CORPORATE GOVERNANCE Chairman’s introduction 92 The Board as a guardian of our purpose and values 94 Our leadership 95
Division of responsibilities 112 Independence of Directors 112 Meeting attendance 112
FINANCIALS Independent auditor’s report 164 IFRS consolidated financial statements 177 Notes to the consolidated financial statements 184 Parent company financial statements 290 Notes to the parent company financial statements 293 Additional Life Company asset disclosures 303 Additional capital disclosures 307 Alternative performance measures 309
Customer satisfaction score – telephony REM Standard Life only £834m (2019: £116m)
All amounts throughout the report marked with APM are alternative performance measures. Read more on page 309.
Today, there is no longer a typical life and people’s pensions needs are therefore evolving.
Phoenix has a pivotal role to play as the country navigates the shifting pensions landscape.
That’s why our purpose is helping people secure a life of possibilities. This means providing the right guidance and products, at the right time, to support the right choices.
Our vision is to grow a strong and sustainable business to help more people on their journey to and through retirement.
Main brands Phoenix is the UK’s largest long-term savings and retirement business with £338 billion of assets under administration and c.14 million customers.
We are a growing and sustainable business with a clear purpose – helping people secure a life of possibilities.
HERITAGE Our Heritage business, where we are the market-leader, is focused on the safe and efficient management of insurance policies. It comprises products that are no longer actively marketed to new customers and where we have stepped in as the custodian of these policies. We have built this business through the consolidation of over 100 legacy insurance brands and have a proven track record of improving customer outcomes.
Our model is differentiated from our peers by a unique set of competitive advantages and is a business where the whole is greater than the sum of the parts…
SCALE As the UK’s largest long-term savings and retirement provider, we already have relationships with c.14 million customers.
Dividend per share1 1 Dividends rebased to take into account the bonus element of rights issues.
…that supports a stable and sustainable dividend with M&A as the historic trigger for uplifts…
…and, in time, if Open growth more than offsets Heritage run off and long-term free cash is growing, can provide a platform for a growing dividend.
OPTIMISE IN-FORCE BUSINESS We manage our in-force business to deliver resilient cash generation and management actions, including cost and capital synergies.
DEEPEN CUSTOMER RELATIONSHIPS By engaging with our customers and meeting their broader needs, we will retain our customers and they will consolidate towards us as they journey to and through retirement.
Phoenix has a clear strategy that leverages our leading share of in-force business and the major market trends for growth.
…which in turn drives our clear strategy that is underpinned by our values…
CUSTOMERS We are committed to contributing to the closure of the growing pensions and savings gap. We can do this by providing customers with the right guidance and products, at the right time, to support the right choices – across both our Heritage and Open businesses.
COLLEAGUES We are committed to engaging all colleagues in our purpose, building a truly diverse workforce and adapting our ways of working to match the best interests of our colleagues. We support our people to grow and this in turn supports the delivery of a growing and sustainable business.
SOCIETY As a market leader, we believe we have a broader role to play in society. This means taking responsible and sustainable investment decisions and minimising the environmental impact of our business operations. We will also use our presence and voice to advocate on behalf of the UK’s savers.
OPEN • Strong foundation • Unique advantages from operating alongside Heritage
M&A & INTEGRATION • Market leader • Differentiated capabilities 5Phoenix Group Holdings plc Annual Report & Accounts 2020
Phoenix has a long track record of delivering cash generation, meeting or exceeding all cash generation targets since 2010. Predictable long-term cash generation supports Phoenix’s stable and sustainable dividend policy.
Our new Group metric of long-term free cash represents the cash available for operating costs, interest, growth and shareholder returns.
£1.7bn 2020 cash generation £13.4bn Group long-term free cash (2020 pro forma)
Growth from new business brings incremental cash generation to Phoenix which offsets the run-off of our in-force business and we are well positioned to capitalise on the key market trends driving growth.
We also deliver growth through value-accretive acquisitions and we possess market-leading M&A capabilities that enable us to be at the forefront of future consolidation in the industry.
£766m 2020 incremental new business long-term cash generation £7bn of additional long-term cash generation added through the acquisition of ReAssure Group plc
In addition to the strategic change we had expected in 2020, we have also been dealing with the challenges resulting from the COVID-19 pandemic. Phoenix’s priorities throughout this period have been to protect our customers and colleagues and support the communities in which we operate. The Board has played a key role in these efforts with bi-weekly virtual briefing sessions to keep apprised of the Group’s operational and financial position, and to support the executive team as they adapted to the emerging needs of our customers and colleagues.
It is with great enthusiasm that we have supported Andy as he has built his executive team who will help him deliver this new vision for the Group. This team brings together the strengths of our legacy businesses, with internal promotions being augmented by new colleagues from ReAssure and external appointments to fill gaps in our skills and bring market-leading experience.
Phoenix’s journey is one of evolution. We are building on our market-leading capabilities in managing Heritage businesses and undertaking M&A and integration, and are now developing a thriving Open business that supports customer retention and customer acquisition.
Nicholas Lyons, Chairman 2020 has been a year of change for Phoenix as we welcomed Andy Briggs as our new CEO and completed the acquisition of ReAssure, making Phoenix the UK’s largest long-term savings and retirement business.
The successful acquisition of the ReAssure Group has further enhanced the sustainability of our dividend. I am therefore pleased to confirm that, in line with our previous guidance, the Board is recommending a final 2020 dividend of 24.1 pence per share, an increase of 3% compared to the interim dividend.
Another important societal shift is the increasing focus on environmental sustainability. I am therefore delighted that Phoenix has put sustainability at the heart of its strategy and has committed to achieving net-zero carbon by 2025 across our operations and by 2050 across our investment portfolio. Given its importance, the Board wanted to ensure that our sustainability agenda was fully embedded in the business and underpinned by strong governance. We have therefore established a new Board Sustainability Committee chaired by Karen Green. This committee is responsible for the review and oversight of the Group’s sustainability strategy which continues to evolve at pace.
BOARD CHANGES In addition to Andy Briggs joining as our new CEO, I was also pleased that Rakesh Thakrar was promoted to the role of Group CFO and joined the Board. Rakesh had previously served as the Group’s Deputy CFO and so his promotion is testament to our strong succession planning.
Following completion of the ReAssure acquisition, Christopher Minter and Hiroyuki Iioka joined the Board as part of our relationship agreements with the Swiss Re Group and MS&AD respectively. They bring substantial experience and executive skills to our Board and additional international perspectives. Also, Campbell Fleming from Standard Life Aberdeen has left the Board due to its reduced shareholding following the completion of the ReAssure transaction. On behalf of the Board I would like to thank Campbell for his excellent and insightful contribution during his time with us.
“ I am delighted to see the progress Phoenix is making as it evolves from being a specialist financial consolidator to a purpose-led organisation that uses its scale and resources to play a pivotal role in society.”
You can find out more about how we are delivering on our ambitious sustainability commitments in our comprehensive 2020 Sustainability Report at: www.thephoenixgroup. com/sustainability/reports 13Phoenix Group Holdings plc Annual Report & Accounts 2020
pandemic. Phoenix’s key priorities throughout this time have been to protect our customers and colleagues, and to support the communities in which we operate. I am immensely proud of the dedication and resilience our colleagues have shown as they provided the very best support for our customers and supported each other. Our colleagues have lived up to the values we seek to embody and have demonstrated the key attributes of the purpose-led organisation we are. You can find out more about our COVID-19 response in the case study opposite.
We delivered our highest ever year of cash generation, exceeding the upper end of our target range, and built good momentum in the growth of our Open business. Phoenix’s strong operational and financial resilience ensured we continued to deliver for all of our stakeholders in the face of an unprecedented period of disruption, and it also enabled us to pay our dividends as planned.
In addition, we completed our largest M&A transaction to date with the acquisition of ReAssure Group plc, bringing an additional £7 billion of incremental long-term cash generation to the Group, together with market- leading skills and capabilities. You can find out more about the ReAssure acquisition in the case study on the next page.
To enhance our support for customers we accelerated our digitisation strategy and rolled out a range of additional support services such as waiving the moratorium on COVID-19-related claims in our SunLife business and rapidly enabling customers to move from cheque to BACS payments.
For our colleagues, we offered a range of homeworking support solutions in addition to both a remote working and homeschooling expense provision. We also launched new initiatives to engage and inspire our colleagues, including a range of resources to support mental and physical wellbeing.
We are committed to providing the best support to all our stakeholders and what we have learnt during this time will make a significant difference to how we operate over the long term, and is driving an enduring change in our business.
Our vision is therefore to grow a strong and sustainable business to help more people on their journey to and through retirement.
COMMITTING TO A SUSTAINABLE FUTURE We see sustainability as being at the core of our purpose and a key enabler of our strategy. That is why we recently launched our comprehensive sustainability strategy that addresses the critical trends impacting our industry, including the aging population and the responsibility to address global environmental challenges.
Our strategy focuses on delivering for our c.14 million customers and investing our £338 billion of assets under administration in a sustainable manner.
As the UK’s largest long-term savings and retirement business, we are also committed to contributing towards the closure of the UK’s growing pensions and intergenerational savings gap. We believe that we can contribute to this through providing innovative ESG-led products for a changing society, by promoting financial inclusion and education with a particular focus on supporting vulnerable customer groups, and by enhancing our digital experience to widen access for all.
For example, this year we undertook an innovative research project aimed at better understanding the needs of our customers in relation to sustainability.
Phoenix and ReAssure have been leaders in the UK consolidation market over recent years with both companies having strong track records of successful M&A and integrations. ReAssure’s ALPHA administration platform has proven to be flexible, scalable and resilient. Operating this in-house platform alongside Phoenix’s outsourced Diligenta BANCS platform further strengthens the Group’s market leading integration capabilities. It enables the Group to run multiple integrations in parallel, which in turn provides us with opportunities to enhance the speed and frequency with which we can undertake M&A and deliver cost and capital efficiencies.
initiatives including a Group-wide employee engagement exercise aimed at determining our future ways of working, a comprehensive Diversity and Inclusion strategy underpinned by a range of targeted support networks, and an enhanced talent management framework to support development.
As a result, we have already seen some strong momentum in terms of improved colleague advocacy through our annual colleague engagement survey, with a 10ppts increase in overall colleague engagement to 75%.
DELIVERING FOR OUR CUSTOMERS Delivering for customers is central to our strategy. We are therefore focused on improving customer outcomes, providing strong customer service and investing in developing market leading propositions. 2020 has been a year of delivery across each of these areas.
In our Open business Workplace unit, we have made significant enhancements to our proposition such as broadening our ESG fund offering with the launch of a new multi-asset ESG Defined Contribution Default fund and the launch of an in-scheme draw-down functionality so that more of our customers can access their pension benefits in a flexible way. While the development of an enhanced client analytics tool, in collaboration with our digital partner Tata Consultancy Services (TCS), will provide enhanced customer insights and allow us to offer a more personalised customer experience.
Looking to the future, people’s needs are changing as they move through the stages of the life savings cycle. We are seeing strong growth in the workplace market, driven by auto-enrolment, an ageing population and a move from defined benefit to defined contribution pension schemes. We also know that as individuals prepare for retirement and move into the decumulation stage of the savings life cycle, they are increasingly seeking guidance. At the same time, corporate pension schemes are looking to de-risk their balance sheets through BPA transactions. Our strategy is therefore designed to position the Group for sustainable long-term growth by responding to these rapidly evolving sector trends and changing customer needs.
We are already a top-three player in the £40 billion per annum UK workplace market. Our strategy in this segment is to protect our existing business and grow our market share by accelerating the investment in our proposition and aligning to changing sector trends such as the growth in Master Trusts.
Within our Customer Savings & Investments segment we are focused on engaging our c.14 million customers to better understand their savings needs and provide innovative solutions as they journey to and through retirement. We estimate annual flows of about £30 billion per annum into products supporting this stage of the life savings cycle.
And we are an established participant in the £40 billion per annum BPA market which constitutes a dependable growth opportunity. Our strategy here is to grow and expand through further developing our market proposition, building a best in class asset management capability and improving our capital efficiency.
To support the delivery of this strategy we have recently implemented a new organisational design, as we build out our existing team with high calibre new appointments designed to bring on board additional skills and experience.
INVESTING IN OUR PEOPLE AND CULTURE I believe that building a strong culture and diverse team of highly engaged colleagues is fundamental to the fulfilment of our purpose and the delivery of our strategy. We are committed to making Phoenix the best place our colleagues have ever worked. To achieve this, we want to be an organisation where diversity of thought and perspective is genuinely embraced. We have made strong progress across our main areas of focus which revolve around employee engagement and culture, diversity and inclusion, wellbeing and mental health, as well as talent and capabilities.
The crafting of our new purpose statement involved a Company-wide consultation initiative to incorporate our colleagues’ perspectives and ensure our purpose resonated strongly. We have also launched a number of 16 Phoenix Group Holdings plc Annual Report & Accounts 2020
both our Heritage and Open businesses this year and have seen increased usage of our digital solutions with >50% of total log-ins now through our enhanced mobile app and a more than doubling in the use of secure messaging by customers.
We are the market leader in the UK Heritage consolidation market and while this remains our priority for
Delivering on our Open business growth aspirations will bring enhanced long-term sustainability to the Group’s organic cash generation and also has the potential to support future dividend growth subject to two clear conditions.
The first is that we must prove ‘the wedge’ and see the cash generated from new business more than offset the run off of our in-force business of c.£800m per annum, which we came close to achieving in 2020 at £766m. The second is that our recurring sources of cash must exceed our recurring uses, to support sustainable growth in Group long-term free cash.
Our priorities for 2021 are clear. We will focus on managing our balance sheet for cash and resilience, and we will accelerate our Open business growth strategy. As a purpose-led organisation, we will do this through delivering on our sustainability commitments, ensuring our customers are at the centre of everything we do and by investing in our people and culture.
THANK YOU I am proud that Phoenix has continued to progress and evolve in 2020 despite the challenging backdrop. I want to thank all of my colleagues for their dedication and efforts to support each other, our customers and the communities within which we operate. I look forward to delivering another year of significant progress in 2021.
We live in an ageing society, with more people than ever benefiting from a longer, healthier life. But this has created retirement savings challenges for individuals and companies alike.
Phoenix response We are a top-three player in the Workplace market with a c.11% market share and our strategy is to protect and grow our business. We will do this by continuing to invest in strengthening our proposition and digital platform, as well as improving our cost efficiency to support competitive pricing.
CORPORATES ARE DE-RISKING Corporates are increasingly de-risking their defined benefit scheme liabilities through BPA transactions in order to focus on their core businesses. This is fuelling increased demand for BPAs with market flows of £40 billion per annum.
We are set apart by the core capabilities that underpin our business model
SCALE As the UK’s largest long-term savings and retirement provider, we have relationships with c.14 million customers.
THE GROUP function manages corporate and strategic activity including M&A. Cash remitted to Group is used to pay interest and dividends and supports growth.
LIFE COMPANIES manage the financial assets of customers and integrate acquired businesses. This simplifies the operating model and ensures the efficient use of capital. The Life Companies remit cash to the Group.
Read more page 64 47.5p 2020 total ordinary dividend per share
CORPORATE CENTRE The Group operates centralised functions that partner with our divisions and manage our corporate and strategic activity, including a centralised M&A capability.
EVOLVING OUR OPERATING STRUCTURE During 2020, Phoenix has evolved its operating structure to support our vision of building a growing and sustainable business, whilst retaining the attributes of a small and agile organisation. Our new matrix structure is designed to drive accountability down into the organisation and empower our leaders and people to deliver on our strategy.
DIVISIONS Business units Our Heritage and Open divisions operate through a number of customer-oriented business units – more details opposite.
Divisions and business units within 22 Phoenix Group Holdings plc Annual Report & Accounts 2020
The business has a broad range of life and pensions products which provide diversification and capital efficiencies.
Organic cash emerges naturally from our in-force business as it runs off over time and we enhance this organic cash generation through our proven ability to deliver management actions which either increase the overall cashflows from the business or accelerate the timing of these cashflows.
Integral to the efficient management of our Heritage business is ensuring we continue to optimise our operating model including implementing a single administration platform and harmonising our actuarial and finance models.
million customers’ needs in order to provide them with innovative solutions. Future new business will be generated as we engage our customers in their holistic savings needs to motivate them to consolidate their pension pots with Phoenix and as we retain our existing customers when they reach retirement age through a guidance proposition.
EUROPE Our European business operates in Ireland and Germany primarily through our Standard Life brand. It offers a range of pensions and savings products, including international bonds.
Life Company Own Funds Life Companies hold capital in accordance with Solvency II regulations, providing appropriate security for policyholders. This capital is known as Solvency II Own Funds.
Organic surplus emergence Life Companies earn margins on different types of life and pensions products increasing Own Funds. In addition, as our in-force business runs off the Solvency Capital Requirements reduce.
Any assets which the Life Companies hold in excess of overall internal capital buffers required are known as free surplus
BPA transactions Generate increased cash flows over the longer term and are value accretive.
We seek to optimise our capital structure while addressing the diverse needs of our policyholders, investors and regulators.
We continue to focus on the effective management of our risks and the efficient allocation of capital against those risks.
variances during 2020 with a Solvency II surplus impact of just £0.2 billion for the year.
• The Group issued £1.5 billion of debt during the year to fund the ReAssure transaction and had a Fitch leverage ratio of 28% at year end, comfortably within its 25 to 30% target range.
• The Group continued to work closely with the PRA during 2020 on its internal model harmonisation application and expects to submit this in 2021.
• The Board considered the potential impact of a range of scenarios, including very severe ones, on the Group’s solvency and liquidity position as a result of COVID-19 and the related market volatility, before concluding that the robustness of our capital position supported the payment of the 2019 final dividend and 2020 interim dividend.
We have a disciplined approach to balance sheet management which is articulated through our risk management framework and follows three key principles: protect solvency, optimise free surplus and deliver resilience.
We deliver resilience to our capital position by hedging unrewarded risks such as equity, interest rate and currency risks. And we proactively manage rewarded risks, like credit risk, through a well-diversified, defensively positioned asset portfolio that is actively managed.
KEY INITIATIVES AND PROGRESS IN 2020 • The Group’s shareholder capital coverage ratio of 164% has been maintained in the middle of our target range of 140% to 180% despite the significant market volatility in 2020 and is testament to our approach to risk management.
• The Group made good progress in reducing its BPA capital strain in 2020 from 9% to 8% and reduced average payback periods from 6–7 years in 2019 to 5–6 years in 2020.
It is defined as the ratio of the Group Own Funds to Group SCR, after adjusting to exclude amounts relating to unsupported with-profit funds and unsupported Group Pension Schemes.
The Group’s dividend per share helps measure how the Group delivers value to shareholders in accordance with its stable and sustainable dividend policy.
A coverage ratio of 164% remains in the middle of our target range of 140% to 180%.
Long-term dependable cash generation is a key attribute of Phoenix’s business model. It underpins the Group’s stable and sustainable dividend while also providing us with the means to fund future growth.
PRIORITIES FOR 2021 • Deliver new 2021 cash generation target of £1.5 to £1.6 billion.
• Deliver strong incremental long-term cash generation from new business and continue to progress with our ambition to deliver Open new business growth that offsets Heritage run-off to prove ‘the wedge’.
• Deliver cost efficiencies through the migration of the SLAL customer and IT operating model to the BANCS single platform.
• Continue to assess value-accretive M&A opportunities in line with our clear capital allocation framework.
There are significant opportunities across our in-force business to increase and accelerate cash flows through the delivery of management actions spanning four key areas: operational management, risk management, restructuring and effective partnerships.
• New business written within the Open division delivered incremental long-term cash generation of £766 million in 2020, a record year.
• A key BPA transaction was the initial buy-in of the Phoenix Group’s own Pearl Scheme which unlocks >£100 million of future capital benefits through the release of a share charge that enables the Part VII of our UK life companies.
• The acquisition of ReAssure Group completed in July, significantly increased our scale and added £7 billion of future cash generation to the Group which supported a 3% increase in the final 2020 dividend.
Operating companies’ cash generation represents cash remitted by the Group’s operating companies to the holding companies. Maintaining strong cash flow delivery underpins debt servicing and repayment as well as financing shareholder dividends and future growth opportunities.
Incremental new business long-term cash generation represents the new business cash generated by the products sold to new customers in our Open business, including BPA transactions.
A reconciliation of operating profit of £1,199 million to the IFRS profit after tax of £834 million (2019: £116 million) is included in the Business Review section.
Cash remitted reflects the generation of Free Surplus within the life companies and the benefit of management actions implemented in the period. Cash generation in 2020 was £1,713 million and includes £790 million of contribution from ReAssure.
Incremental new business long-term cash generation of £766 million represents an increase of 59% on the prior year (£483 million) primarily due to a strong performance from our BPA business which contributed £522 million in 2020, up from £235 million in 2019.
“As 2020 has demonstrated, BPAs provide a dependable source of new business growth with £522m of long-term cash generation in the year. We are an established player in the BPA market and are building a best-in-class team to grow and expand our business while also reducing the capital strain.”
We are entrusted with the long-term savings, investment and protection of c.14 million customers and we are passionate about helping them secure a life of possibilities.
withdraw money from their pension flexibly and leave any money not taken invested for later.
• We implemented MyColleague functionality to enable straightthrough processing on journeys including retirements and bereavements.
• We completed a Group-wide research programme looking at vulnerability, to help colleagues understand the functional and emotional needs of customers, so we can support and guide them appropriately.
PRIORITIES FOR 2021 • We continue to focus on customer sustainability, and ensure it is at the core of our customer offerings.
• A range of innovative and digital initiatives will be trialled to support our customers to further engage them with their savings and investments across their life stages.
• We will use insight from our customers to continue to improve our guidance offer and support them in making better decisions.
• We are expanding the range of investments to provide even more retirement income fund solutions for our customers.
• In collaboration with TCS we are developing a salary-deductible ISA which we plan to launch in 2021.
Our customer mission is to deliver the best service and experience to our customers, fuelled by innovation, a ‘can-do’ culture and being customer obsessed in everything we do.
We strengthened our support to customers, to ensure no customer suffered poor outcomes or harm as a result. We used our Interactive Voice Response and website messaging to keep customers updated, increased our online capability so customers could do more digitally and created a Coronavirus Support Hub.
Despite the alterations to our way of working the pandemic has required we have continued to provide a highly rated telephony and digital service, and have tracked customer satisfaction scores at 90% or above throughout the year. We have seen a reduction in the number of complaints received in 2020 and we continued to perform well against peers in regards to closure of complaints within eight weeks.
• We continued to support savings through drawdown by offering the option to select from four investment solutions linked to the customer’s needs and plans for their retirement.
• Our mobile app for our Standard Life customers now has a 4.5 star app store rating, proving the benefits of this service to our customers.
• We launched a new passive ESG default fund in December 2020.
• We have reduced the ongoing charges for c.20,000 endowment customers, improving the value for money provided by their products.
This is a recognised industry measure for the speed of processing Pension Transfers, Open Market Options and Immediate Vesting Personal Pensions. It measures the end-to-end time from the date of receipt of a request to transfer to the date the monies arrive with the new pension provider. It allows us to benchmark performance and our overall servicing and claims proposition against our peers.
This measure highlights how satisfied customers are with Phoenix’s telephony servicing proposition.
The FOS overturn rate of 14% is significantly below the industry average of 34% and the ‘Decumulation, Life and Pensions’ category average of 27%.
To achieve a score of 94% reflects our commitment to ensuring customers are satisfied with the service they receive from Phoenix.
To achieve a score of 90% reflects our commitment to ensuring customers are satisfied with the service they receive from Standard Life.
To maintain a FOS overturn target of less than the industry average of 30%.
To maintain a customer satisfaction score which is 93% or above.
“For some of our customers, COVID-19 has heightened existing vulnerabilities or made them vulnerable for the first time. During the year, we adapted our ways of working and strengthened our customer support to ensure we continued to provide the best possible service to all of our customers. I am very proud of the continued service and support we have provided throughout 2020.”
Our purpose is helping people secure a life of possibilities. We will play an integral role in creating a more sustainable future for all and have therefore put sustainability at the heart of our business as a key strategic priority.
• Deepening our understanding of our customers’ sustainability needs through a series of customer research focus groups.
• Launch new ways of working that support our culture and colleague wellbeing and delivers flexibility for our colleagues.
Our sustainability strategy has a refreshed pillar design, focus and ambitions to ensure that it meets the changing needs of our many stakeholders.
Delivering for our customers We are committed to contributing to the closure of the growing pensions and savings gap by addressing the diverse needs of society and fostering better financial and social wellbeing.
Innovative digital solutions will offer greater transparency on our ESG offering and increase customer engagement, empowerment and confidence. We will continue to develop on customer vulnerability initiatives.
Fostering responsible investment We are committed to factoring ESG matters into our investment decisionmaking process. We will play a vital role in decarbonising the capital markets and financing the transition to a sustainable, low carbon economy.
Our net-zero commitment We are creating actions to respond to the need to reduce greenhouse gas emissions and accelerate the transition to a low-carbon future.
To support our activity on climate change, we are a signatory to Business Ambition for 1.5˚C and the recommendations of the Task Force for Climate-Related Financial Disclosures (‘TCFD’).
KEY INITIATIVES AND PROGRESS IN 2020 We delivered all commitments outlined in our 2019 Sustainability Report, including: • Expanding the range of Responsible
2021 target: 20% reduction in scope 1 and 2 emissions from occupied premises per full time employee intensity (from 2020 value of 1.2 tonnes per FTE)
As our customers consider where and how to save, they want their money put to good use and we have seen a growing awareness and demand from customers to understand how their investments take into account ESG factors. We will focus on product innovation which will enable greater customer choice, through a broad range of ESG funds and products to suit evolving customer preferences. We will complete a review of the responsible investment content of our promoted workplace default solutions, Active Plus and Passive Plus. Stakeholder engagement and implementation of the changes will then follow.
Scope 1 emissions are generated from within our operations and scope 2 are purchased energy emissions to power our operations. We will remove wasteful emissions and switch to renewables.
As Phoenix has grown organically and through acquisition, we have developed talent with the specialist skills that have enabled the business to succeed. We are now building the capabilities and culture which will deliver success in the future, focusing relentlessly on customer needs and outcomes. We will retain and attract top talent through creating a rich and diverse working environment and aim to be the employer of choice in our sector.
PRIORITIES FOR 2021 • Embed an employee culture that is forward-looking, customer-obsessed, accountable and empowered.
• Create a continuous listening environment to understand colleague engagement monthly and generate the agility to respond to the moments that matter.
• Create a rejuvenated employee value proposition that creates a highly engaged workforce, attracts and nurtures talent, supports colleagues and reflects our Diversity and Inclusion strategy.
COVID-19 The pandemic has brought about a seismic shift in the way that we operate. Central to this has been keeping colleagues safe, customers and shareholders supported and satisfied, and supporting the communities where we operate.
We responded swiftly to the pandemic, ensuring colleagues across the Group stayed safe and were successfully set up to work from home, supporting customers as normal. We then focused our attention on the wellbeing of colleagues and ensuring we continued to offer an inclusive, attractive and safe work environment. Our support included: • Working-from-home expense provision for colleagues.
• Snapshot surveys to gather real-time, actionable insights into what colleagues need and how they are feeling.
• We remained a signatory to the Women in Finance Charter. At year end, we had women in 21% of the top 100 roles, increasing to 24% in Q1 21 with known hires (target 30%), 36% of the Group’s green/amber successors are women (target 40%) and the Group-wide mean gender pay gap is 24.1% (target 22%).
• We implemented a new Talent and Capability Review process which has enabled us to strengthen senior teams and succession plans through targeted promotions, functional moves and external hires. As a result, our percentage of green/amber women successors will increase to 44% in 2021.
• Our new learning offering, Flourish at Phoenix, brings together all the resources colleagues need to grow their own future and move forward in their careers.
• We continued to address local societal issues through donations of 44 Phoenix Group Holdings plc Annual Report & Accounts 2020
Total workforce by gender 2021 target: Minimum of 30% of our top 100 roles (as defined by base salary) to be occupied by women 2021 target: Minimum of 40% of green/amber successors to be women 2021 target: Group-wide gender pay gap to be less than or to equal 22%
Based on contracted hires as at 31 December 2020, we will have 24% of our top 100 roles occupied by women and 44% green/amber successors identified as women.
Long-term cash generation is expected to increase by £766 million as a result of new business transacted in the year (2019: £483 million). This includes the impact of seven BPA transactions executed in the period, together with new business from our Open segment.
The Group now monitors an additional cash metric, Long-Term Free Cash (‘LTFC’). LTFC provides a measure of the Group’s long-term cash available for operating costs, interest, growth and shareholder returns. Group LTFC as at 31 December 2020 was £13.4 billion (2019: £14.1 billion) and is stated on pro forma basis to reflect the £0.2 billion reduction in future long-term cash generation arising as a result of the disposal of the Wrap Self-Invested Personal Pension (‘Wrap SIPP’), Onshore Bond and UK Trustee Investment Plan (‘TIP’) businesses and also £0.3 billion for the adverse impact of the expected increase in the rate of corporation tax from April 2023 to 25%, announced in the March 2021 budget. The Group’s ambition is to replenish the cash that it uses year-on-year through growth in long-term cash generation and the delivery of management actions.
2020 was a year of exceptionally strong performance for the Group. Despite significant market volatility experienced as a result of COVID-19 all of the Group’s financial targets were met or exceeded. This demonstrates the Group’s resilience and continued focus on growth through new business.
The Group’s strategic focus prioritises the generation of sustainable cash flows from its operating companies through the margins earned on different life and pension products and the release of capital requirements. Performance metrics are monitored where they support this strategic purpose, which includes ensuring that the capital strength of the Group is maintained.
Operating companies’ cash generation represents cash remitted by the Group’s operating companies to the holding companies.
Annual pension scheme contributions of £80 million (2019: £50 million) were made during the year and include total contributions of £70 million into the Pearl Group Scheme and £10 million into the Abbey Life Scheme, which includes £4 million paid into Charged Accounts and held in escrow. Following the signing of the new Commitment Agreement with the Scheme Trustees, the Pearl Group Scheme contributions included the balance of the remaining contributions under the 2012 Pensions Agreement (£37 million) in addition to the monthly instalments paid up to this date. No further contributions are expected to be paid to the Pearl Group Scheme.
Cash and cash equivalents at 1 January 275 346 Operating companies’ cash generation: Cash receipts from Life Companies 1,073 932 Cash receipts from Management Services companies – 25 Cash remittances to Standard Life International (50) (250) Total cash receipts1 1,023 707 Uses of cash: Operating expenses (42) (43) Pension scheme contributions (80) (50) Debt interest (184) (112) Non-operating cash outflows (66) (137) Uses of cash before debt repayments and shareholder dividend (372) (342) Shareholder dividend (403) (338) Total uses of cash (775) (680) Debt issuance (net of fees) 1,445 – Cost of acquisitions (1,265) – ReAssure Holding Company cash acquired 580 – Support of BPA activity (228) (98) Cash and cash equivalents at 31 December 1,055 275 1 Total cash receipts include £108 million received by the holding companies in respect of tax losses surrendered (2019: £112 million) and exclude £690 million of cash generation from the ReAssure Life Companies arising in the period prior to completion.
5 Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g from AAA to AA, AA to A etc). This sensitivity assumes no management actions are taken to rebalance the annuity portfolio back to the original average credit rating and makes no allowance for the spread widening which would be associated with a downgrade.
NON-OPERATING NET CASH OUTFLOWS Non-operating net cash outflows of £66 million (2019: £137 million) principally comprises £156 million of recharged staff costs and Group expenses associated with corporaterelated projects, including the transition programmes, partly offset by £115 million of cash realised or posted as collateral in respect of derivative instruments entered into by the holding companies to hedge the Group’s exposure to currency and equity risk. The remainder of the balance includes £22 million of expenses associated with the acquisition of the ReAssure businesses and £3 million of net other items.
SHAREHOLDER DIVIDEND The shareholder dividend of £403 million represents the payment of £169 million in May for the 2019 final dividend and the payment of the 2020 interim dividend of £234 million in September. The 2020 final dividend per share proposed is 24.1 pence.
TARGET CASH FLOWS The Group set a short-term cash generation target of £1,500 to £1,600 million for 2020 (including cash generation from the ReAssure Life companies in the period prior to completion) and with £1,713 million of cash generation achieved, the Group has exceeded the upper end of its target range.
The Group had a cash generation target of £3.8 billion for the five-year period 2019 to 2023. Following the acquisition of the ReAssure businesses, this was increased by £2.7 billion to £6.5 billion. £0.7 billion was achieved in 2019 with a further £1.7 billion delivered in 2020.
The target has been updated by £0.3 billion, reflecting £0.2 billion of new business written in 2019 and 2020, £0.3 billion to reflect over-delivery of management actions in 2020 offset by £(0.2) billion for the impact of net adverse economic and market movements, notably credit downgrades in the period.
GROUP LONG-TERM FREE CASH The Group now monitors an additional cash metric, Long-Term Free Cash (‘LTFC’). Group LTFC is comprised of long-term cash to emerge from in-force business, plus holding company cash less M&A and transition costs and shareholder debt outstanding. Group LTFC provides a measure of the Group’s total long term cash available for operating costs, interest, growth and shareholder returns.
Increases in Group LTFC will be driven by the sources of long-term cash i.e. new business and over-delivery of management actions.
Decreases in Group LTFC will reflect the uses of cash at holding company level, including expenses, interest, investment in BPA and dividends.
In addition, in 2020, £0.2 billion has been set aside for investment in our growth strategy. This reflects a c.£20 million of cost per annum, capitalised for 10 years to invest in enhancing capabilities in our Open businesses,
The impact of the sale of Wrap SIPP, Onshore Bond and ‘TIP’ to SLA is expected to result in a £0.2 billion reduction in Group LTFC. Further details are set out on page 289 in events after the reporting period.
Read more about our APM section page 309 for further details of this measure
UK HERITAGE NET FLOWS UK Heritage net outflows of £(7.3) billion (2019: £(6.2) billion1) reflect policyholder outflows on claims such as maturities, surrenders and annuities in payment, net of total premiums received in the period from in-force contracts. The acquisition of the ReAssure Heritage business increased net outflows relative to the prior year.
UK OPEN FLOWS The UK Open segment experienced gross inflows of £12.4 billion (2019: £11.7 billion1) during the year, of which £7.7 billion (2019: £8.2 billion) was received in respect of new contracts transacted in the period.
Gross inflows in the Workplace product of £4.7 billion (2019: £4.9 billion) were impacted by challenging market conditions relating to COVID-19, however inflows have trended back to pre-COVID-19 levels during the latter months of 2020.
EUROPE NET FLOWS The European business contributed a small net inflow of £0.2 billion (2019: small net outflow of £(0.1) billion) to the Group’s AUA.
Following the signing of the new Commitment Agreement with the Scheme Trustees the Group has also recognised £172 million of incremental long-term cash generation as a result of the buy-in transaction with the Pearl Group Scheme.
SunLife has seen an increase in incremental long-term cash generation due to an increase in sales volumes during the year.
New business contribution represents the increase in Solvency II shareholder Own Funds (net of tax) arising from new business written in the year, adjusted to exclude the associated risk margin and any restrictions recognised in respect of contract boundaries. It is stated net of ’Day 1’ acquisition costs and is calculated as the value of expected cash flows from new business sold, discounted at the risk-free rate.
INCREMENTAL LONG-TERM CASH GENERATION Our incremental long-term cash generation measure demonstrates 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. Incremental long-term cash generation increased to £766 million (2019: £483 million)2, which includes £522 million from our Retirement Solutions business unit.
The incremental long-term cash generation split by business unit is shown in the table at the bottom of the page.
Incremental long-term cash generation 766 483 1 2019 has been restated to reflect the revised definition of the UK Open segment which now includes the Group’s annuity and BPA business.
Internal Model’), which was in place prior to the acquisition of the Standard Life Assurance businesses. The one exception to this is SLIDAC, the Group’s Irish subsidiary, which remains on Standard Formula.
CHANGE IN GROUP SOLVENCY II SURPLUS (ESTIMATED) The Group Solvency II surplus has increased to £5.3 billion (2019 pro forma: £4.4 billion). In this section, we focus on an analysis of the movement in the Group’s Solvency II surplus on a pro forma basis as if the acquisition of the ReAssure businesses took place on 31 December 2019. Further details regarding the actual comparative position as at 31 December 2019 are set out in the additional capital disclosures on page 307.
2 The SCR reflects the risks and obligations to which Phoenix Group Holdings plc is exposed. 3 The surplus equates to a regulatory coverage ratio of 147% as at 31 December 2020 (2019 pro forma: 140%). 4 Stated pro forma as if the acquisition of the ReAssure businesses took place on 31 December 2019.
Financing costs, pension contributions, dividend payments (including accrual for the 2020 final dividend) and corporate expenses amount to £0.9 billion and reduced the surplus in the year.
GROUP SHAREHOLDER CAPITAL COVERAGE RATIO (ESTIMATED) The Solvency II surplus excludes the surpluses arising in the Group’s unsupported with-profit funds and unsupported Group pension schemes of £2.8 billion (2019 pro forma: £2.4 billion). Surpluses within the with-profit funds and the Group Pension Schemes, whilst not included in the Solvency II surplus, are available to absorb economic shocks. This means that the headline surplus is resilient to economic stresses.
In the calculation of the Solvency II surplus, the SCR of the unsupported with-profit funds and the unsupported Group Pension Schemes is included, but the related Own Funds are recognised only to a maximum of the SCR amount. This approach suppresses the regulatory capital coverage ratio calculated as eligible own funds as a percentage of SCR. As a result, the Group focuses on a shareholder view of the capital coverage ratio which it considers to give a more accurate reflection of the capital strength of the Group. The Shareholder Capital Coverage Ratio is calculated as the ratio of Eligible Own Funds to SCR adjusted to exclude Own Funds and the associated SCR relating to the unsupported with-profit funds and the unsupported Group Pension Schemes.
As the analysis is presented on a net of tax basis, cash remittances to the holding companies excludes £108 million of amounts received by the holding companies in respect of tax losses surrendered to the Life companies that is included in the Group’s Cash Generation metric.
Opening Free Surplus (pro forma)1 2.6 Surplus generation and run-off of capital requirements 0.8 Management actions 1.3 Economics, financing and other (0.2) Free Surplus before cash remittances 4.5 Cash remittances to holding companies (1.6) Closing Free Surplus 2.9 1 Pro forma as if the acquisition of the ReAssure businesses took place on 31 December 2019.
The Group generated an increased operating profit of £1,199 million (2019: £810 million), reflecting the contribution of the ReAssure businesses for a full five-month period post completion of the acquisition on 22 July, and increased Bulk Purchase Annuity (BPA) transaction activity in the period.
The aforementioned benefits were partially offset by adverse investment variances, recognition of additional amortisation charges on intangible assets for ReAssure, and financing costs on new debt issuances which supported the acquisition.
BASIS OF OPERATING PROFIT Operating profit generated by the UK Heritage, ReAssure, UK Open and Europe business segments is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities (being the release of prudential margins and the interest cost of unwinding the discount on the liabilities).
The principal assumptions underlying the calculation of the long-term investment return are set out in note B2 to the IFRS consolidated financial statements.
The 2019 figures for the operating profit segments have been restated to reflect strategic changes whereby the Group’s annuity and BPA business is now part of the UK Open segment, where previously it was included in UK Heritage.
The with-profit operating profit of £129 million (2019: £135 million) represents the shareholders’ one-ninth share of the policyholder bonuses.
Management Services companies 6 26 Group costs (45) (35) Operating profit 1,199 810 Investment return variances and economic assumption changes on long term business (47) (177) Variance on owners’ funds 148 13 Amortisation of acquired in-force business, customer relationships and other intangibles (482) (395) Other non-operating items 281 (169) Profit before finance costs and tax attributable to owners 1,099 82 Finance costs attributable to owners (191) (127) Profit/(loss) before the tax attributable to owners of the parent 908 (45) Profit before tax attributable to non-controlling interests 36 31 Profit/(loss) before tax attributable to owners 944 (14) Tax (charge)/credit attributable to owners (110) 130 Profit after tax attributable to owners 834 116 £1,199m Operating profit APM
UK OPEN OPERATING PROFIT The Group’s UK Open business segment delivered an operating profit of £472 million (2019: £417 million1). This includes operating profits generated across the Retirement Solutions (including BPA), Workplace and CS&I business units, including new business distributed through the Strategic Partnership with Standard Life Aberdeen plc and under the Group’s SunLife brand. The increase in operating profit compared to the prior year reflects the positive impact from updating longevity assumptions, increased new business profits on Bulk Purchase Annuity (BPA) transactions written in the year together with strong performance in the SunLife business.
GROUP COSTS Group costs in the period were £45 million (2019: £35 million). They mainly comprise project recharges from the service companies and the returns on the scheme surpluses/deficits of the Group staff pension schemes. The increase in costs compared to the prior period principally reflects the inclusion of corporate costs associated with the acquired ReAssure businesses.
INVESTMENT RETURN VARIANCES AND ECONOMIC ASSUMPTION CHANGES ON LONG-TERM BUSINESS The net adverse investment return variances and economic assumption changes on long-term business of £47 million (2019: £177 million adverse) primarily arise as a result of movements in credit spreads, the impact of credit downgrades in the Group’s investment portfolio and a net adverse impact from equity movements. Equity movements arising from future profits in relation to with-profit bonuses and unit-linked charges are hedged to benefit the regulatory capital position. The impact of equity market movements on the value of the hedging instruments is reflected in the IFRS results, but the corresponding change in the value of future profits is not. Losses have been experienced on hedging positions held by the Life companies in respect of rises in certain overseas equity markets in 2020, and on positions held by the ReAssure businesses as a result of improving UK equity markets in the post-acquisition period. These losses have been partly offset by gains on UK equity market hedges that the Group has had in place since 1 January 2020.
Falling yields and strategic asset allocation activities undertaken by the Group, including investment in higher yielding illiquid assets, also gave rise to positive investment return variances in the period.
VARIANCE ON OWNERS’ FUNDS The positive variance on owners’ funds of £148 million (2019: £13 million positive) is principally driven by gains on the close out of foreign currency swaps held by the holding companies to hedge exposure of future life company profits and non-sterling denominated shareholder borrowings to foreign currency movements. It also includes gains on hedges in place to protect against equity risk in the ReAssure businesses in the precompletion period. The prior year
AMORTISATION OF ACQUIRED IN-FORCE BUSINESS AND OTHER INTANGIBLES The acquired in-force business is being amortised in line with the expected run-off profile of the profits to which it relates. Amortisation of acquired in-force business during the year totalled £464 million (2019: £375 million) with the increase from the prior year driven by additional amortisation charges on intangible assets recognised on acquisition of ReAssure. Amortisation of other intangible assets totalled £18 million in the year (2019: £20 million).
This benefit was more than offset by staff and external costs incurred or provided for in the period with regard to transition activity and the transformation of the Group’s operating model and extended relationship with Tata Consultancy Services, totalling £190 million, of which £175 million related to external costs. Also included in the net other non-operating items were £5 million of costs associated with preparations to ready the business for Brexit, costs associated with other corporate related projects of £41 million, including the Group’s Internal Model harmonisation project and the acquisition of the ReAssure businesses and net other items which totalled an expense of £13 million.
FINANCE COSTS Finance costs of £191 million (2019: £127 million) have increased by £64 million, reflecting the interest charges on the new debt issuances in the year including the three debt agreements which were substituted to the Group as part of the acquisition of the ReAssure businesses.
TAX CREDIT 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’s tax affairs and tax controls are managed by an in-house tax team who report on them to the Board and the Audit Committee on a regular basis throughout the year. The Board believes that its Tax Strategy accords with the Group’s approach to its wider Corporate Social Responsibility. The Tax Strategy was refreshed in 2020 and published in accordance with the relevant statutory requirements.
FINANCIAL LEVERAGE The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage ratio. This is to ensure the Group maintains its investment grade credit rating as issued by Fitch Ratings and optimises its funding costs and financial flexibility for future acquisitions. The financial leverage ratio as at 31 December 2020 (as calculated by the Group in accordance with Fitch Ratings’ stated methodology) is 28% (2019: 22%). This is within the target range management considers to be associated with maintaining an investment grade rating of 25% to 30%.
SUPPLIERS The Group has c.1,000 suppliers of which c.36 are considered strategic or critical to the business.
COLLEAGUES We have 7,653 colleagues based across UK, Ireland and Germany. Our operational sites include Edinburgh, Telford, Hitchin, Wythall, Norwich, Bristol, Dublin, Frankfurt, and London.
We are embedding our Phoenix Story through real-life examples and application. Our colleagues are enabled to speak up through a continuous listening culture, including engagement surveys. We also engage through our colleague advisory forum, colleague representation groups, networks and Phoenix Together events.
• Harmonised Procure to Pay practice, including centralised invoicing to improve managing and tracking invoices to make it more efficient for our colleagues and suppliers.
• Investment into our UK cities and infrastructure to promote sustainable communities – £549 million invested in social housing, £127 million in renewable energy and £212 million in other sustainability assets.
• Raised importance of customers’ ability to see all pension pots in one place online.
We have a responsibility to address the needs of a broad group of stakeholders. Positive engagement and meaningful outcomes are key to ensuring a strong and sustainable business.
GOVERNMENT, TRADE BODIES AND REGULATORS The Group has various political stakeholders at Westminster and Holyrood, along with key trade bodies representing the industry, and several regulators including the Prudential Regulation Authority (‘PRA’) and Financial Conduct Authority (‘FCA’).
• Having a sense of belonging and connection to Phoenix and its purpose, and being empowered to make a difference.
• Receiving regular updates on the Group’s strategy, operations and performance.
Through a variety of channels that best suits our customers’ needs including, phone, email, website and apps, seminars and events, as well as written communications. We conduct direct customer research, participate in research projects and hold direct interaction. We regularly collate feedback on how we can improve performance.
We have a comprehensive programme of proactive engagement across all regulators. We hold regular meetings with political stakeholders and key trade bodies. Andy Curran, CEO Savings and Retirement UK & Europe, is chair of the Association of British Insurers’ (‘ABI’) Long-Term Savings Committee.
• Renewed customer loyalty and reputational strength – Customer satisfaction score above 90%1.
• Introduced Sustainable Supply Chain standards and further due diligence monitoring on our suppliers’ sustainability performance.
• The directors recommend the payment of a total dividend per share of 47.5 pence for 2020. Phoenix also paid its 2019 final dividend in May 2020 against a turbulent financial markets backdrop.
SECTION 172 STATEMENT During the year, the Directors have applied section 172 of the Companies Act 2006 in a manner consistent with the Group’s purpose, values and strategic priorities.
When considering issues of strategic importance, and making key decisions about the Company, 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.
• expansion of our Open business and Bulk Purchase Annuities activity.
For each of these decisions, the Board paid due regard to the factors set out in section 172(1)(a) to (f) where relevant, namely: • the likely consequences of decisions in the long term; • the interests of our employees; • the need to foster business relationships with suppliers, customers and others; • the impact of our operations on the community and the environment; • the desirability of maintaining our reputation for high standards of business conduct; and
• the need to act fairly between members of the Company.
Read more on how the Board considered each of these matters in accordance with section 172 in the Corporate Governance report, on pages 108 to 111.
DATA PRIVACY AND CYBER SECURITY Our Data Protection Officer monitors compliance with the GDPR and DPA 2018, providing advice on the Group’s data privacy obligations and acting as the point of contact for data subjects and regulatory authorities. The Data Protection Officer owns the Group Privacy policy and Data Protection Risk policy and maintains oversight of ongoing privacy compliance. Phoenix maintains security and controls over customer data.
Security controls to protect the Group from cyber-related incidents have also been deployed and a dedicated security operations team responds to emerging cyber threats. The Group has had no significant cyber-related incidents over the year.
IMPROVED COMMUNICATIONS AND CONNECTIONS The Group’s Customer Treatment Risk policy covers risks arising from the design or management of products, or from the failure to meet or exceed reasonable customer expectations, taking account of regulatory requirements. Customer treatment risks are aligned to the areas of focus in Phoenix Group’s Customer strategy.
The framework provides support throughout the sourcing lifecycle, including supplier evaluation, risk-based due diligence and contract management. Phoenix has a professional relationship manager assigned to strategic or critical providers. Their role is to govern the relationship, measure and monitor performance and continually improve outcomes.
HUMAN RIGHTS AND MODERN SLAVERY Phoenix Group takes active steps to ensure its suppliers are not engaging in any form of modern slavery or human trafficking. A statement is published on the Group website pursuant to Section 54, Part 6 of the Modern Slavery and Human Trafficking Act 2015.
We expect our key suppliers to support freedom of association and the effective recognition of the right to collective bargaining and publish their performance externally.
To date there have been no issues raised with reviews conducted. The Group’s Modern Slavery and Human Trafficking Statement is available at www.thephoenixgroup.com/ modernslavery
HEALTH AND SAFETY We expect robust health and safety conditions for all workers in the supply chain, and to comply with the Health and Safety at Work Act UK or local equivalent. Suppliers are expected to have health and safety staff training and management system in place and to publish their health and safety performance externally.
FINANCIAL CRIME AND PREVENTION The Group’s Financial Crime Prevention and Anti-Bribery policy addresses risks such as money laundering, terrorist financing, fraud, bribery and corruption risks and the facilitation of tax evasion.
All colleagues are required to complete annual computer-based health and safety training. Arrangements are in place to manage onsite facilities across all sites, ensuring the working environment is compliant and fit for purpose.
WHISTLEBLOWING The Group operates a Whistleblowing policy, prompting colleagues to disclose information where they believe wrongdoing, malpractice or risk exists across any of Phoenix’s operations. Colleagues are encouraged to speak up about matters that concern
During the year the Group effectively resolved all colleague disputes and as a result has not been subject to any adverse Employment Tribunals judgements or awards.
Stakeholder engagement continued 62 Phoenix Group Holdings plc Annual Report & Accounts 2020 www.thephoenixgroup.com/sustainability/reports www.thephoenixgroup.com/diversity
£500,000 of this was donated to Age UK’s Emergency Coronavirus Appeal. Other charities that benefited included our corporate charity partners, local food banks, those supporting the homeless and hospital charities.
The Group supported seven formal corporate charity partners during the year; Midlands Air Ambulance Charity, London’s Air Ambulance Charity, Hampshire and Isle of Wight Air Ambulance, Scotland’s Charity Air Ambulance, ALONE, Hilfe für krebskranke Kinder Frankfurt e.V, and Österreichische Krebshilfe Wien.
We are committed to using Phoenix Group’s collective expertise to address pressing societal issues. Going forward, we will be aligning our community investment programmes with our purpose of helping people secure a life of possibilities, and increasing the focus on issues such as financial inclusion and mental health. Through this, we will make a tangible impact in the wider societies in which we operate.
As a significant long-term asset owner, we play a vital role in directing investments towards activities that are aligned to the Paris Agreement and away from those that are not. In addition, we have the ability to work with suppliers that will support the acceleration of decarbonisation.
Read more about our climate-related reporting on pages 67 to 77, and our sustainability actions in the 2020 Sustainability Report. Our greenhouse gas emissions and energy consumption disclosure can be found in our 2020 ESG Report.
In order to prepare the issuance of two bonds, senior management conducted two deal-specific virtual debt investor roadshows with investors based in the UK, Continental Europe, the Americas and Asia and participated in 173 debt investor meetings overall in 2020.
CONFERENCES Conferences enable the Group to meet with a significant number of investors and are important platforms for presenting Phoenix’s investment proposition. As with investor meetings, conferences from March onward were held in virtual format this year. Phoenix participated in ten conferences organised by a number of investment banks and equity research firms.
CREDIT RATINGS AGENCIES AND BANKS Phoenix’s life companies and bonds in issue have credit ratings by Fitch Ratings. The Group meets with the rating agency at least once per year for the annual ratings review. The Group Treasury Team and management last provided Fitch with a comprehensive presentation in June as part of the annual review process. Prior to that, Phoenix senior management presented to Fitch in April on the Impact of COVID-19 on the company and the measures that have been put in place to manage and mitigate the risks. The Group Treasury department and senior management also keep a constant dialogue with the Group’s relationship banks.
PRIVATE SHAREHOLDERS Private shareholders are encouraged to engage with the Group through the Investor Relations team and Company Secretariat.
Due to COVID-19 restrictions the 2020 AGM was held via a webcast where shareholders could view and hear the meeting and could also raise questions prior to the meeting. For the 2021 AGM, we will be seeking to increase shareholder interaction although mindful of the impact of COVID-19 and the restrictions that are in place.
Stakeholder engagement continued 64 Phoenix Group Holdings plc Annual Report & Accounts 2020
REGULATORY RELATIONSHIPS The Group maintains a strong and open relationship with the Prudential Regulation Authority (‘PRA’), Financial Conduct Authority (‘FCA’) and other regulators. The Regulatory Relationship team, which reports to the Group Chief Risk Officer, manages interactions with the PRA, FCA and other primary regulators and liaises with them regularly.
The Board Risk Committee also receives monthly updates on the Group’s regulatory interaction.
COLLABORATIONS Andy Briggs, Group CEO, is the UK’s Business Champion for Older Workers and for the Ageing Society, working across different government departments to improve the lives of our ageing population.
Andy Briggs has also been invited to chair the ABI Climate Change Board, which will inform on how the sector should adapt to the impacts of climate change and migrate to a decarbonised economy.
NON-FINANCIAL INFORMATION STATEMENT Phoenix welcomes the increased focus from all stakeholders on its non-financial performance. As required by the Companies Act 2016 sections 414CA and 414CB, the table below outlines where key content requirements of the nonfinancial statement can be found within this Report.
Group policy • Modern Slavery statement • Health and Safety Group policy
Anti-Bribery Group policy • Whistleblowing Group policy • Financial Control and
Business model • Our business model • Cash generation process • Our strategy and KPIs
The Group publicly committed to implementing the recommendations of the Task Force on Climate-related Financial Disclosures (‘TCFD’) in March 2020 and since then, we have made progress to develop our disclosures in line with the TCFD’s four pillar framework.
Over 2021, we will continue to integrate the assessment of climaterelated risks and opportunities into our governance, strategy, risk management and reporting frameworks and to enhance our future disclosures in line with revised guidance from the TCFD, emerging best practice and feedback from key stakeholders.
We are committed to full disclosure in line with the TCFD recommendations by March 2022, given the expectations of the UK Government’s Green Finance Strategy.
In November 2020, we joined the Science Based Targets Initiative (‘SBTi’) to help us develop a clearly-defined pathway to reduce greenhouse gas emissions, help prevent the worst impacts of climate change and future-proof business growth.
• Further enhance the governance framework and Board and Executive level knowledge and skills.
• Progress quantitative scenario and stress testing analysis and participate in the 2021 Climate Risk Biennial Exploratory Scenario (‘CBES’) exercise.
December Net-zero carbon commitment made 2021 Deliver key areas of focus
March 2020 March 2021 67Phoenix Group Holdings plc Annual Report & Accounts 2020
The impact of climate change and wider Environmental, Social and Governance (‘ESG’) risks is explicitly identified as a Group principal risk. Under delegation from the Board, the Board Risk Committee considers climate change risk as part of the bi-annual review of principal and emerging risks.
The Board has an established committee structure to assist it in the discharge of its responsibilities which are managed via delegations within approved terms of reference.
The following Committees of the Board have specific oversight of climate-related risks, opportunities and disclosures: The Board Sustainability Committee was established in December 2020 and is responsible for reviewing, challenging and overseeing the Group’s sustainability strategy, including the setting of sustainability key performance indicators. It comprises five members of the Board (including a non-executive Director as Chair). The Group CEO, Group HR Director and Director of Corporate Affairs and Investor Relations are standing attendees and further participants are invited as required. Please refer to page 103 of this Report for further details of this Committee. The establishment of this new Board Committee reflects the importance of sustainability in the Group’s strategic agenda.
The Board Remuneration Committee oversees the Group’s remuneration and compensation plans and policies to ensure they are aligned with our strategy and social purpose, including from 2021, the inclusion of climate-related targets within the strategic scorecard for the Executive Directors.
MANAGEMENT OVERSIGHT Individual responsibility for ensuring the appropriate identification, assessment, management and reporting of climaterelated financial risks and opportunities that could impact the Group sits with the Group’s Chief Financial Officer (‘CFO’), Rakesh Thakrar and the Group’s Chief Risk Officer (‘CRO’), Jonathan Pears.
As part of wider financial reporting responsibilities, the Group CFO is responsible for reporting metrics and targets and external disclosures; and as part of wider risk responsibilities, the Group CRO is responsible for ensuring that climate-related risks are incorporated into the existing risk management framework.
An Executive Sustainability Committee (established in 2020) is responsible for oversight, management, delivery and reporting of the overall sustainability strategy and programme and its underlying climaterelated initiatives. Its membership comprises key executive members. Chaired by the Director of Corporate Affairs and Investor Relations, the Committee meets at least monthly and reports formally to the Board Sustainability Committee. It works closely with the Board Sustainability Committee and other Committees as required.
Management is supported by a TCFD Steering Group which was also established in 2020 and oversees the TCFD implementation programme, including progress against the recommendations and the publication of the annual disclosure. Its broader aim is to ensure Phoenix has an integrated approach to managing climate-related risk and opportunities and a strategic approach to managing climate change. It comprises key executive representatives from across the business including the CFO and CRO, the Chief Investment Officer, Chief Operating Officer, Director of Corporate Affairs and Investor Relations and Group Company Secretary. Chaired by the Head of TCFD Implementation, the Group meets monthly and reports to the Executive Sustainability Committee.
In addition, a TCFD Working Forum was also established in 2020 which comprises key functional representatives from across the business including Risk, Strategy, Investment and Governance. This forum meets weekly to ensure the day -to-day implementation and embedding of the recommendations of the TCFD.
• Continue to develop the skills and expertise of the Board, Executives and the wider Group.
The heatmap is an initial qualitative view of risks which has been used to engage with internal and external stakeholders and allows the Group to focus on its most material risks and opportunities. It does not attempt to quantify the financial impact of any risks and opportunities to the business.
• Disruptions to business operations due to short-lived extreme weather impacts
• Reputational or brand value damage resulting in lost income and additional expenditures, for example through future litigation and capital charges
PHOENIX EXPOSURES As illustrated above, the relative materiality of climate-related risks and opportunities varies across Phoenix’s business areas, with investments considered to be the most material risk area. Further analysis of the investments area is summarised overleaf.
Acute physical risk, in particular damage to operating assets and processes is material. Climate considerations are being factored into business continuity processes but future projection data is needed to properly understand and mitigate these risks.
Chronic physical risks, such as increasing average temperatures, may increase life expectancy in the UK; however, increasing frequency and severity of acute climate events, may increase fatalities by a greater factor. These will impact the liabilities of both the Heritage and Open businesses.
Customers may be exposed to transition risks depending on the nature of the assets backing their policies. Transition risks arising from regulation and market shifts will impact the value of securities in sectors exposed to transition, and hence the value of customer investments.
These risks are more likely to impact the Group over the short to medium term.
Further work will be conducted to embed the heatmap output within the Group’s Risk Management Framework (‘RMF’) and risks arising from climate change will be reviewed in line with regular risk management processes.
Real estate is the highest physical risk sector but this is diluted in the overall score due to these investments making up a small proportion of the portfolio. Exposure arises to policyholders through investment in property funds and to shareholders from equity release mortgages.
In 2019, the Group (and ReAssure Group plc that it has since acquired) participated in the Prudential Regulation Authority’s (‘PRA’) Insurance Stress Test (‘IST’) which required quantitative analysis against three prescribed climate change scenarios for the transition towards a low carbon economy: a long-term orderly transition; a sudden disorderly medium term transition; and a ‘hot house world’ or failed/no transition.
Indicative materiality of potential exposures to physical and transition risk by investment asset category
During 2020, the Group further developed its internal climate scenario analysis and stress testing capabilities and methodologies, with support from third-party consultants to supplement our in-house resource.
The key areas of focus included: Scenarios selection: We have chosen a range of scenarios that align to our strategy and risk profile. These include coverage of physical and transition risks as well as mapping to externally recognised scenarios. We also conducted an exercise to map these scenario narratives to recognised and
We aim to ensure that the Group’s investment strategy and processes remain consistent with the latest best practice and scientific research. Our strategy for decarbonisation of the investment portfolios focuses on: • reducing the Greenhouse Gas intensity of our investment portfolios; • increasing investment in ‘climate solutions’, such as renewable energy, low carbon buildings, and energy efficient technologies; and • Paris-Aligned Stewardship where we influence the investee companies to transition to a low carbon economy.
The Group is engaging with its Asset Management Partners to identify appropriate inclusion of climate change considerations within both the investment strategy and risk management processes. This activity will be progressed on a phased basis, identifying pilot portfolios for early adoption and to initially focus on equities and fixed income asset classes.
In December 2020, Phoenix became a signatory to the Principles for Responsible Investment (‘PRI’), an international association of asset owners, investment managers and service providers working towards a more sustainable global financial
Disorderly – 2˚C with limited Carbon Dioxide Removal 4oC RCP8.5 (Assumes emissions continue to rise – worse case scenario)
Phoenix’s climate scenario analysis framework appropriate external scenarios aligned with recommended frameworks. This is summarised below.
Modelling: We are developing methodologies for modelling different exposures then building the required models to assess the impacts under the different scenarios.
From a ‘top-down’ perspective, the Group first reported climate risk as an emerging risk in 2018. As our understanding of the impact of climate- related risks on the Group and our customers has evolved, we have increased the focus on climate risk in the Group’s Risk Management Framework (‘RMF’). We have classified climate risk as a principal risk to the Group since 2019 reflecting the potentially material impact of climate risks on our strategy, operations and customers.
Risk reporting: As a principal risk, climate risk is monitored and reported internally and externally. As our metrics and targets framework develops over 2021 and climate-related risks are fully reflected in Group Risk Policies, our risk reporting will be developed further to reflect these enhancements.
Risk appetite: The Sustainability Risk Appetite Statement is one of the Group’s six high-level appetite statements: “The Group will deliver on its sustainability commitments to foster responsible investment, reduce our environmental impact, follow our corporate purpose and be a good corporate citizen.”
Scenario analysis: The scenario section above describes the work that has been done to quantify potential climate exposures and how we are developing our own internal quantification of the impacts of potential climate change scenarios.
• Together with our suppliers, work to develop a leading sustainable supply chain programme, aligning with those organisations that share our sustainability aspirations and commitment
• Consider whether to undertake more frequent valuations of higher risk property assets • Undertake a review of key underwriting terms of property based products such as Equity Release Mortgages
• Complete embedding consideration of climate risks into the Group’s Risk Management Framework
• Continue to develop climate disclosures to ensure good quality reporting compared to peers and best practice
• Appropriate consideration of climate-related expectations of a broad range of stakeholders
• Enhance climate analysis of material investment counterparties • Continue to increase engagement and stewardship with counterparties through asset managers • Develop exclusion policy and use divestment when engagement fails to yield required results • Develop interim targets and implement required actions to meet net-zero carbon commitment by 2050
METRICS AND TARGETS Phoenix is committed to developing a robust metrics framework to help us measure and manage the impact of climate-related risks and opportunities. In 2021, we will be focusing our efforts on developing these metrics and targets using TCFD guidance, emerging best practice and ongoing engagement with our key stakeholders.
The Group has continued to focus on the key areas of Greenhouse Gas (‘GHG’) reduction, carbon management and staff engagement. Key achievements during the year have included: • the development of an operational
GHG reduction action plan; • the creation of a Group-wide environmental policy to bring together cohesive action across all Group sites; • procurement of 100% renewable energy sources across all UK sites; • the development of a responsible consumables action plan, which will remove single-use plastics from our vending points by the end of 2021 and ensure the effective disposal of our waste; and
• the implementation of colleague environmental scorecards to provide statistics to encourage responsible behaviour related to energy, print, travel and consumables.
Phoenix’s Operations Intensity Metrics are included within Table 2 and we have also provided an update on the energy efficiency actions we have taken in 2020.
The 2020 carbon intensity for our operations is 1.2 tonnes CO2e/FTE and we have set a target to reduce this by 20% during 2021. We have reduced 0.5 tonnes CO2e/FTE in 2020 from our 2019 baseline of 1.7 CO2e/FTE.
In 2021, we will baseline the Scope 3 carbon emissions of the investment portfolio. We will then identify appropriate interim decarbonisation
GHG emissions Reduce Scope 1 and 2 emissions from occupied premises per full time employee intensity by 20% on 2020 value
Net-zero carbon emissions from operations (Scope 1, 2 and selected scope 3)
• Develop our metrics and targets framework to include specific investment metrics including,for example, Weighted Average Carbon Intensity.
• Develop, validate and set our SBTi net-zero targets for all scopes and align future reporting metrics.
Following the purchase of ReAssure Group plc in 2020, included here are the property investment portfolios as well as the occupied premises in the UK, Ireland, Germany and Austria. Furthermore, in the property investment portfolios, where energy
GREENHOUSE GAS EMISSIONS1 Table 1: Absolute energy and GHG emissions in tonnes of CO2e
Scope 1 – Combustion of fuels, business travel in company cars, and fugitive emissions of refrigerant gases 4,913 4,913 4,203 4,203
Scope 2 – Electricity purchased for landlord shared services and own use (purchase of heat, steam and cooling not applicable) 3,266 10,065 3,702 13,052
Scope 3 – Energy sub-metered to tenants, business travel in employees’ cars, transmissions and distribution losses from electricity 1,040 3,129 760 4,267
Scopes 1, 2 and 3 – Voluntary three scopes carbon footprint 13,490 22,236 8,665 21,523 1 Emissions factors – IEA (for location-based Scope 2 and Scope 3 T&D losses), AIB (for market-based residual mix factors for non-renewable electricity), and DEFRA (fuels, refrigerants and car travel). There is a significant time-lag in the availability of IEA factors – the 2020 factors will not be published until late 2022. Therefore all 2020 consumption data are converted using the factors actually arising in 2016 (except car travel which uses DEFRA factors as published in 2020). Whilst imperfect, we can consistently and readily report emissions internally from the first day of a year (for monthly/quarterly reporting). Emissions are thus somewhat overstated rather than understated – though this encourages energy reduction and sourcing of renewable energy.
This is Phoenix Group’s first SECR statement on the Group’s UK and global energy consumption and GHG emissions for the financial year 1 January 2020 to 31 December 2020, and including the 2019 comparative year. Emissions disclosed here relate to activities, facilities and property investment portfolios where Phoenix Group has operational control.
consumption is sub-metered to tenants, this falls into the Scope 3 reporting, whereas all other landlordobtained consumption remains as Scope 1 or 2 emissions. The 2019 comparative figures do not include ReAssure Group plc emissions.
Phoenix Group reports Scope 2 emissions using the GHG Protocol dual-reporting methodology, stating two figures, location and market-based, to reflect the GHG emissions from purchased electricity: • a location-based method that reflects the average emissions intensity of the national electricity grids from which consumption is drawn; and
CHANGES TO PHOENIX GROUP’S OPERATIONS In 2020 there was 66.4 GWh of Phoenix Group global energy consumption (building energy and business travel in either employees’ cars or company cars) as shown in Table 1, 93% of which was from UK operations. This is a decrease on the 66.6 GWh of global energy use reported in 2019, despite the addition of ReAssure Group plc.
ENERGY EFFICIENCY ACTIONS In 2020 Phoenix carried out a number of energy efficiency actions on its premises. To applicable and appropriate properties the following have been carried out: • LED lighting roll out (68% lighting energy reduction at Standard Life House obtained); • building control systems have been upgraded to allow for greater flexibility and operational efficiency; • electrical vehicle charging points have been installed; • within ventilation systems, fans have been upgraded and inverter controls have been retrofitted (15% overall improvement expectation); • roof insulation materials have been upgraded; • electric ‘point of use’ water heaters have replaced gas storage systems; • half-hourly data gas meters have been installed; • sub-metering installation has been carried out to allow for greater data granularity and management; • boilers have been upgraded or replaced as necessary (20% overall improvement expectation); and
2 The 2019 and 2020 CO2e/m2 intensity metric calculations include Phoenix Group’s Wythall Estate, Standard Life House, St Stephen Green, SL Data Centre, Glenogle Road and leased floor area of Juxon House, accounting for 67% of Phoenix Group’s total occupied floor area. The 2019 intensity metric has been restated here based on increased data coverage in 2020 which provides a more accurate representation and allows for better overall comparison across 2019–2020.
3 The CO2e/FTE intensity metric calculation for 2019 and 2020 exclude the FTE and Scope 1 and 2 emissions for the ReAssure Group plc portfolio as this was not acquired until mid 2020, and is therefore not comparable.
SECR Statement: Greenhouse Gas (‘GHG’) emissions and Energy Consumption Disclosure continued
The rollout of COVID-19 vaccines is positive; however, there is significant uncertainty over the timing of any economic recovery and the consequences of the pandemic remain unclear, both from a financial and societal perspective. Due to the heightened risk environment there is a continued need to consider a wide range of adverse scenarios to inform key business decisions; this is facilitated through our established Stress and Scenario Testing Programme, a key component of our RMF and Own Risk and Solvency Assessment (‘ORSA’).
Risk Management Framework 2020, to provide ongoing support to customers, protect customer outcomes and ensure the Group remains financially resilient.
In addition, to ensure no material impact on our priorities, operational capacity across the Group and within our outsourcing partners continues to be actively monitored by management and Boards. This ensures the Group is effectively prioritising activity so it can continue to meet business demands and prevent any adverse impact to customer outcomes and business performance.
Following the addition of a principal risk on climate change and wider ESG risk in 2019 we have continued to embed
climate-related risks and opportunities into our RMF. Further details on future priorities across each of the TCFD focus areas are outlined on page 67.
OWN RISK AND SOLVENCY ASSESSMENT (‘ORSA’) The Group’s ORSA cycle brings together inter-linked risk management, capital and strategic processes. The ORSA provides: • processes to identify, assess, control and monitor risks the Group faces; • an understanding of current and potential risks to the business; including financial and non-financial risks under base and stressed scenarios; • our appetite to accept these risks and how the Group manages them; and
• a forward-looking internal assessment of the Group’s solvency position in respect of its risk profile and how it is likely to change given business plans and strategy.
The ORSA plays an important role in supporting strategic decision-making and strategy development at our Boards and risk committees.
We achieve our social purpose and enterprise strategy not by avoiding risks, but through the identification and management of an acceptable level of risk (our ‘risk appetite’) which ensures the Group is appropriately rewarded for the risks that are taken.
Risk culture Risk culture is the sum of our shared values, behaviours and attitudes towards risks faced by our customers, shareholders, colleagues and society. Our risk culture reflects the way we think and act, both individually and collectively. Our risk culture vision is to promote: “An environment that supports informed decision-making and controlled risk-taking”.
The creation of this environment is enabled through the Group’s values of passion, responsibility, growth, courage and difference. Underpinning each of these are the individual and collective attitudes and behaviours that support the realisation of this environment.
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 our strategic objectives. The Group’s risk appetite statements establish the risk boundaries within which we are prepared to operate, set the tolerance for delivery against our objectives, and are a key tool in balancing the interests of different stakeholders.
ORSA process cycle 80 Phoenix Group Holdings plc Annual Report & Accounts 2020
Shareholder value – The Group only has appetite for risks that are rewarded, adequately understood and controlled and consistent with the Group’s strategy. The Group will take action to grow and protect shareholder value.
Conduct – The Group maintains the highest conduct standards in line with regulatory, customer and market expectations. Any deliberate or negligent actions leading to unfair customer outcomes, poor market conduct, reputational damage or regulatory censures are not acceptable. If an unfair outcome should arise, the Group will put it right in a fair and prompt manner.
RISK UNIVERSE A key element of effective risk management is ensuring the business understands the risks it faces. These risks are defined in the Risk Universe. The Risk Universe allows the Group to deploy a common language, allowing for meaningful comparison to be made across the business. There are three levels of Risk Universe categories. The highest Risk Universe category is Level 1 and includes: • Strategic risk • Customer risk • Financial Soundness risk • Market risk • Credit risk • Insurance risk • Operational risk
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 adverse scenarios agreed with the Board. Quantitative and qualitative appetite limits are chosen which specify the acceptable likelihood for breaching the agreed appetite statements (e.g. less than x% chance of a breach in regulatory capital) and assessment against the appetite targets is undertaken through scenario testing. Breaches of appetite are corrected through management actions where appropriate. The effective use of risk mitigation techniques such as reinsurance, hedging and outsourcing are key to ensuring the Group remains within risk appetite and are described in the relevant Group Risk Policies.
Key performance indicators for risk categories are considered in each corresponding Group Risk Policy.
A Group Conduct Risk Framework overarches all risk policies to provide a holistic view of conduct risk. This provides a consistent and comprehensive approach to the management of conduct risks and achievement of customer outcomes across the Group.
GOVERNANCE AND ORGANISATION Governance The RMF sets out a consistent three lines of defence model with clearly defined roles and responsibilities for all components. Risk accountability and ownership are embedded in the first line, with first line assurance teams established to support the business by providing substantiated evidence that controls are fit for purpose.
Overall responsibility for approving the RMF rests with the Board, with maintenance and review of the effective operation of the RMF delegated to the Group Board Risk Committee. This delegation also includes approval of the overall risk management strategy and the review and recommendation to the Board of the relevant risk policies, risk appetite statements, risk profile and any relevant emerging risks.
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 the likelihood and severity impacts must be estimated. Emerging risks or opportunities can typically take longer to crystallise, but in many cases immediate action is needed so risks can be pre-emptively mitigated or opportunities fully maximised.
Whilst any estimates have an element of subjectivity, they are validated during Management Board and Board Risk Committee discussions. These conversations help drive out potential new risks and opportunities, drawing on the collective expertise and experiences of senior individuals. The Group captures emerging risks and opportunities in a detailed log and examples of these are outlined in the table on page 89.
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 Life Companies’ and Group’s strategic ambitions.
RISK CONTROL PROCESSES AND REPORTING Identification, assessment, management and reporting of risks, including learning lessons from incidents, is undertaken across the three lines of defence, and reported through business and management governance to the relevant Boards and Committees.
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 2019 Annual Report and Accounts, published in March 2020. These risks reflect the impact of the ReAssure Group plc acquisition on the enlarged Group’s risk profile.
The transition of acquired businesses into the Group could introduce structural or operational challenges that result in the Group failing to deliver the expected outcomes for customers or value for shareholders.
The financial and operational risks of target businesses are assessed in the acquisition phase and potential mitigants are identified.
Phase 1 of the Standard Life Assurance integration is substantially complete with Phases 2 and 3 progressing well. We remain on track to deliver our synergy targets.
In July 2020,the Group successfully completed the acquisition of ReAssure Group plc bringing additional scale to the Heritage business and enhancing our key attributes of cash generation, resilience and growth. Integration of the ReAssure Group plc into the wider Group is underway.
Change in risk: Risk improved No change Risk heightened New principal risk
Strategic priorities: 1 Manage capital 2 Create value 3 Meet customer needs 4 Sustainability 5 Inspire our people
There is a risk that the Group’s strategic partnerships do not deliver the expected benefits. Some of our key strategic partnerships include: SLA plc: Provides investment management services to the Group including the development of investment solutions for our customers.
The Group’s engagement with Diligenta, and its parent TCS, adheres to a rigorous governance structure, in line with the Group’s Supplier Management Model. As a result, productive and consistent relationships have been developed with TCS, which will continue to develop throughout future phases of our enlarged partnership.
The Group fails to deliver long-term growth in its Open business
Significant negative reputational damage could occur if the Open business fails to deliver against its strategic objectives, particularly as the Group seeks to promote a ‘customer obsessed’ mind-set underpinned by strong retention and consolidation as customers journey to and through retirement.
The Group’s new Business Unit structure brings renewed focus and accountability. The key areas of growth are Workplace, Customer Savings & Investments and Retirement Solutions.
As part of the Annual Operating Plan the Group is committed to making significant investment in our Open business which will include propositions which are driven by customer insight.
Risk management continued 84 Phoenix Group Holdings plc Annual Report & Accounts 2020
The Group is exposed to market risks related to climate change as a result of the potential implications of a transition to a low carbon economy.
The Group is also exposed to the risk of failing to respond to wider Environmental, Social and Governance (‘ESG’) risks and delivering on our social purpose; for example, failing to meet our sustainability commitments.
The Group continues to actively engage with regulators on progress with all climate change and sustainability-related deliverables.
In 2020 the Group committed to supporting the goals of the 1.5° Paris Agreement to limit global warming to 1.5°C above pre-industrial levels, and the Group has set a target of being net-zero carbon by 2025 across our operations and by 2050 across our investment portfolio.
Later in 2021 the Group will be participating in the Bank of England’s Climate Biennial Exploratory Scenario exercise (‘CBES’).
The Group’s Conduct Risk Appetite sets the boundaries within which the Group expects customer outcomes to be managed.
The Group has a suite of customer policies which set out key customer risks and minimum control standards in place to mitigate them.
In addition, one-off initiatives have been undertaken to support customers, with all changes being communicated clearly.
Changes in regulation could lead to non-compliance with new requirements that could impact the Group’s fair treatment of its customers. These could require changes to working practices and have an adverse impact on resources and the balance sheet.
Risk management continued 86 Phoenix Group Holdings plc Annual Report & Accounts 2020
The Group is exposed to the risk of causing intolerable levels of disruption to its customers and stakeholders if it cannot maintain the provisions of important business services when faced with a major operational disruption to core IT systems and operations. This could occur either within our own organisation or those of our primary and downstream outsourcers.
The Group is also increasing its use of online functionality to meet customer preferences. This, coupled with a move to home working, exposes the Group to the risk of cyber- attacks.
The Group has established business continuity management frameworks that are subject to an annual refresh and regular testing.
The Group has also established an Operational Resilience Programme which will define and implement an operational resilience framework that will enable regulatory compliance with the new guidelines.
The Group’s response to COVID-19 has contributed towards the mitigation of some aspects of this risk; the current working from home model significantly reduces the exposure to a number of physical risks which could cause disruption to our important business services.
The threat posed by an Information or Cyber Security breach that affects the availability of the core information technology assets, which underpin the delivery of important business services to our customers, is considered to be increasing. This inevitably leads to greater interest from cyber criminals; subsequently it is critical that the ongoing commitment to continually improving security controls, where appropriate, is maintained.
Periods of prolonged uncertainty can result in a loss of critical corporate knowledge, unplanned departures of key individuals or the failure to attract individuals with the appropriate skills to help deliver our strategy.
This risk is inherent in our business model given the nature of our acquisition activity and specialist risk management skillsets.
Timely communications to our colleagues aim to provide clarity around corporate activities. Communications include details of key milestones to deliver against our plans.
A project to define our ‘Future Ways of Working’ is underway which is likely to offer colleagues greater flexibility in both where and how they choose to work in future.
The Group continues to manage this carefully through cross-organisational collaboration, health and wellbeing support and regular communications to staff.
The Group successfully rolled out its Unified People Proposition creating a more aligned experience for our colleagues. This means the Group is prepared for future acquisition and transition activity, and will be able to respond flexibly to future business needs.
The ‘Phoenix Story’ launched in summer 2020 bringing renewed societal and business purpose to the Group. Our colleagues have reacted positively to this.
The Group and its customers are exposed to the implications of adverse market movements. This can impact the Group’s capital, solvency 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.
The Group continues to implement de-risking strategies to mitigate against unwanted customer and shareholder outcomes from certain market movements such as equities, interest rates 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 potential for adverse market risk is further heightened from March 2020 due to the prolonged period of low interest rates and ongoing uncertainty regarding the external environment, particularly COVID-19.
The Group implemented a number of management actions in 2020 that provided resilience against unanticipated market movements. Further contingency actions are available to help manage the Group’s capital and liquidity position.
The Group’s Stress and Scenario Testing Programme considered the changes to the environment as a result of COVID-19 and the potential future implications of the pandemic.
The Group has guaranteed liabilities, annuities and other policies that are sensitive to future longevity, persistency and mortality rates. For example, if our annuity policyholders live for longer than expected, then the Group will need to pay their benefits for longer.
The Group regularly reviews assumptions to reflect the continued trend of reductions in future mortality improvements.
The Group completed six external bulk annuity transactions in 2020 with a combined premium of c. £1.8 billion. Consistent with previous transactions, we continue to reinsure the vast majority of the longevity risk with existing arrangements reviewed regularly.
Examples of some emerging risks and opportunities the Group currently considers are listed in the table below.
Market disruptors The impact of alternative providers in the market or those with more comprehensive digital propositions.
The Group is exposed to the risk of downgrade or failure of a significant counterparty
The Group is also exposed to trading counterparties, such as reinsurers or service providers failing to meet all or part of their obligations.
For mitigation of risks associated with stock-lending, additional protection is provided through indemnity insurance.
The risk of unexpected downgrades and defaults within the Group’s credit risk portfolio is heightened as a result of market volatility and wider economic and social impacts arising from COVID-19.
The Group continues to increase investment in illiquid credit assets as a result of BPA transactions. This is in line with our strategic asset allocation plan and within our risk appetite.
EMERGING RISKS AND OPPORTUNITIES The Group’s senior management and Board take emerging risks and opportunities into account when considering potential outcomes. This determines if appropriate management actions are in place to manage the risk or take advantage of the opportunity.
ASSESSMENT PROCESS AND KEY ASSUMPTIONS The Group’s prospects are assessed primarily through its strategic and financial planning process. This strategy is outlined within the Strategic Report of the Annual Report and Accounts. The Board activities include an annual strategy session and it fully participates in the annual strategic planning process by means of a Board meeting to review and approve the Annual Operating Plan (‘AOP’).
The output of the AOP is a set of strategic priorities, detailed financial forecasts, and risks and contingent actions to be considered. The latest AOP was approved by the Board in January 2021 and incorporated the Group’s assessment of the impacts of the COVID-19 global pandemic on customer behaviours, macroeconomic factors and the Group’s financial position.
The Board has determined that the five-year period to December 2025 is an appropriate period for the assessment, being the period over which the Directors set internal and external targets, and the period covered by the Group’s Boardapproved AOP.
• The stress testing was applied to an AOP that reflected a stress event, incorporating the Board’s view of the most likely COVID-19 impacts on the Group’s business, which includes an allowance for further downgrades; • The Board considered further the impacts of COVID-19 on the Group including additional stress and scenario testing as detailed below; • It completed reverse stress testing for the Group to understand how severe the above scenarios would need to be given the Group’s current and expected levels of solvency and liquidity; • It considered the principal medium to long-term risks facing the Group which have the potential to impact on viability as discussed in the Risk report above; and
Viability statement 90 Phoenix Group Holdings plc Annual Report & Accounts 2020
The Board therefore believes that the market stress applied as part of the viability assessment (which assumes no economic recovery) appropriately allows for the macroeconomic risks to which the Group is exposed over the period of the viability assessment. The results of the additional COVID-19 scenario testing have however, been considered in the Board’s overall assessment of the viability of the Group.
Our Board has overseen a year of much achievement by Phoenix, underpinning the resilience of our model. As the COVID-19 situation emerged, the response from executive management and our Board was swift and effective.
From March 2020, starting before the UK lockdown commenced, our Board began holding weekly briefing meetings as well as the formal Board meetings, to monitor the ongoing situation, both operationally and financially. These changed to fortnightly after our AGM on 15 May 2020.
Our Board held three full Board meetings in May 2020 alone, with a focus on assessing our current and projected financial position under various scenarios, prior to deciding to recommend to shareholders the payment of the final 2019 dividend.
The Board is focused on the wider role of Phoenix in society. In December 2020, we established a new Board Committee, the Sustainability Committee, chaired by Karen Green. Sustainability is central to our Group’s purpose and values. This new committee will not remove responsibility from other committees, but will oversee and bring together the Group’s sustainability priorities in a coherent way.
We have an exciting governance agenda, aligning to changes in the wider environment. Diversity is an area where we must continue to make progress on all fronts. I am pleased that we comply with the Parker recommendation for FTSE 100 companies to have at least one ethnic minority director by 2021. We must do more and are looking at ways to do so in 2021.
During 2020, the Board continued to oversee the integration of Standard Life Assurance, which we acquired in 2018, and the acquisition of ReAssure from Swiss Re, which completed in July 2020. With that acquisition, our Board changed with the addition of
“Directors are cohesive, but independent-minded. The Chairman and Non-Executive Directors are committed to the business and
“The Board has strongly encouraged and supported a clear and broader strategy that serves the needs of all its stakeholders.”
2020 was been a landmark year for Phoenix, completing the ReAssure acquisition, continuing to perform strongly across all our financial metrics, maintaining strong customer service and increasing our colleagues’ engagement. Our market cap increased from £5.4 billion at the start of 2020 to £7.0 billion at the end of the year. Our share price outperformed the FTSE 100 and our peer index. All this was achieved against the enormously challenging COVID-19 backdrop. Our governance robustly supported that performance.
During this difficult year, I was grateful for the continued strong support of our shareholders, who approved our acquisition of ReAssure at a General Meeting in February 2020 with over 99.9% votes cast in favour; and approved all 28 resolutions at our AGM in May 2020 with at least 96% votes cast in favour of all resolutions. I am pleased that our AGM proceeded as scheduled on 15 May 2020, notwithstanding that being at the height of the first wave of the pandemic. We reacted quickly to enable the meeting to proceed, moving venue to our own premises and webcasting the proceedings with a facility to ask questions before the meeting.
I am very grateful for the support we receive from our biggest shareholders and strategic partners, Standard Life Aberdeen, Swiss Re and MS&AD.
UK Corporate Governance Code As summarised on page 94 and detailed in the Corporate Governance Report on pages 94 to 123, we complied in 2020 with all the provisions of the UK Corporate Governance Code (‘the Code’). We have complied with all the provisions of the Code in its appropriate version in each of the last six years.
Sustainability deep dive 93Phoenix Group Holdings plc Annual Report & Accounts 2020
THE BOARD AS A GUARDIAN OF OUR PURPOSE AND VALUES The Board of Phoenix Group Holdings plc is the guardian of our purpose and values. A key focus of the Board’s two-day strategic session in July 2020 was defining Phoenix’s social purpose as the UK’s leading retirement and savings business.
Read more about our purpose, strategy and values pages 4 and 5
Taking personal responsibility for the role we play in our Company and customers’ future.
With the courage to ask questions, innovate and make bold decisions.
DIVISION OF RESPONSIBILITIES Operation of the Board (role and responsibilities) page 95 Board composition page 98 Our Board pages 98 to 100 The Executive Committee page 101
Division of responsibilities page 112 • The Chairman, Group Chief Executive Officer and Senior Independent Director • Independence of Board members and appointment terms • 2020 Board and Committee attendance
COMPOSITION, SUCCESSION AND EVALUATION Nomination Committee report pages 122 to 123 • Role of the Committee • Board succession • Board changes and recruitment process • Board diversity, including diversity policy • Board evaluation
AUDIT, RISK AND INTERNAL CONTROL Audit Committee report pages 116 to 121 • Role of the Committee • Principal activities during 2020 • Auditor’s appointment, effectiveness of external audit process,
Risk Committee report pages 114 to 115 • Role of the Committee • Principal activities and significant matters discussed in 2020 • Review of system of internal controls
REMUNERATION Remuneration Committee report pages 124 to 158 • Role of the Committee • Remuneration Committee Chair’s letter • Directors’ Remuneration Report • Remuneration at a glance • Directors Remuneration Policy • Annual Report on Remuneration 94 Phoenix Group Holdings plc Annual Report & Accounts 2020
The chart below sets out the main responsibilities of the Phoenix Group Holdings Board and its committees. More detailed operational and customer-focused matters are addressed at the subsidiary Board and Committee level. The Board has delegated
OPERATION OF THE BOARD The Board is responsible to the shareholders and wider stakeholders for the overall performance of the Group. The Board’s role is to provide entrepreneurial 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. The Board has a schedule of matters reserved for its consideration and approval supported by a set of operating principles.
The schedule of matters reserved for the Board is available on the Company’s website. Matters which are not reserved for the Board and also its committees under their terms of reference (which are available on the Group website), or for shareholders in general meetings, are delegated to the executive management under a schedule of delegated authorities approved by the Board.
Conflicts of interest A register of conflicts of interest is maintained on behalf of the Board. The Directors each understand their responsibility to identify and manage conflicts of interest, bringing conflicts to the attention of the Board and the Group Company Secretary as required under the Companies Act 2006.
THE BOARD DISCHARGING SECTION 172 COMPANIES ACT 2006 DUTIES When making decisions, the Board has paid due regard to the matters set out in section 172 of the Companies Act 2006 relating to stakeholder considerations. The Company’s section 172 statement can be found on page 60 of the Strategic Report. In addition, the way in which the Directors have exercised their section 172 duties is explained on pages 109 to 111 within this corporate governance report.
• Redefining the Company’s purpose and values • Reviewing the ‘Phoenix story’ • Consideration of our brand aspirations and opportunities • Defining our strategic priorities, approving the strategy and annual operating plan
• Continual monitoring of customer service, operational resilience and colleague wellbeing during COVID-19 pandemic
• Deep-dive session on digital engagement with customers • Consideration of 2019 Final Dividend payment in light of
• Group risk policies approval • Whistleblowing oversight • Deep dive on talent, capability, diversity and succession • Monitoring existing corporate culture, future aspirations and cohesion following the ReAssure acquisition
• Updates from the Board Audit Committee and Board Risk Committee
Appointed: 1 October 2013 “I have over 30 years of audit experience (obtained with KPMG) which enables me to effectively lead the Phoenix Group Holdings plc Audit Committee as its Chair. My experience as a non-executive director also enables me to act as the Phoenix Senior NonExecutive Independent Director, a role which I was honoured to take on in 2018. In addition to my roles at Phoenix, I am currently the Chairman of Liontrust Asset Management plc and a Director of both RSA Insurance Group plc and The Bank of N. T. Butterfield & Son Limited.”
External appointments: Non-Executive Director at Admiral Group plc, a NonExecutive Director and Chair of the Risk Committee of Asta Managing Agency Limited and a Council Member of Lloyd’s of London. Also Vice President of the Insurance Institute of London and a member of the Development Council of the Almeida Theatre Company.
Appointed: 1 September 2016 “I was delighted to take on my role as an Independent NonExecutive Director at Phoenix Group Holdings in 2016. My role enables me to use my experience in matters of governance, insurance and investments. During my tenure, Phoenix has grown enormously, and I have always felt incredibly well supported by an exceptional executive team, which is always open to challenge and input from the Independent Non-Executive Directors. My previous experience included being Chief Investment Officer at Unilever, Group Chief Investment Officer at LV=, and Chair of the Investment Committee at The Mineworkers Pension Scheme, a Government appointment to one of the largest pension schemes in the UK.”
External appointments: Non-Executive Director of Aberdeen Global Funds (Luxembourg) and Old Mutual Wealth Oversight Council. Also Senior Independent Director and Audit Committee Chair of Fidelity Investments Life Insurance Company.
The Board comprises the Non-Executive Chairman, Group Chief Executive Officer, the Group Chief Financial Officer, one SLA-nominated Director, one Swiss Re-nominated Director, one MS&AD-nominated Director and seven independent Non-Executive Directors.
Appointed: 23 July 2020 “I believe passionately in the importance of the insurance industry in making societies more resilient. Hence it is an honour to bring my experience to bear at the Group. My executive experience has been at PwC, at Deutsche Bank (Head of Corporate Development and subsequently Global Head of DB Private Equity), and at Swiss Re where I manage a global portfolio of equity holdings in insurance businesses. I have also sat on boards both of private and public companies across the globe.”
Appointed: 1 October 2017 “I really enjoy my role as a Non-Executive Director on the Phoenix Board as it enables me to use my strategic and operational experience gained in both an executive and non-executive capacity. As the Global Head of Merger Integration Services at Deloitte, and previously at EY, I have led over 50 major acquisition integrations – many of which were in the insurance and banking sectors. Given Phoenix’s consolidation strategy this has helped me to add value to Phoenix and to our stakeholders.”
When I joined the Board in 2016, Phoenix was beginning to play a leading role in the consolidation of the closed life sector, so my M&A experience has been very relevant.”
MIKE TUMILTY Non-Executive Director 100 Phoenix Group Holdings plc Annual Report & Accounts 2020
• leads the delivery of Group strategy within the ReAssure businesses; • safeguards policyholder outcomes and grows shareholder value within the ReAssure businesses, including by leading integrations into ReAssure businesses; and
• leads the development and delivery of the Open business strategy; • enables better outcomes for customers; and • redeploys excess capital at attractive rates to generate future predictable cash flows and offset the Heritage business run-off.
• leads development and delivery of the Group’s operating platforms in line with regulatory requirements, the risk universe and strategy; • ensures the delivery of the Group’s information technology and information security strategy; • leads the management of the Group’s long-term outsourcing arrangements; and
• ensures that the Group’s procurement activities and operational shared services are efficient and effective.
• supports the Group Chief Executive Officer in formulating the Group strategy and managing the Group’s key external stakeholders; • develops and delivers the Group’s financial business plan in line with strategy; • ensures resilience, effective management and control of the Group’s balance sheet and solvency position; • develops and delivers the Group’s debt capital strategy and other treasury matters; • ensures effectiveness of processes to meet the Group’s external reporting obligations; and
• leads the implementation of the Group’s people strategy in order to recruit, retain, motivate and develop high-quality colleagues; • provides guidance and support on all HR matters to the Group Chief Executive Officer, the Executive Committee, the Board and Remuneration Committee; and
• The continued payment of all employees without utilising government support schemes or furloughing any staff. OUTCOME: No government support schemes were accessed and all employees received full pay with none furloughed.
• Close monitoring of progress to complete the ReAssure Group plc acquisition despite the pandemic. OUTCOME: The ReAssure acquisition successfully completed on 22 July 2020.
The Board of Phoenix Group Holdings plc approved the formation of the Board Sustainability Committee in December 2020 to ensure that the Group’s sustainability activities and reporting could be brought together in a coherent way; and to provide appropriate oversight and challenge thereof. The Committee’s first meeting was held in January 2021.
THE BOARD SUSTAINABILITY COMMITTEE’S KEY ROLE AND FOCUS • Sustainability strategy – The
• Reporting – The Committee supports the Board and Board Audit Committee in relation to the Group’s sustainability reporting. For more
• Culture – The Committee assists the Board with its oversight of corporate culture, supporting the Group’s purpose and values.
Sustainability Committee, led by the Group Director of Corporate Affairs and Investor Relations.
The membership of the Committee provides coverage of cross-Board Committee membership to support engagement on matters of sustainability within the Group’s governance framework. See the Board Directors’ Committee membership details on pages 98 to 100.
• Deep-dive sessions focused on key sustainability topics to support the fulfilment of the Committee’s duties.
THE BOARD’S ENGAGEMENT WITH COLLEAGUES DURING 2020 Understanding how and ensuring that colleagues were well supported as they sought to adjust to the personal and business challenges resulting from COVID-19 including working remotely for the majority of the year was a key focus area for the Board.
Survey feedback from colleagues post the Forum was that over 92% of members felt more connected to the Board as a result and 94% of colleagues found the Forum very or extremely valuable.
Alongside ‘The Phoenix Story’, the Board held a number of deep-dives on the following topics: • ReAssure including people • Digitisation strategy and related skills assessment • Talent Strategy including
Passionate about doing the best for our customers, our colleagues and our investors.
“ Engaging with members of the Phoenix Group Board and being a member of the Colleague Advisory Forum has given me the opportunity to communicate with our senior leaders and share my thoughts about the things that matter to me, like the mental wellbeing of our colleagues”
Taking personal responsibility for the role we play in our company and customers’ future.
BOARD EDUCATION During 2020, the Board undertook five ‘ReAssure completion modules’. These modules were designed to ensure that the Board was appropriately educated and informed about key matters relating to ReAssure, enabling the Board’s continued ability to successfully lead the Group, equipped with appropriate knowledge and skills. Details of the modules can be seen on the following page.
In December 2019, the Phoenix Group announced the proposed acquisition of ReAssure Group plc. On 22 July 2020 Phoenix successfully completed the acquisition of ReAssure Group plc from the Swiss Re Group. Considerable regard was paid to the merits and rationale for the acquisition, completed over a period of transition for the Group, with the succession of the new Chief Executive Officer in March 2020, and against the backdrop of the COVID-19 pandemic.
The Board considered, amongst other matters, regulatory aspects associated with the acquisition; the allotment and issue of shares to fund part of the acquisition; and the Group’s solvency and liquidity positions following completion of the acquisition – ensuring the continued robustness of the Group for the protection of its stakeholders. At a General Meeting held on 13 February 2020 shareholders voted 99.99% in favour of the ReAssure acquisition and 99.89% in favour of the allotment and issue of equity securities to Swiss Re whom Phoenix welcomed as a strategic shareholder along with MS&AD.
Following shareholder approval, the Board closely monitored progress towards Change in Control approval and completion in July 2020, having regard to the impact of the emerging COVID-19 pandemic on financial strength and operational capacity.
With the acquisition of ReAssure, two strong cultures have been brought together, united in our passion for customers.
JUNE 2020 Customers and operations – the Chief Executive Officer of ReAssure provided an education session covering: ReAssure customers and its conduct framework embedding Treating Customers Fairly principles; ReAssure’s operating model to support customer strategy; and other key priorities including operational risks, investment activity, and cyber.
JUNE 2020 ReAssure finance and actuarial function – the Board received an overview from the ReAssure Chief Financial Officer and Chief Actuary including: Year End 2019 Entity Structure and Solvency II Balance Sheets; Year End 2019 Cashflows; 2020–2022 Solvency II Capital Projections and Sensitivities; Year End 2019 Solvency II Balance Sheet Partial Internal Model vs Standard Formula; and 2020–2022 International Financial Reporting Standards Profit Before Tax Projections.
SEPTEMBER 2020 ReAssure risk and compliance function – the Board received an overview from the ReAssure Chief Risk Officer including: an overview of ReAssure’s key risks, risk and compliance function, risk management framework and key risk topics such as cyber risk.
THE BOARD CONSIDERS THE FOLLOWING TO BE THE GROUP’S KEY STAKEHOLDERS: Customers Without our customers we would not exist. The Group’s core purpose is centred on our customers (existing and potential), helping them to secure a life of possibilities. The Board recognises the responsibility it has to ensure the success of the business for all customers.
Investors The Group is dedicated to delivering long-term value to our shareholders and aims to maintain our stable and sustainable dividend policy through a continued focus on delivering cash, resilience and growth. As with our customers, without our shareholders we would not be the Group we are today. We have achieved growth and secured opportunities for all our stakeholders thanks to the support of our investors.
Suppliers Our suppliers, including service providers and partners, are key to our success and the achievement of our strategic objectives. The relationship we maintain with our suppliers, strategic or otherwise is of vital importance in our drive to achieve our ultimate purpose of helping people secure a life of possibilities.
Our relationships with the Government, trade bodies and regulators is of vital importance in our role in thought leadership and for our responsibility to communicate the views and concerns of our customers. Without the relationship the Group maintains with the PRA/FCA, we could not provide services for our customers and utilise opportunities for growth.
REGULAR COMMUNICATION WITH INVESTORS AND OTHERS Phoenix Group places considerable importance on communication with investors and regularly engages with them on a wide range of topics. The
The Board’s fulfilment of its duty under section 172 Companies Act 2006 during 2020
Section 172 of the Companies Act 2006 requires each director of a company to act in the way he or she considers, in good faith, would most likely promote the success of the company for the benefit of its members as a whole In doing so, each director must have regard, amongst other matters, to the: • likely consequences of any decisions in the long term; • interests of the company’s employees; • need to foster the company’s business relationships with suppliers, customers and others; • impact of the company’s operations on the community and the environment; • desirability of the company maintaining a reputation for high standards of business conduct; and
• need to act fairly as between members of the company.
resulting in Board support for options such as: offering out-of-hours service for NHS workers; new ways for paying claims to enable customers to stay at home; and a fee holiday for smaller employers. The Board engaged with our communities through its consideration of charitable contributions with strong support for a £1 million donation to the COVID-19 relief effort, split between Age UK’s Emergency Coronavirus Appeal and charitable organisations operating in the Group’s regional offices’ local communities. In the first part of 2020, prior to the pandemic, the former Group CEO Clive Bannister travelled to Mumbai to visit the headquarters of our strategic supplier, TCS, in order to understand their operations and to reinforce the relationship with our outsource service providers. Details of our broader stakeholder engagement can be found in the Strategic Report on pages 58 to 65.
• The Board considered the long-term impact of paying the 2019 Final Dividend on the Group’s liquidity and solvency positions by reviewing the outcome of six stress scenarios relating to COVID-19 and associated economic recovery periods. The Board also considered the impact of the dividend decision on expectations relating to the Group’s dividend policy.
• Consideration was given to the impact of the non-payment of a dividend, where the dividend was financially supportable, on shareholders invested in Phoenix as an income stock. The Board considered feedback received from investors during the pandemic and the need to provide clarity about the intention to pay the final dividend.
• The Board undertook a sustainability deep-dive session in December 2020, at the same time it considered the formation of the BSC. During this session, the Directors reflected on the positive impact our commitment to sustainability would have on our relationships with suppliers, customers and business partners.
• The Group engaged Deloitte to provide guidance and an independent assessment of the Group’s sustainability achievements and strategy and to support the decision-making process by the Board. The Board considered benchmarking data, comparing our progress and activities against those of our peers, to ensure the appropriateness of the Group’s sustainability aspirations and steps being taken to achieve those aspirations. By engaging Deloitte, the Board was better able to meaningfully consider our ability to maintain a reputation for high standards of business conduct in the area of sustainability and beyond.
OUTCOME Following due consideration of all the matters set out in section 172, the Board approved the formation of the BSC with strong support from all directors. The formation of the new Committee was considered to be in the best interests of the Company as a whole and all its stakeholders and a decision to move the Group forward in its steps towards our sustainability aspirations. More detail about the new BSC can be found on page 103.
• The Board discussed feedback received about energy levels and workloads from the Colleague Advisory Forum. Through monitoring, the work involved in activities driving the strategic evolution of the business was considered to be manageable (boosted by investment in recruitment) resulting in long-term benefits for all stakeholders including colleagues.
• Throughout the year, investors were kept informed of developments to the Group’s strategic direction through investor presentations and market announcements. When considering the decision to increase the Group’s BPA capital budget to expand BPA activities, the Board paid due regard to the needs of its investors, including expectations about capital allocation and the ability to generate returns. The Board, through regular updates provided by management, monitored the Group’s ability to pay dividends and generate growth for the benefit of its members, noting the overall impact of the strategy to maintain the strength of the Heritage business whilst expanding the Open business.
OUTCOME Following due consideration of all the matters set out in section 172, the Board approved the plans to expand the Open business and BPA activities, including an increase in the Group’s BPA capital budget. The expansion supports the concept of the ‘wedge’ and is expected to support significant incremental long-term cash generation. See pages 25 and 33 for more detail.
Michael Tumilty 10/10 1 Clive Bannister resigned from the Board on 10 March 2020. 2 Andy Briggs was appointed to the Board on 10 February 2020. 3 Jim McConville resigned from the Board on 15 May 2020. 4 Rakesh Thakrar was appointed to the Board on 15 May 2020. 5 Campbell Fleming resigned from the Board on 23 July 2020. 6 Hiroyuki Iioka was appointed to the Board on 23 July 2020. 7 Christopher Minter was appointed to the Board on 23 July 2020.
2020 Board and Committee attendance The following Board and Committee attendance is for all formal Board meetings held during 2020. The Nomination Committee has confirmed its absolute satisfaction with the time and commitment given to Phoenix by all Directors.
The members of the Phoenix Group Holdings plc Board of Directors understand their personal responsibilities as directors and the role they play in ensuring the long-term success of the Company and, thus, the future of its customers – striving towards helping people secure a life of possibilities. As a matter of good governance, the Board ensures the appropriate division of responsibilities on the Board, ensuring no existence of unfettered power nor over-reliance on any one person.
DIVISION OF RESPONSIBILITIES The Chairman, Group Chief Executive Officer and Senior Independent Director Nicholas Lyons is Chairman of the Board of Directors of the Company. There is a division of responsibility, approved by the Board, between the Chairman, who is responsible for the leadership and effective operation of the Board and the Group Chief Executive Officer, Andy Briggs, who is responsible to the Board for the overall management and operation of the Group. The Chairman’s external commitments are set out on page 98 within this report. The Chairman was independent upon appointment and was appointed on the basis of committing two days per week to the Company.
ALWAYS LOOKING TO GROW AS INDIVIDUALS, AS A TEAM AND BUSINESS
During the year, the Board has received education sessions and participated in deep-dive sessions covering the following subjects, helping the Directors to ensure their continued development as individuals and as a team.
TALENT, CAPABILITY, DIVERSITY AND SUCCESSION October 2020 – during this deep-dive session, the Board reflected on discussions during its annual strategy meeting in July 2020 and focused on drivers shaping the Phoenix talent model (with diversity and inclusion at its centre); the Group’s target talent model and what success looks like; identifying capability gaps and roles where changes might be required; developing existing talent; attracting the best external talent; reinforcing culture and values; and embedding diversity and inclusion. During this session, the Board also considered the Group’s aspiration to become a leader on diversity and inclusion.
DIGITAL CAPABILITY October 2020 – the Board undertook a deep-dive session covering external digital trends and the approach of BigTech (including the macro impact of digital disruption) and opportunities for Phoenix today and in the future (including how digital intersects strategy; how digital transformation generates value for our business and customers).
INTERNAL MODEL HARMONISATION January 2020 – The Board received an educational update covering: the Internal Model Harmonisation Programme progress, key harmonisation decisions and crystallised programme risks; the Group Solvency II balance sheet; main components of the Group Solvency Capital; estimates of harmonisation capital impacts and an update on the Group’s relationship with the PRA.
August 2020 – The Board received a further educational update on the Internal Model Harmonisation Programme, including: pre-application financial impacts; pre-application validation work; and PRA engagement.
SENIOR MANAGERS’ AND CERTIFICATION REGIME January 2020 – the Board received an education session covering the key elements of the Senior Managers and Certification Regime – covering the Certification Regime and Conduct Rules.
MEMBERS John Pollock (Chair) Alastair Barbour Wendy Mayall Belinda Richards Kory Sorenson
KEY RISK COMMITTEE ACTIVITIES IN 2020 • Considered regular updates on the Risk Management Framework
• Continued to review the Group’s risk profile and principal risk policies including the impact of COVID-19 on the risk profile
• Reviewed the Group’s Annual Own Risk and Solvency Assessment report
The role of the Risk Committee is to advise the Board on risk appetite and tolerance in setting the future strategy, taking account of the Board’s overall degree of risk aversion, the current financial situation of the Group and the Group’s capacity to manage and control risks within the agreed strategy. It advises the Board on all high-level risk matters.
The emergence of COVID-19 in early 2020 presented new emerging risks and heightened the financial and operational risk exposure for the business. The Committee continues to monitor and evaluate the management of these risks and risk profile exposure across the Group. Whilst there remain uncertainties in light of the pandemic, the organisation’s ability to respond to COVID-19, successfully transform its business operating model and continue to make progress in achieving its strategic aims is a reflection on the strength of the Group’s resilience and effectiveness of the internal control systems.
The performance of the Committee during 2020 was assessed as part of the annual Board effectiveness review which was an externally facilitated independent review. The conclusions demonstrate that the Committee continues to operate effectively, particularly in light of the COVID-19 environment and having held virtual meetings since the start of the pandemic.
Details of the Risk Management Framework (‘RMF’), for which the Risk Committee has oversight, are provided in the Risk Management section on pages 79 to 89.
• The Committee’s meetings are attended by the Chair of the Audit Committee, Alastair Barbour, which allows the review of internal control effectiveness to be managed through collaborative working and oversight.
• The Committee met a total of nine times in 2020 including three out-of-cycle meetings.
SIGNIFICANT MATTERS DISCUSSED IN 2020 Operational resilience/impact • A key area of focus for the
Financial risks of climate change • The Committee reviewed and considered the approach to embed the management of climate-related risks and received briefing sessions on both climate change risk and Taskforce for Climate-related Financial Disclosures.
Brexit • The Committee continued to monitor risks to the Group due to Brexit uncertainty and the impact of a ‘no-deal’ scenario.
Implement a single harmonised Risk Management Framework (‘RMF’) • The Committee continued to review the progress of the implementation of the harmonised RMF approach across the Group.
“ The challenges and uncertainty during the year have rapidly transformed the external and internal risk landscape and required a broader view of resilience for the Group. This will continue to be a core focus for the Committee in addition to addressing key environmental, social and governance risks.”
• Considered the Group’s capital risk appetite framework and the development of quantitative risk metrics
• Reviewed the Group’s risk profile, monitoring it against the risk categories of Market, Insurance, Credit, Financial Soundness, Customer and Operational with particular attention to risk appetite, risk trends, risk concentrations, provisions, experience against budget and key performance indicators for risk as well as contingency planning.
• Informed the Remuneration Committee regarding the management of the Group’s material risks to support their consideration of executives’ Annual Incentive Plan rewards.
The Board (and its subsidiary company boards) monitor internal controls on a continual basis, in particular through the Audit and Risk Committees. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place throughout the period covered by this report and up to the date of approval of the Annual Report and Accounts for 2020, in accordance with the ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ published by the Financial Reporting Council. The assessment for 2020 was presented to the Board, following review by both Audit and Risk Committees, on 5 March 2021. Where any significant weaknesses were identified, corrective actions have been taken, or are being taken and monitored by both the business and the Committees accordingly.
AUDIT COMMITTEE ROLE AND FOCUS The composition of the Audit Committee is detailed within the table shown above and is in accordance with the requirements of the UK Corporate Governance Code 2018 (‘Code’) and also with DTR 7.1.1AR. The Board has confirmed that all four members of the Audit Committee are considered as Independent Non-Executive Directors. In accordance with the Code, Alastair Barbour and Karen Green have recent and relevant financial experience. Also, in accordance with DTR 7.1.1AR, at least one member of the Committee has competence in accounting and/or auditing as well as the members as a whole having competence relevant to the insurance industry.
The Audit Committee met eight times during 2020. Its meetings are attended by the Chair of the Risk Committee (who is also a member of the Audit Committee),the Group Chief Financial Officer, the Group Financial Controller, the Group Head of Internal Audit, the external auditors and usually also by the Group Board Chair and the Group Chief Executive Officer. The Audit Committee holds private meetings at least annually with each of the Group Chief Financial Officer, the Group Head of Internal Audit and the external auditors. The Audit Committee acts independently of management, and engages closely with both the Group Risk Committee and the Life Company Audit Committee to ensure there is a good understanding of the work undertaken by each and enable efficient communication between the Committees.
AUDIT COMMITTEE’S PRINCIPAL ACTIVITIES DURING 2020 In December 2019, Phoenix announced the proposed acquisition of ReAssure and as a result the Audit Committee reviewed, prior to completion, the financial and control related matters including working capital, financial and prospects report, synergies and the SII and IFRS pro formas. Following completion of the ReAssure acquisition, the Audit Committee has focused on accounting for the acquisition and analysis of the ReAssure acquisition balance sheet.
2020 has been a year of continued change and challenges for the Group with the ongoing transition activities that have followed the acquisition of both Standard Life, the acquisition of the ReAssure Group as well as consideration of the impact on the Group of COVID-19. In addition to these significant matters for the Audit Committee to consider there has also been the continued turbulence surrounding the political landscape with continued uncertainty around Brexit and other macroeconomic factors leading to continuing volatility in the financial markets. Against this backdrop, the main focus for the Audit Committee continues to be the oversight of the integrity of the Company’s financial statements and the soundness and effectiveness of the Group’s systems and controls, together with monitoring the effectiveness of both the Internal and External auditors.
KEY AUDIT COMMITTEE ACTIVITIES IN 2020 • Reviewed the Company’s 2019
This encompasses the following key functions: • Receiving and reviewing the Annual
Report and Accounts, the Solvency and Financial Condition Report and other financial results, statements and disclosures, and recommending their approval to the Board.
• Provision of advice to the Board to enable the Board to report on whether the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s position, performance, business model and strategy.
• Oversight of activities of subsidiary audit committees through receipt and review of minutes, discussions between the Chairs of the Audit Committee and subsidiary audit committees, and the Audit Committee Chair’s attendance at the Phoenix Life Audit Committee on an occasional basis, as well as his receipt of all papers going to the Phoenix Life Audit Committee. This oversight has been enhanced further through the attendance at the Audit Committee, on at least an annual basis, by the Chair of the Phoenix Life Audit Committee.
External reporting and controls The Audit Committee during 2020 and to the date of this report carried out the following activities in relation to the Group’s external reporting and the effectiveness of its internal controls: • Reviewed the Company’s 2020
Alastair Barbour Chair of Audit Committee auditors. Reviewed the Group’s annual Solvency II results and the Solvency and Financial Condition Report, recommending their approval to the Board.
• Reviewed a number of significant matters in relation to the Group’s IFRS and Solvency II reporting as summarised in the table on pages 120 to 121. These matters were considered by the Audit Committee to be areas subject to the most significant levels of judgement or estimation, and identified with regard to the key audit matters assessed by the Group’s external auditors as set out in their audit opinion on pages 164 to 176.
• Received dedicated briefings on matters including Finance and Actuarial Transition activity, Line 1 Risk Report Deep Dives on Actuarial Data and Unit Linked Fund Pricing Controls, Governance Matters relating to the Group’s service companies and an overview of the European Business.
EXTERNAL AUDIT A key part of the role of the Audit Committee is the review and oversight of the work of the Group’s external auditor. The Audit Committee reviewed various reports from the external auditor throughout 2020, including the 2020 Audit Plan, progress reports against that plan, and a report on their audit procedures on the 2020 annual IFRS and Solvency II results, and their interim review of the half year 2020 IFRS results.
The external auditor’s independence was reviewed and monitored against the Group’s External Auditor policy, including their provision of non-audit services and fees – see Auditor’s Independence and External Auditor Policy on page 119. In addition, the Audit Committee reviewed the appointment of EY as auditors of the ReAssure entities following their acquisition during the period. This included an assessment of their independence and a review of services provided by EY during the 2019 and 2020 financial years.
INTERNAL AUDIT During 2020, the Audit Committee continued to receive regular updates from the Head of Internal Audit on various internal-audit-related matters. This included the annual update of the Group Internal Audit Charter and the Group Internal Audit Plan which were approved. The Committee received regular reports to monitor progress against the plan. The Audit Committee also reviewed the internal audit control environment opinion which included Internal Audit’s view of the risk management framework across the Group.
INTERNAL CONTROL The Committee is responsible for supporting the Board in ensuring a robust system of internal control and risk management systems is in place. In supporting this framework, the Committee receives regular reports on the status of the control environment and updates on the management of the risks and controls across the Group’s Risk Management Framework. The Committee receives biannually control reports from Line 2 (Risk) through the internal control assessments from Group Risk as well as the annual Line 3 (Internal Audit) internal control environment opinion report. These reports provide assessments of the control environment metrics including: any risks that are reported to be outside of appetite; the action plan to bring within appetite; the status of internal audit opinions and any key issues identified and emerging trends and themes for the Committee to focus on going forward.
AUDIT COMMITTEE’S PERFORMANCE At the December 2020 Board meeting, Consilium presented a report, following their appointment to undertake an external Board Effectiveness Review. As part of that report the Board Committees were reviewed and assessed, and with regard to the Audit Committee, Consilium concluded that the Committee operated extremely effectively.
EY has been auditor to the Company since December 2018. EY has indicated its willingness to continue in office and shareholders’ approval will be sought at the AGM on 14 May 2021.
ASSESSMENT OF THE EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS The effectiveness of the external audit process is reviewed throughout the year by the Committee and included the following activities: • Review of the detailed audit plan and consideration of its coverage and approach to identified risks; • An assessment of the quality of interactions between the Audit team and the Committee, including the provision of technical and industry knowledge; • Consideration of the level of insight provided by the audit findings in the key areas of judgment, including quality of benchmarking with regard to insignificant valuation assumptions and supporting analysis, and the ability of the audit team to demonstrate that they had applied professional scepticism in their dealings with management; • A comprehensive assessment and review of the External Auditor where feedback was received from management, Life Company directors as well as members of the Audit Committee.
• Meeting privately with EY to discuss in depth Quality Assurance that is undertaken by EY with regard to its practices across the audit firm; and
AUDITOR’S INDEPENDENCE AND EXTERNAL AUDITOR POLICY The Company has an external auditor policy which requires the Company and the external auditors to take measures to safeguard the objectivity and independence of the external auditors. These measures are in respect of specific areas, such as secondments to management positions, or those which could create a conflict or perceived conflict. It also includes details of the procedures for the rotation of the external engagement partner.
The engagement of EY to perform any non-audit service is subject to a process of pre-approval by the Audit Committee. Furthermore, the Group’s external auditor policy prescribes a limit for fees associated with non-audit services of 70% of the average statutory audit fee for the three preceding years in line with statutory requirements.
In 2020, total fees of £14.5 million were paid to EY. Of this amount £11.7 million related to statutory audit fees of the parent and its subsidiaries, with a further £2.1 million incurred in relation to services provided pursuant to legal or regulatory requirements.
The remaining fees of £0.7 million are classified as non-audit services under the EU Directive and Regulations, and give rise to a non-audit to audit fee ratio of 9% for the 2020 year, and 17% based on a three year average audit fee. This lies well within the limits prescribed in the Group’s policy.
Of the £0.7 million of non-audit fees, £0.4 million related to in-flight services being provided to ReAssure entities at the time of acquisition. This principally relates to implementation support provided for a non-financial front-office system, and was assessed as permissible under the Financial Reporting Council’s Ethical Standard. The remaining balance of £0.3 million includes the provision of assurance services to the Board and the sponsoring banks in support of disclosures made in the public transaction documents relating to the acquisition of ReAssure and debt issuances in the period. The engagement of the Group’s independent External Auditor for the provision of such services is consistent with market practice in transactions of this nature.
In light of the above, the Audit Committee is satisfied that the non-audit services performed during 2020 have not impaired the independence of EY in its role as External Auditor. Further information on non-audit fees is provided in the Notes to the IFRS Consolidated Financial Statements on page 196.
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
Pension assumptions for use in the IAS 19 Employee Benefits valuations were reviewed and approved by the Audit Committee.
The Audit Committee received and considered detailed written and verbal reporting from the external auditors setting out their observations and conclusions in respect of the assumptions, methodologies and actuarial models including benchmarking analysis.
Management presented papers setting out the basis of valuation of financial assets, including changes in methodology and assumptions, for the interim and year-end reporting periods to the Life Company Audit Committees. The assumptions, valuations and processes, particularly for financial assets determined by valuation techniques using significant non-observable inputs (Level 3), were debated and challenged by the Life Company Audit Committee prior to being approved. This included management’s assessment of the impacts of economic volatility arising as a result of the global COVID-19 pandemic.
The Audit Committee considered the results of the work performed and confirmed the appropriateness of the conclusions reached.
Operating profit The Audit Committee reviewed the allocation of key items to operating profit to ensure the allocations were in line with the Group’s operating profit framework and consistent with previous practice.
The Audit Committee considered and confirmed agreement with the analysis of the processes and conclusions in support of management’s conclusions that the Annual Report and Accounts are fair, balanced and understandable. As part of the year-end procedures, the Audit Committee discussed with management and EY the review processes that operated over the production of the Annual report and Accounts.
The Audit Committee reviewed information on the capital and liquidity position of the Group, together with a review of the associated risks and supporting stress and scenario testing, including the impacts of COVID-19. This was part of a comprehensive assessment undertaken prior to the Committee recommending to the Board that the Group financial statements should be prepared on a going concern basis and that the disclosures with regard to the long-term viability of the Group were sufficient and appropriate.
The composition of the Nomination Committee is in accordance with the requirements of the Code that a majority of its members should be Independent Non-Executive Directors. The Nomination Committee is responsible for considering the size, composition and balance of the Board; the retirement and appointment of Directors; succession planning for the Board and senior management, focused on the development of a diverse succession pipeline; and making recommendations to the Board on these matters.
The Nomination Committee met five times in 2020. Following the announcement in November 2019 of Andy Briggs as successor to Clive Bannister as Group Chief Executive Officer, the Nomination Committee continued its focus at the start of 2020 on the succession to Jim McConville as Group Chief Financial Officer in view of his impending retirement. This concluded with the appointment of Rakesh Thakrar to succeed Jim at the May 2020 Annual General Meeting. There was no non-executive recruitment in 2020. This was driven by the outcome of the November 2019 Board evaluation review which concluded that, due to the many recent Board changes, stability in nonexecutive membership on the Board in the near-term was desired. However, the Committee did review the Board succession plan in 2020 to ensure planning was in place for future changes matched to skills, experience and diversity requirements. The two new Board appointments in 2020, Hiroyuki Iioka and Chris Minter, were by nomination of strategic shareholders MS&AD and Swiss Re respectively in accordance with their shareholder rights following Phoenix’s acquisition of ReAssure from Swiss Re, completed in July 2020.
The standard process used by the Committee for Board appointments involves the use of an external search consultancy to source candidates external to the Group and, in the case of executive appointments, also considers internal candidates. Detailed assessments of shortlisted candidates are undertaken by the search consultancy, followed by interviews with Committee members and other
Directors and the sourcing of references before the Committee recommends the appointments to the Board.
The Board supports the HamptonAlexander guidance for FTSE 350 companies that the Board should be comprised of at least 33% female directors. The Board complies with this guidance in respect of the Board composition excluding nominees from strategic shareholders, with a 40% female gender representation. This reduces to 31% when the strategic shareholder nominees are taken into account. Whilst the Board considers that it currently complies comfortably with the Hampton-Alexander guidance, the Board expects to exceed the guidance in 2022 even when taking account of nominees to the Board from strategic shareholders. The Board complies with the guidance of the Parker Review for FTSE 100 companies that there should be at least one ethnic minority director on the Board by 2021 (Rakesh Thakrar, the CFO).
• Observation of a Board meeting, two committee meetings and Board education sessions over 22–23 October 2020.
remuneration • A remuneration framework for strategic executive hires • Consideration of measurable, tangible and impactful targets including ESG
On behalf of the Board and its Remuneration Committee (‘Committee’), I am pleased to present the Directors’ remuneration report (‘DRR’) for the year ended 31 December 2020.
SUMMARY OF THE YEAR 2020 was an extraordinary year. Despite the significant challenges presented by COVID-19, Phoenix continued to perform strongly: full year operating Cash Generation and Shareholder Value exceeded the top end of our target range; our high-quality portfolio of assets and diligent approach to risk management during the year have proved its resilience; and our shareholder solvency ratio remained comfortably within the 140% to 180% target range, at 164% at year end.
The acquisition of ReAssure Group plc completed in July has made Phoenix the UK’s largest long-term savings and retirement business and we have delivered £22 million of annual cost synergies and £479 million of capital synergies in 2020. The Standard Life Assurance (‘SLA’) transition programme continues to progress well.
We have continued to deliver strong customer service alongside supporting customers through a range of initiatives, including increased use of digital channels. Across our communities we have given £1 million in charitable donations with a further £1 million for colleague matching and volunteering in local communities.
Directors’ remuneration report 124 Phoenix Group Holdings plc Annual Report & Accounts 2020
BOARD CHANGES The Board is very grateful to our former Group Chief Executive Officer (‘CEO’) and former Group Finance Director Clive Bannister and Jim McConville, for the enormous impact they both had on the business and the tremendous contributions they made during their tenures. The Board was delighted to welcome as their successors, Andy Briggs as Group CEO designate from January 2020, and as Group CEO from March 2020, and very proud to promote Rakesh Thakrar, an exceptional internal talent, as Group Chief Financial Officer (‘CFO’) from May 2020. Phoenix, its customers, colleagues and investors have truly benefited from the smooth succession of both roles during this transition period in 2020.
REMUNERATION OUTCOMES FOR 2020 Despite the challenges of COVID-19, Phoenix’s teams were able to keep our business performing and our strategy on track. The incentive outcomes reflect the achievements in terms of financial, non-financial, and strategic contributions. In the context of the experience of Phoenix’s employees, customers, and shareholders during the year, the Committee is satisfied that it is appropriate to pay out the incentives according to the formulaic outcomes.
Based on its assessment of the corporate metrics the Committee determined that the Annual Incentive Plan (‘AIP’) outcome should be 81.7% of the maximum opportunity. With regard to the achievements under the Strategic Scorecard, the Committee determined outcomes should be 85.9% for Andy Briggs and 82.6% for Rakesh Thakrar. This results in total awards of 82.5% and 81.9% respectively of the maximum bonus opportunity in line with the overall assessment.
Both Clive Bannister and Jim McConville were eligible for a 2020 AIP award for the portion of the year in which they remained employed by the Group. The Committee determined that they should receive the same outcome of 81.7% under the Corporate element, and 80.0% in relation to their achievements under the Strategic Scorecard metrics. This results in total awards for them both of 81.4% of the maximum bonus opportunity in line with the overall assessment which will be pro-rated to their respective end dates. This will be payable in March 2021 and subject to 50% deferral in line with the Directors’ Remuneration Policy. Their in-flight LTIP awards were pro-rated to their respective end dates.
During the year, it became apparent that the increase in the LTIP potential for our Group CEO made it possible to have a level of vesting at 68.75% for threshold performance. This mechanical impact was not intentional and, in line with best practice, we have made the clarification with the support of Andy Briggs that the level of threshold vesting is capped at the lower of 25% of maximum vesting or 50% of salary. This has been implemented retrospectively to his 2020 LTIP award.
The Committee does not intend to make any adjustments to the performance targets of in-flight LTIP awards due to COVID-19. The awards will be assessed over the original performance periods and subject to the original performance targets, notwithstanding any amendments to targets as a result of M&A activity as per our policy. Details of adjustments to targets as a result of the ReAssure transaction are set out on page 136 of this report.
There is no salary increase proposed for Andy Briggs and a 2.3% salary increase proposed for Rakesh Thakrar, which is in line with the average increase awarded to the wider workforce.
“ In a year of transformative change for Phoenix and the challenges of Covid, the Committee attentively reviewed and monitored our remuneration policies to ensure alignment with our long-term strategy and social purpose and to drive the business forward sustainably for all of our stakeholders.”
Kory Sorenson Chair of Remuneration Committee 126 Phoenix Group Holdings plc Annual Report & Accounts 2020
DIRECTORS’ REMUNERATION REPORT AT A GLANCE ALIGNMENT TO STRATEGY This table demonstrates how each of our performance measures for AIP and LTIP align with the Group’s strategy.
AIP metrics engage employees across the Group to achieve common targets
As detailed in the strategy section of the 2020 Annual Report and Accounts under the ‘Engage Colleagues’ section, all employees with the exception of those who recently joined the Group from ReAssure, participate in a common incentive plan ensuring consistency of corporate goals and individual performance management. Employees from ReAssure continued with their existing bonus arrangements for the remainder of 2020 and will join the Group AIP described in this report from January 2021. Both variable pay plans for 2021 align to Phoenix’s Strategic KPIs as shown below.
The single figure outcomes for the former Executive Directors of Clive Bannister and James McConville from 1 January to their termination dates were £321k and £403k respectively.
Further details on shareholding guidelines, including post-cessation requirements are included on page 140 of the Implementation Report (Section A) and in the Remuneration Policy attached as Appendix to this report on page 155.
Group Chief Financial Officer Rakesh Thakrar Shareholding guidelines 250% Shares held at 31 December 2020 155%
Group Chief Executive Officer Clive Bannister Shareholding guidelines 200% Shares held at date of leaving 1164%
Performance period Deferral Holding period 129Phoenix Group Holdings plc Annual Report & Accounts 2020
4 James McConville resigned from the Board of Phoenix Group plc on 15 May 2020. 5 The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before individual elections. 6 Benefits for Andy Briggs comprise car allowance, private medical insurance and legal fees relating to his appointment totalling £26,323. Benefits for Rakesh Thakrar, Clive
10 For 2017’s LTIP awards which are reflected in the 2019 long-term incentives column above, the performance conditions were met as to 68.5% of maximum. The 2019 long-term incentives values in the above table reflect the value of the Company’s shares on the date of vesting which was 24 March 2020 (557.4p per share) multiplied by the number of shares vesting whereas the equivalent figure within the published 2019 Single Figure Table was an estimate which reflected the average share price between 1 October 2019 and 31 December 2019 (717.09p per share) and certain assumptions regarding the cumulative value of dividends on the number of shares vesting.
This section contains the annual report on remuneration which forms part of the Directors’ remuneration report to be proposed for approval by the Company’s shareholders at the Company’s 2021 AGM on 14 May 2021 130 Phoenix Group Holdings plc Annual Report & Accounts 2020
AIP OUTCOMES FOR 2020 – AUDITED INFORMATION Against the specific Corporate measures, outturns were as follows: Performance measure
Customer experience Customer satisfaction (SLAL Telephony)1 90.0% 91.0% 92.0% 90.0% 6.25% 0.00%
1 Telephone customer feedback surveys are delivered to customers after key interactions using the Rant & Rave solution, either by SMS or email. The question asks “Using a scale of 5 (excellent) to 1 (very poor) reply to tell us how you would rate your call experience today?” and the score is calculated as the % of responses of 4 or 5. 90% of responses to the question asked scored a rating of 4 or above.
2 The rating is a customer satisfaction score based on the results of a satisfaction survey following telephony interaction managed by Ipsos MORI (an external research firm). Customers surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions (with a rating of 4 or 5 regarded as satisfied). 94% of all questions asked scored a rating of 4 or above.
4 The rating is a percentage based upon the volume of servicing complaints (i.e. not product or advice) resolved within 3 days divided by the total number of servicing complaints resolved. This is a strategic requirement to provide better than mid-range performance within the complaints peer group.
The element of AIP that was previously attributed to personal objectives was replaced in 2020 with a Strategic Scorecard. Metrics and targets relating to this scorecard were agreed by the Group Board and Remuneration Committee at the start of the year. Outcomes against these targets are shown below with the exception of those which are considered as commercially sensitive.
Objective CEO CFO Description Base Performance Outcome ESG– Committing to a sustainable future 10% 10% Deliver for our customers Qualitative assessment
Qualitative assessment 75% Delivered the Group’s first Sustainability report and developed a clear future strategy that puts sustainability at the heart of the Group’s business. The focus can now shift to further embedding the Group’s ESG agenda and delivering against its targets.
Customer 15% 10% Customer incidents targets met Category A Target = 80% remediated within 2 months 94% remediated
Category B Target = 72.5% remediated within 9 months 84% remediated
Met 50% The risk management framework has been assessed as operating effectively across the Group. Certain risk and control enhancement actions have been determined during the year with agreed timetables for completion.
Financial 15% 20% PGH shareholder solvency ratio Maintained within the 140 – 180% target range
Business development 10% 5% BPA and Group Pension Scheme buy-in net flows £2.2bn £2.5bn 87.5% The Group has achieved strong performance against all incremental new business targets.
NBC (Total Open, Europe and BPAs) £160m £362m Long term cash generation– undiscounted (Open, Europe and BPA)
ReAssure transaction and onboarding 10% 15% Complete regulatory change in control process, secure funding and deliver the transaction
In light of the above achievements during the year, the Committee determined it was appropriate to pay the following outcomes under the Strategic Scorecard element for the Group CEO and Group CFO: % outturn of maximum 20% opportunity
The Committee was also satisfied that it was appropriate to pay out the incentives according to the formulaic outcomes in the context of the experience of Phoenix’s stakeholders during the year, in particular employees and shareholders, as our employees all received full pay throughout the year with none furloughed, the Group did not access any government support schemes, and the dividend has been maintained.
Whilst the performance measures for the AIP for 2021 have been disclosed (see Implementation of Remuneration Policy for 2021 on page 141), 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 2021’s AIP retrospectively in next year’s Remuneration Report on a similar basis to the disclosures made above in respect of 2020’s AIP. In 2020, Phoenix announced its new sustainability agenda and the metrics and targets for the ESG component of the 2021 strategic scorecard will align to this strategy.
Target range between Cumulative cash generation of £2.500 billion and Cumulative cash generation of £2.735 billion.
TSR (25%) Target range between median performance against the constituents of the FTSE 250 (excluding Investment Trusts) rising on a pro rata basis until full vesting for upper quintile performance. In addition, the Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company.
Following the acquisition of ReAssure Group plc by the Group on 22 July 2020, the LTIP targets for Cumulative cash generation were amended to reflect the new organisation. The adjustments were made in line with the Committee’s established principles for target setting in the event of an acquisition and the Committee was satisfied that the revised targets were equally stretching as those originally set. The previous targets for the Cumulative Cash Generation metric were 133Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
ANDY BRIGGS’S BUYOUT AWARD – AUDITED INFORMATION Buyout awards were granted under the LTIP to Andy Briggs in 2019 (and the number of shares in relation to each award was finalised in 2020 following confirmation of the share prices to be used which were based on the average three-day closing middle market prices for both Aviva plc and Phoenix Group Holdings plc as at 31 December 2019). The buyout awards were made as a result of Andy Briggs forfeiting a proportion of his Aviva long-term incentive options awarded to him in March 2017 and May 2018 by Aviva following his leaving. The Aviva March 2017 LTIP vested on 27 March 2020 with a performance outturn of 50%. In line with the Directors’ Remuneration Policy, Andy Brigg’s buyout awards will have a further two-year holding period post vesting before the executive is able to exercise his options. The Company has been advised that the performance outturn for the Aviva 2018 LTIP has vested at 0% and these awards will lapse on the vesting date. Details on these awards can be found on page 138.
Clive Bannister left the Group on 10 March 2020. He received pay in lieu of notice for the period starting on this date and ending on 7 November 2020, comprising salary, pension allowance and insurance benefits. This was paid in three instalments: £270,512 paid in June 2020, and £137,530 was paid in both September 2020 and November 2020. He received no compensation for loss of car allowance. As is standard practice, payment for unused holiday is added to final salary for all leavers in Phoenix Group, which resulted in a payment of £12,789. Clive’s 2019 AIP, which was reported in the 2019 single figure table, was paid in the normal way and subject to 40% deferral in line with the policy in force at the time of his departure. Clive will be eligible for a 2020 AIP award for the portion of the year in which he remained employed by the Group, which will be payable in March 2021 and subject to 50% deferral in line with remuneration policy adopted in 2020. Clive’s in-flight LTIP awards were time pro-rated to his end date. Clive is retaining his unvested DBSS awards and LTIP awards, subject to a holding period, as disclosed in the 2019 Directors´ remuneration report.
1 The amounts within the benefits columns reflect the fact that the reimbursement of expenses to Non-Executive Directors for travel and accommodation costs incurred in attending Phoenix Group Holdings plc Board and associated meetings represent a taxable benefit. This position has been clarified with HMRC and the amounts shown are for reimbursed travel and accommodation expenses (and the related tax liability which is settled by the Group).
The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of pensions and annual incentive was £4.537 million (2019: £4.120 million).
James McConville 1 In addition to the shares awarded under the LTIP presented above, participants receive an additional number of shares (based on the number of LTIP awards which actually vest) to reflect the dividends paid during the vesting period (and which for awards made from 2015, will include dividends paid during any applicable holding period).
2 Gains of Directors from share options exercised and vesting shares under the LTIP in 2020 were £2,426,388 (Clive Bannister’s gain was £1,477,955 arising from an LTIP award exercised on 26 November 2020 at a share price of £7.764494; James McConville’s gain was £829,623 arising from an LTIP award exercised on 20 October 2020 at a share price of £6.934157 and Rakesh Thakrar’s gain was £118,810 arising from an LTIP award exercised on 27 May 2020 at a share price of £6.346 .
Return on Shareholder Value – consistent with the approach taken on previous transactions and in compliance with the Group’s documented principles established for adjusting remuneration targets to reflect the impacts of acquisitions, there are no amendments to the target ranges for compound annual growth rates as a result of the acquisition of ReAssure. However, for each of the 2018, 2019 and 2020 Schemes, the opening Shareholder Value balance used to calculate the return is rebased by the value of equity issued (£2 billion) in consideration for the acquisition.
Performance measure 2018 award (40% Cumulative cash generation, 35% Return on Adjusted Shareholder Solvency II Own Funds and 25% Relative TSR)
2019 award (40% Cumulative cash generation, 35% Return on Adjusted Shareholder Solvency II Own Funds and 25% Relative TSR)
Relative TSR 25% of this part vests at threshold performance rising on a pro rata basis until 100% vests. In addition, the Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company, measured over three financial years commencing with the year of award.
Recipient Date of award Type of award Nature of the Award How the award is calculated Face value of award
Buyout award £1,310,944 27 March 2020 See footnote 2 7 November
Buyout award £760,206 26 March 2021 See footnote 2 13 March 2020 LTIP
Gains of Directors from share options exercised under Sharesave during 2020 were £4,838 (2019: £nil). Sharesave options are granted with an option price that is a 20% discount to the three-day average share price when invitations are made. This is permitted by HMRC regulations for such options.
Aggregate gains of Directors from share options exercised under all share plans in 2020 were £2,963,260 (2019: £590,721).
Total share plan interests as at 31 December 2020 – Subject to performance measures
SHAREHOLDING REQUIREMENTS – AUDITED INFORMATION As explained in the Remuneration Policy under the Shareholding Guidelines section, the Executive Directors are subject to shareholding requirements during their employment with the Group and for a period of two years post termination of employment.
Andy Briggs and Rakesh Thakrar are subject to a post-cessation shareholding of 100% of their in-employment shareholding for a period of two years post-employment. Clive Bannister and James McConville are subject to 100% of their inemployment shareholding for 12 months post-employment, and half of this level for the next 12 months.
Andy Briggs 300% 231% Rakesh Thakrar 250% 155% Clive Bannister 200% 1,164% James McConville 200% 472%
The post cessation shareholding requirement is monitored and enforced by direct liaison and confirmation with the Directors and their brokers, all trades and transfers are discussed and notified to the Group by the relevant Director.
Salary £800,000 £430,000, a 2.3% salary increase in line with the average increase awarded to the wider workforce.
Benefits Benefits in line with the rest of the workforce including car allowance of £10,000 and Private Medical Insurance cover for self only. Executive Directors are also entitled to receive benefits in accordance with our Directors’ Remuneration Policy which will be reported in the Single Figure Table each year.
Pension 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.
As introduced in 2020, a Strategic Scorecard will reflect 20% of the Executive Directors’ AIP. This will include a number of the strategic priorities for the year (but avoiding duplication with any outcomes under the Corporate element) and which can be clearly articulated and measured. This will include appropriate ESG metrics and for 2021 will align with the Phoenix sustainability strategy announced in 2020.
The weightings of the AIP performance measures for 2021 are summarised below: Performance measure
Cash Generation (30% of Corporate component) 24% Shareholder Value (25% of Corporate component) 20% Incremental Long Term Cash Generation less New Business Strain (20% of Corporate component) 16% Customer Experience (25% of Corporate component) 20% Strategic Scorecard 20%
The targets for the specific performance measures for AIP in 2021 are regarded as commercially sensitive by the Group but will be disclosed retrospectively in the Remuneration Report for 2021. 50% of AIP outcomes for 2021 will be delivered as an award of deferred shares under the DBSS which will vest after a three-year deferral period.
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.
Awards under the LTIP will be made automatically on the fourth dealing day following the announcement of the Group’s 2020 annual results under a procedure similar to that described above for awards under the DBSS.
The number of shares for LTIP awards will be calculated using the average share price for the three dealing days before the grant of the LTIP awards.
The performance measures for the 2021 LTIP have remained the same as for 2020 as these continue to reflect the long-term strategy for Phoenix.
No changes are proposed to the measures and relative weightings for the 2021 LTIP as the Committee considers these remain well aligned with the Group’s long-term strategy. Details of the 2021 measures, weightings and targets are shown below: Performance measure and weighting Threshold target Full vesting target
Net Operating Cash Receipts (35%) £4,330 million £4,780 million Return on Shareholder Value (return above risk free on Shareholder value (pre shareholder dividends) over a three-year period (25%)
Relative TSR measure against the constituents of the FTSE 350 (excluding Investment Trusts), subject to an underpin regarding underlying financial performance (20%) Median Upper quintile
All 2021 LTIP awards are subject to an underpin relating to risk management within the Group, consideration of customer satisfaction and, to meet Solvency II requirements, in exceptional cases, personal performance. This underpin relating to the formulaic outturn of the LTIP has been revised to better reflect the extent to which the Group has operated within its stated Risk Appetite and ensures that management is not incentivised to accept risk outside of appetite in the pursuit of improved delivery against LTIP performance targets. It also offers a broader assessment than the previous focus on the management of the Group’s debt position.
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.
All incentive plans are subject to malus/clawback. See page 156 ‘Notes to the Remuneration Policy’ for details.
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.
Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial year. For 2020 this is the interim dividend paid (£234 million) and the recommended final dividend of 24.1 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 either year.
Overall expenditure on pay has been taken as employee costs as set out in note C3 ‘Administrative expenses’ in the notes to the consolidated financial statements. Expenditure on pay has increased by 30% in the period, and by 9% on a like-for-like basis excluding the impact of the acquisition of the ReAssure businesses. The BAU increase of 9% was primarily driven by the cost of the crystallisation of the SunLife four-year long-term equity plan in the year, the increased cost arising from the implementation of the Unified People Proposition in July 2020 and from the impact from the crossover of the Executive Directors in the year.
VOTING OUTCOMES ON REMUNERATION MATTERS The table below shows the votes cast to approve the Directors’ remuneration report for the year ended 31 December 2019 and the Directors’ Remuneration Policy at the 2020 AGM held on 14 May 2020.
CONSIDERATION OF EMPLOYEE PAY During 2020 a new Unified People Proposition was implemented to move heritage Phoenix Group and heritage SLAL colleagues onto a common grading structure and benefit offering. This removed status enhancements from benefits such as holiday, private medical insurance, and pension contribution, so all colleagues, irrespective of hierarchy, benefit from a standard offering except where the external market drives differences such as car allowance, AIP and LTIP allocations. The remuneration packages for Andy Briggs and Rakesh Thakrar are therefore aligned to the rest of the workforce.
As explained in the Notes to the Remuneration Policy table: • when determining Executive Directors’ remuneration, the Committee takes into account pay throughout the Group to ensure that the arrangements in place remain appropriate; • the Group has one consistent reward policy for all levels of employees, and therefore the same reward principles guide reward decisions for all Group employees, including Executive Directors. The Group offers all employees a choice of share schemes (Sharesave and Share Incentive Plan) on the same basis as those offered to Executive Directors.
Despite the challenges of remote working during 2020, Karen Green, our designated Non-Executive Director for workforce engagement has continued her interaction with colleagues virtually. This included a full day session of the Colleague Advisory Forum where a number of topics relating to the workforce were discussed including the remuneration framework, fixed and variable pay, and core and voluntary benefits. Full details of Karen’s activities during the year are given on page 104 under the Corporate Governance Report.
CEO PAY RATIO In accordance with the DRR regulations we have provided in the table below the ratio of the CEO single total figure of remuneration for 2020 (as detailed on page 130) as a ratio of the equivalent single figure for the lower quartile, median and upper quartile employee (calculated on a full-time equivalent basis).
Phoenix Group has calculated the CEO pay ratio using Option A which is the most statistically robust of the methodologies permitted by the regulation. Under this option, the full-time equivalent pay and benefits of all Group employees including ReAssure staff, as at 31 December 2020 has been calculated using the same methodology as for the Group CEO and includes: • The full-time equivalent annualised salary data. • The full-time equivalent value of taxable benefits and pension contributions. • Amounts due from incentive plans.
The Group reviewed the pay of the three identified employees at 25th percentile, 50th percentile (median) and 75th percentile and concluded that they were a fair representation of pay at the relevant quartiles of the UK employee base. Each individual was a full time employee during 2020 and received remuneration in line with Group wide remuneration policies. None received exceptional pay.
The table below sets out the salary and total single figure remuneration for the CEO and percentile employees included in the above ratios.
Total remuneration (single figure) 2020 Option A 2,027,000 25,970 37,440 64,678 2020 Ratio 78:1 54:1 31:1 2019 Ratio 94:1 62:1 40:1 1 For the salary and single figure total remuneration for the CEO, the single figure table totals for Clive Bannister and Andy Briggs have been combined.
PERFORMANCE GRAPH AND TABLE As described in the 2019 Directors remuneration report, the graph below has been updated to reflect Phoenix’s entry to the FTSE 100 index in 2019 and shows the value to 31 December 2020 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 5 July 2010 compared with the value of £100 invested in the FTSE 100 Index (excluding Investment Trusts).
Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2020
2 See footnote 11 on page 130 for details of Andy Briggs’s LTIP vesting. 3 Clive Bannister’s 2020 single figure of total remuneration does not include compensation for loss of office. 4 Clive Bannister’s 2020 single figure of total remuneration does not include any value in respect of the 2018 LTIP. Final value on vesting will be disclosed in the 2021 DRR. 5 The single figure of total remuneration for 2019 has been restated and now reflects the actual price of shares on the day the 2017 LTIP vested (24 March 2020, 557.4p per share)
rather than the three-month average share price to 31 December 2019 (717.09p per share) which was required to be used last year for the single figure of total remuneration. 6 The long-term incentive vesting rate for 2013 is shown at 67% and for 2014 is shown as 57%. In both years the Group CEO decided to waive voluntarily any entitlement in excess of two-thirds of the shares which would otherwise have vested.
PERCENTAGE CHANGE IN PAY OF THE GROUP CHIEF EXECUTIVE OFFICER 2019 TO 2020 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 2019 and 2020 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. Note that this group excludes ReAssure employees who joined in July 2020.
Staff more generally have seen an increase due to a number of factors: • As explained in the 2019 DRR, a common benefits offering was introduced to all legacy Phoenix and legacy Standard Life Assurance business colleagues which has resulted in a number of employees receiving a higher benefits package, and a number receiving a higher target bonus range under the AIP as we continue to integrate the two businesses.
• The distribution of performance ratings was more skewed towards the higher end in 2020, in part in recognition of the challenges people have endured throughout 2020 in light of COVID-19.
The table below shows the independent Non-Executive Directors who served on the Committee during 2020 and their date of appointment: Member From To
Review of fixed and variable remuneration Annual and long-term incentive performance measures, targets and outcomes
All employee remuneration All employee discretionary incentive schemes including sales incentives
Organisation reward design following acquisition Workforce engagement mechanisms, gender pay and pay ratio 148 Phoenix Group Holdings plc Annual Report & Accounts 2020
ADVICE During the year, the Committee received independent remuneration advice from its appointed adviser, PwC, who is a member of the Remuneration Consultants Group (the professional body for remuneration consultants) and adheres to its code of conduct. The Remuneration Committee was satisfied that the advice provided by PwC was objective and independent.
PwC also provided general consultancy services to management during the year including support on other Board and Risk matters and technical advice regarding share schemes. Separate teams within PwC provided unrelated services in respect of tax, assurance, risk consulting 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.
The Group CEO, Group HR Director, Executive Reward Director and Group Financial Controller and delegates, attend, by invitation, various Committee meetings during the year. No executive is ever permitted to participate in discussions or decisions regarding his or her own remuneration.
The Committee consults with the Chief Risk Officer (without management present) on a regular basis. The Chief Risk Officer is asked to detail the extent to which the Group has operated within its stated risk appetite during the year and to keep the Committee informed of any risk-related concerns that required the Committee to consider using its judgement to moderate incentive plan outcomes. The Chair of the Remuneration Committee also sits on the Risk Committee to enable additional linkage between risk matters and remuneration outcomes.
APPROVAL This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by: Kory Sorenson Remuneration Committee Chair Approved by the Board on 7 March 2021 149Phoenix Group Holdings plc Annual Report & Accounts 2020
GENERAL POLICY The Remuneration Policy for Executive Directors is summarised in the table below along with the policy on the Chairman’s and the Non-Executive Directors’ fees.
The Company’s overall positioning on remuneration for Executive Directors has been updated to reflect the provisions of the new UK Corporate Governance Code, best practice and feedback received from shareholders during consultation.
An appropriate balance is maintained between fixed and variable components of remuneration.
Our updated Remuneration Policy benchmarks the total target remuneration for the Executive Directors using appropriate market data sets.
Clarity and simplicity • The reward framework seeks to embed simplicity and transparency in the design and delivery of remuneration. We have proposed changes to our AIP performance measures (to replace the Personal Performance assessment with a Strategic Scorecard with transparent, measurable metrics, and to replace Management Actions with Net Flows (Workplace)) in order to simplify the AIP assessment process while enhancing alignment to Group strategy.
• We have included additional diagrams and charts in this year’s Remuneration Report to improve clarity for readers regarding the alignment of Executive remuneration with shareholders and our strategy.
Risk • The Committee undertakes an annual review of risk before confirming the outcomes for the AIP to ensure that there are no risk-related concerns that require the moderation of AIP outcomes.
• Malus and clawback operate in respect of the AIP and LTIPs (see page 156 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.
Alignment to culture • We have engaged with our employees through our Colleague Insight Survey and Employee Networks (see further details on page 44 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.
This appendix contains the Directors’ remuneration policy approved by the company’s shareholders at the Company’s 2020 AGM on 15 May 2020.
POTENTIAL REWARDS UNDER VARIOUS SCENARIOS (£000) The charts below compare the maximum levels of Total Remuneration payable under the Directors’ Remuneration Policy (see page 150).
Minimum Consists of base salary, benefits and pension: • Base salary is the salary to be paid in 2020. • Benefits measured as benefits to be paid in 2020. • Pension measured as the full entitlement of approximately 10.5% of base salary receivable (after the reduction to payments made in cash for employers’ National Insurance Contributions).
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.