Helping people
secure a life
of possibilities
Annual Report and Accounts 2023
Phoenix Group Holdings plc
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Part of Phoenix Group
Part of Phoenix Group
Part of Phoenix Group
Who we are
We’re the UK’s largest long-term savings
and retirement business. Our purpose
is helping people secure a life of
possibilities, making better longer
lives a reality for all of us.
We’re here to create long-term value for
all our stakeholders, including our customers,
colleagues, investors and wider society.
We’re achieving this in many ways including
helping people engage with their financial
futures and using our voice to advocate on
their behalf. We’re focused on managing the risks
and maximising the opportunities presented by
the transition to net zero by 2050 to deliver good
outcomes for our customers and shareholders.
See How we deliver our purpose-led business on pages 4 to 9 to find out more
Our reporting
You can find out more about our activities,
financial performance, sustainability strategy
and our progress towards becoming a net
zero business by 2050 by visiting our website:
www.thephoenixgroup.com
Look out for these icons in the annual report:
Sustainability Report
Climate Report
For further reading in
the Annual Report
For more information read
our supplementary reports
Reference to further
reading online
Online Summary
ESG Data Appendix
2023 Performance
Key performance
indicators
Other performance
indicators
Total cash generation
Total ordinary dividend per share
£2,024m
(2022: £1,504m) REM APM
52.65p
(2022: 50.8p)
Incremental new business
long-term cash generation
£1,514m
(2022: £1,233m) REM APM
IFRS adjusted operating profit
£617m
(2022: £544m1,2) APM
Group Solvency II surplus
(estimated)
£3.9bn
(2022: £4.4bn)
IFRS loss after tax
£(88)m
(2022: £(2,6571,2)m)
Group Solvency II shareholder
capital coverage ratio (estimated)
Solvency II leverage ratio
176%
(2022: 189%) APM
36%
(2022: 34%) APM
All amounts throughout the
report marked with REM are KPIs
linked to Executive remuneration.
See Directors’ Remuneration report
on pages 111 to 140. All amounts
throughout the report marked with
APM are alternative performance
measures. Read more on page 312.
New business net fund flows
£6.7bn
(2022: £3.9bn) APM
The Strategic report was approved by the Board of Directors
on 21 March 2024 and signed on its behalf by
Andy Briggs
Group Chief Executive Officer
1 2022 restated comparative to reflect adoption of IFRS 17.
2
Incorporates changes to the Group’s methodology for determining
IFRS adjusted operating profit since HY 2023.
Phoenix Group Holdings plc Annual Report and Accounts 2023
1
In this report
Strategic report
2
2
4
At a glance
How we deliver our purpose-led business
10 Chair’s statement
12
16
Group Chief Executive Officer’s report
Investment case
18 Our growth drivers
20 Our business model
24 Our strategic priorities and KPIs
30 Business review
40
42
44
Non-financial and sustainability
information (‘NFSI’) statement
Streamlined Energy and Carbon
Reporting (‘SECR’) statement
Task Force on Climate-Related
Financial Disclosures (‘TCFD’)
summary report
46
Risk management
58 Viability statement
60 Corporate governance
60
Chair of the Group Board’s introduction
to governance
64 Board leadership and Company purpose
69 Division of responsibilities
74
Stakeholder engagement
78 Composition, succession and evaluation
92 Audit, risk and internal controls
104 Sustainability governance
108 Workforce engagement
111
Directors’ Remuneration report
141 Directors’ report
147 Statement of Directors’ responsibilities
149 Financials
316 Additional information
Strategic report At a glance
Our vision is to be the UK’s leading retirement savings
and income business. We offer a broad range of
savings and retirement income products to support
people across all stages of the savings life cycle from
18 to 80+, through our family of brands.
We offer a range of customer solutions across our businesses
Savings for retirement
Retirement income
Products and solutions that support customers
as they save for and transition to retirement:
Products and solutions that secure an income
for customers in their retirement:
• Defined contribution workplace pensions.
• Income drawdown and individual annuities.
• Retail savings for retirement.
• Pension consolidation.
• Legacy pensions and savings products.
• Defined benefit pension income.
• Home equity release.
See Our business model on pages 20 to 23 for more information
Our business
Business areas
c.£283bn
total assets under administration APM
c.7,800
colleagues as at 31 December 2023
c.12m
customers
c.£530m
annual dividend paid to shareholders
FTSE 100
and FTSE All World
Our family of brands
Standard Life has been trusted
to look after people’s life savings
and retirement needs for nearly
200 years.
SunLife’s straightforward
and affordable financial
products and services
are designed to meet the
needs of the over 50s.
Phoenix Life is a closed book
consolidator that has grown
from a series of acquisitions
and policy transfers throughout
their 200-year history.
ReAssure is a major life
and pensions consolidator
in the UK market.
With-Profits c.£39bn
We are a market leader in the safe
and efficient management of legacy
pensions and savings policies to deliver
better customer outcomes, with a range
of legacy With-Profits savings products
that are closed to new business that we
manage for our customers.
c.£175bn
c.£40bn
c.£29bn
Pensions and Savings
We help customers journey ‘to and
through’ retirement. Our Workplace
business supports people who save
through their Defined contribution
workplace pension scheme, and our
Retail business supports individual
customers to save for, transition to,
and secure an income in retirement.
Retirement Solutions
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.
Europe and Other
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.
For more information visit
thephoenixgroup.com/about-us/our-brands/
Financial metrics shown refer to the assets under administration by segment type APM.
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Strategic reportStrategic report How we deliver our
purpose-led business
Our purpose
Helping people secure a life of possibilities
Our vision
To be the UK’s leading retirement savings and income business.
Our strategic priorities
Our sustainability strategy
Grow
Meeting more of our existing customers’
needs and acquiring new customers.
See pages 24 to 25
Optimise
Optimise our scale in-force business.
See pages 26 to 27
Enhance
Transforming our operating model
and culture.
See pages 28 to 29
People
We want to help people live better longer lives.
This means tackling the pension savings gap
and supporting people to have better financial
futures through promoting financial wellness
and the role of good work and skills.
Planet
We want to help shape a better future.
This means delivering better outcomes for
our customers, playing a key role in delivering
a net zero economy by 2050 and reducing
our impact and dependency on nature.
Building a
sustainable business
We are committed to embedding sustainability
and best practice governance to maintain high
standards of oversight, integrity and ethics.
For more information view our reports
Sustainability Report
Climate Report
Our purpose drives everything
we do. It reflects our aim to make
better longer lives a reality for us all.
Better and
long-term
value for all
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Strategic reportStrategic report
Strategic report
Strategic report
Helping people
secure a life of
possibilities
As a purpose-led business we seek to
address the needs of a broad range of
stakeholders. Positive engagement and
successful outcomes are key to ensuring
a strong and sustainable business.
Providing certainty
in retirement
We are delivering new products and solutions
to provide more support to new and existing
customers as they journey to and through
retirement. In September, we launched a new
individual annuity product, the Standard Life
Pension Annuity, that pays customers a
guaranteed income for the rest of their life,
bought with some or all of the proceeds from
their pension plan. Available on the open market
to both new and existing customers, the launch
of this product has been welcomed by both
advisers and customers and we have seen
a strong pipeline of applications building.
With 9 in 10 people saying
income certainty in retirement
is important to them1, an annuity
is likely to be an ideal solution
for many.
Claire Altman, MD Individual Retirement Solutions
Encouraging a
national conversation
At Phoenix Group we recognise that we all need to
think differently about our futures, and the futures
of those we care about, if we are to lead better longer
lives. Research from our think tank, Phoenix Insights,
continues to highlight the scale and severity of under
saving for retirement in the UK. To encourage a national
conversation, we launched our ‘Let’s Start Talking’
campaign in 2023. It is designed to get people talking
about the need to think about how we live, work,
and save for the longer lives we are now leading.
The campaign features real people sharing their stories
and perspectives on preparing for the retirement they
want, and emphasises the need to take steps now to
make better longer lives a reality for all of us.
Through our Let’s Start Talking
campaign we reached over
4 million people, which inspired
conversations about how we live,
work, learn and save for the longer
lives we lead.
Ben Rhodes, Brand Director
Bridging the digital divide
We believe digital inclusion is a collective
responsibility and it’s vital we work in partnership
across the public, private and third sectors to
achieve it. We have successfully launched Digital
Skills Hubs across our customer brands, which
include online training videos and how-to guides.
This enables our customers to access and learn online
in their own time and at their own pace. We’re also
making sure our colleagues are fully informed about
digital inclusion, so that they can support our customers
better, and ensure we design and aim to deliver an
inclusive service for all our customers.
Supporting financial wellbeing
We want to help our customers to be empowered to take
charge of their finances, so that is why we’ve rolled out
Our Money Mindset solution to over 1.5 million Standard
Life Workplace pension scheme members. Money Mindset
is a digital platform that allows customers to monitor their
financial position. This better understanding helps put
them in a position to improve their financial wellbeing,
and the app provides the information they need to help
plan for the future.
75%1
of people don’t know
how much they have
in pension savings
1 Retirement Voice | Standard Life.
1 Standard Life partners with Moneyhub press release.
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Strategic report
Strategic report
Together we’re building a
purpose-led business, where
our people are proud of the
difference they make to our
customers and communities.
Sara Thompson, Group HR Director
Empowering
and inspiring
colleagues
Midlife MOT
Wealth, work and wellbeing
As average life expectancy continues to rise, many of
us will live and work for longer. The decisions we make
now will affect us for the rest of our lives, so there’s no
better time to start looking after our future. Launched
in 2023, our Midlife MOT assessment helps colleagues
take stock: to see where they’re going, where they
want to be and how to get there. It’s designed to help
colleagues, regardless of age, and focuses on the key
areas of wealth, work and wellbeing.
Age of Phoenix Group’s workforce
16–25
26–35
36–45
46–55
56–65+
9%
28%
29%
25%
9%
Investing
in a better
future
As the UK’s largest long-term savings and retirement
business, we recognise our responsibility to tackle climate
change. By taking the right actions to decarbonise,
we believe that we can manage the risks and maximise
the opportunities of climate change on behalf of our
12 million customers. And with £283 billion of assets
under administration, our scale means we can make
a real difference. This year we published our Net Zero
Transition Plan, which outlined the tangible steps we
will take to become a net zero business by 2050.
For more information view our
Net Zero Transition Plan
Delivering
attractive returns
for investors
Executing against our strategy
is driving growth which
underpins our progressive and
sustainable ordinary dividend
policy. This delivers a reliable
and attractive income for
our shareholders.
Rakesh Thakrar, Group Chief Financial Officer
For details on our investment
case see pages 16 to 17
Inspiring career
changes and
offering support
We believe that better career support, at all ages, allows
people to build and develop long and fulfilling careers.
Phoenix Insights is leading the way with a new campaign,
‘Careers can change’, to inspire people to see that their
careers can change successfully, by small incremental shifts
or total pivots. At the heart of this campaign is a new coalition
of experts and partners working with us. Together, we will
raise awareness of good quality, accessible career support
and make sure people are connected to it.
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Chair’s statement
Delivering
on our purpose
We want to help people journey
to and through retirement while
investing in a better future for us all.
Our approach focuses on two key
areas: People and Planet. We are
looking to address the UK pensions
savings gap and manage the risk and
opportunities of climate change.
Sabbatical reflections
1 December 2023 marked my return as Chair
of Phoenix Group, following a 14-month
sabbatical where I fulfilled the role of Lord
Mayor of the City of London. I am delighted
to be back and look forward to supporting
the continued evolution of our business.
As Lord Mayor it was my great privilege
and responsibility to represent and promote
the UK financial services industry. In doing
so, my sabbatical confirmed to me that
this industry is an essential element of the
UK economy, with a critical role to play in
supporting both economic growth and the
trajectory to net zero by 2050 through
sustainable investment. The clear feedback
from my international travels is that the UK
financial services industry is perceived as
market-leading and there is great optimism
about its future.
I would like to thank Alastair Barbour who
assumed the role of Chair in my absence.
He has made an enormous contribution
to Phoenix over his ten-year tenure as a
Director, and I wish him well for the future
now that he has stepped down from
the Board.
At Phoenix our purpose is our North Star and
it drives all that we do. I am delighted with the
progress we have made this year to bring about
better outcomes for all our stakeholders.
Nicholas Lyons, Chair of the Group Board
Delivering on our purpose
The pensions savings gap in the UK is
a growing societal problem. As the UK’s
largest long-term savings and retirement
business, we are striving to raise awareness
of this problem and advocate for the
changes needed to deliver the solutions
and help people secure a life of possibilities.
Strong cash generation provides
opportunity to invest and realise
our vision
The team has delivered strong cash
generation in 2023 with an acceleration
in the organic growth story clearly evident,
whilst at the same time maintaining a
resilient balance sheet.
We know that people can only save for
their retirement if they have access to
good work over their longer lives. That is
why we are playing a role in promoting
good work through Phoenix Insights,
working in collaboration with others
to influence government policy.
We are committed to innovating to
develop the retirement income solutions
of the future and we are advocating for
the removal of policy barriers to enable
us to support customers as they save for,
journey to, and secure income in, retirement.
More specifically we have recommended
a framework to support an increase in
auto-enrolment contributions from 8% to
12%, and we believe that guidance and
advice should be available for everyone,
not just those who can afford to pay for it.
We can drive good outcomes for our
customers and manage the risks of climate
change by delivering on our Net Zero
Transition Plan commitments, outlined in
our plan published in May, and by helping
to unlock the barriers to allow capital
to flow at scale into productive and
sustainable investments.
I was delighted that we were a leading
signatory and vocal proponent of the
Mansion House Compact when it was
unveiled in July. This seeks to address some
of the issues around investing in unlisted
equity, and the growth of UK companies
of the future. I have every confidence the
Compact will accomplish the dual aim of
securing a brighter future for retirees and
helping to channel billions of pounds into
the UK economy.
We are on a journey to deliver our vision
of becoming the UK’s leading retirement
savings and income business. The clear
strategic success in building the organic
growth business over the last three years
means we have reached a key milestone
on our journey, as we evolve the business.
The focus is now on investing to grow, optimise
and enhance the business even further.
Strategic outcomes support a new
dividend policy
I am delighted to announce that the Board is
recommending a 2.5% increase in the Group’s
2023 Final dividend to 26.65 pence per
share. This means the Group’s Total dividend
for 2023 will be 52.65 pence per share.
The Board is confident in the Group’s ability
to deliver the next phase of our strategic
journey, as we transition to our vision of
becoming the UK’s leading retirement savings
and income business. This has supported
our decision to move to a progressive and
sustainable ordinary dividend policy, which
is underpinned by the sustainable growth in
Operating Cash Generation we now expect
to deliver.
Thank you
Finally, I would like to take this opportunity to
thank the Board, our colleagues, our partners
and our wider stakeholders for their hard
work, dedication and support in delivering
another year of strong progress.
Nicholas Lyons
Chair of the Group Board
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.
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 any of the
Company’s employees;
the need to foster the Company’s
business relationships with
suppliers, customers and others;
the impact of the Company’s
operations on the community
and the environment;
the desirability of maintaining the
Company’s 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 74 to 77 of
the Corporate governance report.
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Strategic reportStrategic report Group Chief Executive Officer’s report
Successfully
delivering
our strategy
2023 has seen Phoenix Group
deliver significant strategic
progress and strong results,
further supporting our track
record of dividend growth.
I am delighted that 2023 was another year of strong
new business growth for Phoenix Group. Having now
built the component parts of a sustainably growing
business, the next stage on our journey will see us
grow, optimise and enhance our business so we can
meet more of our customers’ retirement needs and
deliver more value for our stakeholders.
Andy Briggs, Group Chief Executive Officer
Investing in 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 our
Retirement Solutions, Pensions and
Savings and European businesses.
The Standard Life brand has a deep
history and heritage, and is well known
and trusted by 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. As part
of our drive to deliver our growth
targets, we are committed to investing
in the brand through initiatives like our
Race for Life partnership and recent
advertising campaigns.
From a capital perspective, we saw
a reduction in our Solvency II surplus
to £3.9 billion (2022: £4.4 billion) and
our Shareholder Capital Coverage
Ratio (‘SCCR’) to 176% (2022: 189%)
after allocating capital into growth
opportunities. However, we continue to
operate towards the upper-end of our
140–180% SCCR operating range.
In terms of our earnings, our IFRS adjusted
operating profit increased by 13% to £617
million (2022: £544 million) supported
by growth in our Pensions and Savings
business. However, we reported an IFRS
loss after tax of £(88) million, reflecting
our investment into growth opportunities,
as well as integration and transformation
expenses in the period. However, this
was significantly lower than the 2022 loss
of £(2,657) million, benefiting from less
accounting volatility from market movements.
As a result of this strong strategic and
financial performance, the Board has
recommended a 2.5% increase in the
Final dividend of 26.65 pence per share,
bringing the Total 2023 dividend to
52.65 pence per share, extending our
strong track record of dividend growth.
A strategy supported by existing large
and growing markets
Phoenix Group is the UK’s largest long-term
savings and retirement business, managing
c.£283 billion of assets for c.12 million
customers. Our purpose of ‘helping people
secure a life of possibilities’ is embedded in
everything that we do and informs our single
strategic focus, which is to help customers
journey to and through retirement.
We have a diversified and balanced
business mix, across the long-term savings
and retirement market, which can be largely
categorised as ‘Pensions and Savings’ and
‘Retirement Solutions’. Around two-thirds
of our business is Pensions and Savings,
which principally consists of capital-light
fee-based products.
Delivering strong results
2023 has been another year of clear
strategic delivery for Phoenix.
We’re a highly cash generative business,
as demonstrated by the delivery of £2.0 billion
of total cash generation in 2023 (2022:
£1.5 billion), exceeding our upgraded target
of c.£1.8 billion target for the year. This was
supported by the completion of one of the
largest ever UK insurance Part VII transfers.
Executing against our strategic priorities
enabled us to deliver another record year
of new business long-term cash generation
(‘NB LTCG’) of £1.5 billion (2022: £1.2 billion).
This was supported by a c.70% increase
in new business net fund flows in 2023 to
£6.7 billion (2022: £3.9 billion). Performance in
our Pensions and Savings business included
the transfer of the Siemens workplace
scheme, one of the largest workplace
scheme transfers to have been tendered
in the UK market in recent years. This clearly
demonstrates the success we have had in
re-establishing the Standard Life brand
as a major workplace player. Growth in
our Retirement Solutions business was also
strong, driven by our Bulk Purchase Annuities
(‘BPA’) business, which saw the Group write
£6.2 billion of premiums during the year
(FY22: £4.8 billion) at a reduced capital strain.
• We are on a journey from being a closed-
book life consolidator to a purpose-led
retirement savings and income business
• Strong 2023 results delivered through
strategic execution
• We are balancing our investment to grow,
optimise and enhance our business
• Our strategy delivers sustainable,
growing Operating Cash Generation
that more than covers our recurring uses
and a growing dividend
• Phoenix will now operate a progressive
and sustainable ordinary dividend policy
£2.0bn
2023 Total cash generation
(2022: £1.5bn) REM APM
+2.5%
2023 Final dividend increase
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Strategic reportStrategic report Group Chief Executive Officer’s report continued
176%
Shareholder Capital
Coverage Ratio
(2022: 189%) APM
£6.7bn
New business net fund flows
(2022: £3.9bn) APM
£1.5bn
Incremental new business
long-term cash generation
(2022: £1.2bn) REM APM
The UK long-term savings and retirement
market is already large, with c.£3 trillion
of total stock, but it is also growing fast,
with annual flows of c.£150–200 billion.
The breadth of our product portfolio
means we are able to take advantage of
a number of growing market opportunities.
See pages 18 to 19 for ‘Our growth drivers’.
Embarking on the next stage of our journey
Back in 2020, we had a single core
capability, which was executing M&A
and integrating those businesses.
However, over the past three years
we have built a number of sustainably
growing organic businesses too.
This has seen us acquire and invest into the
trusted Standard Life brand, and re-establish
it amongst customers, corporates and advisers.
We have used that brand to help turbo-
charge our growth as we built a competitive
and capital efficient annuities business,
followed by our now large and rapidly
growing capital-light Workplace business.
In addition, we have built a highly-skilled
in-house asset management capability,
enabling us to efficiently manage our
third-party asset managers, and to create
long-term value through optimising our
c.£38 billion shareholder credit portfolio.
We have an ongoing programme of initiatives
to review our products and services and
over the past seven years, we have invested
significantly in focusing on good customer
treatments and outcomes across our
businesses. During that time, we have set
aside over £200m on reducing charges and
we are making planned investment to migrate
customers to more modern technology.
We are actively working to ensure we are well
positioned to comply fully with the upcoming
Consumer Duty requirements which come
into effect on 31 July 2024, for which we
set aside £70 million of Solvency II capital.
Our successful execution has enabled
us to prove “the wedge” hypothesis,
with the new business cash from our
Open businesses more than offsetting
the Heritage run-off. That means we are
today a sustainably growing business,
and no longer reliant on M&A.
The next phase of our strategy is therefore
about building on the strong foundations
we have developed, and completing
our full-service customer offering.
Phoenix Group is transitioning from a closed-book life consolidator
to a purpose-led retirement savings and income business
2020: closed-book life consolidator
2023: today
Phoenix
Life
Standard
Life
ReAssure
Heritage
business
Open
business
2026: purpose-led retirement savings
and income business
Innovative retirement income solutions
Pensions
and Savings
Retirement
Solutions
Integrate and Build
2021–2023
Grow, Optimise and Enhance
2024–2026
n
o
i
t
a
r
e
n
e
g
h
s
a
C
Open
Growing Operating
Cash Generation
Heritage
Heritage
Run-off
Proven the wedge
Sustainable cash generation
We will do this by building an innovative
range of retirement income solutions and
a compelling set of retail propositions,
supported by a digital customer interface
with personalised data, guidance and advice.
We are also now at the stage where we
can further simplify our organisational
structure, through integrating our Heritage
and Open businesses onto a single
Group-wide operating model. This will
enable us to grow faster, by offering all
of our customers, whether in an Open or
Heritage product, a seamless journey across
their savings life cycle. It will also further
enhance our existing cost efficiency.
The successful execution of our strategy
will enable us to win market share and grow
our business sustainably over time as we
journey towards our vision of becoming
the UK’s leading retirement savings and
income business.
Balancing investment across our
strategic priorities
To support us on our journey we have a
clear set of strategic priorities to 1) Grow
2) Optimise and 3) Enhance, which are
informed by – and in support – of our
ESG themes of Planet and People and
are underpinned by robust investment
programmes within our new capital
allocation framework. See pages 24 to 29
for more detail on our strategic priorities.
Firstly, we will Grow through building an
innovative range of retirement income
solutions, and a compelling set of Retail
propositions, supported by a digital customer
interface, with personalised data, guidance
and advice. We will also further strengthen
our Workplace proposition and optimise
our annuities business. This will require
c.£100 million of investment into our growth
propositions, alongside c.£200 million of
capital per annum into annuities, the outcome
of which is to support mid-single digit growth
in Operating Cash Generation over the
long term.
Our second priority is to Optimise. As part
of this we plan to continue our approach
of repaying M&A-related debt with surplus
cash. We expect to repay at least £500 million
of debt by the end of 2026, on top of the
c.£800 million we have repaid since 2020.
This will support us in getting to a c.30%
Solvency II leverage ratio by the end of 2026,
which we believe is an appropriate steady-
state level for our business, absent M&A.
We will also invest c.£100 million to enhance
our asset and liability optimisation capabilities.
This, alongside strong business growth, will
support us in delivering increased recurring
management actions of c.£400 million by 2026.
Our Enhance priority is designed to
support us in transforming our operating
model and culture, to create a leading,
cost efficient and modern organisation.
We continue to invest to complete our
remaining customer migrations onto TCS
Diligenta. In addition, we intend to invest to
improve the support we give our customers
throughout their lives and to drive scale cost
efficiencies by integrating our business
onto a single Group-wide operating model.
Together, these migration, transformation
and cost efficiency programmes will
require c.£500 million of investment.
Our focus on driving cost efficiency will
enable us to deliver c.£250 million of annual
cost savings by the end of 2026, which will
enhance all of our key reporting metrics.
We also continue to strive to make Phoenix
Group ‘the best place any of us have ever
worked’; through providing a great colleague
experience. We passionately believe that by
being diverse and inclusive we’ll be a better
organisation, we’ll make better decisions,
and we’ll do a better job of representing
our customers and communities.
Our new simplified, diverse and inclusive
organisational structure will better empower
our colleagues to make the right decisions
for our customers.
Demonstrating the long-term
sustainability of our business
Our strategy will support the delivery
of sustainable, growing cash generation,
a resilient capital position and
improved earnings.
As part of our evolved financial
framework we are introducing Operating
Cash Generation (‘OCG’) as a new
metric, to demonstrate the long-term
sustainability of our business.
OCG is the sustainable level of surplus
generation in our Life Companies, each and
every year, that is also then remitted as cash
to our Group Holding Company. See page
33 in our Business Review for more detail.
Executing against our strategic priorities
will help us to grow OCG by c.25% over
the next three years, from £1.1bn in 2023
to £1.4bn in 2026. After this time, we expect
it to grow at a sustainable, mid-single digit
growth rate over the long term.
Importantly, this OCG more than covers
our recurring uses, and a growing
dividend. Which generates excess
cash that can support additional
investment back into the business and/
or additional shareholder returns.
M&A can add further scale to our business
Our existing scale and the success of our
organic growth strategy mean that we
are no longer reliant on M&A to grow our
business and dividend, in the way we were
when I joined.
We continue to believe that M&A can
generate significant shareholder value,
as demonstrated by our strong track
record, and we see it as a potential lever
to add further scale to our business.
However, we now have a range of organic
growth opportunities available, in which to
deploy our excess cash at very attractive
returns, and so the bar for acquisitions is
now higher than it has ever been.
Outlook
The economic backdrop in the UK
means our societal purpose of helping
people secure a life of possibilities
has never been more important.
As we continue to strive to meet the needs
of our customers, colleagues and other key
stakeholders, this will support us in achieving
our vision of becoming the UK’s leading
retirement savings and income business.
We are investing to grow, optimise and
enhance our business to deliver this vision,
which will enable us to win market share and
grow our business sustainably over time.
As a result, the Board believes it is
now appropriate for us to move to a
progressive and sustainable ordinary
dividend policy, which is underpinned
by the sustainable, growing OCG we
expect to deliver over the long term.
We see this as a pivotal step in the
evolution of Phoenix Group’s investment
case, and it is a reflection of the Board’s
confidence in our future strategy.
Thank you
The fantastic progress Phoenix Group
has made this year could not have
been achieved without our exceptional
people. I would therefore like to thank my
colleagues throughout the Group for their
continued contribution and dedication.
I look forward to our team delivering another
year of significant progress in 2024.
Andy Briggs
Group Chief Executive Officer
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15
Strategic reportStrategic report
Investment case
How we generate
shareholder value
Our strategic priorities
will strengthen our
competitive advantages
Enabling our financial framework
and delivering a clear set of financial
outcomes for our shareholders
Supporting our new progressive
dividend policy
Grow
Optimise
Enhance
Cash
Growing Operating Cash Generation
that more than covers our recurring
uses and progressive dividend
For more information see our
Strategic priorities on pages 24 to 29
Customer access
With c.12 million customers, we have an unrivalled level of customer
access. This gives us deep customer insights that underpin our
developing propositions, enabling us to better meet their evolving
needs on their journey to and through retirement.
Capital efficiency
As a genuinely diversified long-term savings and retirement
business, we get greater diversification from our breadth of
products. Our capital position is also highly resilient, through our
core capabilities in risk management, and capital optimisation.
Cost efficiency
We have a significant cost efficiency advantage, which is enabled
through our customer administration and IT partnership with TCS.
We are looking to further improve our cost efficiency through the next
stage of our journey as we roll out our cost efficiency programme.
Capital
Resilient balance sheet that supports
investment to grow, optimise and
enhance our business
Earnings
Growing IFRS adjusted operating profit
For more information see the
Business review on pages 30 to 39
Operating Cash Generation
Mid-single digit
percentage growth over
the long term
Phoenix Group’s dividend policy
The Group operates a progressive and sustainable
ordinary dividend policy
The move to our new dividend
policy is supported by our strategy
to deliver sustainable, growing
Operating Cash Generation over the
long term, which more than covers
our uses and generates excess cash.
52.65p
2023 Total dividend per share
26.65p
2023 Final dividend per share
+2.5%
Increase in 2023 Final dividend
c.4%
13-year CAGR
+c.25%
£1.4bn
£1.1bn
Excess
cash
Dividend
Recurring
uses
2023
2026
140–180%
Shareholder Capital Coverage
Ratio operating range
c.30%1
Solvency II leverage ratio target
by the end of 2026
1 Assuming economic conditions in line with 31 December 2023.
IFRS adjusted operating profit
+c.50%
£900m
£617m
2023
2026
target
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17
Strategic reportStrategic report Our growth drivers
There is a huge societal need for what we do, as only c.10%
of individuals take advice on their journey to and through retirement,
and only 1-in-7 defined contribution (‘DC’) pension savers are on
track for a retirement income that maintains their current living
standards. Significant growth opportunities are available through
the provision of retirement income and savings solutions.
Organic growth
Opportunistic M&A
We have clear structural growth opportunities in the market…
Workplace
Retail
Bulk Purchase Annuities
Heritage M&A
The Workplace pension scheme market is growing
rapidly, driven by auto-enrolment, an ageing population,
the shift to Master Trust schemes, and the move from
defined benefit pension schemes to defined contribution
pension schemes.
People are increasingly seeking advice and guidance
on their journey to and through retirement, as responsibility
for retirement planning has now shifted towards individuals
away from corporates.
Corporates are de-risking their defined benefit pension
scheme liabilities through Bulk Purchase Annuities (‘BPA’)
transactions in order to focus on their core businesses.
This is fuelling increased demand for BPAs.
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 over time.
c.£40–50bn
of annual flows
c.£80–100bn
of annual flows
c.£40–60bn
of annual flows
c.£435bn
market opportunity
…which are accelerated by the current economic environment
Salary inflation and
full employment
Higher salary inflation and high levels
of employment have accelerated growth
from our existing Workplace pension
schemes. Despite cost-of-living pressures
the vast majority of consumers are not
opting out of making contributions into
their workplace schemes.
Lower market flows
The Retail market has slowed down in
this economic environment, with less
switching of flows between providers.
For Phoenix Group this is helpful,
given our scale in-force book, as it
helps us retain customers and extends
their savings life cycle with us.
Higher interest rates
Higher interest rates mean BPAs,
both buy-ins and buy-outs, are more
affordable for trustees, driving record
levels of demand.
M&A can add further
scale to our business
We can undertake M&A to:
• Acquire new customers
• Acquire capabilities
See our Strategic priorities section
on pages 24 to 29 for more information
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19
Strategic reportStrategic report Our business model
A growing
and
sustainable
business
Our purpose
Helping people secure
a life of possibilities
Our vision
To be the UK’s leading retirement
savings and income business.
As the UK’s largest long-term savings
and retirement business, our focus is
on offering the right retirement savings
and income products that meet the
needs of our customers today and
in the future.
h
t
l
a
e
W
What we do
We want to improve the financial futures
of our customers by offering a simple range
of innovative retirement products and solutions
to support them through their adult lives.
See pages 22 to 23 for our products and solutions
For more information on our family of brands visit
thephoenixgroup.com/about-us/our-brands/
How we do it
We have made excellent progress in
developing our capabilities to support
organic growth. We are now investing
to grow, optimise and enhance to build
out our capabilities even further and
increase efficiency.
See pages 24 to 29 for Our strategic priorities
Creating long-term value
Using our scale and ambition, we are
committed to creating long-term value
for all our stakeholders.
Lifetime
Transitioning
to retirement
• Pension
consolidation
Saving for
retirement
• Defined contribution
workplace pensions
• Retail savings for retirement
• Legacy pensions
and savings products
Securing income
in retirement
• Income drawdown
and individual annuities
• Defined benefit
pension income
• Home equity release
2020
2023
2026
Key capabilities on the journey to our vision
M&A execution and integration
A trusted and well-known consumer brand in Standard Life
Competitive and capital-efficient BPA business
Established and growing capital-light Workplace business
In-house asset management capability
Innovative retirement income solutions
Attractive Retail market propositions
Digital customer interface with personalised data, guidance and advice
Single and efficient Group-wide operating model
Strong financial outcomes
for our shareholders
• Sustainable, growing Operating Cash Generation
that more than covers our recurring uses and
progressive dividend
• Resilient balance sheet that supports investment,
underpinned by our 140–180% Shareholder Capital
Coverage Ratio operating range
• Growth in IFRS adjusted operating profit
• A progressive and sustainable ordinary dividend policy
Additional positive outcomes
for our other stakeholders
• Helping millions of people achieve a better longer life
• Managing the risks and opportunities presented by
climate change to deliver good customer outcomes
• Inspiring colleagues and attracting and developing
new top talent
See our Investment case on pages 16 to 17
See our Sustainability Report
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21
Strategic reportStrategic report
Our business model continued
Helping customers
journey to and
through retirement
We focus on meeting the long-term savings
and retirement needs of our customers by
providing the products they need through
our family of brands, as they accumulate wealth
through the savings phase, then transition
to securing income in retirement.
Saving for retirement
Retail savings
for retirement
We help retail customers both directly
and indirectly via financial advisers
by providing a range of pension and
investment solutions to support their
retirement ambitions, with a number
of innovative new products and
services in development that will
be launched shortly.
Saving for retirement
Defined contribution
workplace pensions
With a Defined Contribution (‘DC’)
workplace scheme individuals and typically
their employer pay into their pension on a
regular basis as they work. Standard Life is
one of the leading UK providers that help
employers and trustees set up high-quality,
easy-to-run workplace pension schemes for
their employees, and offer a leading digital
interface for their employees to track and
engage with their pension.
Customer engagement is at the heart of our
proposition and its why we’ve invested heavily
in our app which is consistently highlighted by
clients as a strength. Similarly, our dedicated
Vulnerable Customer team means we’re set up
to support the customers who need us most.
Gail Izat, Managing Director of Workplace
Saving for retirement
Legacy pensions and
savings products
Over the years, Phoenix Group has grown
through the acquisition of closed books of
legacy pension and insurance policies from
a number of companies. We are the market
leader in the safe and efficient management
of legacy pensions and savings policies, with
a strong track record of delivering better
outcomes for customers of longstanding
policies that are no longer sold in the
wider market.
Transitioning to retirement
Pension
consolidation
For people who have worked multiple
jobs over the years, they may have been
auto-enrolled into a number of pension
plans by past employers, alongside any
pension plans that they may have
opened directly. With Standard Life’s
pension transfer and consolidation
expertise, customers can combine their
pension plans into a single plan, making
things easier to track and manage.
Standard Life has plans to launch
direct advisory capability in the near
future and continues to develop
close relationships with third party
financial advisers.
We are delighted to have
partnered with Standard
Life, to provide long-term
security and financial
certainty for all members.
Brian McGowan, Chairman of Chubb
Pension Plan and Chubb Security
Pension Fund Trustee Boards
Securing income in retirement
Defined benefit
pension income
Also known as a ‘final salary’ pension,
a Defined Benefit (‘DB’) pension pays out
a guaranteed income to members for life
through retirement, but they are generally no
longer offered to employees. The remaining
DB pension schemes are exposed to a range
of market and demographic risks that the
sponsoring employer is responsible for.
To remove these risks and enhance benefit
security for scheme members, sponsors and
trustees look to insure some or all of their
pension scheme obligations with a specialist
insurance company like Standard Life.
Securing income in retirement
Home equity release
Our Mortgage Solutions business seeks
to enable homeowners to access their
property wealth in later life to financially
support their retirement aspirations, by
partnering with established lenders to fund
innovative mortgage solutions in the market.
Securing income in retirement
Income drawdown
and individual
annuities
Income drawdown provides a flexible way
for our customers to take income from their
pension pot as they can take out money
whenever they like, while our individual
annuity product offers pension savers secure
guaranteed regular income certainty in
retirement. Many customers have the need
for a blend of both and Standard Life is
working on a range of innovative products
to address this.
A key part of our growth strategy
is leveraging the power of the
Standard Life brand which we utilise
across our products to support
customers as they save for, transition
to and secure income in retirement.
For more information visit
standardlife.co.uk
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Strategic reportStrategic report Strategic report
Our strategic priorities and KPIs
Grow
Meeting more of our existing customers’
needs and acquiring new customers
2023 highlights
• £1.5bn of new business long-term cash generation in 2023,
achieving our 2025 target two years early
• Won one of the largest UK workplace transfers in recent years
• Successful launch of new individual annuity product
• Reached over 4 million people with our awareness campaign
on longer lives and under saving for retirement
+72%
2023 year-on-year increase in
new business net fund flows
(2022: £3.9bn) APM
£6.2bn
Bulk Purchase Annuity (‘BPA’)
premiums written
(2022: £4.8 billion) APM
113
New Workplace scheme wins
(2022: 76)
2.7%
BPA capital strain (pre-Capital
Management Policy basis)
(2022: 3.2%) APM
Phoenix Group has significant growth
opportunities available, both through meeting
more of our existing customers’ needs, on their
journey to and through retirement, and by
acquiring new customers as well. Given the
significant market opportunities available to
us (see our growth drivers on pages 18 and 19)
we have consciously chosen to invest heavily
in order to accelerate our organic growth.
We also continue to engage people in their
financial futures, and to advocate for broader
societal action to tackle under saving and
encourage financial inclusion, which is a
critical part of our commitment to our purpose.
Delivering strong growth in our
capital-light fee-based businesses
Strong performance in Workplace has
underpinned the growth in our capital-light
fee-based business.
Workplace has a unique attractive characteristic
whereby the growth is principally driven
by high retention of existing customers.
This enables us to benefit from the natural
compounding effect of this business model,
which comes from new joiners and salary
inflation increases within existing schemes.
Given this characteristic it is extremely
encouraging that we have not seen any
material scheme losses in 2023 and do
not anticipate any in 2024 either.
In parallel our new scheme wins continue
to accelerate, as we focus on the fast
growing Master Trust segment of the
market. Importantly we continue to win
larger schemes, in addition to the smaller
ones. For example, in 2023 our c.£2 billion
of new Workplace scheme assets transferred
included the transfer of the Siemens
workplace scheme, one of largest scheme
transfers to have been tendered in the UK
market in recent years.
We also expect to see further new scheme
assets transfer to Phoenix Group in 2024
and 2025 based on secured scheme
wins, but this will grow as we win more
schemes over the course of 2024, providing
further momentum in both fund inflows
and cash generation. We are confident
of winning further schemes over time
and are currently quoting on a significant
pipeline of new workplace schemes.
Disciplined participation in a busy
annuity market
Within our Retirement Solutions business,
the majority of the growth came from
BPA, supported by a busy annuity market.
We have been an active participant, writing
£6.2 billion of premiums (2022: £4.8 billion),
but remain disciplined in our approach.
We will continue to grow our annuities
business, to take advantage of the strong
demand from corporates and consumers
in this market.
Supporting
vulnerable customers
The needs of our customers are always
changing and so it is important our
services can adapt to meet these changing
needs. Our vulnerability strategy provides
support for those most at risk of harm, and
aims to continually raise standards across
our industry.
Our annual Vulnerable Customer Summits
share best practice on how the industry
can tackle the increasing issue of financial
vulnerability in the UK. Our most recent
one, in February 2024, was attended by
over 80 institutions.
Read the whitepaper here
Priorities for 2024
• Build a range of attractive Retail
market propositions and innovative
retirement income solutions
Invest c.£200m p.a. into annuities
•
• Increase awareness of the
pensions savings gap and
motivate at least one million
people to action through our
brand campaign
However, due to the success we have had
in building our scale and driving capital
efficiency, we can now invest less capital
going forward, while broadly maintaining
our current volumes. We therefore expect
to invest c.£200 million of capital annually
from 2024. This also reflects our strategy
of driving balanced growth and reflects the
confidence we have in our future capital-
light Pensions and Savings growth.
We also successfully launched our Standard
Life annuity product in September, for which
initial feedback has been encouraging,
demonstrating our ability to supplement
our existing customer solutions.
Investing in new and innovative products
We have been investing to establish
strong foundations and develop attractive
propositions in the Retail market to become
a leading consolidator for our customers.
Our Retail business remains in net fund
outflow at present, but through better
supporting the 1-in-5 UK adults who are
already Phoenix Group customers, we will
be able to make significant inroads into
stemming the annual outflows from our
legacy products. Our commitment to invest
a further c.£100 million into our growth
propositions across 2024–2026 will enable
us to turn these outflows into inflows, as we
leverage the changing market dynamics.
For instance, we are optimistic that the FCA’s
recent Advice Guidance Boundary Review
represents a step forward in addressing
the persistent advice and guidance gap.
The proposals outlined create the potential
for financial services providers like us to
offer a greater level of customer support
and we will continue to engage with the
regulator on this subject and review the
services we are able to provide as a result
of the ongoing consultation.
In March 2024 we started piloting the
Standard Life Smoothed Return Pension
Fund exclusively through the Fidelity
Adviser Solutions platform, ahead of a full
market launch later this year. We are also
in the process of developing a number of
new retirement income solutions which we
hope to bring to market this year which will
address customers’ needs for a combination
of income certainty and flexibility.
Engaging people in better
financial futures
We set ourselves a 2023 target to deliver
an awareness campaign reaching four
million people on longer lives and under
saving for retirement. We surpassed
this target with our ‘Let’s Start Talking’
campaign reaching over 4 million people.
Promoting financial wellness
Standard Life partnered with Moneyhub,
to enhance our Money Mindset digital app
and dashboard, providing access to over
1.5 million Workplace pension scheme
members. By providing members with the
relevant tools, content and information,
Money Mindset allows customers to link,
track and monitor their finances with the
aim of improving their financial wellbeing.
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25
Strategic report Strategic report
Our strategic priorities and KPIs continued
Optimise
Optimise our in-force business
2023 highlights
• Continued to deliver value accretive recurring management
actions through our in-house asset management capability
and by optimising our in-force balance sheet
• Strong capability developed for liquid and illiquid credit
portfolio optimisation
• Published and implementing our Net Zero Transition Plan
£303m
Recurring management actions
(2022: £270m) APM
176%
Solvency II Shareholder Capital
Coverage Ratio (‘SCCR’)
(2022: 189%) APM
87%
Illiquid asset origination in sustainable
and transition assets REM
£3.9bn
Solvency II surplus (estimated)
(2022: £4.4bn)
Phoenix Group is a market leader in
managing its in-force business for cash
and ensuring a resilient capital position.
The Group’s cash generation stems from
the emergence of surplus from our in-force
business, which we enhance through the
delivery of value accretive management
actions, underpinned by the diversification
of our portfolio and increasingly supported
by the investments we’re making to enhance
our asset management capabilities.
In parallel, we deploy a comprehensive
approach to risk management across our
in-force business and we hedge the majority
of our market risks including equity, interest
rates and inflation. This brings resilience
to our Solvency II capital position.
We are embedding sustainability throughout
our business and across our strategic priorities.
As a result, investing in a better future is a
key part of optimising our in-force business,
as we look to protect our customers from
the risk of and maximise the opportunities
presented by climate change.
Delivering recurring management actions
In 2023 we delivered £663 million (2022:
£739 million) of total management actions.
Importantly though, £303 million of these
were recurring management actions.
These are the day-to-day actions that we,
and every other life insurance company
take, to optimise our in-force balance
sheets. They “add value” which means
they increase cash, capital and earnings.
Over the last three years, we have invested
in developing a highly-skilled in-house
asset management team, whose day job
is to optimise our assets and liabilities,
and improve shareholder returns.
The continuous portfolio optimisation actions
we undertake to optimise our assets, and the
balance sheet efficiency actions to optimise
our liabilities, mean that a significant, and
growing proportion of our management
actions, will be recurring over the long term.
This includes the optimisation of our
£38 billion shareholder credit portfolio
(2022: £31 billion), where we can capture
pricing dislocations across geographies,
ratings and sectors. This is a sustainable
source of recurring management actions,
due to the dynamic nature of markets
which will always create opportunities
for us to enhance our risk adjusted returns.
For instance, in 2023, our asset management
team completed c.$1 billion of bond rotations
to and from sterling and dollar bonds,
to enhance our risk adjusted returns and
generate management actions.
Our annuity asset allocation approach is
another key area and this includes the rapid
Taking action to reach
net zero by 2050
In 2023 we published our first Net Zero
Transition Plan. This recognises the impact
we can have as the UK’s largest long-term
savings and retirement business and puts
the needs of our customers at its centre.
We are focused on managing the risks
whilst maximising the opportunities of
climate change for customers. One of the
key actions that we can take towards net
zero is to invest in climate solutions, but
there are currently a number of barriers
limiting both supply and demand of
finance. That is why we partnered with
campaign group Make My Money Matter
to publish a report which outlined seven
strategies for policymakers and regulators
to unlock greater investment by the UK
pensions industry.
See our Unlocking Climate
Solutions report
Priorities for 2024
• Enhance our asset and liability
optimisation capabilities to
support recurring management
actions of c.£400m per annum
by 2026
• Continued diversification of
our asset portfolio and build-out
of our directly sourced illiquid
asset capability
• Begin deleveraging our balance
sheet towards our c.30%
Solvency II leverage ratio target
by the end of 2026
• Ensuring that we remain on
track to meet our 2025 and
2030 interim targets on our
way to net zero by 2050
1
2
3
AUA as at year-end 2021.
For definition of sustainable and transition
assets see: Sustainable Finance: Classification
Framework for Private Markets.
Assuming economic conditions in line with
31 December 2023.
deployment of new business BPA transition
asset portfolios, that are received from
corporates. Here we can reinvest these
individual portfolios, which are typically cash
and gilts, into higher yielding liquid credit,
and deliver enhanced risk adjusted returns.
We also have a significant medium-term
opportunity for recurring actions as
we trade-up to our long-term illiquid asset
allocation. Over the long-term we will also
be able to source a wider range of illiquid
assets through both our expanding strategic
partnerships and the in-house direct
origination capability we have now built.
There is also a range of ongoing balance
sheet efficiency actions available to us over
time, including the regular ongoing capital
model efficiencies we can deliver, as our
risk profile changes and regulations evolve.
Looking forward, we are very confident that
we can deliver a growing level of recurring
management actions to c.£400million
per annum by 2026. This is supported by
the further c.£100 million investment we
are making to enhance our asset and liability
optimisation capabilities and the strong
growth we expect across our business.
Using our scale to help create
a better future
Our certification as a signatory to the UK
Stewardship Code in 2023 is a clear statement
of our intent to manage the Environmental,
Social and Governance (‘ESG’) risks to which
our business is exposed through active
stewardship. We continue to be committed
to integrating decarbonisation strategies into
our portfolios.
We see this commitment 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 being net zero
by 2050. We have worked with leading index
providers to design customised equity
benchmarks which will apply a decarbonisation
tilt to our policyholder listed equity portfolio,
with implementation commencing in 2024
and continuing in 2025.
Building on the progress with decarbonising
our policyholder assets, in 2023 we developed
a decarbonisation strategy for our £12.5 billion
shareholder corporate credit portfolio1.
We intend to increase investments in net
zero-aligned assets to 40–50% of this
portfolio by 2025, and 50–70% by 2030.
Finally, we exceeded our 50–70% target
with 87% of our illiquid asset origination
in the shareholder portfolio that are
sustainable or transition assets in 20232
Maintaining a resilient balance sheet
The high levels of cash generated in our
business not only gives us the ability and
flexibility to invest but also to maintain
a resilient balance sheet.
In line with recent years, we plan to continue
our approach of repaying M&A-related debt
with surplus cash, and intend to repay at least
£500 million of debt by the end of 2026.
This will support us in targeting a Solvency II
leverage ratio of c.30%3 by the end of 2026.
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Strategic report Strategic report
Our strategic priorities and KPIs continued
Enhance
Transforming our operating
model and culture
2023 highlights
• Completion of one of the largest ever UK Insurance
Part VII transfers, of Standard Life and Phoenix Life
• Continued customer migrations to TCS Diligenta’s
BaNCS platform
• Launched Phoenix Flex, our new approach
to flexible working
c.700k
Customers migrated to TCS
Diligenta in 2023
+32
Colleague engagement
employee Net Promoter Score
(2022: +30) REM
Enhancing our operating model and
culture are key to our success.
We do this by completing our planned
integrations and migrations, and through
driving simplification to a single, Group-wide
operating model that benefits both our
customers and our colleagues. This supports
us in delivering a seamless customer
experience and enables us to further
enhance our cost efficiency.
Alongside this, 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.
Progressing our integrations and migrations
M&A activity and any subsequent integrations
have historically created the most significant
opportunities to enhance our operating
model, above and beyond the management
actions we take on a recurring basis
to optimise the business.
In November we reached a significant
milestone by completing the Part VII transfer
of Standard Life1 and Phoenix Life Assurance
Limited businesses into Phoenix Life Limited.
This was one of the largest UK insurance
Part VII transfers ever completed, bringing
together the businesses of four legal
entities, comprising c.8 million policies and
c.£200 billion2 of assets into a single entity.
We have a number of Part VII transfers
in our plans as a result of other previous
acquisitions, including ReAssure and Sun
Life of Canada UK. However, we are not
expecting a similar scale of benefit for those
Part VII transfers, as the business mixes are
relatively similar to Phoenix Life Limited.
During the year we successfully completed
the migration of another c.700,000
Phoenix Life customers from Capita to TCS
Diligenta’s BaNCS platform. We’re now
well over half way through this project with
a total of over 1.2 million policies moved to
BaNCS from the nearly 2 million in scope.
We also delivered another significant
milestone on our journey towards
harmonised investment administration
processes, as we migrated £12.3 billion of
Phoenix Wealth Funds (c.700 funds) from
our Investment Operations centre to HSBC
Security Services. The objective was to
harmonise our internal oversight model
whilst ensuring the accurate and timely
delivery of unit pricing, a key component
in the end-to-end servicing of all our
Pension and Savings unit linked products.
This allows us to deliver better value to our
customers and shareholders by simplifying
complex processes and systems.
Creating a way of
working that works
for our colleagues
We know that people are generally
looking for flexibility in the way they
work as they navigate different stages
of their life. We also recognise the
importance of having a diverse
intergenerational workforce.
Phoenix Flex, our new approach to
flexible working, is a key enabler by
encouraging and celebrating flexibility
at work, embracing our differences and
helping each of us to thrive. It can help
those people raising families, those with
caring responsibilities and those who
are phasing up or down in their career.
Priorities for 2024
• Progress our ongoing migrations
to Diligenta’s BaNCS platform
• Deliver initial cost savings as we
simplify our operating model
1
Standard Life refers to Standard Life Assurance Limited
and Standard Life Pension Funds Limited.
2 Year end 2022 values.
Continued migrations and driving
scale efficiencies
Looking forward, we will continue to progress
our remaining migrations across Standard
Life, ReAssure and Sun Life of Canada UK.
In addition, as we progress on our strategic
journey we are very focused on being more
effective and more efficient across our
organisation, from both a customer and
colleague perspective. This next phase is
about building off the success of what we’ve
had, taking the best from both ‘Heritage’
and ‘Open’ to create something new
and improved.
We will therefore invest c.£500 million in our
migration, transformation and cost efficiency
programmes across 2024–2026, with around
c.£300m having been guided to previously.
Importantly, these programmes will deliver
cost efficiencies at scale as we bring together
all of our businesses onto a single Group-wide
operating model. Integral to this will be
delivering further Group cost efficiency
activities, such as a range of organisational
and governance simplification actions,
and product and supplier rationalisation.
Our focus on driving cost efficiencies will
support c.£250 million of annual cost savings
by the end of 2026. Importantly, these cost
savings will flow through to all of our key
metrics, across our financial framework
of cash, capital and earnings.
Creating the best place any
of us have ever worked
At Phoenix Group we want to be the best
place any of us have ever worked, which
means we need to provide a great colleague
experience. To support this ambition we
implemented Phoenix Flex earlier this
year. This is our new approach to flexible
working, empowering all of our colleagues
to agree the flexible working arrangements
that work for them and their teams.
We also want Phoenix Group to reflect the
customers we serve and the communities
we operate in, and so we are striving to make
sure our workplace is diverse. Building a
diverse workforce allows us to attract the best
talent, broaden our skill sets and widen our
thinking. We made strong progress against
our end-of-2023 Diversity, Equity and
Inclusion targets although we did fall short
on our gender diversity in senior leaders
target; see pages of 32 and 33 of our
Sustainability report for more detail.
We report on our colleague engagement
through an employee Net Promoter Score
(‘eNPS’), a broadly used and holistic metric
that indicates how colleagues feel about
working for Phoenix. We ended 2023 with
an eNPS score of +32, our highest ever eNPS
score and +2 higher than our end-of-year
2022 score.
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Strategic report Strategic report
Business review
Delivering
sustainable cash
generation
In 2023 we have once
again delivered a year
of strong performance,
as we execute on our
strategy and fulfil
our purpose.
We have delivered another year of resilient
cash generation, with £2.0 billion of total cash
generated in 2023, exceeding our upgraded
target of c.£1.8 billion. With £5.2 billion
delivered across 2021 to 2023, we have
also therefore over-delivered our three-year
cash generation target of £4.4 billion,
by c.£0.8 billion.
We saw a strong performance in our
growth businesses, which increased our
incremental new business long-term cash
generation (‘NB LTCG’) by 23% year-on-year
to £1,514 million, and therefore have achieved
our 2025 target two years early. This was
supported by new business net fund flows that
grew 72% to £6.7 billion (2022: £3.9 billion).
Our Shareholder Capital Coverage Ratio
(‘SCCR’) of 176% remains towards the
upper-end of our operating range of
140–180%, but reduced given our investment
into growth, as well as our integration
and transformation expenses. Similarly,
our Solvency II (‘SII’) surplus reduced
to £3.9 billion, but remains resilient.
A strong performance in 2023
Key financial performance metrics:
2023
2022
YOY change
Total cash generation
£2,024m
£1,504m
+35%
Cash
New business
Incremental new business
long-term cash generation
Net fund flows
Dividends
Total dividend per share
IFRS
Final dividend per share
Adjusted operating profit
before tax1,2
Loss after tax1,2
Solvency II capital
PGH Solvency II surplus
PGH Shareholder Capital
Coverage Ratio
£1,514m
£1,233m
£6.7bn
52.65p
26.65p
£3.9bn
50.8p
26.0p
£617m
£544m
£(88)m £(2,657)m
£3.9bn
£4.4bn
+23%
+72%
+3.6%
+2.5%
+13%
N/A
-11%
176%
189%
-13%pts
Assets
Leverage
Assets under administration
£283bn
£259bn
+9%
Solvency II leverage ratio
36%
34%
+2%pts
1 2022 restated comparative to reflect adoption of IFRS 17
2
Incorporates changes to the Group’s methodology for determining adjusted operating profit since Half Year 2023
(see Note B.1 to the consolidated financial statements for further details).
Our strong overall performance this year has
therefore enabled the Board to recommend
a dividend increase of 2.5% for the year.
In terms of our IFRS earnings, the Group’s
adjusted operating profit grew 13% to
£617 million, supported by 27% growth
in our Pensions and Savings business and
an 8% increase in our Retirement Solutions
business. While we reported an IFRS loss
after tax of £88 million, this was a £2,569
million improvement on 2022. The loss in
2023 was primarily driven by £(781) million
of non-operating items, as outlined on page 36.
The segmental information given reflects
the Group’s new operating segments,
further information is provided in note B.1
on page 180.
Clear strategic progress
We have made significant strategic progress
in delivering sustainable organic growth.
In Pensions and Savings, our Workplace
business continues to see an attractive retention
rate with existing clients but is also now
winning new larger schemes. Our Retail
business remains in net outflow, but we have
a clear strategy to address this over the coming
years, by investing to deliver compelling
customer propositions.
The progress we have
made in executing our
strategic priorities has
enabled us to deliver
a strong set of results
in 2023, and supported
the Board’s decision
to recommend a 2.5%
increase in the Final
2023 dividend.
Rakesh Thakrar,
Group Chief Financial Officer
Our key performance indicators
With our financial framework designed
to deliver cash, capital and earnings,
we recognise the need to use a broad
range of metrics to measure and
report the performance of the Group,
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 36 to 37
and the IFRS financial statements are
set out from page 164 onwards.
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.
New business net fund flows
Represents the aggregate net position
of assets under administration inflows
less outflows for new business.
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,
including the below. Please see the APM
section on page 312 for further details.
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 36) and non-recurring items than
IFRS profit. A more detailed definition
of adjusted operating profit is set out
on page 312.
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’)’.
Solvency II leverage
The Group seeks to manage the level of
debt on its balance sheet by monitoring
its financial leverage ratio. Solvency II
leverage is calculated as the Solvency II
value of debt divided by the value of
Solvency II Regulatory Own Funds.
Values for debt are adjusted to allow for
the impact of currency hedges in place
over foreign currency denominated debt.
In Retirement Solutions, we continue to adopt
a disciplined approach to Bulk Purchase
Annuities (‘BPA’) and have been successful
in reducing our capital strain. In September,
we also launched a new individual annuity
product, our first that is available in the
open market.
From an M&A perspective, we successfully
completed the acquisition of Sun Life
of Canada UK (‘SLOC’) in April with the
integration progressing well.
In summary, 2023 has been another year of
clear strategic progress, that has supported
the delivery of a strong set of results.
We continue to deliver sustainable and
resilient cash generation, which underpins
our new progressive and sustainable ordinary
dividend policy. Our Solvency capital position
also remains highly resilient, and can support
the investment to grow, optimise and enhance
our business going forward.
An evolved financial framework for the
next phase of our journey
We are introducing our evolved financial
framework that focuses on the three financial
outcomes we deliver for our shareholders:
cash, capital and earnings.
Phoenix has always managed its business
for cash and capital, but our evolved key
metrics provide clearer line of sight to the
underlying business performance and
more comparability with peers. We are also
elevating the importance of IFRS earnings
in our framework, following the transition
to IFRS 17.
The key metrics we use can be seen here
Total cash generation
Cash generation represents the total
cash remitted from the operating entities
to the Group, supported by the Operating
Cash Generation (see below) and the
release of 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.
Operating Cash Generation
Operating Cash Generation (’OCG’)
is a new reporting metric. It represents
the sustainable level of cash generation
in our life companies each and every
year, that is remitted from our underlying
business operations. It comprises the
emergence of cash as in-force business
runs off over time and capital unwinds,
plus day one surplus from writing new
business (net of day one strain for
fee-based business), group tax relief and
recurring management actions. In addition,
it includes a small cash contribution from
the release of the Capital Management
Policy that we hold in our Life Companies.
The measure provides the sources of
recurring organic cash generated which
can be used to support sustainable cash
remittances from the Life Companies,
which in turn supports the Group’s
dividend, group costs and debt interest
as well as funding investment to generate
sustainable growth.
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Cash
£2,024m
Total cash generation REM APM
£1,514m
Incremental new business long-term
cash generation REM APM
Total cash generation
Cash generation represents cash remitted
by the Group’s operating companies to the
holding companies. Please see the APM
section on page 312 for further details
of this measure.
Cash generation is principally used to fund
the Group’s operating costs, debt interest
and repayments, investment into growth
and shareholder dividends. Excess cash is
available for investment into the business
and/or additional shareholder returns.
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
Total cash generated by the operating
companies during 2023 was £2,024 million
(2022: £1,504 million). This exceeded the
Group’s upgraded target of c.£1.8 billion
for the year, due to additional management
actions being delivered.
Uses of cash
Operating expenses of £97 million
(2022: £78 million) represent corporate
office costs, net of income earned on
holding company cash and investment
balances. The increase compared to 2022
reflects the investment we have made in
our Group capabilities to support our
growth strategy,
Debt interest of £229 million (2022:
£244 million) reflects interest paid in the
period on the Group’s debt instruments.
The decrease year-on-year is due to the
repayment of debt in July 2022.
Group cash flow analysis
£m
Cash and cash equivalents at 1 January
Total cash generation1
Uses of cash:
Operating expenses
Pension scheme contributions
Debt interest
Non-operating cash outflows
Debt repayments
Debt issuance
Shareholder dividend
Total uses of cash
Support of BPA activity
Cost of Sun Life of Canada UK acquisition
Closing cash and cash equivalents at 31 December
2023
503
2,024
(97)
(16)
(229)
(111)
(350)
346
(520)
(977)
(288)
(250)
1,012
2022
963
1,504
(78)
(16)
(244)
(395)
(450)
–
(496)
(1,679)
(285)
–
503
1
Total cash receipts include £219 million received by the holding companies in respect of tax losses surrendered (2022: £55 million).
Non-operating cash outflows were £111 million
(2022: £395 million). This primarily comprises
centrally funded projects and investments
totalling £307 million. Of this, £129 million
relates to Group project expenses for the
transition activity in relation to legacy platform
migrations, £18 million for other ongoing
integration programmes including ReAssure
and SLOC, £56 million of investment related
to our growth propositions, and £12 million
for our Finance Transformation. These costs
were partially offset by a £196 million
inflow in respect of net collateral cash
and hedge close-outs.
Debt repayments and issuance in 2023
reflect the debt re-terming exercise we
undertook in the fourth quarter.
The shareholder dividend of £520 million
represents the payment of £260 million
in May for the 2022 Final dividend and
the payment of the 2023 Interim dividend
of £260 million in September.
Funding of £288 million (2022: £285 million)
has been provided to the Life companies
to support another strong year in BPA with
£6.2 billion of premiums written (2022:
£4.8 billion). The Group’s success in further
optimising its capital efficiency is reflected
in the reduction of the Group’s capital strain
on BPA to 2.7% (2022: 3.2%) on a pre-Capital
Management Policy (‘CMP’) basis, including
the benefit of the Solvency II reform risk
margin reduction. This enabled the Group
to write increased NB LTCG but with a similar
level of capital invested.
Incremental new business long-term
cash generation
NB LTCG 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.
In 2023 we delivered another record year
of organic new business growth including
NB LTCG of £1,514 million (2022: £1,233
million), enabling us to achieve our 2025
target two years early.
Strong growth in our capital-light fee-based
business, Pensions and Savings, led to a
contribution of £395 million (2022: £249
million). Our disciplined approach in a
buoyant BPA market drove an increase
in NB LTCG in our Retirement Solutions
business to £1,066 million (2022: £934
million). Europe and Other contributed
£53 million (2022: £50 million).
Strong incremental new business
long-term cash generation
Retirement Solutions
Pensions and Savings
Europe and Other
+23%
£1,233m
£50m
£249m
£1,514m
£53m
£395m
c.£1.5bn
£934m
£1,066m
2022
2023
2025 target
Introducing Operating Cash Generation
As part of our evolved financial framework
we are introducing Operating Cash Generation
(‘OCG’) as a new alternative performance
metric to demonstrate the long-term
sustainability of our cash generation.
OCG is the combination of the operating
surplus emerging and recurring management
actions. It represents the sustainable surplus
generation remitted from our Life Companies
to the Group Holding Company. OCG can
be easily reconciled to operating surplus
generation (‘OSG’), with the bridge being
the small release of the Capital Management
Policy (‘CMP’) held in our Life companies.
OCG totalled £1.1 billion in 2023, comprising
£0.8 billion of surplus emergence and
£0.3 billion of recurring management actions.
Outlook
We will grow OCG sustainably over the
long term through investing our surplus cash
across our three strategic priorities of Grow,
Optimise and Enhance.
We will Grow by investing c.£100 million
into our growth propositions and by
continuing to grow our annuities business
with c.£200 million of capital invested
annually. This will support strong growth
across our Pensions and Savings and
Retirement Solutions businesses.
As we Optimise, we will deliver
recurring management actions of
c.£400 million per annum by 2026,
supported by c.£100 million investment
in our asset and liability optimisation
capabilities and as our business grows.
As we Enhance our business, we will continue
to migrate customers and drive through cost
efficiencies that will deliver c.£250 million
of annual cost savings by the end of 2026.
Together these will increase OCG by c.25%
from £1.1 billion in 2023 to £1.4 billion in
2026. After which we expect it to grow at
a sustainable mid-single digit growth rate
over the long term.
Future sources and uses of total
cash generation
While OCG is our new primary metric,
total cash generation remains very important,
as we invest across our strategic priorities.
We have set a new total cash generation target
of £4.4 billion across 2024–2026, that will
enable us to cover our recurring uses, pay our
growing dividend and invest in our business.
We expect to generate c.£3.7 billion of OCG
over this period, which will more than cover
our recurring uses and our planned investment
of capital into annuities each year.
In addition we expect to generate a
further c.£0.7 billion of non-operating cash
generation across 2024–2026 comprising
other management actions and the release
of historic excess capital that has built up in
our Life Companies. That provides us with
a significant amount of surplus cash that we
can invest across our strategic priorities.
Our HoldCo cash position is a healthy
£1 billion today, which we expect to remain
broadly consistent over 2024 to 2026.
We are introducing Operating Cash Generation as a new metric to demonstrate the long-term sustainability of our business model
Non-operating
cash generation
Operating Cash Generation
Operating surplus generation
Surplus
emergence
Recurring
management
actions
Release
of Capital
Management
Policy
Other
management
actions
Release of
excess capital
Total cash
generation
Operating Cash Generation is expected to more than cover our recurring uses and generates surplus to invest into our business
2024–2026 Total Cash Generation of £4.4bn
Operating Cash Generation
c.£3.7bn
Non-operating
cash generation
c.£0.7bn
HoldCo cash
£1.0bn
c.£2.7bn
Dividend, operating costs and debt interest
Recurring uses
c.£0.6bn
Annuities capital
c.£0.1bn Growth propositions
c.£0.1bn Asset and liability optimisation capabilities
c.£0.5bn
Migration, transformation
and cost efficiency
c.£0.5bn
Debt repayment
c.£0.9bn
HoldCo cash
Investment priorities:
Grow
Optimise
Enhance
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Strategic reportStrategic report Business review continued
Capital
£3.9bn
Group Solvency II surplus (estimated)
176%
Group Solvency II shareholder capital
Coverage Ratio (estimated) APM
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-Profits
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
and resilient, with a surplus of £3.9 billion
(2022: £4.4 billion), after the accrual for the
deduction of our 2023 Final dividend of
£267 million. Our SCCR reduced marginally
to 176% (2022: 189%) but remains towards the
upper-end of our 140–180% operating range,
providing the capacity to continue investing
to grow, optimise and enhance our business.
Change in Group Solvency II surplus
and SCCR
Operating surplus generation increased
the SII surplus by £1.1 billion, contributing
to an increase in the SCCR of 27%pts.
This was comprised of our ongoing surplus
emergence which increased the SII surplus
by £0.8 billion during the year and recurring
management actions of £0.3 billion.
Other management actions increased the
SII surplus further by £0.4 billion and added
16%pts to the SCCR.
Operating costs, debt interest and dividend
totalled £0.9 billion, reducing the SCCR
by 19%pts.
We have also chosen to invest £0.4 billion
of surplus capital into growth. This includes
£0.3 billion of capital investment to fund
£6.2 billion of BPA premiums written in
the year, reducing the SCCR by 10%pts,
and £0.1bn of investment into our organic
growth propositions, reducing the SCCR
by a further 3%pts.
Our comprehensive hedging strategy is
designed to protect our capital position.
In 2023 this led to a small adverse impact
from economic variances of £(0.3) billion
on our Solvency II surplus. This included a
£(0.1) billion adverse impact from unhedged
gilt-swap spread movements, as well as
adverse currency movements and some
other smaller adverse impacts.
We are on track for the effective date for
Consumer Duty on back-book products in
July. Our ongoing focus on ensuring good
outcomes for Heritage customers means
we have identified only a small number of
products that we believe need addressing
in advance of the compliance date. We have
set aside a prudent c.£70 million of Solvency II
capital to reflect the impact of the possibility of
introducing further charging caps on certain
products, reducing the SCCR by 2%pts.
Other movements include the benefit of the
Solvency II risk margin reform and favourable
longevity assumption changes. These were
offset by the strengthening of expense provisions
associated with our transformation projects,
in addition to a net adverse impact arising
on the completion of the SLOC acquisition.
Overall, these movements decreased Solvency II
surplus by £0.3 billion and the SCCR by 13%.
£3.9 billion Group Regulatory Solvency II surplus
£3.9 billion Group Shareholder Solvency II surplus
2023 change in Group Solvency II surplus
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 market 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 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 Solvency II 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 exposures arises from
both cost inflation expectations and
inflation-linked policies.
Rewarded market risk sensitivities
We do however retain the credit risk
in our c.£38 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.
We actively manage our portfolio to ensure
it remains high quality and diversified,
and to maintain our sensitivities within risk
appetite. Our portfolio is c.99% investment
grade and we have suffered no defaults,
testament to the proactive approach taken
by our in-house asset management team.
We also remain conservative in our property
exposure. We have c.£4.5 billion of our
credit portfolio exposed to equity release
mortgages, which are all UK-based with an
average rating of AA and average loan-to-
value (‘LTV’) of 33%, and c.£1.1 billion in
commercial real estate which is high quality
and all UK-based with an average LTV of 47%.
The full 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
£3.9 billion Solvency II surplus.
Estimated impact on PGH Solvency II1
Solvency II base
Equities: 20% fall in markets
Long-term rates: 100bps rise in interest rates2
Long-term rates: 100bps fall in interest rates2
Long-term inflation: 50bps 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
3.9
0.1
0.1
(0.1)
(0.1)
(0.2)
(0.2)
(0.3)
(0.1)
(0.4)
SCCR
%
176
5
6
(5)
(1)
(5)
(4)
(9)
(1)
(8)
1
2
3
4
5
6
7
8
Illustrative impacts assume changing one assumption on 1 January 2024, while keeping others unchanged, and that there is no
market recovery. They should not be used to predict the impact of future events as this will not fully capture the impact of economic
or business changes. Given recent volatile markets, we caution against extrapolating results as exposures are not all 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.
Rise in inflation: 15yr inflation +50bps.
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.
Only applied to the annuity portfolio.
Managing demographic risks
We have three key demographic risks
– lapse risk from early surrenders, longevity
risk on our annuity portfolio and mortality risk
on our protection book. We manage lapse
risk through our strong customer proposition.
Our longevity risk principally arises from our
annuity book, but this is managed through
reinsurance. We retain around half of this
risk across our current in-force book, and
reinsure most of this risk on new business.
Mortality risk arises from our protection
business and we seek to manage this as
part of a well-diversified portfolio.
Life Company Free Surplus
Life Company Free Surplus represents the
Solvency II surplus for the Life Companies
that is in excess of their Board-approved
CMPs. It is this Free Surplus from which
the Life Companies remit cash to Group.
We retain a significant Life Company
Free Surplus of £2.2 billion which provides
resilience to the Group’s long-term
cash generation.
Solvency II capital outlook
We maintain a 140–180% SCCR
operating range, which reflects our low
sensitivity to economic volatility due to
our comprehensive hedging.
We have been at the top-end of our range
for the past three years, but will invest some
of this surplus as we transform our business,
with the investment more front-end weighted
across 2024–2026. In addition, our intention
to repay at least c.£500 million of debt by the
end of 2026 will also reduce our SCCR over
the coming years.
Leverage
We manage our leverage position by
considering a range of factors including
our cash interest cover, the interplay of our
balance sheet hedging, and our capital
tiering headroom. It also includes a number
of output metrics that we monitor, such as
the Fitch leverage ratio and Solvency II
leverage ratio.
Our approach to leverage has always
been to increase leverage to support M&A
and then pay down that debt with surplus
cash as it emerges. Since 2020 the Group
has repaid c.£800 million of debt through
this approach.
As at 31 December 2023, our Solvency
II leverage ratio was 36% (2022: 34%).
This increased in 2023, largely due to
our investment in growth, integration
and transformation. The Group’s Fitch
leverage ratio was 23% compared to
full year 2022 on a restated basis of 23%,
and is favourably below Fitch’s stated
range of 25–30% for an investment
grade credit rating.
We plan to continue our approach of
repaying M&A-related debt with surplus
cash, and subject to regulatory approval,
we intend to repay at least £500 million
of debt by the end of 2026, including the
£250 million Tier 2 bond that is callable in
June 2024. This will support us in achieving
a c.30%1 Solvency II leverage ratio by the
end of 2026. This is a steady-state level
of leverage that we will believe is the
appropriate for our business, absent M&A.
1
Assuming economic conditions in line with
31 December 2023.
34
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
35
FY23FY22£6.7bn£7.2bn£11.1bn£11.1bnOwn FundsSCROwn FundsSCR153%166%Surplus£4.4bnSurplus£3.9bnFY23FY22£4.9bn£5.0bn£9.3bn£8.9bn176%189%Surplus£4.4bnSurplus£3.9bnSurplus asat FY22RecurringmanagementactionsSurplusemergenceOthermanagementactionsOperating costs,debt interest and dividendNew businessstrainEconomicsInvestment ingrowthConsumerDutyOtherSurplus asat FY23£4.4bn£3.9bn£0.8bn£0.3bnOperating surplus generation(’OSG’)£0.4bn£(0.9)bn£(0.3)bn£(0.3)bn£(0.1)bn£(0.1)bn£(0.3)bn189%+20%+7%+16%(19)%(10)%(9)%(3)%(2)%(13)%176%Strategic reportStrategic report Business review continued
Earnings
IFRS profit and loss statement
Pensions and Savings
Retirement Solutions
With-Profits
Europe and Other
Corporate Centre
£617m
Adjusted operating profit before tax APM
£4.6bn
Adjusted shareholders’ equity APM
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 attributable to owners
Loss after tax attributable to owners
2023
£190m
£378m
£10m
£132m
£(93)m
£617m
£147m
£(322)m
£(439)m
£(195)m
£28m
20221,2
£150m
£349m
£54m
£60m
£(69)m
£544m
£(3,309)m
£(353)m
£(262)m
£(199)m
£67m
£(164)m
£(3,512)m
£76m
£855m
£(88)m
£(2,657)m
1 2022 restated comparative to reflect adoption of IFRS 17.
2
Incorporates changes to the Group’s methodology for determining adjusted operating profit since Half Year 2023
(see note B1 to the consolidated financial statements for further details).
IFRS results
IFRS (loss)/profit is a GAAP measure of
financial performance and is reported in our
statutory financial statements on page 164
onwards. Adjusted operating profit before
tax 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 312 for further details of this measure.
On 1 January 2023, the Group adopted the
new accounting standard, IFRS 17: ‘Insurance
Contracts’, with comparatives restated from
1 January 2022. IFRS 17 requires a company
to recognise profits as it delivers insurance
services (rather than when it receives
premiums) and to provide information
about insurance contract profits the
company expects to recognise in the
future. The impact of the transition to
IFRS 17 is set out in note A2.1.
IFRS loss after tax attributable to owners
The Group generated an IFRS loss after
tax attributable to owners of £88 million
(2022: loss of £2,657 million). The improvement
versus 2022, primarily reflects a £3,456 million
improvement in economic variances due to
a much lower level of market volatility in the
period, particularly interest rates. This has
been partially offset by an increase in
non-operating items as a result of our
investment into growth in the period and
ongoing migrations and transformation.
Basis of adjusted operating profit
Adjusted operating profit is based on
expected investment returns on financial
investments backing business where asset
returns accrue to the shareholder and
surplus assets over the reporting period,
with allowance for the corresponding
expected movements in liabilities (being
the interest cost of unwinding the discount
on the liabilities). Adjusted operating profit
includes the unwind of the Contractual
Service Margin (‘CSM’) and risk adjustment
attributable to the shareholder. The principal
assumptions underlying the calculation
of the long-term investment return are set
out in note B 2.1 to the IFRS consolidated
financial statements.
Adjusted operating profit includes the
effect of variances in experience relating
to the current period for non-economic
items, such as mortality and expenses.
It also incorporates the impacts of asset
trading optimisation and portfolio
rebalancing where not reflected in the
discount rate used in calculating expected
return. Any difference between expected
and actual investment return, along with
other economic variances described further
in note B1.1 are shown outside of adjusted
operating profit. Adjusted operating profit
is net of policyholder finance charges and
policyholder tax.
Adjusted operating profit
The Group increased adjusted operating profit
by 13% to £617 million (2022: £544 million).
This primarily reflects strong growth in
our Pensions and Savings business, which
delivered adjusted operating profit of
£190 million, an increase of 27% year-on-year
(2022: £150 million). This was largely driven
by higher AUA resulting in increased
charges, and an improved margin through
operating leverage.
Our Retirement Solutions business delivered
an adjusted operating profit of £378 million
(2022: £349 million). The 8% increase
year-on-year primarily reflects a higher
expected investment margin as a result of
higher risk-free rates. The positive impact of
BPA new business on CSM amortisation has
offset the run-off of the remaining annuity
book despite the phasing of a significant
proportion of new business in late 2023.
With-Profits adjusted operating profit
declined to £10 million (2022: £54 million)
principally as a result of the run-off of
this business and the adverse impacts
of modelling refinements in the period.
Europe and Other adjusted operating
profit increased to £132 million (2022:
£60 million). This segment includes the
expected investment margin from surplus
assets within shareholder funds, which has
increased due to the significant increases
in interest rates over 2022. This has been
partially offset by a reduction in CSM
amortisation following the strengthening
of the mortality assumptions on our
Protection business.
The Group’s Corporate Centre includes net
operating costs in the period of £93 million
(2022: £69 million), which increased due to
investment in central functions to support
our growth ambitions in the first phase of
our journey, partially offset by increased
interest income on Holding Company cash.
Investment return variances and economic
assumption changes
The net positive economic variances of
£147 million (2022: £3,309 million loss) results
from a more stable market environment
compared with the significant volatility
experienced during 2022. The impact of
positive changes to discount rates, primarily
on annuities and including the impact of
methodology refinements, more than offsets
the losses arising from the impact of positive
equity market movements on the hedges
the Group holds to protect the Solvency II
position. As the full value of future profits
impacted by equity markets is not held
on the IFRS balance sheet, this results in
an ‘over-hedged’ position on an IFRS basis.
Amortisation and impairment
of intangibles
The previously acquired in-force business,
relating to IFRS 9 accounted capital-light
fee-based products, is being amortised
in line with the expected run-off profile of the
investment contract profits to which it relates.
The amortisation and impairment of acquired
in-force business during the period of £316
million (2022: £347 million) has decreased
year-on-year reflecting the impact of
the business run-off. Amortisation and
impairment of other intangible assets totalled
£6 million in the period (2022: £6 million).
Other non-operating items
Other non-operating items in the period
totalled a £439 million loss (2022: £262
million loss), inclusive of a £66 million gain
recognised on the Sun Life of Canada UK
acquisition. This includes £169 million
expenditure to support our growth strategy
and £36 million impact from setting up a
new European subsidiary that was required
post-Brexit to continue serving some
of our overseas Heritage customers.
Other items include £217 million of costs
relating to finance transformation activities,
£111 million in respect of ongoing integration,
transition and transformation projects,
£12 million of other corporate project
costs, and net other one-off items totalling
£74 million, including costs associated
with the Part VII transfer of three of the
Group’s Life insurance entities.
Lastly, finance costs of £195 million
reflect interest borne on the Group debt
instruments and were broadly stable
year-on-year (2022: £199 million).
Tax charge attributable to owners
The Group’s approach to the management
of its tax affairs is set out in its Tax Strategy
document which is available in the corporate
responsibility section of the Group’s website.
The Group tax credit for the period attributable
to owners is £76 million (2022: £855 million tax
credit) based on a loss (after policyholder tax)
of £(164) million (2022: loss of £(3,512) million).
A reconciliation of the tax charge is set out in
note C8 to the Group financial statements.
Contractual Service Margin (‘CSM’)
The CSM represents a stock of future profits
that will unwind into the P&L in future years.
The Group had a CSM (gross of tax) of
£2.9 billion as at 31 December 2023, which
grew by 10% in 2023 (2022: £2.6 billion)
primarily due to new BPA business written,
the acquisition of the SLOC in 2023, interest
accretion and assumption changes, which
was partly offset by the CSM release into
the income statement.
The CSM release in the period represents
c.8% of the closing CSM (gross of tax) pre
release of £3.1 billion. We expect the release
of the CSM (gross of tax) to be c.5–7% over
time, primarily driven by annuities.
Assets under administration
AUA provides 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.
Group AUA as at 31 December 2023 was
£282.5 billion (2022: £259.0 billion), an
increase of 9% year-on-year. This increase
was primarily driven by an £18.7 billion
benefit from positive market and other
movements and £8.0 billion relating to the
SLOC acquisition. Net inflows in Workplace,
Retirement Solutions, Europe and Other
were £4.7 billion, £3.3 billion and £0.3 billion
respectively, but these were offset by £1.6
billion of outflows in Retail and £9.9 billion
of legacy outflows.
Outlook
The investments we are making across our
strategic priorities will support strong growth
in our IFRS adjusted operating profit before
tax over the next few years.
Movement of IFRS adjusted shareholders’ equity over 2023
We are targeting £900 million of IFRS
adjusted operating profit in 2026, up from
£617 million in 2023, reflecting a c.50%
increase. This includes the majority of the
£250 million cost savings as well as the
impact of our organic growth and
management actions.
We have an elevated level of non-operating
costs at present, but we expect these to
normalise after we are through our three-
year investment programme. We have also
suffered significant headwinds to shareholders
equity from adverse economics over the past
two years, primarily related to the significant
rise in long-term interest rates and rise in
equities. While future economic impacts are
hard to forecast, we would expect to see
some unwind of this adverse impact if interest
rates return to normalised levels. We would
also earn higher revenue from higher asset
values in our Pensions and Savings business.
The other below the line items are more
predictable and while we expect our
shareholders’ equity to decline over the
coming years, we expect it to remain
positive over the long term.
Our adjusted shareholders’ equity,
inclusive of the CSM, will remain broadly
stable near-term and then begin to grow.
Supported by strong CSM growth from
our annuities business and other
management actions.
As a reminder, our Group consolidated
shareholders’ equity is not a constraint to
the payment of our dividends. This is because
our dividends are paid from the Phoenix
Group Holding Company, which is not
impacted by IFRS 17 and has c.£4.6 billion
of distributable reserves.
Note: Numbers in the graph above do not sum due to rounding.
36
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
37
As at FY22CSM(net of tax)Shareholders’equityAdjustedoperating profitbefore taxNon-operating itemsTax creditOther comprehensive income (’OCI’) for the periodDividends paid on ordinary sharesMovementin CSM (net of tax)As atFY23£5.2bn£2.0bn£3.2bn£2.5bn£2.1bn£4.6bn£0.6bn£0.1bn£(0.8)bn£(0.1)bn£0.2bn£(0.5)bnStrategic reportStrategic report Business review continued
Capital
allocation
52.65p
Total 2023 dividend per share
+2.5%
Final 2023 dividend increase
2023 dividend increase
Phoenix has demonstrated a strong dividend
track record over the past 13 years, with a
c.4% compound annual growth rate (‘CAGR’)
since 2011. Our strong strategic and financial
performance in 2023 has supported a 2.5%
recommended increase in the Final 2023
dividend to 26.65p per share, taking the
Total dividend to 52.65p per share.
New capital allocation framework for
the next phase of our journey
As we embark on the next stage of our
journey, we are outlining a new capital
allocation framework.
There are two key underpins to our
framework. The first is that we will operate
a progressive and sustainable ordinary
dividend policy. The second is that we will
maintain our strong and resilient balance
sheet, by operating within a 140–180%
Shareholder Capital Coverage Ratio range.
We will seek to balance the investment of our
2024–2026 surplus capital across our strategic
priorities of grow, optimise and enhance.
In our Grow strategic priority, we will invest
c.£100 million into developing our growth
propositions and c.£200 million of capital
per annum to grow our annuities.
In our Optimise strategic priority, we will
continue our approach of repaying
M&A-related debt using surplus cash, with
an intention to repay at least £500 million
of debt by the end of 2026. This will support
a Solvency II leverage ratio of c.30%1 by the
end of 2026.
We will also invest c.£100 million into our
asset and liability optimisation capabilities
to support recurring managements over
the long term.
In our Enhance strategic priority, we will invest
c.£500 million on migration, transformation
and cost efficiency programmes bringing
our businesses onto a single Group-wide
operating model that will further enhance
our cost efficiency.
Additional surplus capital, over and above
these committed investments, will be
allocated to the highest return opportunities.
This could include additional investment into
growth, further deleveraging, M&A, and/or
additional capital return to shareholders.
New progressive dividend policy
The Board has evolved Phoenix’s dividend
policy to reflect the confidence it has in the
Group’s strategy. The Group will now operate
a progressive and sustainable ordinary
dividend policy.
The Board will continue to announce any
potential annual dividend increase alongside
the Group’s Full Year results and expects the
Interim dividend to be in-line with the previous
year’s Final dividend. The Board will continue
to prioritise the sustainability of our dividend
over the very long term. Future dividends and
annual increases will continue to be subject
to the discretion of the Board, following
assessment of longer-term affordability.
Capital allocation framework:
• Operate a progressive and sustainable ordinary dividend policy
• Strong and resilient balance sheet: 140–180% Shareholder Capital Coverage Ratio operating range
2024–2026 investment priorities:
• c.£100m into growth propositions
• c.£200m of capital per annum into annuities
• Debt repayment of at least £500m by the
• c.£500m of migration, transformation
end of 2026
• c.£100m to enhance our asset and liability
optimisation capabilities
and cost efficiency investment
Surplus capital allocation approach:
Allocate surplus capital to the highest return opportunities
• Investment into growth
• Further deleveraging
• M&A
• Return capital to shareholders
1 Assuming economic conditions in line with 31 December 2023.
Invest to grow
Invest to optimise
Invest to enhance
£1.1bn
Outlook
Growing Operating
Cash Generation
that more than covers
our recurring uses
and supports our
new progressive and
sustainable ordinary
dividend policy.
Looking ahead
Our purpose is to help people secure a life
of possibilities. The continued execution
against our three strategic priorities of Grow,
Optimise and Enhance, will support us in
delivering strong financial outcomes for
our shareholders.
Clear financial outcomes for shareholders
We have a new set of ambitious 2026 targets,
across our evolved financial framework of
cash, capital and earnings.
Starting with cash, Phoenix has set three new
cash generation targets. The first is that we
expect Operating Cash Generation to grow
to £1.4 billion in 2026, a c.25% increase from
2023. This growth underpins our Total cash
generation target, with a one-year target
for 2024 of £1.4–1.5 billion, and a three-year
target of £4.4 billion across 2024–2026.
Our cash targets demonstrate our confidence
in our ability to deliver sustainable, growing
cash generation over time.
In terms of capital, we will continue to maintain
a strong Solvency II balance sheet through
our comprehensive hedging approach.
This will see us continue to operate within
our Solvency II SCCR operating range of
140–180% and continue to manage our key
individual risk sensitivities on a Solvency II
surplus basis.
Our intention to repay at least £500 million
of debt by the end of 2026. This will support
us on our path towards a c.30% Solvency II
leverage ratio by the end of 2026, which is an
appropriate steady-state level for our business
absent M&A.
Turning to earnings, we are targeting IFRS
adjusted operating profit to grow c.50% to
£900 million in 2026, as we grow, optimise
and enhance our business. This will include
the majority of the c.£250 million of annual
cost savings we aim to deliver by the end
of 2026.
We expect the improving macroeconomic
outlook, with interest rates and inflation
normalising, to support our future growth
ambitions and targets.
Delivering against the targets across
our evolved financial framework of cash,
capital and earnings, in turn supports our
new progressive and sustainable ordinary
dividend policy.
2024 will be another exciting year for
Phoenix Group on our journey and as we
continue to deliver on our purpose and
our strategy.
Rakesh Thakrar
Group Chief Financial Officer
Growing Operating Cash Generation supports
our new progressive dividend policy
We have a clear set of supporting targets:
c.25%
Mid-single digit
percentage growth
over the long term
£1.4bn
Excess
cash
Dividend
Recurring
uses
2023
Grow
Optimise
Enhance
2026
Phoenix Group’s new dividend policy
The Group operates a progressive and sustainable ordinary dividend policy
Cash
• £1.4 billion Operating Cash
Generation in 2026
• £4.4 billion of Total cash
generation across 2024–2026
• £1.4-to-£1.5 billion of Total cash
generation in 2024
Capital
•
140–180% Shareholder Capital
Coverage Ratio operating range
• Solvency II leverage ratio of c.30%
by the end of 2026
Earnings
• Targeting £900 million of IFRS
adjusted operating profit in 2026
• c.£250m of annual cost
savings by 2026
38
Phoenix Group Holdings plc Annual Report and Accounts 2023
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39
Strategic reportStrategic report NFSI statement
Non-
financial and
sustainability
information
statement
As required by the
Companies Act 2006
sections 414CA and
414CB, this table
outlines our non-financial
and sustainability
information statement
with a reference to
relevant policies and
additional documents.
Environment
Colleagues
Social and community
Human rights
Our policies
Phoenix Group is committed to protecting the
environment; the health and wellbeing of our
colleagues and the customers and communities
in which we operate. We aim to reduce the impact
on the environment from our operations, and our
Environmental Management System certified
to ISO 14001 will help us achieve this. We aim to
demonstrate leadership in minimising emissions
that contribute to climate change, including our
direct emissions and working collaboratively with
our suppliers. We are taking steps to decarbonise
our investment portfolio, undertaking effective
stewardship of our assets, and investing in climate
solutions. We are working with decision makers and
peers to driver wider system change, and engaging
customers and colleagues on climate action.
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.
Waste and Recycling – We will implement
sustainable waste management practices
including the removal of all single use plastics
from our operations by 2030.
Conservation – We are committed to supporting
conservation in our communities.
Employee Engagement – We will support colleague
understanding of environmental issues and promote
engagement in environmental action.
We have a range of policies including our Group
Environmental policy, Environment Risk policy,
Our Approach to Integrating Environmental,
Social and Governance Considerations and
Sustainability Risk policy.
In addition, an exercise is ongoing to update all
Group risk policies to consider sustainability matters.
Due diligence
The Group’s Human Resources (‘HR’) policy defines
people risk, which, if unmanaged, could result in a
reduction in earnings or value, through financial or
reputational loss. Our Group approach to support
the health and wellbeing of colleagues is a key enabler to
build an inclusive, attractive, and safe working environment
that can adapt and respond quickly to change.
We 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 create a workplace
that is diverse, inclusive and reflective of our customers
and communities, where colleagues can bring their whole
selves to work.
The table below outlines our gender diversity metrics
at 31 December 20231:
Board members1
Senior managers2
All employees3
Senior managers and
their direct reports4
Female
Male
Female
Male
Female
Male
Female
Male
5
9
31
66
3,986
3,771
129
161
36%
64%
32%
68%
51%
49%
41%
59%
1 Companies Act 2006, s.414C(8)(c)(i).
2 Companies Act 2006, s.414C(8)(c)(ii).
3 Companies Act 2006, s.414C(8)(c)(iii).
4 Provision 23, UK Corporate Governance Code, see page 85.
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.
Adherence to the HR policy is managed by Group
HR via quarterly control assessments. Furthermore,
during 2023, control testing was integrated as part
of the Risk Management Framework and HR controls
will now additionally be tested on a cyclical basis.
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 wellbeing.
Customers
Phoenix Group’s Customer Outcomes Risk policy covers the Customer Lifecycle
which includes customer experience and vulnerable customer support, to ensure good
outcomes are being achieved in line with regulatory requirements. The Group continually
improves communications with customers to prevent any potential barriers during
their interactions with us in relation to their policy, empowering them to make informed
decisions should they wish to take any actions. Processes and controls are in place,
facilitating ongoing customer monitoring and oversight, to support the delivery of good
customer outcomes.
Suppliers
Our ESG Supply Chain Standards reinforce our commitment to embedding sustainable
best practice into our supply chain operations, so that our partners are aligned with
Phoenix Group’s values and commitments. We are looking to all our partners and suppliers
to implement requirements and targets which reflect our own standards as a minimum.
By working with partners that share our values and ambitions around sustainability,
we can establish long-term relationships that are both mutually beneficial and which help
to protect the interconnected interests of people and planet. We have focused on the
environmental, social and governance commitments which are connected to the most
material issues in our supply chain, represent best practice, and will have a significant
positive impact in terms of long-term behaviour change.
The Supplier Code of Conduct (‘Code of Conduct’) applies to all suppliers which
provide goods or services to us and/or any of our subsidiaries. The terms of the Code
of Conduct are in addition to any other commercial or contractual terms or obligations
agreed and outline the minimum conduct standards to which suppliers must adhere
when doing business with us, as well as supporting operational resilience and supporting
strategic growth.
Communities
We aim to make a positive and lasting difference to the communities in which we are
based, addressing social issues identified. Through our commitment to being a responsible
business our colleagues can participate in a range of community-based activities, utilising
their collective time, skills and resources. All colleagues across the UK and Ireland are
entitled to three days’ volunteering during business hours for individual activities or team
volunteering. We match fundraising donations colleagues make to approved registered
charities of their choosing across the year, in line with our community approach. We also
give our colleagues the opportunity to donate to registered charities across the UK and
Europe through the payroll giving scheme Give as You Earn where they can support their
chosen charities.
At Phoenix Group, we recognise our
responsibility to respect human rights
and do this in accordance with:
• the International Bill of Human Rights; and
• 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 multinational
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 2023 we published our Human Rights
policy, which is Group-wide, and applies to all
entities, business units and operations and we
expect all employees to adhere to the policy
in their work. We are committed to working
with our partners to multiply our impact and
we expect our suppliers, contractors, asset
managers and investee companies to be
aware of our policy and respect human rights
in their business operations.
We are committed to updating our Human
Rights policy at least every three years.
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 oversees the delivery of and compliance to our Information Security
policy, utilising capabilities such as Threat Intelligence, Penetration Testing and
Vulnerability Management to identify and control cyber risks. We manage a
comprehensive programme of continuous improvement to our Information Security
Framework collaborating with industry experts and the UK authorities to embed best
practices throughout. The Group is well positioned to resist cyber-attacks with no
significant cyber-related incidents in 2023, and there was no compromise to our data
as a result of any cyber events within our supply chain.
Complaint activity including those referred to the Financial Ombudsman Service and
the Pensions Ombudsman is monitored, and we also resolve a significant proportion
of complaints across the Group in fewer than three days.
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 developed a three-year
roadmap to address gaps, which we have
been progressing over 2023.
We continue to identify and assess the salient
human rights issues that we intend to prioritise
for further action across our operations and
value chain as part of our due diligence
processes. This two-year process includes
a portfolio-level human rights assessment
and an assessment of human rights risks in
countries of operations and high-risk business
relationships on an ongoing basis.
Anti-bribery
and corruption
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. This includes,
for example:
• a Group Financial Crime
Prevention Policy that
covers Anti-Bribery and
Corruption risk;
• a Code of Ethics for
ethical behaviour and
general standards;
• a Group Stewardship
policy which details our
stewardship approach; and
• mandatory training for
our employees covering
compliance with the
Bribery Act.
The Group’s Financial Crime
Prevention 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 in all aspects of
financial crime prevention and
are also required to complete
a Gifts and Hospitality Register
which is overseen and managed
by the Financial Crime Team.
This section primarily covers our non-financial
and sustainability information as required
by the regulations. Other related information
can be found as follows:
For further details on our business
model see pages 20 to 23.
Outcomes
Read more about our net zero and climate-related
reporting commitments and KPIs on pages 44
to 45 and our sustainability actions in our 2023
Sustainability Report and Climate Report.
Our GHG emissions and energy consumption
disclosure can be found in the ESG data appendix.
Other relevant colleague engagement, including
Diversity, Equity and Inclusion data can be found
on pages 32 to 33 as well as in the ‘Supporting our
colleagues’ and ‘Diversity, equity and inclusion’
sections of our 2023 Sustainability Report.
For further details on our climate-
related financial disclosures see our
TCFD statement on pages 44 to 45.
For further information
• Our sustainability policies:
www.thephoenixgroup.com/our-impact/
responsible-business/reports-policies/
For further details on our principal
risks and how they are managed,
see pages 46 to 57.
• Health and wellbeing approach:
www.thephoenixgroup.com/careers/wellbeing/
• Reward and benefits: www.thephoenixgroup.com/
careers/reward-benefits/
• Diversity, equity and inclusion: www.thephoenixgroup.
com/about-us/our-team/diversity-equity-inclusion/
Information on our customer satisfaction scores and initiatives can be found on page 25
in our 2023 Sustainability Report.
Information on relevant supply chain metrics and communities metrics can be found
in our 2023 Sustainability Report.
• Privacy policy: www.thephoenixgroup.com/site-services/privacy-hub/
• ESG Supply Chain Standards: www.thephoenixgroup.com/media/oynbf12x/
esg-supply-chain-standard.pdf
• Community Statement: www.thephoenixgroup.com/media/pfmo132f/
community-statement/
During 2023 the Group effectively resolved
all colleague disputes and as a result has not
been subject to any adverse employment
tribunals judgements or awards.
Reporting on our salient human right issues,
actions, and progress to align with the UNGPs
through our annual sustainability report.
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.
• Phoenix Group 2023 Modern Slavery
Statement: www.thephoenixgroup.com/
media/bgdokpfp/phoenix_modern_
slavery_statement_2023.pdf
• Governance: www.
thephoenixgroup.com/
investors/governance/
• Anti-bribery statement:
• Phoenix Group 2023 Human Rights policy:
www.thephoenixgroup.com/media/
x2hnlgkq/human_rights_policy_2023.pdf
www.thephoenixgroup.com/
investors/governance/
anti-bribery/
40
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
41
Strategic reportStrategic report Streamlined Energy and Carbon Reporting (‘SECR’) statement
Greenhouse gas (‘GHG’) emissions and energy consumption disclosure
This is Phoenix Group’s Streamlined Energy and Carbon Reporting (‘SECR’)
statement on the Group’s UK and global energy consumption and GHG
emissions for the financial year 1 January 2023 to 31 December 2023,
and the 2022 comparative year. Emissions disclosed here relate to energy
consumption, facilities and activities where the Group has operational control1.
Methodology
The 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
(using the EcoAct Homeworking Emissions
Whitepaper 2020) 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
fall 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:
• a location-based method that reflects the
average emissions intensity of the national
electricity grids from which energy is drawn.
• a market-based method that reflects
emissions from electricity specific to each
supply/contract. Where electricity
supplies are known to be from a certified
renewable source, a zero emissions factor
is used. Otherwise, residual mix factors
are used, or location-based factors where
residual mixes are unavailable.
1
2
3
EY has provided limited assurance over a selection of our 2023 ESG metrics, including operational Greenhouse gas emissions.
For the full scope of assured ESG metrics please refer to our Sustainability Report on page 47 for EY’s Assurance Statement.
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.
This year, market-based emissions have
shifted above location-based as the
primary measure of GHG emissions to
focus on the actual carbon impact of
energy consumption. This recognises
the organisation’s actions to procure
renewable electricity through robust
contractual agreements.
An exclusion has been made under
business travel for the Group’s owned fleet,
whereby no data was recorded in 2023 for
two electric vans that were transferred out
of the Group’s control in August 2023. It is
estimated that this would account for less
than 0.1% of Scope 1 GHG emissions.
Energy consumption and greenhouse
gas emissions2
Table 1: Absolute energy consumption
in GWh
Consumption (GWh)1 from:
Building Electricity
Building Natural Gas
Business Travel3
Homeworking Electricity
Homeworking Natural Gas
Total Consumption
2023
22.6
16.2
0.1
1.6
24.3
64.8
2022
24.1
18.7
0.4
1.5
22.9
67.6
1 Energy units: 1 GWh = 1,000,000 kWh.
Table 2: Absolute GHG emissions in tonnes of CO2e
Emissions1 (tCO2e) from:
2023
2022
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 Purchased2
(market-based)
(location-based)
(market-based)
(location-based)
2,433
2,433
2,684
2,684
23
2,456
310
2,746
5,083
762
0
3,856
6,289
310
2,746
4,884
1,579
242
7
2,692
356
1,149
4,847
2,018
0
4,437
7,121
356
1,149
4,631
1,826
313
11,357
16,050
11,062
15,395
1,870
1,994
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 – 2023 factors will not be published until late 2024. Therefore all 2023 consumption data are converted using the factors actually arising
in 2019 (except business travel which uses DEFRA factors as published in 2023).
Carbon Offsets Purchased relate to Phoenix Group’s natural gas procured for and consumed within its directly managed sites, which is certified as ‘carbon neutral’ by the supplier.
Commentary on Phoenix
Group’s performance
Overall, in 2023 there was 38.9 GWh of
Phoenix Group global energy consumption
(building energy and business travel in
employees or company owned vehicles) as
shown in Table 1, 95% of which was from UK
operations. This is a slight decrease on the
43.2 GWh of global energy consumption
reported in 2022 and is primarily due to the
impacts of ongoing energy efficiency actions
being recognised. The de-occupation and
closure of multiple sites in 2022 has also
contributed to this decrease. Furthermore,
25.9 GWh of energy consumption from
employee homeworking has been estimated
in 2023, of which 92% occurred within the
UK. This is a slight increase compared to
2022, which has been primarily driven by
a small reduction in office attendance for
Group employees in 2023.
The Group’s GHG emissions (location-based
Scope 1 and 2, per Table 2) have decreased
12% in 2023. In contrast, business travel has
seen a significant increase of 139% over the
same period, which is a result of the return
to in-person activities, as business continues
to return to normal following the COVID-19
pandemic and virtual ways of working.
A refreshed travel carbon reduction plan
is in progress to address this increase.
The Group continues to procure
approximately 100% of its electricity from
certified renewable sources, which is why
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
avoidance offsets for natural gas consumed
in its owned and occupied assets. Whilst
exact data is unavailable, this has been
estimated as 1,870 tCO2e in 2023.
Energy intensity metrics
The Group’s chosen operational intensity
metrics detail GHG emissions per occupied
floor area (m2) and per full-time employee
(‘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 12 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 total Scope 1 and 2 emissions for these
buildings were divided by the applicable
occupied floor area and FTEs respectively.
The m2 intensity has continued to decrease
in 2023, which is the result of the Group’s
ongoing efforts to improve energy efficiency
and reduce its impact on the environment
through its operations, as described below
in the Energy Efficiency Action section.
The FTE intensity metric has also continued
to decrease, with a 13% reduction in the
location-based intensity metric and a 15%
decrease in the market-based intensity
metric. As of 2023, market-based emissions
are the Group’s primary intensity metric,
as this recognises the impact of renewable
energy on the Company’s transition to
net zero.
In February 2023, approximately 1,222
colleagues in Standard Life House were
TUPE transferred to TCS/Diligenta. To
reflect this change more accurately, these
staff have been retained within the FTE
number as they are undertaking work
exclusively for Phoenix Group, which is
contractually obliged to provide them with
space. Using the previous methodology,
which does not include these additional
FTEs, the Group’s market and location-based
FTE intensity metrics in 2023 were 0.35
tCO2/FTE and 0.75 tCO2/FTE, respectively.
However, using the new methodology,
the Group’s market and location-based
FTE intensity metric in 2023 is 0.29 tCO2/
FTE and 0.63 tCO2/FTE, respectively.
These figures represent a significant
reduction compared to 2022, highlighting
the progress made by the Group to improve
its efficiency and reduce GHG emissions.
Table 3: Phoenix Group’s chosen intensity measurement
Emissions (kilogrammes and tonnes) of CO2e per chosen intensity metric:
2023
2022
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)
(market-based) (location-based)
(market-based) (location-based)
24
0.29
51
0.63
26
0.34
57
0.73
Energy efficiency action
(climate change actions)
To maximise the environmental impact of
capital expenditure, spending has been
prioritised based on the potential carbon
impact of projects across the operational
estate. As in previous years, projects were
often 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 conducted in a particular year.
The following is a selection of key projects
and actions undertaken by the Group
in 2023:
• Completed the final stage of the
Wythall PV integrated glass roof project,
which is now generating at full capacity.
• Consolidated facilities management
service providers, allowing for a more
optimised and efficient workstream
to target energy and carbon saving
projects with dedicated contract
energy professionals.
• Began the process for collecting more
frequent energy data across the estate
to measure, monitor and identify energy
saving measures more accurately.
• Achieved ISO 14001 certification,
Previous year actions:
• Continued to roll out higher efficiency
LED lighting across applicable buildings,
ensuring that any new installations are the
most energy efficient available by default.
providing an effective structure to allow
for continual improvement in relation to
our premises’ environmental performance.
• Upgraded building control systems
to allow for greater flexibility and
operational efficiency.
In line with the Group’s Eliminate-Reduce-
Substitute-Compensate carbon reduction
model, applicable opportunities will
continue to be reviewed. Additionally,
further technological solutions are being
investigated to continue 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.
• Upgraded fans and retrofitted inverter
controls within ventilation systems.
• Replaced inefficient gas boilers in
two buildings. This has resulted in gas
consumption savings of 1,950 MWh
per year over the applicable buildings.
• Feasibility studies and design work
continue to assess options for heat
pumps, electric boilers or hybrid
combinations to replace gas boilers
in two applicable properties.
42
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
43
Strategic reportStrategic report Task Force on Climate-Related Financial Disclosures (‘TCFD’) – summary report
The Group fully supports the recommendations of the TCFD and has published
a Climate Report – prepared in line with the recommended disclosures of the TCFD
– to allow all stakeholders to better understand the impact of climate-related risks
and opportunities on the Group and how these are measured and managed.
TCFD compliance summary
We continue to disclose in line with the
recommendations of the Task Force on
Climate-related Financial Disclosures
(‘TCFD’), in compliance with the Financial
Conduct Authority (‘FCA’) Listing Rule
9.8.6R(8). The Group has obtained limited
assurance on certain figures presented
in the Climate Report – further information
on page 63.
Given the progress we have made
with embedding the recommendations
of the TCFD across the business and the
increasing need for transparent reporting,
we have opted to publish a standalone
Climate Report which is available on our
Group website.
The table below provides a summary of
how we have complied with each of the
recommendations of the TCFD framework.
We have included references to other
sections of the Annual Report or the Climate
Report, where further information relating
to our compliance with the each of the
TCFD recommendations can be found.
In response to FCA guidance 9.8.6FG,
we have also published a standalone
Net Zero Transition Plan which sets out
our approach to achieving net zero across
our business by 2050.
For more information see our
Climate Report
Governance
Disclose the organisation’s governance around climate-related risks and opportunities.
Recommended disclosure
Summary of progress
Further information
a. describe the
board’s oversight
of climate-related risks
and opportunities.
• The Board has oversight of the Group’s overall approach to climate change; the Board Sustainability Committee
monitors performance against the Group’s sustainability strategy, including climate; and the Board Risk Committee
has oversight of climate-related risks and opportunities.
• Climate risks continue to be identified and monitored via the Group’s established Risk Management Framework.
• A dashboard covering key climate risks is integrated into regular risk reporting for the Life and Group
Board committees.
• The Board met seven times and all meetings considered climate-related matters discussed at relevant committees.
b. describe
management’s
role in assessing
and managing
climate-related risks
and opportunities.
• Management have clearly defined roles and responsibilities relating to the management, oversight and reporting
of climate-related matters.
• The Group’s Chief Executive Officer, Andy Briggs, is the Executive Board Director responsible for implementation
and delivery of the Group’s overall strategy (including climate).
• Senior Management Function holders (‘SMF’s) have been assigned responsibilities for climate-related financial risk
•
under the Senior Managers and Certification Regime.
Individual responsibility for ensuring the appropriate identification, assessment, management and reporting of
climate-related financial risks and opportunities that could impact the Group sits with the Group’s Chief Financial
Officer (‘CFO’) and the Group’s Chief Risk Officer (‘CRO’).
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning where such information is material.
Climate
Report
pages
21 – 22
Climate
Report
pages
23 – 24
Recommended disclosure
Summary of progress
a. describe the
climate-related
risks and opportunities
the organisation has
identified over the short,
medium and long-term.
• The Group undertakes qualitative analysis to identify and assess the climate-related risks and opportunities,
both physical and transition, which could materially impact different areas of the business over short-, medium-,
and long-term time horizons.
• Short-term: 0–1 year – this is consistent with the liquidity monitoring time horizon for setting capital requirements
under Solvency II; Medium-term: 1–5 years – this is consistent with the Group financial planning process which
considers the medium-term plans and strategy for the business; and Long-term: over 5 years – this captures
the long-term nature of the business and the risks that may emerge beyond the financial planning process.
• The material risks and opportunities indentified as likely to crystallise over the short-, medium- and long-term
are: climate risk exposure in the investment portfolio; emerging government policy, regulatory and legal changes;
reputational damage if climate risks are not appropriately managed; disruptions to business operations from
climate impacts; and changing demand for products, funds and solutions.
b. describe the impact
of climate-related risks
and opportunities on
the organisation’s
businesses strategy,
and financial planning.
• The Group has assessed the impact of climate-related risks and opportunities on the business, strategy and
financial planning.
• The management of material climate-related risks and opportunities has been embedded into the businesses
strategy and financial planning process, recognising that this is an important process in delivering the Group’s
strategic ambition to meet more of the long-term savings and retirement needs of existing and new customers.
• The Group’s medium- to long-term strategic planning incorporates the consideration of the financial impacts
of climate-related risks and opportunities. This includes: the increased operational costs associated with
regulatory compliance; the impact of physical risk on Group assets; and shifts in consumer behaviours driven
by environmental concerns.
Further information
Climate
Report
pages
26 – 27
Climate
Report
pages
26 – 34
Strategy continued
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning where such information is material.
Recommended disclosure
Summary of progress
c. describe the
resilience of the
organisation’s strategy,
taking into consideration
different climate-related
scenarios including a 2C
or lower scenario.
• Both quantitative and qualitative scenario analysis are used to model the impact of different temperature
pathways on the business to gain insight into how climate-related risks may materialise over time.
• The two quantitative scenarios are from the Network for Greening the Financial System (‘NGFS’) Phase III:
an orderly transition to net zero by 2050 which starts immediately (1.5°C or below); and a delayed transition
to net zero (2°C or below). Physical risk exposure is also assessed in sub-sections of the investment portfolio
and qualitative scenarios used to assess the impact of potential extreme events on the business that are not
easily quantifiable through financial modelling.
• The analysis indicated no significant threat to the Group’s business strategy or processes in the near-term.
However, they do indicate a potential reduction in investment returns and disruption to the operations and
strategy of the business if action does not continue to be taken to manage and mitigate the risk.
• There are a number of limitations/assumptions to the Group’s scenario analysis approach, including the changing
asset mix of the Group and the quality/coverage of data. Only a subset of climate outcomes have been assessed
and there remain infinite possible pathways that could emerge and pose new possible threats to the Group.
Risk management
Disclose how the organisation identifies, assesses, and manages climate-related risks.
Further information
Climate
Report
pages
35 – 39
Recommended disclosure
Summary of progress
Further information
a. describe the
organisations processes
for identifying and
assessing climate-
related risks.
b. describe the
organisation’s processes
for managing
climate-related risks.
c. describe how
processes for
identifying, assessing
and managing
climate-related risks
are integrated into the
organisations overall
risk management.
• A number of tools are used to understand our climate risk exposures, including: annual stress testing; carbon
footprinting exercises for our assets and operations; horizon scanning; and monitoring and reporting progress
against climate risk metrics and targets.
• The materiality of climate risks are assessed qualitatively on an ongoing basis, building on the processes noted
above. Individual business areas ensure strategies are in place to manage climate risk given the materiality.
• Climate-related risks continue to be monitored via the Group’s established emerging risk processes.
• Examples of how key components of our strategy and wider business processes are considering and actively
reducing material climate risks include: decarbonising our investment portfolio; investing in climate solutions;
stewardship; engaging with our customers; engaging with policymakers and regulators; decarbonising our
operations and supply chain; scenario analysis; and the monitoring and measurement of climate metrics.
• The Group Risk Management Framework (‘RMF’) sets out how we identify, assess, control, monitor, manage
and report on the risks to which the Group is, or could be, exposed. This includes climate-related risks.
• The RMF supports the identification of risks both quantitatively and qualitatively, and from a top-down and
bottom-up perspective at the Group-level.
• The Group continually reviews the forward-looking landscape to ensure it sufficiently identifies, assesses,
controls, monitors, manages, and reports on emerging risks.
• The Group continues to develop its internal climate risk reporting to reflect market best practice and enable
effective measurement of climate risk and tracking of progress made against the Group’s net zero targets.
Metrics and targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where
such information is material.
Climate
Report
pages
41 – 43
Climate
Report
pages
26 – 34
Climate
Report
pages
41 – 43
Recommended disclosure
Summary of progress
Further information
a. disclose the
metrics used by the
organisation to assess
climate-related risks
and opportunities
in line with its
strategy and risk
management process.
• A number of metrics are used across the Group’s investment portfolio and operations to help measure and manage
exposure to climate risk.
• The following metrics are used to understand how aligned the Group’s investment portfolio is to a net zero economy
and how resilient it is to transition risk: absolute portfolio emissions; economic and revenue intensity; percentage
of listed asset portfolio exposed to high transition risk industries; proportion of investee companies that have set
science-based targets.
• Physical risk metrics are being determined to understand which sectors and geographies are susceptible to
physical risk.
• Operational emissions are tracked through intensity metrics per full time employee (‘FTE’) and the Group reports
both market-based performance as well as location-based performance. In addition, a location-based per floor area
metric is used track the impact of efficiency initiatives undertaken within Group buildings.
• Our Scope 3 (purchased goods and services and capital goods) have been indicatively modelled using spend data
alongside average industry emissions factors and enhanced with supplier data.
b. disclose Scope 1, 2, 3
GHG emissions and the
related risks.
• The Group’s absolute Scope 1, 2 and 3 emissions calculated at year-end 2023 are as follows:
Investment portfolio (financed) emissions: 18.1 MtCO2e^ (for assets footprinted at year-end 2023).
•
• Operations emissions: 11,357 tCO2e (Scopes 1, 2 and 3, voluntary carbon footprint, market-based).
• Supply chain emissions: 124,943 tCO2e (indicatively modelled emissions based on supplier spend data).
• A phased approach has been taken to measuring the baseline of the Group’s investment portfolio.
The baseline will continue to be expanded to cover the assets in scope of our 2030 interim target.
c. describe the
targets used by
the organisation to
manage climate-related
risks and opportunities
and performance
against targets.
• Ambitious targets have been set across the Group’s investment portfolio, operations and supply chain to help
navigate progress towards meeting the Group’s net zero by 2050 ambition.
• Targets include: net zero business by 2050; net zero investment portfolio and supply chain by 2050; net zero
operations by 2025; a 25% reduction in investment portfolio emissions by 2025; and at least a 50% reduction
by 2030.
• Scenario analysis indicates that the Group is on track to achieve its 2025 targets under most scenarios,
if the actions committed to are implemented.
• Achieving set targets beyond 2025 is less certain as the Group will become increasingly dependent on
decarbonisation in the wider economy and actions by others, in particular government, regulators and
high transition risk sectors.
Climate
Report
pages
45 – 57
SECR
pages
42 – 43
Climate
Report
pages
45 – 57
SECR
pages
42 – 43
Climate
Report
pages
45 – 57
SECR
pages
42 – 43
44
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
45
Strategic reportStrategic 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 strategy.
The RMF is aligned to the principles
of the International Organization
for Standardizations’ (’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 Management Framework
Risk environment
The Group continues to operate in a volatile
risk environment with multiple external
factors requiring navigation to enable the
Group to deliver on its strategic priorities.
testing programme continues to consider
a range of adverse circumstances to
help the Group and its Life Companies
determine any actions needed to
respond to economic pressures.
Geopolitical risk remains most prominent.
Tensions in the Middle East have escalated,
and whilst the Group has low exposure
to assets heavily influenced by the price
of gas and oil, it is closely monitoring
impacts to inflation or interest rates which
may occur from disruption to Red Sea
shipping. The Group’s Stress and Scenario
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 and continues to engage in industry
consultations as the draft regulations
are refined. Progressing key tasks on
the implementation plan for the Financial
Conduct Authority’s (‘FCA’) new Consumer
Duty is another key area of focus, which
is well aligned to the Group’s purpose
of helping customers achieve a life of
possibilities. The Group supports the FCA’s
Sustainability Disclosure Requirements
(‘SDR’) and investment labelling
requirements and has mobilised a project
to ensure its practices align with the new
regulations. Additionally, work is underway
to provide a response to the FCA following
the Advice Guidance Boundary Review
consultation paper. The Group recognises
the importance of this review, which aligns
well to the Group’s purpose and strategy.
The Group monitors developments across
the political environment and engages with
political parties, regulators and industry
bodies on reforms which could help
people live better, longer lives. In order
to support customers on their journey
to and through retirement, the Group
places significant focus on monitoring and
managing sustainability risks, including
climate change, to ensure ongoing
resilience over the long term to such risks.
The Group remains alert to the risk of cyber-
attacks which could impact the Group or
its strategic partners directly, or indirectly
via impact to customers and colleagues
should state infrastructure be targeted.
Risk
strategy
and culture
Risk appetite
Risk Universe
Risk
policies
Governance and
organisation
Emerging
risk
Risk and
capital
models
Strategic risk
management
Risk and control processes and reporting
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 to the
right. The Group’s ORSA cycle brings
together interlinked 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 strategy.
The Group’s risk strategy supports a
more stable, well-managed business
with improved customer, shareholder,
colleague and societal outcomes in
line with Phoenix Group’ strategy.
The Group achieves its overall purpose
and 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 categorised its Risk Universe
into ‘Fundamental’, ‘Consequential –
Active’ or ‘Consequential – Passive’.
Risk culture
The Group defines its vision for risk culture
as an environment that supports informed
decision-making and controlled risk-taking.
Through nurturing a good risk culture, the
business can foster innovation, embrace
change, and strategically differentiate itself
from its competitors.
ORSA process cycle
ario testing
Stress and
n
e
c
s
R
i
s
a
k
n
d
m
a
m
n
o
a
n
g
i
t
e
o
m
ri
n
e
nt
g
ORSA
r eporting
S
t
r
b
u
s
i
a
t
e
n
g
e
y
s
s
a
n
p
l
d
a
n
e
e
r
u
etit
os
Risk exp
p
and ap
Risk cap i t a l
assessm e n t
This vision is supported by the Group’s
Risk Culture Framework, which articulates
an ambition to support colleagues to
demonstrate attitudes and behaviours
that are in line with this vision through
comprehensive measurement
and proactive management.
A Risk Culture Report is provided to Phoenix
Group’s Board Risk Committee twice a year,
capturing qualitative observations from
across the business and a dashboard of
quantitative data to measure the Group’s risk
culture and identify areas for improvement.
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 strategic objectives.
The Group’s risk appetite statements
establish the amount and type of risk
that the Group is willing to take in order
to meet our strategic objectives, and
are a key tool in balancing the interests
of different stakeholders. The Group’s
Risk Appetite Framework operates using
a three tiers approach to cascade the
Board’s risk appetites through to lower
level risk policies. The Risk Appetite
Framework is reviewed on an annual basis.
The following Board-approved risk appetite
statements are adopted by the Group:
Capital – The Group and each Life Company
will hold sufficient capital to meet business
requirements, including those of key
stakeholders in a number of Board-approved
asset and liability stress scenarios.
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 our
customers, employees, shareholders
and other stakeholders by operating a
robust control environment that meets
the requirements of the approved
controls objectives for all risks within
the Group’s Risk Universe.
46
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
47
Strategic reportStrategic report
Risk management continued
Conduct – The Group acts to deliver good
outcomes for customers and maintains high
conduct standards in line with regulatory,
customer and market expectations. If good
outcomes and/or high conduct standards
are not being delivered, the Group will
put it right in a fair and prompt manner.
The standards all colleagues are expected
to achieve are detailed in our Group Code
of Conduct. The Group takes breaches of
our code seriously and they may result in
disciplinary action being taken. The Group
has no tolerance for deliberate misconduct.
Sustainability – The Group seeks to be
a leader in informing system change on
the key sustainability issues linked to our
purpose and strategy. We want to use
our position in the market to drive positive
change for customers and wider society
over the long term. Our Sustainability
Strategy is designed to take advantage of
sustainability opportunities and manage
sustainability risks in a way that is transparent,
affordable, and aligned with good customer
outcomes and regulatory requirements.
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 risk taxonomy
and 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 its
Conduct Strategy and sustainability risk
management 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
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 risk
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 Sustainability
Risk Management Framework overarch all
risk policies to provide a holistic view of
conduct and sustainability risks. 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
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. Measures are in place during each
Framework refresh to allow for continuous
improvement in risk management
throughout the business by seeking input
from colleagues and industry bodies.
First line: Management
Management of risk is delegated from the
Board to the Group Chief Executive Officer,
the Executive Committee (‘ExCo’) members
and through to business managers. The first
line is responsible for implementation of
the RMF, ensuring risks to the Group and its
customers, shareholders, colleagues and
society are identified, assessed, controlled,
monitored, managed and reported.
Second line: Risk oversight
Independent oversight of risk management
is provided by the Group Risk function
through advice, guidance, review, challenge,
opinion and assurance; its views are
reported to the Board Risk Committee.
Group Risk’s purpose and responsibilities
are set out in the Risk Mission, Mandate
and Plan, which is presented to the Board
Risk Committee for approval annually.
Third line: Independent assurance
Independent verification of the adequacy
and effectiveness of internal controls and
risk management is provided by the Group
Internal Audit function. Each annual audit
plan includes focus on different components
of the RMF, and each individual audit provides
an opinion on the Control Environment
and RMF Operation for the area in focus.
Following each audit, ratings and output
are reported to the Board Audit Committee.
The Governance framework in operation
throughout the Group can be found in the
chart overleaf.
Phoenix Group
Holdings plc
Board
Board
Remuneration
Committee
Board
Nomination
Committee
Board
Sustainability
Committee
Board
Risk
Committee
Board
Audit
Committee
See page 71
See page 71
See page 71
See page 71
See page 71
Governance framework
d
r
a
o
B
s
e
v
i
t
u
c
e
x
E
t
n
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g
a
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a
M
Group Chief Executive Officer
Andy Briggs
Group Chief Financial Officer
Rakesh Thakrar
Group
Functions
Business Unit
Management
First line
of defence
Emerging risk
The Group defines an emerging risk (or
opportunity) as an event that is perceived
to be potentially material but is not yet fully
understood. Emerging risks could either
be novel or connected with existing risks
but where the context, conditions and/or
constraints are subject to material changes.
The distinction between a current risk and
an emerging risk predominantly relates to the
amount of available information, with fewer
details available for emerging risks meaning
that likelihood and severity impacts are more
uncertain. Emerging risks or opportunities
do typically take longer to crystallise, but in
many cases immediate actions are needed
so that risks can be pre-emptively mitigated,
or opportunities can be fully maximised.
Regular conversations at Board level
help to drive out potential new risks and
opportunities, pulling on the collective
expertise and experiences of senior
individuals. It is a requirement under
the Strategic Risk policy for business
unit or function management Boards
and ExCo to receive an emerging risks
and opportunities dashboard at regular
intervals and be asked to consider
whether any item should be considered
within existing strategic ambitions.
Strategic risk management
Strategic risks threaten the achievement of
the Group’s purpose and 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
The Group uses a partial Internal Model
for calculation of its solvency capital
requirement. 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.
Chief Risk Officer
Jonathan Pears
Group Risk
and Compliance
Group
Internal Audit
Second line
of defence
Third line
of defence
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.
The Group uses the Governance and
Compliance Manager (‘GCM’) system,
allowing colleagues across the three lines of
defence to identify and report any potential
emerging or material risks formally, enabling
suitable owners to be assigned to manage
these risks and facilitates tracking to closure.
48
Phoenix Group Holdings plc Annual Report and Accounts 2023
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49
Strategic reportStrategic 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
2022 Annual Report and Accounts, published in March 2023.
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, 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 2022
Annual Report and Accounts have been
retained. The articulation of the principal
risks related to transitioning acquired
businesses and Environmental, Social and
Governance (‘ESG’) has been refined to
reflect the evolution of how these risks could
impact the Group. The overall level of risk
exposure for ESG risks is now reported
as ‘Heightened’ for the first time since
introduction in 2019, in recognition of the
external headwinds which could impact
the Group’s ability to effectively manage
sustainability risks.
Both strategic and operational risk categories
contain multiple principal risks; risks in these
categories are broadly ordered for their
relevance to enabling the Group to achieve
its strategic priorities.
Further details of the Group’s exposure to
financial and insurance risks and how these
are managed are provided in note E6 and F11
to the IFRS consolidated financial statements.
Strategic priorities
Grow
Optimise
Enhance
Impact
Mitigation
Change from 2022 Annual Report and Accounts
Strategic risk
The Group fails to deliver long-term organic cash generation in line with its Annual Operating Plan
Confidence in the Group might be
diminished if it fails to deliver organic
cash generation in line with targets
shared, particularly as the Group seeks
to support people by offering a wide
range of solutions to help customers
journey to and through retirement.
The Group’s business unit structure
brings focus and accountability.
The key areas of growth are Pensions
and Savings and Retirement Solutions.
Each business unit holds an annual
strategy setting exercise to consider
the needs of potential and existing
customers, 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 growth businesses,
including propositional enhancements
driven by customer insight.
The Group is established in the
Bulk Purchase Annuity (‘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.
Unchanged
The Group viewed this risk as ‘Improving’ in the 2022 Annual Report and
Accounts, reflecting the demonstrated success of the strategy to pursue
organic cash generation; this view of the level of risk exposure is unchanged.
The Group has delivered strong organic growth in 2023, with new
business net fund flows of c. £7bn, compared to £3.9bn in 2022.
This is in line with the Group’s strategy to deliver a balanced business
mix through leveraging its scale in the capital-light fee-based
businesses and maintaining a disciplined level of growth in annuities.
As a result of this strong performance, the Group has delivered
c. £1.5bn of total new business long-term cash generation in 2023,
achieving its 2025 target two years early.
During 2023, the Group completed BPA transactions with a combined
premium of c. £6bn, compared to £4.8bn in 2022. This continues to
demonstrate that the Group has the ability to compete and win in the
BPA market.
In September, the Group launched the Standard Life Pension Annuity
to the open market in the UK, becoming the first new provider to enter
the annuity market since the introduction of Pension Freedoms
legislation in 2015.
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.
The Workplace business continues to attract good flows in, delivering
net fund flows of c. £4.5bn in 2023, nearly double the £2.4bn delivered
in 2022. This is supported by c. £2bn of new scheme assets transferred
in 2023, including the Siemens workplace scheme, which represents one
of the largest scheme transfers to have been tendered in the UK market
in recent years, demonstrating the strength of the Group’s proposition.
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 and through advisers, from new
and existing customers. During 2023, £1.079bn of assets were internally
transferred to Retail direct to enable existing customers to access
modern pension offerings to support them to and through retirement.
The Group is looking to expand the current offering of financial guidance
and advice to support customers in better preparing for their retirement.
Impact
Mitigation
Change from 2022 Annual Report and Accounts
Strategic risk continued
The Group’s strategic partnerships fail to deliver the expected benefits
The Group has in place established
engagement processes and a rigorous
governance structure to manage
relationships with its strategic partners,
in line with the Group’s 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.
Unchanged
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 Diligenta to
support its strategic deliverables. The successful migration of another
700,000 Phoenix Life customer policies to TCS Diligenta’s BaNCS
platform was completed in November 2023. Planning for further
migrations in 2024 and beyond is underway.
During 2023 the Group successfully transferred the custody and fund
accounting services for £12.3bn of assets to HSBC plc. This is a key
milestone in the Group’s journey towards implementing harmonised
investment administration processes, and boosts its strategic
partnership with HSBC plc.
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 to 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. £154bn of the Group’s assets
under administration, at December 2023.
HSBC plc: Provides custody and
fund accounting services to the
Group to manage c. £165bn of its
unit linked operations.
TCS Diligenta: The Group’s partnership
covers a range of services including
customer administration and digital and
technology capabilities to support
customer outcomes.
Strategic risk continued
The Group fails to effectively transition acquired businesses
The Group is exposed to the risk of
failing to transform, simplify and better
integrate the component parts of our
acquired businesses to deliver leading
customer experiences and realise scale
efficiencies successfully and efficiently.
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 achieve the
efficiencies of its target operating model.
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.
The Group views future M&A activity as
an optional strategy accelerant and will
assess new inorganic growth opportunities
against a clear set of criteria and seeks
to execute those opportunities which
score positively against these criteria.
The Group’s acquisition strategy is
supported by the Group’s financial
strength and flexibility, strong regulatory
relationships and its track record of
generating shareholder value and
delivering good customer outcomes.
The financial and operational risks of
target businesses are assessed in the
acquisition phase and potential mitigants
are identified which may include
temporary capital or liquidity buffers.
Unchanged
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 volume
of ongoing transition and integration activity.
The Group has worked to transform from a financial engineering
business to a purpose-led, organically growing business. Focus is
now on pivoting to transform and simplify the business in the next
phase of our journey.
The Group continues to develop its partnership with TCS Diligenta
to support its target operating model. Further customer migrations
to TCS Diligenta’s BaNCS platform are planned in upcoming years,
which will support delivery of the Group’s target operating model
and enable all Phoenix policies to benefit from a more advanced
administration platform. The key risk in respect of migration activity
is that the time, and associated cost, to deliver these whilst protecting
customer outcomes is greater than expected and the Group regularly
assesses its reserving basis as a result.
In April 2023 the Group completed the acquisition of Sun Life of
Canada UK, a closed book UK life insurance company, from Sun Life
Assurance Company of Canada. The integration is progressing well,
with the majority of functions due to complete activity in April 2024.
The Group has now delivered c. 20% of the targeted c. £500m
incremental long-term cash generation target from this acquisition,
with the remainder due to emerge in 2025 and 2026.
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Strategic reportStrategic report Risk management continued
Impact
Mitigation
Change from 2022 Annual Report and Accounts
Impact
Mitigation
Change from 2022 Annual Report and Accounts
Strategic risk continued
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
Customer risk
The Group fails to deliver good outcomes for its customers or fails to deliver propositions that continue
to meet the evolving needs of customers
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 within
both 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 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 change in line with
capacity and risk appetite and to strengthen
business readiness processes to deliver
change safely into the operational
environment. These prioritisation
principles are a core part of the Annual
Operating Plan process, alongside a
significant focus on the deliverability
of the change portfolio in 2024.
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.
This aims to ensure that all material risks
to project delivery are appropriately
identified, assessed, managed,
monitored and reported.
Unchanged
Whilst significant progress has been made on developing the change
capability and capacity, there has been no change to the assessment
of exposure to this risk since its introduction in the 2020 Annual Report
and Accounts, which reflects the potential impact of failing to deliver
the Group’s significant strategic and regulatory change agenda.
The Group has continued to strengthen its Change Management
Framework during 2023 and expects to see an improving trend in this
risk as those enhancements are seen in project delivery, noting that the
Group has a number of multi-year change programmes so benefits will
emerge in 2024 and beyond. The Group’s Chief Operating Officer
is driving further enhancements to evolve and mature the Group’s
change operating model. In 2023 this included significant effort being
put into the recruitment of senior change professionals, alongside the
assessment and further development of all internal change resources.
Strategic risk continued
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 adequately to ESG risks and
delivering on its purpose; for example,
failing to meet and make its sustainability
commitments.
A failure to manage ESG risk could
result in adverse customer outcomes,
reduced colleague engagement,
reduced proposition attractiveness,
reputational risks and litigation.
The Group is exposed to risks arising
from the transition to a lower-carbon
economy, which could result in a loss
in the value of policyholder and
shareholder assets.
In addition, physical risk can give rise
to financial implications, such as direct
damage to assets, operational impacts
either direct or due to supply chain
disruption, and impacts on policyholder
health and wellbeing, impacting
demographic experience.
Heightened
This risk is considered ‘Heightened’ for the first time since its introduction
as a principal risk in the 2019 Annual Report and Accounts.
The key driver for this change is the rapidly evolving external ESG
environment. In particular, the increasing politicalisation and weakening
of government policies in relation to ESG risk (such as that of the UK
Government) as this could delay the necessary actions to transition
to a low carbon economy, making the potential future crystallisation
of physical climate events increasingly likely.
Anti-climate change and ESG sentiment, particularly in high
carbon-emitting countries, could have far-reaching consequences
for the pace and effectiveness of climate action and continue to
slow down policy changes. This could limit future ESG-aligned
investment opportunities and make it more difficult for the Group
to manage ESG risk and meet its climate commitments.
Recent reports from bodies such as the Intergovernmental Panel
on Climate Change and the United Nations Environment Programme
highlight the slow progress and significant scale of the challenge in
restricting global warming below 1.5°C. Real world events are occurring
at a high rate, with 2023 setting the record for the hottest year ever
on record.
The Group is cognisant of this changing environment and undertakes
thought leadership and wide engagement with policymakers
and market participants to actively raise the debate around key
sustainability themes.
Analysis indicates the Group is on track to achieve its 2025 targets if
planned actions are implemented. However, further internal actions will
likely be needed to achieve the 2030 targets, which are also increasingly
dependent on external factors such as the decarbonisation of the wider
economy and actions by others – in particular government, regulators,
and the high transition risk sector.
The Group has a clear sustainability
strategy in place which is updated annually
to reflect the Group’s latest plans and risk
exposures, with key metrics on progress
monitored throughout the year.
Sustainability risk and climate risk are both
embedded into the Group’s RMF.
Sustainability risk ‘cross-cuts’ the
Group’s Risk Universe. This means the
consideration of material sustainability-
related risks is embedded in the Group’s
risk policies, with regular reporting
undertaken to ensure ongoing visibility
of its exposure to these risks. Several
sustainability-related risk policies are
also in place to cover the main sources
of sustainability risk.
The Group is making good progress on
integrating the management of climate
change and wider ESG risks across the
business, including in investment
portfolios, with further work underway
to embed its consideration fully across
the business.
The Group continues to engage with
suppliers and asset managers on their
progress and approach to managing
climate change and wider ESG risks.
The Group undertakes annual climate-
related stress and scenario testing and
continues to build its climate scenario
modelling capabilities.
The Group undertakes deep dives
on emerging ESG risk areas (such as
greenwashing and ESG litigation risk)
to increase understanding and awareness
for Boards and Management, and facilitate
control improvements where required.
The Group is exposed to the risk that
it fails to deliver good 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
that 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.
Operational risk
The Group or its outsource partners 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 outsource
partners, 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 determine that the cause
was a breach of existing regulation.
The Group’s Operational Resilience
Framework enhances the protection
of customers and stakeholders. It is
designed to prevent intolerable harm and
supports compliance with the regulations.
The Group continues to work closely with
its outsource partners to ensure that the
level of resilience delivered is aligned
to the Group’s impact tolerances.
The Group has already taken some action,
through previous strategic transformation
activity, to reduce exposure to technological
redundancy and key person dependency
risk, increasing the resilience of its customer
service. It continues to do so where further
exposure is identified.
The Group regularly reviews important
business service MI to ensure appropriate
action is taken to rectify and prevent
customer harm. The Group is working
to further strengthen and enhance the
overall resilience of the Group and
its outsource partners by March 2025
through its Operational Resilience
Remediation Project.
The Group and its outsource partners
have well-established business continuity
management and disaster recovery
frameworks that are annually refreshed
and regularly tested. Disruption events are
used to assess lessons learned to identify
any continual improvements to be made.
Unchanged
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.
The FCA’s Consumer Duty represents a step change in approach
for the industry, re-enforcing a shift away from a rules-based regime
to principles-based regulation. The Duty introduces an overarching
requirement that firms, and their employees, must act to deliver good
outcomes for retail customers. In response, the Group mobilised
a programme of work to implement the changes required to achieve
its interpretation of compliance in line with the key regulatory
deadlines of end-April 2023, end-July 2023 and end-July 2024.
Despite having met the first two deadlines, the Group’s view is that
the risk exposure around the Duty is elevated whilst the supervisory
approach matures, and closed products are reviewed against the
Duty’s principles, most notably fair value, ahead of the end-July 2024
deadline. The Group has built on its strong foundations, enhancing
existing and creating new Group frameworks, processes and strategies
to meet Duty requirements. This includes a Fair Value Framework
designed to assess value in its broadest definition and refreshing the
Conduct Strategy to embed and maintain the culture of the Group,
informed by monitoring behaviours and customer outcomes.
The FCA is raising the bar in terms of expectations on firms to ensure
and evidence good outcomes are being achieved for their customers.
The FCA continues to provide guidance to the industry to support
firms’ plans to embed the Duty within their businesses. It also recognises
that its own understanding and development of guidance and its
supervisory approach will continue to evolve.
The Group continues to monitor the impacts of the cost-of-living crisis
on its customers. Proactive action to support customers, including
those most vulnerable, is a priority. The Group is using customer
behaviour research and analysis to provide customers with the support
and help that they need. This has included improving all brand websites
to provide general cost-of-living support, encouraging customers to
get in touch for help and including links to external support websites.
Unchanged
This strategic risk has been assessed as ‘Heightened’ in the Group’s
Annual Report and Accounts since 2020.
Key drivers of this assessment are the increasing threat of cyber-attacks
and the Group’s dependency on its outsource partners to have
appropriate resilience to operational disruption.
The Group has a significant change and customer migration agenda
over the next three to five years, effective completion of which is
required to deliver planned strengthening of its operational resilience
both internally and with some material outsourced service providers.
This exposes the Group to increased risk. However, this is mitigated
through strengthened Operational Resilience and Change
Management Frameworks, where the risk of late delivery is actively
managed by both the relevant change programme and separate
operational resilience remediation governance and reporting.
The quantum of strategic customer transformation activity requires
subject matter expertise to execute successfully. The Group’s
operational resilience, internally and with material third parties,
would be impacted by a large-scale loss of colleagues, for example
due to illness or incapacity such as influenza, in the UK or globally.
Such impacts are difficult to mitigate in the short-term; however,
the Group and material suppliers made substantial investments
in remote working capability to manage the impacts of COVID-19,
which would be expected to help mitigate the impacts of a further
pandemic to service continuity.
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Strategic reportStrategic report Risk management continued
Impact
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Change from 2022 Annual Report and Accounts
Impact
Mitigation
Change from 2022 Annual Report and Accounts
Operational risk continued
The Group is impacted by significant changes in the regulatory, legislative or political environment
Operational risk continued
The Group or its supply chain are not sufficiently cyber resilient
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.
The Group undertakes proactive
horizon scanning to understand potential
changes to the regulatory and legislative
landscape. This allows the Group to
understand the potential impact of these
changes to amend working practices
to meet the new requirements by
the deadline.
The Group engages with many political
parties and industry bodies to foster
collaboration and inspire change which
supports the Group’s purpose of helping
customers secure a life of possibilities.
Unchanged
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, were the key
drivers of the assessment of risk as further ‘Heightened’ in the 2022
Annual Report and Accounts and the current assessment is unchanged
from that position.
The volatile political environment remains ‘Heightened’ ahead
of worldwide elections in 2024, including an expected UK General
Election. The current administration continues to face economic
headwinds, management of which has implications for the Group’s
customer base, including the cost-of-living crisis, increased borrowing
costs and the potential increase in vulnerability.
In June 2023, HMT published draft legislation related to the
Solvency II reforms, indicating the reform implementation would be
staged with some reforms coming into force on 31 December 2023
and the remainder on 30 June 2024. The Prudential Regulation
Authority (‘PRA’) has since issued two of three anticipated consultations
on the rules to implement those reforms in H2 2023, and its near
final policy to go live at year-end 2024, relating to Internal Models,
Transitional measures on Technical Provisions and Group supervision.
Internal teams are reviewing the detail to assess what actions are
needed to ensure the Group is compliant with the new rules.
The Group supports the PRA and HMT’s objectives to reform the
regulations to better suit the UK market whilst maintaining appropriate
safeguards for policyholders. The financial impact of the reforms
will depend on the exact detail of the final legislation. The relatively
short time period between the PRA’s final Policy Statement and the
implementation date of the new rules contributes to the status of
this risk. The Group will therefore remain actively involved in industry
lobbying on Solvency II and is preparing as much as possible ahead of
time to ensure compliance with new rules at the point of implementation.
The Group views the FCA’s Consumer Duty as well aligned to its
strategic priority of helping people secure a life of possibilities
and, from 31 July 2023, the Group is materially compliant with the
Duty for its open products. Focus remains on reviewing customer
journeys and fair value assessments for closed products to achieve
compliance with the Duty’s principles for these products ahead
of the 31 July 2024 deadline.
In November 2023 the FCA issued Sustainability Disclosure
Requirements and investment labelling requirements which aim
to inform and protect consumers and improve trust in the market
for sustainable investments. The Group supports the FCA’s aims noting
that terminology used and a lack of consistency between providers
makes it difficult for consumers to navigate. The Group has mobilised
a project to ensure its practices align with the new regulation.
In December 2023, the FCA issued the Advice Guidance Boundary
Review consultation paper. The consultation could lead to a significant
change in the way that people who cannot access advice are supported
in the industry and the Group is actively engaging with the FCA
on this topic.
IFRS 17 aims to standardise insurance accounting across the industry
and achieving compliance has been a significant undertaking.
The Group will continue its finance transformation programme
in 2024 to further streamline and automate IFRS 17 processes
to support efficient financial reporting in the future.
The Group is continually strengthening its
cyber security controls, attack detection
and response processes, identifying
weaknesses through ongoing assessment
and review.
The Enterprise Information Security
Strategy includes a continuous Information
Security and Cyber Improvement
Programme, which is driven by input
from the Annual Cyber Risk Assessment
and Annual Cyber Threat Assessment
that utilises internal and external threat
intelligence sources.
The Group continues to consolidate
its cyber security tools and capabilities
and the Enterprise Information Security
Strategy 2023–2025 includes delivery
of a Group Identity Platform and Zero
Trust model, Supplier Assurance Platform,
Secure Cloud Adoption and proactive
Data Loss Prevention.
The specialist second line Information
Security and 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.
The Group holds ISO 27001 Information
Security Management Certification for its
Workplace Pension and Benefits schemes,
which provides confidence to both
clients and internal stakeholders that
it is committed to managing security.
Phoenix Group is the UK’s largest
long-term savings and retirement business,
with a significant profile, which leads to
greater interest from cyber criminals.
The world continues to become increasingly
digitally connected and cyber-attacks
remain a major threat to the Group.
Over the past five years the Group has
grown from 5m to 12m customers, while
the number of colleagues in the Group
has grown from 900 to over 7,500,
not including contractors. In addition,
the Group’s footprint includes engagement
with c. 1,800 suppliers which increases the
attack surface significantly. This continual
growth poses a greater risk of cyber-attack
which could have a 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 pace of change is accelerating due to
the rapid rise of artificial intelligence (‘AI’),
which in turn is compounding the threats
and as a result, the cyber world is a more
dangerous place than ever before. AI also
has the potential to improve cyber security
by dramatically increasing the timeliness
and accuracy of threat detection and
response. Cyber security is an essential
pre-condition for the safety of AI systems
and is required to ensure resilience, privacy,
fairness, reliability and predictability.
Unchanged
This risk was assessed as ‘Heightened’ in the Group’s 2022
Annual Report and Accounts and this remains unchanged.
The UK cyber threat level remains elevated, due to the sustained
Russia/Ukraine war, China/Taiwan tensions, and the addition of the
Israel/Palestine armed conflict. Cyber threat levels remain high with
increased likelihood of a cyber-attack from a State actor; however it
is highly unlikely that a Nation State actor would directly target the
Group and any impact would be as a result of indirect cyber-attacks
against the UK’s critical national infrastructure, IT or information
security service providers or global financial services companies.
Cyber criminals continue to be the Group’s most likely threat, primarily
due to the type of data held by financial sector organisations being
attractive to criminal actors.
On 19 April 2023, the UK’s National Cyber Security Centre issued
an alert warning of a heightened risk from attacks by state-aligned
Russian hacktivists, urging all organisations in the country to apply
recommended security measures.
The Group’s cyber controls are designed and maintained to repel
the full range of cyber-attack scenarios; whilst 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.
The single consolidated Group Supplier Information Security Framework,
which is improving the Security Oversight and Assurance of the Group’s
large portfolio of Outsourced Service Providers (‘OSP’), third- and
fourth-party suppliers, continues to mature. Further embedding and
maturing over the next 12 months will help mitigate the risks associated
with supply chain cyber security, which is considered the Group’s top
cyber security threat.
Vulnerability management continued to mature throughout 2023
with the Enterprise Cyber Exposure Score (‘CES’) remaining steady.
The Group received formal approval from the FCA and PRA in July
2023 for closure of the Cybersecurity Best Practice Evaluation and
Testing (‘CBEST’) remediation programme.
Operational risk continued
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 Diligenta 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 from all backgrounds by
creating a shared sense of purpose and
commitment to our strategy, supported by
offering competitive terms and conditions,
benefits, and flexibility. Monthly colleague
surveys promote continuous listening,
allow rapid identification of concerns and
actions that help improve engagement.
The Group looks to respond proactively to
external social, economic and marketplace
events that impact colleagues.
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 and early career programmes
helps to support the talent pipeline.
Unchanged
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. The Group monitors this
closely and continues to remain confident in the attractiveness of
its colleague proposition.
The Group launched Midlife MOT assessments to help colleagues take
stock in the key areas of wealth, work and wellbeing.
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 Group introduced Phoenix Flex as a
core part of its employee offering in 2023, to help support colleagues
in balancing their personal and professional lives, by encouraging and
celebrating flexibility at work, embracing differences, and helping
colleagues to thrive.
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Strategic reportStrategic report Risk management continued
Impact
Mitigation
Change from 2022 Annual Report and Accounts
Impact
Mitigation
Change from 2022 Annual Report and Accounts
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
Credit risk
The Group is exposed to the risk of downgrade or failure of a significant counterparty
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.
Unchanged
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. Whilst some of these have
lessened, they remain the key drivers for the current assessment of
exposure to this risk.
The global macro-economic environment remains highly uncertain;
although prices continue to rise, the rate of inflation is lower. The UK
Consumer Price Index is down to 4.0% in January 2024 from a peak
of 11.1% in October 2022. There is an increased expectation that the
Bank of England will achieve its target of 2% by the end of 2025.
The Bank of England base rate has increased from 0.1% in December
2021 to 5.25% in August 2023, and remains at this level, with the
outlook for this to remain stable until summer 2024 before reductions
can be expected. Higher interest rates, coupled with cost-of-living
rises, have suppressed residential property prices. These are expected
to bottom out in summer 2024 and see a return to growth after interest
rates start to come down. UK gilt yields remain high, rivalling the levels
seen during the 2022 mini-budget market event. The Group continues
to monitor and manage its market risk exposures, including to interest
rates and inflation, and to markets affected by the increasing number of
geopolitical conflicts and concerns. For example, continued attacks on
shipping in the Red Sea pose a risk of worsening inflationary pressures
and the downstream effects on interest rates. The Group’s strategy
continues to involve hedging the major market risks and, in 2023, 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.
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 demographic experience and monitors
exposure relative to quantitative risk
appetite limits.
Monitoring includes identifying any trends
or variances in experience, in order to
appropriately reflect these in assumptions.
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.
Where required, the Group continues to
take capital management actions to mitigate
adverse demographic experience.
Unchanged
This risk was assessed as ‘Heightened’ in the 2020 Annual Report
and remains ‘Heightened’. The assessment is driven by continued
uncertainty around future demographic experience driven primarily by
the long-term effects of COVID-19 on life expectancy; potential health
risks from rising NHS waiting times; the rise in long-term sickness rates
observed across the UK workforce; and health and customer behaviour
implications from the cost-of-living crisis.
Demographic experience and the latest assessment of future trends
continue to be considered in regular assumption reviews, including
making appropriate allowance for the impacts of COVID-19 on both
longevity and mortality as part of the 2023 assumption reviews.
The Group continues to monitor customer behaviour as a result of the
cost-of-living crisis to ensure its impact on demographic assumptions
is appropriately reflected in regular assumption reviews. Proactive
action is being taken 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 c. £6bn in 2023. Furthermore, the launch of the new Standard
Life Pension Annuity (‘SLPA’) product in the second half of 2023
is a significant milestone for the Group. Consistent with previous
transactions, the Group continues to reinsure the vast majority of
the longevity risk using longevity swaps and reinsurance contracts
that are reviewed regularly.
The Group seeks rewarded credit risk
in order to drive value for shareholders
and invests in a wide range of credit risky
assets in accordance with its strategic
asset allocation.
The Group is exposed to the risk of
downgrades and deterioration in the
creditworthiness or default of investments,
derivatives or banking counterparties.
This could cause immediate financial
loss or a reduction in future profits.
The Group is also exposed to trading
counterparties, such as reinsurers or
service providers, failing to meet all or
part of their obligations. This would
negatively impact the Group’s operations
that may in turn have adverse effects on
customer relationships and may lead to
financial loss.
The Group seeks to take credit risk by
maintaining a high quality and diversified
credit investment portfolio and ensuring
relationships are with highly rated
counterparties.
The Credit Risk Policy and Counterparty
Limit Framework sets out a system of
controls to manage this risk within appetite
with early warning indicators to manage the
most material exposures within acceptable
tolerances. This includes the management
of risks linked to climate change, including
the impact on assets from transitioning to
a low carbon economy.
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,
geographies and asset class. Limits also
restrict exposure to BBB+ and below
rated assets.
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 second line Risk oversight provided.
For mitigation of risks associated with
stock-lending, additional protection
is provided through collateral and
indemnity insurance.
Unchanged
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. While the residual risks
from COVID-19 have receded, the current assessment of the level of
exposure to this risk is unchanged from the 2020 position, driven by
the ongoing geopolitical tensions, economic uncertainty and persistent
high inflation.
Over 2023 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. This positive progress is balanced
by risks arising from geopolitical conflicts such as those in Ukraine
and the Middle East, and supply chain disruptions arising from the
risk of deterioration in the relationship between the USA and China.
Uncertainties over the global economic outlook, persistent high
inflation and higher for longer interest rates present an increased risk
of defaults and downgrades. However, a UK sovereign downgrade is
less probable than at the end of 2022, following both Moody’s and
S&P’s revision of the UK credit rating’s outlook from ‘negative’ to ‘stable’
during 2023. This has a positive impact on UK-related assets including
Gilts, Housing Associations and Local Authority Loans.
Despite the failure of a number of US regional banks and a regulator-
facilitated merger of Credit Suisse with UBS in early 2023, the Group’s
view is that a full-blown banking crisis will not follow. In addition,
the Group has limited exposure to banks with idiosyncratic risks.
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.
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 2023 are:
Description
Quantum computing
Quantum computing has the potential to deliver improved actuarial analysis, portfolio optimisation, risk modelling and
management, forecasting and enhanced fraud prevention. It has the ability to arrive at feasible solutions for optimisation
problems, or find better accuracies for machine learning problems, or run simulations exponentially faster. However,
there are significant risks to consider, such as the potential for quantum computing to be used with malicious intent against
the Group. The Group will seek to get ‘quantum-safe’ as soon as possible, to minimise the magnitude of emerging threats,
including the potential of breaking current encryption systems, which would leave personal data of the Group’s customers
vulnerable to hackers. Switching from one encryption regime to another will take years to implement with the payoff timeline
for incorporating quantum resources currently perceived as being in excess of three years. It is crucial for the Group to
develop quantum-resistant encryption algorithms and implement robust security measures to protect sensitive information.
There is a potential opportunity to maximise capital preservation and commercial differentiation, by leveraging the
exponential growth in data available to the market.
Pensions innovation
Risk Universe category
Operational
Changing customer expectations around simplicity of products, personalisation and increasing technology-based
interaction presents greater risk from market disruptions. Customers are increasingly looking for frictionless services,
which will heighten competition in offering a complete experience and solutions to customer needs. Aside from these
risks, this does represent a significant opportunity for the Group to meet ever-evolving customer needs to become a
trusted partner to and through retirement.
The Group continues to partner with innovative start-ups, providing user experience and technical delivery support
for priority proposition initiatives. Digital and Workplace successfully launched Phoenix Group’s Innovation Forum,
inviting new partners from TCS COIN and FinTech Scotland networks to apply to work with the Group on defined
challenges. The Group tracks industry change including on the use of analytics; ensuring compliance with cookies
regulation; simplifying the process to gather permissions to market; and changes via Consumer Duty. The Group has
an opportunity around future ways of working and innovation, leading to improved and enhanced customer experiences
whilst ensuring that regulatory work fully supports good customer outcomes within the next one to three years.
Customer
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Strategic reportStrategic 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 2026
is an appropriate period for the assessment
which aligns to the period covered by the
Group’s latest Board-approved Annual
Operating Plan (“AOP”), and 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 February 2024;
• 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
3. Longevity stress –longevity and yield
Management Framework, 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
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. Plausible downside stress – a more
onerous combined market stress
reflecting tighter credit conditions
and 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
stress broadly equivalent to a 1 in 10-year
event, which implies a 1.27 year increase in
life expectancy for a 65 year old male and
1.3 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;
• Operational disruption or failure
of key third party service providers;
• Cyber-attack, 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 2023, the Stress and Scenario Testing
Programme included separate consideration
of the impact of a severe market stress and a
severe longevity and yields stress. The market
stress was designed to replicate a severe
recession (downgrade across 21% of the
total shareholder liquid/illiquid credit asset
portfolio, House Prices falling 15%, Equities
c.30% and GBP depreciating c.10% vs
USD), while the longevity stress combined
a significant longevity risk event emerging
over 3 years (e.g. medical advancement)
with a 100bps fall in yields. The analysis
concluded that the severity of these stresses
was not sufficient to reduce Phoenix Group’s
capital coverage to close to SCR.
A severe scenario testing a combination
of all risks within the internal model was
also considered and showed the severity
of stress required to reduce the Group’s
capital coverage to the Recovery Zone
and also the severity of event needed
to reduce capital coverage to close to
SCR. This informed the Group Recovery
Plan which also included an extreme
liquidity event and a range of contingency
actions that could be used to recover.
These scenarios are deemed extreme
and the Recovery Plan demonstrated
the ability to restore coverage above
risk appetites.
Over 2023, we have continued to embed
climate scenario analysis 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, our reputation and our
operations. Phoenix is actively managing
this risk using a range of actions, including
gradual decarbonisation of the investment
portfolio and engagement with key emitters
within the portfolio, key suppliers, customers
and policymakers.
Risk Assessment
The Board reviewed the Group’s
principal risks and uncertainties as set out
on pages 50 to 57 of the 2023 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 Risk Management
Framework (‘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.
2023 Financial Results
The latest financial results for the Group
as included within the 2023 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 £3.9 billion
and a Shareholder Capital Coverage
Ratio of 176%, 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;
• Holding company cash of £1.012 million
at the end of 2023, 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 an IFRS basis,
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
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.
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59
Strategic reportStrategic report Chair of the Group Board’s introduction to governance
Nicholas Lyons
Chair of the Group Board
Board highlights 2023
Board induction
Mark Gregory and Eleanor Bucks share their experience
of the Phoenix Group Board induction programme.
Read more on pages 90 and 91
Board review
The 2023 Board review was carried out by an
external Board Reviewer. Following discussion,
the Board has agreed a few areas of enhancement.
Read more on pages 78 and 79
Board education sessions
These provided both insight and outcomes
that the Board implemented.
Read more on pages 80 and 81
Board engagement with the wider workforce
The Board as a whole was able to meet Phoenix Group
colleagues in two focused sessions in May and November
2023. In May, the Board met members of the Phoenix
Group graduate programme and in November it met with
female colleagues in their 50s, with a focus on the working
environment. These groups provided insight into their
specific roles at Phoenix Group.
Read more on pages 108 to 110
Our values of passion,
responsibility, growth,
courage and difference
are demonstrated
daily by our colleagues,
and importantly
through the leadership
of the Board.
I am delighted to return as Chair of the
Group Board (‘Chair’) on 1 December 2023.
During my sabbatical as Lord Mayor of the
City of London, Alastair Barbour fulfilled the
role of Chair with effect from 1 September
2022 until 30 November 2023. Following
ten years on the Board, Alastair stepped
down from the position as Chair of the Group
Board and Chair of the Nomination Committee
with effect from 30 November 2023, and
remained on the Board until 31 December
2023 to ensure a comprehensive handover.
I would like to thank Alastair for his
commitment as Chair during my sabbatical,
as well as for his enormous contribution and
support to Phoenix Group throughout his
tenure. He will be missed as a colleague and
trusted adviser. His historical knowledge was
invaluable to the Group Board and the wider
organisation during my sabbatical, hence his
tenure beyond the usual nine-year period.
Board activities during 2023
Our strategy is set to ensure we continually
progress towards the achievement of our
purpose and 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. As a
result of a strong performance, the Board
has recommended a Final dividend of
26.65 pence per share, bringing the total
2023 dividend to 52.65 pence per share.
There were a number of focus areas for the
Board again this year, such as the integration
and completion of SLF of Canada UK Limited
(‘Sun Life of Canada UK’) from Sun Life
Financial Inc. acquired in 2022. The Phoenix
Life Companies Board has worked hard
to integrate this new acquisition into its
Before reviewing and approving
strategic items, the Board must always
come back to Phoenix Group’s core
purpose and values.
2024 priorities
During 2024, the Board intends
to focus on:
• Risk management items.
• Relationship with the regulators.
• Financial framework.
governance framework and current board
schedule during the year, which has been
monitored by the Phoenix Group Board.
The IFRS 17 accounting change has been
a key focus for Management and in turn the
Board, in particular its Audit Committee and
I must thank both the Audit Committee Chair
and its members for the robust challenge.
The relationship with our regulators,
not just in the UK, but also in Ireland and
Bermuda, is of importance to the Board
and we receive regular updates from
our Regulatory Relationships Director to
understand their views and the impact this
can have on strategy, a focus at our Strategy
Day in June. Our Chief Risk Officer plays
an important part in the delivery of our
strategy and the Board receives regular
updates from him. Both Line 1 and 2 opinions
are provided on all strategic initiatives.
In addition, Phoenix Group published its
Net Zero Transition Plan on 24 May 2023.
The Board wants the execution of our
strategy to have a positive impact upon
our Net Zero Transition Plan and climate
change as a whole. This is just one way
we can help to provide our customers
with the best possible outcomes. You can
find our Net Zero Transition Plan at
www.thephoenixgroup.com.
Phoenix Group Holdings plc’s
compliance with the UK Corporate
Governance Code 2018 (the ‘2018
Code’) can be found on page 68.
Purpose, values and culture
Phoenix Group’s purpose is to help
people secure a life of possibilities. As the
pensions landscape and societal needs
evolve, Phoenix Group has an important
role to play 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.
The Board monitors that purpose and the
Company’s values regularly throughout the
execution of its strategy. A proportion of
the agenda is always dedicated to strategy
and before reviewing and approving such
strategic items, the Board must always come
back to Phoenix Group’s core purpose
and values.
The Board’s role is to set the cultural tone
from the top and act as the guardian of our
values and culture, which together supports
our strategy and drives our purpose. We as
a Board must reinforce our culture and
values through our conduct, decision-making
process and the outcomes upon us as a
Board and the Group’s strategy, which the
Executive Committee (‘ExCo’) implements.
The Sustainability Committee monitors
culture on behalf of the Board and this is
discussed further on page 107.
Board review
This year, the Board effectiveness review
was undertaken externally by Bvalco Ltd
(the ‘Board Reviewer’). It conducted a
number of independent interviews with
Board members and key stakeholders.
This review found the Board to be capable,
reflective and supportive of Phoenix Group’s
culture. The culture of the Board was
found to be constructive, challenging
and respectful. Further information on
the outcomes of the review can be found
on pages 78 and 79.
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61
Corporate governanceCorporate governance Chair of the Group Board’s introduction to governance continued
Wider workforce
The Board has particularly enjoyed the
colleague engagement sessions that have
taken place during 2023. Meeting both
members of our graduate programme and
female colleagues in their 50s, with a focus
on the working environment, has been
insightful, especially for our new Board
members. This is discussed further by
Maggie Semple, our Designated Non-
Executive Director (‘NED’) for Workforce
Engagement on pages 108 to 110. Choosing
two diverse groups of colleagues has helped
us to understand the opportunities and
challenges the wider workforce faces at
Phoenix Group. Through Maggie’s work as
Designated NED for Workforce Engagement,
the Board has been able to implement some
outcomes which we hope will enhance the
working environment for our colleagues and
reach Phoenix Group’s strategic ambition
to be the “best place any of us have ever
worked”. The process of feedback between
Maggie Semple and the Board following
sessions with the Phoenix Colleague
Representation Forum (‘PCRF’) has also
been enhanced to ensure outcomes are
discussed at Board level and appropriate
actions are taken.
Our colleagues are not our only
stakeholders and the Board is mindful of
all our stakeholders when making decisions.
This is further explained on pages 74 to 77
by demonstrating any impact on Board
decisions as a result of engagement
of our stakeholders. You will see that,
as a regulated business, our customer
outcomes and Consumer Duty have
received greater focus during 2023.
Board changes
During the year, there were a number of
changes to the Board. Mark Gregory joined
the Phoenix Group Board on 1 April 2023.
He possesses a wealth of experience in
the insurance, financial services and retail
sectors, having worked as Group CFO at
Legal & General Group plc and through
non-executive roles, including at Direct Line
Insurance Group plc. He has made a strong
contribution to date, not only as a member
of the Risk Committee, but also an attendee
and now member of the Audit Committee
with effect from 1 January 2024. David
Scott was nominated as the shareholder
representative of abrdn plc (‘abrdn’) on
11 May 2023 in accordance with the terms
of the relationship agreement between
Phoenix Group and abrdn. The previous
Shareholder Nominated Director
representing abrdn was Stephanie Bruce
whose contribution to the Board since
joining on 1 July 2022 was excellent and also
helped to enhance diversity on the Board.
Finally, Eleanor Bucks joined the Phoenix
Group Board on 1 December 2023. Eleanor
is an actuary with strong asset management
and financial services experience and brings
a fresh skillset and capability to the Board
as well as broader diversity. You can find
the Board’s skills matrix on page 89 and
Directors’ biographies on pages 64 to 67.
Kory Sorenson reached her nine-year
tenure on the Phoenix Group Board on
30 June 2023. She had been Chair of
the Remuneration Committee for the
past five years and was succeeded in that
appointment by Nicholas Shott on 4 May
2023 following the 2023 Annual General
Meeting (‘AGM’). Nicholas has been a
member of the Remuneration Committee
since 2016. Kory provided a diligent
handover to Nicholas and the Board is
grateful for her robust challenge, knowledge
and tenacity over the years, in particular
during challenging times such as COVID-19.
Diversity and inclusion
The Phoenix Group Board had 36% female
Board representation, three ethnic minority
Board members and a female Senior
Independent Director at 31 December 2023.
The Nomination Committee report explains
further the reason for these results and its
aim to comply with the Listing Rules. As ever,
there is always more to do and we are mindful
of diversity when succession planning
for those appointments we can control.
Succession planning remains a focus for
some of our longer serving Board members,
but also for our Executive Directors and
ExCo members. The Talent and Succession
Plan was reviewed during 2023 for Executive
Directors and the ExCo members and will
continue to be a key matter for 2024.
Board schedule
I work closely with our Group Company
Secretary to plan the Board schedule well
in advance of the year. Each meeting is
balanced with governance, strategy
including Environmental, Social and
Governance (‘ESG’), financial performance
and emerging matters as regular items.
The Board as a whole places great
importance on promoting the success
of the Company. Each member must have
sufficient time to devote to the Board
in order to contribute fully to meetings
and the operation of its Committees as
discussed further on page 87. During the
year, additional meeting time may be
needed and I am pleased that each Director
endeavours to be available as and when
required. Alastair Barbour was particularly
grateful to those Directors who found
additional meeting time for the
implementation of the IFRS 17 standard
and related education sessions.
Keeping the Board abreast of key areas of
focus for the Company is important and the
Board as a whole takes comfort from the
education sessions Phoenix Group provides.
Each member must have sufficient
time to devote to the Board in order
to contribute fully to meetings.
Education sessions are a significant part of
our Board calendar and are often facilitated
by external providers or Management
outside of the Board meeting schedule to
ensure the required focus and attention is
given to the sessions. During 2023, education
sessions were held on topics such as the
Annual Operating Plan (‘AOP’) 2023, key
projects, IFRS 17, the customer view (of
particular importance for Phoenix Group
with the implementation of Consumer Duty
by the Financial Conduct Authority (‘FCA’))
and the Net Zero Transition Plan that was
published in May 2023. The Remuneration
Committee introduced its first focused
education session facilitated by its external
adviser, PwC, and supported by the
Executive Reward Director which was well
received by all members. Please see pages
80 and 81 for education sessions delivered
in 2023 and any outcomes.
Annual General Meeting
In 2023, Phoenix Group was pleased to
return to an ‘in person’ AGM. This allowed
the Board to meet and greet our shareholders
face-to-face and to answer any questions.
During 2023, the Board and Committee
Chairs met with our largest shareholders,
representing approximately 43% of our
share register. In his capacity as Chair of the
Group Board, Alastair Barbour met with nine
shareholders, representing approximately
41% of our share register in January 2023
to discuss the 2023 annual institutional
roadshow. The Chair of the Remuneration
Committee engaged with a broader group
of shareholders representing approximately
70% of our share register to discuss the
2023 Remuneration policy that was then
approved with a 98% vote in favour by our
shareholders at the AGM on 4 May 2023.
As Chair of the Group Board, I undertook
the Group’s annual institutional roadshow
during February 2024, which is intended
to reinforce the dialogue with our major
shareholders, particularly concerning
corporate governance issues. I met with
12 of Phoenix Group’s largest shareholders
who in aggregate own approximately
45% of the Company’s issued share capital.
The meetings covered a range of topics,
including the strategic progress and
outlook of the Company, the Board’s
effectiveness review and the recent
share price performance.
The Board was pleased with the support
from Phoenix Group’s shareholders
throughout 2023 and we hope to receive
similar support in 2024. As ever, the Board is
here to engage and respond to any questions
our shareholders or stakeholders may have.
AGM votes in favour of
all resolutions May 2023
97%
97% in 2022
Board ethnic minority
Director representation1
23%
25% as at 10 March 2023
Independent Board Directors¹
Board female Director representation1
62%
38%
50% as at 10 March 2023
UK Corporate Governance Code
Fully compliant,
but areas of
enhancement
Fully compliant in 2022
Board ethnic minority Director
representation for those appointments
controlled by Phoenix Group1
18%
FTSE Women Leaders ranking
(February 2024)
12th
12th in 2023
Board female Director representation
for those appointments controlled
by Phoenix Group1
45%
See page 68 for a summary
of how the Company complied
with the 2018 Code during 2023
Committee Chairs
Male
(Two)
Female
(Two)
50%
50%
Nicholas Lyons
Chair of the Group Board
1 As at 21 March 2024.
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63
Corporate governanceCorporate governance Board leadership and Company purpose
Our Board of Directors
Leading from the top
to drive robust governance
and a clear social purpose.
At 21 March 2024, the Board comprises
the Chair of the Group Board, Group Chief
Executive Officer, the Group Chief Financial
Officer, one abrdn plc Nominated Director,
one MS&AD Insurance Group Holdings, Inc.
(‘MS&AD’) Nominated Director and eight
Independent Non-Executive Directors.
2023 Board changes
• Mark Gregory was appointed
to the Board on 1 April 2023
• Stephanie Bruce retired from
the Board on 11 May 2023
• David Scott was appointed
to the Board on 11 May 2023
• Kory Sorenson retired from
the Board on 30 June 2023
• Nicholas Lyons was re-appointed
to the Board on 1 December 2023
• Eleanor Bucks was appointed
to the Board on 1 December 2023
• Alastair Barbour retired from
the Board on 31 December 2023
Committee membership key
A Audit
N Nomination
Re Remuneration
Ri Risk
S Sustainability
Andy Briggs, MBE
Group Chief
Executive Officer (‘CEO’)
Appointed: 10 February 2020
Career and experience
Andy joined Phoenix Group in 2020
with over 30 years of experience in
the insurance industry. He has held
senior executive roles across multiple
business areas in the industry including
CEO of UK Insurance and Global
Life and Health at Aviva plc; CEO
of Friends Life Group Limited;
Managing Director of Scottish Widows;
CEO of the Retirement Income Division
at Prudential plc and Chair of the
Association of British Insurers (‘ABI’).
Andy is a Fellow of the Institute of
Actuaries and also acts as the UK
Government’s Business Champion
for Older Workers.
Key skills and competencies
• Sound executive leadership and a
considered approach to strategy,
demonstrated through continued
delivery of Phoenix Group’s
operating model, delivering strategic
growth through the acquisition of
SLF of Canada UK Limited. Andy has
a strong history of high-profile M&A
work in his previous roles.
• Broad knowledge of the global
insurance industry which helps
inform views on long-term
strategic direction.
• Proactive approach to understanding
stakeholder priorities, which closely
aligns to Phoenix Group’s core
social purpose and strategy,
including work on developing
initiatives such as Midlife MOT,
financial and digital inclusion.
Current external appointments
Board member of the ABI and
the UK Government’s Business
Champion for Older Workers.
Nicholas Lyons
Chair of the Group Board
Appointed: 1 September 2018
to 1 September 2022, re-appointed
on 1 December 2023
Committee: N
Chair of the Nomination Committee
Career and experience
Nicholas has wide-ranging experience
across the financial services industry,
both in executive and non-executive
roles. He started his career in banking
at Morgan Guaranty Trust Company
of New York UK (later JP Morgan LLP),
where he held various roles including
Assistant Vice President of Equity
Capital Markets, he later moved to
Lehman Brothers International Limited
where he was Global Co-Head of
Recruitment, Training and Career
Development and Managing Director
of the Financial Institutions Group.
Nicholas has extensive Non-Executive
Director (‘NED’) experience, including
Chair of Miller Insurance Services
LLP, Senior Independent Director of
Pension Insurance Corporation plc
and Catlin Group Limited and NED of
Friends Life Group Limited and Convex
Group Limited. Nicholas is a member
of the Chartered Insurance Institute.
Having taken a sabbatical to complete
a year long term as Lord Mayor of
the City of London, Nicholas returned
to his role as Group Chair of the
Board on 1 December 2023.
Key skills and competencies
•
Seasoned business leader with
experience and understanding
of insurance and the financial
services industry, including the
regulatory environment.
• Strong communicator, bringing a
sharp focus to people leadership,
succession planning and development.
• Experience in the governance of
large-scale business operations,
leading mergers and acquisitions
and managing complex projects
which are skills key to the fulfilment
of Phoenix Group’s vision and purpose
supporting his role as an experienced
Chair of the Group Board.
Current external appointments
NED at Miller Insurance Services
LLP and Convex Group Limited and
Alderman in the City of London.
Rakesh Thakrar
Group Chief
Financial Officer (‘CFO’)
Karen Green
Senior Independent
Director (‘SID’)
Eleanor Bucks
Independent Non-Executive
Director (‘NED’)
Mark Gregory
Independent Non-Executive
Director (‘NED’)
Appointed: 15 May 2020
Appointed: 1 July 2017
Appointed: 1 December 2023
Appointed: 1 April 2023
Committee: N Re S
Chair of the Sustainability Committee
Committee: A Ri
Career and experience
Rakesh joined Phoenix Group in
2001 and has been Group CFO since
2020. He held several finance and
strategy-related roles and was Deputy
Group CFO for six years prior to being
appointed as Group CFO. Rakesh is
a Non-Executive Director (‘NED’),
Chair of the Audit Committee and
member of the Risk Committee of
Bupa Insurance Limited. He is an
Associate of the Chartered Institute
of Management Accountants and the
Association of Corporate Treasurers.
Key skills and competencies
•
Detailed knowledge of financial
markets as leader of Phoenix Group’s
financial strategy, which supports
achievement of strong financial
results in line with the financial
framework of Cash, Capital
and Earnings.
• Experienced in directing and
delivering significant corporate
projects and major transactions
which drives delivery of
Phoenix Group’s strategy.
• Focused on people development
to support culture, capabilities for
future growth and a diverse pipeline
of talent as sponsor of social mobility
within the organisation.
Current external appointments
NED, Chair of the Audit Committee
and member of the Risk Committee
of Bupa Insurance Limited and the
service company Bupa Insurance
Services Limited.
Career and experience
Mark has 25 years of experience in
the financial services industry. Most
recently, Mark was CEO of Merian
Global Investors Limited (‘Merian’).
Preceding this, he held roles at Legal
& General Group plc including:
Group CFO, CEO of Savings and
Managing Director of With Profits,
at Asda Limited as the Divisional
Director for Finance and the Business
Development Director and at Kingfisher
plc as a Senior Financial Analyst. His
NED experience consists of roles as
NED and Chair of the Risk Committee
at Direct Line Insurance Group plc
and NED at Entain plc and Merian.
Key skills and competencies
•
A wealth of executive finance
experience and acumen and a
deep knowledge of the insurance
industry, particularly life and general
insurance, which contribute to
his effectiveness as a member
of the Risk and Audit Committees.
• Highly qualified to appraise strategy
development and execution,
having led corporate projects and
transactions with added appreciation
of the retail sector and customer
service activity.
Current external appointments
NED and Chair of the Risk Committee
at Direct Line Insurance Group plc,
NED of Churchill Insurance Company
Limited, UK Insurance Limited
and Westdown Park Management
Company Limited.
Career and experience
Karen has significant financial
services experience. She has held
a number of senior executive roles
including Chief Executive Officer of
Aspen UK (comprising the principal
insurance and reinsurance companies
of the Aspen Insurance Holdings),
Principal of MMC Capital Ltd
(now Stonepoint Capital LLC) and
Director of Corporate Development
of GE Capital Europe Ltd. Karen has
significant NED experience, including
as Chair of the Audit Committee at
Admiral Insurance Group plc, a former
Council member and Chair of the
Investment Committee at Lloyd’s of
London, NED at Great Portland Estates
plc and Risk and Audit Committee
Chairs at Miller Insurance Services LLP.
Career and experience
Since 2021, Eleanor has been
Chief Investment Officer of Lloyd’s
of London. Prior to this, she was at
Legal & General plc holding several
roles including: Chief Operating
Officer of Legal & General Capital,
Managing Director of Direct
Investments and Real Assets and
Chief Investment Officer of Legal
& General Retirement. Eleanor
serves as Chair on the suite of Lloyd’s
Investment Platform funds and has
held executive directorships as
Chair of Legal & General Investment
Management Alternative Investment
Fund Manager and Director of Legal
& General’s Single-Family Build-to-Rent
business. Eleanor is a Fellow of the
Institute of Actuaries.
Key skills and competencies
• Deep knowledge of the insurance
industry which supports oversight
of Phoenix Group’s activity, aligned
with market expectations and
stakeholder needs.
Key skills and competencies
•
Seasoned investment professional,
experienced in leading high-
performing investment teams and
setting investment strategy for
both insurance and pension funds.
• A strong background in strategic
• Deep understanding of the life
insurance sector and the investment
approaches that underpin those
businesses, which brings an external
perspective and supports the
delivery of robust, constructive
challenge and guidance during
Board discussions.
Current external appointment
Chief Investment Officer
of Lloyd’s of London.
planning and corporate development
including M&A which complements
the development of Phoenix Group’s
growth strategy and facilitates informed
oversight and constructive challenge.
• Engagement in ESG which supports
her role as Chair of the Sustainability
Committee.
• Significant leadership experience
and understanding of Phoenix Group
allowing the provision of support to
the Chair of the Group Board and the
Board as a whole as SID.
Current external appointments
NED and Chair of the Audit Committee
at Admiral Group plc, Supervisory
Board member and Chair of the
Audit Committee of TMF Group
BV, NED and Chair of the Audit and
Risk Committees at Miller Insurance
Services LLP, NED and Chair of the
Risk Committee at Asta Managing
Agency Limited, NED at Great Portland
Estates plc, Adviser at Cytora Limited
and Trustee of Wellbeing of Women.
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65
Corporate governanceCorporate governance Board leadership and Company purpose continued
Our Board of Directors
Hiroyuki Iioka
Non-Executive
Director (‘NED’)
Katie Murray
Independent Non-Executive
Director (‘NED’)
John Pollock
Independent Non-Executive
Director (‘NED’)
Belinda Richards
Independent Non-Executive
Director (‘NED’)
David Scott
Non-Executive Director
(‘NED’)
Maggie Semple, OBE
Independent Non-Executive
Director (‘NED’)
Nicholas Shott
Independent Non-Executive
Director (‘NED’)
Appointed: 23 July 2020
Appointed: 1 April 2022
Appointed: 1 September 2016
Appointed: 1 October 2017
Appointed: 11 May 2023
Appointed: 1 June 2022
Appointed: 1 September 2016
Shareholder Nominated Director
Committee: A N
Chair of the Audit Committee
Committee: A N Ri
Chair of the Risk Committee
Committee: Re Ri
Shareholder Nominated Director
Committee: Re Ri S
Designated NED for
Workforce Engagement
Committee: A N Re S
Chair of the Remuneration Committee
Career and experience
Hiroyuki is the appointed representative
of one of Phoenix Group’s major
shareholders, MS&AD Insurance
Group Holdings, Inc (‘MS&AD’).
He has over 35 years of experience
and is currently Senior General
Manager for the International Business
Planning Department at MS&AD.
His previous roles include General
Manager for the Asian Life Insurance
Business Department at Mitsui
Sumitomo Insurance Company Limited
(Japan) and Assistant General Manager
for MSIG Holdings (Europe) Limited.
Hiroyuki’s NED experience includes
roles as NED of ReAssure Group plc,
Mitsui Sumitomo Insurance (London
Management) Limited and an Alternate
NED of Challenger Limited (Australia).
Hiroyuki is a Chartered Member of
the Securities Analysts Association
of Japan and Certified International
Investment Analysts.
Key skills and competencies
•
Commercial business leader,
providing an international business
perspective, with strong global
insurance and financial services
industry experience.
• Responsible for general
management, including managing
efficient and effective operations
and business development within
the financial services industry.
Current external appointments
Senior General Manager of
International Business Planning
Department for MS&AD Insurance
Group Holdings, Inc. and Alternate
NED of Challenger Limited, listed
on the Australian Stock Exchange.
Career and experience
Katie has over 30 years of experience
gained across the financial services
industry and is currently Group Chief
Financial Officer (‘CFO’) of NatWest
Group plc, having also acted as Deputy
Group CFO. Prior to this, Katie spent
a number of years at Old Mutual plc,
where she held various senior executive
roles including Group Finance Director
of Old Mutual Emerging Markets,
Director of Finance – Group Chief
Accountant and Head of Group
Planning and Analysis. She was also
a Senior Audit Manager at KPMG LLP.
Katie is a member of the Institute of
Chartered Accountants in Scotland.
Key skills and competencies
• Vast financial services experience
meaning that she is well placed
to provide valuable and technical
input in both Board discussions
and in her capacity as Chair
of the Audit Committee.
• Current business leader with recent
and relevant financial experience
and deep understanding of
industry complexities.
• Valuable knowledge and executive
director experience within global
financial services organisations.
• Plays an active role in the
development and reporting
of climate reporting across the
financial services sector.
Current external appointment
Group Chief Financial Officer
of NatWest Group plc.
Career and experience
Belinda has extensive financial services
and strategy experience from a 30-year
career. She was Senior Partner and
Global Head of Merger Integration
and Separation Advisory Services at
Deloitte LLP. Prior to this, Belinda was
Vice President of Post-Acquisition
Integration and Separation Services
at Ernst & Young LLP and Principal
of Corporate Finance and Strategic
Advisory Services at KPMG LLP.
Her NED experience includes roles
as NED and Chair of the Audit
Committee of Avast plc and William
Morrison Supermarkets plc, SID
of Grainger plc and NED of Aviva
Life & Pensions UK Limited and
Friends Life Group Limited.
Key skills and competencies
• Highly qualified to appraise
corporate growth opportunities,
integration processes and the
post-acquisition environment
allowing the provision of robust
challenge and guidance in relation
to Phoenix Group’s strategy.
• Extensive leadership experience
and technical perspective
enabling contribution to Risk
and Remuneration Committee
discussions and debate.
Current external appointments
NED at The Monks Investment Trust
plc, NED and Chair of the Audit
Committee at Schroder Japan Trust
plc, SID and Chair of the Sustainability
and Governance Committee
of Olam Food Ingredients.
Career and experience
John has vast financial services
experience from a career of over
35 years at Legal & General Group plc
(‘L&G’), most recently as CEO of
Legal & General Assurance Society.
John’s previous positions at L&G
include CEO of Protection & Annuities,
Group Executive Director of Product
& Corporate and Director of UK
Operations. His NED experience
includes roles as Chair of Cofunds
Limited and Suffolk Life Limited and
NED of Cala Group (Holdings) Limited.
John has also acted as Deputy Chair
of the Financial Conduct Authority
(‘FCA’) Practitioner Panel, Life
Insurance Member of the Financial
Ombudsmen Service Industry Panel
and has been a member of the Life
Insurance Committee of the Association
of British Insurers. John is a Fellow of
the Royal Geographical Society.
Key skills and competencies
Extensive UK and European
•
insurance and financial services
experience which enhances Board
understanding of related issues and
trends applicable to Phoenix Group’s
operations and strategy.
• Proven track record of establishing
and delivering strategy whilst
managing risk appetite and
compliance within a regulated
marketplace, which contributes
to his ability to effectively chair
the Risk Committee.
• Previous business leader with
expert understanding of the wider
organisational responsibilities to
employees and society allowing
him to provide robust challenge
on executive decision-making.
Current external appointments
None.
Career and experience
David is the appointed representative
of one of Phoenix Group’s major
shareholders, abrdn plc (‘abrdn’).
He has over 35 years of financial
services experience and is currently
Chief Enterprise Technology Officer
at abrdn. His previous roles include
Chief Security and Resilience Officer
and Group Digital & IT Strategy
Director at abrdn, Group Operations
& IT Director at Bankhall Investment
Management and Head of IT at Aegon
Asset Management UK. David’s NED
experience includes roles as NED
of Origo Services plc and Chair of
the University of St Andrews Students
Association. He is a Fellow of the
Institute of Directors, a Full Professional
Member of the British Computer
Society, and a Chartered IT Professional.
Key skills and competencies
• Expert understanding of the current
and future role of technology across
the financial services industry,
and the impact of disruptive trends
and resultant transformation.
• Knowledge of leading and driving
enterprise technology strategies
and operating models, innovating
and digitising for the future, which
is invaluable to Phoenix Group’s
aim of organic growth.
• Understanding of operations,
strategic development and
implementation and customer
experience which relates closely
to Phoenix Group’s objectives.
Current external appointment
Chief Enterprise Technology
Officer of abrdn plc.
Career and experience
Maggie is currently a business owner
and co-founder of three businesses;
The Experience Corps, Maggie
Semple Limited and I-Cubed Group
Ltd. Prior to this, Maggie acted as
Director of Learning Experience at the
New Millennium Experience Co and
Director of Education and Training for
the Arts Council England. She began
her career in education as a teacher
and later an education inspector and
has received an OBE for her services
to learning. Maggie’s NED experience
includes roles as NED of PwC Business
Restructuring Services, JN Bank UK
Limited, McDonald’s Restaurants
Limited and as an Ambassador of
the Black British Voices Project.
Key skills and competencies
•
A combination of experience and
passion for sustainability, ethics and
inclusivity which brings a breadth
of knowledge across the broad ESG
agenda and informs development
of operations and strategy in this area.
• Brings a strong sense of social
purpose and depth of perspective
to Board considerations and
distinguished stakeholder
engagement with a highly
personable style, as is evident
in her role as Designated NED
for Workforce Engagement.
Current external appointments
NED of JN Bank UK Limited and
Crest Nicholson Holdings plc; HR
Committee Member at the University
of Cambridge; and Ambassador
of Black British Voices Project.
Career and experience
Nicholas brings recent and relevant
financial services experience having
retired in 2021 from Lazard & Co
Limited, where he spent over 30
years. There he held various positions
including, European Vice Chairman
and Head of UK Investment Banking.
In his early years, Nicholas worked
in the national newspaper sector in
various management positions such
as General Manager of the Evening
Standard and Sunday Express and
Group Marketing Director of Express
Newspapers. Nicholas is a Special
Adviser to the Chair and Board of the
Daily Mail and General Trust plc and
has been a NED for the Home Office.
Key skills and competencies
• Extensive M&A experience in
multiple sectors through investment
banking, enabling the provision of
support and insight to the Board.
He is also Chair of Phoenix Group’s
M&A Advisory Group.
• Knowledge of a broad range
of investor and stakeholder
perspectives, providing insight that
enables him to lead well informed
and productive discussions at the
Remuneration Committee.
Current external appointment
Special Adviser to the Chair and Board
of the Daily Mail General Trust.
Our business, led by the Executive
Committee (‘ExCo’).
The Executive Management of the
Group is led by the Group CEO,
who is supported by the ExCo.
During 2023, ExCo played a key role
in driving Phoenix Group’s year of
significant progress, striving to help
people secure a life of possibilities.
The roles and responsibilities of
each member of ExCo can be
found on the Company’s website.
Andy Briggs
Group Chief Executive Officer
Rakesh Thakrar
Group Chief Financial Officer
Andy Curran
Chief Executive, Savings and
Retirement, UK and Europe
Mike Eakins
Group Chief Investment Officer
Anna Franekova
Corporate Development Director
Claire Hawkins
Corporate Affairs and Investor
Relations Director
Brid Meaney
Chief Executive, Heritage Division
Jackie Noakes
Chief Operating Officer
Jonathan Pears
Group Chief Risk Officer
Sara Thompson
Group HR Director
Quentin Zentner
General Counsel
Kulbinder Dosanjh
Group Company Secretary
(Secretary to ExCo)
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67
Corporate governanceCorporate governance Board leadership and Company purpose continued
Compliance during 2023 with the UK Corporate Governance Code 2018
(the ‘2018 Code’).
The Board continues to robustly assess its compliance with the 2018 Code. The Group Company Secretary has supported a full review
of compliance since her appointment in 2022 and has identified areas for enhancement against the provisions.
Areas for enhancement
Provision or principle
Action currently undertaken
Enhancement for 2024
L. Annual evaluation of the Board should consider
its composition, diversity and how effectively
members work together to achieve objectives.
Individual evaluation should demonstrate whether
each director continues to contribute effectively.
41. There should be a description of the work of
the Remuneration Committee in the Annual Report,
including: what engagement with the workforce has
taken place to explain how executive remuneration
aligns with wider company pay policy.
Individual formal evaluation was included as part
of the 2023 effectiveness review, but this was less
formal in previous years.
Individual evaluation will continue to form part of the
formal internal effectiveness reviews from 2024 onwards.
The Company provided an intranet announcement
to the wider workforce on how executive
remuneration aligns with the wider workforce
pay policy following the approval of the 2023
Directors’ Remuneration policy at the AGM on
4 May 2023. It outlined the changes to the policy
and how Directors’ remuneration as a whole
aligned with the wider workforce.
Following a Board education session on 2 October 2023,
it was decided that Maggie Semple would become a member
of the Remuneration Committee on 1 January 2024. This
would allow her to discuss the alignment of Directors’ pay
with the wider workforce and when appropriate get input
from the wider workforce on any changes to the Directors’
Remuneration policy or remuneration outcomes in her role
as Designated NED for Workforce Engagement and her
work with the PCRF.
Division of responsibilities
Division of responsibilities on the Board
Clear roles and responsibilities to drive
forward our purpose and strategy
The Directors understand their role as
individuals, and as a collective, to ensure
the long-term success of the Company and
achievement of Phoenix Group’s purpose.
The Board ensures the appropriate
division of responsibilities on the Board.
The Board ensures that there is 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.
The Board considers all NEDs to
be independent, except for the
Shareholder Nominated Directors
and the Chair of the Group Board.
Chair of the Group Board
Group Chief Executive Officer
Senior Independent Director
Nicholas Lyons is the Chair of the Group
Board (‘Chair’).
Andy Briggs is the Group Chief Executive
Officer (‘CEO’).
Karen Green is the Senior Independent Director
(‘SID’) of the Board.
The Chair is responsible for:
The CEO is responsible for:
The SID is responsible for:
The 2018 Code continues to be upheld through the work of the Board and its Committees, which includes application of the 2018 Code’s
principles. The below table confirms where disclosures to evidence this approach are located:
• the leadership and effective operation
• overall management and operation of the Group
of the Board;
within the limits delegated by the Board; and
• chairing, and overseeing the performance
• operational matters relating to:
Board leadership and Company purpose
Composition, succession and evaluation
Our Board of Directors
Principle A
Our governance framework
Principle C Provision 1 (see also Audit Committee report
on pages 92 to 99 and Risk Committee report on pages
100 to 103)
Conflicts of interest
Provision 7
Monitoring our culture
Principle B Provision 2 (see also Directors’ Remuneration
report on pages 113 to 114)
Stakeholder engagement
Principle D and E
Provision 3 see Section 172 Statement on page 74.
Provision 5 see Section 172 Statement on page 74
(see also Sustainability Committee report on page 104
and Workforce engagement on pages 108 to 110)
pages 64 to 67
page 71
page 70
page 107
pages 74 to 77
Whistleblowing arrangements
Provision 6 (see also Board Activities on page 73
and Audit Committee report on pages 92 to 99)
page 97
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 64 to 67)
Provision 11 (see also Board diversity on page 85)
2023 Board and Committee meeting attendance
Principle H Provision 13
Board support
Principle I; Provisions 8 and 16
Board member appointment terms
Provision 15 (see also Directors’ report on page 142)
page 69
page 72
page 71
page 87
Nomination Committee report
Principles J, K and L Provisions 17, 18, 19, 20 to 23
(see also Non-financial information statement on page 40
of the Strategic report for information on gender balance
of those in Senior Management and their direct reports)
pages 82 to 87
Audit, risk and internal control
Audit Committee report
Principles M and N Provisions 24, 25, 26 and 29 Provisions 27
and 30 (see also Directors’ report on pages 141 to 146
and Statement of Directors’ responsibilities on page 147)
Provision 31 (see also Directors’ report on pages 141 to 146
and the Group’s Viability statement on pages 58 to 59 of the
Strategic report)
Risk Committee report
Principle O Provisions 28 and 29 (see also Principal risks
and uncertainties faced by the Group on pages 50 to 57
of the Strategic report)
pages 92 to 99
pages 100 to 103
Remuneration
Directors’ Remuneration report
Provisions 34 to 39 and Principles P, Q and R
Provisions 32, 33, 40 and 41 (see also Remuneration
Committee Chair’s letter on pages 113 and 114 and
Remuneration Committee governance and activities
on pages 111 and 112)
pages 111 to 140
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; and
• ensuring an orderly succession process for
the Group CEO and the Board as a whole.
The Chair’s external commitments are set out
on page 87 within this report.
– business strategy and management;
–
investment and financing;
– risk management and controls;
– regulation;
– communication; and
– HR policies.
The CEO’s external commitments are set out
on page 87 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 NEDs;
• 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 87 within this report.
Independent Non-Executive Directors
Designated Non-Executive Director for
Workforce Engagement
Shareholder Nominated Directors
The Board considers the following NEDs
to be independent:
Maggie Semple is the Designated NED for
Workforce Engagement.
• Eleanor Bucks
• Karen Green
• Mark Gregory
• Katie Murray
• John Pollock
• Belinda Richards
• Maggie Semple
• Nicholas Shott
As at 21 March 2024, 62% of the Board are
considered to be independent. The Board uses
the independence criteria as set out in the 2018
Code to assess and confirm independence.
The Designated NED for Workforce Engagement
is responsible for:
• acting as the primary Board contact in facilitating
and developing communication between
colleagues across the Group and the Board;
• providing the Employee Voice to the Board
by raising relevant matters, or issues of
concern, highlighted by engagement with
the workforce; and
• challenging the Executive Directors, as needed,
as to the way in which workforce engagement
is undertaken and steps taken to address
workforce concerns.
Hiroyuki Iioka and David Scott are Shareholder
Nominated Directors. Hiroyuki Iioka is appointed
to the Board on behalf of MS&AD and David Scott
is appointed to the Board on behalf of abrdn.
In accordance with the Phoenix Group acquisition
of ReAssure from Swiss Re in July 2020, MS&AD
was entitled to appoint a representative NED to the
Phoenix Group Board. A relationship agreement
between Phoenix Group and abrdn includes the
right for abrdn to appoint a representative NED,
provided abrdn continues to hold 10% or more
of Phoenix Group’s shares.
Full descriptions of the roles and responsibilities
of the Chair, CEO, SID and Designated NED for
Workforce Engagement are available on the
Company’s website.
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69
Corporate governanceCorporate governance Division of responsibilities continued
Division of responsibilities on the Board
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.
The independence criteria set out in the
2018 Code was taken into account as part
of the selection process for Mark Gregory
and Eleanor Bucks who joined Phoenix
Group during 2023, both of whom were
considered to be independent.
During 2023, 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 2018 Code, over half of
our Board members, excluding the Chair,
are independent NEDs. The Shareholder
Nominated Directors, Hiroyuki Iioka and
David Scott, do not meet the independence
criteria under the 2018 Code. The Chair
of the Group Board, Nicholas Lyons,
is not considered to be independent on
his re-appointment, having previously
held the role from 2018 to 2022 before
his sabbatical but was independent on
his original appointment.
Conflicts of interest
A register of conflicts of interest is
maintained by the Group Company
Secretary. Each Director has a duty under
the Companies Act 2006 to avoid a situation
in which they have or may have a direct
or indirect interest that conflicts or might
conflict with the interests of the Company.
If any Director becomes aware of any
situation which might give rise to a conflict
of interest, they must, and do, inform the
rest of the Board immediately and the Board
is then permitted under the Company’s
Articles of Association to authorise such
conflict. This information is then recorded
in the Company’s Register of Conflicts,
together with the date on which authorisation
was given. In addition, each Director certifies
on an annual basis that the information
contained in the Register of Conflicts
is correct and completes an annual
questionnaire to ensure any conflict
of interest has been disclosed.
When the Board decides whether or not to
authorise a conflict, only the Directors who
have no interest in the matter are permitted
to participate in the discussion and a conflict
is only authorised if the Board believes
that it would not have an impact on the
Board’s ability to promote the success of
the Company in the long-term. Additionally,
the Board may determine that certain
limits or conditions must be imposed when
giving authorisation. At 31 December 2023,
no actual conflicts have been identified
which have required approval by the Board.
However, the situations that could potentially
give rise to a conflict of interest have been
identified and duly authorised by the Board
and are reviewed at least on an annual basis.
Due care and process is, of course, applied in
respect of the two Shareholder Nominated
Directors for abrdn and MS&AD and when
the Group CEO and Group CFO declare
any conflict relating to their appointments
on subsidiary boards of the Phoenix Group.
Outside directorships
Executive Directors are encouraged to
serve as NEDs of external companies,
dependent upon time commitment in
accordance with the 2018 Code. 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 NED, Chair of the
Audit Committee and member of the Risk
Committee of Bupa Insurance Services
Limited and Bupa Insurance Limited.
Re-appointment of Directors
In accordance with the 2018 Code,
all Directors offer themselves individually
to shareholders for initial election or
re-election annually, unless retiring
immediately following the AGM.
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 142.
Andy Briggs is a board member of
the Association of British Insurers
and is the UK Government’s Business
Champion for Older Workers.
Our governance framework
The Board provides strong challenge to Management through a robust governance framework enabling cohesion of our purpose,
strategy, values and culture. We maintain high standards of corporate governance to enable the successful delivery of our strategy.
Our governance framework ensures that the Board is effective in both making decisions and maintaining oversight of those Committees
it delegates to. Each Committee reports into the Board at the end of each Board meeting cycle.
Phoenix Group Holdings plc Board
Chair of the Group Board, Nicholas Lyons
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 can be found at: www.thephoenixgroup.com
t
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B
Nomination
Committee
Audit
Committee
Chair,
Nicholas Lyons
Chair,
Katie Murray
Risk
Committee
Chair,
John Pollock
Sustainability
Committee
Chair,
Karen Green
Remuneration
Committee
Chair,
Nicholas Shott
• Financial
reporting
• Internal Controls
• External Audit
• Internal Audit
• Whistleblowing
• Risk appetite
and high-level
risk matters
• The Group’s Risk
Management
Framework
• Board and
senior executive
appointments
• Diversity
and inclusion
• Board and
senior executive
succession
planning
• Sustainability
• Group
strategy
• ESG reporting
• Culture
monitoring
remuneration
framework
• Executive
Director
remuneration
• Employee share
schemes
• Wider workforce
remuneration
See pages 82 to 87
See pages 92 to 99
See pages 100 to 103
See pages 104 to 107
See pages 111 to 114
Terms of Reference for all Committees can be found at: www.thephoenixgroup.com
Phoenix Group Holdings plc ExCo
Chair, Andy Briggs
• Formulation of objectives
• Business division objectives
• Operational capacity, resourcing
and strategy
• Embedding of culture
• Management development
and succession
and budgets
• Business performance
• Recommendation of major
capital expenditure proposals
and priorities monitoring
• ESG is monitored at Management
Committee level before the Audit/
Risk/Sustainability Committees
and finally the Board
C
o
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m
i
t
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s
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d
M
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c
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a
s
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i
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g
Market Disclosure Committee (‘MDC’)
(Management Committee that reports into the Group CEO)
• Oversight of the Group’s compliance
with its disclosure obligations
• Considering the materiality, accuracy,
reliability and timelines of information
to be disclosed to the market.
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 of the Group Board, ensuring that the
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 2023.
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71
Corporate governanceCorporate governance
Division of responsibilities continued
2023 Board and Committee meeting attendance
The Board met formally seven times during
2023, including a two-day strategy setting
meeting. 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 continued
with the briefing calls that were set up
during the pandemic as they serve as a
valuable bridge outside of formal Board
meetings and often facilitate education
sessions. Additional meetings have also
been held in respect of M&A activity.
The NEDs met with the Chair of the
Group Board on at least seven occasions
without Executive Directors present, which
normally take place at each Board meeting.
The following Board and Board
Committee attendance table below
details all formal Board and Board
Committee meetings held during 2023.
Board members are expected to
attend all formal Board meetings
with the aim of 100% attendance.
The Nomination Committee has confirmed
its satisfaction with the time and commitment
given to the Phoenix Group Board and
its Committees by all Directors.
Chair
Nicholas Lyons2
Alastair Barbour3
Executive Directors
Andy Briggs (Group CEO)
Rakesh Thakrar (Group CFO)
Non-Executive Directors
Karen Green4
Stephanie Bruce5
Eleanor Bucks6
Mark Gregory7
Hiroyuki Iioka
Katie Murray8
John Pollock
Belinda Richards9
David Scott10
Maggie Semple
Nicholas Shott11
Kory Sorenson12
Board
Audit
Committee1
Risk
Committee
Remuneration
Committee
Nomination
Committee
Sustainability
Committee
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Actual/Max
–
7/7
7/7
7/7
7/7
3/3
–
5/5
7/7
7/7
7/7
7/7
4/4
7/7
7/7
4/4
–
–
–
–
8/9
–
–
–
–
9/9
9/9
–
–
–
9/9
–
–
–
–
–
–
–
–
6/6
–
–
8/8
7/8
–
8/8
–
5/5
–
–
–
–
–
7/7
–
–
–
–
–
–
5/5
7/7
6/6
–
–
–
–
–
–
5/5
–
–
5/5
3/3
–
–
–
–
4/4
7/7
–
–
–
7/7
4/4
–
–
–
–
–
–
–
–
6/6
6/6
3/3
1 Additional Audit Committee meetings were held due to the introduction of the new accounting standard IFRS 17.
2
3
Nicholas Lyons stepped down from the Board on 1 September 2022 and commenced his sabbatical. He returned as Chair of the Group Board on 1 December 2023.
Alastair Barbour became Chair of the Group Board on 1 September 2022 and stepped down from the position of Chair of the Group Board and the Nomination Committee on 30 November 2023.
Alastair Barbour then retired from the Board on 31 December 2023.
4 Karen Green was unable to attend a joint Audit and Risk Committee meeting due to attending a funeral.
5 Stephanie Bruce retired from the Board on 11 May 2023.
6 Eleanor Bucks was appointed as a Director on 1 December 2023.
7 Mark Gregory was appointed as a Director and became a member of the Risk Committee on 1 April 2023.
8 Katie Murray became a member of the Nomination Committee on 29 June 2023.
9 Belinda Richards was unable to attend a joint Audit and Risk Committee meeting due to attending a funeral.
10 David Scott was appointed as a Director on 11 May 2023.
11 Nicholas Shott became Chair of the Remuneration Committee on 4 May 2023.
12 Kory Sorenson retired from the Board on 30 June 2023.
Board activities
Purpose, values and strategy
Sustainability
Financial management and performance
Approval of Annual Operating Plan 2023.
Approval of new and reviewed policies:
• Board Diversity policy;
• Voting policy and strategy;
• Market Abuse Disclosure policy; and
• Share Dealing Code.
Approval of Phoenix Group’s 2023
sustainability strategy.
Monitoring of Phoenix Group’s solvency
and liquidity positions.
Monitoring progress against Phoenix Group’s
sustainability agenda and strategy.
Monitoring of capital resilience, financial
performance and growth of Phoenix Group.
Approval of Phoenix Group’s 2023 Modern
Slavery Statement.
Meeting the Sun Life of Canada UK team
to discuss its strategy.
Approval of the Net Zero Transition Plan published
on 24 May 2023.
Two-day strategy meeting in June 2023.
Oversight of the transformation agenda.
Oversight of Phoenix Asset Management.
Oversight of Phoenix Group’s progress against
the Stewardship Code.
Receiving and considering regular updates from
the Board Sustainability Committee.
Monitoring of internal perception of culture and
alignment with the Phoenix Group’s purpose and values.
Update on Mansion House Compact.
Update from Phoenix Re, Bermuda.
Workforce policies and culture oversight
Stakeholder engagement
Approval of the Group’s Human Rights policy.
Monitoring of customer service, operational
resilience and colleague wellbeing.
Approval of Phoenix Group’s dividend policy.
Recommendation of the 2022 Final dividend
and 2023 Interim dividend.
Approval of Phoenix Group’s funding
and capital strategy.
Approval of the Group’s tax strategy.
People strategy, diversity,
equity & inclusion (‘DE&I’)
and succession planning
Monitoring of data collation through the ‘Who We
Are’ application from which a 2024 DE&I action
plan was produced spanning: inclusive leadership,
diversity data and reports, social mobility, race
and ethnicity and disability and neurodiversity.
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.
Approval of Board and Executive Succession Plans.
Monitoring of investor engagement activities, and
oversight of the year end investor presentation.
Consideration of investor and media reaction
to Full Year 2022 and Half Year 2023 results,
including IFRS 17 results.
Consideration of investor feedback and analyst
reports, including investor sentiment and deep
dive session with the corporate brokers.
Participating in open and honest dialogue with
all applicable regulators.
Interaction with colleagues, through the PCRF
and Designated NED for Workforce Engagement
(see pages 108 to 110 for more detail) and the
Colleague Interaction Session between the Board
and colleagues at various stages of their career.
Approval of appointment of Group and material
subsidiary Board changes.
Reviewing changes to the Executive Management
and succession planning.
Consultation with major shareholders on the
Directors’ Remuneration policy.
Corporate governance and reporting
Simplification of governance continued.
Monitoring compliance with the 2018 Code.
Review of corporate governance reforms.
External Board effectiveness review.
Subsidiary governance oversight.
External reporting including the Annual Report
and the Sustainability and Climate Reports and the
Solvency and Financial Condition Report (‘SFCR’).
2023 Annual General Meeting.
Whistleblowing oversight.
Oversight of insights from colleague engagement
surveys and culture dashboards.
Monitoring of colleague engagement initiatives.
Regular updates from the Designated NED for
Workforce Engagement.
Risk management and assurance
Climate change stress and scenario testing.
Monitoring of the Group’s risk culture.
Approval of Phoenix Group’s risk appetite
and assessment of the approach to identifying
and managing emerging risks.
Approval of Principal Risks and
Uncertainties disclosures.
Monitoring performance against Phoenix Group’s
operational Risk Management Framework.
Receiving and considering regular updates from
the Board Audit and Risk Committees.
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73
Corporate governanceCorporate governance Stakeholder engagement
Stakeholder engagement from the top
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.
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 considering
the factors contained in Section 172.
Page 77 contains 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.
Board discussion and decision-making
During their discussions, the Board provides
rigorous risk management, assessment and
challenges Senior Management to ensure
a decision promotes long-term, sustainable
success for the Group and that all relevant
stakeholders have been appropriately
considered. See page 77 for examples.
Monitoring
The Board receives regular updates on
key actions taken from outcomes. This is
done through regular reports from Senior
Management at each Board meeting, and if
necessary, verbal updates are also provided.
S.172 Key to decision criteria
A. Likely consequences of any decisions
in the long-term.
Interests of the Company’s employees.
B.
C. 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.
E. Desirability of the Company maintaining
D.
a reputation for high standards of
business conduct.
F. Need to act fairly between members
of the Company.
Setting our culture, values and strategy
The Board sets the strategic direction,
culture and values for Phoenix Group;
these are key to how we do business
and how we achieve our purpose.
Diverse set of skills, knowledge
and experience
The Phoenix Group Directors collectively
have a diverse set of skills, knowledge,
experience and stakeholder expertise
which assists the Board in making decisions.
This contributes to their ability to make
well-informed decisions which, in turn,
promotes long-term, sustainable success
for all stakeholders. As part of their induction
when joining the Group, all Directors
receive a detailed briefing on their duties
as a Director.
Board information
At each Board meeting, detailed papers
from Management are submitted. These
provide information on the likely long-term
impacts of decisions on stakeholders and
how they have been considered during
the discussion process, including any
engagement with relevant groups. See
pages 74 to 77 for further information.
The Board also has an annual schedule
of ‘Board education’ topics where the
Board, in collaboration with Senior
Management, establish key activities that
will be undertaken during the coming
year and arrange for Heads of Functions
to deliver education sessions which feed
into the decision-making process.
Key stakeholder groups
Customers
A, C, D, E, F
Suppliers
A, C, D, E
Understanding our customers and their requirements is
core to our purpose and strategic priorities. By listening
to their needs and what matters most, the Group can
improve our services. The Group continually strives
to develop and refresh the product offering to assist
customers in making the most of their retirement.
The Board acknowledges its responsibility and duty
to ensure the success of the business for all customers.
Suppliers are important to Phoenix Group’s success as
they provide operational support, working in partnership
with us, so that we can achieve our strategic priorities
including the delivery of services to our customers.
Developing and maintaining quality relationships with
our suppliers, strategic or otherwise, is core to Phoenix
Group fulfilling our ultimate purpose of helping people
secure a life of possibilities.
Link to strategic priorities
How the Board has engaged with and had oversight of stakeholder views during the year
• Received formal training regarding their
• Together with the Board Risk Committee monitored
responsibilities regarding the implementation of
the new Consumer Duty regulations implemented
in July 2023 for open book products and July 2024
for closed books. See page 77 for more details.
• Received regular updates from Management on the
potential impact any ongoing project may have on
customer service, with detailed oversight of customer
service being undertaken by the subsidiary board
for the Phoenix Life Companies and its committees.
• Spent time during their annual strategy session
discussing customer needs and customer desire
for sustainably driven products.
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 Group’s focus on positive customer outcomes.
• The Board Risk Committee received updates from the
Group Chief Risk Officer (‘CRO’) 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 Life
Companies and its committees.
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 implementing the new regulations required
for Consumer Duty.
The reward of the Executive Directors include customer
metrics which they measure against as part of the
Annual Incentive Plan (‘AIP’).Please see page 120
of the Directors’ Remuneration report.
The Board, via regular reports from the Board Risk
Committee, scrutinises the performance of key suppliers
to ensure Phoenix Group can provide the best customer
outcomes to deliver its operational and financial targets.
Ensuring that relationships with suppliers are mutually
beneficial and progressive is essential to the success
of both Phoenix Group and our suppliers.
Colleagues
A, B, D, E, F
Phoenix Group takes great pride in being a
people business and engagement with our
stakeholders is through its people. Our colleagues
are, therefore, vital for 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.
Oversight of our culture, purpose, values and
colleague initiatives 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.
• Members held regular colleague engagement
sessions and met with a range of colleagues,
listening to their views, ideas and experiences.
This input was then used to assist the Board
decision-making process.
• Received updates on colleague wellbeing and
engagement levels from the regular employee
surveys completed by colleagues throughout
the year.
• Monitored the impact of projects and the Group’s
change agenda on colleagues, including potential
areas of stretch on resource.
• Together with the Board Sustainability Committee
received updates from the Designated NED for
Workforce Engagement following engagement
sessions with colleagues, including meetings with
the PCRF.
• Additional information on colleague engagement
can be found on pages 108 to 110.
The Board strongly believes in leading by example
and sets the cultural tone from the top, engaging
with colleagues (both directly and indirectly) which
is key to ensuring positive relationships. Two-way
engagement, via the Designated NED for Workforce
Engagement and the PCRF, gives colleagues
a direct link to the Group Board to keep them
informed on how the Board is driving Group strategy
while enabling the Board to stay connected to what’s
important to colleagues and how the decisions it
makes impact their working lives.
The Board takes its responsibilities seriously in
promoting positive stakeholder relationships
and has included People metrics in the reward
framework for Executive Directors; further details
on the outcomes against these metrics can be
found in the Directors’ Remuneration report on
page 111 to 140.
Strategic priorities key
Grow
Optimise
Enhance
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75
Corporate governanceCorporate governance Stakeholder engagement continued
Key stakeholder groups
How the Board considered stakeholders during the year
Community and the environment
Investors
Government, trade bodies and regulators
Consumer Duty
A, C, D, E, F
A, C, D, E, F
A, C, D, E, F
We are working collaboratively to drive a stable investment
policy that enables us to invest at scale in productive assets
to support economic growth, levelling up and the climate
change agenda. This benefits customers and their
communities in the short and longer term.
Our investors continue to be crucial to the growth and
achievements of the Group. Phoenix Group is dedicated
to delivering long-term value to our shareholders and
intends to provide a dividend that is sustainable and
grows over time.
Building trust and inspiring confidence through
community engagement and partnerships is important
to the Board for the continued good reputation of the
Group. To achieve this, we are expanding our work on
nature, by setting out priority areas of focus to drive on
nature investment opportunities.
The Board is cognisant of the value our investors
add to safeguarding the Group’s governance through
monitoring of performance and engagement with
the Board throughout the year.
Phoenix Group is the UK’s largest long-term savings
and retirement business and is subject to both
financial services regulations and to listed entity
regulation. The way we operate and interact with
our regulators provides the trust and reassurance
needed by stakeholders to enable Phoenix Group
to deliver its purpose.
The Board recognises the importance of maintaining
positive relationships with the UK Government,
trade bodies and regulators to enable the Group
to communicate the views and concerns of our
customers and society generally, while providing
reassurance to customers that Phoenix Group is
transparent and compliant with all its transactions.
Link to strategic priorities
How the Board reached its decision
Consideration of Section 172 matters
During the year, the Board considered the steps necessary for the implementation of the new Consumer Duty regulations, which came/will
come into force in July 2023 for open book products and July 2024 for closed book ones.
The Board identified customers, colleagues, investors, regulators and community as key stakeholders in the decision-making process.
Discussions of the potential risks and opportunities for each category of stakeholders were considered throughout the process.
The Consumer Duty programme had been established within the Life Companies, with the Life Companies Board acting as the key decision-making
forum for material decisions, as well as overseeing progress to the regulatory deadline in July 2024. As a result, the Life Companies Board and
Group Board Risk Committee received regular updates on progress, with Rosie Harris, NED on the Life Companies Board, appointed as the
Group’s NED sponsor for this work. Consumer Duty, however, is a significant programme of work for the Group and the changes introduced
by the programme had the potential to have a material impact on the Group, and as a flagship initiative by the FCA to enhance standards
across the industry and increase levels of consumer protection, it was therefore important that the Group Board was appropriately engaged
in the programme.
While the Life Companies, as the regulated entities, are accountable for the successful delivery of the Consumer Duty programme, there are
a number of sections where it is appropriate for the Group Board to have oversight to ensure the best outcome for all stakeholders.
These sections are that the Group Board:
• approves the overall strategy in pursuit of good customer outcomes, and should be kept informed of key developments;
•
is provided with regular updates to ensure it is satisfied that the Life Companies Board have reviewed and fulfilled their Directors’ duties
and are meeting the compliance requirements of Consumer Duty;
is made aware of, and provided with all relevant information regarding any matters relating to the Consumer Duty programme which trigger
the Matters Reserved for the Board; and
How the Board has engaged with and had oversight of stakeholder views during the year
• Together with the Board Sustainability Committee
• Received feedback from the Chair of the Group Board
• Received updates at every Board meeting on
•
received updates on progress against KPIs and targets
aligned with the Group’s community engagement
strategy, with relevant highlights reported to the Board.
• Together with the Board Audit Committee, the Board
attended a training session on TCFD and climate
change in relation to the financial statements.
• Received training on the proposed plans for net
on investor relations roadshow meetings.
• Received regular updates from the Group CEO on
investor relations activities and feedback/questions
received from investors.
• Received investor feedback from the Group’s results
announcements and investor roadshows.
• Considered key concerns relating to investor messaging
zero transition in advance of the Board being asked
to approve the plan.
and various investor communication approaches.
• Considered and provided feedback on the contents
• The Group HR Director provided regular updates
on colleague engagement activities, initiatives,
and progress on community-related KPIs which
can be found in the Sustainability Report at:
www.thephoenixgroup.com.
of the year end investor presentation.
• Members, including the Chair of the Group Board
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.
Management’s progress with regulators’ requests
for information and any feedback received.
• Formally met with the FCA and Prudential
Regulation Authority (‘PRA’) during the year
on a range of issues relating to the impact of
each regulators’ strategic objectives and routine
regulatory matters.
• Both the FCA and PRA requested more formal
meetings with certain Board Directors and
Senior Managers as part of their respective
supervisory strategies.
• Continually challenged Management on ensuring
that Phoenix Group maintains open and honest
dialogue with the FCA, PRA, Central Bank
of Ireland, The Pensions Regulator and other
jurisdictional regulators.
The Board’s role in promoting positive stakeholder relationships
The Board monitors investor sentiment and feedback
throughout the year to ensure the Group can 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 Group’s custodian, ensuring robust
governance, controls and risk management,
the Board is responsible for holding Management
to account for the day-to-day compliance with
regulation and legislation; ensuring transparent
communication of such compliance to maintain
trust in Phoenix Group. The SID is also available
to meet shareholders as she did in 2023.
The Board, through the Board Sustainability Committee,
has monitored Management’s engagement activities
with our communities and the environment, ensuring
that the Group is able to fulfil its purpose and colleagues
have the opportunity to participate in charitable giving
and volunteering both within their communities and also
with environmental projects. It is the Board’s role to hold
Management to account in maintaining sufficient
resources needed to support our communities.
Reaching our Net Zero Transition Plan ambitions
features highly on the Board’s agenda through the
Sustainability Committee and metrics are included in
the reward framework. For further details see page 117
of the Directors’ Remuneration report.
Strategic priorities key
Grow
Optimise
Enhance
• as Consumer Duty is a material programme for the Group, the Group Board should have oversight of the overall progress of the work and
assurance that the Group is adhering to the spirit of the rules.
To ensure that it was fully aware of its responsibilities to the Group regarding the Consumer Duty programme, the Group Board undertook
a formal training sessions arranged by the Group Company Secretary and delivered by the Chief Risk Officer for the Life Companies.
Outcome
Following due consideration of all the matters set out in Section 172 of the Act, the Group Board agreed that it would receive regular updates
via the Group CEO report, and regular training sessions would be scheduled on material matters as they arose.
IFRS 17 implementation
How the Board reached its decision
Consideration of Section 172 matters
During the year, the Board was required to monitor the implementation of the new accounting standard IFRS 17 for insurance contracts issued
by the International Accounting Standards Boards (‘IASB’). This supports efficient risk management and allows stakeholders to gain important
insights into the entity’s business model, exposures, and performance. As this was a new accounting standard, the Board dedicated significant
time to the matter to ensure that regulatory deadlines were met for the successful announcement of the Half Year 2023 results, which would
have a positive outcome for customers, investors, regulators and colleagues.
This required the following steps to be taken at meetings held during 2023:
• Consideration of the impact of work required for this project on others within the Group, due to the significant internal resources required
to ensure delivery. The Board was required to consider other projects in the pipeline and the impact on colleagues to ensure a balanced and
manageable workload for all.
• Successful execution of the plan would be based on careful management of a number of key operational risks. The risks relating to
judgements or technical assumptions were considered and Management regularly reported the results of testing through the Transition
Balance Sheet and Comparatives process.
• Regular updates were received from both the Board Audit Committee and the Board Risk Committee to ensure that all steps and risks were
being carefully monitored and progress was appropriately reported to the Group Board to enable its decision-making process.
• Updates were provided at every meeting throughout the year from Management.
To ensure that it was fully aware of its responsibilities to the Group regarding the implementation of the IFRS 17 standard, the Group Board
undertook several formal training sessions delivered by the Group CFO and Heritage CEO.
Outcome
Following due consideration of all the matters set out in Section 172 of the Act, the Board announced the Half Year 2023 results in September
2023. In addition, significant time was spent during Board meetings discussing the project’s progress, receiving frank reports from Management.
As a result, consideration was given to customers, investors, colleagues, government bodies and regulators, together with the wider market,
to ensure that suitable triggers were in place to take action based on investor sentiment.
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Corporate governanceCorporate governance Composition, succession and evaluation
Board review
Following internal Board effectiveness reviews in 2021 and 2022, an external
Board effectiveness review was facilitated by the Board Reviewer in 2023.
The Board confirms the external Board Reviewer has no other connection
with Phoenix Group or individual Directors. Its work is guided by a Code of
Practice published by the Board Effectiveness Guild of which it is a member.
External Board review process:
1. The format and scope of the review
were discussed by the Board Reviewer,
the Chair of the Group Board and the
Group Company Secretary, the Senior
Independent Director and the
Committee Chairs.
2. The Board Reviewer sent a questionnaire,
firstly reviewed and approved by the
Chair of the Group Board and Group
Company Secretary, to every member
of the ExCo, Board and the Group
Company Secretary.
3. Each member of the ExCo, the NEDs,
the Chair of the Group Board and
the Group Company Secretary had
a confidential interview with the Board
Reviewer to thoroughly discuss their
answers to the questionnaire and any
other topics individuals felt were pertinent.
4. The external Board Reviewer observed
the meetings held on 2 and 3 October
2023, which included reviewing the
Board and Committee papers for
those meetings.
5. Draft reports were circulated to the
Chair of the Group Board and each
Committee Chair, noting that the
October Remuneration Committee
meeting was an education session.
These were then individually discussed
with each Chair.
6. Observations were presented at
the November Board and Committee
meetings by the Board Reviewer.
Results and potential actions were
discussed at each Committee meeting.
7. The Group Company Secretary, or her
designate, worked with each individual
Chair of the Committees to finalise
actions and any potential 2024 education
sessions. These were then added to
the 2024 education session calendar.
Actions were approved at the early
February 2024 meeting and will be
monitored by the Board and Committees
throughout the year.
Board review
The 2023 Board effectiveness review concluded that the Board is capable, hard-working with a large workload, is reflective and has strong
360-degree challenge between both Non-Executive Directors and Management. It scored itself as effective, whilst acknowledging there
was always room for improvement to maintain high performance. The 2023 review by the Board Reviewer concluded that the Board and its
Committees operated and were chaired effectively. However, the Board Reviewer did identify a few areas for enhancement for the Board
and these are highlighted below:
Action 1
Action 2
Action 3
Action 4
Management to continue
to consult with the NED’s in
preparation of the annual
strategy session to ensure
that extensive experience
of strategy development
on the Board is leveraged
appropriately.
The Chair of the Group
Board, Group Chief
Executive Officer, Group
Company Secretary and
Committee Chairs to ensure
adequate time is given to
debate strategic objectives.
The Chair of the Group
Board to continue to
provide regular individual
performance feedback to
each Director as appropriate
and at least annually.
Continued Board focus on
key material and relevant
issues with support from the
Chair of the Group Board.
To enhance the timeliness
and succinctness of papers.
Committees’ effectiveness
The Committees’ effectiveness review was
undertaken as part of the Board review
process and concluded that they operate
effectively and Chairs performed strongly.
All duties set out in the Committees’ Terms of
References were addressed during the year.
The areas of enhancement for Committees
for 2024 are set out in each committee report
in a similar format to the previous page for ease.
Individual effectiveness
Executive Directors are evaluated annually
to ensure they have performed against
their strategic targets (see page 114 of the
Directors’ Remuneration report ). The Group
Company Secretary was appointed on
1 April 2022 to ensure Phoenix Group’s
governance is in line with its FTSE 100 peers.
It has become apparent that compliance with
Principle L of the 2018 Code could be
enhanced. Therefore, NEDs will be subject
to a formal and rigorous individual evaluation
as part of both internal and external evaluations
going forward. As part of this process, the
Board Reviewer appraised each Director’s
performance, this was reviewed by the
Chair and then discussed with each Director.
The Board Reviewer found the Board to be
effective and individuals specifically provided
strong support, belief and optimism in the
Phoenix Group strategy.
Assessment of the Chair’s performance
Feedback was provided by the Board,
ExCo and Group Company Secretary on the
effectiveness of the Chair, who was found to
be thorough, competent and unhindered by
the interim nature of his role. He was found
to be capable of both challenging
Management whilst also being a critical
friend when required. Alastair Barbour made
a seamless transition from Non-Executive
Director to Chair of the Group Board during
2023 and back again to provide Nicholas
Lyons with a diligent handover, providing the
Board with much confidence. The Board
has valued Alastair’s challenge, leadership,
inclusivity and support for all Directors,
and of course, his historical knowledge.
The 2022 Board review
The 2022 Board review was internally facilitated by the then Chair of the Group Board, Alastair Barbour, who was supported by the Group
Company Secretary. The following progress against actions identified during that review has taken place during 2023:
Action identified
Action taken
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/regulatory 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.
This was an agenda item at the Strategy Day in June.
An annual education/training plan was agreed on regular training
sessions for the Board during 2023 and included the Annual Operating
Plan 2023, various projects, IFRS 17, the customer view, Internal Model,
Net Zero Transition Plan, as well as mandatory training.
The Board met colleagues in May and November 2023. The first
session was with graduates and the second was with female
colleagues over 50. See pages 108 to 110 for more details.
Talent and Succession Planning – closer focus as the Group continues
to build its capabilities and strengthens the succession pipeline.
A review of talent and succession planning was undertaken twice
in 2023. A talent grid has been developed for consideration.
Board Information – ongoing improvement in the quality and content
of information to the Board, building on the progress made in 2022.
The paper template was further enhanced, and the Company
Secretariat Team provided education sessions to colleagues on
how to draft good quality papers.
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Corporate governanceCorporate 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 to
the Board during 2023. Board Committees may have specific educational
or deep dive sessions relevant to the work of each Committee.
Q1
Q2
Annual Operating Plan (‘AOP’) 23 and expenses
Deep dive focusing on:
1. planned investment over the next three years
and expected benefits;
2. Management’s view on the prioritisation of projects
and planned spend; and
3. balance sheet focus.
IFRS 17
Review of timeline to announce IFRS 17 and Half Year 2023
results to the market. Providing an update on the progression
of Full Year 2022, Half Year 2022, Half Year 2023 IFRS 17 results
and any challenges faced by Management. A planning update
was also provided.
Sun Life of Canada
Update on business and governance integration post-acquisition
including a 2023 timeline.
Outcome: Day one vision to be provided to the Board.
IFRS 17 programme update
Programme update and deep dive into current end-to-end
controls for the production of IFRS 17 results.
Net Zero Transition Plan
In advance of its May 2023 publication, a deep dive focusing
on the balance between ESG ambition and any false sense
of progress. The risks of greenwashing and greenhushing
were also highlighted to the Board.
Brand engagement
Focus on digital and the impact of Artificial Intelligence
(‘AI’) on future engagement with our customers.
Customer trends
Strategy session on customer views, what is driving
customers’ behaviours and how these can be embedded
within Phoenix Group’s strategy.
Q3
Q4
Group CEO and Group CFO update
Review of current bank loans and facilities, cash generation,
controls and potential M&A. In addition, a reflection of
inadvertent consumer exclusion, except for financial crime.
IFRS 17
Two further sessions on the programme update for IFRS 17
and market disclosure considerations.
Consumer Duty
Deep dive focused on the implementation of Consumer Duty
at the Life Companies Board ready for regulatory implementation
in June 2024.
Outcome: More regular updates to the Phoenix Group Board
from the Life Companies Board on its role and actions relating
to Consumer Duty. There had been particular focus on the
With-Profits Committee as this was a complex area.
Investor Relations
Investor feedback from brokers on the Half Year 2023 results.
Major Model Change
Understanding of the Major Model Change 2022 changes from
the previous Major Model Change and the liaison with the PRA.
Market Abuse Regulations
Refresher training on UK Market Abuse Regulations.
Including recently implemented systems to monitor share
dealing, project lists and closed periods for both the asset
management business and PDMRs and employees dealing
in Phoenix Group Holdings plc’s shares.
Internal Model
Review of how the Internal Model supports the
Risk Management Framework.
The Board received specific mandatory training:
• Code of Conduct
• Data Protection
• Financial Crime
•
•
• Consumer Duty
Information Security
Internal Model Validation
Committee deep dives and education sessions
Committee deep dives and education sessions
Committee deep dives and education sessions
Committee deep dives and education sessions
Joint Audit Committee and Risk Committee
IFRS 17
Review of governance path, status update and identification of
the requirement for any further education sessions. Review of
the Transition (opening) Balance Sheet, IFRS 17 liabilities, key
judgements, controls and validations required, plus an update
from the External Auditor, EY LLP (‘EY’), on progress and where
challenge may be needed.
Sustainability Committee
Stewardship Code
Overview of Phoenix Group’s approach to the Stewardship Code.
Human rights
Teach-in by the business for Social Responsibility.
Remuneration Committee
Benchmarking
External adviser PwC provided a benchmarking session
on CEO and CFO pay for the financial services sector.
Sustainability Committee
Phoenix Insights
Update on how the ‘Think Tank’ was focusing on consumers,
the undersavings crisis, female re-skilling opportunities in the
workplace and broadening methods of financial education.
Digital inclusion
Overview of the development and delivery of Phoenix Group’s
digital inclusion strategy which formed part of the wider
customer sustainability strategy and ambitions.
‘Let’s Start Talking’ Campaign
Work undertaken by colleagues to ensure that the Company
continued to be a purpose-led organisation.
Outcome: To find a more accurate method of tracking
engagement with the website.
Sustainability Committee
Climate litigation
Insight into current trends and how climate change litigation
was expected to develop over time. Particular focus on human
rights protection and derivative actions.
Nature and The Taskforce on Nature-related Financial
Disclosures
Overview of the science-based foundation for
understanding nature, and how this was incorporated
into the TNFD framework’s components.
Money Mindset
Deep dive into the workplace pension platform
for Standard Life customers.
Financial inclusion
Overview of work undertaken to increase financial
inclusion for all customers, as well as wider society.
Audit Committee
IFRS 17 disclosure as the publication date approached.
Audit Committee
Disclosure of climate reporting on financial disclosures
Deloitte provided a session on the financial impact of the new
sustainability and climate change regulations. Feedback on any
potential gaps with the new regulations in Phoenix Group’s own
Sustainability Report and appropriate assurance.
Outcome: A further education session scheduled for Q1 2024
was identified to review an assurance timeline, for the impact
climate reporting had upon financial statements.
Remuneration Committee
Current and potential changes under the UK Corporate Governance
Code 2024 (‘the 2024 Code’) and the impact for the Committee
were provided by PwC, the Committee’s external adviser.
Consumer Duty was also outlined in relation to remuneration.
Outcome: Maggie Semple to join the Remuneration
Committee as a member on 1 January 2024 to assist
the Committee to better understand the voice of the
wider workforce.
Outcome: The Committee to receive an annual
wider workforce dashboard at each October
education session.
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81
Corporate governanceCorporate governance Gender diversity
will be considered
when succession
planning over the
next two years for
the appointments
that the Board
can influence.
Role of the Committee
The Committee is responsible for
considering the size, composition and
balance of the Board, the retirement
and appointment of Directors and
Senior Management, succession planning
for the Board and Executive Committee
and monitoring of diversity metrics. It is
focused on the development of a diverse
pipeline and making recommendations
to the Board on these matters.
Following each meeting, the Chair
of the Committee provides a summary
of discussion, outcomes and where
relevant makes recommendations to
the Board in line with the Committee’s
Terms of Reference, which can be
found at: www.thephoenixgroup.com.
Composition, succession and evaluation continued
Nomination Committee report
Nicholas Lyons
Nomination Committee Chair
Composition of the Committee
The Board confirms that with the exception of the Chair, all of the members
of the Committee are Independent Non-Executive Directors.
Regular attendees include the Group CEO and Group HR Director.
Committee meetings and membership
Under the Committee’s Terms of Reference it should meet at least twice a year.
During 2023 there were seven formal meetings.
Member
from
2023 meeting
attendance
2023 %
attendance
Nicholas Lyons1
Alastair Barbour2
Karen Green
Katie Murray3
John Pollock
Nicholas Shott
Kory Sorenson4
1 December 2023
11 May 2016
5 May 2022
29 June 2023
1 November 2022
11 May 2017
2 May 2018
–
7/7
7/7
4/4
7/7
7/7
4/4
–
100%
100%
100%
100%
100%
100%
1
2
3
4
Nicholas Lyons stepped down from the Board on 1 September 2022 to commence his sabbatical.
He returned as Chair of the Group Board on 1 December 2023.
Alastair Barbour became Chair of the Group Board on 1 September 2022 and stepped down from
the position of Chair of the Group Board and the Nomination Committee on 30 November 2023.
Alastair Barbour then retired from the Board on 31 December 2023.
Katie Murray became a member of the Nomination Committee on 29 June 2023.
Kory Sorenson retired from the Board on 30 June 2023.
Committee gender
Male
Female
60%
40%
7
Number of Committee
meetings held this year
Overview of the year
Key Committee activities during 2023
Succession planning for the NEDs leading to the appointment of two new NEDs.
The appointment of Mark Gregory with effect from 1 April 2023.
The review of Committee membership and the approval of Katie Murray as a member of the Nomination Committee effective 29 June 2023
and Nicholas Shott as Chair of the Remuneration Committee effective 4 May 2023. Mark Gregory became a member of the Audit Committee
and Maggie Semple the Remuneration Committee both with effect from 1 January 2024.
Monitoring our DE&I targets at Board, Executive Committee and Business Leadership level.
Appointment of Bvalco Ltd (the external Board Reviewer) to review the performance of the Phoenix Group Board for 2023.
Approve any changes to the Life Companies Board and direct subsidiaries of Phoenix Group Holdings plc.
The appointment of Eleanor Bucks with effect from 1 December 2023.
2024 focus
Succession planning for the Board, recognising that John Pollock and Nicholas Shott conclude their nine-year terms in 2025.
Continue to consider the succession planning for Executive Directors and Executive Committee members, closely reviewing the talent grid.
Review of the Board Diversity policy and monitor against the Listing Rules, Parker Review and FTSE Women Leaders.
Committee review
The 2023 effectiveness review was externally
facilitated by an external Board Reviewer.
The review concluded that the Committee was
functioning extremely effectively, there was
good respect and trust between the Board
and members, new appointments including the
interim Chair of the Group Board had been dealt
with strongly. There was good diversity on the
Board which was continuously improving and
new NEDs had commented on the quality of the
appointment process, particularly at the interview
stage. However, the Board Reviewer did identify
a few areas of enhancement by the Committee,
and these are highlighted to the right:
Action 1
Action 2
Continued focus on the
executive succession plan
and talent grid.
Review the Committee
memberships on an
ongoing basis to ensure
skills and experience are
being utilised effectively.
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Corporate governanceCorporate governance Composition, succession and evaluation continued
Nomination Committee report
Outcomes from Nomination Committee discussions
On an annual basis, a review of the Committee’s activities is undertaken. In 2023, it was concluded that all elements of responsibility detailed
in the Committee’s Terms of Reference had been addressed. An overview of some of the key activities undertaken during the year and the way
in which they contributed to important outcomes is detailed in the following table:
Outcomes from Nomination Committee agenda items
Time commitment
Outcome
Full assessment that each of the NEDs continue to
be appropriately defined as ‘independent’ and have
offered and continue to offer the appropriate time
commitment expected in their role.
The Nomination Committee has confirmed its satisfaction with the time and commitment given to Phoenix Group
by all Directors.
All Directors should be proposed for election or re-election by shareholders at the AGM being held on 14 May 2024.
Time commitments were also reviewed on the appointment of two new NEDs and as NEDs take on new roles.
Emergency cover for Board Committees
should a Chair be unable to attend a meeting.
Role
Emergency cover
Chair of the Group Board and Nomination Committee
SID
Chair of the Audit Committee
Chair of the Risk Committee
Chair of the Remuneration Committee
Chair of the Risk Committee
Member of the Risk Committee
SID or member of the Committee who has been
a member for at least 12 months
Chair of the Sustainability Committee
Chair of the Remuneration Committee
Appointment process
Outcome
Scoring by NEDs when interviewing candidates had
to be consistent.
Focusing on continuous improvement through HR reviewing the scoring process, incorporating feedback from
the last recruitment campaign to ensure it was relevant for the skills and experience being sought, whilst ensuring
consistent assessment for all candidates. The scoring methodology was being updated to encompass learnings
from the recruitment campaigns undertaken in 2023 and would ensure appropriateness for the next campaign.
The Committee also received education sessions as shown on pages 80 to 81.
Board succession
During 2023, the Committee has remained
active in its consideration of NED succession,
which, following further consideration by the
Board, has led to:
•
the appointment of Nicholas Lyons on
1 December 2023 following his return from
sabbatical between 1 September 2022
and 30 November 2023 to take on the
prestigious role of Lord Mayor of the City
of London. Alastair Barbour was interim
Chair of the Group Board for that duration.
During this period, Alastair reached his
ten-year tenure and therefore retired
from the Board on 31 December 2023;
the appointment of Mark Gregory to the
Board and member of the Risk Committee
on 1 April 2023. Mark was appointed as
a member of the Audit Committee on
1 January 2024, in place of Karen Green
who stepped down on 31 December 2023;
the appointment of Katie Murray as a
member of the Nomination Committee
on 29 June 2023;
•
•
• the appointment of Nicholas Shott as
Chair of the Remuneration Committee
on 4 May 2023, following the conclusion
of the 2023 AGM;
• support for the appointment of David Scott
as the Shareholder Nominated Director
of abrdn on 11 May 2023, adding valuable
and relevant skills through his role as
Chief Enterprise Technology Officer,
having worked in financial services for
over 35 years;
the appointment of Maggie Semple
as a member of the Remuneration
Committee on 1 January 2024; and
the appointment of Eleanor Bucks
to the Board on 1 December 2023.
•
•
from the Board and Leadership Team.
Interviews are also held with the Group
CEO and Group HR Director as part of
the process and other members of the
ExCo as appropriate.
References are then obtained prior
to the Committee recommending the
appointment to the Board. Once the
Board has approved the recommendation
a market announcement is made
immediately, and the onboarding process
begins. Please see pages 90 to 91 for more
information on the induction programme.
A similar process is followed for executive
succession planning, which is undertaken
by the Committee for Executive Directors
and for ‘ExCo’ roles to ensure appropriate
succession in an emergency situation with
at least one internal successor, who is
ready now or expected to be ready in one
to two years. External candidates are also
included in the process. ExCo succession
planning remains a focus for 2024,
considering talent, capabilities and the
broader diversity agenda. Much work
has been undertaken to strengthen the
capabilities and skillset at ExCo level,
with focus now on successors for
all ExCo members to ensure there
is a strong pipeline of talent.
Appointment process
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. A role
profile is drafted by the Group Company
Secretary and reviewed for approval by
the Nomination Committee and other
members of the ExCo as appropriate.
The Nomination Committee appointed
Hedley May for the appointment of
Mark Gregory and Korn Ferry for the
appointment of Eleanor Bucks.
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.
Detailed assessments of short-listed
candidates are undertaken by the
search consultancy and the Committee.
The Committee requires search firms to
ensure that both long-lists and short-lists
are balanced from a diversity and inclusion
perspective. If not, the Committee will
insist on a refresh.
Each member of the Nomination
Committee interviews short-listed
candidates individually or jointly with
other members of the Committee.
A pre-prepared list of questions are
used to ensure continuity. Interviewers
are mindful of the skills matrix, diversity
of thought and how Phoenix Group
values are demonstrated openly for
culture fit, which must always come
Board skills
A Board skills review was undertaken by the
external Board Reviewer as part of its 2023
effectiveness review. It concluded that skills
could be expanded further as well as
experience in the banking sector, where
complex transformational experience could
be advantageous along with a focus on
digitisation. Eleanor Bucks’ recent appointment
has brought the wider actuarial and asset
management financial services experience
identified by the Board Reviewer. Future
succession planning will take this criterion
into account as well as proven experience in
AI, which will be an imminent requirement.
Board skills are separated into core and
secondary skills and can be found on page 89.
Board diversity
The Board supports and aims to fully comply
with the FTSE Women Leaders Review
guidance for FTSE 350 companies,
which is aligned with the FCA’s Listing Rules
(LR 9.8.6(9)) on diversity, being:
• 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); and
• at least one member of the board is from
a minority ethnic background.
Gender diversity
As at 21 March 2024, the Board is comprised
of 38% female Directors. The Board has two
Shareholder Nominated Directors. The
Board is unable to choose these candidates
as these are nominated and therefore is
unable to influence its composition entirely.
David Scott from abrdn replaced Stephanie
Bruce, which has impacted the female
representation of the Board. The Board
is comprised of 45% female Directors when
considering appointments, the Board has
independently made.
Senior Management1 ethnic minority
representation is 13% by 2027 as submitted
to the Parker Review in December 2023.
As at 21 March 2024, the Board has three
members of an ethnic minority background,
representing 23% of the total Board
composition. If the Shareholder Nominated
Directors are excluded, the Board has two
members of an ethnic minority background
representing 18% of the total Board
composition. Further information can be
found below.
The Board is mindful that when female
representation is reported as a whole and
includes the Shareholder Nominated
Directors, it falls short of the Listing Rules.
This will be taken into account when planning
the succession of retiring Directors over the
next two years for the appointments that the
Board can influence from a diversity perspective.
In relation to the second part of the Listing Rule,
Karen Green is the Senior Independent
Director of the Board. Again the Board will
be mindful of gender diversity when making
future senior board appointments.
In addition, the Board met the recommendation
of the Parker Review for FTSE 100 companies
in relation to there being at least one director
from an ethnic minority background on the
Board by 2021. Phoenix Group’s target for
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 Group
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 40.
1
Definition of Senior Management is in line with the
Parker Review of ExCo and ExCo minus 1, excluding those
not in senior management roles.
Number
of Board
members
Percentage
of the Board
Number of
Board members
appointed by
Phoenix Group
Percentage
of the Board
appointed by
Phoenix Group
Number
of senior
positions on
the Board
(CEO, CFO,
SID and Chair)
Number in
Executive
Management
Percentage
of Executive
Management
Number
of total
employees
Percentage
of total
employees
As at 21 March 2024
Men
Women
As at 31 December 2023
Men
Women
8
5
9
5
62%
38%
64%
36%
6
5
7
5
55%
45%
58%
42%
3
1
3
1
6
6
6
6
50
50
50
50
3830
4,031
3,771
3,986
49%
51%
49%
51%
Please note the definition of Executive Management includes the Group Company Secretary in line with that under LR 9.8.6(10) and Provision 23 of the 2018 Code.
Ethnic diversity
As at 21 March 20241
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 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
Number
of Board
members
Percentage
of the Board
Number of
Board members
appointed by
Phoenix Group
Percentage
of the Board
appointed by
Phoenix Group
Number
of senior
positions on
the Board
(CEO, CFO,
SID and Chair)
Number
in ExCo
Percentage2
of ExCo
Number
of total
employees2,3
Percentage
of total
employees
10
0
2
1
0
0
11
–
2
1
–
–
77%
–
15%
8%
0%
0%
79%
–
14%
7%
–
–
9
0
1
1
0
0
10
–
1
1
–
–
82%
–
9%
9%
0%
0%
83%
–
8.5%
8.5%
–
–
3
0
1
0
0
0
3
–
1
0
–
–
10
0
1
0
0
0
10
0
1
0
–
–
91%
–
9%
0%
0%
0%
91%
–
9%
–
–
–
–
–
–
–
–
–
4,279³
98
502
121
24
2,733
–
–
–
–
–
–
55%
1%
6%
2%
0%
36%
1 Based on the Office for National Statistics classification and included: Asian, Black, Mixed/multiple ethnic groups, Other ethnic groups, White and Prefer not to say.
2
In January 2024, Phoenix Group moved from an annual diversity data survey collected via an app to data collection through our internal HR platform.
This will provide an up-to-date view of the diversity of our colleagues and allow us data analysis on an intersectional basis, providing better data insights than an annual survey.
Currently the participation rate is 42%. When it is at 50%, high level results can be shared and at 65% detailed data analysis can be provided.
It is not known when these targets will be hit. A full programme of employment engagement is in place to help colleagues increase its participation.
3 Data collected, permissible and volunteered by colleagues.
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85
Corporate governanceCorporate governance Composition, succession and evaluation continued
Nomination Committee report
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, Mark Gregory and Eleanor Bucks joined the Group Board.
Their experience, background and skills are aligned with the Group’s strategy.
The Board will endeavour to appoint the right candidate for each Board role
and consistently seeks to enhance diversity in the broadest sense.
Board policy
Progress
The Board promotes the enhancement of
diversity, inclusion and equal opportunity,
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 long-lists demonstrating
diversity in the broader sense, including gender, ethnicity and other diversity
attributes and will challenge search firms to ensure this aim is achieved.
Board policy
Progress
The Board intends to comply or explain
why on a continual basis whether the FTSE
Women Leaders Review, Listing Rule 9.8.6(9)
and Parker Review targets have been met:
•
•
that the board should be comprised
of at least 40% female directors;
that at least one of the chair, the chief
executive officer, the senior independent
director, or the chief finance officer is
a woman; and
• at least one member of the board is from
a minority ethnic background as per
the Parker Review.
As at 21 March 2024:
• Five female Directors representing 38% of Board composition.
When excluding Shareholder Nominated Directors this is 45%.
• The Senior Independent Director is female.
• Three minority ethnic Directors representing 23% of Board composition.
When excluding Shareholder Nominated Directors this is 18%.
• Phoenix Group’s target for ethnic minority representation at Senior Management
level is 13% by 2027.
Board policy
Progress
The Board will undertake regular skills
audits to ensure the Board’s skills remain
appropriate for its strategy and provide
diversity where possible.
The Board skills review was carried out during 2023 and concluded that enhancing
the skills in the areas of digitisation and banking transformation would be valuable
going forward. Other skills such as actuarial and asset management have been
provided by the recent appointment of Eleanor Bucks. The skills required on the
Board will be reviewed when considering the replacement of the two Directors due
to retire in 2025 and the retirement of Alastair Barbour.
I am pleased to be back in my role
as Chair of the Group Board and its
Nomination Committee and look
forward to a year of continually
enhancing governance during 2024.
Nicholas Lyons
Chair
Board independence
With the exception of the Chair of the
Group Board and Shareholder Nominated
Directors, all NEDs are considered
independent in character and judgement.
The independence criteria set out in the
2018 Code was taken into account as part
of the selection process for the NEDs
who joined Phoenix Group during the year.
Mark Gregory and Eleanor Bucks were
considered to be independent. David Scott
was not considered to be independent
due to his capacity as a Shareholder
Nominated Director. Over half of our
Board members, excluding the Chair of
the Group Board, are Independent NEDs.
The independence of NEDs is reviewed
and confirmed annually by the Committee.
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.
Time commitment
All Directors are expected to commit
sufficient time to the Board, and the
Company. 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. It is expected that
on average, each of the seven 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 and this has been an area of
focus during 2023.
The Group Company Secretary maintains
a register of Directors’ commitments which
is regularly reviewed by the Committee.
As part of the Board review 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
2023 exceeded the level expected in their
appointment terms.
The Group Company Secretary completed
a full review of Directors’ non-listed
appointments. The following table outlines
the number of appointments held by Directors.
Name
Nicholas Lyons1,2
Karen Green1
Eleanor Bucks3
Mark Gregory
Katie Murray4
John Pollock
Belinda Richards
Maggie Semple
Nicholas Shott
Andy Briggs5
Rakesh Thakrar5,6
Number of
boards including
Phoenix Group
Holdings plc
Number of
Directorships of public
limited companies
Number of
directorships of private
limited companies
Number of
directorships of trusts,
charities and other
companies
8
7
1
5
4
1
4
9
3
5
6
2
3
1
2
4
1
3
2
1
3
3
5
3
–
3
–
–
1
6
2
–
3
1
1
–
–
–
–
–
1
–
2
–
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87
5 Andy Briggs and Rakesh Thakrar are Executive Directors of Phoenix Group Holdings plc which proxy advisers count as three listed companies.
6
Two of Rakesh Thakrar’s private limited company appointments relate to his appointment at Bupa Regulated Entities.
Nicholas Lyons and Karen Green are both Non-Executive Directors of Miller Insurance Services LLP. Nicholas Lyons will retire from that board in 2024.
1
2 Nicholas Lyons is the Chair of the Group Board of Phoenix Group Holdings plc which proxy advisers count as two listed companies.
3
Eleanor Bucks has one listed role at Phoenix Group Holdings plc in addition to her role as Chief Investment Officer at Lloyd’s of London.
Any subsidiary appointments which are a result of Eleanor’s executive role have been excluded from the table above.
Katie Murray is an Executive Director at NatWest Group plc which proxy advisers count as three listed companies.
Any subsidiary appointments which are as a result of Katie’s executive role have been excluded from the table above.
4
Corporate governanceCorporate 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.
Board gender balance¹ (including
Shareholder Nominated Directors)
Board gender balance¹ (excluding
Shareholder Nominated Directors)
Overall diversity progress for the Board¹
Male
Female
62%
38%
Male
Female
55%
45%
Board ethnicity¹ (including
Shareholder Nominated Directors)
Board ethnicity¹ (excluding
Shareholder Nominated Directors)
FTSE Women
Leaders target
Target
Achieved
Parker Review
target
Target
Achieved
FCA Listing Rules
target – gender
Target
Achieved
FCA Listing Rules
target – ethnicity
FCA Listing Rules
target – female
Chair, CEO,
CFO or SID
Target
Achieved
Target
Achieved
White (English)
White (Scottish)
Asian (Indian)
Black (Caribbean)
White (Other)
55%
18%
9%
9%
9%
Overall diversity progress for the Board
members appointed by Phoenix Group¹
FTSE Women
Leaders target
Target
Achieved
White (English)
White (Scottish)
Asian (Indian)
Asian (Japanese)
Black (Caribbean)
White (Other)
50%
17%
9%
8%
8%
8%
Board tenure¹
59
Average age
of the Board
Less than 1 year
1–3 years
3–6 years
6–9 years
9 years or more
23%
15%
31%
31%
0%
1 As at 21 March 2024.
Parker Review
target
Target
Achieved
FCA Listing Rules
target – gender
Target
Achieved
FCA Listing Rules
target – ethnicity
FCA Listing Rules
target – female
Chair, CEO,
CFO or SID
Target
Achieved
Target
Achieved
40%
38%
1
3
40%
38%
1
3
1
1
40%
45%
1
2
40%
45%
1
2
1
1
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 NEDs, with action
being taken to address areas highlighted for strengthening.
s
n
o
i
t
i
s
i
u
q
c
A
&
s
r
e
g
r
e
M
s
t
e
k
r
a
m
l
a
t
i
p
a
C
l
y
r
o
t
a
u
g
e
R
l
i
a
c
n
a
n
F
i
t
n
e
m
e
g
a
n
a
m
t
e
s
s
A
e
c
n
a
r
u
s
s
a
e
f
i
L
l
a
i
r
a
u
t
c
A
t
n
e
m
e
g
a
n
a
m
t
n
e
m
t
s
e
v
n
I
t
n
e
m
e
g
a
n
a
m
k
s
i
R
l
s
n
o
i
t
u
o
s
&
e
c
v
r
e
s
i
r
e
m
o
t
s
u
C
G
S
E
/
y
t
i
l
i
i
b
a
n
a
t
s
u
S
n
o
i
t
u
b
i
r
t
s
i
D
/
s
e
a
S
l
s
e
c
r
u
o
s
e
r
n
a
m
u
H
g
n
i
t
e
k
r
a
M
s
n
o
i
t
a
r
e
p
O
e
g
n
a
h
C
l
a
t
i
g
D
/
T
i
I
e
c
n
e
i
r
e
p
x
e
d
r
a
o
b
0
0
1
E
S
T
F
Nicholas Lyons
Chair of the Group Board
Andy Briggs, MBE
Group Chief Executive Officer
Rakesh Thakrar
Group Chief Financial Officer
Karen Green
Senior Independent Director
Belinda Richards
Independent Non-Executive Director
David Scott
Non-Executive Director
Hiroyuki Iioka
Non-Executive Director
Nicholas Shott
Independent Non-Executive Director
John Pollock
Independent Non-Executive Director
Katie Murray
Independent Non-Executive Director
Maggie Semple, OBE
Independent Non-Executive Director
Mark Gregory
Independent Non-Executive Director
Eleanor Bucks
Independent Non-Executive Director
Total core skills
Total secondary skills
8
3
9
1
11
1
9
2
8
3
5
6
4
2
7
3
10
2
6
1
6
4
6
3
5
1
4
3
5
1
6
3
3
8
10
0
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89
Corporate governanceCorporate governance
Composition, succession and evaluation continued
Board induction
A strong induction programme, including the
interview process, is integral to a Director’s
ability to quickly thrive in their role.
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 of the Group Board discusses
training with each NED at least annually.
The Group Company Secretary supports
the Chair of the Group Board in the oversight
of the induction and development plans
for the NEDs following either an internal
or external Board effectiveness review.
All NEDs are encouraged to suggest
training topics of interest and all Directors
are able to access a Board portal where
additional resources are available.
Mark Gregory
Joined the Board on 1 April 2023
Eleanor Bucks
Joined the Board on 1 December 2023
Typical induction
programme features
I’ve had meetings with
relevant stakeholders,
who have been transparent
and given me comfort in
Phoenix Group, its strategy
and people.
I felt encouraged by
Management’s preparation
and candid response to my
questions when meeting
individuals during my
induction process.
The induction programme at Phoenix Group
has been well structured and given me a
strong grounding to confidently commence
my NED role here. I’ve had meetings
with relevant stakeholders, who have
been transparent and given me comfort
in the Group, its strategy and people.
Management was open and well-prepared
for each session and I was provided with
useful reading material and a detailed
overview of the key matters for which
Executives were accountable. For me, joining
in April and attending the Board Strategy
Days in June 2023 was extremely helpful.
I learnt a lot within the two days as I had an
informal environment to ask lots of questions.
I tend to join some Committee meetings as
an attendee to gain as much information to
help me understand the wider Board matters,
risks and opportunities, key areas of focus
and to meet other presenters. I find the
Phoenix Group offices welcoming when
I visit outside of the Board schedule,
which gives me the opportunity to observe
Phoenix Group’s culture independently
and to build relationships.
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’ve enjoyed the two colleague engagement
sessions. At the first, I was able to meet some
Phoenix Group graduates and understand
their training programme and roles better.
At the second, our female colleagues who
were over 50 provided insight into their
working life at Phoenix Group. The Board
found both sessions insightful and at the
same time comforting. It was great to meet
such different demographics and learn
about their roles and how the Group was
providing a clear career path for those
that wanted it.
I recently joined the Board and both the
appointment and induction processes were
seamless. Meeting so many of the Board at
interview stage helped me form an opinion
quickly on the culture at Phoenix Group and
whether this was a company where I felt
I could add value.
My induction programme has been well
structured and the reading material in
advance comprehensive. There were
detailed overviews of the key matters
for which Executives were accountable
which was useful. I felt encouraged by
Management’s preparation and candid
response to my questions when meeting
individuals during my induction process.
This is my first listed NED role and it’s
important to feel supported by the Group
Company Secretary and other Board
members, who have all been exemplary.
I am particularly excited by the two-day
strategy away day in June 2024. Feedback
from the external Board review was that this
provides the time to get to know the Board
members and Management in a more
informal environment, being a combination
of business and relationship immersion.
This will provide an opportunity to help
Board members appreciate individual
strengths and the collective capability
of the Board which can only ever enhance
Board performance. It’s encouraging that the
Board and Phoenix Group are so focused
on such strategy meetings. I am personally
excited by the NED mentoring programme
to those Phoenix Group employees
identified by Management.
In addition, meeting the wider workforce
and supporting the implementation of
Phoenix Group’s strategic journey will be
a focus for me in 2024. How sustainability
is embedded not only into the strategy
but every day has been a focus for me and
I enjoyed meeting the Sustainability Team
soon into my induction. The impact of these
meetings has enabled me to accelerate my
understanding of the business, its values
and culture, key stakeholders, risks and
opportunities. I look forward to continuing
my induction during 2024.
Meetings
• Chair of the Group Board.
• Group Chief Executive Officer.
• Group Chief Financial Officer.
• Group Company Secretary.
• Group Head of Internal Audit.
• Chief Risk Officer.
• Head of M&A and Corporate Development.
• Group Treasurer.
• Corporate Affairs & Investor Relations
Director, who also has responsibility
for Sustainability.
• Other members of the ExCo, as appropriate.
• External stakeholders which may include the
External Auditor, brokers, major shareholders
or remuneration consultants.
Site tours and meetings
with Management
• London
• Edinburgh
• Birmingham
• Telford
• Ireland
Key documents
• Board operations, minutes and
meeting packs, governance framework,
policies, delegations of authority,
conduct/regulatory responsibilities.
• Financial, strategic and operation
plans and priorities.
• Directors’ & Officers’ liability
insurance summary.
• Market Abuse Regulations training.
• Listed Company and Life Companies
governance training.
• Other documents as appropriate
in relation to the level of Board
or Board Committee responsibilities.
• Mandatory training.
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91
Corporate governanceCorporate governance Audit, risk and internal controls
Audit Committee report
Katie Murray
Audit Committee Chair
Composition of the Committee
The Board confirms that all members of the Committee are Independent Non-Executive
Directors and as a whole have the competence relevant to the financial services sector
and the insurance and pensions sector in which Phoenix Group operates. The Board is
satisfied that Katie Murray, as Chair of the Committee has recent and relevant financial
experience to chair the Committee through her current role as Group Chief Financial
Officer of NatWest plc. Further information on the experience, skills and competencies
of the Committee members can be found on pages 64 to 67.
Regular attendees include the Chair of the Life Companies Board Audit Committee,
the Group Chief Financial Officer, Group Head of Internal Audit, Group CRO,
Group Chief Actuary and the External Auditor. The Chair meets regularly with the
Group Chief Financial Officer and the External Auditor to discuss priorities and
track key actions.
Committee meetings and membership
Under the Committee’s Terms of Reference it should meet at least four times a year.
During 2023 there were nine formal meetings.
Member
from
2023 meeting
attendance
2023 %
attendance
Katie Murray
Karen Green1
Mark Gregory2
John Pollock
Nicholas Shott
1 April 2022
1 July 2017
1 January 2024
11 May 2017
2 July 2019
9/9
8/9
–
9/9
9/9
100%
89%
–
100%
100%
1
2
Karen Green was unable to attend a joint Audit and Risk Committee meeting due to attending a funeral.
Mark Gregory became a member of the Committee on 1 January 2024 in place of Karen Green who stepped
down as a member of the Committee on 31 December 2023.
Committee gender
Male
Female
75%
25%
9
Number of Committee
meetings held this year
(12 including ad hoc meetings)
The Audit
Committee has
robustly challenged
on the IFRS 17
standard, climate
risk and controls
during 2024.
Role of the Committee
The Committee is responsible for
reviewing and monitoring the integrity
of the Group’s financial reporting and
judgements applied to that reporting,
Internal Control Framework, whistleblowing,
monitoring the effectiveness of the
Internal Audit function and framework,
changes in regulatory requirements and
managing its duties in relation to the
External Auditor and any tender process.
Following each meeting, the Chair of
the Committee provides a summary of
discussion, outcomes and where relevant
makes recommendations to the Board
on matters such as Solvency II reporting,
Full Year and Half Year financial statements,
finance-related risk policies, External Auditor
appointment, resignation or dismissal and
fees, in line with the Committee’s Terms
of Reference which can be found at
www.thephoenixgroup.com. These have
been updated in line with the Minimum
Standards for Audit Committees published
by the Financial Reporting Council (‘FRC’)
in May 2023.
Overview of the year
Key Committee activities during 2023
Publication of the Half Year 2023 results following the adoption of the new IFRS 17 standard.
Continued oversight on UK Corporate Governance reforms and Solvency II.
Reviewed the adequacy of the control environment considering both Business As Usual (‘BAU’) and in light of economic volatility.
Transition commenced from EY to KPMG LLP as External Auditor of Phoenix Group.
2024 focus
Monitoring the transition of IFRS 17 processes to BAU and review lessons learnt from the implementation of the standard.
Further focus on reviewing Phoenix Group’s risk management and internal control framework in anticipation of the Board’s declaration
of effectiveness in line with the UK Corporate Governance Code 2024 (the ‘2024 Code’).
Monitoring the transition of KPMG LLP as the Company’s External Auditor from EY LLP.
Further consideration of financial reporting and disclosure impacts of UK Solvency II reform.
Preparing for the new corporate sustainability requirements, with an added focus on controls published by the International Sustainability
Standards Board (‘ISSB’).
Committee review
The 2023 effectiveness review was facilitated by an external Board Reviewer. The review concluded
that the Committee is functioning effectively. NEDs were well prepared, providing strong challenge
to Management with a very capable Chair. However, the Board Reviewer did identify a few areas of
enhancement by the Committee and these are highlighted below:
Action 1
Action 2
Action 3
Subsidiary companies
to provide a one-page
summary only, rather than
a full set of minutes.
Number of attendees
to be streamlined.
Papers to be published
no less than five days before
the meeting.
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Audit Committee report
Outcomes from Audit Committee discussions
On an annual basis, a review of the Committee’s activities is undertaken. In 2023, it was concluded that all elements of responsibility detailed
in the Committee’s Terms of Reference had been addressed. An overview of some of the key activities undertaken during the year and the way
in which they contributed to important outcomes are detailed in the following table:
Key activities
Financial reporting
Group CFO update.
Receiving and reviewing the Group’s external Full Year and Half Year
financial reports.
Outcome
Implementation of private sessions between the Group CFO and the Committee.
Half Year reporting was impacted by IFRS 17 and this was a major focus for the
Committee in 2023. Usual Phoenix Group practice is to complete a lessons learnt
for 2023 following the implementation of such a large project.
Ensuring accounts are fair, balanced and understandable as a whole and
recommending their approval to the Board, taking into account shareholders’
ability to assess the Group’s position, performance, business model and strategy.
Strong challenge from the Committee to ensure the news was balanced with both positive
and negative news reported. Cash generation was countered by the highlight of total
funds flow target to provide appropriate balance.
IFRS 17 accounting standard.
Strong challenge at Half Year 2023 ensuring the process, methodology and assumptions
were appropriate, ready for Full Year 2023. Three additional ad hoc meetings were held.
External audit
Outcome
Recommend to the Board the appointment of the External Auditor, their
terms of engagement including approval of their fees and non-audit services and for
reviewing the performance, objectivity and independence of the External Auditor.
Particularly strong challenge from the Committee on the External Auditor’s fees.
Internal control, risk management & compliance
Outcome
Monitoring the overall integrity of financial reporting by the Company and its
subsidiaries and the effectiveness of the Group’s internal controls.
Climate change risk.
Further enhancement and focus in 2023 and 2024 on internal controls and
end-to-end processes. Robust challenge to ensure risk management and internal
controls effectiveness review is appropriate for Provision 29 of the 2024 Code.
Decided to implement a joint Audit/Risk/Sustainability Committee bi-annually
to review disclosures and monitor changes in climate risk.
Sustainability Reporting
Outcome
Received and reviewed the Group’s Sustainability and Climate Reports and Net
Zero Transition Plan published in May 2023.
Education session on the financial impact of new sustainability and climate
change regulations.
Private meetings
Private meeting with External Audit partner.
Outcome
More private meetings required with the transition to KPMG LLP in 2024.
Where relevant, all papers receive a Line 1, 2
and regulatory review.
The Committee also received education
sessions as shown on pages 80 and 81.
Connectivity with other relevant
Committees
The following joint Committees promoted
the sharing of information and best practices.
The Committees were able to review,
approve and recommend for Board approval
the following items:
Audit and Risk Committees
• Solvency & Financial Condition Report
(‘SFCR’) approval (including Risk
Disclosures in Solvency II Pillar III
Reporting) – April 2023.
• Own Risk & Solvency Assessment (‘ORSA’)
approval – June 2023.
Audit, Risk and Sustainability Committees
• Review of Year End 2023 Climate and
Sustainability Reports – March 2024.
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’).
The External Audit partner attended all
Committee meetings during 2023 and to
the date of this report, presenting reports
on the external audit process, IT controls,
internal controls, audit differences, fraud risk
areas, audit improvements, planning report,
any pre-approval for non-audit services
and the 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 2023, including the 2023 Audit
Plan, progress reports against that plan,
a report on their audit procedures on the
2022 annual IFRS and Solvency II results,
their interim review of the Half Year 2023
IFRS results. EY have provided exceptional
support and challenge to the Group during
its transition to IFRS 17 and the collaborative,
yet robust approach should be commended.
The Committee considered throughout
2023 and for the 2023 audit, the effectiveness,
engagement and remuneration of the current
External Auditor. The Committee did not
request the External Auditor to specifically
audit a certain area of concern during 2023.
Assessment of the effectiveness of the
external audit process
Part of the Committee’s role is to oversee
the Group’s relationship with the External
Auditor to ensure independence, quality,
rigour, objectivity and robust challenge of
the external audit process. The Committee
does this throughout the year by:
• Reviewing EY’s UK Audit Quality Reports
including the FRC’s audit quality review,
the Institute of Chartered Accountants
of England and Wales (‘ICAEW’) Quality
Assurance Department (‘QAD’) review and
Internal reviews, outlining its response to
those reviews and actions to be taken.
Within those reports there is a key focus
on EY’s people around understanding
their role, asking for help and resources,
a review of the detailed Audit Plan and
consideration of its coverage and approach
to identified risks.
• Assessing the quality of interactions
between the Audit Team and the
Committee, including the provision
of technical and industry knowledge.
• Considering the level of insight provided
by the audit findings in the key areas
of judgement, 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.
• Comprehensive assessment and review
of the External Auditor where feedback
was received from Life Companies’
Directors as well as members of the
Committee, Management and teams that
supported the audit such as Group and
Service company teams, FRC, IT, Internal
Audit, Tax, Actuarial and Operations.
• Meeting privately with EY to discuss in
depth its approach to quality assurance
and internal assurance processes across
the audit firm that ensure the quality of
the audit service. These meetings provide
an opportunity to discuss freely without
Management present on the most
significant areas of challenge by EY.
• Considering the findings of external
evaluations of EY, notably the findings
from the FRC’s Audit Quality
Inspection Report.
• Reviewing the findings from EY’s UK
2023 Transparency Report which outlines
the key policies and processes in place
within EY for maintaining objectivity
and independence for EY’s year ended
30 June 2023.
• Reviewing EY’s impact of ISOM1 ensuring
firms implement an agreed process to
design, implement and operate a system
of quality management. Aligning with EY’s
commitment to deliver high-quality audits
to serve the public.
•
In addition, from 2023 EY have included
Engagement Level Audit Quality Indicators
(‘AQIs’). A measure of audit quality, AQIs
cover topics such as most recent firmwide
inspection results, hours an audit takes and
timeliness of reporting. The Committee has
found this information useful during the
year to monitor audit quality.
Overall, the Audit Committee concluded
that EY had carried out its 2022 audit
effectively. Stakeholders do not review
the effectiveness of the audit until June
the following year. The additional criteria
included in the Minimum Standards for
Audit Committees published in May 2023
will be included in the audit review for year
ended 31 December 2023 which will be
completed in June 2024.
Independence and objectivity of the
External Auditor
The External Auditor’s independence
was reviewed and monitored against the
Group’s External Auditor policy, including its
provision of non-audit services. This included
an assessment of its independence and a
review of services provided by EY during the
2022 and 2023 financial years. The Committee
is satisfied with EY’s objectivity and that EY
is fully independent from Management and
free from conflicts of interest. EY continually
monitors its own independence throughout
the year and voluntarily brings any potential
matter to the Committee. EY has confirmed
that between 1 January 2023 to 21 March
2024 there were no relationships that would
be thought to bear on EY’s independence
and objectivity. It outlines to the Committee
its independent approach, including threats
and safeguards when the audit plan for that
year is approved by the Committee.
Re-appointment of External Auditor
As previously announced, the Committee
concluded an audit tender process in 2021
resulting in KPMG LLP (‘KPMG’) being
appointed as the Group’s External Auditor
commencing from the financial period
starting 1 January 2024. A transition process
was undertaken from 30 June 2023, including
regular review meetings with Management,
EY, Internal Audit and Committee members,
prior to their formal appointment at the 2024
AGM on 14 May 2024, subject to shareholder
approval. KPMG has attended all Audit
Committee meetings from 30 June 2023 and
had access to papers presented to the
Committee at each meeting. The Committee
has received updates on the transition from
EY to KPMG as External Auditor and provided
challenge to ensure KPMG is receiving an
appropriate handover with sufficient input
from Management and EY itself. The Committee
confirms that it 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 (‘CMA Order 2014’) for that tender.
However, the Committee is mindful of the
Minimum Standards for Audit Committees
published by the FRC in May 2023 and that
this particular tender had been completed
before that publication. Within the previous
tender process, challenger firms were
included. Those challenger firms with
adequate insurance capability will again
be included and the Committee may
consider a price-blind tender in 2031.
The Group’s External Auditor policy includes
audit partner rotation with the expectation
that the audit partner will rotate at least every
five years. EY has served as External 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
and in light of the Group’s extensive change
programme, particularly the implementation
of IFRS 17 and the acquisition of SunLife of
Canada UK, the Committee requested a
further tenure extension for Stuart Wilson
as a result of reaching his sixth year of
tenure associated with the Group following
completion of the 2022 audit. In total,
Stuart Wilson acted as audit partner for
Phoenix Life Limited for two years, and then
lead audit partner for Phoenix Group for five
years. Such an extension is permissible under
the Audit Ethical Standards for a maximum
of two additional years until 2023, when EY
will retire as External Auditor of the Group.
External Auditor review
Actions to be undertaken
during the year following the
effectiveness review, which
will provide KPMG with further
insight during its transition
as External Auditor are
highlighted to the right.
Action 1
Action 2
Action 3
Enhance the process for
recognition and escalation
of any significant issue.
Continue to understand
Phoenix Group’s
complex business.
Review subsidiary audits
and consider including the
service companies within
the same Audit Team.
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Audit Committee report
Appointment of External Auditor
at Annual General Meeting
Resolutions will be put to the AGM to
be held on 14 May 2024 proposing the
appointment of KPMG as the Company’s
External Auditor and authorising the Board
to determine its remuneration, on the
recommendation of the Audit Committee
in accordance with the CMA Order 2014.
External Auditor policy
The Company has an External Auditor
policy which requires the Company and
the External Auditor to take measures to
safeguard the integrity, objectivity and
independence of the External Auditor and
cap the level of any non-audit fee paid to its
External Auditor at 70% of the average audit
fees paid in the previous three consecutive
financial years. The External Auditor policy
can be found on the website at
www.thephoenixgroup.com.
The External Auditor policy covers
matters such as the rotation of audit partner,
employment of external auditor employees,
permitted non-audit services and
audit-related services.
Permitted non-audit services are those
contained in the Revised Ethical Standard
2019 of the FRC. For 2023 these related
to Phoenix Re and Standard Life
International Dac.
Audit-related services are a subset of
permitted non-audit services that are largely
carried out by the Audit Engagement Team
and where the work involved is closely
related to the work performed in the
audit. For 2023 this included work on the
Sustainability Report and the collateral
audit for Standard Life International Dac.
The Committee is satisfied that there are
no circumstances that could affect the
independence or objectivity of the Auditor.
The External Auditor policy is refreshed
annually and in May 2023 was updated
to note that audit services provided to
investment funds, where wholly managed
by third parties, and which the Group
consolidates in its IFRS financial statements
would be exempt from the requirements
for fees to be approved by the Audit
Committee, and are instead considered
a pre-approved service. Related fees
continue to be reported to the Audit
Committee on at least an annual basis.
External Auditor’s 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 External Auditor’s objectivity and
independence and the prescribed limit set
out above 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
2023
£m
25.6
2.8
28.4
2022
£m
–
15.5
2.4
17.9
2021
£m
–
11.6
2.3
13.9
3%
4%
6%
6%
6%
8%
In 2023, total fees of £28.4 million were paid
to EY. Of this amount £25.6million related
to statutory audit fees of the parent and its
subsidiaries, with a further £2.2 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 and Sustainability
Report. This gives rise to a non-audit to
audit fee ratio under the EU Directive
and Regulations of 3% for the 2023 year,
and 6% based on a three-year average audit
fee. This lies well within the limits prescribed
in the Group’s policy. The increase in the
audit fee principally reflects the additional
work undertaken in connection with the
transition to IFRS 17.
In light of the above, the Committee
is satisfied that the non-audit services
performed during 2023 have not impaired
the independence of EY in its role as
External Auditor.
Internal Audit
During 2023, the Committee continued to receive regular updates from the Group Head of Internal Audit on all Internal Audit related matters.
This included
Item
Outcome
Regular updates on the progress of the 2023 Internal Audit Plan
approved in late 2022.
Group Internal Audit provided regular progress reports on plan delivery.
At the end of the year plan finalisation was at an advanced stage.
Budget and resource.
Robustly challenged by the Committee to ensure appropriate
and adequate.
Annual update of the Group Internal Audit Charter
and independence.
The Internal Audit Charter was approved by the Committee
in November 2023.
Control environment opinion which included Internal Audit’s
view of the Risk Management Framework, Governance and
Control Frameworks across the Group at both the Half Year
and Full Year end.
Performance evaluation: the next externally facilitated EQA
is due not later than 2025.
Control opinions were provided by Internal Audit in March and August
which provided Internal Audit’s view of the Risk Management Framework,
Governance and Control Frameworks.
Internal Audits were assessed as effective. The process included
self-assessment against CIIA standards, with consideration of the
Internal Audit Quality and Improvement Programme. QA results were
independently completed by Grant Thornton UK LLP, and the results
of a stakeholder survey were also reviewed by the Committee.
All areas of Internal Audit’s plan were aligned with Phoenix Group’s strategic priorities. For 2024, the use of data analytics by Internal Audit is
expected to be a key development area.
significant judgements involved in the
preparation of the Half Year 2023 results
and comparative information. These
processes underpinned the Committee’s
recommendation that the Board approve
the Interim report in September 2023.
Following publication of the Half Year 2023
results, the Committee’s focus on IFRS 17
shifted to the transfer of processes and
controls from a programme-led environment
to BAU activity. It will continue to be a
focus for 2024, whilst IFRS 17 is further
embedded into the Group’s financial
reporting framework. Work will continue
to streamline and automate reporting
under the new standard and enhance
the related internal control environment.
The Committee has been supportive of
Management during the transition, whilst
executing its professional scepticism through
deep dives and robustly challenging both
Management and the External Auditor.
Department for Business & Trade
A focus for Management during much
of 2023 was the ongoing Government
proposals regarding the Department for
Business & Trade reforms on Corporate
Governance and Audit. Management
provided regular updates to the
Committee and has continued to do so
following the Government’s withdrawal
on primary and secondary legislation,
now focusing on how Phoenix Group will
implement the 2024 Code principles and
provisions by 1 January 2025 and 2026.
Finally, I’d like to thank the Finance Team
for what has been a busy year with the
implementation of the new IFRS 17 standard.
Katie Murray
Chair of the Audit Committee
Internal control
The Committee, alongside the Risk
Committee, supports the Board in ensuring
a robust system of internal control and risk
management is in place across the Group.
The Committee receives reports from the
Group Head of Internal Audit on the status
of the control environment and management
of the Group’s principal risks and controls
across the Group’s Risk Universe.
The Committee also considers bi-annual
Internal Control Self-Assessment reports
in which Line 1 risk owners self-assess
the design and operation of their control
environments. These assessments are
independently validated by Line 2
(Risk) and supplemented by an Annual
Internal Control Environment Opinion
Report from Line 3 (Internal Audit).
During 2023, the Committee regularly
challenged Management to ensure, where
any control weaknesses were identified, that
there are robust and timely action plans to
address these. In performing this review and
challenge of the control environment, the
Committee has assessed and confirms that
in 2023 it has complied with Principle O
and Provisions 25 and 29 of the 2018 Code.
Looking ahead to 2024, the Committee
will maintain its scrutiny of the Group’s
control environment, including overseeing
necessary modifications to the Internal
Control Framework to meet the new
requirements of the 2024 Code.
Climate change risk
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. The Sustainability Committee
works closely with both the Audit Committee
and Risk Committee to review climate
change risk, target setting and disclosure
requirements to ensure that our reporting
is aligned with strategy and regulatory
requirements. The Committee received
confirmation from Management of the
KPIs and metrics the External Auditor had
provided assurance over when reviewing,
approving and recommending both the
Net Zero Transition Plan published on
24 May 2023 and the Sustainability and
Climate Reports. An outcome following an
education session on climate change risk
was to continually assess the assurance
level of TCFD reporting. Risk of incorrectly
disclosing the financial impact of climate
change is at the forefront for the Committee
and will continue to be a focus for 2024.
Both greenwashing and greenhushing
that could lead to climate litigation is a
focus for the Audit, Risk and Sustainability
Committees. See pages 103 and 107
where climate risk is discussed in the Risk
and Sustainability Committee reports.
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; involvement in the
assessment and resolution of individual
matters raised in accordance with our
established policy; whistleblowing
arrangements within the Group; and any
whistleblowing activity where an employee
raised concerns in confidence about any
possible improprieties.
During 2023, there were a total of seven
notifications reported to the Speak Up
Office, of which two were triaged as
‘whistleblows’ and five notifications related to
people policy matters. Of the two Speak Up
matters, both are closed and no material
wrongdoing or control failures were
found. Employee survey scores indicated
colleagues generally felt that Phoenix Group
was a psychologically safe environment
where they can speak up freely and had
a strong belief that serious misconduct
would be dealt with appropriately.
Fair, balanced and understandable
assurance framework.
The Committee has satisfied itself that the
Phoenix Group Holdings plc 2023 Annual
Report and Accounts is fair, balanced and
understandable. It has done so by taking
relevant FRC guidance into consideration
and feedback from various sources, then
robust challenge by the Committee.
The External Auditor also considered
the fair, balanced and understandable
statement as part of the year end processes
and concurred with its approval by the
Committee. The Committee can therefore
concur with the statement made by the
Board of Directors on page 147 in line
with Principle N of the 2018 Code.
Going concern
Please see page 143 for Phoenix
Group’s Going concern statement.
IFRS 17 implementation
During 2023, Management provided
the Committee with regular updates
and education sessions regarding the
implementation of IFRS 17, the new
accounting standard for insurance contracts
that came into effect from 1 January 2023
and its impact on the Group’s financial
reporting and internal control framework.
In dedicated sessions, the Committee has
discussed in detail the financial impacts
of IFRS 17, together with the operational
considerations of the implementation
programme including timetable, resourcing
and internal control matters. The Committee
reviewed and approved Phoenix Group’s
revised accounting policies to reflect the
new standard together with the underlying
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Audit Committee report
Significant matters considered by the Committee in relation to the financial statements,
where EY was invited to provide robust challenge.
Significant matters considered by the Committee in relation to the financial statements,
where EY was invited to provide robust challenge.
Significant matters in relation to
the 2023 IFRS financial statements
Implementation of IFRS 17 and IFRS 9
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
The Committee devoted a significant amount of time to the oversight of the final
aspects of the implementation of the new accounting standard for insurance contracts,
IFRS 17. Having commenced its oversight of technical implementation matters in 2021,
the Committee finalised its review and approval of the Group’s revised accounting policies
to reflect adoption of the new standard, and evaluated the key judgements utilised in the
application of those policies.
The Committee received regular updates as to the impact of the implementation
of the standard on the Group’s systems, processes and control environment, and
provided oversight on the achievement of key milestones in the delivery of the IFRS 17
implementation programme.
Working closely with the Phoenix Life Companies Board Audit Committee, and having
considered findings from the Group’s External Auditor and specific assurance provided
by Group Risk and Group Internal Audit, the Committee approved restatements of
the Group’s transition balance sheet as at 1 January 2022 and its results for the year
ended 31 December 2022 in accordance with the new standard.
Although significantly less material to the Group’s results, the Committee also provided
oversight on the implementation of IFRS 9, the new accounting standard for financial
instruments which has been adopted for the first time alongside IFRS 17.
The Committee concluded that the disclosures included in Note A as to the impact
of new accounting standards adopted in the period were appropriate.
Management presented papers to the Phoenix Life Companies Board Audit Committee
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 Committee, prior to their approval, including consideration of the impacts of
continued economic volatility, expense inflation and data quality.
A summary of these papers was presented for oversight review by the Committee,
and the Phoenix Life Companies Board Audit Committee’s 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 the valuation for adjustments to
actuarial provisions that arise at a consolidated Group level, including the methodology
and derivation of certain IFRS 17 assumptions where calibrated on a Group basis.
This included consideration of the results of a detailed review of the Group’s maintenance
expense assumptions in light of the continuing investment in the Group’s growth strategy
and the re-planning of strategic transformation initiatives. The Committee also evaluated the
determination of the IFRS 17 discount rate, including the appropriateness of the allowances
for illiquidity and credit risk, together with the calibration of the risk adjustment assumption.
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 Auditor setting out their observations and conclusions in respect of the assumptions,
methodologies and actuarial models, including benchmarking analysis.
Significant matters in relation to
the 2023 IFRS financial statements
Valuation of complex and
illiquid financial assets
Valuation and recoverability
of intangible assets
Provisions
Alternative performance measures (‘APMs’)
Assessment of whether the
Annual Report and Accounts are
fair, balanced and understandable
Going concern and viability analysis
How these issues were addressed
Management presented papers setting out the basis of the 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 Committee. 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 which
considered and further challenged the information prior to confirmation of the
appropriateness of the basis of valuation.
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.
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 the measurements adopted and
confirmed the appropriateness of the conclusions reached.
The Committee reviewed the use of APMs in the Group’s financial reporting, understanding
the basis for determining the metrics and considering the clarity and explanation of their
usage within the Group’s Annual and Interim Reports.
Specifically, the Committee considered the usage of new APMs such as Adjusted Shareholder
Equity and amendments to existing APMs such as Adjusted Operating Profit, where necessary
to reflect the implementation of IFRS 17. On reviewing the results, the Committee provided
challenge as to the allocation of amounts to either Adjusted Operating Profit or to non-operating
items for consistency with the Group’s Adjusted Operating Profit framework.
The Committee concluded that the usage, disclosure and prominence of APMs within the
Group’s Annual Report and Accounts was appropriate.
The Committee considered and confirmed agreement with the analysis 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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Risk Committee report
John Pollock
Risk Committee Chair
Composition of the Committee
The Board confirms that all members of the Committee are Independent Non-Executive
Directors. Mark Gregory joined the Committee on 1 April 2023 and Kory Sorenson
retired from the Board on 30 June 2023. Further information on the experience,
skills and competencies of the Committee members can be found on pages 64 to 67.
Regular attendees include the Group Chief Financial Officer, the Group Chief
Executive Officer, the Chair of the Life Companies Board Risk Committee, the
Group CRO, the Group Head of Internal Audit and the Group Chief Actuary.
The Chair meets regularly with the Group CRO to discuss priorities and track
progress on key actions.
Committee meetings and membership
Under the Committee’s Terms of Reference, the Committee should meet at least five
times a year. During 2023 there were eight formal meetings.
Member
from
2023 meeting
attendance
2023 %
attendance
John Pollock
Belinda Richards1
Kory Sorenson2
Maggie Semple
Mark Gregory3
20 October 2016
1 October 2017
2 July 2019
1 September 2022
1 April 2023
8/8
7/8
5/5
8/8
6/6
100%
87.5%
100%
100%
100%
1
2
3
Belinda Richards was unable to attend a joint Audit and Risk Committee meeting due to attending a funeral.
Kory Sorenson retired from the Board on 30 June 2023.
Mark Gregory was appointed as a Director and became a member of the Risk Committee on 1 April 2023.
Committee gender
Male
Female
50%
50%
8
Number of Committee
meetings held this year
(including ad hoc)
The Committee
has remained
conscious of
high-profile cyber
security incidents
that continue to
impact corporates
globally.
Role of the Committee
The Committee is responsible for oversight
of risk by assessing the effectiveness of the
Group’s Risk Management Framework, risk
strategy, risk appetite and profile; risk culture,
the methodology used in determining the
Group’s capital requirements and stress
testing these requirements; assessing the
adequacy of the Group’s system of non-
financial reporting controls and compliance
with regulatory requirements. The Committee
advises the Board on all high-level risk matters.
Following each meeting, the Chair provides
a summary of discussions and outcomes and,
where relevant, makes recommendations to the
Board on matters such as the Annual Operating
Plan, specific investment limits, ORSA and
Final and Interim dividends in line with the
Committee’s Terms of Reference, which can
be found at www.thephoenixgroup.com.
Overview of the year
Key Committee activities during 2023
Monitoring the risks created by the macro-economic environment, particularly capital and liquidity risks.
Oversight of conduct risk and the implementation of regulations in relation to Consumer Duty.
The application of the Group’s Risk Management Framework which is reviewed and recommended to the Board for approval.
Monitoring the implementation of IFRS 17.
Assessing the risks in relation to the Group publishing its Net Zero Transition Plan.
Maintaining operational resilience through stress testing.
2024 focus
Continue oversight of capital and liquidity.
Maintain oversight over the implementation of regulations on Consumer Duty.
Monitor legal and regulatory developments in relation to anti-greenwashing and the impact on Group practices.
Continue to monitor the Group’s control environment.
Oversight of change across the Group.
Committee review
The 2023 effectiveness review was facilitated by an external
Board Reviewer. The review concluded that the Committee is
functioning effectively, with both the Chair and Group CRO
leading strong discussions and providing detailed insight into the
business. However, the Board Reviewer did identify a few areas of
enhancement by the Committee and these are highlighted below:
Action 1
Action 2
Drive improvements in
the quality of papers to
ensure they are on time
and more succinct.
To ensure that
supplementary papers are
clearly signposted so that
members are clear on what
they should read and why.
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Corporate governanceCorporate governance Audit, risk and internal controls continued
Risk Committee report
Outcomes from Risk Committee discussions:
On an annual basis, a review of the Committee’s activities is undertaken. In 2023, it was concluded that all elements of responsibility detailed
in the Committee’s Terms of Reference had been addressed. An overview of some of the key activities undertaken during the year and the way
in which they contributed to important outcomes are detailed in the following table:
Key activities
Key Committee activity
Outcome
Regular reporting.
Operational and conduct risk
Change delivery, project update and
operational capacity.
Following changes to the membership of the Model Governance Committee, it was decided
that the Chair of that Committee should attend each meeting to provide an update and answer
any questions from members.
Following the set-up of the Transformation Advisory Group (‘TAG’), the Committee requested
that a summary of the TAG meetings be presented at the next possible Committee meeting.
The first TAG update was provided in November 2023.
Cyber risk, data protection and AI.
Following the rise of AI and its usage across the industry, the Committee requested a deep
dive on AI, its opportunities and risks.
Customer and conduct risk.
Financial and strategic risk
Liquidity risk.
Climate and sustainability risk.
Risk Management Framework
Risk appetite review and oversight.
The Committee requested a deep dive on Consumer Duty and the preparation that had been
undertaken to ensure that Phoenix Group will meet the requirements. This presentation was
delivered to the Board in October 2023.
Following industry liquidity stress tests in September/October 2022, the Company
commissioned an external review of the liquidity management framework across the
Group. These recommendations were presented to the Committee in June 2023 and
the Committee requested a standing agenda item until such time that the recommendations
were implemented.
Noting the rise in climate litigation and the introduction of anti-greenwashing regulations,
the Committee requested that a deep dive on reputational risk be provided to better
understand the potential impact on the Company. This was delivered in May 2023.
The Committee requested to receive regular updates as the proposed improvements were
implemented to ensure continued focus on risk appetite. This will be actioned in 2024.
Group CRO report
At each meeting, the Committee receives
a formal report from the Group CRO
which highlights key factors impacting the
Group’s operating environment as well
as an assessment of emerging risks. The
review includes analysis of risks arising
from the macro-economic outlook and
conditions in financial markets, together
with geopolitical, legislative and regulatory
change risks that may impact the Group
and its customers as well as risks associated
with the implementation of the Group’s
business strategy. A summary of the
principal risks and uncertainties facing the
Group can be found on pages 50 to 57.
Cyber risk
The Committee has remained conscious of
high-profile cyber security incidents that
continue to impact corporates globally,
driven by the use of destructive malware
and ransomware. The Group is continually
improving its controls, attack detection
and response processes, identifying
weaknesses through ongoing assessment
and review. Supplier-related cyber attacks
were detailed to the Committee through
the Group CRO report along with the
oversight and assurance processes in place
to mitigate the impact on the Group.
In 2023, the Committee received two cyber
security updates which covered the threat
landscape; cyber awareness and defence;
and actions being undertaken to support
and continually improve Phoenix Group’s
security culture. The Committee found this
session extremely informative and, as such,
another session will be presented to the
Board as part of its continued education
in 2024. For more information on the
classification of cyber risk and the controls
in place to monitor and mitigate the impact
on the business, please see page 55.
Climate risk
The Committee remained cognisant of the
continued prevalence of climate risk and the
need to ensure collaboration across Board
Committees. The Terms of Reference of the
Audit, Risk and Sustainability Committees
divide accountability for oversight and
monitoring of work undertaken. During 2023,
the Risk Committee received climate risk
updates as well as reviewing disclosures in
the Sustainability Report and Climate Report,
which can be found on the Company’s website.
The Committee worked in close collaboration
with the Sustainability Committee on the
Group’s first Net Zero Transition Plan.
The Committee also remained vigilant in
relation to anti-greenwashing and ensured
that the Group’s labelling of investment funds
was appropriate for future compliance.
Individual responsibility for ensuring
appropriate identification, assessment,
management and reporting of
climate-related financial risks and
opportunities that could impact the Group
sits with the Group’s CFO and CRO,
both appointed as joint Senior Managers
responsible for climate-related financial risk
under the PRA and FCA’s Senior Managers
and Certification Regime.
Consumer Duty
The Committee received regular updates in
the delivery phase of the Group’s Consumer
Duty plans, assessments of fair value and
improvements to the customer journey.
Updates were also provided by the Chair of
the Life Companies Board Risk Committee as
to the work being undertaken by subsidiaries
to ensure that the customers’ best interests
remain at the heart of decision-making at
every level of the organisation. This focus
and vigilance will continue into 2024.
John Pollock
Chair of the Risk Committee
Connectivity with principal subsidiaries
and relevant Committees
During 2023, the Committee continued to
actively engage with principal subsidiaries
and relevant Committees to keep abreast
of key workstreams and to monitor the
principal risks relevant to the Group.
Examples of this engagement include:
•
•
the Chair of the Life Companies Board
Risk Committee attending all meetings
to provide update on discussions such as
Consumer Duty and the Internal Model;
the Chair of the Risk Committee of
Standard Life International Dac attending
two meetings to provide formal updates
to the Committee;
• a member of the Model Governance
Committee attending all meetings to
provide updates on discussions to the
Committee; and
•
the Chair of the Board Investment
Committee attending on two occasions
to provide an update on investment
decision-making and oversight.
This participation and connectivity
promoted the sharing of information and
best practices between the Group and its
subsidiaries and allows the Committee to
appropriately assess a broad range of risks
and their impact across all stakeholders.
All interactions between the Group, its
subsidiaries and other committees continue
to further the Committee’s understanding
of the risk profile of the Group’s principal
subsidiaries, leading to more comprehensive
review and challenge by members.
A set of Operating Principles are in
place to define the responsibilities and
accountabilities of all relevant subsidiary
Committees and Boards to mitigate
the overlap of focus or assurance
activity and are reviewed annually
to ensure they remain appropriate.
See pages 94 and 107 of the Audit
Committee report and Sustainability
Committee report, respectively, for examples
of collaborative governance between the
Audit, Sustainability and Risk Committees.
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Corporate governanceCorporate governance The Committee is
delighted that the
first edition of
Phoenix Group’s
Net Zero Transition
Plan was published
in May 2023.
Role of the Committee
The Committee is responsible for assisting
the Board in overseeing the Group’s
sustainability strategy and related activity,
and approach to ESG matters.
Following each meeting, the Chair provides
a summary of discussions, outcomes and
where relevant, makes recommendations
to the Board on matters such as the Group’s
sustainability strategy, Net Zero Transition
Plan and TCFD disclosures, in line with the
Committee’s Terms of Reference, which can
be found at www.thephoenixgroup.com.
Sustainability governance
Sustainability Committee report
Karen Green
Sustainability Committee Chair
Composition of the Committee
The Board confirms that all of the members of the Committee are Independent
Non-Executive Directors and have been selected to ensure cross-Board
Committee membership to facilitate engagement on sustainability matters across
the Group’s governance framework. Further information on the experience, skills
and competencies of the Committee members can be found on pages 64 to 67.
Regular attendees at the Committee include the Chair of the Board, Group
CEO, Group HR Director, Director of Corporate Affairs and Investor Relations
and the Chief Sustainability Officer. During 2023, a nominated NED from
the Phoenix Life Companies Board was also a standing attendee.
Committee meetings and membership
Under the Committee’s Terms of Reference, the Committee should meet at least five
times a year. During 2023 there were six formal meetings.
Member
from
2023 meeting
attendance
2023 %
attendance
Karen Green (Chair)
1 December 2020
Maggie Semple
Nicholas Shott
Kory Sorenson1
1 September 2022
1 December 2020
1 December 2020
1 Kory Sorenson retired from the Board on 30 June 2023.
Committee gender
Male
Female
33%
67%
6/6
6/6
6/6
3/3
100%
100%
100%
100%
6
Number of Committee
meetings held this year.
Overview of the year
Key Committee activities during 2023
Overseeing the Group’s aim to be a leader in sustainability.
Ensuring tangible, measurable progress against the Group’s sustainability strategy.
Monitoring the development, publication and progress of the Group’s Net Zero Transition Plan.
Supporting the Board and Board Audit Committee in respect of the Group’s sustainability related reporting e.g. TCFD.
Monitoring developments in sustainability and emerging best practice.
Providing oversight of regulatory compliance and actions being taken to enhance the Group’s contribution to a more sustainable world.
2024 focus
Continue to monitor the progress of the Group’s Net Zero Transition Plan.
Support and oversee thought leadership initiatives throughout the organisation.
Continue to monitor the Group’s culture and review key people metrics including diversity.
Activity related to closing the UK pension savings gap.
Continue to consider how the Group can further support customers using wider social initiatives.
Continue to review the ways in which wider macro-economic factors will impact customers and colleagues.
Oversee the development of the Group’s nature and biodiversity strategy.
Committee review
The 2023 effectiveness review was facilitated by an external Board Reviewer. The review concluded that
the Committee is functioning very effectively. Members of the Committee agreed that the meetings are
constructive, with all members demonstrating a high level of engagement in topics throughout the year.
It was noted that the agenda remains well balanced with appropriate information and insight and the rolling
schedule of education on sustainability-related matters and external perspective sessions is valued and
increases knowledge of emerging best practice. The Board Reviewer identified the following areas
of enhancement by the Committee and these are highlighted below:
Action 1
Action 2
Action 3
Maintain focus on how to
help customers through
retirement and ensuring
Consumer Duty remains
a key consideration
in all discussions.
Continue to address current
affairs and how they impact
the organisation’s strategy
and culture.
Consider whether training
sessions should be held as
strategic deep dives with
consideration of impact
on the Group strategy.
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Corporate governanceCorporate governance Sustainability governance continued
Sustainability Committee report
Outcomes from Sustainability Committee discussions:
On an annual basis, a review of the Committee’s activities is undertaken. In 2023, it was concluded that all elements of responsibility detailed in
the Committee’s Terms of Reference had been addressed. In addition, all elements of the Group’s sustainability strategy are covered throughout
the year. The sustainability strategy in 2023 was divided into ‘Planet’ and ‘People’ with key themes falling below each pillar. These themes were
‘Investing in a sustainable future’, ‘Engaging people in better financial futures’ and ‘Building a leading responsible business’. An overview of some
key activities undertaken during the year and the way in which they contributed to the sustainability strategy are detailed in the following table:
Key activities
Key Committee activity
Outcome
Investing in a sustainable future
Multiple discussions on all aspects
of stewardship and the Stewardship
Code including: the Stewardship
Report, proxy voting guidelines and
asset management commitments.
Review and consideration of the
Group’s Net Zero Transition Plan.
Monitored progress against proposals
for TNFD regulation.
Following rigorous challenge, the organisation was formally accepted as a signatory to the
Stewardship Code in August 2023.
Improved clarity following Committee challenge on managerial decisions for the pathway
to decarbonising investments. The Committee requested further oversight of this aspect
of the plan and its development, and this has become a standing agenda item in 2024.
Following a presentation from the Co-Chair of The Taskforce on Nature-related Financial
Disclosures (‘TNFD’), the Committee decided that close engagement with that organisation
should continue to allow the Company to disclose against the regulations once finalised.
The Committee will continue to oversee engagement throughout 2024.
Engaging people in better financial futures
Review and oversight of the Money
Mindset digital platform, which provides
a holistic financial wellness solution to
Standard Life Workplace customers.
Monitoring the ongoing work
of Phoenix Insights.
As a result of several updates throughout the year, the Committee developed a deeper
understanding of the technological products being developed within the Group
to support consumers.
In-depth understanding of areas of investigation for the Company and how these might be
disclosed to better provide a future of possibilities for consumers. The Committee requested
an annual update on the proposition of collaborating with other think tanks to progress research
and initiatives.
Oversight of the launch of the Midlife
MOT, a colleague initiative to help
members of the Group workforce plan
for the future.
Following discussion and challenge, the Committee requested an investigation into the ways in
which the product could be extended for those interested, and how engagement with the initiative
would be sustained to make a long-term, meaningful difference. The 2024 Committee agenda will
include an update on engagement and statistics around uptake, alongside a view on how this
product could be extended to customers.
Building a leading responsible business
Oversight of the research phases of a
proposed five-year Race and Ethnicity
Action Plan which sets out the roadmap for
how the Company will increase ethnicity
representation at all levels of Phoenix Group
and more broadly within financial services.
Oversight of collaboration with a third-party
consultancy to determine actions required
to align to international best practice in
human rights.
The Committee discussed research into views on diversity and the introduction of a
framework on cultural intelligence and fluency training. The Committee requested oversight
of the development of the framework to ensure the intended cultural development was
embedded and sustained.
The Committee reviewed and recommended to the Board for approval the first Human Rights
policy for the Group, which sets out commitments to respect human rights in alignment with the
international framework of the United Nations Guiding Principles on Business and Human Rights.
More information about how the Company delivered against the specific pillars of the sustainability strategy can be found the Group’s
Sustainability Report. This is available on the Company’s website at www.thephoenixgroup.com.
The Committee also received education sessions as shown on pages 80 and 81.
Connectivity with other
relevant Committees
The following joint Committees promoted
the sharing of information and best
practices. The Committees were able
to review, approve and recommend for
Board approval the following items:
Sustainability and Risk Committees
• Net Zero Transition Plan – May 2023.
• Annual Report disclosures relating
to climate and sustainability –
February 2023.
Audit, Risk and Sustainability Committees
• Review of Year End 2023 Climate and
Sustainability Reports – March 2024.
The Committee ensures that collaboration
with other Board Committees (Audit
and Risk) takes place to provide holistic
challenge on publicly communicated
targets and statistics and to monitor
changes in climate risk.
The Group’s CEO, Andy Briggs, regularly
attends meetings to provide insight
into executive decision making and
assurance. The Group’s External Auditor,
EY, provides external limited assurance
on both TCFD data and the disclosures
made in the Sustainability Report, which
can be found on the Company’s website.
Net Zero Transition Plan
The Committee is delighted that the
first edition of Phoenix Group’s Net Zero
Transition Plan was published in May 2023.
The plan sets out the actions the Company
will take on its journey to becoming net zero
by 2050 and to support achievement of its
stretching interim targets in 2025 and 2030
across its investment portfolio, operations
and supply chain. The plan helps to ensure
that our decarbonisation strategy is aligned
with our wider business objectives and to
deliver the right outcomes for our customers.
The Net Zero Transition Plan is in line
with the latest industry guidance from the
Transition Plan Taskforce and Glasgow
Financial Alliance for Net Zero. However,
it is important to acknowledge that related
policy setting and global decarbonisation
are still evolving and that the Group is in the
early stages of its net zero transition. As such,
our Net Zero Transition Plan will continue
to be developed and refined with customer
outcomes at the heart of all decision-making.
Monitoring culture and the
Employee Voice
In accordance with Provision 5 of the
2018 Code, the Board is required to
maintain an effective mechanism to engage
with the workforce. Committee member
Maggie Semple is the Designated NED
for Workforce Engagement and provides
regular updates to the Committee and the
Board on the outcomes of her interactions
with the Phoenix Colleague Representation
Forum (‘PCRF’) and the actions being
undertaken as a result. This mechanism
provides the Committee and the Board with
an in-depth understanding of colleagues’
perspectives in relation to topics such as
mental wellbeing, flexible working, diversity
and inclusion and insights into the tone
of the Group’s culture from the ground
up. In 2023, the Committee noted that
there should be more interaction with the
workforce following Board discussions
to communicate outcomes and to ensure
that colleagues are aware that the Board
takes concerns seriously. This is something
that will be improved and made standard
practice in 2024. More information on
how Maggie Semple and other Board
members engage with the workforce
can be found on pages 108 to 110.
The Committee also receives updates
from the Group HR Director on people
and culture metrics, which allows members
to review the Group’s people strategy and
to monitor culture. This dashboard includes
information on turnover and absenteeism
rates, employee surveys, whistleblowing and
‘Speak Up’ data, and diversity and inclusion
statistics. The Committee will continue
to follow best practice guidance and to
identify both qualitative and quantitative
data that should be reviewed to assess the
development of culture in the organisation.
Karen Green
Chair of the Sustainability Committee
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Corporate governanceCorporate governance Workforce engagement
Maggie Semple
Designated Non-Executive Director
for Workforce Engagement
Engagement in
action – listening to
the colleague voice
Our growth and success at Phoenix
Group are down to our amazing
colleagues. They drive our business
performance and help us to achieve
our purpose. Having regular engagement
with colleagues is integral to our strategy
and vision to be the best company
that colleagues have ever worked for.
Through regular two-way dialogue,
the Board seeks to understand the issues
that matter most to our colleagues.
Board engagement with colleagues
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.
Across 2023, the Phoenix Group Board
members, including the Chair of the
Group Board, myself and our Executive
Directors, held two dedicated sessions
as part of our Board agenda to meet with
colleagues. We held these in May and
November, and we invited targeted groups
of individuals to join us in an open and
transparent conversation so that we could
hear first-hand their experiences of
working at Phoenix Group.
At our session in May, we met with
17 members of the Group’s graduate
programme, and the primary focus of
our conversations were around career
and leadership. We thoroughly enjoyed
the dynamic attitudes of the graduates,
and how comfortable they were in
speaking up and sharing their thoughts.
Our discussions showcased that our
graduates have come from varied
backgrounds with a wide plethora of
degrees, and they valued the approach
to the Phoenix Group graduate programme
as it provided them with an opportunity
to rotate into many different business areas,
giving them lots of exciting opportunities
and experiences.
It’s insightful to have Maggie’s experience
and fresh perspective on our people
agenda items. Maggie’s input and challenge
ensures we discuss items from a 360-degree
perspective which results in in-depth
discussions and tangible outcomes we
can work towards together to benefit
both colleagues and the business.
David Berry, PCRF Lead Rep, Operations.
A key learning on the day was the approach
for managing ‘home’ seats, which is the
first seat the graduate rotates into and,
at the end of the programme, if they’ve
not secured an alternative role they will
be guaranteed a role in their home seat.
On the surface of it, this sounded positive
and gave job security to the graduates;
however, they shared that they have limited
choice in where they start their graduate
career with us, and so often their home seat
was not an area they wanted to return to.
This learning from our engagement with the
graduate programme was discussed at
the Board.
Outcome: was a management action
set by the Board to review the approach
to rotations and home seats, which is
currently being considered by the Group.
This would facilitate greater choice for
the graduates when they come to the end
of their two-year programme.
Our Board session in November focused
on the experiences of females in their 50s,
with a focus on the working environment.
This session was attended by 12 women
from across the Group, covering many of
our locations and our corporate grades.
We had a very engaging conversation
covering their experiences at Phoenix Group
and previous roles. What was incredibly
pleasing to hear was that many of the women
in the room said that, at Phoenix Group,
they didn’t feel like they were treated
as a ‘stereotype’. They spoke positively
and favourably about the support and
importance that the Group has placed on
critical areas such as menopause and carers.
They were also supportive of the focus
Phoenix Group and Phoenix Insights has
been placing on later working life, through
their research and reporting and through
initiatives such as the Over 50s jobs fair
and the colleague Midlife MOT, which
has helped them to feel comfortable and
confident of their futures with the Group.
Hearing the wider colleague voice
In addition to the two sessions held
with the wider Board members this year,
I have spent time with colleagues across
our sites to hear more from them about
their experiences at Phoenix Group.
One of my key points of connection with
colleagues has been meeting with the 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.
One topic of note which came up frequently
in our discussions was the colleague
understanding of the Phoenix Group reward
framework. With the backdrop of the
economic situation, this was a particularly
important topic which colleagues wanted
to speak about. Through my discussions with
the PCRF, it was agreed with Sara Thompson,
Group HR Director, that a more proactive
approach to communicating updates on
the reward framework would be shared
with colleagues.
Outcome: was a common theme when
the Remuneration Committee completed
its education session on the 2018 Code
in October. Particular attention was given
to Provision 41 relating to the impact of
engaging with the wider workforce on
Executive Directors’ Remuneration policy
and outcome. From that education session
and my feedback on the PCRF to the Board,
the outcome was that I should join the
Remuneration Committee as a member
with effect from 1 January 2024. This would
allow me to provide a better link between
the PCRF on wider workforce remuneration
matters and the Remuneration Committee.
Changes to the Executive Directors’
Remuneration policy or discretion applied
to their remuneration outcomes would also
be better understood and communicated
to the wider workforce through the PCRF.
In addition to regularly meetings with
the PCRF, I hear from the colleague-led
networks and I have taken the opportunity
to invite wider colleagues to informal
meetings to enable them to share what
is on their mind in the moment, including
a trip to visit colleagues in Dublin to hear
more from them. At this visit, I also informally
met with the representatives from Unite.
Through this discussion, I took away that
they were looking for greater clarity and
communication when strategic decisions
were made affecting their work.
This comment related to a decision on
Phoenix Group’s strategic partnership
with TCS Diligenta that had been taken
in a previous year. I provided this feedback
to the Board.
Outcome: was for the Group to ensure that
communication relating to strategic decisions
is clear and well understood by colleagues
and their relevant representative bodies.
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Corporate governanceCorporate governance Workforce engagement continued
Directors’ Remuneration report
Reflecting on 2023
In my role as the Designated NED for
Workforce Engagement I get to witness
the power of two-way conversation. I share
regular feedback from my sessions with
colleagues to the Board, which provides
additional perspective and insights on
colleagues and can lead to outcomes
that improve the experience of our wider
workforce at Phoenix Group. I share key
aspects of our Board discussions with
colleagues when I meet with them and ask
for their opinions, again relaying these back
to the Board for potential outcomes. I have
also this year created a blog which I share
with colleagues, focusing on topics that
they have told me are important to them.
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
Each quarter, our colleague-led forum, made
up of the PCRF central team and colleague
representatives from each UK business function,
meet with Maggie Semple to discuss key themes
we’re hearing from colleagues. Partnering together
has resulted in enabling direct honest and open
conversations, more frequent feedback, and
continuous listening through a variety of channels.
We’re also able to hear first-hand about the Board’s
priorities and provide representation and insights
from colleagues.
After the quarterly meetings, the PCRF shares
the key themes and discussions from the meeting
with colleagues. Maggie also shares feedback from
these sessions with the Board, which has allowed
it to gain additional perspective and insights on
colleagues’ working lives and the colleague voice on
Phoenix Group’s strategic priorities and initiatives.
Continuing to develop this two-way communication
enables colleagues to be kept informed of how the
Board is driving the Group, and connects the Board
to what’s important to colleagues and how their
decisions impact their working lives.
Steph Jones, PCRF Colleague Consultant.
Nicholas Shott
Remuneration Committee Chair
Composition of the Committee
The Board confirms that all of the members of the Committee are Independent
Non-Executive Directors. Before Nicholas Shott was appointed Chair of the
Remuneration Committee on 4 May 2023, he had served on the Committee
since 2016.
Regular attendees include the Group HR Director, Executive Reward Director,
Group Reward Director, Group Company Secretary, Group Chief Executive Officer
and external adviser, PwC LLP. The Group CRO also attends to discuss his report at
Full Year and Half Year. The Chair meets regularly with the Executive Reward Director
to discuss priorities and track key actions.
Committee meetings and membership
Under the Committee’s Terms of Reference it should meet at least four times a year.
During 2023 there were five formal meetings and one education session.
Member
from
2023 meeting
attendance
2023 %
attendance
Nicholas Shott1
Kory Sorenson2
Karen Green
Belinda Richards
Maggie Semple3
20 October 2016
3July 2014
1 July 2017
2 July 2019
1 January 2024
5/5
3/3
5/5
5/5
–
100%
100%
100%
100%
–
1 Nicholas Shott became Chair of the Committee on 4 May 2023.
2
Kory Sorenson retired as Chair of the Committee at the close of the Annual General Meeting
on 4 May 2023 and from the Board on 30 June 2023.
3 Maggie Semple was appointed as a member of the Committee on 1 January 2024.
Committee gender
Male
Female
25%
75%
5
Committee meetings
and one education
session held in 2023
In my first year
as Remuneration
Committee chair, the
Committee’s focus has
been on implementing
our new Policy to ensure
that remuneration aligns
with our purpose and
strategic priorities and
has regard to the wider
stakeholder experience.
Role of the Committee
The Committee is responsible for
establishing, implementing, overseeing
and reviewing the Group-wide Remuneration
policy in the context of business strategy
and changing risk conditions. This is
consistent with Solvency II requirements.
The Group-wide Remuneration policy
focuses on ensuring sound and effective
risk management so as not to encourage
risk-taking outside of the Group’s risk
appetite. The Committee ensures the
remuneration of our Executive Officers
is aligned to the Group’s purpose and
values and that our wider workforce are
also engaged and an overview is provided
of executive remuneration. None of the
Committee’s members has any personal
financial interest (other than as shareholders),
conflicts of interest arising from cross-
directorships or day-to-day involvement
with running the business. The Committee’s
Terms of Reference can be found at
www.thephoenixgroup.com. No Director
is involved with any discussion about their
own remuneration. The Committee makes
recommendations to the Group Board on
the Remuneration policy and Shareholder
Consultation every three years and on
the Committee’s Terms of Reference.
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111
Corporate governanceCorporate governance Directors’ Remuneration report continued
Overview of the year
Key Committee activities during 2023
Approval of incentive outcomes for the 2022 AIP and 2020 LTIP.
Approval of remuneration for all colleagues within the Committee’s remit.
Consideration and approval of metrics for 2023 variable pay schemes to align with the Group’s evolving business strategy.
Full benchmarking exercise of remuneration undertaken for the Business Leadership population.
2024 focus
Approval of incentive outcomes for 2023 AIP and 2021 LTIP.
Review the good leaver process as part of Phoenix Group’s review of its strategic requirements
Monitoring the take-up of all-employee plans.
Listening to the voice of the wider workforce through the appointment of Maggie Semple, the Board’s Designated NED for
Workforce Engagement, to the Committee and through her work with the Phoenix Colleague Representation Forum (‘PCRF’).
Further review on the impact on remuneration and the work of the Committee now that the 2024 Code has been published.
Committee effectiveness
The 2023 effectiveness review was facilitated by an external Board
Reviewer. The review concluded that the Committee is functioning
effectively, though the Board Reviewer did not observe a regular
meeting, as the October one was an education session. Nevertheless,
the external Board Reviewer did suggest that the effectiveness could
be enhanced by building on some of the practices that had already
been put in place and these are highlighted to the right.
Action 1
Action 2
The Chair had instigated a
process of agreeing with the
Committee what the priority
items of focus would be
for each meeting. This had
worked well and would be
maintained going forward.
To continue with the
Chief Risk Officer’s (‘CRO’)
report which was deemed
to be best practice and
to be commended in
supporting the Committee’s
consideration of variable
remuneration adjustments
for senior leadership.
Outcomes from Remuneration Committee discussions:
On an annual basis, a review of the Committee’s activities is undertaken. In 2023, it was concluded that all elements of responsibility detailed
in the Committee’s Terms of Reference had been addressed. An overview of some of the key activities undertaken during the year and the way
in which they contributed to important outcomes is detailed in the following table:
Key activities
Key Committee activity
Outcome
Review of Executive Directors’ pay against
wider workforce in line with 2023 and 2024
proxy advisers’ reports.
With effect from 1 April 2023 Executive Directors received a pay increase of 4%,
compared to the wider workforce of 6%. For 2024 it was agreed the Executive Directors
would receive no pay increase, compared to the pay budget for the wider workforce
of 4.4%. Wider workforce increases will be applied with effect from 1 April 2024.
Engagement with shareholders to explain
and receive feedback on the 2023 Directors’
Remuneration policy.
2023 Directors’ Remuneration policy approved by shareholders at the AGM on
4 May 2023 with 98.8% of votes in favour by our shareholders and the 2023 Directors’
Remuneration report approved with over 99% of votes in favour by our shareholders.
Review of Full Year and Half Year 2023 CRO report.
The CRO Reports provided positive guidance to individuals whose remuneration may
require adjustment.
Education session – Proposals under the 2024 UK
Corporate Governance Code, wider workforce
engagement and Consumer Duty.
Education session to become an annual event.
A dashboard on wider workforce metrics to be provided at each education session.
Maggie Semple joined the Committee with effect from 1 January 2024. Given her
role as Designated NED for Workforce Engagement, she will be able to communicate
the views of the wider workforce on pay and its alignment with Executive Directors’
remuneration to the Committee, as well as her deep ESG and sustainability knowledge.
Dear Shareholder,
I am pleased to present my first
Directors’ Remuneration Report as
Chair of the Remuneration Committee
(the ‘Committee’), having taken over the
role from Kory Sorenson on 4 May 2023.
On behalf of the Committee I should like
to take this opportunity to thank Kory on
behalf of the Committee for her work as
Chair and, in particular, her work last year
engaging with our shareholders over
our new Directors’ Remuneration policy
(‘Policy’), which received 98.8% support
at the 2023 AGM.
Summary of the year
Phoenix has again performed well in 2023,
as we continued to execute against our
strategy priorities, and which has supported
strong financial results across our financial
framework of cash, capital and earnings.
We have delivered over £2 billion of cash
generation in 2023, supported by strong
business performance and the impact of the
Part VII transfer of Standard Life and Phoenix
Life. Our organic growth continues at pace,
with new business net fund flows increasing
72% year-on-year, which helped to support
us in delivering £1.5bn of new business
long-term cash generation. This means
we have achieved our 2025 new business
long-term cash target two years early,
reflecting the focus and investment we have
put into our growth strategy. Our balance
sheet also remains resilient with a Solvency II
(‘SII’) surplus of £3.9 billion and Shareholder
Capital Coverage Ratio of 176%. Our IFRS
earnings have also improved during the year,
with adjusted operating profit before tax
increasing 13% year-on-year to £617m.
Executive remuneration outcomes for 2023
Based on its assessment of the corporate
metrics, the Committee determined that
the Annual Incentive Plan (‘AIP’) outcome
should be 78.2% of the maximum opportunity.
This outcome was driven by exceptional
cash generation performance in the year,
which benefited from particularly strong
management actions delivery including
the completion of one of the largest UK
insurance Part VII transfers ever completed,
with the funds merger of the Standard Life
and Phoenix Life businesses into Phoenix Life
Limited. With regard to the achievements
under the Strategic Scorecard which
represents 20% of the Executive Directors’
AIP, the Committee determined outcomes
should be 69.0% for Andy Briggs and 69.8%
for Rakesh Thakrar. This results in a formulaic
outcome of 76.4% and 76.5% respectively
of the maximum AIP opportunity.
Each year the Committee reviews the
AIP outcomes in the context of the Group’s
management of risk, overall business
performance and the broader stakeholder
experience. In reviewing the 2023 AIP
outcome, the Committee considered the
delays faced during the year relating to
the IFRS 17 project. As Group CFO, Rakesh
Thakrar had the principal responsibility for
delivering the project in a timely manner,
so the Committee decided it was appropriate
to use its discretion to reduce his AIP
outcome by £75k (10%).
Andy Briggs recognises that, as Group CEO,
he has ultimate accountability for all projects,
including IFRS 17. Accordingly, in discussion
with the Committee, he suggested – and the
Committee agreed – that he should forgo
£50k (4%) of his AIP outcome.
As a result of these discretionary adjustments,
overall outcomes under the AIP were 73.4%
of maximum for the Group CEO, and 69.0%
of maximum for the Group CFO.
The 2021 Long Term Incentive Plan (‘LTIP’)
award covering the years 2021–2023 was
based on Net Operating Cash Receipts,
Return on Shareholder Value, Persistency,
and Relative Total Shareholder Return (‘TSR’).
The overall vesting outcome is 41.1% of the
maximum opportunity. Further details are
set out on page 122.
The resulting single total figure of remuneration
for Andy Briggs is £2,901k and for Rakesh
Thakrar is £1,543k. Full details are set out
on page 121.
Updated metrics to align remuneration
with our evolving strategy
The Committee approved a number of
changes to the metrics for the AIP and LTIP
in 2024 to ensure continued alignment
to business priorities.
For the 2024 AIP, the Committee has
decided to replace the Incremental
New Business Long-Term Cash Generation
(less strain) plus Own Funds impacting
management actions metric with a New
Business Contribution (‘NBC’) metric.
NBC is a measure of the day one value
of writing new business on a discounted
basis. The metric is more aligned to peer
disclosures and reflects feedback from
the market over a preference for the use
of a discounted metric within the business.
A new Cost Savings metric will also be
included which reflects the criticality of
reducing our cost base in order to improve
performance across our financial metrics.
The targets are aligned to those defined as
part of our strategic cost review. The Open
Net Flows metric that was used in 2023
to incentivise growth in our Pensions and
Savings business will now be a Group
Net Flows metric, which aligns with our
external reporting and supports our focus
on improving overall Group net funds flows.
No changes are proposed to the definitions
or weightings of our Customer metrics in
the AIP assessment.
For the 2024 LTIP, the Group In-force
Long Term Free Cash metric will be
replaced by a Return on Capital metric to
provide a measure of the efficiency of the
Company’s use of capital. The Persistency
metric in the previous year’s LTIP will be
replaced by a Cumulative Net Flows metric,
which demonstrates our commitment to
incentivising growth in new business and
retention of existing business. Following
a significant reduction in emissions from
operations, the Decarbonisation from
Operations metric (10% weighting) will be
replaced by a Diversity, Equity & Inclusion
metric measuring ethnicity representation
amongst our senior leadership population.
Consistent with previous years, targets have
been set with reference to the Group Annual
Operating Plan and maximum payouts will
only be delivered in the event of exceptional
performance. The LTIP targets are disclosed
prospectively on page 127.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
113
Corporate governanceCorporate governance Directors’ Remuneration report continued
Implementation of pay in 2024
The Committee decided that there will
be no increase to the base salary of either
Andy Briggs and Rakesh Thakrar in 2024.
The Company continues to target increases
to more junior and lower paid colleagues
this year with a pay award budget of 4.4%.
Further details on how we implement pay for
the wider workforce is set out on page 133.
Looking forward
I hope that the implementation of pay as set
out in this report will meet our shareholders’
expectations and will receive a favourable
voting outcome in the resolution proposed
at the 2024 AGM. I would welcome any
comments you may have on this report
as I begin my first full year as Chair of
the Committee.
Nicholas Shott
Remuneration Committee Chair
21 March 2024
Consistent with the approach for executive
directors, there will be no increases to
Non-Executive Director base fees in 2024.
The Chair’s fee was last reviewed in August
2021 with the next review due to take place
in August 2024. For simplicity, it has been
decided not to proceed with the review in
2024 and instead to consider the Chair’s
fee at the same time as the annual review
of Non-Executive Director fees from 2025,
which is normally in quarter one.
Annual Incentive Plan
2023
Total Cash
Generation1
24%
Incremental New Business
Long-term Cash Generation
(less strain) plus Own Funds
impacting management actions
24%
Corporate element
Pension &
Savings Net
Flows –
Workplace
& Retail2
12%
Customer
Experience
20%
Strategic
Scorecard
20%
Deferral 50%
for a period
of 3 years
2024
Total Cash
Generation
16%
New Business
Contribution
16%
Cost
Savings
16%
Group
Net Flows
12%
Customer
Experience
20%
Strategic
Scorecard
20%
Deferral 50%
for a period
of 3 years
Long Term Incentive Plan
Corporate element
2023
Net Operating
Cash Receipts
20%
Group In-force
Long-Term Free Cash
20%
Relative TSR
20%
Persistency
20%
Decarbonisation
20%
2024
Net Operating
Cash Receipts
20%
Return
on Capital
20%
Relative TSR
20%
Cumulative
Net Flows
20%
Decarbon-
isation –
Investment
Portfolio
10%
Diversity
and
Inclusion
10%
Total Cash Generation was previously referred to as Cash Generation.
1
2 Pensions and Savings Net Flows – Workplace and Retail was previously referred to as Open (Pensions and Savings ) Net Flows.
Remuneration at a glance
Overview
Remuneration structure
Alignment to purpose and strategy
Base salary
Base salaries are reviewed each year against companies of similar
size and complexity.
Pension
Competitive employer sponsored defined contribution pension
plan with contributions at the same level as the wider workforce.
Benefits
Market competitive benefits are provided in a consistent manner
with the wider workforce.
Annual Incentive Plan
AIP to motivate employees and incentivise delivery of annual
performance targets aligned to strategy.
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.
Statement of intent
The Committee adopts a simple and transparent approach
to remuneration to support the Group’s purpose, values and
strategic priorities, in order to ensure the sustainability of the
business. When setting the remuneration for Executive Directors,
the Committee carefully considers wider workforce pay across
the whole organisation.
Company performance snapshot
78.2%
Outturn of 2023 AIP
41.1%
Outturn of 2021 LTIP
Our Remuneration policy is designed to align to our purpose and
focused on the delivery of our strategy and long-term value creation
for our stakeholders.
Our variable pay plans ensure remuneration outcomes are directly
aligned to our core strategic priorities as shown on page 117 and to
deliver long-term sustainable value. A significant portion of Executive
remuneration is delivered in shares and deferred for up to five years.
Our purpose
Helping people secure
a life of possibilities
Our strategy
Grow
People
Optimise
Planet
Enhance
Building a
sustainable
business
Pay for performance
A material portion of total remuneration is based on variable
pay (c.80% of total maximum remuneration for the Group CEO
and Group CFO). Performance targets are set with reference to
Annual Operating Plan (‘AOP’) and consensus such that maximum
payouts can only be achieved for exceptional performance.
Under the maximum scenario, over 63% of the Group’s CEO
maximum remuneration is delivered in shares, deferred for three
years under the DBSS and subject to a combined vesting and
holding period of 5 years for LTIP. This ensures strong alignment
between Executive Directors and shareholders.
For more information
see page 118
114
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
115
Corporate governanceCorporate governance
Directors’ Remuneration report continued
Remuneration at a glance
2023 at a glance
Remuneration for 2023
2023 single figure
The outcomes under the AIP and LTIP
resulted in a single figure outcome
for Andy Briggs of £2.901m and
for Rakesh Thakrar of £1.543m.
Further details are on page 119.
CEO total pay
£2.9m
CFO total pay
£1.5m
Group CEO
Fixed vs variable pay (% weighting)
Group CFO
Fixed vs variable pay (% weighting)
£739k
£289k
£836k
Fixed Pay
32%
Variable Pay
68%
£11k
£88k
Fixed Pay
37%
Variable Pay
63%
£1,227k
Fixed pay
Salary
Benefits
Pension
Variable pay
AIP
LTIP
£689k
32%
29%
0%
3%
68%
42%
25%
Fixed pay
Salary
Benefits
Pension
Variable pay
AIP
LTIP
£500k
£11k
£54k
37%
32%
1%
3%
63%
45%
19%
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 2023, shareholdings
for Andy Briggs and Rakesh Thakrar are
shown to the right.
Further details on SOGs, including
post-cessation requirements are included
in the Remuneration policy on page 140.
The SOGs increased from 2023 under
the new Remuneration policy.
Group CEO
Group CFO
Shareholding guideline
Shares held at 31 December 2023
384%
350%
300%
268%
Group CEO
Group CFO
SOGs percentages shown for Andy Briggs and Rakesh Thakrar include the value of shares held based on a share
price of £5.352 (as at close of business on 29 December 2023). Shares included are those shares held directly and
beneficially, any vested LTIP awards that have not been exercised and unvested Deferred Bonus Share Scheme
options taking into account tax liabilities.
2023 AIP weighted performance outturn
Total AIP out of maximum opportunity
Group CEO
Group CFO
2024 at a glance
Group CEO
73.4%
Group CFO
69.0%
The above figures and charts opposite reflect AIP outcomes after
discretionary adjustment (see page 120 to 121 for further details).
utturn 13.8 %
O
O
uttu
r
n 2
4
.
0
%
20%
weighting
24%
weighting
%
utturn 14.0
O
O
uttu
r
n 2
4
.
0
%
20%
weighting
24%
weighting
Total Cash Generation1
Incremental New Business Long-term Cash
Generation (less strain) plus Own Funds
impacting management actions
Pension & Savings Net Flows – Workplace & Retail2
Customer Experience
Strategic Scorecard
1 Previously referred to as Cash Generation.
2 Previously referred to as Open (Pensions and Savings ) Net Flows.
2021 LTIP weighted performance outturn
Total LTIP
Group CEO
41.1%
Group CFO
41.1%
(See page 122 for further details).
Net Operating Cash Receipts
Return on Shareholder Value
Persistency
Relative TSR
O
u
t
t
u
r
n
8
.
8
%
20%
weighting
12%
weighting
Outturn 5.8%
24%
weighting
%
O utturn 24.0
O
u
t
t
u
r
n
8
.
8
%
20%
weighting
12%
weighting
Outturn 5.8%
24%
weighting
%
O utturn24.0
O
u
t
t
u
r
n
3
5
.
0
%
Outtur n 0 . 0 %
20%
weighting
35%
weighting
20%
weighting
O
u
t
t
u
r
n
6
.1
%
25%
weighting
Outtu r n 0 . 0 %
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 2024
AIP
Total Cash Generation
New Business Contribution
Cost Savings
Group Net Flows
Customer Experience
Strategic Scorecard
LTIP
Net Operating Cash Receipts
Return on Capital
Relative TSR
Cumulative Net Flows
Diversity and Inclusion
Decarbonisation – Investment Portfolio
Strategic priorities
Grow
Optimise
Enhance
–
–
–
–
–
–
–
–
–
All employees, with the exception of certain colleagues in our Asset Management function, participate in a common incentive plan ensuring
consistency of corporate goals and individual performance management. Certain colleagues in our growth centres have additional functional
metrics, and our Asset Management colleagues participate in a separate bonus plan more aligned to their external market.
116
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
117
Corporate governanceCorporate governance
Directors’ Remuneration report continued
Remuneration at a glance
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.
LTIP
CEO – 275%
CFO – 200%
AIP
CEO – 200%
CFO – 200%
Pension
CEO – 12%
CFO – 12%
Benefits
Salary
CEO – £844k
CFO – £504k
Maximum
3 year performance period
Shares vest
2 year
holding
period
Shares released
1 year performance period
50% awarded
in cash
50% awarded
in shares
3 year deferral period
Shares vest
Shares vest
Pension
CEO – 12%
CFO – 12%
Benefits
Salary
CEO – £844k
CFO – £504k
2024
2025
2026
2027
2028
2029
Scenario charts
Group CEO – Andy Briggs
£000
Total fixed pay
AIP
LTIP
Share price growth
and dividends
6,129
19%
38%
4,964
47%
2,219
19%
38%
43%
34%
28%
19%
15%
944
100%
Group CFO – Rakesh Thakrar
£000
Total fixed pay
AIP
LTIP
Share price growth
and dividends
3,101
16%
33%
2,593
39%
1,332
20%
38%
43%
39%
33%
22%
18%
567
100%
Minimum
On-target
Maximum
Maximum
with growth
Minimum
On-target
Maximum
Maximum
with growth
Name
Andy Briggs
Rakesh Thakrar
Base salary
£000
844
504
Benefits
£000
10
10
Pension
£000
90
53
Total fixed
£000
944
567
Minimum
Consists of base salary, benefits and pension:
• Base salary is the salary to be paid in 2024.
• Benefits measured as benefits to be paid in 2024.
• 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.
Maximum
with
Growth
Based on the maximum remuneration receivable assuming share price growth of 50%:
• 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) and assumes 50% share price growth. ShareSave and SIP valued on the same basis as in the on-target row.
Annual report on remuneration
This section of the Directors’ Remuneration report sets out the
Executive Directors’ remuneration for 2023. It contains the annual
report on remuneration which forms part of the Directors’
Remuneration report to be proposed for approval by the Group’s
shareholders at the Group’s 2024 AGM on 14 May 2024.
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
A summary of the Remuneration policy approved by the shareholders at the 2023 AGM is set out on pages 136 to 140 of this Remuneration
report. The full policy can be found on the company’s website and on pages 118 to 126 of the 2022 Annual Report and Accounts.
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
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
20236
20227
(restated)
20227
(restated)
2023
20227
(restated)
2023
Executive
Directors
Andy
Briggs
Rakesh
Thakrar
836
809
500
471
11
11
11
13
88
54
85
935
905 1,227 1,053
739 1,154 1,966 2,207 2,901 3,112
50
565
534
689
601
289
441
978 1,042 1,543 1,576
1 Andy Briggs’ salary increased to £844,480 with effect from 1 April 2023. Rakesh Thakrar’s salary increased to £504,400 with effect from 1 April 2023.
2
3
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.
No individual benefit provided has a value which is significant enough to warrant separate disclosure.
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 (10.6%) and Rakesh Thakrar received a combination of cash supplement and contribution (10.8%).
No Director participated in a defined benefit pension arrangement in the year and none have any prospective entitlement to a defined benefit pension arrangement.
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 2023). In 2023 £613,644 of Andy Briggs’s incentive payment is subject to three-year deferral delivered in shares (2022: deferral of £526,416), and £344,706 of Rakesh Thakrar’s incentive payment
is subject to a similar deferral (2022: deferral of £300,280).
The 2023 value for long-term incentives is an estimate of the vesting outcomes for LTIP awards granted in 2021 which are due to vest once the Full Year results are announced. This vesting level
is at 41.1% reflecting outcomes against the Net Operating Cash Receipts, Return on Shareholder Value, Persistency and Relative TSR performance measures to 31 December 2023 (see page 122).
This vesting outcome is then applied to the average share price between 2 October 2023 and 29 December 2023 (478.621 pence) to produce the estimated long-term incentives figures shown
for 2023 in the above table. The assumptions will be trued up for actual share price at the day of vesting in the Directors’ Remuneration report for 2024. For Andy Briggs, the disclosed LTIP figure
of £739k comprises the disclosed LTIP figure of £587,837 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 £150,679. All values are calculated using the three-month average share price to 29 December 2023 (478.621 pence). For Rakesh Thakrar, the disclosed LTIP figure of £289k comprises the
disclosed LTIP figure of £229,791 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 £58,899. No portion
of the awards for Andy or Rakesh related to share price appreciation.
For 2020’s LTIP awards which are reflected in the 2022 long-term incentives column above, the performance conditions were met as to 44.3% of maximum. The 2022 long-term incentives values in
the above table reflect the value of the Company’s shares on the date of vesting which was 13 March 2023 (598.4 pence per share) multiplied by the number of shares vesting whereas the equivalent
figure within the published 2022 Single Figure Table was an estimate which reflected the average share price between 1 October 2022 and 31 December 2022 (570.5 pence per share) and certain
assumptions regarding the cumulative value of dividends on the number of shares vesting.
4
5
6
7
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119
Corporate governanceCorporate governance
Directors’ Remuneration report continued
AIP outcomes for 2023 – Audited information
The overall weightings between Corporate measures and Strategic Scorecard for AIP in 2023 were:
• 80% – Corporate (financial and customer) performance measures.
• 20% – Strategic Scorecard (strategic company priorities).
As described in the Remuneration policy, 50% of 2023 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.
Corporate (financial and customer) performance measures
The Corporate (financial and customer) measures represent 80% of the overall incentive opportunity. The table below details the outcome
against the measures and targets that were agreed by the Remuneration Committee at the start of the year.
Performance measure
Total Cash Generation (£m)1
Incremental New Business Long-Term Cash
Generation (less strain) plus Own Funds impacting
management actions (£m)
Pensions and Savings Net Flows – Workplace
and Retail (£m)2
Customer Satisfaction – Telephony (%)3
Customer Satisfaction – Digital (%)4
Service Levels (Demand Processed) (%)5
Complaints Resolved in < 3 days (%)6
Total of Corporate element
2023 performance targets and outcomes
Threshold
performance
level of
2023 AIP
1,300
Target
performance
level for
2023 AIP
1,400
Maximum
performance
level for
2023 AIP
1,500
Performance
level attained
for 2023
AIP
2,024
% of
Corporate
element
based on
performance
measure
30.00%
%
achieved
30.00%
905
1,091
1,277
1,595
30.00%
30.00%
2,742
86%
92%
88%
33%
3,142
88%
94%
90%
35%
3,542
90%
96%
92%
37%
3,130
87%
93%
91%
35%
15.00%
6.25%
6.25%
6.25%
6.25%
100%
7.28%
1.56%
1.56%
4.69%
3.13%
78.22%
1 Total Cash Generation was previously referred to as Cash Generation
2 Pensions and Savings Net Flows – Workplace and Retail was previously referred to as Open (Pensions and Savings ) Net Flows.
3
Customer Feedback scores as reported through a survey following telephony service, where customers can rate us between 1–5. The approach is now consistent across each platform/entity for 2023.
The target was reduced from 91% in 2022 to 88% in 2023 in light of implementing this consistent survey approach across Phoenix Group; the Committee was satisfied the targets remained
equivalently stretching to prior years.
Customer Satisfaction scores as gathered immediately following Customer Digital journeys, where customers can rate their experience between 1–5. For Standard Life, all transactional journeys for
which feedback is live on our secure site including all transactional journeys for which feedback is live on our mobile app. For Phoenix Life, encashment journey for which survey is live on MyPhoenix.
Percentage of all back-office manual workflow completed within service level (services levels vary across entities). Across entities this includes Claims & Servicing, with Standard Life also including
new business acquisition and straight through processing. The target was reduced from 92% in 2022 to 90% in 2023 to align with our in-house manpower model and contractual agreements with
OSPs which have a 90% target; the Committee was satisfied the targets remained equivalently stretching to prior years.
Percentage of complaints that were closed within three days of the date of receipt.
4
5
6
Total Cash generation in 2023 benefitted from particularly strong management actions delivery including the completion of one of the largest
UK insurance Part VII transfers ever completed, with the funds merger of the Standard Life and Phoenix Life businesses into Phoenix Life Limited.
The Part VII transfer created additional free surplus within our life companies through the realisation of the diversification benefit, which enabled
the Group to significantly increase total cash generation in 2023.
Incremental New Business Long-Term Cash Generation (less strain) plus Own Funds impacting Management Actions benefitted from a
strong year of organic growth and management actions delivery. Our organic growth was supported by targeted participation in a growing
BPA market, and strong growth in our Workplace business, as we retain our existing schemes and win new schemes in the market.
As described in the Committee Chair’s covering letter (page 113), 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 2023 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 2023 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 2023 formulaic outcome was necessary. Separately, the Committee made individual adjustments to the
AIP outcomes which are set out on page 121.
Whilst the performance measures for the 2024 AIP have been disclosed (see Implementation of Remuneration policy for 2024 on page 126),
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 2024’s AIP retrospectively in next year’s Remuneration
report on a similar basis to the disclosures made above in respect of 2023’s AIP.
Strategic Scorecard
The Strategic Scorecard represents 20% of the overall incentive opportunity. 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 together with
respective weightings and outturns for the Group CEO and Group CFO.
2023 performance targets and outcomes
Strategic priority
Optimise our
in-force business
CEO
15%
CFO
20%
Enhance our
operating model…
30%
30%
… and our culture
20%
15%
25%
20%
Grow organically
and through M&A
by better addressing
customer needs
10%
15%
Financial framework
– Cash, Resilience
and Growth
Total
Description
% range for all sustainable
illiquid asset origination and
transition assets
Publish Net Zero
Transition Plan
BPA NB strain (%)
BPA Cash Multiple (x)
ReAssure integration –
Capital synergies lifetime
SLOC integration – Cost
synergies lifetime1
Risk culture dashboard
Action Plan delivery
Employee Engagement eNPS
Female senior leaders (%)
Phoenix Group corporate
reputation score
Provide access for
at least 1.5m Standard Life
customers to an integrated
financial wellness hub,
Money Mindset
Reach 1.5m customers to raise
awareness about the impact
of their investments
Complaints resolved
in 8 weeks
New Business Contribution
Base
50–70%
Performance
87%
CEO
CFO
Outcome
outcome
outcome
100% 15.00% 20.00%
75% 22.50% 22.50%
75% 15.00% 11.25%
50%
12.50% 10.00%
Plan published
Plan published
5.50%
2.8x
£1,064m
£16m
Green
Green
13
40%
25%
1.5m
Standard Life
customers
4.7%
3.7x
£1,089m
£16m
Green
Amber
32
39%
21%
Complete
1.5m
customers
reached
91%
1.65m
customers
reached
87%
£372m
£354m
40%
4.00%
6.00%
69.00% 69.75%
1
The SLOC integration target was reduced from £19m to £16m following a review of the definition of activity in scope. The Committee was satisfied that the revised base was equally stretching
as originally intended.
Each year the Committee reviews the AIP outcomes in the context of the Group’s management of risk, overall business performance and the
broader stakeholder experience. In reviewing the 2023 AIP outcome, the Committee considered the delays faced during the year relating
to the IFRS 17 project. As Group CFO, Rakesh Thakrar had the principal responsibility for delivering the project in a timely manner, so the
Committee decided it was appropriate to use its discretion to reduce his AIP outcome by £75,000 (10%). Andy Briggs recognises that,
as Group CEO, he has ultimate accountability for all projects, including IFRS 17. Accordingly, in discussion with the Committee, he suggested
– and the Committee agreed – that he should forgo £50,000 (4%) of his AIP outcome.
As a result of these reductions, the Committee determined it was appropriate to pay the following outcomes under the AIP:
Name
Andy Briggs
Rakesh Thakrar
Corporate
element outcome
(80% weighting)
% and £000
Scorecard
element outcome
(20% weighting)
% and £000
Total
outcome
% and £000
78.2%
£1,046
78.2%
£625
69.0%
£230
69.8%
£139
76.4%
£1,277
76.5%
£764
Discretionary
adjustment
% and £000
4% of
outcome
£50
10% of
outcome
£75
Actual
outcome
% and £000
Maximum
opportunity as
% of salary
% and £000
73.4%
£1,227
69.0%
£689
200%
£1,673
200%
£999
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121
Corporate governanceCorporate governance Directors’ Remuneration report continued
LTIP outcomes for 2021 awards – Audited information
Performance measure and weighting
Net Operating Cash
Receipts (35%)
Return on Shareholder
Value (25%)
Persistency (20%)
Relative TSR (20%)
Target range
Target range between Net Operating Cash Receipts
of £4.330bn and Net Operating Cash Receipts of £4.780bn
Target range between 2% CAGR and 4% CAGR
Target range between 7.4% and 6.1%
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
Vesting
outcome
%
achieved
£4.966bn
100.0%
35.0%
(6.3)%
7.3%
32nd
percentile
0.0%
31.0%
0.0%
0.0%
6.1%
0.0%
Total
41.1%
The above targets were all measured over the period of three financial years 1 January 2021 to 31 December 2023.
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
The Committee reviewed the grant price of the 2021 LTIP (736.2 pence) compared to the grant price of the 2020 LTIP (620.54 pence) 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 Phoenix Group’s share price as at 29 February 2024 (496.35 pence) and is satisfied that no windfall gains have
occurred and that no adjustment is required on vesting.
Share-based awards
LTIP targets
The performance conditions for the 2021, 2022 and 2023 awards are set out below.
Performance measure1
Net Operating Cash Receipts
2021 award
2022 award
2023 award
35% Net Operating Cash Receipts
25% Return on Shareholder Value
20% Relative TSR
20% Persistency
Target range of £4.330bn
to £4.780bn
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
20% Net Operating Cash Receipts
20% Group In-Force Long-Term Free Cash
20% Relative TSR
20% Persistency
20% Decarbonisation
Target range of £3.556bn
to £4.006bn
Return on Shareholder Value
Group In-Force Long-Term Free Cash n/a
Between 2% CAGR and 4% CAGR Between 3% CAGR and 5% CAGR n/a
n/a
Persistency
Target range between 7.4%
and 6.1%
Decarbonisation – Investment Portfolio n/a
Decarbonisation – Operations
n/a
Relative TSR2
25% of this part vests at threshold
performance rising on a pro rata
basis until 100% vests
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 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 £14.7bn
and £15.4bn
Target range between 7.10%
and 6.08%
Net zero strategy applied to target
range of 80%–90% of in-scope
assets and 25% reduction in
carbon intensity (provided in the
best interests of customers)
Target range of 75% to 85%
reduction pre-offset,
plus net zero post offset
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 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.
2
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.
A consistent approach to target setting for the LTIP metrics has been taken each year with reference to the Group’s long range plan so that
delivery of target performance is considered to be comparably stretching for each award. As a result, the cash targets have not always increased
and did indeed reduce in 2022 and 2023 reflecting our business model shifting from being a closed life consolidator to an organic growth
business. The 2024 LTIP cash targets disclosed on page 127 have again been set with reference to the Group’s business plan and are higher than
in 2023.
LTIP underpin
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.
Share-based awards – Audited information
As at 31 December 2023, Directors’ interests under long-term share-based arrangements were as follows:
LTIP
Name
Andy Briggs
LTIP
LTIP
LTIP
LTIP
Date of grant
Share price
on grant
13 Mar 2020
12 Mar 2021
18 Mar 2022
17 Mar 2023
Rakesh Thakrar
LTIP
LTIP
LTIP
LTIP
LTIP
11 Mar 2019
13 Mar 2020
12 Mar 2021
18 Mar 2022
17 Mar 2023
No. of
shares
granted as at
1 Jan 2023
354,529
298,831
351,133
–
1,004,493
39,259
135,365
116,816
152,530
–
443,970
No. of
shares
granted in
2023
–
–
–
402,712
402,712
–
–
–
–
174,935
174,935
No. of
dividend
shares
accumulating
at vesting1
80,777
–
–
–
80,777
8,530
30,840
–
–
–
39,370
No. of
shares
exercised2
No. of
shares
lapsed3
No. of
shares as at
31 Dec 2023
Vesting
date4
–
–
–
–
–
–
–
–
–
–
–
(242,466)
–
–
–
(242,466)
(10,323)
(92,577)
–
–
–
(102,900)
192,840 13 Mar 2023
298,831 12 Mar 2024
351,133 18 Mar 2025
402,712 17 Mar 2026
1,245,516
37,466 11 Mar 2022
73,628 13 Mar 2023
116,816 12 Mar 2024
152,530 18 Mar 2025
174,935 17 Mar 2026
555,375
620.5p
736.2p
635.9p
576.6p
700.4p
620.5p
736.2p
635.9p
576.6p
1
2
3
4
In addition to the share options awarded under the LTIP shown above, dividends are awarded as additional options at vest. Dividends calculated are based on the final vesting figure
(post-performance) to reflect dividends paid from the date of award to the date of vest. Once the additional holding period of two years has been reached, further dividends are awarded
to reflect dividends paid from the date of vest to the end of the holding period.
Whilst both Andy Briggs and Rakesh Thakrar had LTIP awards which have vested, they cannot be exercised due to the additional two-year holding requirement resulting in an overall gain
of £nil in 2023 (2022: £645,224).
The 2020 LTIP award vested at 44.3% of maximum. The 2019 LTIP award vested at 78.4% of maximum.
LTIP awards granted on 12 March 2021 will vest after the 2023 Full year results are announced. LTIP awards made to all members of the Executive Committee are subject to a three-year
performance period and a two-year holding period.
DBSS
The DBSS is the share scheme used for the deferral of the AIP. Whilst no performance conditions are applicable, awards are subject to continued
employment or a good leaver status.
Name
Date of grant
No. of
shares
granted as at
1 Jan 2023
No. of
shares
granted in
2023
Share price
on grant
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
exercised2
No. of
shares
lapsed/waived
No. of
shares as at
31 Dec 2023
Vesting
date
Andy Briggs
DBSS
DBSS
DBSS
12 Mar 2021
18 Mar 2022
17 Mar 2023
736.2p
635.9p
576.6p
Rakesh Thakrar
DBSS
DBSS
DBSS
DBSS
13 Mar 2020
12 Mar 2021
18 Mar 2022
17 Mar 2023
620.5p
736.2p
635.9p
576.6p
67,269
73,610
–
140,879
15,262
27,381
39,209
–
81,852
–
91,285
91,285
–
–
–
52,071
52,071
–
–
–
–
–
–
–
–
3,476
–
–
–
3,476
(18,738)
–
–
–
(18,738)
–
–
–
–
–
–
–
–
–
67,269 12 Mar 2024
73,610 18 Mar 2025
91,285 17 Mar 2026
232,164
– 13 Mar 2023
27,381 12 Mar 2024
39,209 18 Mar 2025
52,071 17 Mar 2026
118,661
1
In addition to the share options awarded under the DBSS shown above, dividends are awarded as additional options at vest. Dividends calculated are based the final vesting figure to reflect
dividends paid from the date of award to the date of vest.
2 Gains of Directors (Rakesh Thakrar only) from share options exercised and vesting shares under the DBSS in 2023 was £102,537.03 (2022: £91,800.33) arising from an award exercised
on 27 March 2023 at a share price of 547.2 pence.
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123
Corporate governanceCorporate governance Directors’ Remuneration report continued
Scheme interests awarded in the year – Audited information
Name
Andy Briggs
Andy Briggs
Rakesh Thakrar
Rakesh Thakrar
Date
of award
17 Mar 2023
17 Mar 2023
17 Mar 2023
17 Mar 2023
Type
of award
LTIP
DBSS
LTIP
DBSS
Nature of
the award
Nil Cost Option
Nil Cost Option
Nil Cost Option
Nil Cost Option
1 The DBSS awards have no threshold performance level.
How the
award is
calculated
275% of salary
50% of AIP
Face value
of award
£2,322,320
£526,416
200% of salary £1,008,800
£300,281
50% of AIP
Percentage
vesting at
threshold
performance1
Vesting
Performance
measures1
date
25% 17 Mar 2026 See page 122
None
25% 17 Mar 2026 See page 122
None
– 17 Mar 2026
– 17 Mar 2026
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 (2023 LTIP and DBSS award share price was 576.6 pence).
ShareSave – Audited information
Name
Andy Briggs
Rakesh Thakrar
Rakesh Thakrar
Rakesh Thakrar
As at
1 Jan 2023
3,056
1,768
2,546
–
Options
granted
–
–
–
8,359
Options
exercised
–
–
–
–
Options
lapsed
–
1,768
2,546
–
As at
31 Dec 2023
3,056
–
–
8,359
Exercise
price
£5.89
£5.09
£5.89
£3.78
Exercisable
from
01 Jun 2024
–
–
01 Dec 2028
Date of expiry
01 Dec 2024
–
–
01 Jun 2029
ShareSave options are granted at a 20% discounted option price, calculated using the three-day average share price immediately before
the invitation date.
Rakesh Thakrar closed his 2021 and 2022 ShareSave plans and elected to save the maximum amount into ShareSave 2023 for an increased
five-year term. There was nil gain in 2023. (2022: £1,963).
Aggregate gains of Directors from share options exercised under all share plans in 2023 was £102,537 (2022: £738,988). This figure relates
to Rakesh Thakrar’s 2020 DBSS share option exercise.
During the year ended 31 December 2023, the highest mid-market price of the Company’s shares was 647.0 pence and the lowest mid-market
price was 441.6 pence. At 31 December 2023, the Company’s share price was 535.2 pence (29 December 2023 price).
Executive Directors’ interests – Audited information
The number of shares and share plan interests held by each Director and their connected persons are shown below:
Name
Andy Briggs
Rakesh Thakrar
Share interests
as at 1 January
2023 or date
of appointment
if later1
358,839
115,441
Share
interests as at
31 December
2023 or
retirement
if earlier
380,274
130,556
Total
share plan
interests as at
31 December
2023 – Subject
to performance
measures
1,052,676
444,281
Total
share plan
interests as at
31 December
2023 – Not
subject to
performance
measures
232,164
118,661
Total
share plan
interests as at
31 December
2023 – Vested
but unexercised
scheme interest
192,840
111,094
1 Share interests values have reduced due to SIP matching shares being included previously.
The Directors’ share interests of the following Directors have increased between 31 December 2023 and 21 March 2024 (being the latest
practicable date prior to the release of this Annual Report). Andy Briggs and Rakesh Thakrar acquired an additional 89 shares each following
purchases under the Group’s Share Incentive Plan. There were no other changes between these dates.
Shareholding requirements – Audited information
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 2023 (using the share price of 535.2 pence as at 29 December 2023) is summarised below. Unvested share awards no longer
subject to performance conditions (discounted for tax liabilities) are included within the SOGs.
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 2023 (using the share price of 535.2 pence as at 29 December 2023) is summarised below. Unvested share awards no longer
subject to performance conditions (discounted for tax liabilities) are included within the SOGs. In addition to the unvested share awards and
shares previously acquired, during 2023, Andy Brigs and his connected persons purchased 20,964 shares privately and a total of 471 shares
were purchased and/or awarded under the Phoenix Group UK SIP (partnership and dividend shares). During 2023, Rakesh Thakrar purchased
3,566 shares privately, received an additional 737 dividend shares based on his ISA holdings, retained 9,860 net shares following his 2020
DBSS exercise and a total of 952 shares were purchased and/or awarded under Phoenix Group UK SIP (partnership and dividend shares).
The extent to which the Executive Directors have achieved their SOG percentage is shown below:
Name
Andy Briggs
Rakesh Thakrar
Value of
shares held at
31 December
2023
(% of salary)
SOG
(minimum %
of salary)
350%
300%
384%
268%
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 notified to the Group by the relevant Director and registered accordingly.
The Executive Directors are required to sign a declaration that they have not, and will not at any time during their employment with Phoenix Group,
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.
Non-Executive Directors’ interests – Audited information
The number of shares held by each Director and their connected persons are shown below:
Name
Nicholas Lyons
Alastair Barbour
Karen Green
Stephanie Bruce
Eleanor Bucks
Hiroyuki Iioka
Mark Gregory
Katie Murray
John Pollock
Belinda Richards
David Scott
Maggie Semple
Nicholas Shott
Kory Sorenson
Share
interests as at
1 January
2023 or date
of appointment
if later
65,990
9,716
–
–
–
–
–
4,600
14,666
–
–
–
69,473
45,000
Share
interests as at
31 December
2023 or
retirement
if earlier
105,990
17,966
–
11,054
–
–
–
9,780
14,666
–
–
–
182,146
45,000
124
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
125
Corporate governanceCorporate governance Directors’ Remuneration report continued
Implementation of Remuneration policy in 2024 – Non-auditable
A summary of the packages of the Executive Directors is set out in the table below.
Salary
Benefits
Pension
Annual bonus
LTIP
Shareholding requirement
Post cessation
shareholding requirement
Element of Remuneration policy
Annual Incentive Plan (‘AIP’)
Rakesh Thakrar
£504,400, no change to 2023.
Andy Briggs
£844,480, no change to 2023.
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 2024 AIP are set out below.
275% of base salary.
Details of the 2024 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, are appropriately challenging, support the Company’s culture and values, and create value for stakeholders.
As detailed in the Committee Chair’s covering letter on page 114 the metrics for the 2024 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 metrics continue to form part
of the Strategic Scorecard elements of the Executive Directors.
The overall weightings between Corporate measures and Strategic Scorecard for AIP in 2024 are:
• Corporate (financial and customer) performance measures – 80%; no change from 2023.
• Strategic Scorecard (strategic Company priorities ) – 20%; no change from 2023.
The weightings of the AIP performance measures for 2024 are summarised below:
Performance measure
Corporate measure
Total Cash Generation
New Business Contribution
Cost Savings
Group Net Flows
Customer Experience
Strategic Scorecard
Total
Whilst the performance measures for the 2024 AIP are disclosed above, 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 2024’s AIP retrospectively
in next year’s Remuneration report on a similar basis to the disclosures made above in respect of 2023’s AIP.
% of incentive potential
16% (20% of Corporate element)
16% (20% of Corporate element)
16% (20% of Corporate element)
12% (15% of Corporate element)
20% (25% of Corporate element)
20%
100%
Outcomes from performance measures for 2024’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 2024 AIP outcomes are confirmed. The targets for the specific performance
measures for the AIP in 2024 are regarded as commercially sensitive by the Group but will be disclosed retrospectively
in the Remuneration report for 2024.
Deferred Bonus Share
Scheme (‘DBSS’)
50% of AIP outcomes for 2024 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 2024 (in respect of 2023’s AIP outcome) will be made automatically on the fourth dealing day
following the announcement of the Group’s 2023 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.
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
Full or Half year results under a procedure similar to that described above for awards under the DBSS.
The number of shares for LTIP awards will be calculated using the average share price for the three dealing days before
the grant of the LTIP awards. The initial three-year vesting period will run to the three-year anniversary of the granting
of the LTIP awards. At this time, the performance conditions will be determined.
All annual LTIP awards made to Executive Directors are subject to a holding period so that any LTIP awards for which the
performance conditions are satisfied will not be released for a further two-years from the third anniversary of the original
award date. Dividend accrual for LTIP awards will continue until the end of the holding period.
The Committee reviews the performance measures and targets of the LTIP each year to ensure these are aligned
to Phoenix Group’s strategic priorities, are appropriately challenging, support the Company’s culture and values,
and create value for stakeholders. For the 2024 LTIP, the Long-Term Free Cash metric will be replaced by a Return
on Capital metric to provide a measure of the efficiency of the Company’s use of capital. The Persistency metric in
the previous year’s LTIP will be replaced by a Cumulative Net Flows metric, which demonstrates our commitment to
incentivising growth in new business and retention of existing business. Following a significant reduction in emissions
from operations, the Decarbonisation from Operations metric (10% weighting) will be replaced by a Diversity,
Equity & Inclusion metric measuring ethnicity representation amongst our senior leadership population.
The targets are measured over a period of three financial years, commencing with financial year 2024.
As detailed in the Committee Chair’s covering letter on page 114 the 2024 LTIP measures have changed.
Measures, weightings and targets are shown below:
Performance measure and weighting
Net Operating Cash Receipts (20%)
Return on Capital (20%)
Cumulative Net Flows (20%)
Decarbonisation – Investment Portfolio1 (10%)
Diversity and Inclusion – Senior Leadership Black,
Asian and Ethnic Minority Representation3 (10%)
Relative TSR (20%) measured 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%)
1 For the investment portfolio that is within control and influence.
2
3
Threshold target
£3,848m
12.6%
£(7.1)bn
29% carbon intensity
reduction of equity and
credit portfolio and 87.5%
of assets to have an agreed
decarbonisation approach
taken through governance2
>12.0%
Full vesting target
£4,298m
14.7%
£3.8bn
35% carbon intensity
reduction of equity and
credit portfolio and 100%
of assets to have an agreed
decarbonisation approach
taken through governance2
>14.0%
50th percentile
80th percentile
Includes where the approved strategy can be to take no further action.
The current Race and Ethnicity % senior leadership figure is based on c. 68% workforce coverage/respondents at the time the targets were set.
A new data capture exercise is underway and as part of this the starting point will be assessed in H2 and any impact on target considered.
As described on page 123, the 2024 LTIP cash targets are higher than in 2023. A consistent approach to target setting
is taken each year with reference to the Group’s business plan so that delivery of target performance is considered to
be comparably stretching for each award.
All 2024 LTIP awards are subject to an underpin relating to risk management within the Group, consideration of customer
satisfaction and, to meet Solvency II requirements, in exceptional cases, personal performance. This underpin relating to
the formulaic outturn of the LTIP reflects the extent to which the Group has operated within its stated risk appetite and
ensures that Management is not incentivised to accept risk outside of appetite in the pursuit of improved delivery against
LTIP performance targets. It also offers a broader assessment than the previous focus on the management of the Group’s
debt position.
For the Group CEO, awards vesting under the LTIP will be subject to a cap on threshold performance of the lower
of 50% of salary or 25% of maximum vesting.
The rules of the Company’s LTIP reserve 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.
All-Employee Share Plans
With regard to the 2024 LTIP grants to be made in March, the Committee will review the outcome at the point of vesting
in 2027 to consider if any windfall gains have been made.
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. Employees based in the Republic of Ireland and Germany have the
opportunity to join the Irish SIP and International Purchase Plan.
All incentive plans are subject to malus/clawback. See ‘Notes to the Remuneration policy table’ on pages 122 to 125 of the 2022 Annual Report
for details.
126
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
127
Corporate governanceCorporate governance Directors’ Remuneration report continued
Non-executive fees – Audited information
The emoluments of the Non-Executive Directors for 2023 based on the current disclosure requirements were as follows:
Name
Non-Executive Chair
Nicholas Lyons2
Alastair Barbour3
Non-Executive Directors
Karen Green
Stephanie Bruce4
Eleanor Bucks5
Mark Gregory6
Hiroyuki Iioka7
Katie Murray
John Pollock
Belinda Richards
David Scott8
Maggie Semple
Nicholas Shott9
Kory Sorenson10
Total11
Directors’ salaries/fees
2023
£000
38
430
173
–
7
86
–
107
146
126
–
128
159
71
1,471
2022
£000
307
307
159
–
–
–
–
74
141
116
–
63
139
141
1,395
Benefits1
2023
£000
2022
£000
–
30
2
–
–
3
–
2
4
2
–
3
2
–
48
8
21
3
–
–
–
–
2
3
2
–
1
2
1
43
Total
2023
£000
38
460
175
–
7
89
–
109
150
128
–
131
161
71
1,519
2022
£000
315
276
162
–
–
–
–
76
144
118
–
64
141
142
1,438
1
2
3
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).
Nicholas Lyons stepped down from the Board on 1 September 2022 and commenced his sabbatical. He returned as Chair of the Group Board on 1 December 2023.
Alastair Barbour became Chair of the Group Board on 1 September 2022 and stepped down from the position of Chair of the Group Board and the Nomination Committee on 30 November 2023.
Alastair Barbour then retired from the Board on 31 December 2023.
4 Stephanie Bruce retired from the Board on 11 May 2023 and waived all emoluments with regard to her Directors’ fees.
5 Eleanor Bucks was appointed as a Director on 1 December 2023.
6 Mark Gregory was appointed as a Director on 1 April 2023 and became a member of the Risk Committee on 1 April 2023.
7 Hiroyuki Iioka has waived all current and future emoluments with regard to his Directors’ fees.
8 David Scott was appointed as a Director on 11 May 2023 and has waived all current and future emoluments with regard to his Directors’ fees.
9 Nicholas Shott became Chair of the Remuneration Committee on 4 May 2023.
10 Kory Sorenson retired from the Board on 30 June 2023.
11
The increase in fees for Non-Executive Directors of the Company reflect the increase in base fee from 2022 to 2023 and fees in relation to chairing a committee as well as changes
to committee membership.
The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of pensions
and annual incentive was £5.963 million (2022: £6.181 million).
Implementation of Remuneration policy in 2024 – Non-auditable
A summary of the annual base fees of the Non-Executive Directors are set out below.
Chair of the Group Board
Non-Executive Director
Senior Independent Director
Designated NED for Workforce Engagement
Committee Chair
Committee Member
Fee from
1 April 2023
£000
460
Fee from
1 April 2024
£000
460
78
20
15
30
18
78
20
15
30
18
On 1 April 2023 the base fee for Non-Executive Directors increased by 4%, lower than that of the wider workforce. Consistent with the approach
for executive directors, there will be no increases to Non-Executive Directors’ base fees in 2024.
The Chair’s fee was last reviewed in August 2021 with the next review due to take place in August 2024. For simplicity, it has been decided not
to proceed with the review in 2024 and instead to consider the Chair’s fee at the same time as the annual review of Non-Executive Director fees
from 2025, which is normally in quarter one.
Performance graph and table
The graph below shows the value to 31 December 2023 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 31 December 2013
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 Group is a constituent.
Total Shareholder Return
Value of a 100 unit investment made on 31 December 2013.
250
200
150
100
50
0
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
e
r
u
g
fi
e
g
n
i
s
l
O
E
C
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
t
f
o
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
Dec 2021
Dec 2022
Dec 2023
CEO single figure of total remuneration
Phoenix Group Holdings
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 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.
Group CEO remuneration
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Andy Briggs
Andy Briggs
Andy Briggs
Andy Briggs2
Clive Bannister2,4
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Annual variable
element award
rates against
maximum
opportunity
(‘AIP’)
73%
87%
78%
83%
81%
92%
86%
86%
84%
82%
68%
Long-Term
incentive vesting
rates against
maximum
opportunity
(‘LTIP’)
41.1%
44.3%
n/a1
0.0%3
n/a5
68.5%
49.5%
64.0%
55.0%
57.0%
57.0%7
Single figure
of total
remuneration
(£000)
2,901
3,112
1,831
1,706
321
2,7156
2,567
2,888
2,878
2,867
3,104
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 CEO 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 of the 2022 Annual Report and Accounts 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, 557.4 pence per share) rather than
the three-month average share price to 31 December 2019 (717.09 pence per share) which was required to be used last year for the single figure of total remuneration.
6
7 The long-term incentive vesting rate is shown as 57%. The group CEO decided to voluntarily waive any entitlement in excess of two-thirds of the shares which would otherwise have vested.
128
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
129
Corporate governanceCorporate governance
Directors’ Remuneration report continued
CEO pay ratio
The table below details the CEO pay ratio for the year ended 31 December 2023, 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 2023 (as detailed on page 119). For the 2023 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 the 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 2023 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)
2023 ratio (total compensation)
2022 ratio (total compensation)
2021 ratio (total compensation)
2020 ratio (total compensation)
2019 ratio (total compensation)
Year
2023
Methodology
Option A
CEO
836,360
2,901,513
25th percentile
26,640
33,217
87:1
100:1
66:1
78:1
94:1
50th percentile
(median)
40,453
53,493
54:1
69:1
46:1
54:1
62:1
75th percentile
61,858
85,926
34:1
41:1
26:1
31:1
40:1
The reduction in ratio for 2023 reflects the lower level of total compensation for the CEO compared to 2022 due in part to the lower AIP outturn
and LTIP vesting figures. Additionally, salary and total compensation levels at the relevant data points have increased reflecting our changed
demographic as result of the Group-wide organisational review and capability uplift to deliver on our future strategy, in particular in our growth
centres. The figures are also impacted by a number of lower earners transferring out of the Group as part of our ongoing outsource strategy.
Colleagues are also eligible to participate in our all-employee share plans, which were not included in the values in the employee single figure.
Nearly half of all employees participate in Phoenix Group’s growth and success through either the ShareSave Scheme, the Share Incentive Plan
or the International Purchase Plan.
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 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 Group, ensuring we create an environment for everyone to feel it is the best place our
colleagues have ever worked.
Directors’ percentage change in pay 2022 to 2023
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 2022
and 2023 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.
Salary %
Taxable benefits %
Annual incentive %
2023
2022
2021
2020
2023
2022
2021
2020
2023
2022
2021
2020
Year-on-year % change
Executive Directors1
Andy Briggs2
Rakesh Thakrar2
Chair
Nicholas Lyons
Alastair Barbour6
Non-Executive Directors3
Karen Green
Stephanie Bruce6
Eleanor Bucks5
Mark Gregory5
Hiroyuki Iioka
Katie Murray
John Pollock
Belinda Richards
David Scott5
3.4
6.0
(87.5)
68.8
8.9
0.0
n/a4
n/a4
0.0
45.4
3.4
8.4
n/a4
Maggie Semple
Nicholas Shott
Kory Sorenson6
Wider employee population
102.8
14.5
0.0
8.9
–
–
16.6% 12.4
14.8% 20.4
(5.5)
(3.3)
1.1
10.2
(17.1)
58.4
12.8
n/a4
–
–
0.0
0.0
0.0
4.5
–
0.0
7.7
0.0
4.4
0.0
2.3
13.8
11.0
–
–
0.0
0.0
(0.96)
(15.8)
2.6
20.7
(100)
41.7
897.6
109.1
3.3
3.3
0.0
66.6
(100)
(60)
12.8
6.8
(26.2)
362.9
0.0
(100)
–
–
–
0.0
–
4.4
5.7
–
–
22.8
12.8
4.7
–
–
–
0.0
–
0.7
0.0
–
–
0.0
0.0
3.9
0.0
n/a4
n/a4
0.0
(3.3)
56.0
(10.7)
n/a4
106.4
42.8
0.0
(55.3)
n/a4
–
–
0.0
0.0
0.0
0.0
–
–
–
–
0.0
–
0.0
0.0
–
0.0
208.3
0.0
57.2
–
(100)
0.0
1.4
–
–
–
0.0
–
(100)
(100)
–
–
(80)
(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
n/a
11.5
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
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
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
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 from 2022 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.
The increase in fees for Non-Executive Directors of the company reflects the increases in base fees from 2022 to 2023 and fees in relation to chairing a committee and membership of a committee
as well as changes to the membership of a committee. See page 128 for further details on fees and taxable benefits for Non-Executive Directors. Non-Executive Directors do not participate in the AIP.
3
4 No taxable benefit received in the prior year and therefore not possible to calculate a percentage change.
5 Eleanor Bucks, Mark Gregory and David Scott, are newly appointed Directors and therefore it is not possible to calculate a percentage change.
6 Whilst Alistair Barbour, Kory Sorenson and Stephanie Bruce resigned from the Board in 2023, their details have been included as they were active members during the year.
For both Executive Directors the figures shown above reflect the change in the total salary figures as disclosed in the Single Figure Table for
the years 2022 and 2023. As the disclosures reflect salary earned during 2023 compared to salary earned during 2022 the figures shown above
do not therefore equate to 4%. The agreed increase of 4% of salary was applied to the salaries of both Executive Directors in April 2023.
The reduction in taxable benefits figure reflects a lower premium for private medical cover in 2023 (whilst retaining the same level of cover).
The reduction for Rakesh also reflects that the 2022 figure included a gain under his ShareSave Scheme; there was no such gain in 2023.
The change in Annual Incentive for both Executive Directors reflects the increase in maximum potential incentive for the 2023 performance year
from 150% to 200% of salary.
With regard to the figures for the wider employee population:
• The pay review in April 2023 was operated using a consistent approach with a pay budget of 6%. As in 2022, the pay budget was focused
on colleagues at lower grades ensuring a higher 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. A separate exercise
was also undertaken to review all senior management compensation to ensure market alignment. As part of this review, car allowance was
removed and an appropriate sum in lieu of this was added to base salary. The changes made as a result of this exercise have impacted the
figure shown above.
• The change to the taxable benefits figure compared to 2022 is largely as a result of: (i) a reduction in the PMI premium for 2023; (ii) the removal
of car allowance where appropriate; and (iii) the post-pandemic £1,000 payment to all colleagues below senior management and the working
from home allowance were not continued beyond 2022. As in previous years, ShareSave and Share Incentive Plan values are not included
in the wider employee population figures.
• The increase in annual incentive payments compared to 2022 relates primarily to the fact that bonuses are salary linked. Over 2023 base
salaries increased on average by 8.9% driven by the high inflation environment in the UK over this period and other factors described under
both the pay review paragraph above and the CEO Ratio on page 130.
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Corporate governanceCorporate governance Directors’ Remuneration report continued
Distribution statement
The DRR Regulations require each quoted company to provide a comparison between profits distributed by way of dividend and overall
expenditure on pay.
Relative importance (£m)
Profits distributed by way of dividend (% change +4%)
Overall expenditure on pay (% change +9%)
611
508
664
527
2022
2023
Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial year. For 2023 this
is the Interim dividend paid (£260 million) and the recommended Final dividend of 26.65 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 C5 ‘Expenses’ in the notes to the consolidated financial statements.
Expenditure on pay has increased by 9% in the period reflecting the impact of the continued planned expansion of key areas in the Pensions
and Savings and Retirement Solutions business, the acquisition of the Sun Life of Canada UK business, as well as the impact of a 6% pay increase
to the wider workforce and the resulting higher share scheme costs. These increases have been partly offset by the impact from the Group’s
Transition and Transformation programme which has reduced headcount within the customer teams in 2023.
Wider workforce pay
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.
Salary
Executive Directors and Executive Committee
Salaries are reviewed annually and increases are typically in line with
or less than the wider employee population.
Senior Management
Wider workforce
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 and 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 SIP and, in the UK, the Phoenix ShareSave Scheme.
AIP
Deferral
LTIP
Holding period
SOGs
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.
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.
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.
Deferral where required on an
individual basis for Solvency II purposes.
Malus and clawback
provisions apply.
Senior executives participate in a LTIP with a three-year performance period
and vesting is subject to Group performance outcomes.
Malus and clawback
provisions apply.
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.
A number of colleagues with exceptional
achievements 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.
Malus and clawback provisions apply.
A two-year holding period after the
vesting date also applies for LTIPs.
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 ExCo members
No holding period.
Not applicable.
No SOGs required.
Not applicable.
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.
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 the 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.
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Corporate governanceCorporate governance Directors’ Remuneration report continued
We offer benefits which engage and retain our existing colleagues, as well as attract new talent to the organisation. To support this, we offer a
transparent flexible and tailored reward package that is competitive in the market, with clear principles around pay, alongside comprehensive
benefits and wellbeing support. Our Diversity, Equity and Inclusion agenda remains an integral underpin to our approach to reward and to support
colleague we have extended our Private Medical Insurance for all colleagues to include the addition of IVF treatment and neurodiversity support.
In 2023 we completed a holistic review of our reward framework to ensure it is appropriate for a business of our size, scale and potential.
This work included externally benchmarking all roles and career levels to ensure alignment with the external market. A thorough process
of validation and independent review was undertaken to ensure all colleagues are treated fairly. A number of changes to our grade structure
were introduced to help accurately define and reward the contribution every role makes. In response to colleague feedback, we also
published a refreshed and Group-wide set of pay ranges for 2024, rigorously benchmarked using external pay data and designed to give
greater transparency and confidence on pay at Phoenix Group. To conclude this extensive remuneration review, we have committed that
any colleague below the minimum of their pay range will have their fixed pay increased to that minimum level, as a priority, in the 2024 fixed
pay review. We are a proud Real Living Wage employer, and are committed to ensuring that these pay ranges, which are reviewed annually,
will always be at or above the Real Living Wage.
Equal pay and consistency of treatment for all colleagues, irrespective of gender 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. Maggie Semple, our Designated Non-Executive Director for Workforce Engagement,
has joined the Remuneration Committee in 2024 and will provide additional input to the Committee on the views of the wider workforce.
Further details of Maggie Semple’s engagement with the workforce throughout 2023 are shown on pages 108 to 110 of the Corporate
governance report.
Payments for loss of office – Audited information
No payments were made to Directors in 2023 for loss of office.
Payments to past directors – Audited information
No payments were made to past Directors in 2023.
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 of the Group Board) they would be entitled to a one-month notice period. The Chair of the Group Board, as detailed in his
letter of appointment, would be entitled to a six-month notice period.
Dilution
The Group monitors the number of shares issued under the Group’s employee share plans and their impact on dilution limits. The Group’s
current practice is for all the executive share plans to use market purchase shares which are held in the Employee Benefit Trust (the Trust) on
exercise of any awards. There is a dividend waiver in place for all shares held in the Trust. For the Group’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 2023 is 1.39% and no shares count towards the dilution limit for executive plans only
(5% in any rolling ten-year period).
Advice provided to the Committee
During the year, the Committee received independent remuneration advice from its appointed adviser, PwC, which is a member of the
Remuneration Consultants Group (the professional body for remuneration consultants) and adheres to its code of conduct. The Remuneration
Committee was satisfied that the advice provided by PwC was objective and independent.
PwC also provided general consultancy services to management during the year including support on other Board and Risk matters and
technical advice regarding share schemes. Separate teams within PwC provided unrelated services in respect of tax, assurance, risk consulting,
sustainability and transaction support during the year. The Committee is satisfied that these activities did not compromise the independence
or objectivity of the advice it has received from PwC as Remuneration Committee advisers.
PwC’s fees for work relating to the Committee for 2023 were £142,844 which included continued 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.
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.
Directors’ service contracts
The dates of contracts and letters of appointment and the respective notice periods for Directors are as follows:
The Group CEO, Group HR Director, Executive Reward Director and Group Finance Director, 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.
Executive Directors’ service contracts
Name
Andy Briggs
Rakesh Thakrar
Date of service contract
07 November 2019
06 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.
He received no payment for either appointment.
Rakesh Thakrar is a Non-Executive Director, Chair of the Board Audit Committee and a member of the Risk Committee of Bupa Insurance
Limited and Bupa Insurance Services Limited for which he received payment of £76,959 in 2023 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
Nicholas Lyons
Karen Green
Eleanor Bucks
Mark Gregory
Hiroyuki Iioka
Katie Murray
John Pollock
Belinda Richards
David Scott
Maggie Semple
Nicholas Shott
Date of current appointment
/re-appointment letter
8 November 2023
12 May 2023
23 November 2023
9 March 2023
24 July 2023
1 April 2022
31 October 2022
1 October 2023
11 May 2023
9 May 2022
31 October 2022
Date of expiry of current
appointment/
re-appointment letter1
1 December 2026
30 June 2026
1 December 2026
31 March 2026
23 July 2026
1 April 2025
30 August 2025
30 September 2026
10 May 2026
31 May 2025
30 August 2025
Unexpired term
(months)
6
1
1
1
1
1
1
1
1
1
1
1
The 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 14 May 2024.
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.
Voting outcomes on remuneration matters
The table below shows the votes cast to approve the Directors’ Remuneration report for the year ended 31 December 2022 and the Directors’
Remuneration policy at the 2023 AGM held on 4 May 2023.
To approve the Directors’ Remuneration report for the year
ended 31 December 2023 (2023 AGM)
To approve the Directors’ Remuneration policy (2023 AGM)
767,333,037
764,184,513
99.20
98.81
6,157,257
9,241,995
0.80
1.19
152,575
216,361
For
Against
Abstentions
Number
% of votes cast
Number
% of votes cast
Number
Approval
This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by:
Nicholas Shott
Remuneration Committee Chair
Approved by the Board on 21 March 2024
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Corporate governanceCorporate governance Directors’ Remuneration report continued
The Directors’ Remuneration policy
This appendix contains the Directors’ Remuneration policy approved
by the Group’s shareholders at the Group’s 2023 AGM. It applies for
a period of three years, until the 2026 AGM, unless a revised policy
is approved by shareholders before then.
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. Further details on the Remuneration policy can be found in the 2022 Annual Report and Accounts on pages 122 to 125.
Remuneration principles
The Group’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 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.
How our Remuneration policy addresses the following factors set out in the UK Corporate Governance Code
Clarity and simplicity
• 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.
Risk
• The Committee undertakes an annual review of risk before confirming the outcomes for the AIP to ensure that there are no risk-related
concerns that require the moderation of AIP outcomes.
• Malus and clawback operate in respect of the AIP and LTIPs (see page 123 in the 2022 Annual Report and Accounts 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
• A high percentage of rewards are delivered in the form of shares, 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.
Predictability
• The range of potential award levels to individual Executive Directors is set out in the scenario chart on page 118 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 Non-Executive Director for Workforce Engagement 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.
Remuneration policy table
Element and purpose in
supporting strategic objectives
Base Salary
This is the core element of pay
which supports the recruitment
and retention of Executive Directors
and reflects the individual’s role and
position within the Group as well as
their capability and contribution.
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
• Salary levels are specific to the role
• N/A
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).
• 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.
• N/A
• 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
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.
• The Group provides market competitive
benefits in kind. Details of the benefits
provided in each year will be set
out in the Implementation Report.
The Remuneration Committee
reserves discretion to introduce new
benefits where it concludes that it is
in the interests of the Group to do
so, having regard to the particular
circumstances and to market practice.
• Where appropriate, the Group will
meet certain costs relating to Executive
Director relocations and other
exceptional expenses.
• 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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Remuneration policy table
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
• The maximum annual incentive level for
an Executive Director is 200% of base
salary per annum.
• AIP levels and the appropriateness
of measures are reviewed annually
to ensure they continue to support the
Group’s strategy.
• AIP outcomes are paid in cash in one
tranche (less the deferred share award).
• At least 50% of any annual AIP award
is to be deferred into shares for a
period of three years although the
Remuneration Committee reserves
discretion to alter the current practice
of deferral (whether by altering the
portion deferred, the period of deferral
or whether amounts are deferred into
cash or shares). Such alterations may
be required to ensure compliance with
regulatory guidelines for pay within the
insurance sector, but will not otherwise
reduce the current deferral level or
the period of deferral.
• Deferral of AIP outcomes into shares
is currently made under the DBSS.
• Awards under DBSS will be in the
form of awards to receive shares
for nil-cost.
• 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:
– either 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.
– 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.
Remuneration policy table
Element and purpose in
supporting strategic objectives
Long Term Incentive Plan (‘LTIP’)
To motivate and incentivise delivery
of sustained performance over the
long-term in line with our strategy
and purpose, and to promote
alignment with shareholders’ interests,
the Group operates the Phoenix
Group Holdings plc LTIP.
All-employee share plans
To encourage share ownership by
employees, thereby allowing them to
participate in the long-term success
of the Group and align their interests
with those of the shareholders.
Policy and operation
Maximum
Performance measures
• The Remuneration Committee may
set such performance measures for
LTIP awards as it considers appropriate
(whether financial or non-financial
and whether corporate, divisional
or individual).
• The 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.
• Consistent with normal practice,
such awards are not subject to
performance conditions.
• The formal limit under the LTIP is 300%
of base salary per annum (and 400%
per annum in exceptional cases).
• The Remuneration Committee’s
practice is to make LTIP awards to
Executive Directors each year over
shares with a value (as at the award date)
of up to 275% of the CEO’s annual base
salary and 200% of the CFO’s annual
base salary although discretion is
reserved to make awards up to the
maximum levels for the policy as
stated above.
• Awards under the LTIP may be in
any of the forms of awards to receive
shares for nil-cost (as described for
DBSS above).
• LTIP awards are 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.
• Executive Directors are able to
• ShareSave – the Remuneration
participate in all-employee share
plans on the same terms as other
Group employees as required by
HMRC legislation.
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 Group 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 Group and
receive one matching share for every
purchased share up to a maximum of
£50. The maximum saving is £150 each
month (or up to such level as permitted
by the Group 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).1
1 Updated from two matching shares to correct a typographical error.
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Corporate governanceCorporate governance Directors’ Remuneration report continued
Directors’ report
Remuneration policy table
Element and purpose in
supporting strategic objectives
Shareholding guidelines
To encourage share ownership by the
Executive Directors over the long-term,
including post cessation of employment,
and ensure interests are aligned.
Chair of the Group Board and
Non-Executive Director fees
Policy and operation
Maximum
Performance measures
• 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.
• The fees paid to the Chair of the
• The aggregate fees of the Chair of
• N/A
the Group Board and Non-Executive
Directors will not exceed the limit from
time to time prescribed within the
Group’s Articles of Association for
such fees (currently £2 million per
annum in aggregate).
• The Group 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.
Group Board 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 NED 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.
The Directors present their report for the year ended 31 December 2023.
Phoenix Group Holdings plc is incorporated in England and Wales (registered
no. 11606773) and has a premium listing on the London Stock Exchange.
Shareholders
Dividends
Dividends for the year ended
31 December 2023
Share capital
Issued share capital
Authority to purchase
own shares
Dividends for the year are as follows:
Ordinary shares
Paid Interim dividend
Recommended Final dividend
Total ordinary dividend
26.0p per share (2022: 24.8p per share)
26.65p per share (2022: 26.0p per share)
52.65p per share (2022: 50.8p per share)
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 1,185,942 shares during 2023 which related to shares
issued under the Company’s ShareSave Scheme.
At 31 December 2023, the issued ordinary share capital totalled 1,001,538,419. Subsequently, 9,467 ordinary
shares have been issued in 2024 in connection with the Company’s ShareSave Scheme to bring the total
in issue to 1,001,547,886 at the date of this Directors’ report. Full details of the issued and fully paid share
capital as at 31 December 2023 and movements in share capital during the period are presented in note D1
to the IFRS consolidated financial statements.
At the Company’s 2023 AGM, shareholders approved the renewal of the Company’s authority to make
purchases of up to 100,045,720 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 2023. The authority will expire at the
2024 AGM. A resolution to renew this authority shall be proposed in the 2024 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 ‘Articles’) which are available on the Company’s website at
www.thephoenixgroup.com.
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
Substantial shareholdings
Under the 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 Phoenix 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.
Information provided to the Company pursuant to Chapter 5 of the FCA’s Disclosure Guidance and
Transparency Rules (‘DTR’) is published on a Regulatory Information Service and on the Company’s
website. As at 31 December 2023, 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 2023 and 21 March 2024.
Name
MS&AD Insurance Group Holdings Inc.
abrdn plc
BlackRock, Inc.
Kingdom Holding Company
Number of voting
rights in shares
Percentage of
shares in issue
144,877,304
107,025,201
51,251,518
50,051,192
14.48%
10.70%
5.12%
5.00%
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141
Corporate governanceCorporate governance Directors’ report continued
Shareholders continued
AGM
2024 AGM
Investor communications
Investor communications
Board
The AGM of the Company will be held at Floor 22, Freshfields Bruckhaus Deringer LLP, 100 Bishopsgate,
London, EC2P 2SR on 14 May 2024 at 10am. A separate Notice of Meeting convening this AGM 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, together with the Company’s Half Year Report and other public
announcements and presentations, are designed to present a fair, balanced and understandable
view of Phoenix 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.
Board membership
The membership of the Board of Directors during 2023 is given within the Corporate governance report
on pages 64 to 67, which is incorporated by reference into this Directors’ report.
Related party transactions
Appointment, re-election
and removal of Directors
During 2023, and up to the date of this Directors’ report, the following changes to the Board took place:
• Mark Gregory was appointed as a Director on 1 April 2023.
• Stephanie Bruce, abrdn plc Shareholder Nominated Director, retired as a Director on 11 May 2023.
• David Scott, abrdn plc Shareholder Nominated Director, was appointed as a Director on 11 May 2023.
• Kory Sorenson retired as a Director on 30 June 2023.
• Nicholas Lyons returned from his sabbatical as Chair of the Group Board on 1 December 2023.
•
Alastair Barbour stepped down as Chair of the Group Board on 30 November 2023 and retired
as a Director on 31 December 2023.
• Eleanor Bucks was appointed as a Director on 1 December 2023.
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.
The rules about the appointment and replacement of Directors are contained in the 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 2018 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 14 May 2024.
The 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 Articles
and by any valid directions given by shareholders by way of special resolution.
Directors’ remuneration
and interests
Directors’ indemnities
The Directors have been authorised to allot and issue securities and grant options over or otherwise dispose
of shares under the Articles.
A report on Directors’ remuneration is presented within the Directors’ Remuneration report on pages
111 to 140 including details of their interests in shares and share options or any rights to subscribe
for shares in the Company.
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 Articles. See page 70 of the Corporate governance report for more detail.
Directors’ and Officers’
liability insurance
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.
As part of its comprehensive assessment
as to whether Phoenix Group is a Going
concern, the Board has considered
financial projections over the period to
31 March 2025, which demonstrate the
ability of Phoenix Group to withstand
market shocks in a range of severe but
plausible stress scenarios.
Rakesh Thakrar, Group Chief Financial Officer
Governance
Going concern
Phoenix 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 Phoenix 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 50 to 57. In addition, the IFRS consolidated financial statements include, amongst other things, notes
on Phoenix 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 20 to 23) sets out the business model
and how Phoenix Group creates value for shareholders and policyholders.
As part of its comprehensive assessment as to whether Phoenix Group is a Going concern, the Board has considered financial projections
over the period to 31 March 2025, which demonstrate the ability of Phoenix 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 58 and 59, 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 Phoenix Group’s
access to additional funding through its undrawn £1.75 billion revolving credit facility. The stresses do not give rise to any material uncertainties
over Phoenix Group’s ability to continue as a Going concern.
The Directors therefore have a reasonable expectation that Phoenix Group has adequate resources to meet its liabilities as they fall due and
continue in operational existence over the period to 31 March 2025, 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 2023.
Viability statement
The Viability statement, as required by the 2018 Code, has been undertaken for a period of three years to align to Phoenix Group’s business
planning and is detailed on pages 58 and 59.
Corporate governance statement
The disclosures required by section 7.2 of the FCA’s Disclosure Guidance and Transparency Rules can be found in the Corporate
governance report on pages 60 to 147 which is incorporated by reference into this Directors’ report and comprises the Company’s
Corporate governance statement.
The 2018 Code applies to the Company and details on the Company’s compliance with the Code are included in the Corporate governance
report on page 68. The 2018 Code is available on the website of the FRC – www.frc.org.uk. The new UK Corporate Governance Code 2024
was published in January 2024 and will become effective 1 January 2025 and 1 January 2026 for Provision 29. Phoenix Group will ensure
that compliance with the 2024 Code is appropriately measured and disclosed.
The disclosures required by the Companies Act 2006 in respect of the following matters are set out in the Strategic report, as below:
Our strategy and
future developments
Our people and diversity
The Company’s strategy and priorities for 2023 are highlighted
in the ‘Our strategic priorities’ section of the Strategic report.
• See pages 24 to 29 of the
Strategic report.
The Company’s People strategy for colleagues is detailed
in the Group’s Sustainability Report. The Company’s diversity
and inclusion targets for colleagues are also detailed in the
Group Sustainability Report, with highlights set out in the
Strategic report.
• See pages 28, 29 and 63.
• See the Sustainability Report
on the Company’s website.
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Corporate governanceCorporate governance Directors’ report continued
Governance continued
Disability
Our people and engagement
Our business relationships
Phoenix 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. Phoenix Group also has a Reasonable
Adjustments guidelines which sets out Phoenix Group’s duty to
make reasonable adjustments to help ensure that all colleagues
can access opportunities and thrive in employment. In addition,
Phoenix Group has a Dignity at Work policy which sets out its
commitment to creating a work environment free of discrimination
where everyone is treated with dignity and respect. One of our
colleague inclusion networks, ‘Enable’ 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 Phoenix Group’s performance
and market trends impacting Phoenix Group was shared via an
all-employee intranet. In addition, colleagues were invited to
participate in Phoenix 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 11 and Corporate governance report on pages 74 to 77.
• See the Company’s website
for more information.
• See page 11 of the Strategic
report and pages 108 to 110 of the
Corporate governance report (for
colleague engagement) and pages
74 to 77 (for Section 172 statement).
• See pages 74 to 77
(for Section 172 statement).
Greenhouse gas
(‘GHG’) emissions
All disclosures concerning Phoenix Group’s GHG emissions
are contained in the Group’s Streamlined Energy and Carbon
Reporting (‘SECR’) Statement forming part of the Strategic report.
• See pages 42 and 43
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 Climate Report, a summary of which has been included
in the Strategic report on pages 44 and 45 due to their strategic importance.
Board diversity
– gender and ethnicity
During 2023, 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 Group has published a standalone Climate Report which is
available on the Company’s website.
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 85. Data was collated through the standard process for preparing Phoenix 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.
Governance continued
Energy usage and Carbon
Emissions under the
Companies (Directors’
Report) and Limited Liability
Partnerships (Energy and
Carbon Report) Regulations
2018 (SI 2018/1155)
Phoenix Group’s SECR statement on the Group’s UK and global energy consumption and GHG emissions
for the financial year 1 January 2023 to 31 December 2023, and the 2022 comparative year is contained
in the Strategic report on pages 42 and 43.
Branches
The Company, through its subsidiaries, has established branches in Germany, Hong Kong and Ireland.
Political donations
Phoenix Group is a politically neutral organisation and, as further explained below, did not make any
political donations or incur any political expenditure (within the ordinary meaning of those words) in
2023. The Company regularly engages with regulators and policymakers (including those associated
with political parties and governments) to listen and to contribute to discussions on a wide range of matters.
Such engagement is an important part of our strategy and contributes to initiatives enabling the UK in its
goal of reaching net zero by 2050. Further information on how we engage with stakeholders can be found
on pages 74 to 77; and our Sustainability and Climate Reports, which include information on our own net
zero ambitions can be found on our website at www.thephoenixgroup.com.
Due to the broad definition of political donations under the Companies Act 2006 (the ‘Act’) and as a matter
of good governance and transparency, we have provided information on areas of expenditure incurred as
a result of this engagement which may be regarded as falling within the scope of the Companies Act 2006.
During the year ended 31 December 2023, Phoenix Group exhibited at, sponsored, and held events at,
conferences organised by political parties, spending a total of £63,982.40. This included sponsorship
of events at the Labour Party Annual Conference (£24,000), Conservative Party Annual Conference
(£29,396.40) and Scottish National Party Annual Conference (£9,936). The Company also contributed
£650 to a pensioners fair run the Member of Parliament for the Wythall region, in which the Group has
an office. These events allow Phoenix Group to present its views on a non-partisan basis to politicians from
across the political spectrum and non-political stakeholders such as NGOs and other listed and non-listed
companies. These payments do not indicate support for any political party. At the 2024 AGM, Phoenix
Group will be seeking renewal from shareholders of the existing authority approved at the 2023 AGM.
More details are contained in the Notice of Meeting which can be found on the Company’s website at
www.thephoenixgroup.com.
Articles of Association
Changes to the Articles require prior shareholder approval by special resolution.
Re-appointment of
the External Auditor
Disclosure of information
to External Auditor
The Articles are available on the Company’s website at www.thephoenixgroup.com/about-us/governance.
Following a full tender process in respect of external audit services that took place in 2021, the Audit Committee
recommended to the Board that KPMG be appointed as the Company’s Auditor, commencing with the
financial period starting from 1 January 2024. As outgoing Auditor, EY will provide the Company with
a Statement of Reasons, as required by the 2006 Act, which will be circulated to shareholders as a
supplement to the Notice of Meeting ahead of the 2024 AGM on 14 May 2024.
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 2023 for audit and non-audit work are disclosed in note C6 to the IFRS
consolidated financial statements.
The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they
are aware, there is no relevant audit information of which the Company’s External 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 External Auditor is aware of
that information.
Group Company Secretary
The Group Company Secretary during the period was Kulbinder Dosanjh.
Fair, balanced and
understandable
In accordance with the 2018 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 Phoenix Group’s position, performance, business model and strategy.
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Corporate governanceCorporate governance Directors’ report continued
Contractual/Other
Significant agreements
impacted by a change
of control of the Company
The £1.75 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 Phoenix 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 by Listing Rule 9.8.4R,
where applicable, can be found within the following sections of the Annual Report:
Requirement
Location
Statement of interest capitalised
Note E5 to the consolidated financial statements
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
Statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect of the
Annual Report 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 Phoenix Group’s
business for the year ended 31 December 2023, covers the future
developments in the business of Phoenix Group and its consolidated
subsidiaries and provides details of any important events affecting
the Company and its subsidiaries after the year end. The Strategic
report and the Directors’ report together constitute the management
report as required under DTR 4.1.8R.
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 Phoenix Group and of the profit
or loss of Phoenix 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,
relevant and reliable;
• 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 Phoenix Group financial position and financial performance;
•
•
in respect of Phoenix Group financial statements, state whether
UK-adopted IASs have been followed, subject to any material
departures disclosed and explained in the financial statements;
in respect of the parent Company financial statements,
state whether applicable UK 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 Phoenix Group will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain Phoenix Group’s
transactions and disclose with reasonable accuracy at any time
the financial position of Phoenix 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 Phoenix Group 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 the maintenance and integrity
of the corporate and financial information included 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
64 to 67, confirm that, to the best of their knowledge:
•
•
•
the consolidated financial statements, prepared in accordance
with UK-adopted IASs 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
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 20 March 2024.
By order of the Board
Andy Briggs
Group Chief
Executive Officer
21 March 2024
Rakesh Thakrar
Group Chief
Financial Officer
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Corporate governanceCorporate governance Financials
150
Independent auditor’s report
164
IFRS consolidated financial statements
171 Notes to the consolidated financial statements
291 Parent company financial statements
294 Notes to the parent company financial statements
306 Additional life company asset disclosures
310 Additional capital disclosures
312 Alternative performance measures
Additional information
316 Shareholder information
318 Glossary
324 Forward looking statements
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149
FinancialsFinancials 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 2023
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 2023 which comprise:
Group
Parent Company
Consolidated income
statement for the year
ended 31 December 2023
Statement of comprehensive
income for the year ended
31 December 2023
Statement of consolidated
financial position as at
31 December 2023
Statement of consolidated
changes in equity for the year
ended 31 December 2023
Statement of financial position
as at December 2023
Statement of changes in
equity for the year ended
31 December 2023
Statement of cash flows
for the year ended
31 December 2023
Related notes 1 to 22
to the financial statements,
including material accounting
policy information
Statement of consolidated
cash flows for the year ended
31 December 2023
Related notes A1 to I7 to the
consolidated financial statements
(except for note I3 where it is marked
as unaudited), including material
accounting policy information
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 in accordance with
the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company and we
remain independent of the Group and the Parent Company in
conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group and
Parent Company’s ability to continue to adopt the going concern
basis of accounting included:
• confirming our understanding of management’s going concern
assessment process and obtaining management’s assessment
which covers the period to 31 March 2025;
• with support from our actuarial team, challenging the key
actuarial assumptions used in management’s three-year Annual
Operating Plan (‘AOP’), which forms the basis for management’s
going concern projections and determining that the models are
appropriate to enable management to make an assessment
on the going concern of the Group;
• assessing the accuracy of management’s analysis by testing
the inputs and the clerical accuracy of the models used;
• assessing management’s consideration of how solvency and
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;
Overview of our audit approach
Audit scope
Key audit
matters
• We performed an audit of the complete financial
information of the Group Function, Phoenix Life
Limited (which includes Phoenix Life Assurance
Limited and Standard Life Assurance Limited)
and ReAssure Limited and audit procedures
on specific balances for Other Companies (the
‘reporting components’). Our scope is explained
further on pages 151 to 152.
• The components where we performed full or
specific audit procedures accounted for 99%
(2022: 99%) of the equity and 95% (2022: 98%)
of the profit before tax of the Group.
• Valuation of insurance contract liabilities,
comprising the following risk areas:
– actuarial assumptions; and
– actuarial modelling.
• Valuation of contractual service margin
and its subsequent release.
• 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.
• Transition to IFRS 17 Insurance contracts,
including the selection and application of
accounting policies and financial statement
and other disclosures.
• Recoverability of the Parent Company’s
investments in Group undertakings.
Materiality
• Overall Group materiality of £93 million (2022:
£83 million) which represents 2% of total equity
attributable to owners of the Parent plus the
contractual service margin (‘CSM’) net of tax
(‘adjusted Group equity’) (2022: 2% of total
equity attributable to owners of the Parent).
• challenging the key assumptions underlying the mandatory
obligations of the Group up to 31 March 2025, used in
management’s stress scenarios based on our understanding
of the Group and the available external data, respectively;
• evaluating management’s forecast analysis to understand
how severe the downside scenarios would have to be to result
in the elimination of solvency headroom;
• assessing management’s considerations of operational risks,
including those related to Outsourced Service Providers
(‘OSPs’) and their impact on the going concern assessment;
• assessing 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;
• checking 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;
• performing 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 obtained
management’s assessment approved by the Board, minutes of
meetings of the Board and its committees; and
• testing 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 2025.
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’s
ability to continue as a going concern.
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151
FinancialsFinancials Independent auditor’s report continued
An overview of the scope of the Parent Company
and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope
for each company within the Group. Taken together, this enables
us to form an opinion on the consolidated financial statements.
We take into account size, risk profile, the organisation of the Group
and effectiveness of group-wide controls, changes in the business
environment and other factors such as recent internal audit results
when assessing the level of work to be performed at each company
.
In assessing the risk of material misstatement to the consolidated
financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of the
four reporting components of the Group. The Group reporting
components consist of Phoenix Life Limited, ReAssure Limited,
the Group Function and Other Companies.
The Phoenix Life Limited component includes Phoenix Life Limited
(‘PLL’), Phoenix Life Assurance Limited (‘PLAL’), and Standard Life
Assurance Limited (‘SLAL’), which are the most significant insurance
companies of the component. ReAssure Limited (‘RAL’) is the
most significant company in the ReAssure component. 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, Standard Life International Designated Activity
Company (‘SLIDAC’) and Sun Life Assurance Company of
Canada UK Limited (‘SLOC’).
Three of the reporting components were audited by component
teams as set out below:
Component
Scope
Auditor
Phoenix Life Limited
(includes Phoenix Life
Limited, Phoenix Life
Assurance Limited
and Standard Life
Assurance Limited)
ReAssure Limited
Group Function
Other Companies
Full (including
specified
procedures)
EY component
team
Full
Full
EY component
team
EY primary team
Specific (including
specified
procedures)
EY primary team
and component
teams
Of the four components selected, we performed an audit of the
complete financial information of three 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 within that
component that we considered had the potential for the greatest
impact on the significant accounts in the financial statements
either because of the size of these accounts or their risk profile.
Additionally, the acquisition balance sheet in respect of SLOC
was in the scope of the SLOC component team.
The reporting components where we performed audit procedures
accounted for 99% (2022: 99%) of the adjusted Group equity and
95% (2022: 98%) of the Group’s profit before tax. For the current
year, the full scope components contributed 81% (2022: 98%) of
the adjusted Group equity and 81% (2022: 94%) of the Group’s
profit before tax. The specific scope components, including the
components with specified procedures contributed 18% (2022: 1%)
of the adjusted Group equity and 14% (2022: 4%) of the Group’s
profit 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.
The charts below illustrate the coverage obtained from the work
performed by our audit teams.
Equity
Profit before tax
Full scope components
81%
Specific scope components 18%
1%
Other procedures
Full scope components
81%
Specific scope components 14%
5%
Other procedures
Changes from the prior year
During the year the Group acquired SLOC which is now part of the
specific scope of other companies. Furthermore, the EY primary
team have audited all the IFRS 17 adjustments for the Group.
Involvement with component teams
In establishing our overall approach to the Group audit,
we determined the type of work that needed to be undertaken
at each of the components by us, as the primary audit engagement
team, or by component auditors from other EY global network firms
operating under our instruction.
The primary audit team provided detailed audit instructions
to the component teams which included guidance on areas of
focus, including the relevant risks of material misstatement detailed
above, and set out the information required to be reported to the
primary audit team. For the 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 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
Stakeholders are increasingly interested in how climate change
will impact the Group. The Group has determined that the most
significant future impacts from climate change on its operations will
be from financial assets and in insurance and investment contract
liabilities. These are explained on pages 44 to 45 in the required Task
Force On Climate Related Financial Disclosures, and on page 52 in
the principal risks and uncertainties. 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 or otherwise appear to be materially misstated, 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.
The Group has explained in their Significant Accounting Policies
how they have reflected the impact of climate change in their
financial statements. Judgements and estimates relating to climate
change are included in note A4.6. 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.
We also challenged the Directors’ considerations of climate
change in their assessment of going concern and viability and
associated disclosures.
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 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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153
FinancialsFinancials 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
assets and 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
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 (including the
governance over model change);
tested the IT general controls of the core actuarial models;
•
• evaluated and corroborated the methodology, inputs and assumptions
applied to model changes made in the core actuarial modelling systems
over the year;
• with respect to the migration of ReAssure business onto a new model
we tested management’s migration process with a focus on both the
robustness of the outputs and ensuring that the differences between
current and previous models were understood;
• validated the results of management’s analysis of movements in insurance
contract assets and 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, presented 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
validated the appropriateness of the applied calculation methodology.
In addition, we also performed an independent valuation of a sample of
insurance contract assets and liabilities which are modelled outside the
core actuarial system.
Actuarial modelling (Group)
Refer to Audit Committee Report
(page 98).
We consider the integrity
and appropriateness of models
to be critical to the overall
valuation of insurance contract
assets and liabilities.
The majority of 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)
the appropriateness of the core
actuarial model;
iii)
ii) model developments applied to
the core actuarial models; and
the appropriateness of out of
model adjustments and the
movement of the out of model
adjustments to core actuarial
modelling systems.
In addition, the migration of a portion
of the ReAssure business to a new
actuarial model was a key risk area for
2023, as was the transition to IFRS 17
which is discussed in the Key Audit
Matter below.
Independent auditor’s report continued
Risk area
Valuation of insurance contract liabilities (£115.8bn; 2022: £107.6bn).
Refer to the Critical accounting estimates (pages 177 to 178); Accounting policies and note F1 of the consolidated financial statements
(pages 221 to 226).
We consider the valuation of the best estimate liabilities, risk adjustment and Contractual Service Margin (CSM) included in determining the
insurance contract assets and liabilities at each reporting date to be a fraud risk, due to the risk of management bias and override along with the
significant level of judgement involved in relation to uncertain future events which could be susceptible to misstatement as a result of intentional acts
by management. Assumptions are both internal and external to the business, and small changes can result in a material impact to the resultant valuation.
Consistent with previous periods, we have split the risks relating to the valuation of insurance contract assets and liabilities into component parts.
However, this year we have removed the significant risk around actuarial data used within the valuation models because the data itself is not
inherently complex or subject to judgment.
The specific audit procedures performed to address the significant risk are set out below. In addition, we corroborated management’s analysis of
movements in insurance contract assets and liabilities by obtaining evidence to support large or unexpected movements as this provided
important audit evidence over the valuation of insurance contract assets and liabilities.
Key observations
communicated to the
Audit Committee
We determined that the
actuarial assumptions
and risk adjustment used
by management are
reasonable based on the
analysis of experience to
date, industry practice
and the financial and
regulatory requirements.
Risk area
Our response to the risk
To obtain sufficient audit evidence to conclude on the appropriateness
of actuarial assumptions, using EY actuaries as part of our audit team,
we performed the following procedures:
• obtained an understanding and tested the design and operating
effectiveness of key controls over management’s process for setting
and updating key actuarial assumptions;
• determined whether the methodology and assumptions applied are
appropriate by comparing it to our knowledge of ’industry standards
and the Groups’ regulatory and financial reporting requirements;
• corroborated the results of management’s experience analysis,
including the base longevity, persistency and assured mortality,
to agree whether these justified the adopted assumptions;
• evaluated and corroborated the methodology used in determining
the discount rate applied;
• discussed management’s decisions on the inclusion or exclusion of
data from the period impacted by COVID-19 when setting individual
assumptions, including longevity, mortality, morbidity and persistency;
• evaluated the results of management’s analysis with respect to longevity
improvements using the results from the industry standard Continuous
Mortality Investigation (‘CMI’) on longevity trend, and benchmarked
the output against other industry participants;
• benchmarked the significant assumptions against those of other
comparable industry participants;
• performed procedures to test that the assumptions used in the year
end valuation are consistent with the approved basis; and
• corroborated the expense assumptions adopted by management
considering an impact of the recent economic volatility (including
inflation), the impact of the increase in volumes of new insurance
business written and the inclusion of benefits arising from planned
future management actions.
Actuarial assumptions (Group)
Refer to the Audit Committee Report
(page 98).
Economic assumptions are set by
management taking into account
market conditions as at the valuation
date. 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 have
historically determined to have the
most significant impact are the base
and trend longevity, persistency,
assured mortality and expenses.
Under IFRS 17 these assumptions
continue to be important.
Given the recent economic volatility
we continue to place additional focus
on future economic assumptions such
as inflation assumptions at the 2023
year-end date.
Additionally, the introduction of IFRS 17
has increased the importance of
economic assumptions, in particular
the setting of discount rates.
Finally, IFRS 17 explicitly requires that
a risk adjustment (‘RA’) be included
above the best estimate cashflows
within the liability for incurred claims.
IFRS 17 does not specify the
estimation technique that should be
used to determine the risk adjustment,
so management must develop an
appropriate estimation technique.
Therefore, due to the inherent
judgment required to determine both
an appropriate technique and the
relevant inputs, we consider the RA
to be susceptible to management bias.
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155
FinancialsFinancials Key observations
communicated to the
Audit Committee
Based on our
procedures performed
we are satisfied that
revenue has been
recognised in-line
with the requirements
of IFRS17.
Independent auditor’s report continued
Risk area
Our response to the risk
Revenue recognition (Valuation
of Contractual Service Margin
(‘CSM’), and it’s subsequent release)
(Group) £409m (2022: £386m)
Refer to the Critical accounting
estimates (pages 177 to 178);
Accounting policies and note C1
of the consolidated financial
statements (pages 185 to 186).
At initial recognition, the CSM
relates to the unearned profit
under insurance contracts issued.
As services are provided under the
terms of these contracts, the CSM
is released to the Statement of
Comprehensive Income, reflecting
the profit relating to services
performed in the period.
There is a high degree of
complexity and estimation involved
in deriving the release patterns.
Additionally, it is necessary to
consider whether each contract
group is onerous, resulting in a
charge to the income statement.
To obtain sufficient audit evidence to conclude on the appropriateness
of revenue recognition, we engaged our actuaries as part of our audit
team and performed the following procedures:
•
performed walkthroughs of the process implemented by management
to determine the CSM (including both the derivation of the source data,
input of the data into the CSM model and output from the model) and
tested the design and operating effectiveness of key controls;
• compared the appropriateness of evaluated the methodology proposed
by management for the used to determine coverage units and tested the
appropriateness of the release of the CSM to the consolidated income
statement and tested the appropriateness of the coverage units;
leveraged our audit of the CSM at each statement of consolidated
financial position date to confirm that amounts released to the
consolidated income statement was reasonable and in line with
requirements of the standard;
•
• performed analytical procedures to identify unusual release patterns
and discussed these with management to understand and validate the
appropriateness of their selection;
• validated the actual and projected cashflows which are input into the
model on a sample basis by vouching back to source information; and
• substantively tested management’s assessment of onerous contracts to
confirm the completeness of those contracts designated as onerous and
ensure they have been calculated accurately.
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
(Group) (Equity release mortgages
£4.5bn; 2022: £3.9bn); (Modelled
debt securities £8.2bn; 2022: £6.4bn)
Refer to the Audit Committee Report
(page 99); Critical accounting
estimates (page 178); Accounting
policies and notes E1 and E2 of the
consolidated financial statements
(pages 195 to 205).
There has been no change in
our assessment of this risk from
the prior year.
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 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
the completeness and accuracy of
data feeding the valuation model.
ii)
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;
significant judgments involved
in setting the spread above
risk-free rate;
the subjectivity surrounding the
selection of the comparable
bonds to derive that spread; and
the reasonableness of
credit ratings.
ii)
iii)
iv)
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;
• corroborated 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:
•
obtained the ISAE 3402 SOC report of the OSPs covering the period
to 30 September 2023, 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 2023 to 31
December 2023 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 Limited and ReAssure Limited components
and validated 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 test 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 compared 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
discussed the downgrade of credit ratings or changes of spread in
management’s credit watchlist and known market risks in our independent
comparable values assessment.
•
•
•
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157
FinancialsFinancials Independent auditor’s report continued
Risk area
Our response to the risk
Key observations
communicated to the
Audit Committee
Risk area
Our response to the risk
Recoverability of intangibles from
the historical acquisitions of SLAL,
ReAssure and other associated
entities (Group) (AVIF £1.9bn;
2022: £2.2bn)
Refer to the Audit committee report
(page 99), the accounting policies and
note G2 of the consolidated financial
statements (pages 260 to 262)
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.
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:
• obtained and understood management’s process, model and assumptions
•
supporting the recoverability assessment;
tested design and implementation of the controls over the completeness
and accuracy of the data used in the recoverability assessment;
• validated management’s assessment of impairment indicators by
considering current market factors and evaluated their impact on the
ReAssure and Standard Life AVIF values as at 31 December 2023; and
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 2023.
• obtained management’s expectations of future profitability of the
acquired entities and validated the assumptions applied by management
by comparing key assumptions and judgments with experience of the
wider market and that of Phoenix.
To obtain sufficient audit evidence to conclude on the transition
to IFRS 17, we:
•
tested the design and implementation of key controls implemented
by management over the transition;
• assessed the appropriateness of the transition approach adopted
for each group of insurance contracts, including the judgements and
supporting estimates used to determine the Full Retrospective
Approach or Fair Value Approach, as applicable;
• assessed whether the judgements, methodology and assumptions applied
by management in determining their accounting policies, including
simplifications, are in compliance with the IFRS 17 accounting standard
and have been implemented as intended;
• confirmed on a sample basis that the criteria used by management
in determining the units of account were in line with the requirements
of IFRS 17 and had been applied as intended;
• validated the integrity of new models implemented on transition by
considering the testing performed by management and, where necessary,
performing independent model validation activity on a sample basis,
comparing the output between our calculations and those produced
by management;
tested the completeness and accuracy of new data flows and system
interfaces incorporated within the IFRS 17 production process; and
•
• corroborated the completeness of management’s estimate of the
impact of implementing IFRS 17 on equity and profit before tax.
Transition to IFRS 17 Insurance
contracts, including the selection
and application of accounting
policies and financial statement
and other disclosures (Group)
Refer to the Audit Committee Report
(page 98); Accounting policy note
A2.1 of the consolidated financial
statements (pages 172 to 174).
The transition to IFRS 17, the new
insurance accounting standard,
effective for annual reporting periods
beginning on or after 1 January 2023,
has resulted in significant change to
the Group’s reporting processes and
consolidated financial statements.
IFRS 17 has introduced new financial
statement line items and disclosures
and has required significant changes
to the measurement of insurance
contract assets and liabilities.
This has also resulted in the additional
disclosure of the transition Statement
of consolidated financial position as at
1 January 2022 and the restatement
of the comparative Statement of
consolidated financial position and
Statement of comprehensive income
for 2022. New systems, data flows,
system interfaces and models have
been implemented, increasing the
risks of material misstatement.
Key observations
communicated to the
Audit Committee
Through the procedures
performed, we have
determined that
management have
appropriately
implemented the IFRS 17
Insurance contracts
accounting standard
within their financial
reporting and this is
reflected within the
transition Statement of
consolidated financial
position as at 1 January
2022 and the
restatement of the
comparative Statement
of consolidated financial
position and Statement
of comprehensive
income for 2022
incorporated within
the consolidated
financial statements.
We consider the key risks in relation to
the implementation of IFRS 17 include:
i)
the risk of management’s
methodology and
assumptions being out
of line with the standard;
the risk of management’s
transition approach (including
use of the Full Retrospective or
Fair Value Approach) being out
of line with the standard;
the implementation of new
models to produce the IFRS 17
results, including the CSM
calculation engine;
the new data flows and system
interfaces arising from the
implementation of IFRS 17; and
the risk of management’s
application of units of account
being inappropriate.
ii)
iii)
iv)
v)
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159
FinancialsFinancials Key observations
communicated to the
Audit Committee
Based on the work
performed and the
evidence obtained, we
consider the carrying
amount of the company’s
investments in Group
entities to be appropriate.
Independent auditor’s report continued
Risk area
Our response to the risk
We performed the following audit procedures related to the recoverability of
the parent company’s investments in group undertakings:
•
tested the reasonableness and appropriateness of the assumptions used
in the cash flows based on our knowledge of the Group and the markets
in which the subsidiaries operate;
• evaluated and corroborated the methodology used in determining the
discount rate applied, including engaging our valuation experts to assess
the appropriateness of the inputs into the discount rate;
• obtained management’s assessment of the terminal value and validated the
assumptions applied by management by comparing key assumptions and
judgments with experience of the wider market and that of Phoenix; and
• evaluated the adequacy of the Company’s disclosures.
Recoverability of the Parent
Company’s investments in Group
undertakings (Company)
Refer to the Parent Company
accounting policy on Investments
in Group entities (page 294) and
the Parent Company’s financial
statements – Investments in Group
entities (page 301).
The carrying amount of the Parent
Company’s investments in subsidiaries
is significant and in excess of the
market capitalisation of the Group.
This gives rise to an indicator of
impairment. The estimated recoverable
amount of these balances is subjective
due to the inherent uncertainty in
forecasting trading conditions and
discounting future cash flows. The
effect of these matters is that, as part
of our risk assessment, we determined
that the recoverable amount of
investment in subsidiaries has a high
degree of estimation uncertainty.
Under IAS 36 the recoverable amount
is the higher of value in use (‘VIU’)
and fair value less costs of disposal
(‘FVLCD’) and calculating both the
VIU and the FVLCD is not necessary
if either of these amounts exceeds the
asset’s carrying amount. Management
calculated a VIU which exceeded the
carrying amount of the investment
at year end, indicating no impairment
is required.
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 £93 million
(2022: £83 million), which is 2% of Group IFRS adjusted shareholders’
equity (2022: 2% of total equity attributable to owners of the Parent).
Prior to the implementation of IFRS 17, we set materiality at 2%
of equity attributable to owners of the Parent on the basis that
it most closely correlated with key Group performance metrics
of Solvency II surplus and Own Funds.
Under IFRS 17, revenue and profit recognition of day 1 gains on
annuity contracts is deferred into recognition at a point in the future,
by being added to the contractual service margin (‘CSM’). This has
seen the development of an APM, IFRS adjusted shareholder equity
(“Adjusted Equity”) across the UK life insurance industry. Whilst this
is an APM, it is the addition of two IFRS measures from the IFRS
Statement of financial position. These considerations have led us
to conclude that Adjusted Equity is the most appropriate measure
on which to base our materiality under IFRS 17 since this measure
is the closest IFRS measure to Solvency II Own Funds.
We determined materiality for the Parent Company to be £131 million
(2022: £139 million), which is 2% (2022: 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. 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 – £2.50bn (Total equity attributable to parent)
• Based on 31 December 2023
• Addition of CSM – net of tax £2.14bn
Starting
basis
Adjustments
Materiality
• Totals £4.64bn (Adjusted equity)
• Materiality of £93m (2% of Adjusted equity)
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement was that
performance materiality was 50% (2022: 50%) of our planning
materiality, namely £46 million (2022: £41 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 £10 million to
£36 million (2022: £8 million to £27 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 £5 million
(2022: £4 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 324, 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.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
161
FinancialsFinancials 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.
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 143;
• 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 58;
• 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 59;
• Directors’ statement on fair, balanced and understandable set
out on page 145;
• Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 57;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems
set out on page 97; and;
• The section describing the work of the audit committee set out
on page 92 to 99.
Responsibilities of Directors
As explained more fully in the Directors’ statement of responsibilities
set out on page 147, 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 most significant are relevant laws and regulations related
to elements of company law and tax legislation, and the financial
reporting framework. Our considerations of other laws and
regulations that may have a material effect on the financial
statements included permissions and supervisory requirements
of the Prudential Regulation Authority (‘PRA’), the Financial
Conduct Authority (‘FCA’) and the UK Listing Authority (‘UKLA’).
• We understood how Phoenix Group Holdings plc is complying
with those frameworks by making enquiries of management and
those responsible for legal and compliance matters. We also
reviewed correspondence between the company and UK
regulatory bodies; reviewed minutes of the Group board and
its committees; and gained an understanding of the Group’s
approach to governance, demonstrated by the board’s approval
of the Group’s governance framework.
• 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.
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
22 March 2024
• The fraud risk was considered to be higher within the valuation
of insurance contract assets and 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;
– 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.
• Our procedures involved: making enquiries of those charged
with governance and senior management for their awareness of
any non-compliance of laws or regulations, enquiring about the
policies that have been established to prevent non-compliance
with laws and regulations by officers and employees, enquiring
about the Company’s methods of enforcing and monitoring
compliance with such policies, and inspecting significant
correspondence with the PRA and FCA.
• The Company operates in the insurance industry which is a
highly regulated environment. As such the Senior Statutory
Auditor considered the experience and expertise of the
engagement team to ensure that the team had the appropriate
competence and capabilities, which included the use of
specialists where appropriate.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our Auditor’s Report.
Other matters we are required to address
• Following the recommendation from the audit committee, we were
appointed by the Company on 13 December 2018 to audit the
financial statements for the year ending 31 December 2018 and
subsequent financial periods.
The period of total uninterrupted engagement including previous
renewals and reappointments is six years, covering the years
ending 31 December 2018 to 31 December 2023.
• The audit opinion is consistent with the additional report to the
audit committee.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
163
FinancialsFinancials Statement of comprehensive income
For the year ended 31 December 2023
Loss for the year
Other comprehensive (expense)/income:
Items that are or may be reclassified to profit or loss:
Cash flow hedges:
Fair value (losses)/gains arising during the year
Reclassification adjustments for amounts recognised in profit or loss
Exchange differences on translating foreign operations
Items that will not be reclassified to profit or loss:
Remeasurement of owner-occupied property
Remeasurements of net defined benefit asset/liability
Tax credit/(charge) relating to other comprehensive income items
Total other comprehensive (expense)/income for the year
Total comprehensive expense for the year
Attributable to:
Owners of the parent
Non-controlling interests
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
Notes
2023
(88)
2022
restated1
(2,657)
D3
D3
D3
G1
C8
D5
(107)
75
4
2
(66)
21
(71)
181
(186)
32
(5)
940
(283)
679
(159)
(1,978)
(187)
28
(159)
(2,045)
67
(1,978)
Consolidated income statement
For the year ended 31 December 2023
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts
Net expenses from reinsurance contracts
Insurance service result
Fees and commissions
Net investment income/(expense)
Other operating income
Gain on acquisition
Total income/(expense)
Net finance (expense)/income from insurance contracts
Net finance income/(expense) from reinsurance contracts
Net insurance finance (expense)/income
Change in investment contract liabilities
Change in reinsurers’ share of investment contract liabilities
Amortisation and impairment of acquired in-force business
Amortisation of other intangibles
Administrative expenses
Net (expense)/income attributable to unitholders
Profit/(loss) before finance costs and tax
Finance costs
Profit/(loss) for the year before tax
Tax (charge)/credit attributable to policyholders’ returns
Loss before the tax attributable to owners
Tax (charge)/credit
Add: tax attributable to policyholders’ returns
Tax credit 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)
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
Notes
C1
C5
C5
C2
C3
H2
C4
C4
G2
G2
C5
C7
C8
C8
C8
C8
D5
B3
B3
2023
£m
4,861
(4,354)
507
(180)
327
967
20,840
86
66
22,286
(6,982)
179
(6,803)
(13,894)
873
(318)
(6)
(1,674)
(186)
278
(258)
20
(184)
(164)
(108)
184
76
(88)
(116)
28
(88)
2022
restated1
£m
5,142
(5,248)
(106)
(162)
(268)
858
(38,012)
102
–
(37,320)
22,879
(1,053)
21,826
14,487
(1,448)
(349)
(6)
(1,421)
372
(3,859)
(230)
(4,089)
577
(3,512)
1,432
(577)
855
(2,657)
(2,724)
67
(2,657)
(13.8)p
(13.8)p
(274.9)p
(274.9)p
164
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Phoenix Group Holdings plc Annual Report and Accounts 2023
165
FinancialsFinancials Statement of consolidated financial position
As at 31 December 2023
ASSETS
Pension scheme asset
Reimbursement rights
Intangible assets
Goodwill
Acquired in-force business
Brands
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
Insurance contract assets
Reinsurance contract assets
Deferred tax asset
Current tax receivable
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
Notes
31 December 2023
£m
31 December 2022
restated1
£m
1 January 2022
restated1
£m
G1
G1
G2
G3
G4
E3
H4
E1
F1
F1
G8
G8
G5
G6
H3
26
204
10
1,912
106
2,028
14
205
10
2,177
112
2,299
36
212
10
2,509
118
2,637
106
125
130
3,698
3,727
5,283
248
2,766
87,628
349
93,374
78,909
9,672
272,946
–
4,876
4,876
143
502
439
2,578
7,168
4,594
299,308
268
4,068
76,737
329
83,116
75,389
9,065
248,972
48
4,071
4,119
158
519
403
4,455
8,839
7,205
281,040
465
4,567
86,981
431
104,761
85,995
9,961
293,161
65
4,720
4,785
–
419
354
1,693
9,112
9,946
327,768
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
Approved by the Board on 21 March 2024.
Andy Briggs
Chief Executive Officer
Company registration number 11606773.
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 liabilities
Insurance contract liabilities
Reinsurance contract liabilities
Financial liabilities
Investment contracts
Borrowings
Derivatives
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Provisions
Deferred tax liabilities
Current tax payable
Lease liabilities
Accruals and deferred income
Other payables
Liabilities classified as held for sale
Total liabilities
Total equity and liabilities
Notes
31 December 2023
£m
31 December 2022
restated1
£m
1 January 2022
restated1
£m
D1
D2
D1
D3
D4
D5
100
16
(15)
91
1,819
16
469
2,496
494
549
3,539
100
10
(13)
87
1,819
46
1,162
3,211
494
532
4,237
100
6
(12)
55
1,819
56
3,743
5,767
494
460
6,721
G1
2,557
2,520
3,103
F1
F1
E5
E3
E1
G7
G8
G8
G9
G10
G11
H3
115,741
147
115,888
158,004
3,892
3,342
2,921
1,005
169,164
155
257
41
74
579
2,272
4,782
295,769
107,608
7
107,615
141,169
3,980
5,875
3,042
1,706
155,772
184
309
34
92
544
1,373
8,360
276,803
132,497
–
132,497
157,449
4,225
1,248
3,592
3,442
169,956
184
1,407
19
99
551
1,485
11,746
321,047
299,308
281,040
327,768
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
166
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Phoenix Group Holdings plc Annual Report and Accounts 2023
167
FinancialsFinancials Statement of consolidated changes in equity
For the year ended 31 December 2023
Statement of consolidated changes in equity
For the year ended 31 December 2022
Shares held
by the
employee
benefit
trust (note
D2)
£m
(13)
Share
capital
(note D1)
£m
100
Share
premium
(note D1)
£m
10
Foreign
currency
translation
reserve
£m
87
Merger
relief
reserve
(note D1)
£m
1,819
Other
reserves
(note D3)
£m
46
Retained
earnings
£m
1,162
Total
£m
3,211
Tier 1 Notes
(note D4)
£m
494
Non-
controlling
interests
(note D5)
£m
532
Total equity
£m
4,237
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
100
–
16
–
–
–
–
–
–
–
12
(14)
–
(15)
–
4
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(116)
(116)
(30)
(45)
(71)
(30)
(161)
(187)
–
–
–
–
–
–
–
6
(520)
(520)
–
–
22
(12)
22
–
–
(14)
–
–
–
–
–
–
–
–
–
28
(88)
–
(71)
28
(159)
–
–
6
(520)
(11)
(11)
–
–
–
22
–
(14)
–
91
–
1,819
–
16
(22)
469
(22)
2,496
–
494
–
549
(22)
3,539
At 1 January 20231
(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
Coupon paid on Tier 1
Notes, net of tax relief
At 31 December 2023
1 There has been no impact on equity from the transition to IFRS 9 Financial Instruments (see note A2.2 for further details).
Share
capital
(note D1)
£m
Share
premium
(note D1)
£m
Shares held
by
employee
benefit trust
(note D2)
£m
Foreign
currency
translation
reserve
restated1
£m
Merger
relief
reserve
(note D1)
£m
Other
reserves
(note D3)
£m
Retained
earnings
restated1
£m
Tier 1 Notes
(note D4)
£m
Total
£m
Non-
controlling
interests
(note D5)
£m
Total equity
restated1
£m
At 1 January 2022
(as reported)
Impact of transition to
IFRS 17 (note A2.1)
At 1 January 2022 (restated)
100
–
100
(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
employee benefit trust
Shares acquired by
employee benefit trust
Non-controlling interests
recognised on acquisition
Coupon paid on Tier 1
Notes, net of tax relief
At 31 December 2022
–
–
–
–
–
–
–
–
–
–
–
100
–
10
6
–
6
–
–
–
4
–
–
–
–
–
–
(12)
–
(12)
–
–
–
–
–
–
–
12
(13)
–
–
(13)
71
1,819
56
3,775
5,815
494
460
6,769
(16)
55
–
1,819
–
56
(32)
3,743
(48)
5,767
–
494
–
460
(48)
6,721
–
32
32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,724)
(2,724)
(10)
657
679
(10)
(2,067)
(2,045)
–
–
–
–
–
–
–
–
4
(496)
(496)
–
–
16
(12)
–
–
16
–
(13)
–
–
–
–
–
–
–
–
–
–
–
–
87
–
1,819
–
46
(22)
1,162
(22)
3,211
–
494
67
(2,657)
–
679
67
(1,978)
–
–
4
(496)
(10)
(10)
–
–
–
15
–
532
16
–
(13)
15
(22)
4,237
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
168
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Phoenix Group Holdings plc Annual Report and Accounts 2023
169
FinancialsFinancials Statement of consolidated cash flows
For the year ended 31 December 2023
Cash flows from operating activities
Cash (utilised)/generated by operations
Taxation paid
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of SLF of Canada UK Limited, net of cash acquired
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses
Ordinary share dividends paid
Dividends paid to non-controlling interests
Repayment of policyholder borrowings
Repayment of shareholder borrowings
Repayment of lease liabilities
Proceeds from new shareholder borrowings, net of associated expenses
Proceeds from new policyholder borrowings, net of associated expenses
Coupon paid on Tier 1 Notes
Interest paid on policyholder borrowings
Interest paid on shareholder borrowings
Net cash flows from financing activities
Net decrease 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
H2
B4
D5
E5.2
E5.2
G9
E5.2
E5.2
H3
2023
£m
(770)
(93)
(863)
(20)
(20)
6
(520)
(11)
(58)
(350)
(14)
346
64
(29)
(3)
(200)
(769)
2022
£m
1,019
(153)
866
–
–
4
(496)
(10)
(32)
(450)
(14)
–
61
(29)
(1)
(215)
(1,182)
(1,652)
(316)
8,872
(52)
7,168
9,188
(33)
8,839
Notes to the consolidated financial statements
A. Significant accounting policies
A1. Basis of preparation
The consolidated financial statements for the year ended 31 December 2023 set out on pages 164 to 290 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 21 March 2024.
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’) and the
legal requirements of the Companies Act 2006.
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. 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 having assessed the principal risks, forecasts, projections and other relevant
evidence for the period to 31 March 2025. Further details of the going concern assessment are included in the Directors’ Report on page 143.
A2. Adoption of new accounting pronouncements in 2023
In preparing the consolidated financial statements, the Group has adopted the following standards and amendments effective from 1 January
2023 and which have been endorsed by the UK Endorsement Board (‘UKEB’):
IFRS 17 Insurance Contracts – see note A2.1;
IFRS 9 Financial Instruments – see note A2.2;
•
•
• Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements). 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;
• Definition of Accounting Estimates (Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). 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;
•
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 Income Taxes). 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; and
International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12 Income Taxes). The scope of IAS 12 has been amended to clarify that
the standard applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published
by the OECD, including tax law that implements qualified domestic minimum top-up taxes described in those rules. The amendments
introduce a temporary exception to the accounting requirements for deferred taxes in IAS 12, so that an entity would neither recognise nor
disclose information about deferred tax assets and liabilities related to Pillar Two income taxes. The Group confirms that it has applied this
exception during the period.
The nature and impact of the adoption of IFRS 17 and IFRS 9 are disclosed in notes A2.1 and A2.2 below. The remaining amendments to standards
are not considered to have a material effect on these consolidated financial statements.
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171
FinancialsFinancials A. Significant accounting policies continued
A2.1 Adoption of IFRS 17 Insurance Contracts
The Group has adopted IFRS 17 effective from 1 January 2023 and comparative information for the year ended 31 December 2022 has been
retrospectively restated. IFRS 17 replaces IFRS 4 Insurance Contracts and significantly changes the way the Group recognises, measures,
presents and discloses its insurance contracts, investment contracts with discretionary participation features (‘DPF’) and reinsurance contracts
held. It introduces a model that measures groups of contracts based on the present value of future cash flows with an explicit risk adjustment for
non-financial risk and a contractual service margin (‘CSM’), representing the unearned profit to be recognised in profit or loss over the
coverage period.
New accounting policies adopted following the implementation of IFRS 17 are included within note F1 and critical accounting estimates and
judgements applied are detailed in note A4.
A2.1.1 Transition approach
Changes in accounting policies resulting from the adoption of IFRS 17 have been applied using a fully retrospective approach (‘FRA’) to the
extent practicable and using a Fair Value Approach (‘FVA’) approach where the FRA was considered impracticable. The FRA requires
the Group to:
identify, recognise and measure each group of insurance and reinsurance contracts as if IFRS 17 had always applied;
•
• derecognise any existing balances that would not exist had IFRS 17 always applied; and
•
recognise any resulting net difference in equity.
In determining whether it was practicable for the FRA transition method to be applied, the Group has considered the following key factors:
•
•
•
the ability to obtain assumptions and data at the required level of granularity, without the 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; and
the significant level of regulatory change experienced by the insurance industry, such as Solvency II, which impacts on the level of change
undertaken on both legacy and current policy administration and actuarial modelling systems.
The FRA has been applied to the following insurance business on transition to IFRS 17:
• bulk purchase annuities;
• annuities and unit-linked policies that originated from 1 January 2021 onwards for the acquired Standard Life Assurance business entities;
• SunLife policies that originated post 1 January 2018; and
• ReAssure Assurance Limited annuities and non-profit policies from acquisition date of the ReAssure entities.
The FVA has been applied to the Group’s remaining insurance business. On transition, 58% of the CSM (net of reinsurance) is calculated under
the FRA and 42% under the FVA. However, of the business transitioned under FRA a significant amount of the CSM relates to the ReAssure
business acquired in 2020 and fair valued at that date. Management therefore considers c.95% of the liabilities, equating to c.84% of the CSM,
to be a more accurate reflection of the use of the FVA.
In applying the FVA, the CSM (or loss component) has been determined 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. In determining the fair
value, the Group has applied the requirements of IFRS 13 Fair Value Measurement, except for the demand deposit floor requirement, as required
by IFRS 17. The fair value determined by the Group uses cash flows with contract boundaries consistent with IFRS 17 requirements. The
measurement of the fair value of contracts includes 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. Significant judgements and estimates used in determining the fair value have been set out in note A4.1.
The fair value for the groups of with-profits contracts, has been determined at transition date as the sum of the best estimate liability (‘BEL’); the
policyholders’ share of the estate; a risk premium; and other fair value adjustments, i.e. profits on annuities vesting into the non-profit fund.
The treatment for reinsurance contracts held at transition is similar to that for insurance contracts with a few exceptions. The reinsurance BEL is
calculated using the IFRS 17 discounted probability-weighted expected present value of the cash flows on transition date. The cash flows under
the reinsurance contract are stressed in order to calculate the risk premium, plus an adjustment is made for risk of reinsurer default (i.e. additional
risk of claims received being lower than the best estimate) in the risk premium.
A2.1.2 Impact of transition
Total equity attributable to owners of the parent
The Group has determined the quantitative impact of moving to IFRS 17 on 1 January 2022 to be a decrease in the total equity attributable to
owners of the parent of £48 million, from £5,815 million to £5,767 million. The main drivers of this reduction are:
Derecognition of intangible
assets related to contracts
measured under IFRS 17
Remeasurement of
insurance contract liabilities
(net of reinsurance)
On adoption of IFRS 17, the acquired in force business (‘AVIF’) and customer relationship
intangibles and deferred acquisition cost assets associated with the acquisition of insurance
contracts are no longer held as separate assets and instead are included implicitly in the
measurement of insurance contract assets and liabilities.
£m
(2,030)
The remeasurement of insurance contract liabilities primarily includes the following items:
5,481
•
•
removal of IFRS 4 margins as IFRS 17 requires cash flows to be measured on a best estimate
basis with the addition of an explicit adjustment for risk;
inclusion of future shareholder profits from with-profit and unit-linked business that are not
fully recognised under IFRS 4; and
• changes in the discount rate, most materially impacting annuity contracts.
Also included is the impact of a change in treatment in respect of hybrid contracts. These are
typically contracts which contain elements of unit-linked and with-profits. Under IFRS 4 these
components were separated and reported under IAS 39 and IFRS 4 respectively. Under IFRS
17 if the contract as a whole meets the definition of an investment with DPF contract, the whole
contract falls within the scope of IFRS 17 unless the criteria for a distinct investment component
is met. If it does not, the whole contract falls within the scope of IFRS 9. On transition a
significant proportion of the Group’s hybrid contracts were determined to fall within the scope
of IFRS 17 and did not meet the criteria to be separated into its components. A small portion of
hybrid contracts are accounted for under IFRS 9.
Recognition of a risk adjustment
(net of reinsurance)
IFRS 17 requires an explicit adjustment in respect of non-financial risk, this replaces some of the
margins for uncertainty implicitly included in the measurement of cash flows under IFRS 4.
The contractual service margin reflects the unearned profit to be recognised in profit or loss as
services are provided.
Recognition of a
contractual service margin
(net of reinsurance)
Changes in deferred tax
from the above items
Change in total equity
attributable to owners of
the parent
(1,061)
(2,430)
(8)
(48)
In addition to the above IFRS 17 has impacted how insurance and reinsurance contract-related balances are presented in the statement of
consolidated financial position. Certain assets and liabilities previously reported separately are now included within IFRS 17 balances, these
include balances such as unallocated surplus, deposits received from reinsurers and insurance contract/reinsurance payables/receivables and
payables related to direct insurance contracts. Other liabilities and assets have been partly reclassified within IFRS 17 liabilities and assets where
these balances relate to insurance contracts, such as provisions, loans and deposits (policy loans), other payables and other receivables. Costs
that are assessed as directly attributable to insurance contracts are accounted for under IFRS 17 and this includes those that would have
previously determined in accordance with the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets to be included
in provisions.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
173
FinancialsFinancialsNotes to the consolidated financial statements continued A. Significant accounting policies continued
A2.1.2 Impact of transition continued
Loss attributable to owners for the year ended 31 December 2022 continued
The impacts on the key line items in the Group’s statement of consolidated financial position are set out below:
Intangible assets
Financial assets
Insurance contract assets
Reinsurance contract assets
Other insurance/reinsurance receivables
Other assets
Total assets
Insurance contract liabilities
Unallocated surplus
Financial liabilities
Investment contracts
Deposits received from reinsurers
Provisions
Deferred tax liabilities
Other insurance/reinsurance payables
Other liabilities
Total liabilities
Total equity
31 December 2021
as previously
reported £m
4,565
293,192
–
8,587
139
27,316
333,799
Impact of
implementation of
IFRS 17 £m
(1,928)
(31)
65
(3,867)
(139)
(131)
(6,031)
128,864
1,801
160,417
3,569
235
1,399
2,007
28,738
327,030
6,769
3,633
(1,801)
(2,968)
(3,569)
(51)
8
(2,007)
772
(5,983)
(48)
1 January 2022
restated £m
2,637
293,161
65
4,720
–
27,185
327,768
132,497
–
157,449
–
184
1,407
–
29,510
321,047
6,721
Loss attributable to owners for the year ended 31 December 2022
As a result of adopting IFRS 17, the loss after tax attributable to owners for the year ended 31 December 2022 increased by £895 million from
a loss of £1,762 million to a loss of £2,657 million.
Adjusted operating profit before tax
Economic variances
Amortisation and impairment of acquired in-force business
Amortisation and impairment of other intangibles
Other non-operating items
Finance costs attributable to owners
Loss before tax attributable to owners of the parent
Profit before tax attributable to non-controlling interest
Loss before tax attributable to owners
Tax credit attributable to owners
Loss after tax attributable to owners
As previously
reported
£m
1,245
(2,673)
(501)
(21)
(179)
(199)
(2,328)
67
(2,261)
499
(1,762)
Restated
£m
544
(3,309)
(347)
(6)
(262)
(199)
(3,579)
67
(3,512)
855
(2,657)
Change
£m
(701)
(636)
154
15
(83)
–
(1,251)
–
(1,251)
356
(895)
Details of the adjusted operating profit methodology following the transition to IFRS 17 is set out in note B1.
The main drivers of this reduction are:
• the change in profit recognition pattern. Under IFRS 17 profits are spread over the life of contracts as service is provided. This includes the
deferral of new business profits from annuity contracts written in the period;
• economic variances have increased in relation to the Solvency II hedging in place. The interest rate sensitive liabilities reduce compared to
IFRS 4 as the majority of the Group’s CSM uses locked-in discount rates resulting in a higher level of ‘over-hedging’. In addition, the offset to
the losses primarily from interest rate hedging from gains arising on equity hedges in the previously reported numbers is reduced, as under
IFRS 17 these hedges now partially offset adverse market impacts arising in the income statement from unit-linked and with-profits business
which have a loss component;
• a reduction in amortisation of the element of acquired in-force (‘AVIF’) business associated with insurance contracts which is derecognised
on transition to IFRS 17; and
• other non-operating items have reduced due to costs that have been assessed as directly attributable to insurance contracts being included
in the calculation of the CSM.
A2.2 Adoption of IFRS 9 Financial Instruments
IFRS 9 replaced IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018. The
Group elected, under the amendments to IFRS 4, to apply the temporary exemption from IFRS 9, to defer the initial application date of IFRS 9 to
align with the initial application of IFRS 17. The Group has therefore adopted the requirements of IFRS 9 from 1 January 2023 and in accordance
with the transition provisions in the standard, comparatives have not been restated.
IFRS 9 introduces new requirements for classifying and measuring financial assets and liabilities, impairment methodology, and general hedge
accounting rules and replaced the corresponding sections of IAS 39.
New accounting policies adopted following the implementation of IFRS 9 are included within note E1.
A2.2.1 Classification and measurement of financial instruments
Financial assets
IFRS 9 requires all financial assets to be assessed based on a combination of the Group’s business model for managing the assets and the
instruments’ contractual cash flow characteristics. As a result of adopting IFRS 9 on 1 January 2023, certain loans and deposits and cash and
cash equivalents investment asset balances, previously classified as amortised cost, have now been reclassified at fair value through profit or loss
(‘FVTPL’) (mandatory) category. The classification adopted is driven by the business model assessment which determined that these assets are
managed and evaluated on a fair value basis. These financial assets, which back policyholder liabilities, are actively managed and therefore
support the wider objective of the Group to maximise Solvency II headroom. The reclassification of these assets has not resulted in an adjustment
to equity at 1 January 2023 as the fair value of these assets at this date was equal to the amortised cost.
Under IAS 39, certain underlying items of participating contracts were designated as at FVTPL because the Group managed them and
evaluated their performance on a fair value basis in accordance with a documented investment strategy. Under IFRS 9, portfolios of these assets
are mandatorily measured at FVTPL as the business model assessment concludes that they are managed and evaluated on a fair value basis and
consequently the classification as FVTPL remains unchanged upon adoption of IFRS 9.
All other financial assets that are not actively managed such as certain cash and cash equivalents, receivables and loans and deposits, are
typically held to collect cash flows and therefore continue to be classified as amortised cost under IFRS 9.
The Group has not elected to measure any equity securities financial assets at fair value through other comprehensive income (‘FVOCI’). Further,
no other debt securities financial assets are classified as FVOCI on adoption of IFRS 9.
Financial liabilities
IFRS 9 has not had a significant effect on the Group’s accounting policies for financial liabilities as the classification and measurement of financial
liabilities remains largely unchanged from IAS 39. Financial liabilities are either classified as amortised cost or at FVTPL.
Investment contracts without DPF, which do not transfer significant insurance risk, continue to be accounted for as a financial liability and
designated at FVTPL on the basis that these liabilities are both managed on a fair value basis and are designated as such to avoid an accounting
mismatch with the assets held to back them.
On transition to IFRS 17 and IFRS 9, deposits from reinsurers are no longer classified as financial liabilities under IFRS 9 in accordance with the
IFRS 17 requirements for ‘premium withheld’ arrangements. The premiums withheld have now become a component of fulfilment cash flows and
for contracts with deposit back arrangements, the presentation of the deposit back liability has now changed to be shown as an offset to the
reinsurance asset.
The Group has assessed the IFRS 9 requirement that changes in fair value of financial liabilities relating to credit risk be presented in OCI, with
the balance of the change in fair value to be presented in profit and loss, unless this treatment would create or enlarge an accounting mismatch
in profit and loss. Based on this assessment, no financial liabilities were identified as requiring split presentation of movements between OCI and
profit and loss as this would create an accounting mismatch as the assets held to back these liabilities are at FVTPL.
The valuation of investment contract liabilities without DPF are measured at the fair value of the related assets and liabilities. The liability is the
sum of the investment contract liabilities plus an additional amount to cover the present value of the excess of future policy costs over
future charges.
The application of the classification and measurement requirements in IFRS 9 at 1 January 2023 resulted in the following
reclassification adjustments:
IAS 39
IFRS 9
Financial assets
Loans and deposits1
Cash and cash equivalent1
1 Actively managed investment assets.
Measurement category
Amortised cost
Amortised cost
Carrying amount
£m Measurement category
254 FVTPL
8,423 FVTPL
Carrying amount
£m
254
8,423
A2.2.2 Impairment
The adoption of IFRS 9 has changed the Group’s accounting for impairment losses for financial assets held at amortised cost by replacing IAS
39’s incurred loss approach with a forward-looking expected credit loss (‘ECL’) approach. The new impairment model applies to the Group’s
financial assets carried at amortised cost.
A significant portion of Group’s financial assets are carried at FVTPL under IFRS 9 and are therefore not subject to ECL assessment. The other
financial assets classified as amortised cost and subject to ECL mainly relate to certain loan assets, other receivables and certain cash and cash
equivalents balances.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
175
FinancialsFinancialsNotes to the consolidated financial statements continued A. Significant accounting policies continued
A2.2.2 Impairment continued
In accordance with IFRS 9, the Group has applied the ECL model to financial assets measured at amortised cost. For these in-scope financial
assets at the reporting date either the lifetime expected credit loss or a 12-month expected credit loss is provided for, depending on the Group’s
assessment of whether the credit risk associated with the specific asset has increased significantly since initial recognition. The Group’s current
credit risk grading framework comprises the following categories:
Category
Description
Basis for recognising ECL
Performing
The counterparty has a low risk of default and does not have any past-due amounts
12 month ECL
Doubtful
In default
Write-off
There has been a significant increase in credit risk since initial recognition
Lifetime ECL – not credit impaired
There is evidence indicating the asset is credit impaired
There is evidence indicating that the counterparty is in severe financial difficulty
and the Group has no realistic prospect of recovery
Lifetime ECL – credit impaired
Amount is written off
The financial assets held at amortised cost are assessed at transition as ‘performing’ and this assessment is summarised below.
Loans and deposits – the Group has assessed the estimated credit losses of these loans and deposits as low due to the external credit ratings of
the counterparties resulting in low credit risk and there being no past-due amounts.
Other receivables – these balances relate to investment broker balances and other regular receivables due to the Group in the normal course of
business. Expected credit losses are assessed as being immaterial given the typically short-term nature of these balances.
Cash and cash equivalents – the Group’s cash and cash equivalents are held with banks and financial institutions, which have investment grade
credit ratings of “BBB” or above. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings
of the counterparties and no history of default. The impact to the net carrying amount stated in the table above is therefore considered not
to be material.
Based on the above assessment, an immaterial credit loss balance has been determined due to these financial assets being predominantly
short-term and having low credit risk.
A2.2.3 Hedge accounting
The Group has applied IFRS 9’s hedge accounting requirements. The Group uses cross currency swaps to hedge the currency risk arising from
borrowings denominated in foreign currencies. The Group has carried over the current hedging relationships as cash flow hedges under IFRS 9.
The IFRS 9 hedge accounting model requires the extended documentation of each hedging relationship. The Group has updated the existing
hedging documentation to reflect the changes to the effectiveness testing process to include qualitative testing on a prospective basis including
the analysis of the economic relationship between the hedged item and hedging instrument, analysis of source of hedge ineffectiveness,
determining the hedge ratio and assessment of whether the effect of credit risk dominates the value changes that result from the economic
relationship. The current hedging relationships are straightforward arrangements whereby the cross currency swaps fully hedge the underlying
hedged item and they are all fully collateralised.
A3. Accounting policies
The principal accounting policies have been consistently applied in these consolidated financial statements. An exception to this is where IFRS 9
has been adopted prospectively from 1 January 2023 and IAS 39 has been applied in the comparative period. 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.
A3.1 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
non-monetary items at fair value through profit or loss are reported as part of the fair value gain or loss.
A3.2 Other operating income
Other operating income includes income from all other operating activities which are incidental to the principal activities of the Group.
A4. 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 with DPF, determination of the
fair value of certain financial assets and liabilities, and valuation of pension scheme assets and liabilities.
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, the determination of adjusted operating profit, the recognition of an
investment as an associate and determination of control with regard to underlying entities.
Details of all critical accounting estimates and judgements are included below.
A4.1 Insurance contract and investment contract with DPF liabilities
The Group applies significant judgement and estimation when classifying and measuring insurance contracts, including determination of the
inputs, assumptions and techniques it uses to determine the BEL, risk adjustment and CSM at each reporting period to measure the insurance
contract and reinsurance contact liabilities/assets. The main areas where significant judgement and estimation were required are:
Contract classification
Classification of contracts as insurance (or reinsurance) is based upon an assessment of the significance of insurance risk transferred to the
Group. Insurance contracts are defined by IFRS 17 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.
Classification of contracts as investment with DPF is based upon an assessment of whether the discretionary amount of benefits is expected to
be a significant amount of the total benefits.
Measurement of insurance contract liabilities
In applying IFRS 17 requirements for the measurement of insurance contract liabilities, the following inputs and methods were used that include
significant estimates:
•
•
•
•
the present value of future cash flows is estimated using deterministic scenarios, except where stochastic modelling involves projecting future
cash flows under a large number of possible economic scenarios for market variables such as interest rates and equity returns and where the
cash flows reflect a series of interrelated options that are implicit or explicit;
the approach and assumptions used to derive discount rates, including any illiquid premiums (see note F11.2.1);
the approach and confidence level for estimating risk adjustments for non-financial risk (see note F11.2.2); and
the assumptions about future cash flows relating to mortality, morbidity, policyholder behaviour, and expense inflation (see note F11.2.3).
Details of how insurance contract liabilities are accounted for are included within the accounting policies in note F1.
Amortisation of the CSM
The Group applies judgements when determining the amount of the CSM for a group of insurance contracts to be recognised in profit or loss as
insurance revenue in each period to reflect the insurance contract services provided in that period. The amount is determined by considering for
each group of contracts the quantity of the benefits provided and its expected coverage period. Determining the coverage unit requires
significant judgement, taking into consideration a number of areas, including:
•
•
identification of a coverage unit that is deemed to be a suitable proxy for the service provided. This is particularly relevant for products that
provide a combination of different types of insurance coverage, investment-related service and investment-return service; and
the allowance for time value of money in the release of the coverage unit (i.e. whether or not the coverage units should be discounted).
For deferred annuities the weighting between the deferral phase and the payment phase coverage units is calculated so that the services
provided in the deferral phase reflect the investment return and those in the payment phase reflect the annuity payment with the total services
adjusted to provide a consistent level of service when transitioning between the deferral phase and the payment phase.
Following an assessment, the Group has determined the quantity of the benefits provided under each contract to be a suitable proxy for the
service provided as follows:
Type of business/products
Term life assurance
Endowment
Non-participating whole-life
Other protection products
Immediate annuity
Deferred annuity
Unit linked
Coverage unit (quantity of benefits)
Sum assured in force
Annuity payments
Fund size during deferred period and annuity payments for the
payment period
Annual management charge and insurance charges
Conventional with-profits (‘CWP’) & Unitised with-profits (‘UWP’)
Maximum of the guaranteed benefit and asset share
In relation to the application of discount rate in determining the coverage units, the Group has elected to apply discounting as this gives a more
even allocation of profit as services are provided over the life of a group of contracts. The discount rate is the locked-in rate for insurance
contracts measured under the general model (‘GM’) and current rates for insurance contracts measured under the variable fee approach (‘VFA’).
In addition, the sections noted below are areas where significant judgement and estimation has been required on transition to IFRS 17.
Determination of transition method and its application
The Group exercised significant judgement in determining which transition method was applied for each group of insurance contracts,
considering the impracticability assessment for the application of the FRA, including determining whether sufficient reasonable and
supportable information was available to apply the FRA. Where it was assessed that a FRA was impracticable, the Group determined, in line with
the options available in IFRS 17, to use the FVA.
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177
FinancialsFinancialsNotes to the consolidated financial statements continued A. Significant accounting policies continued
A4.1 Insurance contract and investment contract with DPF liabilities continued
Amortisation of the CSM continued
In applying the FVA, the Group has used reasonable and supportable information at the transition date in order to identify groups of insurance
contracts and to determine whether any contracts are considered to be direct participating contracts, which meet the VFA eligibility criteria.
For groups of contracts measured using the FVA, the Group has aggregated contracts issued more than one year apart.
In estimating the fair value, the Group has used significant judgement to determine adjustments required to reflect a market participant’s view,
and also to allocate fair value between groups of insurance contracts as follows:
• only relevant future cash flows within the boundaries of the insurance contracts were included in the fair value estimation;
• assumptions about BEL were adjusted and simplified by applying IFRS 17 parameters i.e. discount rate, expenses, contract boundary plus
incorporating the risk premium to reflect the view of a market participant;
• discount rates were determined at the transition date, based on the risk-free rate with an allowance for illiquid premium taken into account;
•
the risk premium was calibrated to a market participant view of an appropriate cost of capital rate; and
• a proportional approach was used to allocate the risk premium to each group of insurance contracts.
Eligibility assessment for use of VFA
The Group has issued unit-linked and with-profits contracts, which fall within the scope of IFRS 17, where the return on the underlying items is
shared with policyholders. Underlying items comprise mainly specified portfolios of investment assets for unit-linked contracts and the net assets
of a with-profits fund for with-profits policies that determine amounts payable to policyholders. The Group has exercised significant judgement
to assess whether the amounts expected to be paid to the policyholder constitute a substantial share of the fair value returns on the underlying
items. The policyholder’s share of the fair value returns on underlying items includes amounts deducted to cover non-investment services, e.g.
administration and risk charges. The fair value returns assumed on the underlying items also reflect the expected real world returns over the
duration of the contract or group of insurance contracts being tested.
Determination of contract boundaries
The assessment of the contract boundary defines which future cash flows are included in the measurement of a contract. This requires
judgement and consideration of the Group’s substantive rights and obligations under the contract. The Group exercises significant judgement in
determining the appropriate contract boundaries, taking into consideration a number of factors, including: features and terms and conditions of
products; any implied substantive obligations and rights arising from the features of the product or policyholder needs it is meeting; pricing
practices; and administrative practices.
Cash flows are within the boundaries of investment contracts with DPF if they result from a substantive obligation of the Group to deliver cash at
a present or future date.
Separating distinct investment components from insurance and reinsurance contracts
When assessing whether an investment component is distinct, the Group considers the following, which may indicate that the insurance and
investment component are highly interrelated:
the value of one component varies with the other component;
•
• existence of an option to switch between the different components;
• discounts that span both elements e.g. reduced asset management charges based on total size of contract; and
• other interacting features, e.g. insurance risk from premium waivers, return of premium covering both elements of the policy.
Where the investment component is non-distinct, the whole contract is measured under IFRS 17. Distinct investment components are separated
from the host insurance contract and measured under IFRS 9.
A4.2 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 E2.4.
A4.3 Pension scheme obligations
The valuation of pension scheme obligations is determined using actuarial valuations that depend upon a number of assumptions, including
discount rate, inflation and longevity. External actuarial advice is taken with regard to setting the financial assumptions to be used in the valuation.
As defined benefit pension schemes are long-term in nature, such assumptions can be subject to significant uncertainty.
Further details of these estimates and the sensitivity of the defined benefit obligation to key assumptions are provided in note G1.
A4.4 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 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’.
A4.5 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.
A4.6 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 44 of the Annual Report and Accounts.
Insurance and investment contract liabilities with DPF 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 2023 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 F11.
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.
A5. New accounting pronouncements not yet effective
The IASB has issued the following standards or amended standards and interpretations which apply from the dates shown. The Group has
decided not to early adopt any of these standards, amendments or interpretations where this is permitted.
Classification of Liabilities as Current and Non-current Liabilities with Covenants (Amendments to IAS 1 Presentation of Financial Statements)
(1 January 2024)
The initial 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.
Non-current Liabilities with Covenants (Amendments to IAS 1 Presentation of Financial Statements) (1 January 2024)
Further amendments were then made which specify that covenants of loan arrangements which an entity must comply with only after the reporting
date would not affect classification of a liability as current or non-current at the reporting date. However, those covenants that an entity is required
to comply with on or before the reporting date would affect classification as current or non-current, even if the covenant is only assessed after the
entity’s reporting date. The amendments also introduce additional disclosure requirements. When an entity classifies a liability arising from a loan
arrangement as non-current and that liability is subject to the covenants which an entity is required to comply with within 12 months of the reporting
date, the entity shall disclose information in the notes that enables users of financial statements to understand the risk that the liability could
become repayable within 12 months of the reporting period. These amendments are not expected to have any impact on the Group.
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases) (1 January 2024)
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.
Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures)
(1 January 2024)
The amendments add a disclosure objective to IAS 7 stating that an entity is required to disclose information about its supplier finance
arrangements that enables users of financial statements to assess the effects of those arrangements on the entity’s liabilities and cash flows. In
addition, IFRS 7 was amended to add supplier finance arrangements as an example within the requirements to disclose information about an
entity’s exposure to concentration of liquidity risk These amendments are not expected to have any impact on the Group.
Lack of Exchangeability (Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates) (1 January 2025)
The amendments clarify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate
when exchangeability is lacking, as well as require the disclosure of information that enables users of financial statements to understand the
impact of a currency not being exchangeable. These amendments are not expected to have any impact on the Group.
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
(Effective date deferred)
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed
to an associate or joint venture. These amendments are not expected to have any impact on the Group.
The following amendments to standards listed above have been endorsed for use in the UK by the UK Endorsement Board:
• Classification of Liabilities as Current and Non-current (Amendments to IAS 1);
• Non-current Liabilities with Covenants (Amendments to IAS 1);
• Lease Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases); and
• Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures).
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179
FinancialsFinancialsNotes to the consolidated financial statements continued Adjusted operating profit excludes the impacts of the following items:
Economic variances
•
the difference between actual and expected experience for economic items recognised in the income statement, impacts of economic
assumptions on the valuation of liabilities measured under the General Model and the change in value of loss components on Variable Fee
Approach business resulting from market movements on underlying items;
• economic volatility arising from the Group’s hedging strategy which is calibrated to protect the Solvency II capital position and cash
•
•
•
generation capability of the operating companies;
the accounting mismatch resulting from the application of IFRS 17 between the measurement of non-profit business in a with-profit fund
(noted above) and the change in fair value of this business included within the measurement of the with-profit contracts under the Variable
Fee Approach;
the accounting mismatch resulting from buy-in contracts between the Group’s pension schemes and Phoenix Life Limited, the Group’s main
insurance subsidiary. The mismatch represents the difference between the unwind of the IAS 19 discount rate calculated with reference to a
AA-rated corporate bond and the expected investment returns on the backing assets; and
the effect of the mismatch between changes in estimates of future cash flows on General Model contracts measured at current discount
rates and the corresponding adjustment to the CSM measured at the discount rate locked-in at inception.
Other
• amortisation and impairment 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);
•
•
•
• any other items which, in the Director’s view, should be disclosed separately by virtue of their nature or incidence to enable a full
the financial impacts of mandatory regulatory change;
the profit or loss attributable to non-controlling interests;
integration, restructuring or other significant one-off projects impacting the income statement; and
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.
The 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 adjusted operating profit
provides a good indicator of the underlying performance of the Group’s operating segments and the Group uses this, as part of a suite of
measures, for decision-making and monitoring performance. The Group’s adjusted operating profit should be read in conjunction with the
IFRS profit before tax.
Revisions to methodology
The methodology to determine adjusted operating profit has been revised, compared to that disclosed in the Interim Financial Report 2023,
for the following items:
• A 1-year (rather than a 15-year) risk-free rate has been used to derive the expected investment return assumption on assets backing
insurance contract liabilities to reduce unintended economic volatility (see note B2.1);
• an adjustment to remove mismatches between the discount rate used within the valuation of the Group’s pension scheme liabilities and the
returns on the underlying assets, as noted within Economic Variances above; and
• a refinement to the approach used to quantify the level of trading profits.
The segmental result for the year ended 31 December 2022 presented in note B1.1 incorporates these revisions. The impact of these revisions
is to reduce total segmental adjusted operating profit by £26 million, and correspondingly to increase economic variances by £26 million.
There is no impact on the loss before the tax attributable to owners of the parent.
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 value centres. During the period the Group reassessed its reportable segments to
reflect its transition to a purpose-led retirement specialist and the commencement of the grow, optimise and enhance stage of our strategic
journey. The Group now has five operating segments comprising Retirement Solutions, Pensions & Savings, With-Profits, SunLife & Protection,
and Europe & Other. The comparative information has been restated to reflect this change. For reporting purposes, operating segments 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. The SunLife & Protection operating segment has been aggregated with the Europe operating segment
into the Europe & Other reportable segment.
The Retirement Solutions segment includes new and in-force individual annuity and Bulk Purchase Annuity contracts written within
shareholder funds, with the exception of individual annuity contracts written as a result of Guaranteed Annuity Options on with-profit
contracts. Such contracts remain in the With-Profits segment following the transition to IFRS 17, as they fall within the contract boundary of the
original savings or pension contract. The Retirement Solutions segment also includes UK individual annuity business written within the
Standard Life Heritage With-Profit Fund as the profits are primarily attributable to the shareholder through the Recourse Cash Flow
mechanism established on demutualisation.
The Pensions & Savings segment includes new and in-force life insurance and investment unit-linked policies in respect of pensions and
savings products that the Group continues to actively market to new and existing policyholders. This includes products such as workplace
pensions and Self-Invested Personal Pension (‘SIPPs’) distributed through the Group’s Strategic Partnership with abrdn plc. In addition, it
includes in-force insurance and investment unit-linked products from legacy businesses which no longer actively sell products to
policyholders and which therefore run-off gradually over time. The Pensions & Savings segment also includes UK unitised business written in
the Standard Life Heritage With-Profit funds, as profits are primarily attributable to the shareholder through the Recourse Cash
Flow mechanism.
The With-Profits segment includes all policies written by the Group’s with-profit funds, with the exception of Standard Life Heritage With-
Profit Fund contracts reflected in other segments as noted above for Retirement Solutions and Pensions & Savings where profits are primarily
attributable to the shareholder through the Recourse Cash Flow mechanism.
The Europe & Other segment includes business written in Ireland and Germany. This includes products that are actively being marketed to
new policyholders and legacy in-force products that are no longer being sold to new customers. The segment also includes protection
products and products sold under the SunLife brand.
The Corporate Centre segment, which is not a reportable segment, principally comprises central head office costs that are not directly
attributable to the Group’s insurance or investment contracts. Management services costs are now allocated to the four reportable 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.
Segmental measure of performance: Adjusted operating profit
The Group uses a non-GAAP measure of performance, being adjusted operating profit, to evaluate segmental 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.
The Group’s adjusted operating profit methodology has been updated since it was disclosed in the 2022 consolidated financial statements
following the transition to IFRS 17 Insurance Contracts.
The following sets out the adjusted operating profit methodology:
For unit-linked business accounted for under IFRS 9, adjusted operating profit reflects the fees collected from customers less operating
expenses including overheads.
For unit-linked and With-Profits business accounted for under IFRS 17, adjusted operating profit reflects the release of the risk adjustment,
amortisation of CSM, and demographic experience variances in the period.
For shareholder annuity, other non-profit business and With-Profits funds receiving shareholder support accounted for under IFRS 17,
adjusted operating profit includes the release of the risk adjustment, amortisation of CSM, and demographic experience variances in the
period. Adjusted operating profit also incorporates an expected return on the financial investments backing this business and any surplus
assets, with allowance for the corresponding movement in liabilities.
Adjusted operating profit excludes the above items for non-profit business written in a With-Profits fund where these amounts do not accrue
directly to the shareholder.
Adjusted operating profit includes the effect of experience variances relating to the current period for non-economic items, such as mortality
and expenses. It also incorporates the impacts of asset trading and portfolio rebalancing where not reflected in the discount rate used in
calculating expected return.
Adjusted operating profit is reported net of policyholder finance charges and policyholder tax.
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181
FinancialsFinancialsNotes to the consolidated financial statements continued B. Earnings performance continued
B1.1 Segmental result
Adjusted operating profit
Retirement Solutions
Pensions & Savings
With-Profits
Europe & Other
Corporate Centre
Total segmental adjusted operating profit
Economic variances
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
Notes
B2.2
G2
2023
£m
378
190
10
132
(93)
617
147
(316)
(6)
(439)
(195)
(192)
28
2022
restated1
£m
349
150
54
60
(69)
544
(3,309)
(347)
(6)
(262)
(199)
(3,579)
67
B1.2 Segmental revenue
2023
Revenue from external customers:
Insurance revenue
Fees and commissions
Total segmental revenue
2022 restated1
Revenue from external customers:
Insurance revenue
Fees and commissions
Total segmental revenue
Retirement
Solutions
£m
3,751
–
3,751
Retirement
Solutions
£m
3,544
–
3,544
Pensions & Savings
£m
With-Profits
£m
Europe & Other
£m
272
828
1,100
267
52
319
571
87
658
Pensions & Savings
£m
With-Profits
£m
Europe & Other
£m
307
733
1,040
636
35
671
655
90
745
Total
£m
4,861
967
5,828
Total
£m
5,142
858
6,000
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
Of the revenue from external customers presented in the table above, £5,583 million (2022: £5,792 million) is attributable to customers in the
United Kingdom (‘UK’) and £245 million (2022: £208 million) to the rest of the world. No revenue transaction with a single customer external to
the Group amounts to greater than 10% of the Group’s revenue.
The Group has total non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under insurance
contracts) of £3,622 million (2022: £3,622 million) located in the UK and £299 million (2022: £352 million) located in the rest of the world.
Loss before the tax attributable to owners
(164)
(3,512)
B2. Investment return variances and economic assumption changes
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
Other non-operating items in respect of the year ended 31 December 2023 include:
• a gain on acquisition of £66 million reflecting the excess of the fair value of the net assets acquired over the consideration paid for the
acquisition of SLF of Canada UK Limited (see note H2 for further details);
• £169 million of costs associated with strategic growth initiatives, including investment in digital and direct asset sourcing capabilities,
establishment of the Group’s Bermudan reinsurance operations, and transformation of the Group’s operating model to support
efficient growth;
• £79 million of costs associated with the delivery of the Group Target Operating Model for IT and Operations, including the migration of
policyholder administration onto the Tata Consultancy Services (‘TCS’) platform. Under IFRS 17, the expected costs in respect of this activity
that are directly attributable to insurance contracts have been included within insurance contract liabilities;
• costs of £65 million associated with the implementation of IFRS 17;
• costs of £52 million associated with finance transformation activities, including the migration to cloud-based systems and enhancements to
actuarial modelling capabilities and the related control environment;
• costs of £49 million associated with the consolidation by Part VII transfer of four of the Group’s Life Companies into a single entity, completed
in the second half of 2023;
• a £36 million adverse impact from the strengthening of actuarial reserves associated with the Part VII transfer of certain European business
from the Group’s UK Life Companies to a newly established European subsidiary;
• £32 million of costs associated with ongoing integration programmes;
• £12 million of past service costs in relation to a Group pension scheme (see note G1 for further details); and
• Corporate project costs and net other one-off items totalling a cost of £11 million.
Other non-operating items in respect of the year ended 31 December 2022 include:
• £73 million of costs associated with a strategic initiative to enhance capabilities to support the move towards the Group’s strategic asset
allocation alongside growth delivered through bulk purchase annuity transactions, investment in digital capability and transformation of
operating model to support efficient growth;
• £47 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;
• costs of £31 million associated with the ongoing ReAssure integration programme;
• costs of £15 million associated with the implementation of IFRS 17;
• £15 million of past service costs in relation to a Group pension scheme. Further details are included in note G1.1;
• £14 million relating 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 acquisition of SLF of Canada UK Limited; and
• Corporate project costs and net other one-off items totalling a cost of £55 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.
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
Adjusted operating profit for life assurance business is based on expected investment returns on financial investments backing shareholder,
annuity, other non-profit business, With-Profit funds receiving shareholder support and surplus assets, with allowance for the corresponding
movements in liabilities.
The methodology to determine the expected investment returns on financial investments has been revised, compared to that disclosed in the
Interim Financial Report 2023, to use the 1-year (rather than 15-year) risk-free rate for deriving the expected investment return assumption on
assets backing the insurance contract liabilities to reduce unintended economic volatility as set out in note B1. The information below for the year
ended 31 December 2022 includes these revisions and is presented on a consistent basis to that at 31 December 2023.
The long-term risk-free rate used as the basis for deriving the long-term investment return is consistent with that set out in note F11.2.1 at the 1-year
duration for assets backing the insurance contract liabilities and surplus cash assets, and at the 15-year duration for surplus non-cash assets.
A risk premium of 380 bps is added to the risk-free yield for equities (31 December 2022: 370 bps), 50 bps for properties (31 December 2022:
280 bps) and 130bps for debt securities (31 December 2022: 80 bps).
The principal assumptions, determined as at 1 January of each reporting period, underlying the calculation of the long-term investment return
for surplus assets are:
Equities
Properties
Debt securities
2023
%
7.4
4.1
4.9
2022
%
4.6
3.7
1.7
During 2022 UK interest rates increased significantly, this had the impact of increasing the risk-free yield at the 15-year point by 271bps from
0.91% to 3.62%.
B2.2 Life assurance business
The economic variances excluded from the long-term business operating profit are as follows:
Economic variances
2023
£m
147
2022
£m
(3,309)
The net favourable economic variances of £147 million (2022: adverse £3,309 million) have primarily arisen as a result of a more stable market
environment compared with the significant volatility experience during 2022. The impact of positive changes to discount rates, primarily on
annuities and including the impact of methodology refinements (see note B2.1), more than offsets the losses arising from the impact of positive
equity market movements on the hedges the Group holds to protect the Solvency II position. As the full value of future profits impacted by
equity markets is not held on the IFRS balance sheet, this results in volatility in the Group’s IFRS results.
182
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
183
FinancialsFinancialsNotes 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.
2023
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
2022 (restated)1
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 profit
£m
617
(119)
498
–
–
Financing costs
£m
(195)
46
(149)
(22)
–
Adjusted operating
earnings net of
financing costs
£m
422
(73)
349
(22)
–
Other
non-operating
items
£m
(586)
149
(437)
–
(28)
498
(171)
327
(465)
Adjusted
operating profit
£m
544
(119)
425
–
–
Financing costs
£m
(199)
43
(156)
(22)
–
Adjusted operating
earnings net of
financing costs
£m
345
(76)
269
(22)
–
Other
non-operating items
£m
(3,857)
931
(2,926)
–
(67)
Total
£m
(164)
76
(88)
(22)
(28)
(138)
Total
£m
(3,512)
855
(2,657)
(22)
(67)
425
(178)
247
(2,993)
(2,746)
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
B4. Dividends
Final dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Group’s owners.
Interim dividends are deducted from equity when they are paid.
Dividends for the year that are approved after the reporting period are dealt with as an event after the reporting period. Declared dividends
are those that are appropriately authorised and are no longer at the discretion of the entity.
Dividends declared and paid in the year
2023
£m
520
2022
£m
496
On 10 March 2023, the Board recommended a final dividend of 26.0p per share in respect of the year ended 31 December 2022. The dividend
was approved at the Group’s Annual General Meeting, which was held on 4 May 2023. The dividend amounted to £260 million and was paid on
10 May 2023.
On 15 September 2023, the Board declared an interim dividend of 26.0p per share for the half year ended 30 June 2023. The dividend
amounted to £260 million and was paid on 23 October 2023.
C. Other Income Statement notes
C1. Insurance Revenue
The Group’s insurance revenue reflects the provision of services arising from a group of insurance contracts at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for those services. Insurance revenue from a group of insurance
contracts is therefore the relevant portion for the period of the total consideration for the contracts, (i.e. the amount of premiums paid to the
Group adjusted for financing effect (the time value of money) and excluding any investment components). The total consideration for a group
of contracts covers amounts related to the provision of services and is comprised of:
• the release of the CSM;
• changes in the risk adjustment for non-financial risk relating to current services;
• claims and other insurance service expenses incurred in the period, generally measured at the amounts expected at the beginning of the period;
• experience adjustments arising from premiums received in the period other than those that relate to future service;
•
insurance acquisition cash flows recovery which is determined by allocating the portion of premiums related to the recovery of those cash
flows on the basis of the passage of time over the expected coverage of a group of contracts; and
• other amounts, including any other pre-recognition cash flow assets derecognised at the date of initial recognition.
The amount of the CSM of a group of insurance contracts that is recognised as insurance revenue in each year is determined by identifying the
coverage units in the group, allocating the CSM remaining at the end of the year equally to each coverage unit provided in the year and
expected to be provided in future years, and recognising in profit or loss the amount of the CSM allocated to coverage units provided in the year.
The number of coverage units in a group is the quantity of service provided by the contracts in the group, determined by considering for each
contract the quantity of benefits provided under a contract and its expected coverage period. The coverage units are reviewed and updated
at each reporting date.
The weighted average number of ordinary shares outstanding during the period is calculated as follows:
The Group consider the following when determining coverage units:
Issued ordinary shares at beginning of the year
Effect of ordinary shares issued
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
2023
Number
million
1,000
1
2
(2)
1,001
2022
Number
million
1,000
–
1
(2)
999
The diluted weighted average number of ordinary shares outstanding during the period is 1,003 million (2022: 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
2,259,377 shares for the year ended 31 December 2023 (2022: 1,841,988 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 2022 or 31 December 2023.
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
2023
pence
(13.8)
(13.8)
32.7
32.6
2022
restated
pence
(274.9)
(274.9)
24.7
24.7
• the quantity of benefits provided by contracts in the group;
• the expected coverage period of contracts in the group;
• the likelihood of insured events occurring, only to the extent that they affect the expected coverage period of contracts in the group;
• for insurance contracts without direct participation features, the generation of an investment return for the policyholder, if applicable
(investment-return service); and
• for insurance contracts with direct participation features, the management of underlying items on behalf of the policyholder (investment-
related service).
The coverage units for groups of reinsurance contracts held are determined based on the quantity of coverage provided by the reinsurance
contracts held in the group but not the coverage provided by the insurer to its policyholders through the underlying insurance contracts.
However, where the reinsurance held is a 100% quota share arrangement, it is expected that the coverage units would be consistent with the
underlying insurance contracts. Where there is a change to the fulfilment cash flows of the group of underlying policies that does not adjust
the CSM, it also would not adjust the CSM of the group of reinsurance contracts.
2023
Amounts relating to changes in liabilities for remaining coverage:
CSM recognised in period for services provided
Change in risk adjustment for non-financial risk
Expected incurred claims and other insurance service expenses
Policyholder tax charges
Amounts relating to recovery of insurance acquisition cash flows
Insurance revenue
Comprising contracts measured using:
Fair value approach at transition
Fully retrospective approach at transition and new contracts
Retirement
Solutions
£m
Pensions &
Savings
£m
With-Profits
£m
Europe & Other
£m
Total
£m
260
39
3,450
1
1
3,751
1,887
1,864
25
8
233
6
–
272
262
10
77
4
169
17
–
267
257
10
47
12
497
1
14
571
420
151
409
63
4,349
25
15
4,861
2,826
2,035
184
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
185
FinancialsFinancialsNotes to the consolidated financial statements continued C. Other Income Statement notes continued
C1. Insurance Revenue continued
2022
Amounts relating to changes in liabilities for remaining coverage:
CSM recognised in period for services provided
Change in risk adjustment for non-financial risk
Expected incurred claims and other insurance service expenses
Policyholder tax charges
Amounts relating to recovery of insurance acquisition cash flows
Insurance revenue
Comprising contracts measured using:
Fair value approach at transition
Fully retrospective approach at transition and new contracts
C2. Fees and commissions
Retirement
Solutions
£m
Pensions &
Savings
£m
With-Profits
£m
Europe & Other
£m
Total
£m
207
76
3,260
–
1
3,544
1,828
1,716
13
11
300
(17)
–
307
307
–
99
8
546
(17)
–
636
602
34
67
7
564
1
16
655
479
176
386
102
4,670
(33)
17
5,142
3,216
1,926
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.
2023
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
2022
restated1
Fee income from investment contracts without DPF
Initial fees deferred during the year
Revenue from investment contracts without DPF
Other revenue from contracts with customers
Fees and commissions
Retirement
Solutions
£m
–
–
–
–
–
Retirement
Solutions
£m
–
–
–
–
–
Pensions & Savings
£m
814
–
814
14
828
Pensions & Savings
£m
727
–
727
6
733
With-Profits
£m
52
–
52
–
52
With-Profits
£m
35
–
35
–
35
Europe & Other
£m
60
(9)
51
36
87
Europe & Other
£m
72
(9)
63
27
90
Total
£m
926
(9)
917
50
967
Total
£m
834
(9)
825
33
858
1. Prior period comparatives have been restated on transition to IFRS17 Insurance Contracts ( see note A2.1 for further details).
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.
C3. 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 at FVTPL
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
Mandatorily held
Investment property
Net investment income
2023
£m
37
3,901
5,923
324
(109)
10,076
11,117
9
(362)
10,764
20,840
2022
restated1
£m
21
2,888
5,409
343
(64)
8,597
(38,539)
(6,707)
(1,363)
(46,609)
(38,012)
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
C4. Net finance (expense)/income from insurance contracts
Insurance finance income and expenses comprise changes in the carrying amounts of groups of insurance contracts arising from the effects
of the time value of money, financial risk and changes therein, unless any such changes for groups of direct participating contracts are
allocated to a loss component and included in insurance service expenses. They include changes in the measurement of groups of contracts
caused by changes in the value of underlying items. The Group presents insurance finance income or expenses in profit or loss.
2023
Insurance contracts issued
Changes in fair value of underlying items of direct
participating contracts
Group's share of changes in fair value of underlying items
or fulfilment cash flows that do not adjust the CSM
Unwind of discount on fulfilment cash flows
Interest accreted on the CSM
Effect of changes in interest rates and other
financial assumptions
Insurance finance expense
Reinsurance contracts held
Unwind of discount on fulfilment cash flows
Interest accreted on the CSM
Effect of changes in interest rates and other
financial assumptions
Reinsurance finance income
Retirement
Solutions
£m
–
–
(1,930)
(62)
31
(1,961)
272
23
(173)
122
Pensions & Savings
£m
With-Profits
£m
Europe & Other
£m
Total
£m
(581)
10
(902)
–
(117)
(1,590)
–
–
–
–
(629)
(376)
(1,586)
–
(1,320)
(10)
45
(1,914)
47
3
(5)
45
–
(1,040)
(5)
(96)
(1,517)
6
–
6
12
10
(5,192)
(77)
(137)
(6,982)
325
26
(172)
179
Net insurance finance expense
(1,839)
(1,590)
(1,869)
(1,505)
(6,803)
186
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
187
FinancialsFinancialsNotes to the consolidated financial statements continued C. Other Income Statement notes continued
C4. Net finance (expense)/income from insurance contracts continued
2022
Insurance contracts issued
Changes in fair value of underlying items of direct
participating contracts
Unwind of discount on fulfilment cash flows
Interest accreted on the CSM
Effect of changes in interest rates and other financial
assumptions
Policyholder tax
Insurance finance income
Reinsurance contracts held
Unwind of discount on fulfilment cash flows
Interest accreted on the CSM
Effect of changes in interest rates and other financial
assumptions
Reinsurance finance expense
Retirement
Solutions
£m
–
(698)
(44)
10,328
–
9,586
87
15
(423)
(321)
Pensions & Savings
£m
With-Profits
£m
Europe & Other
£m
Total
£m
2,066
(9)
–
8
(42)
2,023
–
–
–
–
3,235
(144)
(6)
2,373
(15)
5,443
43
3
(439)
(393)
4,402
(8)
(5)
1,182
256
5,827
12
–
(351)
(339)
9,703
(859)
(55)
13,891
199
22,879
–
–
142
18
(1,213)
(1,053)
Net insurance finance income
9,265
2,023
5,050
5,488
21,826
There is a close relationship between the net investment income in note C3, as it relates to assets backing contracts within the scope of IFRS 17,
and net insurance finance (expense)/income. Net investment income includes the results for all investment assets including those backing
investment contracts and surplus assets.
For Retirement Solutions the principal product is annuities. The insurance finance (expense)/income primarily reflects the unwind of the discount
rate on the liabilities. This is largely offset by the interest income earned, included within net investment income, on the assets backing the
annuity contracts which primarily consist of debt securities and equity release mortgages. Changes in the discount rates used to discount the
annuity cash flows in the measurement of the insurance contract liabilities are largely offset by changes in the fair value of the backing assets,
included in net investment income, in respect of BEL and risk adjustment.
Mismatches between net investment income and insurance finance expense arises for the following reason:
• the annuity business within the Retirement Solutions segment uses the General Model for measurement. As a result, the CSM is measured
using discount rates locked in at inception, whereas the assets backing the CSM are based on current economic assumptions.
• the discount rate for annuity business uses the Strategic Asset Allocation as set out in Note F11.2.1, and therefore insurance finance expenses
are impacted by changes to this reference portfolio where the asset mix is based on the strategic investment objectives of the Group. Net
investment income is determined with reference to the actual assets held by the Group during the reporting period.
• changes in non-economic assumptions for General Model business impacts BEL and risk adjustment using current discount rates and CSM
using locked in discount rates. This gives rise to a mismatch for which there is no corresponding item within net investment income.
For Pensions & Savings the principal products are unit-linked and hybrid contracts which contain an element of unit-linked and unitised
with-profits within a single contract. These contracts are measured primarily using the Variable Fee Approach as the amounts payable to
policyholders reflect a substantial share of the fair value returns on the backing assets. As a result the change in fair value of underlying items
within insurance finance (expense)/income will be closely matched by changes in the backing assets which are also measured at fair value.
The unwind of discount rate on cash flows within insurance finance (expenses)/income is offset by the investment income recognised in respect
of backing assets. The discount rate used for BEL and risk adjustment is determined on a bottom-up basis, as set out in note F11.2.1, based on the
liquidity characteristics of the liabilities rather than with reference to the backing assets and therefore a mismatch occurs.
For With-Profits business there are differing impacts dependent on the nature of the liabilities within the fund. For with-profit business without
guarantees the relationship between net investment income and insurance finance (expense)/income will be consistent with that for the business
within Pensions & Savings. In respect of guarantees, the value of these is typically influenced by changes in interest rates. The Group hedges its
interest rate risk in respect of these guarantees with derivatives such that the effect of changes in interest rates on guarantees within insurance
finance (expense)/income are largely offset by changes in the fair value of the derivatives used for hedging in net investment income.
For non-profit business in a with-profit fund where profits from these contracts accrue to the with-profit policyholders or to the with-profit fund
estate, the non-profit contracts and their backing assets are considered to be an underlying item of the with-profit contracts and therefore
changes in their fair value are included within insurance finance (expense)/income.
The non-profit contracts are measured based on their substance. For non-profit annuities which fall within the scope of IFRS 17, they are
measured using the IFRS 17 General Model and the treatment of the non-profit contract is consistent with the non-profit annuities within the
Retirement Solutions segment. The effect of these non-profit annuities on the income statement does not match the change in fair value
measurement used to measure their effect on the with-profit policyholders and therefore a mismatch arises. For unit-linked business which falls
within the scope of IFRS 9 it is measured in line with the Group’s accounting policy for investment contracts with this impact being taken through
‘change in investment contract liabilities’ and therefore is not included in net investment income. The assets backing the non-profit business in
the with-profit fund are typically measured at fair value with investment income and changes in fair value being included within net
investment income.
The Europe & Other segment contains business consistent with that in the segments noted above and will mirror the relationships between net
investment income and insurance finance (expense)/income as noted above for the relevant type of business. In addition, this segment contains
protection business which uses a bottom-up discount rate based on the liability characteristics rather than being based on the backing assets,
which leads to mismatches between net investment income and insurance finance (expenses)/income.
C5. Expenses
Insurance service expenses
Insurance service expenses arising from insurance contracts are recognised in profit or loss generally as they are incurred. They exclude
repayments of investment components and comprise the following items:
• adjustment to liabilities for incurred claims and benefits, excluding investment components reduced by loss component allocations;
• other incurred directly attributable expenses, including amounts of any other pre-recognition cash flows assets (other than insurance
acquisition cash flows) derecognised at the date of initial recognition;
insurance acquisition cash flows amortisation;
insurance acquisition cash flows assets impairment; and
•
•
• reversal of impairment of assets for insurance acquisition cash flows.
Net income or expense from reinsurance contracts held
Income and expenses from reinsurance contracts are presented separately from income and expenses from insurance contracts. Income and
expenses from reinsurance contracts, other than insurance finance income or expenses, are presented on a net basis as ‘net expenses from
reinsurance contracts’ in the insurance service result.
Net expenses from reinsurance contracts comprise an allocation of reinsurance premiums paid less amounts recovered from reinsurers.
The Group recognises an allocation of reinsurance premiums paid in profit or loss as it receives services under groups of reinsurance
contracts. The allocation of reinsurance premiums paid relating to services received for each period represents the total of the changes in the
asset for remaining coverage that relates to services for which the Group expects to pay consideration.
Administrative expenses
Administrative expenses are recognised in the consolidated income statement as incurred.
Total expenses are analysed by expenses type as follows:
Claim and benefits
(Reversal of losses)/losses on onerous insurance contracts
Cost of retroactive cover on reinsurance contracts held
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
Other
Amounts attributed to Insurance acquisition cash flows incurred during the year
Amortisation of insurance acquisition cash flows
Total expenses
Reported within:
Insurance service expenses
Net expenses from reinsurance contracts2
Administrative expenses
Total expenses
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
2 Reported as part of the ‘Net expenses from reinsurance contracts’ balance in the consolidated income statement.
2023
£m
1,441
(22)
3
664
308
571
155
260
413
20
21
13
7
66
78
3,998
(154)
15
3,859
4,354
(2,169)
1,674
3,859
2022
restated1
£m
2,290
531
2
611
247
441
145
172
569
25
19
15
7
63
26
5,163
(128)
17
5,052
5,248
(1,617)
1,421
5,052
188
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Phoenix Group Holdings plc Annual Report and Accounts 2023
189
FinancialsFinancialsNotes to the consolidated financial statements continued C. Other Income Statement notes continued
C5. Expenses continued
Employee costs comprise:
Wages and salaries
Social security contributions
Average number of persons employed
C6. Auditor’s remuneration
During the year the Group obtained the following services from its auditor at costs as detailed in the table below.
Audit of the consolidated financial statements
Audit of the Company’s subsidiaries
Audit-related assurance services
Total fee for assurance services
Total auditor’s remuneration
2023
£m
603
61
664
2023
Number
7,512
2023
£m
12.7
12.9
25.6
2.8
28.4
28.4
2022
£m
554
57
611
2022
Number
8,165
2022
£m
4.8
10.7
15.5
2.4
17.9
17.9
No services were provided by the Company’s auditors to the Group’s pension schemes in either 2023 or 2022.
The increase in the audit fee during 2023 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 (2022: £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 92-99.
C7. Finance costs
Interest payable is recognised in the consolidated income statement as it accrues and is calculated using the effective interest method.
C8.1 Current year tax charge/(credit)
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
Write down/(up) of deferred tax assets
Total deferred tax credit
Total tax charge/(credit)
Attributable to:
– policyholders
– owners
Total tax charge/(credit)
2023
£m
28
110
138
(16)
122
(14)
(6)
6
(14)
108
184
(76)
108
2022
restated1
£m
36
86
122
(23)
99
(1,348)
(206)
23
(1,531)
(1,432)
(577)
(855)
(1,432)
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
The Group, as a proxy for policyholders in the UK, is required to pay taxes on investment income and gains each year. Accordingly, the tax credit
or expense attributable to UK life assurance policyholder earnings is included in income tax expense. The tax charge attributable to policyholder
earnings was £184 million (2022: £577 million credit).
The 2023 current tax prior year adjustment arises principally from the carry back of tax losses arising from adverse market movements in 2022.
The carry back of losses reduces the tax charge relating to prior periods and is broadly offset by a reduction in tax losses carried forward to
future periods, on which a deferred tax asset is recognised. This is partially offset by true-ups from the tax reporting provisions in various entities
within the group.
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) 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 did not appeal against this decision and so the accrual for the potential tax liability
was released.
C8.2 Tax (credited)/charged to other comprehensive income
Interest expense
On financial liabilities at amortised cost
On leases
Attributable to:
– policyholders
– owners
C8. Tax charge/(credit)
2023
£m
256
2
258
8
250
258
2022
£m
227
3
230
3
227
230
Current tax credit
Deferred tax (credit)/charge on defined benefit schemes
C8.3 Tax credited to equity
Current and deferred tax credit on Tier 1 Notes
Deferred tax credit on unrealised gains and other items
Deferred tax charge on share schemes
Total tax credit
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.
2023
£m
(8)
(13)
(21)
2023
£m
(7)
(1)
–
(8)
2022
£m
–
283
283
2022
restated
£m
(7)
(10)
2
(15)
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191
FinancialsFinancialsNotes to the consolidated financial statements continued C. Other Income Statement notes continued
C8.4 Reconciliation of tax charge/(credit)
Profit/(loss) for the year before tax
Policyholder tax (charge)/credit
Loss before the tax attributable to owners
Tax credit at standard UK rate of 23.5% (2022:19%)1
Non-taxable gains2
Disallowable expenses
Prior year tax charge/(credit) for shareholders3
Movement on acquired in-force amortisation at rates other than 23.5% (2022: 19%)
Profits taxed at rates other than 23.5% (2022: 19%)4
Derecognition of previously recognised deferred tax assets5
Deferred tax rate change6
Current year losses not valued7
Other
Owners’ tax charge/(credit)
Policyholder tax charge/(credit)
Total tax charge/(credit) for the year
2023
£m
20
(184)
(164)
(39)
(16)
1
12
12
(25)
(39)
(6)
18
6
(76)
184
108
2022
restated
£m
(4,089)
577
(3,512)
(668)
(4)
3
(7)
20
12
10
(206)
(17)
2
(855)
(577)
(1,432)
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 Relates principally to a profit arising on consolidation due to the purchase of the SLF of Canada UK Limited, not subject to deferred tax.
3 The 2023 prior year tax charge relates to true-ups from the tax reporting provisions in various entities within the group.
4 Profits taxed at rates other than 23.5% relates to overseas profits, consolidated fund investments and UK life company profits subject to marginal shareholder tax rates
5 Relates principally to increases in the recognised value of tax attributes in SLIDAC offset by a reduction in the future value of capital losses in ReAssure Limited.
6 Deferred tax rate change relates primarily to movements in deferred tax liabilities which are expected to unwind at rates in excess of the current year rate of 23.5%.
7 Relates to losses accruing in Phoenix Life Assurance Europe DAC in relation to which a deferred tax asset cannot be recognised.
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:
1,001.5 million ordinary shares of £0.10 each (2022: 1,000.4 million)
2023
£m
100
2022
£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
2023
Number
1,000,352,477
1,185,942
1,001,538,419
2023
£
100,035,247
118,594
100,153,841
2022
Number
999,536,058
816,419
1,000,352,477
2022
£
99,953,605
81,642
100,035,247
During the year, 1,185,942 shares (2022: 816,419) were issued at a premium of £6 million (2022: £4 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
2023
£m
13
14
(12)
15
2022
£m
12
13
(12)
13
During the year 1,942,979 (2022: 1,764,660) shares were awarded to employees by the EBT and 2,477,897 (2022: 1,970,764) shares were purchased.
The number of shares held by the EBT at 31 December 2023 was 2,626,940 (2022: 2,092,022).
The Company provided the EBT with an interest-free non-recourse 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.
2023
At 1 January 2023
Other comprehensive income/(expense) for the year
At 31 December 2023
2022
At 1 January 2022
Other comprehensive expense for the year
At 31 December 2022
Owner-occupied
property
revaluation reserve
£m
–
2
2
Owner-occupied
property revaluation
reserve
£m
5
(5)
–
Cash flow hedging
reserve Total other reserves
£m
46
(30)
16
£m
46
(32)
14
Cash flow hedging
reserve
£m
51
(5)
46
Total other reserves
£m
56
(10)
46
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 (see note E5). Hedge accounting has been adopted effective from the date
of designation of the hedging relationship. The objective of the hedging relationships is to hedge the risk of variability in functional currency
equivalent cash flows with the foreign currency denominated borrowings due to changes in forward rates. The hedge ratio (i.e. the relationship
between the quantity of the hedging instrument and the quantity of the hedged item in terms of their relative weighting) is such that there is an
exact match in the relative weightings of the hedged items and hedging instruments within each of the hedging relationships.
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193
FinancialsFinancialsNotes to the consolidated financial statements continued
D. Equity continued
D4. Tier 1 notes
E. Financial assets & liabilities
E1. Fair values
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
2023
£m
494
2022
£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 (2022: £29 million).
At the issue date, the Tier 1 Notes were unsecured and subordinated obligations of Old PGH. On 12 December 2018, the Company was
substituted in place of Old PGH as issuer.
The Tier 1 Notes have no fixed maturity date and interest is payable only at the sole and absolute discretion of the Company; accordingly the Tier
1 Notes meet the definition of equity for financial reporting purposes and are disclosed as such in the consolidated financial statements. If an
interest payment is not made, it is cancelled and it shall not accumulate or be payable at any time thereafter.
The Tier 1 Notes may be redeemed at par on the First Call Date or on any interest payment date thereafter at the option of the Company and also
in other limited circumstances. If such redemption occurs prior to the fifth anniversary of the Issue Date, such redemption must be funded out of
the proceeds of a new issuance of, or exchanged into, Tier 1 Own Funds of the same or a higher quality than the Tier 1 Notes. In respect of any
redemption or purchase of the Tier 1 Notes, such redemption or purchase is subject to the receipt of permission to do so from the PRA.
On 27 October 2020, the terms of the Tier 1 Notes were amended and the consequence of a trigger event, linked to the Solvency II capital
position, was changed. Previously, the Tier 1 Notes were subject to a permanent write-down in value to zero. The amended terms require that the
Tier 1 Notes would automatically be subject to conversion to ordinary shares of the Company at the conversion price of £1,000 per share, subject
to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest would be cancelled. Following any
such conversion there would be no reinstatement of any part of the principal amount of, or interest on, the Tier 1 Notes at any time.
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
2023
£m
532
28
(11)
–
549
APEOT
2022
£m
460
67
(10)
15
532
The non-controlling interests of £549 million (2022: £532 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 2023, the Group held 53.6% (2022: 53.6%) 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 in cash and cash equivalents
2023
£m
586
10
596
47
37
28
28
(1)
2022
£m
554
12
566
34
74
67
67
(7)
Financial assets
Financial assets are to be classified into one of the following measurement categories: Fair value through profit or loss (‘FVTPL’), fair value
through other comprehensive income (‘FVOCI’) and amortised cost. Classification is made based on the objectives of the entity’s business
model for managing its financial assets and the contractual cash flow characteristics of the instruments.
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.
Equities, debt securities, collective investment schemes, derivatives and certain loans and deposits and cash and cash equivalents are
measured at FVTPL as they are managed and evaluated on a fair value basis.
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.
Where derivative financial instruments are held to hedge the Group’s Euro and US Dollar borrowings, the effective portion of 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. 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.
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 the expected credit losses associated with its loans and deposits, receivables, cash and cash equivalents and other
financial assets 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 Group 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 Group
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 Group will recognise a Lifetime ECL. ECLs are derived from unbiased and probability-
weighted estimates of expected loss.
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 consolidated income statement.
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 IFRS 9 Financial Instruments for the current period
(2022: 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 Group 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 Group 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).
194
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195
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E1. Fair values continued
E1.1 Fair value analysis
The table below sets out a comparison of the carrying amounts and fair values of financial instruments as at 31 December 2023:
Subsequent to initial recognition, financial liabilities (except for liabilities under investment contracts without DPF and other liabilities
designated at FVTPL) are measured at amortised cost using the effective interest method.
Financial liabilities are designated upon initial recognition at FVTPL 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.
Investment contracts without DPF are measured at fair value which is determined using a valuation technique to provide a reliable estimate of
the amount for which the liability could be transferred in an orderly transaction between market participants at the measurement date, subject
to a minimum equal to the surrender value. 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 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, 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
future investment management services are deferred and recognised as the services are provided.
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, 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 if: the Group’s hedging objective has changed (can result in a partial discontinuance); the hedged item or
hedging instrument no longer exists or is sold; there is no longer an economic relationship between the hedged item and the hedging
instrument; or the effect of credit risk starts to dominate the value changes that result from the economic relationship. 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.
2023
Financial assets
Financial assets mandatorily held at fair value through profit or loss (‘FVTPL’):
Loans and deposits
Derivatives
Equities1
Investment in associate (see note H4)1
Debt securities
Collective investment schemes1
Reinsurers' share of investment contract liabilities1
Financial assets measured at amortised cost:
Loans and deposits
Total financial assets
Less amounts classified as financial assets held for sale (see note H3)2
Total financial assets less financial assets classified as held for sale
2023
Financial liabilities
Financial liabilities mandatorily held at FVTPL:
Derivatives
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings
Net asset value attributable to unitholders1
Investment contract liabilities1
Financial liabilities measured at amortised cost:
Borrowings
Obligations for repayment of collateral received
Total financial liabilities
Less amounts classified as financial liabilities held for sale (see note H3)3
Total financial liabilities less financial liabilities held for sale
1 These assets and liabilities have no specified settlement date.
Carrying value
Amounts due for
settlement after 12
months
£m
Total
£m
4
2,338
–
–
79,994
–
–
17
231
2,769
87,656
349
94,785
79,937
9,700
17
275,444
(2,498)
272,946
Carrying value
Amounts due for
settlement after 12
months
£m
Total
£m
Fair value
£m
231
2,769
87,656
349
94,785
79,937
9,700
17
275,444
(2,498)
272,946
Fair value
£m
3,344
2,976
3,344
45
2,921
162,784
3,847
1,005
173,946
(4,782)
169,164
45
–
–
3,757
–
45
2,921
162,784
3,739
1,005
173,838
(4,782)
169,056
2 Amounts classified as financial assets held for sale include derivatives of £3 million, equities of £28 million, debt securities of £1,411 million, collective investment schemes of £1,028 million and reinsurers’
share of investment contract liabilities of £28 million.
3 Amounts classified as financial liabilities held for sale include derivative liabilities of £2 million and investment contract liabilities of £4,780 million.
2022 restated1
Financial assets
Financial assets mandatorily held at FVTPL:
Held for trading – derivatives
Financial assets designated at FVTPL upon initial recognition:
Equities2
Investment in associate (see note H4)2
Debt securities
Collective investment schemes2
Reinsurers' share of investment contract liabilities2
Financial assets measured at amortised cost:
Loans and deposits
Total financial assets
Less amounts classified as financial assets held for sale (see note H3)3
Total financial assets less financial assets classified as held for sale
Carrying value
Amounts due for
settlement after 12
months
£m
Total
£m
Fair value
£m
4,071
3,353
4,071
76,780
329
84,710
78,353
9,090
268
253,601
(4,629)
248,972
–
–
70,115
–
–
89
76,780
329
84,710
78,353
9,090
268
253,601
(4,629)
248,972
196
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197
FinancialsFinancialsNotes to the consolidated financial statements 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.
E. Financial assets & liabilities continued
E1.1 Fair value analysis continued
2022 restated1
Financial liabilities
Financial liabilities mandatorily held at FVTPL:
Held for trading – derivatives
Financial liabilities designated upon initial recognition:
Borrowings
Net asset value attributable to unitholders2
Investment contract liabilities2
Financial liabilities measured at amortised cost:
Borrowings
Obligations for repayment of collateral received
Total financial liabilities
Less amounts classified as financial liabilities held for sale(see note H3)4
Total financial liabilities less financial liabilities held for sale
Carrying value
Amounts
due for settlement
after 12 months
£m
Total
£m
Fair value
£m
5,879
5,118
5,879
64
3,042
149,481
3,916
1,706
164,088
(8,316)
155,772
64
–
–
3,648
–
64
3,042
149,481
3,644
1,706
163,816
(8,316)
155,500
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
2 These assets and liabilities have no specified settlement date.
3 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.
4 Amounts classified as financial liabilities held for sale include derivative liabilities of £4 million and investment contract liabilities of £8,312 million.
E1.2 impairment of financial assets held at amortised cost
The adoption of IFRS 9 has changed the Group’s accounting for impairment losses for financial assets held at amortised cost by replacing
IAS 39’s incurred loss approach with a forward-looking expected credit loss (‘ECL’) approach. The new impairment model applies to the Group’s
financial assets carried at amortised cost.
A significant portion of the Group’s financial assets are carried at FVTPL under IFRS 9 and are therefore not subject to ECL assessment. The
financial assets classified as amortised cost and subject to ECL mainly relate to certain loan assets, other receivables and certain cash and cash
equivalents balances.
For the in-scope financial assets at the reporting date either the lifetime expected credit loss or a 12-month expected credit loss is provided for,
depending on the Group’s assessment of whether the credit risk associated with the specific asset has increased significantly since initial
recognition. The Group’s current credit risk grading framework comprises the following categories:
Category
Description
Basis for recognising ECL
Performing
The counterparty has a low risk of default and does not have any past-due amounts
12 month ECL
Doubtful
In default
Write-off
There has been a significant increase in credit risk since initial recognition
Lifetime ECL – not credit impaired
There is evidence indicating the asset is credit impaired
There is evidence indicating that the counterparty is in severe financial difficulty
and the Group has no realistic prospect of recovery
Lifetime ECL – credit impaired
Amount is written off
The financial assets held at amortised cost are assessed at transition as ‘performing’ and this assessment is summarised below.
Loans and deposits – the Group has assessed the estimated credit losses of these loans and deposits as low due to the external credit ratings of
the counterparties resulting in low credit risk and there being no past-due amounts.
Other receivables – these balances relate to investment broker balances and other regular receivables due to the Group in the normal course of
business. Expected credit losses are assessed as being immaterial given the typically short-term nature of these balances.
Cash and cash equivalents – the Group’s cash and cash equivalents are held with banks and financial institutions, which have investment grade
credit ratings of ‘BBB’ or above. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings
of the counterparties and, there being no history of default. The impact to the net carrying amount stated in the table above is therefore not
considered to be material.
Based on the above assessment, an immaterial credit loss balance has been determined due to these financial assets being predominantly
short-term and having low credit risk.
198
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199
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E2.2 Fair value hierarchy of financial instruments
The tables below separately identify financial instruments carried at fair value from those measured on another basis but for which fair
value is disclosed.
2023
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Loans and deposits
Derivatives
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 measured at amortised cost for which fair values are disclosed
Loans and deposits
2023
Financial liabilities measured at fair value
Financial liabilities designated at FVTPL
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
Total financial liabilities measured at fair value, excluding amounts classified as held for sale
Financial liabilities measured at amortised cost for which fair values are disclosed
Borrowings
Obligations for repayment of collateral received
Total financial liabilities measured at amortised cost for which fair values are disclosed
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
–
139
85,029
349
45,529
76,343
9,700
217,089
(1,639)
215,450
231
2,398
132
–
35,438
3,193
–
41,392
(181)
41,211
–
232
2,495
–
13,818
401
–
16,946
(678)
16,268
231
2,769
87,656
349
94,785
79,937
9,700
275,427
(2,498)
272,929
–
215,450
17
41,228
–
16,268
17
272,946
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
152
2,986
206
3,344
–
2,921
–
2,921
3,073
–
3,073
–
–
–
3,073
–
–
162,784
162,784
165,770
(4,782)
160,988
3,739
1,005
4,744
165,732
45
–
–
45
251
–
251
–
–
–
251
45
2,921
162,784
165,750
169,094
(4,782)
164,312
3,739
1,005
4,744
169,056
2022 restated1
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
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 measured at amortised cost for which fair values are disclosed
Loans and deposits
2022 restated1
Financial liabilities measured at fair value
Financial liabilities mandatorily at FVTPL
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
Total financial liabilities measured at fair value, excluding amounts classified as held for sale
Financial liabilities measured at amortised cost for which fair values are disclosed
Borrowings
Obligations for repayment of collateral received
Total financial liabilities measured at amortised cost for which fair values are disclosed
1. Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
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
9,090
207,996
208,161
(3,661)
204,500
124
–
25,094
2,079
–
27,297
31,051
(179)
30,872
2,192
–
11,465
312
–
13,969
14,121
(789)
13,332
76,780
329
84,710
78,353
9,090
249,262
253,333
(4,629)
248,704
–
204,500
261
31,133
7
13,339
268
248,972
Level 1
£m
Level 2
£m
Level 3
£m
Total fair value
£m
98
5,538
–
3,042
–
3,042
3,140
–
3,140
–
–
–
3,140
–
–
149,481
149,481
155,019
(8,316)
146,703
3,644
1,706
5,350
152,053
243
64
–
–
64
307
–
307
–
–
–
307
5,879
64
3,042
149,481
152,587
158,466
(8,316)
150,150
3,644
1,706
5,350
155,500
200
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Phoenix Group Holdings plc Annual Report and Accounts 2023
201
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E2.3 Significant inputs and input values for Level 3 financial instruments
Description
Equities
Valuation technique
Single broker1 and
net asset value2
Significant inputs
Single broker
indicative price
Key unobservable input value
2023
N/A
2022
N/A
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
Equity Release Mortgage loans (‘ERM’)
DCF model3
DCF model3
DCF model3
DCF model3
DCF model3
DCF model and
Black-Scholes
model4
Commercial real estate loans
DCF model3
Credit spread
Credit spread
Credit spread
Credit spread
Credit spread
78bps
(weighted average)
145bps
(weighted average)
160bps
(weighted average)
139bps
(weighted average)
130bps
(weighted average)
256bps over Sonia plus
36bps
111bps
(weighted average)
169bps
(weighted average)
220bps
(weighted average)
164bps
(weighted average)
137bps
(weighted average)
260bps over the IFRS
reference curve
House price inflation +75bps adjustment to RPI +75bps adjustment to RPI
£304,088 (average)
£280,316 (average)
Average life expectancy
Mortality Average life expectancy
of a male and female
of a male and female
currently aged 75 is
currently aged 75 is
14.5 years and 15.9 years
14.1 years and 15.6 years
respectively
respectively
150bps to 700bps
190bps to 650bps
House prices
Spread
Voluntary
redemption rate
Credit spread
Income strips 5
Collective investment schemes
Borrowings
Property reversions loans (see note E5)
Income capitalisation
Net asset value
statements2
Credit spread
N/A
Internally developed
model
Mortality rate
House price
inflation
Discount rate
Deferred possession
rate
253bps
(weighted average)
613bps
N/A
253bps
(weighted average)
661bps
N/A
130% IFL92C15
(Female) 6
130% IFL92C15
(Female) 6
130% IML92C15 (Male) 6 130% IML92C15 (Male) 6
3-year RPI rate plus
75bps
3-year swap rate plus
170 bps
370bps
3-year RPI rate plus
75bps
3-year swap rate plus
170 bps
370bps
Derivative assets and liabilities
Forward private placements, infrastructure
and local authority loans 7
Longevity swaps 8
Equity Release Income Plan total return swap 9
DCF model3
Credit spread
DCF model3
DCF model3
Swap curve
Credit spread
111bps
(weighted average)
swap curve
500bps
145bps
(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.
5
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.
6
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).
7 Derivative liabilities include forward investments of £54 million (2022: £146 million) which include a commitment to acquire or provide funding for fixed rate debt instruments at specified future dates.
8
9
Included within derivative assets and liabilities are longevity swap contracts with corporate pension schemes with a fair value of £230 million (2022: £152 million) and £100 million (2022: £34 million) respectively.
Included within derivative liabilities is the Equity Release Income Plan (‘ERIP’) total return swap with a value of £50 million (2022: £63 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
E2.4 Sensitivities of Level 3 instruments
Debt securities – Loans guaranteed by export credit agencies & supranationals
65 bps increase in spread
65 bps decrease in spread
Debt securities – Private corporate credit
65 bps increase in spread
65 bps decrease in spread
Debt securities – Infrastructure loans
65 bps increase in spread
65 bps decrease in spread
Debt securities – Loans to housing associations
65 bps increase in spread
65 bps decrease in spread
Debt securities – Local authority loans
65 bps increase in spread
65 bps 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
65 bps increase in spread
65 bps decrease in spread
Debt securities – Income strips
65bps increase in spread (2022: 35 bps increase in spread)
65bps decrease in spread (2022: 35 bps decrease in spread)
Derivatives – Forward private placements, infrastructure and local authority loans
65 bps increase in spread
65 bps 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
2023
£m
2022
£m
486
1,829
1,097
1,493
1,186
932
4,486
1,147
674
470
18
13,818
(674)
13,144
402
1,422
882
1,175
691
596
3,934
1,104
786
462
11
11,465
(786)
10,679
2023
£m
(13)
14
(103)
116
(129)
134
(93)
105
(82)
90
(373)
410
16
(18)
44
(47)
52
(74)
38
(59)
(44)
48
(89)
109
(6)
7
(20)
25
1
(1)
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)
202
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Phoenix Group Holdings plc Annual Report and Accounts 2023
203
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E2.4 Sensitivities of Level 3 instruments continued
For the property reversions loans and bridging loans to private 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.
E2.5 Transfers of financial instruments between Level 1 and Level 2
2023
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Derivatives
Equities
Debt securities
Collective investment schemes1
From Level 1 to
Level 2
£m
From Level 2 to
Level 1
£m
–
10
1,023
1,188
21
12
725
16
1 As a result of the assessment of the liquidity of the underlying investments held within collective investment schemes, in accordance with the Group’s fair value hierarchy classification methodology
a net £1,172 million of collective investment schemes has transferred from Level 1 to Level 2.
2022
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Derivatives
Financial assets designated at FVTPL upon initial recognition:
Equities
Debt securities
Collective investment schemes
From Level 1 to
Level 2
£m
From Level 2 to
Level 1
£m
48
73
1,478
28
–
5
1,267
–
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.
E2.6 Movement in Level 3 financial instruments measured at fair value
Reclassification
of balances on
transition to
IFRS 91
£m
At
1 January
2023
(restated)
£m
Net (losses)/
gains in
income
statement
£m
At 1 January
2023
£m
Purchases
£m
Sales
£m
Transfers
from
Level 1
and Level 2
£m
Transfers to
Level 1 and
Level 2
£m
At
31 December
20232
£m
Unrealised
gains on
assets held
at end of
period
£m
–
152
2,192
11,465
312
14,121
7
–
–
–
–
7
7
152
2,192
11,465
(1)
80
163
416
–
–
433
7,011
(6)
–
(293)
(5,224)
–
–
2
150
–
–
(2)
–
–
232
2,495
13,818
–
80
14
475
312
46
47
(5)
1
–
401
46
14,128
704
7,491
(5,528)
153
(2)
16,946
615
2023
Financial assets
measured at fair value
Financial assets
mandatorily held
at FVTPL:
Loans and deposits
Derivatives
Equities
Debt securities
Collective
investment
schemes
Total financial assets
measured at fair value
1 See note A2.2.1 for further details.
2 Total financial assets of £16,946 million includes £678 million of assets classified as held for sale.
2023
Financial liabilities measured at fair value
Financial liabilities mandatorily held
at FVTPL:
Derivatives
Financial liabilities designated at FVTPL
upon initial recognition:
Borrowings
Total financial liabilities measured at
fair value
2022
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL:
Derivatives
Financial assets designated at FVTPL upon
initial recognition:
Equities
Debt securities
Collective investment schemes
At 1 January
2023
£m
Net losses in
income
statement
£m
Purchases
£m
Sales/
repayments
£m
Transfers
from
Level 1 and
Level 2
£m
Transfers to
Level 1 and
Level 2
£m
At
31 December
2023
£m
Unrealised
losses on
liabilities held
at end of
period
£m
243
64
307
67
2
69
–
–
–
(104)
(21)
(125)
–
–
–
–
–
–
206
45
251
59
2
61
Net (losses)/
gains in
income
statement
£m
At 1 January
2022
£m
Purchases
£m
Sales
£m
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
237
(85)
–
–
1,899
12,452
286
14,637
177
(3,544)
(79)
(3,446)
438
6,838
108
7,384
(369)
(4,277)
(3)
(4,649)
–
47
2
–
49
49
–
152
(85)
–
(6)
–
(6)
2,192
11,465
312
13,969
12
(3,595)
(73)
(3,656)
(6)
14,121
(3,741)
Total financial assets measured at fair value
14,874
(3,531)
7,384
(4,649)
1 Total financial assets of £14,121 million includes £789 million classified as held for sale.
2022
Financial liabilities measured at fair value
Financial liabilities mandatorily held
at FVTPL:
Derivatives
Financial liabilities designated at FVTPL
upon initial recognition:
Borrowings
Total financial liabilities measured at
fair value
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
20221
£m
Purchases
£m
Unrealised
losses on
liabilities held
at end of
period
£m
125
130
70
9
195
139
–
–
–
(12)
(15)
(27)
–
–
–
–
–
–
243
123
64
9
307
132
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.
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 and 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 which are designated as hedging instruments in order to hedge the Group’s Euro and US
Dollar borrowings. These hedging relationships qualify for hedge accounting under IFRS 9 and are designated as cash flow hedges.
Derivative financial 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 where the derivatives are held for trading. Where derivative
financial instruments are held to hedge the Group’s Euro and US Dollar borrowings, the effective portion of 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 notes E1 and D3 for further details of the Group’s hedging accounting policy.
204
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
205
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E3.1 Summary
The fair values of derivative financial instruments are as follows:
Forward currency
Credit default swaps
Contracts for difference
Interest rate 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
2023
£m
265
9
2
1,456
164
187
107
18
84
230
15
232
–
–
2,769
(3)
2,766
Liabilities
2023
£m
97
2
1
2,290
65
142
106
87
124
100
5
274
50
1
3,344
(2)
3,342
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
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 £230 million and derivative liabilities of £100 million have been recognised as at 31 December 2023 (2022: £152 million and £34 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.
E4. Collateral arrangements
The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lending transactions, derivative contracts
and reinsurance arrangements in order to reduce the credit risk of these transactions. The amount and type of collateral required where the
Group receives collateral depends on an assessment of the credit risk of the counterparty, but is usually in the form of cash and
marketable securities.
Collateral received in the form of cash, where the Group has contractual rights to receive the cash flows generated and is available to the
Group for investment purposes, is recognised as a financial asset in the statement of consolidated financial position with a corresponding
financial liability for its repayment. Non-cash collateral received is not recognised in the statement of consolidated financial position, unless
the counterparty defaults on its obligations under the relevant agreement.
Non-cash collateral pledged where the Group retains the contractual rights to receive the cash flows generated is not derecognised from the
statement of consolidated financial position, unless the Group defaults on its obligations under the relevant agreement. Cash collateral
pledged, where the counterparty has contractual rights to receive the cash flows generated, is derecognised from the statement of
consolidated financial position and a corresponding receivable is recognised for its return.
The Group is also party to reverse repurchase agreements under which securities are purchased from third parties with an obligation to resell
the securities. The securities are not recognised as financial assets on the statement of consolidated financial position, unless the counterparty
defaults on its obligations under the relevant agreement. The right to receive the return of any cash paid as purchase consideration plus
interest is recognised as a financial asset on the statement of financial position.
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 2023 (2022: 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.
2023
Financial assets
OTC derivatives
Exchange traded derivatives
Stock lending
Repurchase arrangement
Total
Financial liabilities
OTC derivatives
Exchange traded derivatives
Total
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 Derivative liabilities
£m
£m
2,629
137
836
100
3,702
976
33
836
100
1,945
1,459
28
–
–
1,487
Related amounts not offset
Gross and net
amounts of
recognised
financial liabilities
£m
Financial
instruments and
cash collateral
pledged
£m
Derivative assets
£m
3,126
216
3,342
1,520
68
1,588
1,459
28
1,487
Related amounts not offset
Gross and net
amounts of
recognised
financial assets
£m
Financial
instruments and
cash collateral
received
£m
Derivative liabilities
£m
3,747
324
1,451
5,522
1,055
193
1,451
2,699
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
Derivative assets
£m
5,606
273
5,879
2,206
36
2,242
2,293
28
2,321
Net
amount
£m
194
76
–
–
270
Net
amount
£m
147
120
267
Net
amount
£m
399
103
–
502
Net
amount
£m
1,107
209
1,316
206
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
207
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
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 £505 million (2022: £471 million).
The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2023 are set out below.
Financial assets
Financial liabilities
OTC derivatives
2023
£m
971
(971)
2022
£m
1,513
(1,513)
The maximum exposure to credit risk in respect of OTC derivative assets is £2,629 million (2022: £3,747 million) of which credit risk of
£2,434 million (2022: £3,348 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 £137 million (2022: £324 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 2023 in respect of OTC
derivative liabilities of £3,126 million (2022: £5,606 million) amounted to £1,936 million (2022: £3,228 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
£897 million (2022: £1,586 million).
The maximum exposure to credit risk in respect of stock lending transactions is £836 million (2022: £1,451 million) of which credit risk
of £833 million (2022: £1,451 million) is mitigated through the use of collateral arrangements.
E4.4 Other collateral arrangements
At 31 December 2023, the Group had entered into reverse repurchase transactions under which it purchased securities and had taken on the
obligation to resell the securities. The fair value of the financial assets accepted as collateral in respect of these transactions, but not recognised
in the statement of consolidated financial position, is £100 million (2022: £nil).
The maximum exposure to credit risk in respect of reverse repurchase transactions is £100 million (2022: £ nil) of which credit risk of £100 million
(2022: £ nil) is mitigated through the use of collateral arrangements.
Details of collateral received to mitigate the counterparty risk arising from the Group’s reinsurance transactions is given in note F10.
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 directly 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
Carrying value
Fair value
£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)
US $500 million Tier 2 notes (note d)
€500 million Tier 2 bonds (note e)
US $750 million Contingent Convertible Tier 1 notes (note f)
£500 million Tier 2 notes (note g)
US $500 million Fixed Rate Reset Tier 2 notes (note h)
£500 million 5.867% Tier 2 subordinated notes (note i)
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note j)
£250 million 4.016% Tier 3 subordinated notes (note k)
£350 million Fixed Rate Reset Callable Tier 2 subordinated notes (note l)
2023
£m
90
45
135
197
391
430
587
489
274
536
254
253
346
2022
£m
62
64
126
427
413
439
618
487
412
543
259
256
–
2023
£m
90
45
135
202
377
419
563
476
262
493
239
250
368
2022
£m
62
64
126
429
390
416
580
445
382
465
244
231
–
Total shareholder borrowings
3,757
3,854
3,649
3,582
Total borrowings
3,892
3,980
3,784
3,708
Amount due for settlement after 12 months
3,802
3,918
a
abrdn Private Equity Opportunities Trust plc (’APEOT’) has in place a syndicated multi-currency revolving credit facility, of which £90 million
(2022: £62 million) had been drawn down as at 31 December 2023. During 2022 the amount of the facility was increased from £200 million
to £300 million and its term maturity was extended 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 receives 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 2023, repayments totalling £21 million were made (2022: £15 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. On 7 December 2023, the Company repurchased £231 million of the principal
amount of the notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is £197 million.
d 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.
e 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.
208
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
209
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E5.1 Analysis of borrowings continued
f 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.
g 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.
h 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. On 7 December 2023, the Company repurchased US
$150 million of the principal amount of the Fixed Rate Reset Tier 2 Notes via a tender offer. The remaining principal amount of the notes at
31 December 2023 is US $350 million.
i 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 is being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on
13 June and 13 December.
j 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 is being 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.
k 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.
l On 6 December 2023, the Company issued £350 million fixed rate reset callable Tier 2 notes which are unsecured and subordinated. The
notes have a maturity date of 6 December 2053 with an optional issuer par call right on any day in the six-month period up to and including
6 December 2033. The notes bear interest on the principal amount at a fixed rate of 7.75% per annum up to the interest rate reset date of
6 December 2033. If the notes are not redeemed before that date, the interest rate resets to the sum of the 5 year benchmark Gilt rate plus a
margin of 4.65%, being the sum of the initial credit spread used in pricing the notes and a 1% margin step-up. Interest is payable on the notes
semi-annually in arrears on 6 June and 6 December each year.
m The Group has in place a £1.75 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 2023.
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 G9). 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.
£300 million multi-currency revolving
credit facility
Property Reversions loan
£428 million Tier 2 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
£350 million Fixed Rate Reset Callable Tier 2
subordinated notes
Derivative assets2
Cash movements
Non-cash movements
At 1 January
2023
£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
2023
£m
62
64
427
413
439
618
487
412
543
259
256
64
–
–
–
–
–
–
–
–
–
–
(37)
(21)
(231)
–
–
–
–
(119)
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
(225)
3,755
346
–
410
–
–
(408)
–
108
110
–
–
–
(22)
(10)
(32)
–
(20)
–
–
–
–
–
(84)
1
–
1
–
1
1
2
1
(7)
(5)
(3)
–
(1)
(9)
90
45
197
391
430
587
489
274
536
254
253
346
(118)
3,774
1 Principally 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.
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
£300 million 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
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 Principally 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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211
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
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 F11.
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 help customers secure a life of
possibilities, including meeting the FCA’s expectations under the New Consumer Duty.
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 F11.
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.
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 on 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 component of the cross-cutting Sustainability 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 risk metrics 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’).
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 £18,479 million (2022: £15,977 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 £388 million (2022: £305 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 a
decrease in the profit after tax in respect of a full financial year, and in equity, of £357 million (2022: £480 million), and a decrease in CSM of
£5 million (2022: £6 million).
A 100bps narrowing 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 £485 million (2022: £626 million), and an increase in CSM of
£6 million (2022: £10 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.
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.
2023
Loans and deposits
Derivatives
Debt securities1,2
Reinsurance contract assets
Reinsurers’ share of investment
contract liabilities
Cash and cash equivalents
AAA
£m
–
–
AA
£m
3
1,314
BBB
£m
–
–
7,427 34,133 21,170 14,769
–
A
£m
–
736
2,690
2,163
–
–
–
–
1,254
–
88
7,427 39,394 28,452 14,857
–
4,383
BB and
below
£m
–
–
2,933
–
–
–
2,933
Non-rated
£m
245
662
7,332
23
Unit-linked
£m
–
57
Total
£m
248
2,769
7,021 94,785
4,876
–
Less
amounts
classified
as held for
sale
£m
–
(3)
Total
£m
248
2,766
(1,411) 93,374
4,876
–
–
–
9,700
9,700
7,220
1,495
8,262 18,273 119,598
(28)
(52)
9,672
7,168
(1,494) 118,104
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. £169 million of AAA,
£1,435 million of AA, £2,470 million of A, £1,819 million of BBB and £247 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 £4,486 million (further details are set out in note E2.3) and non-rated bonds.
2022 restated
Loans and deposits
Derivatives
Debt securities2,3
Reinsurance contract assets
Reinsurers’ share of investment
contract liabilities
Cash and cash equivalents
AAA
£m
–
–
AA
£m
4
1,500
BBB
£m
–
28
6,834 26,095 19,045 16,238
–
A
£m
–
1,060
1,579
2,418
–
–
339
7,173
–
1,160
31,177
–
5,749
–
63
27,433 16,329
BB and
below
£m
–
–
1,929
–
–
–
1,929
Non-rated
£m
193
1,370
7,182
74
Unit-linked
£m
71
113
7,387
–
Total
£m
268
4,071
84,710
4,071
Less
amounts
classified as
held for sale
£m
–
(3)
Total
£m
268
4,068
(1,594) 83,116
4,071
–
–
5
8,824
9,090
9,090
1,556
8,872
18,217 111,082
(25)
(33)
9,065
8,839
(1,655) 109,427
1 Prior period comparatives have been restated on transition of IFRS17 Insurance Contracts (see note A2.1 for further details).
2 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’.
3 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.
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.
212
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Phoenix Group Holdings plc Annual Report and Accounts 2023
213
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E6.2.1 Credit risk continued
Credit quality of assets continued
The Group operates an Asset Management Risk 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 or from external asset managers. 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 2023, 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 306 and include information on the Group’s market exposure analysed by credit
rating, sector and country of exposure for the shareholder debt portfolio.
Credit risk of financial liabilities designated at FVTPL
The fair value of investment contracts and net asset value attributable to unitholders liabilities are determined based upon the performance of
the assets backing those liabilities. This has the effect that the fair value of the liability primarily reflects asset-specific performance risk rather
than credit risk. As a result, the value of credit risk associated with financial liabilities designated at FVTPL is not considered to be significant.
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. 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 and other credit focused committees.
Collateral
The credit risk of the Group is mitigated, in certain circumstances, by entering into collateral agreements. The amount and type of collateral
required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of
collateral and the valuation parameters. Collateral is mainly obtained in respect of stock lending, certain reinsurance arrangements and to
provide security against the daily mark to model value of derivative financial instruments. Management monitors the market value of the collateral
received, requests additional collateral when needed, and performs an impairment valuation when impairment indicators exist and the asset is
not fully secured and is not carried at fair value. See note E4 for further information on collateral arrangements.
E6.2.2 Market risk
Market risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, from unfavourable market
movements. The risk typically arises from exposure to equity, property and fixed income asset classes and the impact of changes in interest rates,
inflation rates and currency exchange rates.
The Group is mainly exposed to market risk as a result of:
• the mismatch between liability profiles and the related asset investment portfolios;
• the investment of surplus assets including shareholder reserves yet to be distributed, surplus assets within the with-profit funds and assets held
to meet regulatory capital and solvency requirements; and
• the income flow of management charges derived from the value of invested assets of the business.
The Group manages the levels of market risk that it accepts through the operation of a market risk policy 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, heightened 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, equity and CSM. It takes into
account the effect of such changes in market interest and inflation rates on all assets and liabilities that contribute to the Group’s reported profit
after tax and in equity. Changes in the value of the Group’s holdings in swaptions as a result of time decay or changes to interest rate volatility are
not captured in the sensitivity analysis.
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 bonuses. The contribution of the supported participating business to the Group result is determined
in line with IFRS 17, which exposes the shareholder to changes in the value of the liabilities backed by shareholder assets and the value of 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 on a regulatory basis for the Group’s Solvency II position, with the result that sensitivity to changes in interest rates is very low. The
Group’s exposure to interest rates on an IFRS basis 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.
The sensitivity analysis results for IFRS are based on a combination of modelled results and Solvency II adjusted sensitivity results. Sensitivity
results include an allowance for estate distribution absorption on with-profit business and the second-order impact on Risk Adjustment but
excludes the impact on the Group’s pension schemes.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
215
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E6.2.2 Market risk continued
Interest rate and inflation risk continued
The sensitivity analysis for equity and property price risk illustrates how a change in the fair value of equities and properties affects the Group
result. It takes into account the effect of such changes in equity and property prices on all assets and liabilities that contribute to the Group’s
reported profit after tax and in equity but excludes the impact on the Group’s pension schemes.
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to interest rate risk backing insurance and
reinsurance contract balances
Financial assets subject to interest rate risk backing investment contract
without DPF balances
Other financial assets subject to interest rate risk
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to interest rate risk backing insurance and
reinsurance contract balances
Financial assets subject to interest rate risk backing investment contract
without DPF balances
Other financial assets subject to interest rate risk
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to inflation risk backing insurance and
reinsurance contract balances
Financial assets subject to inflation risk backing investment contract
without DPF balances
Other financial assets subject to inflation risk
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject inflation risk backing insurance and reinsurance
contract balances
Financial assets subject to inflation risk backing investment contract
without DPF balances
Other financial assets subject to inflation risk
2023
2022 restated1
Impact on
profit after tax
and equity
£m
3,682
1,551
Change in
interest rate
+1%
+1%
+1%
+1%
+1%
-1%
-1%
-1%
-1%
-1%
(3,988)
(1,550)
(222)
(4,873)
(2,051)
5,253
2,049
222
Impact
on CSM
£m
(51)
–
Impact on
profit after tax
and equity
£m
3,321
1,451
–
(3,599)
–
–
103
–
–
–
–
(1,451)
(317)
(4,503)
(1,921)
4,927
1,921
317
2023
2022 restated1
Impact on
profit after tax
and equity
£m
(944)
(173)
Change in
inflation
+1%
+1%
Impact
on CSM
£m
(7)
–
Impact on
profit after tax
and equity
£m
(683)
(165)
+1%
+1%
+1%
-1%
-1%
-1%
-1%
-1%
983
173
9
840
145
(868)
(145)
(7)
–
–
–
37
–
–
–
–
692
165
22
598
135
(597)
(135)
(18)
Impact
on CSM
£m
(52)
–
–
–
–
123
–
–
–
–
Impact
on CSM
£m
(7)
–
–
–
–
35
–
–
–
–
1 Prior period comparatives have been restated on transition to IFRS17 Insurance Contracts (see note A2.1 for further details).
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.
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to equity price risk backing insurance and
reinsurance contract balances
Financial assets subject to equity price risk backing Investment contract
without DPF balances
Other financial assets subject to equity price risk
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to equity price risk backing insurance and
reinsurance contract balances
Financial assets subject to equity price risk backing Investment contract
without DPF balances
Other financial assets subject to equity price risk
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to property price risk backing insurance and
reinsurance contract balances
Financial assets subject to property price risk backing Investment
contract without DPF balances
Other financial assets subject to property price risk
Insurance contract and reinsurance contract balances
Investment contract without DPF balances
Financial assets subject to property price risk backing insurance and
reinsurance contract balances
Financial assets subject to property price risk backing Investment
contract without DPF balances
Other financial assets subject to property price risk
2023
2022 restated1
Change in
equity prices
+10%
+10%
Impact on
profit after tax
and equity
£m
(2,079)
(7,636)
Impact
on CSM
£m
117
–
Impact on
profit after tax
and equity
£m
(2,082)
(7,031)
+10%
2,159
+10%
+10%
-10%
-10%
7,636
(335)
2,039
7,740
-10%
(2,128)
-10%
-10%
(7,740)
335
–
–
–
(30)
–
–
–
–
2,205
7,031
(299)
2,040
7,121
(2,169)
(7,121)
299
2023
2022 restated1
Change in
property prices
+10%
+10%
Impact on
profit after tax
and equity
£m
(199)
(431)
Impact
on CSM
£m
5
–
Impact on
profit after tax
and equity
£m
(201)
(410)
+10%
+10%
+10%
-10%
-10%
-10%
-10%
-10%
205
431
3
191
407
197
(407)
(2)
–
–
–
(3)
–
–
–
–
199
410
11
194
388
(192)
(388)
(10)
Impact
on CSM
£m
124
–
–
–
–
(31)
–
–
–
–
Impact
on CSM
£m
3
–
–
–
–
(2)
–
–
–
–
1 Prior period comparatives have been restated on transition to IFRS17 Insurance Contracts (see note A2.1 for further details).
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.
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217
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
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:
incorrect calculation of tax provisions;
• the Group, or one of its subsidiaries, making a material error in its tax reporting;
•
• 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 severe, but plausible scenarios;
• effective liquidity portfolio management including Early Warning Indicators; 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, either current or
projected, 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.
The following table provides a maturity analysis showing the remaining contractual maturities of the Group’s undiscounted financial liabilities
and associated interest.
2023
Investment contracts
Borrowings1
Derivatives1
Net asset value attributable to unitholders
Obligations for repayment of collateral
received
Lease liabilities1
Accruals and deferred income
Other payables
2022 restated2
Investment contracts
Borrowings1
Derivatives1
Net asset value attributable to unitholders
Obligations for repayment of collateral
received
Lease liabilities1
Accruals and deferred income
Other payables
1 year or less or
on demand
£m
162,784
298
366
2,921
1,005
9
536
2,272
1 year or less or
on demand
£m
149,481
268
757
3,042
1,706
11
527
1,373
1–5 years
£m
–
2,065
403
–
Greater than 5
years
£m
–
2,563
5,718
–
No fixed term
£m
–
45
–
–
–
35
29
–
–
63
14
–
–
–
–
–
1–5 years
£m
–
1,326
794
–
Greater than 5
years
£m
–
2,357
9,335
–
No fixed term
£m
–
64
–
–
–
37
42
–
–
95
12
–
–
–
–
–
Less amounts
classified as
held for sale
(see note H3)
£m
(4,780)
–
(2)
–
–
–
–
–
Less amounts
classified as held
for sale (see note
H3)
£m
(8,312)
–
(4)
–
–
–
(37)
–
Total
£m
162,784
4,971
6,487
2,921
1,005
107
579
2,272
Total
£m
149,481
4,015
10,886
3,042
1,706
143
581
1,373
Total
£m
158,004
4,971
6,485
2,921
1,005
107
579
2,272
Total
£m
141,169
4,015
10,882
3,042
1,706
143
544
1,373
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.
2 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
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.
The following tables present the estimated amount and timing of the remaining contractual discounted cash flows arising from insurance
contract liabilities.
2023
Insurance contract liabilities
2022 restated1
Insurance contract liabilities
Up to 1 year
£m
8,468
Up to 1 year
£m
7,381
1-2 years
£m
4,987
1-2 years
£m
4,470
2-3 years
£m
4,959
2-3 years
£m
4,486
3-4 years
£m
5,292
3-4 years
£m
4,720
4-5 years
£m
5,633
4-5 years
£m
5,956
>5 years
£m
80,447
>5 years
£m
75,551
Total
£m
109,786
Total
£m
102,564
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
The following table sets out the amounts that are payable on demand and the carrying value of the related portfolios of contracts.
With-profits
Annuities
Unit-linked
Protection
Other
Short-term payables and receivables (including deposits from reinsurers)
2023
2022 restated1
Amounts payable
on demand
£m
(44,076)
(5,163)
(15,820)
(612)
–
(3,541)
(69,212)
Carrying value of
portfolio
£m
(51,709)
(34,217)
(16,431)
(1,947)
225
(3,541)
(107,620)
Amounts payable on
demand
£m
(44,319)
(2,094)
(13,442)
(330)
–
(4,067)
(64,252)
Carrying value of
portfolio
£m
(52,026)
(29,277)
(13,740)
(1,474)
297
(4,067)
(100,287)
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
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 periods of significant market
volatility, triggers are in place to enhance the frequency of liquidity monitoring and to implement available contingency actions to ensure
sufficient liquidity is maintained.
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219
FinancialsFinancialsNotes to the consolidated financial statements continued E. Financial assets & liabilities continued
E6.2.4 Strategic risk
Strategic risks threaten the achievement of the Group strategy through poor strategic decision-making, implementation or response to changing
circumstances. The Group recognises that core strategic activity brings with it exposure to strategic risk. However, the Group seeks to
proactively review, manage and control these exposures.
The Group’s strategy and business plan are exposed to external events that could prevent or impact the achievement of the strategy; events
relating to how the strategy and business plan are executed; and events that arise as a consequence of following the specific strategy chosen.
The identification and assessment of strategic risks is an integrated part of the Risk Management Framework. Strategic risk should be considered
in parallel with the Risk Universe as each of the risks within the Risk Universe can impact the Group’s strategy.
A Strategic Risk Policy is maintained and reported against regularly, with a particular focus on risk management, stakeholder management,
corporate activity and overall reporting against the Group’s strategic ambitions.
E6.2.5 Operational risk
Operational risk is the risk of reductions in earnings and/or value, through financial or reputational loss, from inadequate or failed internal
processes and systems, or from people-related or external events. Operational risk arises due to failures in one or more of the following aspects
of our business:
indirect exposures through outsourcing service providers and suppliers;
•
• direct exposures through internal practices, actions or omissions;
• external threats from individuals or groups focused on malicious or criminal activities, or on external events occurring which are not within the
Group’s control; and
• negligence, 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 all 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 key controls 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 Outcomes: The risk that our decisions, actions or behaviors individually or collectively result in a failure to act to deliver good
outcomes for our customers, including in the following areas: Product Design & Development, Communication & Guidance, Customer
Support & Understanding, Monitoring & Oversight, Customer Feedback, and Culture & standards.
• 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.
The Group has both a Conduct Risk appetite to focus on behaviours within the business, and a Customer Risk appetite to focus on achieving
good customer outcomes (both of which apply to the Company). The behaviours and standards all colleagues are expected to achieve are
detailed in our Group Code of Conduct. For our customers, what represents a good outcome is articulated in our Customer Standards and
supporting Business Unit processes. 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 outcomes, 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.
F. Insurance contracts, investment contracts with DPF and reinsurance
F1. Liabilities under insurance contracts
Classification
Contracts under which the Group accepts significant insurance risk are classified as insurance contracts. Contracts held by the Group under
which it transfers significant insurance risk related to underlying insurance contracts are classified as reinsurance contracts. Some contracts
entered into by the Group have the legal form of insurance contracts but do not transfer significant insurance risk and expose the Group to
financial risk. These contracts are classified as financial liabilities and are referred to as investment contracts.
All references in these accounting policies to insurance contracts and reinsurance contracts include contracts issued, initiated or acquired by
the Group, unless otherwise stated.
Insurance contracts are classified as direct participating contracts or contracts without direct participation features. Direct participating
contracts are contracts for which, at inception:
• the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
• the Group expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and
• the Group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value
of the underlying items.
All other insurance contracts and all reinsurance contracts are classified as contracts without direct participation features.
Some investment contracts issued by the Group contain discretionary participation features (‘DPF’), whereby the investor has the right and is
expected to receive, as a supplement to the amount not subject to the Group’s discretion, potentially significant additional benefits based on
the return of specified pools of investment assets. The Group accounts for these contracts under IFRS 17 consistent with insurance contracts.
The classification assessment is made at the date of inception or for business combinations or portfolio transfers, as at the date of acquisition.
Once a contract is assessed as insurance, investment with DPF or reinsurance, the classification continues until the contract is
derecognised or modified.
When considering classification, and applying the provisions of IFRS 17, the Group identifies a contract as the smallest unit of account.
The Group also makes an evaluation of whether a series of contracts can be treated together in applying IFRS 17 based on reasonable and
supportable information, or whether a single contract contains components that need to be separated and treated as if they were stand-
alone contracts.
Accounting treatment
Separating components from insurance and reinsurance contracts
The Group assesses its insurance products to determine whether they contain components, which must be accounted for under accounting
standards other than IFRS 17 (distinct non-insurance components).
Where an insurance contract has a distinct investment component and meets the separation criteria established under IFRS 17, the investment
component is separated from the host contract and accounted for under IFRS 9. The assessment of whether a contract has a distinct
investment component is carried out at inception of the contract, or the date of acquisition in the case of a business combination.
When assessing whether the investment component is distinct, the Group considers the following, which may indicate that the insurance and
investment component are highly interrelated:
• the value of one component varies with the other component;
• existence of an option to switch between the different components;
• discounts that span both elements e.g. a reduced asset management charge based on total size of contract; and
• other interacting features e.g. insurance risk from premium waivers and return of premium covering both elements of the policy.
After separating any distinct components, the Group applies the requirements of IFRS 17 to all remaining components of the insurance
contract or where distinct criteria are not met, the whole contract is accounted for within IFRS 17.
Level of aggregation
The Group is required to divide its business into groups for the purposes of recognition and measurement. The Group’s business is firstly split
into portfolios. Portfolios contain groups of contracts with similar risks, which are managed together. Portfolios are further divided based on
expected profitability at inception into three categories: onerous contracts, contracts that are profitable at initial recognition and have no
significant risk of becoming onerous, and the remaining profitable contracts. For reinsurance contracts the same three groups would be
identified with ‘onerous’ being replaced with ‘net gain’ and ‘profitable’ being replaced with ‘net cost’. Contracts which are issued more than
one year apart are not permitted to be included within the same group. However as permitted by IFRS 17, the groups of contracts for which the
FVA has been adopted on transition include contracts issued more than one year apart.
The Group has defined portfolios of insurance and reinsurance contracts issued broadly based on the predominant risks inherent in the
products/contracts, for example, longevity, persistency, mortality, and by considering whether groups of products are managed together.
These portfolios are further split by legal entity, with-profit fund and contracts subject to different IFRS 17 measurement models are grouped
separately. The portfolios are allocated to cohorts based on whether they are onerous at inception or based on their expected level of
profitability using information available at inception.
For reinsurance contracts held, portfolios are based upon similar risks to those of the underlying contracts. The reinsurance contracts held are
assessed for aggregation requirements on an individual contract basis.
The grouping of the insurance contracts are determined at initial recognition and are not subsequently reassessed. Therefore, a contract will
remain within the assigned aggregation group until it is derecognised, either by expiry or modification.
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221
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F1. Liabilities under insurance contracts continued
Recognition
The Group recognises groups of insurance contracts that it issues from the earliest of the following:
• the beginning of the coverage period of the group of contracts;
• the date when the first payment from the policyholder in the group is due or actually received if there is no due date; or
• for a group of onerous contracts, as soon as facts and circumstances indicate that the group is onerous.
Investment contracts with DPF are initially recognised at the date when the Group becomes a party to the contract.
Insurance contracts acquired in a business combination within the scope of IFRS 3 Business Combinations or a portfolio transfer are
accounted for as if they were entered into at the date of acquisition or transfer.
Reinsurance contracts held are recognised from the earliest of the following:
• the beginning of the coverage period of the group of reinsurance contracts held. However, the Group delays the recognition of a group of
reinsurance contracts held that provide proportionate coverage (for example, through a quota share arrangement) until the date when any
underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of
reinsurance contracts held; and
• the date the Group recognises an onerous group of underlying insurance contracts if the Group entered into the related reinsurance
contract held in the group of reinsurance contracts held at or before that date.
The Group adds new contracts to the group in the reporting period in which that contract meets one of the criteria set out above.
Contract boundaries
The Group includes in the measurement of a group of insurance contracts all the future cash flows within the boundary of each contract in the
group. Cash flows are within the boundary of an insurance contract if they arise from the rights and obligations that exist during the period in
which the policyholder is obligated to pay premiums or the Group has a substantive obligation to provide the policyholder with insurance
contract services. A substantive obligation to provide insurance contract services ends when:
• the Group has the practical ability to reprice the risks of the particular policyholder or change the level of benefits so that the price fully
reflects those risks; or
• both of the following criteria are satisfied:
– the Group has the practical ability to reprice the contract or a portfolio of contracts so that the price fully reflects the reassessed risk of
that portfolio; and
– the pricing of premiums up to the date when risks are reassessed does not reflect the risks related to periods beyond the
reassessment date.
Where an expected premium or expected claim is not within the contract boundary, it is not recognised as a cash flow of the contract and is
instead considered to relate to a future insurance contract and recognised when those contracts meet the recognition criteria.
The contract boundary is reassessed at each reporting date to include the effect of changes in circumstances on the Group’s substantive
rights and obligations and, therefore, may change over time.
The contract boundary for a reinsurance contract is dependent on the terms and conditions of the reinsurance contract and therefore may
not necessarily be the same as for the underlying contracts. Where the reinsurance contract is open to new business on agreed terms for a
period of time, the contract boundary may include estimates of reinsurance on insurance contracts that have not yet been issued or reported.
Measurement
The Group’s insurance contracts issued without direct participation features are grouped together under annuity, protection and other
non-linked insurance business. These groups of insurance contract are measured under the General Model (‘GM’).
Direct participating contracts issued by the Group are contracts with DPF where the Group holds the pool of underlying assets. Direct
participating insurance contracts are grouped together and reported primarily as either unit-linked or with-profit business although some
protection contracts are considered to have direct participation features. These groups of contracts are measured using the variable fee
approach (‘VFA’), unless they fail the eligibility test to be treated under this approach, in such circumstances they are measured under the GM.
Reinsurance contracts held are measured under the GM irrespective of the measurement model used for the underlying contracts. Certain
with-profit funds within the Group hold non-profit insurance business such as annuities. This business will also be measured under the GM.
Initial measurement – Insurance contracts
On initial recognition, the Group measures a group of insurance contracts as the total of (a) the fulfilment cash flows, which comprise estimates
of future cash flows, adjusted to reflect the time value of money and the associated financial risks, and a risk adjustment for non-financial risk;
and (b) the contractual service margin (‘CSM’). The fulfilment cash flows of a group of insurance contracts do not reflect the Group’s non-
performance risk.
The fulfilment cash flows comprise:
• unbiased and probability-weighted estimates of future cash flows that are within the contract boundary plus an adjustment to reflect the
time value of money and the financial risks related to future cash flows, to the extent that the financial risks are not included in the estimates
of future cash flows (‘BEL’); and
• a risk adjustment for non-financial risk.
The measurement of fulfilment cash flows includes insurance acquisition cash flows which are allocated as a portion of premium to profit or
loss (through insurance revenue) over the period of the contract in a systematic and rational way based on the passage of time.
The risk adjustment for non-financial risk for a group of insurance contracts, determined separately from the other estimates, is the
compensation required for bearing uncertainty about the amount and timing of the cash flows that arises from non-financial risk. The Group
applies a confidence level technique. The risk adjustment is 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 to the extent that the Group includes it when determining
the compensation required to bear that risk. The Group includes diversification between Group entities which use the Group Internal Model
for management decision-making. Where a Standard Formula approach is used, no diversification with other entities within the Group is
allowed for. The Group determines the risk adjustment using a one-year time horizon, consistent with the time horizon used for Solvency II, a
key metric underlying how the Group is managed.
The CSM of a group of insurance contracts represents the unearned profit that the Group will recognise over the life of the contract as
insurance and investment-related services are provided. For profitable groups of insurance contracts the CSM is established to ensure that no
profit or loss is recognised at inception and consequently it offsets the net present value of the expected cash flows (including initial premium
and insurance acquisition cash flows) and the risk adjustment. For a group of insurance contracts that are onerous, the CSM is set to nil and a
loss is immediately recognised in profit or loss. A loss component of the liability for remaining coverage (‘LRC’) is established for the amount of
loss recognised.
The initial recognition of the CSM is consistent for insurance contracts applying the GM and VFA measurement approaches, however there
are key differences for subsequent measurement of the CSM under these measurement models.
For groups of contracts acquired in a transfer of contracts or a business combination, the consideration received for the contracts is included
in the fulfilment cash flows as a proxy for the premiums received at the date of acquisition. In a business combination, the consideration
received is the fair value of the contracts at that date.
With-profit estate
The Group has a number of with-profit funds where surpluses are shared between policyholders and shareholders. All such funds are closed
to new business. These funds typically have an 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 is expected to be distributed to existing policyholders over time and the
Group has determined it appropriate to allocate the expected future policyholder payments from the estate to specific groups of contracts
within the measurement of the best estimate cash flows.
Subsequent measurement – Insurance contracts
The carrying amount of a group of insurance contracts at each reporting date is the sum of the LRC and the liability for incurred claims (‘LIC’).
The LRC comprises the BEL, risk adjustment and any remaining CSM at that date. The LIC includes the BEL and risk adjustment (the fulfilment
cash flows for incurred claims and expenses that have not yet been paid, including claims that have been incurred but not yet reported). There
is no CSM associated with the LIC, and as a result, any changes in the LIC are taken directly to profit or loss.
The fulfilment cash flows of groups of insurance contracts are measured at the reporting date using current estimates of future cash flows,
current discount rates and current estimates of the risk adjustment for non-financial risk. Changes in fulfilment cash flows are
recognised as follows.
Changes relating to future services insurance
Adjusted against the CSM (or recognised in the insurance service
result in profit or loss if the group is onerous)
Changes relating to current or past services
Recognised in the insurance service result in profit or loss
Effects of the time value of money, financial risk and changes
Recognised in insurance finance income or expenses therein on
estimated future cash flows
Where, during the coverage period, a group of insurance contracts becomes onerous, the Group recognises a loss in profit or loss for the net
outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established
by the Group for the liability for remaining coverage for such groups of onerous contracts representing the losses recognised.
The CSM of each group of contracts is calculated at each reporting date as follows:
Insurance contracts measured under GM
For insurance contracts measured under the GM approach, the CSM is adjusted by applying locked-in discount rates, while the BEL and risk
adjustment are adjusted using current discount rates.
The carrying amount of the CSM at each reporting date is the carrying amount at the start of the year, adjusted for:
• the CSM of any new contracts that are added to the group in the year;
•
interest accreted on the carrying amount of the CSM during the year;
• changes in fulfilment cash flows that relate to future services, except to the extent that:
– any increases in the fulfilment cash flows exceed the carrying amount of the CSM, in which case the excess is recognised as a loss in profit
or loss and creates a loss component; or
– any decreases in the fulfilment cash flows are allocated to the loss component, reversing losses previously recognised in profit or loss;
• the effect of any currency exchange differences on the CSM; and
• the amount recognised as insurance revenue because of the services provided in the year (see the ‘Insurance revenue’ accounting policy in
note C1 for further details).
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223
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F1. Liabilities under insurance contracts continued
Changes in fulfilment cash flows relating to future service that adjust the CSM comprise:
• experience adjustments arising from the difference between premiums received and the expected amounts estimated at the beginning of
the period, that relate to future service, along with any associated acquisition costs;
• changes in estimates of the present value of future cash flows in the BEL and risk adjustment;
• differences between any investment component expected to become payable in the period and the actual investment component that
becomes payable; and
• changes in the risk adjustment for non-financial risk that relate to future service.
The impact of discounting the risk adjustment for business measured under GM is disaggregated and recognised within Net finance income
or expenses from insurance contracts within the income statement.
Insurance contracts measured under VFA model
The Group’s unit-linked and with-profit business that meets the VFA eligibility criteria are direct participating contracts under which the
Group’s obligation to the policyholder is the net of:
• the obligation to pay the policyholder an amount equal to the fair value of the underlying items; and
• a variable fee in exchange for future services provided by the contracts, being the amount of the Group’s share of the fair value of the
underlying items less fulfilment cash flows that do not vary based on the returns on underlying items. The Group provides investment
services under these contracts by giving a return based on underlying items, in addition to insurance coverage.
For unit-linked and with-profit contracts that are measured under the VFA, interest is not accreted on the CSM using a locked-in discount rate,
instead it is determined with reference to the underlying items, reflecting that on these types of insurance contracts the Group fees for
providing investment-related services are determined with reference to the value of the investments associated with the policyholder’s policy.
For example, annual management charges (‘AMC’) are determined by reference to the value of the policyholder’s fund value and the
shareholder’s share of bonuses on a with-profit policy in a 90:10 fund is determined based on the performance of the with-profit fund.
The variable fee earned by the Group is consequently the Group’s share of the fair value of underlying items less fulfilment cash flows that do
not vary based on returns of the underlying items.
For unit-linked contracts, the underlying items are funds that the unit price of the investment chosen by the policyholder varies with.
For with-profits contracts, the underlying items are typically the net assets of the relevant with-profit fund, including the estate and the fair
value of non-profit contracts within the fund. With-profit funds can vary in their nature and operation, therefore will be dependent on facts
and circumstances.
When measuring a group of unit-linked and with-profit contracts using the VFA, the Group adjusts the fulfilment cash flows for the whole of
the changes in the obligation to pay policyholders an amount equal to the fair value of the underlying items. These changes do not relate to
future services and are recognised in profit or loss. The Group then adjusts any CSM for changes in the amount of the Group’s share of the fair
value of the underlying items, which relate to future services, as explained below.
The carrying amount of the CSM at each reporting date is the carrying amount at the start of the year, adjusted for:
• the CSM of any new contracts that are added to the group in the year;
• the change in the amount of the Group’s share of the fair value of the underlying items and changes in fulfilment cash flows that relate to
future services, except to the extent that:
– the Group has applied the risk mitigation option to exclude from the CSM changes in the effect of financial risk on the amount of its share
of the underlying items or fulfilment cash flows;
– a decrease in the amount of the Group’s share of the fair value of the underlying items, or an increase in the fulfilment cash flows that relate
to future services, exceeds the carrying amount of the CSM, giving rise to a loss in profit or loss (included in insurance service expenses)
and creating a loss component; or
– an increase in the amount of the Group’s share of the fair value of the underlying items, or a decrease in the fulfilment cash flows that relate
to future services, is allocated to the loss component, reversing losses previously recognised in profit or loss (included in insurance
service expenses);
• the effect of any currency exchange differences on the CSM; and
• the amount recognised as insurance revenue because of the services provided in the year (see the ‘Insurance revenue’ accounting policy in
note C1 for further details).
Changes in fulfilment cash flows that relate to future service include the changes relating to future services specified above for contracts
without direct participation features (measured at current discount rates) and changes in the effect of the time value of money and financial
risks that do not arise from underlying items.
The Group does not currently apply the risk mitigation option to any material extent.
Loss components
A loss component represents a notional record of the losses attributable to each group of onerous insurance contracts. The loss component is
released based on a systematic allocation of the subsequent changes relating to future service in the fulfilment cash flows to (i) the loss
component; and (ii) the liability for remaining coverage excluding the loss component. The loss component is also updated for subsequent
changes in estimates of the fulfilment cash flows and the risk adjustment relating to future service. The systematic allocation of subsequent
changes to the loss component results in the total amounts allocated to the loss component being equal to zero by the end of the coverage
period of a group of insurance contracts. The Group uses coverage units as the method of systematic allocation.
Reinsurance contracts held – measurement
The carrying amount of a group of reinsurance contracts at each reporting date is the sum of the asset/liability for remaining coverage and the
asset/liability for incurred claims. The asset/liability for remaining coverage comprises (a) the fulfilment cash flows that relate to services that
will be received under the contracts in future periods and (b) any remaining CSM at that date.
The measurement of reinsurance contracts held at initial recognition follows the same principles as those for insurance contracts issued, with
the exception of the following:
• measurement of the cash flows include an allowance on a probability-weighted basis for the effect of any non-performance by the
reinsurers, including the effects of collateral;
• the risk adjustment for non-financial risk is determined so that it represents the amount of risk being transferred to the reinsurer; and
• the Group recognises both gains and losses at initial recognition in the statement of consolidated financial position as CSM and releases
this to profit or loss as the reinsurer renders services, except for any portion of a loss that relates to events before initial recognition. Where
the Group recognises a loss on initial recognition of an onerous group of underlying contracts, it establishes a loss-recovery component of
the asset for remaining coverage depicting the recovery of losses recognised.
To determine the risk adjustment for reinsurance contracts held, the Group will apply the approach set out above for insurance contracts both
gross and net of reinsurance and determine the amount of risk being transferred to the reinsurer as the difference between the two results.
The loss-recovery component determines the amounts that are subsequently presented in profit or loss as reversals of recoveries of losses
from reinsurance contracts and are excluded from the allocation of reinsurance premiums paid. It is adjusted to reflect changes in the loss
component of the onerous group of underlying contracts, but it cannot exceed the portion of the loss component of the onerous group of
underlying contracts that the Group expects to recover from the reinsurance contracts.
The Group adjusts the CSM of the group to which a reinsurance contract belongs and as a result recognises income when it recognises a loss
on initial recognition of onerous underlying contracts, if the reinsurance contract is entered into before or at the same time as the onerous
underlying contracts are recognised. The adjustment to the CSM is determined by multiplying:
• the amount of the loss that relates to the underlying contracts; and
• the percentage of claims on the underlying contracts that the Group expects to recover from the reinsurance contracts.
The subsequent measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued, with the
exception of the following:
• changes in the fulfilment cash flows are recognised in profit or loss if the related changes arising from the underlying ceded contracts have
been recognised in profit or loss. Alternatively, changes in the fulfilment cash flows adjust the CSM; and
• changes in the fulfilment cash flows that result from changes in the risk of non-performance by the issuer of a reinsurance contract held do
not adjust the CSM as they do not relate to future service. The effect of the non-performance risk of the reinsurer is assessed at each
reporting date and the effect of changes in the non-performance risk is recognised in profit or loss.
Modification and derecognition
The Group derecognises insurance and reinsurance contracts when:
• the rights and obligations relating to the contract are extinguished (i.e. discharged, cancelled or expired); or
• the contract is modified such that the modification results in a change in the measurement model, or the applicable standard for measuring
a component of the contract. In such cases, the Group derecognises the initial contract and recognises the modified contract as a
new contract.
Disclosure Groups
The Group disaggregates information for the purposes of making the disclosures required by IFRS 17 into the following disclosure groups:
• Retirement Solutions;
• Pensions & Savings;
• With-Profits; and
• Europe & Other
The disclosure groups are aligned to the segments used for segmental reporting in note B1.
224
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Phoenix Group Holdings plc Annual Report and Accounts 2023
225
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F1. Liabilities under insurance contracts continued
The table below shows a summary of the carrying amount of insurance contracts and the related reinsurance contracts in the statement of
consolidated financial position.
F2. Movements in present value of future cash flows, risk adjustment and CSM of insurance contracts
The reconciliations below provide a roll-forward of the net asset or liability for insurance contracts issued by measurement component showing
estimates of the present value of future cash flows, the risk adjustment for non-financial risk and the CSM.
2023
Insurance contracts issued
Estimates of present value of future cash flows
Risk adjustment
CSM
Net insurance contract liabilities issued
Insurance contract liabilities
Insurance contract assets
Net insurance contract liabilities issued
Reinsurance contracts held
Estimates of present value of future cash flows
Risk adjustment
CSM
Net reinsurance contract assets held
Reinsurance contract assets
Reinsurance contract liabilities
Net reinsurance contract assets held
2022
Insurance contracts issued
Estimates of present value of future cash flows
Risk adjustment
CSM
Net insurance contract liabilities issued
Insurance contract liabilities
Insurance contract assets
Net insurance contract liabilities issued
Reinsurance contracts held
Estimates of present value of future cash flows
Risk adjustment
CSM
Net reinsurance contract assets held
Reinsurance contract assets
Reinsurance contract liabilities
Net reinsurance contract assets held
Retirement
Solutions
£m
(35,036)
(767)
(3,741)
(39,544)
(39,544)
–
(39,544)
935
537
1,604
3,076
3,223
(147)
3,076
Retirement
Solutions
£m
(30,779)
(681)
(2,821)
(34,281)
(34,281)
–
(34,281)
1,132
379
952
2,463
2,463
–
2,463
Pensions & Savings
£m
With-Profits
£m
Europe & Other
£m
Total
£m
(22,041)
(84)
(201)
(22,326)
(22,326)
–
(22,326)
20
2
–
22
22
–
22
(29,880)
(104)
(597)
(30,581)
(30,581)
–
(30,581)
820
46
147
1,013
1,013
–
1,013
(22,829)
(217)
(244)
(23,290)
(23,290)
–
(23,290)
(109,786)
(1,172)
(4,783)
(115,741)
(115,741)
–
(115,741)
391
48
179
618
618
–
618
2,166
633
1,930
4,729
4,876
(147)
4,729
Pensions & Savings
£m
With-Profits
£m
Europe & Other
£m
Total
£m
(21,302)
(89)
(94)
(21,485)
(21,533)
48
(21,485)
–
–
–
–
–
–
–
(28,282)
(158)
(565)
(29,005)
(29,005)
–
(29,005)
869
38
142
1,049
1,056
(7)
1,049
(22,201)
(169)
(419)
(22,789)
(22,789)
–
(22,789)
(102,564)
(1,097)
(3,899)
(107,560)
(107,608)
48
(107,560)
276
61
215
552
552
–
552
2,277
478
1,309
4,064
4,071
(7)
4,064
Retirement Solutions
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Changes in profit or loss:
CSM recognised for services provided
Risk adjustment for the risk expired
Experience adjustments
Policyholder tax charges
Total change relating to current service
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust
the CSM
Total change relating to future service
Adjustments to liabilities for incurred claims
(past service)
Impairment of assets for insurance
acquisition cash flows
Insurance service result
Insurance finance expense/(income)
Total changes in profit or loss
Cash flows:
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at 31 December
Net insurance contract liabilities as at
31 December
2023
2022
Estimates of
the present
value of
future cash
flows
£m
30,779
–
Risk
adjustment
£m
681
–
Contractual
service
margin
£m
2,821
–
Total
£m
34,281
–
Estimates of
the present
value of
future cash
flows
£m
39,028
–
Risk
adjustment
£m
1,161
–
Contractual
service
margin
£m
2,671
–
Total
£m
42,860
–
30,779
681
2,821
34,281
39,028
1,161
2,671
42,860
–
–
(8)
(1)
(9)
(602)
(566)
1
(1,167)
106
(1)
(1,071)
1,895
824
6,421
(4,380)
(38)
2,003
1,430
–
(39)
–
–
(39)
167
(92)
–
75
–
–
36
4
40
–
–
–
–
46
(260)
–
–
–
(260)
435
658
–
1,093
(260)
(39)
(8)
(1)
(308)
–
–
1
1
–
–
(13)
–
(13)
(357)
(88)
4
(441)
–
106
–
(1)
(202)
–
(454)
–
(76)
–
–
(76)
128
7
(1)
134
–
–
58
1,961
1,759
(9,096)
(9,550)
(534)
(476)
6,421
(4,380)
(38)
2,003
1,501
4,596
(3,272)
(26)
1,298
3
–
–
–
–
(4)
–
833
62
895
–
–
–
–
25
(207)
–
–
–
(207)
232
81
–
313
–
–
106
44
150
–
–
–
–
–
(207)
(76)
(13)
–
(296)
3
–
3
6
–
–
(290)
(9,586)
(9,876)
4,596
(3,272)
(26)
1,298
(1)
35,036
767
3,741
39,544
30,779
681
2,821
34,281
35,036
–
767
–
3,741
–
39,544
–
30,779
–
681
–
2,821
–
34,281
–
35,036
767
3,741
39,544
30,779
681
2,821
34,281
1 £1,514 million included in ‘estimates of the present value of future cash flows’ relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited in the
period (see note H2).
226
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Phoenix Group Holdings plc Annual Report and Accounts 2023
227
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F2. Movements in present value of future cash flows, risk adjustment and CSM of insurance contracts continued
Pensions & Savings
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Changes in profit or loss:
CSM recognised for services provided
Risk adjustment for the risk expired
Experience adjustments
Policyholder tax charges
Total change relating to current service
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust
the CSM
Total change relating to future service
Adjustments to liabilities for incurred claims
(past service)
Insurance service result
Insurance finance expense/(income)
Total changes in profit or loss
Cash flows:
Premiums received
Claims and other expenses paid
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
2023
2022
Estimates of
the present
value of
future cash
flows
£m
21,350
(48)
Risk
adjustment
£m
89
–
Contractual
service
margin
£m
94
–
Total
£m
21,533
(48)
Estimates of
the present
value of
future cash
flows
£m
25,059
(65)
Risk
adjustment
£m
88
–
Contractual
service
margin
£m
96
–
Total
£m
25,243
(65)
21,302
89
94
21,485
24,994
88
96
25,178
–
–
10
(6)
4
(67)
(103)
(10)
(180)
14
(162)
1,593
1,431
389
(3,488)
(3,099)
2,407
22,041
22,041
–
22,041
–
(8)
–
–
(8)
33
(1)
2
34
–
26
1
27
–
–
–
(32)
84
84
–
84
(25)
–
–
–
(25)
34
104
–
138
–
113
(25)
(8)
10
(6)
(29)
–
–
(8)
(8)
14
(23)
–
–
33
18
51
–
(9)
119
110
5
166
(4)
109
1,590
1,567
(2,024)
(1,858)
–
–
–
(2)
389
(3,488)
(3,099)
2,373
443
(2,277)
(1,834)
–
201
22,326
21,302
201
22,326
21,350
–
–
(48)
201
22,326
21,302
–
(11)
–
–
(11)
–
(2)
13
11
–
–
1
1
–
–
–
–
89
89
–
89
(13)
–
–
–
(13)
–
11
–
11
–
(2)
–
(2)
–
–
–
–
(13)
(11)
33
18
27
–
–
132
132
5
164
(2,023)
(1,859)
443
(2,277)
(1,834)
–
94
21,485
94
21,533
–
(48)
94
21,485
1 £2,411 million included in ‘estimates of the present value of future cash flows’ relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canda UK Limited (see note H2).
With-Profits
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Changes in profit or loss:
CSM recognised for services provided
Risk adjustment for the risk expired
Experience adjustments
Policyholder tax charges
Total change relating to current service
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust
the CSM
Total change relating to future service
Adjustments to liabilities for incurred claims
(past service)
Insurance service result
Insurance finance expense/(income)
Total changes in profit or loss
Cash flows:
Premiums received
Claims and other expenses paid
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
2023
2022
Estimates of
the present
value of
future cash
flows
£m
28,282
–
Risk
adjustment
£m
158
–
Contractual
service
margin
£m
565
–
Total
£m
29,005
–
Estimates of
the present
value of
future cash
flows
£m
35,838
–
Risk
adjustment
£m
252
–
Contractual
service
margin
£m
433
–
Total
£m
36,523
–
28,282
158
565
29,005
35,838
252
433
36,523
–
–
23
(17)
6
(99)
(52)
(151)
(33)
(178)
1,891
1,713
121
(694)
(573)
458
–
(4)
–
–
(4)
(20)
(12)
(32)
–
(36)
13
(23)
–
–
–
(31)
(77)
–
–
–
(77)
119
–
119
–
42
10
52
–
–
–
(20)
(77)
(4)
23
(17)
(75)
–
(64)
(64)
(33)
(172)
–
–
4
17
21
(182)
354
172
(41)
152
1,914
1,742
(5,379)
(5,227)
121
(694)
(573)
407
136
(2,468)
(2,332)
3
–
(8)
–
–
(8)
(43)
27
(16)
–
(24)
(70)
(94)
–
–
–
–
(99)
–
–
–
(99)
225
–
225
–
126
6
132
–
–
–
–
(99)
(8)
4
17
(86)
–
381
381
(41)
254
(5,443)
(5,189)
136
(2,468)
(2,332)
3
29,880
104
597
30,581
28,282
158
565
29,005
29,880
104
597
30,581
28,282
158
565
29,005
–
–
–
–
–
–
–
–
29,880
104
597
30,581
28,282
158
565
29,005
1 £349 million included in ‘estimates of the present value of future cash flows’ relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited
(see note H2).
228
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
229
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F2. Movements in present value of future cash flows, risk adjustment and CSM of insurance contracts continued
Europe & Other
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Changes in profit or loss:
CSM recognised for services provided
Risk adjustment for the risk expired
Experience adjustments
Policyholder tax charges
Total change relating to current service
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust
the CSM
Total change relating to future service
Adjustments to liabilities for incurred claims
(past service)
Impairment of assets for insurance
acquisition cash flows
Insurance service result
Insurance finance expense/(income)
Total changes in profit or loss
Cash flows:
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
2023
2022
Estimates of
the present
value of
future cash
flows
£m
22,201
–
Risk
adjustment
£m
169
–
Contractual
service
margin
£m
419
–
Total
£m
22,789
–
Estimates of
the present
value of
future cash
flows
£m
27,394
–
Risk
adjustment
£m
220
–
Contractual
service
margin
£m
257
–
Total
£m
27,871
–
22,201
169
419
22,789
27,394
220
257
27,871
–
–
18
(1)
17
(57)
116
10
69
(104)
(3)
(21)
1,550
1,529
1,673
(2,259)
(116)
(702)
(199)
–
(12)
–
–
(12)
8
27
25
60
–
–
48
(13)
35
–
–
–
–
13
(47)
–
–
–
(47)
53
(143)
–
(90)
(47)
(12)
18
(1)
(42)
4
–
35
39
–
–
36
(1)
35
(47)
(134)
21
(160)
–
(104)
8
–
(137)
(20)
(157)
–
–
–
–
(18)
(3)
(110)
–
(117)
1,517
1,407
(5,820)
(5,937)
1,673
(2,259)
(116)
(702)
(204)
1,731
(1,666)
(102)
(37)
781
–
(7)
–
–
(7)
4
(21)
(15)
(32)
–
–
(39)
(12)
(51)
–
–
–
–
–
(67)
–
–
–
(67)
46
155
–
201
–
–
134
5
139
–
–
–
–
23
(67)
(7)
36
(1)
(39)
3
–
6
9
8
–
(22)
(5,827)
(5,849)
1,731
(1,666)
(102)
(37)
804
22,829
217
244
23,290
22,201
169
419
22,789
22,829
217
244
23,290
22,201
169
419
22,789
–
–
–
–
–
–
–
–
22,829
217
244
23,290
22,201
169
419
22,789
1 £112 million included in ‘estimates of the present value of future cash flows’ relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited (see note H2).
F3. Movements in liabilities for remaining coverage and liabilities for incurred claims for insurance contracts
The following reconciliations show how the net carrying amounts of insurance contracts issued changed over the year as a result of cash flows,
amounts recognised in the consolidated income statement and other movements, analysed by remaining coverage and incurred claims.
Retirement Solutions
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Insurance revenue (note C1)
Insurance service expenses
Incurred claims and other expenses
Amortisation of insurance acquisition
cash flows
Losses on onerous contracts and reversals
of those losses
Changes to liabilities for incurred claims
(past service)
Impairment of assets for insurance
acquisition cash flows
Insurance service result
Insurance finance expense/(income)
Total changes in the consolidated
income statement
Investment components
Cash flows:
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
Liabilities for remaining coverage
Liabilities for remaining coverage
2023
2022
Excluding loss
component
£m
34,189
–
Loss
component
£m
56
–
Liabilities for
incurred
claims
£m
36
–
Total
£m
34,281
–
Excluding loss
component
£m
42,742
–
Loss
component
£m
54
–
Liabilities for
incurred
claims
£m
64
–
Total
£m
42,860
–
36
34,281
42,742
54
64
42,860
34,189
(3,751)
56
–
–
(3,751)
(3,544)
(4)
3,446
3,442
–
–
1
1
106
106
–
1
–
–
–
3,552
–
3,552
160
(1)
(202)
1,961
–
(3,543)
(9,587)
1,759
–
(13,130)
7
–
(4,380)
–
(4,380)
72
6,421
(4,380)
(38)
2,003
1,501
4,596
–
(26)
4,570
–
–
1
–
–
(3)
1
(2)
–
–
–
–
–
–
–
1
–
–
(1)
(3,751)
1,960
(1,791)
(160)
6,421
–
(38)
6,383
1,429
40,050
54
(560)
39,544
34,189
40,050
–
40,050
54
–
54
(560)
39,544
34,189
–
–
–
(560)
39,544
34,189
–
(3)
–
4
–
–
1
1
2
–
–
–
–
–
–
56
56
–
56
–
(3,544)
3,252
3,249
–
–
–
–
3,252
–
3,252
(7)
–
(3,272)
–
(3,272)
(1)
1
4
–
–
(290)
(9,586)
(9,876)
–
4,596
(3,272)
(26)
1,298
(1)
36
34,281
36
34,281
–
–
36
34,281
1 £1,514 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).
230
Phoenix Group Holdings plc Annual Report and Accounts 2023
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231
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F3. Movements in liabilities for remaining coverage and liabilities for incurred claims for insurance contracts continued
Pensions & Savings
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Insurance revenue (note C1)
Insurance service expenses
Incurred claims and other expenses
Amortisation of insurance acquisition
cash flows
Losses on onerous contracts and reversals
of those losses
Changes to liabilities for incurred claims
(past service)
Insurance service result
Insurance finance expense/(income)
Total changes in the consolidated
income statement
Investment components
Cash flows:
Premiums received
Claims and other expenses paid
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
Liabilities for remaining coverage
Liabilities for remaining coverage
2023
2022
Excluding loss
component
£m
21,359
(50)
Loss
component
£m
131
2
Liabilities for
incurred
claims
£m
43
–
Total
£m
21,533
(48)
Excluding loss
component
£m
25,117
(65)
Loss
component
£m
–
–
Liabilities for
incurred
claims
£m
126
–
Total
£m
25,243
(65)
21,309
133
43
21,485
25,052
(272)
–
–
(272)
(307)
–
–
–
–
(272)
1,576
1,304
(2,207)
389
–
389
2,097
(14)
257
243
–
(8)
–
(22)
5
(17)
–
–
–
–
(1)
–
–
14
271
9
280
2,207
–
(8)
14
(23)
1,590
1,567
–
–
(3,488)
(3,488)
277
389
(3,488)
(3,099)
2,373
–
–
–
–
(307)
(2,025)
(2,332)
(1,854)
443
–
443
–
–
–
–
–
133
–
133
–
133
–
–
–
–
–
126
25,178
–
(307)
333
333
–
–
5
338
2
340
1,854
–
(2,277)
(2,277)
–
–
133
5
164
(2,023)
(1,859)
–
443
(2,277)
(1,834)
–
22,892
115
(681)
22,326
21,309
133
43
21,485
22,892
115
(681)
22,326
21,359
131
43
21,533
–
–
–
–
(50)
2
–
(48)
22,892
115
(681)
22,326
21,309
133
43
21,485
1 £2,411 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).
With-Profits
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Insurance revenue (note C1)
Insurance service expenses
Incurred claims and other expenses
Losses on onerous contracts and reversals
of those losses
Changes to liabilities for incurred claims
(past service)
Insurance service result
Insurance finance expense/(income)
Total changes in the consolidated
income statement
Investment components
Cash flows:
Premiums received
Claims and other expenses paid
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
Liabilities for remaining coverage
Liabilities for remaining coverage
2023
2022
Excluding loss
component
£m
27,812
–
Loss
component
£m
397
–
Liabilities for
incurred
claims
£m
796
–
Total
£m
29,005
–
Excluding loss
component
£m
35,908
–
Loss
component
£m
17
–
Liabilities for
incurred
claims
£m
598
–
Total
£m
36,523
–
27,812
397
796
29,005
35,908
17
598
36,523
(267)
–
–
–
(267)
1,883
1,616
(2,360)
121
–
121
402
–
(61)
(64)
–
(125)
14
(111)
–
–
–
–
26
–
(267)
(636)
253
192
–
(64)
(33)
220
17
237
2,360
–
(694)
(694)
(21)
(33)
(172)
1,914
1,742
–
121
(694)
(573)
407
–
–
–
(636)
(5,447)
(6,083)
(2,148)
136
–
136
(1)
–
(1)
381
–
380
–
380
–
–
–
–
–
–
(636)
551
–
(41)
510
4
514
2,148
–
(2,468)
(2,468)
4
550
381
(41)
254
(5,443)
(5,189)
–
136
(2,468)
(2,332)
3
27,591
312
2,678
30,581
27,812
397
796
29,005
27,591
312
2,678
30,581
27,812
397
796
29,005
–
–
–
–
–
–
–
–
27,591
312
2,678
30,581
27,812
397
796
29,005
1 £349 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).
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233
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F3. Movements in liabilities for remaining coverage and liabilities for incurred claims for insurance contracts continued
Europe & Other
Insurance contract liabilities as at 1 January
Insurance contract assets as at 1 January
Net insurance contract liabilities as at
1 January
Insurance revenue (note C1)
Insurance service expenses
Incurred claims and other expenses
Amortisation of insurance acquisition
cash flows
Losses on onerous contracts and reversals
of those losses
Changes to liabilities for incurred claims
(past service)
Impairment of assets for insurance
acquisition cash flows
Insurance service result
Insurance finance income/expense
Total changes in the consolidated
income statement
Investment components
Cash flows:
Premiums received
Claims and other expenses paid
Insurance acquisition cash flows
Total cash flows
Other movements1
Net insurance contract liabilities as at
31 December
Insurance contract liabilities as at
31 December
Insurance contract assets as at
31 December
Net insurance contract liabilities as at
31 December
Liabilities for remaining coverage
Liabilities for remaining coverage
2023
2022
Excluding loss
component
£m
22,271
–
Loss
component
£m
72
–
Liabilities for
incurred
claims
£m
446
–
Total
£m
22,789
–
Excluding loss
component
£m
27,488
–
Loss
component
£m
64
–
Liabilities for
incurred
claims
£m
319
–
Total
£m
27,871
–
22,271
(571)
72
–
–
(571)
(655)
446
22,789
27,488
64
319
27,871
–
14
–
–
(3)
(560)
1,488
928
(1,483)
1,673
–
(116)
1,557
(218)
(11)
526
515
–
39
–
–
28
14
42
–
–
–
–
–
28
–
–
14
39
(104)
(104)
–
422
15
437
1,483
–
(2,259)
–
(2,259)
(14)
(3)
(110)
1,517
1,407
–
1,673
(2,259)
(116)
(702)
(204)
–
16
–
–
–
(639)
(5,830)
(6,469)
(1,172)
1,731
–
(102)
1,629
795
–
(3)
–
9
–
–
6
2
8
–
–
–
–
–
–
–
(655)
603
600
–
–
8
–
611
1
612
1,172
–
(1,666)
–
(1,666)
9
16
9
8
–
(22)
(5,827)
(5,849)
–
1,731
(1,666)
(102)
(37)
804
23,055
142
93
23,290
22,271
72
446
22,789
23,055
142
93
23,290
22,271
–
–
–
–
–
23,055
142
93
23,290
22,271
72
–
72
446
22,789
–
–
446
22,789
1 £112 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).
F4. Movements in present value of future cash flows, risk adjustment and CSM of reinsurance contracts held
The reconciliations below provide a roll-forward of the net asset or liability for reinsurance contracts held by measurement component, showing
estimates of the present value of future cash flows, the risk adjustment for non-financial risk and the CSM.
Reinsurance contract liabilities as at
1 January
Reinsurance contract assets as at 1 January
Net reinsurance contract assets as at
1 January
Changes in profit or loss:
CSM recognised for services received
Risk adjustment for the risk expired
Experience adjustments
Total change relating to current service
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Changes in estimates that do not adjust
the CSM
Reversal of impairment of assets for
reinsurance acquisition cash flows
Total change relating to future service
Changes in amounts recoverable arising
from changes in liabilities for incurred
claims (past service)
Net expenses from reinsurance contracts
Reinsurance finance (expense)/income
Total changes in the profit or loss
Cash flows:
Premiums paid
Claims recovered and other expenses paid
Total cash flows
Other movements1
Net reinsurance contract assets as at
31 December
Reinsurance contract liabilities as at
31 December
Reinsurance contract assets as at
31 December
Net reinsurance contract assets as at
31 December
Analysed by segment as follows:
Retirement Solutions
Pensions & Savings
With-profits
Europe & Other
Net reinsurance contract assets as at
31 December
2023
2022
Estimates of
the present
value of future
cash flows
£m
Risk
adjustment
£m
Contractual
service margin
£m
Estimates of
the present
value of future
cash flows
£m
Total
£m
Risk
adjustment
£m
Contractual
service margin
£m
(8)
2,285
–
478
1
1,308
(7)
4,071
–
3,032
–
659
–
1,028
Total
£m
–
4,719
2,277
478
1,309
4,064
3,032
659
1,028
4,719
–
–
27
27
(351)
(610)
(17)
2
(976)
(1)
(950)
156
(794)
3,085
(2,280)
805
(122)
–
(30)
–
(30)
229
(49)
7
–
187
–
157
(3)
154
–
–
–
1
(168)
–
–
(168)
122
659
(168)
(30)
27
(171)
–
–
–
(13)
(13)
(193)
(285)
–
(10)
–
–
781
–
613
26
639
2
(8)
(1)
(180)
179
(1)
–
–
–
(18)
3,085
(2,280)
805
(139)
–
(478)
11
(480)
(808)
(1,288)
1,656
(1,090)
566
(33)
–
(42)
(42)
120
9
(5)
–
124
–
82
(263)
(181)
–
–
–
–
(113)
–
(113)
73
276
–
–
349
(113)
(42)
(13)
(168)
–
–
(5)
–
(5)
–
236
18
254
–
11
(162)
(1,053)
(1,215)
–
–
–
27
1,656
(1,090)
566
(6)
2,166
633
1,930
4,729
2,277
478
1,309
4,064
(244)
37
60
(147)
(8)
1
(7)
2,410
596
1,870
4,876
2,285
478
1,308
4,071
2,166
633
1,930
4,729
2,277
478
1,309
4,064
935
20
820
391
537
2
46
48
1,604
–
147
179
3,076
22
1,013
618
1,132
–
869
276
379
–
38
61
952
–
142
215
2,463
–
1,049
552
2,166
633
1,930
4,729
2,277
478
1,309
4,064
1 £(153) million included in ‘estimates of the present value of future cash flows’ relates to the fair value of reinsurance contracts acquired as part of the acquisition of SLF of Canada UK Limited
(see note H2).
234
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Phoenix Group Holdings plc Annual Report and Accounts 2023
235
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F5. Movements in liabilities for remaining coverage and liabilities for incurred claims for reinsurance contracts held
The following reconciliations show how the net carrying amounts of reinsurance contracts held changed over the year as a result of cash flows,
amounts recognised in the consolidated income statement and other movements, analysed by remaining coverage and incurred claims.
F6. The impact on the current period of transition approaches adopted in establishing CSMs
The impact on the current period of the transition approaches adopted in establishing CSMs for insurance contracts issued and reinsurance
contracts held is shown in the tables below. For further details of the transition approaches applied see note A2.1.1.
F6.1 Insurance contracts
Assets for remaining coverage
Assets for remaining coverage
2023
2022
Excluding loss
recovery
component
£m
Loss recovery
component
£m
Assets for
incurred
claims
£m
Excluding loss
recovery
component
£m
Total
£m
Loss recovery
component
£m
Assets for
incurred
claims
£m
Total
£m
(7)
6,705
6,698
(2,349)
–
–
–
–
2
(2,347)
179
(2,168)
(35)
3,085
–
–
3,085
(585)
–
47
47
–
–
(10)
–
(3)
–
(13)
–
(13)
–
–
–
–
–
3
–
(2,681)
(7)
4,071
–
7,915
(2,681)
4,064
7,915
–
(2,349)
(1,779)
2,181
2,181
–
(1)
–
–
2,180
–
2,180
35
(10)
(1)
(3)
2
(180)
179
(1)
–
–
(2,280)
–
(2,280)
443
3,085
(2,280)
–
805
(139)
–
–
–
–
–
(1,779)
(1,054)
(2,833)
(32)
1,656
–
–
1,656
(8)
–
52
52
–
–
(4)
–
(2)
–
(6)
1
(5)
–
–
–
–
–
–
–
(3,248)
–
4,719
(3,248)
4,719
–
–
(1,779)
1,612
1,612
–
11
–
–
1,623
–
1,623
32
–
(1,090)
–
(1,090)
2
(4)
11
(2)
–
(162)
(1,053)
(1,215)
–
–
1,656
(1,090)
–
566
(6)
6,995
37
(2,303)
4,729
6,698
47
(2,681)
4,064
(152)
7,147
6,995
5,421
6
984
584
6,995
–
37
37
36
–
–
1
37
5
(147)
(7)
(2,308)
4,876
6,705
(2,303)
4,729
6,698
(2,381)
16
29
33
3,076
22
1,013
618
5,148
–
1,025
525
(2,303)
4,729
6,698
–
47
47
46
–
–
1
47
–
(7)
(2,681)
4,071
(2,681)
4,064
(2,731)
–
24
26
2,463
–
1,049
552
(2,681)
4,064
Reinsurance contract liabilities as at
1 January
Reinsurance contract assets as at 1 January
Net reinsurance contract assets as at
1 January
Reinsurance expenses
Claims recoverable and other expenses
incurred
Changes in the CSM due to recognition
and reversal of a loss-recovery component
from onerous underlying contracts
Changes to assets for incurred claims
(past service)
Cost of retroactive cover on reinsurance
contracts held
Reversal of impairment of assets for
insurance acquisition cash flows
Net income/(expenses) from reinsurance
contracts held
Reinsurance finance income/expense
Total changes in the consolidated
income statement
Investment components
Cash flows:
Premiums paid
Claims recovered and other expenses paid
Reinsurance acquisition cash flows
Total cash flows
Other movements1
Net reinsurance contract assets as at
31 December
Reinsurance contract liabilities as at
31 December
Reinsurance contract assets as at
31 December
Net reinsurance contract assets as at
31 December
Analysed by segment as follows:
Retirement Solutions
Pensions & Savings
With-Profits
Europe & Other
Net reinsurance contract assets as at
31 December
1 £(153) million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited (see note H2).
236
Phoenix Group Holdings plc Annual Report and Accounts 2023
Retirement Solutions
CSM as at 1 January
Changes that relate to current service:
CSM recognised for services provided
Changes that relate to future service:
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Insurance service result
Insurance finance expenses
Total changes in profit or loss
Other movements
CSM as at 31 December
Pensions & Savings
CSM as at 1 January
Changes that relate to current service:
CSM recognised for services provided
Changes that relate to future service:
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Insurance service result
Insurance finance income
Total changes in profit or loss
Other movements
CSM as at 31 December
With-Profits
CSM as at 1 January
Changes that relate to current service:
CSM recognised for services provided
Changes that relate to future service:
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Insurance service result
Insurance finance expenses
Total changes in profit or loss
Other movements
CSM as at 31 December
2023
Fully retrospective
approach at
transition and new
contracts
£m
2,037
Fair value approach
at transition
£m
784
Total
£m
2,821
Fair value approach
at transition
£m
817
2022
Fully retrospective
approach at
transition and new
contracts
£m
1,854
Total
£m
2,671
(130)
(207)
(103)
(157)
(260)
–
438
335
18
353
25
1,162
435
220
498
44
542
–
2,579
435
658
833
62
895
25
3,741
(77)
–
30
(47)
14
(33)
–
784
232
51
153
30
183
–
2,037
2023
Fully retrospective
approach at
transition and new
contracts
£m
–
Fair value approach
at transition
£m
94
Fair value approach
at transition
£m
96
Total
£m
94
2022
Fully retrospective
approach at
transition and new
contracts
£m
–
(17)
–
54
37
–
37
(2)
129
(8)
34
50
76
(4)
72
–
72
(25)
34
104
113
(4)
109
(2)
201
(13)
–
11
(2)
–
(2)
–
94
–
–
–
–
–
–
–
–
2023
Fully retrospective
approach at
transition and new
contracts
£m
51
Fair value approach
at transition
£m
514
Total
£m
565
Fair value approach
at transition
£m
417
2022
Fully retrospective
approach at
transition and new
contracts
£m
16
232
81
106
44
150
–
2,821
Total
£m
96
(13)
–
11
(2)
–
(2)
–
94
Total
£m
433
(69)
–
90
21
9
30
(19)
525
(8)
–
29
21
1
22
(1)
72
(77)
(89)
(10)
(99)
–
119
42
10
52
(20)
597
–
180
91
6
97
–
514
–
45
35
–
35
–
51
–
225
126
6
132
–
565
Phoenix Group Holdings plc Annual Report and Accounts 2023
237
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F6.1 Insurance contracts continued
Europe & Other
CSM as at 1 January
Changes that relate to current service:
CSM recognised for services provided
Changes that relate to future service:
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Insurance service result
Insurance finance (income)/expenses
Total changes in profit or loss
Other movements
CSM as at 31 December
F6.2 Reinsurance contracts held
CSM as at 1 January
Changes that relate to current service:
CSM recognised for services received
Changes that relate to future service:
Contracts initially recognised in the period
Changes in estimates that adjust the CSM
Net expenses from reinsurance contracts
Reinsurance finance income
Total changes in profit or loss
Other movements
CSM as at 31 December
Analysed by segment as follows:
Retirement Solutions
With-Profits
Europe & Other
CSM as at 31 December
2023
Fully retrospective
approach at
transition and new
contracts
£m
113
Fair value approach
at transition
£m
306
Total
£m
419
Fair value approach
at transition
£m
214
2022
Fully retrospective
approach at
transition and new
contracts
£m
43
Total
£m
257
(11)
(67)
(27)
–
(85)
(112)
(22)
(134)
(3)
169
(20)
53
(58)
(25)
2
(23)
(15)
75
(47)
53
(143)
(137)
(20)
(157)
(18)
244
(56)
5
130
79
(3)
76
16
306
41
25
55
8
63
7
113
2023
Fully retrospective
approach at
transition and new
contracts
£m
612
Fair value approach
at transition
£m
697
Total
£m
1,309
Fair value approach
at transition
£m
498
2022
Fully retrospective
approach at
transition and new
contracts
£m
530
46
155
134
5
139
23
419
Total
£m
1,028
(99)
–
254
155
10
165
(39)
823
497
147
179
823
(69)
(168)
122
405
458
16
474
21
1,107
1,107
–
–
1,107
122
659
613
26
639
(18)
1,930
1,604
147
179
1,930
(67)
–
219
152
9
161
38
697
339
143
215
697
(46)
(113)
73
56
83
9
92
(10)
612
613
(1)
–
612
73
275
235
18
253
28
1,309
952
142
215
1,309
F7. Recognition of CSM in profit or loss
The following tables set out when the Group expects to recognise the carrying value of the CSM in the consolidated income statement for
insurance contracts issued and reinsurance contracts held. For General Model business this is shown after allowing for future accretion of
interest on the CSM at the locked in rate. The amounts presented represent the net impact in each period of expected release of the CSM
recognised in revenue less the accretion of interest on the CSM on General Model business recognised in insurance finance expenses.
2023
Insurance contracts issued
Retirement Solutions
Pensions & Savings
With-Profits
Europe & Other
Total CSM
Reinsurance contracts held
Retirement Solutions
Pensions & Savings
With-Profits
Europe & Other
Total CSM
2022
Insurance contracts issued
Retirement Solutions
Pensions & Savings
With-profits
Europe & Other
Total CSM
Reinsurance contracts held
Retirement Solutions
Pensions & Savings
With-profits
Europe & Other
Total CSM
Less than 1 year
£m
1-2 years
£m
2-3 years
£m
3-4 years
£m
4-5 years
£m
5-10 years
£m
243
26
66
33
368
(116)
–
(14)
(16)
(146)
236
21
56
25
338
(111)
–
(13)
(15)
(139)
225
18
50
23
316
(105)
–
(12)
(14)
(131)
214
16
44
20
294
(99)
–
(11)
(13)
(123)
205
14
37
18
274
(93)
–
(9)
(13)
(115)
877
49
126
64
1,116
(383)
–
(32)
(51)
(466)
Less than 1 year
£m
1-2 years
£m
2-3 years
£m
3-4 years
£m
4-5 years
£m
5-10 years
£m
216
10
81
52
359
(73)
–
(17)
(14)
(104)
200
9
63
41
313
(68)
–
(15)
(14)
(97)
186
8
54
32
280
(63)
–
(14)
(14)
(91)
173
7
46
29
255
(59)
–
(12)
(15)
(86)
162
7
39
26
234
(55)
–
(11)
(15)
(81)
668
24
123
97
912
(225)
–
(35)
(67)
(327)
More than 10
years
£m
1,741
57
218
61
2,077
(697)
–
(56)
(57)
(810)
More than 10
years
£m
1,216
29
159
142
1,546
(409)
–
(38)
(76)
(523)
Total
£m
3,741
201
597
244
4,783
(1,604)
–
(147)
(179)
(1,930)
Total
£m
2,821
94
565
419
3,899
(952)
–
(142)
(215)
(1,309)
F8. Effect of contracts initially recognised in the year
The effect on the measurement components arising from the initial recognition of insurance and reinsurance contracts in the year is disclosed in
the tables below. Contracts issued mainly comprise of bulk purchase annuity transactions completed in the year and protection business.
Contracts acquired in the year relate to the acquisition of SLF of Canada UK Limited (see note H2).
F8.1 Insurance contracts
Retirement Solutions
Estimate of present value of future
cash outflows:
Insurance acquisition cash flows
Claims and other directly
attributable expenses
Estimates of present value of future
cash outflows
Estimates of present value of future
cash inflows
Risk adjustment incurred
CSM
Losses on onerous contracts at
initial recognition
2023
2022
Contracts issued
Contracts acquired
Contracts issued
Contracts acquired
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
39
5,710
5,749
(6,280)
132
399
–
–
–
–
–
–
–
–
–
1,443
1,443
(1,514)
35
36
–
–
–
–
–
–
–
–
39
2
1
7,153
3,881
106
7,192
3,883
107
(7,794)
167
435
(4,238)
123
232
(109)
5
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
3,987
3,990
(4,347)
128
232
3
238
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
239
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F8.1 Insurance contracts continued
F8.2 Reinsurance contracts
Pension & Savings
Estimate of present value of future
cash outflows:
Claims and other directly
attributable expenses
Estimates of present value of future
cash outflows
Estimates of present value of future
cash inflows
Risk adjustment
CSM
Losses on onerous contracts at
initial recognition
With-Profits
Estimate of present value of future
cash outflows:
Claims and other directly
attributable expenses
Estimates of present value of future
cash outflows
Estimates of present value of future
cash inflows
Risk adjustment
CSM
Losses on onerous contracts at
initial recognition
Europe & Other
Estimate of present value of future
cash outflows:
Insurance acquisition cash flows
Claims and other directly
attributable expenses
Estimates of present value of future
cash outflows
Estimates of present value of future
cash inflows
Risk adjustment
CSM
Losses on onerous contracts at
initial recognition
2023
2022
Contracts issued
Contracts acquired
Contracts issued
Contracts acquired
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
–
–
–
–
–
–
–
–
–
–
–
–
2,344
2,344
(2,411)
33
34
–
2023
–
–
–
–
–
–
2,344
2,344
(2,411)
33
34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2022
–
–
–
–
–
–
–
–
–
–
–
–
Contracts issued
Contracts acquired
Contracts issued
Contracts acquired
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
–
–
–
–
–
–
–
–
–
–
–
–
349
349
(349)
–
–
–
2023
–
–
–
–
–
–
349
349
(349)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2022
–
–
–
–
–
–
–
–
–
–
–
–
Contracts issued
Contracts acquired
Contracts issued
Contracts acquired
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
Profitable
£m
Onerous
£m
Profitable
£m
Onerous
£m
Total
£m
80
–
–
172
270
109
252
270
109
(308)
5
51
(268)
2
–
(112)
1
2
–
4
–
–
–
–
–
–
–
–
80
86
–
551
423
215
631
509
215
(688)
8
53
(559)
4
46
(212)
–
–
4
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86
638
724
(771)
4
46
3
2023
2022
Contracts originated
Contracts acquired
Contracts originated
Contracts acquired
Without a
loss
recovery
component
£m
With a loss
recovery
component
£m
Without a
loss
recovery
component
£m
With a loss
recovery
component
£m
Without a
loss
recovery
component
£m
With a loss
recovery
component
£m
Without a
loss
recovery
component
£m
With a loss
recovery
component
£m
Total
£m
Estimates of present value of future
cash inflows
Estimates of present value of future
cash outflows
Risk adjustment incurred
CSM
Income recognised on
initial recognition
8,287
(8,584)
195
102
–
–
–
–
–
–
153
(207)
34
20
–
–
–
–
–
–
8,440
3,650
(8,791)
229
122
(3,843)
120
73
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
All contracts originated, and the majority of contracts acquired, relate to the Retirement Solutions segment.
Total
£m
3,650
(3,843)
120
73
–
F9. Underlying items
The following table sets out the composition and the fair value of underlying items of the Group’s participating contracts which are measured
using the variable fee approach.
Collective investment schemes
Debt securities
Equities
Investment property
Derivative assets
Cash and cash equivalents
Loans and deposits
Other assets
Derivative liabilities
Obligation for repayment of
collateral received
Insurance contract liabilities
Investment contract liabilities
Other liabilities
2023
2022
Pensions &
Savings
£m
17,572
2,860
2,390
319
3
47
–
81
(1)
(1)
–
–
(31)
23,239
With-Profits
£m
17,027
8,095
5,846
798
263
81
3
633
(459)
(125)
(2,034)
(6,628)
(703)
22,797
Europe &
Other
£m
15,549
3,910
966
18
1,019
329
199
174
(430)
(231)
(4)
–
(550)
20,949
Total
£m
50,148
14,865
9,202
1,135
1,285
457
202
888
(890)
(357)
(2,038)
(6,628)
(1,284)
66,985
Pensions &
Savings
£m
17,068
2,711
1,562
277
5
48
–
67
(6)
(3)
–
–
(12)
21,717
With-Profits
£m
17,442
7,956
5,824
872
295
122
2
1,026
(613)
(127)
(2,148)
(6,907)
(617)
23,127
Europe &
Other
£m
14,268
3,605
942
19
1,287
365
238
382
(536)
(254)
–
–
(186)
20,130
Total
£m
48,778
14,272
8,328
1,168
1,587
535
240
1,475
(1,155)
(384)
(2,148)
(6,907)
(815)
64,974
F10. 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 £4,880 million (2022: £4,002 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 part of ‘Reinsurance contract assets’. Where
there is interest payable on such collateral, it is recognised within Net finance income/(expense) from reinsurance contracts. The amounts
recognised as financial assets and liabilities from cash collateral received at 31 December 2023 are set out below.
Financial assets
Financial liabilities
Reinsurance transactions
2023
£m
208
208
2022
£m
267
267
240
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
241
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F11. Risk management – insurance risk
This note forms one part of the risk management disclosures in the consolidated financial statements. An overview of the Group’s approach to
risk management is outlined in note I3 and the Group’s management of financial and other risks is detailed in note E6.
Insurance risk refers to the risk of reductions in earnings and/or value, through financial or reputational loss, due to fluctuations in the timing,
frequency and severity of insured/underwritten events and to fluctuations in the timing and amount of claim settlements. This includes
fluctuations in profits due to customer behaviour. The Life businesses are exposed to the following elements of insurance risk:
Mortality
Longevity
higher than expected death claims on assurance products, lower than expected improvements in mortality or adverse
movement in mortality rates on Equity Release Mortgages;
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 or adverse movements in morbidity rates on Equity Release Mortgages;
Expenses
Persistency
unexpected timing or value of expenses incurred;
adverse movement in surrender rates, premium paying rates, premium indexation rates, cash withdrawal/drawdown
rates, GAO surrender rates, GAO take-up rates, policyholder retirement dates, propensity to commute benefits, transfer
out rates or the occurrence of a mass lapse event or adverse change in mortgage prepayment rates leading to losses;
New business pricing inappropriate pricing of new business that is not in line with the underlying risk factors for that business.
Concentration of risk
concentration of risk arising from insurance contracts might exist where the Group has significant exposure to specific
demographic factors such as age, smoker status, geographical location. The Group’s exposure to insurance risk is
spread across a diversified portfolio of products and approximately 12 million policyholders. Concentration risk might
also arise from insurance contracts that expose the Group to financial risk as a result of options and guarantees
contained within the product. Details of the Group’s approach to managing these features are contained in F11.3
Managing Product Risk.
The Group sets individual risk limits as a key control within its Risk Appetite Framework. Risk limits are reviewed as part
of approving the Group’s Annual Operating Plan and permit concentrations of certain risks only where the strategy can
be demonstrated as affordable within risk appetite.
The Group sets individual risk limits as a key control within its Risk Appetite Framework. Risk limits are reviewed as part of approving the Group’s
Annual Operating Plan and permit concentrations of certain risks only where the strategy can be demonstrated as affordable within risk appetite.
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 closed book of 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.
In the Retirement Solutions operating segment, 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, within the Pensions and Savings business, exposes the Group to persistency and
expense risks.
F11.1 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. The table below analyses how the CSM, profit after
tax and equity would have increased or (decreased) if changes in underwriting risk variables that were reasonably possible at the reporting date
had occurred. This analysis presents the sensitivities both before and after risk mitigation by reinsurance and assumes that all other variables
remain constant.
2023
Assurance mortality
Annuitant longevity
Lapse rates
Expenses
2022
Assurance mortality
Annuitant longevity
Lapse rates
Expenses
Change in risk variable
+5%
-5%
+5%
-5%
+10%
-10%
+10%
-10%
Change in risk variable
+5%
-5%
+5%
-5%
+10%
-10%
+10%
-10%
Impact on profit after tax and equity
Impact on CSM
Gross of reinsurance
£m
Net of reinsurance
£m
Gross of reinsurance
£m
Net of reinsurance
£m
(33)
(24)
91
(101)
(5)
(8)
(68)
32
(49)
(6)
(30)
10
–
(13)
(67)
32
(112)
211
(946)
896
33
(11)
(302)
349
(54)
149
(230)
236
20
4
(302)
349
Impact on profit after tax and equity
Impact on CSM
Gross of reinsurance
£m
Net of reinsurance
£m
Gross of reinsurance
£m
Net of reinsurance
£m
(9)
(16)
54
(108)
1
(12)
(57)
27
(13)
8
(62)
–
5
(16)
(57)
27
(180)
216
(835)
845
20
–
(275)
315
(118)
147
(250)
304
8
12
(274)
314
F11.2 Assumptions
The assumptions used to determine the liabilities are updated at each reporting date to reflect recent experience, unless IFRS17 requires
otherwise. 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:
F11.2.1 Discount rates
All cash flows are discounted using risk-free yield curves adjusted to reflect the timing and liquidity characteristics of those cash flows. For the
risk-free yield curve the Group uses those published by the PRA and EIOPA for regulatory reporting. Where necessary, yield curves are
interpolated between the last available market data point and the ultimate forward rate.
The Group uses a top-down approach primarily for annuities and a bottom-up discount rate for all other business. Under the top-down
approach, the discount rate is determined from the yield implicit in the fair value of an appropriate reference portfolio of assets that reflects the
characteristics of the liabilities. For annuity business, the Group determines the reference portfolio based on the strategic asset allocation (‘SAA’)
which aligns to the strategic investment objectives of the Group. The SAA sets out the target level of investment in a range of asset classes and
the yield for these asset classes is determined based on the fair value of assets in that class held at the valuation date.
Adjustments are made for differences between the reference portfolio and the insurance contract liability cash flows, including an allowance for
credit defaults. The credit default deduction comprises an allowance for both expected and unexpected defaults and takes into consideration
long-term historical data on actual defaults and an allowance for variability around these defaults. The credit default deduction is determined
based on the assets held at the valuation date.
The approach to determining unexpected defaults is based on a percentage of spread less the expected default allowance. The percentage of
spread was set using a top-down view that took into consideration management’s best estimate as to the allocation of the spread between
illiquidity factors and the risk of default. Given the widening of spreads during 2022 resulting from macro-economic conditions driven by the war
in Ukraine and resulting food and energy crises, surging inflation and the Mini Budget, this judgement became more material. Since the
beginning of 2022, the Group has been developing a credit model for use in the Phoenix Solvency II Internal Model (subject to PRA approval),
which also provides a best estimate view of credit defaults. The new model applies a stress to long-term historical actual default data to
determine the variability of defaults. From 30 June 2022, the new model has been used as an input in determining the assumption for
unexpected credit defaults as it is considered to provide a more refined view of the variability of defaults, particularly in volatile
market conditions.
242
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243
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F11.2.1 Discount rates continued
The top-down approach was further refined as at 31 December 2023. This refinement related to the determination of the yield used in relation to
the Equity Release Mortgages asset class. The previous approach calculated the yield by reference to the internal securitisation structure
established for this asset class for Solvency II purposes. This was amended as at the reporting date to determine the yield based on the
underlying Equity Release Mortgage loans themselves. This refinement had the impact of increasing the liquidity premium applied at
31 December 2023 for GBP Annuities by circa 19bps.
Under the bottom-up approach, the discount rate is determined as the risk-free yield curve, adjusted for differences in liquidity characteristics
by adding an illiquidity premium. For with-profits business a single illiquidity premium is determined for each fund based on the cash flow
characteristics of the contracts within the fund and applied to all contracts within the fund.
The tables below set out the yield curves used to discount the cash flows of insurance contracts for major currencies.
2023
GBP
Euro
2022
GBP
Euro
Annuities GBP
Annuities Euro
With-Profits GBP – liquid liabilities
With-Profits Euro – liquid liabilities
With-Profits GBP – illiquid liabilities
1 year
474
336
1 year
446
318
Risk-free rate (bps)
10 years
328
239
Risk-free rate (bps)
10 years
371
309
5 years
336
232
5 years
406
313
20 years
343
240
20 years
354
276
30 years
336
218
30 years
335
229
Liquidity premium over risk-free rate
2023
bps
173
49
20
20
107 – 173
2022
bps
151
44
10
10
100 – 151
F11.2.2 Risk adjustment
The Group has used the confidence level technique to derive the risk adjustment for non-financial risk. The risk adjustment percentile is
determined based on the Group’s view of the compensation required in respect of non-financial risk. The diversification benefit included in the
risk adjustment reflects diversification between contracts within the perimeter of the Group’s Internal Model. There is no diversification allowed
for between contracts measured under standard formula and the internal model. The confidence level percentile is calculated on a one year
basis. The risk adjustment calibration is set at least annually, off-cycle, based on the Group’s current view of risk. The risk adjustment calculation is
reassessed at each reporting date, i.e. the risk adjustment is not locked-in at initial recognition.
For with-profit business, the shareholder’s portion of non-financial risks (including an allowance for burn-through costs to the shareholder) is
allowed for in the derivation of the risk adjustment. For non-profit business held within a with-profit fund, the risk adjustment takes into account
the compensation required by both the shareholder and the participating policyholders.
Confidence level techniques are used to derive the overall risk adjustment for non-financial risk and this is allocated down to each group of
contracts in accordance with their risk profiles. The confidence level percentile input used to determine the risk adjustment is as follows:
Insurance contracts (gross of reinsurance)
2023
80th
2022
80th
The one year confidence level used to determine the risk adjustment has been converted to an approximate lifetime confidence level using an
approach which involves dividing by the square root of the lifetime duration of the insurance business.
Lifetime confidence level
Insurance contracts (gross of reinsurance)
2023
61st
2022
61st
F11.2.3 Other assumptions
Other assumptions such as policyholder behaviours (lapses and surrender rates), expense inflation and demographic assumptions (i.e. longevity,
mortality) are a key component of determining the cash flows related to the insurance contract liabilities. The underwriting risk variables and
assumptions are set based on past experience and/or relevant industry data, market practice, regulations and expectations about future trends.
Economic assumptions used in the measurement of fulfilment cash flows are market consistent.
Expenses and expense inflation
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, appropriate margins are applied to reflect central
expectations of earnings inflation in excess of RPI.
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
The regular bonus rates assumed in each scenario are determined in accordance with each company’s Principles and Practices of Financial
Management (‘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 amounts provided in the with-profit and non-profit funds in respect of
the future costs of guaranteed annuity options are £860 million (2022: £922 million) and £61 million (2022: £61 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 £191 million (2022: £195 million) and £2 million (2022:
£2 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.
Assumption changes
During the year a number of changes were made to assumptions to reflect changes in expected experience. The impact of material changes
during the year was as follows:
For insurance contracts:
Change in longevity assumptions
Change in persistency assumptions
Change in mortality assumptions
Change in expenses assumptions
For reinsurance contracts:
Change in longevity assumptions
Change in persistency assumptions
Change in mortality assumptions
Change in expenses assumptions
Increase/
(decrease) in CSM
(Decrease)/
increase in loss
component
Increase/
(decrease) in CSM
(Decrease)/
increase in loss
component
918
(6)
(102)
(170)
(598)
–
15
(13)
(1)
17
12
(35)
–
–
–
–
239
–
127
(172)
(122)
(10)
(40)
(33)
(17)
5
(1)
59
–
–
–
–
244
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
245
FinancialsFinancialsNotes to the consolidated financial statements continued F. Insurance contracts, investment contracts with DPF and reinsurance continued
F11.2.3 Other assumptions continued
Assumption changes continued
2023:
The £320 million net of reinsurance increase in CSM due to changes in longevity assumptions reflects updates to base and improvement
assumptions to reflect latest experience analyses, including moving to the latest CMI model.
As well as annual persistency updates to reflect latest experience, assumption changes were made for late retirements and GAO take-up rates
during the year.
The £(87) million net of reinsurance decrease in CSM due to change in mortality assumptions is driven by changes in Europe & Other base
mortality valuation assumptions.
The £(183) million net of reinsurance decrease in CSM and £(35) million net of reinsurance decrease in loss component are due to changes in
expense assumptions is driven by an increase in reserves principally in respect of delivery of the Group Target Operating Model for IT and
Operations included the migration of policyholder administration onto the Tata Consultancy Services (‘TCS’) platform together with Group
expense provisions and an increase in modelled maintenance expenses assumptions. This is partly offset due to changes in modelled investment
expenses and release of an investment manual.
2022:
The £117 million net of reinsurance increase in CSM due to changes in longevity assumptions reflects updates to base and improvement
assumptions to reflect latest experience analyses. The £17 million gross increase in loss component is driven by longevity assumption changes on
Phoenix BPA business.
Persistency assumptions have been updated to reflect latest experience analyses, leading to a £17 million impact on loss component.
The £87 million net of reinsurance increase in CSM due to changes in mortality assumptions is driven by changes in morbidity assumption for
German morbidity riders.
The £(205) million net of reinsurance decrease in CSM and £59 million net of reinsurance increase in loss component due to changes in expense
assumptions primarily reflects an increase in the anticipated costs associated with the implementation of IFRS 17 and the delivery of the Group
Target Operating Model for IT and Operations.
F11.3 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.
Product
With-Profit:
Unitised & Traditional – without guarantees
Unitised & Traditional – with guarantees
Annuities
Non-profit:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Protection
Unit-linked – with guarantees
Unit-linked – without guarantees
Primary segment
Main insurance risks
With-Profits
With-Profits
With-Profits
Longevity & Lapse
Lapse
Longevity
Retirement Solutions
Retirement Solutions
Retirement Solutions
Europe & Other
Pensions & Savings
Pensions & Savings
Longevity
Longevity
Longevity
Mortality, Morbidity & Lapse
Longevity & Lapse
Mortality, Morbidity & Lapse
The above products will also be exposed to market risk and further details are included in note E6.2.
£12,966 million (2022: £11,753 million) of liabilities are subject to longevity swap arrangements.
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 Heritage With Profits Fund (‘HWPF’), under the Scheme of Demutualisation, 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.
Long-term interest 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.
G. Other statement of consolidated financial position notes
G1. Pension schemes
Defined contribution pension schemes
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the consolidated income
statement as incurred.
Defined benefit pension schemes
The net surplus or deficit (the economic surplus or deficit) in respect of the defined benefit pension schemes is calculated by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to
determine its present value and the fair value of any scheme assets is deducted.
The economic surplus or deficit is subsequently adjusted to eliminate on consolidation the carrying value of insurance policies issued by
Group entities to the defined benefit pension schemes (the reported surplus or deficit). A corresponding adjustment is made to the carrying
values of insurance contract liabilities and investment contract liabilities.
As required by IFRIC 14, IAS 19 –‘The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’, to the extent that
the economic surplus (prior to the elimination of the insurance policies issued by Group entities) will be available as a refund, the economic
surplus is stated after a provision for tax that would be borne by the scheme administrators when the refund is made. The Group recognises a
pension surplus on the basis that it is entitled to the surplus of each scheme in the event of a gradual settlement of the liabilities, due to its
ability to order a winding up of the Trust.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
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247
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G1. Pension schemes continued
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 five 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’) the ReAssure Staff Pension Scheme (‘ReAssure
Scheme’) and from 3 April 2023, the Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits Scheme (‘Sun Life of Canada
Scheme’), and explains how the pension scheme asset/liability is calculated.
An analysis of the pension scheme (liability)/asset for each pension scheme is set out in the table below:
Pearl Group Staff Pension Scheme
Economic surplus
Adjustment for insurance policies eliminated on consolidation
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 liabilities
PGL Pension Scheme
Economic surplus
Adjustment for insurance policies eliminated on consolidation
Amounts due from subsidiary 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
Minimum funding requirement obligation
Net pension scheme liability
ReAssure Staff Pension Scheme
Economic surplus
Provision for tax on that part of the economic surplus available as a refund on a winding-up of the Scheme
Net pension scheme asset
Sun Life of Canada Scheme
Net pension scheme asset
Reimbursement right
2023
£m
50
(1,507)
(1,457)
202
1,506
251
20
(1,093)
(18)
(1,091)
1,206
115
(7)
(2)
(9)
14
(5)
9
17
2
2022
£m
46
(1,501)
(1,455)
205
1,576
326
23
(1,079)
–
(1,056)
1,246
190
(5)
(3)
(8)
22
(8)
14
–
–
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.
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 largely offset by the buy-in policies that move in line
with the liabilities. These buy-in policies are eliminated on consolidation (see notes G1.1 and G1.2 for further details).
A High Court legal ruling in June 2023 (Virgin Media Limited v NTL Pension Trustees II Limited) decided that certain rule amendments were
invalid if they were not accompanied by the correct actuarial confirmation. While the ruling only applied to the specific pension scheme in
question, if it stands it will form part of case law and can therefore be expected to apply across other pension schemes. The ruling is subject to
appeal and it may take some time for the outcome of the appeal to be known. The Group has not assessed the extent of any likely impacts from
this ruling and considers that there is sufficient uncertainty not to warrant recognition of any potential obligation in respect of this in the
consolidated statement of financial position at 31 December 2023. Any subsequent developments following this ruling will be monitored
by the Group.
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 Life Holdings Limited (‘PeLHL’), is from 1 October 2023 the principal employer of
the Pearl Scheme (previously Pearl Group Holdings No.2 Limited (‘PGH2’)). PeLHL assumed the Scheme covenant together with all obligations
of the Scheme following the transfer.
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 PeLHL. The trustee company is comprised of three 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.
The valuation has been based on an assessment of the liabilities of the Pearl Scheme as at 31 December 2023, 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.
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.
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.
248
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
249
FinancialsFinancialsNotes to the consolidated financial statements continued
G. Other statement of consolidated financial position notes continued
G1.1 Pearl Group Staff Pension Scheme continued
Pension Scheme Commitment Agreement and buy-in transactions continued
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 2023 was
£1,507 million (2022: £1,501 million) which includes an amount owed by PLL of £nil million (2022: £2 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. Following completion of the last buy-in transaction in 2022 the Group no longer has an
obligation to pay gilts deficit recovery contributions.
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.
No contributions were paid to the Pearl Scheme in either the current or prior period. PeLHL meets the administrative and non-investment
running expenses of the Scheme as set out in the schedule of contributions (PGH2 prior to 1 October 2023).
During 2022, 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 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% increase to eligible benefits of both pension and deferred members effective from 1 April 2023. In the current period, the financial impact
of the 1.3% uplift has been to recognise an increase in the defined benefit obligation of £12 million and a past service cost in the consolidated
income statement (at 31 December 2022, the financial impact of the 1.6% uplift was £15 million).
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 £202 million (31 December 2022: £205 million).
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2023
At 1 January
Interest income/(expense)
Past service cost
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience gain
Included in other comprehensive income
Income received from insurance policies
Benefit payments
At 31 December
Fair value of
scheme assets
£m
46
Defined benefit
obligation
£m
(1,501)
Pension Scheme
Liability
£m
(1,455)
Reimburse-ment
right
£m
205
2
–
2
2
–
–
–
2
(72)
(12)
(84)
–
12
(51)
15
(24)
(70)
(12)
(82)
2
12
(51)
15
(22)
102
(102)
50
–
102
(1,507)
102
–
(1,457)
10
–
10
–
–
–
–
–
–
(13)
202
Fair value of scheme
assets
£m
807
Defined benefit
obligation
£m
(2,224)
Provision for tax on
the economic
surplus available as a
refund
£m
(92)
Pension Scheme
Liability
£m
(1,509)
Reimbursement
right asset
£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
–
–
–
–
–
(38)
(15)
(53)
(208)
3
805
(116)
94
578
89
–
(560)
–
(1,455)
4
–
4
(101)
–
–
–
–
(101)
–
(14)
–
104
205
At 31 December
46
(1,501)
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
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
2023
2022
Of which not
quoted in an active
market
£m
–
5
3
–
–
8
Total
£m
–
5
3
42
–
50
Of which not
quoted in an active
market
£m
5
4
3
–
–
12
Total
£m
5
4
3
34
–
46
1,507
1,557
1,507
1,515
1,501
1,547
1,501
1,513
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme’s members as follows:
• Deferred scheme members: 33% (2022: 40%); and
• Pensioners: 67% (2022: 60%)
The weighted average duration of the defined benefit obligation at 31 December 2023 is 13.5 years (2022: 13.5 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
2023
%
2.90
2.60
4.60
3.10
2.60
2022
%
3.05
2.70
4.95
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.
250
Phoenix Group Holdings plc Annual Report and Accounts 2023
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251
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G1.1 Pearl Group Staff Pension Scheme continued
Principal assumptions continued
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 2022 Core Projections (2022: From 1 January 2021 based on amended CMI 2021 Core Projections) and a
long-term rate of improvement of 1.5% (2022: 1.5%) per annum for males and 1.2% (2022: 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 29.0 years and 30.3 years for male and female
members respectively (2022: 29.2 years and 30.5 years respectively).
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2023
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
Discount rate
RPI
Life expectancy
25bps
increase
(41)
25bps
decrease
43
25bps
increase
23
25bps
decrease
(22)
1 year
increase
37
1 year
decrease
(37)
1,507
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
Discount rate
RPI
Life expectancy
25bps
increase
(40)
25bps
decrease
42
25bps
increase
26
25bps
decrease
(25)
1 year
increase
37
1 year
decrease
(37)
1,501
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 2023, 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. 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 2023 is £1,093 million (2022: £1,079 million).
During the year, £18 million of scheme assets were transferred to PLL as premium for the buy-out transaction which completed in January 2024.
A debtor of £18 million, to reflect the prepayment of this premium at 31 December 2023 (2022: £nil), has been eliminated on consolidation.
Further details of this transaction are included in note I7.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2023
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience loss
Included in other comprehensive income
Income received from insurance policies
Benefit payments
Assets transferred as premium for scheme buy-out
At 31 December
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
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
Amounts due from subsidiary eliminated on consolidation
Economic value of assets
(51)
(3)
(54)
(1)
13
(27)
(17)
(32)
69
–
(18)
(1,091)
Total
£m
(1,592)
(31)
(4)
(35)
(1)
5
531
(36)
499
Fair value of
scheme assets
£m
27
Defined benefit
obligation
£m
(1,083)
Total
£m
(1,056)
1
(3)
(2)
(1)
–
–
–
(1)
69
(69)
(18)
6
(52)
–
(52)
–
13
(27)
(17)
(31)
–
69
–
(1,097)
Fair value of scheme
assets
£m
31
Defined benefit
obligation
£m
(1,623)
1
(4)
(3)
(1)
–
–
–
(1)
72
(72)
27
2023
Of which not
quoted in an active
market
£m
–
–
1,093
18
1,111
Total
£m
6
6
1,093
18
1,117
(32)
–
(32)
–
5
531
(36)
500
–
72
(1,083)
72
–
(1,056)
2022
Of which not
quoted in an active
market
£m
–
–
1,079
–
1,079
Total
£m
27
27
1,079
–
1,106
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253
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme’s members as follows:
• Deferred scheme members: 36% (2022: 36%); and
• Pensioners: 64% (2022: 64%)
The weighted average duration of the defined benefit obligation at 31 December 2023 is 13.5 years (2022: 13.5 years).
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G1.2 PGL Pension Scheme continued
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
2023
%
3.10
2.60
4.60
3.10
2.60
2022
%
3.30
2.70
4.95
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 2022 Core Projections (2022: From 1 January 2021 based on amended CMI
2021 Core Projections) with a long-term rate of improvement of 1.5% (2022: 1.5%) per annum for males and 1.2% (2022: 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 27.4 years
(2022: 27.7 years) and 28.8 years (2022: 29.1 years) for male and female members respectively.
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2023
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
Discount rate
RPI
Life expectancy
25bps
increase
(32)
25bps
decrease
33
25bps
increase
22
25bps
decrease
(21)
1 year
increase
31
1 year
decrease
(31)
1,097
Base
Discount rate
RPI
Life expectancy
25bps
increase
(31)
25bps
decrease
33
25bps
increase
23
25bps
decrease
(22)
1 year
increase
30
1 year
decrease
(30)
1,083
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 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 2023 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. In addition,
the entire balance of the 2013 Charged Account of £42 million was paid to the Scheme in December 2021.
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 on 31 July 2022,
and the last payment due by 31 July 2025.
The charged account is an Escrow account which was created to provide the trustees with additional security in light of the funding deficit.
The amounts held in the charged account does not form part of Abbey Life Scheme assets.
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 £2 million (2022: £3 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 £11 million (2022: £15 million) in accordance with the minimum funding requirement.
A deferred tax asset of £3 million (2022: £3 million) has also been recognised to reflect tax relief at a rate of 25% that is expected to be available
on the contributions once paid into the Scheme.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2023
At 1 January
Interest income/(expense)
Administration expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Experience loss
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Change in minimum funding requirement obligation
Included in other comprehensive income
Fair value of
scheme assets
£m
206
Defined benefit
obligation
£m
(211)
Minimum funding
requirement
obligation
£m
(3)
10
(2)
8
2
–
–
–
–
2
6
(11)
211
(10)
–
(10)
–
(4)
2
(6)
–
(8)
–
11
(218)
–
–
–
–
–
–
–
1
1
–
–
(2)
Employer's contributions
Benefit payments
At 31 December
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
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
Fair value of scheme
assets
£m
330
Defined benefit
obligation
£m
(318)
Provision for tax on
the economic
surplus available as a
refund
£m
(4)
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)
Total
£m
(8)
–
(2)
(2)
2
(4)
2
(6)
1
(5)
6
–
(9)
Total
£m
1
1
(2)
(1)
(123)
(9)
110
4
4
(14)
6
–
(8)
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255
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G1.3 Abbey Life Staff Pension Scheme continued
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
2023
2022
Of which not
quoted in an active
market
£m
–
–
–
(85)
–
(85)
Total
£m
45
148
97
(85)
6
211
Of which not
quoted in an active
market
£m
–
–
–
(15)
–
(15)
Total
£m
44
86
87
(15)
4
206
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% (2022: 44%); and
• Pensioners: 56% (2022: 56%)
The weighted average duration of the defined benefit obligation at 31 December 2023 is 13.5 years (2022: 13.5 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
2023
%
2.90
2.60
4.60
3.10
2.60
2022
%
3.05
2.70
4.95
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 2022 Core Projections (2022: From
1 January 2021 based on amended CMI 2021 Core Projections) and a long-term rate of improvement of 1.5% (2022: 1.5%) per annum for males
and 1.2% (2022: 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 24.5 years and 25.6 years for male and female members respectively (2022: 24.8 years and 25.9 years respectively).
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2023
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
Discount rate
RPI
Life expectancy
25bps
increase
(7)
25bps
decrease
7
25bps
increase
5
25bps
decrease
(5)
1 year
increase
7
1 year
decrease
(7)
218
Base
Discount rate
RPI
Life expectancy
25bps
increase
(7)
25bps
decrease
7
25bps
increase
4
25bps
decrease
(4)
1 year
increase
7
1 year
decrease
(7)
211
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 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 2023 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 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 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 (2022:£2 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:
2023
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience 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
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
Fair value of
scheme assets
£m
288
Defined benefit
obligation
£m
(266)
Provision for tax on
the economic
surplus available as
a refund
£m
(8)
14
(1)
13
(7)
–
–
–
–
(7)
3
(10)
287
(13)
–
(13)
–
13
(10)
(7)
–
(4)
–
10
(273)
–
–
–
–
–
–
–
3
3
–
–
(5)
Fair value of scheme
assets
£m
492
Defined benefit
obligation
£m
(438)
Provision for tax on
the economic
surplus available as a
refund
£m
(19)
9
(1)
8
(203)
–
–
–
(203)
3
(12)
288
(9)
–
(9)
–
188
(19)
–
169
–
12
(266)
–
–
–
–
–
–
11
11
–
–
(8)
Total
£m
14
–
1
(1)
–
(7)
13
(10)
(7)
3
(8)
3
–
9
Total
£m
35
–
(1)
(1)
(203)
188
(19)
11
(23)
3
–
14
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Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
257
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes 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
2023
2022
Of which not quoted
in an active market
£m
–
–
–
–
–
–
–
Total
£m
32
118
92
–
41
4
287
Total
£m
31
121
83
–
45
8
288
Of which not quoted
in an active market
£m
–
–
–
–
–
–
–
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% (2022: 66%); and
• Pensioners: 34% (2022: 34%)
The weighted average duration of the defined benefit obligation at 31 December 2023 is 17 years (2022: 17 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
2023
%
2.90
2.60
3.60
4.60
3.10
2.60
2022
%
3.05
2.70
3.70
4.95
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% (2022: 102%) multiplier for males and a
95% (2022: 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 2022 Core Projections (2022: from 1 January 2021 in
line with amended CMI 2021 Core Projections) with a long-term trend of 1.5% pa (2022: 1.5%) for males and 1.2% (2022: 1.2%) for females.
Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 60 is 29.7 years and 31.3
years for male and female members respectively (2022: 30.0 years and 31.6 years for male and female members respectively).
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2023
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2022
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
Discount rate
RPI
Life expectancy
25bps
increase
(11)
25bps
decrease
11
25bps
increase
9
25bps
decrease
(9)
1 year
increase
7
1 year
decrease
(7)
273
Base
Discount rate
RPI
Life expectancy
25bps
increase
(10)
25bps
decrease
11
25bps
increase
8
25bps
decrease
(8)
1 year
increase
7
1 year
decrease
(7)
266
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.
G1.5 Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits scheme
Scheme details
The Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits scheme (‘Sun Life of Canada Scheme’) was consolidated
within the Group financial statements following the acquisition of the Sun Life businesses on 3 April 2023. The Sun Life of Canada Scheme is a
registered occupational pension scheme, set up under trust, and legally separate from the principal employer Sun Life Assurance Company of
Canada (U.K.) Limited. The Scheme is administered by a specialist third party administrator, Hymans Robertson LLP. A Trustee Board is
responsible for ensuring the Scheme is run in accordance with the Trust Deed and Rules and for ensuring compliance with legislation although
certain tasks are delegated to third parties. The Trustee Board is made up of three Trustees; an Independent Trustee who is also the Chair, a
Principal Employer appointed Trustee and a Member-Nominated Trustee. The Independent Trustee is Capital Cranfield Pension Trustees
Limited. The Sun Life of Canada 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 Sun Life of Canada Scheme as at 31 December 2023 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.
The economic surplus of the Scheme is anticipated to be used to cover future costs of the Scheme and will be fully utilised prior to any winding-
up of the Scheme. As a result, no provision for tax is deducted from the surplus.
Funding
The last funding valuation of the Sun Life of Canada Scheme was carried out by a qualified actuary as at 31 December 2022 and showed a
surplus of £6 million. No contributions are required to be paid by the employer into the Scheme.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2023
On acquisition of SLF of Canada UK Limited (note H2)
Fair value of
scheme assets
£m
302
Defined benefit
obligation
£m
(286)
Total
£m
16
Reimbursement
right
£m
2
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
Included in other comprehensive income
Benefit payments
At 31 December
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
14
14
(5)
–
–
–
(5)
(14)
297
(13)
(13)
–
5
(4)
4
5
14
(280)
1
1
(5)
5
(4)
4
–
–
17
–
–
–
–
–
–
–
–
2
Debt securities
Cash and cash equivalents
Qualifying insurance contracts1
Pension scheme assets
2023
Of which not
quoted in an active
market
£m
–
–
257
257
Total
£m
36
4
257
297
1 In 2018 and 2021 the Scheme completed two buy-in transactions with external parties which cover approximately 90% of the Scheme’s liabilities.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the Sun Life of Canada Scheme’s members as follows:
• Deferred scheme members: 40%; and
• Pensioners: 60%.
The weighted average duration of the defined benefit obligation at 31 December 2023 is 12.8 years.
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259
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G1.5 Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits scheme continued
Principal assumptions
The principal assumptions of the Sun Life of Canada Scheme are set out in the table below:
Rate of increase for pensions in payment
Rate of increase for deferred pensions
Discount rate
Inflation – RPI
Inflation – CPI
2023
%
3.05
2.15
4.60
3.10
2.30
The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the duration of
the Sun Life of Canada 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 2022 VITA Lite tables. Future longevity improvements are in line with the 2022 CMI
model with no weight on 2020 and 2021 experience and 25% weighting on 2022 experience, with a long-term trend of 1.5% p.a. for males and
1.5% p.a. for females.
Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 65 is 23.1 years and 26.1
years for male and female members respectively.
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2023
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
Base
Discount rate
RPI
Life expectancy
25bps
increase
(9)
25bps
decrease
9
25bps
increase
7
25bps
decrease
(8)
1 year
increase
11
1 year
decrease
(11)
280
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to
occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to
significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within the statement of
consolidated financial position.
G2. Intangible assets
Goodwill
Business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the cost of the
acquisition and the fair value of the net identifiable assets acquired.
Goodwill is measured on initial recognition at cost. Following initial recognition, goodwill is stated at cost less any accumulated impairment
losses. Goodwill is not amortised but is tested for impairment annually or when there is evidence of possible impairment. For impairment
testing, goodwill is allocated to relevant cash generating units. Goodwill is impaired when the recoverable amount is less than the
carrying value.
In certain acquisitions an excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities, contingent
liabilities and non-controlling interests over cost may arise. Where this occurs, the surplus of the fair value of net assets acquired over the fair
value of the consideration is recognised in the consolidated income statement.
Acquired in-force business
Investment contracts without 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 at fair
value which is determined using a valuation technique to provide a reliable estimate of the amount for which the liability could be transferred
in an orderly transaction between market participants at the measurement date, subject to a minimum equal to the surrender value. This
acquired in-force business 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.
The acquired in-force business is allocated to relevant cash generating units for the purposes of impairment testing.
Brands
Brands 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 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 are impaired when the recoverable amount is less than the carrying value.
2023
Cost or valuation
At 1 January
Acquisition of SLF of Canada UK Limited
At 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
Impairment charge for the year
At 31 December
Carrying amount at 31 December
Amount recoverable after 12 months
2022 restated1
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 H3)
Carrying amount at 31 December
Amount recoverable after 12 months
Goodwill
£m
Acquired in-force
business
£m
57
–
57
(47)
–
–
(47)
10
10
4,180
16
4,196
(1,966)
(290)
(28)
(2,284)
1,912
1,654
Goodwill
£m
57
Acquired in-force
business
£m
4,180
(47)
–
–
(47)
10
–
10
10
(1,617)
(332)
(17)
(1,966)
2,214
(37)
2,177
1,912
Brands
£m
131
–
131
(19)
(6)
–
(25)
106
100
Brands
£m
131
(13)
(6)
–
(19)
112
–
112
106
Total
£m
4,368
16
4,384
(2,032)
(296)
(28)
(2,356)
2,028
1,764
Total
£m
4,368
(1,677)
(338)
(17)
(2,032)
2,336
(37)
2,299
2,028
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
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 (2022: £10 million) was recognised on the acquisition of AXA Wealth during 2016 and has been
allocated to the Pensions & Savings and Europe & Other segments. 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% (2022: 14%) 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.
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261
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G2.2 Acquired in-force business
Acquired in-force business (‘AVIF’) on investment contracts without DPF represents the difference between the fair value of the contractual
rights under these contracts and the liability measured at fair value which is determined using a valuation technique to provide a reliable estimate
of the amount for which the liability could be transferred in an orderly transaction between market participants at the measurement date, subject
to a minimum equal to the surrender value. AVIF on these investment contracts is amortised in line with emergence of economic benefits over
their expected term. AVIF balances are assessed for impairment where an indicator of impairment has been identified.
AVIF of £16 million was recognised during the year upon acquisition of SLF of Canada UK Limited. Further details are included in note H2.
On 23 February 2021, the Group entered into an agreement with abrdn plc to simplify the arrangements of their Strategic Partnership. 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. Since 2021, the balances in the statement of consolidated financial position
relating to this business have been classified as a disposal group held for sale.
The total proceeds of disposal for this business were not expected to exceed the carrying value of the related net assets and accordingly the
disposal group was recognised at fair value less costs to sell. The value of the AVIF at 23 February 2021, which relates to the SIPP and Onshore
business, was £122 million and an impairment charge of £67 million was recognised in 2021. A further impairment of £28 million has been
recognised during the year (2022: £17 million). The AVIF balance classified as held for sale has not been amortised up to 31 December 2023.
As at 31 December 2023, the insured funds element of the Wrap SIPP and Onshore Bond businesses will no longer transfer to abrdn (see note
H3 for further details). As a result, this business no longer meets the requirements to be classified as held for sale. Consequently, the AVIF, which
has a carrying value of £9 million at 31 December 2023, will be classified within the AVIF line in the consolidated statement of financial position.
The AVIF will be amortised in line with the transfer of the economic risk and rewards for this business to abrdn plc via the profit
transfer arrangement.
G2.3 Brands
An intangible asset was recognised at cost on acquisition of 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 2023 is
£6 million (2022: £8 million).
On 23 February 2021, the Group entered into an agreement to acquire ownership of the Standard Life brand as part of a larger 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 2023 is £100 million
(2022: £104 million).
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 (2022: 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.
2023
Cost or valuation
At 1 January
Additions
Revaluation losses
At 31 December
Depreciation
At 1 January
Depreciation
At 31 December
Carrying amount at 31 December
Owner-occupied
properties
£m
Right-of-use assets
– property
£m
Equipment
£m
32
1
(5)
28
–
–
–
28
96
–
–
96
(32)
(10)
(42)
54
67
8
–
75
(38)
(13)
(51)
24
Total
£m
195
9
(5)
199
(70)
(23)
(93)
106
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
Owner-occupied
properties
£m
Right-of-use assets
– property
£m
Equipment
£m
29
9
(6)
–
32
–
–
–
–
32
94
3
–
(1)
96
(24)
(9)
1
(32)
64
61
8
–
(2)
67
(30)
(10)
2
(38)
29
Total
£m
184
20
(6)
(3)
195
(54)
(19)
3
(70)
125
Owner-occupied properties have been valued by accredited independent valuers at 31 December 2023 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 £28 million (2022: £32 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 £5 million (2022: £6 million).
The fair value of the owner-occupied properties was derived using the investment method supported by comparison with similar market
transactions for similar properties. 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 assets, is initially recognised at cost, including any directly attributable transaction costs.
Subsequently investment property is measured at fair value. Fair value is the price that would be received to sell a property in an orderly
transaction between market participants at the measurement date. Fair value is determined without any deduction for transaction costs that
may be incurred on sale or disposal. Gains and losses arising from the change in fair value are recognised as income or an expense in the
statement of comprehensive income.
Investment property includes right-of-use assets, where the Group acts as lessee. Leases, where a significant portion of the risks and rewards
of ownership are retained by the lessor, are classified as operating leases. Where investment property is leased out by the Group, rental
income from these operating leases is recognised as income in the consolidated income statement on a straight-line basis over the period
of the lease.
At 1 January
Additions
Acquisition of SLF of Canada UK Limited (note H2)
Improvements
Disposals
Remeasurement of right-of-use asset
Movement in foreign exchange
Losses on adjustments to fair value (recognised in consolidated income statement)
Less amounts classified as held for sale (see note H3)
At 31 December
Unrealised losses on properties held at end of year
2023
£m
6,233
49
283
27
(484)
–
(4)
(362)
5,742
(2,044)
3,698
(180)
2022
£m
8,592
104
–
27
(1,141)
2
12
(1,363)
6,233
(2,506)
3,727
(1,582)
As at 31 December 2023, a property portfolio including amounts classified held for sale of £5,621 million (2022: £6,070 million) is held by the life
companies in a mix of commercial sectors, spread geographically throughout the UK and Europe.
Investment properties also includes £42 million (2022: £62 million) of property reversions arising from sales of the NPI Extra Income Plan (see
note E5 for further details) and £64 million (2022: £80 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 2023 was £15 million (2022: £21 million). The
remeasurement resulted in no change in value of the ground rent right-of-use asset (2022: increase of £2 million). There were no additions (2022:
£2 million) and £6 million disposals (2022: £4 million) of ground rent right-of-use assets during the period.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
263
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G4. Investment property continued
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 mortality rates are 130% for both males and females based on the IFL92C15 table
for males and the IML92C15 table for females. 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 3 year swap rate plus
1.7% margin (2022: 3 year swap rate plus 1.7% margin), and adjusted for the deferred possession rate of 3.7% (2022: 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.
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 discount rate was 5% (2022: 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
2023
£23.41
£7,156
£1,123
5.13%
Weighted average
2022
£22.41
£7,043
£1,115
5.01%
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 £36 million (2022: £27 million). The direct operating expenses arising from investment
property that did not generate rental income during the year amounted to £5 million (2022: £5 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
2023
£m
278
919
2,903
2022
£m
356
1,131
3,345
G5. Other receivables
Other receivables are recognised when due and measured on initial recognition at the fair value of the amount receivable. Subsequent to
initial recognition, these receivables are measured at amortised cost using the effective interest rate method.
Investment broker balances
Cash collateral pledged and initial margins posted
Property related receivables
Deferred acquisition costs relating to investment contracts without DPF
Other debtors
At 31 December
Amount recoverable after 12 months
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
G6. Cash and cash equivalents
2023
£m
115
1,728
165
8
562
2,578
13
2022
restated1
£m
312
3,698
145
7
293
4,455
6
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
2023
£m
2,751
4,469
7,220
(52)
7,168
2022
£m
2,716
6,156
8,872
(33)
8,839
Deposits are subject to a combination of fixed and variable interest rates. The carrying amounts of balances held at amortised cost approximate
to fair value at the period end. Cash and cash equivalents in long-term business operations and consolidated collective investment schemes of
£6,994 million (2022: £8,597 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. Costs that meet the requirements to be classified as a provision but are determined to
be directly attributable to insurance contracts and investment contracts with DPF are classified within the insurance contract assets
and liabilities.
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.
2023
At 1 January restated1
Additions in the year
Acquisition of SLF of Canada
UK Limited (note H2)
Utilised during the year
Released during the year
At 31 December
Leasehold
properties
£m
9
2
Staff related
£m
7
1
Known
incidents
£m
48
9
Indirect tax
provisions
£m
29
43
Restructuring provisions
Transition and
Transformation
provision
£m
72
6
Transfer of policy
administration
provision
£m
8
1
–
–
(2)
9
4
–
(1)
11
–
(24)
(18)
15
–
(3)
(10)
59
–
(20)
(11)
47
–
(4)
–
5
Other
£m
11
10
1
(9)
(4)
9
Total
£m
184
72
5
(60)
(46)
155
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
264
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
265
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G7. Provisions continued
Leasehold properties
The leasehold properties provision includes a £9 million (2022: £7 million) dilapidations provision in respect of obligations under operating leases
and £nil (2022: £2 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 £8 million (2022: £4 million), and private medical and other insurance costs
for former employees of £3 million (2022: £3 million).
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
and in 2022 it was increased to £29 million. During 2023, £18 million (2022: £nil) was utilised and £7 million was released. The remaining balance
at 31 December 2023 is £4 million (2022: £29 million). 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 2023, £4 million (2022: £4 million) was released and the remaining balance at 31 December 2023 is £3 million (2022: £7 million). These
provisions will be utilised within one to four 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, the provision was increased by £2 million (2022: £nil) and a further £1 million (2022: £4 million) was released. The remaining balance at
31 December 2023 is £3 million (2022: £2 million). A new provision of £5 million was created during 2023 in relation to a pricing error within the
same business transfer caused by incorrect static data. During the year, £4 million was utilised and the remaining balance at 31 December 2023
is £1 million. These provisions will be utilised within one to two years.
The remaining provisions of £4 million as at 31 December 2023 (2022: £10 million) are expected to be utilised within one to four years. As at
31 December 2023, there are no significant uncertainties which could give rise to a material change to the value of the provisions held for current
known incidents.
Indirect tax provision
The indirect tax provision relates to various indirect tax matters across operational taxes, employment taxes and VAT. During the year, the
provision was strengthened by £43 million (2022: £nil). £3 million (2022: £nil) was utilised and a further £10 million (2022: £nil) was released.
The remaining balance at 31 December 2023, of £59 million (2022: £29 million) represents the Group’s estimate of the maximum exposure
as at the reporting date and is expected to be utilised in one to three 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 which raised a valid expectation of the impacts in those likely to be affected.
The initial provision 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.
During the year, the provision was increased by £6 million (2022: £33 million), a further £20 million (2022: £19 million) was utilised and £11 million
(2022: nil) was released. The remaining £47 million (2022: £72 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.
An initial provision 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. The uncertainty in relation to the severance and associated exit costs is limited as the restructuring programme is
nearing completion. During the year the provision was increased by £1 million (2022: £4 million) and a further £4 million (2022: £4 million) was
utilised. The remaining provision of £5 million (2022: £8 million) is expected to be utilised within one year.
Other provisions
Other provisions includes £3 million (2022: £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.
Another provision of £1 million was also recognised during the year upon acquisition of SLF of Canada UK Limited in relation to restructuring
and litigation.
The remaining other provisions of £5 million (2022: £7 million) consist of a number of small balances, all of which are less than £3 million in value.
Discounting
The impact of discounting on all provisions during the year from either the passage of time or from a change in the discount rate is not material.
G8. Tax assets and liabilities
Deferred tax is provided for on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is not provided in respect of temporary differences arising from the initial
recognition of goodwill and the initial recognition of assets or liabilities in a transaction that is not a business combination and that, at the time
of the transaction, affects neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at
the period end.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can
be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Current tax:
Current tax receivable
Current tax payable
Deferred tax:
Deferred tax assets
Deferred tax liabilities
2023
£m
502
(41)
143
(257)
2022
restated1
£m
519
(34)
158
(309)
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
Movement in deferred tax liabilities
2023
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
Transitional adjustment relating to IFRS 17
Accelerated capital allowances
Intangibles
Acquired in-force business
Customer relationships
Unrealised gains
Actuarial liability differences between local GAAP
and IFRS 17
Other
Recognised in
consolidated
income
statement
£m
132
(22)
Recognised in
other
comprehensive
income
£m
–
–
SLF of
Canada UK
Limited
acquisition
£m
27
–
1 January
£m
196
24
Less amounts
previously
classified as
held for sale
£m
–
–
Other
movements
£m
–
–
31 December
£m
355
2
397
32
(151)
9
–
17
14
(405)
(28)
(261)
2
3
(151)
6
(28)
34
(5)
(1)
4
17
55
1
(77)
(110)
8
14
–
–
12
(1)
2
–
–
–
–
–
–
–
13
19
–
(4)
–
9
1
–
(4)
–
(23)
(16)
–
9
–
–
1
–
–
–
–
–
–
–
6
–
7
–
–
–
–
–
1
–
(7)
–
–
–
–
(6)
422
4
(108)
3
10
23
31
(361)
(27)
(361)
(118)
11
(114)
266
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
267
FinancialsFinancialsNotes 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 continued
2022 (restated)
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
Actuarial liability differences between local GAAP
and IFRS 17
Customer relationships
Unrealised gains
IFRS transitional adjustments
Other
Recognised in
consolidated
income
statement
£m
86
(8)
Recognised in other
comprehensive
income
£m
–
–
SLF of
Canada UK
Limited
acquisition
£m
–
–
Less
amounts
classified as
held for sale
£m
–
–
Other
movements
£m
7
–
31 December
£m
196
24
318
6
392
5
1
11
43
339
2
333
5
1
1,534
–
–
(288)
4
–
–
–
–
–
1
–
–
(283)
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
(2)
–
–
–
1
–
4
–
(2)
–
2
8
–
–
–
–
–
–
(3)
–
–
–
–
–
(3)
397
32
(151)
9
17
14
(405)
2
(28)
(261)
–
3
(151)
1 January
£m
103
32
81
28
(255)
–
16
2
(445)
(341)
(30)
(593)
(5)
–
(1,407)
The standard rate of UK corporation tax for the year ended 31 December 2023 is 23.5% (2022: 19%).
An increase from the 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 25%.
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
Actuarial liability differences between local GAAP and IFRS 17
Intangibles
Deferred tax assets not recognised on capital losses
2023
£m
110
9
14
12
312
2022
£m
82
116
27
29
40
The Group also has £635 million of BLAGAB trading losses carried forward as at 31 December 2023 in Phoenix Life Limited, ReAssure Limited
and Sun Life Assurance Company of Canada (UK) Limited (2022: £ 456 million of losses across Phoenix Life Limited, ReAssure Limited and
Phoenix Life Assurance Limited). Of the £635 million, a deferred tax asset was recognised in respect of £623 million of losses (2022:£164 million
of losses). The remaining £12 million of gross losses are projected to be utilised, however no value has been attributed to these deferred tax assets
given the interaction with other deductible temporary differences (2022: £158 million of losses). In 2022 deferred tax assets were not recognised
in respect of the remaining £134 million of losses due to the uncertainty of future trading profits against which the losses could be offset.
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 YE20, 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 and 2023, 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 2023.
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 and 2023, 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.
The Group is continuing to monitor developments in relation to the G20-OECD Inclusive Framework “Pillar Two” rules, as the Group expects to
be within the scope of the rules from 1 January 2024. Broadly, these rules seek to ensure that, on a jurisdiction-by-jurisdiction basis, large
multinational enterprises pay a minimum tax rate of 15% on worldwide profits arising after 31 December 2023.
The Group also notes the enactment of legislation in Bermuda in December 2023 which introduced a Corporate Income Tax with a headline rate
of 15% effective from 1 January 2025. This legislation is expected to apply to the Group’s local Bermudian operations. Given the current size of
local operations, the Group does not expect the immediate impact to be material.
As at year end 2023, the main other overseas jurisdictions where we operate and which have enacted local Pillar Two legislation are Germany,
Ireland, Luxembourg, the Netherlands and the United Kingdom.
The Group is continuing to assess the impact of the Pillar Two income taxes legislation on its future financial performance. Based on the work
completed to date on most recent historical financial information, the Group does not expect a material exposure to Pillar Two income taxes.
Nonetheless, the Group notes that the Pillar Two income taxes legislation is expected to continue developing, the rules are inherently complex
and can potentially lead to arbitrary outcomes. Further that historical financial performance is not necessarily indicative of future performance,
so the actual impact that the Pillar Two income taxes legislation may have on the Group’s future financial performance may be different
from expectations.
G9. Lease Liabilities
The 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, 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.
G10. 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
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
2023
£m
92
1
(7)
2
(14)
–
74
9
65
2023
£m
545
34
579
–
579
42
2022
£m
99
6
(4)
3
(14)
2
92
11
81
2022
restated1
£m
476
105
581
(37)
544
35
268
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
269
FinancialsFinancialsNotes to the consolidated financial statements continued G. Other statement of consolidated financial position notes continued
G11. 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
At 31 December
2023
£m
727
51
16
1,478
2,272
2022
restated1
£m
513
53
48
759
1,373
Amount due for settlement after 12 months
–
–
1
Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
H. Interests in subsidiaries and associates
H1. Subsidiaries
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 section (note I3). Under UK company law, dividends can only be paid if a UK company has distributable
reserves sufficient to cover the dividend.
In addition, contractual requirements may place restrictions on the transfer of funds as follows:
• Pearl Life Holdings Limited (‘PeLHL’) is required to make payments of contributions into charged accounts on behalf of the Abbey Life
Scheme. These amounts do not form part of the pension scheme assets and at 31 December 2023, PeLHL held £9 million (2022: £9 million)
within debt securities and £24 million (2022: £18 million) within cash and cash equivalents in respect of these charged accounts. 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 2023, RML held £44 million (2022:
£40 million) within debt securities 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. Acquisition of SLF of Canada UK Limited
On 3 April 2023, the Group acquired 100% of the issued share capital of SLF of Canada UK Limited from Sun Life Assurance Company of
Canada, part of the Sun Life Financial Inc. Group, for total cash consideration of £250 million.
SLF of Canada UK Limited and its subsidiaries are a closed book life insurance business that has a portfolio of pension, life and annuity products.
The acquisition is in line with the Group’s strategy to undertake mergers and acquisitions (‘M&A’) to acquire new customers at scale and deliver
better outcomes for them. The Group also transforms acquired businesses to deliver significant cost and capital synergies, creating significant
shareholder value. The table below summarises the fair value of identifiable assets and acquired liabilities assumed as at the date of acquisition.
Assets
Acquired in-force business
Pension scheme asset
Reimbursement rights
Investment property
Financial assets
Deferred tax assets
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Liabilities
Insurance contract liabilities
Reinsurance contract liabilities
Investment contract liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Current tax
Other payables
Total liabilities
Fair value of net assets acquired
Gain arising on acquisition
Purchase consideration transferred
Analysis of cash flows on acquisition:
Net cash acquired with the subsidiaries (included in cash flow from investing activities)
Cash paid
Net cash flow on acquisition
Notes
G2
G1
G1
G4
F1
F1
G7
Fair value
£m
16
16
2
283
7,552
12
47
64
230
8,222
4,386
153
3,190
75
5
3
4
90
7,906
316
(66)
250
230
(250)
(20)
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Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
271
FinancialsFinancialsNotes to the consolidated financial statements continued H. Interests in subsidiaries and associates continued
H2. Acquisition of SLF of Canada UK Limited continued
Acquired in-force business (AVIF)
An asset of £16 million arises reflecting the present value of future profits associated with the acquired in-force business. The AVIF has been
determined by reference to the fair value of investment contract rights acquired.
The valuation of AVIF has been determined by reference to the assumptions expected to be applied by a market participant in an orderly
transaction. The valuation approach uses present value techniques applied to the best estimate cash flows expected to arise from policies that
were in-force at the acquisition date, adjusted to reflect the price of bearing the uncertainty inherent in those cash flows. This approach
incorporates a number of judgements and assumptions which have impacted on the resultant valuation, the most significant of which include
expected policy lapses and surrender costs, and the expenses associated with servicing the policies, together with economic assumptions such
as future investment returns and the discount rate. The determination of the majority of these assumptions is carried out on a consistent basis with
those used in financial reporting with appropriate adjustments to reflect a market participant’s view. The adjustment for risk for the uncertainty in
the cash flows has been determined using a cost of capital approach.
The valuation of insurance contract liabilities and associated reinsurance assets has been carried out on a consistent basis with that applied by
the Group under the fair value approach on the transition to IFRS 17. Further information on the fair value approach used for the transition to IFRS
17 is set out in note A4.1 Determination of transition method and its application.
Deferred acquisition costs of £1 million and a deferred income liability of £2 million have been derecognised on acquisition and replaced as part
of the AVIF balance.
Other receivables
The financial assets acquired include other receivables with a fair value of £64 million. The gross amount due under the contracts is £64 million,
of which no balances are expected to be uncollectable.
Tax
The tax impact of the fair value adjustments recognised on acquisition has been reflected in the acquisition balance sheet.
Gain on acquisition
A gain on acquisition of £66 million has been recognised in the Group’s consolidated income statement for the year ended 31 December 2023,
reflecting the excess of the fair value of the net assets acquired over the consideration paid for the acquisition of the SLF of Canada UK businesses.
The consideration for the acquisition was fixed and determined using a ‘locked box’ pricing mechanism as at 31 December 2021. Over the period
between 31 December 2021 and the completion date, the value of the net assets acquired increased. This principally reflects a negative impact
on assets from increasing yields being more than offset by a reduction in liabilities as a result of favourable assumption changes and
demographic experience.
Additionally, in accordance with IFRS 3 Business Combinations, the acquired defined benefit pension schemes has been measured on
acquisition in accordance with the Group’s accounting policies as set out in note G1, as opposed to a fair value basis.
Transaction costs
Transaction costs of £4 million have been expensed and are included in administrative expenses in the consolidated income statement. All of
these costs were paid.
Impact of the acquisition on results
From the date of acquisition, the SLF of Canada UK business contributed £199 million to revenue and £24 million of profit after tax
attributable to owners.
It is not possible to provide revenue and profit after tax attributable to owners for the Group had the acquisition taken place at the beginning of
the year as key income statement items such as the amortisation of the contractual service margin recognised under IFRS 17 are calculated with
reference to the fair value as at the date of acquisition.
Since 2021, 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 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, resulting in an impairment of the acquired in-force
business (‘AVIF’) of £59 million at the date of the transaction. As at 31 December 2023, the expected completion date for the transfer of the TIP
business was March 2025.
Prior to 31 December 2023, a re-scoping exercise was undertaken with abrdn plc and it was agreed that the insured funds elements of the Wrap
SIPP and Onshore Bond businesses will no longer transfer to abrdn plc, and as a result this business no longer meets the requirements to be
classified as held for sale. The self-invested elements of the Wrap SIPP business, which are held off-balance sheet, are still expected to transfer
after April 2025. As at 31 December 2023, only the TIP business has been classified as a disposal group held for sale.
The AVIF, which relates to the Wrap SIPP and Onshore Bond business, has been further impaired since 2021 and a further impairment charge of
£28 million has been recognised in the year (2022: £17 million) prior to being removed from its classification as held for sale. As at 31 December
2023, the balances relating to the Wrap SIPP and Onshore Bond business have been included within the respective line items in the
consolidated statement of financial position, and assets of £2,410 million and liabilities of £2,412 million have been removed from the held for sale
classification. The major classes of assets and liabilities classified as held for sale are as follows:
Acquired in-force business
Investment property
Financial assets
Cash and cash equivalents
Assets classified as held for sale
Assets in consolidated funds1
Total assets of the disposal group
Investment contract liabilities
Other financial liabilities
Deferred tax liabilities
Accruals and deferred income
Liabilities classified as held for sale
2023
£m
–
2,044
2,498
52
4,594
188
4,782
(4,780)
(2)
–
–
(4,782)
2022
£m
37
2,506
4,629
33
7,205
1,147
8,352
(8,312)
(4)
(7)
(37)
(8,360)
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 2023 and therefore consolidates 100% of the assets with any non-controlling
interest recognised as net asset value attributable to unitholders.
H4. 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 2023, the Group held 43.4% (2022: 44.6%) of the issued share capital of UKCPR and the value of this investment, measured
at fair value and included within financial assets, was £349 million (2022: £329 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.
H3. Assets and liabilities classified as held for sale
Summary consolidated financial information (at 100%) for UKCPR group is shown below:
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.
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 Group’s growth strategy. Under the terms of the transaction, the Group agreed to 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 through a Part VII transfer. 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.
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
Profit/(loss) for the year after tax
2023
1,224
64
(236)
(28)
1,024
68
32
2022
1,276
83
(291)
(32)
1,036
71
(222)
H5. Structured entities
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).
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273
FinancialsFinancialsNotes to the consolidated financial statements continued H. Interests in subsidiaries and associates continued
H5. Structured entities continued
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.
H5.1 Interests in consolidated structured entities
The Group has determined that where it has control over funds, these investments are consolidated structured entities.
The EBT is a consolidated structured entity that holds shares to satisfy awards granted to employees under the Group’s share-based
payment schemes.
During the year, the Group granted further loans to the EBT of £12 million (2022: £13 million).
As at the reporting date, the Group has no intention to provide financial or other support to any other consolidated structured entity.
H5.2 Interests in unconsolidated structured entities
The Group has interests in unconsolidated structured entities. These investments are held as financial assets in the Group’s consolidated
statement of financial position held at fair value through profit or loss. Any change in fair value is included in the consolidated income statement
in ‘net investment income’. Dividend and interest income is received from these investments.
A summary of the Group’s interest in unconsolidated structured entities is included below. These are shown according to the financial asset
categorisation in the consolidated statement of financial position.
Equities
Collective investment schemes
Debt securities
2023
Carrying value of
financial assets
£m
1,051
78,909
8,264
88,224
2022
Carrying value of
financial assets
£m
968
75,389
8,062
84,419
The Group’s maximum exposure to loss with regard to the interests presented above is the carrying amount of the Group’s investments. Once the
Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group’s holdings in the above
unconsolidated structured entities are largely less than 50% and as such the size of these structured entities are likely to be significantly higher
than their carrying value.
Details of commitments to subscribe to private equity funds and other unlisted assets are included in note I5.
H6. Group entities
The table below sets out the Group’s subsidiaries (including consolidated collective investment schemes), associates and significant holdings in
undertakings (including undertakings in which the holding amounts to 20% or more of the nominal value of the shares or units and they are not
classified as a subsidiary or associate).
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Type of investment (including
class of shares held)
% of shares /
units held
Subsidiaries:
Phoenix Life Limited (life assurance company)
Phoenix Life Assurance Limited (life assurance company)
Phoenix Life Assurance Europe DAC (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)
Sun Life Assurance Company of Canada (U.K.) Limited
(life assurance company)
ReAssure Life Limited (life assurance company)
Wythall1
Wythall1
Dublin3
Edinburgh2
Dublin3
Edinburgh2
Hampshire43
Telford4
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Limited by Guarantee
100.00%
100.00%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
ReAssure Limited (life assurance company)
Phoenix Re Limited (life assurance company)
Phoenix Group Management Services Limited (management
services company)
Pearl Group Services Limited (management services company)
Standard Life Assets and Employee Services Limited
(management services company)
ReAssure Companies Services Limited (management services company)
PGMS (Ireland) Limited (management services company)
ReAssure UK Services Limited (management services company)
Phoenix Management Services (Bermuda) Limited (management services
company)
SLFC Services Company (UK) Limited (management services company)
PA (GI) Limited (non-trading company)
103 Wardour Street Retail Investment Company Limited (investment
company)
28 Riberia de Loira SL (property management company)
3 St Andrew Square Apartments Limited (property management
company)
330 Avenida de Aragon SL (property management company)
Abbey Life Assurance Company Limited (non-trading company)
Abbey Life Trust Securities Limited (pension trustee company)
Abbey Life Trustee Services Limited (dormant company)
Abrdn Private Equity Opportunities Trust plc (investment company)
Alba LAS Pensions Management Limited (dormant company)
Alba Life Trustees Limited (non-trading company)
Axial Fundamental Strategies (US Investments) LLC (investment company)
BA (FURBS) Limited (dormant company)
Barnwood Properties Limited (property investment company)
BL Telford Limited (dormant company)
Britannic Finance Limited (finance and insurance services company)
Britannic Group Services Limited (dormant company)
Britannic Money Investment Services Limited (investment advice
company)
Century Trustee Services Limited (dormant company)
CGE Management Company Limited (formerly known as Clyde Gateway
Management Company Limited)
CH Management Limited (investment company)
Cityfourinc (dormant company)
ERIP General Partner Limited (General Partner to ERIP Limited
Partnership)
ERIP Limited Partnership (Limited Partnership)
G Assurance & Pensions Services Limited (non-trading company)
G Financial Services Limited (dormant company)
G Life H Limited (holding company)
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)
Iceni Nominees (No. 2) Limited (dormant company)
IH (Jersey) Limited (dormant company)
Impala Holdings Limited (holding company)
Impala Loan Company 1 Limited (dormant company)
Inhoco 3107 Limited (dormant company)
Laurtrust Limited (dormant company)
London Life Limited (dormant company)
London Life Trustees Limited (dormant company)
Namulas Pension Trustees Limited (trustee company)
If unincorporated,
address of principal
place of business
Registered address of
incorporated entities
Telford4
Bermuda41
Type of investment (including
class of shares held)
Ordinary Shares
Ordinary Shares
% of shares /
units held
100.00%
100.00%
Wythall1
Wythall1
Edinburgh2
Telford4
Dublin5
Telford4
Bermuda41
Hampshire43
Wythall1
Telford4
Madrid42
Edinburgh6
Madrid17
Wythall1
Wythall1
Wythall1
Edinburgh6
Edinburgh2
Edinburgh2
Delaware7
Wythall1
Hampshire43
Telford4
Wythall1
Wythall1
Wythall1
Wythall1
Edinburgh6
Delaware7
Wythall1
Telford4
Telford4
Telford4
Telford4
Telford4
London44
Telford4
London44
Telford4
London44
Jersey8
Wythall1
Edinburgh2
London44
Hampshire43
Wythall1
Wythall1
Telford4
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
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
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%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
Ordinary Shares
Unlimited with Shares
100.00%
100.00%
100.00%
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
80.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
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Phoenix Group Holdings plc Annual Report and Accounts 2023
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275
FinancialsFinancialsNotes to the consolidated financial statements continued H. Interests in subsidiaries and associates continued
H6. Group entities continued
National Provident Institution (dormant company)
National Provident Life Limited (dormant company)
NM Life Trustees Limited (dormant company)
NM Pensions Limited (dormant company)
NP Life Holdings Limited (dormant company)
NPI (Printworks) Limited (dormant company)
NPI (Westgate) Limited (dormant company)
PC Management Limited (property management company)
Pearl (Covent Garden) Limited (dormant company)
Pearl (Martineau Phase 1) Limited (dormant company)
Pearl (Martineau Phase 2) Limited (dormant company)
Pearl (Moor House) Limited (dormant company)
Pearl (WP) Investments LLC (investment company)
Pearl AL Limited (dormant company)
Pearl Assurance Group Holdings Limited (investment company)
Pearl Customer Care Limited (financial services company)
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)
Pearl MP Birmingham Limited (dormant company)
Pearl RLG Limited (dormant company)
Pearl Trustees Limited (dormant company)
Phoenix Life CA Holdings Limited (formerly known as PG Dormant (No 4)
Limited) (dormant company)
Phoenix Group CA Services Limited (formerly known as PG Dormant (No
5) Limited) (dormant company)
Phoenix Life CA Limited (formerly known as PG Dormant (No 6) Limited)
(dormant company)
PGMS (Glasgow) Limited (investment company)
PGMS (Ireland) Holdings Unlimited Company (holding company)
PGS 2 Limited (investment company)
Phoenix & London Assurance Limited (dormant company)
Phoenix (Barwell 2) Limited (dormant company)
Phoenix (Chiswick House) Limited (dormant company)
Phoenix (Moor House 1) Limited (dormant company)
Phoenix (Moor House 2) Limited (dormant company)
Phoenix (Printworks) Limited (dormant company)
Phoenix (Stockley Park) Limited (dormant company)
Phoenix Advisers Limited (dormant company)
Phoenix AW Limited (dormant company)
Phoenix Customer Care Limited (financial services company)
Phoenix ER1 Limited (dormant company)
Phoenix ER2 Limited (finance company)
Phoenix ER3 Limited (dormant company)
Phoenix ER4 Limited (finance company)
Phoenix ER5 Limited (finance company)
Phoenix ER6 Limited (finance company)
Phoenix Group Capital Limited (dormant company)
Phoenix Group Employee Benefit Trust
Phoenix Group Holdings (Bermuda) Limited (holding company – directly
owned by the Company)
Phoenix Group Holdings (non-trading company)
Phoenix Group Management Limited (dormant company)
PGH CA Limited (formerly known as Pearl Group Management Services
Limited) (dormant company)
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Phoenix Group Holdings plc Annual Report and Accounts 2023
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Wythall1
Wythall1
Telford4
Telford4
Wythall1
Wythall1
Wythall1
Dublin15
Wythall1
Wythall1
Wythall1
Wythall1
Delaware7
Edinburgh2
Wythall1
Wythall1
London10
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Edinburgh2
Dublin5
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Jersey16
Bermuda41
Cayman
Islands10
Wythall1
London9
Type of investment (including
class of shares held)
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
Limited Liability
Company
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%
69.00%
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%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Unlimited with Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Trust
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%
Ordinary Shares
100.00%
Private Company
Ordinary Shares
100.00%
100.00%
Ordinary Shares
100.00%
Phoenix Holdings (Bermuda) Limited (holding company)
Phoenix Life Holdings Limited (holding company – directly owned by the
Company)
Phoenix Management Services Holdings (Bermuda) Limited (holding
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 (dormant company)
Phoenix SPV1 Limited (investment company)
Phoenix SPV2 Limited (investment company)
Phoenix SPV3 Limited (investment company)
Phoenix SPV4 Limited (investment company)
Phoenix ULA Limited (dormant company)
Phoenix Unit Trust Managers Limited (unit trust manager)
Phoenix Wealth Holdings Limited (holding company)
Phoenix Wealth Services Limited (financial services company)
Phoenix Wealth Trustee Services Limited (trustee company)
Pilangen Logistik AB (investment company)
Pilangen Logistik I AB (investment company)
ReAssure FS Limited (dormant company)
ReAssure FSH UK Limited (holding company)
ReAssure Group plc (holding company – directly owned by the Company)
ReAssure Life Pension Trustees Limited (dormant company)
ReAssure LL Limited (dormant company)
ReAssure Midco Limited (holding company)
ReAssure Nominees Limited (dormant company)
ReAssure Pension Trustees Limited (dormant company)
ReAssure PM Limited (dormant company)
ReAssure Trustees Limited (dormant company)
ReAssure Two Limited (dormant company)
ReAssure UK Life Assurance Company Limited (dormant company)
Scottish Mutual Assurance Limited (dormant company)
Scottish Mutual Nominees Limited (dormant company)
Scottish Mutual Pension Funds Investment Limited (trustee company)
SL (NEWCO) Limited (dormant company)
SL Liverpool limited (formerly known as SL Liverpool PLC) (dormant
company)
SLA Belgium No.1 SA (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)
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)
SLF of Canada UK Limited (holding company – directly owned by the
Company)
SLIF Property Investment GP Limited (General Partner to SLIF Property
Investment)
Standard Life Agency Services Limited (dormant company)
Standard Life Assurance (HWPF) Luxembourg S.à.r.l. (investment
company)
Standard Life Investment Funds Limited (dormant company)
Standard Life Lifetime Mortgages Limited (mortgage provider company)
Registered address of
incorporated entities
Bermuda41
If unincorporated,
address of principal
place of business
Type of investment (including
class of shares held)
Ordinary Shares
% of shares /
units held
100.00%
Wythall1
Bermuda41
Wythall1
Wythall1
Wythall1
Wythall1
Edinburgh2
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Stockholm13
Stockholm13
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Telford4
Edinburgh2
Edinburgh2
Edinburgh2
Edinburgh2
Wythall1
Brussels11
Copenhagen14
Copenhagen14
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Amsterdam12
Edinburgh2
Edinburgh2
Edinburgh2
Hampshire43
Edinburgh6
Edinburgh2
Luxembourg20
Edinburgh2
Edinburgh2
Ordinary Shares
100.00%
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
Ordinary Shares
Ordinary Shares
Ordinary Shares
Société Anonyme
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
Phoenix Group Holdings plc Annual Report and Accounts 2023
277
FinancialsFinancialsNotes to the consolidated financial statements continued H. Interests in subsidiaries and associates continued
H6. Group entities continued
Standard Life Master Trust Co. Limited (dormant company)
Standard Life Mortgages Limited (dormant company)
Standard Life Property Company Limited (dormant company)
Standard Life Trustee Company Limited (trustee company)
Sun Life of Canada UK Holdings Limited (dormant 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)
The Phoenix Life SCP Institution (dormant company)
The Scottish Mutual Assurance Society (dormant company)
The Standard Life Assurance Company of Europe B.V. (financial holding
company)
Vebnet (Holdings) Limited (holding company)
Vebnet Limited (services company)
Welbrent Property Investment Company Limited (dormant 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
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 ACS Asia Pacific ex Japan Fund
PUTM ACS Emerging Market Equity Fund
PUTM ACS European ex UK Fund
PUTM ACS Japan Equity Fund
PUTM ACS Lothian European Ex UK Fund
PUTM ACS Lothian North American Equity Fund
PUTM ACS Lothian UK Gilt Fund
PUTM ACS Lothian UK Listed Smaller Companies Fund (formerly known
as PUTM ACS UK Smaller Companies Fund)
PUTM ACS North American 2 Fund
PUTM ACS North American Fund
PUTM ACS Sustainable Index Asia Pacific ex Japan Equity Fund
PUTM ACS Sustainable Index Emerging Markets Equity Fund
PUTM ACS Sustainable Index European Equity Fund
PUTM ACS Sustainable Index Japan Equity Fund
PUTM ACS Sustainable Index UK Equity Fund
PUTM ACS Sustainable Index US Equity Fund
PUTM ACS UK All Share Listed Equity Multi Manager Fund
PUTM ACS US Dollar Credit Fund
PUTM Bothwell Asia Pacific (Excluding Japan) Fund
PUTM Bothwell Emerging Market Debt Unconstrained Fund
PUTM Bothwell Emerging Markets Equity Fund
PUTM Bothwell Euro Sovereign Fund
PUTM Bothwell European Credit Fund
278
Phoenix Group Holdings plc Annual Report and Accounts 2023
If unincorporated,
address of principal
place of business
Registered address of
incorporated entities
Wythall1
Wythall1
Edinburgh2
Edinburgh2
Hampshire43
Wythall1
Edinburgh2
Wythall1
Telford4
Edinburgh2
Edinburgh2
Amsterdam12
Wythall1
Edinburgh2
London44
Type of investment (including
class of shares held)
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
% 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%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
Edinburgh6
Edinburgh6
Edinburgh6
Edinburgh6
Edinburgh6
London18
London18
London18
London18
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Unit Trust
Unit Trust
Unit Trust
Unit Trust
100.00%
100.00%
100.00%
72.70%
100.00%
100.00%
100.00%
100.00%
84.56%
London18
OEIC, sub fund
99.20%
London18
OEIC, sub fund
82.73%
London18
OEIC, sub fund
96.27%
London18
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
OEIC, sub fund
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
86.79%
99.95%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
99.90%
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%
PUTM Bothwell Floating Rate ABS Fund
PUTM Bothwell Global Bond Fund
PUTM Bothwell Global Credit Fund
PUTM Bothwell Index-Linked Sterling Hedged Fund
PUTM Bothwell Long Gilt Sterling Hedged Fund
PUTM Bothwell Short Duration Credit Fund
PUTM Bothwell Sterling Credit Fund
PUTM Bothwell Sterling Government Bond Fund
PUTM Bothwell Sub-Sovereign A Fund
PUTM Bothwell Tactical Asset Allocation Fund
PUTM Bothwell Uk Equity Income Fund
PUTM Bothwell Ultra Short Duration Fund
PUTM Far Eastern Unit Trust
PUTM UK All-Share Index Unit Trust
PUTM UK Stock Market Fund
PUTM UK Stock Market Fund (Series 3)
abrdn (Lothian) European Trust II (formerly known as abrdn European Trust II)
abrdn (Lothian) European Trust (formerly known as abrdn European Trust)
abrdn (Lothian) International Trust (formerly known as abrdn International
Trust)
abrdn (Lothian) Japan Trust (formerly known as Abrdn Japan Trust)
abrdn (Lothian) North American Trust (formerly known as abrdn North
American Trust)
abrdn (Lothian) Pacific Basin Trust (formerly known as abrdn Pacific Basin
Trust)
abrdn (Lothian) UK Corporate Bond Trust (formerly known as abrdn UK
Corporate Bond Trust)
abrdn (Lothian) UK Equity General Trust (formerly known as abrdn UK
Equity General Trust)
abrdn Emerging Markets Income Equity Fund
abrdn Europe ex UK Ethical Equity Fund
abrdn MT American Equity Unconstrained Fund (formerly known as
ASIMT American Equity Unconstrained Fund)
abrdn MT Global REIT Fund (formerly known as ASIMT Global REIT Fund)
abrdn MT Japan Fund (formerly known as ASIMT Japan Fund)
abrdn MT Sterling Intermediate Credit Fund (formerly known as ASIMT
Sterling Intermediate Credit Fund Launch Fund)
abrdn MyFolio Managed I Fund
abrdn MyFolio Managed II Fund
abrdn MyFolio Managed III Fund
abrdn MyFolio Managed V Fund
abrdn Short Dated Global Corporate Bond Tracker Fund
abrdn Short Dated Sterling Corporate Bond Tracker Fund
abrdn SICAV I – Europe ex UK Sustainable Equity Fund
abrdn SICAV I – GDP Weighted Global Government Bond Fund
abrdn SICAV I – Global Bond Fund
abrdn SICAV I – Global Government Bond Fund
abrdn SICAV II – Global Equity Impact Fund
abrdn SICAV II – Global Inflation-linked Bond Fund
abrdn SICAV II – Global Short Duration Corporate Bond Fund
abrdn SICAV II – Absolute Return Global Bond Strategies Fund
abrdn SICAV II – European Government All Stocks Fund
abrdn SICAV II – Global Emerging Markets Local Currency Debt Fund
abrdn SICAV II – Global High Yield Bond Fund
abrdn SICAV II Global Real Estate Securities Sustainable Fund (formerly
known as abrdn SICAV II Global REIT Focus Fund)
abrdn Standard Liquidity Fund (Lux) – Seabury Euro Liquidity 1 Fund
abrdn Standard Liquidity Fund (Lux) – Seabury Sterling Liquidity 2 Fund
abrdn Standard Liquidity Fund (Lux) – Seabury Sterling Liquidity 3 Fund
abrdn Standard SICAV I – China Onshore Bond Fund
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
Wythall1
London44
London44
Type of investment (including
class of shares held)
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
% 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%
99.64%
100.00%
100.00%
100.00%
100.00%
95.65%
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Unit Trust
Unit Trust
100.00%
78.05%
Unit Trust
99.47%
Unit Trust
98.51%
Unit Trust
100.00%
Unit Trust
OEIC, sub fund
OEIC, sub fund
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
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
UCITS, sub fund
UCITS, sub fund
UCITS, sub fund
SICAV, sub fund
99.67%
74.36%
78.61%
78.13%
80.49%
77.55%
93.63%
77.50%
76.92%
84.49%
76.75%
95.85%
91.26%
68.91%
73.21%
99.60%
80.21%
61.26%
51.42%
98.25%
92.46%
100.00%
89.59%
54.75%
97.10%
100.00%
100.00%
99.45%
60.75%
Phoenix Group Holdings plc Annual Report and Accounts 2023
279
FinancialsFinancialsNotes to the consolidated financial statements continued Registered address of
incorporated entities
H. Interests in subsidiaries and associates continued
H6. Group entities continued
abrdn Sustainable Index World Equity Fund
abrdn Sustainable Index American Equity Fund
abrdn Phoenix Fund Financing SCSP (formerly known as ASI Phoenix
Fund Financing SCSP (PLFF))
Ignis Private Equity Fund LP
Ignis Strategic Credit Fund LP
North American Strategic Partners (Feeder) 2008 Limited Partnership
North American Strategic Partners 2008 L.P.
Ignis Strategic Solutions Funds plc – Fundamental Strategies Fund
Ignis Strategic Solutions Funds plc – Systematic Strategies Fund
Phoenix Highvista Venture Capital Partners LP (formerly known as ASI
Phoenix Venture Capital Partners LP)
BNY Mellon 50/50 Global Equity 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
Quilter Investors Global Dynamic Equity Fund
UBS Global Optimal Fund
Amundi MSCI World Climate Transition CTB
Stonepeak Core Fund (Lux) SCSp
Partners Group Phoenix, L.P. Inc.
ESP General Partner Limited Partnership
Aviva Investors UK Property Feeder Trust
Associates:
UK Commercial Property REIT Limited (property investment company)
UK Commercial Property Estates Holdings Limited (property investment
company)
UK Commercial Property Estates Limited (property investment company)
UK Commercial Property Finance Holdings Limited (property investment
company)
Duke Distribution Centres S.à.r.l. (investment company)
Duke Offices & Developments S.à.r.l. (investment company)
Guernsey29
Guernsey29
Guernsey29
Guernsey29
Luxembourg31
Luxembourg31
Significant holdings:
Janus Henderson Institutional Global Responsible Managed Fund
Janus Henderson Institutional UK Index Opportunities Fund
aberdeen Standard Liquidity Fund (Lux) – Sterling Fund
abrdn American Equity Enhanced Index Fund
abrdn American Income Equity Fund
abrdn Asia Pacific Equity Enhanced Index Fund
abrdn Asia Pacific Equity Fund
abrdn Dynamic Distribution Fund
abrdn Emerging Markets Equity Enhanced Index Fund
abrdn Emerging Markets Equity Fund
abrdn Emerging Markets Local Currency Bond Tracker Fund
abrdn Ethical Corporate Bond Fund
abrdn Europe ex UK Income Equity Fund
abrdn Europe Equity Enhanced Index Fund
abrdn European Equity Tracker Fund
abrdn Global Equity Fund
abrdn Global Inflation-Linked Bond Fund
abrdn Global Inflation-Linked Bond Tracker Fund
abrdn Global Government Bond Tracker Fund
280
Phoenix Group Holdings plc Annual Report and Accounts 2023
If unincorporated,
address of principal
place of business
London44
London44
Luxembourg20
Cayman
Islands10
Cayman
Islands10
Edinburgh6
Delaware7
Dublin22
Dublin22
USA56
London40
London23
Bolton24
London25
London26
London26
London27
London50
Luxembourg28
Luxembourg51
Guernsey55
Edinburgh6
London59
Type of investment (including
class of shares held)
Unit Trust
OEIC, sub fund
Special Limited
Partnership
% of shares /
units held
90.61%
60.53%
100.00%
Limited Partnership
100.00%
Limited Partnership
Limited Partnership
Limited Partnership
OEIC, sub fund
OEIC, sub fund
Limited Partnership
UCITS, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
Unit Trust
OEIC, sub fund
OEIC, sub fund
SICAV, sub fund
Special Limited
Partnership
Limited Partnership
Limited Partnership
Unit Trust
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
73.99%
81.64%
72.83%
99.46%
86.50%
84.77%
87.03%
78.77%
51.95%
83.30%
100.00%
100.00%
100.00%
Ordinary Shares
43.39%
Ordinary Shares
Ordinary Shares
43.39%
43.39%
Ordinary Shares
Ordinary Shares
Ordinary Shares
43.39%
43.39%
43.39%
OEIC, sub fund
OEIC, sub fund
UCITS, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
31.10%
58.64%
30.05%
48.23%
65.26%
35.99%
22.83%
63.23%
25.45%
22.06%
42.19%
57.34%
26.24%
25.37%
23.14%
22.99%
24.13%
52.87%
31.90%
London18
London18
Luxembourg20
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
abrdn Global Real Estate Fund
abrdn Global Smaller Company Fund
abrdn High Yield Bond Fund
abrdn Investment Grade Corporate Bond Fund
abrdn Japan Equity Enhanced Index Fund
abrdn MyFolio Managed IV Fund
abrdn MyFolio Market I Fund
abrdn MyFolio Market II Fund
abrdn MyFolio Market III Fund
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 Short Dated Corporate Bond Fund
abrdn Short Duration Global Inflation-Linked Bond Fund
abrdn SICAV I – Diversified Income Fund
abrdn SICAV I – Global Corporate Sustainable Bond Fund
abrdn SICAV I – Japanese Sustainable Equity Fund
abrdn SICAV I – North American Smaller Companies Fund
abrdn SICAV I – Short Dated Enhanced Income Fund
abrdn SICAV II European Corporate Bond Fund
abrdn SICAV II European Smaller Companies Fund
abrdn SICAV II Global Corporate Bond Fund
abrdn Standard Liquidity Fund (Lux) – Seabury Euro Liquidity 1 Fund
(formerly known as Abrdn Liquidity Fund (Lux) Euro Fund)
abrdn Sterling Corporate Bond Fund (formerly known as ASI (SLI)
Corporate Bond Fund)
abrdn Strategic Bond Fund
abrdn UK Equity Enhanced Index Fund
abrdn UK Government Bond Fund
abrdn UK Income Equity Fund
abrdn UK Income Unconstrained Equity Fund
abrdn UK Mid-Cap Equity Fund
abrdn UK Real Estate Feeder Fund (formerly known as Standard Life
Investments UK Real Estate Accumulation Feeder Fund)
abrdn UK Smaller Companies Fund
abrdn UK Value Sustainable and Responsible Investment Equity Fund
abrdn UK Value Equity Fund (formerly known as abrdn UK Unconstrained
Equity Fund)
Brent Cross Partnership
Gallions Reach Shopping Park Limited Partnership
Gallions Reach Shopping Park Unit Trust
Standard Life Investments Brent Cross LP
Standard Life Investments UK Shopping Centre Trust
AB SICAV I – Diversified Yield Plus Portfolio
Abrdn SICAV I – Emerging Markets Low Volatility Equity Portfolio
ACS World Multifactor Equity Tracker Fund
Amundi Index Solutions – Amundi Global Corp SRI 1-5Y
Amundi Index Solutions – Amundi MSCI China ESG Leaders Select
Amundi Index Solutions – Amundi MSCI Emerging Ex China ESG Leaders
Select
Amundi UCITS Funds – Amundi Global Multi-Factor Equity Fund
AQR Global Risk Premium UCITS Fund
Baillie Gifford Emerging Markets Leading Companies Fund
Baillie Gifford Investment Funds II ICVC – Baillie Gifford UK Equity Core
Fund
Baillie Gifford UK & Balanced Funds ICVC – Baillie Gifford UK and
Worldwide Equity Fund
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Luxembourg20
Type of investment (including
class of shares held)
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
% of shares /
units held
36.57%
25.59%
20.37%
42.52%
51.85%
68.36%
42.30%
50.36%
56.77%
54.08%
58.47%
48.78%
56.50%
59.86%
37.59%
26.77%
22.07%
36.27%
36.02%
22.52%
24.34%
39.94%
31.46%
27.33%
53.05%
Luxembourg20
UCITS, sub fund
39.38%
London44
London44
London44
London44
London44
London44
London44
London44
London44
London44
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
26.45%
54.16%
47.25%
38.10%
28.14%
61.71%
31.44%
Unit Trust
OEIC, sub fund
OEIC, sub fund
63.85%
30.89%
40.54%
London44
London30
London44
Jersey21
Edinburgh6
Jersey32
Luxembourg19
Luxembourg19
London25
Luxembourg28
Luxembourg28
Luxembourg28
Luxembourg28
Luxembourg49
Edinburgh39
OEIC, sub fund
Limited Partnership
Unit Trust
Unit Trust
Unit Trust
Unit Trust
SICAV, sub fund
SICAV, sub fund
OEIC, sub fund
SICAV, sub fund
SICAV, sub fund
58.68%
23.83%
100.00%
100.00%
40.13%
40.13%
39.21%
88.22%
22.21%
22.22%
47.25%
SICAV, sub fund
UCITS, sub fund
UCITS, sub fund
OEIC, sub fund
50.67%
22.13%
100.00%
28.44%
Edinburgh39
OEIC, sub fund
39.42%
Edinburgh39
OEIC, sub fund
26.78%
Phoenix Group Holdings plc Annual Report and Accounts 2023
281
FinancialsFinancialsNotes to the consolidated financial statements continued Registered address of
incorporated entities
H. Interests in subsidiaries and associates continued
H6. Group entities continued
Barings Emerging Markets Debt Short Duration Fund
BlackRock Global Funds – Sustainable World Bond Fund
BlackRock Market Advantage Fund
iShares Bloomberg Roll Select Commodity Strategy ETF
BNY Mellon Global Equity Fund
BNY Mellon Multi-Asset Global Balanced Fund
CF Macquaries Global Infrastructure Securities Fund
Fidelity Multi Asset Open Adventurous Fund
Goldman Sachs SICAV – Emerging Markets Total Return Bond Portfolio
Goldman Sachs SICAV – Goldman Sachs Emerging Markets Debt
Portfolio
Invesco Global Targeted Returns Fund
Invesco Managed Growth Fund
Janus Henderson Diversified Growth Fund
L&G Absolute Return Bond Plus Fund
L&G Emerging Markets Bond Fund
L&G Multi-Asset Target Return Fund
Legal & General Strategic Bond Fund
Legal & General Emerging Markets Government Bond (Local Currency)
Index Fund
Legal & General Emerging Markets Government Bond USD Index Fund
Legal & General European Index Trust
Legal & General Future World Sustainable UK Equity Fund
Legal & General High Income Trust
Legal & General UK Smaller Companies Trust
LGIM Sterling Liquidity Plus Fund
Nomura American Century Concentrated Global Growth Equity Fund
Quilter Investors Cirilium Balanced Blend Portfolio
Quilter Investors Ethical Equity Fund
Quilter Investors Global Equity Growth Fund
Robeco – Phoenix Customized Multi Asset Fund
Robeco QI Emerging Markets Sustainable Enhanced Index Equities
Schroder European Fund
Schroder Global Emerging Markets Fund
Schroder International Selection Fund – Global Bond
Schroder International Selection Fund – Global Diversified Growth
Schroder UK Mid 250 Fund
The Marks and Spencer Worldwide Managed Fund
Threadneedle Investment Funds ICVC – American Select Fund
Vanguard Common Contractual Fund – Vanguard U.S. Equity Index
Common Contractual Fund
Vanguard Investment Series plc – Vanguard Global Corporate Bond
Index 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 Investments Common Contractual Fund – Vanguard FTSE
Developed Europe ex UK Common Contractual Fund
Vanguard Investments Common Contractual Fund – Vanguard FTSE
Developed World Common Contractual Fund
Vanguard Investments Common Contractual Fund – Vanguard FTSE
Developed World ex UK Common Contractual Fund
If unincorporated,
address of principal
place of business
Dublin34
Luxembourg19
London25
USA57
London40
London40
London47
Surrey35
Luxembourg36
Luxembourg36
Luxembourg19
Oxfordshire37
London18
Luxembourg38
Luxembourg38
Luxembourg46
London26
London26
London26
London26
London26
London26
London26
Dublin34
Dublin54
London27
London27
London27
Rotterdam48
Luxembourg45
London52
London52
Luxembourg53
Luxembourg53
London52
Chester58
London33
Type of investment (including
class of shares held)
OEIC, sub fund
SICAV, sub fund
UCITS, sub fund
OEIC, sub fund
OEIC, sub fund
UCITS, sub fund
OEIC, sub fund
OEIC, sub fund
SICAV, sub fund
SICAV, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
UCITS, sub fund
UCITS, sub fund
OEIC, sub fund
Unit Trust
OEIC, sub fund
SICAV, sub fund
SICAV, sub fund
Unit Trust
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
Unit Trust
Unit Trust
OEIC, sub fund
% of shares /
units held
30.89%
24.75%
50.74%
36.12%
26.96%
30.09%
26.98%
46.63%
85.06%
23.94%
44.27%
52.21%
66.93%
66.30%
74.79%
40.13%
31.04%
20.86%
34.11%
22.28%
29.75%
46.29%
31.25%
41.02%
22.79%
37.72%
42.63%
49.63%
100.00%
100.00%
44.40%
20.33%
29.67%
22.20%
20.22%
41.96%
22.10%
Dublin34
UCITS, sub fund
75.02%
Dublin34
UCITS, sub fund
35.55%
Dublin34
UCITS, sub fund
38.35%
Dublin34
UCITS, sub fund
50.14%
Dublin34
UCITS, sub fund
100.00%
Dublin34
UCITS, sub fund
43.74%
Dublin34
UCITS, sub fund
100.00%
1 George Street, Edinburgh, EH2 2LL, United Kingdom
1 Wythall Green Way, Wythall, Birmingham, West Midlands, B47 6WG, United Kingdom
1
2 Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH, United Kingdom
3 90 St. Stephen’s Green, Dublin, D2, Ireland
4 Windsor House, Telford Centre, Telford, Shropshire, TF3 4NB, United Kingdom
5 Goodbody Secretarial Limited, International Financial Services Centre, 25/28 North Wall Quay, Dublin 1, Ireland
6
7 Corporation Service Company, 2711 Centerville Rd Suite 400, Wilmington, DE 19808, United States
8 22-24 New Street, St Pauls Gate, 4th Floor, JE1 4TR, Jersey
9 20 Old Bailey, London, England, EC4M 7AN, United Kingdom
10
Ugland House, Grand Cayman, KY1-1104, Cayman Islands
11 Avenue Louise 326, bte 33 1050 Brussels, Belgium
12 Telestone 8, Teleport, Naritaweg 165, 1043 BW, Amsterdam, Netherlands
13 Citco (Sweden) Ab, Stureplan 4c, 4 Tr, 114 35 Stockholm, Sweden
14 c/o Citco (Denmark) ApS, Holbergsgade 14, 2 .tv, 1057 København K Denmark
15 5th Floor Beaux Lane House, Mercer Street Lower, Dublin 2, Dublin, Ireland
16 32 Commercial Street, St Helier, Jersey, Channel Islands, JE2 3RU, Jersey
17 Avenida de Aragon 330 – Building 5, 3rd Floor, Parque Empresarial Las Mercedes, 28022 – Madrid, Spain
18 201 Bishopsgate, London, EC2M 3AE, United Kingdom
19 88 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
20 35a Avenue J.F. Kennedy, L-1855, Luxembourg
21 Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
22 32 Molesworth Street, Dublin 2, Dublin, D02 Y512, Ireland
23 8 Canada Square, London, E14 5HQ, United Kingdom
24 Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP, United Kingdom
25 12 Throgmorton Avenue, London EC2N 2DL, United Kingdom
26 One Coleman Street, London, EC2R 5AA, United Kingdom
27 Senator House, 85 Queen Victoria Street, London, EC4V 4AB, United Kingdom
28 5, Allée Scheffer, L-2520 Luxembourg, Luxembourg
29 Trafalgar Court, Les Banques, St Peter Port, GY1 3QL, Guernsey
30 Kings Place, 90 York Way, London, N1 9GE, United Kingdom
31 1, Allée Scheffer, L-2520 Luxembourg, Luxembourg
32 Elizabeth House, 9 Castle Street, St Helier, JE4 2QP, Jersey
33 Cannon Place, 78 Cannon Street, London, EC4N 6AG, United Kingdom
34 70 Sir John Rogerson’s Quay, Dublin 2, Ireland
35 Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP, United Kingdom
36 49, Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg
37 Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom
38 10, Château d’Eau, L-3364 Leudelange, Grand Duchy of Luxembourg
39 Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom
40 160 Queen Victoria Street, London, EC4V 4LA, United Kingdom
41 Canon’s Court, 22 Victoria Street, Hamilton, HM12, Bermuda
42 Calle Nanclares de Oca, 1B, 28022 Madrid
43 Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ, England
44 280 Bishopsgate, London, EC2M 4AG, United Kingdom
45 Senningerberg, 6, Route De Trèves, L-2633, Luxembourg
46 Senningerberg, 6, Lou Hemmer Street, L-1748, Luxembourg
47 2nd Floor, 20-22 Bedford Row, London, WC1R 4EB, United Kingdom
48 Weena 850, 3014 DA, Rotterdam, Netherlands
49 Hesperange, 33, rue de Gasperich, L-5826, Luxembourg
50 5 Broadgate, London, EC2M 2QS, United Kingdom
51 20, rue de la Poste, Grand Duchy of Luxembourg, L-2346, Luxembourg
52 1 London Wall Place, London, EC2Y 5AU, United Kingdom
53 Senningerberg, 5, Hohenhof, L-1736, Luxembourg
54 33 Sir John Rogersons Quay, Dublin, D02 XK09, Ireland
55 St. Peter Port, Tudor House, Le Bordage, GY1 6BD, Guernsey
56 Highvista Strategies LLC, 200 Clarendon Street 50th Floor, Boston, 02116, United States
57 Corporation Trust Centre, 1290 Orange Street, Wilmington, 19801, United States
58 c/o Marks and Spencer Unit Trust Management Limited, Kings Meadow, Chester Business Park, Chester, CH99 9FB, United Kingdom
59 St. Helens, 1 Undershaft, London, EC3P 3DQ, United Kingdom
The following subsidiaries have been granted an audit exemption by parental guarantee by virtue of s.479A of the Companies Act 2006:
• Britannic Finance Limited
• Britannic Money Investment Services Limited
• G Life H Limited
• G Assurance & Pensions Services Limited
• Pearl Assurance Group Holdings Limited
• Pearl Customer Care Limited
• PGMS (Glasgow) Limited
• PGS 2 Limited
• Phoenix Customer Care Limited
• Phoenix SPV 1 Limited
• Phoenix SPV 2 Limited
• Phoenix SPV 3 Limited
• Phoenix SPV 4 Limited
• Phoenix Wealth Holdings Limited
• ReAssure Companies Services Limited
• ReAssure FSH UK Limited
• Vebnet Limited
• Vebnet (Holdings) Limited
282
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
283
FinancialsFinancialsNotes to the consolidated financial statements continued H. Interests in subsidiaries and associates continued
H6. Group entities continued
The following subsidiaries were dissolved during the period. The subsidiaries were deconsolidated from the date of dissolution:
Inesia SA
• Crawley Unit Trust
•
• PUTM ACS Lothian UK Listed Equity Fund
• PUTM ACS UK All Share Listed Equity Fund
• PUTM Bothwell UK All Share Listed Equity Fund
• PUTM UK Equity Unit Trust
• abrdn Active Plus Bond Trust
• abrdn Dynamic Multi Asset Growth Fund
• abrdn Emerging Markets Equity Fund
• abrdn Short Dated UK Government Bond Trust
• abrdn Standard SICAV II China Equities Fund
• abrdn Standard SICAV II Emerging Market Debt Fund
• abrdn Standard SICAV II European Equities Fund
• abrdn Standard SICAV II Global Equities Fund
• abrdn Standard SICAV II Japanese Equities Fund
• abrdn Strategic Bond Fund
• abrdn UK Government Bond Trust
The following subsidiaries were either fully disposed of or the Group was no longer deemed to control the subsidiary. 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:
• abrdn Short Dated Corporate Bond Fund
• abrdn American Income 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
The following associate was dissolved during the period. The investment in associate was derecognised from the date of dissolution:
• UK Commercial Property Estates (Reading) Limited
• UKCPT Limited Partnership
The Group no longer has significant holdings in the following undertakings:
• Aberdeen Japan Equity Fund
• abrdn American Unconstrained Equity Fund
• abrdn Diversified Growth Fund
• abrdn Global Absolute Return Strategies Retail Acc
• abrdn Global Focused Equity Fund
• abrdn Multi-Asset Fund
• abrdn Standard SICAV II Global Absolute Return Strategies Fund
• abrdn UK High Income Equity Fund
• abrdn UK Opportunities Equity Fund
• AXA Fixed Interest Investment ICVC – Sterling Strategic Bond Fund
• L&G Euro High Alpha Corporate Bond Fund
• Legal & General European Trust
• MI Somerset Global Emerging Markets Fund
• Performance Retail Unit Trust
• Quilter Investors China Equity Fund
• Standard Life Capital Infrastructure I LP
I. Other notes
I1. Share-based payment
Equity-settled share-based payments to employees and others providing services are measured at the fair value of the equity instruments at
the grant date. The fair value excludes the effect of non-market-based vesting conditions. Further details regarding the determination of the
fair value of equity-settled share-based transactions are set out below.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of equity instruments that will eventually vest. At each period end, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in the consolidated income statement such that the cumulative expense reflects the revised
estimate with a corresponding adjustment to equity.
I1.1 Share-based payment expense
The expense recognised for employee services receivable during the year is as follows:
Expense arising from equity-settled share-based payment transactions
2023
£m
22
2022
£m
16
I1.2 Share-based payment expense
Long-Term Incentive Plan (‘LTIP’)
The Group implemented a Long-Term Incentive Plan to retain and motivate its senior management group. The awards under this plan are in the
form of nil-cost options to acquire an allocated number of ordinary shares.
Assuming no good leavers or other events which would trigger early vesting rights, the 2021, 2022 and 2023 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 and 2023 LTIP awards also include a performance condition tied to the Group’s performance on
decarbonisation. See 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.
2023 LTIP awards were granted on 17 March 2023 and are expected to vest on 17 March 2026. The 2020 LTIP awards vested on 13 March 2023.
The 2021 awards will vest on 12 March 2024 and the 2022 awards will vest on 18 March 2025.
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
2023
TSR performance
condition
559
2.8
23
3.31
2021
TSR performance
condition
738.6
3.0
30
0.14
Dividends are received by holders of the awards
therefore no adjustment to fair value is required
On 4 October 2023, 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, 2022 and 2023 LTIP awards respectively.
On 17 March 2023 and 4 October 2023 LTIP Buy-out awards were granted to certain senior management employees. There are discrete 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 18 March 2022, 19 August 2022, 12 March 2021 and 17 August 2021.
Each year, the Group issues a Chairman’s share award under the terms of the LTIP which is granted to a small number of employees in recognition
of their outstanding contribution in the previous year. The awards are granted on the same dates as the core 2021, 2022 and 2023 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 parent company. The grant of these shares is
conditional on the employee remaining in employment with the Group for a period of three years from the date of grant. Good leavers will be
able to, at the discretion of the Remuneration Committee, exercise their full award at vesting. Dividends will accrue for DBSS awards over the
three-year deferral period.
The 2023 DBSS was granted on 17 March 2023 and is expected to vest on 17 March 2026. The 2020 DBSS awards vested on 13 March 2023. The
2021 awards are expected to vest on 12 March 2024 and the 2022 awards are expected to vest on 18 March 2025.
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.
284
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
285
FinancialsFinancialsNotes to the consolidated financial statements continued I. Other notes continued
I1.2 Share-based payment expense continued
Sharesave scheme
The sharesave scheme allows participating employees to save up to £500 each month for the UK scheme and up to €500 per month for the Irish
scheme over a period of either three or five years. The 2023 sharesave options were granted on 25 October 2023. 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 discount to the share price on the date of grant. Employees leaving the
Group for certain reasons are able to use their savings to purchase shares if they leave prior to the end of their three or five year period.
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 2019 to 2023 UK sharesave options:
Share price (£)
Exercise price (£)
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 (%)
2023
sharesave
4.448
3.78
3.1 and 5,1
4.7 (for 3.1 year
scheme) and 4.5
(for 5.25 year
scheme)
2022
sharesave
6.142
5.09
3.25 and 5.25
2.0 (for 3.25 year
scheme) and 1.9
(for 5.25 year
scheme)
2021
sharesave
7.486
5.89
3.25 and 5.25
0.5 (for 3.25 year
scheme) and 0.7
(for 5.25 year
scheme)
2020
sharesave
5.664
4.97
3.25 and 5.25
0.5 (for 3.25 year
scheme) and 0.5
(for 5.25 year
scheme)
2019
sharesave
6.800
5.61
3.25 and 5.25
1.0 (for 3.25 year
scheme) and 1.1
(for 5.25 year
scheme)
23.0
11.5
30.0
8.0
30.0
6.3
30.0
8.2
30.0
6.8
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 either 2022 or 2023.
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 2023, 546,430 matching shares (excluding unrestricted shares) were conditionally
awarded to employees (2022: 543,995).
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
Expired 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 during the year
Cancelled during the year
Exercised during the year
Dividends on vested awards
Outstanding at the end of the year
2023
Number of share options
LTIP
9,387,235
4,202,695
(1,750,509)
–
(1,217,227)
(13,908)
503,119
11,111,405
Sharesave
5,001,906
5,038,820
(223,565)
(1,371,617)
(1,184,132)
(416,547)
–
6,844,865
2022
Number of share options
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
DBSS
2,301,801
1,675,548
(29,932)
–
(701,644)
(11,227)
133,420
3,367,966
DBSS
1,551,935
1,121,085
(4,917)
–
(443,747)
77,445
2,301,801
The weighted average fair value of options granted during the year was £2.92 (2022: £4.34).
The weighted average share price at the date of exercise for the rewards exercised is £5.46 (2022: £6.13).
The weighted average remaining contractual life for the awards outstanding as at 31 December 2023 is 5.3 years (2022: 5.7 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.
Profit/(loss) for the year before tax
Adjustments for non-cash movements in profit/(loss) before tax for the year:
Gain on acquisition of SLF of Canada UK Limited
Fair value losses/(gains) on:
Investment property
Financial assets and derivative liabilities
Change in fair value of borrowings
Amortisation and impairment of intangible assets
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:
(Increase)/decrease in investment assets
(Increase)/decrease in reinsurers’ share of investment contract liabilities
(Increase)/decrease in reinsurance contract assets/liabilities
Decrease in assets classified as held for sale
Increase/(decrease) in insurance contract liabilities/assets
Increase/(decrease) in investment contract liabilities
Decrease in obligation for repayment of collateral received
Decrease in liabilities classified as held for sale
Net decrease/(increase) in working capital
Other cash movements relating to operations:
Contributions to defined benefit pension schemes
Cash (utilised)/generated by operations
Notes
H2
G4
E5.2
G2
I1.1
C7
G1
G1
G1
2023
£m
20
2022
restated1
£m
(4,089)
(66)
–
362
(11,045)
(82)
324
22
258
109
12
6
(7,986)
(621)
(818)
2,593
3,980
13,673
(703)
(3,571)
2,772
1,363
45,197
186
355
16
230
64
15
7
3,974
896
657
2,741
(25,597)
(16,549)
(1,740)
(3,386)
(3,312)
G1
(9)
(770)
(9)
1,019
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).
I3. Capital management
The Group’s capital management is based on the Solvency II framework as implemented in the UK. 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 unitholders.
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287
FinancialsFinancialsNotes to the consolidated financial statements continued I. Other notes continued
I3. Capital management continued
Risk and capital management objectives continued
The Group’s Risk Management Framework is described in the risk management commentary on pages 46 to 57 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 F11: 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, operating within a Solvency II Shareholder Capital Coverage ratio of 140-180%;
• to ensure sufficient liquidity to meet obligations to policyholders and other creditors;
• to manage our leverage position, including optimisation of the Solvency II leverage ratio and the Fitch leverage ratio to maintain an
investment grade credit rating; and
• to maintain a dividend policy to pay an ordinary dividend that is progressive and sustainable.
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 single internal model, with the
exception of acquired ReAssure businesses, the Irish life entities, Standard Life International Designated Activity Company and Phoenix Life
Assurance Europe Designated Activity Company, and Sun Life Assurance Company of Canada (U.K.) Limited, which determine their capital
requirements in accordance with the Standard Formula.
Group capital resources – unaudited
The Group capital resources, presented on a shareholder basis, 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
2023
£bn
11.1
(2.2)
8.9
2022
£bn
11.1
(1.8)
9.3
Solvency II surplus – unaudited
An analysis of the PGH plc Solvency II surplus as at 31 December 2023 is provided in the business review section on page 34 to 35. The Group
has complied with all externally imposed capital requirements during the year.
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
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
Transactions
2023
£m
Transactions
2022
£m
(4)
19
(4)
29
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, Non-Executive Directors and, effective from 1 January 2023, members of the Group’s
Executive Committee is as follows:
Salary and other short-term benefits
Equity compensation plans
2023
£m
15
8
2022
£m
5
3
Details of the shareholdings and emoluments of individual Directors are provided in the Remuneration report on pages 111 to 140.
During the year to 31 December 2023 key management personnel and their close family members contributed £203,234 (2022: £183,933) to
Pensions and Savings products sold by the Group and transferred out £110,074 (2022: £nil) of investments. At 31 December 2023, the total value
of key management personnel’s investments in Group Pensions and Savings products was £1,989,979 (2022: £525,781).
I5. Commitments
This note analyses the Group’s other commitments.
To subscribe to private equity funds and other unlisted assets
To purchase, construct or develop investment property and income strips
For repairs, maintenance or enhancements of investment property
I6. Contingent liabilities
2023
£m
1,738
23
15
2022
£m
1,132
62
13
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 year end, the
Group has a number of contingent liabilities in this regard, none of which are considered by the Directors to be material.
288
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289
FinancialsFinancialsNotes to the consolidated financial statements continued I. Other notes continued
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 19 January 2024, the Group completed a buy-out transaction with the PGL Pension Scheme, one of the Group’s defined benefit schemes.
The impact of this transaction is being determined and will be included in the Group’s results for 2024.
On 6 February 2024, the Board approved the redemption of the £250 million 5.766% Fixed Rate Reset Callable Tier 2 Subordinated Notes due
2029 on the first call date of 13 June 2024 (subject to regulatory approval).
On 21 March 2024, UK Commercial Property REIT Limited (‘UKCPR’), an associate of the Group, and Tritax Big Box REIT plc (‘BBOX’) announced
a recommended all-share combination whereby BBOX will acquire the entire share capital of UKCPR for consideration of 0.444 new shares of
BBOX for each share of UKCPR held. The transaction is expected to complete in May 2024, subject to the approval of both UKCPR and BBOX
shareholders, and Court sanction of the scheme of arrangement under Part VIII of the Companies Law of Guernsey. On the date of
announcement, Phoenix Life Limited (‘PLL’), a subsidiary of the Group, held 43.3% of UKCPR’s issued ordinary share capital and had irrevocably
undertaken to vote in favour of the transaction. Upon completion, PLL is expected to hold shares representing 10.1% of BBOX’s total issued share
capital. It is anticipated that this transaction, on completion, will result in the Group accounting for its ownership in BBOX as an investment, rather
than the current associate treatment of UKCPR, as the Group will not have significant influence over BBOX.
On 21 March 2024, the Board recommended a final dividend of 26.65p per share for the year ended 31 December 2023 (2022: 26.0p). 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 2023 and will be charged to the statement of consolidated changes in equity in 2024.
N Lyons
A Briggs
R Thakrar
K Green
H Iioka
K Murray
E Bucks
M Gregory
J Pollock
B Richards
D Scott
M Semple
N Shott
21 March 2024
Parent company financial statements
Statement of financial position
As at 31 December 2023
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
2023
£m
17
10,536
1,302
119
1
1,017
159
50
25
1
13,227
100
16
1,819
(4)
4,621
6,552
411
6,963
5,813
1
30
62
222
18
118
6,264
13,227
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
The notes identified numerically on pages 294 to 305 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 171 to 290.
Approved by the Board on 21 March 2024.
Andy Briggs
Chief Executive Officer
Company registration number 11606773.
Rakesh Thakrar
Chief Financial Officer
290
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291
FinancialsFinancialsNotes to the consolidated financial statements continued Parent company financial statements continued
Statement of changes in equity
For the year ended 31 December 2023
At 1 January 2023
Share capital
(note 3)
£m
100
Share
premium
(note 3)
£m
10
Merger relief
reserve (note
3)
£m
1,819
Other
reserve (note
3)
£m
(4)
Retained
earnings
£m
5,062
Total
£m
6,987
Tier 1 Notes
(note 4)
£m
411
Total
equity
£m
7,398
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 2023
–
–
–
–
–
100
–
6
–
–
–
16
–
–
–
–
–
1,819
–
–
–
–
–
(4)
79
79
–
(520)
(22)
6
(520)
(22)
–
–
–
–
79
6
(520)
(22)
22
4,621
22
6,552
–
411
22
6,963
For the year ended 31 December 2022
At 1 January 2022
Share capital
(note 3)
£m
100
Share
premium
(note 3)
£m
6
Merger relief
reserve (note
3)
1,819
Other
reserve (note
3)
£m
(4)
Retained
earnings
£m
5,448
Total
£m
7,369
Tier 1 Notes
(note 4)
£m
411
Total
equity
£m
7,780
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 2022
–
–
–
–
–
100
–
4
–
–
–
10
–
–
–
–
–
1,819
–
–
–
–
–
(4)
116
116
–
(496)
(22)
4
(496)
(22)
–
–
–
–
116
4
(496)
(22)
16
5,062
16
6,987
–
411
16
7,398
Statement of cash flows
For the year ended 31 December 2023
Cash flows from operating activities
Cash utilised by operations
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of SLF of Canada UK Limited
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
Notes
16
3
5
5
2023
£m
2022
£m
(589)
(589)
(250)
(129)
103
219
(55)
1,425
72
1,385
6
1,450
(1,362)
(520)
(338)
(2)
(29)
(417)
(417)
–
(852)
455
162
(200)
2
(70)
(503)
4
2,274
(616)
(496)
(311)
(1)
(29)
Net cash flows from financing activities
(795)
825
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
1
–
1
(95)
95
–
292
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293
FinancialsFinancials Notes to the parent company financial statements
1. Accounting policies
(a) Basis of preparation
The financial statements have been prepared on a going concern basis and under the historical cost convention, except for those financial assets
and financial liabilities (including derivative instruments) 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 2023 was £79 million (2022: £116 million).
Statement of Compliance
The Company’s financial statements have been prepared in accordance with UK – adopted international accounting standards as applied in
accordance with section 408 of 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 171 to 290 with the exception of the one policy whereby 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 A3.1 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.
(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. The value in use 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.
3. Share capital, share premium, merger relief reserve and other reserve
Issued and fully paid:
1,001.5 million ordinary shares of £0.10 each (2022: 1,000.4 million)
2023
£m
100
2022
£m
100
Shares in issue at 1 January
Ordinary shares issued in the period
Shares in issue at 31 December
2023
Number
1,000,352,477
1,185,942
1,001,538,419
2023
£
100,035,247
118,594
100,153,841
2022
Number
999,536,058
816,419
1,000,352,477
2022
£
99,953,605
81,642
100,035,247
During 2023, the Company issued 1,185,942 shares (2022: 816,419 shares) with a premium of £6 million (2022: £4 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.
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
2023
£m
411
2022
£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.
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)
US $500 million Tier 2 bonds (note b)
€500 million Tier 2 notes (note c)
US $750 million Contingent Convertible Tier 1 notes (note d)
£500 million Tier 2 notes (note e)
US $500 million Fixed Rate Reset Tier 2 notes (note f)
£500 million 5.867% Tier 2 subordinated notes (note g)
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note h)
£250 million 4.016% Tier 3 subordinated notes (note i)
£350 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 due to ReAssure Life Limited (note n)
£250 million loan due to ReAssure Limited (note o)
£250 million remittance loan due to ReAssure Limited (note p)
€50 million loan due to Standard Life International DAC (note q)
Cash-pooling with other Group entities (note t)
Carrying value
Fair value
2023
£m
2022
£m
2023
£m
2022
£m
199
368
409
587
489
274
536
254
253
346
3,715
–
–
90
138
261
257
44
1,308
2,098
433
383
414
618
487
412
543
259
256
–
3,805
309
718
89
130
–
–
–
1,178
2,424
202
377
419
563
476
262
493
239
250
368
3,649
–
–
90
138
261
257
44
1,308
2,098
429
390
416
580
445
382
465
244
231
–
3,582
309
718
89
130
–
–
–
1,178
2,424
Total borrowings
5,813
6,229
5,747
6,006
Amount due for settlement after 12 months
4,505
5,051
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295
FinancialsFinancials 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 (d) 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. The Company made the
quarterly loan repayments due on 30 June and 30 September 2023, and repaid the loan in full on 21 December 2023.
m On 20 December 2022, SLIDAC issued a €100 million floating term loan to the Company with a maturity date of 31 March 2024. Interest
accrues on the term loan at a rate of EURIBOR plus 0.78%. As at 31 December 2023, the interest rate was 4.67%.
n On 16 December 2022, ReAssure Life Limited (‘RLL’) issued a £130 million floating term loan to the Company for a term of 5 years. Interest
accrues on the term loan at a rate of SONIA plus 1.49%. As at 31 December 2023, the interest rate was 4.95%.
o On 5 May 2023, RAL issued a £250 million floating term loan to the Company for a term of 5 years. Interest accrues on the term loan at a rate
of SONIA plus 1.62%. As at 31 December 2023, the interest rate was 5.08%.
p On 21 July 2023, RAL issued a £250 million remittance loan to the Company for a term of 5 years. Interest accrues on the term loan at a rate
of SONIA plus 1.51%. As at 31 December 2023, the interest rate was 6.69%.
q On 21 July 2023, SLIDAC issued a €50 million floating term loan to the Company with a maturity date of 31 March 2025. Interest accrues on
the term loan at a rate of EURIBOR plus 0.79%. As at 31 December 2023, the interest rate was 4.68%.
r On 21 July 2023, Phoenix Life Assurance Limited issued a £150 million floating term loan to the Company at an interest rate of 6.68% for a
term of 5 years. On 21 December 2023, the Company received a distribution of the loan, extinguishing the Company’s obligations
under the loan.
s On 21 July 2023, SLAL issued a £50 million floating term loan to the Company at an interest rate of 6.68% for a term of 5 years. On
21 December 2023, the Company received a distribution of the loan, extinguishing the Company’s obligations under the loan.
t 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.
u The Group has in place a £1.75 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 2023.
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.
Further details of the loans due to third parties (loans a. to j.) are contained in note E5 to the consolidated financial statements.
5. Borrowings continued
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. On 7 December 2023, the Company repurchased
£231 million of the principal amount of the notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is
£199 million.
b 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.
c 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.
d 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.
e 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.
f 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. On 7 December 2023, the Company repurchased US $150 million of the
principal amount of the Fixed Rate Reset Tier 2 notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is
US $350 million.
g 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 are being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on 13 June and 13 December.
h 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 are being 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.
i 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.
j On 6 December 2023, the Company issued £350 million fixed rate reset callable Tier 2 notes which are unsecured and subordinated. The
notes have a maturity date of 6 December 2053 with an optional issuer par call right on any day in the six-month period up to and including
6 December 2033. The notes bear interest on the principal amount at a fixed rate of 7.75% per annum up to the interest rate reset date of
6 December 2033. If the notes are not redeemed before that date, the interest rate resets to the sum of the 5 year benchmark Gilt rate plus a
margin of 4.65%, being the sum of the initial credit spread used in pricing the notes and a 1% margin step-up. Interest is payable on the notes
semi-annually in arrears on 6 June and 6 December each year.
k 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 (2022: £6 million) was
capitalised. On 21 December 2023, the Company received a distribution of the loan, extinguishing the Company’s obligations
under the loan.
296
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
297
FinancialsFinancialsNotes 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
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
£350 million Fixed Rate
Reset Callable Tier 2
subordinated notes
Loan due to Standard Life
Assurance Limited 1
Senior loan due to
ReAssure Limited
€100 million loan due to
Standard Life International DAC
£130 million floating term loan
due to ReAssure Life Limited
£250 million loan due
to ReAssure Limited
£250 million remittance loan
due to ReAssure Limited
€50 million loan due to
Standard Life International DAC
£150 million remittance
loan due to Phoenix Life
Assurance Limited 1
£50 million remittance
loan due to Standard Life
Assurance Limited 1
Cash-pooling with other
Group entities
Derivative assets 2
Cash
New
borrowings,
net of costs
£m
–
–
–
At 1 January
2023
£m
433
383
414
618
487
412
543
259
256
–
–
–
–
–
–
–
346
309
718
89
130
–
–
–
–
–
1,178
(225)
6,004
–
–
–
–
250
250
43
150
50
361
–
1,450
Repayments
£m
(231)
–
–
–
–
(119)
–
–
–
–
–
(718)
–
–
–
–
–
–
–
(294)
–
(1,362)
Non-cashflow
Dividend in
specie
payment
£m
–
–
–
Movement in
foreign
exchange
£m
–
(21)
(9)
(Amortisation)/
accretion
£m
(3)
6
4
Capitalised
interest
£m
–
–
–
Movement in
fair value
£m
–
–
–
At
31 December
2023
£m
199
368
409
–
–
–
–
–
–
–
(318)
–
–
–
–
–
–
(146)
(49)
–
–
(513)
(32)
–
(20)
–
–
–
–
–
–
(2)
–
–
–
–
–
–
–
–
(84)
1
2
1
(7)
(5)
(3)
–
–
–
–
–
–
–
–
(4)
(1)
–
(1)
(10)
–
–
–
–
–
–
–
9
–
3
8
11
7
1
–
–
63
–
102
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
587
489
274
536
254
253
346
–
–
90
138
261
257
44
–
–
–
108
108
1,308
(118)
5,695
1 The liability has been discharged via a dividend in specie payment.
2 Cross currency swaps to hedge against adverse currency movements in respect of the Group’s Euro and US Dollar denominated borrowings (see note 6 for further details).
£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 Limited2
€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 assets 1
Derivative liabilities 1
Cash
New
borrowings,
net of costs
£m
–
–
–
–
At 1 January
2022
£m
435
449
337
389
Non-cashflow
Movement in
foreign
exchange
£m
–
–
41
21
Repayments
£m
–
(450)
–
–
(Amortisation)/
accretion
£m
(2)
1
5
4
Capitalised
interest
£m
–
–
–
–
Movement in
fair value
£m
–
–
–
–
At
31 December
2022
£m
433
–
383
414
551
485
368
550
257
266
300
–
–
–
–
(48)
5
4,344
–
–
–
–
–
–
–
718
88
130
1,338
–
–
2,274
–
–
–
–
–
–
–
–
–
–
(166)
–
–
(616)
66
–
44
–
–
–
–
–
1
–
–
–
–
173
1
2
(7)
(1)
(7)
–
–
–
–
–
–
–
(4)
–
–
–
–
–
–
9
–
–
–
6
–
–
15
–
–
–
–
–
–
–
–
–
618
487
412
543
256
259
309
718
89
–
–
(177)
(5)
(182)
130
1,178
(225)
–
6,004
1 Cross currency swaps to hedge against currency movements in respect of the 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.
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, US Dollar, Japanese Yen and Hong Kong Dollar exposures to adverse foreign
currency movements in respect of underlying business within its subsidiaries.
The fair value of the derivative financial instruments is as follows:
Cross currency swaps
Foreign currency swaps
Asset
Liability
2023
£m
118
1
119
2022
£m
225
32
257
2023
£m
–
1
1
2022
£m
–
22
22
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 £119 million (2022: £257 million) of which credit
risk of £30 million (2022: £86 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
The accounting policy for provisions is included in note G7 to the consolidated financial statements.
In 2019, the Company recognised an initial Standard Life transition and transformation restructuring provision of £159 million. During the year,
£27 million (2022: £28 million) of the restructuring provision was utilised and the provision was decreased by £7 million (2022: increased by
£33 million). The remaining provision of £63 million (2022: £97 million) is expected to be utilised within one to three years. See note G7 to the
consolidated financial statements for further details.
298
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
299
FinancialsFinancialsNotes to the parent company financial statements continued 7. Provisions continued
Following the acquisition of the ReAssure businesses in 2020, 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 2023, the Group announced its intention to migrate existing
ReAssure policies to the TCS platform which raised a valid expectation of the impacts in those likely to be affected.
The initial provision of £127 million 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 2023.
No costs have been provided for that relate to the ongoing servicing of policies. Migration costs payable to TCS are subject to limited
uncertainty as they are fixed under the terms of the agreement entered into. The severance costs are subject to uncertainty and will be impacted
by the number of staff that transfer to TCS, and the average salaries and number of years’ service of those affected.
During the year, the provision was increased by £65 million and £33 million was utilised. The remaining provision of £159 million is expected to be
utilised within one to five years.
8. Lease liabilities
The accounting policy for lease liabilities is included in note G9 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
Lease payments
At 31 December
Amount due within twelve months
Amount due after twelve months
9. Accruals and deferred income
The accounting policy for accruals and deferred income is included in note G10 to the consolidated financial statements.
Accruals and deferred income
Amount due for settlement after 12 months
2023
£m
20
(2)
18
2
16
2023
£m
118
5
2022
£m
21
(1)
20
1
19
2022
£m
124
–
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 and 31 December
Depreciation
At 1 January
Depreciation
At 31 December
Carrying amount at 31 December
Total Property, Plant
and Equipment
2023
£m
22
(3)
(2)
(5)
17
Total Property, Plant
and Equipment
2022
£m
22
(1)
(2)
(3)
19
11. Investment in group entities
Cost
At 1 January
Additions
At 31 December
Impairment
At 1 January and 31 December
Carrying amount
At 31 December
2023
£m
14,420
305
14,725
2022
£m
14,220
200
14,420
(4,189)
(4,189)
10,536
10,231
In April 2023, the Company acquired 100% of the issued share capital of SLF of Canada UK Limited business for a cost of £250 million. In
addition, during the year the Company established a Bermuda based entity, Phoenix Group Holdings (Bermuda) Limited, and capital
contributions totaling £55 million were paid to the entity.
During 2023, the following Part VII schemes (transfer of insurance business) were undertaken which had the effect of reallocating the value of
the Company’s investment in Group entities between certain subsidiaries:
• the PLL and RLL EU business policies were transferred into a new EU regulated life company, Phoenix Life Assurance Europe DAC (‘PLAE’),
within the Group.
• the business of PLAL, SLAL and Standard Life Pension Funds Limited (‘SLPF’) was transferred to PLL. In line with the strategic objectives of the
Group, the transfer simplifies the operating model whilst resulting in financial, operational and liquidity benefits with the excess capital
position, after allowing for costs and capital policy, of the life companies improving significantly.
• Additionally, during 2023 the servicing activities of Pearl Group Services Limited and Standard Life Asset and Employee Services Limited
were transferred to Phoenix Group Management Services Limited. In line with the strategic objectives of the Group, the transfer simplifies the
operating model resulting in operational benefits.
As at 31 December 2023 and 31 December 2022, 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 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 of cash flows for 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 with the dividend paying capacity of the life insurance subsidiaries, which
included the removal of the surplus attributable to policyholders in the with-profit funds. Where the Solvency II Own Funds exceeded the
carrying value of the investment in subsidiary, management has concluded that no impairment is required.
For one of its subsidiaries, Phoenix Life Holdings Limited (“PLHL”), the carrying value of the investment exceeded the Solvency II Own Funds as
at 31 December 2023. Accordingly, a value in use test was applied that utilises cash flow projections based on the emergence of surplus for
in-force business on a Solvency II basis, together with new business cash flows on a Solvency II basis. This analysis has been informed by dividend
projections on a consistent basis to that set out in the Group’s business plan approved by the Board. The value in use calculation has used a
discount rate of 10%, calculated using a risk adjusted weighted average cost of capital approach, and a long term growth rate after the initial five
year business plan period of 2%. A 1% increase in the discount rate would reduce the recoverable amount by £920 million and would not result
in any impairment being recognised in respect of PLHL. A 1% reduction in the long-term growth rate would reduce the recoverable amount by
£684 million and would also not result in any impairment being recognised in respect of PLHL.
Based on the assessment above, no impairment has been recorded in 2023 in respect of the investment in Group entities (2022: £nil).
For a list of principal Group entities, refer to note H6 of the consolidated financial statements in which the entities directly held by the Company
are separately identified.
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
Fair value
2023
£m
1,284
5
13
–
1,302
1,302
1,297
2022
£m
1,273
546
13
718
2,550
2,550
2,004
2023
£m
1,299
5
13
–
1,317
1,317
2022
£m
1,279
546
13
718
2,556
2,556
300
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
301
FinancialsFinancialsNotes to the parent company financial statements continued 12. Loans and deposits continued
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
amortised to par over the period to 2025. At 31 December 2023, the carrying value of the loan was £432 million (2022: £433 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 accrues interest at a compounded rate of SONIA rate plus a margin of 1.30% and is capitalised.
During the year interest of £27 million (2022: £7 million) was capitalised. The loan matures on 31 December 2027. At 31 December 2023, the
carrying value of the loan was £484 million (2022: £457 million due under the subordinated loan).
On 12 December 2018, the Company was assigned a US $500 million loan by PLHL due to mature in 2027 with a coupon of 5.375%. This
loan was initially recognised at fair value of £349 million and is accreted to par over the period to 2027. Movement in foreign exchange
during the period decreased the carrying value by £20 million (2022: £41 million increase). At 31 December 2023, the carrying value of the
loan was £368 million (2022: £383 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 2023, the carrying value of the loan was £13 million (2022: £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 (2022: £12 million) was provided to the EBT and
£12 million of the loan was impaired (2022: £12 million).
d On 31 December 2022, the Company issued a contingent loan of £718 million with 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. RAL made the quarterly loan repayments due
on 30 June and 30 September 2023, and repaid the loan in full on 21 December 2023.
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
2023
£m
119
1
1,017
1,137
2022
£m
257
1
775
1,033
1
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 2023
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
Year ended 31 December 2022
Financial assets at fair value through profit or loss
Derivatives
Debt securities
Collective investment schemes
There were no transfers between levels in either 2023 or 2022.
Level 1
£m
–
–
1,017
1,017
Level 1
£m
–
–
775
775
Level 2
£m
119
–
–
119
Level 2
£m
257
–
–
257
Level 3
£m
–
1
–
1
Level 3
£m
–
1
–
1
Total
£m
119
1
1,017
1,137
Total
£m
257
1
775
1,033
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
The standard rate of UK corporation tax for the accounting period is 23.5% (2022: 19%).
1 January 2023
£m
113
Credit for the year
£m
46
31 December 2023
£m
159
1 January 2022
£m
82
Credit for the year
£m
31
31 December 2022
£m
113
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 April 2023 was announced in the Budget of 3 March 2021. Accordingly, deferred tax assets and liabilities are
provided at the rate of 25%.
15. Cash and cash equivalents
The accounting policy for cash and cash equivalents is included in note G6 to the consolidated financial statements.
Bank and cash balances
16. Cash flows from operating activities
(Loss)/profit for the year before tax
Non-cash movements in loss/profit for the year before tax:
Impairment of loan due from subsidiary
Investment income
Finance costs
Fair value losses/(gains) on financial assets
Foreign exchange movement on borrowings at amortised cost
Share-based payment charge
Depreciation
(Increase)/decrease in investment assets
Net decrease/(increase) in working capital
Cash utilised by operations
2023
£m
1
2023
£m
(89)
12
(965)
399
117
(63)
22
2
(242)
218
(589)
2022
£m
–
2022
£m
26
12
(127)
287
(171)
173
16
2
290
(925)
(417)
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 2023
were £4,621 million (2022: £5,062 million).
At 31 December 2023, total capital was £6,963 million (2022: £7,398 million). The movement in capital in the period comprises the total
comprehensive income for the period attributable to owners of £79 million (2022: £116 million), dividends paid of £520 million (2022:
£496 million), coupon paid on Tier 1 Notes, net of tax relief of £22 million (2022: £22 million), credit to equity for equity-settled share-based
payments of £22 million (2022: £16 million) and issue of ordinary share capital of £6 million (2022: £4 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.
302
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
303
FinancialsFinancialsNotes to the parent company financial statements continued 17. Capital and risk management continued
Credit risk management practices
The Company’s current credit risk grading framework comprises the following categories:
Category
Description
Basis for recognising ECL
Performing
The counterparty has a low risk of default and does not have any past-due amounts
12 month ECL
Doubtful
In default
Write-off
There has been a significant increase in credit risk since initial recognition
Lifetime ECL – not credit impaired
There is evidence indicating the asset is credit-impaired
There is evidence indicating that the counterparty is in severe financial difficulty
and the Company has no realistic prospect of recovery
Lifetime ECL – credit impaired
Amount is written off
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:
2023
Loans and deposits (note 12)
Other amounts due from Group entities
(note 20)
Cash and cash equivalents (note 15)
2022
Loans and deposits (note 12)
Other amounts due from Group entities
(note 20)
External credit
rating
N/A
Internal credit
rating
12 month or lifetime
ECL
Performing 12 month ECL
Gross carrying
amount
£m
1,302
Loss allowance
£m
–
Net carrying
amount
£m
1,302
N/A
A
Performing 12 month ECL
N/A 12 month ECL
25
1
–
–
25
1
External credit
rating Internal credit rating
N/A
12 month or lifetime
ECL
Performing 12 month ECL
Gross carrying
amount
£m
2,550
Loss allowance
£m
–
Net carrying amount
£m
2,550
N/A
Performing 12 month ECL
19
–
19
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 are held with bank and financial institution counterparties which have
investment grade ‘A’ credit ratings. The Company considers the associated credit risk is 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 111 to 140
of the Annual Report and Accounts.
20. Related party transactions
The Company has related party transactions with Group entities and its key management personnel. Details of the total compensation of key
management personnel, being those having authority and responsibility for planning, directing and controlling the activities of the Group,
including the Executive and Non-Executive Directors, are included in note I4 to the consolidated financial statements.
During the year ended 31 December 2023, the Company entered into the following transactions with related parties.
Dividend income from other Group entities
Interest income from other Group entities
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
2023
£m
655
210
865
561
196
757
2023
£m
1,302
28
25
1,355
2022
£m
455
124
579
246
60
306
2022
£m
2,550
29
19
2,598
1,297
2,004
2023
£m
2,098
15
62
2,175
2022
£m
2,424
14
43
2,481
700
1,246
21. Auditor’s remuneration
Details of auditor’s remuneration for Phoenix Group Holdings plc and its subsidiaries is included in note C6 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.
N Lyons
A Briggs
R Thakrar
K Green
H Iioka
K Murray
E Bucks
M Gregory
J Pollock
B Richards
D Scott
M Semple
N Shott
21 March 2024
304
Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
305
FinancialsFinancialsNotes to the parent company financial statements continued Additional life company asset disclosures
The analysis of the asset portfolio provided below comprises the assets held by the Group’s life companies, and it is stated net of derivative
liabilities. It excludes other Group assets such as cash held in the holding and management service companies and the assets held by the
non-controlling interests in consolidated collective investment schemes. The information is presented on a look-through basis into the
underlying funds.
The following table provides an overview of the exposure by asset category of the Group’s life companies’ shareholder and policyholder funds:
31 December 2023
Carrying value
Cash and cash equivalents
Shareholder and
non-profit funds1
£m
4,129
Participating
supported1
£m
1,085
Participating
non-supported2
£m
5,309
7,753
2,021
1,137
1,523
1,032
733
2,271
1,243
1,147
4,486
15,097
38,443
117
47
–
(371)
42,365
–
42,365
286
230
–
–
1
–
–
–
–
–
1,152
1,669
50
16
–
(529)
2,291
–
2,291
15,039
2,175
–
1
2
–
106
8
–
–
12,397
29,728
17,227
1,677
–
822
54,763
–
54,763
Debt securities – gilts and foreign government bonds
Debt securities – other government and supranationals
Debt securities – infrastructure loans – project finance3
Debt securities – infrastructure loans – corporate4
Debt securities – local authority loans5
Debt securities – loans guaranteed by export credit agencies
and supranationals6
Debt securities – private corporate credit7
Debt securities – loans to housing association8
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 2023
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
Unit-linked2
£m
8,002
12,312
3,253
–
–
4
–
8
2
–
–
27,688
43,267
112,122
5,062
674
10,800
179,927
(4,780)
175,147
Total
£m
18,525
35,390
7,679
1,137
1,524
1,039
733
2,385
1,253
1,147
4,486
56,334
113,107
129,516
6,802
674
10,722
279,346
(4,780)
274,566
1,012
686
4,018
188
280,470
3,698
272,946
7,168
(3,342)
280,470
1
Includes assets where shareholders of the life companies bear the investment risk.
2
Includes assets where policyholders bear most of the investment risk.
3 Total infrastructure loans – project finance of £1,137 million include £1,097 million classified as Level 3 debt securities in the fair value hierarchy.
4 Total infrastructure loans – corporate of £1,524 million include £1,493 million classified as Level 3 debt securities in the fair value hierarchy.
5 Total local authority loans of £1,039 million include £932 million classified as Level 3 debt securities in the fair value hierarchy.
6 Total loans guaranteed by export credit agencies and supranationals of £733 million include £486 million classified as Level 3 debt securities in the fair value hierarchy.
7 Total private corporate credit of £2,385 million include £1,829 million classified as Level 3 debt securities in the fair value hierarchy.
8 Total loans to housing associations of £1,253 million include £1,186 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 £1 million, other loans of £189 million, net derivative liabilities of £(770) million, reinsurers’ share of investment contracts of £9,700 million and other investments of £1,602 million.
11 See note H3 to the consolidated financial statements for further details.
Shareholder and
non-profit funds2
£m
4,385
4,913
1,691
922
1,205
686
Participating
supported2
£m
1,027
260
242
–
–
1
Participating
non-supported3
£m
5,312
15,065
1,717
–
1
2
509
1,660
769
1,104
3,934
13,895
31,288
109
68
–
(1,241)
34,609
–
34,609
–
–
–
–
–
1,118
1,621
46
22
–
(508)
2,208
–
2,208
–
100
8
–
–
13,067
29,960
17,114
1,698
–
732
54,816
–
54,816
Unit-linked3
£m
6,445
13,212
2,341
–
–
4
–
8
2
–
–
33,515
49,082
94,462
5,361
786
9,273
165,409
(8,312)
157,097
31 December 2022 restated1
Carrying value
Cash and cash equivalents
Debt securities – gilts and foreign government bonds
Debt securities – other government and supranational
Debt securities – infrastructure loans – project finance4
Debt securities – infrastructure loans – corporate5
Debt securities – local authority loans6
Debt securities – loans guaranteed by export credit agencies
and supranationals7
Debt securities – private corporate credit8
Debt securities – loans to housing associations9
Debt securities – commercial real estate loans10
Debt securities – equity release mortgages10
Debt securities – other debt securities
Equity securities
Property investments
Income strips10
Other investments11
Total Life Company assets
Less assets held by disposal groups12
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 groups12
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
8,256
257,042
(8,312)
248,730
502
1,071
4,213
1,147
255,663
3,727
248,972
8,839
(5,875)
255,663
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details). This has resulted in a net reduction of £(9) million as result of moving £(11)
million policy loans to insurance contracts along with a £2 million increase in reinsurance share of investment contracts.
2
3
Includes assets where shareholders of the life companies bear the investment risk.
Includes assets where policyholders bear most of the investment risk.
4 Total infrastructure loans – project finance of £922 million include £882 million classified as Level 3 debt securities in the fair value hierarchy.
5 Total infrastructure loans – corporate of £1,206 million include £1,175 million classified as Level 3 debt securities in the fair value hierarchy.
6 Total local authority loans of £693 million include £596 million classified as Level 3 debt securities in the fair value hierarchy.
7 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.
8 Total private corporate credit of £1,768 million include £1,422 million classified as Level 3 debt securities in the fair value hierarchy.
9 Total loans to housing associations of £779 million include £691 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 other loans of £398 million, net derivative liabilities of £(1,837) million, reinsurers’ share of investment contracts of £9,090 million and other investments of £605 million.
12 See note H3 to the consolidated financial statements for further details.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
Phoenix Group Holdings plc Annual Report and Accounts 2023
307
FinancialsFinancials Additional life company asset disclosures continued
The following table provides a reconciliation of the total life company assets to the Assets under Administration (‘AUA’) as at 31 December 2023
detailed in the Business Review on page 37.
Total Life Company assets excluding amounts classified as held for sale
Off-balance sheet AUA1
Less: Wrap SIPP and Onshore Bond assets2
Assets Under Administration
2023
£bn
274.6
10.3
(2.4)
282.5
2022
£bn
248.7
10.3
–
259.0
1 Off-balance sheet AUA represents assets held in respect of certain Group Self-Invested Personal Pension products where the beneficial ownership interest resides with the customer (and which are
therefore not recognised in the consolidated statement of financial position) but on which the Group earns fee revenue.
2 Assets held in Wrap Self-Invested Personal Pension (‘Wrap SIPP’) and Onshore Bond products the associated profits of which accrue to abrdn plc under a profit transfer arrangement have been
excluded from AUA (see note H3 to the consolidated financial statements for further details).
All of the life companies’ debt securities are held at fair value through profit or loss under IFRS 9 Financial Instruments (2022: IAS 39 Financial
Instruments: Recognition & Measurement), 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 shareholder debt portfolio, which comprises of 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
Equity release mortgages4
Infrastructure
At 31 December 2023
1 Includes unrated holdings of £17 million.
AAA
£m
–
–
10
118
197
–
314
65
–
14
1,348
132
–
18
–
–
–
2,504
–
4,720
AA
£m
127
1
227
142
334
–
749
558
4
515
8,932
588
91
325
218
7
–
991
467
14,276
A
£m
216
126
344
644
677
37
2,915
197
17
979
658
3,334
48
176
330
2
18
864
243
11,825
BBB
£m
520
55
82
706
240
–
682
69
6
1,208
152
1,259
8
106
149
–
105
127
1,881
7,355
BB & below1
£m
10
–
70
1
–
–
13
14
–
10
–
92
–
–
–
–
–
–
57
267
Total
£m
873
182
733
1,611
1,448
37
4,673
903
27
2,726
11,090
5,405
147
625
697
9
123
4,486
2,648
38,443
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
Equity release mortgages4
Infrastructure
At 31 December 2022
1 Includes unrated holdings of £108 million.
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
–
852
123
9,999
A
£m
252
130
314
517
802
38
2,919
100
29
727
509
2,590
–
321
346
–
7
810
60
10,471
BBB
£m
643
6
111
551
231
–
344
68
–
1,353
116
1,053
5
70
55
–
69
56
1,208
5,939
BB & below1
£m
11
–
67
–
–
–
39
19
–
–
2
180
–
43
–
–
–
–
155
516
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 and £107 million reported as loans guaranteed by export credit agencies and supranationals in the summary table on page 307.
4 The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.
The following table sets out the debt security exposure by country of the shareholder and non-profit funds of the life companies:
Analysis of shareholder debt security exposure by country
UK
Supranationals
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Australia
Canada
Mexico
Other – non-Eurozone 1
Other – Eurozone
Total shareholder debt securities
Sovereign,
sub-sovereign and
supranational
2023
£m
9,046
704
274
133
169
79
–
35
12
55
89
1
45
2
356
90
11,090
Corporate and
other
2023
£m
16,169
–
4,764
811
1,724
457
304
88
253
133
134
477
410
157
1,125
347
27,353
Sovereign,
sub-sovereign and
supranational
2022
£m
5,914
541
317
46
153
24
–
–
17
56
28
1
6
2
252
40
7,397
Total
2023
£m
25,215
704
5,038
944
1,893
536
304
123
265
188
223
478
455
159
1,481
437
38,443
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
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
3,934
1,546
31,288
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
2 The £4,673 million total shareholder exposure to bank debt comprised £3,730 million senior debt and £943 million subordinated debt.
1 There was no shareholder exposure to Russia, Ukraine and Belarus at 31 December 2023 and 31 December 2022.
3 Includes £762 million reported as local authority loans, £467 million reported as loans guaranteed by export credit agencies and supranationals and £87 million reported as private corporate credit in
the summary table on page 306.
4 The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.
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Phoenix Group Holdings plc Annual Report and Accounts 2023
309
FinancialsFinancials 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
€4.0 million, whichever is higher, and a cap of 45% of the SCR. The MCR formula is based on factors applied to technical provisions and capital
at risk. The MGSCR represents the sum of the MCRs of the underlying insurance companies.
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 2023 is £1.8 billion (2022: £2.3 billion).
PGH plc’s Eligible Own Funds to cover MGSCR is £7.9 billion (2022: £8.2 billion) leaving an excess of Eligible Own Funds over MGSCR of
£6.1 billion (2022: £5.9 billion), which translates to an MGSCR coverage ratio of 432% (2022: 361%).
Additional capital disclosures
PGH PLC Solvency II surplus
The PGH plc surplus at 31 December 2023 is £3.9 billion (2022: £4.5 billion).
Own Funds
SCR
Surplus
31 December
2023
Estimated
£bn
11.1
(7.2)
3.9
31 December
2022
£bn
11.1
(6.6)
4.5
Composition of own funds
Own Funds items are classified into different Tiers based on the features of the specific items and the extent to which they possess the following
characteristics, with Tier 1 being the highest quality:
• availability to be called up on demand to fully absorb losses on a going-concern basis, as well as in the case of winding-up (‘permanent
•
availability’); and
in the case of winding-up, the total amount that is available to absorb losses before repayment to the holder until all obligations to
policyholders and other beneficiaries have been met (‘subordination’).
PGH plc’s total Own Funds are analysed by Tier as follows:
Tier 1 – Unrestricted
Tier 1 – Restricted
Tier 2
Tier 3
Total Own Funds
31 December
2023
Estimated
£bn
6.7
1.1
2.7
0.6
11.1
31 December
2022
£bn
6.8
1.1
2.6
0.6
11.1
PGH plc’s unrestricted Tier 1 capital accounts for 60% (2022: 61%) of total Own Funds and comprises ordinary share capital, surplus funds of the
unsupported with-profit funds which are recognised only to a maximum of the SCR, and the accumulated profits of the remaining business.
Restricted Tier 1 capital comprises the contingent convertible Tier 1 Notes issued in January 2020 and the Tier 1 Notes issued in April 2018, the
terms of which enable the instruments to qualify as restricted Tier 1 capital for regulatory reporting purposes.
Tier 2 capital is comprised of subordinated notes whose terms enable them to qualify as Tier 2 capital for regulatory reporting purposes.
Tier 3 items include the Tier 3 subordinated notes of £0.2 billion (2022: £0.2 billion) and the deferred tax asset of £0.4 billion (2022: £0.4 billion).
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’), the acquired ReAssure and SLF Canada UK Limited businesses. SLIDAC, ReAssure and
SLF Canada UK Limited 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 2023 Estimated
31 December 2022
Longevity
Credit
Persistency
Interest rates
Operational
Swap spreads
Property
Other market risks
Other non-market risks
Total pre-diversified SCR
Internal Model
%
17
19
19
5
8
2
6
10
14
100
ReAssure, SLIDAC and
SLF Canada UK Limited
Standard Formula
%
10
19
33
3
4
–
1
18
12
100
Internal Model
%
15
17
18
8
8
2
4
15
13
100
ReAssure, and SLIDAC
Standard Formula
%
17
19
28
6
4
–
1
14
11
100
The principal risks of the Group are described in detail in note E6 and F11 in the IFRS consolidated financial statements.
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311
FinancialsFinancials Alternative performance measures
APM
Definition
Why this measure is used
Reconciliation to financial statements
The Group assesses its financial performance based on a number of measures. Some measures are management derived measures of historic
or future financial performance, position or cash flows of the Group; which are not defined or specified in accordance with relevant financial
reporting frameworks such as International Financial Reporting Standards (‘IFRS’) or Solvency II.
These measures are known as Alternative Performance Measures (‘APMs’).
APMs are disclosed to provide stakeholders with further helpful information on the performance of the Group and should be viewed as
complementary to, rather than a substitute for, the measures determined according to IFRS and Solvency II requirements. Accordingly,
these APMs may not be comparable with similarly titled measures and disclosures by other companies.
A list of the APMs used in our results as well as their definitions, why they are used and, if applicable, how they can be reconciled to the nearest
equivalent GAAP measure is provided below. Further discussion of these measures can be found in the business review from page 30.
APMs marked with ‘NEW’ have been introduced in the period. IFRS adjusted shareholders’ equity has been introduced following the adoption
of IFRS 17. New business net funds flows, Operating Cash Generation (‘OCG’), recurring management actions, Return on Capital (‘RoC’) and
Solvency II leverage have been introduced to reflect the evolution of the Group’s strategy as described in the CEO’s Report and Our strategic
priorities and KPIs and Directors Remuneration Report sections of the Annual Report. New business contribution (‘NBC’), BPA Capital Strain
(Pre-Capital Management Policy) and BPA premiums written have been described in previous annual reports but as these have taken on more
prominence are also marked as new.
APMs marked with ‘CHANGED’ have been amended from that disclosed in the Annual Report and Accounts 2022. Fitch leverage ratio and
adjusted operating profit have been amended to reflect the adoption of IFRS 17.
APM
Definition
Why this measure is used
Reconciliation to financial statements
Adjusted
operating profit
CHANGED
Assets under
administration
Bulk Purchase
Annuity (‘BPA’)
Capital Strain
(Pre-Capital
Management
Policy)
NEW
BPA premiums
written
NEW
Adjusted operating profit is a financial
performance measure based on expected
long-term investment returns. It is stated
before tax and non-operating items including
amortisation and impairments of intangibles,
finance costs attributable to owners and
other non-operating items which in the
Director’s view should be excluded by
their nature or incidence to enable a full
understanding of financial performance.
Further details of the components of this
measure and the assumptions inherent in the
calculation of the long-term investment return
are included in note B2.1 to the consolidated
financial statements.
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.
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.
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.
Represents the capital deployment on BPA
measured on a Solvency II basis, before capital
management policy, expressed as a proportion of
the BPA Premium.
BPA Capital Strain (Pre-Capital
Management Policy) reflects how
efficiently capital is deployed on
BPA to deliver new business growth.
It is calculated as the capital deployed (being the
Solvency II Technical Provisions plus SCR plus
acquisition costs plus reinsurance premium less
BPA Premium, net of tax) as a proportion of the
BPA Premium.
Represents the aggregate, gross of reinsurance,
new business premium volume for BPA business,
measured at the risk transfer date, written in
the period.
BPA premiums written provides a
measure of the Group’s ability to
deliver new business growth.
A reconciliation of adjusted operating
profit to the IFRS result before tax attributable
to owners is included in the business review
on page 36.
A reconciliation from the Group’s IFRS
statement of consolidated financial position
to the Group’s AUA is provided on page 308.
The capital deployed in writing BPA business
is included within the new business strain
component of the change in Solvency SII
surplus in the period, as set out in the
diagram on page 34.
BPA premiums written is not directly
reconcilable to the financial statements as
premiums are no longer reported on the IFRS
income statement. BPA premium written is
included within the ‘Estimates of present value
of future cash flows’ line on the effect of
contracts initially recognised in the year in
Note F8.1 for the Retirement Solutions
disclosure group.
Fitch leverage
ratio
CHANGED
The Fitch leverage ratio is calculated by Phoenix
(using Fitch Ratings’ stated methodology) as debt
as a percentage of the sum of debt and equity.
Debt is defined as the IFRS carrying value of
shareholder borrowings. Equity is defined as the
sum of equity attributable to the owners of the
parent, non-controlling interests, contractual
service margin (‘CSM’) (net of tax), policyholders’
share of the estate and the Tier 1 Notes.
The Group seeks to manage the level of
debt on its balance sheet by monitoring
its financial leverage position. One of the
output metrics used in this regard is the
Fitch leverage ratio. This is to ensure the
Group maintains its investment grade
credit rating as issued by Fitch Ratings.
The adjusted equity component of the Fitch
leverage ratio is as set out below for the IFRS
adjusted shareholders’ equity metric.
Fitch Leverage
Total equity attributable
to owners of the parent
CSM (net of tax)
Adjusted shareholders’ equity
Non controlling interests
Policyholder surplus in
with profit funds
Tier 1 notes
Total Shareholders’ Equity
– Fitch basis
Total Shareholder debt
Fitch Leverage (B/A + B)
A
B
FY
2023
2.5
2.1
4.6
0.5
4.2
1.0
10.3
3.1
23%
Non-controlling interests is directly
sourced from the Group’s IFRS statement
of consolidated financial position and Tier 1
notes from the borrowings note E5 on pages
209 to 211. Policyholder surplus in with-profit
funds is a subset of Estimates of present value
of future cash flows within insurance contract
liabilities in Note F1 on page 226.
Group in force
Long-term Free
Cash (‘LTFC’)
Group in force Long-term Free Cash (‘LTFC’)
comprised of long-term cash to emerge from
in-force business, plus holding company cash,
less an allowance for costs associated with
in-flight mergers and acquisitions and the
related transition activities, and a deduction
for shareholder debt outstanding.
The calculation for the LTIP performance
metric excludes any future shareholder dividends
and is before interest on debt until maturity.
LTFC provides a measure of the Group’s
total long-term cash available for operating
costs, interest, growth and shareholder
returns. Increases in LTFC will be driven by
sources of long-term cash i.e. new business
and over-delivery of management actions.
Decreases in LTFC will reflect the uses of
cash at holding company level, including
expenses, interest, investment in BPA and
dividends. Is a measure in the 2023 LTIP.
The metric is not directly reconcilable to the
financial statements as it includes a significant
component relating to cash that is expected to
emerge in the future. Holding company cash
included within LTFC is consistent with the
holding company cash and cash equivalents as
disclosed in the cash section of the business
review. Shareholder debt outstanding reflects
the face value of the shareholder borrowings
disclosed on page 209.
IFRS adjusted
shareholders’
equity
IFRS adjusted shareholders’ equity is calculated
as IFRS Total equity attributable to owners of the
parent plus the CSM, net of tax.
Adjusted shareholders’ equity provides
a meaningful measure of the value
generated by the Group, including the
value held in the CSM for IFRS 17 contracts.
NEW
Incremental new
business long-term
cash generation
Incremental new business long-term cash
generation represents the operating companies’
total cash generation that is expected to arise in
future years as a result of new business transacted
in the current period. It excludes any costs
associated with the acquisition of the new business.
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 legacy business
and to bring sustainability to future
cash generation.
Life Company
Free Surplus
The Solvency II surplus of the Life Companies
that is in excess of their Board approved capital
according to their capital management policies.
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 (‘OCG’).
Adjusted shareholders’ equity reconciles to
the IFRS balance sheet as follows:
Total equity attributable
to owners of the parent
Add: CSM
Less: Tax on CSM
Adjusted shareholders’ equity
FY
2023
2,496
2,853
(713)
4,636
Total equity attributable to owners of the
parent is directly sourced from the Group’s
IFRS statement of consolidated financial
position on pages 166 and 167. CSM is set out
in note F1 on page 227. Tax is reflected at the
deferred tax rate of 25%.
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.
Life Company Free Surplus is a subset of the
change in Solvency II surplus over the period
set out in the diagram on page 34. It can be
reconciled as follows:
Group Solvency II surplus
Less: Non-life company components
Less: Capital Management Policy
Life Company Free Surplus
FY
2023
3.9
0.7
(2.4)
2.2
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313
FinancialsFinancials Alternative performance measures continued
APM
Definition
Why this measure is used
Reconciliation to financial statements
APM
Definition
Why this measure is used
Reconciliation to financial statements
Net fund flows
Represents the aggregate net position of gross
AUA inflows less gross outflows. It is an in-year
movement in the Group’s AUA.
Net fund flows provides a measure
of the Group’s ability to deliver new
business growth.
The measure provides an assessment
of the day one value (excluding a cost
of capital) arising on the writing of new
business, and is stated after applicable
tax and acquisition costs. This measure
is a 2024 AIP metric.
New business
contribution
(‘NBC’)
NEW
Represents the increase in Solvency II
Shareholder Own funds arising from new
business written in the year, assuming assets
have been fully transitioned in to the pricing
portfolio, and provides an assessment of the
day one value (excluding a cost of capital)
arising on the writing of new business on a
discounted basis. It is adjusted to exclude
(i) prudence in the Fundamental Spread,
(ii) the associated risk margin and (iii) any
restrictions in respect of contract boundaries.
Is stated on a net of tax basis, is after acquisition
costs and includes future year cash flows
in which long term maintenance costs are
deducted and therefore it excludes any
short term cost overruns.
New business
net fund flows
Represents the aggregate net position of AUA
inflows less outflows for new business written in
the period.
New business net fund flows provides a
measure of the Group’s ability to deliver
new business growth
The measure provides the sources of
recurring organic cash generated which
can be used to support sustainable cash
remittances from the Life Companies,
which in turn supports the Group’s
dividend as well as funding investment
to generate sustainable growth.
NEW
Operating Cash
Generation
(’OCG’)
And
Operating
Surplus
Generation
(‘OSG’)
NEW
Recurring
management
actions
NEW
Operating Cash Generation (’OCG’) is the
emergence of cash on a Solvency II basis as
surplus emerges (being the in-force business run
off over time and capital unwind, plus day one
surplus from writing new business (net of day
1 strain for fee based business) plus group tax
relief), plus recurring management actions.
As a cash measure it will be reported in line with
Life Company Free Surplus view and therefore
is the excess of their Board approved capital
according to their capital management policies.
OCG before adjustment to reflect the release
of capital management policy is referred to as
Operating Surplus Generation (‘OSG’).
Recurring management actions are measured on
a Solvency II basis and represent the Day 1 impact
on Own Funds and SCR. They are management
actions that are either genuinely repeatable,
repeatable in nature but subject to diminishing
returns or not repeatable but benefits are
expected from similar types of actions
Net fund flows is not directly reconcilable
to the financial statements as it includes
movements in AUA which do not flow directly
to the Group’s IFRS consolidated income
statement. However, a reconciliation from
the Group’s IFRS statement of consolidated
financial position to the Group’s AUA is
provided on page 308.
NBC is a subset of the new business element
within Group’s Solvency II analysis of movement
set out on page 34 and is adjusted for the
items stated.
New business net fund flows is not
directly reconcilable to the financial
statements. It is a subset of Net fund flows
described below.
The components of the OCG are:
Surplus generation
Recurring management actions
OSG
Release of capital
management policy
OCG
FY23
£bn
0.8
0.3
1.1
–
1.1
OSG forms a component of the change in
Solvency II surplus in the period as set out
in the diagram on page 34.
The measure is a key component of OCG
and one of the sources which can be used
to support sustainable cash remittances
from the Life Companies
Recurring management actions are a subset
of the Solvency II surplus generated in the
period as shown in the diagram 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.
Return on
Capital (’RoC’)
NEW
Reflects the Solvency II Own Funds component
of the Operating Cash Generation (i.e. the
inforce and new business surplus generation
and group tax relief), less financing costs plus
recurring management actions divided by
Opening Unrestricted Core Tier 1 Shareholder
Capital (‘UT1’) + Deferred tax assets (‘DTA’).
At a high level, this could be more simply
described as the operating growth in own
funds less financing costs as a percentage
of opening own funds excluding debt.
The RoC measure is intended to
demonstrate our efficiency in allocating
capital to generate returns for our
shareholders. It will demonstrate if we are
using our capital efficiently to generate
optimal returns, performance and growth
to deliver long term shareholder value.
This measure is included in the 2024 LTIP.
Shareholder
Capital Coverage
Ratio
Represents total Eligible Own Funds divided
by the Solvency Capital Requirements (‘SCR’),
adjusted to a shareholder view through the
exclusion of amounts relating to those ring-fenced
with-profit funds and Group pension schemes
whose Own Funds exceed their SCR.
Solvency II
Leverage
NEW
Solvency II leverage is calculated as the Solvency
II value of debt divided by the value of Solvency II
Regulatory Own Funds. Values for debt are
adjusted to allow for the impact of currency
hedges in place over foreign currency
denominated debt.
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.
The Group are targeting a £500m
reduction in debt over the medium term
to deliver a SII leverage ratio of c30%
Cash remitted by the Group’s operating
companies to the Group’s holding companies.
Total cash
generation
(formerly referred
to as operating
companies’ 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.
Total cash generation is a key performance
indicator used by management for planning,
reporting and executive remuneration.
Own Funds component
of OCG
Less Financing Costs
Recurring
Management actions
Total Own Funds
Divided by
Opening Shareholder UT1 +
Opening DTA
Opening Total Capital
ROC=
FY23
£bn
0.6
(0.2)
0.3
0.7
5.0
0.4
5.4
12.8%
The Own Funds component of OCG and
recurring management actions are a subset
of OCG as described previously. Financing
costs are sourced directly from the segmental
result on page 182.
Opening Shareholder UT1 is directly sourced
from the borrowings analysis on page 209 and
the Tier 1 notes classified as equity on page
194. The opening DTA is a component of the
Solvency II balance sheet within the Own Funds
balance in the diagram on page 34.
Further details of the Shareholder Capital
Coverage Ratio and its calculation are
included in the business review on pages
34 and 35.
Solvency II Leverage
Regulatory Eligible Own
Funds (£bn)
Total Debt (£bn)
Solvency II Leverage
FY2023
10.9
3.9
36%
Regulatory Eligible Own Funds is a component
of the calculation of the Group’s regulatory
Solvency II surplus as set out on page 34.
Total debt is that taken from borrowings
analysis on page 209.
Both amounts are adjusted for the value of the
foreign currency hedges used to hedge foreign
currency exposure on the Group’s borrowings
as described on page 193.
Total 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 32 to 33, 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 306.
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315
FinancialsFinancials Shareholder information
Annual General Meeting (‘AGM’)
Our AGM will be held on 14 May 2024 at 10am at Floor 22,
Freshfields Bruckhaus Deringer LLP, 100 Bishopsgate,
London, EC2P 2SR.
Full details of the business to be considered at the meeting will be
included in the Notice of Meeting which, along with all other details
relating to the AGM, will be available at: www.thephoenixgroup.com.
We do encourage shareholders to submit any questions
to the Company in advance of the AGM by email to
Investor.Relations@thephoenixgroup.com. Please note that
questions must be received no later than 10am on 10 May 2024.
Following the meeting, the voting results for our 2024 AGM,
including proxy votes and votes withheld will be available
on our website at: www.thephoenixgroup.com.
Shareholder services
Managing your shareholding
Our registrar, Computershare, maintains Phoenix Group’s
register of members. Shareholders may request a hard copy of
this Annual Report and Accounts from our registrar and should you
have any queries in respect of your shareholding, please contact
Computershare directly using the contact details set out under
the ‘Useful contact information’ section on page 317.
Investor Centre
The Investor Centre is an online enquiry service, provided by
Computershare, which allows you to manage your shareholding
with ease. Visit the Investor Centre at www-uk.computershare.com/
Investor/#Home. Once logged in, you can:
• view details of your Phoenix Group shareholding;
• view your recent dividend payments;
• update your address details;
• change your payment method; and
• register for electronic communications.
You can also use Computershare’s web-based enquiry service at
www.investorcentre.co.uk to download forms such as a dividend
mandate form or submit dividend mandate details online.
Alternatively, contact Computershare using the details found under
the ‘Useful contact information’ section on page 317.
Electronic communications
Phoenix Group is committed to reducing the volume of paper used
in communications to shareholders and other stakeholders to improve
sustainability. Shareholders are therefore able to access a wide range
of information and documentation on the Investor section of the
Group’s website at www.thephoenixgroup.com.
You can access electronic copies of Phoenix Group’s financial reports
and presentations on the website at: www.thephoenixgroup.com.
We strongly encourage shareholders to register to receive
notification of shareholder mailings via email and to choose this
as their default method of communication. You can register for
electronic communication through the Investor Centre.
Online news
Phoenix Group has a dedicated ‘News and Views’ section on
its website, www.thephoenixgroup.com, to keep shareholders,
investors, journalists and employees up to date and informed
on news.
Dividend information
Typically, Phoenix Group pays dividends twice a year. The Interim
dividend is usually paid in October and the Final dividend is paid
in May following approval by shareholders at the AGM.
Information about the 2023 Final dividend will be included in the
2023 Full Year Results Announcement.
Payment method
Shareholders may find it convenient to have their dividends paid
directly to their bank or building society account.
You can use Computershare’s web-based enquiry service at
www.investorcentre.co.uk to download forms such as a dividend
mandate form or submit dividend mandate details online.
Alternatively, contact Computershare using the details found under
the ‘Useful contact information’ section on page 317.
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.
2024 Financial calendar
Ordinary shares – 2023 Final dividend
Ex-dividend date
Record date
Payment date for the recommended Final dividend
Group Financial calendar for 2024
11 April 2024
12 April 2024
22 May 2024
Useful contact information
Computershare
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
United Kingdom
Annual General Meeting
Announcement of unaudited Interim Results
14 May 2024
Sept 20241
1 See website for announcement dates.
Computershare general helpline:
Shareholder helpline number: +44 (0) 370 702 0181
Lines open from 8.30am to 5.30pm Monday to Friday,
excluding public holidays in England and Wales.
Phoenix Group Holdings plc
For Company Secretariat or Investor enquiries:
Kulbinder Dosanjh
Group Company Secretary
Telephone: +44 (0)20 4559 4513
Email: kulbinder.dosanjh@thephoenixgroup.com
Claire Hawkins
Director of Corporate Affairs and Investor Relations
Telephone: +44 (0)20 4559 3161
Email: claire.hawkins@thephoenixgroup.com
Share price
For a more detailed look at the share price of Phoenix Group
Holdings plc, including current share price and the share price
over time, please see the ‘Share Monitor’ section of the Group’s
website at www.thephoenixgroup.com.
Please be mindful that the share price data on the website is delayed
by 15 minutes.
Share fraud warning to shareholders
Over recent years, many companies have been informed 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 turns 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
Phoenix Group:
• 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 +44 (0)800 111 6768.
•
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. 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
Phoenix Group endorses will be included in our shareholder mailings.
More detailed information on this or similar activity can be found
on the FCA website available at www.fca.org.uk/consumers.
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317
Additional informationAdditional information Glossary
ABI
The Association of British Insurers (‘ABI’) is a trade association made
up of insurance companies in the United Kingdom.
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.
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.
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).
Carbon offsets
A reduction or removal of emissions of carbon dioxide or other
greenhouse gases made in order to compensate for emissions
created else where.
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 (Fitch)
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,
contractual service margin (‘CSM’) (net of tax), policyholders’ share
of the estate and subordinated liabilities qualifying as 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 annuity
at a contractually guaranteed conversion rate.
HMRC
His Majesty’s Revenue and Customs.
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Heritage
The Group’s business segment where products are no longer
marketed to customers, for example with-profits and many legacy
unit linked life and pension products.
Holding companies
Refers to Phoenix Group Holdings plc, Phoenix Life Holdings
Limited, Pearl Group Holdings (No. 2) Limited, Impala Holdings
Limited, Pearl Life Holdings Limited, ReAssure Group plc and
ReAssure Midco Limited.
IASB
International Accounting Standards Board.
IFRS
International Financial Reporting Standards – Accounting standards,
interpretations and the framework adopted by the International
Accounting Standards Board.
Incremental 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 2023 AIP performance metric measures value creation with
incremental new business long-term cash generation (less strain)
representing the increase in the expected future operation
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 long-term value for shareholders through
an award of shares with vesting contingent on employment and
the satisfaction of stretching performance conditions linked to
Group strategy.
M&A Advisory Committee
An ad hoc advisory PGH plc Board committee which meets
to consider proposed mergers and acquisitions, including due
diligence activities undertaken by management.
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 (therefore
accelerating expected cash generation). Examples of management
action activities include investment into higher yielding asset types,
optimisation of asset and liabilities matching positions, and cost
reduction initiatives. Certain management actions are classified as
recurring and form part of OCG. These are actions which are either
genuinely repeatable, repeatable in nature but subject to diminishing
returns or not repeatable but benefits are expected from similar
types of actions.
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 and excludes market movements. Net flows may be
reported for the Group as a whole, for a specific part of the Group
or for different time periods. Group net flows are included as a
measure in the 2024 AIP scheme. Pensions and Savings Net Flows
– Workplace and Retail is included as a measure in the 2023 AIP
scheme. Cumulative net flows, being net flows over the 3 year LTIP
performance period, are included in the 2024 LTIP grant.
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, assuming assets have been fully
transitioned in to the pricing portfolio, and provides an assessment
of the day one value (excluding a cost of capital) arising on the writing
of new business on a discounted basis. It is adjusted to exclude (i)
prudence in the Fundamental Spread, (ii) the associated risk margin
and (iii) any restrictions in respect of contract boundaries. Is stated
on a net of tax basis, is after acquisition costs and includes future year
cash flows in which long term maintenance costs are deducted and
therefore it excludes any short term cost overruns. This measure is
included in the 2024 AIP scheme.
Non-economic assumptions
Assumptions related to future levels of mortality, morbidity,
persistency and expenses.
Non-profit fund
The portion of a life fund which is not a with-profit fund, where risks
and rewards of the fund fall wholly to shareholders.
Open business
The Group’s business segment where products are actively marketed
to new and existing customers.
Operating Cash Generation
Operating Cash Generation (’OCG’) is the emergence of cash as
in-force business runs off over time and capital unwinds, plus day
one surplus from writing new business (net of day 1 strain for fee
based business) plus group tax relief, plus recurring management
actions. As a cash measure it will be reported on an Excess over
CMP view.
Operating companies
Refers to the trading companies within Phoenix Group.
Operating companies’ total cash generation
Operating companies’ cash generation represents cash remitted
by the Group’s operating companies to the holding companies.
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.
Each FTSE 100 Board should have at least one “director of colour”
by 2021.
Partial internal model
The model used to calculate the Group Solvency Capital Requirement
pursuant to Solvency II. It aggregates outputs from the harmonised
internal model and the standard formula with no diversification
between the two.
Part VII transfer
The transfer of insurance policies under Part VII of Financial Services
and Markets Act 2000. The insurers involved can be in the same
corporate group or in different groups. Transfers require the consent
of the High Court, which will consider the views of the PRA and FCA
and of an Independent Expert.
Participating business
See with-profit fund.
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 specific Pensions &
Savings products 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 risks are covers in section F11 of the
consolidated financial statements. This is a LTIP performance metric
for the 2021, 2022 and 2023 grants.
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.
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Additional informationAdditional information Glossary continued
ReAssure
The companies comprising ReAssure Limited, ReAssure Life Limited
and Ark Life Assurance Company dac businesses which were
acquired on 22 July 2020.
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 2021 and 2022 grants.
Return on Capital (’RoC’)
Reflects the Own Funds component of the Operating Cash
Generation (i.e. the inforce and new business surplus generation
and group tax relief), less financing costs plus recurring management
actions divided by Opening Unrestricted Core Tier 1 Shareholder
Capital (UT1) + Deferred tax assets. At a high level, this could be more
simply described as the operating growth in own funds less financing
costs/opening own funds excluding debt. This is a LTIP performance
metric for the 2024 grant.
Science Based Targets
An emissions reduction target is defined as ‘science-based’ if it is
developed in line with the scale of reductions required to keep global
warming below 2C from pre-industrial levels, under recommendations
by the SBT Institute (‘SBTi’).
Scope 1, 2 and 3 emissions
Greenhouse gas emissions are categorised into three groups or
‘Scopes’. Scope 1 covers direct emissions e.g. use of natural gas,
company car vehicle emissions. Scope 2 covers indirect emissions
from the generation of purchased electricity, steam and heating.
Scope 3 includes 15 other categories of indirect emissions in a
company’s value chain e.g. business travel and investments.
Shareholder capital coverage ratio
Represents total Eligible Own Funds divided by the Solvency Capital
Requirements (‘SCR’), adjusted to a shareholder view through the
exclusion of amounts relating to those ring-fenced with-profit funds
and Group pension schemes whose Own Funds exceed their SCR.
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.
Solvency II Leverage
Solvency II leverage is calculated as the Solvency II value of debt
divided by the value of Solvency II Regulatory Own Funds. Values for
debt are adjusted to allow for the impact of currency hedges in place
over foreign currency denominated debt.
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 Task Force on Climate-Related Financial Disclosures (‘TCFD’)
was created in 2015 by the Financial Stability Board (‘FSB’) to
develop consistent climate-related financial risk disclosures for
use by companies in providing information to stakeholders.
Task Force on Nature related financial disclosures (‘TNFD’)
The TNFD is a new global market-led initiative which aims to
provide financial institution and corporate 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 Tate 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
Transitional Measures on Technical Provisions (’TMTP’) is an
allowance, subject to the PRA’s approval, to apply a transitional
deduction to technical provisions. The transitional deduction
corresponds to the difference between net technical provisions
calculated in accordance with Solvency II principles and net
technical provisions calculated in accordance with the previous
regime and is expected to decrease linearly over a period of 16 years
starting from 1 January 2016 to 1 January 2032. TMTP is subject
to a mandatory recalculation every two years or on the occurrence
of certain defined events.
Transition risks
Climate-related risks associated with the transition to a low-carbon
economy. They include risks related to policy and legal actions,
market and economic responses, technology changes and
reputational considerations.
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).
This is a LTIP performance metric.
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 received significantly more share 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 informationAdditional information Forward looking statements
Forward looking statements
The 2023 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, ambitions,outlook, guidance 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, climate change and the
effect of the UK’s version of the ‘Solvency II’ regulations on
the Group’s capital maintenance requirements;
• developments in the UK’s relationship with the European Union;
• the direct and indirect consequences for European and global
macroeconomic conditions of the conflicts in Ukraine and the
Middle East, and related or other geopolitical conflicts;
• political uncertainty and instability;
• the impact of changing inflation rates (including high inflation)
and/or deflation;
•
information technology or data security breaches (including
the Group being subject to cyber-attacks);
• the development of standards and interpretations including
evolving practices in ESG and climate reporting with regard
to the interpretation and application of accounting;
• the limitation of climate scenario analysis and the models that
analyse them;
•
lack of transparency and comparability of climate-related
forward-looking methodologies;
• climate change and a transition to a low-carbon economy
(including the risk that the Group may not achieve its targets);
• the Group’s ability along with governments and other
stakeholders to measure, manage and mitigate the impacts
of climate change effectively;
• market competition;
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• 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 any acquisitions,
disposals or other strategic transactions;
• risks associated with arrangements with third parties;
•
inability of reinsurers to meet obligations or unavailability
of reinsurance coverage; and
• the impact of changes in capital, and implementing changes
in IFRS 17 or any other regulatory, solvency and/or accounting
standards, 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, ambitions,outlook, guidance and expectations set out
in the forward-looking statements and other financial and/or
statistical data within the 2023 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 2023 Annual Report and Accounts.
The Group undertakes no obligation to update any of the
forward-looking statements or data contained within the
2023 Annual Report and Accounts or any other forward-looking
statements or data it may make or publish.
The 2023 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
2023 Annual Report and Accounts is or should be construed as
a profit forecast or estimate.
Caution about climate and sustainability related disclosures
Climate and sustainability disclosures in the 2023 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 sustainability disclosures made in the 2023
Annual Report and Accounts are likely to be amended, updated,
recalculated or restated in the future.
Printed by a CarbonNeutral® Company certified to ISO 14001
environmental management system.
This product is made using recycled materials limiting the impact on our
precious forest resources, helping reduce the need to harvest more trees.
100% of the inks used are HP Indigo ElectroInk which complies with
RoHS legislation and meets the chemical requirements of the Nordic
Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals
are recycled for further use and, on average 99% of any waste associated
with this production will be recycled and the remaining 1% used to
generate energy.
The paper is Carbon Balanced with World Land Trust, an international
conservation charity, who offset carbon emissions through the purchase
and preservation of high conservation value land. Through protecting
standing forests, under threat of clearance, carbon is locked-in,
that would otherwise be released.
Additional informationCBP00019082504183028 A
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Registered address
Phoenix Group Holdings plc
20 Old Bailey
London
England EC4M 7AN
Registered Number 11606773
thephoenixgroup.com