such awards are not subject
participate in all-employee share
plans on the same terms as other
Group employees as required by
HMRC legislation.
to performance conditions.
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).
• Executive Directors are expected to
• N/A
• N/A
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 350% of base salary in
shares for the CEO and 300% 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.
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Corporate governance Directors’ remuneration report continued
Element and purpose
in supporting
strategic objectives
Chair and Non-
Executive
Director fees
Policy and operation
Maximum
Performance measures
• N/A
• The aggregate fees of the
Chair 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 or subsidiary
company committees.
• The fees paid to the Chair 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 or
are a member of 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 Designated Director for
Workforce Engagement.
• 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 and to
reflect the time commitment required.
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 an annual incentive plan, 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 a long-term incentive in recognition of exceptional commercial outcomes and is contingent on
continued employment.
2. Stating maximum amounts for the Remuneration Policy
The Directors’ Remuneration Report (‘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 Group Company) 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 117 and 120);
• Legacy arrangements – for the avoidance of doubt, the Committee may approve payments to satisfy commitments agreed prior
to the approval of this Remuneration Policy, for example, those outstanding and unvested incentive awards which have been
disclosed to shareholders in previous Remuneration Reports.
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 subject to the limit of £50,000 set out in the policy table.
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.
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Corporate governance Directors’ remuneration report continued
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 and retain associated
fees as long as these are not deemed to interfere with the business of the Group.
Non-Executive Directors
The Non-Executive Directors, including the Chair, 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 Chair). 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.
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
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
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
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 Chair) they would be entitled to a one month’s
notice period. The Chair, 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 2023 Remuneration
Policy although has established further employee engagement in accordance with the requirements under the Corporate
Governance Code.
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Corporate governance Directors’ remuneration report continued
Consideration of shareholders’ views when shaping the Remuneration policy
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.
Annual report on Remuneration
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 major shareholders prior to submission of this policy, we are pleased to disclose the
majority that could provide a prior voting intention were supportive. Areas of discussion were maximum AIP incentive opportunity,
FTSE peer pay, the level of stretch in performance targets and the expectation that the percentage increase of Executive Directors’
base salary would be lower than that of the wider workforce during the current economic climate.
Potential rewards under various scenarios (£000)
The charts below compare the maximum levels of Total Remuneration payable under the Directors’ Remuneration Policy.
Group CEO – Andy Briggs
£000
4,964
6,129
19%
47%
38%
34%
28%
2,219
19%
38%
43%
944
100%
Group CFO – Rakesh Thakrar
£000
2,593
3,101
16%
39%
33%
19%
15%
100%
43%
22%
18%
1,332
20%
38%
567
39%
33%
Total fixed pay
AIP
LTIP
Share price growth and dividend
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
Base salary
£000
844
504
Benefits
£000
10
10
Pension
£000
90
53
Total fixed
£000
944
567
Consists of base salary, benefits and pension:
• Base salary is the salary to be paid in 2023.
• Benefits measured as benefits to be paid in 2023.
• Pension measured as the full entitlement of approximately 10.6% of base salary receivable (after the reduction to payments made
in cash for employers’ National Insurance Contributions).
On-target
Based on what the Executive Director would receive if performance was on-target:
• AIP: consists of the on-target annual incentive (100% of base salary).
• LTIP: consists of the threshold level of vesting (50% of base salary for Group CEO and Group CFO). In addition, the potential
value of Sharesave and Share Incentive Plan (‘SIP’) participation is also recognised.
Maximum
Based on the maximum remuneration receivable:
• AIP: consists of the maximum annual incentive (200% of base salary).
• LTIP: assumes maximum vesting of awards and valued as on the date of grant (award of 275% of base salary for Group CEO and
200% of base salary for Group CFO). Sharesave and SIP valued on the same basis as in the on-target row.
This section of the Remuneration report sets out the Executive Directors’
remuneration for 2022. It 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 2023 AGM on 4 May 2023.
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 to be approved by the shareholders at the 2023 AGM is included in the previous section of this
remuneration report.
Implementation report – Audited information single figure table
Salary/fees1,2
Benefits3
Pension4
Total Fixed Pay
Annual
Incentive5
Long-term
incentives
Total
Variable Pay
Total
£000
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
20226
20217
(restated)
2022
2021
2022
20217
(restated)
Executive
Directors
Andy Briggs
Rakesh Thakrar
809
471
800
428
11
13
11
11
85
50
84
46
905
534
895
485
1,053
601
936
499
1,100
420
–
234
2,153
1,021
936 3,058
733
1,555
1,831
1,218
1
2
3
4
5
6
7
Rakesh Thakrar’s salary increased to £485k with effect from 1 April 2022. Andy Briggs’ salary increased to £812k with effect from 1 April 2022.
The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before
individual elections.
Benefits for Executive Directors include car allowance, private medical insurance, other taxable allowances, Sharesave and matching shares awarded under the Share
Incentive Plan.
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 (10.6%). No Director participated in a defined benefit pension arrangement in the year and none have any prospective entitlement to a
defined benefit pension arrangement.
Annual incentive amounts are presented inclusive of any amounts which must be deferred into shares for three years and which are subject to continued employment
(i.e. 50% of the AIP award for 2022). In 2022 £526,416 of Andy Briggs’s incentive payment is subject to three-year deferral delivered in shares (2021: deferral of
£468,120), and £300,280 of Rakesh Thakrar’s incentive payment is subject to a similar deferral (2021: deferral of £249,350).
In accordance with the requirements of the DRR regulations, the 2022 value for long-term incentives is an estimate of the vesting outcomes for LTIP awards granted in
2020 and which are due to vest on 13 March 2023. This vesting level is at 44.3% reflecting outcomes against the Net Operating Cash Receipts, Return on Shareholder
Value, Persistency and Relative TSR performance measures to 31 December 2022 (see page 131). This vesting outcome is then applied to the average share price between
1 October 2022 and 31 December 2022 (570.578p) to produce the estimated long-term incentives figures shown for 2022 in the above table. The assumptions will be
trued up for actual share price at the day of vesting in the report for 2023. For Andy Briggs, the disclosed LTIP figure of £1,100k comprises the disclosed LTIP figure of
£896,129 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 £204,177.
All values are calculated using the three month average share price to 31 December 2022 (570.578p). For Rakesh Thakrar, the disclosed LTIP figure of
£420k comprises the disclosed LTIP figure of £342,157 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 £77,953. All values are calculated using the three month average share price to 31 December 2022 (570.578p). No portion of the awards for Andy or
Rakesh related to share price appreciation.
For 2019’s LTIP awards which are reflected in the 2021 long-term incentives column above, the performance conditions were met as to 78.4% of maximum. The 2021
long-term incentives values in the above table reflect the value of the Company’s shares on the date of vesting which was 11 March 2022 (626.0p per share) multiplied
by the number of shares vesting whereas the equivalent figure within the published 2021 Single Figure Table was an estimate which reflected the average share
price between 1 October 2021 and 31 December 2021 (652.406 p per share) and certain assumptions regarding the cumulative value of dividends on the number
of shares vesting.
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Corporate governance Directors’ remuneration report continued
AIP outcomes for 2022 – Audited information
Against the specific Corporate measures, outturns were as follows:
Performance measure
Cash Generation (£m)
Incremental Long-Term Cash Generation less
New Business Strain (£m)
Shareholder Value (£m)
Customer Experience
Customer Satisfaction – Telephony (%)1
Service Levels (Demand Processed) (%)2
Customer Satisfaction – Digital (%)3
Complaints Resolved in < 8 weeks (%)4
Total
Threshold
performance
level of
2022 AIP
1,301
Target
performance
level for
2022 AIP
1,401
Maximum
performance
level for
2022 AIP
1,501
Performance
level attained
for 2022
AIP
1,504
580
6,621
90%
90%
92%
91%
630
6,721
91%
92%
94%
93%
680
6,921
92%
94%
96%
95%
890
6,848
92%
92%
94%
94%
% of
incentive
potential
based on
Performance
Measure
30.0%
20.0%
25.0%
6.3%
6.3%
6.3%
6.3%
100.00%
%
achieved
30.0%
20.0%
20.5%
6.3%
3.1%
3.1%
4.7%
87.7%
1
2
3
4
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.
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.
Digital customer satisfaction surveys are offered to customers on Standard Life & Phoenix 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’.
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.
AIP Underpin and Discretion on Corporate element
As described in the Committee Chair’s covering letter (page 110), Phoenix has achieved strong financial and non-financial
performance and progress on key strategic objectives during the year. The Committee is satisfied that the remuneration outcomes
for 2022 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. Prior to confirming the outcomes for the 2022 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 2022 formulaic
outcome was necessary.
Strategic Scorecard
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.
Objective
Customer
CEO
CFO
20% 10%
Description
Net Fund flows for Group £(7.7)bn
Base
BPA IRR
8.60%
New Workplace assets
won
£400m
Our People
25% 20% Employee engagement
eNPS
Diversity and Inclusion
eNPS
Health and Wellbeing
eNPS
Increase female
representation (% senior
leaders)
24
40
32
38.9%
£62m
£5m
Sustainable
Operating Model &
Business Integration
10%
20% ReAssure integration –
capital synergies in year
ReAssure integration –
cost synergies in year
Safe delivery of two
planned, critical policy
migrations
Total BAU expenses
Deliver/Progress five
agreed, material projects
Delivered
Delivered
£937m
Assessment against plan
(time, cost, benefits)
£953m
Green x2
Amber x3
Red x1
Capital, Asset & Risk
Management
15%
20% Total Group Management
£160m
£542m
Actions – Own Funds
Operating with risk
appetite
Open action plans
Customer incidents
management
Within Appetite
Green (<=10% actions
overdue)
80% category A
remediated in 2 months
72.5% category B
remediated in 9 months
1 of 6 outside appetite
(Control)
Amber (86% delivered)
Green (87% and 75%
respectively)
RMF effectiveness rating Green
Regulatory action delivery Green
Amber
Amber
Performance
£(5.7)bn
15.83%
£294m
30
47
42
39%
£169m
£18m
Outcome
100%
Significant outperformance
on net fund flows,
underpinned by investment
in our Workplace proposition
and continued focus
on customer outcomes.
Secured c.£2bn of new
scheme wins, with assets
scheduled to transfer over
the next 12 to 24 months.
Continued investment in our
BPA proposition to support
significant outperformance
of internal rate of return.
100%
Significant outperformance
against all three employee
Net Promoter Score targets,
with Colleagues being
central to Our Purpose.
Continued improvement in
female representation as part
of the broader DE&I agenda.
Regular engagement of
managers with our Peakon
engagement tool continues
to be an area of focus.
50%
Key planned migrations
were successfully and safely
delivered, and good progress
made on the majority of
material projects, although
there remains significant
activity to be done. BAU
expenses outturn was
adverse to plan due to higher
than planned regulatory and
audit fees, with ongoing work
to deliver committed cost
savings. ReAssure integration
cost synergy delivery was
behind plan, although
capital synergies were
significantly ahead.
50%
Outperformance of
Management Actions,
continuing our track record
of generating further
value. Continued focus on
embedding risk management
capabilities and controls to
support our ambitions, with
good progress in the year,
but clear prioritisation of
further work in 2023
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Corporate governance Directors’ remuneration report continued
Objective
Sustainability1
CEO
CFO
20% 10%
Description
Launch financial inclusion
strategy, focussed on a
specific underserved
customer group, providing
targeted support to
empower better
financial decisions
Number of Phoenix
Group customers that
are directly offered the
chance to review our
Digital Literacy materials
and/or initiatives
% of SLAL customers
in sustainable
multi-asset default
Develop and submit
for validation emission
reduction targets in line
with the SBTi financial
sector guidance
% of originated illiquid
investments into
sustainable investments
Reduce Scope 1 and 2
tonnes CO2 /FTE for
occupied premises
% of colleagues involved
in community activities
% of key suppliers
committed to SBTi/race
to net zero
20% Long Term Free Cash
Shareholder ratio
Fitch leverage ratio
NBC
Base
Launched financial
inclusion strategy
1m customers
c.£15bn AUM and 1.5m
customers
Developed and submitted
0.79 CO2/FTE
60%
40%
75%
£13bn
160%
28%
£408m
Performance
Complete
Complete – 1.2 million
customers
Outcome
90%
Outperformance or
successful delivery against
all but one of our ambitious
targets, reflecting that our
sustainability performance
is on track, building on the
momentum from 2021. We
remain committed to being a
leading responsible business,
with sustainability embedded
throughout.
Complete
Complete
53%
0.73
41.9%
82%
£13.3bn
189%
30%
£386m
75%
Strong performance against
targets for Long-Term Free
Cash and Shareholder ratio,
reflecting another year of
strong delivery against
our clear financial framework.
Fitch leverage ratio adversely
impacted by economics
from rising yields. NBC
marginally adverse largely
due to lower levels of
customer response driven
by the cost of living crisis.
Financial outcomes
10%
1 All outcomes of the sustainability metrics have been independently verified.
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
83%
74%
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.
Corporate
Strategic Scorecard
Total
Maximum
Total
As a % of
maximum
Corporate
element
87.7
87.7
As a %
of maximum
scorecard
element
83.0
74.0
As a %
of salary
105.2
105.2
As a %
of salary
24.9
22.2
As a %
of salary
130.1
127.4
As a %
of salary
150.0
150.0
As a %
of maximum
opportunity
86.8
85.0
Andy Briggs
Rakesh Thakrar
As described in the Remuneration Policy, 50% of 2022 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 2023 AIP have been disclosed (see Implementation of Remuneration Policy for 2023 on page
137), 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 2023’s AIP retrospectively in
next year’s Remuneration Report on a similar basis to the disclosures made above in respect of 2022’s AIP.
LTIP outcomes for 2020 awards – Audited information
Performance measure and
weighting
Net Operating Cash
Receipts (35%)
Return on Shareholder
Value (25%)
Persistency (20%)
Relative TSR (20%)
Total
Target range
Target range between Net Operating Cash Receipts of £4.411bn and
Net Operating Cash Receipts of £4.966bn
Target range between 2% CAGR and 4% CAGR
Target range between 8.0% and 6.5%
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. In addition,
the Committee must consider whether the TSR performance is
reflective of the underlying financial performance of the Company
Performance
achieved
£4.627bn
Vesting
outcome
62.7%
(1.8)%
0.0%
7.0%
57.1%
69.0%
43.0%
%
achieved
21.9%
0.0%
13.8%
8.6%
44.3%
The above targets were all measured over the period of three financial years 1 January 2020 to 31 December 2022.
As detailed on page 136 of the 2020 Annual Report and Accounts, the 2020 LTIP targets were amended to reflect the new organisation
following the acquisition of ReAssure Group plc by the Group on 22 July 2020. 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 impact these adjustments had on the 2020 LTIP are as follows:
Net Operating Cash Receipts – the threshold target (where 25% of this part of the award vests) was increased from £2.375 billion to
£4.411 billion with maximum target (full vesting of this part of the award) increased from £2.725 billion to £4.966 billion.
Return on Shareholder Value – consistent with the approach taken on previous transactions and in compliance with the Group’s
documented principles established for adjusting remuneration targets to reflect the impacts of acquisitions, there were no amendments
to the target ranges for compound annual growth rates as a result of the acquisition of ReAssure. However, the opening Shareholder
Value balance used to calculate the return was rebased by the value of equity issued (£2 billion) in consideration for the acquisition.
Persistency – no changes to this target were made as Persistency relates to the Open business only and is therefore not impacted by
the ReAssure transaction.
Underpin and Discretion
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.
Windfall Gains
As reported in the FY 2020 Directors’ remuneration report, the Committee reviewed the grant price of the 2020 LTIP (620.5p)
compared to the grant price of the 2019 LTIP (700.4p) and was satisfied that no adjustments were required to the awards on grant for
windfall gains. The Committee has again reviewed the position ahead of the vesting, taking into account the Phoenix share price as at
28 February 2023 (633.69p) and is satisfied that no windfall gains have occurred and that no adjustment is required on vesting.
130
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Phoenix Group Holdings plc Annual Report and Accounts 2022
131
Corporate governance Directors’ remuneration report continued
Payments for loss of office – Audited information
No payments were made to Directors in 2022 for loss of office.
Share-based awards – Audited information
As at 31 December 2022, Directors’ interests under long-term share-based arrangements were as follows:
Payments to past directors – Audited information
Clive Bannister, who resigned from the Board on 10 March 2020, received title to shares during 2022 in respect of the 2019 LTIP. The
value of these shares at the point of vesting on 11 March 2022 was £397,303. Taking into account the performance outturn of 78.4% and
time pro-rating, this reflected a grant of 52,136 shares with a value of £326,371 plus dividend accrual of 11,331 shares with a value of
£70,932. Clive also received title to shares during 2022 in respect of the 2019 DBSS. The value of these shares at the point of vesting on
11 March 2022 was £390,655. This related to the vesting of the deferred element of his 2019 AIP so there were no performance
conditions or time pro-rating. This reflected a grant of 51,265 shares with a value of £320,919 plus dividend accrual of 11,140 shares with
a value of £69,736.
James McConville, who resigned from the Board on 15 May 2020, received title to shares during 2022 in respect of the 2019 LTIP. The
value of these shares at the point of vesting on 11 March 2022 was £295,572. Taking into account the performance outturn of 78.4% and
time pro-rating, this reflected a grant of 38,786 shares with a value of £242,800 plus dividend accrual of 8,430 shares with a value of
£52,772. James also received title to shares during 2022 in respect of the 2019 DBSS. The value of these shares at the point of vesting
on 11 March 2022 was £252,729. This related to the vesting of the deferred element of his 2019 AIP so there were no performance
conditions or time pro-rating. This reflected a grant of 33,166 shares with a value of £207,619 plus dividend accrual of 7,206 shares
with a value of £45,110.
Non-executive fees – Audited information
The emoluments of the Non-Executive Directors for 2022 based on the current disclosure requirements were as follows:
Name
Non-Executive Chair
Alastair Barbour2
Nicholas Lyons3
Non-Executive Directors
Stephanie Bruce4
Karen Green5
Hiroyuki Iioka6
Wendy Mayall7
Katie Murray8
John Pollock
Belinda Richards
Maggie Semple9
Nicholas Shott10
Kory Sorenson
Mike Tumilty11
Total
Directors’ salaries/fees
2022
£000
255
307
–
159
–
129
74
141
116
63
139
141
–
1,524
2021
£000
161
370
–
141
–
111
–
141
111
–
129
141
–
1,305
Benefits1
2022
£000
2021
£000
21
8
–
3
–
1
2
3
2
1
2
1
–
44
10
1
–
1
–
–
–
–
–
–
–
–
–
12
Total
2022
£000
276
315
–
162
–
130
76
144
118
64
141
142
–
1,568
2021
£000
171
371
–
142
–
111
–
141
111
–
129
141
–
1,317
LTIP
Name
Andy Briggs
LTIP Buyout Award
LTIP
LTIP
LTIP
Rakesh Thakrar
LTIP
LTIP
LTIP
LTIP
Date of
grant
Share price
on grant
7 Nov 2019
13 Mar 2020
12 Mar 2021
18 Mar 2022
11 Mar 2019
13 Mar 2020
12 Mar 2021
18 Mar 2022
751.5p
620.5p
736.2p
635.9p
700.4p
620.5p
736.2p
635.9p
No. of
shares
as at
1 Jan
2022
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
granted
in 2022
No. of
shares
exercised2
No. of
shares not
vested3
No. of
shares
as at
31 Dec
2022
87,221
354,529
298,831
–
740,581
39,259
135,365
116,816
–
291,440
–
–
–
351,133
351,133
–
–
–
152,530
152,530
12,760
–
–
–
12,760
8,529
–
–
–
8,529
(99,981)
–
–
–
(99,981)
–
–
354,529
–
298,831
–
351,133
–
– 1,004,493
–
–
–
–
–
(10,323)
–
–
–
(10,323)
37,465
135,365
116,816
152,530
442,176
Vesting
date4
27 Mar 2020
13 Mar 2023
12 Mar 2024
18 Mar 2025
11 Mar 2022
13 Mar 2023
12 Mar 2024
18 Mar 2025
1
2
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).
Gains of Directors from share options exercised and vesting shares under the LTIP in 2022 were £645,224 (2021: £306,053). Andy Briggs gain was £645,224 arising
from an LTIP award exercised on 29 March 2022 at a share price of £6.4534.
3 The 2019 LTIP award vested at 78.4% of maximum. The 2018 LTIP award vested at 99.9% 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.
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).
The fee for Alastair Barbour increased to £460k with effect from 1 September 2022 following his appointment as Interim Chair.
2
3 The fee for Nicholas Lyons reduced to zero following his sabbatical leave with effect from 1 September 2022.
4
Stephanie Bruce was appointed as a member of the Board of Directors on 1 July 2022 and has waived all current and future emoluments with regard to her Directors’
fees.
5 Karen Green was appointed as Senior Independent Director on 5 May 2022.
6 Hiroyuki IIoka has waived all current and future emoluments with regard to his Directors’ fees.
7
Wendy Mayall was appointed as a member of the Life Companies Board Investment Committee on 1 January 2022. She retired as a member of the Board of Director on
31 December 2022.
8 Katie Murray was appointed as a member of the Board of Directors on 1 April 2022 and Chair of the Group Audit Committee with effect from 1 September 2022.
Maggie Semple was appointed as a member of the Board of Directors on 1 June 2022 and was appointed as Designated Director for Workforce Engagement on
9
1 September 2022.
10 Nicholas Shott was appointed as Chair of the M&A Advisory Group on 29 June 2022.
11 Mike Tumilty waived all current and future emoluments with regard to his Directors’ fees up to his date of resignation from the Board on 30 June 2022.
The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of
pensions and annual incentive was £6.181 million (2021: £4.376 million).
132
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
133
Corporate governance Directors’ remuneration report continued
LTIP targets
The performance conditions for the 2020, 2021 and 2022 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.
Performance measure1
Net Operating Cash Receipts
Return on Shareholder Value
Persistency
De-carbonisation – Investment Portfolio
Decarbonisation – Operations
Relative TSR2
25% of this part vests at threshold
performance rising on a pro rata
basis until 100% vests.
2020 award
35% Net Operating Cash Receipts
25% Return on Shareholder Value
20% Relative TSR
20% Persistency
Target range
of £4.411bn to £4.966bn
2021 award
35% Net Operating Cash Receipts
25% Return on Shareholder Value
20% Relative TSR
20% Persistency
Target range
of £4.330bn to £4.780bn
2022 award
20% Net Operating Cash Receipts
20% Return on Shareholder Value
20% Relative TSR
20% Persistency
20% Decarbonisation
Target range
of £3.800bn to £4.100bn.
Between 2% CAGR
and 4% CAGR
Between 2% CAGR
and 4% CAGR
Between 3% CAGR
and 5% CAGR.
Target range between
8.0% and 6.5%
Target range between
7.4% and 6.1%
Target range between
7.6% and 6.2%
Net zero strategy applied between
target range of 75% and 85% of
assets in scope by 2025
Reduction of 18%–22% in
portfolios where a Net Zero
strategy has been applied
Target range of 15%–25%
reduction year on year against
2019 carbon intensity of Scope
1 and 2 emissions from occupied
premises and Scope 3 emissions
from business travel
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.
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.
1
2
For each measure above, 25% of the award vests at threshold performance rising on a pro rata basis until 100% vests. Measured over three financial years commencing
with the year of award.
The Committee must also consider whether the TSR performance is reflective of the underlying performance of the Company measured over three financial years
commencing with the year of award.
LTIP Underpin:
2020 LTIP – notwithstanding the formulaic outcome under the above 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 and 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 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.
DBSS – Audited information
Date
of grant
Share price
on grant
12 Mar 2021
18 Mar 2022
736.2p
635.9p
11 Mar 2019
13 Mar 2020
12 Mar 2021
18 Mar 2022
700.4p
620.5p
736.2p
635.9p
No. of
shares
granted
as at
1 Jan 2022
No. of
shares
granted in
2022
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
exercised2
No. of
shares
lapsed/
waived
No. of
shares as at
31 Dec 2022
67,269
–
67,269
11,740
15,262
27,381
–
54,383
73,610
73,610
–
–
39,209
39,209
–
–
–
–
–
–
2,548
(14,288)
–
–
–
–
2,548
(14,288)
–
–
–
–
–
–
–
67,269
73,610
140,879
15,262
27,381
39,209
81,852
Vesting
date
12 Mar 2024
18 Mar 2025
11 Mar 2022
13 Mar 2023
12 Mar 2024
18 Mar 2025
Andy Briggs
DBSS
DBSS
Rakesh Thakrar
DBSS
DBSS
DBSS
DBSS
1
2
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.
Gains of Directors (Rakesh Thakrar only) from share options exercised and vesting shares under the DBSS in 2022 was £91,800 (2021: £59,922) arising from an
award exercised on 25 March 2022 at a share price of £6.4249.
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
Type
of award
Nature of
the Award
How the
award is
calculated
Face value
of award
Percentage
vesting at
threshold
performance1
Vesting
date
18 March 2022
LTIP Nil Cost Option
275% of salary £2,232,995
25% 18 March 2025
18 March 2022
DBSS Nil Cost Option
50% of AIP
£468,115
–
18 March 2025
18 March 2022
LTIP Nil Cost Option 200% of salary
£969,999
25% 18 March 2025
Performance
Measures1
See page
134
None
See page
134
18 March 2022
DBSS Nil Cost Option
50% of AIP
£249,345
–
18 March 2025
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 (2022 LTIP and DBSS award share price was 635.9p).
Sharesave – Audited information
Andy Briggs
Rakesh Thakrar
Rakesh Thakrar
Rakesh Thakrar
As at
1 Jan 2022
Options
granted
Options
exercised
Options
lapsed
3,056
1,604
2,546
–
–
–
–
1,768
–
(1,604)
–
–
–
–
–
–
As at
31 Dec
2022
3,056
–
2,546
164
Exercise
price
£5.89
£5.61
£5.89
£5.09
Exercisable
from
1 Jun 2024
1 Jun 2022
1 Jun 2026
1 Jun 2025
Date of
expiry
1 Dec 2024
1 Dec 2022
1 Dec 2026
1 Dec 2025
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. Following the exercise of 1,604 options under the 2019 Sharesave
scheme, Rakesh Thakrar received a total gain of £1,963 (2021: £nil).
Aggregate gains of Directors from share options exercised under all share plans in 2022 were £738,988 (2021: £365,975).
During the year ended 31 December 2022, the highest mid-market price of the Company’s shares was 701.4p and the lowest mid-market
price was 506.8p. At 31 December 2022, the Company’s share price was 608.6p (30 December 2022 price).
134
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Phoenix Group Holdings plc Annual Report and Accounts 2022
135
Corporate governance Directors’ remuneration report continued
Directors’ interests – Audited information
The number of shares and share plan interests held by each Director and their connected persons are shown below:
Implementation of remuneration policy in 2023 – Non-auditable
A summary of the packages of the Executive Directors is set out in the table below.
Andy Briggs
Rakesh Thakrar
Alastair Barbour
Nicholas Lyons
Stephanie Bruce
Karen Green
Hiroyuki Iioka
Wendy Mayall
Katie Murray
John Pollock
Belinda Richards
Maggie Semple
Nicholas Shott
Kory Sorenson
Mike Tumilty
Share interests
as at
1 January 2022
or date of
appointment
if later
285,897
102,822
9,716
65,990
–
–
–
55,000
–
14,666
–
–
38,995
38,300
–
Share interests
as at
31 December
2022 or
retirement
if earlier
359,111
116,201
9,716
65,990
–
–
–
55,000
4,600
14,666
–
–
69,473
45,000
–
Total share plan
interests as at
31 December
2022 – Subject
to performance
measures
1,004,493
404,711
–
–
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2022 – Not subject
to performance
measures
140,879
81,852
–
–
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2022 – Vested
but unexercised
scheme interest
–
37,465
–
–
–
–
–
–
–
–
–
–
–
–
–
The Directors’ share interests of the following Directors have increased between 31 December 2022 and 10 February 2023 (being
one month prior to the date of the notice of the AGM). Andy Briggs and Rakesh Thakrar acquired an additional 64 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 2022 (using the share price of 608.6p pence
as at 30 December 2022) 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
purchased 20,000 shares and Rakesh Thakrar purchased 3,133 shares independently throughout 2022. As detailed in the Chair’s
covering statement, the Shareholding Guidelines are increasing to 350% for Andy Briggs and 300% for Rakesh Thakrar with effect
from 2023 as part of the 2023 Remuneration Policy.
Position
Andy Briggs
Rakesh Thakrar
Shareholding
Guideline
(minimum %
of salary)
300%
250%
Value of shares
held at
31 December
2022
(% of salary)
324%
223%
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, Share Incentive Plan 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.
Post cessation
shareholding
requirement
Element of Remuneration Policy
Annual Incentive Plan
(‘AIP’)
Salary
Benefits
Pension
Annual bonus
LTIP
Shareholding
requirement
Rakesh Thakrar
£504,400, a 4% increase, below the level of the wider
workforce pay budget.
Andy Briggs
£844,480, a 4% increase, below the level of the wider
workforce pay budget.
Benefits in line with the rest of the workforce including legacy 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.
200% of base salary at maximum. Details of the 2023 AIP are set out below.
275% of base salary.
Details of the 2023 LTIP awards are set out overleaf.
350% 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.
Executive Directors are expected to retain the lower of their shareholding on termination or their full in-employment
shareholding requirement for two years.
300% of base salary.
200% of base salary.
The Committee regularly reviews the performance measures of the incentive plans to ensure they remain aligned with our
strategy. As detailed in the Committee Chair’s covering letter on page 111 the metrics for the 2023 AIP are shown below.
The Strategic Scorecard reflects 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 remains 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 2023 are:
• Corporate (financial and customer) performance measures – 80%; no change from 2022.
• Strategic Scorecard (strategic company priorities ) – 20%; no change from 2022.
The weightings of the AIP performance measures for 2023 are summarised below:
Performance measure
Corporate measure
Cash Generation
Incremental New Business Long-term Cash Generation (less
strain) plus Own Funds impacting Management Actions
Open (Pensions and Savings) net flows
Customer Experience
Strategic Scorecard
Total
12% (15% of Corporate component)
20% (25% of Corporate component)
20%
100%
% of incentive potential
24% (30% of Corporate component)
24% (30% of Corporate component)
Outcomes from performance measures for 2023’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 2023 AIP outcomes are confirmed. The targets for the specific performance measures for the AIP
in 2023 are regarded as commercially sensitive by the Group but will be disclosed retrospectively in the Remuneration
Report for 2023.
Deferred Bonus Share
Scheme (‘DBSS’)
50% of AIP outcomes for 2023 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 2023 (in respect of 2022’s AIP outcome) will be made automatically on the fourth dealing day following
the announcement of the Group’s 2022 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.
136
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Phoenix Group Holdings plc Annual Report and Accounts 2022
137
Corporate governance Directors’ remuneration report continued
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 2022
annual results under a procedure similar to that described above for awards under the DBSS.
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.
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 targets are measured over a period of three financial years, commencing with financial year 2023. As
detailed in the Committee Chair’s covering letter on page 112 the 2023 LTIP measures have changed. Measures, weightings
and targets are shown below:
Performance measure and weighting
Threshold target
Full vesting target
Relative Importance (£m)
Profits ditributed by way of
dividend (% change +4%)
489
508
Overall expenditure on
pay (% change +15%)
611
531
Net Operating Cash Receipts (20%)
Group In-force Long-Term Free Cash (20%)
Persistency (20%)
Decarbonisation – Investment Portfolio (10%)
Decarbonisation – Operations (10%)
£3,556m
£14.7m
7.1%
75% reduction pre-offset,
plus net zero post offset
(provided in the best interests
of customers)
Net-zero strategy applied to
80% of in-scope assets and
25% reduction in carbon
intensity
50th percentile
£4,006m
£15.4m
6.08%
85% reduction pre-offset,
plus net zero post offset
(provided in the best interests
of customers)
Net-zero strategy applied to
90% of in-scope assets and
25% reduction in carbon
intensity
80th percentile
Relative TSR measure against the constituents of the FTSE
350 (excluding Investment Trusts), subject to the Committee
considering whether the TSR performance is reflective of the
underlying financial performance of the Company (20%)
All 2023 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.
All-Employee
Share Plans
Chair and
Non-Executive
Directors’ fees
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.
Fee levels from 1 April are: £460,000 for the Chair, £78,000 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. (iii) £20,000 payable where an individual chairs the
M&A Advisory board; (iv) £15,000 payable for the Designated Director for Workforce Engagement, and £10,000 for other
members of the M&A Advisory Board. The fee structure levels for Non-Executive Directors were last reviewed in December
2020 (effective 1 January 2021) with no fee increase in 2022. For 2023 the base fee will increase by 4% with effect from 1
April 2023, lower than that of the wider workforce. This is to ensure the fees reflect the time commitment and workload for the
role and they remain competitive with other listed companies of similar size and complexity.
All incentive plans are subject to malus/clawback. See page 123 ‘Notes to the Remuneration Policy Table’ for details.
2021
2022
2021
2022
Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial year.
For 2022 this is the interim dividend paid (£248 million) and the recommended final dividend of 26.0 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 15% in the period reflecting the impact of the expansion
of the Open business, as well as the increased headcount in Asset Management and Group areas, which has also resulted in higher
AIP and share scheme costs. One-off payments were also made in August 2022 in addition to general salary increases to help with
the impacts of the current cost of living challenges. These increases have been partly offset by the impact from the Group’s Transition
and Transformation programme which has reduced headcount in certain areas of the business.
Voting outcomes on remuneration matters
The table below shows the votes cast to approve the Directors’ remuneration report for the year ended 31 December 2021 and
the Directors’ Remuneration Policy at the 2020 AGM held on 15 May 2020
To approve the Directors’ remuneration report for
the year ended 31 December 2022 (2022 AGM)
To approve the Directors’ remuneration policy (2020 AGM)
772,702,304
563,455,466
98.15
99.31
14,593,901
3,899,742
1.85
0.69
777,768
744,467
For
Against
Abstentions
Number
% of votes cast
Number
% of votes cast
Number
138
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
139
Corporate governance Directors’ remuneration report continued
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 current 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 2022
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 remuneration for our Executive Directors, the Committee took into consideration
the pay and benefits of the wider workforce to ensure that our reward offering remains competitive, attractive and suitably aligned
to our Group performance, while supporting our values and purpose of helping people secure a life of possibilities. Throughout
the Sustainability report (on pages 50 to 56) there are examples of how our reward proposition played an integral role in
supporting the Group culture that encourages diversity and inclusion, colleague development, rounded wellbeing, and supporting
a sustainable society.
We have 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 for other eligible colleagues, with a higher proportion of total remuneration for the Executive Directors linked to corporate
performance. For certain areas, business unit aligned metrics are also included in their AIP. 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. Colleagues are also eligible to participate in the Group’s success through our share schemes (Sharesave
and Share Incentive Plan) on the same basis as those offered to Executive Directors.
Diversity, Equity and Inclusion is embedded in the Group culture through our industry leading family friendly policies, holistic wellbeing
strategy that supports mental, physical and financial needs of colleagues and encouraging volunteering. Additionally, the Committee
considers feedback on pay and benefits through Peakon, a short monthly survey of colleagues’ anonymous views on various matters,
including reward. Further feedback from colleagues is received through extensive collaboration with the Phoenix Colleague
Representation Forum (‘PCRF’) and the Designated Director for Workforce Engagement (see page 108).
In response to the cost of living challenge throughout 2022, we recognised colleagues’ needs and provided a one-off £1,000 net
lump-sum payment to all colleagues below senior management. Our financial wellbeing offering was also enhanced by including free
personalised financial coaching and planning, and piloting a midlife MOT as part of our purpose to help people live better, longer lives.
Additionally, throughout 2022 we provided assistance with car parking costs, a free lunch option and free sanitary items in all offices.
We are a proud Real Living Wage employer and we made salary increases effective immediately following the announcement of the
new Real Living Wage for those impacted.
Equal pay and consistency of treatment for all colleagues, irrespective of gender1 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 purpose, values and sustainability strategy.
1
Further details on the Women in Finance Charter figures can be found on page 50 of the Sustainability Report. Further details on the statutory Gender Pay Gap figures
can be found on the Phoenix Group website.
CEO pay ratio
The table below details the CEO pay ratio for the year ended 31 December 2022, in line with the UK regulatory requirements. The ratios
compare the CEO total pay against the pay of three UK employees, whose earnings represent the lower quartile, median, and upper
quartile positions of the UK employee population. The calculations are based on Option A of the three methodologies, which we believe
is the most statistically robust approach.
The CEO value used is the total single figure remuneration data for 2022 (as detailed on page 127). For the 2022 ratio, the total
compensation figure for UK employees follows the same methodology as for the CEO and is based on a full time equivalent of
actual earnings including 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 2022 and received remuneration in line with Group wide remuneration
policies. None received an exceptional award that would otherwise inflate their pay figure.
The table below sets out the salary and total single figure remuneration for the Group CEO and percentile employees included in
the below ratios.
Salary
Total remuneration (single figure)
2022 Ratio (total compensation)
2021 Ratio (total compensation)
2020 Ratio (total compensation)
2019 Ratio (total compensation)
Year
2022
2022
Methodology
Option A
Option A
CEO
809,000
3,058,279
25th
percentile
23,413
30,600
100:1
66:1
78:1
94:1
50th
percentile
(median)
40,000
44,223
69:1
46:1
54:1
62:1
75th
percentile
53,508
75,368
41:1
26:1
31:1
40:1
The increase in the ratio for 2022 reflects the fact that the CEO’s single figure has increased compared to 2021 primarily due to the
vesting of this 2020 LTIP award. To better compare to the 2021 figure, an additional ratio has been calculated excluding the value of
LTIPs from both the CEO single figure and that of other employees, resulting in a median pay ratio of 44:1. The total compensation figure
for the three identified employees is higher than last year due to the addition of the £1,000 cost of living payment described above
under the ‘Consideration of Employee Pay’ section and our philosophy of pay progression within the Group.
UK colleagues are also eligible to participate in our Sharesave and Share Incentive Plan offerings, which were not included in the values
in the employee single figure. Around 32% and 35% of UK employees participate in Phoenix Group’s growth and success through the
Sharesave and Share Incentive Plan respectively.
Phoenix Group is committed to attracting best in class talent at all levels with a compelling and competitive total reward proposition.
This includes a holistic core and flexible suite of benefits with the ability to customise these to meet individual needs, as well as industry
leading people policies including equal parental leave. We are an accredited Living Wage employer and committed to paying
colleagues a fair rate for their role by conducting regular market reviews of salary ranges to maintain competitiveness against market.
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.
140
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
141
Corporate governance Directors’ remuneration report continued
Performance graph and table
The graph below shows the value to 31 December 2022 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on
31 December 2012 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 2012.
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 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
Dec 2021
Dec 2022
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 Group CEO in 2020. The single figure for Andy Briggs for 2022 reflects the first year of vesting of his LTIP award.
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.
Percentage change in pay of the Group Chief Executive Officer 2021 to 2022
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 2021 and 2022 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 Briggs
Rakesh Thakrar
Non-Executive Directors3
Alastair Barbour4
Nicholas Lyons
Stephanie Bruce5
Karen Green
Hiroyuki Iioka
Wendy Mayall
Katie Murray5
John Pollock
Belinda Richards
Maggie Semple5
Nicholas Shott
Kory Sorenson
Mike Tumilty
Wider Employee Population
Salary / Fees
Taxable Benefits
Annual incentive
2022
2021
2020
2022
2021
2020
2022
2021
2020
1.1%
10.2%
58.4%
(17.1)%
n/a4
12.8%
0.0%
16.2%
n/a4
0.0%
4.5%
n/a4
7.7%
0.0%
0.0%
4.4%
0.0%
2.3%
11.0%
13.8%
–
12.8%
0.0%
5.7%
–
4.4%
5.7%
–
22.8%
12.8%
0.0%
4.7%
–
–
2.6% 2
20.7%2
3.3%
3.3%
–
–
12.4%
20.4%
(5.5)%
(3.3)%
0.0%
0.0%
–
6.8%
–
0.0%
–
0.7%
0.0%
–
0.0%
0.0%
0.0%
3.9%
109.1%
897.6%
n/a4
362.9%
0.0%
n/a4
n/a4
n/a4
n/a4
n/a4
208.3%
n/a4
n/a4
57.2%
66.6%
n/a4
–
n/a4
0.0%
0.0%
(100)%
0.0%
0.0%
(100)%
(100)%
0.0%
0.0%
1.4%
(60%)
(100%)
–
(100%)
–
(100%)
–
(100%)
(100%)
–
(80%)
(100%)
(100%)
7.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
27.6%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
9.1%
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1 The Taxable Benefits figures used for Andy Briggs and Rakesh Thakrar includes ongoing taxable benefits only.
2
The Taxable Benefits figures reflect a change in approach to reporting whereby the benefits under the Sharesave and Share Incentive Plan (previously included within
the LTIP figure within the Single Figure Table) are now included within Taxable Benefits instead. This amounts to £2.5k for Rakesh Thakrar and £600 for Andy Briggs.
3 See page 132 for further details on fees and taxable benefits for Non-Executive Directors. Non-Executive Directors do not participate in the Annual Incentive Plan.
4 No taxable benefit received in the prior year and therefore not possible to calculate a percentage change.
5 Stephanie Bruce, Katie Murray and Maggie Semple are newly appointed Board members and therefore it is not possible to calculate a percentage change.
Group chief executive officer remuneration
The Salary figures for the Executive Directors reflect the increases agreed in 2022.
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Andy Briggs
Andy Briggs
Andy Briggs2
Clive Bannister2,4
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Annual variable
element award
rates against
maximum
opportunity
(‘AIP’)
87%
78%
83%
81%
92%
86%
86%
84%
82%
68%
69%
Long-term
incentive vesting
rates against
maximum
opportunity
(‘LTIP’)
44.3%
n/a1
0.0%3
n/a5
68.5%
49.5%
64.0%
55.0%
57.0%
57.0%7
67.0%7
Single figure
of total
remuneration
(£000)
3,058
1,831
1,706
321
2,7156
2,567
2,888
2,878
2,867
3,104
2,737
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 132 and are not included in the single figure of total remuneration, in
line with the reporting regulations.
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.
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.
6
7
Annual Incentive figures for the Executive Directors are higher than in 2021 due to the higher outturn under the 2022 AIP compared
with the 2021 AIP reflecting the strong performance of the business, and the increase to base salary in April 2022.
The fee increases for the Non-Executive Directors reflect the increases agreed in 2022 and changes in Board roles and responsibilities.
Stephanie Bruce, Katie Murray and Maggie Semple were appointed during the year and as such it is not possible to calculate a
percentage change. Taxable benefits have increased for certain Non-Executive Directors as a consequence of resuming travel
compared to the prior year.
The figures for the wider employee population are generally higher compared to 2021 due to a number of factors:
• Pay review in April 2022 was operated under a consistent approach with a pay budget of 3.5%. In the context of the economic
environment, a flat increase was given to lower graded colleagues ensuring a higher flat increase for this population compared to
more senior colleagues. Additional salary increases were awarded throughout the year, where appropriate, to ensure consistency,
internal relativities, and to retain talent.
• The change to benefits is largely as a result of the one-off lump sum payment of £1,000 to all colleagues below senior management in
response to the cost of living challenge (see page 140). By way of comparison the benefit figure excluding this one-off cost of living
payment has reduced by 3.6% as a result of a reduction in PMI premium and the ending of the working from home allowance that was
provided to colleagues during the pandemic. As in previous years, Sharesave and Share Incentive Plan values are not included in the
wider employee population figures
• As with the Executive Directors, the increase in annual incentive payments is due to the higher outturn under the corporate element
than in 2021, and reflects the strong performance achieved in 2022.
142
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
143
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’ Service 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 and is the UK Government’s Business Champion for Older Workers.
Rakesh Thakrar is a Non-Executive Director and Chair of the Board Audit Committee of Bupa Insurance Limited and Bupa Insurance
Services Limited for which he received payment of £37,382 in 2022 on a pro-rated basis. He remains as a Director of Mythili Magha for
which no payments are received.
Non-Executive Directors’ letters of appointment
Name
Alastair Barbour
Nicholas Lyons3
Stephanie Bruce
Karen Green
Hiroyuki Iioka
Wendy Mayall4
Katie Murray
John Pollock
Belinda Richards
Maggie Semple
Nicholas Shott
Kory Sorenson
Mike Tumilty5
Date of letter
of appointment
1 November 2018
15 October 2018
9 May 2022
1 November 2018
23 July 2020
1 November 2018
1 April 2022
31 October 2022
1 November 2018
9 May 2022
1 November 2018
1 November 2018
14 August 2019
Date of
joining
Phoenix Group
Holdings Plc Board1
1 October 2013
31 October 2018
1 July 2022
1 July 2017
23 July 2020
1 September 2016
1 April 2022
1 September 2016
1 October 2017
1 June 2022
1 September 2016
1 July 2014
1 September 2019
Date of last
re-appointment letter
1 September 2022
31 October 2021
n/a
1 July 2020
n/a
Date of expiry
November 2023
1 September 2022
1 July 2025
30 June 2023
23 July 2023
1 September 2022 31 December 2022
1 April 2025
30 August 2025
1 October 2020 30 September 2023
31 May 2025
30 August 2025
30 June 2023
30 June 2022
n/a
1 September 2022
1 July 2020
n/a
n/a
1 September 2022
Unexpired
term
(months)2
8
–
28
3
4
–
24
29
6
26
29
3
–
1
Date of expiry refers to each individual directors’ letter of appointment which covers a three year term. All Directors are subject to annual re-election at the AGM
on 4 May 2023.
2 The unexpired term is from date of the signing of these accounts to the end of each Directors’ current letter of appointment and includes whole months only.
3 Alastair Barbour is expected to retire from the Board subsequent to Nicholas Lyons resuming his role as Chair of the Board which is expected to be in November 2023.
3 Nicholas Lyons commenced his sabbatical on 1 September 2022 and is expected to rejoin the Board in November 2023.
4 Wendy Mayall retired from the Board on 31 December 2022.
5 Mike Tumilty retired from the Board on 30 June 2022.
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 Chair) they would be entitled to a one-month notice period. The Chair, 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 2022 in respect of the application of the Remuneration Policy are summarised in the Committee Chair’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 2022 and their date
of appointment:
Member
Kory Sorenson (Committee Chair from 11 May 2017)
Karen Green
Belinda Richards
Nicholas Shott
From
1 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 2022,
eight formal Committee meetings were held and details of attendance at meetings are set out in the Corporate Governance Report
on page 83.
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 Group-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.
Remuneration committee activities in 2022
Q1
Q2
Q3
Q4
• Group-wide Remuneration
• Chief Risk Officer mid-year
Review
• Remuneration Policy Review
•
Investor feedback on DRR
• Share schemes update
Report noted
• AIP / LTIP forecasts and
outturns
• Approve LTIPs mid-year grant
• Remuneration Review update
(including Remuneration
Policy)
• 2022 AIP Phoenix Re targets
• Remuneration Review
(including Remuneration Policy
approval)
• Shareholder consultation
• Review of Group CEO / CFO
remuneration for 2023
• Shareholding Guidelines noted
• Committee Effectiveness
Review.
• Chief Risk Officer report noted
• Approval of Group and
functional AIP outturns for
2021 and Group and functional
AIP metrics and targets for
2022
• Approval of LTIP outturns for
2021 and metrics and targets
for 2022
• Executive Directors and
Executive Committee salary
decisions for 2023.
• Approval of 2022 Share Plan
Awards
• Oversight of wider employee
remuneration and cost of living
support
144
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
145
Corporate governance Directors’ remuneration report continued
Directors’ report
Advice provided to the Committee
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.
Directors’ report
The Directors present their report for the year ended 31 December 2022.
Phoenix Group Holdings plc is incorporated in England and Wales (registered
no. 11606773) and has a premium listing on the London Stock Exchange.
PwC’s fees for work relating to the Committee for 2022 were £191,461 which included support for the renewal of the Remuneration
Policy. These were charged on the basis of the firm’s standard terms of business for advice provided.
Shareholders
Dividends
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 Committee completed an internal effectiveness review for 2022. From that evaluation the Committee requested focused
education sessions from PwC during 2023 on wider employee pay and how our peers and other FTSE100s are not only navigating
remuneration in the current geo-political and UK economic uncertainty, but how new Director Remuneration Policies are being
communicated to the wider workforce in line with the Corporate Governance Code. The formal review of the Committee’s
effectiveness was covered as part of this year’s internal Board and Committee evaluation process for 2022. From that evaluation it was
agreed that formal education sessions from PwC during 2023 be arranged on wider employee pay and how our peers and other
FTSE100s are not only navigating remuneration in the current geo-political and UK economic uncertainty, but how new Directors
Remuneration Policies are being communicated to the wider workforce in line with the Corporate Governance Code
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 10 March 2023
Dividends for the year
ended 31 December 2022
Dividends for the year are as follows:
Ordinary shares
Paid interim dividend
24.8p per share (2021: 24.1p per share)
Recommended final dividend
26.0p per share (2021: 24.82p per share)
Total ordinary dividend
50.8p per share (2021: 48.92p per share)
Share capital
Issued Share
Capital
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 so 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 increased by 816,419 shares during 2022 which related to shares issued
under the Company’s Sharesave Scheme.
At 31 December 2022, the issued ordinary share capital totalled 1,000,352,477. Subsequently, 15,998 ordinary
shares have been issued in 2023 in connection with the Company’s Sharesave Scheme to bring the total in issue
to 1,000,368,475 at the date of this Directors’ Report. Full details of the issued and fully paid share capital as at
31 December 2022 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 2022 AGM, shareholders approved the renewal of the Company’s authority to make purchases
of up to 99,955,427 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 2022. The authority will expire at the 2023 AGM. A resolution to renew this
authority shall be proposed in the 2023 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/governance.
Phoenix Group Employee
Benefit Trust (‘EBT’)
Where the 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.
Restrictions on
transfer of shares
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 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.
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147
Corporate governance Directors’ report continued
Placeholder for image of Rakesh
Shareholders
Share capital
Substantial
shareholdings
Annual General Meeting (‘AGM’)
2023 AGM
Investor communications
Investor
communications
Board
Board membership
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 31 December
2022, the following interests with voting rights in the Ordinary share capital of the Company had been notified
to it under DTR 5. No changes have occurred in respect of the holdings below between 31 December 2022 and
10 March 2023.
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
107,025,201
51,251,518
14.48%
10.69%
5.14%
The AGM of the Company will be held at 9th Floor, 20 The Old Bailey, London, EC4M 7AN on 4 May 2023 at 10am.
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.
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 2022 is given within the Corporate Governance Report on pages
74 to 76, which is incorporated by reference into this Directors’ Report.
During 2022 and up to the date of this Directors’ Report, the following changes to the Board took place:
• Katie Murray was appointed as a director on 1 April 2022
• Maggie Semple was appointed as a director on 1 June 2022
• Mike Tumilty, abrdn plc Nominated Director, retired from the Board on 30 June 2022
• Stephanie Bruce, abrdn plc Nominated Director, was appointed as a director on 1 July 2022
• Nicholas Lyons commenced his sabbatical on 1 September 2022
• Alastair Barbour commenced his position as Chair on 1 September 2022
• Wendy Mayall retired from the Board on 31 December 2022
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 their 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 4 May 2023.
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 on pages 127 to 146
including details of their interests in shares and share options or any rights to subscribe for shares in the Company.
“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
Board
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 79 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.
The Company maintains Directors’ and Officers’ liability insurance cover which is renewed annually.
Directors’ and Officers’
liability insurance
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 includes details of the Group’s cash flow and solvency position, including sensitivities for both, alongside details of
any key events affecting the Company (and its consolidated subsidiaries) since the end of the financial year. Principal risks and their mitigation are
detailed on pages 56 to 67. 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.
As part of its comprehensive assessment as to whether the Group and the Company are a going concern, the Board has considered financial
projections over the period to 31 March 2024, 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 68 to 69, but they include
a recessionary economic stress that reflects a further increase in inflation, additional credit downgrades and falling equity and property values.
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. In addition, the Board noted the Group’s access
to additional funding through its undrawn £1.25 billion Revolving Credit Facility. The stresses do not give rise to any material uncertainties over
the Group’s ability to continue as a going concern.
The Directors therefore have a reasonable expectation that the Group and the Company have adequate resources to meet its liabilities as they
fall due and continue in operational existence over the period to 31 March 2024, 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 2022.
Viability statement
The Viability Statement, as required by the UK Corporate Governance Code, has been undertaken for a period of three years to align to the Group’s
business planning and is contained in the Risk Management section on pages 52 to 67.
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149
Corporate governance Directors’ report continued
Corporate governance statement
Governance
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 146 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 details on the Company’s compliance with the Code
are included in the Corporate Governance Report on page 77. The Code is available on the website of the FRC – 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
The Company’s strategy and priorities for 2022 are highlighted in the
‘Strategy and KPIs’ section of the Strategic Report.
See pages 18 to 27 of the Strategic Report
Our people
and diversity
Disability
Our people and
engagement
Our business
relationships
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.
• See pages 26, 27 and 42 of the
Strategic Report
• See the Company’s supplementary
Sustainability 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.
• See the Company’s website
for more information
• See page 42 of the Strategic Report
and pages 108 to 109 of the Corporate
Governance Report (for colleague
engagement) and 84 to 87 (for section
172 statement) of the Strategic Report
• See pages 42 to 43 (stakeholder
engagement) and page 43 (for section
172 statement) of the Strategic Report.
Greenhouse gas
emissions
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 46 to 47 of the
Strategic Report
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 48 to 51 due to their strategic importance.
During 2022, significant progress has been made in further embedding the recommendations of the TCFD and
aligned with the expectations of the 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.
Board diversity – gender
and ethnicity
In accordance with LR 9.8.6R, a statement on board diversity targets and numerical data on the ethnic background
and gender of the Board of Directors and Executive Committee are included in the Corporate Governance report
on page 92. Data was collated through the standard process for preparing the Group’s annual submission to the
Department for Business & Trade (formerly BEIS) in respect of the Parker Review: FTSE 350 Ethnic Diversity Data
Submission and FTSE Women Leaders review, under applicable data protection laws.
Energy usage and
Carbon Emissions
under the Companies
(Directors’ Report)
and Limited Liability
Partnerships (Energy
and Carbon Report)
Regulations 2018 (SI
2018/1155)
Branches
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 2022 to 31 December 2022, and the 2021
comparative year is contained in the Strategic Report on pages 46 to 47.
The Company, through its subsidiaries, has established branches in Germany, Hong Kong and Ireland as countries
in which the Group operates.
Political donations
During 2022, the Group made no political donations. (2021: 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/
governance
Re-appointment of the
Auditors
EY has indicated its willingness to continue in office and shareholders’ approval will be sought at the AGM on
4 May 2023.
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 2022 for audit and non-audit work are disclosed in note C4 to the IFRS consolidated
financial statements.
Disclosure of information
to Auditors
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 Secretaries during the 2022 financial period were Gerald Watson (until 31 March 2022)
and Kulbinder Dosanjh (since 1 April 2022).
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.
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Corporate governance Directors’ report continued
Statement of Directors’ responsibilities
Contractual/Other
Significant agreements
impacted by a change of
control of the Company
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 specific provisions relating to a change of control.
Outstanding awards and options would normally vest and become exercisable/available on the date of notification,
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.
Important post balance
sheet events
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.
Disclosures under Listing
Rule 9.8.4R
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
Contracts of significance
Not applicable
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
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 2022, 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 10 March 2023.
By order of the Board
Andy Briggs
Group Chief
Executive Officer
10 March 2023
Rakesh Thakrar
Group Chief
Financial Officer
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153
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
156
168
175
290
293
307
312
314
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155
Financials 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 2022
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 2022 which comprise:
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.
Group
Parent Company
Consolidated income
statement for the year ended
31 December 2022
Statement of financial position
as at December 2022
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.
Statement of comprehensive
income for the year ended
31 December 2022
Statement of changes in
equity for the year ended
31 December 2022
Statement of consolidated
financial position as at
31 December 2022
Statement of consolidated
changes in equity for the year
ended 31 December 2022
Statement of cash flows for the
year ended 31 December 2022
Related notes 1 to 22 to the
financial statements, including
a summary of significant
accounting policies
Statement of consolidated
cash flows for the year ended
31 December 2022
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
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 2024;
• 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 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;
• assessed management’s consideration of how solvency and
Overview of our audit approach
liquidity has been managed in response to the current
economic environment and 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;
• challenged the key assumptions, such as expense assumptions
underlying mandatory obligations of the Group and property
market forecasts up to 31 March 2024, 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,
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 2024.
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.
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 below and on page 157 to 158.
• The components where we performed full
or specific audit procedures accounted for
more than 99% (2021: 99%) of the equity
and 98% (2021: 98%) of the loss before tax
of the Group.
Key audit matters
• Valuation of insurance contract liabilities,
comprising the following risk areas:
– actuarial assumptions;
– actuarial modelling; and
– policyholder data.
• 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.
• Overall Group materiality of £83 million (2021:
£116 million) which represents 2% (2021: 2%)
of total equity attributable to owners of the
Parent (‘adjusted Group equity’).
Materiality
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 as well as the consolidation adjustments. 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’).
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157
Financials Independent auditor’s report continued
Four of the reporting components were audited by component
teams as set out below:
The charts below illustrate the coverage obtained from the work
performed by our audit teams.
Component
Phoenix Life
Division (includes
Phoenix Life Limited
and Phoenix Life
Assurance Limited)
Standard Life
Assurance Limited
ReAssure Limited
Group Function
Other Companies
Scope
Full
Full
Full
Full
Specific (including
specified
procedures)
Auditor
EY component team
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 (cash and
cash equivalents, provisions, accruals and deferred income,
administrative expenses excluding acquisition costs), ReAssure
Life Limited (cash and cash equivalents, collective investment
schemes), ReAssure UK Services Limited (administrative expenses
excluding acquisition costs), ReAssure MidCo Limited (pension
scheme surplus) and ERIP Limited Partnership (cash and cash
equivalents, derivative liabilities). We also instructed the SLIDAC
component audit team to perform specified procedures over
insurance contract liabilities.
The reporting components where we performed audit
procedures accounted for 99% (2021: 99%) of the Group’s equity
and 98% (2021: 98%) of the Group’s loss before tax. For the
current year, the full scope components contributed 98% (2021:
87%) of the Group’s equity and 94% (2021: 75%) of the Group’s
loss before tax. The specific scope components, including the
component with specified procedures contributed 1% (2021: 12%)
of the Group’s equity and 4% (2021: 23%) 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.
Equity
Loss before tax
Full Scope
Specific scope
Out of scope
98%
1%
1%
Full Scope
Specific scope
Out of scope
94%
4%
2%
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 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.
The primary audit team followed a programme of planned visits
that has been designed to ensure that the Senior Statutory Auditor
visited each of the full scope components. For all full scope
components, in addition to the component visits, 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.
For the specific scope components, the primary audit team have
reviewed the audit procedures performed by the component
teams on the specific accounts, by reviewing relevant workpapers
and holding meetings with the component teams as necessary.
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 the Group. 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 48
to 51 in the required Task Force for Climate related Financial
Disclosures, and on page 59 in the principal risks and uncertainties.
Risk
Valuation of insurance contract liabilities (£103.4bn; 2021:
£130.7bn)
Refer to the Audit Committee Report (page 101); Critical
accounting estimates (page 176); Accounting policies and note F1
of the consolidated financial statements (pages 230 to 232)
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
• policyholder 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.
The Group has also explained their climate commitments on
pages 20 to 21. All of these disclosures form part of the ‘Other
information’ rather than the audited financial statements. Our
procedures on these unaudited 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 in line with our responsibilities on ‘Other information’.
In planning and performing our audit we assessed the potential
impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
As explained in note A3.7 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 liability and asset valuations and associated
disclosures where values are determined through modelling future
cash flows. As part of this evaluation, we performed our own risk
assessment, supported by our climate change internal specialists,
to determine whether any risks of material misstatement in the
financial statements from climate change needed to be
considered in our audit. 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.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter or to
materially impact a key audit matter.
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.
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159
Financials 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.
Independent auditor’s report continued
Risk area
Our response to the risk
Actuarial assumptions
Refer to the Audit Committee
Report (page 101);
There has been no change in our
assessment of this risk from the
prior year.
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.
Given the recent economic
volatility we place additional focus
on future economic assumptions
such as inflation assumptions at
the 2022 year-end date.
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 trend longevity, 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 considering an
impact of the recent economic volatility on the components of expense inflation.
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 and specific scope audit procedures over this risk area in four
components representing 100% of the risk amount.
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.
Risk area
Our response to the risk
Actuarial modelling
The migration of the ReAssure
business to a new actuarial model
increases the risk of error this year.
We consider the integrity and
appropriateness of models to be
critical to the overall valuation of
insurance contract liabilities.
Over £92bn of the £103.4bn
(2021: over £120bn of £130.7bn)
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;
ii) liabilities modelled outside the
core actuarial modelling
systems; and
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 ReAssure business onto 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. In addition we also perform an independent
valuation of a sample of insurance contract liabilities which are modelled outside
the core actuarial system.
iii) the appropriateness of the core
actuarial model.
We performed full and specific scope audit procedures over this risk area in four
components representing 100% of the risk amount.
In addition, the migration of the
ReAssure business to a new
actuarial model is considered
a key risk area for 2022.
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161
Financials Key observations
communicated to the
Audit Committee
We determined
based on our audit
work that the data
used for the actuarial
model inputs is
materially complete
and accurate.
Independent auditor’s report continued
Risk area
Our response to the risk
Policyholder data
To obtain sufficient audit evidence to assess the integrity of policyholder data
we performed the following procedures:
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.
• 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;
• focussed our testing on the changes to the data process as a result of the
migration of the ReAssure business to a new actuarial model;
• 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 a 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 and specific scope audit procedures over this risk area in four
components representing 100% of the risk amount.
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
assets is reasonable.
Risk area
Our response to the risk
Valuation of certain complex and
illiquid financial investments
(Equity release mortgages £3.9bn;
2021: £4.2bn); (Modelled debt
securities £6.3bn; 2021: £7.0bn)
There has been no change in our
assessment of this risk from the
prior year.
Refer to the Audit Committee
Report (page 101); Critical
accounting estimates (page 176);
Accounting policies and notes E1
and E2 of the consolidated
financial statements (pages 201
to 213).
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 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.
Given the recent economic
volatility we place additional focus
on economic assumptions.
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
were appropriate considering the current economic volatility; 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 2022, 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 2022 to 31 December 2022
to review that the controls over the valuation of modelled debt securities were
operating during the period;
•
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, including the impact
of the current economic volatility on economic assumptions;
• 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.
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163
Financials Independent auditor’s report continued
Risk area
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 design and implementation of the completeness and accuracy of the data
used in the recoverability assessment;
• challenged management’s assessment of impairment indicators by considering
current market factors including the recent economic volatility 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 2022; and
• obtained management’s expectations of future profitability of the acquired
entities, assessed appropriateness of the models used to estimate the fair value
and value in use and challenged the assumptions applied by management by
comparing key assumptions and judgments with our independent view and
experience of the wider market.
Recoverability of AVIF intangible
assets arising from the acquisition
of ReAssure Limited, Standard Life
Assurance Limited, and other
associated entities (AVIF £3,835m;
2021: £4,323m)
Refer to the Audit committee
report (page 101), critical
accounting estimates (page 176),
the accounting policies and note
G2 of the consolidated financial
statements (pages 256 to 259)
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 £3.0bn.
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.
Recoverability assessment of
these intangible assets involves
consideration of a number of
judgmental and sensitive
assumptions such as:
• market movements, especially
those arising from the current
economic volatility and their
impact on economic
assumptions such as cost
of capital; and
• 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.
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 there
is no impairment
necessary as at
31 December 2022.
In addition, we
consider the
sensitivity ranges
disclosed in the
Annual Report and
Accounts to be
appropriate given
current economic
volatility.
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 £83 million (2021:
£116 million), which is 2% (2021: 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 £139
million (2021: £148 million), which is 2% (2021: 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 point – £5,187m (Total equity)
• Based on 31 December 2022
Starting
basis
Adjustments
• Details of adjustments – £1,026m
• Removal of NCI and Tier 1 loan notes
Materiality
• Totals £4,161m (Adjusted equity)
• Materiality of £83m (2% of equity)
During the course of our audit, we reassessed initial materiality for
the Group from £100 million to £83 million due to a decrease in
the Group’s total equity for 31 December 2022 between our
forecast total equity (upon which our initial materiality was based)
and the final total equity for 31 December 2022. We considered
the impact of this on the extent of our audit procedures.
We also reassessed initial materiality for the Parent Company from
£156 million to £139 million due to a decrease in the Parent
Company’s total equity for 31 December 2022 between our
forecast total equity (upon which our initial materiality was based)
and the final total equity for 31 December 2022. We considered
the impact of this on the extent of our audit procedures.
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% (2021: 50%) of our
planning materiality, namely £41 million (2021: £58 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 £8 million to £27 million
(2021: £12 million to £32 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 £4 million
(2021: £6 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 153 and 307 to 326, 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.
164
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
165
Financials Independent auditor’s report continued
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.
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems
set out on page 100; and;
• The section describing the work of the audit committee set
out on page 96 to 101.
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 149;
• 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 68;
• Director’s statement on whether it has a reasonable expectation
that the Group will be able to continue in operation and meets
its liabilities set out on page 69;
• Directors’ statement on fair, balanced and understandable set
out on page 151;
• Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 56;
Responsibilities of Directors
As explained more fully in the Directors’ statement of
responsibilities set out on page 153, 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’).
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 five years, covering
the years ending 31 December 2018 to 2022.
• The audit opinion is consistent with the additional report to
the Audit Committee.
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
10 March 2023
• 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.
• 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
adopt a hybrid model throughout 2022.
• 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 and non-routine
journals; and
– Evaluating the business rationale for significant and/or
unusual transactions.
• On this audit we do not believe there is a fraud risk related to
revenue recognition because there is limited management
judgement involved on the recognition and measurement of the
transaction price for all material revenue streams.
• 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 frc.org.uk/auditorsresponsibilities.
This description forms part of our Auditor’s Report.
166
Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
167
Financials Financials
Financials
Consolidated income statement
For the year ended 31 December 2022
Statement of comprehensive income
For the year ended 31 December 2022
Loss 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
Reclassification of foreign currency translation reserve on disposal of Ark Life
Items that will not be reclassified to profit or loss:
Remeasurement of owner-occupied property
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 for the year
Attributable to:
Owners of the parent
Non-controlling interests
Notes
2022
£m
(1,762)
2021
£m
(709)
D3
D3
A6.2
G3
G1
C6
D5
181
(186)
36
–
(5)
940
(280)
686
44
(36)
(45)
14
–
281
(138)
120
(1,076)
(589)
(1,143)
67
(1,076)
(717)
128
(589)
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
Net income
Policyholder claims
Less: reinsurance recoveries
Change in insurance contract liabilities
Change in reinsurers’ share of insurance contract liabilities
Transfer from 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 under arrangements with reinsurers
Net income attributable to unitholders
Total operating expenses
Loss before finance costs and tax
Finance costs
Loss for the year before tax
Tax credit/(charge) attributable to policyholders’ returns
Loss before the tax attributable to owners
Tax credit/(charge)
Less: tax attributable to policyholders’ returns
Tax credit/(charge) attributable to owners
Loss for the year attributable to owners
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per ordinary share
Basic (pence per share)
Diluted (pence per share)
Notes
F3
C1
C2
A6.1
A6.2
F2
G2
G2
G2
C3
F3.3
C5
C6
C6
C6
C6
D5
B3
B3
2022
£m
7,094
(1,727)
5,367
951
6,318
(38,149)
82
–
–
(31,749)
(9,392)
1,693
27,645
(2,450)
378
17,874
13,366
(505)
(21)
–
(2,412)
427
410
29,139
(2,610)
(230)
(2,840)
579
(2,261)
1,078
(579)
499
(1,762)
(1,829)
67
(1,762)
2021
£m
7,455
(2,079)
5,376
1,001
6,377
18,001
76
110
(23)
24,541
(9,656)
1,597
3,076
(177)
106
(5,054)
(16,812)
(577)
(20)
(47)
(2,056)
22
(185)
(24,729)
(188)
(242)
(430)
(258)
(688)
(279)
258
(21)
(709)
(837)
128
(709)
(185.2)p
(185.2)p
(86.4)p
(86.4)p
168
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Phoenix Group Holdings plc Annual Report and Accounts 2022
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
169
169
Financials
Financials continued
Statement of consolidated financial position
As at 31 December 2022
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
Deferred tax asset
Current tax receivable
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
Approved by the Board on 10 March 2023.
Andy Briggs
Chief Executive Officer
Company registration number 11606773.
Notes
G1
G1
G2
G3
G4
E3
E1
F1
G8
G8
G5
G6
A6.1
2022
£m
14
205
10
3,835
211
4,056
125
2021
£m
36
212
10
4,323
232
4,565
130
3,727
5,283
279
4,068
76,737
329
83,116
75,389
9,063
248,981
6,142
89
66
6,297
158
519
432
4,611
8,839
7,205
285,169
475
4,567
86,981
431
104,761
85,995
9,982
293,192
8,587
69
70
8,726
–
419
373
1,805
9,112
9,946
333,799
Rakesh Thakrar
Chief Financial Officer
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 liability
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 liabilities
Reinsurance payables
Payables related to direct insurance contracts
Current tax payable
Lease liabilities
Accruals and deferred income
Other payables
Liabilities classified as held for sale
Total liabilities
Notes
2022
£m
2021
£m
D1
D2
D1
D3
D4
D5
G1
F1
F2
E5
E3
E1
G7
G8
G9
G8
G10
G11
G12
A6.1
100
10
(13)
107
1,819
46
2,092
4,161
494
532
5,187
100
6
(12)
71
1,819
56
3,775
5,815
494
460
6,769
2,520
3,103
102,016
1,344
103,360
143,845
3,980
2,598
5,875
2,978
1,706
160,982
234
660
245
1,964
34
92
566
965
8,360
279,982
128,864
1,801
130,665
160,417
4,225
3,569
1,248
3,568
3,442
176,469
235
1,399
143
1,864
19
99
567
721
11,746
327,030
Total equity and liabilities
285,169
333,799
170
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Phoenix Group Holdings plc Annual Report and Accounts 2022
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Phoenix Group Holdings plc Annual Report and Accounts 2022
171
171
Financials continuedFinancials
Financials continued
Statement of consolidated changes in equity
As at 31 December 2022
Statement of consolidated changes in equity
As at 31 December 2021
Shares
held by
the
employee
benefit
trust
(note D2)
£m
(12)
Foreign
currency
translation
reserve
£m
71
Share
capital
(note D1)
£m
100
Share
premium
(note D1)
£m
6
Merger
relief
reserve
(note D1)
£m
1,819
Other
reserves
(note D3)
£m
56
Retained
earnings
£m
3,775
Tier 1
Notes
(note D4)
£m
494
Non-
controlling
interests
(note D5)
£m
460
Total
£m
5,815
Total
equity
£m
6,769
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
100
–
10
–
–
–
–
–
–
–
12
(13)
–
–
(13)
–
36
36
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,829)
(1,829)
(10)
660
686
(10)
(1,169)
(1,143)
–
–
–
–
–
–
–
–
(496)
4
(496)
–
16
(12)
–
–
–
16
–
(13)
–
–
–
–
–
–
–
–
–
–
–
67
(1,762)
–
686
67
(1,076)
–
–
4
(496)
(10)
(10)
–
–
–
15
16
–
(13)
15
–
107
–
1,819
–
46
(22)
2,092
(22)
4,161
–
494
–
532
(22)
5,187
At 1 January 2022
(Loss)/profit for the year
Other comprehensive
income/(expense) for the year
Total comprehensive
income/(expense) 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
Increase in non-controlling interests
Coupon paid on Tier 1 Notes,
net of tax relief
At 31 December 2022
Shares
held by
employee
benefit
trust
(note D2)
£m
(6)
Share
capital
(note D1)
£m
100
Share
premium
(note D1)
£m
4
Foreign
currency
translation
reserve
£m
102
Merger
relief
reserve
(note D1)
£m
1,819
Other
reserves
(note D3)
£m
48
Retained
earnings
£m
4,970
Total
£m
7,037
Tier 1
Notes
(note D4)
£m
494
Non-
controlling
interests
(note D5)
£m
341
Total
equity
£m
7,872
–
–
–
–
–
–
–
–
–
–
100
–
–
–
2
–
–
–
–
–
–
6
–
–
–
–
–
–
–
10
(16)
–
(12)
–
(31)
(31)
–
–
–
–
–
–
–
71
–
–
–
–
–
–
–
–
–
–
8
8
–
–
–
–
–
–
(837)
(837)
143
120
(694)
(717)
–
(482)
2
(482)
–
14
(10)
–
14
–
–
(16)
–
–
–
–
–
–
–
–
–
128
(709)
–
120
128
(589)
–
–
2
(482)
(9)
(9)
–
–
–
14
–
(16)
–
1,819
–
56
(23)
3,775
(23)
5,815
–
494
–
460
(23)
6,769
At 1 January 2021
(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 employee
benefit trust
Shares acquired by employee
benefit trust
Coupon paid on Tier 1 Notes,
net of tax relief
At 31 December 2021
172
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Phoenix Group Holdings plc Annual Report and Accounts 2022
173
173
Financials continuedFinancials
Financials continued
Statement of consolidated cash flows
For the year ended 31 December 2022
Cash flows from operating activities
Cash generated/(utilised) 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
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 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 in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(before reclassification of cash and cash equivalents to held for sale)
Less : cash and cash equivalents of operations classified as held for sale
Cash and cash equivalents at the end of the year
Notes
I2
A6.1
A6.2
B4
D5
E5.2
E5.2
G10
E5.2
A6.1
2022
£m
1,019
(153)
866
–
––
–
4
(496)
(10)
(32)
(450)
(14)
61
(29)
(1)
(215)
(1,182)
2021
£m
(871)
(149)
(1,020)
115
189
304
2
(482)
(9)
(18)
(322)
(16)
17
(29)
–
(237)
(1,094)
(316)
(1,810)
9,188
(33)
8,839
10,998
(76)
9,112
Notes to the consolidated financial statements
A. Significant accounting policies
A1. Basis of preparation
The consolidated financial statements for the year ended 31 December 2022 set out on pages 168 to 289 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
10 March 2023.
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 (‘IASs’).
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’). The considerations and approach are consistent with the
provisions of the FRC’s Guidance on risk Management, Internal control and Related Financial and Business Reporting issued in September 2014.
Further details of the going concern assessment for the period to 31 March 2024 are included in the Directors’ Report on page 149.
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.
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.
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.
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Notes to the consolidated financial statements
continued
A. Significant accounting policies continued
A2.2. Other operating income
Other operating income includes income from all other operating activities which are incidental to the principal activities of the Group.
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 adjusted operating profit, 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 235 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.
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.
A3.5 Adjusted operating profit
Adjusted 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 adjusted operating profit based on risk-free yields at the start of the financial year, as detailed in note B2, and as to whether items are included within
adjusted operating profit or excluded as an adjustment to adjusted operating profit in accordance with the accounting policy detailed in note B1. Items
excluded from adjusted operating profit are referred to as ‘non-operating items’.
A3.6 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.
A3.7 How Climate risk affects our 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.
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 determine fair value reflects current information and market sentiment 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 48 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 2022
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 intangible assets is based on value in use calculations. Value in use represents the value of future cash
flows and uses the Group’s three year annual operating plan and the expectation of long-term economic growth beyond this period. The three 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 2022
In preparing the consolidated financial statements, the Group has adopted the following amendments effective from 1 January 2022:
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37): The amendments clarify that when performing an onerous contracts assessment
both incremental costs to fulfil a contract and an allocation of other direct costs should be included when determining whether that contract is onerous.
• Reference to the Conceptual Framework (Amendments to IFRS 3): In addition to updating references to the conceptual framework within IFRS 3, the
amendments also add a requirement for obligations within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets to determine
whether at the acquisition date a present obligation exists as a result of past events.
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16): The amendments prohibit deducting from the cost of an item of
property, plant and equipment any proceeds from selling items produced before that asset is available for use. Such sales proceeds and related costs are
recognised in profit or loss; and
Further details of these estimates and the sensitivity of the defined benefit obligation to key assumptions are provided in note G1.
• Annual Improvements (2018–2020 Cycle):
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.
– Subsidiary as a First-time Adopter (Amendments to IFRS 1);
– Fees in the ‘10 per cent’ Test for De-recognition of Financial Liabilities (Amendments to IFRS 9);
– Lease Incentives (Amendments to IFRS 16); and
– Taxation in Fair Value Measurements (Amendments to IAS 41).
None of the above amendments to standards are considered to have a material effect on these consolidated financial statements.
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Notes to the consolidated financial statements
continued
A. Significant accounting policies continued
A5. New accounting pronouncements not yet effective
The IASB has issued the following standards or amended standards which apply from the dates shown. The Group has decided not to early adopt any of these
standards or amendments where this is permitted.
IFRS 17 Insurance Contracts (1 January 2023)
IFRS 17 was issued by the International Standards Board in May 2017 and amended in June 2020. The standard was endorsed by the UK Endorsement
Board in May 2022. IFRS 17 is effective from 1 January 2023.
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.
In June 2022, the IFRS Interpretations Committee (‘IFRIC’) provided its final agenda decision on the ‘Transfer of Insurance Coverage under a Group
of Annuity Contracts – IFRS 17’, a non-objection from the International Accounting Standards Board was provided in July 2022. The methodology
for coverage units determined by the Group and set out in the ‘Coverage units’ section below is compliant with this IFRIC final agenda decision.
Identifying contracts in scope of IFRS 17
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 without discretionary participation features (‘DPF’) will be measured under IFRS 9. The following
requirements apply to reinsurance contracts unless stated otherwise.
IFRS 17 sets out criteria for when an investment component is distinct and may be separated from the host insurance contract. Following the application of
these criteria the Group has concluded for the majority of its hybrid investment contracts with DPF within the scope of IFRS 17, the unit-linked component
does not meet the definition of a distinct investment component so will no longer be accounted for as a financial instrument and will fall within the scope
of IFRS 17. Hybrid investment contracts with DPF are those contracts which allow policyholders to invest in both with-profit and unit-linked fund options
within a single contract.
Level of aggregation
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 cohorts 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 cohort, although there is some relief from this requirement for business in-force
at the date of transition under the transitional arrangements.
Measurement
The standard introduces three measurement approaches, of which two, the general model and the variable fee 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’).
Reinsurance contracts held are measured using the general model, irrespective of the measurement model applied to the underlying contracts reinsured.
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.
The CSM represents the unearned profit of a group of insurance contracts and is recognised in profit or loss as the insurance and/or investment 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 consolidated income statement. If a
group of contracts becomes loss-making after inception the loss is recognised immediately in the consolidated 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. For reinsurance contracts
held, the CSM represents the net gain or net loss of the contract and is recognised in profit or loss as the service is provided using coverage units.
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.
Significant judgements and estimates
Contract boundaries
Under IFRS 17, the measurement of a group of contracts includes all future cash flows within the boundary of each contract in the group. Cash flows
are within the boundary if they arise from substantive rights and obligations that exist during the reporting period in which the Group can compel
the policyholder to pay premiums or in which the Group has a substantive obligation to provide services to the policyholder.
The adoption of IFRS 17 results in three main areas where contract boundaries differ from current practice:
• Some unit-linked and with-profit contracts contain a guaranteed annuity option, which allows the policyholder to convert the maturity benefit to an
immediate annuity at a predetermined rate. The Group currently places a value on the guaranteed annuity option at maturity, but does not include
within its measurement the cash flows associated with immediate annuity until the option is exercised. Under IFRS 17, the cash flows related to the
immediate annuity will fall within the boundary of the contract as the Group does not have the practical ability to reprice the contract on maturity.
• The Group has issued renewable term assurance policies with varying terms. Where the Group has the practical ability to reassess the risks of the
policyholders at individual contract or portfolio level the contract boundary ends at the earliest renewal date and the renewal will be treated as a new
contract. Where the Group does not have the practical ability to reassess the risk, future renewals of these contracts on their guaranteed terms will be
within the contract boundary.
• Some of the Group’s reinsurance contracts cover underlying contracts issued on a risk-attaching basis and provide unilateral rights to both the Group
and the reinsurer to terminate the attachment of new contracts at any time by giving notice within a specified time period, for example three months.
Currently the cash flows included in the measurement of reinsurance contracts considers only the underlying contracts ceded at the valuation date.
However, under IFRS 17, the contract boundary includes underlying contracts expected to be issued and ceded during the period from the valuation
date to the end of the reinsurance notice period.
Discount rates
The Group will determine risk-free discount rates using the current market prices of interest rate swaps in each currency where the market is deep, liquid
and transparent. The Group primarily writes contracts denominated in Pounds Sterling and Euros. The yield curve will be interpolated between the last
available market data point and an ultimate forward rate, which reflects long-term real interest rate and inflation expectations.
The discount rates for annuity business will be determined by a ‘top-down’ approach using a reference portfolio of assets to determine an uplift to be
applied to the risk-free discount rate curve.
The discount rates for unit-linked business and with-profit business will be determined by a ‘bottom-up’ approach, using a risk-free discount rate curve
adjusted to reflect the characteristics of the liabilities such as illiquidity.
With-profit inherited estate
The Group has a number of with-profit funds where surpluses are shared between the policyholders and the shareholders. All such funds are closed to
new business. These funds typically have an inherited estate, being a surplus of assets over those needed to meet the liabilities of current policyholders.
As these funds are closed to new business the surplus will be allocated to existing policyholders and the Group has determined it appropriate to allocate
the expected future payments from the inherited estate to specific groups of contracts within the measurement of the best estimate cash flows. This results
in the shareholders share of the inherited estate being recognised through the CSM. At transition, to the extent that services have been provided in previous
periods, an element of the inherited estate will be recognised in Retained Earnings, with the remainder recognised within the CSM and released to the
consolidated income statement in future periods in line with coverage units. The adoption of IFRS 17 will not change the point at which the shareholder
will become entitled to receive its share of the inherited estate, which will continue to be at the point where bonuses are declared to policyholders.
Risk adjustment
The risk adjustment for non-financial risk will reflect the compensation that the Group requires for bearing non-financial risk. The Group will apply a
confidence level technique. The risk adjustment will be allocated to groups of contracts based on an analysis of the risk profiles of the groups, reflecting
the effects of the diversification benefits between Group entities. The Group will determine the risk adjustment using a one year time horizon, consistent
with the time horizon used for Solvency II, the key metric underlying how the Group is managed.
To determine the risk adjustment for reinsurance contracts, the Group will apply its approach both gross and net of reinsurance and determine the amount
of risk being transferred to the reinsurer as the difference between the two results.
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Financials continuedFinancials
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Notes to the consolidated financial statements
continued
A. Significant accounting policies continued
A5. New accounting pronouncements not yet effective continued
IIFFRRSS 1177 IInnssuurraannccee CCoonnttrraaccttss ((11 JJaannuuaarryy 22002233)) continued
Significant judgements and estimates
Coverage units
The CSM of a group of contracts is recognised in profit or loss to reflect services provided in the period. The number of coverage units is updated at each
valuation date and reflects the quantity of services provided by the contracts within a group considering both quantity of benefits provided and the length
of the expected coverage period.
The Group will determine the quantity of benefits, and therefore the coverage units as follows:
Type of business
Term life
Endowment
Whole of life
Other protection products
Immediate annuity
Unit linked
Conventional with-profit (‘CWP’) & Unitised with-profit (‘UWP’)
Coverage unit (quantity of benefits)
Sum assured in-force
Sum assured in-force
Sum assured in-force
Sum assured in-force
Annuity payments in each period
Annual Management Charge plus insurance charges
Maximum of the guaranteed benefit and asset share
Reinsurance contracts held will use coverage units consistent with the underlying policies reinsured.
Transition
IFRS 17 requires the standard to be applied retrospectively. Where this is assessed as impracticable the standard allows the application of a modified
retrospective approach or a fair value approach to determine the contractual service margin.
The primary books of business that will be measured using the fully retrospective approach are:
• External Bulk Purchase Annuities written since 2018, and their associated reinsurance contracts. Bulk Purchase Annuities, and their associated
reinsurance contracts, related to the Group’s pension schemes will continue to be eliminated on consolidation and the liabilities of the scheme reported
under IAS 19.
• Annuity and conventional non-profit business acquired as part of the purchase of the ReAssure business in 2020, with the date of inception of these
contracts being the acquisition date.
• New business within the scope of IFRS 17 written by the Group’s SunLife business from 2018, and the Group’s remaining new business from 1 January 2021.
The remainder of the Group’s business will be transitioned using the fair value approach.
Key factors considered in determining whether the fully retrospective approach is impracticable include:
• The ability to obtain assumptions and data at the required level of granularity, without the introduction of material use of hindsight, particularly in
relation to contracts within acquired businesses and where the Group’s financial reporting metrics did not require such information.
• The availability and usability of historic data given the significant integration work performed by the Group on both its policy administration and
actuarial modelling systems where re-platforming from legacy systems onto a unified platform has been carried out.
• The significant level of regulatory change experienced by the insurance industry, such as Solvency II, which impacts on the level of change undergone
by both legacy and current policy administration and actuarial modelling systems.
Fair value approach
The fair value approach determines the CSM (or loss component) at 1 January 2022 as the difference between the fair value of a group of contracts
and the present value of expected future cash flows including acquisition costs, plus an explicit risk adjustment.
The fair value determined by the Group will use cash flows with contract boundaries consistent with IFRS 17 requirements and be broadly consistent
with those used to determine the IFRS 17 liabilities. The measurement of the fair value of contracts will include items taken into consideration by a market
participant but which are not included in the IFRS 17 measurement of contracts, such as a risk premium to reflect a market participant’s view of uncertainty
inherent in the contract cash flows being valued and a profit margin.
For groups of contracts measured using the fair value approach, the cohorts will contain contracts issued more than one year apart.
Presentation and disclosure
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. All rights and obligations arising from a portfolio
of contracts will be presented within the insurance or reinsurance contract balance, as such, balances such as payables related to direct insurance
contracts and reinsurance receivables will no longer be presented separately.
The presentation of the consolidated 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/expense. The insurance service result reflects the
consideration earned in exchange for the provision of services in relation to the group of IFRS 17 contracts issued. The insurance financial income/expense
reflects changes in the carrying amount of the group of insurance contracts that relate to financial risks. It comprises the effect of the time value of money
as well as the effect of financial risks and changes in financial risks.
IFRS 17 also requires extensive disclosures, both quantitative and qualitative, in relation to:
• Amounts recognised in the financial statements, including reconciliations showing how the net carrying amounts of contracts changed during the period;
• Significant judgements and changes in these judgements; and
• The nature and extent of risks that arise from contracts within the scope of IFRS 17.
Impact assessment
The total profit recognised over the lifetime of contracts within the scope of IFRS 17 will not change from the total profit recognised under IFRS 4 and will
continue to be recognised in profit and loss. The pattern of profit emergence under IFRS 17 will primarily be driven by the timing of the recognition of the
risk adjustment and CSM. The risk adjustment is released to profit and loss as the related risk expires and the CSM is released as services are provided.
The estimated impact of adopting IFRS 17 as at 1 January 2022 is total equity attributable to owners of the parent remains broadly neutral when compared
with the reported value at 1 January 2022 of £5.8 billion, and a CSM (net of reinsurance) of at least £2.0 billion is established.
The broadly neutral impact to total equity attributable to owners of the parent is a result of a number of offsetting factors. This includes the following
factors which have a positive impact on equity:
• By moving to an IFRS 17 best estimate of future cash flows, prudent margins currently recognised on insurance contract liabilities under IFRS 4 are released.
• Under IFRS 4, an unallocated surplus liability is held in respect of future transfers to shareholders from the Group’s with-profit funds. On application of
IFRS 17, shareholder earnings on with-profit and unit-linked business are recognised by reflecting only cash flows due to policyholders within the best
estimate of liabilities.
The reduction in best estimate liabilities arising from the above factors is offset by the following items, which reduce equity:
• The recognition of a risk adjustment and CSM.
• The derecognition of the separate acquired value of in-force business (AVIF) asset associated with insurance contracts previously recognised under IFRS 4.
The impact provided above is preliminary as not all transition work has been finalised at the date of issuing these consolidated financial statements.
The actual impact of adopting IFRS 17 on 1 January 2023 with a transition date of 1 January 2022 may change as the Group continues to embed and refine
the new systems, processes and controls required. This impact assessment has been estimated under an interim control environment with models that
continue to undergo validation. The implementation of the end state control environment will continue as the Group introduces business as usual controls
throughout 2023. The new accounting policies, assumptions, judgements and estimations employed in producing IFRS 17 results are subject to change
until the Group finalises its first IFRS 17 financial statements for 2023 reporting.
At the date of issuing these consolidated financial statements, the Group continues its preparation of the year end 31 December 2022 comparative
financial information applying IFRS 17. As a result it was not practicable to reliably quantify the impact of IFRS 17 on the results for the year ended
31 December 2022.
Implementation project status
The Group’s implementation project continued throughout 2022 with a focus on continuing to develop and embed the operational capabilities required
to implement IFRS 17 including data, systems and business processes, and determining the transition balance sheet as at 1 January 2022. The focus for 2023
is on finalising the transition balance sheet and the 2022 comparatives required for 2023 reporting, and implementation of the end state control environment.
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A. Significant accounting policies continued
A5. New accounting pronouncements not yet effective continued
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. In addition, the general hedge accounting requirements have been updated under IFRS 9 to better
reflect risk management activities of the Group.
The Group has to date 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 completed its assessment of the impacts of adopting IFRS 9. The classification of the Group’s financial assets has been
reviewed and it has been determined that financial assets backing insurance liabilities will continue to be measured at fair value through profit or loss
(‘FVTPL’). The business model assessment concluded that these assets are actively managed and evaluated on a fair value basis and as such would be
mandatorily classified at FVTPL. It is not expected that use of the fair value option, as permitted by IFRS 9, to designate assets as FVTPL to avoid an
accounting mismatch will be required.
The new standard replaces the incurred loss model with an expected credit loss model for financial assets measured at amortised cost or at FVOCI. The
proportion of financial assets classified at amortised cost is relatively small as a proportion of the total and due to the credit risk profile of these assets being
investment grade, the expected credit loss on these assets is not expected to be material and therefore there will be limited financial impact on the Group.
The Group will be adopting the revised general hedge accounting requirements of IFRS 9. The existing hedging relationships for which hedge accounting
is currently adopted (Tier 1/Tier 2 notes and cross currency swaps) will continue to be accounted for as cash flow hedges. The effectiveness testing
processes will be revised to include qualitative testing on a prospective basis.
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.
DDiisscclloossuurree ooff AAccccoouunnttiinngg PPoolliicciieess ((AAmmeennddmmeennttss ttoo IIAASS 11 PPrreesseennttaattiioonn ooff FFiinnaanncciiaall SSttaatteemmeennttss aanndd IIFFRRSS PPrraaccttiiccee SSttaatteemmeenntt 22 MMaakkiinngg
MMaatteerriiaalliittyy JJuuddggeemmeennttss)) ((11 JJaannuuaarryy 22002233))
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.
DDeeffiinniittiioonn ooff AAccccoouunnttiinngg EEssttiimmaatteess ((AAmmeennddmmeennttss ttoo IIAASS 88 AAccccoouunnttiinngg PPoolliicciieess,, CChhaannggeess iinn AAccccoouunnttiinngg EEssttiimmaatteess aanndd EErrrroorrss)) ((11 JJaannuuaarryy 22002233))
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.
DDeeffeerrrreedd TTaaxx rreellaatteedd ttoo AAsssseettss aanndd LLiiaabbiilliittiieess aarriissiinngg ffrroomm aa SSiinnggllee TTrraannssaaccttiioonn ((AAmmeennddmmeennttss ttoo IIAASS 1122 IInnccoommee TTaaxxeess)) ((11 JJaannuuaarryy 22002233))
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.
CCllaassssiiffiiccaattiioonn ooff LLiiaabbiilliittiieess aass CCuurrrreenntt aanndd NNoonn--ccuurrrreenntt ((AAmmeennddmmeennttss ttoo IIAASS 11 PPrreesseennttaattiioonn ooff FFiinnaanncciiaall SSttaatteemmeennttss)) ((11 JJaannuuaarryy 22002244))
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.
LLeeaassee LLiiaabbiilliittyy iinn aa SSaallee aanndd LLeeaasseebbaacckk ((AAmmeennddmmeennttss ttoo IIFFRRSS 1166 LLeeaasseess)) ((11 JJaannuuaarryy 22002244))
The amendments relate to how a seller-lessee accounts for variable lease payments that arise in a sale and leaseback transaction. On initial recognition,
the seller-lessee is required to include variable lease payments when measuring a lease liability arising from a sale-and-leaseback transaction. After initial
recognition, they are required to apply the general requirements for subsequent accounting of the lease liability such that no gain or loss relating to the
retained right of use is recognised. Seller-lessees are required to reassess and potentially restate sale-and-leaseback transactions entered into since the
implementation. These amendments are not expected to have any impact on the Group.
SSaallee oorr CCoonnttrriibbuuttiioonn ooff AAsssseettss bbeettwweeeenn aann IInnvveessttoorr aanndd iittss AAssssoocciiaattee oorr JJooiinntt VVeennttuurree ((AAmmeennddmmeennttss ttoo IIFFRRSS 1100 aanndd IIAASS 2288))
((EEffffeeccttiivvee ddaattee ddeeffeerrrreedd))
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 no longer endorses IFRSs for use in the UK. UK
legislation provides that all IFRSs that had been endorsed by the EU on or before the 31 December 2020 became UK-adopted international accounting
standards. New or amended IFRSs are now endorsed by the UK Endorsement Board following delegation of powers to endorse and adopt IFRSs for the
UK by the Secretary of State in May 2021.
The following amendments to standards listed above have been endorsed for use in the UK by the UK Endorsement Board:
• IFRS 17 Insurance Contracts;
• Amendments to IFRS 17;
• Initial Application of IFRS 17 and IFRS 9 – Comparative Information;
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
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
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 Agreement with abrdn 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, transferred the economic benefit of
this business to abrdn plc. The Group 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, was dissolved and the CSPA intangible asset was fully impaired. 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.
The Group received cash consideration for the overall transaction of £115 million, £62 million of which was deferred as detailed below. On completion
of the agreement the Group recognised a net gain on the transaction of £89 million, net of tax of £21 million, which was recognised in the consolidated
income statement.
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 2024. 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 was 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’). A further impairment charge of £17 million has
been recognised in the year (2021: £8 million). The major classes of assets and liabilities classified as held for sale are as follows:
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183
183
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
A6. Significant transactions continued
A6.1 Agreement with abrdn plc continued
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
31 December
2022
£m
37
2,506
4,629
33
7,205
1,147
8,352
(8,312)
(4)
–
(7)
(37)
(8,360)
31 December
2021
£m
54
3,309
6,507
76
9,946
1,788
11,734
(11,676)
(4)
(2)
(10)
(54)
(11,746)
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.
For management purposes, the Group is organised into business units based on their products and services. The Group has four reportable segments
comprising UK Heritage, UK Open, Europe and Management 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.
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 2022 and therefore consolidates 100% of the assets
with any non-controlling interest recognised as net asset value attributable to unitholders.
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.
A6.2 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.
Cash consideration received
Less: transaction costs
Net Consideration received
Net assets disposed of1
Foreign currency translation reserve recycled to the consolidated income statement
Loss on disposal
1
Includes cash and cash equivalents of £9 million.
31 December
2021
£m
198
(6)
192
(201)
(14)
(23)
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 in November 2021 (see note A6.2), was allocated to the UK Heritage operating segment. The Wrap SIPP,
Onshore Bond and TIP business that has been classified as a disposal group held for sale (see note A6.1) is allocated to the UK Open operating segment.
Segmental measure of performance: Adjusted operating profit
The Group uses a non-GAAP measure of performance, being adjusted operating profit, to evaluate segment performance. Adjusted 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 adjusted operating profit using valuation assumptions consistent with the pricing of the business (including the Group’s expected longer-
term asset allocation backing the business).
Adjusted 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). Adjusted operating profit is reported
net of policyholder finance charges and policyholder tax.
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185
185
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
B. Earnings performance continued
B1. Segmental analysis continued
Adjusted 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 excluded from adjusted operating profit 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.
Items excluded from adjusted operating profit are referred to as ‘non-operating items’. Whilst the excluded items are important to an assessment of the
consolidated financial performance of the Group, management considers that the presentation of the adjusted 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 adjusted operating
profit metric.
Certain of the Group’s pension schemes have executed buy-in transactions with a Group life company (see note G1 for further details) and these
arrangements can create volatility in the IFRS result which is excluded from adjusted operating profit. Investment return variances and economic
assumption changes includes impacts arising as a result of economic movements in the value of financial assets backing Group employee pension
schemes. The related movement in the defined benefit pension obligation is recognised in ‘Other Comprehensive Income’.
The Group therefore considers that adjusted 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.
B1.1 Segmental result
Adjusted operating profit
UK Heritage
UK Open
Europe
Management Services
Unallocated Group
Total segmental adjusted 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 before the tax attributable to owners of the parent
Profit before tax attributable to non-controlling interests
Loss before the tax attributable to owners
Notes
B2.2
G2
2022
£m
601
731
30
(48)
(69)
1,245
(2,673)
(501)
(21)
(179)
(199)
(2,328)
2021
£m
537
701
87
(24)
(71)
1,230
(1,125)
(572)
(67)
(65)
(217)
(816)
67
128
(2,261)
(688)
Other non-operating items in respect of 2022 include:
• a £329 million benefit attributable to harmonising the calibration of prudential margins included within liabilities under insurance contracts in the
ReAssure life companies with the rest of the Group;
• £187 million related to the increase in expected costs associated with the delivery of the Group Target Operating Model for IT and Operations,
following a strategic decision to re-phase the programme, together with the costs of migrating policyholder administration onto the TCS platform
for certain legacy portfolios of business;
• £76 million of costs associated with the implementation of IFRS 17, which will be effective from 1 January 2023;
• £37 million costs associated with a strategic initiative to enhance capabilities which will support the move towards the Group’s strategic asset allocation
alongside growth delivered through bulk purchase annuity transactions;
• costs of £31 million associated with the ongoing ReAssure integration programme;
• £15 million of past service costs in relation to a Group pension scheme. Further details are included in note G1.1;
• £15 million of costs associated with finance transformation activities, including the migration to cloud-based systems;
• £14 million related to a support package to help colleagues navigate cost of living challenges, which included giving all colleagues, except the most
senior staff, a one-off net of tax payment of £1,000 in August 2022;
• £12 million costs associated with the forthcoming acquisition of SLF of Canada UK Limited;
• £73 million of other corporate project costs; and
• net other one-off items totalling a cost of £48 million.
Other non-operating items in respect of 2021 include:
• 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 A6.2 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 transferred to the Group in 2020;
• £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.
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.
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187
187
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
B. Earnings performance continued
B1. Segmental analysis continued
B1.2 Segmental revenue
2022
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
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
UK Heritage
£m
UK Open
£m
Europe
£m
Management
Services
£m
Unallocated
Group
£m
802
(267)
535
590
–
1,125
5,038
(1,440)
3,598
298
–
3,896
1,254
(20)
1,234
63
–
1,297
–
–
–
–
1,432
1,432
–
–
–
–
(1,432)
(1,432)
UK Heritage
£m
UK Open
£m
Europe
£m
Management
Services
£m
Unallocated
Group
£m
880
(284)
596
634
–
1,230
5,034
(1,739)
3,295
297
–
3,592
1,541
(56)
1,485
70
–
1,555
–
–
–
–
1,146
1,146
–
–
–
–
(1,146)
(1,146)
Total
£m
7,094
(1,727)
5,367
951
–
6,318
Total
£m
7,455
(2,079)
5,376
1,001
–
6,377
Of the revenue from external customers presented in the table above, £5,417 million (2021: £5,448 million) is attributable to customers in the United
Kingdom (‘UK’) and £901 million (2021: £929 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.
During the year ended 31 December 2022, the Group generated revenue of £1,070 million with a single customer under a bulk purchase annuity transaction.
This was a single premium transaction that is not expected to recur. The revenue with this external customer is included in the UK Open segment.
During the year ended 31 December 2021, the Group generated revenue of £1,706 million and £1,791 million respectively with single customers under bulk
purchase annuity transactions. These were single premium transactions that are not expected to recur. The revenue with these external customers has
been included in the UK Open segment.
The Group has total non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under insurance contracts)
of £3,721 million (2021: £5,245 million) located in the UK and £352 million (2021: £410 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 adjusted operating profit measure that incorporates an expected return on
investments supporting its long-term business. The accounting policy adopted in the calculation of adjusted 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 adjusted 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
36bps at the start of the year (2021: 10bps). A risk premium of 334bps is added to the risk-free yield for equities (2021: 349bps), 244bps for properties
(2021: 249bps) and 59bps for corporate bonds (2021: 55bps). The overall increase in expected returns for these assets primarily reflects the increase in
the risk-free rate experienced in 2021.
The principal assumptions underlying the calculation of the long-term investment return are:
Equities
Properties
Corporate bonds
2022
%
4.6
3.7
1.9
2021
%
4.1
3.1
1.2
B2.2 Life assurance business
Adjusted 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. Adjusted 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 adjusted operating profit.
The movement in liabilities included in adjusted 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 adjusted 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.
The investment return variances and economic assumption changes excluded from adjusted operating profit are as follows:
Investment return variances and economic assumption changes
on long-term business and owners' funds
2022
£m
2021
£m
(2,673)
(1,125)
The net adverse investment return variances and economic assumption changes on long-term business and owners’ funds of £2,673 million in 2022
(2021: adverse £1,125 million) reflect IFRS losses arising as a result of rising yields and inflation, and a widening of credit spreads.
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 or Solvency Capital Requirements is not. Such items 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.
Losses have been experienced on hedging positions held by the life companies principally as a result of rising yields and increasing inflation in the year.
Continued strategic asset allocation initiatives undertaken by the Group, including investment in higher yielding assets, together with gains arising on
equity hedges as markets fell over the period, provided a partial offset to the adverse variances experienced.
Investment return variances and economic assumption changes also includes net losses in the value of assets backing Group employee pension schemes.
This arises where those liabilities have been subject to insurance policies with Group entities (see note G1). The related decrease in the defined benefit
pension obligation is recognised in other comprehensive income.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
B. Earnings performance continued
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 adjusted operating earnings net of financing costs.
Adjusted 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.
2022
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
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
Adjusted
operating
earnings net
of financing
costs
£m
1,046
(211)
835
(22)
–
813
Adjusted
operating
earnings net
of financing
costs
£m
1,013
(199)
814
(23)
–
791
Other
non-operating
items
£m
(3,307)
710
(2,597)
–
(67)
(2,664)
Other
non-operating
items
£m
(1,701)
178
(1,523)
–
(128)
(1,651)
Financing
costs
£m
(199)
42
(157)
(22)
–
(179)
Financing
costs
£m
(217)
44
(173)
(23)
–
(196)
Adjusted
Operating
profit
£m
1,245
(253)
992
–
–
992
Adjusted
Operating
profit
£m
1,230
(243)
987
–
–
987
Total
£m
(2,261)
499
(1,762)
(22)
(67)
(1,851)
Total
£m
(688)
(21)
(709)
(23)
(128)
(860)
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 non-contingently issuable shares in respect of Group's long-term incentive plan
Own shares held by the employee benefit trust
Weighted average number of ordinary shares
2022
Number
million
1,000
1
(2)
999
2021
Number
million
999
–
(1)
998
The diluted weighted average number of ordinary shares outstanding during the period is 1,001 million (2021: 1,001 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 1,841,988 shares for
the year ended 31 December 2022 (2021: 2,702,934 shares). As losses have an anti-dilutive effect, none of the share-based awards had a dilutive effect
in the calculation of basic earnings per share for either of the years ended 31 December 2021 or 31 December 2022.
Earnings per share disclosures are as follows:
Basic earnings per share
Diluted earnings per share
Basic adjusted operating earnings net of financing costs per share
Diluted adjusted operating earnings net of financing costs per share
B4. Dividends
2022
pence
(185.2)
(185.2)
81.5
81.3
2021
pence
(86.4)
(86.4)
79.2
79.0
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
2022
£m
496
2021
£m
482
On 11 March 2022, the Board recommended a final dividend of 24.8p per share in respect of the year ended 31 December 2021. The dividend was
approved at the Group’s Annual General Meeting, which was held on 5 May 2022. The dividend amounted to £248 million and was paid on 9 May 2022.
On 12 August 2022, the Board declared an interim dividend of 24.8p per share for the half year ended 30 June 2022. The dividend amounted to £248 million
and was paid on 12 September 2022.
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191
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
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.
2022
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
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
UK Heritage
£m
561
–
561
29
590
UK Heritage
£m
606
–
606
28
634
UK Open
£m
293
–
293
5
298
UK Open
£m
291
–
291
6
297
Europe
£m
72
(9)
63
–
63
Europe
£m
81
(11)
70
–
70
Total
£m
926
(9)
917
34
951
Total
£m
978
(11)
967
34
1,001
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 financial assets 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
2022
£m
21
2,888
5,409
343
(64)
8,597
(38,676)
(6,707)
(1,363)
(46,746)
(38,149)
2021
£m
1
2,647
4,384
365
(37)
7,360
12,354
(2,908)
1,195
10,641
18,001
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193
193
Financials continuedFinancials
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.
C4. Auditor’s remuneration
During the year the Group obtained the following services from its auditor at costs as detailed in the table below.
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.
Audit of the consolidated financial statements
Audit of the Company’s subsidiaries
Audit-related assurance services
Total fee for assurance services
Total auditor’s remuneration
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.
No services were provided by the Company’s auditors to the Group’s pension schemes in either 2022 or 2021.
2022
£m
4.8
10.7
15.5
2.4
17.9
17.9
2021
£m
1.8
9.8
11.6
2.3
13.9
13.9
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.
Employee costs
Outsourcer expenses
Professional fees
Commission expenses
Office and IT costs
Investment management expenses and transaction costs
Direct costs of collective investment schemes
Depreciation
Pension past service costs
Pension administrative expenses
Advertising and sponsorship
Movement in reinsurance payables1
Other
Acquisition costs deferred during the year
Amortisation of deferred acquisition costs
Total administrative expenses
Employee costs comprise:
Wages and salaries
Social security contributions
Average number of persons employed
2022
£m
611
247
441
145
172
569
25
19
15
7
63
93
26
2,433
(32)
11
2,412
2022
£m
554
57
611
2021
£m
531
209
321
178
150
528
28
18
–
6
58
-
59
2,086
(38)
8
2,056
2021
£m
483
48
531
2022
Number
8,165
2021
Number
7,885
1 Reflects an increase of £93 million (2021: £nil) in the amounts payable to reinsurers in respect of certain product features of the Group’s German business. There is a corresponding
reduction in the gross liabilities under insurance contracts.
The increase in the audit fee during 2022 principally reflects the additional work undertaken in connection with the transition to IFRS 17.
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.
There were no other non-audit services provided during the year (2021: £nil).
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 101.
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
2022
£m
227
3
230
3
227
230
2021
£m
239
3
242
2
240
242
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195
195
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
C. Other income statement notes 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 (credit)/charge
Total tax (credit)/charge
Attributable to:
• policyholders
• owners
Total tax (credit)/charge
2022
£m
36
85
121
(23)
98
(1,067)
(123)
14
(1,176)
(1,078)
(579)
(499)
(1,078)
2021
£m
(9)
114
105
(66)
39
120
147
(27)
240
279
258
21
279
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 credit attributable to policyholder earnings
was £579 million (2021: £258 million charge).
The 2022 current tax prior year adjustment relates principally to a 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). This was resolved in the period in favour of the Group. The 2021
current tax liability included an accrual for the total tax under dispute. The matter was heard before the First Tier Tribunal in May 2022 and the Court
found in favour of ReAssure Limited. HMRC are not appealing against this decision and so the accrual for the potential tax liability has been released.
C6.2 Tax charged to other comprehensive income
Current tax charge
Deferred tax charge on defined benefit schemes
2022
£m
–
280
280
2021
£m
1
137
138
C6.3 Tax (credited)/charged to equity
Current tax credit on Tier 1 Notes
Deferred tax charge/(credit) on share schemes
Total tax credit
C6.4 Reconciliation of tax charge
Loss for the year before tax
Policyholder tax credit/(charge)
Loss before the tax attributable to owners
Tax credit at standard UK rate of 19% (2021: 19%)1
Non-taxable income
Disallowable expenses
Prior year tax credit for shareholders2
Movement on acquired in-force amortisation at less than 19% (2021: 19%)
Profits taxed at rates other than 19% (2021: 19%)3
Derecognition/(recognition) of previously recognised/(unrecognised) deferred tax assets4
Deferred tax rate change5
Current year losses not valued6
Other7
Owners’ tax (credit)/charge
Policyholder tax (credit)/charge
Total tax (credit)/charge for the year
2022
£m
(7)
2
(5)
2022
£m
(2,840)
579
(2,261)
(429)
(4)
2
(17)
26
18
14
(119)
16
(6)
(499)
(579)
(1,078)
2021
£m
(6)
(1)
(7)
2021
£m
(430)
(258)
(688)
(131)
(10)
19
(7)
34
(22)
(13)
147
1
3
21
258
279
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 prior year tax credit relates to true-ups from the 2021 tax reporting provisions in various entities within the Group and the resolution of the ReAssure Limited tax dispute with HMRC,
described above
3 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
4 Relates primarily to reduction in the future value of capital losses in ReAssure Limited, arising from further policyholder losses accrued in the period
5 Deferred tax rate change relates primarily to movements in deferred tax liabilities on non-refundable pension scheme surplus which are expected to unwind, and deferred tax assets
on losses expected to be relieved, at rates in excess of the current year rate of 19%
6 Relates primarily to tax losses in Standard Life International DAC, in relation to which a deferred tax asset cannot be recognised
7 Principally relates to UK tax relief available in relation to foreign withholding tax incurred
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
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:
1,000.4 million ordinary shares of £0.10 each (2021: 999.5 million)
2022
£m
100
2021
£m
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:
Shares in issue at 1 January
Ordinary shares issued in the year
Shares in issue at 31 December
2022
Number
999,536,058
816,419
1,000,352,477
2022
£
99,953,605
81,642
100,035,247
2021
Number
999,232,144
303,914
999,536,058
2021
£
99,923,214
30,391
99,953,605
During the year, 816,419 shares (2021: 303,914) were issued at a premium £4 million (2021: £2 million) in order to satisfy obligations to employees under the
Group’s sharesave schemes (see note I1).
The balance in the merger reserve arose upon the issuance of equity shares in 2020 as part consideration for the acquisition of the entire share capital
of ReAssure Group plc. 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 reserve as opposed to in share premium.
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
2022
£m
12
13
(12)
13
2021
£m
6
16
(10)
12
During the year 1,764,660 (2021: 1,490,492) shares were awarded to employees by the EBT and 1,970,764 (2021: 2,423,407) shares were purchased.
The number of shares held by the EBT at 31 December 2022 was 2,092,022 (2021: 1,885,918).
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.
2022
At 1 January 2022
Other comprehensive expense for the year
At 31 December 2022
2021
At 1 January 2021
Other comprehensive income for the year
At 31 December 2021
Owner-occupied
property
revaluation
reserve
£m
5
(5)
–
Owner-occupied
property
revaluation
reserve
£m
5
–
5
Cash flow
hedging
reserve
£m
51
(5)
46
Cash flow
hedging
reserve
£m
43
8
51
Total other
reserves
£m
56
(10)
46
Total other
reserves
£m
48
8
56
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.
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
2022
£m
494
2021
£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 (2021: £29 million).
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199
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
D. Equity continued
D4. Tier 1 notes continued
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.
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
Profit for the year
Dividends paid
Increase in non-controlling interests
At 31 December
APEOT
2022
£m
460
67
(10)
15
532
APEOT
2021
£m
341
128
(9)
–
460
The non-controlling interests of £532 million (2021: £460 million) reflects third party ownership of abrdn Private Equity Opportunities Trust plc (‘APEOT’)
determined at the proportionate value of the third party interest in the underlying assets and liabilities. APEOT is a UK Investment Trust listed and traded
on the London Stock Exchange. As at 31 December 2022, the Group held 53.6% (2021: 55.2%) of the issued share capital of APEOT.
The Group’s interest in APEOT is held in the with-profit and unit-linked funds of the Group’s life companies. Therefore, the shareholder exposure to the
results of APEOT 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:
APEOT
Statement of financial position:
Financial assets
Other assets
Total assets
Total liabilities
Income statement:
Net income
Profit after tax
Comprehensive income
Cash flows:
Net (decrease)/increase in cash and cash equivalents
2022
£m
554
12
566
34
74
67
67
(7)
2021
£m
452
19
471
11
134
128
128
10
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.
The Group has treaties in place with third party insurance companies to provide reinsurance in respect of liabilities that are linked to the performance
of funds maintained by those companies. The contracts in question do not transfer significant insurance risk and therefore are classified as financial
instruments and are valued at fair value through profit and loss. These contracts are disclosed under Reinsurers’ share of investment contract liabilities
in the statement of consolidated financial position.
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.
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.
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Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities continued
E1. Fair values continued
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.
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, instead of 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.
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 2022:
2022
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 H2)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
2022
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 sale (see note A6.1)3
Total financial liabilities less financial liabilities held for sale
Carrying value
Amounts due for
settlement after
12 months
£m
Total
£m
Fair value
£m
4,071
3,353
4,071
–
–
70,115
–
–
99
76,780
329
84,710
78,353
9,088
279
253,610
(4,629)
248,981
Carrying value
Amounts due for
settlement after
12 months
£m
Total
£m
76,780
329
84,710
78,353
9,088
279
253,610
(4,629)
248,981
Fair value
£m
5,879
5,118
5,879
64
2,978
152,157
3,916
2,598
1,706
169,298
(8,316)
160,982
64
–
–
3,648
2,221
–
64
2,978
152,157
3,644
2,598
1,706
169,026
(8,316)
160,710
1 These assets and liabilities have no specified settlement date.
2 Amounts classified as financial assets held for sale include derivatives of £3 million, equities of £43 million, debt securities of £1,594 million, collective investment schemes of £2,964 million
and reinsurers’ share of investment contract liabilities of £25 million.
3 Amounts classified as financial liabilities held for sale include derivative liabilities of £4 million and investment contract liabilities of £8,312 million.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities continued
E1. Fair values continued
E1.1 Fair values analysis continued
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 H2)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
–
–
88,965
–
–
48
87,059
431
106,990
90,164
10,009
475
299,699
(6,507)
293,192
Carrying value
Amounts due for
settlement after 12
months
£m
Total
£m
87,059
431
106,990
90,164
10,009
475
299,699
(6,507)
293,192
Total
£m
1,252
989
1,252
70
3,568
172,093
4,155
3,569
3,442
188,149
(11,680)
176,469
70
–
–
3,688
3,150
–
70
3,568
172,093
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.
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
2022
£m
279
8,839
330
4,478
248,702
2021
£m
475
9,112
282
1,697
292,717
1 Cash and cash equivalents excludes assets classified as held for sale of £33 million (2021: £76 million).
2 Other receivables excludes deferred acquisition costs.
3 The change in fair value during 2022 of all other financial assets that are measured at fair value through profit or loss is a £ 43,834 million loss (2021: £5,881 million loss). The balance
excludes £4,629 million (2021: £6,507 million) 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:
2022
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
2021
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
AAA
£m
–
339
–
–
339
AAA
£m
–
382
–
–
382
AA
£m
4
1,160
–
–
1,164
AA
£m
6
1,686
–
–
1,692
A
£m
–
5,749
–
–
5,749
A
£m
–
5,161
–
–
5,161
BBB
£m
–
63
–
–
63
BBB
£m
–
181
–
–
181
1 The Group has assessed its non-rated assets as having a low credit risk.
BB and
below Non-rated1 Unit-linked
£m
71
1,556
–
–
1,627
£m
204
5
330
4,478
5,017
£m
–
–
–
–
–
BB and
below Non-rated1 Unit-linked
£m
55
1,775
–
–
1,830
£m
414
3
282
1,697
2,396
£m
–
–
–
–
–
Less
amounts
classified as
held for sale
£m
–
(33)
–
–
(33)
Less
amounts
classified as
held for sale
£m
–
(76)
–
–
(76)
Total
£m
279
8,872
330
4,478
13,959
Total
£m
475
9,188
282
1,697
11,642
Total
£m
279
8,839
330
4,478
13,926
Total
£m
475
9,112
282
1,697
11,566
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities 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 and reinsurers’ share of investment contract liabilities, 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. The fair value of investment contract
liabilities reflects the fair value of the underlying assets and liabilities in the funds plus an additional amount to cover the present value of the excess of
future policy costs over future charges. The liabilities are consequently determined to be Level 2 instruments.
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.
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.
2022
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
Total financial assets measured at fair value, excluding amounts classified as held for sale
Financial assets for which fair values are disclosed
Loans and deposits at amortised cost
2022
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
Total financial liabilities measured at fair value, excluding amounts classified as held for sale
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
165
3,754
152
4,071
74,464
329
48,151
75,962
9,088
207,994
208,159
(3,661)
204,498
–
204,498
Level 1
£m
124
–
25,094
2,079
–
27,297
31,051
(179)
30,872
272
31,144
Level 2
£m
98
5,538
–
2,978
–
2,978
3,076
–
3,076
–
–
–
–
3,076
–
–
152,157
152,157
157,695
(8,316)
149,379
3,644
2,542
1,706
7,892
157,271
2,192
–
11,465
312
–
13,969
14,121
(789)
13,332
76,780
329
84,710
78,353
9,088
249,260
253,331
(4,629)
248,702
7
13,339
279
248,981
Level 3
£m
Total fair value
£m
243
64
–
–
64
307
–
307
–
56
–
56
363
5,879
64
2,978
152,157
155,199
161,078
(8,316)
152,762
3,644
2,598
1,706
7,948
160,710
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Financials continuedFinancials
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 continued
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)
Total financial assets measured at fair value, excluding amounts classified as held for sale
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 unitholders
Investment contract liabilities
Total financial liabilities measured at fair value
Less amounts classified as held for sale (see note A6.1)
Total financial liabilities measured at fair value, excluding amounts classified as held for sale
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
161
4,173
237
4,571
85,108
431
57,992
86,244
10,009
239,784
239,945
(5,194)
234,751
52
–
36,546
3,634
–
40,232
44,405
(421)
43,984
1,899
–
12,452
286
–
14,637
14,874
(892)
13,982
87,059
431
106,990
90,164
10,009
294,653
299,224
(6,507)
292,717
–
234,751
464
44,448
11
13,993
475
293,192
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
155
972
–
3,568
–
3,568
3,723
–
3,723
–
–
–
–
3,723
–
–
172,093
172,093
173,065
(11,680)
161,385
4,564
3,484
3,442
11,490
172,875
125
70
–
–
70
195
–
195
–
85
–
85
280
1,252
70
3,568
172,093
175,731
176,983
(11,680)
165,303
4,564
3,569
3,442
11,575
176,878
E2.3 Significant inputs and input values for Level 3 financial instruments
Valuation technique
Single broker1 and net
asset value2
Significant inputs
Single broker
indicative price
Key unobservable input value
2022
N/A
2021
N/A
Description
Equities
Debt securities (see E2.3.1 for further details)
Loans guaranteed by export credit agencies &
supranationals
Private corporate credit
Infrastructure loans
Loans to housing associations
Local authority loans
DCF model3
DCF model3
DCF model3
DCF model3
DCF model3
Credit spread
Credit spread
Credit spread
Credit spread
Credit spread
111bps
(weighted average)
169bps
(weighted average)
220bps
(weighted average)
164bps
(weighted average)
137bps
(weighted average)
260bps over the IFRS
reference curve
+75bps adjustment
to RPI
£304,088 (average)
Mortality Average life expectancy
of a male and female
currently aged 75 is 14.5
years and 15.9 years
respectively
150bps to 700bps
Spread
53bps
(weighted average)
129bps
(weighted average)
207bps
(weighted average)
128bps
(weighted average)
105 bps
(weighted average)
170bps over the IFRS
reference curve
+75bps adjustment
to RPI
£291,599 (average)
Average life expectancy
of a male and female
currently aged 76 is 13.7
years and 15.0 years
respectively
150bps to 700bps
House prices
House price inflation
Voluntary redemption
rate
Credit spread
Equity Release Mortgage loans (‘ERM’)
DCF model and Black-
Scholes model4
Commercial real estate loans
DCF model3
Income strips5
Collective investment schemes
Borrowings
Property reversions loans (see note E5)
Income capitalisation
Net asset value
statements2
Internally developed
model
Credit spread
N/A
Mortality rate
House price inflation
Discount rate
Deferred possession
rate
253bps
(weighted average)
661bps
N/A
228bps
(weighted average)
487bps
N/A
130% IFL92C15
(Female)6
130% IML92C15
(Male)6
3 year RPI rate
plus 75bps
3 year swap rate plus
170bps
370bps
130% IFL92C15
(Female)6
130% IML92C15
(Male)6
3 year RPI rate
plus 75bps
3 year swap rate plus
170bps
370bps
Derivative assets and liabilities
Forward private placements, infrastructure
and local authority loans7
Longevity swaps8
Equity Release Income Plan total return swap9
DCF model3
Credit spread
DCF model3
DCF model3
Swap curve
Credit spread
145bps
(weighted average)
swap curve + 36bps
500bps
110bps
(weighted average)
swap curve + 36bps
500bps
1 Broker indicative prices: Although such valuations are sensitive to estimates, it is believed that changing one or more of the assumptions to reasonably possible alternative assumptions
would not change the fair value significantly.
2 Net asset value statements: Net asset statements are provided by independent third parties, and therefore no significant non-observable input or sensitivity information has been prepared
for those instruments valued on this basis.
3 Discounted cash flow (‘DCF’) model: Except where otherwise stated, the discount rate used is based on a risk-free curve and a credit spread. The risk-free rate is taken from an appropriate
gilt of comparable duration. The spread is derived from a basket of comparable securities.
4 ERM loans: The loans are valued using a DCF 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 ERM loans.
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.
5
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities continued
E2. Fair value hierarchy continued
E2.3 Significant inputs and input values for Level 3 financial instruments continued
6
7 Derivative liabilities include forward investments of £146 million (2021: £7 million derivative assets) which include a commitment to acquire or provide funding for fixed rate debt
IFL92C15 and IML92C15 relate to immediate annuitant female and male lives and refer to the 92 series mortality tables produced by the Continuous Mortality Investigation (‘CMI’).
8
9
instruments at specified future dates.
Included within derivative assets and liabilities are longevity swap contracts with corporate pension schemes with a fair value of £152 million (2021: £230 million) and £34 million
(2021: £49 million) respectively.
Included within derivative liabilities is the Equity Release Income Plan (‘ERIP’) total return swap with a value of £63 million (2021: £67 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).
E2.3.1 Debt securities
Analysis of Level 3 debt securities
Unquoted corporate bonds:
Loans guaranteed by export credit agencies & supranationals
Private corporate credit
Infrastructure loans – project finance
Infrastructure loans – corporate
Loans to housing associations
Local authority loans
Equity release mortgages
Commercial real estate loans
Income strips
Bridging loans to private equity funds
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
2022
£m
1
2021 restated
£m
402
1,422
882
1,175
691
596
3,934
1,104
786
462
11
11,465
(786)
10,679
219
1,488
967
1,074
1,022
917
4,214
1,317
886
339
9
12,452
(892)
11,560
1 At 31 December 2021 £1,632 million of private corporate credit assets have been reclassified as loans guaranteed by export credit agencies & supranationals (£60 million), infrastructure
loans (£550 million) and loans to housing associations (£1,022 million).
Sensitivities of level 3 financial instruments
Debt securities – Loans guaranteed by export credit agencies & supranationals
65bps increase in spread
65bps decrease in spread
Debt securities – Private corporate credit
65bps increase in spread
65bps decrease in spread
Debt securities – Infrastructure loans
65bps increase in spread
65bps decrease in spread
Debt securities – Loans to housing associations
65bps increase in spread
65bps decrease in spread
Debt securities – Local authority loans
65bps increase in spread
65bps decrease in spread
Debt securities – ERM loans
100bps increase in spread
100bps decrease in spread
5% increase in mortality
5% decrease in mortality
15% increase in voluntary redemption rate
15% decrease in voluntary redemption rate
1% increase in house price inflation
1% decrease in house price inflation
10% increase in house prices
10% decrease in house prices
Debt securities – CRELs
65bps increase in spread
65bps decrease in spread
Debt securities – Income strips
35bps increase in spread
35bps decrease in spread
Derivatives – Forward private placements, infrastructure and local authority loans1
65bps increase in spread
65bps decrease in spread
Derivatives – Longevity swap contracts
100bps increase in swap curve
100bps decrease in swap curve
Derivatives – Equity Release Income Plan total return swap
100bps increase in spread
100bps decrease in spread
2022
£m
(9)
11
(98)
112
(103)
107
(54)
58
(51)
55
(329)
370
13
(14)
49
(52)
27
(42)
22
(38)
(18)
19
(76)
88
(30)
31
(17)
21
(2)
2
2021
£m
(9)
10
(124)
143
(124)
128
(102)
112
(109)
121
(443)
512
(10)
9
(22)
23
26
(43)
13
(23)
(24)
24
(94)
121
(25)
27
(28)
35
(2)
2
For the property reversions loans and bridging loans to equity funds, there are no reasonably possible movements in unobservable input values which
would result in a significant movement in the fair value of the financial instruments.
For those assets valued using net asset value statements (equities and collective investment schemes) no sensitivity information has been prepared as the
net asset statements are provided by independent third parties.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities continued
E2.3 Significant inputs and input values for Level 3 financial instruments continued continued
E2.4 Transfers of financial instruments between Level 1 and Level 2
2022
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
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
From
Level 1 to
Level 2
£m
From
Level 2 to
Level 1
£m
48
73
1,478
28
1,579
1,627
–
5
1,267
–
1,272
1,272
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
2022
Financial liabilities
Derivatives
Financial liabilities designated
at FVTPL upon initial
recognition:
Borrowings
Total financial liabilities
2021
Financial assets
Derivatives
Financial assets designated at
FVTPL upon initial recognition:
Equities
Debt securities
Collective investment
schemes
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 both the current and prior period.
E2.5 Movement in Level 3 financial instruments measured at fair value
2022
Financial assets
Derivatives
Financial assets designated at
FVTPL upon initial recognition:
Equities
Debt securities
Collective investment
schemes
At 1
January
2022
£m
Net (losses)/
gains in income
statement
£m
Purchases
£m
237
(85)
–
1,899
12,452
286
14,637
177
(3,544)
(79)
(3,446)
438
6,838
108
7,384
Sales
£m
–
(369)
(4,277)
(3)
(4,649)
Total financial assets
14,874
(3,531)
7,384
(4,649)
1 Total financial assets of £14,121 million includes £789 million of assets classified as held for sale.
Transfers from
Level 1 and
Level 2
£m
Transfers to
Level 1 and
Level 2
£m
At 31
December
20221
£m
Unrealised
(losses)/
gains on assets
held at end of
period
£m
–
47
2
-
49
49
–
–
(6)
–
(6)
(6)
152
(85)
2,192
11,465
312
13,969
12
(3,595)
(73)
(3,656)
14,121
(3,741)
At 1
January
2022
£m
Net losses in
income
statement
£m
Sales/
repayments
£m
Transfers from
Level 1 and
Level 2
£m
Transfers to
Level 1 and
Level 2
£m
At 31
December
2022
£m
Purchases
£m
Unrealised
losses on
liabilities held
at end of
period
£m
125
130
70
195
9
139
Net
(losses)/gains in
income
statement
£m
At 1
January
2021
£m
–
–
–
(12)
(15)
(27)
–
–
–
–
–
–
243
123
64
307
9
132
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
6,697
(368)
(4,210)
(94)
(4,672)
26
15
41
41
(1)
(10)
–
(11)
(11)
1,899
12,452
286
14,637
14,874
278
115
22
415
333
Total financial assets
12,326
380
6,810
(4,672)
1 Total financial assets of £14,874 million includes £892 million classified as held for sale.
2021
Financial liabilities
Derivatives
Financial liabilities designated at
FVTPL upon initial recognition:
Borrowings
Total financial liabilities
Net
(gains)/losses in
income
statement
£m
At 1
January
2021
£m
162
(19)
84
246
4
(15)
Sales/
Repayments
£m
Transfers from
Level 1 and
Level 2
£m
Transfers to
Level 1 and
Level 2
£m
Purchases
£m
–
–
–
(18)
(18)
(36)
–
–
–
–
–
–
At 31
December
20211
£m
Unrealised
(gains)losses on
liabilities held at
end of period
£m
125
(29)
70
195
5
(24)
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.
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Financials continuedFinancials
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
Longevity swap contracts
Currency futures
Cross-currency swaps
Equity Release Income Plan total return swap
Other
Less amounts classified as held for sale
Assets
2022
£m
327
4
3
2,281
–
187
295
334
162
95
152
4
227
–
–
4,071
(3)
4,068
Liabilities
2022
£m
221
18
3
4,313
–
46
104
147
36
231
34
8
653
63
2
5,879
(4)
5,875
Assets
2021
£m
180
63
8
1,509
3
1,722
232
408
41
46
230
7
122
–
–
4,571
(4)
4,567
Liabilities
2021
£m
58
39
2
506
–
11
98
254
122
33
49
1
12
67
–
1,252
(4)
1,248
E3.2 Longevity swap contracts
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 £152 million
and derivative liabilities of £34 million have been recognised as at 31 December 2022 (2021: £230 million and £49 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.
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 2022
(2021: 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.
2022
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
3,747
324
1,451
5,522
1,055
193
1,451
2,699
Derivative
liabilities
£m
2,293
28
–
2,321
Related amounts not offset
Gross and net
amounts of
recognised
financial liabilities
£m
Financial instruments
and cash collateral
pledged
£m
5,606
273
5,879
2,206
36
2,242
Derivative
assets
£m
2,293
28
2,321
Net
amount
£m
399
103
–
502
Net
Amount
£m
1,107
209
1,316
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities continued
E3. Derivatives continued
E4 Collateral arrangements
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
487
6
–
493
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
307
166
–
473
Net
amount
£m
290
126
416
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 £471 million (2021: £945 million).
The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2022 are set out below.
Financial assets
Financial liabilities
OTC derivatives
2022
£m
1,513
(1,513)
2021
£m
3,442
(3,442)
The maximum exposure to credit risk in respect of OTC derivative assets is £3,747 million (2021: £4,394 million) of which credit risk of £3,348 million
(2021: £4,087 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 £324 million (2021: £177 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 2022 in respect of OTC derivative
liabilities of £5,606 million (2021: £1,096 million) amounted to £3,228 million (2021: £942 million).
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 £1,586 million
(2021: £1,749 million).
The maximum exposure to credit risk in respect of stock lending transactions is £1,451 million (2021: £1,587 million) of which credit risk of £1,451 million
(2021: £1,587 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.
E5.1 Analysis of borrowings
£300 million multi-currency revolving credit facility (note a)
Property reversions loan (note b)
Total policyholder borrowings
£428 million Tier 2 subordinated notes (note c)
£450 million Tier 3 subordinated notes (note d)
US $500 million Tier 2 notes (note e)
€500 million Tier 2 bonds (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)
Total shareholder borrowings
Carrying value
2022
£m
62
64
126
427
–
413
439
618
487
412
543
259
256
3,854
2021
£m
17
70
87
427
450
368
416
551
485
368
550
266
257
4,138
Fair value
2022
£m
62
64
126
429
–
390
416
580
445
382
465
244
231
3,582
2021
£m
17
70
87
498
457
408
490
581
593
389
598
269
264
4,547
Total borrowings
3,980
4,225
3,708
4,634
Amount due for settlement after 12 months
3,918
3,758
a. abrdn Private Equity Opportunities Trust plc (’APEOT’) has in place a syndicated multi-currency revolving credit facility, of which £61 million (2021: £17 million)
had been drawn down as at 31 December 2022. During the year, the amount of the facility was increased from £200 million to £300 million and its term maturity
was extended by one year to December 2025. 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 2022,
repayments totalling £15 million were made (2021: £18 million). Note G4 contains details of the assets that support this loan.
c. On 23 January 2015, PGH Capital plc (‘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. During 2017, the internal holdings were sold to third parties, thereby increasing external
borrowings by £32 million. 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 £428 million subordinated notes and then on 12 December 2018 the Company was substituted in place of Old PGH as issuer.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
E. Financial assets & liabilities continued
E5. Borrowings continued
E5.1 Analysis of borrowings continued
d. On 20 July 2022, the Group redeemed its £450 million Tier 3 subordinated notes in full at their principal amount, together with interest accrued to the
repayment date.
e. 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.
f. 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.
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.
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.
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 each year.
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
each year.
j. 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.
k. 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.
l. 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.
m. 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 2022.
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.
APEOT multi-currency
revolving credit facility
Property Reversions loan
£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 assets2
Derivative liabilities2
Cash movements
Non-cash movements
At 1 January
2022
£m
New
borrowings,
net of costs
£m
Repayments
£m
Changes in fair
value
£m
Movement in
foreign
exchange
£m
Other
movements1
£m
At 31
December
2022
£m
17
70
427
450
368
416
551
485
368
550
266
257
(48)
5
4,182
61
–
–
–
–
–
–
–
–
–
–
–
–
–
61
(17)
(15)
–
(450)
–
–
–
–
–
–
–
–
–
–
(482)
–
9
–
–
–
–
–
–
–
–
–
–
(177)
(5)
(173)
1
–
–
–
45
22
66
–
44
–
–
–
–
–
178
–
–
–
–
–
1
1
2
–
(7)
(7)
(1)
–
–
(11)
62
64
427
–
413
439
618
487
412
543
259
256
(225)
–
3,755
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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219
219
Financials continuedFinancials
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
Cash movements
At 1 January
2021
£m
New borrowings,
net of costs
£m
Repayments
£m
Changes in fair
value
£m
Non-cash movements
Movement in
foreign exchange
£m
Other
movements1
£m
At 31 December
2021
£m
APEOT 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 assets²
Derivative liabilities²
–
84
200
122
426
449
364
442
545
484
364
556
272
259
–
–
4,567
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17
–
(18)
(200)
(122)
–
–
–
–
–
–
–
–
–
–
–
–
(340)
–
4
–
–
–
–
–
–
–
–
–
–
–
–
(48)
5
(39)
–
–
–
–
–
–
4
(26)
5
–
4
–
–
–
–
–
(13)
–
–
–
–
1
1
–
–
1
1
–
(6)
(6)
(2)
–
–
(10)
17
70
–
–
427
450
368
416
551
485
368
550
266
257
(48)
5
4,182
1 Comprises amortisation under the effective interest method applied to borrowings held at amortised cost.
2 Cross currency swaps to hedge against adverse currency movements in respect of Group’s Euro and US Dollar denominated borrowings.
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/Chief Actuary 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.
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
In 2021, the Group largely completed its transition from LIBOR to the replacement Risk Free Rates. The programme completed a systematic process to
identify and address balance sheet exposures with LIBOR dependencies. All derivative exposures and the majority of non-derivative asset exposures were
successfully transitioned over the course of the programme in 2021. Insurance contract liabilities and related items transitioned to the SONIA Solvency II
curve published by the PRA with an adjustment of 36bps. The remaining residual exposures as at 31 December 2021 related 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 have largely been transitioned during the year and at 31 December 2022 a small amount of indirect illiquid credit exposure remains.
This 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.
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 the impact in the Group’s pension schemes, including any impact arising as a result of the elimination of intra-group
buy-in transactions between the life companies and the Group’s pension schemes. It also does not include 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.
Climate Risk
The Group is exposed to financial risks (in particular market and credit risk) related to the transition to a low carbon economy, and the physical impacts
resulting from climate change which could result in long-term market, credit, insurance, reputation, proposition and operational implications. As such,
this risk is treated as a cross-cutting risk in the Group’s Risk Universe.
Identification of climate related risks has been embedded into the Group’s Risk Management Framework. Significant progress has been made in recent
years in developing a risk metrics and targets framework, and establishing appropriate governance and risk management processes. The Group has
adopted a proactive approach towards combatting climate change, with key net-zero targets. Further details on these targets and on managing the
related climate change risks are provided in the Climate Report and Task Force for Climate-related Financial Disclosures (‘TCFD’) within the Annual
Report and Accounts.
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 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.
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 supported with-profit funds
(where risks and rewards fall wholly to shareholders), non-profit funds and shareholders’ funds.
The Group holds £15,814 million (2021: £21,668 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 £796 million (2021: £1,036 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 £23 million (2021: £28 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 £36 million (2021: £37 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 (including asset class, industry and geography 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.
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221
221
Financials continuedFinancials
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
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.
2022
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
–
–
6,834
AA
£m
4
1,500
26,095
A
£m
–
1,060
19,045
BBB
£m
–
28
16,238
BB and
below
£m
–
–
1,929
Non-rated
£m
204
1,370
7,182
Unit-
linked
£m
71
113
7,387
Total
£m
279
4,071
84,710
Less
amounts
classified
as held for
sale
£m
–
(3)
(1,594)
Total
£m
279
4,068
83,116
–
4,920
1,148
–
–
74
–
6,142
–
6,142
–
339
7,173
–
1,160
33,679
–
5,749
27,002
–
63
16,329
–
–
1,929
–
5
8,835
9,088
1,556
18,215
9,088
8,872
113,162
(25)
(33)
(1,655)
9,063
8,839
111,507
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. £149 million of
AAA, £1,083 million of AA, £1,742 million of A, £2,766 million of BBB and £367 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 £3,934 million (further details are set out in note E2.3) and non-rated bonds.
2021
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
–
–
9,097
AA
£m
6
965
40,142
A
£m
–
1,737
22,782
BBB
£m
–
388
16,290
BB and
below
£m
–
–
3,292
Non-rated
£m
414
1,343
6,788
Unit-linked
£m
55
138
8,599
Total
£m
475
4,571
106,990
Less
amounts
classified
as held for
sale
£m
–
(4)
(2,229)
Total
£m
475
4,567
104,761
–
4,963
3,539
37
–
48
–
8,587
–
8,587
–
382
9,479
–
1,686
47,762
–
5,161
33,219
–
181
16,896
–
–
3,292
–
3
8,596
10,009
1,775
20,576
10,009
9,188
139,820
(27)
(76)
(2,336)
9,982
9,112
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.
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.
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, a Rating Committee and a Portfolio Credit Committee to monitor and perform oversight 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 do not have a public rating from an external credit assessment institution. Instead
internal credit ratings are used by the Group which are provided by fund managers or for certain assets (in particular, equity release mortgages and illiquid
assets) are determined by the Life Companies. The Committees review the policies, processes and practices to ensure the appropriateness of the internal
ratings, and to ensure they are in line with regulatory requirements.
Throughout 2022, the Group has taken 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 307 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 the continuing conflict in Russia-Ukraine, this includes the shareholders’ credit
exposure to Russia and Ukraine. The Group shareholder exposure to Russia and Ukraine was £nil at 31 December 2022 (31 December 2021: £23 million).
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 is monitored by the Group Counterparty Credit Risk Framework
contained within the Group Credit Risk Policy. It is further provided for 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 (minimum rating requirement of A-). The Group restricts concentration with individual external reinsurers by specifying limits
on ceding and minimum conditions for acceptance and retention of reinsurers. In recent years the Group has made progress in increasing the number
of reinsurers it transacts with, however, an element of concentration remains due to the nature of the reinsurance market and the restricted range of
reinsurers available. The Group manages its exposure to reinsurance credit risk through the operation of a credit policy, collateralisation, and regular
monitoring of exposures at the Reinsurance Management Committee.
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.
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223
223
Financials continuedFinancials
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
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 using a number of controls and techniques including:
• Defined lists of permitted securities and/or application of investment constraints and portfolio limits;
• Clearly defined investment benchmarks for policyholder and shareholder funds;
• Stochastic and deterministic asset/liability modelling;
• Active use of derivatives to improve the matching characteristics of assets and liabilities and to reduce the risk exposure of a portfolio; and
• Setting risk limits for main market risks and managing exposures against these appetites.
All operations comply with regulatory requirements relating to the taking of market risk.
Assets in the shareholder funds are managed against benchmarks that ensure they are diversified across a range of asset classes, instruments and
geographies that are appropriate to the liabilities of the funds or are held to match the cash flows anticipated to arise in the business. A combination
of limits by name of issuer, sector, geographical region and credit rating are used where relevant to reduce concentration risk among the assets held.
The assets of the participating business are principally managed to support the liabilities of the participating business and are appropriately diversified
by both asset class and geography, considering:
• The economic liability and how this varies with market conditions;
• The need to invest assets supporting participating business in a manner consistent with the participating policyholders’ reasonable expectations and
Principles and Practices of Financial Management (‘PPFM’); and
• The need to ensure that regulatory and capital requirements are met.
In practice, an element of market risk arises as a consequence of the need to balance these considerations, for example, in certain instances participating
policyholders may expect that equity market risk will be taken on their behalf, and derivative instruments may be used to manage these risks.
Markets remain volatile particularly given geopolitical tensions, increased inflation, and action by central banks to reduce inflationary pressures on
economies whilst balancing the need to aid post pandemic recovery. This is noted in the Strategic Report principal risk section.
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 the result of time decay or changes to interest rate volatility are not captured in the sensitivity analysis.
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.
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 £25 million (2021: £364 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 £128 million (2021: £415 million).
Equity and property risk
The Group is exposed to the risk of reductions in the valuation of equities (or changes in the volatility) or property investments which could result in
reductions in asset values and losses for policyholders or shareholders. In this context, equity assets should be taken to include shares, equity derivatives,
equity collectives and unlisted equities. Property assets include direct property investment, shares in property companies, property collectives and
structured property assets.
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.
The shareholders’ exposure to equity risk 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 equity prices.
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 £324 million (2021: £294 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 £269 million (2021: £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 £11 million (2021: £6 million).
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Financials continuedFinancials
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
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 £10 million (2021: £4 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 and some historic business written
in the Republic of Ireland, 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 2021, 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.
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.
Tax risk
Tax risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, due to an unforeseen tax cost, or by the
inappropriate reporting and disclosure of information in relation to taxation. 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
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 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 organic and inorganic growth
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.
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Financials continuedFinancials
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
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:
2022
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
2021
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 year or less
or on
demand
£m
12,898
152,157
268
377
757
2,978
1,706
95
1,964
11
549
965
1 year or less
or on
demand
£m
14,319
172,093
664
419
259
3,568
3,442
80
1,864
11
548
721
1–5 years
£m
29,818
–
1,326
687
794
–
–
20
–
37
42
–
Greater than
5 years
£m
59,300
–
2,357
1,626
9,335
–
–
130
–
95
12
–
No fixed term
£m
–
–
64
–
–
–
–
–
–
–
–
–
1–5 years
£m
36,061
–
1,380
834
517
–
–
13
–
59
59
–
Greater than
5 years
£m
78,484
–
2,772
2,355
583
–
–
50
–
72
7
–
No fixed term
£m
–
–
70
–
–
–
–
–
–
–
7
–
Less amounts
classified as
held for sale
(see note
A6.1)
£m
–
(8,312)
–
–
(4)
–
–
–
–
–
(37)
–
Less amounts
classified as
held for sale
(see note
A6.1)
£m
–
(11,676)
–
–
(4)
–
–
–
–
–
(54)
–
Total
£m
102,016
152,157
4,015
2,690
10,886
2,978
1,706
245
1,964
143
603
965
Total
£m
128,864
172,093
4,886
3,608
1,359
3,568
3,442
143
1,864
142
621
721
Total
£m
102,016
143,845
4,015
2,690
10,882
2,978
1,706
245
1,964
143
566
965
Total
£m
128,864
160,417
4,886
3,608
1,355
3,568
3,442
143
1,864
142
567
721
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.
The Group has a set of established policies and processes to manage its exposure to liquidity risk, including impacts arising from the economic
environment, business developments and funding changes. Where liquidity risk is heightened, such as during the market volatility following the UK mini-
budget, triggers are in place to enhance the frequency of liquidity monitoring and to implement available contingency actions to ensure sufficient liquidity
is maintained.
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, mal-practice 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.
The Group also has a set of operational risk policies that set out the nature of the 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: Failings in the design and execution of the support and service interactions with customers leads to poor customer outcomes.
• 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 Phoenix Group customer treatment risk appetites and
regulatory requirements.
• Product and Propositions: Products/propositions are not designed and managed appropriates leading to poor customer outcomes.
• Sales and Distribution: Inappropriate (unclear, unfair or misleading) financial promotions, sales practices and/or distribution agreements resulting
in poor customer outcomes.
The Group’s Conduct Risk Appetite, sets the boundaries within which the Group expect customer outcomes to be managed. In addition, the Group
Conduct Strategy, which overarches our Risk Universe and all risk policies is designed to detect where our customers are at risk of poor outcome, minimise
conduct risks, and respond with timely and appropriate mitigating actions.
The Group also has a suite of customer polices which set out the key customer risks and control objectives in place to mitigate them. The customer risks
for the Group are regularly reported to management oversight committees.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
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.
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.
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.
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 of future trends.
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 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 in relation to closed 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’).
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
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. Further details of net income under arrangements with reinsurers are given in note F3.3.
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Financials continuedFinancials
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
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.
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.
Gross liabilities
2022
£m
Reinsurers’ share
2022
£m
Gross liabilities
2021
£m
Reinsurers’ share
2021
£m
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 consolidated income statement
Foreign exchange movements
At 31 December
2022
£m
1,801
(378)
(79)
1,344
2021
£m
1,768
(106)
139
1,801
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 £1,727 million (2021: £2,079 million).
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 £4,002 million (2021: £4,882 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 income under arrangements with reinsurers’ (see note F3.3). The amounts recognised as financial
assets and liabilities from cash collateral received at 31 December 2022 are set out below.
Life assurance business:
Insurance contracts
Investment contracts with DPF
77,499
24,517
102,016
6,142
–
6,142
99,169
29,695
128,864
Amounts due for settlement after 12 months
89,117
5,194
114,545
8,587
–
8,587
7,472
Financial assets
Financial liabilities
Reinsurance transactions
2022
£m
267
267
2021
£m
373
373
At 1 January
Premiums
Claims
Foreign exchange adjustments
Disposal of Ark Life
Other changes in liabilities1
At 31 December
Gross liabilities
2022
£m
128,864
7,094
(9,392)
797
–
(25,347)
102,016
Reinsurers’ share
2022
£m
8,587
1,727
(1,693)
5
–
(2,484)
6,142
Gross liabilities
2021
£m
133,907
7,455
(9,656)
(1,168)
(799)
(875)
128,864
Reinsurers’ share
2021
£m
9,542
2,079
(1,597)
(48)
(730)
(659)
8,587
F3.3 Net income 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 £2.3 billion as at 31 December 2022 (31 December 2021: £3.2 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 income under arrangements with reinsurers.
1 Other changes in liabilities principally comprise changes in economic and non-economic assumptions and experience.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
continued
F. Insurance contracts, investment contracts with DPF and reinsurance continued
F3. Reinsurance continued
F3.3 Net income under arrangements with reinsurers continued
Interest payable on deposits from reinsurers
Premium adjustments
Net income under arrangements with reinsurers
2022
£m
(46)
473
427
2021
£m
(11)
33
22
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
higher than expected death claims on assurance products or lower than expected improvements in mortality;
Longevity
lower than expected number of deaths experienced on annuity products or greater than expected improvements in annuitant mortality;
Morbidity/Disability
higher than expected number of inceptions on critical illness or income protection policies and lower than expected
termination rates on income protection policies;
Expenses
unexpected timing or value of expenses incurred;
Persistency
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 pre-defined 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, where little weight has been given to experience for most
products over the pandemic given its anomalous nature, in addition to the implications arising from the cost of living crisis, as outlined in page 66 –
Principal Risks and Uncertainties section of the Annual Report and Accounts. Demographic experience and the latest views on future trends continue to
be considered in regular assumption reviews although, for most products, experience over the COVID-19 pandemic has still been given little weight given
its anomalous nature.
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 £60 million (2021: £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 £61 million (2021: £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 296 million (2021: £517 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 £290 million (2021: £530 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 £47 million (2021: £27 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 £48 million (2021: £27 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 (2021: 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.
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235
235
Financials continuedFinancials
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
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 £905 million (2021: £1,968 million) and £59 million (2021: £111 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 £197 million (2021: £349 million) and £2 million (2021: £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’.
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
Change in other assumptions
(Decrease)/increase in
insurance liabilities
2022
£m
(135)
9
5
200
(376)
(Decrease)/increase in
insurance liabilities
2021
£m
(272)
(12)
(7)
275
–
2022:
The £135 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 2021 projection tables.
The £9 million and £5 million negative impact of changes in persistency and mortality assumptions respectively reflects the results of the latest experience
investigations.
The £200 million negative impact from changes in expense assumptions includes an increase in reserves of £77 million in respect of the anticipated costs
associated with the implementation of IFRS 17 and £102 million in respect of the delivery of the Group Target Operating Model for IT and Operations.
To the extent that the recognition criteria have been met, the Group has also recognised accounting provisions in respect of the anticipated costs of
restructuring activity (see note G7 for further details).
Other assumptions includes a £329 million positive impact of harmonising the calibration of prudential margins included within liabilities under insurance
contracts in the ReAssure life companies with the rest of the Group and a £47 million positive impact from updating the married rates assumption in
respect of reversionary annuities.
2021:
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.
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.
2022
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
Gross1
Insurance
contracts
£m
Investment
contracts with
DPF
£m
Reinsurance
Insurance
contracts
£m
Investment
contracts with
DPF
£m
5,627
1,445
4,968
10,438
22,478
261
7,687
1,681
9,629
1,020
310
2,851
27,279
1,018
13,096
(182)
77,499
36
289
–
22,337
22,662
–
930
–
930
413
–
2,881
–
3,294
1
–
9
10
(1)
159
–
–
–
–
921
5
24,517
–
156
2,137
439
28
(81)
6,142
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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237
237
1 £11,753 million (2021: £9,864 million) of liabilities are subject to longevity swap arrangements.
Financials continuedFinancials
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
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
Gross
Reinsurance
Insurance
contracts
£m
Investment
contracts with
DPF
£m
Insurance
contracts
£m
Investment
contracts with
DPF
£m
8,746
1,753
6,506
13,344
30,349
348
9,364
2,166
11,878
1,245
555
983
37,329
2,076
14,891
(137)
99,169
53
341
–
27,078
27,472
–
1,137
–
1,137
728
–
3,787
–
4,515
1
–
6
7
(1)
192
–
–
–
–
1,084
3
29,695
–
158
2,885
876
22
(68)
8,587
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
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.
Whilst there has been an increase in interest rates recently, long-term rates remain relatively low compared to historical levels 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.
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.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes
G1. Pension schemes
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 unfunded unapproved retirement benefit scheme (‘ReAssure Private Retirement Trust’):
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.
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 (deficit)/surplus
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 (liability)/asset
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
2022
£m
46
(1,501)
(1,455)
–
(1,455)
205
1,576
326
23
(1,079)
(1,056)
1,246
190
(5)
–
(3)
(8)
22
(8)
14
2021
£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
ReAssure Private Retirement Trust
Net pension scheme liability
(1)
(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 in relation to both these 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. .
Movements in these financial assets are reflected in the consolidated income statement within Net investment income, however as noted in the accounting policy, the movement in the net
pension scheme liability (as shown in notes G1.1 and G1.2) is primarily reflected in other comprehensive income.
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Financials continuedFinancials
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 the Group’s pension schemes is set out below.
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 borne by the
scheme administrators when the refund is made.
Pension Scheme Commitment Agreement and buy-in transactions
On 17 November 2020, the Pearl Scheme entered into a Commitment Agreement with PGH2 to complete a series of buy-ins. 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 and the final buy-in transaction was completed in November 2022. Risks, including longevity improvement risk,
were transferred to PLL effective from 28 May 2021 and 31 August 2021 and 30 September 2022 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.
• In November 2022, £556 million of plan assets were transferred to PLL in satisfaction of the premium of £560 million and was net of a £4 million
payment by PLL to the Scheme in respect of members’ benefits for October and November 2022.
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 2022 was £1,501 million (2021: £1,680 million) which
includes an amount owed by PLL of £2 million (2021: £12 million).
The Commitment agreement contained provisions under which payments by PGH2 to the Scheme were required in the event that the Group did not
meet the minimum buy-in completion schedule the details of which are as follows:
• Gilts Deficit Recovery Contributions: Contributions calculated as amounts required to reach full funding on a gilts-basis by 30 June 2027. Following
the completion of the recent buy-in transactions, the Group has no further obligation to pay these contributions; and
• Contingent Contributions: These represented 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 now £nil (2021: £50 million).
The new agreement also introduced a new form of security provided by PGH2 to the trustee. The share charges over certain Group entities were replaced by a new
surety bond arrangement, whereby two external third-party insurers, each provided £100 million of cover payable to the Scheme following certain trigger events.
This cover provided by the surety bond guarantee was fully released upon completion of the final buy-in transaction in November 2022.
The valuation has been based on an assessment of the liabilities of the Pearl Scheme as at 31 December 2022, 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.
No contributions were paid to the Pearl Scheme in either the current or prior periods. PGH2 continues to meet the administrative and non-investment
running expenses of the Scheme as set out in the schedule of contributions.
A triennial funding valuation of the Pearl Scheme as at 30 June 2021 was completed in 2022 by a qualified actuary. This showed a surplus as at 30 June 2021
of £67 million, on the agreed technical provisions basis. 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 gilt-based 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.
During the year, the Company reached an agreement for the removal of a trustee discretion to pay some pension increases in excess of the 5% cap.
The trustee has agreed to give up this discretion in exchange for a single 1.6% uplift for current pensions in payment effective from 1 April 2022 and a 1.3%
future increase to eligible benefits of both pension and deferred members. The financial impact of the 1.6% uplift has been to recognise an increase in the
defined benefit obligation of £15 million and a past service cost in the consolidated income statement.
Reimbursement right asset in respect of Reinsurance arrangement
In March 2022, PLL entered into a quota share reinsurance arrangement with an external insurer to reinsure a further 27% of the risks transferred to PLL
as part of the third buy-in transaction with the Pearl Scheme. A total of approximately 91% of these liabilities have now been reinsured. A premium of
£104 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. The value of the
reimbursement right asset amounted to £205 million (31 December 2021: £212 million).
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Financials continuedFinancials
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
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
807
Provision for
tax on the
economic
surplus available
as a refund
£m
(92)
Defined
benefit
obligation
£m
(2,224)
Pension
Scheme
Liability
£m
(1,509)
Reimbursement
right
£m
212
2022
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
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
16
–
16
(208)
–
–
–
–
(208)
89
(98)
(560)
(52)
(15)
(67)
–
3
805
(116)
–
692
–
98
–
(2)
–
(2)
–
–
–
–
94
94
–
–
–
–
At 31 December
46
(1,501)
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
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
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
Fair value of
scheme
assets
£m
2,315
Provision for
tax on the
economic
surplus available
as a refund
£m
(185)
Defined
benefit
obligation
£m
(2,384)
24
24
27
–
–
–
–
27
46
(108)
(1,497)
–
807
(33)
(33)
–
22
89
(26)
-
85
–
108
–
–
(2)
(2)
–
–
–
–
95
95
–
–
–
–
(2,224)
(92)
(38)
(15)
(53)
(208)
3
805
(116)
94
578
89
–
(560)
4
–
4
(101)
–
–
–
–
(101)
–
(14)
–
104
(1,455)
205
Pension
Scheme
Liability
£m
(254)
Reimbursement
right asset
£m
–
(11)
(11)
27
22
89
(26)
95
207
46
–
(1,497)
–
(1,509)
–
–
(49)
–
–
–
–
(49)
–
–
–
261
212
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
Hedging portfolio
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
2022
2021
Of which not
quoted in an
active market
£m
–
–
5
4
3
–
–
12
1,501
1,513
Total
£m
–
–
5
4
3
34
–
46
1,501
1,547
Of which not
quoted in an
active market
£m
23
-
104
4
4
–
–
135
1,680
1,815
Total
£m
438
349
104
4
4
67
(159)
807
1,680
2,487
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme’s members as follows:
• Deferred scheme members: 40% (2021: 40%); and
• Pensioners: 60% (2021: 60%)
The weighted average duration of the defined benefit obligation at 31 December 2022 is 13.5 years (2021: 16 years).
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
2022
%
3.05
2.70
4.95
3.30
2.70
2021
%
3.20
2.70
2.00
3.30
2.70
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 2021 Core Projections (2021: From 1 January 2021 based on amended CMI 2020 Core Projections) and a long-term rate of improvement
of 1.5% (2021: 1.7%) per annum for males and 1.2% (2021: 1.2%) per annum for females. Under these assumptions, the average life expectancy from
retirement for a member currently aged 40 retiring at age 60 is 29.2 years and 30.5 years for male and female members respectively (2021: 29.8 years
and 30.6 years respectively).
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Financials continuedFinancials
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
Principal assumptions continued
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2021
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
1,501
Base
2,224
Discount rate
25bps
increase
(40)
25bps
decrease
42
RPI
25bps
increase
26
25bps
decrease
(25)
Life expectancy
1 year
increase
37
1 year
decrease
(37)
Discount rate
25bps
increase
(87)
25bps
decrease
93
RPI
25bps
increase
70
25bps
decrease
(68)
Life expectancy
1 year
increase
80
1 year
decrease
(80)
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.
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.
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 2022, 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 2021 was completed in 2022 by a qualified actuary and finalised in January 2023.
This showed a surplus as at 30 June 2021 of £2 million. The IFRS valuation cash flows reflect the latest 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 2022 is £1,079 million (2021: £1,618 million).
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2022
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
Included in other comprehensive income
Income received from insurance policies
Benefit payments
At 31 December
2021
At 1 January
Interest expense
Administrative expenses
Included in profit or loss
Remeasurements:
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
Fair value of scheme
assets
£m
31
Defined benefit
obligation
£m
(1,623)
1
(4)
(3)
(1)
–
–
–
(1)
72
(72)
27
(32)
–
(32)
–
5
531
(36)
500
–
72
(1,083)
Fair value of scheme
assets
£m
35
Defined benefit
obligation
£m
(1,754)
–
(4)
(4)
–
–
–
–
73
(73)
31
(25)
–
(25)
16
70
(3)
83
–
73
(1,623)
Total
£m
(1,592)
(31)
(4)
(35)
(1)
5
531
(36)
499
72
–
(1,056)
Total
£m
(1,719)
(25)
(4)
(29)
16
70
(3)
83
73
–
(1,592)
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Financials continuedFinancials
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
2022
2021
Of which not
quoted in an
active market
£m
–
–
1,079
1,079
Total
£m
27
27
1,079
1,106
Of which not
quoted in an
active market
£m
–
–
1,610
1,610
Total
£m
31
31
1,618
1,649
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme’s members as follows:
• Deferred scheme members: 36% (2021: 36%); and
• Pensioners: 64% (2021: 64%)
The weighted average duration of the defined benefit obligation at 31 December 2022 is 13.5 years (2021: 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
2022
%
3.30
2.70
4.95
3.30
2.70
2021
%
3.30
2.70
2.00
3.30
2.70
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 2021 are based on amended CMI 2021 Core Projections (2021: From 1 January 2021 based on amended CMI 2020 Core Projections) with
a long-term rate of improvement of 1.5% (2021: 1.7%) per annum for males and 1.2% (2021: 1.2%) per annum for females. Under these assumptions, the
average life expectancy from retirement for a member currently aged 40 retiring at age 62 is 27.7 years (2021: 28.0 years) and 29.1 years (2021: 28.9 years)
for male and female members respectively.
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2021
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
1,083
Base
1,623
Discount rate
25bps
increase
(31)
25bps
decrease
33
RPI
25bps
increase
23
25bps
decrease
(22)
Life expectancy
1 year
increase
30
1 year
decrease
(30)
Discount rate
25bps
increase
(62)
25bps
decrease
66
RPI
25bps
increase
54
25bps
decrease
(52)
Life expectancy
1 year
increase
60
1 year
decrease
(60)
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 2022 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 for PeLHL
to pay monthly contributions of £400,000 into the Scheme until 31 July 2025 to eliminate the funding shortfall.
A new schedule of contributions was agreed effective from November 2021, for PeLHL to pay the following amounts in respect of deficit contributions
in addition to the amounts payable under the recovery plan:
• fixed monthly contributions of £400,000 payable from 1 August 2025 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.
An additional liability of £3 million (2021: £7 million) has been recognised reflecting a charge on any refund of the resultant IAS 19 surplus that arises after
adjustment for discounted future contributions of £15 million (2021: £21 million) in accordance with the minimum funding requirement. A deferred tax asset
of £nil (2021: £4 million) 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.
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Financials continuedFinancials
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
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2022
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 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
2021
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Return on plan assets excluding amounts included in interest income
Experience Loss
Gain from changes in demographic assumptions
Loss 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
330
Provision for
tax on the
economic
surplus available
as a refund
£m
(4)
Defined
benefit
obligation
£m
(318)
Minimum
funding
requirement
obligation
£m
(7)
7
(2)
5
(123)
–
–
–
–
(123)
6
(12)
206
(6)
–
(6)
–
(9)
110
–
–
101
–
12
(211)
–
–
–
–
–
–
–
4
4
–
–
–
–
–
–
–
–
–
4
–
4
–
–
(3)
Fair value of
scheme
assets
£m
280
Defined
benefit
obligation
£m
(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
–
–
–
–
–
–
–
–
–
–
(4)
(4)
–
–
(4)
Minimum
funding
requirement
obligation
£m
–
–
–
–
–
–
–
–
–
(7)
–
(7)
–
–
(7)
Total
£m
1
1
(2)
(1)
(123)
(9)
110
4
4
(14)
6
–
(8)
Total
£m
(61)
(1)
(1)
(2)
11
(5)
6
15
(7)
(4)
16
48
–
1
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
2022
2021
Of which not
quoted in an
active market
£m
–
–
–
(15)
–
(15)
Total
£m
44
86
87
(15)
4
206
Of which not
quoted in an
active market
£m
–
–
–
1
–
1
Total
£m
139
68
118
1
4
330
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% (2021: 44%); and
• Pensioners: 56% (2021: 56%).
The weighted average duration of the defined benefit obligation at 31 December 2022 is 13.5 years (2021: 16 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
2022
%
3.05
2.70
4.95
3.30
2.70
2021
%
3.20
2.70
2.00
3.30
2.70
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 2021 are based on amended CMI 2021 Core Projections (2021: From 1 January 2021 based on amended
CMI 2020 Core Projections) and a long-term rate of improvement of 1.5% (2021: 1.7%) per annum for males and 1.2% (2021: 1.2%) per annum for females.
Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 65 is 24.8 years and 25.9 years for
male and female members respectively (2021: 24.9 years and 25.7 years respectively).
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Financials continuedFinancials
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
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2021
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
211
Base
318
Discount rate
25bps
increase
(7)
25bps
decrease
7
RPI
25bps
increase
4
25bps
decrease
(4)
Life expectancy
1 year
increase
7
1 year
decrease
(7)
Discount rate
25bps
increase
(12)
25bps
decrease
13
RPI
25bps
increase
8
25bps
decrease
(9)
Life expectancy
1 year
increase
12
1 year
decrease
(12)
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.
G1.4 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 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 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 are 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 £2 million (2021:£1 million) have been made during the year to cover these costs.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2022
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 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
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
Provision for
tax on the
economic
surplus available
as a refund
£m
(19)
Defined
benefit
obligation
£m
(438)
Fair value
of scheme
assets
£m
492
9
(1)
8
(203)
–
–
–
(203)
3
(12)
288
(9)
–
(9)
–
188
(19)
–
169
–
12
(266)
–
–
–
–
–
–
11
11
–
–
(8)
Provision for
tax on the
economic
surplus available
as a refund
£m
(5)
Defined
benefit
obligation
£m
(461)
Fair value
of scheme
assets
£m
477
6
(1)
5
19
–
–
–
–
19
1
(10)
492
(6)
-
(6)
–
1
20
(2)
–
19
–
10
(438)
–
–
–
–
–
–
–
(14)
(14)
–
–
(19)
Total
£m
35
–
(1)
(1)
(203)
188
(19)
11
(23)
3
–
14
Total
£m
11
–
(1)
(1)
19
1
20
(2)
(14)
24
1
–
35
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Financials continuedFinancials
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2021
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
266
Base
438
Discount rate
25bps
increase
(10)
25bps
decrease
11
RPI
25bps
increase
8
25bps
decrease
(8)
Life expectancy
1 year
increase
7
1 year
decrease
(7)
Discount rate
25bps
increase
(21)
25bps
decrease
23
RPI
25bps
increase
18
25bps
decrease
(17)
Life expectancy
1 year
increase
18
1 year
decrease
(17)
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.
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
Managed funds
Other quoted securities
Cash and cash equivalents
Pension scheme assets
2022
2021
Of which not
quoted in an
active market
£m
–
–
–
–
–
–
–
Total
£m
31
121
83
–
45
8
288
Of which not
quoted in an
active market
£m
–
–
–
–
–
–
–
Total
£m
62
151
173
60
43
3
492
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% (2021: 66%); and
• Pensioners: 34% (2021: 34%).
The weighted average duration of the defined benefit obligation at 31 December 2022 is 17 years (2021: 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
2022
%
3.05
2.70
3.70
4.95
3.30
2.70
2021
%
3.20
2.70
3.70
2.00
3.30
2.70
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% (2021: 102%) multiplier for males and a 95%
(2021: 95%) multiplier for females, with CMI 2019 projections in line with a 1.5% pa long term trend up to and including 31 December 2020. Future
longevity improvements from 1 January 2021 onwards are in line with amended CMI 2021 Core Projections (2021: From 1 January 2021 in line with
amended CMI 2020 Core Projections) with a long-term trend of 1.5% pa (2021: 1.7%) for males and 1.2% (2021: 1.2%) for females.
Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 60 is 30.0 years and 31.6 years
for male and female members respectively (2021: 30.1 years and 31.4 years for male and female members respectively).
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
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.
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.
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.
2022
Cost or valuation at 1 January and 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
Impairment charge for the year
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
2021
Cost or valuation
At 1 January
Acquisition of ReAssure businesses
Disposal of Ark Life
Termination of Client Services 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 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
Goodwill
£m
57
Acquired in-
force business
£m
7,007
Customer
relationships
£m
297
Other intangibles
Brands and
other
£m
131
Total other
intangibles
£m
428
(47)
–
–
(47)
10
–
10
10
(2,630)
(488)
(17)
(3,135)
3,872
(37)
3,835
3,382
(183)
(15)
–
(198)
99
–
99
84
(13)
(6)
–
(19)
112
–
112
(196)
(21)
–
(217)
211
–
211
106
190
3,582
Goodwill
£m
Acquired in-
force business
£m
Customer
relationships
£m
Other intangibles
Brands and
other
£m
Total other
intangibles
£m
57
–
–
–
57
–
–
(47)
–
–
(47)
10
–
10
10
7,028
–
(21)
–
7,007
(2,015)
(537)
(99)
21
–
(2,630)
4,377
(54)
4,323
3,834
297
–
–
–
297
(168)
(15)
–
–
–
(183)
114
–
114
99
56
111
–
(36)
131
(14)
(5)
–
–
6
(13)
118
–
118
112
353
111
–
(36)
428
(182)
(20)
–
–
6
(196)
232
–
232
211
4,055
Total
£m
7,492
(2,873)
(509)
(17)
(3,399)
4,093
(37)
4,056
Total
£m
7,438
111
(21)
(36)
7,492
(2,197)
(557)
(146)
21
6
(2,873)
4,619
(54)
4,565
1 An impairment charge of £59 million in 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.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G2. Intangible assets continued
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 carrying value of £10 million (2021: £10 million) was 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 operating plan, and for the period 2028 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 14% (2021: 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.
Goodwill with a cost of £47 million attributed to the Management Services segment was fully impaired during the year ended 31 December 2021.
The Management Services segment generated 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 was anticipated that
the Management Services segment would generate short-term losses in the period until service agreements could 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 of the recoverable amount
of the goodwill to be £nil as at 31 December 2021 and consequently a £47 million impairment charge was recognised.
Value in use was determined as the present value of certain future cash flows associated with this business. The cash flows used in this calculation were
valued using a risk adjusted discount rate of 9.5% and were consistent with those adopted by management in the Group's three year operating plan and,
for the period 2027 and beyond, reflected 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.
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 A6.1 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 in 2021 on classification of the AVIF balance as held for sale. This charge was included within the ‘gain on completion of abrdn plc transaction’
in the consolidated income statement. A further impairment of £17 million has been recognised during the year (2021: £8 million). 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. In 2021, an impairment charge of £18 million was 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.
In 2021, updates to the reserving methodology in respect of certain blocks of European insurance contracts 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. 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 was recognised. The resultant net
carrying value of this component of the Standard Life Assurance AVIF at 31 December 2021 was £49 million.
G2.3 Customer relationships
The customer relationships intangible at 31 December 2022 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 2022 of 6.9 years (2021: 7.9 years).
G2.4 Brands and other intangibles
An intangible asset is recognised at cost on acquisition of the AXA Wealth and 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 and was recognised at a cost of £20 million. 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. The carrying value of the AXA Wealth brand as at 31 December 2022 is £8 million.
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. The Standard Life brand was initially recognised at a value of £111 million which represented 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 2022 is £104 million.
As part of the transaction with abrdn plc, the CSPA was significantly amended prior to being dissolved. As a consequence, the CSPA intangible included
within ‘other intangibles’ was derecognised. At that time, its carrying value was £30 million and this was included in the calculation of the ‘gain on
completion of abrdn plc transaction’ recognised in the consolidated income statement in the year ended 31 December 2021.
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 other
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
(2021: 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.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G3. Property, plant and equipment continued
2022
Cost or valuation
At 1 January
Additions
Revaluation losses
Disposals
At 31 December
Depreciation
At 1 January
Depreciation
Disposals
At 31 December
Carrying amount at 31 December
2021
Cost or valuation
At 1 January
Additions
Remeasurement of Right-of-use assets
Disposals
At 31 December
Depreciation
At 1 January
Depreciation
Disposals
At 31 December
Carrying amount at 31 December
Owner-occupied
properties
£m
Right-of-use assets
– property
£m
Right-of-use assets
– equipment
£m
Equipment
£m
Total
£m
29
9
(6)
–
32
–
–
–
–
32
94
3
–
(1)
96
(24)
(9)
1
(32)
64
2
–
–
–
2
(1)
–
–
(1)
1
59
8
–
(2)
65
(29)
(10)
2
(37)
28
184
20
(6)
(3)
195
(54)
(19)
3
(70)
125
Owner-occupied
properties
£m
Right-of-use assets
– property
£m
Right-of-use assets
– equipment
£m
Equipment
£m
Total
£m
33
1
–
(5)
29
–
–
–
–
29
78
22
3
(9)
94
(23)
(9)
8
(24)
70
2
–
–
–
2
–
(1)
–
(1)
1
54
12
–
(7)
59
(25)
(8)
4
(29)
30
167
35
3
(21)
184
(48)
(18)
12
(54)
130
Owner-occupied properties have been valued by accredited independent valuers at 31 December 2022 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
£32 million (2021: £29 million) has been categorised as Level 3 based on the non-observable inputs to the valuation technique used. Unrealised loss for
the current year is £6 million (2021: £nil).
G3. Property, plant and equipment
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).
G4. Investment property
Investment property, including right-of-use asset, 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
Additions
Improvements
Disposals
Remeasurement of right-of-use asset
Movement in foreign exchange
(Losses)/gains 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 (losses)/gains on properties held at end of year
2022
£m
8,592
104
27
(1,141)
2
12
(1,363)
6,233
(2,506)
3,727
(1,582)
2021
£m
7,128
819
22
(550)
(1)
(22)
1,196
8,592
(3,309)
5,283
529
As at 31 December 2022, a property portfolio including amounts classified held for sale of £6,070 million (2021: £8,412 million) is held by the life
companies in a mix of commercial sectors, spread geographically throughout the UK and Europe.
Investment properties also includes £62 million (2021: £73 million) of property reversions arising from sales of the NPI Extra Income Plan (see note E5 for
further details) and £80 million (2021: £86 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 2022 was £21 million (2021: £21 million). The remeasurement gives rise to an increase of
£2 million (2021: reduction of £1 million). There were £2 million additions (2021: £4 million) and £4 million disposals (2021: £nil) of ground rent right-of-use
assets during the period.
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% (2021: 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.
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.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G4. Investment property continued
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% (2021: 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
Commercial Investment Property
Valuation techniques
RICS valuation
Significant non-observable inputs
Expected income per sq. ft.
Estimated rental value per hotel room
Estimated rental value per parking space
Capitalisation rate
Weighted average
2022
£22.41
£7,043
£1,115
5.01%
Weighted average
2021
£21.36
£8,534
£1,097
4.65%
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 £27 million (2021: £41 million). The direct operating expenses arising from investment property that did not generate
rental income during the year amounted to £5 million (2021: £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
G5. Other receivables
2022
£m
356
1,131
3,345
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
2022
£m
312
3,698
145
133
323
4,611
2021
£m
323
1,032
3,128
2021
£m
249
958
177
108
313
1,805
Amount recoverable after 12 months
122
100
G6. Cash and cash equivalents
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
At 31 December
2022
£m
2,716
6,156
8,872
(33)
8,839
2021
£m
5,246
3,942
9,188
(76)
9,112
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 £8,597 million (2021: £8,707 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.
Known
incidents
£m
46
25
(8)
(15)
Input VAT
recovery
provision
£m
17
–
–
–
Operational
tax provision
£m
12
–
–
–
Restructuring provisions
Transition and
Transformation
provision
£m
92
33
(28)
–
Transfer of
policy
administration
provision
£m
35
13
(15)
–
ReAssure
provision
£m
2
–
(2)
–
Other1
£m
14
11
(13)
(1)
Total1
£m
235
83
(66)
(18)
48
17
12
97
33
–
11
234
Leasehold
properties
£m
8
1
–
–
9
Staff
related
£m
9
–
–
(2)
7
2022
At 1 January
Additions in the year
Utilised during the year
Released during the year
At 31 December
1 Other and total provisions excludes amounts classified as held for sale as at 31 December 2022 of £nil (2021: £2 million).
Leasehold properties
The leasehold properties provision includes a £7 million (2021: £7 million) dilapidations provision in respect of obligations under operating leases and
£2 million (2021: £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 £4 million (2021: £5 million), and private medical and other insurance costs for former
employees of £3 million (2021: £4 million).
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263
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G7. Provisions continued
Known incidents
The known incidents provision was created for historical data quality, 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 2021, a £15 million provision was recognised in relation to errors in final encashment calculations for With Profits Trustee Investment Plans. During
2022, this provision was increased to £29 million following a review of the calculations which have now been finalised and agreed. An £11 million provision
was also recognised in April 2021 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. During 2022, this provision reduced to £7 million following the release of £4 million after further
investigation deemed that one population of customers were no longer impacted. These provisions will be utilised within 2 to 5 years.
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, £3 million (2021: £2 million),
of the remaining £9 million provision was utilised and a further £4 million (2021: £1 million) was released. It is expected that the remaining balance of
£2 million (2021: £9 million) will be fully utilised within one year.
The remaining provisions of £10 million as at 31 December 2022 (2021: £10 million) are expected to be utilised within one to five years. As at 31 December 2022,
there are no significant uncertainties which could give rise to a material change to the value of the provisions held for current known incidents.
Input VAT recovery provision
The provision of £17 million (2021: £17 million) reflects the potential outcome of on-going 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 Standard Life Assets & Employee Services Limited (‘SLAESL’) to
be fair and reasonable, the revised PESM remains to be agreed and HMRC may take a different view. The current provision reflects the Group’s maximum
exposure as at the reporting date, and was increased by £nil million (2021: £2 million) in the year. It is currently expected that the provision will be utilised
within one to two years.
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 2022 of £12 million (2021: £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. There was an increase in costs during 2022 following on from a strategic
decision to re-phase the programme. 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, the provision was increased by £33 million (2021: £nil) and a further £28 million (2021: £17 million) was utilised. The remaining £97 million
(2021: £92 million) is expected to be utilised within one to three 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
£13 million (2021: £9 million) and a further £15 million (2021: £9 million) was utilised. The remaining provision of £33 million (2021: £35 million) is expected to
be utilised within two years.
ReAssure restructuring provision
During 2020 a £7 million restructuring provision was established in respect of ReAssure Life Limited (‘RLL’) to cover severance costs. The remaining
provision of £2 million was fully utilised during the year.
Other provisions
Other provisions includes £4 million (2021: £4 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 £7 million (2021: £10 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 the 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 assets
Deferred tax liabilities
2022
£m
519
(34)
2021
£m
419
(19)
158
(660)
–
(1,399)
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G8. Tax assets and liabilities continued
Movement in deferred tax liabilities
2022
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
Accelerated capital allowances
Intangibles
Acquired in-force business
Customer relationships
Unrealised gains
IFRS transitional adjustments
Other
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
Recognised
in
consolidated
income
statement
£m
81
(8)
315
(10)
391
5
1
(5)
68
4
333
5
(4)
1,176
Recognised
in other
comprehensive
income
£m
–
–
–
–
(287)
4
–
–
–
–
1
–
–
(282)
1 January
£m
109
32
57
135
(255)
–
16
35
(878)
(57)
(593)
(5)
5
(1,399)
Recognised
in consolidated
income
statement
£m
80
(4)
15
5
13
(16)
8
(2)
(90)
(24)
(230)
5
–
(240)
Recognised
in other
comprehensive
income
£m
–
–
–
–
(140)
3
–
–
–
–
–
–
–
(137)
1 January
£m
30
36
42
129
(128)
13
8
39
(798)
(33)
(365)
(10)
1
(1,036)
Other
movements
£m
8
–
(1)
(2)
–
–
–
2
–
–
(2)
–
1
6
Less amounts
classified as
held for sale
£m
–
–
–
–
–
–
–
–
(3)
–
–
–
–
(3)
31 December
£m
198
24
371
123
(151)
9
17
32
(813)
(53)
(261)
–
2
(502)
Other
movements
£m
(1)
–
–
1
–
–
–
(2)
–
–
2
-
4
4
Less amounts
classified as
held for sale
£m
–
–
–
–
–
–
–
–
10
–
–
–
–
10
31 December
£m
109
32
57
135
(255)
-
16
35
(878)
(57)
(593)
(5)
5
(1,399)
The standard rate of UK Corporation tax for the year ended 31 December 2022 is 19% (year ended 31 December 2021: 19%).
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
Other
1 These can only be recognised against future capital gains and have no expiry date.
2022
£m
73
112
11
40
6
2021
£m
55
9
9
29
–
The Group also has £456 million (2021: £109 million) of BLAGAB (life business) trading losses carried forward as at 31 December 2022 across
ReAssure Limited, Phoenix Life Limited and Phoenix Life Assurance Limited. £291 million of gross losses are projected to be utilised within these entities,
however no value has been attributed to these deferred tax assets given the interaction with other deductible temporary differences (2021: £109 million
of gross losses were projected to be utilised and deferred tax assets of £5 million were recognised). Deferred tax assets have not been recognised in
respect of the remaining £165 million (2021: £nil) losses due to the uncertainty of future BLAGAB trading profits arising against which the losses could
be offset (at entity level).
Deferred tax assets valued at £7 million have been recognised in respect of £156 million (2021: £nil) arising from the interaction with other deductible
timing differences on consolidation.
There is a technical matter which is currently being discussed with HMRC in relation to the L&G insurance business transfer to ReAssure Limited.
These discussions are not sufficiently progressed at this stage for recognition of any potential tax benefit arising.
A 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) was resolved in the period in favour of the Group. The 2021 current tax liability included an accrual for the total tax under dispute
on the basis that there was sufficient risk that the tax treatment of the Group would not then be accepted. In 2022 this tax liability was released.
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
discussing the claims with HMRC during the course of 2022, 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 2022.
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 2022, 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.
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
2022
£m
1,964
2021
£m
1,864
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
G. Other statement of consolidated financial position notes continued
G10. Lease liabilities
H. Interests in subsidiaries and associates
H1. Subsidiaries
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
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 twelve months
Amount due after twelve months
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
At 31 December
Amount due for settlement after 12 months
2022
£m
99
6
(4)
3
(14)
2
92
11
81
2022
£m
498
105
603
(37)
566
35
2021
£m
84
27
(1)
3
(16)
2
99
10
89
2021
£m
498
123
621
(54)
567
26
Deferred income includes consideration deferred as a result of the abrdn transaction pending the Part VII transfer (including amounts offset as a result of
the profit share).
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
Other payables
Amount due for settlement after 12 months
2022
£m
513
53
48
351
965
–
2021
£m
228
73
77
343
721
–
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).
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.
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H1. Subsidiaries continued
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 2022, PeLHL held £9 million (2021: £11 million) within debt securities
and £18 million (2021: £14 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 2022, RML held £40 million (2021: £57 million) within debt
securities and £nil (2021: £1 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.
H2. Associates: investment in UK Commercial Property REIT (‘UKCPR’)
UKCPR 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 UKCPR 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 UKCPR is limited to the impact of those movements on the shareholder share of distributed profits of the relevant fund.
As at 31 December 2022, the Group held 44.6% (2021: 44.5%) of the issued share capital of UKCPR and the value of this investment, measured at fair value
and included within financial assets, was £329 million (2021: £431 million). Management has concluded that the Group did not control UKCPR 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 UKCPR.
Summary consolidated financial information (at 100%) for UKCPR group is shown below:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
(Loss)/profit for the year after tax
H3. Structured entities
2022
£m
1,276
83
(291)
(32)
1,036
71
(222)
2021
£m
1,508
90
(248)
(25)
1,325
58
236
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 Employee Benefit Trust (‘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.
H3.1 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 £13 million (2021: £16 million).
As at the reporting date, the Group has no intention to provide financial or other support to any other consolidated structured entity.
H3.2 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 securities
2022
Carrying value of
financial assets
£m
968
75,389
8,062
84,419
2021
Carrying value of
financial assets
£m
871
85,995
10,991
97,857
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.
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271
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H4. 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)
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)
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)1
PGMS (Ireland) Limited (management services company)
ReAssure UK Services Limited (management services company)
PA (GI) Limited (non-trading company)
103 Wardour Street Retail Investment Company Limited (investment company)
3 St Andrew Square Apartments Limited (property management company)
28 Riberia de Loira SL
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)
Axial Fundamental Strategies (US Investments) LLC (investment company)
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)
Registered address
of incorporated
entities
If unincorporated,
address of
principal place of
business
Type of investment
(including class of
shares held)
Wythall2
Wythall2
Edinburgh3
Ordinary Shares
Ordinary Shares
Ordinary Shares
% of shares/
units held
100.00%
100.00%
100.00%
Dublin4
Ordinary Shares
100.00%
Edinburgh3
Telford5
Telford5
Wythall2
Wythall2
Edinburgh3
Telford5
Dublin6
Telford5
Wythall2
Telford5
Edinburgh7
Madrid64
Wythall2
Wythall2
Wythall2
Glasgow8
Edinburgh3
Delaware9
Wythall2
Telford5
Wythall2
Wythall2
Wythall2
Wythall2
Delaware10
Wythall2
Telford5
Telford5
Telford5
Telford5
Telford5
London11
Telford5
London11
Telford5
London11
Jersey12
Wythall2
Limited by
Guarantee
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
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
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%
80.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
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
NP Life Holdings Limited (dormant company)1
NPI (Printworks) Limited (dormant company)
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)
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)
Phoenix Holdings (Bermuda) Limited (non-trading company)
Phoenix Group Holdings (Bermuda) Limited (non-trading company)
Phoenix Management Services (Bermuda) Limited (non-trading company)
Phoenix Management Services Holdings (Bermuda) Limited
(non-trading company)
Phoenix Re Limited
Standard Life Mortgages Limited
Clyde Gateway Management Company Limited
PGMS (Glasgow) Limited (investment company)1
Registered address
of incorporated
entities
Edinburgh3
Luxembourg13
London11
Wythall2
Wythall2
Telford5
Wythall2
Wythall2
Telford5
Telford5
Wythall2
Wythall2
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
Bermuda63
Bermuda63
Bermuda63
Bermuda63
Bermuda63
Wythall2
Edinburgh7
Edinburgh3
If unincorporated,
address of
principal place of
business
Type of investment
(including class of
shares held)
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
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
% 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%
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%
272
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Phoenix Group Holdings plc Annual Report and Accounts 2022
273
273
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H4. Group entities continued
PGMS (Ireland) Holdings Unlimited Company (holding company)
PGS 2 Limited (investment company)1
Phoenix & London Assurance Limited (dormant company)1
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)1
Phoenix ER2 Limited (finance company)
Phoenix ER3 Limited (finance company)1
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
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)
SL Liverpool plc (dormant company)1
SLA Belgium No.1 SA (investment company)
Registered address
of incorporated
entities
Dublin6
Wythall2
Wythall2
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
Wythall2
Brussels20
If unincorporated,
address of
principal place of
business
Type of investment
(including class of
shares held)
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
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
Public Limited
Company
Société
Anonyme
% 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%
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%
Registered address
of incorporated
entities
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
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)
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
If unincorporated,
address of
principal place of
business
Type of investment
(including class of
shares held)
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
Limited by
Guarantee
Ordinary Shares
Limited by
Guarantee
Limited by
Guarantee
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Trust
Ordinary Shares
Limited
Partnership
Limited
Partnership
Limited
Partnership
Limited
Partnership
Limited
Partnership
Unit Trust
Unit Trust
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
London29
London29
% 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%
56.01%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
69.00%
100.00%
100.00%
100.00%
100.00%
100.00%
72.70%
100.00%
100.00%
100.00%
274
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275
275
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H4. Group entities continued
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 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 Long Gilt Sterling Hedged Fund
PUTM Bothwell Emerging Markets Equity Fund
PUTM Bothwell Sterling Government Bond Fund
PUTM Bothwell Euro Sovereign Fund
PUTM Bothwell Sterling Credit Fund
PUTM Bothwell Tactical Asset Allocation Fund
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 Sustainable Index Asia Pacific ex Japan Equity Fund
PUTM ACS Sustainable Index European Equity Fund
PUTM ACS Emerging Market Equity Fund
PUTM ACS Sustainable Index Japan Equity Fund
PUTM ACS Sustainable Index US Equity Fund
PUTM ACS Sustainable Index UK Equity Fund
PUTM ACS North American 2 Fund
PUTM ACS Sustainable Index Emerging Markets Equity Fund
PUTM ACS UK Smaller Companies Fund
PUTM ACS North American Fund
abrdn Strategic Bond Fund
abrdn European Trust II
Registered address
of incorporated
entities
If unincorporated,
Type of investment
address of
(including class of
principal place of
shares held)
business
London29
Unit Trust
London29
Unit Trust
London29 OEIC, sub fund
% of shares/
units held
100.00%
85.82%
97.93%
London29 OEIC, sub fund
83.06%
London29 OEIC, sub fund
85.70%
London29 OEIC, sub fund
79.82%
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh
Edinburgh
⁷
⁷
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
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
Unit Trust
Unit Trust
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%
99.95%
99.61%
82.16%
99.94%
100.00%
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%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
89.91%
100.00%
abrdn Emerging Markets Income Equity Fund
abrdn Emerging Markets Equity Fund
abrdn Europe ex UK Ethical Equity Fund
abrdn European Trust
abrdn Japan Trust
abrdn North American Trust
abrdn Pacific Basin Trust
abrdn Short Dated UK Government Bond Trust
abrdn UK Government Bond Trust
abrdn UK Corporate Bond Trust
abrdn Active Plus Bond Trust
abrdn International Trust
abrdn UK Equity General Trust
abrdn Short Dated Corporate Bond Fund
abrdn MyFolio Managed I Fund
abrdn MyFolio Managed II Fund
abrdn MyFolio Managed III Fund
abrdn MyFolio Managed V Fund
abrdn Dynamic Multi Asset Growth Fund
abrdn American Income Equity Fund
abrdn Standard SICAV II Absolute Return Global Bond Strategies Fund
abrdn Standard SICAV II European Equities Fund
abrdn Standard SICAV II Global Equities Fund
abrdn Standard SICAV II European Government All Stocks Fund
abrdn Standard SICAV II Japanese Equities Fund
abrdn Standard SICAV II Global High Yield Bond Fund
abrdn Standard SICAV II Global REIT Focus Fund
abrdn Standard SICAV II China Equities Fund
abrdn Standard SICAV II Global Emerging Markets Local CCY Debt Fund
abrdn Standard SICAV II Emerging Market Debt Fund
ASIMT American Equity Unconstrained Fund
ASIMT Japan Fund
ASIMT Global REIT Fund
ASIMT Sterling Intermediate Credit Fund Launch Fund
abrdn Liquidity Fund (Lux) – Seabury Sterling Liquidity 3 Fund
abrdn Standard Liquidity Fund (Lux) – Seabury Sterling Liquidity 2 Fund
abrdn 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.
Registered address
of incorporated
entities
If unincorporated,
address of
principal place of
business
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
⁷
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Edinburgh
Type of investment
(including class of
shares held)
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, 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
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Luxembourg30 SICAV, sub fund
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Luxembourg31 UCITS, sub fund
Luxembourg31 UCITS, sub fund
Luxembourg³¹ UCITS, sub fund
Limited
Partnership
Limited
Partnership
Luxembourg31 Special Limited
Partnership
Limited
Partnership
Edinburgh7
Edinburgh7
Edinburgh7
Edinburgh7
Delaware9
Cayman Islands18
Cayman Islands18
% of shares/
units held
78.04%
96.86%
80.53%
96.78%
80.67%
99.63%
98.39%
99.96%
99.91%
99.89%
100.00%
99.86%
99.94%
80.55%
75.49%
75.37%
83.05%
75.09%
95.47%
74.41%
74.22%
99.30%
88.67%
100.00%
97.45%
54.53%
93.22%
68.15%
83.14%
97.87%
78.87%
78.81%
81.32%
89.33%
100.00%
99.99%
99.99%
100.00%
100.00%
100.00%
100.00%
276
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Phoenix Group Holdings plc Annual Report and Accounts 2022
Phoenix Group Holdings plc Annual Report and Accounts 2022
277
277
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H4. Group entities continued
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
abrdn Sustainable Index World Equity Fund
abrdn Sustainable Index UK Equity Fund
CF Macquaries Global Infrastructure Securities Fund
Quilter Investors Global Equity Index Fund
Quilter Investors UK Equity Index Fund
Associates:
UK Commercial Property REIT Limited (property investment company)
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)
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
abrdn (SLI) Corporate Bond Fund
abrdn Emerging Markets Local Currency Bond Tracker Fund
abrdn Global Absolute Return Strategies Retail Acc
abrdn Dynamic Distribution Fund
AB SICAV I – Diversified Yield Plus Portfolio
Standard Life Investments UK Real Estate Accumulation Feeder Fund
abrdn Global Smaller Company Fund
abrdn Global Focused Equity Fund
abrdn UK High Income Equity Fund
abrdn High Yield Bond Fund
abrdn UK Opportunities Equity Fund
abrdn Investment Grade Corporate Bond Fund
abrdn UK Smaller Companies Fund
abrdn Short Duration Global Inflation-Linked Bond Fund
abrdn UK Unconstrained Equity Fund
abrdn Ethical Corporate Bond Fund
abrdn Global Real Estate Fund
abrdn MyFolio Market I Fund
abrdn MyFolio Market II Fund
abrdn MyFolio Market III Fund
Registered address
of incorporated
entities
If unincorporated,
address of principal
place of business
Edinburgh7
Type of investment
(including class of
shares held)
Limited
Partnership
Jersey32
Unit Trust
Dublin33 OEIC, sub fund
Dublin33 OEIC, sub fund
London34 OEIC, sub fund
Bolton35 OEIC, sub fund
London36 OEIC, sub fund
London37
Unit Trust
London37
Unit Trust
Edinburgh7
Unit Trust
Edinburgh7
Unit Trust
London38 OEIC, sub fund
London39 OEIC, sub fund
London39 OEIC, sub fund
Guernsey41
Guernsey41
Guernsey41
London42
Luxembourg44
Luxembourg44
London42
Ordinary Shares
Ordinary Shares
Limited
Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Edinburgh7
London29 OEIC, sub fund
London29 OEIC, sub fund
Limited
Partnership
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7
Unit Trust
Edinburgh7
Unit Trust
Luxembourg30 SICAV, sub fund
Edinburgh7
Unit Trust
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
Unit Trust
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
% of shares/
units held
100.00%
100.00%
96.83%
100.00%
82.18%
71.78%
94.08%
85.74%
75.60%
100.00%
77.28%
70.77%
76.55%
84.30%
44.46%
44.46%
44.46%
44.46%
44.46%
44.46%
44.46%
33.39%
56.15%
48.00%
40.46%
44.51%
62.31%
63.43%
36.98%
53.89%
24.07%
46.66%
49.91%
21.64%
55.59%
44.22%
30.76%
37.23%
53.54%
56.62%
40.27%
43.39%
47.20%
54.17%
Registered address
of incorporated
entities
abrdn MyFolio Market IV Fund
abrdn MyFolio Market V Fund
abrdn MyFolio Multi-Manager II Fund
abrdn MyFolio Multi-Manager III Fund
abrdn MyFolio Multi-Manager IV Fund
abrdn MyFolio Multi-Manager V Fund
abrdn MyFolio Managed IV Fund
abrdn Standard SICAV II European Smaller Companies Fund
abrdn Standard SICAV II European Corporate Bond Fund
abrdn Standard SICAV II Global Absolute Return Strategies Fund
abrdn Standard SICAV II Global Corporate Bond Fund
abrdn American Unconstrained Equity Fund
abrdn Liquidity Fund (Lux) Euro Fund
abrdn Europe ex UK Income Equity Fund
abrdn UK Income Unconstrained Equity Fund
Amundi Index Solutions – Amundi MSCI Emerging Ex China ESG Leaders Select
Brent Cross Partnership
Gallions Reach Shopping Park Unit 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
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 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
abrdn Emerging Markets Equity Enhanced Index Fund
Amundi UCITS Funds – Amundi Global Multi-Factor Equity Fund
abrdn SICAV I – Emerging Markets Low Volatility Equity Portfolio
abrdn SICAV I – GDP Weighted Global Government Bond Fund
abrdn SICAV I – Global Bond Fund
abrdn SICAV I – Global Government Bond Fund
Fidelity Multi Asset Open Adventurous Fund
Goldman Sachs SICAV – Emerging Markets Total Return Bond Portfolio
Janus Henderson Diversified Growth Fund
L&G Emerging Markets Bond Fund
Legal & General European Trust
L&G Multi-Asset Target Return Fund
Legal & General Emerging Markets Government Bond USD Index Fund
Legal & General High Income Trust
L&G Euro High Alpha Corporate Bond Fund
Legal & General UK Smaller Companies Trust
If unincorporated,
address of
principal place of
business
Type of investment
(including class of
shares held)
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
Luxembourg40 SICAV, sub fund
Limited
Partnership
Unit Trust
Unit Trust
Unit Trust
Unit Trust
London47 UCITS, sub fund
USA49 UCITS, sub fund
London50 OEIC, sub fund
Dublin51 UCITS, sub fund
Jersey32
Jersey46
London11
Edinburgh7
London43
% of shares/
units held
51.88%
60.81%
54.75%
65.02%
57.29%
60.59%
67.78%
28.68%
33.26%
49.38%
73.15%
26.01%
28.60%
21.51%
58.73%
61.30%
23.83%
100.00%
40.13%
100.00%
40.13%
28.91%
96.48%
20.99%
23.83%
Dublin51 UCITS, sub fund
45.15%
Dublin51 UCITS, sub fund
92.82%
Dublin51 UCITS, sub fund
Dublin51 UCITS, sub fund
London53 OEIC, sub fund
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
London29 OEIC, sub fund
Luxembourg57 SICAV, sub fund
Unit Trust
Luxembourg57 SICAV, sub fund
Unit Trust
Unit Trust
Luxembourg57 SICAV, sub fund
Unit Trust
London37
London37
London37
London37
22.42%
98.17%
64.46%
20.36%
61.34%
87.52%
84.51%
91.69%
37.28%
55.92%
87.04%
68.80%
39.41%
50.34%
39.62%
26.58%
42.68%
21.28%
30.59%
278
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Phoenix Group Holdings plc Annual Report and Accounts 2022
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279
279
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H4. Group entities continued
LGIM Sterling Liquidity Plus Fund
Marks and Spencer Worldwide Managed Fund
Quilter Investors China Equity Fund
Quilter Investors Ethical Equity Fund
Quilter Investors Global Equity Growth Fund
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
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
abrdn Short Dated Sterling Corporate Bond Tracker Fund
abrdn Global Inflation-Linked Bond Tracker Fund
abrdn Multi-Asset Fund
abrdn SICAV I – Diversified Income Fund
abrdn 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
abrdn European Equity Tracker Fund
abrdn UK Responsible Equity Fund
Performance Retail Unit Trust
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
Registered address
of incorporated
entities
If unincorporated,
Type of investment
address of
(including class of
principal place of
business
shares held)
Dublin51 UCITS, sub fund
London34
Unit Trust
London39 OEIC, sub fund
London39
Unit Trust
London39 OEIC, sub fund
Dublin51 UCITS, sub fund
% of shares/
units held
43.41%
36.28%
21.88%
50.02%
46.52%
96.34%
Dublin51 UCITS, sub fund
44.19%
Edinburgh59 OEIC, sub fund
24.88%
London11
Edinburgh59 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Edinburgh7 OEIC, sub fund
Luxembourg31 SICAV, sub fund
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
Jersey62
Unit Trust
Dublin51 UCITS, sub fund
36.11%
41.08%
49.65%
28.45%
34.44%
24.69%
43.46%
37.32%
26.37%
24.48%
20.75%
33.71%
50.10%
96.34%
Dublin51 UCITS, sub fund
44.19%
1 These subsidiaries have been granted audit exemption by parental guarantee by virtue of s.479A of the Companies Act 2006.
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
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
63 Canon's Court, 22 Victoria Street, Hamilton, HM12, Bermuda
64 Calle Nanclares de Oca, 1B, 28022 Madrid
The following subsidiaries were dissolved during the period. The subsidiaries were deconsolidated from the date of dissolution:
• PGH (LC1) Limited
• PGH (LC2) Limited
• PGH (LCA) Limited
• PGH (LCB) Limited
• PGH (MC1) Limited
• PGH (MC2) Limited
• PGH (TC1) Limited
• PGH (TC2) Limited
• PGH Capital PLC
• PUTM Bothwell Japan Tracker Fund
• PUTM Bothwell North America Fund
The following subsidiaries were either fully disposed of or the Group was no longer deemed to control the entity. The subsidiaries were deconsolidated
from either the date of disposal or from the date when the Group was deemed to no longer control the subsidiary:
• Aberdeen Standard SICAV II European Equity Unconstrained Fund
• Aberdeen Standard SICAV III Global Short Duration Corporate Bond Fund
• Aberdeen Standard SICAV II Global Bond Fund
• Aberdeen Standard SICAV II Global Emerging Markets Unconstrained Fund
• Aberdeen Standard Liquidity Fund (Lux) Sterling Fund
• Aberdeen Standard SICAV III Dynamic Multi Asset Growth Fund
• ASI Europe ex UK Growth Equity Fund
• ASI Global Real Estate Share Fund
• ASI MyFolio Multi-Manager I Fund
• ASI Phoenix Venture Capital Partners LP
• ASI (Standard Life) Global Equity Trust II
• ASI (Standard Life) Multi-Asset Trust
• Legal & General Dynamic Bond Fund
• Northampton General Partner Limited
• The Pearl Martineau Galleries Limited Partnership
• The Pearl Martineau Limited Partnership
• Quilter Investors Diversified Portfolio Fund
• Quilter Investors UK Equity Large-Cap Value Fund
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281
281
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
H. Interests in subsidiaries and associates continued
H4. Group entities continued
The following associates were dissolved during the period. The investment in associate was derecognised from the date of dissolution:
• Brixton Radlett Property Limited
• Moor House General Partner Limited
• UK Commercial Property Estates Limited
• UK Commercial Property GP Limited
• UK Commercial Property Holdings Limited
• UK Commercial Property Nominee Limited
The Group no longer has significant holdings in the following undertakings:
• Aberdeen Standard Global SICAV III Global Equity Impact Fund
• Aberdeen Standard UK Retail Park Trust
• AXA Global High Income Fund
• Blackrock ICS Sterling Government Liquidity Fund
• Castlepoint LP
• Central Saint Giles Unit Trust
• HSBC ETFs PLC – HSBC FTSE EPRA NAREIT Developed UCITS ETF
• L&G Absolute Return Bond Plus Fund
• Legal & General Asian Income Trust
• Legal & General Emerging Markets Government Bond (Local Currency) Index Fund
• Legal & General UK Equity Income Fund
• Legal & General European Index Trust
• Legal & General Global Real Estate Dividend Index Fund
• Legal & General Real Capital Builder Fund
• Legal & General UK Special Situations Trust
• Invesco US Equity Fund
• Quilter Investors Bond 2 Fund
• Quilter Investors Cirilium Moderate Blend Portfolio Fund
• Vanguard FTSE U.K. All Share Index Unit Trust
• Vanguard Investment Series plc – Vanguard U.K. Investment Grade Bond Index Fund
I. Other notes
I1. Share-based payments
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
2022
£m
16
2021
£m
14
I1.2 Share-based payment schemes
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 2020, 2021 and 2022 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 total shareholder
return (‘TSR’). The 2022 LTIP also included a performance condition tied to the Group’s performance on decarbonisation. See page 134 of the Directors’
Remuneration Report for further details of the performance conditions.
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.
2022 LTIP awards were granted on 18 March 2022 and are expected to vest on 18 March 2025. The 2019 LTIP awards vested on 11 March 2022. The 2020
awards will vest on 13 March 2023 and the 2021 awards will vest on 12 March 2024. 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 2020, 2021 and 2022 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 (%)
2022
TSR performance condition
639
2.8
31
1.21
2020
2021
TSR performance condition
TSR performance condition
586.3
738.6
3.0
3.0
20
30
0.28
0.14
Dividends are received by holders of the awards therefore
no adjustment to fair value is required
On 19 August 2022 and 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 2021 and 2022 LTIP awards respectively.
On 18 March 2022 and 19 August 2022 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. Similar
awards were also issued on 12 March 2021 and 17 August 2021.
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.
Each year, the Group issues a Chair’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 2020, 2021 and 2022 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
good/good 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 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 2022 DBSS was granted on 18 March 2022 and is expected to vest on 18 March 2025. The 2019 DBSS awards vested on 11 March 2022. The 2020
awards are expected to vest on 13 March 2023 and the 2021 awards are expected to vest on 12 March 2024.
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.
Sharesave scheme
The Sharesave scheme allows participating employees to save up to £500 each month across all active UK scheme and up to €500 per month for the Irish scheme
over a period of either three or five years. The 2022 UK Sharesave options were granted on 15 April 2022. Irish Sharesave options are no longer granted.
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 20% discounted exercise price which is calculated using a three-day average share price
immediately before invitations are issued to employees. 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.
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 July 2018 following the Group’s rights issues and
the exercise price of these awards was also amended as a result of these issues.
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283
Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
Other notes continued
I1. Share-based payment continued
I1.2 Share-based payment schemes continued
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.
The following information was relevant in the determination of the fair value of the 2018 to 2022 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
Expected volatility (%) based on the Company’s share price volatility to date
Dividend yield (%)
2022
sharesave
6.142
5.090
3.25 and
5.25
2.0 (for
3.25 year
scheme) and
1.9 (for
5.25 year
scheme)
30.0
8
2021
sharesave
7.486
5.890
3.25 and
5.25
0.5 (for
3.25 year
scheme) and
0.7 (for
5.25 year
scheme)
30.0
6.3
2020
sharesave
5.664
4.970
3.25 and
5.25
0.5 (for
3.25 year
scheme) and
0.5 (for
5.25 year
scheme)
30.0
8.2
2019
sharesave
6.800
5.610
3.25 and
5.25
1.0 (for
3.25 year
scheme) and
1.1 (for
5.25 year
scheme)
30.0
6.8
2018
sharesave
7.685
5.629
3.25 and
5.25
1.0 (for
3.25 year
scheme) and
1.1 (for
5.25 year
scheme)
30.0
6.5
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
– Exercise price (€): 6.880
– Risk-free rate (%): (0.4) (for 3.25 year scheme) and (0.3) (for 5.25 year scheme)
– No Sharesave awards were granted to Irish employees during 2022.
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 2022, 543,995 matching shares (excluding unrestricted shares) were conditionally awarded to employees
(2021: 391,658).
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, including dividend shares
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Dividends on vested awards
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, excluding dividend shares – as previously reported
Outstanding dividend shares
Outstanding at the end of the year, including dividend shares
Number of share options 2022
LTIP
7,613,036
3,350,169
(523,125)
–
(1,328,703)
275,858
9,387,235
Sharesave
4,750,822
1,827,291
(252,992)
(506,796)
(816,419)
–
5,001,906
Number of share options 2021
LTIP
5,488,995
2,984,144
(290,064)
(882,043)
7,301,032
312,004
7,613,036
Sharesave
3,569,159
1,729,022
(240,130)
(307,229)
4,750,822
–
4,750,822
DBSS
1,551,935
1,121,085
(4,917)
–
(443,747)
77,445
2,301,801
DBSS
1,267,852
601,944
(5,236)
(314,267)
1,550,293
1,642
1,551,935
1 The comparative disclosures for the LTIP and DBSS awards were previously reported excluding dividend shares that had been allocated at the vesting date. These dividend shares are
now included within the movement analysis for the year ended 31 December 2022
The weighted average fair value of options granted during the year was £4.34 (2021: £4.98).
The weighted average share price at the date of exercise for the rewards exercised is £6.13 (2021: £7.06).
The weighted average remaining contractual life for the awards outstanding as at 31 December 2022 is 5.7 years (2021: 5.5 years).
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 for the year before tax
Adjustments for non-cash movements in loss before tax for the year:
Gain on completion of abrdn plc transaction
Loss on disposal of Ark Life, excluding transaction costs
Fair value losses/(gains) 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
Movement in assets and liabilities relating to operations:
Decrease in investment assets
Decrease/(increase) in reinsurance assets
Decrease in assets classified as held for sale
(Decrease)/increase in insurance contract and investment contract liabilities
Decrease in deposits received from reinsurers
Decrease in obligation for repayment of collateral received
Decrease in liabilities classified as held for sale
Net increase in working capital
Other cash movements relating to operations:
Contributions to defined benefit pension schemes
Cash generated/(utilised) by operations
Notes
A6.1
A6.2
G4
E5.2
G2
F2
I1.1
C5
G1
G1
G1
2022
£m
(2,840)
–
–
1,363
45,197
186
526
(378)
16
230
64
15
7
3,934
3,449
2,741
(44,351)
(971)
(1,740)
(3,386)
(3,034)
2021
£m
(430)
(110)
17
(1,195)
(9,436)
(9)
644
(106)
14
242
37
–
6
6,738
(227)
286
6,354
(521)
(1,762)
(264)
(1,100)
G1
(9)
1,019
(49)
(871)
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Financials continuedFinancials
Financials continued
Notes to the consolidated financial statements
Continued
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 52 to 67 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.
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’.
The Group operates an Internal Model to calculate Group SCR, all Group companies are within the scope of the internal model, with the exception of
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
2022
£bn
11.1
(1.8)
9.3
2021
£bn
14.8
(2.9)
11.9
Solvency II surplus – unaudited
An analysis of the PGH plc Solvency II surplus as at 31 December 2022 is provided in the business review section on page 34 to 35. During 2022, both
Eligible Own Funds and SCR have decreased principally as a consequence of rising interest rates. This has resulted in a decrease in the present value of
certain risks included within the SCR along with a corresponding fall in the value of Own Funds in accordance with the Group’s hedging strategy that aims
to protect the value of the Solvency II surplus.
The Group has complied with all externally imposed capital requirements during the year.
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Financials continuedFinancials
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 , which comprise a Group pension scheme, an associate and key management personnel
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, was 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.
During the year, the Group entered into the following related party transactions with a Group pension scheme and an associate:
Pearl Group Staff Pension Scheme
Payment of administrative expenses
UK Commercial Property REIT
Dividend income
abrdn plc2
Investment management fees
Fees under Transitional Services Arrangement and material outsource agreements
Transactions
20221
£m
Transactions
20211
£m
(4)
29
N/A
N/A
(4)
17
(20)
(4)
1 There were no outstanding balances with related parties as at 31 December 2021 and 31 December 2022.
2 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 were all
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
2022
£m
5
3
2021
£m
5
3
Details of the shareholdings and emoluments of individual Directors are provided in the Remuneration report on pages 110 to 146.
During the year to 31 December 2022 key management personnel and their close family members contributed £183,933 (2021: £291,546) to Pensions and
Savings products sold by the Group. At 31 December 2022, the total value of key management personnel’s investments in Group Pensions and Savings
products was £525,781 (2021: £3,443,658).
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
2022
£m
1,132
62
13
2021
£m
710
206
12
I6. Contingent liabilities
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 4 August 2022, the Company announced the proposed acquisition of the entire issued share capital of SLF of Canada UK Limited from the Sun Life
Assurance Company of Canada, part of the Sun Life Financial Inc. Group. Regulatory approval for the acquisition was received from the Prudential
Regulation Authority on 3 March 2023 and in accordance with the share purchase agreement is expected to complete in April 2023. Total cash
consideration of £248 million is payable to the Sun Life Assurance Company of Canada upon completion, subject to certain adjustments.
On 7 February 2023, the Group announced its plan to extend the existing strategic partnership with TCS and Diligenta and intention to move all policies
administered on the ReAssure ALPHA platform to the TCS BaNCS platform. This move is expected to have an immaterial impact on the financial
statements. The expense assumptions used to determine the relevant liabilities to policyholders at 31 December 2022 reflect the impact of the move
to TCS BaNCS and the associated implementation costs.
On 10 March 2023, the Board recommended a final dividend of 26.0p per share for the year ended 31 December 2022 (2021: 24.8p). 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 2022 and will be charged to the statement of consolidated changes in equity in 2023.
A Barbour
A Briggs
R Thakrar
S Bruce
K Green
H Iioka
K Murray
J Pollock
B Richards
M Semple
N Shott
K Sorenson
10 March 2023
288
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289
289
Financials continuedFinancials
Financials continued
Parent company financial statements
Statement of financial position
As at 31 December 2022
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
10
11
12
6
13
13
14
20
15
3
3
3
3
4
5
6
6
20
7
8
9
2022
£m
19
10,231
2,550
257
1
775
113
54
19
–
14,019
100
10
1,819
(4)
5,062
6,987
411
7,398
6,229
22
86
43
97
20
124
6,621
14,019
2021
£m
21
10,031
1,234
69
1
690
82
58
616
95
12,897
100
6
1,819
(4)
5,448
7,369
411
7,780
4,387
5
66
415
92
21
131
5,117
12,897
The notes identified numerically on pages 293 to 306 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 175 to 289.
Approved by the Board on 10 March 2023.
Andy Briggs
Chief Executive Officer
Company registration number 11606773.
Rakesh Thakrar
Chief Financial Officer
Statement of changes in equity
For the year ended 31 December 2022
At 1 January 2022
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 2022
Share
capital
(note 3)
£m
100
Share
premium
(note 3)
£m
6
Merger relief
reserve
(note 3)
£m
1,819
Other
reserve
(note 3)
£m
(4)
Retained
earnings
£m
5,448
Total
£m
7,369
Tier 1 Notes
(note 4)
£m
411
–
–
–
–
–
100
–
4
–
–
–
10
–
–
–
–
–
1,819
–
–
–
–
–
(4)
116
116
–
(496)
(22)
4
(496)
(22)
16
5,062
16
6,987
–
–
–
–
–
411
For the year ended 31 December 2021
At 1 January 2021
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 2021
Share
capital
(note 3)
£m
100
Share
premium
(note 3)
£m
4
Merger relief
reserve
(note 3)
£m
1,819
Other
reserve
(note 3)
£m
(4)
Retained
earnings
£m
5,211
Total
£m
7,130
Tier 1 Notes
(note 4)
£m
411
–
–
–
–
–
100
–
–
–
–
–
6
–
–
–
–
–
1,819
–
–
–
–
–
(4)
728
728
–
(482)
(23)
14
5,448
2
(482)
(23)
14
7,369
–
–
–
–
–
411
Total
Equity
£m
7,780
116
4
(496)
(22)
16
7,398
Total
Equity
£m
7,541
728
2
(482)
(23)
14
7,780
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Financials continuedFinancials
Financials continued
Parent company financial statements continued
Statement of cash flows
For the year ended 31 December 2022
Cash flows from operating activities
Cash (utilised)/generated by operations
Net cash flows from operating activities
Cash flows from investing activities
Advances to Group entities
Dividends received from Group entities
Interest received from Group entities
Capital contribution to subsidiary (note 11)
Repayment of amounts due from Group entities
Derivative settlements
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 (decrease)/increase 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
2022
£m
(417)
(417)
(852)
455
162
(200)
2
(70)
(503)
4
2,274
(616)
(496)
(311)
(1)
(29)
825
(95)
95
–
2021
£m
897
897
–
–
111
(63)
–
–
48
2
–
(122)
(482)
(222)
(1)
(29)
(854)
91
4
95
Notes to the parent company financial statements
1. Accounting policies
(a) Basis of preparation
The financial statements have been prepared under a going concern basis and on 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 2022 was £116 million (2021: £728 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 175 to 289 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 to date
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 5, 12 and 15.
Debt securities, collective investment schemes and derivatives are measured at FVTPL as they are managed on a fair value basis.
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Financials continuedFinancials
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 details 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.
c) Critical accounting estimates and judgements
Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. The area of the Company’s business that
typically requires such estimates and judgement is the impairment assessment for investments in Group entities.
Impairment of investments in Group entities
The Company conducts impairment reviews of investments in subsidiaries whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. Determining whether an asset is impaired requires an estimation of the recoverable amount, which requires the
Company to estimate the value in use which uses future cash flows and a suitable discount rate in order to calculate the present value. Where the actual
future cash flows are less than expected, an impairment loss may arise. Further details are included in note 11.
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 2022, the Company issued 816,419 shares (2021: 303,914 shares) with a premium of £4 million (2021: £2 million) in order to satisfy its obligations
to employees under the Group’s sharesave schemes.
The Company 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 reserve as opposed to in share premium. A merger reserve is required to be used as a result
of the Company having issued equity shares in 2020 as part consideration for the shares of the ReAssure Group plc 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:
1000.4 million ordinary shares of £0.10 each (2021: 999.5 million)
2022
Shares in issue at 1 January 2022
Ordinary shares issued in the period
Ordinary shares in issue at 31 December 2022
2021
Shares in issue at 1 January 2021
Other ordinary shares issued in the period
Ordinary shares in issue at 31 December 2021
2022
£m
100
2021
£m
100
Number
999,536,058
816,419
1,000,352,477
£
99,953,605
81,642
100,035,247
Number
999,232,144
303,914
999,536,058
£
99,923,214
30,391
99,953,605
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
2022
£m
411
2021
£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 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.
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Financials continuedFinancials
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.
Loans due to third-parties:
£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)
US $750 million Contingent Convertible Tier 1 notes (note e)
£500 million Tier 2 notes (note f)
US $500 million Fixed Rate Reset Tier 2 notes (note g)
£500 million 5.867% Tier 2 subordinated notes (note h)
£250 million 4.016% Tier 3 subordinated notes (note i)
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note j)
Loans due to Group companies:
Loan due to Standard Life Assurance Limited (note k)
Senior loan due to ReAssure Limited (note l)
€100 million loan due to Standard Life International DAC (note m)
£130 million floating term loan to ReAssure Life Limited (note n)
Cash-pooling with other Group entities (note o)
Total borrowings
Amount due for settlement after 12 months
Carrying value
2022
£m
433
–
383
414
618
487
412
543
256
259
3,805
309
718
89
130
1,178
2,424
6,229
5,051
2021
£m
435
449
337
389
551
485
368
550
257
266
4,087
300
–
–
–
–
300
4,387
4,387
Fair value
2022
£m
429
–
390
416
580
445
382
465
231
244
3,582
309
718
89
130
1,178
2,424
6,006
2021
£m
498
457
408
490
581
593
389
598
264
269
4,547
300
–
–
–
–
2,424
4,847
a. On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the £428 million Tier 2 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. On 20 July 2022, the Company redeemed the £450 million Tier 3 subordinated
notes in full at their principal amount, together with interest accrued to the repayment date.
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 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.
f. 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.
g. 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.
h. 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.
i. 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.
j. 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 is capitalised. During the year interest of £9 million (2021: £6 million) was capitalised.
k. 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.
l. On 31 December 2022, ReAssure Limited (‘RAL’) issued a £718 million term loan of £718 million to the Company, maturing on 31 December 2027. At the
same time, the Company issued a contingent loan to RAL for the same amount (see note 12 (c) for further details). Interest accrues on the term loan asset
at a rate of SONIA plus 1.49%. If the Company fails to make payments of principal or interest in accordance with the terms of the loan, a corresponding
amount of RAL’s obligations under the contingent loan would be offset.
m. On 20 December 2022, Standard Life International DAC (‘SLIDAC’) issued to the Company a €100 million loan at an interest rate of 2.29% with
a maturity date of 31 March 2024.
n. On 16 December 2022, ReAssure Life Limited issued a £130 million floating term loan to the Company at an interest rate of 4.72% for a term of 5 years.
o. On 13 September 2022, the Company entered into an uncommitted intra-group cash-pooling facility with certain subsidiaries, under which the
Company will either borrow funds from, or lend funds to, the relevant subsidiary. All amounts due under the facility attract interest at SONIA and are
repayable on demand.
p. 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 2022.
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.
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Financials continuedFinancials
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
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 4.016% Tier 3 subordinated notes
£250 million Fixed Rate Reset Callable Tier 2
subordinated notes
Loan due to Standard Life Assurance Limited
Senior loan due to ReAssure Limited
€100 million loan due to Standard Life International
DAC
£130 million floating term loan to ReAssure Life Limited
Cash-pooling with other Group entities
Derivative assets1
Derivative liabilities1
Cash
New
borrowings,
net of costs
£m
–
–
–
–
–
–
–
–
–
At 1
January
2022
£m
435
449
337
389
551
485
368
550
257
Movement
in foreign
exchange
£m
–
–
41
21
66
–
44
–
–
Repayments
£m
–
(450)
–
–
–
–
–
–
–
266
300
–
–
–
–
(48)
5
4,344
–
–
7182
88
130
1,338
–
–
2,274
–
–
–
–
–
(166)
–
–
(616)
–
–
–
1
–
–
–
–
173
Non-cashflow
Capitalised
interest
£m
–
–
–
–
–
–
–
–
–
Movement
in fair value
£m
–
–
–
–
–
–
–
–
–
At 31
December
2022
£m
433
–
383
414
618
487
412
543
256
–
9
–
–
–
6
–
–
15
–
–
–
–
–
–
(177)
(5)
(182)
259
309
718
89
130
1,178
(225)
–
6,004
Amortisation
£m
(2)
1
5
4
1
2
(7)
(1)
(7)
–
–
–
–
–
–
–
(4)
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).
2 Settled simultaneously with the issuance of the £718 million contingent loan (see note 12(d)).
£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
At 1
January
2021
£m
436
449
329
410
123
294
545
484
364
556
272
259
–
–
4,521
Cash
New
borrowings,
net of costs
£m
–
–
–
–
–
–
–
–
–
–
–
Non-cashflow
Movement
in foreign
exchange
£m
–
–
3
(24)
–
–
5
–
4
–
Amortisatio
n
£m
(1)
–
5
3
(1)
–
1
1
–
(6)
Capitalised
interest
£m
–
–
–
–
–
6
–
–
–
–
Movement
in fair value
£m
–
–
–
–
–
–
–
–
–
–
At 31
December
2021
£m
435
449
337
389
–
300
551
485
368
550
Repayments
£m
–
–
–
–
(122)
–
–
–
–
–
–
–
–
–
–
–
–
–
(122)
–
–
–
–
(12)
(6)
(2)
–
–
(6)
–
–
–
–
6
–
–
(48)
5
(43)
266
257
(48)
5
4,344
1 Cross currency swaps to hedge against currency movements in respect of Group's Euro and US Dollar denominated borrowings (see note 6 for further details).
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
2022
£m
225
32
257
2021
£m
48
21
69
Liability
2022
£m
–
22
22
2021
£m
5
–
5
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 over-the-counter (‘OTC’) derivative assets is £257 million (2021: £69 million) of which credit risk of
£86 million (2021: £66 million) 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 and transformation restructuring provision of £159 million. During the year, £28 million
(2021: £17 million) of the restructuring provision was utilised and the provision was increased by £33 million (2021: £nil). The remaining provision of
£97 million (2021: £92 million) is expected to be utilised within one to three years.
Further details, including the accounting policy for provisions, are included in note G7 to the consolidated financial statements.
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 twelve months
Amount due after twelve months
2022
£m
21
–
(1)
20
1
19
2021
£m
–
22
(1)
21
2
19
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Financials continuedFinancials
Financials continued
Notes to the parent company financial statements
Continued
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
2022
£m
124
–
2021
£m
131
–
10. Property, plant and equipment
The accounting policy for property, plant and equipment is included in note G3 to the consolidated financial statements.
Property, plant and equipment includes the right-of-use asset relating 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 and 31 December
Depreciation
At 1 January
Depreciation
At 31 December
Carrying amount at 31 December
Cost or valuation
At 1 January
Additions
At 31 December
Depreciation
At 1 January
Depreciation
At 31 December
Carrying amount at 31 December
Total Property, Plant
and Equipment
2022
£m
22
(1)
(2)
(3)
19
Total Property, Plant
and Equipment
2021
£m
–
22
22
–
(1)
(1)
21
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
2022
£m
14,220
200
–
14,420
(4,189)
–
(4,189)
2021
£m
14,236
63
(79)
14,220
(4,146)
(43)
(4,189)
10,231
10,031
During 2022, a capital contribution was made to Phoenix Life Holdings Limited of £200 million.
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.
As at 31 December 2022 and 31 December 2021, 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. As at 31 December 2022, the recoverable amount of the investments in subsidiaries was determined to be greater than carrying value. In 2021,
an impairment charge of £43 million was recognised to align the carrying value of certain investments in subsidiaries to the recoverable amount.
As a starting point, the contribution of the life insurance subsidiaries to the recoverable amount has been determined with reference to Solvency II Own
Funds, which reflects a probability-weighted best estimate for the expected cash flows under in-force insurance and investment contracts consistent
with the Group’s operating plan with an allowance for risk, together with an economic valuation of the underlying assets and other liabilities. Suitable
adjustments were made to Solvency II Own Funds, in order to align to the expected dividends to be paid by the life insurance subsidiary, which included
the removal of the surplus attributable to policyholders in the with-profit funds. Additionally, where relevant, the recoverable amount incorporated the
value ultimately expected to accrue to the Company in respect of future new business written. The contribution of the non-insurance subsidiaries was
determined using net asset values.
For a list of principal Group entities, refer to note H4 of the consolidated financial statements in which the entities directly held by the Company are
separately identified.
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Financials continuedFinancials
Financials continued
Notes to the parent company financial statements
Continued
12. Loans and deposits
Loans due from Phoenix Life Holdings Limited (note a)
Cash-pooling to other Group entities (note b)
Loan due from Phoenix Group Employee Benefit Trust (note c)
Loan due from ReAssure Limited (note d)
Loans and deposits due from Group entities
Total loans and deposits
Amounts due after 12 months
Carrying value
2022
£m
1,273
546
13
718
2,550
2,550
2,004
2021
£m
1,221
–
13
–
1,234
1,234
784
Fair value
2022
£m
1,279
546
13
718
2,556
2,556
2021
£m
1,370
–
13
–
1,383
1,383
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 2022, the carrying value of the loan was £433 million (2021: £435 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 matured on
20 July 2022. On 20 July 2022, the amount due on the maturity of the subordinated loan of £450 million was advanced under a new loan to PLHL. The new
loan accrued interest at a rate of compounded SONIA rate plus a margin of £1.30% and matures on 31 December 2027. At 31 December 2022, the carrying
value of the loan was £457 million (2021: £449 million due under the subordinated loan).
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 increased
the carrying value by £41 million (2021: £4 million (decrease)). At 31 December 2022, the carrying value of the loan was £383 million (2021: £336 million).
b) On 13 September 2022, the Company entered into an uncommitted intra-group cash-pooling facility with certain subsidiaries, under which the
Company will either borrow funds from, or lend funds to, the relevant subsidiary. All amounts due under the facility attract interest at SONIA and
are repayable on demand.
c) On 18 June 2019, the Company was assigned an interest free facility arrangement with Phoenix Group Employee Benefit Trust (‘EBT’). As at 31 December 2022,
the carrying value of the loan was £13 million (2021: £13 million). 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. During the year funding of £12 million (2021: £16 million) was provided to the EBT and £12 million of the loan was impaired (2021: £10 million).
d) On 31 December 2022, the Company issued a contingent loan of £718 million with ReAssure Limited (‘RAL’) which accrues interest at a rate of SONIA
plus 2.95%. Loan repayments and interest payments are made quarterly in arrears. Repayment of principal each quarter is set at the amount of surplus
emerging from a specified block of unit-linked business in RAL, less interest payable. The best estimate for the total amount of surplus expected to
emerge from this block of business as at 31 December 2022 is £1.4 billion, giving rise to a ratio of loan-to-value of approximately 50%. The contingent
loan is expected to be fully repaid by 31 December 2027, five years from the date of issue.
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.
13. Financial assets
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
Amounts due after 12 months
2022
£m
257
1
775
1,033
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 2022
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
Year ended 31 December 2021
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
Level 1
£m
Level 2
£m
Level 3
£m
–
–
775
775
257
–
–
257
–
1
–
1
Level 1
£m
Level 2
£m
Level 3
£m
–
–
690
690
69
–
–
69
–
1
–
1
2021
£m
69
1
690
760
1
Total
£m
257
1
775
1,033
Total
£m
69
1
690
760
There were no transfers between levels in either 2022 or 2021.
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.
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
1 January 2022
£m
82
Credit for the year
£m
31
31 December 2022
£m
113
1 January 2021
£m
16
Credit for the year
£m
66
31 December 2021
£m
82
The standard rate of UK corporation tax for the accounting period is 19% (2021: 19%).
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.
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303
Financials continuedFinancials
Financials continued
Notes to the parent company financial statements
Continued
15. Cash and cash equivalents
The accounting policy for cash and cash equivalents is included in note G6 to the consolidated financial statements.
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:
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 in investment assets
Net increase in working capital
Cash (utilised)/generated by operations
2022
£m
–
2022
£m
26
12
–
(127)
287
(171)
173
16
2
290
(925)
(417)
2021
£m
95
2021
£m
661
10
43
(111)
274
(62)
(11)
14
1
385
(307)
897
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. The distributable reserves of the Company as at 31 December 2022 were £5,062 million (2021: £5,448 million).
At 31 December 2022, total capital was £7,398 million (2021: £7,780 million). The movement in capital in the period comprises the total comprehensive
income for the period attributable to owners of £116 million (2021: £728 million), dividends paid of £496 million (2021: £482 million), coupon paid on Tier 1
Notes, net of tax relief of £22 million (2021: £23 million), credit to equity for equity-settled share-based payments of £16 million (2021 £14 million) and issue
of ordinary share capital of £4 million (2021: £2 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
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
In default
There is evidence indicating the asset is credit-impaired
Write-off
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
2022
Loans and deposits (note 12)
Other amounts due from Group entities (note 20)
External
credit rating
N/A
N/A
Internal credit
rating
12 month or
lifetime ECL
Performing 12 month ECL
Performing 12 month ECL
Gross carrying
amount
£m
2,550
19
Loss allowance
£m
–
–
Net carrying
amount
£m
2,550
19
2021
Loans and deposits (note 12)
Other amounts due from Group entities (note 20)
Cash and cash equivalents (note 15)
External
credit rating
N/A
N/A
A
Internal credit
rating
Performing
Performing
N/A
12 month or
lifetime ECL
12 month ECL
12 month ECL
12 month ECL
Gross carrying
amount
£m
1,234
616
95
Loss allowance
£m
–
–
–
Net carrying
amount
£m
1,234
616
95
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 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 as at 31 December 2021 were held with bank and financial institution
counterparties which had investment grade ‘A’ credit ratings. The Company considered the associated credit risk was low 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.
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 110 to 146 of the
Annual Report and Accounts.
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305
305
Financials continuedFinancials
Financials continued
Notes to the parent company financial statements
Continued
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.
During the year ended 31 December 2022, the Company entered into the following transactions with related parties.
Dividend income from other Group entities
Interest income from other Group entities
Impairment of investment in subsidiaries
Expense to other Group entities
Interest expense to other Group entities
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
2022
£m
455
124
579
–
246
60
306
2022
£m
2,004
29
19
2,598
2,004
2022
£m
2,424
14
43
2,481
1,246
2021
£m
957
111
1,068
43
205
43
291
2021
£m
1,234
35
616
1,885
784
2021
£m
300
14
415
729
300
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.
A Barbour
A Briggs
R Thakrar
S Bruce
K Green
H Iioka
K Murray
J Pollock
B Richards
M Semple
N Shott
K Sorenson
10 March 2023
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 and the assets held by the non-controlling interests
in consolidated collective investment schemes.
The following table provides an overview of the exposure by asset category of the Group’s life companies’ shareholder and policyholder funds:
Shareholder
and non-profit
funds1
£m
4,385
Participating
supported1
£m
1,027
Participating
non-
supported2
£m
5,312
Unit-linked2
£m
6,445
4,913
1,691
922
1,205
686
509
1,660
769
1,104
3,934
13,895
31,288
109
68
–
(1,238)
34,612
–
34,612
260
242
–
–
1
–
–
–
–
–
1,118
1,621
46
22
–
(506)
2,210
–
2,210
15,065
1,717
–
1
2
–
100
8
–
–
13,067
29,960
17,114
1,698
–
738
54,822
–
54,822
13,212
2,341
–
–
4
–
8
2
–
–
33,515
49,082
94,462
5,361
786
9,271
165,407
(8,312)
157,095
31 December 2022
Carrying value
Cash and cash equivalents
Debt securities – gilts and foreign government bonds
Debt securities – other government and supranational
Debt securities – infrastructure loans – project finance3
Debt securities – infrastructure loans – corporate 4
Debt securities – local authority loans5
Debt securities – loans guaranteed by export credit agencies and
supranationals6
Debt securities – private corporate credit 7
Debt securities – loans to housing association 8
Debt securities – commercial real estate loans9
Debt securities – equity release mortgages9
Debt securities – other debt securities
Equity securities
Property investments
Income strips9
Other investments10
Total Life Company assets
Less assets held by disposal groups11
At 31 December 2022
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 groups11
Total Group consolidated assets excluding amounts classified as held for sale
Comprised of:
Investment property
Financial assets
Cash and cash equivalents
Derivative liabilities
Total
£m
17,169
33,450
5,991
922
1,206
693
509
1,768
779
1,104
3,934
61,595
111,951
111,731
7,149
786
8,265
257,051
(8,312)
248,739
502
1,071
4,213
1,147
255,672
3,727
248,981
8,839
(5,875)
255,672
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 Total infrastructure loans – project finance of £922 million include £882 million classified as Level 3 debt securities in the fair value hierarchy.
4 Total infrastructure loans – corporate of £1,206 million include £1,175 million classified as Level 3 debt securities in the fair value hierarchy
5 Total local authority loans of £693 million include £596 million classified as Level 3 debt securities in the fair value hierarchy.
6 Total loans guaranteed by export credit agencies and supranationals of £509 million include £402 million classified as Level 3 debt securities in the fair value hierarchy.
7 Total private corporate credit of £1,768 million include £1,422 million classified as Level 3 debt securities in the fair value hierarchy.
8 Total loans to housing associations of £779 million include £691 million classified as Level 3 debt securities in the fair value hierarchy.
9 All commercial real estate loans, equity release mortgages and income strips are classified as Level 3 debt securities in the fair value hierarchy.
10 Includes policy loans of £11 million, other loans of £398 million, net derivative liabilities of £(1,837) million, reinsurers’ share of investment contracts of £9,088 million and other investments
of £605 million.
11 See note A6.1 to the consolidated financial statements for further details.
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307
307
Financials continuedFinancials
Financials continued
Additional life company asset disclosures
Continued
Shareholder
and non-profit
funds1
£m
5,437
8,687
2,381
1,026
1,118
1,140
373
1,928
1,161
1,317
4,214
16,713
40,058
122
76
–
623
46,316
–
46,316
Participating
supported1
£m
1,644
311
318
–
Participating
non-
supported2
£m
7,103
20,623
2,088
1
Unit-linked2
£m
9,691
14,170
3,051
–
–
–
1
–
1,432
2,062
61
26
–
341
4,134
–
4,134
10
–
169
9
16,274
39,174
20,386
2,248
–
3,098
72,009
–
72,009
6
–
27
3
28,218
45,475
113,779
7,906
886
10,119
187,856
(11,676)
176,180
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 loans – project finance3,4
Debt securities – infrastructure loans – corporate3,5
Debt securities – local authority loans and US municipal bonds3,6
Debt securities – loans guaranteed by export credit agencies and
supranationals3,7
Debt securities – private corporate credit3,8
Debt securities – loans to housing associations 3,9
Debt securities – commercial real estate loans3,10
Debt securities – equity release mortgages 3,10
Debt securities – other debt securities
Equity securities
Property investments
Income strips3,10
Other investments11
Total Life Company assets
Less assets held by disposal group 12
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 group 12
Total Group consolidated assets excluding amounts classified as held for sale
Comprised of:
Investment property
Financial assets
Cash and cash equivalents
Derivative liabilities
Total3
£m
23,875
43,791
7,838
1,027
1,118
1,156
373
2,125
1,173
1,317
4,214
62,637
126,769
134,348
10,256
886
14,181
310,315
(11,676)
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 The illiquid asset classes have been represented to align with those used in the Group's Internal Model.
4 Total infrastructure loans – project finance of £1,027 million include £967 million classified as Level 3 debt securities in the fair value hierarchy.
5 Total infrastructure loans – corporate of £1,118 million include £1,074 million classified as Level 3 debt securities in the fair value hierarchy.
6 Total local authority loans and US municipal bonds of £1,156 million include £917 million classified as Level 3 debt securities in the fair value hierarchy.
7 Total loans guaranteed by export credit agencies and supranationals of £373 million include £219 million classified as Level 3 debt securities in the fair value hierarchy.
8 Total private corporate credit of £2,125 million include £1,488 million classified as Level 3 debt securities in the fair value hierarchy.
9 Total loans to housing associations of £1,173 million include £1,022 million classified as Level 3 debt securities in the fair value hierarchy.
10 All commercial real estate loans, equity release mortgages and income strips are classified as Level 3 debt securities in the fair value hierarchy.
11
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.
12 See note A6.1 to the consolidated financial statements for further details.
The following table provides a reconciliation of the total life company assets to the Assets under Administration (‘AUA’) as at 31 December 2022 detailed
in the Business Review on page 37.
Total Life Company assets excluding amounts classified as held for sale
Off-balance sheet AUA1
Assets Under Administration
2022
£bn
248.7
10.3
259.0
2021
£bn
298.6
11.8
310.4
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.
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.
Sector analysis of shareholder and non-profit fund bond portfolio
Industrials
Basic materials
Consumer, cyclical
Technology and telecoms
Consumer, non-cyclical
Structured finance
Banks2
Financial services
Diversified
Utilities
Sovereign, sub-sovereign and
supranational3
Real estate
Investment companies
Insurance
Oil and gas
Collateralised debt obligations
Private equity loans
Infrastructure
Equity release mortgages4
At 31 December 2022
AAA
£m
–
–
–
186
246
–
526
139
–
19
932
76
1
22
–
–
–
–
2,216
4,363
AA
£m
395
1
311
288
328
–
464
401
5
141
5,838
234
125
354
132
7
–
123
852
9,999
A
£m
252
130
314
517
802
38
2,919
100
29
727
509
2,590
–
321
346
–
7
60
810
10,471
BBB
£m
643
6
111
551
231
–
344
68
–
1,353
116
1,053
5
70
55
–
69
1,208
56
5,939
BB & below1
£m
11
–
67
–
–
–
39
19
–
–
2
180
–
43
–
–
–
155
–
516
Total
£m
1,301
137
803
1,542
1,607
38
4,292
727
34
2,240
7,397
4,133
131
810
533
7
76
1,546
3,934
31,288
308
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309
309
4 The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.
Includes unrated holdings of £108 million.
1
2 The £4,292 million total shareholder exposure to bank debt comprised £3,345 million senior debt and £947 million subordinated debt.
3
Includes £686 million reported as local authority loans, £1,660 million reported as private corporate credit and £509 million reported as loans guaranteed by export credit agencies
and supranationals in the summary table on page 307.
Financials continuedFinancials
Financials continued
Additional life company asset disclosures
Continued
Sector analysis of shareholder and non-profit fund bond portfolio
The following table sets out the debt security exposure by country of the shareholder and non-profit funds of the life companies:
Industrials
Basic materials
Consumer, cyclical
Technology and telecoms
Consumer, non-cyclical
Structured finance
Banks2
Financial services
Diversified
Utilities
Sovereign, sub-sovereign and
supranational3
Real estate
Investment companies
Insurance
Oil and gas
Collateralised debt obligations
Private equity loans
Infrastructure
Equity release mortgages4
At 31 December 2021
AAA
£m
–
–
11
165
258
–
662
51
–
25
1,465
27
30
16
–
–
–
–
2,085
4,795
AA
£m
165
1
438
268
271
–
769
281
6
121
9,983
183
200
428
147
8
–
84
1,144
14,497
A
£m
329
166
461
592
966
52
2,750
382
28
1,304
827
3,364
2
426
381
–
–
236
963
13,229
BBB
£m
820
29
302
735
338
–
578
147
–
1,272
109
757
–
38
81
–
26
1,620
–
6,852
BB & below1
£m
6
–
148
3
–
–
19
5
–
2
–
254
–
22
–
–
–
204
22
685
Total
£m
1,320
196
1,360
1,763
1,833
52
4,778
866
34
2,724
12,384
4,585
232
930
609
8
26
2,144
4,214
40,058
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 local authority loans & US municipal bonds, £42 million reported as private corporate credit and £205 million reported as loans guaranteed by export
credit agencies and supranationals in the summary table on page 308.
Analysis of shareholder debt security
exposure by country
UK
Supranationals
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Australia
Canada
Mexico
Other – non-Eurozone 1
Other – Eurozone
Total shareholder debt securities
Sovereign, sub-
sovereign and
supranational
2022
£m
5,914
541
317
46
153
24
–
–
17
56
28
1
6
2
252
40
7,397
Corporate
and other
2022
£m
13,781
45
5,122
716
921
417
145
74
103
118
83
386
385
137
1,241
217
23,891
Sovereign, sub-
sovereign and
supranational
2021
£m
10,216
800
340
112
230
117
–
–
26
60
39
1
99
2
288
54
12,384
Total
2022
£m
19,695
586
5,439
762
1,074
441
145
74
120
174
111
387
391
139
1,493
257
31,288
Corporate
and other
2021
£m
17,076
–
4,881
418
1,207
769
171
57
105
22
111
503
303
192
1,579
280
27,674
Total
2021
£m
27,292
800
5,221
530
1,437
886
171
57
131
82
150
504
402
194
1,867
334
40,058
1 There was no shareholder exposure to Russia, Ukraine and Belarus at 31 December 2022. In the prior year, this included £2 million sovereign debt and £21 million corporate and other debt
with exposure to Russia only.
4 The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.
5 The illiquid asset classes have been represented to align with those used I the Group's Internal Model.
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Financials continuedFinancials
Financials continued
Additional capital disclosures
PGH PLC Solvency II surplus
The PGH plc surplus at 31 December 2022 is £4.4 billion (2021: £5.3 billion).
Own Funds
SCR
Surplus
31 December
2022
Estimated
£bn
11.1
(6.7)
4.4
31 December
2021
£bn
14.8
(9.5)
5.3
Calculation of group solvency
The Group 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:
Longevity
Credit
Persistency
Interest rates
Operational
Swap spreads
Property
Other market risks
Other non-market risks
Total pre-diversified SCR
Breakdown of SCR
The Group operates one single 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 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:
31 December 2022
Estimated
ReAssure and
SLIDAC
Standard Formula
%
17
19
28
6
4
–
1
14
11
100
Internal Model
%
15
17
18
8
8
2
4
15
13
100
31 December 2021
ReAssure and
SLIDAC
Standard Formula
%
21
21
22
8
3
–
1
14
10
100
Internal Model
%
22
18
20
9
6
3
4
12
6
100
Tier 1 – Unrestricted
Tier 1 – Restricted
Tier 2
Tier 3
Total Own Funds
31 December 2022
Estimated
£bn
7.1
1.0
2.6
0.4
11.1
31 December 2021
£bn
9.9
1.1
2.9
0.9
14.8
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.
PGH plc’s unrestricted Tier 1 capital accounts for 63% (2021: 67%) 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.
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 internal model by the PRA during the year.
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 £0.2 billion (2021: £0.7 billion) and the deferred tax asset of £0.2 billion (2021: £0.2 billion).
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 2022 is £2.3 billion (2021: £3.0 billion).
PGH plc’s Eligible Own Funds to cover MGSCR is £8.4 billion (2021: £11.5 billion) leaving an excess of Eligible Own Funds over MGSCR of £6.1 billion
(2021: £8.5 billion), which translates to an MGSCR coverage ratio of 369% (2021: 387%).
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313
Financials continuedFinancials
Financials continued
Alternative performance measures
The Group assesses its financial position and performance based on a range of measures. Some of these are management derived
measures that 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
Reconciliation to
financial statements
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.
A reconciliation from the
Group’s IFRS statement of
consolidated financial position
to the Group’s AUA is provided
on page 309.
A reconciliation of adjusted
operating profit to the IFRS
result before tax attributable
to owners is included in the
business review on page 38.
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.
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 statement of
consolidated financial position
on pages 170 and 172 and the
analysis of borrowings note
on page 217.
Assets under
administration
Adjusted
operating profit
Fitch
leverage ratio
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 statement of consolidated financial
position together with certain assets
administered by the Group for which
beneficial ownership resides with customers.
Adjusted operating profit is a financial
performance measure based on expected
long-term assumptions. It is stated before tax
and excludes amortisation and impairments
of intangibles, finance costs attributable
to owners and other items which in the
Director’s view should be excluded by
their nature or incidence to enable a full
understanding of financial performance.
Items excluded from adjusted operating
profit are referred to as non-operating items.
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.
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 excluding subordinated liabilities
qualifying as Tier 1 Own Funds under
Solvency II. Equity is defined as the sum of
equity attributable to the owners of the
parent, non-controlling interests, the
unallocated surplus, subordinated liabilities
qualifying as Tier 1 Own Funds under
Solvency II and the Tier 1 Notes. Values for
debt and equity are adjusted to allow for the
impact of currency hedges in place over
foreign currency denominated debt.
APM
Definition
Why this measure is used
Group In-force
Long-term Free
Cash (‘Group
in-force LTFC’)
Group in-force LTFC represents the cash
expected to be available over time to fund
future dividends from today’s in-force
business. It is defined as the estimated
lifetime cash generation from our in-force
business, plus Group cash held in the
Holding Company, less outstanding
shareholder debt, committed M&A and
transition costs, and interest on debt
until maturity.
Group in-force LTFC provides a measure
of the Group’s total long-term cash
available for operating costs, interest,
growth and shareholder returns. Increases
in Group in-force LTFC will be driven by
sources of long-term cash i.e. new business
and over-delivery of management actions.
Decreases in Group in-force LTFC will
reflect the uses of cash at holding company
level, including expenses, interest,
investment in BPA and dividends.
The calculation for the LTIP performance
metric excludes any future shareholder
dividends and is before interest on debt
until maturity.
Incremental new business 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.
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 new
business
long-term cash
generation
Life Company
Free Surplus
Operating
companies’
cash generation
The Solvency II surplus of the Life
Companies that is in excess of their
Board approved capital according to
their capital management policies.
Represents the net cash remitted from the
operating entities to the Group, supported
by the free surplus above capital
requirements in the life companies, which
is generated through margins earned on
different life and pension products and the
release of capital requirements, and group
tax relief.
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.
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. The AIP
performance metric ‘cash generation’
is aligned to this definition.
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.
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.
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 Group
in-force 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 217.
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.
Please see business review
section on page 35 for
further analysis of the
solvency positions of the
Life Companies.
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 307.
Further details of the
Shareholder Capital Coverage
Ratio and its calculation
are included in the business
review on page 34.
Policy for making pro forma adjustments in the Annual Report and Accounts
Pro forma adjustments will be used in the Annual Report and Accounts (‘ARA’) where management considers that they allow the users
of the ARA to better understand the financial performance, financial position, cash flows or outlook of the Group.
Examples of where pro forma adjustments may be used are in relation to acquisitions or disposals which are material to the Group,
changes to the Group’s capital structure or changes in reporting frameworks the Group applies such as Solvency II or IFRS. Where pro
forma adjustments are considered necessary for the understanding of the financial performance, financial position, cash flows or
outlook of the Group these will be clearly labelled as pro forma with a clear explanation provided as to the reason for the adjustments
and the Key Performance Indicators, Alternative Performance Metrics and other performance metrics impacted.
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315
Financials Additional
information
Shareholder Information
Glossary
Online resources
Forward looking Statements
318
320
325
326
316
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317
Additional Information Shareholder information
Shareholder information
Annual General Meeting
Our Annual General Meeting (‘AGM’) will be held on 4 May 2023 at 10.00am.
The voting results for our 2023 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)
750
700
650
600
550
500
450
400
Jan
2022
Feb
2022
Mar
2022
Apr
2022
May
2022
Jun
2022
Jul
2022
Aug
2022
Sep
2022
Oct
2022
Nov
2022
Dec
2022
Phoenix Group
FTSE 350 Life Assurance
FTSE 100
Shareholder profile as at 31 December 2022
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
507
593
177
516
83
206
2,082
%
24.35
28.48
8.50
24.78
3.99
9.90
No. of
shares
231,702
1,450,606
1,261,277
34,177,318
29,606,876
933,624,698
1,000,352,477
%
0.02
0.14
0.13
3.42
2.96
93.33
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 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.
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.
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.
Dividend reinvestment plan
The Company does not currently offer a dividend
reinvestment plan.
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 – 2022 final dividend
Ex-dividend date
Record date
Payment date for the recommended final dividend
30 March 2023
31 March 2023
10 May 2023
Group financial calendar for 2023
Annual General Meeting
Announcement of unaudited
six months’ Interim Results
*see website for announcement dates
4 May 2023
September 2023*
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319
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.
Adjusted operating profit
Adjusted 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.
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 314.
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.
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.
Confederation of British Insurers (‘CBI’)
The CBI is a not-for-profit organisation that represents 190,000
businesses. It provides a voice for firms at a regional, national and
international level to policymakers.
COP27
The 27th United Nations Climate Change Conference of the Parties held
in Sharm el Sheikh (Egypt) in November 2022.
Customer
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. The number of customers is measured as number
of lead policyholders.
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.
Department for Business & Trade
The Department for Business & Trade (formerly the Department for
Business, Energy & Industrial Strategy (‘BEIS’)) is a ministerial department
in the UK.
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.
Economic assumptions
Assumptions related to future interest rates, inflation, market value
movements and tax.
Equity release mortgage (‘ERM’)
An equity release mortgage 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 Conduct Authority (‘FCA’)
The conduct regulator for around 50,000 financial services firms and
financial markets in the UK and the prudential supervisor for 48,000 firms.
Financial leverage
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 excluding subordinated liabilities qualifying as Tier 1
Own Funds under Solvency II. Equity is defined as the sum of equity
attributable to the owners of the parent, non-controlling interests, the
unallocated surplus, subordinated liabilities qualifying as Tier 1 Own
Funds under Solvency II and the Tier 1 Notes. Values for debt and equity
are adjusted to allow for the impact of currency hedges in place over
foreign currency denominated debt.
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.
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.
FTSE Women Leaders review
An independent, business-led framework supported by the Government,
which sets recommendations for Britain’s largest companies to improve
the representation of women on boards and in leadership positions.
It continues the work of the Hampton-Alexander and Davies Reviews.
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.
Group in-force Long-term Free Cash (‘Group in-force LTFC’)
Group in-force LTFC is the cash available to shareholders. It is defined as
the estimated lifetime cash generation from our in-force business, plus
Group cash held in the Holding Company, less outstanding shareholder
debt, committed M&A and transition costs, and interest on debt until
maturity. The calculation for the LTIP performance metric excludes any
future shareholder dividends and is before interest on debt until maturity.
Guaranteed Annuity Rate
A rate available to certain pension policyholders to acquire an annuity
at a contractually guaranteed conversion rate.
HMRC
His 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.
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Additional Information Glossary continued
IFRS
International Financial Reporting Standards – Accounting standards,
interpretations and the framework adopted by the International
Accounting Standards Board.
Incremental new business 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 is stated on an undiscounted basis.
Incremental new business long-term cash generation (less strain)
plus Own Funds impacting management actions
This AIP performance metric measures value creation with incremental
new business long-term cash generation (less strain) representing the
increase in the expected future operating companies’ cash generation
to arise as a result of new business transacted in a period. It is stated
on an undiscounted basis. Own Funds impacting management actions
reflect the value of actions which improve Solvency Own Funds.
In-force
Long-term business written before the period end and which has
not terminated before the period end.
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.
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.
Internal rate of return (‘IRR’)
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.
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 was launched in 2022. The research provides
a rich picture of people’s financial readiness for longer lives across the UK.
LTIP
Long-Term Incentive Plan – The part of an executive’s remuneration
designed to incentivise the creation of 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.
Management actions
Management actions are used to define the financial impacts of
programmes of activity instigated and undertaken by the Group to
enhance shareholder outcomes. Such actions will be undertaken to either
increase Shareholder Own Funds (and therefore increase future organic
cash generation) or to reduce SCR (thereby accelerating expected
cash generation). Examples of management action activities include
investment into higher yielding asset types, optimisation of asset and
liability matching positions, and cost reduction initiatives.
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.
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.
Net flows
Represents the difference between the inflows (premiums) and outflows
(claims) and excludes market movements.
Net operating cash receipts
This LTIP performance metric represents cash generation after allowing
for corporate expenses and pension contributions.
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.
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 .
Open business
The Group’s business segment where products are actively marketed
to new and existing customers.
Open (pensions and savings) net flows
This AIP metric measures business growth and retention in the Pensions
and Savings businesses. It reflects the movement in assets for the Pensions
and Savings business during the period. It is the difference between the
inflows (premiums) and outflows (claims) and excludes market movements.
Operating companies
Refers to the trading companies within the Phoenix Group.
Operating companies’ cash generation
Represents the net cash remitted from the operating entities to the Group,
supported by the free surplus above capital requirements in the life
companies, which is generated through margins earned on different life
and pension products and the release of capital requirements, and group
tax relief.
Operations intensity metrics
Metrics based on Scopes 1 and 2 emissions within Phoenix Group’s
occupied premises.
Origo
An electronic pensions transfer system.
OTC
Over-the-Counter financial instruments are traded directly between
two parties without a broker or exchange market.
Own funds
Under Solvency II, own funds refers to the regulatory capital available
to cover capital requirements. 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.
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.
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. This includes the objective that
each FTSE 100 board 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.
Partnership for Carbon Accounting Financials (‘PCAF’)
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.
Persistency
This LTIP performance metric is set for the open business only and based
on a principle of protecting value, with a target based on the best estimate
assumption of persistency at the start of the performance period. This is
measured on a product by product basis with the average value of each
product then used to create a single weighted average persistency rate.
Further details of persistency insurance risk are covered in section F4 of
the consolidated financial statements.
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.
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.
ReAssure
The companies comprising ReAssure Limited, ReAssure Life Limited and
Ark Life Assurance Company DAC businesses which were acquired on
22 July 2020. Ark Life Assurance Company DAC was subsequently
disposed of by the Group on 1 November 2021.
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.
Return on shareholder value
Shareholder value reflects the Group’s Eligible Own Funds adjusted to
remove amounts pertaining to unsupported with-profit funds, Group
pension schemes, the value of Shareholder debt and adjusted to remove
the short term impact economic movements in the performance period.
The return on shareholder value reflects excess return above risk free.
This is a LTIP performance metric for the 2020, 2021 and 2022 grants.
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’).
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Additional Information Glossary continued
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
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
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
thephoenixgroup.com/site-services/e-mail-alerts.aspx
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.
Shareholder value
The Group’s Eligible Own Funds adjusted to remove amounts pertaining
to unsupported with-profit funds, Group pension schemes, the value of
shareholder debt and adjusted to remove the short term impact economic
movements in the performance period. This is an AIP performance metric
for the 2022 period.
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’.
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.
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.
Task Force on Climate-related financial disclosures (‘TCFD’)
The 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.
Task Force on Nature-related financial disclosures (‘TNFD’)
The TNFD is a new global market-led initiative which aims to provide
financial institution and corporates with a complete picture of their
environmental risks and opportunities. The TNFD will deliver a framework
for organisations to report and act on evolving nature-related risks,
building on the success of the TCFD.
TCS BaNCS
TCS BaNCS is a state of the art Life and Pensions administration platform
operated by Tata Consultancy Services (‘TCS’).
Tier 1 Notes
The £500 million fixed rate reset perpetual restricted Tier 1 write down
Notes issued by Phoenix.
Transitional Measures on Technical Provisions (‘TMTP’)
The 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.
The Pensions Regulator (‘TPR’)
A non-departmental public body which regulates work-based pension
schemes in the United Kingdom.
Total Shareholder return (‘TSR’)
TSR is 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).
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.
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.
Windfall gains
A windfall gain may arise if the Company has experienced a significant
fall in its share price at the point of granting LTIP awards so the recipient
receives significantly more shares than in previous years, and this is
followed by a subsequent increase in share price at the point of vesting.
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.
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Additional Information
Forward-looking statements
Forward-looking statements
The 2022 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, political, social, environmental and business conditions; asset prices;
• market-related risks such as fluctuations in investment yields, interest rates and exchange rates, the potential for a sustained low-
interest rate or high-interest rate environment, and the performance of financial or credit 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’ regulations on the Group’s capital
maintenance requirements;
• the medium and long-term political, legal, social and economic effects of the COVID-19 pandemic and the UK’s exit from the
European Union;
• the direct and indirect consequences for European and global macroeconomic conditions of the Russia-Ukraine War and related or
other geopolitical conflicts;
• the impact of changing inflation rates (including high inflation) and/or 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 and implementing changes in IFRS 17 or any other regulatory, solvency and/or accounting standards,
inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and
and tax and other legislation and regulations in the jurisdictions 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 2022 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 2022 Annual Report
and Accounts.
The Group undertakes no obligation to update any of the forward-looking statements or data contained within the 2022 Annual Report
and Accounts or any other forward-looking statements or data it may make or publish.
The 2022 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 2022 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 2022 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 2022 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 2022
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Registered address
Phoenix Group Holdings plc
20 Old Bailey
London
England EC4M 7AN
Registered Number
11606773
thephoenixgroup.com