## Annual Report and ## Accounts 2022 ### Phoenix Group Holdings plc ## We are proud to be the UK’s largest long-term ## savings and retirement business. With ## approximately £260 billion of assets under ## administration, we offer our c.12 million ## customers a comprehensive range of products ## across our market-leading pensions, savings ## and life insurance brands. Together, we’re ## helping people secure a life of possibilities. ### Our 2022 reporting suite ### You can find out more about our activities, financial performance, ### sustainability strategy and our progress to becoming a net-zero ### business by 2050 on our website and in our reporting suite. Topics covered Annual Report Sustainability Report Climate Report Business strategy & performance Risk management Board governance Financial performance Sustainability strategy Sustainability governance ESG materiality Social issues Climate-related risks Climate-related opportunities ### Access the full reporting suite at thephoenixgroup.com Find out more on our website Strategic report ## Performance In this report ### Key Other Strategic report About Phoenix Group 4 ### performance performance Our investment case 6 ### indicators indicators Chair’s statement 8 Group Chief Executive Officer’s report 10 Operating companies’ Total ordinary dividend Our business model 14 cash generation per share Our strategic priorities and KPIs 18 Business review 28 Stakeholder engagement 42 ## £1,504m 50.8p Non-financial information statement 44 (2021: £1,717m) (2021: 48.9p) Streamlined Energy and Carbon REM APM Reporting (‘SECR’) statement 46 Task Force on Climate-Related Financial Disclosures 48 Risk management 52 Viability statement 68 Group Solvency II surplus Adjusted operating profit (estimated) ### Corporate governance Chair’s introduction to governance 72 ## £4.4bn £1,245m Board leadership and Company purpose 74 Division of responsibilities 82 (2021: £5.3bn) (2021: £1,230m) REM APM Stakeholder engagement 84 Composition, succession and evaluation 88 Audit, risk and internal controls 96 Sustainability governance 105 Workforce engagement 108 Group Solvency II shareholder IFRS loss after tax Directors’ remuneration report 110 capital coverage ratio (estimated) Directors’ report 147 Statement of Directors’ responsibilities 153 | 189% | | £(1,762)m | | | --- | --- | --- | --- | | (2021: 180%) | | (2021: £(709)m) | Financials | | REM | APM | | | Independent auditor’s report 156 IFRS consolidated financial statements 168 Notes to the consolidated financial statements 175 Parent company financial statements 290 Incremental new business Fitch financial leverage ratio Notes to the parent company financial statements 293 long-term cash generation Additional Life Company asset disclosures 307 Additional capital disclosures 312 | £1,233m | | 30% | | Alternative performance measures 314 | | --- | --- | --- | --- | --- | | (2021: £1,184m) | | (2021: 28%) | | | | REM | APM | REM | APM | Additional information | Shareholder information 318 Glossary 320 Online resources 325 All amounts throughout the report Assets under administration Forward-looking statements 326 marked with REM are KPIs linked to Executive remuneration. See Directors’ remuneration report on page 110. ## £259bn All amounts throughout the report marked with APM are alternative (2021: £310bn) performance measures. Read more APM on page 314. The Strategic report was approved by the Board of Directors on 10 March 2023 and signed on its behalf by Andy Briggs Group Chief Executive Officer Phoenix Group Holdings plc Annual Report and Accounts 2022 1 ## Strategic ## report 2 Phoenix Group Holdings plc Annual Report and Accounts 2022 Strategic report About Phoenix Group 4 Our investment case 6 Chair’s statement 8 Group Chief Executive Officer’s report 10 Our business model 14 Our strategic priorities and KPIs 18 Business review 28 Stakeholder engagement 42 Non-financial information statement 44 Streamlined Energy and Carbon Reporting (‘SECR’) statement 46 Task Force on Climate-Related Financial Disclosures 48 Risk management 52 Viability statement 68 3Phoenix Group Holdings plc Annual Report and Accounts 2022 ### About Phoenix Group ## At a glance ### Who we are ### Phoenix Group is the UK’s largest ### Our purpose drives everything we do: ### long-term savings and retirement ### business. We offer a broad range ## Helping people ### of pensions and savings products ### to support people across all stages ## secure a life of ### of the savings life cycle. ## possibilities ### Our vision ### To grow a strong and sustainable ### business to help more people on their ### journey to and through retirement. ### Our business Our family of brands ## £259bn c.12m total assets under customers administration ## c.6,800 FTSE 100 colleagues and FTSE All World as at 1 March 2023 ## c.£6.4bn £12.1bn market capitalisation of Group in-force long-term as at 1 March 2023 free cash to emerge over time ### Our values ### Growth Passion Responsibility Courage Difference We grow our We are passionate We build trust by We’re ambitious We collaborate business through about understanding taking accountability in the challenges across boundaries finding new ways and acting on what’s and empowering we solve and we and embrace to develop important to our others to do the always speak up. difference to our expertise customers, colleagues right thing. deliver the best and innovate. and society. customer and colleague outcomes. Phoenix Group Holdings plc Annual Report and Accounts 20224 Strategic report ## Our in-force business has ## c.12m customers, with scale ## businesses across the long- c.£25bn ## term savings and retirement ## markets c.£33bn ## c.£140bn ## £259bn c.£119bn ### growth ### AUA ### businesses c.£82bn | Heritage Pensions | | Retirement | Europe | | --- | --- | --- | --- | | | and savings | solutions | and SunLife | | We are the market leader in | We help customers journey | We participate across the | Standard Life International, | | the safe and efficient | “to and through” retirement. Our | key retirement markets, as | which operates in Ireland | | management of legacy | Workplace business supports | we seek to help customers | and Germany, offers a range | | pensions and savings policies | people who save through their | secure income certainty in | of pensions and savings | | to deliver better customer | workplace pension, and our | retirement, including Defined | products, including | | outcomes, and in realising | Retail business supports | Benefit pensions (including | international bonds. SunLife | | significant cost and capital | individual customers to save | Bulk Purchase Annuities), | offers protection solutions and | | synergies through Heritage | for, transition to, and earn | individual annuities, and | funeral plans direct to the over | | backbook M&A. | income in retirement. | home equity release. | 50s market in the UK. | ## c.5.5m c.3m c.1.5m c.2m customers customers customers customers ### We offer a range of customer solutions across our businesses ### Long-term savings Retirement Legacy Defined Retail Pension Income Home Defined Protection pensions contribution savings for consolidation drawdown equity Benefit solutions and savings workplace retirement and individual release pensions and funeral products pensions annuities plans Phoenix Group Holdings plc Annual Report and Accounts 2022 5 ### Our investment case ## How we generate shareholder value ### We have a clear and differentiated strategy: we are growing ### our in-force business both organically and through M&A… ### Organic growth M&A growth Fee-based Retirement Backbook Capability businesses solutions M&A M&A • Workplace • DB Solutions • Cost and • Accelerates • Retail • Retirement capital capability Income synergies build • Other Reinvest Further Further Reinvest surplus in-force in-force surplus cash cash ## In-force business ### Our in-force business provides ### three competitive advantages ### Capital Customer Cost ### efficiency access efficiency Phoenix Group Holdings plc Annual Report and Accounts 20226 Strategic report ...to deliver on our financial framework... ...which underpins our sustainable dividend approach # Cash In-force business covers our dividend over the very long term # Resilience Highly resilient capital position # Growth Growing organically and through M&A # Phoenix Group's dividend policy The Board intends to pay a dividend that is sustainable and grows over time Our strong dividend track record +4% CAGR ![img-0.jpeg](img-0.jpeg) Phoenix Group Holdings plc Annual Report and Accounts 2022 7 ### Chair’s statement ## A truly purpose-led ## business ### “Phoenix is fully embracing its purpose ### as we help more people on their journey ### to and through retirement, while delivering ### better outcomes for all of our stakeholders.” Alastair Barbour, Chair Scan the code to watch the video from our Chair | I am delighted to report that 2022 has | Our purpose drives all that we do | a green economy presents, such as | | --- | --- | --- | | been another year in which Phoenix Group | As the UK’s largest long-term savings and | renewable energy and sustainable | | has delivered both clear strategic progress | retirement business, managing £259 billion | transport. A great example of which | | and strong financial performance. | of assets on behalf of our c.12 million | is the £330m of policyholders assets | | | customers, we have the responsibility and | we have invested into an innovative | | During the year, Phoenix Group has once | opportunity to make a real difference to | multi-asset ‘climate solutions’ mandate. | | again continued to produce the high levels | our customers and to help drive a low | | | of predictable cash generation it has | carbon, fair and more secure future. | I am also delighted with the progress we | | always been known for and maintained | That is why we are fully embedding ESG | are making to decarbonise our supply | | its resilient balance sheet despite the | considerations across our business. Our | chain and operations, with 82% of our | | economic turbulence. The Group has also | strategic priorities are therefore informed | suppliers committed to science-based | | delivered strong organic growth through | by, and in support of, the key ESG themes | or Race to Zero based targets, and an | | our Standard Life branded businesses and | where we can make the most difference, | 80% reduction in the emissions intensity | | M&A growth with the announcement of | to both the planet, and to people. | of our own operations since 2019. | our first ever cash-funded acquisition of | SLF of Canada UK Limited (‘Sun Life of | If we are really going to help people secure | | Our second key theme is focused on | | --- | --- | --- | --- | | Canada UK’). All of which has enabled the | a life of possibilities, we need to play our | | people, through promoting financial | | Board to recommend a dividend increase | part in tackling the climate crisis affecting | | wellness and the role of good work and | | of 5% for 2022. | our planet. This means managing the | | skills. We are facing a growing pension | | | financial risks that climate change poses to | | savings gap, with research from our think | | At the Group’s Capital Markets Event in | our customers, as well as maximising the | | tank, Phoenix Insights, revealing that only | | December 2022 the executive team | opportunities it creates. We will do this by | | 14% of defined contribution pension | | detailed their clear strategy to meet more | transitioning our business to net zero. | | savers are on track for a retirement income | | of the needs of our existing customers and | And by being a leading voice, in calling | | that maintains their current standard of | | to attract new customers, enabling us to | for action, and driving system change. | | living. Engaging people in their financial | | continue delivering cash, resilience and | | | futures, and advocating for broader | | growth going forward. The Group also set | We have therefore set clear targets for our | | societal action to tackle under-saving, | | its first ever organic growth target, which | journey to net zero across our investment | | is a critical part of our commitment to | | reflects both the Board and executive | portfolio, supply chain and operations, and | | our purpose. Phoenix is supporting better | | team’s confidence in Phoenix Group’s | with an estimated 24 million tonnes of CO | 2 | financial futures by meeting more of our | | future growth prospects, despite the | emissions from our investment portfolio, | | customers’ evolving needs on their journey | | challenging economic outlook for 2023. | we really can make a difference. | | to and through retirement, through our | range of innovative products and services. I am proud to see that the journey Phoenix We are taking an active approach Group has been on during the ten years I to protecting our customers, by However, for people to have better, longer have served on its Board is delivering such decarbonising our portfolios at scale, and lives they also need access to good work clear value to our customers, colleagues, through stewardship engagement. We also and opportunities to upskill throughout shareholders and wider society, as we fully want to take advantage of the substantial their careers, increasing their incomes and embrace our purpose of ‘helping people investment opportunities, that moving to ability to save for retirement. Phoenix secure a life of possibilities’. Phoenix Group Holdings plc Annual Report and Accounts 20228 Strategic report Insights advocates for change in working practices, careers advice and lifelong learning, as explained in more detail on pages 24–25. And as an employer, Phoenix is committed to being an exemplar inclusive, age-friendly workplace. Supporting our colleagues We also have a broader role to play in society and against the backdrop of economic uncertainty, a key issue over the past year has been the Cost of Living Crisis. The Board has therefore been focused on ensuring our colleagues are supported throughout. Central to this has been a wide-ranging support package to help colleagues navigate the cost of living challenges, which included giving all colleagues, except our most senior staff, a net £1,000 payment in August 2022. ## The success of our Shareholder dividend increase ## “Let’s Get Ready” campaign The Group has a clear dividend policy which is to pay a dividend that is We’re living longer than our parents and grandparents’ generations, sustainable and grows over time, with the which presents huge opportunities for us all. To make the most of these Board prioritising the Group’s long-term opportunities, we need to think differently about how we work, learn, dividend sustainability at all times. save and care for our families, and retire. I am delighted to announce that the Board We need to reshape the systems that support and enable people to live is recommending a 5% increase in the better, longer lives. As the UK’s largest long-term savings and retirement Group’s 2022 Final dividend to 26.0 business, we believe we have a critical role to play in helping to achieve this pence per share, meaning the Group’s and are committed to advocating on behalf of our customers to deliver it. Total dividend for 2022 will be 50.8 pence per share. This reflects the Group’s strong That is why we launched a multi-media campaign during 2022 on performance across a range of strategic stereotypes and perceptions of retirement to kickstart a national and financial performance measures. It conversation on retirement and the impact of people living longer comprises a 2.5% organic dividend lives, with positive feedback across a variety of stakeholders. increase, and a 2.5% inorganic increase, reflecting the value from the acquisition of Sun Life of Canada UK. Scan the code to watch the Going forward, we expect the business to video continue growing organically and we also remain committed to M&A. This in turn is expected to support a dividend that is sustainable and grows over time. Board changes I am delighted to be fulfilling the role | of Chair while Nicholas Lyons is on a | Maggie Semple as an independent | economic volatility. While our strategy will | | --- | --- | --- | | 14-month sabbatical, which is enabling him | Non-Executive Director and the Group’s | support us in delivering future growth, as | | to undertake the role of Lord Mayor of the | Designated Non-Executive Director for | we meet more of the needs of our existing | | City of London. Nicholas has resigned | Workforce Engagement. Katie and Maggie | customers and acquire new customers. | | from the Board on a temporary basis for his | have brought a diversity of experience and | | | sabbatical, but remains in contact with | new perspectives, and both are already | Thank you | | myself and our CEO, Andy Briggs, so that | making valuable contributions. We also | Finally, I would like to take the opportunity | | he can seamlessly resume his role as Chair | wished Wendy Mayall a fond farewell, as | to thank the Board, our colleagues, our | | from November 2023. In line with good | she retired from the Board in 2022, after | partners and all of our wider stakeholders | | corporate governance as it relates to the | diligently serving two three year terms and | for their hard work and dedication in | | independence of Non-Executive Directors, | supporting us in navigating a number of | delivering what has been another | | having served ten years on the Phoenix | key strategic initiatives during her time. | successful year for Phoenix Group. | Group Board, I will sadly be leaving the Board when Nicholas returns in November. Outlook As we enter a challenging economic | Elsewhere, during 2022 the Board was | environment in 2023, the Board and I are | | | --- | --- | --- | | delighted to welcome Katie Murray as an | confident that Phoenix’s business model | Alastair Barbour | | independent Non-Executive Director and | and risk management approach will ensure | Phoenix Group Chair | | Chair of the Board Audit Committee, and | that we remain highly resilient to any | | Phoenix Group Holdings plc Annual Report and Accounts 2022 9 ### Group Chief Executive Officer’s report ## Phoenix is delivering ## sustainable growth ### “2022 has seen us execute against all of our ### strategic priorities as we delivered both ### organic and M&A growth, which demonstrates ### that Phoenix is truly a growing business.” Andy Briggs, Group Chief Executive Officer Scan the code to watch the video from our Group CEO | 2022 has been a strong year of delivery for | We have also delivered M&A growth in | does create IFRS accounting volatility. | | --- | --- | --- | | Phoenix Group, despite the challenging | 2022, with the announcement of our cash | This impact has been accentuated by | | economic environment. As we have made | funded acquisition of Sun Life of Canada | the significant increase in yields last year, | | significant progress against our strategic | UK. This is expected to complete in April | driving the large accounting loss, but this | | priorities during the year by continuing to | 2023, with the key regulatory approvals | does not impact our cash generation or | | embrace our purpose. This has supported | now received. The significant value that | dividend capacity in any way. | | us in delivering a strong set of financial | will be generated by this transaction has | | | results, in line with our financial framework | enabled the Board to recommend a 2.5% | Executing on our clear strategy | | of Cash, Resilience and Growth. | inorganic dividend increase this year, | Phoenix’s role in society is to help | | | which demonstrates the significant value to | our customers journey to and | | Delivering Cash, Resilience and Growth | shareholders of smaller, cash funded M&A. | through retirement by meeting their | | supports an increased dividend | | evolving needs. | | During 2022, our in-force business | As a result of our strong overall | | | delivered cash generation of £1.5 billion, | performance, I am pleased that the Board | Phoenix has a clear and differentiated | | exceeding our 2021 target range of | is recommending a dividend increase of | strategy as outlined on pages 14–15, which | | £1.3-to-£1.4billion. Our resilient Solvency II | 5%, in line with our dividend policy. | is in support of our purpose of helping | | (‘SII’) capital position was maintained with a | This reflects the Board’s determination | people secure a life of possibilities. | | SII Surplus of £4.4billion (2021: £5.3billion) | to reward our shareholders when our | | | and an increased Shareholder Capital | business performs well. | Our strategy is simple. We are the experts | | Coverage Ratio (‘SCCR’) of 189% (2021: | | in optimising a scale in-force business for | | 180%), which is currently above our target | The sustainability of this increased level of | cash and resilience, and we grow this both | | range of 140–180%, providing capacity | dividend is underpinned by the £0.3 billion | organically and through M&A. | | for us to invest into growth. | increase in our Group in-force long-term | | | | free cash to £12.1 billion (2021: £11.8 billion). | Our in-force business is the £259 billion | | I am delighted we have delivered a second | This is the cash that will emerge from our | of assets we look after for our c.12 million | | consecutive year of organic growth with | in-force business and will be available to | existing customers. It is highly cash | | record incremental new business long- | our shareholders over time. It ensures our | generative, and provides surplus cash, | | term cash generation of £1,233million | increased level of dividend remains just | that we can reinvest into growth. | | (2021: £1,184million). This means that we | as sustainable over the very long term. | | | have once again more than offset the | | Organic growth comes from meeting more | | run-off of our in-force business and firmly | In terms of our IFRS reporting, we have | of our existing customers’ needs as they | | established Phoenix as a business that is | reported an increased adjusted operating | save for, transition to, and secure an | | growing and sustainable. We are now | profit of £1,245m for the year (2021: | income in retirement. We also acquire new | | confident of growing our incremental new | £1,230m), but the impact of our hedging | customers, who we can then help through | | business long-term cash generation going | approach results in an IFRS loss after tax of | their life cycles. | | forward and have set a target of c.£1.5 | £(1,762)m (2021: £(709)m). As a reminder, | | | billion per annum by 2025, which is the | we hedge our Solvency balance sheet | In addition, we have attractive M&A growth | | first organic growth target we have ever | with the aim of delivering resilient cash | opportunities, where we acquire new | | set, which is a clear signal of our ambition. | generation over the long term, but this | customers at scale and deliver better | Phoenix Group Holdings plc Annual Report and Accounts 202210 Strategic report outcomes for customers with legacy products. In the process, we transform the ### Significant growth opportunities are available by acquired businesses, to deliver significant ### meeting more of the evolving needs of our existing cost and capital synergies. ### customers and acquiring new customers: But what’s particularly attractive about our business model, is that the whole really is more than the sum of the parts. With our organic and M&A growth generating more ### Supporting Phoenix response in-force business, that we then optimise. ### corporates to de-risk We are now an established player in the BPA market reflecting the We are confident of delivering our strategy ### through BPAs investment we have made to build a because our scale in-force gives us three Corporates are de-risking their defined comprehensive market proposition. unique competitive advantages. benefit pension scheme liabilities This is enabled by the strong asset through Bulk Purchase Annuity (‘BPA’) management and other supporting The first is capital efficiency, where we get transactions in order to focus on their capabilities we have built. greater diversification from the breadth of core businesses. This is fuelling in-force products across our £259 billion of increased demand for BPAs. customer assets. We are also highly ## £30–60 billion resilient, through our core capabilities in risk management and capital optimisation. ### c.£1.4 trillion stock Market flows per annum Secondly, with c.12 million customers we have an unrivalled level of customer ### Enabling customers to Phoenix response access, with around 1-in-5 UK adults being We have re-established ourselves as a a Phoenix Group customer. This provides ### save for retirement in significant player in the Workplace us with deep customer insights and clear ### Workplace schemes market. We are investing in this growth opportunities as we look to meet business and will leverage the Standard more of their evolving needs over time. The Workplace pension scheme Life brand and our improved market is growing rapidly, driven by capabilities to retain and grow our auto-enrolment, an ageing population And thirdly, we have a significant cost customer assets over time. and the move from defined benefit efficiency advantage. This is enabled pension schemes to defined through our customer administration and contribution pension schemes. IT partnership with Tata Consultancy ## £40–50 billion Services (‘TCS’), and our focus on Market flows per annum delivering a simplified operating model. ### c.£0.5 trillion stock Our in-force business therefore gives us real competitive advantages, that are very ### Enabling individuals Phoenix response hard to replicate. Which means we are ### to save for, transition By engaging our c.12 million customers confident that we can, and will, win in our to better understand their needs and chosen markets. ### to, and secure delivering the solutions they require, we have the opportunity to encourage All of which provides us with the ### income, in retirement customers to save with us, consolidate opportunity to drive both organic and People are seeking guidance on their their pensions with us, and to M&A growth through meeting our journey to and through retirement, as decumulate through retirement with us. customers’ needs, as outlined in the responsibility for retirement planning has now shifted towards individuals. spotlight box to the left. ## £80–100 billion Delivering our strategic priorities ### c.£1.0 trillion stock Market flows per annum Our strategy is delivered on a day-to-day basis through our three strategic priorities, which cover the investments and the programmes of work, that will further ### Supporting customers Phoenix response enhance our competitive advantages, and ### with legacy pensions As the market leader in Heritage M&A enable us to help people secure a life of we have the capability and scale to possibilities. Our progress this year against ### and savings products integrate businesses onto our modern each of these priorities is outlined below. Pressure on insurance companies to platform to deliver better outcomes for focus their strategies, free-up capital customers with legacy products. We Optimise our in-force business trapped in Heritage books, and to deal also unlock significant cost and capital Our first strategic priority is all about with cost inefficient legacy products synergies to create shareholder value. leveraging our scale in-force business to and platforms, makes further deliver capital efficiency and better consolidation in the UK market likely. returns on our capital, with a strong 2022 ## Further M&A performance across our key areas of focus. ### c.£470 billion market Market activity to continue over time Delivering cost and capital synergies, which we refer to as ‘management actions’, Phoenix Group Holdings plc Annual Report and Accounts 2022 11 ### Group Chief Executive Officer’s report continued | remains a core capability of Phoenix. | Last year we also started to integrate | members join our existing schemes. This | | --- | --- | --- | | In 2022, we have once again delivered | decarbonisation strategies into our listed | supported us in delivering a c.50% annual | | a significant level of management actions, | equity portfolios and we are now in the | increase in new business long-term cash | | with £739 million of actions achieved. | process of designing decarbonising equity | generation. We also won 76 new schemes | | This was primarily from business-as-usual | benchmarks for UK and US listed equity | across all parts of the market including | | management actions, which are not reliant | exposures. This will help manage our | small, medium and large schemes. | | on cost and capital synergies from M&A | customers’ exposure to climate risk and | | | transactions, and are therefore sustainable | reduce the carbon intensity of our | Elsewhere, our other fee-based businesses | | over the long term. This included the | investment portfolio. | (Retail, Europe and SunLife) remained | | ongoing delivery of a range of balance | | resilient during the year. | | sheet efficiencies, which remains a | I am also delighted that the work Phoenix | | | differentiating capability for us, as well | and our peers have done to influence the | We are also growing through M&A, having | | as further illiquid asset origination and | SII reform proposals means the insurance | announced our first ever cash-funded | | optimisation of our liquid credit portfolio. | industry should be better placed to help | acquisition, of Sun Life of Canada UK for | | | accelerate the path to net zero by investing | consideration of £248 million. This | | Our comprehensive risk management | to develop a low carbon economy. | transaction, which is due to complete in | | framework includes our hedging approach, | | April 2023, is expected to deliver c.£0.5 | | which differentiates us from other insurance | Grow organically and through M&A | billion of incremental long-term cash | | companies. We hedge the vast majority of | Our second strategic priority is focused on | generation. This transaction also benefits | | the market risks we are exposed to including | meeting more of our existing customer | from a simplified operational integration | | equities, interest rates, inflation and | needs and acquiring new customers, with | programme, as the majority of their policy | | currency, to minimise volatility in our capital | a significant year of achievements in 2022. | administration is already being outsourced | | position during volatile economic periods. | | to our strategic partner (TCS Diligenta). | | We also operate a conservative credit | Our Retirement Solutions business had | | | portfolio to manage our exposure to credit | another strong year. Our focus on | Engaging people in better financial | | risk. This approach enabled us to limit our SII | improving our capital efficiency in the Bulk | futures is the second key pillar of our | | surplus economic variance to £(0.4) billion | Purchase Annuity (‘BPA’) business enabled | sustainability strategy and we have | | during a volatile economic environment. | us to generate a broadly similar amount of | continued to make great progress here. | | | incremental new business long-term cash | In 2022, we transitioned c.1.5 million | | We have also continued to enhance our | generation with less capital invested. This | customers and c.£15 billion of assets from | | asset management capabilities, to support | in turn enabled us to deliver an improved | our existing default funds to our flagship | | our growth ambitions and efficiently | mid-teens IRR. It was also great to see the | Sustainable Multi-Asset default fund, as | | oversee the management of our customer | success of our launch of the Standard Life | we seek to support our customers in | | assets, and continued to expand our range | Home Finance products and the ongoing | investing their pension assets sustainably. | | of asset management partners to 21, as we | development of our open market annuity | | | seek to diversify our portfolio globally. | product, supporting a launch in 2023. | We also continued to use our influence on | behalf of our customers and colleagues. As | Investing in a sustainable future is the first | I am also delighted that the significant | the UK Government’s Business Champion | | --- | --- | --- | | key pillar of our sustainability strategy and | progress we have made in developing our | for Ageing Society, I am passionate about | | we have continued our investment into | Workplace proposition and the investment | encouraging older workers to stay in work | | sustainable assets with c.£1 billion invested | we have made into the Standard Life brand | or come back to work. Good examples of | | to support affordable housing, access to | is delivering improved performance. We | Phoenix leading in this area were our | | healthcare, and projects with a positive | achieved net flows of £2.4 billion, as we | high-profile initiative to make our job | | environmental or social impact. | retained our existing schemes and saw new | adverts age neutral and the Phoenix | ## Capital Markets Event: delivering sustainable organic growth At the event, Phoenix announced its first ever organic growth target of c.£1.5 billion p.a. of incremental new business long-term cash generation by 2025, comprising c.£1.0 billion from Retirement Solutions and c.£0.5 billion from Pensions & Savings. In Retirement Solutions, our strategy is to deliver a market-leading customer proposition and to optimise our capital to drive strong returns for our shareholders. We will remain disciplined in allocating c.£300 million p.a. of capital into BPA, which will support us in meeting the growing demand for BPAs from corporates. Scan the code to watch the Capital In Pensions and Savings, our strategy is to deliver market-leading, comprehensive Markets Event and convenient propositions across our Workplace and Retail businesses, presentation which leverage the Standard Life brand. This will support us in delivering annual replay net fund flows of c.£5 billion in Workplace and c.£2 billion in Retail, by 2025. Phoenix Group Holdings plc Annual Report and Accounts 202212 Strategic report ## Leveraging the ## Standard Life brand A key part of our growth strategy is leveraging the power of the Standard Life brand that we acquired in 2021. We now utilise the brand across the majority of our growth businesses, including our Retirement Solutions, Pensions & Savings and European businesses. The Standard Life brand has a deep history and heritage, and is well known and trusted by both advisers and customers. It has been a key factor in supporting our strong organic growth over the past few years and will support us in our future growth ambitions. We are committed to investing into the brand to support us in delivering on our future ambitions and growth targets. | Insights ‘The Great Retirement’ report | and Executive Committee, in line with our | Workplace is also a very resilient business | | --- | --- | --- | | which identified some of the key factors | diversity and inclusion goals. | during an economic downturn, with | | driving rising levels of economic inactivity | | pension contributions being deducted | | among the over 50s in the UK. | Leading as a responsible business is the | direct from salaries by employers, leading | | | third key pillar of our sustainability strategy. | to stable flows through economic cycles. | | Enhance our operating model | Here we are committed to adopting the | | | and culture | highest sustainability standards across our | Finally, there remains c.£470 billion of | | Our third strategic priority is focused | business and will lead by example for the | UK Heritage assets that we believe | | on delivering leading cost efficiency and | stakeholders we engage with to drive real | could come to market over time and we | | a modern organisation. | world change and deliver positive impact | expect further opportunities for M&A | | | We are committed to being net zero in our | consolidation due to the impact of cost | | We continued to make great progress with | own operations by 2025, which we remain | inflation on backbook portfolios. | | our integration work, with the migration of | on track to achieve, with an 80% reduction | | | c.400,000 Standard Life annuities to the | in emissions intensity across our own | All of which means we expect to see | | TCS BaNCS platform and we transferred | operations since 2019. | continued organic and M&A growth, to | | the custody and fund accounting services | | support us in delivering Cash, Resilience | | for £90 billion of assets to HSBC. | We are also leading the industry with our | and Growth, enabling us to pay a dividend | | | approach to our supply chain, where we | that is sustainable and grows over time. | | We have also recently announced the | have set our pathway to decarbonisation | | | extension of our partnership with TCS, as | and launched stretching new ESG supply | We are confident in our future growth as | | we plan to move all c.3 million ReAssure | chain standards for our partners. | demonstrated by setting our first ever | | policies from our Alpha platform to the | | organic growth target of c.£1.5 billion of | | TCS BaNCS platform by 2026. This will | Outlook | incremental new business long-term cash | | enable our customers to benefit from the | Looking forward, it is clear that 2023 will | generation by 2025. | | clear digital focus, consistent customer | present a challenging economic backdrop. | | | journeys and proposition provided by the | However, our business model is designed | Thank you | | BaNCS platform. It is also fully aligned with | to be resilient throughout the economic | The progress we have made this year is | | our model of enhancing long-term cost | cycle. Our comprehensive hedging | all down to our exceptional people and | | efficiency, with a further c.£180 million | approach is designed to protect our | I would like to thank my colleagues | | of ReAssure net cost synergies expected. | Solvency capital position from the majority | throughout the Group for their continued | | | of the market risks we are exposed, while | contribution and dedication in 2022. | | As ever, we remain focused on attracting, | the key areas of structural market growth | | | developing and retaining the best talent to | we are focused on remain attractive. | | drive our business forward. With a range | of initiatives in the year that has supported | In particular, we expect to see a strong year | | | --- | --- | --- | | an increase in our colleague engagement | of volumes in the BPA market during 2023, | | | eNPS score to +30 (2021: +23). It is also | with the recent yields increase having | Andy Briggs | | pleasing to see that we have balanced | improved the funding positions of many | Group Chief Executive Officer | | female representation on our Group Board | schemes, driving increased demand. | | Phoenix Group Holdings plc Annual Report and Accounts 2022 13 ### Our business model ## Building a growing, sustainable business ## Our strategy drives growth by meeting more of the evolving needs ## of our existing customers and through acquiring new customers Saving for retirement Securing income in retirementTransitioning to retirement Wealth Pension consolidation Retail savings Income drawdown and for retirement individual annuities Defined contribution Defined benefit workplace pensions pension income Legacy Home pensions Guidance and advice equity and savings release products Financial wellness Lifetime ## Organic growth M&A growth Meet more of our existing customers’ We will undertake M&A to: needs and acquire new customers • Acquire new customers and by helping them to: transform businesses to deliver • Save for retirement cost and capital synergies • Transition to retirement • Accelerate our capability build • Secure income in retirement Reinvest Further Further Reinvest surplus in-force in-force surplus cash cash ## In-force business Supporting our existing in-force customers’ journey to and through retirement | c.12m | £259bn | £12.1bn | | --- | --- | --- | | existing in-force | customer assets | of Group in-force | | customers | under administration | long-term free cash | to emerge over time Phoenix Group Holdings plc Annual Report and Accounts 202214 Significant growth opportunities from supporting customers at every stage of their lifecycle Strategic report Find out about our strategic priorities on pages 18–27 ## Our scale in-force business provides us with three competitive ## advantages which enable us to deliver our strategic priorities As a genuinely diversified long-term ## Capital efficiency savings and retirement business, we get greater diversification from our ### • Diversification of risk breadth of in-force products. Our ### • Highly resilient capital position is also highly resilient, ## 1 through our core capabilities in risk ### • Single internal capital model management, and capital optimisation, underpinned by a single internal model. With c.12 million customers, we have an ## Customer access unrivalled level of customer access, with around 1-in-5 UK adults being a Phoenix ### • c.12 million existing customers Group customer. This give us deep ### • Deep customer insight customer insights that underpin our ## 2 developing propositions, enabling us ### • Excellent customer service to better meet their evolving needs on their journey to and through retirement. We have a significant cost efficiency ## Cost efficiency advantage, which is enabled through our customer administration and IT ### • Market leading partnership with TCS, and our focus ### administration & IT on delivering a simplified operating ## 3 model. This cost efficiency is ### • Simple operating model demonstrated in the significant cost ### • Market-leading per policy savings we are delivering ### operating costs across our recent acquisitions. Phoenix Group Holdings plc Annual Report and Accounts 2022 15 ### Our business model continued Cash remitted to ## How we Management the holding actions companies ## generate cash Organic surplus emergence ### Any assets which the Life ### Companies hold in excess ### of overall internal capital ### buffers required are ### known as free surplus Opening Closing free free surplus surplus ### Cash generation within our Life Companies ### Opening free Sources of Life Company ### surplus cash generation ### What is the opening free surplus? How is free surplus generated? Life Company Own Funds Organic surplus emergence Life Companies hold capital in accordance with Solvency II Life Companies earn margins on different types of life regulations, providing appropriate security for policyholders. and pensions products increasing Own Funds. In addition, This capital is known as Solvency II Own Funds. as our in-force business runs off the Solvency Capital Requirements reduce as they are released. Less Solvency Capital Requirement The level of regulatory capital required is known as Management actions the Solvency Capital Requirement. These can either increase Own Funds or reduce Solvency Capital Requirements. Less Capital Management Policy The Life Companies hold internal capital buffers above the regulatory capital requirement for prudence. Phoenix Group Holdings plc Annual Report and Accounts 202216 Strategic report ### Cash remitted Cash at the holding from the Life Head office ### company level provides Companies costs ### resources for future ### growth and resilience ### for the Group Debt interest Dividends Remaining cash at holding company level Opening cash at holding company level ### Cash utilisation at holding company level ### Uses of holding company Uses of remaining cash – ### cash generation growth opportunities ### What is the cash remitted from the What is the remaining cash used for? ### life companies used for? M&A As well as providing a clear strategic fit, M&A transactions must Head office costs meet our key criteria of being value accretive, supporting the Including salaries and other administration costs. dividend level and maintaining our investment grade rating. Debt interest BPA transactions On outstanding Group shareholder debt. We have a disciplined approach to investing capital into BPA transactions that generate increased long-term cash flows Dividends and we target a mid-teens Internal Rate of Return (‘IRR’). The Group operates a dividend policy which is to pay a dividend that is sustainable and grows over time. Investment into our growth capabilities Investment into our propositions and capabilities that will support us in growing our business over time. Phoenix Group Holdings plc Annual Report and Accounts 2022 17 ### Our strategic priorities and KPIs ## Optimise our ## in-force business ### Leveraging our scale in-force business to ### deliver capital efficiency and better returns | Phoenix is the market leader in managing | Maintaining our comprehensive risk | a leading in-house asset management | | --- | --- | --- | | in-force business for cash and ensuring | management approach | function, which sets the Group’s strategic | | a resilient capital position, which in turn | The Group maintained a resilient Solvency | asset allocation approach and centrally | | underpins our sustainable dividend over | II surplus of £4.4bn during the year (2021: | oversees the performance of our third | | the long term. The Group’s cash generation | £5.3bn). The reduction in the year primarily | party asset managers. | | stems from the run-off of our in-force | reflects the pro-active management of our | | | business, which we further enhance by | leverage with a £450m debt repayment | During 2022, our team helped to originate | | delivering management actions and | and our continued investment into growth. | c.£3.5 billion of illiquid assets, an increase | | through realising integration synergies | There was also a small impact from the | of 17% compared to 2021 (c.£3.0 billion). | | from completing value-accretive M&A. | significant rise in interest rates during the | We also maintained a strong illiquidity | | | second half of the year. However, our | premium (the spread over corporate | | In parallel, we deploy our comprehensive | hedging approach mitigated the majority | bonds) of c.70bps on private debt, despite | | approach to risk management across our | of the impact, with only a c.£0.4bn adverse | the increase in interest rates. This was | | in-force business and we hedge the | economic variance that was in line with our | enabled by the strong asset management | | majority of our market risks. This brings | expectations, despite a >1-in-1,000 | capability we are building. | | resilience to our Solvency II capital | economic shock being experienced. | | | position, and in turn helps us deliver | | Investing in a sustainable future | | dependable cash generation. We are | Our increased Solvency II Shareholder | We are committed to integrating | | also focused on optimising our capital to | Capital Coverage Ratio (‘SCCR’) of 189% | decarbonisation strategies into both our | | ensure we deliver enhanced returns for | (2021: 180%) is above our target range | listed equity and listed credit portfolios. | | our shareholders. | of 140% to 180%, providing capacity | We see this as essential to managing the | | | to invest into growth both organically | risk that climate change poses to our | | Sustainability is embedded throughout our | and through M&A. | customers and a key step in meeting our | | business and across our strategic priorities. | | interim 2025 and 2030 decarbonisation | | As a result, investing in a sustainable future | Delivering ongoing management actions | targets on our journey to net-zero. | | is a key part of optimising our in-force | We enhance cash generation from our | | | business, as we are seek to invest our | in-force business by delivering value- | We have also continued our investment | | £259bn of customer assets responsibly. | accretive management actions, and in | into sustainable assets within our | | | 2022 we delivered total management | shareholder credit portfolio during the | | Strong cash generation in 2022 | actions of £739m. This included £570m | year, with c.£1.0bn invested. This included | | Phoenix delivered strong cash generation | of actions from BAU activities including | £483m into projects with a positive | | in 2022 of £1,504m (2021: £1,717m), which | the ongoing delivery of balance sheet | environmental impact, £228m into | | exceeded the Group’s 2022 target range | efficiencies, further illiquid asset | affordable housing, £75m into healthcare/ | | of £1.3bn to £1.4bn. This reflects our | origination and the optimisation of our | education, and £207m into social impact | | continued focus on optimising our in-force | liquid credit portfolio. This demonstrates | investments and sustainability-linked loans. | | business to deliver dependable cash. | the sustainability of BAU management | | | | actions over the long term, in the absence | We are also investing to scale the required | | Group in-force long-term free cash | of further M&A. | decarbonisation technology and support | | underpins our dividend sustainability | | low carbon businesses, such as our recent | | The Group increased its in-force long-term | We also realised a further £169m of M&A | £338 million investment into a new multi | | free cash by c.£0.3bn during 2022, driven | synergies from the ReAssure acquisition, as | asset ‘climate solutions’ mandate. | | by our increased new business long-term | we delivered the integration programme | | | cash generation and management actions, | across the ReAssure Group Functions and | And we have also implemented a new | | which more than offset our annual uses | Finance & Actuarial teams, to deliver | stewardship programme to encourage | | of cash. With £12.1bn of Group in-force | further synergies in line with our plan. | net zero aligned strategies across the | | long-term free cash available to our | | companies we invest in, with a priority | | shareholders over time, our increased | Enhancing our differentiated asset | focus on 25 high emitting companies | | dividend is every bit as sustainable over | management model | that account for c.32% of our total | | the very long term. | We continued to invest into developing | financed emissions. | Phoenix Group Holdings plc Annual Report and Accounts 202218 Strategic report ## Optimise our in-force business – how we measure our delivery Cash generation Solvency II surplus Solvency II Shareholder Capital Group in-force long-term Coverage Ratio (‘SCCR’) free cash ## £1,504m £4.4bn 189% £12.1bn | 2022 target: | | | 2022 target: | | | 2022 target: | | | 2022 target: | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | £1.3bn to £1.4bn | | | No target | | | 140% to 180% | | | No target | | | | | £1,713m | | | £5.3bn | | 164% | | | N/A | | | | £1,717m | | | £5.3bn | | | 180% | | £11.8bn | | | £1,504m | | | £4.4bn | | | | 189% | | £12.1bn | Definition Definition Definition Definition Cash generation represents The Solvency II surplus The Solvency II SCCR is Group in-force long-term free cash remitted by the Group’s is calculated as the excess defined as the ratio of the cash is the cash available to operating companies to the of eligible Solvency II Own Group Own Funds to Group shareholders over time. It is Group holding company in Funds over the Group’s Solvency Capital defined as the estimated the current period. Cash Solvency Capital Requirements. Requirements, after adjusting lifetime cash generation from remitted principally reflects to exclude amounts relating our in-force business, plus the generation of Free to unsupported with-profit Group cash held in the Surplus within the life funds and unsupported HoldCo, less outstanding companies and the benefit of Group Pension Schemes. shareholder debt, committed value-accretive management M&A and transition costs, and remitted in the period. interest on debt until maturity. Why it matters? Why it matters? Why it matters? Why it matters? Cash at the Group holding The Solvency II surplus is The SCCR demonstrates the Group in-force long-term company is used to pay the regulatory assessment extent to which shareholders’ free cash is a measure to dividends, interest and of capital adequacy of the Eligible Own Funds cover demonstrate the sustainability various corporate costs, with Group. We pay our dividends the Solvency Capital of our dividend over the surplus cash reinvested into a from our surplus and so Requirements. It therefore very long term. range of organic and M&A retaining a significant surplus measures the capital growth opportunities. ensures the sustainability adequacy of the Group from of our dividend over the a shareholder perspective. long term. | Future target | Future target | Future target | Future target | | --- | --- | --- | --- | | • 2023 cash generation of | Maintain a Solvency II surplus | Maintain a SCCR within or | Grow our Group in-force | | £1.3bn to £1.4bn. | that enables us to operate | above our target range of | long-term free cash over time, | | | within or above our SCCR | 140% to 180%. | to support a dividend that is | • Three-year 2023–2025 target range. sustainable and grows over cash generation of £4.1bn. time. Links Links Links Links REM APM REM REM APM REM APM ### Priorities for 2023 • Continue to deliver value-accretive • Continue to deliver balance sheet resilience through management actions. our comprehensive risk management approach. • Diversify our asset portfolio into North America • Publish and implement the Phoenix Group Net Zero and directly source illiquid assets. Transition Plan. | 2020 2020 2020 2020 | Phoenix Group Holdings plc Annual Report and Accounts 2022 19 | | --- | --- | | 2021 2021 2021 2021 | | | 2022 2022 2022 2022 | | ### Our strategic priorities and KPIs continued ## Planet: Addressing ## climate change and ## supporting nature ## and bio-diversity ### James Wilde, Chief Sustainability Officer Can you introduce your role and our purpose of helping people secure a life transition presents and ensures continued how Sustainability is embedded of possibilities. stable financial returns. across the company? Through having a focus on the risks and We have put addressing climate change My role is to set the direction of our opportunities related to climate change at the heart of our investment strategy sustainability strategy and ensure we are and nature loss, we can also make a and are committed to transitioning our challenging ourselves to drive forward difference to our customers as we manage investment portfolio to net zero by 2050, meaningful action that enables us to the risk that they are exposed to by climate as well as hitting ambitious targets to cut deliver on our purpose. It is incredibly change and nature, while creating a better, emissions in the next decade. exciting to be part of Phoenix, with our more sustainable future for them. scale and ambition, meaning we can truly Our investment portfolio constitutes the make an impact and drive up sustainability We have set ourselves a number of vast majority of our carbon footprint – standards across the whole market. stretching targets to achieve these around 99% – so we are firmly focusing aims which are outlined in our 2022 on our investments as a priority. We look I head up a central sustainability strategy Sustainability Report. at this in three ways: how we decarbonise team and the delivery of our ambitious our portfolios, active stewardship of our programme is carried out across the I’m really pleased that our approach assets, and investing in climate solutions. business by experts in our functions has been recognised by independent embedding our approach business-wide organisations. We have been awarded But we can’t do this alone. We need to – from our sustainable investments team the Terra Carta Seal for our commitment accelerate change to transform economies to our sustainable procurement team. to sustainability and the Tortoise to combat the climate crisis and so work Responsibility 100 index have placed us with peers and policymakers with the aim What are the key sustainability at 12th in the FTSE100 for our approach. of removing barriers to net zero investment themes that we have the ability and defining best practice. We are to make the biggest impact on? | | Phoenix manages £259bn of | an active member of a number of | | --- | --- | --- | | Sustainability is now embedded into the | customer assets – how are you | collaborations and groups including | | core fabric of our business, and in 2022 | considering the risks and | Climate Action 100+ and the Sustainable | | we reviewed our areas of focus to ensure | opportunities of climate change | Markets Initiative, and have published | | we are directing our attention to the most | and the transition to net zero? | research articles raising awareness of | | material ESG issues that we impact on and | | challenges faced by us and peers and | Our core role is to invest and manage that can impact us. The top environmental proposing solutions to overcome these. assets on behalf of our customers and issues for us to take action on are climate shareholders. In doing so, we must balance change and nature loss. The most material It is important we practice what we the need for returns with the right level of social issues are financial wellness and preach so we are also very focused on risk. Both of those elements – risk and longevity which together create the need reducing emissions in our operations return – point towards decarbonising our to tackle the pensions savings gap and and working with our supply chain. investments in a way that manages our support people to have better financial We have set the goal of being net zero customers’ exposure to climate-related risk; futures. These material issues are all clearly in our operations by 2025. unlocking the financial opportunities the aligned with, and enable us, to deliver on Phoenix Group Holdings plc Annual Report and Accounts 202220 Strategic report ## Transitioning our customers to a ## Sustainability Multi-Asset Default Fund The vast majority of our customers keep their money in a default pension option. In 2022 we transitioned c.1.5m customers and c.£15bn of assets from our existing default funds to our default Sustainable Multi Asset Universal Strategic Lifestyle Profile. We aim to give customers the income they need in retirement and focus on ESG factors that can positively or negatively affect returns. We have also set clear targets that aim to: 1. Reduce the carbon intensity (a measure of the carbon emissions of all companies invested in) by 50% compared to the parent index; 2. Increase green technology revenues by 50% compared to the parent index; and 3. Enhance ESG scores by 10%–20%. Our strategy to change members to our sustainable default solution won ‘ESG initiative of the year (for corporates)’ at Environmental Finance’s Sustainable Investment Awards 2022. | Our work has been recognised, with a | What should we expect from | focus to drive our nature investment | | --- | --- | --- | | move from B to A- for the CDP Climate | Phoenix Group in 2023 in relation | opportunities and our activity in our | | Change Questionnaire, putting us in the | to its Sustainability strategy? | offices and communities. | “leadership category on climate”. Industry wide, we need to move from a From an investment perspective, we are focus on setting targets, to defining clear What progress has Phoenix continuing to enhance our stewardship plans of action and delivering impact at made in 2022? capabilities to hold companies to account, scale. We have already defined our net with defined expectations. In 2023 we are We are committed to integrating zero targets, and in 2023 we will be publishing our first Stewardship Report decarbonisation strategies into both our publishing our first Net Zero Transition with the aim of being a signatory to the listed equity and listed credit portfolios. Plan. This will set out our science-based UK Stewardship Code. We see this as essential to managing the decarbonisation trajectory consistent with risk that climate change poses to our our interim targets and how we will track I’m looking forward to 2023 and beyond, customers and a key step in meeting our this using a robust framework. and all that we can achieve together. interim 2025 and 2030 decarbonisation targets on our journey to net-zero. Using a central lens on customer interest, it will highlight how we will build on the | We started this journey in 2022 with the | actions we have taken to date, to deliver | | --- | --- | | move of £15bn AUA to our Sustainable | change at the scale and pace required by | | Multi-Asset fund and the development of a | the net zero transition both through our | | climate transition strategy for liquid credit | own direct actions and by helping to | ### 2023 key targets | assets in our shareholder portfolio (c£13bn | inform the system-wide change required | | | --- | --- | --- | | AUA). We expect to expand our scope by | to unlock investment. | • 50–70% of illiquid asset | | applying customised decarbonising equity | | origination in the shareholder | | benchmarks to all our equity funds in our | We will pull the key levers we have at our | portfolio to be sustainable and | | control where this is in the best interest of our | disposal to both drive real economy | transition assets | | customers, beginning with UK and US-listed | change and optimise financial outcomes | | • Implement decarbonisation for equities. It is critical that all such changes to for our customers – including stewardship shareholder liquid credit portfolio listed equity benchmarks are well tested and – and we will work with peers and c.£13bn to meet our carbon managed so that we can continue to protect policymakers to drive stable policy that reduction targets | customers’ financial outcomes. | enables us to invest at scale in the sectors | | | --- | --- | --- | | | and companies of the future in the best | • 90% of key suppliers commit to | | During COP15 we also published a nature | financial interest of our customers. For | SBTi or Race to Zero | | statement, confirming our commitment | example, we have committed to c.£10bn | | • Develop our nature strategy to act, and we have been piloting the of sustainable asset investment between long-term targets. Taskforce for Nature-related Financial 2022 and 2026. Disclosures (‘TNFD’) in collaboration with stakeholders across the industry, with the We are also expanding our work on aim of producing our first TNFD report. nature, setting out our priority areas of Phoenix Group Holdings plc Annual Report and Accounts 2022 21 ### Our strategic priorities and KPIs continued ## Grow organically ## and through M&A ### Meeting more of our existing customers’ ### needs and acquiring new customers | Phoenix has significant growth | our proposition and the impact of the | c.480k policies to Phoenix. It is expected | | --- | --- | --- | | opportunities available, both through | reinvigorated Standard Life brand has | to deliver c.£0.5bn of incremental | | meeting more of the evolving needs of | driven a strong year of performance. | long-term cash generation, which includes | | our existing customers, on their journey to | | c.£0.1bn of integration synergies, net of | | and through retirement, and by acquiring | Workplace has contributed £212m of new | costs. The transaction also benefits from a | | new customers, both organically, and | business LTCG in 2022, up 53% on 2021 | simplified operational integration | | through M&A. | (£139m), with positive net fund flows of | programme, with the majority of their | | | £2.4bn in the year, which is an elevenfold | policy administration already being | | We are also engaging people in their | increase on the £0.2bn seen in 2021. This | outsourced to our strategic partner TCS | | financial futures, and advocating for | reflects the strength of our customer | Diligenta. In addition, as part of the | | broader societal action to tackle under- | proposition that is enabling us to retain our | transaction we have agreed a new strategic | | saving, which is a critical part of | existing schemes. Which in turn enables us | asset management partnership with the | | our commitment to our purpose. | to benefit from the natural compounding | Sun Life Financial Inc. Group, which will | | | growth of the Workplace business model, | support further diversification of our credit | | Record new business growth in 2022 | with new joiners to existing schemes and | portfolio in North America. | | We delivered record new business | salary inflation increases on contributions. | | | long-term cash generation (‘LTCG’) of | We are also now consistently winning new | Engaging people in better | | £1,233m in 2022 (2021: £1,184m). This | schemes in the market across small, | financial futures | | strong performance means the Group | medium and large-sized schemes, with | We are focused on meeting more of our | | has, once again, more than offset the | 76 new schemes won in 2022 covering | customers evolving needs on their journey | | run-off of our in-force business and | c.£2bn of assets (2021: £0.2bn). | to and through retirement to support them | | demonstrates that Phoenix is a growing, | | in achieving financial wellness. | | sustainable business. | In our Retail business, we have now firmly | | | | established our team with our key | We offered 1.2 million customers the | | Developing innovative retirement | leadership hires made and we outlined our | chance to review our digital literacy | | income solutions | strategy to drive net flows across both the | material: Digital Essentials. Here we | | Retirement Solutions, which includes our | Retail Direct and Retail intermediated | targeted customers of all ages to offer help | | BPA business, was the largest contributor | markets at the Capital Markets Event in | to those who need digital assistance and | | to our 2022 new business LTCG with | December 2022. The Retail business | aid the more digitally savvy who might | | £934m written in 2022. This was broadly | remains in net fund outflow at present | want to use these materials to help | | similar to 2021 (£950m), but was achieved | (£(1.4)bn), but contributed an increased | someone they know. We also continued | | with investing 20% less capital and reflects | new business LTCG of £37m in 2022 (2021: | to advocate on behalf of our customers | | our progress in optimising our capital | £29m). As we fully develop our Retail | through the work of our think tank, Phoenix | | efficiency in BPA. This enabled us to | channels and deliver our strategy this is | Insights, with more detail on pages 24–25. | | deliver an improved mid-teens IRR for the | expected to grow over the coming years. | | | year. We also continued to develop our | | Maintaining strong customer satisfaction | | proposition, with the launch of our | Finally, both our European business, | Our focus on delivering better customer | | Standard Life Home Finance offering, and | Standard Life International, and SunLife, | outcomes is reflected in our continued | | development of an open market annuity | continued to deliver for their customers | strong customer satisfaction scores. | | product that will be launched in 2023. | and contributed LTCG of £29m and £21m | | | | respectively (2021: £31m and £35m). | Our Combined Group customer | | Enhancing our Workplace proposition | | satisfaction telephony score was 92% and | | and developing our Retail channels | Executing M&A | our Standard Life digital journeys score | | Our Pensions and Savings business | We were delighted to announce our first | was 94%, both of which exceeded their | | comprises our Workplace and Retail | ever cash funded acquisition, of Sun Life of | respective targets. This is due to the | | businesses, both of which are capital-light | Canada UK, for consideration of £248m | investment we are making to deliver a | | fee-based businesses that we are looking | during 2022. This transaction, which is | market-leading customer service offering | | to grow over time. In Workplace, the | expected to complete in April 2023, adds | and strong product propositions. | | investment we have made into developing | c.£10bn of assets under administration and | | Phoenix Group Holdings plc Annual Report and Accounts 202222 Strategic report ## Grow organically and through M&A – how we measure delivery New business long-term Pensions and Savings Combined Group customer Customer satisfaction Standard cash generation (‘LTCG’) net fund flows satisfaction – telephony Life – digital journeys ## £1,233m £1.0bn 92% 94% | 2022 target: | | | 2022 target: | | | | 2022 target: | | 2022 target: | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | >£800m | | | No target | | | | 90% | | 92% | | | | £766m | | | 2020 | | N/A | | N/A | | 94% | | | | £1,184m | £(1.4)bn | 2021 | | | | 92% | | 95% | | | | £1,233m | | 2022 | £1.0bn | | | 92% | | 94% | | Definition | Definition | Definition | Definition | | --- | --- | --- | --- | | New business LTCG | Net fund flows are the gross | Customer satisfaction as | Customer satisfaction as | | represents the operating | inflow less gross outflow | reported through a survey | reported through a survey | | companies’ cash generation | of customers’ assets | following a telephony call, | following an online | | that is expected to arise in | across our capital-light | where customers can rate | interaction, where customers | | future years as a result of | fee-based businesses. | us between 1 and 5. | can rate us between 1 and 5. | new business transacted in the current period. Why it matters? Why it matters? Why it matters? Why it matters? Our strategy seeks to This measure quantifies the This measure highlights how This measure highlights how leverage the significant annual level of growth in satisfied our customers are satisfied our customers are growth opportunities from customer assets within our with Phoenix Group’s with Standard Life’s digital meeting more of the evolving Pensions and Savings telephony servicing service proposition. needs of our existing business, with increased propositions across customers across their life net fund flows driving our various brands. cycle and through acquiring increased fee income new customers. This will from the businesses. enable Phoenix to be a growing, sustainable business. | Future target | Future target | Future target | Future target | | --- | --- | --- | --- | | Grow our new business | Grow our Pensions and | To deliver a customer | To deliver a customer | | long-term cash generation | Savings annual net fund flows | satisfaction score of 88% | satisfaction score of 94% | | from c.£1.2bn in 2022 to | with a target for c.£5bn in | or above in 2023. | or above in 2023. | | c.£1.5bn per annum by 2025. | Workplace by 2025 and | | | c.£2bn in Retail by 2025. Links Links Links Links REM APM REM APM REM APM REM APM ### Priorities for 2023 • Grow Retirement Solutions with BPA capital investment of • Complete the Sun Life of Canada UK acquisition and c.£300m in 2023 and launch an open market annuity. assess further M&A opportunities. • Deliver increased net fund flows in Pensions & Savings to • Launch an awareness campaign to reach 4m people on drive our fee-based growth. longer lives and under-saving | 2020 2020 2020 | Phoenix Group Holdings plc Annual Report and Accounts 2022 23 | | --- | --- | | 2021 2021 2021 | | | 2022 2022 2022 | | ### Our strategic priorities and KPIs continued ## People: Promoting ## financial wellness ## and the role of good ## work and skills ### Catherine Foot, Director of Phoenix Insights Can you introduce yourself and Why is Phoenix Insights interested What have you learnt from your explain what Phoenix Insights is? in employment and skills? research in the first year since Phoenix Insights was set up? I’m Catherine Foot, Director of Phoenix In a major piece of research we published Insights, our in-house longevity think tank last year in partnership with Frontier One of the things we were keen to do in set up to help catalyse the changes Economics, we established that only 14% setting up Phoenix Insights was to ground necessary across society to enable of defined contribution pension savers our work in real understanding of how more of us to live better, longer lives. over 25 are currently on track for the people feel about retirement and living retirement incomes they expect. We also longer, and what really matters to them. Why did Phoenix Group choose found that millions of savers simply cannot In partnership with the National Centre to set up Phoenix Insights? afford to save at the sorts of rates that for Social Research and the Policy Institute would bring them on track for a decent Phoenix Insights is a cornerstone in at King’s College London, we spent six retirement. If we are to tackle the under- our commitment to delivering on our months working with people from all walks saving issue, it’s therefore critical that we purpose, of helping people secure of life across the UK to understand their support people to get and remain in good a life of possibilities. experiences and attitudes, and work quality work and provide more directly with them to identify the key opportunities for people to upskill, switch As a country, we need to close the actions needed in society to respond to careers, and grow their incomes over their pensions saving gap, with as many as longer lives. Part of what drives our work working lives. You simply can’t improve the 18 million UK adults not saving enough now is these priorities that people adequacy of retirement incomes for for the retirements they want. identified for themselves, which is better people without focusing on jobs and skills. access to careers advice, financial advice, Phoenix Group is uniquely placed to and retraining. However, we have a situation at the moment make a difference here, by innovating for in this country where many people in their customers and supporting people to save What are the potential solutions 50s and 60s fall out of work before they and make the most of their retirement to help solve some of the issues are ready to retire, and rates of income. But to help many millions more you have identified? participation in adult education and to be able to save enough for their future, retraining programmes are much too low. I think that good information and guidance we also need action in areas like for people is absolutely critical. Whether its employment, skills and social security. Part of our work this year is therefore our finances and pensions, our careers and looking at the actions that government, working life, or our wider well-being, Phoenix Insights has been set up to explore employers and others need to take to navigating through and actively planning these broader solutions to the under- enable people to remain in decent and preparing for longer lives is not easy. saving issue, and to advocate for change. work, return to work when they need We need a step change in the accessibility We use impactful research to drive forward and want to, and get access to of good information and guidance about ideas and greater public engagement opportunities to re-skill. key decisions during adult life. with the need for action, not just from government, industry or civil society, We also need to get serious about skills but from everyone. and adult education in this country. A 40 Phoenix Group Holdings plc Annual Report and Accounts 202224 Strategic report ## Great Expectations: Are people’s ## retirement income expectations adequate ## and achievable? We explored the adequacy and achievability of people’s retirement income expectations. And we found causes for concern, for different reasons, about most savers in defined contribution pension schemes. To bring people on track for their retirement income targets, we explored whether working longer (to 68) or saving more (12% of salary pension contributions) could be sufficient, or whether other actions or policies may be needed. We found that whilst this would bring many more in line with their expectations it mainly benefits middle and higher earners, and may not be realistic for many. Nearly four in ten people worry about working for longer because of the impact on their physical health. We identified that industry and Government must do more to address this mismatch between expectation and likely reality, including engaging people much more effectively in their future finances; making working for longer more feasible, attractive and rewarding; and creating a safety net of support for those unable to work longer or save more. | or 50 year working life in a world of rapid | What is Phoenix Group doing | For instance, we are working to trial new | | --- | --- | --- | | technological, economic and ecological | to help close the pensions | ways to support our colleagues to have | | change requires us to re-skill and retrain | saving gap? | career conversations and consider career | | throughout life. | | switching, advocating for the importance | I think Phoenix Group, as the UK’s largest of increasing access to good quality long-term savings and retirement business, And we need to make some changes to flexible and part-time work, and working has a critical role to play in tackling the our social security safety net. With a state with our Behavioural Insights Team on how pension savings gap, with four key levers pension age rising in line with average life holistic advice and support interventions at we believe can help to drive real change. expectancy, we must do more to provide mid-life can help people take action on sufficient state support to those people their finances, work and well-being. Firstly, we need to raise awareness of the who have faced multiple disadvantages under-saving issue, which Phoenix Insights throughout life and who simply cannot And finally, we need to advocate for and is doing through its ongoing research work up until their late sixties. support societal change for those who programme which is designed to cannot afford to save, or save enough, contribute to the public debate. What can we expect to see from We can do this through the work of Phoenix Insights in 2023? Phoenix Insights, and through our work Secondly, Phoenix Group is uniquely supporting financial inclusion. We’ve got a lot of exciting work underway. placed to help its customers journey We’re working with the Policy Institute at to and through retirement. Here we can King’s College London to take a closer look support millions of customers with their at the future of the State Pension, using financial wellness throughout their working ### 2023 key targets | deliberative work with the public to | lives, engage them in planning for their | | | --- | --- | --- | | explore how this critical element of our | future, and ensure they make the most | • Provide access for 1.5 million | | intergenerational social contract can adapt | of their retirement income. We will do this | Standard Life customers to an | | to the situation we find ourselves in where | by developing innovative products and | integrated financial wellness | | healthy life expectancy varies by almost | services, that support their evolving needs. | hub, Money Mindset | | 20 years between the richest and poorest. | Which we can distribute through our | | • All customers supported by well known and trusted consumer brands digital literacy hubs. | In partnership with the Learning and Work | such as Standard Life and SunLife. | | | --- | --- | --- | | Institute we’ll be setting out the economic | | • Reach 1.5 million customers to | | case for investment in lifelong learning and | Thirdly, we need to promote the role of | raise awareness about the | | skills, for individuals, for employers, and | good work and skills, as to help people | impact of their investments. | | for government, and working with the | save more, we need to support them to | | • 40% of senior leaders will be International Longevity Centre, Business in stay in good work for longer. As an women and 13% ethnic the Community and others to explore how employer, we can ensure that Phoenix minority representation we can achieve a much-needed radical Group is a fantastic place to work for in our workforce increase in adult participation in learning people of all ages, and take active steps and retraining in this country. to attract, retain and retrain older workers. Phoenix Group Holdings plc Annual Report and Accounts 2022 25 ### Our strategic priorities and KPIs continued ## Enhance our operating ## model and culture ### Delivering leading cost efficiency and a ### modern organisation | Enhancing our operating model and | Consolidating all policies onto TCS | In 2022 we also launched our leadership | | --- | --- | --- | | culture are key to our success. We will do | BaNCS will allow the business to benefit | capabilities framework, which articulates | | this firstly by completing our planned | from TCS’s significant ongoing investment | eight core capabilities we need our leaders | | migrations, and through driving | in the platform, with Phoenix customers | to demonstrate. | | simplification to a “single best way of doing | benefiting from the clear digital focus, | | | things”. This will support us in maintaining | consistent customer journeys and | We’ve made good progress against our | | and enhancing our cost efficiency. We are | customer proposition provided by one | targets for female and ethnic minorities, | | also committed to being a leading | platform. This decision is also fully aligned | which are based on the deep insight | | responsible business, which attracts and | with our model of enhancing long-term | gathered from our Group-wide ‘Who | | retains the best talent, through a diverse | cost efficiency, with a further c.£180 | We Are’ survey, which provides us with | | and inclusive, high-performance culture. | million of ReAssure net cost synergies | a clear understanding of our colleague | | | now expected. This increased our target | demographic and will support us in | | We are also committed to adopting the | M&A integration synergies from ReAssure | better targeting our diversity and | | highest sustainability standards across our | to £1,230m. | inclusion initiatives. | business and will lead by example for the | stakeholders we engage with to drive real | Driving simplification in our business | The overall progress we are making is | | --- | --- | --- | | world change and deliver positive impact. | A key aspect of enhancing our operating | also reflected in our increased employee | | | model is driving simplification across our | engagement eNPS score of +30 in 2022 | | Completing our migrations | business, by migrating to a ‘single best | (2021: +23), and which was significantly | | We have made good progress in delivering | way of doing things’. | ahead of our target of +24 for the year. | our Customer & IT integration in Standard | Life. For instance, during 2022 we have | For instance, during 2022 we have | Leading as a responsible business | | --- | --- | --- | | successfully migrated c.400k annuity | progressed towards a single unified | Our objective is for our operations to | | policies onto the TCS BaNCS platform. | employee experience for our colleagues | be net zero carbon by 2025. This target | | We also transferred c.1,200 colleagues to | with a single payroll system and a single, | covers Scope 1 and 2 emissions from our | | TCS Diligenta in February 2023 as we | enhanced Phoenix Group intranet. | occupied premises and Scope 3 emissions | | simplify our operational structure, improve | We have also transferred the custody and | from our business travel. We remain on | | the customer experience and realise cost | fund accounting for c.£90bn of assets to | track to achieve it with an 80% reduction | | synergies. TCS are also now developing | HSBC, as we simplify and centralise our | in the emissions intensity of our own | | new capabilities for us that will significantly | asset custody model. | operations since 2019. | enhance our Workplace proposition and | help drive our future Workplace growth. | Attracting, developing and retaining | We also want to work with our supply chain | | --- | --- | --- | | | the best talent, and building our culture | to generate value for all of our partners | | On the ReAssure integration, we have | A crucial component for delivering on | and stakeholders. Central to this is the | | completed the Group Functions | our purpose and strategy is attracting and | transition to a net zero supply chain by | | integration and are making strong progress | retaining the best talent. That is why we | 2050 with an interim objective to halve | | with the integration of the Finance & | are committed to our ambition of making | supply chain emissions by 2030. We | | Actuarial functions. This helped realise | Phoenix the best place our colleagues | have therefore developed our ESG | | £331m of further cost and capital | have ever worked. | Supply Chain Standards to reflect our | | synergies in the year, with total synergies | | expectations for partners around net | | delivered to date of £1,262m (103% | In 2022 we continued to deliver against | zero and ongoing commitments. | | of our revised target). | our people strategy which is structured | | | | around driving organisational | During 2022 we have engaged with our | | We have also recently announced our | effectiveness, evolving our culture, | key suppliers to ensure they set out a | | decision to transfer all c.3 million ReAssure | and building talent. | climate change plan and targets for their | | policies from our in-house Alpha platform | | business, with 82% of our suppliers now | | to the outsourced TCS BaNCS platform | We have continued to build our people | committed to either a Science Based | | by 2026. | capabilities and have evolved our talent | Target Initiative (‘SBTi’) target, or a target | | | acquisition model to better enable that. | based on the UN’s Race to Zero initiative. | Phoenix Group Holdings plc Annual Report and Accounts 202226 Strategic report ## Enhance our operating model and culture – ## how we measure delivery Total ReAssure Colleague engagement Female senior leaders Ethnic minorities integration synergies eNPS score (%) representation (%) ## £1,262m +30 39% 12% Total target: £1,230m 2022 target: +24 2022 target: none 2022 target: none (103% delivered to date) | £696m | | | | N/A | N/A | | N/A | | --- | --- | --- | --- | --- | --- | --- | --- | | | £930m | | +23 | | 38% | 9% | | | | | £1,262m | | +30 | 39% | | 12% | | Definition | Definition | Definition | Definition | | --- | --- | --- | --- | | The total cost and capital | Colleague engagement is | The proportion of | The proportion of people | | integration synergies realised | a holistic measure of how | females represented | from an ethnic minority | | from the acquisition of | our colleagues feel about | in leadership roles. | background in our total | | ReAssure which completed | working at Phoenix Group | | colleague population. | | in 2020. | which is assessed monthly. | | | | Why it matters? | | Why it matters? | | Why it matters? | | Why it matters? | | | --- | --- | --- | --- | --- | --- | --- | --- | | We acquire companies which | | We are seeking to make | | At Phoenix Group we want | | At Phoenix Group we want | | | we then integrate onto our | | Phoenix the ‘best place our | | to ensure our colleagues | | to ensure our colleagues | | | operating platform in order to | | colleagues have ever worked’ | | represent our wider | | represent our wider | | | realise significant cost and | | and so getting regular | | community and so we are | | community and so we are | | | capital synergies, which in | | colleague feedback is | | committed to promoting | | committed to promoting | | | turn deliver incremental cash | | important to enable us to | | diversity and inclusion across | | diversity and inclusion across | | | and capital to increase | | track progress and respond | | the business, which enables | | the business, which enables | | | shareholder value. | | to feedback as we deliver | | colleagues to bring their | | colleagues to bring their | | | | | on our ambition. | | whole self to work. | | whole self to work. | | | Future target | | Future target | | Future targets | | Future targets | | | We have a target to realise | | Our colleague engagement | | 40% of women in leadership | | Increase our ethnic minorities | | | total cost and capital | | eNPS score target for 2023 | | roles by the end of 2023. | | representation to 13% by | | | integration synergies of | | is +13, which is lower than | | | | the end of 2023. | | | £1,230m from the ReAssure | | 2022 due to the expected | | | | | | | acquisition, which we have | | impact of the recent | | | | | | | already exceeded with 103% | | ReAssure integration | | | | | | | delivered to date. | | organisational changes. | | | | | | | Links | | Links | | Links | | Links | | | REM | APM | REM | APM | REM | APM | REM | APM | ### Priorities for 2023 • Progress our ongoing migrations to TCS BaNCS and • Execute on our regulatory change agenda including the realise further cost synergies. IFRS 17 accounting change and the Solvency II reforms. • Further develop our internal talent pool and improve • Deliver our ambitious sustainability targets including our colleague engagement. for Diversity, Equity and Inclusion. | 2020 2020 2020 2020 | Phoenix Group Holdings plc Annual Report and Accounts 2022 27 | | --- | --- | | 2021 2021 2021 2021 | | | 2022 2022 2022 2022 | | ### Business review ## Delivering cash, ## resilience and growth ### “The strong strategic progress we have made ### during 2022 has enabled us to continue delivering ### on our financial framework and to recommend ### a 5% dividend increase for the year.” Rakesh Thakrar, Group Chief Financial Officer Scan the code to watch the video ## A strong financial performance in 2022 Financial performance metrics: 2022 2021 YOY change Cash Cash generation £1,504m £1,717m -12% New Business Incremental long-term cash generation £1,233m £1,184m +4% Dividends Total dividend per share 50.8p 48.9p +4% Final dividend per share 26.0p 24.8p +5% IFRS Adjusted operating profit before tax £1,245m £1,230m +1% Loss after tax £(1,762)m £(709)m -149% Other financial metrics: 2022 2021 YOY change Solvency II Capital PGH Solvency II surplus £4.4bn £5.3bn -17% PGH Shareholder Capital Coverage Ratio (‘SCCR’) 189% 180% +9%pts In-force cash Group in-force long-term free cash £12.1bn £11.8bn +3% Assets Assets under administration £259bn £310bn -16% Leverage Fitch leverage ratio 30% 28% +2%pts | I am delighted that we have once again | long-term cash generation of £1,233 million. | remains every bit as sustainable over | | --- | --- | --- | | delivered a year of strong financial | This means that for the second consecutive | the very long term. With this increased | | performance, as we execute on our | year we have more than offset the run-off | long-term free cash, which will be available | | strategy and fulfil our purpose. | of our in-force business. | to shareholders over time, proof that | Phoenix is a sustainable, growing business. | We have delivered another year of resilient | We have also grown inorganically through | | | --- | --- | --- | | cash generation, with £1.5 billion | M&A, having announced our first ever cash | In terms of our IFRS reporting, the Group’s | | generated in 2022, exceeding our target | funded acquisition of Sun Life of Canada | adjusted operating profit remained strong | | range of £1.3-to-£1.4 billion for the year. | UK, which we expect to complete in April. | at £1,245 million, but we have reported | an IFRS loss after tax of £(1,762) million. | We have also maintained our resilient | Our strong strategic and financial | This primarily reflects £(2,673) million of | | --- | --- | --- | | capital position with a Solvency II (‘SII’) | performance this year has therefore | adverse investment return variances from | | surplus of £4.4 billion and a SCCR of 189%, | enabled the Board to recommend a | accounting volatility in relation to our | | which is above our target ratio range of | dividend increase of 5% for the year. | hedging instruments and includes | | 140% to 180%. | | economic movements on assets within | | | With £0.3 billion growth in our Group | our corporate pension schemes that | | In terms of new business growth, we have | in-force long-term free cash to | have been subject to a buy-in. Taking into | | delivered record incremental new business | £12.1 billion, our increased level of dividend | account the corresponding decrease in | Phoenix Group Holdings plc Annual Report and Accounts 202228 Strategic report our pension scheme liabilities of £940 | million, Total Comprehensive Expense for | Our key performance indicators | optimise our financial flexibility to | | --- | --- | --- | | the year was £(1,076) million. This impact | With our financial framework designed | support future acquisitions. Our | | has, in turn, increased our Fitch leverage | to deliver cash, resilience and growth, | financial leverage is calculated (using | | ratio to 30%, which remains within our | we recognise the need to use a broad | Fitch Ratings’ stated methodology) | | target operating range of 25–30%. | range of metrics to measure and report | as debt as a percentage of the sum | | | the performance of our company, some | of debt and equity. | | As a reminder, our hedging approach is | of which are not defined or specified in | | | designed to stabilise our SII Surplus and | accordance with Generally Accepted | Incremental new business long-term | | Group in-force long-term free cash, which | Accounting Principles (‘GAAP’) or the | cash generation | | in turn protects our dividend paying | statutory reporting framework. The IFRS | Incremental new business long-term | | capacity. However, this does cause | results are discussed on pages 38-39 | cash generation is a key metric for | | significant IFRS volatility due to a mismatch | and the IFRS financial statements are | measuring growth. It represents the | | between our IFRS balance sheet, and the | set out from page 168 onwards. | operating companies’ cash generation | | Solvency balance sheet that we are | | that is expected to arise in future years | | hedging (see page 31 for more detail). | Alternative performance measures | as a result of new business transacted in | | However, we accept this as the trade-off | In prioritising the generation of | the period. By generating sufficient | | to deliver the resilient cash generation | sustainable cash flows from our | incremental long-term cash generation | | and dividend we are known for. | operating companies, performance | to offset the run-off of our in-force | | | metrics are monitored where they | business cash flows, we can bring | | I am proud of the strategic progress we | support this strategic purpose, which | long-term sustainability to future cash | | have made this year, particularly in driving | includes ensuring that the Solvency II | generation to grow the value of our | | forward our organic growth strategy. At | capital strength of the Group is | in-force business. | | our Capital Markets Event in December we | maintained. We use a range of | | | outlined the journey we have been on and | alternative performance measures | Group in-force long-term free cash | | our future ambitions. | (‘APMs’) to evaluate our business, which | This represents the cash expected to be | | | are summarised below. | available over time to fund future | | In Retirement Solutions, we have now firmly | | dividends from existing business and | | established ourself as a key player in the | Cash generation | supports the sustainability of our | | BPA market, with another really successful | Cash generation remains our key | dividend over the very long term. It | | year of growing our BPA business. | performance metric. It represents the | comprises the cash expected to emerge | | | net cash remitted from the operating | from our in-force business over its | | We have also been focused on cultivating | entities to the Group, supported by the | lifetime, plus existing Group holding | | our fee-based businesses, to develop more | free surplus above capital requirements | company cash, less committed costs | | balanced organic growth, in particular in | in the life companies, which is | associated with our M&A integration | | our Pensions and Savings business. I am | generated through margins earned | activity, the repayment of all | | therefore delighted to see the progress we | on life and pension products and the | shareholder debt and servicing of | | are making in our Workplace business, | release of capital requirements, and | interest costs to maturity. | | where we have seen a renewed trust in our | group tax relief. | | | proposition, enabling us to both retain our | | Assets under Administration | | existing schemes and attract new clients. | This cash generation is used by the | The Group’s Assets under | | | Group to fund expenses, interest | Administration (‘AUA’) represents our | | Our confidence in our future organic | costs and shareholder dividends, | assets administered by or on behalf of | | growth strategy has enabled us to set our | with any surplus then available to | the Group, covering both shareholder | | first ever incremental new business | reinvest into organic and inorganic | and policyholder, and indicates the | | long-term cash generation target, of | growth opportunities. | potential long-term earnings capability | | c.£1.5 billion per annum by 2025. | | of the Group arising from its insurance | | | Solvency II | and investment business. Positive net | | So looking back on 2022, it has been a | Solvency II is a key metric by which the | flows in AUA is another indicator of | | year of clear strategic progress, that | Group makes business decisions and | growth for the Group. | | supported us to deliver a strong set of | measures capital resilience. It is a | | | financial results. Importantly, our business | regulatory measure that prescribes the | Adjusted operating profit | | is growing, as demonstrated by the growth | measurement of value on a Solvency II | The Group uses adjusted operating | | in our Group in-force long-term free cash | basis and the calculation of the solvency | profit as a measure of IFRS performance | | to £12.1 billion, which sustains our increased | capital requirement (‘SCR’). The excess | based on long-term assumptions. | | dividend over the very long term. Our | value above the SCR is reported as both | Adjusted operating profit is less | | Solvency capital position also remains | a financial amount, “Solvency II surplus”, | affected by the short-term market | | highly resilient, despite the unprecedented | and as a ratio “Solvency II Shareholder | volatility driven by Solvency II hedging | | economic volatility last year, with our | Capital Coverage Ratio (‘SCCR’)”. | (as illustrated on page 31) and non- | | SCCR of 189%. This supports provides us | | recurring items than IFRS profit. | | with significant capacity to invest into growth. | Fitch leverage | A more detailed definition of adjusted | | | The Group seeks to manage the level of | operating profit is set out on page 314. | | This is Phoenix’s financial framework in | debt on its balance sheet by monitoring | | | action, as we deliver resilient and | its financial leverage ratio. This is to | | | predictable cash generation, which | ensure we maintain our investment | | | underpins a dividend that is sustainable | grade rating issued by Fitch Ratings and | | and grows over time. Phoenix Group Holdings plc Annual Report and Accounts 2022 29 ### Business review continued ## Why is Solvency II important to ## us in measuring performance? Group SII Shareholder surplus capital available Group Own funds = Shareholder SII SII assets less Own Funds liabilities Group Solvency Capital SCR Requirement (‘SCR’) What are Own Funds? What is the Solvency Capital Why is Solvency II surplus a key Requirement (‘SCR’)? measure for Phoenix? Solvency II Own Funds represent the | Group’s net assets on a regulatory basis. | The SCR is a capital buffer held to ensure | The excess of Group Own Funds above | | --- | --- | --- | | Assets and non-technical liabilities are | that the Group can meet its obligations over | the Group SCR is the Solvency II surplus. | | valued on a fair value basis, and technical | the next 12 months with a probability of at | It indicates how much shareholder | | provisions (policyholder liabilities) are | least 99.5%. The calculation stresses both | capital we have available to deliver | | calculated on a best estimate basis | assets and liabilities in line with 1-in-200 year | shareholder returns in the form of | | (weighted average of future cash flows), | risk events to establish how much additional | dividends, and to reinvest to grow the | | with an adjustment for risk known as the | capital we would require to remain solvent. It | business organically and inorganically. | | ‘risk margin’. | is a risk-based approach, requiring Phoenix | | In order to maintain a resilient Solvency II to hold capital against a range of risks, not Own Funds also include a value for balance sheet to protect our sustainable just insurance risks. future profits expected to arise from dividend, Phoenix operates a dynamic in-force policies, and any debt that The SCR can be calculated using a ‘standard risk management framework which seeks meets the definition of capital under formula’ or ‘internal model’. We use an to manage our exposure to each of the Solvency II rules. approved internal model for Phoenix Life risks that the Group faces within its and Standard Life, with Standard Life risk appetite. Shareholder Own Funds reflects a International DAC on a partial internal model restriction for any excess over SCR in the and ReAssure currently on standard formula. Group’s with-profit funds and pension Shareholder Capital Coverage schemes as this excess doesn’t belong to Ratio (‘SCCR’) shareholders and so cannot be included. What causes the SCR to change? The SCCR represents Group Own Funds | | SCR is impacted by both market risk and | divided by the SCR, adjusted to a | | --- | --- | --- | | What causes Own Funds | demographic risk in roughly equal | shareholder view through the exclusion | | to change? | proportions (see page 313 for a breakdown). | of amounts relating to ring-fenced | | | Markets will cause changes in SCR as our | with-profit funds and Group pension | Own Funds can grow through writing investment mix changes (some assets are schemes whose Own Funds exceed their profitable new business and through the more risky than others) or asset values SCR. This is because these Own Funds delivery of value accretive management change (increased assets can mean do not belong to the shareholder and the actions and synergies. Group expenses, increased risk). Demographic risks, such as corresponding SCR is not in respect of financing costs, and dividends cause own longevity or persistency, can change the shareholder risk. We articulate our risk funds to fall. Changes in demographic SCR depending on experience, assumption appetite through an SCCR target assumptions and experience will also changes or any change in business mix. operating range of 140%–180%. impact own funds. This allows us to focus on a shareholder Own Funds are also sensitive to market view of the capital coverage ratio that movements. Our hedging strategy seeks provides a more accurate reflection of to stabilise the Solvency II surplus, but the capital strength of the Group. this means hedge values can move Own Funds up or down, to offset the market movements impact on surplus, which can also arise from movements in the SCR. Phoenix Group Holdings plc Annual Report and Accounts 202230 Strategic report ### Phoenix Group’s comprehensive hedging approach We hedge what we deem to be the unrewarded market risks from equities, currency, inflation and interest rates. This is designed to protect our Solvency II capital position to deliver dependable cash generation and balance sheet resilience, which underpins our sustainable dividend over the long-term. We see this as a key differentiator for Phoenix compared to other insurance companies and this is evidenced by our significantly lower sensitivities to these market risks than our UK peers. However, as a result of our hedging approach, we do see significant accounting volatility (as illustrated below) which distort most of the Group’s IFRS metrics. Importantly though this does not impact our cash generation delivery or dividend paying capacity, which is funded from our Solvency capital position. Illustrative hedge offset to mitigate market risk volatility • Assets • Assets IFRS balance sheet • Liabilities • Liabilities Solvency II • SII future profits balance IFRS balance sheet is, in effect, sheet • SII Solvency ‘over-hedged’ as the additional SII Capital balance sheet items are not valued Requirements on the IFRS balance sheet. Impact of market rise Impact of market fall • Solvency II – loss on hedge provides an offset to the • Solvency II – gain on hedge provides an offset to the positive market risk impact to stabilise our Solvency II adverse market risk impact to stabilise our Solvency II capital position. capital position. • IFRS – loss on the hedging instrument is recognised but the • IFRS – gain on the hedging instrument is recognised but gain on revaluation of the additional Solvency II balance the loss on revaluation of the additional Solvency II balance sheet items is not. sheet items is not. ## Our risk management in action Our comprehensive risk management approach We also continue to maintain surplus liquidity in line with ensures we remain resilient through the economic cycle. our conservative liquidity framework, which enabled us During 2022, we have seen unprecedented economic to meet all collateral calls on our hedging instruments volatility, with UK political instability leading to during the turbulent markets in the second half of 2022, government bond yield increases that were equivalent with no forced selling of assets required at any point. to a 1-in-1,000 year economic shock event. Phoenix also has a focused business strategy and does However, our comprehensive hedging approach not participate in the Liability Driven Investment (‘LDI’) resulted in only a limited impact on our capital position, in any way, meaning we were not directly impacted by with a £(0.4) billion SII surplus adverse economic the ‘LDI crisis’ during 2022. variance. By protecting the SII capital position in our life companies, we are able to deliver resilient cash generation and ensure the long-term sustainability of our dividend. Phoenix Group Holdings plc Annual Report and Accounts 2022 31 ### Business review continued Operating companies’ Group in-force long-term free ## Cash cash generation cash ## £1.5bn £12.1bn Cash generation Operating companies’ cash generation Group cash flow analysis represents cash remitted by the Group’s £m 2022 2021 operating companies to the holding Cash and cash equivalents at 1 January 963 1,055 companies. Please see the APM section on Operating companies cash generation: page 314 for further details of this measure. 1 Cash receipts from life companies 1,504 1,717 Uses of cash: Cash generation from the operating Operating expenses (78) (80) companies’ is principally used to fund the Pension scheme contributions (16) (11) Group’s shareholder dividends, debt Debt interest (244) (250) interest and repayments, and its various Non-operating cash outflows (395) (305) operating costs. Any surplus remaining Debt repayments (450) (322) is available for reinvestment into organic Shareholder dividend (496) (482) and M&A growth opportunities. Total uses of cash (1,679) (1,450) The cash flow analysis that follows reflects Support of BPA activity (285) (359) the cash paid by the operating companies Closing cash and cash equivalents at 31 December 503 963 to the Group’s holding companies, as well 1 Total cash receipts include £55 million received by the holding companies in respect of tax losses as the uses of those cash receipts. surrendered (2021: £95 million). Cash receipts Cash generated by the operating | companies during 2022 was £1,504 million | migration, £40 million for other ongoing | Support of BPA activity | | --- | --- | --- | | (2021: £1,717 million). This exceeded the | integration programmes including | Funding of £285 million (2021: £359 million) | | Group’s target range of £1.3-to-£1.4 billion | ReAssure, and £33 million for our Finance | has been provided to the life companies | | for the year. | Transformation including implementing | to support a strong year in BPA with | | | the new IFRS 17 accounting standard. | £4.8 billion of premiums written (2021: | | Uses of cash | | £5.6 billion). | | Operating expenses of £78 million (2021: | We also incurred £15 million of costs | | | £80 million) represent corporate office | related to our cost of living colleague | The decrease relative to 2021 reflects the | | costs, net of income earned on holding | support, £12 million of acquisition costs | Group’s success in optimising its capital | | company cash and investment balances. | related to the Sun Life of Canada UK | with a reduction in the Group’s capital | | | transaction, and made a £15 million | strain on BPAs to 5.8% in 2022 (2021: | | Pension scheme contributions of | equity investment into the open finance | 6.5%). This enabled the Group to write a | | £16 million were made in 2022 (2021: | platform Moneyhub. | similar amount of incremental new business | | £11 million) with the increase on 2021 due | | long-term cash generation, but with 20% | | to the inclusion of a £5 million contribution | There was also a further £77 million of | less capital invested. | | into the ReAssure pension scheme | other project costs, £68 million from the | | | following a triennial review. | close-outs in respect of Group hedging | Future cash targets set | | | instruments and £45 million of other items. | Our business model is designed to deliver | | Debt interest of £244 million (2021: | | high levels of predictable cash generation, | | £250 million) reflects interest paid in the | Debt repayments | enabling us to set very clear targets. | | period on the Group’s debt instruments. | Debt repayments in 2022 reflect the | We are therefore setting a one-year | | The small decrease year-on-year is due | repayment of the £450 million Tier 3 | target of £1.3 to £1.4 billion again in 2023. | | to the repayment of debt in June 2022 | subordinated bond in July (2021: £322 | | | and elimination of interest thereon. | million), as the Group manages its leverage. | We have also set an increased three-year | cash generation target of £4.1 billion for | Non-operating cash outflows of | Shareholder dividend | 2023–2025. This includes £0.1 billion | | --- | --- | --- | | £395 million (2021: £305 million) primarily | The shareholder dividend of £496 million | of expected cash emergence from the | | comprises centrally funded projects and | represents the payment of £248 million in | Sun Life of Canada UK acquisition and, | | investments. £90 million relates to Group | May for the 2021 final dividend and the | for the first time, cash emergence from | | project expenses for the transition activity | payment of the 2022 interim dividend of | new business we expect to write in 2023 | | in relation to the Standard Life platform | £248 million in September. | and 2024 of £0.2 billion. | Phoenix Group Holdings plc Annual Report and Accounts 202232 Strategic report Future sources and uses of cash Looking over the period 2023–2025, and Illustrative 2023–2025 HoldCo sources and uses of cash after we have invested £248 million to fund the acquisition of Sun Life of Canada UK, £0.5bn £4.1bn we expect to have surplus cash of around £1.0bn Operating costs and interest £1.45 billion available to invest into growth. | | £1.5bn | Dividend | | | | | | --- | --- | --- | --- | --- | --- | --- | | We will therefore continue to invest | | | £0.4bn | | Planned integration costs | | | into organic growth through BPA and | | | | £0.25bn | | Sun Life of Canada UK acquisition | Available our fee-based businesses, and will £1.45bn for investment into growth also continue to assess further M&A opportunities. Group in-force long-term free cash Group in-force Long-Term Free Cash Group in-force long-term free cash (‘LTFC’) represents the cash expected Group in-force Group in-force to be available over time to fund future | | | | | LTFC | | | LTFC | | --- | --- | --- | --- | --- | --- | --- | --- | | dividends from today’s in-force business. | | | Year ended | | | Year ended | | | This underpins the sustainability of our | £bn | 31 December 2022 | | | 31 December 2021 | | | | c.£0.5 billion annual dividend cost over | Long-term in-force cash generation 17.3 17.0 | | | | | | | | the very long term. | Plus closing Holding Company cash 0.5 1.0 | | | | | | | Less M&A and transition costs (0.4) (0.2) | Group in-force LTFC was £12.1 billion as | Group in-force long-term cash 17.4 17.8 | | --- | --- | | at 31 December 2022 (2021: £11.8 billion). | Less shareholder debt (4.1) (4.6) | | It comprises long-term cash generation | Less interest on debt to maturity (1.2) (1.4) | | expected to emerge from our in-force | Group in-force Long-Term Free Cash 12.1 11.8 | business plus existing Group holding company cash, less an allowance for costs associated with our M&A integration | activity and a deduction for our shareholder | The movement in the year is driven by | debt interest and dividends, c.£0.3 billion | | --- | --- | --- | | debt outstanding and interest to maturity. | c.£1.2 billion of incremental new business | of capital invested into BPA in 2022, and | | | long-term cash generation written in 2022 | c.£0.1 billion of net other uses of cash. | | Growing our Group in-force LTFC allows | from organic growth and c.£0.3 billion of | | | us to demonstrate that we are a growing, | value-creating Solvency II own funds | Growth in the Group’s in-force LTFC | | sustainable business. I am therefore | management actions. | supports us in delivering a dividend | | pleased that in 2022 we have increased | | that is sustainable and grows over time. | | our Group in-force LTFC by c.£0.3 billion. | This more than offsets the Group’s | | c.£0.8 billion of annual operating costs, Increase in Group in-force long-term free cash (£bn) £0.3bn £1.2bn £(0.8)bn | £1.2bn | | | | | | £(0.3)bn | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | £(0.1)bn | | £0.3bn | | Incremental | | Own Funds | Annual operating | | | Total capital | Other Increase in Group | | | | new business | management actions | | costs, interest & | | invested into BPA | | | in-force long-term | | | long-term | | | | dividend | | | | | free cash | cash generation FY22 HoldCo cash 2023–2025 cash generation Sources Uses Phoenix Group Holdings plc Annual Report and Accounts 2022 33 ### Business review continued Group Solvency II Group Shareholder Capital ## Resilience surplus (estimated) Coverage ratio (estimated) ## £4.4bn 189% | Capital management | to 189% (2021: 180%). This is currently | As a result of our comprehensive hedging | | --- | --- | --- | | A Solvency II capital assessment involves a | above the top-end of our 140%-to-180% | strategy, designed to stabilise our capital | | valuation in line with Solvency II principles | target range, providing the capacity to | position, we have minimised the adverse | | of the Group’s Own Funds and a risk-based | invest into both organic and M&A | impact from economic variances to just a | | assessment of the Group’s Solvency | growth opportunities. | £(0.4) billion impact on our Solvency II | | Capital Requirement (‘SCR’). | | surplus, despite unprecedented market | | | Change in Group Solvency II surplus | turbulence last year. While this surplus | | The Group’s Own Funds differ materially | and SCCR | movement from economics was relatively | | from the Group’s IFRS equity for a number | Our ongoing surplus emergence and | small, a consequence of our hedging | | of reasons, including the recognition of | release of capital requirement increased | approach is that we do see volatility in | | future shareholder transfers from the | the SII surplus by £0.7 billion during the | the Group’s Own Funds, to offset against | | with-profit funds and future management | year, contributing to an increase in the | movements in the SCR, and this led to | | charges on investment contracts, the | SCCR of 16%pts. | an 18%pts increase in the SCCR. | treatment of certain subordinated debt instruments as capital items, and a number We delivered strong management actions Importantly though, both the SII Surplus and of valuation differences, most notably in in the period, primarily from ‘business as SCCR impacts were broadly in line with our respect of insurance contract liabilities, usual’ actions as we continue to optimise published sensitivities, which means our taxation and intangible assets. our in-force business. Management actions hedging operated as we expected it to. contributed a further £0.7 billion of surplus | Group Solvency II capital position | increase and added 7%pts to the SCCR. | We also invested £0.3 billion of capital into | | --- | --- | --- | | Our Solvency II capital position remains | | growth, primarily for the funding of £4.8 | | strong, with a resilient surplus of £4.4 billion | Operating costs, dividends and interest | billion of BPA premiums written in the year, | | (2021: £5.3 billion), which includes the | totalled £(0.8) billion, reducing the SCCR | which decreased the SCCR by 7%pts. | | accrual for the deduction of our 2022 final | by 16%pts. We also repaid a c.£0.5 billion | | | dividend of £260 million. Our Shareholder | Tier 3 bond from our own cash resources in | Other movements represent project | | Capital Coverage Ratio (‘SCCR’) increased | July 2022, reducing the SCCR by 9%pts. | spend to deliver Group initiatives, and a | £4.4 billion Group Regulatory Solvency II surplus £4.4 billion Group Shareholder Solvency II surplus 166%156% 189%180% Surplus £5.3bn Surplus Surplus £4.4bn £5.3bn Surplus £14.8bn £11.9bn £4.4bn £11.1bn £9.3bn £9.5bn £6.7bn £6.6bn £4.9bn FY21 FY22 FY21 FY22 Own Funds SCR Own Funds SCR 2022 change in Group Solvency II Surplus (£bn) 16% 7% (16)% (7)% 18% (9)% 0% 180% 189% £0.7bn £0.7bn £(0.8)bn £(0.3)bn £(0.4)bn £(0.5)bn £(0.3)bn £5.3bn £4.4bn | | | | Surplus as | | Surplus | | Management | | Financing and | New business | | Economics | Debt | Other | Surplus | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | at FY21 | emerging and | | | actions | | corporate | | strain | | repayment | | as at FY22 | | | | | | release of capital | | | | | costs and | | | | | | | | | | Surplus | | | | | | | Surplus | | | | | | | | | | £5.3bn | | | | | | | £X.Xbn | | | | | | | | | | Surplus | | | | | | | Surplus | | | | | | | | | | £5.3bn | | | | | | | £X.Xbn | | | | | | | | £14.8bn | | | | | | £XX.Xbn | | | | | | | | | | | £11.9bn | | | | | | £XX.Xbn | | | | | | | | | | | | £9.5bn | | | | | | | £x.xbn | | | | | | | | Phoenix Group Holdings plc Annual Report and Accounts 202234 | | £6.6bn | | | | £X.Xbn | | --- | --- | --- | --- | --- | --- | | FY21 FY21 | | | | FY22 FY22 | | | | | requirements | 2021 dividends | | | Strategic report strengthening of expense assumptions for the IFRS 17 project and integration delivery. Illustrative risk exposure stress testing These movements decreased Solvency II | | | | Surplus | | SCCR | | | --- | --- | --- | --- | --- | --- | --- | | surplus by £0.3 billion, but had a neutral | | 1 | | | | | | | Estimated impact | on PGH Solvency II | | £bn | | % | impact on the SCCR, due to other Solvency II base 4.4 189 assumption changes providing an offset. Equities: 20% fall in markets nil 3 2 Long-term rates: 80bps rise in interest rates 0.1 5 Sensitivity and scenario analysis 2 Long-term rates: 70bps fall in interest rates (0.1) (5) As part of the Group’s internal risk 3 Long-term inflation: 60bps rise in inflation Nil – management processes, the Own Funds 4 Property: 12% fall in values (0.2) (4) and regulatory SCR are regularly tested 5 Credit spreads: 135bps widening with no allowance for downgrades (0.2) (4) against a number of financial scenarios. Credit downgrade: immediate full letter downgrade The table provides illustrative impacts of 6 on 20% of portfolio (0.3) (7) changing one assumption while keeping 7 Lapse: 10% increase/decrease in rates (0.1) (1) others unchanged and reflects the 8 Longevity: 6 months increase (0.5) (10) business mix at the balance sheet date. Extreme markets movements outside of 1 Illustrative impacts as at 1 January 2022 assume changing one assumption while keeping others these sensitivities may not be linear. unchanged, and reflects the business mix at the balance sheet date, and that there is no market recovery. Extreme markets movements outside of these sensitivities may not be linear. 2 Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging While there is no value captured in the which is performed on a continuous basis to minimise exposure to the interaction of rates with other Group stress scenarios for recovery correlated risks including longevity. management actions, the Group does 3 Stress reflects a structural change in long-term inflation with an increase of 60bps across the curve. proactively manage its risk exposure. 4 Property stress represents an overall average fall in property values of 12%. Therefore in the event of a stress, we 5 Credit stress varies by rating and term and is equivalent to an average 135bps spread widening. It assumes the impact of a dynamic recalculation of transitionals and makes no allowance for the cost of defaults/ would expect to recover some of the loss downgrades. reflected in the stress impacts shown. 6 Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g. from AAA to AA, AA to A, etc). This sensitivity assumes management actions are taken to Unrewarded market risk sensitivities 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. We have a particularly low appetite to 7 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups. equity, interest rate, inflation and currency 8 Applied to the annuity portfolio. risks, which we see as unrewarded, i.e. the return on capital for retaining the risk is | lower than for hedging it. | Rewarded credit risk sensitivities | The key sensitivity we focus on for credit is | | --- | --- | --- | | | We do however retain the credit risk in our | a full letter downgrade of 20% of our | | In order to stabilise our SII surplus, we | c.£31 billion shareholder credit portfolio, | credit portfolio, which is £0.3 billion and | | regularly monitor risk exposures and use a | and property risk in Equity Release | is therefore small relative to the Group’s | | range of hedging instruments to remain | Mortgages, where we see these risks as | £4.4 billion Solvency II surplus. | | within a Board approved target range. | rewarded. The shareholder credit assets | | | | are primarily used to back the Group’s | Demographic risk sensitivities | | Equity risk primarily arises from our | annuity portfolio. Exposure to these risks | We also have two key demographic risks | | exposure to a variation in future | is needed to back growth in the Group’s | that we manage. Lapse risk arises from | | management fees on policyholder assets | annuity portfolio. Stress testing is used to | customers surrendering policies early or | | exposed to equities, while our currency | inform the level of risk to accept and to | keeping policies with valuable guarantees | | exposure primarily arises from our foreign | monitor exposures against risk appetite. | for longer. | currency denominated debt. | | We also actively manage our portfolio to | Our longevity risk principally arises from | | --- | --- | --- | | Our interest rate exposure principally | ensure it remains high quality and diversified, | our annuity book, but this is managed | | relates to our shareholder credit portfolio, | and to maintain our sensitivities within risk | through reinsurance, where we retain | | while our inflation exposure arises from | appetite. Our BBB exposure is just 19% and | around half of the risk across our current | | both cost inflation expectations and | we also remain conservative in the sector | in-force book, and reinsure most of this | | inflation-linked policies. | positioning of our credit portfolio, with only | risk on new business. | 3% of our credit portfolio exposed to cyclical sectors, with an average rating of A-. Life Company Free Surplus Estimated position as at Life Company Free Surplus represents 31 December 2022 £bn the Solvency II surplus of the Life Opening Free Surplus 2.6 Companies that is in excess of their Surplus generation and run-off of capital requirements 0.8 Board-approved capital management Management actions 0.6 policies. It is this Free Surplus from | which the life companies remit cash to | Economics, financing and other (0.2) | | --- | --- | | Group. We retain a significant Life | Free Surplus before cash remittances 3.8 | | Company Free Surplus of £2.3 billion | Cash remittances to holding companies 1.5 | | which provides resilience to the Group’s | Closing Free Surplus 2.3 | long-term cash generation. The table shown analyses the movements in 2022. Phoenix Group Holdings plc Annual Report and Accounts 2022 35 ### Business review continued Incremental new business Assets under ## Growth long-term cash generation Administration ## £1.2bn £259bn Incremental new business long-term cash generation reflects the impact on the Incremental new business long-term cash generation Group’s future cash generation arising as a +4% result of new business transacted in the £1,233m year. It is stated on an undiscounted basis. £1,184m Assets under administration (‘AUA’) provide an indication of the potential earnings capability of the Group arising from its insurance and investment business, whilst £950m £934m AUA flows provide a measure of the Group’s success in achieving growth from new business. A reconciliation from the Group’s IFRS statement of consolidated financial position to the Group’s AUA is provided £234m £299m on page 309. Please see the APM section on page 314 FY21 FY22 for further details of these measures. Fee-based businesses Retirement Solutions Incremental new business long-term cash generation | We have delivered a record level of | mid-teens IRR and shorter payback of | accounted for in incremental long-term | | --- | --- | --- | | incremental new business long-term cash | 5.8 years (2021: 8.6 years). | cash generation and is therefore a | | generation of £1,233 million in 2022 (2021: | | recurring benefit for all future new | | £1,184 million). | Importantly though, we are not growing in | business too. | BPA at the expense of our resilience, with | This means that we have once again | a balanced portfolio and low credit risk | Pensions & Savings: Retail | | --- | --- | --- | | delivered new business growth which | sensitivity remaining our long-term | The 2022 incremental new business | | allows us to more than offset the | ambition here. | long-term cash generation of £37 million | | natural run-off of the in-force business | | from our Retail business has increased by | | cash generation of c.£800 million, | Fee-based businesses | 28% on 2021 (2021: £29 million). This | | demonstrating that Phoenix is a business | This comprises our capital-light fee-based | increase has been driven by the move to | | that is growing organically. | businesses of Pensions & Savings, Europe | a lower cost per policy with TCS Diligenta, | | | and SunLife. | as with the Workplace business, thereby | | Retirement Solutions | | enhancing cost efficiency here too. | | We have written £4.8 billion of BPA | Pensions & Savings: Workplace | | | premiums in 2022. While this is a reduction | Our Workplace business has delivered an | Europe | | on £5.6 billion written in 2021, we have | improved level of incremental long-term | There was a small decrease in the | | maintained broadly the same level of | cash generation at £212 million in the year, | incremental new business long-term cash | | incremental new business cash generation | an increase of 53% on 2021 (2021: £139 | generation of our European business to | | at £934 million (2021: £950 million) with | million). This reflects the increased new | £29 million (2021: £31 million), due to lower | | 20% less capital invested. This in turn | business we get from retaining our existing | margins on new business in 2022. | | supported an increase in the cash multiple | corporate customers, through the natural | | | from 2.6x in 2021 to 3.4x in 2022. | growth from new members joining existing | SunLife | | | schemes and the impact of wage inflation | Our incremental long-term cash | | We successfully reduced our capital strain | on contributions. In addition, as part of | generation from SunLife of £21 million has | | from 6.5% in 2021 to 5.8% in 2022, and | TCS Diligenta’s build out of our Workplace | decreased year-on-year (2021: £35 million) | | maintained our pricing discipline which is | capabilities we have moved to a lower cost | reflecting the impact of the cost of living | | evidenced by our delivery of an increased | per policy, improving our cost efficiency | crisis on our SunLife customer base | | | further. This reduces the expenses | leading to lower sales. | Phoenix Group Holdings plc Annual Report and Accounts 202236 Strategic report | Group AUA | Outflows of £3.0 billion in the period (2021: | Other fee-based businesses net | | --- | --- | --- | | Group AUA as at 31 December 2022 was | £2.9 billion) primarily reflect the natural | fund flows | | £259.0 billion (2021: £310.4 billion). | run-off of our in-payment annuity policies. | We have seen net fund flows of £0.6 billion | in 2022 (2021: £0.8 billion net inflows) from | The decrease in the period is largely | Pensions & Savings: Workplace net flows | our Europe and SunLife businesses. | | --- | --- | --- | | driven by £45.7 billion of adverse market | Net fund flows within our Workplace | | | movements, but importantly there is | business were £2.4 billion in 2022 (2021: | Gross inflows were £2.5 billion in the year | 1 | limited impact from these market | £0.2 | billion), a significant improvement | (2021: £2.8 billion), primarily reflecting | | --- | --- | --- | --- | | movements on the fees we earn, as they | year-on-year. The investment we have | | our individual retirement products sold | | are hedged, which results in predictable | made into our proposition and our | | in Europe, while outflows of £1.9 billion | | cash generation. | Standard Life brand has enabled us | | in the year (2021: £2.0 billion) are | | | to improve the retention of our existing | | largely due to the natural run-off of our | | Heritage net flows | schemes to benefit from the embedded | | European business. | | UK Heritage net outflows of £9.6 billion | growth in Workplace schemes and drive | | | 1 | (2021: £10.8 billion | ) reflect policyholder | stronger net fund flows in the year. | Other movements including markets | | --- | --- | --- | --- | | outflows on claims such as maturities and | | | AUA decreased by £45.7 billion (2021: | | surrenders, net of total premiums received | | Gross inflows were £6.2 billion, up 7% | £11.6 billion increase) driven by the net | 1 | in the period from in-force contracts. | on 2021 (£5.8 billion | ), primarily | adverse impacts of market movements, | | --- | --- | --- | --- | | | reflecting increased flows due to | | largely due to rising yields. This impact | | This improvement year-on-year is due to | annual salary increases. | | has been seen across the market, but | | elevated outflows in 2021 relating to | | | Phoenix is different to other insurers due | | one-off challenges following the migration | 2022 outflows of £3.8 billion improved on | | to our comprehensive hedging approach | 1 | of L&G business to ReAssure. With these | 2021 (£5.6 billion | ), as we retained more | which mitigates the impact on our Annual | | --- | --- | --- | --- | | challenges all now resolved, outflows are | customers with our enhanced proposition | | Management Charge, to deliver | | reflective of a more normalised steady- | and the success of our Standard Life | | predictable fee-based revenues and | | state run-rate. | Sustainable Multi-Asset default fund. | | underpin our resilient cash generation. | | Retirement Solutions net flows | Pensions & Savings: Retail net flows | | 1. The opening AUA position has been restated for a | reclassification of £10.1 billon in respect of the Net flows in Retirement Solutions, which Net fund outflows within our Retail Group’s Corporate Trustee Investment Plan (‘CTIP’) encompasses our BPA and individual business were £1.4 billion in 2022 (2021: from the Heritage business to the Pensions & annuity businesses, were £2.3 billion (2021: £1.6 billion net outflow), a slight Savings: Workplace business, as this product is £3.3 billion). This year-on-year reduction is improvement year-on-year. open for new business. Subsequent flows on the CTIP business in 2022 have been captured within due to reduced BPA premiums written, as a the Pensions & Savings: Workplace business, with result of our improved capital efficiency Gross inflows during the period were 2021 associated flows restated to reflect this | and the impact of higher rates. | slightly reduced on 2021 at £1.7 billion | reclassification and provide a more accurate | | --- | --- | --- | | | (2021: £1.9 billion) due to lower | reflection of year-on-year comparatives. | | Gross inflows during the period were | consolidation into our Self Invested | | | £5.3 billion (2021: £6.3 billion), inclusive of | Personal Pension (‘SIPP’) products. | | £4.8 billion of new BPA premiums written | in the year. This included 12 external | Importantly, we did see a more significant | | --- | --- | | transactions accounting for £4.2 billion | decrease in outflows of 11% to £3.1 billion | | of premiums and £0.6 billion for the | (2021: £3.5 billion). This demonstrates that | | last tranche of the Pearl Pension | more customers are staying with us as our | | Scheme buy-in. | proposition is improving. | Movement in AUA (£bn) 2.3 2.4 0.6 (9.6) (1.4) (45.7) 310.4 259.0 | AUA | UK Heritage | Retirement | Workplace | Retail | Other | Other | AUA as at | | --- | --- | --- | --- | --- | --- | --- | --- | | as at | Net Flows | Solutions | Net Flows | Net Flows | fee-based | movement | 31 Dec 2022 | | 1 Jan 2022 | | Net Flows | | | Net Flows | including | | markets Phoenix Group Holdings plc Annual Report and Accounts 2022 37 ### Business review continued Adjusted operating profit Fitch leverage ratio IFRS loss after tax ## IFRS ## £1,245m 30% £(1,762)m ## results IFRS (loss)/profit is a GAAP measure of financial performance and is reported in IFRS profit and loss statement our statutory financial statements on page £m 2022 2021 168 onwards. Heritage 601 537 | Adjusted operating profit is a non-GAAP | Open 761 788 | | --- | --- | | financial performance measure based on | Service company (48) (24) | | expected long-term investment returns. It is | Group costs (69) (71) | | stated before amortisation and impairment | Adjusted operating profit before tax 1,245 1,230 | | of intangibles, other non-operating items, | Investment return variances and economic assumption changes (2,673) (1,125) | | finance costs and tax. | Amortisation and impairment of intangibles (522) (639) | Other non-operating items (179) (65) Please see the APM section on page 314 Finance costs (199) (217) for further details of this measure. Profit before tax attributable to non-controlling interest 67 128 Loss before tax attributable to owners (2,261) (688) IFRS loss after tax attributable to owners Tax credit / (charge) attributable to owners 499 (21) The Group generated an IFRS loss after tax Loss after tax attributable to owners (1,762) (709) attributable to owners of £1,762 million (2021: loss of £709 million), which primarily reflects £2,673 million of adverse investment return variances and £522 | million of charges for amortisation and | Adjusted operating profit includes the | Open adjusted operating profit | | --- | --- | --- | | impairment of intangibles. | effect of variances in experience for | Open adjusted operating profit includes | | | non-economic items, such as mortality and | Retirement Solutions, Pensions and | | Investment return variances includes net | persistency, and the effect of changes in | Savings, SunLife, and is shown here | | losses as a result of economic movements | non-economic assumptions. Any impact | inclusive of our Europe business segment. | | in the value of assets backing Group | from market movements is shown outside | | | employee pension schemes, where they | of adjusted operating profit. Adjusted | Our Open business delivered an adjusted | | are subject to insurance policies with | operating profit is net of policyholder | operating profit of £761 million (2021: | | Group entities. An accounting mismatch | finance charges and policyholder tax. | £788 million). The reduction compared to | | arises as the related decrease in the | | the prior year primarily reflects lower new | | defined benefit pension obligation is | Adjusted operating profit | business profit on BPA due to a lower level | | recognised in ‘Other Comprehensive | The Group has reported an increased | of premiums. | | Income’ (‘OCI’), which has seen a gain of | adjusted operating profit of £1,245 million | | | £686 million in the period that partly | for the year (2021: £1,230 million). | Service company | | offsets the loss. | | The adjusted operating loss from the | | | Heritage adjusted operating profit | service company of £48 million (2021: loss | | Basis of adjusted operating profit | Our Heritage business segment does not | of £24 million) comprises income from the | | Adjusted operating profit is based on | actively sell new life or pension policies | life and holding companies in accordance | | expected investment returns on financial | and runs-off gradually over time. | with the respective management services | | investments backing shareholder and | | agreements less fees related to the | | policyholder funds over the reporting | Our Heritage segment delivered adjusted | outsourcing of services and other | | period, with consistent allowance for the | operating profit of £601 million (2021: | operating costs. | | corresponding expected movements in | £537 million), which increased year-on- | | | liabilities (being the release of prudent | year. This was primarily due to the | The decrease compared to the prior | | margins and the interest cost of unwinding | non-recurrence of adverse one-off | period reflects additional costs incurred, | | the discount on the liabilities). | assumption changes recognised in 2021. | driven by investment in our growth | strategy, including the development of The principal assumptions underlying the asset management capabilities. calculation of the long-term investment return are set out in note B2.1 to the IFRS consolidated financial statements. Phoenix Group Holdings plc Annual Report and Accounts 202238 Strategic report | Group costs | Amortisation and impairment of acquired | The Group tax credit for the period | | --- | --- | --- | | Group costs in the period were £69 million | in-force business and other intangibles | attributable to owners is £499 million | | (2021: £71 million). They mainly comprise | The previously acquired in-force business | (2021: £21 million tax charge) based on | | project recharges from the service | is being amortised in line with the | a loss (after policyholder tax) of £2,261 | | companies and the returns on the scheme | expected run-off profile of the profits to | million (2021: £688 million loss). | | surpluses/deficits of the Group staff | which it relates. The amortisation and | | | pension schemes. | impairment of acquired in-force business | The tax credit of £499 million arising on | | | during the year of £501 million (2021: | the loss (after policyholder tax) includes | | Investment return variances and | £572 million) has decreased year-on-year | a £119 million tax credit arising from the | | economic assumption changes | reflecting the impact of the run-off. | impact of the 25% corporate tax rate | | Movements in yields, inflation, currency | Amortisation and impairment of other | effective from 1 April 2023 on deferred tax. | | and equity markets are hedged to protect | intangible assets totalled £21 million in | | | our Solvency II surplus from volatility, but | the period (2021: £67 million). | A reconciliation of the tax charge is | | our IFRS balance sheet is, in effect, | | set out in note C6.4 to the Group | | ‘over-hedged’. This is because it does not | Other non-operating items | financial statements. | | recognise the additional Solvency II | Other non-operating items totalled a | | | balance sheet items such as certain future | £179 million loss (2021: £65 million loss, | Financial leverage | | profits and the Solvency Capital | inclusive of a £110 million gain | The Group seeks to manage the level of | | Requirements (see diagram on page 31). | on the Standard Life brand acquisition). | debt on its balance sheet by monitoring | | Therefore, the movements in the value of | | its financial leverage ratio. The financial | | certain hedging instruments offset the | This includes £187 million of integration | leverage ratio as at 31 December 2022 | | market movements in the period, and | costs related to the strategic decision to | is 30% (31 December 2021: 28%). | | gives rise to profits or losses in the IFRS | re-phase our Standard Life customer & IT | | | results. However, importantly the Group’s | migration programme to build out our | The increase in leverage year-on-year is | | cash generation and dividend capacity | Open business capabilities on the TCS | predominantly a result of the material | | are unaffected by this due to the | Diligenta (‘TCS’) platform. Also included | adverse investment return variance | | Group’s continued resilient Solvency | are costs associated with the implementation | following significant movements in yields | | balance sheet. | of IFRS 17, ongoing costs in relation to the | and credit spreads. As markets recover in | | | ReAssure integration programme, | future periods, we would expect to see | | As a result, the net adverse investment | acquisition costs relating to Sun Life of | positive investment variances to unwind | | return variances of £2,673 million (2021: | Canada UK, as well as other corporate | some of this unrealised loss. In turn this | | £1,125 million negative) have primarily | project costs and other net one-off items. | will result in a reduction in leverage. | arisen as a result of rising yields, which has | been hedged, and a widening of credit | Finance costs | The leverage ratio is currently within our | | --- | --- | --- | | spreads. This includes economic | Finance costs of £199 million (2021: £217 | target range of 25% to 30%, and we will | | movements on assets within our corporate | million) reflects the interest paid on the | continue to monitor our leverage and | | pension schemes that have been subject | Group debt instruments. The year-on-year | manage it appropriately. | | to a buy-in. Taking into account the | reduction reflects the removal of interest | | | corresponding decrease in our pension | on instruments settled in 2021, and | During July 2022, we repaid a £450 million | | scheme liabilities of £940 million, Total | therefore no cost incurred this year. | Tier 3 bond from our own cash resources, | | Comprehensive Expense for the year | | which contributed to a reduction in | | was £(1,076)m. | Tax credit attributable to owners | outstanding debt leverage to £4.1 billion | | | The Group’s approach to the management | at the end of 2022. | of its tax affairs is set out in its Tax Strategy document that is available on our website. Illustrative change in shareholder equity and ### recognition of CSM Our business strategy and financial framework ### are not impacted by IFRS 17 CSM IFRS 17 is a new Financial Reporting Standard that replaces IFRS 4 on accounting for insurance contracts. IFRS 17 is effective from 1 January 2023. Our strategy of growing our in-force business over time as we support customers journey to and through retirement remains unaffected. Our key metrics continue to focus on cash generation and Solvency II capital resilience, with our dividend paying capacity and long-term coverage remaining unchanged. We expect the introduction of IFRS 17 to result in a broadly neutral impact on IFRS shareholder equity, with a Contractual | IFRS 4 shareholder | | Broadly neutral | Indicative IFRS 17 | | | --- | --- | --- | --- | --- | | | equity | impact expected | shareholder equity | Service Margin (‘CSM’) of at least £2 billion to be established. | | 1 January 2022 | | | 1 January 2022 | | Phoenix Group Holdings plc Annual Report and Accounts 2022 39 ### Business review continued Total 2022 dividend per share dividend increase in ## Dividend the Final 2022 dividend ## 50.8p +5% Organic growth and M&A supports a sustainable dividend increase Phoenix has demonstrated a strong ## dividend track record over the past 2.5% + 2.5% = 5% 12 years, with a 4% compound annual growth rate (‘CAGR’) since 2011. Organic dividend Inorganic dividend Final dividend increase increase increase 2021 was pivotal in evolving our dividend reflects our strong for the Sun Life effective from, story as, for the first time, our dividend strategic and financial of Canada and including, the increase came from the strong organic performance in 2022 UK acquisition 2022 Final dividend performance of our new business. It was a proof of concept that we could deliver dividend increases outside of M&A. However, we have always been clear that ### Phoenix Group’s dividend policy: The Board intends to pay we are focused on delivering dividend ### growth both organically through our new a dividend that is sustainable and grows over time business, and through M&A. Which is why I am delighted that in 2022 we have achieved both. Strong dividend track record Firstly, we announced our first ever +4% CAGR cash funded acquisition of Sun Life 50.8p | of Canada UK, which we expect to | | | | | 48.9p | | --- | --- | --- | --- | --- | --- | | | | | 46.8p | 47.5p | | | | 45.2p | 46.0p | | | | complete in April 2023. We said on 41.9p 40.8p 40.8p 40.8p announcement that the Board had 36.5p proposed a dividend increase of 2.5% H2: 26.0p 32.2p for this inorganic growth, funded from the c.£0.5 billion of cash emerging from this business over its lifetime. +5% In terms of organic growth, we said we H1: 24.8p were confident we could deliver new business long-term cash generation to more than offset the natural run-off of our business in 2022, and we have. Dividend per share With a strong strategic and financial performance in 2022 including record new business long-term cash generation of £1.2 billion, we have delivered organic growth that supports a 2.5% organic generation that will emerge from our the sustainability of our dividend over the dividend increase. current in-force business, with £12.1 billion very long term. of Group in-force long-term cash that will | As a result, the Board has recommended a | be available to fund future dividends. | We have now demonstrated that | | --- | --- | --- | | dividend increase of 5% in the Final 2022 | | Phoenix can grow both organically and | | dividend to 26.0 pence per share, This | Dividend policy and approach | through M&A. Therefore, going forward, | | equates to a Total 2022 dividend of | We operate a dividend policy which is | we will simplify our dividend | | 50.8 pence per share. | to pay a dividend that is sustainable and | communication, with the Board | | | grows over time. | announcing any potential annual dividend | | Our increased level of dividend remains | | increase at our full year results, which will | | just as sustainable as it was previously, | It is important to emphasise that the Board | combine both organic growth and | | thanks to the significant levels of cash | will continue to, above all else, prioritise | inorganic M&A growth. | Phoenix Group Holdings plc Annual Report and Accounts 202240 20122011 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Strategic report ## Outlook ### Phoenix is a growing, ### sustainable business | Looking ahead | In terms of resilience, we will continue to | In Retirement Solutions, we will continue | | --- | --- | --- | | We are helping people secure a life | maintain a strong SII surplus through our | our strategy of optimising our capital and | | of possibilities through our clear and | comprehensive hedging approach. This | returns, by investing c.£300 million of | | differentiated strategy, as we support | will see us continue to operate within or | capital per annum into BPA and targeting | | our customers on their journey to and | above our Solvency II SCCR target range | mid-teens IRRs. | | through retirement. | of 140%-to-180% and continue to manage | | | | our key individual risk sensitivities on | While in our Fee-based Pensions and | | The scale of the Group’s in-force business | a Solvency II surplus basis. | Savings business, we are investing in our | | brings three key competitive advantages | | proposition and the Standard Life brand, | | of capital efficiency, customer access and | Despite the difficult ongoing economic | to support our target for growth in our net | | cost efficiency. We will leverage these | backdrop and volatile markets, our | fund flows. With an ambition for c.£5 billion | | to grow our in-force cash generation over | uniquely resilient Solvency II balance | of annual net fund flows in our Workplace | | time, both organically and through M&A. | sheet is strongly positioned to enable | business by 2025 and c.£2 billion in our | | | us to deliver on our ambitions in 2023. | Retail business by 2025. | Clear financial targets | We have a clear set of targets as we continue | In addition, we will look to manage the | Delivering these new growth targets will | | --- | --- | --- | | to prioritise the delivery of cash, resilience | Group’s gearing level by operating within | enable the Group to generate significant | | and growth. | our Fitch financial leverage ratio target | net growth in our £12.1 billion of Group | | | our target range of 25%–30% over | in-force long-term free cash, which can | | Starting with cash, Phoenix has set two | the long term. | support a dividend that is sustainable and | | new cash generation targets. The first is | | grows over time, in line with our policy. | | a one-year target range for 2023 of | Turning to growth, Phoenix is now | | | £1.3-to-£1.4 billion. The second is a | confident of growing its incremental new | I look forward to an exciting year in 2023 | | three-year target of £4.1 billion across | business long-term cash generation, and | as we continue to deliver on our purpose | | 2023–2025, which includes the cash | has set a new target of £1.5 billion per | and our strategy. | | emergence from the new business we | annum by 2025, which is a 25% increase | | | expect to write in 2023 and 2024, of | on the Group’s strong 2022 performance. | | c.£0.2 billion. This new target is expected to | This evolution in how we set our cash | comprise c.£1.0 billion from Retirement | Rakesh Thakrar | | --- | --- | --- | | targets demonstrates our confidence in | Solutions and c.£0.5 billion from our | Group Chief Financial Officer | | our ability to deliver future organic growth. | Fee-based businesses. | | 2023 targets 2025 target We are confident of growing incremental new business ### Cash long-term cash generation to £1.5bn per annum in 2025. • Deliver £1.3bn–£1.4 billion of cash generation in 2023 • Deliver £4.1 billion of cash generation across | 2023–2025 | | c.£1.5bn | | --- | --- | --- | | Resilience | c.£1.2bn | c.£0.5bn | | • Maintain SII SCCR within or above our 140%–180% | c.£0.3bn | | target range • Manage Fitch leverage ratio within our 25%–30% c.+25% target range c.£0.9bn c.£1bn ### Growth • Deliver c.£1.5 billion per annum of incremental new business long-term cash generation by 2025 • Complete Sun Life of Canada UK acquisition in April 2023 Retirement Solutions Fee-based businesses Phoenix Group Holdings plc Annual Report and Accounts 2022 41 2022 2025 target ### Stakeholder engagement ## Improving stakeholder outcomes ### As a purpose-led business we seek to address the needs of a broad group ### of stakeholders. Positive engagement and meaningful outcomes are key ### to ensuring a strong and sustainable business. All of our interactions are ### governed by the Group’s Code of Business Ethics and Ethical Conduct which ### sets out how we maintain a high standard of integrity across all engagements. Key stakeholder groups ### Customers Suppliers Colleagues Community Investors Government, trade ### bodies and regulators Phoenix Group has c.12 million customers and We seek to ensure that our c.1,500 partners and We have colleagues based across the UK, Ireland We are committed to making a difference in the We maintain an active dialogue with institutional We engage with various political stakeholders at manages £259 billion of assets. We offer a broad suppliers adhere to the highest environmental and Germany. Our operational sites include communities in which we are based, interacting equity and debt investors, individual investors, Westminster and Holyrood, along with key trade range of pensions and savings products to support and ethical standards. London, Wythall, Edinburgh, Telford, Hitchin, with educational institutions, charities and local rating agencies and sell side research analysts. bodies representing the industry, and regulators people across all stages of the savings life cycle. Norwich, Bristol, Dublin and Frankfurt. community groups. including the PRA, FCA ,CBI and TPR What matters to them • Products and services that meet their needs at • A collaborative approach and long-term • Having a sense of belonging and connection • Investment into local innovation, infrastructure • Regular updates on the Group’s strategy, • Effective regulatory engagement, transparency different stages of their savings life cycle relationships based on trust to Phoenix’s purpose and values, and being and sustainable communities operations and performance and compliance • Clear communication and integrity as well as trust • Clear mutual expectations and ESG standards empowered to make a difference • Providing fulfilling work and economic growth, • Clear communication of investment proposition • Evidencing the regulators’ key areas of interest in their funds being managed safely for all suppliers covering carbon reduction • A diverse and inclusive workplace including social mobility and comprehensive financial disclosures to (outlined annually) have been addressed • Customer service and support that promotes targets, modern slavery and health and safety • Flexible ways of working that best suit their needs • Financial and volunteering support to our enable investors and analysts to appropriately • Actively contributing to policy developments positive outcomes and empowers better financial • Enabling entity consistency in social • Opportunities for personal and career development local charities evaluate Phoenix Group as an investment impacting long-term savings and insurance decision making responsibility through supply chain • Recognition and reward for performance • Educational support to our local schools • Regular engagement with management on • Collaboration with a range of trade associations, • Understanding and support for those experiencing • Engaging in effective two-way feedback • Using our scale and influence to take action on business performance and governance matters such as the Association of British Insurers, vulnerability, particularly through key life events • Support to help navigate the cost of living crisis key societal and environmental concerns • Annual review meeting with Fitch Ratings Confederation of British Industry, and TheCityUK and moments of heightened pressures • Named and clear points of contact for queries How we engage | • We engage through a variety of channels | • We maintain an active dialogue to identify areas | • We embed our purpose and ambition through | • We hold regular meetings with charity partners | • Comprehensive engagement programme, | • Comprehensive and robust regulatory | | --- | --- | --- | --- | --- | --- | | and are adapting our service and product | for collaboration and support our suppliers’ | clear colleague objectives and career goals | and partnership schools, and stay connected | including regular investor roadshows, results | engagement programme, co-ordinated through | | propositions to help more customers journey | progress towards our standards | • Our colleagues are enabled to speak up through | with other causes | presentations, sales briefings and conferences | centralised Regulatory Relationships Team | | to and through retirement | • In 2022, we developed our ESG Supply Chain | a continuous listening culture, including regular | • We invite our colleagues to input on matters | • We held a Capital Markets Event in December | • Colleagues from all over our business actively | | • We continuously seek new ways to better identify, | Standards for key suppliers in line with best | engagement surveys | important to them in their communities | to provide a deep-dive into the Group’s organic | engage on trade association committees | | manage, and support vulnerable customers, driving | practice, detailing our expectations of them. The | • We also engage through our colleague | • We routinely undertake surveys and | growth opportunities and showcase the depth | • Andy Briggs, Group CEO, chairs the ABI Climate | | consistency and excellence across the Group | Standards are due for publication in late March/ | representation groups, colleague-led networks, | collect feedback | of our senior management | Change Board Committee, co-chairs an employer | | • We conduct direct customer research, and | early April 2023 and will support the current | regular intranet communications and Phoenix | | • We conducted >200 interactions with | trade organisation round-table with the Minister | | regularly review and integrate feedback into | Code of Practice | Together events | | shareholders, debt investors and financial analysts, | for Employment and sits on a number of other | | our decision making | • We continue to engage with the ABI Sustainable | • Phoenix Colleague Representation Forum have | | and also attended numerous conferences in the UK | industry forums | | • We continue to integrate ESG into our | Supply Chain Working Group, the CDP Supplier | quarterly engagement meetings with Maggie | | and overseas | • Andy Curran, CEO Standard Life, chairs the ABI’s | | investment solutions | Survey and the Indirect Spend Alliance. | Semple, our Director of Workforce Engagement | | • Our Chair held a Stewardship roadshow in January | Long-Term Savings Committee, and also sits on | | | | | | 2023 with our major institutional investors | the ABI Board | Outcomes of engagement | • Sustained high customer satisfaction scores of 92% | • 82% of our key suppliers have now committed | • A people strategy aligned to our vision of being | | • c.£815,000 collectively donated to registered | | • Ongoing engagement enables a two-way | • Positive industry outcome on Solvency II, | | --- | --- | --- | --- | --- | --- | --- | --- | | for Combined Group telephony and 94% for | to Science Based targets (‘SBTi’) or UN Race | the best place colleagues have ever worked | | | charities by the Group, our colleagues and | dialogue between Phoenix and its investors, | which will help government meet its objective | | Standard Life digital journeys, exceeding our | to Zero targets | • Initiatives to progress Diversity, Equity & Inclusion | | | third parties | analysts and ratings agencies, ensuring a good | of increasing insurance capital deployment into | | 2022 targets of 90% and 92% respectively | • 96% of key suppliers have published a Modern | • Access to mental health & well-being tools | | | • During the year, colleagues have volunteered | understanding of the company strategy in the | the real economy | | • Launched our Vulnerable Customer Centre of | Slavery Statement | • Provision of mobile technology to all colleagues | | | c.6,455 hours to support our communities, up | market, and enabling feedback to be considered | • Our regulated subsidiaries have approved capital | | Excellence, receiving industry awards | • 92% of our suppliers were paid within 60 days | to support our flexible ways of working | | | from c.2,650 hours in 2021 | in our strategic decision-making | policies for distributions which protect customers | | • 1.2m customers directly offered digital | in 2022 | • In 2022, we ranked 24th on the Social Mobility | | | • 42% of colleagues involved in community | • The Directors recommended a 5% increase in | • Approval of a new Irish entity (PLAE) by the CBI, | | literacy materials | • 93% of assigned operations colleagues have | index (41st in 2021) and we won Employer of the | | | engagement activities throughout 2022 | the Group’s 2022 Final Dividend to 26.0p (total | followed by a Part VII transfer of the Irish branch | | • Responded to cost of living crisis, including | been trained in ESG | Year at the FTAdviser Diversity in Finance Awards | | | • Standard Life became a founding partner for the | dividend of 50.8p), comprising both organic | business, Icelandic, German, Swedish and | | financial difficulty pages on our websites and | • Our 2021 and 2022 Scope 3 emissions have | • Comprehensive cost of living support package, | | | new Samaritans Training School, with a donation | and inorganic growth | Norwegian business which was approved by the | | reviewing products to provide flexibility | been mapped against the 2019 baseline | including one-off net payment of £1,000 to all | | | enabling around 400 more listening volunteers | • The Group’s Insurer Financial Strength rating | UK and relevant EU regulators and the Courts, | | • Transitioned 1.5m customers and c.£15bn of assets | | colleagues | 1 , access to free money coaching, free | | to be trained | is AA- (Fitch rated) | meeting the post-Brexit deadline of YE 2022. | | into our new default Sustainable Multi Asset solution | | meals and support with cost of parking | | | | | | | • Launched financial inclusion strategy | | 1 Payment made in August to all employees except our | | | | | | most senior staff Read more | • On pages 22 to 25 | • In our 2022 Sustainability Report and 2022 | • On pages 108 to 109 | • In our 2022 Sustainability Report • On our website: | | • In our 2022 Sustainability Report | | --- | --- | --- | --- | --- | --- | | • In our 2022 Sustainability Report | Climate Report, along with our ESG Supply | • In our 2022 Sustainability Report | | thephoenixgroup.com/investor-relations | | | • standardlife.co.uk | Chain Standards | • Our website: | | | | | • phoenixlife.co.uk | • Our website: thephoenixgroup.com/ | thephoenixgroup.com/sustainability/ | | | | | • reassure.co.uk | sustainability/working-responsibly-suppliers | people-and-culture | | | | • sunlife.co.uk Phoenix Group Holdings plc Annual Report and Accounts 202242 Strategic report ### Section 172 statement During the year, Directors have applied section 172 of the • the impact of our operations on the community Companies Act 2006 in a manner consistent with the Group’s and the environment; purpose, values and strategic priorities. When, the Directors • the desirability of maintaining our reputation for have acted in a way which they consider, in good faith, is most high standards of business conduct; and likely to promote the success of the Company for the benefit of • the need to act fairly between members of the Company. its members as a whole. In doing so the Directors have paid due regard to the matters set out in section 172(1) (a) to (f), namely: Examples of how Directors have considered these matters • the likely consequences of decisions in the long term; in connection with key decisions linked to our strategic • the interests of our employees; priorities are detailed on pages 84 to 87 of the Corporate • the need to foster business relationships with suppliers, Governance Report. customers and others; Key stakeholder groups ### Customers Suppliers Colleagues Community Investors Government, trade ### bodies and regulators Phoenix Group has c.12 million customers and We seek to ensure that our c.1,500 partners and We have colleagues based across the UK, Ireland We are committed to making a difference in the We maintain an active dialogue with institutional We engage with various political stakeholders at manages £259 billion of assets. We offer a broad suppliers adhere to the highest environmental and Germany. Our operational sites include communities in which we are based, interacting equity and debt investors, individual investors, Westminster and Holyrood, along with key trade range of pensions and savings products to support and ethical standards. London, Wythall, Edinburgh, Telford, Hitchin, with educational institutions, charities and local rating agencies and sell side research analysts. bodies representing the industry, and regulators people across all stages of the savings life cycle. Norwich, Bristol, Dublin and Frankfurt. community groups. including the PRA, FCA ,CBI and TPR What matters to them • Products and services that meet their needs at • A collaborative approach and long-term • Having a sense of belonging and connection • Investment into local innovation, infrastructure • Regular updates on the Group’s strategy, • Effective regulatory engagement, transparency different stages of their savings life cycle relationships based on trust to Phoenix’s purpose and values, and being and sustainable communities operations and performance and compliance • Clear communication and integrity as well as trust • Clear mutual expectations and ESG standards empowered to make a difference • Providing fulfilling work and economic growth, • Clear communication of investment proposition • Evidencing the regulators’ key areas of interest in their funds being managed safely for all suppliers covering carbon reduction • A diverse and inclusive workplace including social mobility and comprehensive financial disclosures to (outlined annually) have been addressed • Customer service and support that promotes targets, modern slavery and health and safety • Flexible ways of working that best suit their needs • Financial and volunteering support to our enable investors and analysts to appropriately • Actively contributing to policy developments positive outcomes and empowers better financial • Enabling entity consistency in social • Opportunities for personal and career development local charities evaluate Phoenix Group as an investment impacting long-term savings and insurance decision making responsibility through supply chain • Recognition and reward for performance • Educational support to our local schools • Regular engagement with management on • Collaboration with a range of trade associations, • Understanding and support for those experiencing • Engaging in effective two-way feedback • Using our scale and influence to take action on business performance and governance matters such as the Association of British Insurers, vulnerability, particularly through key life events • Support to help navigate the cost of living crisis key societal and environmental concerns • Annual review meeting with Fitch Ratings Confederation of British Industry, and TheCityUK and moments of heightened pressures • Named and clear points of contact for queries How we engage | • We engage through a variety of channels | • We maintain an active dialogue to identify areas | • We embed our purpose and ambition through | • We hold regular meetings with charity partners | • Comprehensive engagement programme, | • Comprehensive and robust regulatory | | --- | --- | --- | --- | --- | --- | | and are adapting our service and product | for collaboration and support our suppliers’ | clear colleague objectives and career goals | and partnership schools, and stay connected | including regular investor roadshows, results | engagement programme, co-ordinated through | | propositions to help more customers journey | progress towards our standards | • Our colleagues are enabled to speak up through | with other causes | presentations, sales briefings and conferences | centralised Regulatory Relationships Team | | to and through retirement | • In 2022, we developed our ESG Supply Chain | a continuous listening culture, including regular | • We invite our colleagues to input on matters | • We held a Capital Markets Event in December | • Colleagues from all over our business actively | | • We continuously seek new ways to better identify, | Standards for key suppliers in line with best | engagement surveys | important to them in their communities | to provide a deep-dive into the Group’s organic | engage on trade association committees | | manage, and support vulnerable customers, driving | practice, detailing our expectations of them. The | • We also engage through our colleague | • We routinely undertake surveys and | growth opportunities and showcase the depth | • Andy Briggs, Group CEO, chairs the ABI Climate | | consistency and excellence across the Group | Standards are due for publication in late March/ | representation groups, colleague-led networks, | collect feedback | of our senior management | Change Board Committee, co-chairs an employer | | • We conduct direct customer research, and | early April 2023 and will support the current | regular intranet communications and Phoenix | | • We conducted >200 interactions with | trade organisation round-table with the Minister | | regularly review and integrate feedback into | Code of Practice | Together events | | shareholders, debt investors and financial analysts, | for Employment and sits on a number of other | | our decision making | • We continue to engage with the ABI Sustainable | • Phoenix Colleague Representation Forum have | | and also attended numerous conferences in the UK | industry forums | | • We continue to integrate ESG into our | Supply Chain Working Group, the CDP Supplier | quarterly engagement meetings with Maggie | | and overseas | • Andy Curran, CEO Standard Life, chairs the ABI’s | | investment solutions | Survey and the Indirect Spend Alliance. | Semple, our Director of Workforce Engagement | | • Our Chair held a Stewardship roadshow in January | Long-Term Savings Committee, and also sits on | | | | | | 2023 with our major institutional investors | the ABI Board | Outcomes of engagement | • Sustained high customer satisfaction scores of 92% | • 82% of our key suppliers have now committed | • A people strategy aligned to our vision of being | | • c.£815,000 collectively donated to registered | | • Ongoing engagement enables a two-way | • Positive industry outcome on Solvency II, | | --- | --- | --- | --- | --- | --- | --- | --- | | for Combined Group telephony and 94% for | to Science Based targets (‘SBTi’) or UN Race | the best place colleagues have ever worked | | | charities by the Group, our colleagues and | dialogue between Phoenix and its investors, | which will help government meet its objective | | Standard Life digital journeys, exceeding our | to Zero targets | • Initiatives to progress Diversity, Equity & Inclusion | | | third parties | analysts and ratings agencies, ensuring a good | of increasing insurance capital deployment into | | 2022 targets of 90% and 92% respectively | • 96% of key suppliers have published a Modern | • Access to mental health & well-being tools | | | • During the year, colleagues have volunteered | understanding of the company strategy in the | the real economy | | • Launched our Vulnerable Customer Centre of | Slavery Statement | • Provision of mobile technology to all colleagues | | | c.6,455 hours to support our communities, up | market, and enabling feedback to be considered | • Our regulated subsidiaries have approved capital | | Excellence, receiving industry awards | • 92% of our suppliers were paid within 60 days | to support our flexible ways of working | | | from c.2,650 hours in 2021 | in our strategic decision-making | policies for distributions which protect customers | | • 1.2m customers directly offered digital | in 2022 | • In 2022, we ranked 24th on the Social Mobility | | | • 42% of colleagues involved in community | • The Directors recommended a 5% increase in | • Approval of a new Irish entity (PLAE) by the CBI, | | literacy materials | • 93% of assigned operations colleagues have | index (41st in 2021) and we won Employer of the | | | engagement activities throughout 2022 | the Group’s 2022 Final Dividend to 26.0p (total | followed by a Part VII transfer of the Irish branch | | • Responded to cost of living crisis, including | been trained in ESG | Year at the FTAdviser Diversity in Finance Awards | | | • Standard Life became a founding partner for the | dividend of 50.8p), comprising both organic | business, Icelandic, German, Swedish and | | financial difficulty pages on our websites and | • Our 2021 and 2022 Scope 3 emissions have | • Comprehensive cost of living support package, | | | new Samaritans Training School, with a donation | and inorganic growth | Norwegian business which was approved by the | | reviewing products to provide flexibility | been mapped against the 2019 baseline | including one-off net payment of £1,000 to all | | | enabling around 400 more listening volunteers | • The Group’s Insurer Financial Strength rating | UK and relevant EU regulators and the Courts, | | • Transitioned 1.5m customers and c.£15bn of assets | | colleagues | 1 , access to free money coaching, free | | to be trained | is AA- (Fitch rated) | meeting the post-Brexit deadline of YE 2022. | | into our new default Sustainable Multi Asset solution | | meals and support with cost of parking | | | | | | | • Launched financial inclusion strategy | | 1 Payment made in August to all employees except our | | | | | | most senior staff Read more | • On pages 22 to 25 | • In our 2022 Sustainability Report and 2022 | • On pages 108 to 109 | • In our 2022 Sustainability Report • On our website: | | • In our 2022 Sustainability Report | | --- | --- | --- | --- | --- | --- | | • In our 2022 Sustainability Report | Climate Report, along with our ESG Supply | • In our 2022 Sustainability Report | | thephoenixgroup.com/investor-relations | | | • standardlife.co.uk | Chain Standards | • Our website: | | | | | • phoenixlife.co.uk | • Our website: thephoenixgroup.com/ | thephoenixgroup.com/sustainability/ | | | | | • reassure.co.uk | sustainability/working-responsibly-suppliers | people-and-culture | | | | • sunlife.co.uk Phoenix Group Holdings plc Annual Report and Accounts 2022 43 ### Non-financial information statement ### Environment Colleagues Social and community Human rights Anti-bribery and corruption ## Non- Our policies Phoenix Group is committed to protecting The Group’s Human Resources (‘HR’) policy defines people risk, which, Customers At Phoenix, we are ambitious in our desire Phoenix Group has a zero-tolerance policy to bribery the environment; the health and well-being if unmanaged, could result in a reduction in earnings or value, through The Group’s Customer Outcomes Risk policy covers risks arising from the design to lead the way in respecting human rights and corruption in all its forms. ## financial of our colleagues and the customers and financial or reputational loss. Our Group approach to support the health or management of products, or from the failure to meet or exceed reasonable and recognise our responsibility to do this communities in which we operate. We aim to and well-being of colleagues is a key enabler to build an inclusive, attractive, customer expectations, taking account of regulatory requirements. in accordance with: Phoenix Group is committed to countering bribery reduce the impact on the environment from and safe working environment that can adapt and respond quickly to and corruption with suitable policies and procedures. our operations and demonstrate leadership change. We are keen to create a sense of belonging, so colleagues feel The Group continually improves communications with customers to make it easy • The International Bill of Human Rights. We have an anti-bribery programme in place designed in minimising emissions that contribute connected to our purpose and values, empowered to for them to interact with us in connection with their policy and go on to make an • The International Labour Organization’s to prevent the occurrence of bribery. This includes, ## information to climate change. make a difference and motivated and proud to be part of our story. informed decision should they wish to take any action. This includes enhancing (‘ILO’) Core Conventions. for example: the customer experience and vulnerable customer support. Our environmental strategy focuses on A key priority for our business is to ensure diversity at the Phoenix Group As an asset owner, we also align with the • An Anti-Bribery Policy at Group level. four key areas: to create a workplace that is inclusive and reflective of our communities Suppliers Organisation for Economic Co-Operation • A Code of Ethics for ethical behaviour and enables colleagues to bring their whole self to work. We set out strict standards of corporate behaviour for all our people to follow. and Development (‘OECD’) Guidelines for and general standards. ## statement Our Net Zero Commitment – We are This includes complying with all applicable laws and regulations, protecting Multinational Enterprises, a set of responsible • A Group Stewardship Policy which details | | committed to addressing climate change | We champion gender equity through promoting a strong pipeline | | | | human rights, providing a safe place of work, and minimising our direct and indirect | business conduct standards for multi-national | | our stewardship approach. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | and limiting global warming to 1.5°C. | of female executive talent for the future. | | | | environmental impact. We also expect our suppliers to adhere to high standards | enterprises, as well as the OECD guidance | • Mandatory training for our employees covering | | | | Our objective is for our operations to be net | | | | | in the way that they operate. The Supplier Code of Conduct outlines the minimum | on responsible business conduct for | | compliance with the Bribery Act. | | | | The table below outlines our gender diversity metrics as at 31 December 2022 | | | 1 : | | | | | | | zero by 2025. | | | | | conduct standards to which suppliers must adhere when doing business with us. | institutional investors. | | | | As required by the | | | | | | Suppliers must be able to demonstrate adherence to this Code of Conduct | | The Group’s Financial Crime Prevention and | | | | Waste and Recycling – We will implement | | 1 | Female 7 54% | | | We are committed to fully aligning with | Anti-Bribery policy addresses risks such as money | | | | | Board members | | | | if requested and failure to demonstrate compliance will lead to a review of | | | | | Companies Act 2006 | sustainable waste management practices | | | Male 6 46% | | the supplier contract. | the United Nations Guiding Principles on | laundering, terrorist financing, fraud, bribery and | | | | including the removal of all single use plastics | | | | | | Business and Human Rights (‘UNGPs’), the | corruption risks and the facilitation of tax evasion. | | | | | | 2 | Female 27 36% | | | | | | | | from our operations by 2030. | Senior managers | | | | We expect robust health and safety conditions for all workers in the supply chain, | authoritative global framework on business | | | ### sections 414CA and 414CB, | | | | | Male 47 64% | and to comply with the Health and Safety at Work Act UK or local equivalent. | and human rights, and our ambition is to | The Group also operates a Whistleblowing policy, | | --- | --- | --- | --- | --- | --- | --- | --- | | | Conservation – We are committed to | | | Female 4,301 52% | Suppliers are expected to have health and safety staff training and management | encourage other organisations to do | prompting colleagues to disclose information where | | this table outlines our | | All employees | 3 | | | | | | | supporting conservation in our communities. | | | | systems in place and to publish their health and safety performance externally. | the same. | they believe wrongdoing, malpractice or risk exists | Male 4,032 48% Suppliers must meet and evidence the standards and obligations in the Modern across any of Phoenix Group’s operations. non-financial information Employee Engagement – We will support Senior managers and their Female 44 54% During 2022 we appointed a human rights Slavery Act 2015 and must respect the human rights of their employees and | | colleague understanding of environmental | direct reports | 4 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Male 38 46% | comply with all relevant legislation, regulations and directives in the countries | consultant to review our alignment to the | | statement with a reference | issues and promote engagement in | | | | | UNGPs by conducting an assessment and | and communities in which they operate. environmental action. 1 Companies Act 2006, s.414C(8)(c)(i) identifying opportunities for improvement. 2 Companies Act 2006, s.414C(8)(c)(ii) | to relevant policies and | | | Communities | As a result, we have developed a roadmap to | | --- | --- | --- | --- | --- | | | We have a range of policies including our | 3 Companies Act 2006, s.414C(8)(c)(iii) | | | | | | | We aim to make a positive and lasting difference in the communities in which we | address gaps and are committed to closing | | | Group Environmental policy, Environment | 4 Provision 23, UK Corporate Governance Code | | | | additional documents. | | | are based, addressing societal issues identified at a micro level. Through our | these within the next three years. | Risk policy, Supplier Code of Conduct, commitment to being a responsible business our colleagues can participate in Responsible Investment Philosophy and During 2023 we will further develop existing a range of community-based activities, utilising their collective time, skills, Sustainability Risk policy. policies and procedures to include human knowledge and resources. Colleagues can take two days for individual volunteering and a further day with their team, and support any charity of their rights considerations. In addition, an exercise is ongoing to update all Group risk policies to consider choice across the UK and Europe through fundraising and payroll giving schemes. sustainability matters. Due diligence Andy Briggs, Group CEO, is responsible for Adherence to the HR policy is managed by the Group’s HR function Our Data Protection Officer monitors compliance with the GDPR and DPA 2018 During 2022, we commissioned a high-level Colleagues are required to complete annual embedding sustainability within the Group, in via quarterly assessment of the minimum control standards. There were and owns the Group Privacy policy and Data Protection Risk policy. Our Chief saliency scan by an independent third party computer-based training around both financial crime line with the strategy set by the Group Board. no material issues raised during the year. Information Security Officer monitors Cyber risks and manages a comprehensive to identify and assess our potentially salient prevention and adherence with the Code of Business The Group CEO reports directly to the Board programme of continuous improvement of Security Controls and a dedicated human rights issues that we should prioritise Ethics and Ethical Conduct. on all sustainability activity across the All colleagues are required to complete annual computer-based health Security Operations team to respond to emerging cyber threats. The Group is for further action. business including the environmental policy. and safety training. Arrangements are in place to manage on-site facilities well-positioned to resist cyber-attacks and has had no significant cyber-related Colleagues are also required to complete a Gifts and We will monitor and review our environmental across all sites, ensuring the working environment is compliant and fit incidents in 2022, and there was no compromise to our systems or data as a result We intend to further advance our ability to Hospitality Register which is overseen and managed performance against our environmental for purpose. of any cyber events within our supply chain. identify and manage our human rights risks, by the Financial Crime team. commitments set out in our policy and the through conducting human rights saliency We have a range of tools and resources available to support our colleagues, Complaint activity including those referred to the Financial Ombudsman Service assessments of our operations and value chain net zero requirements. their dependents, family members and loved ones to help look after their or the Pensions Ombudsman Service is monitored, and a significant proportion as part of our due diligence processes in the We report on our environmental performance personal health and well-being. of complaints are resolved across the Group in less than three days. next two years. This includes undertaking a annually and review the policy to ensure it supply chain field assessment, portfolio-level remains relevant and appropriate. We work The Supplier Code of Conduct outlines the minimum ESG requirements for all our human rights assessment, as well as assessing with our key suppliers to develop best suppliers. We accelerated our expectations of all 1,500 partners and suppliers and human rights risks in countries of operations practice carbon management, including published our Supplier Open Letter which set out our ESG requirements that and high-risk business relationships on an science-based net zero targets, and robust include adoption of Science-Basted Target initiative (‘SBTi’) carbon reduction ongoing basis. waste minimisation including reduction of targets; implementing a plan to tackle and report on modern slavery, and meeting single-use plastic strategies. best practice health and safety standards. Outcomes | | Read more about our net zero and | Other relevant colleague engagement, including Diversity, Equity and | Information on our customer satisfaction scores and initiatives can be found on | During 2022, the Group effectively resolved | The Group’s governance processes for financial crime | | --- | --- | --- | --- | --- | --- | | | climate-related reporting commitments and | Inclusion data can be found on pages 26 to 27 as well as in our 2022 | pages 22 to 23 and in our Sustainability Report. | all colleague disputes and as a result has not | prevention, anti-bribery and anti-corruption, ethics | | | KPIs on pages 48-51 and our sustainability | Sustainability Report. | | been subject to any adverse Employment | and compliance training, whistleblowing and speaking | | | actions in the 2022 Sustainability Report. | | Information on relevant supply chain metrics and communities metrics can | Tribunals judgements or awards. | up can be found on our Group website. | | | Our GHG emissions and energy consumption | | be found in our 2022 Sustainability Report. | | | | This section primarily covers our | | | | Reporting on our salient human right issues, | | disclosure can be found on pages 46–47. actions, and progress to align with the UNGPs non-financial information as required through our annual sustainability report. by the regulations. Other related information can be found as follows: For further information For further details on our key | | • Our sustainability policies: | • Health and Well-being approach: thephoenixgroup.com/sustainability/ | • Privacy Policy: thephoenixgroup.com/site-services/privacy | • Phoenix Group 2022 Modern Slavery and | • Governance: thephoenixgroup.com/about-us/ | | --- | --- | --- | --- | --- | --- | | performance indicators, | thephoenixgroup.com/sustainability/ | people-and-culture/wellbeing | • Supplier Code of Conduct: thephoenixgroup.com/sustainability/ | Human Rights Statement: | governance | | | reports-and-policies | • Health and Well-being Statement: thephoenixgroup.com/ | working-responsibly-suppliers | thephoenixgroup.com/site-services/ | • Anti-bribery statement: thephoenixgroup.com/ | see pages 18 to 27 HealthWellbeingStatement • Supplier Open Letter: thephoenixgroup.com/SupplierOpenLetter modern-slavery-and-human-trafficking about-us/governance/anti-bribery • Diversity, Equity and Inclusion: thephoenixgroup.com/sustainability/ • Community Statement: thephoenixgroup.com/CommunityStatement people-and-culture/diversity-and-inclusion For further details on our business • HR Frameworks: thephoenixgroup.com/HRFrameworks model see pages 14 to 17 For further details on our principal risks and how they are managed, see pages 52 to 67 Phoenix Group Holdings plc Annual Report and Accounts 202244 Strategic report ### Environment Colleagues Social and community Human rights Anti-bribery and corruption Our policies Phoenix Group is committed to protecting The Group’s Human Resources (‘HR’) policy defines people risk, which, Customers At Phoenix, we are ambitious in our desire Phoenix Group has a zero-tolerance policy to bribery the environment; the health and well-being if unmanaged, could result in a reduction in earnings or value, through The Group’s Customer Outcomes Risk policy covers risks arising from the design to lead the way in respecting human rights and corruption in all its forms. of our colleagues and the customers and financial or reputational loss. Our Group approach to support the health or management of products, or from the failure to meet or exceed reasonable and recognise our responsibility to do this communities in which we operate. We aim to and well-being of colleagues is a key enabler to build an inclusive, attractive, customer expectations, taking account of regulatory requirements. in accordance with: Phoenix Group is committed to countering bribery reduce the impact on the environment from and safe working environment that can adapt and respond quickly to and corruption with suitable policies and procedures. our operations and demonstrate leadership change. We are keen to create a sense of belonging, so colleagues feel The Group continually improves communications with customers to make it easy • The International Bill of Human Rights. We have an anti-bribery programme in place designed in minimising emissions that contribute connected to our purpose and values, empowered to for them to interact with us in connection with their policy and go on to make an • The International Labour Organization’s to prevent the occurrence of bribery. This includes, to climate change. make a difference and motivated and proud to be part of our story. informed decision should they wish to take any action. This includes enhancing (‘ILO’) Core Conventions. for example: the customer experience and vulnerable customer support. Our environmental strategy focuses on A key priority for our business is to ensure diversity at the Phoenix Group As an asset owner, we also align with the • An Anti-Bribery Policy at Group level. four key areas: to create a workplace that is inclusive and reflective of our communities Suppliers Organisation for Economic Co-Operation • A Code of Ethics for ethical behaviour and enables colleagues to bring their whole self to work. We set out strict standards of corporate behaviour for all our people to follow. and Development (‘OECD’) Guidelines for and general standards. Our Net Zero Commitment – We are This includes complying with all applicable laws and regulations, protecting Multinational Enterprises, a set of responsible • A Group Stewardship Policy which details committed to addressing climate change We champion gender equity through promoting a strong pipeline human rights, providing a safe place of work, and minimising our direct and indirect business conduct standards for multi-national our stewardship approach. | and limiting global warming to 1.5°C. | of female executive talent for the future. | | | | environmental impact. We also expect our suppliers to adhere to high standards | enterprises, as well as the OECD guidance | • Mandatory training for our employees covering | | --- | --- | --- | --- | --- | --- | --- | --- | | Our objective is for our operations to be net | | | | | in the way that they operate. The Supplier Code of Conduct outlines the minimum | on responsible business conduct for | compliance with the Bribery Act. | | | The table below outlines our gender diversity metrics as at 31 December 2022 | | | 1 : | | | | | zero by 2025. | | | | | conduct standards to which suppliers must adhere when doing business with us. | institutional investors. | | | | | | | | Suppliers must be able to demonstrate adherence to this Code of Conduct | | The Group’s Financial Crime Prevention and | | Waste and Recycling – We will implement | | 1 | Female 7 54% | | | We are committed to fully aligning with | Anti-Bribery policy addresses risks such as money | | | Board members | | | | if requested and failure to demonstrate compliance will lead to a review of | | | | sustainable waste management practices | | | Male 6 46% | | the supplier contract. | the United Nations Guiding Principles on | laundering, terrorist financing, fraud, bribery and | | including the removal of all single use plastics | | | | | | Business and Human Rights (‘UNGPs’), the | corruption risks and the facilitation of tax evasion. | | | | 2 | Female 27 36% | | | | | | from our operations by 2030. | Senior managers | | | | We expect robust health and safety conditions for all workers in the supply chain, | authoritative global framework on business | | | | | | Male 47 64% | | and to comply with the Health and Safety at Work Act UK or local equivalent. | and human rights, and our ambition is to | The Group also operates a Whistleblowing policy, | | Conservation – We are committed to | | | Female 4,301 52% | | Suppliers are expected to have health and safety staff training and management | encourage other organisations to do | prompting colleagues to disclose information where | | | All employees | 3 | | | | | | | supporting conservation in our communities. | | | | | systems in place and to publish their health and safety performance externally. | the same. | they believe wrongdoing, malpractice or risk exists | Male 4,032 48% Suppliers must meet and evidence the standards and obligations in the Modern across any of Phoenix Group’s operations. Employee Engagement – We will support Senior managers and their Female 44 54% During 2022 we appointed a human rights Slavery Act 2015 and must respect the human rights of their employees and | colleague understanding of environmental | direct reports | 4 | | | | | --- | --- | --- | --- | --- | --- | | | | | Male 38 46% | comply with all relevant legislation, regulations and directives in the countries | consultant to review our alignment to the | | issues and promote engagement in | | | | | UNGPs by conducting an assessment and | and communities in which they operate. environmental action. 1 Companies Act 2006, s.414C(8)(c)(i) identifying opportunities for improvement. 2 Companies Act 2006, s.414C(8)(c)(ii) | | | Communities | As a result, we have developed a roadmap to | | --- | --- | --- | --- | | We have a range of policies including our | 3 Companies Act 2006, s.414C(8)(c)(iii) | | | | | | We aim to make a positive and lasting difference in the communities in which we | address gaps and are committed to closing | | Group Environmental policy, Environment | 4 Provision 23, UK Corporate Governance Code | | | | | | are based, addressing societal issues identified at a micro level. Through our | these within the next three years. | Risk policy, Supplier Code of Conduct, commitment to being a responsible business our colleagues can participate in Responsible Investment Philosophy and During 2023 we will further develop existing a range of community-based activities, utilising their collective time, skills, Sustainability Risk policy. policies and procedures to include human knowledge and resources. Colleagues can take two days for individual volunteering and a further day with their team, and support any charity of their rights considerations. In addition, an exercise is ongoing to update all Group risk policies to consider choice across the UK and Europe through fundraising and payroll giving schemes. sustainability matters. Due diligence Andy Briggs, Group CEO, is responsible for Adherence to the HR policy is managed by the Group’s HR function Our Data Protection Officer monitors compliance with the GDPR and DPA 2018 During 2022, we commissioned a high-level Colleagues are required to complete annual embedding sustainability within the Group, in via quarterly assessment of the minimum control standards. There were and owns the Group Privacy policy and Data Protection Risk policy. Our Chief saliency scan by an independent third party computer-based training around both financial crime line with the strategy set by the Group Board. no material issues raised during the year. Information Security Officer monitors Cyber risks and manages a comprehensive to identify and assess our potentially salient prevention and adherence with the Code of Business The Group CEO reports directly to the Board programme of continuous improvement of Security Controls and a dedicated human rights issues that we should prioritise Ethics and Ethical Conduct. on all sustainability activity across the All colleagues are required to complete annual computer-based health Security Operations team to respond to emerging cyber threats. The Group is for further action. business including the environmental policy. and safety training. Arrangements are in place to manage on-site facilities well-positioned to resist cyber-attacks and has had no significant cyber-related Colleagues are also required to complete a Gifts and We will monitor and review our environmental across all sites, ensuring the working environment is compliant and fit incidents in 2022, and there was no compromise to our systems or data as a result We intend to further advance our ability to Hospitality Register which is overseen and managed performance against our environmental for purpose. of any cyber events within our supply chain. identify and manage our human rights risks, by the Financial Crime team. commitments set out in our policy and the through conducting human rights saliency We have a range of tools and resources available to support our colleagues, Complaint activity including those referred to the Financial Ombudsman Service assessments of our operations and value chain net zero requirements. their dependents, family members and loved ones to help look after their or the Pensions Ombudsman Service is monitored, and a significant proportion as part of our due diligence processes in the We report on our environmental performance personal health and well-being. of complaints are resolved across the Group in less than three days. next two years. This includes undertaking a annually and review the policy to ensure it supply chain field assessment, portfolio-level remains relevant and appropriate. We work The Supplier Code of Conduct outlines the minimum ESG requirements for all our human rights assessment, as well as assessing with our key suppliers to develop best suppliers. We accelerated our expectations of all 1,500 partners and suppliers and human rights risks in countries of operations practice carbon management, including published our Supplier Open Letter which set out our ESG requirements that and high-risk business relationships on an science-based net zero targets, and robust include adoption of Science-Basted Target initiative (‘SBTi’) carbon reduction ongoing basis. waste minimisation including reduction of targets; implementing a plan to tackle and report on modern slavery, and meeting single-use plastic strategies. best practice health and safety standards. Outcomes | Read more about our net zero and | Other relevant colleague engagement, including Diversity, Equity and | Information on our customer satisfaction scores and initiatives can be found on | During 2022, the Group effectively resolved | The Group’s governance processes for financial crime | | --- | --- | --- | --- | --- | | climate-related reporting commitments and | Inclusion data can be found on pages 26 to 27 as well as in our 2022 | pages 22 to 23 and in our Sustainability Report. | all colleague disputes and as a result has not | prevention, anti-bribery and anti-corruption, ethics | | KPIs on pages 48-51 and our sustainability | Sustainability Report. | | been subject to any adverse Employment | and compliance training, whistleblowing and speaking | | actions in the 2022 Sustainability Report. | | Information on relevant supply chain metrics and communities metrics can | Tribunals judgements or awards. | up can be found on our Group website. | | Our GHG emissions and energy consumption | | be found in our 2022 Sustainability Report. | | | | disclosure can be found on pages 46–47. | | | Reporting on our salient human right issues, | | actions, and progress to align with the UNGPs through our annual sustainability report. For further information • Our sustainability policies: • Health and Well-being approach: thephoenixgroup.com/sustainability/ • Privacy Policy: thephoenixgroup.com/site-services/privacy • Phoenix Group 2022 Modern Slavery and • Governance: thephoenixgroup.com/about-us/ thephoenixgroup.com/sustainability/ people-and-culture/wellbeing • Supplier Code of Conduct: thephoenixgroup.com/sustainability/ Human Rights Statement: governance reports-and-policies • Health and Well-being Statement: thephoenixgroup.com/ working-responsibly-suppliers thephoenixgroup.com/site-services/ • Anti-bribery statement: thephoenixgroup.com/ HealthWellbeingStatement • Supplier Open Letter: thephoenixgroup.com/SupplierOpenLetter modern-slavery-and-human-trafficking about-us/governance/anti-bribery • Diversity, Equity and Inclusion: thephoenixgroup.com/sustainability/ • Community Statement: thephoenixgroup.com/CommunityStatement people-and-culture/diversity-and-inclusion • HR Frameworks: thephoenixgroup.com/HRFrameworks Phoenix Group Holdings plc Annual Report and Accounts 2022 45 ### Streamlined Energy and Carbon Reporting (‘SECR’) statement ## Greenhouse Gas (‘GHG’) Emissions ## and Energy Consumption Disclosure ### This is Phoenix Group’s Streamlined Energy and Carbon Reporting (‘SECR’) statement ### on the Group’s UK and global energy consumption and GHG emissions for the financial ### year 1st January 2022 to 31st December 2022, and the 2021 comparative year. Emissions ### disclosed here relate to energy consumption, facilities, and activities where Phoenix ### Group has operational control. | Methodology | methodology, stating two figures, | is primarily due to the change in reporting | | --- | --- | --- | | Phoenix Group has used the GHG | to reflect the GHG emissions from | methodology. In addition, 24.4 GWh of | | Protocol Corporate Standard (revised | purchased electricity: | energy consumption from employee | | edition) and emissions factors from the | | homeworking has been estimated in 2022, | • A location-based method – reflects International Energy Agency (‘IEA’), DEFRA of which 92% occurred within the UK. the average emissions intensity of the UK Government Conversion Factors, and In GHG emissions terms (Scopes 1+2+3), national electricity grids from which Association of Issuing Bodies (‘AIB’) 94% of Phoenix Group’s emissions consumption is drawn. | European Residual Mix as the basis to | | | occurred at UK sites. | | --- | --- | --- | --- | | report on any GHG emissions in tonnes of | | • A market-based method – reflects | | | carbon dioxide equivalent (tCO | 2 e). This | emissions from electricity specific to | Due to the continued development and | | expresses multiple greenhouse gases in | | each supply/contract. Where electricity | improvement in the Group’s reporting | | terms of carbon dioxide based on their | | supplies are known to be from a certified | methodology, meaningful comparisons | | global warming potential (including | | renewable source, a zero emissions | with previous years’ energy consumption | | methane, nitrous oxide, hydrofluorocarbons, | | factor is used, otherwise residual mix | and GHG emission is not possible. | | perfluorocarbons and sulphur hexafluoride). | | factors are used. | However, in absolute terms, the Group’s | GHG emissions (location-based Scope 1 + | Emissions considered relate to activities | In future, the Group will prioritise market- | 2, per Table 2) have decreased 46%. | | --- | --- | --- | | both in the UK and globally for which the | based emissions reporting to focus on | Business travel remains comparable with | | Group is responsible and include as | the actual carbon impact of its energy | 2021, and a significant increase of 222% | | applicable: combustion of any fuel and | consumption, recognising the organisation’s | can be observed in 2022. This is the result | | operation of its facilities; fugitive emissions | actions to promote sustainable procurement | of continued easing of worldwide travel | | released from refrigerants purchased | and improve environmental outcomes. | restrictions, following two years of | | (based on refrigerant top-ups); and annual | | limitations. The Group is addressing this | | emissions from the purchase of electricity, | Prior to 2022, emissions from a number of | opportunity for improvement, and is | | heat, steam or cooling by the Group for its | the Group’s investment properties were | continuing to investigate technological | | own use. In addition, the Group estimates | considered Scope 1 and 2, as the approach | solutions to reduce business travel where | | Scope 3 emissions associated with | for those assets was historically that of | possible. In addition, both intensity metrics | | employee homeworking and employee | financial control. Properties managed by | reported in Table 3 show continued | | commuting, as well as business travel from | other asset management partners were | decreases; by 10% on an FTE basis and 9% | 2 | other third party owned/operated sources, | reported under operational control. As of | on a m | basis. This reduction shows that the | | | --- | --- | --- | --- | --- | | including air, taxi and rail travel. | 2022, to provide a consistent reporting | Group continues to remain on its pathway | | | | | framework, any direct investment assets | to net zero carbon in operations by 2025. | | | | Reported data relates to occupied | that historically adopted a financial control | | | | | premises in UK, Ireland, Germany, Austria | approach will now be considered under | The Group continues to procure | | | | and Bermuda, where the Group procures | operational control and will therefore be | approximately 100% of its electricity from | | | | energy. Where energy consumption is | reported within investment related carbon | certified renewable sources meaning | | | | sub-metered to tenants and in occupied | (scope 3) within the TCFD report. | market-based Scope 2 emissions are | | | | assets that the Group does not directly | | significantly less than the location-based | | | | own or operate (i.e. serviced offices), | Commentary on Performance | emissions as shown in Table 2. To recognise | | | | GHG emissions falls into Scope 3 | Overall, in 2022 there was 43.2 GWh of | the importance of addressing remaining | | | | reporting, whereas all other landlord- | Group global energy consumption | carbon emissions which cannot yet be | | | | obtained consumption remains as Scope 1 | (building energy and business travel) as | eliminated, the Group has continued to | | | | or 2 emissions. | shown in Table 1, 97% of which was from | purchase gold standard certified carbon | | | | | UK operations. This is a substantial | offsets for natural gas consumed in its | | | | The Group reports Scope 2 emissions | decrease on the 76.4 GWh of global | owned and occupied assets, constituting | | | | using the GHG Protocol dual-reporting | energy consumption reported in 2021, and | an estimated 1,994 tCO | | 2 e in 2022. | Phoenix Group Holdings plc Annual Report and Accounts 202246 Strategic report 1 Energy consumption and greenhouse gas emissions Table 1. Absolute energy consumption in GWh 2 Consumption, GWh from: 2022 2021 Building Electricity 24.1 45.4 Building Natural Gas 18.7 31.0 Business Travel 0.4 0.1 Homeworking Electricity 1.5 1.7 Homeworking Natural Gas 22.9 26.1 Total Consumption 67.6 104.3 a GHG emissions and energy consumption statement pursuant to the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (the SECR Regulations) b Business travel (GWh) does not include air, taxi or rail due to lack of applicable conversion factors for this data, however GHG emissions from these sources are still included in Table 2 Table 2. Absolute GHG emissions in tonnes of CO 2 e 2022 2021 (market- (location- (market- (location- Emissions, tonnes of CO 2 e, from: based) based) based) based) Scope 1 — Combustion of fuels, business travel (in company owned and operated vehicles), and fugitive emissions of refrigerant gases 2,684 2,684 4,812 4,812 Scope 2 — Electricity purchased for landlord shared services and own use (purchase of heat, steam and cooling not applicable) 7 4,437 21 8,342 Scopes 1 + 2 — Mandatory carbon footprint disclosure 2,692 7,121 4,833 13,154 Scope 3 — Category 3: Fuel and Energy Related Activities (T&D) 356 356 1 722 Scope 3 — Category 6: Business Travel 1,149 1,149 356 356 Scope 3 — Category 7: Employee Commuting (incl. Homeworking Emissions) 4,847 4,631 5,487 5,294 Scope 3 — Category 8: Upstream Leased Assets 2,018 1,826 2,051 1,765 Scope 3 — Category 13: Downstream Leased Assets 0 313 312 2,723 Scopes 1 + 2 + 3 — Voluntary carbon footprint 11,062 15,395 13,040 24,014 Carbon Offsets Purchased 1,994 2,453 1 Emissions factors – IEA (for location-based Scope 2 and Scope 3 T&D losses), AIB (for market-based residual mix factors for non-renewable electricity), and DEFRA (fuels, refrigerants and travel). There is a significant time-lag in the availability of IEA factors –2022 factors will not be published until late 2023. Therefore all 2022 consumption data are converted using the factors actually arising in 2018 (except business travel which uses DEFRA factors as published in 2022). 2 Energy Units: 1 GWh = 1,000,000 kWh Table 3. Phoenix Group’s chosen intensity measurement 2022 2021 (market- (location- (market- (location- Emissions (kilogrammes and tonnes) of CO 2 e per chosen intensity metric: based) based) based) based) 2 Scope 1+2 emissions from occupied premises per floor area (kg CO 2 e/m ) 26 57 30 62 Scope 1+2 emissions from occupied premises per full-time equivalent employee (tCO 2 e/FTE) 0.34 0.73 0.38 0.81 Energy Intensity Metrics operations, as described below in the • Upgraded building control systems to The Group’s chosen operational intensity Energy Efficiency Action section. allow for greater flexibility and metrics detail GHG emissions per operational efficiency. 2 occupied floor area (m ) and per FTE in Energy Action (Climate Change Actions) • Upgraded fans and retrofitted inverter occupied premises (Table 3). The To maximise the environmental impact of controls within ventilation systems. | methodology to establish whether | capital expenditure, spending was | | | --- | --- | --- | | buildings should be included in the | prioritised based on the potential carbon | • Replaced inefficient gas boilers in | | intensity metric only covers occupied | impact of projects across the operational | two buildings giving savings of | | buildings where emissions are considered | estate. Many projects were undertaken in | 1,950 MWh per year. | | Scope 1 and 2 and where twelve months of | offices that need to stay operational | | | data is available in the current reporting | throughout the year; thus, the work has | In line with the Group’s Eliminate-Reduce- | | year, meaning some sites were excluded | been phased over a number of years. | Substitute-Compensate carbon reduction | | from this calculation. To calculate the | This means that energy and carbon savings | model, applicable opportunities will continue | | intensity for both per occupied floor area | may fluctuate depending on the extent of | to be reviewed. Additionally, technological | | and per FTE per occupied premises, the | works carried out in a particular year. | solutions are also being investigated in order | | applicable occupied floor area and FTEs | | to facilitate and improve remote | | respectively were summed and then | The following is a selection of projects | collaborations between colleagues, enabling | | divided by the total Scope 1 and 2 | for 2022: | the Group to reduce business travel. | emissions for these buildings. • Completed the replacement of roof Building improvement works will continue glazing with photovoltaic glass. To date 2 Both the m and FTEs intensities have as needed to include efficiency measures this has produced 1,880 kWh of on-site continued to decrease in 2022, which is such as improved controls (to switch renewable electricity. the result of the Group’s ongoing efforts to unnecessary equipment and lighting off), improve energy efficiency and reduce it’s • Continued to roll out higher efficiency more efficient equipment, and improved impact on the environment through it’s LED lighting across applicable buildings. building fabric where necessary. Phoenix Group Holdings plc Annual Report and Accounts 2022 47 ### Task Force on Climate-Related Financial Disclosures ## Task Force on Climate-Related ## Financial Disclosures (‘TCFD’) – ## summary report ### Climate change is one of the greatest global challenges we face today and ### we believe Phoenix has a significant role to play in helping to address the ### climate emergency, accelerating the transition to a net zero economy and ### managing financial risk for our customers and shareholders. We aim to ### be a net zero business by 2050. Governance The Group’s Chief Executive Officer is This resulted in simplifying our The Group’s strategic approach to responsible for implementation and management committee structure which sustainability (including climate change) delivery of the Group’s overall strategy. provide a means for our executive decision is overseen by the Group Board and The sustainability strategy, including makers, SMFs and controlled function role climate related responsibilities are climate strategy (to address risks and holders to gain the information they need delegated to certain Board Committees opportunities), forms part of the Group and opportunity to challenge options for dependent on their overall purpose and strategy. The Group’s Chief Financial action before signing off important remit. The allocation of responsibilities Officer (‘CFO’) and Chief Risk Officer decisions on behalf of the Group. is summarised below: (‘CRO’) are appointed as joint Senior Management Function holders (‘SMF’s) As a result, the Enterprise Sustainability • The Board Risk Committee considers responsible for climate-related financial Committee was established to provide climate risk as part of its bi-annual risk under the Senior Managers and oversight of the implementation and review of principal and emerging Certification Regime. The Group CFO achievement of the Phoenix Group’s risks and oversees climate related is responsible for reporting metrics sustainability and climate strategies, risks within the Group Risk and targets and external disclosures; driving forward the Group’s agenda Management Framework (including and as part of wider risk responsibilities, covering the breadth of those strategies oversight of the Group’s climate the Group CRO is responsible for and related initiatives. related stress and scenario testing). ensuring that climate-related risks are | • The Board Audit Committee is | incorporated into the existing risk | The TCFD Steering Committee (which was | | --- | --- | --- | | responsible for overseeing material | management framework. | operational until March 2022 when the | | Environmental, Social and Governance | | TCFD Implementation Programme | | (‘ESG’) reporting, including climate- | A number of key management and | concluded) and TCFD working group | | related reporting. | operational groups also have specific | mentioned above now form part of our | | | responsibilities for climate-related activities. | on-going local governance forums. | • The Board Sustainability Committee is responsible for monitoring Enterprise Sustainability Committee – These groups do not have delegated performance against the Group’s comprised of key executives who meet at decision making authority from the Board or sustainability strategy, including climate least six times a year and are responsible its Committees. They operate to ensure the strategy and related opportunities. | | for ensuring implementation of the | day-to-day embedding of climate-related | | --- | --- | --- | | • The Board Remuneration Committee | Phoenix sustainability strategy and | activities across the business, aligned with | | is responsible for ensuring appropriate | associated opportunities (including related | the Group sustainability strategy. | | ESG elements (including climate-related | to climate change); and monitoring | | | targets) are included within the | progress against strategy, KPIs and targets; | During the year, the Board approved the | | Group remuneration framework. | and supporting Board Committees. | Group’s 2022 Sustainability Strategy, | | More detail on these targets can be | | including key climate-related targets. The | | found on pages 129 to 130 of the | TCFD Working Group – responsible | Board considered climate change on | | Directors’ Remuneration Report. | for ensuring the implementation and | seven occasions (including education | | | embedding of the recommendations of | sessions and updates on TCFD | | Cross-committee membership and | the TCFD and delivery of locally agreed | implementation and the Net Zero | | engagement between the Board | climate-related action. | Transition Plan). At each meeting the Chair | | Committees listed above drive | | of the Board Sustainability Committee | | consistency of climate strategy and | During 2022, we evolved our governance | provides a verbal report on the | | risk management across the Group’s | framework to drive greater empowerment, | considerations of the Committee. | | governance framework. | efficiency and agility across the business. | | Phoenix Group Holdings plc Annual Report and Accounts 202248 Strategic report A positive effectiveness review of the opportunities. This has been used to Board Sustainability Committee was guide our financial planning and ### Climate Report – completed and enhancements were made decision making in 2022. ### prepared in line with to the Group’s remuneration framework by integrating climate-related targets within Invest ### Recommendations and the Executive Directors’ Strategic Invest for the future by decarbonising our ### Recommended | Scorecard. Further enhancements are | investment portfolio and applying our | | | --- | --- | --- | | expected for 2023 targets and these will | exclusions policy, being an effective | Disclosures of the | | be disclosed in the Director’s | steward of our assets by supporting | | ### Taskforce on Climate- | Remuneration Report for 2023. Phoenix | investee companies’ action towards | | | --- | --- | --- | | has continued to upskill the Board, | transitioning to net zero; and investing in | Related Financial | | Executive and the wider Group through | climate solutions. We are focused on | | ### Disclosures (‘TCFD’) tailored education sessions on managing the financial risks from climate sustainability and climate change and in change for our policyholders and Phoenix fully supports the 2022, sessions were held to deepen providing savings and insurance products recommendations of the TCFD and understanding of decarbonisation targets that can enable our policyholders to direct transparent climate reporting to as part of the SBTi process and finance to help accelerate the transition allow all stakeholders to better developments in the energy market. to a low carbon economy. understand the impact of climate- related risks and opportunities Looking ahead Engage and how these are measured Ongoing enhancement of the governance Engage to multiply our impact by working and managed. framework and embedding of climate with collaboratively with partners to deliver decision making across the Group will cross-sector change and thought In 2022, we have made further continue, ensuring our governance is leadership; and engaging with our progress in embedding the future fit, in addition to a continued focus customers and employees on the role recommendations of the taskforce. on education and developing expertise. they can play in delivering net zero. Given our progress and the There will be further support of the 2023 This priority in particular helps mitigate increasing need for transparent sustainability targets and priorities our reputational risk as we take a positive climate reporting, we have opted including approval of the Net Zero public stance on climate change and to publish a standalone Climate Transition Plan and oversight of the continue to work collaboratively with Report which is available on our Group’s nature approach and strategy peers and industry bodies. Group website. development and implementation Lead We have therefore included a Strategy Lead by example by decarbonising our summary in this Annual Report of We have identified climate change risks operations through energy efficiency, how we have complied with all of the and opportunities as those derived from: technology and financial planning through recommendations of the TCFD transition risks (arising from exposure to the the delivery of specific projects; and framework, the progress we have transition to a net zero economy through cutting emissions from our supply chain, made during 2022 and the key policy, legal, market, technology changes by requiring that all suppliers have a priorities for the future. For any and reputational impacts); and physical carbon reduction target and that our key recommendations where we have risks (arising from the acute and chronic suppliers have a SBTi committed target further detail in other sections of impacts of changing climate on the short and procure renewable energy. the Annual Report or the Climate and long term). For Phoenix, we have Report, we have included the identified four areas of climate risk/ These are anchored by the strength of our required cross references. opportunity considered most material: our people capabilities in investment, risk investment portfolio; the changing management, scenario analysis and demand for products, funds and solutions governance and the ongoing investment in given evolving customer needs; emerging our climate data and technology platforms. government policy, regulatory and legal changes; and reputational damage if In particular, for regulatory risk, our Group climate risks not appropriately managed. Risk Management Framework (‘RMF’) Further details of the risks identified and ensures appropriate monitoring within their potential impacts on Phoenix are existing regulatory horizon scanning included in the Risk and Strategy sections frameworks and metrics are updated as of the Climate Report. required for adjustments to risk appetite and tolerances. In developing our strategy, we have considered the risks/opportunities across three time horizons: short-term ( 0–1 year), medium-term (1–5 years) and long-term Scan the code to find out (over 5 years). To deliver our 2050 net zero more in our Climate Report ambition, we have set three key priorities in response to climate response to climate change to consider both risks and Phoenix Group Holdings plc Annual Report and Accounts 2022 49 ### Task Force on Climate-Related Financial Disclosures continued | During the year we commenced a | tracking the progress made in terms of the | applied per pound spend. This was | | --- | --- | --- | | quantitative climate scenario exercise to | Group’s interim net zero targets for both | supplemented with (‘CDP’) data inputs | | further develop our methodology and | internal operations and the investment | from suppliers where available. Based on | | modelling capabilities and assess the | portfolio. We have continued to review and | our estimated emissions footprint work | | resilience of our climate strategy. We have | enhance the RMF as further information is | to date using available data, we have | | used five climate scenarios to model the | developed, including through scenario | identified that our supply chain emissions | | potential impact of a range of possible | analysis work and have enhanced the data | seem to be heavily concentrated in the | | future climate pathways and help inform | strategy and model for collecting and | top 10 suppliers, with the top 100 | | actions needed to reduce the impact of | reporting on climate risk. | suppliers likely accounting for | | climate change risks on our investment | | approximately 95% of our Purchased | | portfolio (considered the most material | Looking ahead | Goods and Services emissions. | | risk area for the Group). Details of | We aim to enhance the data strategy and | | | these impacts are included within the | model for collecting and reporting on | Phoenix has set a number of targets to | | Climate Report. | climate change risk and further develop | align to the goals of the Paris agreement. | | | our internal physical risk reporting. | We have committed to reach net zero | | Our analysis indicates there is a need to | Ongoing review and enhancement of the | across our Group by 2050 and we are | | transition our investment portfolio to align | RMF will continue as further information is | committed to reach net zero in our direct | | to a net zero position at a suitable pace. | developed, including through scenario | operations (Scope 1 , 2 and selected Scope | | This action will be delivered through our | analysis work. | 3 business travel) by 2025. | Net Zero Transition Plan and will help | mitigate the Group exposure to transition | Metrics and targets | For our supply chain, we have set a 50% | | --- | --- | --- | | risk in particular. It will also position the | In 2022, we expanded our Scope 3 | emissions intensity reduction target by | | Group to better exploit the new investment | financed emission baseline to include | 2030 and a net zero target by 2050. For | | opportunities that will arise in a net | sovereign debt and real estate assets. For | our investment portfolio, we are targeting: | | zero world. | the investment portfolio, we measured the | | • A 25% reduction in the carbon emission absolute emissions and emissions intensity intensity of our listed equity and credit Looking ahead for our listed equity, listed credit, sovereign assets where we exercise influence and We will be rolling out our decarbonisation debt and real estate assets, the percentage control by 2025. | strategy, increasing stewardship activity | of this portfolio exposed to high-carbon | | | --- | --- | --- | | and investing in sustainable opportunities; | risk sectors and the fossil fuel industry; and | • A 50% reduction in the carbon emission | | in addition to working with industry and | the percentage of this portfolio aligned | intensity of all assets where we exercise | | Government to advocate for sustainable | with science-based targets. | influence and control by 2030 to be net | | policy and regulation. | | zero by 2050. | Using this expanded baseline Scope 3 | We will further develop our internal | investment portfolio absolute emissions | | | | In 2022 we submitted our internal | | --- | --- | --- | --- | --- | --- | | scenario analysis process, addressing | decreased from 24 million tons of carbon | | | | decarbonisation targets (which support | | known limitations and reflecting evolving | dioxide equivalent (‘tCO | | 2 e’) in 2019 to 21 | | the delivery of our external interim | | market best practice. This will include | mtCO | 2 e in 2021. The revenue emissions | | | decarbonisation targets) to the | | enhancing our analysis of physical risk. | intensity for listed equity and credit assets | | | | Science Based Targets Initiaitve (‘SBTi’) | | | decreased from 158 tCO | | 2 e per $1 million | | for validation. | | Risk management | revenue in 2019 to 139 tCO | | | 2 e per $1 million | | | Climate change was identified as an | revenue in 2021. | | | | Looking ahead | | emerging risk in 2018 and sustainability | | | | | We will review our decarbonisation | | risk, of which climate risk is a sub-category, | The four high transition risk sectors | | | | performance against a net-zero glide path | | has been classified as a principal risk by the | (energy, utilities, materials and industrials) | | | | for 2023 and aim to expand our Scope 3 | | Board since 2019 to recognise the | only account for 20% of the listed | | | | finance emissions baseline to include | | potential adverse impacts it can have on | portfolio AUM, however they account for | | | | illiquid credit assets in 2023. As data | | our business. | 71% of all listed portfolio emissions. As at | | | | quality improves, we want to broaden the | | | year end 2021, almost half of the listed | | | | scope to consider the Scope 3 emissions | | Climate change is considered cross- | portfolio was invested in counterparties | | | | of investee companies. | | cutting as it impacts all categories of our | that had committed to set or already set | | | | | | Risk Universe and our approach to climate | approved science-based targets. | | | | We will further develop operational and | | risk (including how it is identified, | | | | | investment metrics with a focus on physical | | managed, monitored and reported on) is | Our operational carbon footprint is detailed | | | | risk. We will continue to help set and track | | integrated into the overall Group RMF. | in the SECR report on pages 46 to 47. | | | | their carbon reduction targets. We will | be publishing our Net Zero Transition | Further details of climate as a principal risk, | We have worked with our partners Carbon | | Plan in 2023. | | --- | --- | --- | --- | | its impact and our mitigating actions are | Intelligence to set an indicative 2019 | | | | included within the Risk Management | baseline for our supply chain of circa 0.2 | | | | Report on page 52. | million tCO | 2 e. We calculated our indicative | | 2019 baseline using a hybrid methodology, | In 2022, we have further developed our | which involved a combination of extended | | --- | --- | | internal climate risk reporting, reflecting | input-output (‘EEIO’) analysis, where an | | the evolution of market best practice and | industry average emissions factor is | Phoenix Group Holdings plc Annual Report and Accounts 202250 Strategic report ### Timeline of climate action • Supported TCFD framework • First TCFD disclosure published • Established a TCFD Implementation Programme ## 2020 • Establishment of Responsible Investment Philosophy • Committed to be a net zero business by 2050 • Committed to becoming operationally net zero by 2025 • Signatory to the Principles of Responsible Investment • Achieved 34% reduction in operational emissions intensity from 2020 • Became member of Net Zero Asset Owners Alliance • First life insurer to sign up to UK Partnership for Carbon Accounting Financials ## 2021 • Published open letter to financial partners, including asset management partners. • First insurer to publish open letter on ESG to 1,500 suppliers • Published Investments exclusion policy • Set 2025 and 2030 investments decarbonisation targets • Completed Bank of England’s Climate Biennial Exploratory Scenario (‘CBES’) exercise • Strategic partner for Green Horizon Summit at United Nations Climate Change Conference • ‘B’ Carbon Disclosure Project (‘CDP’) grade awarded • Published first standalone Climate report • Completed Round II of CBES exercise • Rolled out decarbonisation investment strategy and increased stewardship activity ## 2022 • Transferred c.1.5 million customers and c. £15 billion of assets into our sustainable multi-asset default solution • Invested £483 million in illiquid assets with positive environmental impact • £338 million multi-asset climate solutions mandate to deploy policyholder assets • 80% reduction in operational carbon emissions intensity (per FTE against 2019) • 82% of suppliers committed to either a SBTi or Race to Zero target • Developed SBTi targets for validation • A- CDP grade awarded • Develop and publish Net Zero Transition Plan capturing investments, operations and supply chain • Aim to meet all interim net zero targets across investments, operations and supply chain ## 2023 And beyond • Net Zero Group by 2050 Phoenix Group Holdings plc Annual Report and Accounts 2022 51 ### Risk management ## Our risk ## management framework ### The Group’s Risk Management Framework (‘RMF’) seeks to ensure ### that all material risks are identified, assessed, controlled, monitored ### and managed within approved risk appetites and reported through ### agreed governance routes in line with delegated authorities. The RMF ### is an enabler to delivering the Group’s risk strategy; to take rewarded ### risks that are understood, managed effectively and consistent with ### its purpose and enterprise strategy. | The RMF is aligned to the principles of | are impacting the lives of the Group’s | Geopolitical risk remains prominent, including | | --- | --- | --- | | the International Organisation of | customers, particularly those that are most | the effects arising from the ongoing conflict in | | Standardisations’ (‘ISO’) risk management | vulnerable. Increased taxes and reduced | Ukraine and post-Brexit factors. The Group | | guidelines, ISO 31000. | public spending announced in the Autumn | continues to monitor developments across | | | Budget are likely to exacerbate these | the political environment. | | The nine components of the RMF are | impacts. The Group remains focused on | | | outlined in the diagram below, with further | finding ways to support its customers and | The regulatory change agenda continues | | information in the sections below. | has also introduced a number of initiatives | to have potentially significant implications | | | to support colleagues. Central Banks face a | for the Group achieving its strategic | | Risk environment | challenging balancing act to control | priorities. The Group is supportive of the | | The overall risk environment remains | inflation whilst managing the risk of global | Solvency II Reforms, but requires detail | | uncertain and is dominated by ongoing | recession. The Group’s Stress and Scenario | on the final rules to determine the | | inflationary pressures, with implications for | Testing programme continues to consider a | implications for its strategic asset | | economic stability and the welfare of the | range of adverse circumstances to help it | allocation. Progressing key tasks on the | | Group’s customers and colleagues. The cost | determine any actions needed to respond | implementation plan for the FCA’s new | | of living crisis and sustained high inflation | to economic pressures. | Consumer Duty is another area of primary | focus in order to demonstrate the Group’s priority of helping customers achieve a life Risk Management Framework of possibilities. The Group is working to implement the Risk requirements of International Financial strategy Reporting Standard 17 (‘IFRS 17’). Whilst and culture plans are in place to deliver the required disclosures in the interim accounts, there remain significant delivery risks given the Risk appetite complexity of the business. The Group recognises that should it not deliver IFRS 17 reporting for the interim accounts, certain Risk universe reputational, regulatory and other market consequences would arise that could be material. Management has considered the Risk Governance and risks to executing the plans and identified policies organisation actions that could be taken should these risks materialise. Emerging Strategic risk The Group also maintains a significant risk management Risk and self-initiated change agenda in order to capital deliver on its strategic priorities. In 2022 a models number of enhancements were made to the Group’s Change Management Framework Risk and control processes and reporting including to the prioritisation and scheduling of change, and strengthened controls around change delivery. Phoenix Group Holdings plc Annual Report and Accounts 202252 Strategic report | The Group retains focus on delivering on | • a forward-looking internal assessment of | categorised its risk universe into | | --- | --- | --- | | its strategic operating model. In 2022 this | the Group’s solvency position in respect | ‘Fundamental’, ‘Consequential – Active’ | | included migration of a further 530,000 | of its current risk profile and how it is | or ‘Consequential – Passive’. | | customer policies to Tata Consultancy | likely to change with the proposed | | | Services (‘TCS’) Diligenta, the transfer of | business plans, strategy, or changes | Risk culture | | custody and fund accounting services for | in the external environment. | Risk culture is the sum of the Group’s | | £90 billion of assets to HSBC and progress | | shared values, behaviours and attitudes | | towards the simplified operating model | ORSA processes are run regularly | towards the risks faced by its customers, | | with abrdn plc. The Group places | throughout the year and operate within | shareholders, colleagues and society. The | | significant focus on the operation of these | the Group’s ORSA cycle outlined below. | Group’s risk culture reflects the way its | | partnerships, including the operational | The Group’s ORSA cycle brings together | colleagues think and act, both individually | | resilience of each, in order to protect the | inter-linked risk management, capital and | and collectively. The Group’s risk culture | | efficient operation of the business and | strategic processes. | vision is to promote an environment that | | delivery of service to its customers. | | supports informed decision-making and | | | Risk strategy and culture | controlled risk-taking. | | Own risk and solvency assessment (‘ORSA’) | Risk strategy | | | The ORSA plays an important role in | The Group’s risk strategy is to take | The creation of this environment is enabled | | supporting strategic decision-making and | rewarded risks that are understood, | through the Group’s values of passion, | | strategy development at the Group’s | managed effectively and consistent | responsibility, growth, courage and | | Boards and risk committees. It provides: | with its purpose and enterprise strategy. | difference. Underpinning each of these are | the individual and collective attitudes and • a linkage between strategy, risk, capital The Group’s risk strategy supports a behaviours that support the realisation of this and stress testing, as well as the more stable, well-managed business environment. The Group regularly assesses effectiveness of management actions with improved customer, shareholder, itself against its risk culture vision, doing this required to meet strategic objectives; colleague and societal outcomes in through a comprehensive dashboard with a • processes to identify, assess, control and line with the Phoenix strategy. suite of measures on people, governance, monitor risks that the Group faces; customers and leadership. The Group achieves its overall purpose • an understanding of current and and enterprise strategy goals not by The Group utilises qualitative observations potential risks to the business, including avoiding risks, but through the and structured monthly surveys as a rich financial and non-financial risks under identification and management of an quantitative data source to monitor base and stressed scenarios; acceptable level of risk (the Group’s ‘risk colleague engagement, health and • the Group’s agreed appetite to accept appetite’) which ensures that it is well-being, as well as providing a safe these risks and how it manages them; and appropriately rewarded for the risks that platform to allow colleagues to proactively are taken. To help bring focus to the risks identify and report upon potential cultural that it seeks to mitigate, the Group has risks. To help provide the Group with a more comprehensive view of culture, a colleague risk culture self-assessment mechanism is ORSA process cycle currently being tested, which aims to improve the Group’s insight and capability to better understand risk culture strengths and development areas. The Group is working hard to ensure that a psychologically safe environment exists within Phoenix, ORSA Strategy and where colleagues are empowered to share reporting business plan different viewpoints and have an ability to speak up freely. The Group’s Board of Directors reinforces its culture and values through their conduct (individually and collectively), decisions and strategic oversight. Stress and Risk exposure scenario testing and appetite 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 Risk management Risk capital its strategic objectives. The Group’s risk and monitoring Assessment appetite statements establish the risk boundaries within which it is prepared to operate, set the tolerance for delivery against Group objectives, and are a key tool in balancing the interests of different stakeholders. The following risk appetite statements are adopted by the Group: Phoenix Group Holdings plc Annual Report and Accounts 2022 53 ### Risk management continued | Capital – The Group and each Life | assessment of the impact and likelihood | appetite and are described in the relevant | | --- | --- | --- | | Company will hold sufficient capital to meet | of those risks crystallising and the Group | Group Risk Policies. | | business requirements including those of | failing to achieve its strategic objectives. | | | key stakeholders in a number of Board | Changes in the risk profile are influenced | A Group Conduct Strategy and Climate | | approved asset and liability stress scenarios. | by the commercial, economic and | Change Risk Management Framework | | | non-economic environment and are | overarch all risk policies to provide a | | Liquidity – The Group and each Life | identified, assessed, managed, monitored | holistic view of conduct and climate | | Company will seek to ensure that it has | and reported through the Group’s RMF | change risk. This provides a consistent | | sufficient liquidity to meet its financial | processes. The Risk Universe presents the | and comprehensive approach in the | | obligations under a range of Board | complete set of risks across the Group in | application of the RMF to manage | | approved scenarios. | increasing levels of granularity, i.e. Level 1 | these risks across the Group. | risks are the high level risk categories, | Shareholder Value – The Group only | Level 2 risks are the components of these | Governance and organisation | | --- | --- | --- | | has appetite for risks that are rewarded, | categories and, in some instances, Level 3 | The RMF delivers a consistent three lines | | adequately understood and managed, and | risks are included, where considered | of defence model with clearly defined | | deliver added value. The Group will take | necessary, as sub-components. The Group | roles and responsibilities for all | | action to deliver shareholder value in line with | treats climate change risk and conduct risk | components. Risk accountability and | | the Group’s strategy and financial targets. | as cross-cutting risks that impact all | ownership are embedded in the first line, | | | aspects of the Risk Universe. | with first line assurance teams established | | Control – The Group, including all legal | | to support the business by providing | Risk policies entities, will protect the interests of its substantiated evidence that controls are The Group Risk Policy Framework supports customers, colleagues, shareholders and fit for purpose. the delivery of the Group’s purpose and other stakeholders by operating a robust enterprise strategy by establishing the control environment that meets the Overall responsibility for approving the operating principles and expectations for requirements of the approved controls RMF rests with the Board, with managing the key risks to the Group’s objectives for all risks within the Phoenix maintenance and review of the effective business day-to-day. Each of the risk Risk Universe. operation of the RMF delegated to the policies defines: Group Board Risk Committee. This Conduct – The Group maintains the • the individual risks the policy is intended delegation also includes approval of the highest conduct standards which are in to manage; overall risk management strategy and the line with customer, market and regulatory review and recommendation to the Board • the degree of risk the Group is willing to expectations. The standards the Group is of the relevant risk policies, risk appetite accept, which is set out in the policy risk expected to achieve are included in the statements, risk profile and any relevant appetite statements; and | Group Code of Conduct. Any deliberate | | emerging risks. | | --- | --- | --- | | or negligent actions leading to unfair | • the Control Objectives that determine | | | customer outcomes, poor market conduct, | the Key Controls required to manage | Group Risk conducts an annual assessment | | reputational damage or regulatory | each risk to an acceptable level. | of the effectiveness of each function in the | | censures are not acceptable. If unfair | | business in adhering to the requirements | | outcomes should arise, the Group will | Risk policies are mapped to either | of the RMF. This provides assurance to | | address them in a fair and prompt manner. | Level 1 or Level 2 Risk Universe categories | management and the Boards that the RMF | | | to ensure complete coverage of all | has been implemented consistently and is | | Sustainability – The Group is committed | material risks. | operating effectively across the Group. | to being a leader on sustainability to help deliver its purpose and to protect The Group Risk Policy Framework further First line: Management the long-term financial interests supports the Group in operating within the Management of risk is delegated from of its customers, colleagues and boundaries of its risk appetite statements the Board to the Group Chief Executive shareholders. To manage the risks in by seeking to limit volatility under a range Officer, the Executive Committee the delivery of its sustainability strategy, of Board approved adverse scenarios. members and through to business the Group will monitor and take action managers. The first line is responsible for to achieve its targets and invest in a Quantitative and qualitative appetite limits implementation of the RMF, ensuring risks sustainable future, engage people are chosen which specify the acceptable to the Group and its customers, in better financial futures and build a likelihood for breaching the agreed shareholders, colleagues and society are leading responsible business. appetite statements (for example identified, assessed, controlled, monitored, less than x% chance of a breach in managed and reported. Risk universe regulatory capital) and assessment against A key element of effective risk management appetite targets is undertaken through Second line: Risk oversight is ensuring the business understands the scenario testing. Independent oversight of risk management risks it faces. The Group’s Risk Universe is provided by the Group Risk Function summarises the comprehensive set of risks Breaches of appetite are corrected through advice, guidance, review, to which the Group is exposed. The Risk through management actions where challenge, opinion and assurance; its views Universe allows the Group to deploy appropriate. The effective use of risk are reported to the Board Risk Committee. a common language, allowing for mitigation techniques, such as reinsurance, meaningful comparison to be made across hedging and outsourcing, are key to Group Risk’s purpose and responsibilities the business. The risk profile of each is an ensuring the Group remains within risk are set out in the Risk Mission, Mandate Phoenix Group Holdings plc Annual Report and Accounts 202254 Strategic report and Plan, which is presented to the Board immediate action is required to risk and capital models and the related Risk Committee for approval annually. pre-emptively mitigate risks or fully modelling must be sufficiently accurate maximise opportunities. to enable appropriate ranking and Third line: Independent assurance management of risks. It is a requirement Independent verification of the adequacy Whilst any estimates have an element of that all material risks, and the interactions and effectiveness of internal controls and subjectivity, they are validated during between them, are in scope of the Group’s risk management is provided by the Group Management Board and Board Risk risk and capital models. Internal Audit function, reporting its output Committee discussions. These to the Group Board Audit Committee. conversations help drive out a Under Solvency II, the development and The governance framework in operation comprehensive understanding of potential production of any Internal Model output throughout the Group can be found in new risks and opportunities to which the contributing to regulatory capital the chart below. organisation is exposed, drawing on the requirements must comply with validation collective expertise and experiences of standards, supported with documentation Emerging risk subject matter experts. The Group standards. This is supported by a Model The Group defines an emerging risk (or routinely captures emerging risks and Governance Policy, which sets out the opportunity) as an event that is perceived opportunities in a detailed log. standards that must be satisfied to to be potentially significant but is not yet demonstrate meeting Solvency II fully understood. Mitigating action may Strategic risk management requirements. The Internal Model output is not be necessary until further information Strategic risks threaten the achievement used within the ORSA process to provide is known about the possible impact. of the Group’s purpose and enterprise insight into risks associated with the Emerging risks could either be completely strategy. The Group recognises that core Group’s objectives. new risks or connected with existing risks strategic activity brings with it exposure to in unfamiliar conditions. strategic risk, however it seeks to The Group’s Stress and Scenario Testing proactively identify, manage and monitor Programme uses the Internal Model to The distinction between a current risk and these exposures. A Strategic Risk Policy is assess the capital impact of a range of an emerging risk predominantly relates to maintained and reported against regularly, plausible and extreme stresses. the amount of available information. with a particular focus on risk management, Emerging Risks draw upon potential stakeholder management and corporate Risk control processes and reporting internal and external change drivers to the activity and against the Life Companies’ Identification, assessment, measurement, organisation, and often stem from changes and Group’s strategic ambitions. management and reporting of risks, in economic, environmental, societal, including learning lessons from incidents, technological or political circumstances. Risk and capital models is undertaken across the three lines of Fewer details tend to be available for A continuous process is followed for defence, and is reported through business emerging risks meaning the likelihood and identification and assessment of risk types and management governance to the severity impacts must be estimated. and the corresponding resilience of the relevant Boards and Committees. Emerging risks or opportunities can take Group’s capital position. The Group longer to crystallise, but in many cases continually strives to enhance its internal Governance framework Board Board Board Phoenix Group Board Risk Board Audit ### Board Remuneration Nomination Sustainability Holdings plc Board Committee Committee Committee Committee Committee Second Line Third Line First Line of Defence of Defence of Defence Group Chief Executive Officer Chief Risk ### Executives Officer Group Chief Financial Officer Group Functions Group Group ### Management Risk and Internal Business Unit Compliance Audit Management Phoenix Group Holdings plc Annual Report and Accounts 2022 55 ### Risk management continued ## Principal risks and uncertainties ## facing the Group ### The Group’s principal risks and uncertainties are detailed in this section, ### together with their potential impact, mitigating actions in place and any ### change in risk exposure since the Group’s 2021 Annual Report and ### Accounts, published in March 2022. A principal risk is a risk or combination of Annual Report and Accounts have been risks that can seriously affect the retained. The description of one risk has Strategic priorities performance, future prospects or been refined to reflect the evolution of Optimise our reputation of the Group, including risks the Group’s strategic priorities to focus in-force business that would threaten its business model, on organic growth. Grow organically and future performance, solvency or liquidity. through M&A The Board Risk Committee has carried out Further details of the Group’s exposure to a robust assessment of principal risks and financial and insurance risks and how these Enhance our operating model and culture emerging risks. As a result of this review, are managed are provided in note E6 and F4 the 13 risks noted in the Group’s 2021 to the IFRS consolidated financial statements. Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Strategic risk | The Group fails | The Group is exposed to the risk | The Group continues to assess | This risk was assessed as ‘Heightened’ in the Group’s 2018 | | --- | --- | --- | --- | | to make further | of failing to drive value through | and execute new inorganic | Annual Report and Accounts due to the transformational | | value adding | inorganic growth opportunities, | growth opportunities and | nature of the Standard Life acquisition. The assessment | | acquisitions or | including acquisitions of life and | applies a clear set of criteria to | of the level of exposure to this risk is unchanged from the | | effectively | pensions books of business. | assessing these opportunities. | 2018 position due to the impact of ongoing acquisition and | | transition | | | transition activity. | | | The transition of acquired | The Group’s acquisition | | acquired businesses into the Group, strategy is supported by the The integration of ReAssure Ltd is continuing as planned, businesses including customer migrations, Group’s financial strength and with the integration of key functions, such as Finance and could introduce structural or flexibility, strong regulatory Actuarial, progressing well. operational challenges that, relationships and its track The Group continues to develop its partnership with TCS without sufficient controls, record of generating value to support its strategic deliverables. The successful could result in the Group failing and delivering good customer migration of around 400,000 Standard Life Assurance to deliver the expected outcomes that are in line customer policies to the TCS BaNCS platform was outcomes for customers or with expectations. completed in May 2022, with the migration of a further value for shareholders. | The financial and operational | 130,000 Scottish Mutual customer policies completed in | | --- | --- | | risks of target businesses are | November 2022. Further customer migrations are planned | | assessed in the acquisition | through to 2026, which will support delivery of the Group’s | | phase and potential mitigants | strategic objectives. | are identified. On 7 February 2023 the Group announced that a further c. Integration plans are 3 million policies, currently administered on the Alpha developed and resourced with platform, will be transitioned to the BaNCS platform by appropriately skilled staff to 2026. This will enable all Phoenix policies to benefit from ensure target operating TCS’ significant ongoing investment in the platform. models are delivered in line In August 2022 the Group announced the acquisition of with expectations. The Sun Life of Canada UK, a closed book UK life insurance Group’s priority at all times is company, from Sun Life Assurance Company of Canada on delivering for its customers. for cash consideration of £248 million. This equates to an Customer migrations are attractive price to shareholder Own Funds ratio of 83%, planned thoroughly with in line with the Board’s disciplined approach to the robust execution controls in deployment of shareholder capital. The acquisition is place. Lessons learned from expected to complete in April 2023. previous migrations are applied to future activity to continuously strengthen the Group’s processes. Phoenix Group Holdings plc Annual Report and Accounts 202256 Strategic report Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Strategic risk Sun Life of Canada UK operates a predominantly outsourced business model with the majority of its policy administration already undertaken by the Group’s strategic outsourcing partner (TCS Diligenta), which supports a simplified operational integration programme. The Sun Life of Canada UK acquisition is expected to deliver c. £500 million of incremental long-term cash generation, with 30% expected to emerge in the first three years. | The Group’s | Strategic partnerships are a core | The Group has in place | The Group assessed this risk as ‘Heightened’ in the 2019 | | --- | --- | --- | --- | | strategic | enabler for delivery of the | established engagement | Annual Report and Accounts due to the increased | | partnerships fail | Group’s strategy; they allow it to | processes with abrdn plc | dependency it placed on its strategic partnerships, and | | to deliver the | meet the needs of its customers | to oversee and develop the | then ‘Improved’ in 2020 due to strengthening controls | | expected | and clients and deliver value for | strategic partnership. | around the operation of those partnerships. Whilst the | | benefits | its shareholders. The Group’s end | These processes reflect the | Group has further strengthened and simplified its strategic | | | state operating model will | simplified and extended | partnerships since that time, its assessment of the level of | | | leverage the strengths of its | strategic partnership between | risk exposure is unchanged from the 2020 position, | | | strategic partners whilst retaining | the Group and abrdn plc | reflecting the Group’s ongoing reliance on its strategic | | | in-house key skills which | that was announced in | partners to deliver the volume of change needed to | | | differentiate it from the market. | February 2021. | advance the Group’s strategic objectives. | | | However, there is a risk that the | The Group’s engagement | The Group continues to develop its partnership with | | | Group’s strategic partnerships | with Diligenta, and its parent | TCS to support its strategic deliverables. The successful | | | do not deliver the expected | TCS, adheres to a rigorous | migration of around 400,000 Standard Life Assurance | | | benefits leading to adverse | governance structure, in line | customer policies to the TCS BaNCS platform was | | | impacts on customer outcomes, | with the Group’s Supplier | completed in May 2022, with the migration of a further | | | strategic objectives, regulatory | Management Model. As | 130,000 Scottish Mutual customer policies completed in | | | obligations and the Group’s | a result, productive and | November 2022. Planning for further migrations in 2023 | | | reputation and brand. | consistent relationships have | and beyond is underway, including the further c. 3 million | | | | been developed with TCS, | policies to be transferred from the Group’s Alpha | Some of the Group’s key which will continue to develop administration platform as the Group progresses towards strategic partnerships include: throughout future phases of BaNCS being the sole administration platform for all abrdn plc: Provides investment the enlarged partnership. customer policies. management services to The Group has in place During 2022 the Group successfully transferred the the Group including the established processes to custody and fund accounting services for £90 billion development of investment oversee services provided by of assets to HSBC. This is a key milestone in the Group’s solutions for customers. abrdn plc HSBC in line with its Supplier journey towards implementing harmonised investment manages c. £145 billion of Management Model. administration processes, and boosts its strategic the Group’s assets under partnership with HSBC. administration, at February 2023. The Group takes steps to monitor its supplier The simplified and extended partnership with abrdn plc TCS: The Group’s enlarged concentration risks and has continues to advance towards the Target Operating Model partnership with TCS is business continuity plans with significant progress towards the transfer of Wrap expected to support growth to deploy should there be platform products expected in 2023 ahead of the transfer plans for the Retirement a significant failure of occurring in subsequent years. Solutions and Pensions and a strategic partner. Savings businesses, enabling further market-leading digital and technology capabilities to be developed to support enhanced customer outcomes. HSBC: Provides custody and fund accounting services to the Group to manage c. £148 billion of its unit linked operations. Phoenix Group Holdings plc Annual Report and Accounts 2022 57 (continued) ### Risk management continued Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Strategic risk The Group fails to The Group aims to deliver The Group’s Business Unit Improving deliver long-term sustainable cash generation structure brings renewed organic growth by achieving organic growth focus and accountability. For the second consecutive year the Group has delivered in excess of the run-off from The key areas of growth sustainable organic growth which more than offset the its in-force business. are Pensions & Savings run-off of in-force business. At its Capital Markets Event the and Retirement Solutions. Group set its first incremental new business long-term cash Confidence in the Group might generation target as a result of the significant progress be diminished if it fails to deliver Each Business Unit holds an made by both Pensions & Savings and Retirement Solutions. organic growth in line with annual strategy setting exercise As a result of this development, the Group views this risk as targets shared, particularly as to consider customer needs, ‘Improving’, which reflects both the demonstrated success the Group seeks to promote the interests of shareholders, of the strategy to pursue organic and inorganic growth, and a ‘customer obsessed’ mind-set the competitive landscape and the challenging nature of the target set. | underpinned by strong retention | the Group’s overall purpose | | | --- | --- | --- | | and consolidation as | and objectives. | During 2022, the Group completed BPA transactions | | customers journey to and | | with a combined premium of £4.8 billion. This continues | The Group’s Annual through retirement. to demonstrate that the Group has the ability to compete Operating Plan commits it to and win in the BPA market. making significant investment in its Pensions & Savings and The Pensions and Savings Business, operating under the Retirement Solutions Standard Life brand, has developed its operating model businesses, which will include to centre around three Trading Channels: Workplace, propositions that are driven Retail Intermediated and Retail Direct. by customer insight. In Workplace, the Group continues to make progress in | The Group is established in | the market, launching new propositional features such as | | --- | --- | | the Bulk Purchase Annuities | Workplace ISA. The Group continues to recruit to increase | | (‘BPA’) market and continues | its capability in terms of proposition and distribution; 76 | | to invest in its operating model | new scheme wins have been confirmed during 2022 | | to further strengthen | (compared with 41 for 2021), and the Group is actively | | its capability to support | managing a number of enquiries. | its growth plans. The operating model and organisational design are being For new BPA business, the developed and implemented for the Retail businesses, with Group continues to be the aim of maximising opportunities for growth, both selective and proportionate, directly with customers and through advisers. The Group focusing on value not volume, is looking to expand the current offering of financial by applying its rigorous guidance and advice to support customers in better Capital Allocation Framework. preparing for their retirement. The Pensions and Savings business has established, alongside the Workplace Business, a Retail Direct Function to mobilise this. | The Group does | The Group’s ability to deliver | The Group’s Change | There has been no change to the assessment of exposure | | --- | --- | --- | --- | | not have | change on time and within | Management Framework | to this risk, which reflects the potential impact of failing | | sufficient | budget could be adversely | defines a clear set of | to deliver the Group’s significant strategic and regulatory | | capacity and | impacted by insufficient | prioritisation criteria and | change agenda, since its introduction in the 2020 Annual | | capability to | resource and capabilities as well | scheduling principles for new | Report and Accounts. | | fully deliver | as inefficient prioritisation, | projects. This is to support | | The Group strengthened its Change Management its significant scheduling and oversight of the safe and controlled Framework during 2022, and expects to see an improving change agenda projects. The risk could mobilisation of new change trend in this risk as those enhancements are seen in project which is required materialise both within the in line with capacity and risk delivery. In September 2022 the Group appointed Jackie to execute the Group and its strategic partners. appetite and to strengthen Noakes as Group Chief Transformation Officer and, Group’s strategic business readiness processes This could result in the benefits subsequently, as Group Chief Operating Officer. Jackie objectives to deliver change safely into of change not being realised by will drive further enhancements to evolve and mature the the operational environment. | the Group in the time frame | | Group’s change operating model that are planned in 2023. | | --- | --- | --- | | assumed in its business plans | Information setting out the | These should also have a positive impact on this risk. | | and may result in the Group | current and forecast levels of | However, exposure remains until this work is complete. | | being unable to deliver its | resource supply and demand | | | strategic objectives. Poor | continues to be provided | | | change delivery could affect the | to accountable senior | | | Group’s ability to operate its core | management to enable | | | processes in a controlled | informed decision-making | | | and timely manner. | to take place. This aims to | | ensure that all material risks to project delivery are appropriately identified, assessed, managed, monitored and reported. Phoenix Group Holdings plc Annual Report and Accounts 202258 (continued) Strategic report Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Strategic risk | The Group fails | The Group is exposed to the risk | Sustainability risk and Climate | There has been no change to the assessment of the overall | | --- | --- | --- | --- | | to appropriately | of failing to respond to | risk are both embedded into | level of this risk since its introduction in the 2019 Annual | | prepare for and | Environmental, Social and | the Group’s RMF. Its approach | Report and Accounts. While significant progress is being | | manage the | Governance (‘ESG’) risks and | to climate risk management is | made to deliver against the Group’s Net-Zero targets and | | effects of climate | delivering on its social purpose; | in line with the requirements | social purpose, the assessment is driven by the Group’s | | change and wider | for example, failing to meet its | of the PRA Supervisory | recognition that significant work, over a number of years, | | ESG risks | sustainability commitments. | Statement 3/19 (‘SS3/19’). | is required to deliver on these targets. | A failure to deliver could result The Group publishes an The Group is committed to a 50% reduction in the carbon in adverse customer annual Sustainability Report economic emissions intensity of all assets within its outcomes, reduced colleague and an annual Climate Report, investment portfolio over which it has control and engagement, reduced the latter of which is prepared influence by 2030. The Group is also committed to proposition attractiveness, in line with the Task Force on a 25% reduction in the carbon economic emissions reputational risks and litigation. | | Climate-related Financial | intensity of all listed equity and credit investments over | | --- | --- | --- | | The Group is exposed to market | Disclosures (‘TCFD’) guidance. | which it has control and influence by 2025. The Group | | risk and credit risk related to | | has been working with its key partners and suppliers | A Sustainability Risk Policy is climate change as a result of to encourage them to adopt Science Based Targets in place and updated annually. the potential implications of initiative carbon reduction targets. Consideration of material a transition to a low carbon climate-related risks is A Net-Zero Transition Plan, which reflects potential future economy. A failure to manage embedded across the Group’s management actions and forward-looking investee these risks could result in a loss in risk policies, with regular company emission objectives, is in development. the value of policyholder and reporting undertaken to shareholder assets. The Group is in the process of piloting the Task Force ensure ongoing visibility of on Nature-related Financial Disclosures guidance ahead In addition, there are long-term its exposure to these risks. of the launch of the framework in 2023. market, credit, insurance, The Group undertakes annual reputational, propositional and The TCFD disclosures in the Group’s Climate Report climate-related stress and operational implications of provide an overview of how it is compliant with SS3/19 scenario testing and continues physical risks resulting from and its planned future priorities across each of the TCFD to build its climate scenario climate change (e.g. the impact focus areas. modelling capabilities. of physical risks on the prospects of current and future The Group continues to evolve investment holdings, along with its sustainability strategy in potential impacts on future response to the changing actuarial assumptions). needs of stakeholders and sets targets to monitor progress towards its sustainability commitments. Further details are available in the Sustainability Report. The Group continues to actively engage with regulators, suppliers and asset managers on progress with all climate change and sustainability-related deliverables. Phoenix Group Holdings plc Annual Report and Accounts 2022 59 (continued) ### Risk management continued Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Customer risk | The Group fails | The Group is exposed to the risk | The Group’s Conduct Risk | Since the introduction of this risk in the 2018 Annual | | --- | --- | --- | --- | | to deliver fair | that it fails to deliver fair | Appetite sets the boundaries | Report and Accounts there has been no change to the | | outcomes for its | outcomes for its customers, | within which the Group | assessment of the overall level of this risk, reflecting | | customers or fails | leading to adverse customer | expects customer outcomes | ongoing improvements and challenges. | | to deliver | experience and potential | to be managed. | | In 2022, the Group continued to make significant | propositions that | customer harm. This could | | | | --- | --- | --- | --- | | | | The Group’s Conduct | investments in its propositions, and completed embedding | | continue to meet | also lead to reputational | | | | | | Strategy, which overarches | a range of responsibly invested, sustainable multi asset | | the evolving | damage for the Group and/or | | | | | | the Risk Universe and all risk | funds for Standard Life’s 1.5 million workplace pension | | needs of | financial losses. | | | | | | policies, is designed to detect | scheme members, with assets of circa £15 billion now | customers In addition, a failure to deliver where customers are at risk invested in sustainable solutions on their behalf. The propositions that meet the of poor outcomes, minimise programme to introduce sustainable investment strategies evolving needs of customers conduct risks, and respond that are designed to help employers and trustees meet may result in the Group’s failure with timely and appropriate their member and regulatory needs, and pension to deliver its purpose of mitigating actions. customers to achieve good outcomes, was completed two helping people secure a life months earlier than the end-of-year timeline previously The Group has a suite of of possibilities. announced in January 2022. The Group is preparing for customer policies which set the introduction of the FCA’s Consumer Duty requirements out key customer risks and the which set higher and clearer standards of consumer Control Objectives that protection across financial services and require firms to determine the Key Controls prioritise their customers’ needs. The Consumer Duty initial required to mitigate them. implementation plan was agreed by the Group. The Group maintains a strong The Group is monitoring the impacts of the cost of living and open relationship with the crisis on its customers, using customer behaviour research FCA and other regulators, and analysis, to ensure that it provides them with the particularly on matters support and help that they need during this period of involving customer outcomes. economic uncertainty. The Group continues to provide The Group’s Proposition support to customers both when paying out on their Development Process ensures protection plans and when making decisions about their consideration of customer life savings. Proactive action to support customers, needs and conduct risk when including those most vulnerable, is a priority. developing propositions. Phoenix Group Holdings plc Annual Report and Accounts 202260 Strategic report Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Operational risk | The Group or its | The Group is exposed to the risk | The Group’s Operational | This risk was assessed as ‘Heightened’ in the Group’s 2020 | | --- | --- | --- | --- | | outsourcers are | of causing intolerable levels of | Resilience Framework | Annual Report and Accounts due to COVID-19 uncertainty | | not sufficiently | disruption to its customers and | enhances the protection of | and strategic customer transformation activity. These | | operationally | stakeholders if it cannot maintain | customers and stakeholders, | factors remain the key drivers of the current assessment | | resilient | the provision of important | preventing intolerable harm, | of the level of exposure to this risk, which is unchanged | | | business services when faced | and supports compliance with | since the 2020 position. | | | with a major operational | the regulations. The Group | | Whilst uncertainty regarding further COVID-19 related disruption. This could occur works closely with its implications for the Group’s operational resilience has either in-house or within the outsourcers to ensure that continued to reduce, the Group has a significant change Group’s primary and the level of resilience and customer migration agenda, effective completion of downstream outsourcers and delivered is aligned to the which is required to deliver planned strengthening of its be triggered by a range of Group’s impact tolerances. operational resilience both internally and with some environmental and climatic The Group and its outsourcers outsourced service providers. factors such as the cost of have well established business living crisis and adverse The Group has a programme of work to strengthen continuity management and weather phenomena. operational resilience ahead of the next key regulatory disaster recovery frameworks deadline of March 2025. Where this is dependent upon The Group regularly conducts that are subject to an annual customer migration to an alternative administration customer migrations as part of refresh and regular testing. platform, the risk of late delivery is actively managed transition activities in delivering For example, extensive testing by both the relevant change programme and against its strategic objectives. of the power capabilities of separate operational resilience remediation In doing so, it faces the risk of the Group and its critical governance and reporting. | interruption to its customer | suppliers has shown they are | | | --- | --- | --- | | services, which may result in | resilient to power cuts from | As noted in the Group’s 2021 Annual Report and Accounts, | | the failure to deliver expected | the National Grid. | whilst many potential exposures to COVID-19 can now be | | customer outcomes. | | effectively mitigated, a large-scale loss of colleagues due | The Group continues to to illness or incapacity, in the UK or globally, is more Regulatory requirements for actively manage operational challenging to resolve in the short-term as there remains operational resilience, and a capacity and monitor service uncertainty around the efficacy of vaccines against future timetable to achieve full continuity required to deliver COVID-19 variants. | compliance, were published in | its strategy, including | | | --- | --- | --- | | March 2021. Whilst the specific | transition activities. Rigorous | The Group aims to deliver considerable customer | | requirement to work within set | planning and stress testing | transformation activity in 2023. Although the scale | | impact tolerances takes effect in | is in place to identify and | of change exposes the Group to significant risk, this | | March 2025, the Group is | develop pre-emptive | is mitigated through strengthened Resilience and | | already exposed to regulatory | management strategies should | Change Management Frameworks. | | censure in the event of | services be impacted as a | | | operational disruption should | result of customer migrations. | The Group has taken action through previous strategic | | the regulator determines that | | transformation activity to reduce exposure to | | | The Group and its outsourcers | technological redundancy and key person dependency | the cause was a breach of have a flexible working model risk, increasing the resilience of its customer service. existing regulation. in place. This significantly reduces exposure to intolerable disruption for its customers. Phoenix Group Holdings plc Annual Report and Accounts 2022 61 ### Risk management continued Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Operational risk The Group is Changes in regulation could The Group undertakes Heightened impacted by lead to non-compliance with proactive horizon scanning This risk was assessed as ‘Heightened’ in the Group’s 2021 significant new requirements that could to understand potential Annual Report and Accounts due to the uncertainty changes in the impact the quality of customer changes to the regulatory around Solvency II Reforms and the FCA’s proposed regulatory, outcomes, lead to regulatory and legislative landscape. Consumer Duty. These, and the significant undertaking legislative or sanction, impact financial This allows the Group to to achieve compliance with IFRS 17 in 2023, are the key political performance or cause understand the potential drivers of the assessment of risk as further ‘Heightened’ environment reputational damage. These impact of these changes to from that position. could require changes to amend working practices to working practices and have meet the new requirements The volatile political environment following the UK an adverse impact on resources by the deadline. Government’s ‘mini-budget’ has stabilised with the election and financial performance. of Rishi Sunak as Prime Minister, but remains ‘heightened’ due to the economic headwinds facing the new Political uncertainty or changes administration and the implications for the Group’s in the government could see customer base, including the cost of living, energy changes in policy that could crisis and the potential increase in vulnerability. impact the industry in which the Group operates. In November 2022, HM Treasury issued a consultation response that confirmed the UK Government’s intended Solvency II reforms. The Group supports the PRA and HM Treasury’s objectives to reform the regulations to better suit the UK market whilst maintaining the right safeguards for policyholders. These regulations are an important component of the changes needed to the wider UK investment landscape which will enable the Group to meet its ambition to invest more in the future. However, uncertainty remains over when the reforms will be implemented and the quantitative impacts will depend on the exact detail of the final legislation. The Group will therefore remain actively involved in industry lobbying on Solvency II. The FCA’s proposed new Consumer Duty’s objectives are to deliver a higher and more consistent level of consumer protection and for the industry to do more to foresee and prevent harm before it happens. In July 2022 the FCA published final rules and guidance, the impact of which the Group has assessed. As part of Phoenix’s implementation plan, key priorities have been identified that must be addressed to ensure compliance with the Consumer Duty requirements within the relevant timescales. This plan has been approved by the Board and shared with the FCA. IFRS 17 aims to standardise insurance accounting across the industry. Compliance with IFRS 17 is a significant undertaking, and a complex programme of work to deliver the Group’s 2023 interim accounts is ongoing and reliant on the successful completion of significant workstreams across the Group, resulting in a number of delivery risks. The Group recognises that, should it not deliver IFRS 17 reporting for the interim accounts, certain reputational, regulatory and other market consequences would arise that could be material. Management has considered the risks to executing the Group’s delivery plans and identified actions that could be taken should these risks materialise. The Group expects to continue its finance transformation programme beyond delivery of the 2023 interim accounts to further streamline and automate IFRS 17 processes to support efficient financial reporting in the future. Following the UK’s Supreme Court judgement in November 2022 not to allow the Scottish Government to call a referendum without consent from Westminster, and the decision of Nicola Sturgeon to resign as Scotland’s First Minister and leader of the Scottish National Party, the Group continues to keep a watching brief on how this issue progresses. As it is not yet clear what impact the death of Her Majesty Queen Elizabeth II and the succession of His Majesty King Charles III will have on public sentiment to the Union, the risk remains under review in the Emerging Risk and Opportunities Framework. Phoenix Group Holdings plc Annual Report and Accounts 202262 (continued) Strategic report Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Operational risk | The Group or its | As the Group continues to grow | The Group is continually | This risk was assessed as ‘Heightened’ in the Group’s 2021 | | --- | --- | --- | --- | | Supply Chain are | in size and profile this could lead | strengthening its cyber | Annual Report and Accounts due to the conflict in Ukraine. | | not sufficiently | to increased interest from cyber | security controls, attack | This remains the key driver for the assessment of the | | cyber resilient | criminals and a greater risk of | detection and response | exposure to this risk, which is unchanged from the 2021 | | | cyber-attack which could have | processes, identifying | position. The ongoing conflict in Ukraine has resulted in | | | significant impact on customer | weaknesses through ongoing | increased cyber threat levels and the increased likelihood | | | outcomes, strategic objectives, | assessment and review. | of a cyber-attack from a State actor; this would most likely | | | regulatory obligations and the | | be against the UK’s Critical National Infrastructure, | The Information/Cyber Group’s reputation and brand. particularly on supply chains and the wider Financial Security Strategy includes Services industry which the Group relies upon. The Group Based on external events and a continuous Information improved its Threat Intelligence capabilities in 2022 and trends, the threat posed by a Security and Cyber monitors National Cyber Security Centre guidance and cyber-security breach remains Improvement Programme, other threat intelligence sources on a daily basis. To date, high and the complexity of which is driven by input from the Group has not seen a material increase in cyber-attacks the Group’s increasingly the Annual Cyber Risk since the conflict started. interconnected digital Assessment and external ecosystem exposes it to threat intelligence sources. The Group’s cyber controls are designed and maintained multiple attack vectors. to repel the full range of the cyber-attack scenarios; The Group continues to These include phishing and although the Group’s main threat is considered to be consolidate its cyber security business email compromise, Cyber Crime, from Individuals or Organised Crime tools and capabilities. The hacking, data breach and Groups, the same controls are utilised to defend against a specialist Line 2 Information supply chain compromise. Nation-State level cyber-attack. Having strengthened and Security & Cyber Risk team consolidated its cyber controls, including in areas such as Increased use of online provides independent Vulnerability and Patch Management, Detect and Respond functionality to meet customer oversight and challenge of and infrastructure scanning capabilities in the first half of preferences and flexible ways information security controls; 2022, the main improvement in the second half of the year of working, including remote identifying trends, internal was strengthening the Supply Chain Security Oversight access to business systems, and external threats and and Assurance framework. New Cyber Bandings, adds additional challenges to advising on appropriate Processes and Controls have been implemented and cyber resilience and could mitigation solutions. will continue to be embedded and matured in 2023. impact service provision and The Group continues to customer security. Following a Final Stage Assessment in late June 2022 enhance and strengthen its and recommendation by the British Standards Institution, outsourced service provider Phoenix Group now holds ISO 27001 Information Security and third party oversight and Management Certification for its Workplace Pension assurance processes. Regular and Benefits schemes. Board, Executive, Risk and Audit Committee engagement occurs within the Group. Phoenix Group Holdings plc Annual Report and Accounts 2022 63 (continued) ### Risk management continued Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Operational risk | The Group fails to | Delivery of the Group’s strategy | The Group aims to attract and | Whilst there have been strong engagement scores in | | --- | --- | --- | --- | | retain or attract | is dependent on a talented, | retain colleagues, building a | colleague surveys during 2021 and 2022, there has been | | a diverse and | diverse and engaged workforce. | sense of belonging by | no change to the overall level of exposure to this risk since | | engaged | | providing timely | it was introduced in the 2018 Annual Report and Accounts. | This risk is inherent in the Group’s workforce with communications to colleagues This is driven by acknowledgement of the significant business model given the nature the skills needed that aim to provide clarity and amount of integration activity within the Group and of acquisition activity and to deliver support employee uncertainty regarding the longer-term social and specialist skill sets. its strategy engagement for corporate marketplace impacts of the pandemic and cost of living Potential areas of uncertainty activities, including details of crisis on colleague attrition, sickness, motivation and include: the ongoing transition key milestones to deliver engagement. Skills essential to the Group continue to be of ReAssure businesses into the against the Group’s plans. in high-demand in the wider marketplace and recruitment Group, the expanded strategic and retention still has the potential to be impacted by In addition, the Group partnership with TCS and the post-Brexit, COVID-19 and inflationary factors. The Group regularly benchmarks terms introduction of the flexible monitors this closely and continues to remain confident in and conditions against the working model. the attractiveness of its colleague proposition. market and maintains dynamic Potential periods of uncertainty succession plans for key The Group continues to leverage apprenticeships to could result in a loss of critical individuals, ensuring support workforce diversity and to fill key skills, creating corporate knowledge, successors bring appropriate bespoke graduate and early careers programmes for unplanned departures of key diversity of thought, capability specialist technical areas. individuals, or the failure to and experience. Every six The Group continues to successfully operate a flexible attract and retain individuals with months, the Group’s CEO and working model, with strategic investments in technology the appropriate skills to help HR Director meet with the and other resources maximising its effectiveness. The deliver the Group’s strategy. Executive Committee to model focuses on empowerment by enabling leaders and discuss talent, succession This could ultimately impact the colleagues to agree working arrangements that meet and diversity. Group’s operational capability, individual, team and business needs. its customer relationships and Monthly colleague surveys The increased scale and presence of the Group, and financial performance. help to improve engagement success in multi-site and remote working, gives greater whilst promoting continuous access to a larger talent pool to attract and retain in the listening and rapid future. In addition, the Group’s Graduate Programmes identification of concerns helps to support the talent pipeline. and actions. The Group continues to actively manage operational capacity required to deliver its strategy with ongoing focus on senior bandwidth, attrition and sickness. Flexible working offers colleagues greater flexibility in their working practices. The Group looks to proactively respond to external social, economic and marketplace events that impact colleagues. Phoenix Group Holdings plc Annual Report and Accounts 202264 (continued) Strategic report Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Market risk | Adverse | The Group and its customers are | The Group undertakes regular | This risk was assessed as ‘Heightened’ in the Group’s 2019 | | --- | --- | --- | --- | | investment | exposed to the implications of | monitoring activities in relation | Annual Report and Accounts, and then again in 2020 due | | market | adverse market movements. This | to market risk exposure, | to ongoing economic uncertainty, geopolitical tensions, | | movements or | can impact the Group’s capital, | including limits in each asset | the impacts of COVID-19 and uncertainty around interest | | broader | solvency, profitability and | class, cash flow forecasting | rates. These remain the key drivers for the current | | economic forces | liquidity position, fees earned on | and stress and scenario | assessment of exposure to this risk, which is unchanged | | can impact the | assets held, the certainty and | testing. In particular, the | from the 2020 position. | | Group’s ability to | timing of future cash flows and | Group’s increase in exposure | | The global macro-economic environment remains highly meet its cash flow long-term investment to residential property and uncertain, as it did throughout 2022. | targets, along | performance for shareholders | private investments, as a result | | | --- | --- | --- | --- | | with the potential | and customers. | of its BPA investment strategy, | The Ukraine conflict and rapid increase in inflation | | to negatively | | is actively monitored. | increased market volatility throughout 2022, with | There are a number of drivers for impact customer recession expected throughout Europe and possibly market movements including The Group continues to investments or the wider world. The longer-term impacts of the conflict government and central bank implement de-risking sentiment have affected the cost and availability of food and policies, geopolitical events, strategies and control vital commodities such as oil and gas, driving market sentiment, sector specific enhancements to mitigate inflationary pressures. | sentiment, global pandemics and | unwanted customer and | | | --- | --- | --- | | financial risks of climate change, | shareholder outcomes from | Inflation is considered a material short to medium-term risk. | | including risks from the transition | certain market movements, | Pressures continue and the UK Consumer Price Index hit | | to a low carbon economy. | such as equities, interest | 11.1% in October 2022, before retreating slightly to 10.1% | | | rates, inflation and | in January 2023. The Bank of England base rate increased | | | foreign currencies. | from 0.1% in December 2021 to 4% at the time of writing, | with further rate rises expected during 2023. Higher The Group maintains cash interest rates, coupled with cost of living rises, are likely buffers in its holding to suppress property prices over the coming year. companies and has access to a credit facility to reduce The UK mini-budget added further pressure to yield reliance on emerging rises, squeezing liquidity throughout the long-term cash flows. savings sector. The tax increases and government spending cuts announced in the Chancellor’s Autumn The Group closely monitors statement helped to stabilise markets but have the and manages its excess capital potential to worsen customer sentiment, which may position and it regularly deepen the expected recession in the UK and affect discusses market outlook the ability of households to save. with its asset managers. The Group continues to monitor and manage its market risk exposures, including to interest rates and inflation, and to markets affected by the conflict in Ukraine. The Group’s strategy continues to involve hedging the major market risks and in 2022 the Group’s Stress and Scenario Testing Programme continued to demonstrate the resilience of its balance sheet to market stresses. Contingency actions remain available to help manage the Group’s capital and liquidity position in the event of unanticipated market movements such as those following the mini-budget. As noted in the ‘Customer’ risk above, work is underway across the Group to ensure customers are supported as the impacts of the cost of living crisis continue to crystallise. Phoenix Group Holdings plc Annual Report and Accounts 2022 65 ### Risk management continued Strategic Risk Impact Mitigation priorities Change from 2021 Annual Report and Accounts Insurance risk | The Group may | The Group has guaranteed | The Group undertakes regular | This risk was assessed as ‘Heightened’ in the Group’s 2020 | | --- | --- | --- | --- | | be exposed to | liabilities, annuities and other | reviews of experience and | Annual Report and Accounts due to the uncertainty | | adverse | policies that are sensitive to | annuitant survival checks to | around future demographic experience as a result of | | demographic | future longevity, persistency and | identify any trends or | COVID-19 impacts. The residual risks from COVID-19, | | experience which | mortality rates. For example, if | variances in assumptions. | in addition to the implications arising from the cost of | | is out of line with | annuity policyholders live for | | living crisis, are key drivers of the assessment of the level | The Group regularly reviews expectations longer than expected, then the of exposure to this risk, which is unchanged from the assumptions to reflect the Group will need to pay their 2020 position. continued trend of benefits for longer. reductions in future Demographic experience and the latest views on future The amount of additional mortality improvements. trends continue to be considered in regular assumption capital required to meet reviews although, for most products, experience over the The Group continues to additional liabilities could have COVID-19 pandemic has still been given little weight given manage its longevity risk a material adverse impact on its anomalous nature. exposures, which includes the Group’s ability to meet the use of longevity swaps The Group is actively monitoring customer behaviour as a its cash flow targets. and reinsurance contracts result of the cost of living crisis; this includes the impact to maintain this risk that any change in behaviour could have on demographic within appetite. assumptions. As noted elsewhere in this section, work is underway to ensure support is provided to customers The Group actively monitors as the impacts from the cost of living crisis continue persistency risk metrics and to materialise. exposures against appetite across the Open and The Group completed BPA transactions with a combined Heritage businesses. premium of £4.8 billion in 2022. Consistent with previous transactions, the Group continues to reinsure the vast Where required, the majority of the longevity risk with existing arrangements Group continues to take that are reviewed regularly. capital management actions to mitigate adverse demographic experience. Credit risk | The Group is | The Group is exposed to the risk | The Group regularly monitors | In the Group’s 2020 Annual Report and Accounts, this risk | | --- | --- | --- | --- | | exposed to the | of downgrades and deterioration | its counterparty exposures | was assessed as ‘Heightened’ as a result of the market | | risk of downgrade | in the creditworthiness or default | and has specific limits in place | volatility and wider economic and social impacts arising | | or failure of a | of investment, derivatives or | relating to individual | from COVID-19. The residual risks from COVID-19 are a | | significant | banking counterparties. | counterparties (with sub-limits | driver of the current assessment of the level of exposure | | counterparty | This could cause immediate | for each credit risk exposure), | to this risk, which is unchanged from the 2020 position, | | | financial loss, or a reduction | sector concentration | in addition to ongoing geopolitical tensions and | | | in future profits. | and geographies. | economic uncertainty. | | | The Group is also exposed to | The Group undertakes regular | Over 2022 the Group continued to undertake actions to | | | trading counterparties, such as | stress and scenario testing of | increase the overall credit quality of its portfolio and | | | reinsurers or service providers, | the credit portfolio. Where | mitigate the impact on risk capital of future downgrades. | | | failing to meet all or part of their | possible, exposures are | Furthermore, the Group Credit Limit framework was | | | obligations. This would | diversified using a range of | updated to better manage counterparty failure risk. This | | | negatively impact the Group’s | counterparty providers. All | positive progress, and the easing of the economic and | | | operations which may in turn | material reinsurance and | social impacts of COVID-19, is balanced by risks arising | | | have adverse effects on | derivative positions are | from the Ukraine conflict and UK Government policy. | | | customer relationships and | appropriately collateralised. | Uncertainties over the global economic outlook and high | | | may lead to financial loss. | | inflation present an increased risk of downgrades and | The Group regularly discusses defaults. In addition, a UK sovereign downgrade, which market outlook with its asset is now more probable, would have a negative impact on managers in addition to the UK-related assets including Gilts, Housing Associations Line 2 Risk oversight provided. and Local Authority Loans. For mitigation of risks The Group has no direct shareholder credit exposure to associated with stock-lending, Russia or Ukraine and no exposure to sanctioned entities. additional protection is provided through collateral The Group continues to increase investment in illiquid and indemnity insurance. credit assets as a result of BPA transactions. This is within appetite and in line with the Group’s strategic asset allocation plans. The growth in illiquid assets will be met by growth in the overall Group credit portfolio. Phoenix Group Holdings plc Annual Report and Accounts 202266 Strategic report Emerging risks and opportunities The Group’s senior management and Board take emerging risks and opportunities into account when considering potential outcomes. This determines if appropriate management actions are in place to manage the risk or take advantage of the opportunity. Two examples of key risks and opportunities discussed by senior management and the Board during 2022 are: Risk Title Description Risk universe category ESG Litigation The growth of ESG-related litigation is becoming a risk. Given the growing prominence of ESG on government, Environmental regulator and corporate agendas, it is increasingly important that all businesses understand and take steps to mitigate the risks of ESG-related litigation. ESG-related litigation covers a broad range of potential actions, including those that result from climate-related issues (such as claims of “Greenwashing”), where claimants see the potential to drive an increase in climate change mitigation activity, and those that are brought by diversity campaigners seeking to drive faster progress by corporations towards their stated commitments. These actions could result in legal penalties and reputational damage to the Group if the underlying risks are not mitigated. The Group has undertaken a risk assessment exercise to identify and collate all potential ESG-related litigation risks. SMEs are currently assessing these and will report back with recommendations on those risks that are either not mitigated, have a higher chance of occurring or a greater impact if they do occur. The Group views these risks as cross-cutting the risk universe, with strategic, financial, operational, reputational and customer implications. Ethical Data As computing power advances, the use of automated decision making (be that machine learning, Artificial Strategic Driven Decisions Intelligence or complex decision trees) has increased throughout the industry, including the use of algorithms to help customers make decisions about their future. There is a risk that the data used to drive these decisions contains biases which are not identified or the implications not understood and that, as a result, there is artificial discrimination in the recommended outcomes. For Phoenix Group, this could manifest through customers failing to achieve good outcomes and expose the Group to reputational damage and the need to remediate for inappropriate decisions made following the use of such tools. There is also the risk of regulatory sanction, most notably from the Information Commissioner’s Office but also from the FCA. The Group’s priority in this area is in establishing the ethical guardrails and controls which are essential to setting both expectations and culture of how data is consumed and processed. The principles of the FCA’s new Consumer Duty, and the Group’s Code of Conduct, will be placed at the heart of the framework. Phoenix Group Holdings plc Annual Report and Accounts 2022 67 ### Viability statement ## Viability statement ### In accordance with provision 31 of the 2018 UK Corporate Governance ### Code, the Board is required to conduct an assessment of the viability of ### the Group over a specified time horizon. Assessment Process plausible stress scenarios, reflecting the a fall in equity, property values In assessing the future viability of the major risks to which the Group is exposed; and yields, with a widening of Phoenix Group, the Board has defined credit spreads; • The results of wider stress and scenario ‘viability’ as maintaining the capability testing activity, including reverse stress 2. Recessionary economic stress – a to satisfy mandatory liabilities and meet testing, capturing non-financial risks as more onerous combined market stress external targets for cash generation. well as more onerous scenarios with reflecting a deep recession driven a low likelihood of occurrence; by a further short-term increase in In doing so, the Board considered whether inflation and cost of living crisis, falls in the definition of viability should reflect the • The operation of the Group’s Risk equities, properties, increased credit success of the Group in delivering against Management Framework (‘RMF’), spreads, a UK sovereign downgrade its strategic priority to invest in the growth including any breaches of risk appetite; and credit asset downgrades; and of the business on an organic and • The principal risks and uncertainties inorganic basis. It concluded that any such 3. Longevity stress – longevity and yield impacting the Group, together with investment needs to comply with the stress broadly equivalent to a 1 in an assessment of emerging risks Group’s capital allocation framework and 10-year event, which implies a 1.2 year that may impact on the Group’s risk appetite, and that the Board retains increase in life expectancy for a 65 future performance; | flexibility to manage the level of investment | | | year old male and 1.0 year increase | | --- | --- | --- | --- | | to support the Group’s strategic priorities. | • The Own Risk and Solvency Assessment | | for a 65 year old female, alongside | | In the absence of new business growth, | (‘ORSA’) process which provides a | | a fall in yields. | | the Group maintains a significant cash | forward-looking assessment of the | | | | generation capacity from its in-force | Group’s risk and capital profile as a result | The calibration and assessment of the | | | business which remains resilient under | of its business strategy, AOP and the | stresses is informed by the Group’s | | | stress, supporting longer-term viability. | overall risk environment; and | Solvency II Internal Model. The projections | | take into account the impact of any • An assessment of the wider operating The Board has determined that the appropriate Solvency II recalculation environment for the Group, including three-year time horizon to December 2025 of transitional benefits and allow for legal, regulatory, political, climate is an appropriate period for the refinancing of certain of the Group’s debt and competitive factors. assessment. The previous year’s viability obligations. In considering the projections, statement considered a five year time the Board has assessed the availability of Assessment of Viability horizon but this has been amended to contingent actions to increase resilience. The Phoenix Group AOP is reviewed and reflect the period covered by the Group’s approved by the Board on an at least latest Board-approved Annual Operating The scenarios were applied to the annual basis and results in a set of strategic Plan (‘AOP’), and align to the period for Solvency II capital, liquidity and funding priorities, detailed financial forecasts which the Group establishes its internal positions of the Group, and demonstrated across multi-year periods, risk assessments and external targets. that the Group could continue to meet its and associated resilience, and available mandatory obligations without any breach contingent actions. Those strategic In making its assessment and assessing to regulatory capital requirements, whilst priorities are outlined in the Strategic the prospects of the Group over the continuing to track towards meeting report of the Group’s Annual Report and short, medium and longer-term, the external targets. Accounts, and progress against the AOP Board considered a large range of is reviewed monthly by the Board. information including: Additional stress testing In addition, through the ORSA and wider • The Group’s strategic and operational The Board reviewed the results of stress financial resilience processes, the Board plans as set out in the AOP, approved testing to assess viability under severe has reviewed a wide range of stress and by the Board in January 2023; but plausible scenarios, including three scenario testing which has provided adverse stresses as follows, which are • The latest financial results for the Group; additional insight with regard to the deemed to be representative of the defined viability assessment period. The • Financial projections of the Group’s key financial risks to the Group: scope of this testing covers the Group’s risk capital, liquidity and funding positions 1. Market stress – a combined market universe and includes scenarios such as: over the viability assessment period. stress broadly equivalent to a 1 in These projections have considered both • Additional severe downside economic 10-year event, calibrated to the base assumptions and severe but scenarios with a low likelihood Phoenix Internal Model, incorporating of occurrence; Phoenix Group Holdings plc Annual Report and Accounts 202268 Strategic report • Operational disruption or failure of Phoenix is actively managing this risk meet mandatory obligations and fund key third party service providers; through taking action to appropriately a sustainable dividend; decarbonise the investment portfolio, • Cyberattack, and resultant denial of • Holding company cash of £503m at engage with key emitters within the service to key systems or applications; the end of 2022, as well as access portfolio, and ensure the portfolio to the Group’s undrawn £1.25 billion • Failure to execute and deliver key remains well diversified. unsecured revolving credit facility, change activities within the Group; and provides assurance over the Group’s Risk Assessment • Climate-related risks, including those ability to meet mandatory obligations The Board reviewed the Group’s principal related to a disorderly climate transition. as they fall due; risks and uncertainties as set out on pages 56 to 67 of the 2022 Annual Report and • The impact of losses on the IFRS basis In so doing, the Board has considered the Accounts, and considered the impacts of and the implementation of the new results of reverse stress testing that has changes in the related impact assessments insurance contract accounting standard, been performed to analyse scenarios that and the mitigating actions implemented. IFRS 17, were considered as part of the have a low probability but where, if they This included an assessment of the assessment. It was noted that the occurred, have the potential to render the potential impacts of emerging risks on Group’s hedging approach prioritises business model unviable. Reverse stress the Group’s business during the viability the protection of the Solvency II capital testing validates and improves, where assessment period. position and therefore the dependable necessary, mitigating actions in place to delivery of future cash generation. It is deal with threats to the Group’s viability As noted in the Risk Management section accepted that this results in volatility in by starting at the point of business failure of the Annual Report and Accounts, the the IFRS metrics, but this was not and working backwards to identify the Group identifies, assesses and manages considered to represent a material sequence of events that would lead to risk through the operation of its RMF. threat to the Group’s viability. that outcome. It supports the development The Board approves the RMF and monitors of actions that can be implemented now its operation against established risk Statement of Viability to avoid the failure. appetites through regular reporting Based on the factors outlined above, that comes from across the three lines the output of the Group’s financial During 2022, reverse stress testing of defence. projections and its resilience under considered the impact of severe market severe but plausible stressed conditions, stress combined with a longevity stress. Whilst noting continued macroeconomic and the management of the Group’s The analysis concluded that a significant uncertainty and an evolving political and principal risks and associated mitigating increase in life expectancy (M65 +1.9yrs) regulatory landscape, the Board will actions, the Board has a reasonable combined with a downgrade of 1 credit continue to monitor risk exposures relative expectation that the Group will be able quality step (1 letter) across the whole to risk appetites to ensure the risks are to continue in operation and meet its portfolio and a widespread market stress to proactively managed and do not present liabilities as they fall due over the replicate a severe recession (house prices a material threat to the Group’s viability. three-year period of assessment. falling 10%, equities c.30% and GBP depreciating c.10% vs USD) is required for 2022 Financial Results Phoenix Group’s capital coverage to The latest financial results for the Group reduce close to SCR in the absence of as included within the 2022 Annual mitigating actions. Such a scenario is Report and Accounts have been deemed extreme and in the event of such a considered as part of the assessment. scenario, contingency actions are available Key factors included: to restore coverage above risk appetites and would be initiated as the stress emerged. • The Group’s strong capital position with a Solvency II surplus of £4.4 billion and | The Board also approved an updated | a Shareholder Capital Coverage Ratio | | --- | --- | | Group Recovery plan in January 2023. | of 189%, providing significant | | This plan includes a range of contingency | headroom above regulatory minimum | | actions and demonstrated how these | capital requirements and the Group’s | | could be used to recover from extreme | risk appetite; | market, longevity, liquidity and • The resilience of the Group’s capital operational scenarios. position and cash generation to movements in market factors, Over 2022, we have continued to embed as indicated in the sensitivity Climate scenarios within the Group’s stress analysis included on page 35, and scenario testing programme and which is reflective of the Group’s carried out a range of quantitative and hedging approach; qualitative scenario analysis. The results | show that although how and when climate | • Long-term free cash of £12.1 billion after | | --- | --- | | risk could crystallise continues to be highly | deduction of debt interest to maturity, | | uncertain, it could have a significant | which provides a significant amount of | | impact on the value of our assets, the assets | dependable future cash generation to | of our customers, and our operations. Phoenix Group Holdings plc Annual Report and Accounts 2022 69 ## Corporate ## governance 70 Phoenix Group Holdings plc Annual Report and Accounts 2022 Corporate governance Chair’s introduction to governance 72 Board leadership and Company purpose 74 Division of responsibilities 82 Stakeholder engagement 84 Composition, succession and evaluation 88 Audit, risk and internal control 96 Sustainability governance 105 Workforce engagement 108 Directors’ remuneration report 110 Directors’ report 147 Statement of Directors’ responsibilities 153 Phoenix Group Holdings plc Annual Report and Accounts 2022 71 ### Chair’s introduction to governance ## Continued resilience ## in a dynamic ## environment ### This report sets out our approach to governance, ### our key areas of focus during the year, our ways ### of working and how we, as your Board, remain ### effective as stewards of your company. | As I mentioned earlier, I am delighted to | The Board have also overseen the | I am delighted that Mark Gregory has | | --- | --- | --- | | serve as Chair of the Board whilst Nicholas | acquisition activities of the Sun Life of | agreed to join the Phoenix Board, effective | | Lyons is on sabbatical. | Canada UK transaction which is expected | 1 April 2023. Mark possesses a wealth of | | | to complete in April 2023. The Board and | experience in insurance, financial services | | During the year, Phoenix Group has | its Committees played an important role in | and retail sectors, having worked as Group | | delivered high levels of cash generation | the decision making process of this | CFO at Legal & General Group plc and | | and maintained its resilient balance sheet | transaction and I thank each of the Board | through non-executive roles, including | | despite the economic turbulence. The | members for being available to respond to | Direct Line Insurance Group plc. | | Group has also delivered both strong | emerging matters when required. | | | organic growth through our Standard Life | | Kory Sorenson will have reached her ninth | | branded businesses and inorganic growth | During the year, Wendy Mayall and Mike | year of tenure on 30 June 2023. Kory has | | with the announcement of our first ever | Tumilty (abrdn plc, shareholder nominated | made a significant contribution during her | | cash funded acquisition of Sun Life of | director) retired from the Board and | time on the Board, in particular as Chair of | | Canada UK. All of which has enabled the | Maggie Semple, Katie Murray and | the Remuneration Committee for the past | | Board to recommend another year of | Stephanie Bruce (abrdn plc, shareholder | 5 years. Nicholas Shott will succeed Kory | | strong dividend growth in 2022. | nominated director) joined the Board. | as Chair of the Remuneration Committee | | | Their induction programme has been | with effect from the conclusion of the | | As I reflect on the strategic achievements, | tailored to enable each of them to start | AGM on 4 May 2023, subject to | | board succession activities and high | their respective Board roles well | shareholder and regulatory approval. | | quality nature of board discussion, I believe | prepared to contribute to the Phoenix | Nicholas is an experienced chair and has | | the Board has performed well with | strategy and wider initiatives. Each of | a comprehensive grasp of the executive | | particular reference to the transition of | these Board members brings additional | remuneration landscape having served on | | roles amongst the Board. I am pleased | capability, perspective and expertise | the Remuneration Committee for almost | | that these changes have been well- | to Board discussions and decision | 7 years. Kory will remain a member of the | | managed and enabled the Board to | making processes. | Board until she retires on 30 June 2023. | operate effectively. | | Maggie Semple succeeded Karen Green | The Nomination Committee has had a | | --- | --- | --- | | The Board schedule is planned a year | as Designated Non-Executive Director for | busy year characterised by a focus on | | in advance. Each meeting is balanced | Workforce Engagement and I am | Board progress on diversity (including | | with governance, strategy, financial | delighted to report that this transition has | gender and ethnicity), board succession | | performance and emerging matters. The | been smooth with Maggie being able to | and board evaluation. I am proud to serve | | Board as a whole places great importance | interact with colleagues through the last | as a Chair of a Board with 50% female | | on promoting the success of the Company. | quarter of the year. Karen Green | board representation, 25% ethnicity board | | Each member significantly contributes to | succeeded me as Senior Independent | representation and a female Senior | | board discussions and has sufficient time | Director on 1 September 2022 and Katie | Independent Director. This year our board | | to devote to the Board and operation of its | Murray succeeded me as Chair of the | evaluation was conducted internally | | Committees. There are often points during | Audit Committee on 1 September 2022. | through completion of questionnaires and | | the year when additional meeting time | Further information can be found in the | individual discussion for each director with | | is required and I am pleased that each | Nomination Committee report on pages | myself, and concluded that the Board is | | Director endeavours to be available as | 88 to 91. | cohesive, well-balanced and operates as a | | and when required. | | team and that the Board and its | Committees operate and are chaired effectively with appropriate balance of material discussed at each meeting. Phoenix Group Holdings plc Annual Report and Accounts 202272 Corporate governance ### Board highlights 2022 Board induction Board evaluation Katie Murray and Maggie Semple share their experiences of An internal evaluation of the Board was carried out during the Phoenix Board induction programme. the year. Following discussion, the Board have agreed several development areas. Read more on page 93 Read more on page 91 Board composition and diversity Engagement in action – listening to the colleague voice The composition of the Board is designed to ensure a nix of Maggie Semple was appointed as the Designated Non- backgrounds, skils, knowledge and expertise to enhance Executive Director for Workforce Engagement. decision-making. Read more on pages 108 to 109 Read more on pages 74 and 92 Further information on the outcomes of the 1 evaluation can be found on page 91. Committee Chairs AGM votes in favour of all resolutions May 2022 Turning to the work of the Remuneration Committee, our new 3 year Remuneration Policy will be put to shareholders at our ## 97% Annual General Meeting (‘AGM’) on 4 May 2023. The Remuneration Committee has 96% in 2021 carried out a review of our current Remuneration Policy (‘Policy’) and consulted with our top shareholders on FTSE100 ranking – FTSE Women Female 60% proposed changes to the current Policy. Leaders ( February 2023) Karen Green The outcome of the consultation exercise Chair of the Sustainability Committee Katie Murray demonstrated that there is strong support Chair of the Audit Committee for the changes. Further information can ## 12th Kory Sorenson be found in the Directors’ Remuneration Chair of the Remuneration Committee 13th in 2021 report on pages 110 to 146. Male 40% Alastair Barbour Chair of the Nomination Committee The Audit Committee continues to focus John Pollock on the controls and systems which ensure UK Corporate Governance Code Chair of the Risk Committee delivery of reliable and consistent financial ## information and developments in reporting Fully compliant Board ethnic minority director with a specific focus on IFRS 17 1 representation ## implementation during the year. In in 2022 addition, we continue to monitor the Fully compliant in 2021 developing outcomes of the Department ## for Business & Trade consultation 25% on “Restoring trust in audit and corporate governance”. UK Corporate Governance Code Board female director The Sustainability Committee has had a 1 representation very active year in driving our ambitious ESG agenda. There has been a strong focus on education matters relating to See page 77 for a summary of how ## the Company has complied with 50% sustainability, people, culture and | climate- related topics during the year and | the UK Corporate Governance | | | --- | --- | --- | | this Committee plays an important role in | Code (‘Code’) during 2022 on | | | | | 1 As at 10 March 2023 | | shaping the Group’s sustainability strategy, | pages 72 to 146. | | targets and initiatives. Alastair Barbour Chair Phoenix Group Holdings plc Annual Report and Accounts 2022 73 ### Board leadership and Company purpose ## Our Board of Directors ### Leading from the top to drive robust governance and a clear social purpose. ### Alastair Barbour Andy Briggs, MBE Rakesh Thakrar Karen Green ### Chair Group Chief Group Chief Senior Independent ### Executive Officer Financial Officer Director Chair of the Sustainability Committee Appointed 1 October 2013 Appointed 10 February 2020 Appointed 15 May 2020 Appointed 1 July 2017 Appointed as Chair, 1 September 2022 Committee: Committee: | Experience and role on the Board | Experience and role on the Board | Experience and role on the Board | Experience and role on the Board | | --- | --- | --- | --- | | “I have extensive experience in advising | “As Group Chief Executive Officer | “With over 25 years of my career at | “I have a broad experience base in | | on accounting and financial reporting, | (‘CEO’) of Phoenix, I am passionate | Phoenix, my experience has spanned a | financial services and insurance, | | corporate governance and | about our core social purpose and | breadth of finance and strategy-related | encompassing M&A, corporate finance | | management in the financial service | believe that my experience in the | roles, as well as numerous acquisitions | and private equity (Baring Brothers, | | sector with a primary focus on | insurance industry will help drive our | and integrations, enabling me to | Schroders, GE Capital and MMC | | insurance and investment management. | achievement thereof. Prior to Phoenix, | develop a deep understanding of both | Capital) and senior executive roles in | | This in depth knowledge and | I was CEO, UK Insurance at Aviva plc; | Phoenix and the wider insurance | the insurance industry (Aspen | | understanding combined with my prior | and prior to that worked as Group Chief | industry. I see my primary role as being | Insurance Holdings) including strategy, | | board roles having served as Senior | Executive of Friends Life; Managing | to ensure Phoenix continues to deliver | corporate development and as CEO of | | Independent Director and Chair of the | Director of Scottish Widows; Chief | the dependable cash generation and | Aspen UK. This enables me to | | Audit Committee enables me to | Executive of the Retirement Income | resilient balance sheet that we are | contribute to the development of the | | effectively lead as Chair of the Board | division at Prudential; and Chair of | known for, while overseeing the | Group’s strategy. In addition, the | | and to perform the role of the Chair | the ABI.” | disciplined capital allocation and | experience I have gained from my | | with clear responsibility for boardroom | | investment into our growing Open | various non-executive director, advisory | Skills, competencies and contribution culture, leadership and stewardship.” business, the outcome of which will and senior executive roles enables me to the Board fund our sustainable shareholder to act as a strong support and sounding Skills, competencies and contribution • Core skills and expertise in areas of dividend, which now has the board for the Chair and the Board as to the Board mergers and acquisitions; capital opportunity for both organic and a whole.“ • Core skills and expertise in areas of markets; regulation; finance; life inorganic growth over time.” Skills, competencies and contribution mergers and acquisitions; assurance; risk management; to the Board Skills, competencies and contribution governance; auditing; capital customer service and solutions; to the Board • Core skills and expertise in the areas markets; regulation; finance; asset change; IT/digital; sales/distribution; of mergers and acquisitions; strategy management; risk management and marketing and operations. • Core skills and expertise in areas of and corporate development; finance FTSE 100 Board experience. • FTSE 100 Board experience. mergers and acquisitions; capital and risk management and FTSE 100 • Over 30 years of audit experience. markets; regulation; finance; life • Over 30 years of experience in the Board experience. assurance; asset management; and | External appointments | insurance industry. | | | | --- | --- | --- | --- | | | | risk management. | • Over 30 years of experience in | | Chairman of Liontrust Asset | External appointments | | financial services and insurance. | • FTSE 100 Board experience. | Management plc; Lead Indepdent | Board member of the Association of | | | | --- | --- | --- | --- | | | | • Over 20 years’ experience working | External appointments | | Director of The Bank of N. T. Butterfield | British Insurers. | | | | | | in insurance. | NED at Admiral Group plc; NED of | & Son Limited. Miller Insurance Services LLP; NED UK Government’s Business Champion External appointments of Asta Managing Agency Limited; for Older Workers. Non-Executive Director (‘NED’) and Council Member of Lloyd’s of London; Chair of the Audit Committee of Bupa and Adviser at Cytora Limited. Insurance Services Limited and Bupa Insurance Limited. Phoenix Group Holdings plc Annual Report and Accounts 202274 Corporate governance At 10 March 2023, the Board comprises 2022 Board changes Committee membership key the Chair, Group Chief Executive Officer, • Mike Tumilty retired from the Board on Audit Risk the Group Chief Financial Officer, one 30 June 2022 | abrdn-nominated Director, one | | Nomination | Sustainability | | --- | --- | --- | --- | | MS&AD-nominated Director and seven | • Wendy Mayall retired from the Board | | | | | | Remuneration | Chair | | independent Non-Executive Directors. | on 31 December 2022 | | | | Hiroyuki Iioka | John Pollock | Belinda Richards | Nicholas Shott | | --- | --- | --- | --- | | Non-Executive | Independent Non- | Independent Non- | Independent Non- | | Director | Executive Director | Executive Director | Executive Director | | Shareholder appointee | Chair of the Risk Committee | | | | Appointed 23 July 2020 | Appointed 1 September 2016 | Appointed 1 October 2017 | Appointed 1 September 2016 | | | Committee: | Committee: | Committee: | | Experience and role on the Board | Experience and role on the Board | Experience and role on the Board | Experience and role on the Board | | “Since becoming a Non-Executive | “After 35 years in insurance with Legal & | “My position as a Non-Executive | “My experience includes 31 years as an | | Director of Phoenix in 2020, the | General, ultimately as CEO of LGAS, my | Director of the Phoenix Board enables | investment banker at Lazard. | | Group’s purpose and values have | appointment to Phoenix in 2016 was a | me to use my strategic and operational | Specifically, this experience included | | resonated strongly with me and I | very natural next step for me. It has | experience gained in both an executive | running the European Media practice, | | believe that my experience in the global | been extremely rewarding, helping | and non-executive capacity. As the | and acting as a generalist banker in a | | insurance industry supports the | Phoenix grow from the FTSE250 when | Global Head of Merger Integration | wide range of sectors and countries. | | achievement of Phoenix’s expansion | I joined. My position as Chair of the Risk | Services at Deloitte, and previously at | My roles at Lazard included serving | | strategy. I have held a series of senior | Committee has allowed me to be | EY, I have led over 50 major acquisition | as European Vice Chairman, Head | | roles within the MS&AD (a global | closely involved in helping govern this | integrations – many of which were in | of UK Investment Banking and until | | insurance group), including executive | growth, ensuring sustainability for | the insurance and banking sectors. | most recently as Senior Adviser and | | and director positions at its UK | our stakeholders.” | This experience has helped me to add | the Consultant to the firm. My M&A | | insurance subsidiaries.” | | value to Phoenix and its stakeholders; | experience has been very relevant | Skills, competencies and contribution and support the achievement of the to Phoenix since I joined the Board Skills, competencies and contribution to the Board Group’s purpose.” and has supported the Group’s purpose to the Board • Core skills and expertise in areas of and strategy.” • Core skills and expertise in areas Skills, competencies and contribution regulation; life assurance; risk of mergers and acquisitions; capital to the Board Skills, competencies and contribution management; customer service and markets; finance; asset management; to the Board solutions; operations and FTSE 100 • Core skills and expertise in areas of and risk management. Board experience. mergers and acquisitions; regulation; • Core skills and expertise in areas • Experience in the global insurance finance; life assurance; risk of mergers and acquisitions; and • Over 35 years of experience in industry. management; customer service and capital markets. insurance. solutions; change; IT/digital; sales/ • 31 years of experience as an External appointments | | External appointments | distribution; marketing; operations; | | | --- | --- | --- | --- | | Senior General Manager, Head of | | | investment banker. | | | None. | and FTSE 100 Board experience. | | Global Business Development External appointments Department for MS&AD Insurance • Strategic and operational None. Group Holdings, Inc. experience; and previous history leading over 50 major acquisition Alternate NED of Challenger Limited, integrations. listed on the Australian Stock Exchange. External appointments NED at The Monks Investment Trust plc and NED at Schroder Japan Growth Fund plc. Phoenix Group Holdings plc Annual Report and Accounts 2022 75 ### Board leadership and Company purpose continued ### Kory Sorenson Katie Murray Maggie Semple, OBE Stephanie Bruce ### Independent Non- Non-Executive Non-Executive Non-Executive ### Executive Director Director Director Director Chair of the Remuneration Committee Chair of the Audit Committee Designated Non-Executive Director for Shareholder appointee Workforce Engagement | Appointed 1 July 2014 | Appointed 1 April 2022 | Appointed 1 June 2022 | Appointed 1 July 2022 | | --- | --- | --- | --- | | Committee: | Committee: | Committee: | | | Experience and role on the Board | Experience and role on the Board | Experience and role on the Board | Experience and role on the Board | | “My experience and expertise in | “I am a Chartered Accountant with | “I have a breadth of experience in | “I have gained significant experience of | | insurance, financial services, | nearly 30 years’ experience in finance | executive and non-executive roles and | the financial services industry at a | | governance, and human capital enable | and accounting gained through several | have enjoyed a varied career to date | senior management level and bring | | me to effectively serve Phoenix and its | roles across the financial services | across education, government, | experience of working with boards and | | stakeholders as a Non-Executive | industry. I have extensive knowledge | non-profit and commercial roles. I am | managements teams in respect of | | Director and Chair of the Remuneration | and experience in specialist areas | the co-founder of I-Cubed Group, | financial and commercial management, | | Committee. My executive career in | including capital management, investor | which offers one to one coaching to | reporting, risk and control frameworks, | | investment banking was focused on | relations and financial planning which | enhance and release potential of | assurance and regulatory requirements. | | financial services, the optimisation of | enable me to provide valuable input | individuals; I am also the owner of | During my career, I have specialised | | capital resources via equity, hybrid and | and expertise during Board discussions. | Maggie Semple Limited, a luxury | in the financial services sector | | debt capital management as well as | I joined NatWest Group as Director of | bespoke womenswear business; and I | working with organisations across | | M&A, risk management, and life | Finance in 2015 and was appointed as | am Chief Executive of The Experience | asset management, insurance and | | insurance securitisation. My non- | Deputy Chief Financial Officer in | Corps Limited, a global niche | banking, with national and | | executive portfolio provides me with a | March 2017 and Chief Financial Officer | consultancy firm which provides | international operations.” | | wide perspective on the insurance | in January 2019. I was previously the | strategic advice on leadership learning | | Skills, competencies and contribution market as well as best practice Group Finance Director for Old Mutual products. As a result of my career-long to the Board | governance in several jurisdictions and | Emerging Markets, based in | passion for sustainability, ethics and | | | --- | --- | --- | --- | | key issues in audit, risk, investment, | Johannesburg (2011 to 2015), having | inclusivity, I aim to bring a breadth of | • Core skills and expertise in areas of; | | remuneration and sustainability.” | held various roles across Old Mutual | experience to support the Group’s ESG | capital markets; finance; treasury; | | | from 2002. Prior to this I worked at | agenda whilst a member of the Board | reporting; asset management; and | Skills, competencies and contribution KPMG for 13 years. I am also a member and also add value on customer, people risk management. to the Board of the Institute of Chartered and culture related matters.” • Experience in the global insurance • Core skills and expertise in areas of Accountants in Scotland.” Skills, competencies and contribution industry and financial services mergers and acquisitions; capital sector. Skills, competencies and contribution to the Board markets; regulation; finance; life | | | to the Board | | External appointments | | --- | --- | --- | --- | --- | | | assurance; risk management; and | | • Core skills and expertise in public | | | | FTSE 100 Board experience. | • Core skills and expertise in areas | and private sector organisations as | Chief Financial Officer of abrdn plc. | | • Close to 30 years of experience | | of capital management, investor | executive and non-executive roles | | | | in finance. | relations, regulation; finance; | with strengths in leadership | | | | | risk management; and FTSE 100 | development, cultural change, | | | External appointments | | Board experience. | diversity & inclusion and | | | NED and Chair of the Remuneration | | | organisational development. | | • Close to 30 years of experience in Committee of Pernod Ricard SA; NED finance and accounting. External appointments and Chair of the Audit and Sustainability Committees of SGS SA; External appointments NED of Jamaica National Bank UK member of the supervisory board of the Group Chief Financial Officer of Limited; HR Committee Member, privately-owned bank Gutmann AG; NatWest Group plc. University of Cambridge; and member of the Board of Partners of Ambassador, Black British Voices Project. privately-owned COMGEST; NED and Chair of the Audit and Risk Committees of Premium Credit Ltd; NED and Chair Our business, led by Andy Briggs Anna Franekova of the Audit and Risk Committees of the Executive Committee (‘ExCo’) CEO Corporate Development Director the AA. The Executive Management of the Rakesh Thakrar Claire Hawkins Group is led by the CEO, who is CFO Corporate Affairs and Investor supported by the ExCo. Relations Director Andy Curran Chief Executive, Savings and Jonathan Pears During 2022, ExCo played a key Retirement, UK and Europe Group Chief Risk Officer role in driving Phoenix’s year of Brid Meaney Sara Thompson significant progress, striving to help Chief Executive, Heritage Division Group HR Director people secure a life of possibilities. Roles and responsibilities of each Jackie Noakes Quentin Zentner member of ExCo can be found on Chief Operating Officer General Counsel the Company’s website. Mike Eakins Kulbinder Dosanjh Group Chief Investment Officer Group Company Secretary (Secretary to ExCo) Phoenix Group Holdings plc Annual Report and Accounts 202276 Corporate governance Corporate governance ### Compliance with the UK corporate ### governance code in 2022 During 2022 the Company has been fully compliant with the The five core elements of the Code are detailed below along principles and provisions set out in the Code. The tables below with a high level overview of the Company’s compliance with summarise how the Company has complied with the principles the Code and provisions of the FRC’s 2018 UK Corporate Governance Code (the ‘Code’) for the year ended 31 December 2022. | Board leadership | Composition, succession | | --- | --- | | and company purpose | and evaluation | | Our Board of Directors pages 74 to 76 | Nomination Committee report pages 88 to 91 | | Principle A | Principless J, K and L | Provisions 17, 18, 19, 20 to 23 Our governance framework and the Board’s role page 78 (see also: ‘Non-financial information statement’ page 44 of the Strategic Report Principle C for information on gender balance of those in senior management and their Provision 1 direct reports) (see also: ‘Purpose led and integrated governance’ on page 80, Audit Committee report on pages 96 to 101 and Risk Committee report on pages 102 to 104; Conflicts of interest page 79 Provision 7 ### Audit, risk and internal control Purpose-led and integrated governance page 80 Principle B Provision 2 Audit Committee report pages 96 to 101 (see also: ‘Matters Reserved’ on page 78) Principles M and N Provisions 24, 25, 26 and 29 Stakeholder engagement pages 84 to 87 Provisions 27 and 30 Principle D (see also Directors’ Report on pages 147 to 152 and Statement of Directors’ Provision 3 (see also: ‘Purpose-led and integrated governance’ on page 80. Responsibilities on page 153) Provision 5 Provision 31 (see also Section 172 Statement on page 43 of the Strategic Report) (see also Directors’ Report on pages 147 to 152 and the Group’s Viability Statement | Engagement in action pages 108 to 109 | on pages 68 to 69 of the Strategic Report) | | --- | --- | | Principle E | Risk Committee report pages 102 to 104 | | Provision 5 | Principle O | | (see also ‘Stakeholder Engagement From The Top’ on page 84, and ‘Audit | Provision 28 and 29 | | Committee report on pages 96 to 101 | (see also Principal risks and uncertainties faced the Group on pages 56 to 67 of | | Whistleblowing arrangements page 100 | the Strategic Report) | Provision 6 (see also: ‘Purpose-led and integrated governance’ on page 80 and Audit Committee report on pages 96 to 101 ### Remuneration Directors’ remuneration report pages 110 to 146 Principles P, Q and R ### Division of responsibilities (see also Directors’ Remuneration Report on pages 110 to 146) Provisions 32, 33, 40 and 41 (see also Remuneration Committee Chair’s letter on pages 110to 112 and Division of responsibilities on the Board page 82 Remuneration Committee governance and activities on pages 145 to 146) Principles F and G and Provisions 9, 10, 12 and 14 Provisions 34 to 39 (see also: ‘Our Board of Directors on pages 74 to 76’) (see Directors’ Remuneration Report on pages 110 to 146) Provision 11 (see also: ‘Board Composition and Diversity, on page 92) 2022 Board and committee meeting attendance page 83 Principle H Provision 13 Board support page 83 Principle I; and Provisions 8 and 16 Board member appointment terms pages 78 to 79 Provision 15 Phoenix Group Holdings plc Annual Report and Accounts 2022 77 ### Board leadership and Company purpose continued ## Robust governance ### The Board provides strong leadership underpinned by a robust governance ### framework enabling cohesion of our purpose, strategy, values and culture. | Our Governance framework | Terms of reference for each of the | Throughout 2022, the Board has acted in | | --- | --- | --- | | The Phoenix Group Holdings plc | Board Committees are available on | accordance with its matters reserved. The | | (‘Phoenix’, ‘Group’ or ‘Company’) | the Company’s website. | full schedule of matters reserved for the | | governance framework is the foundation | | Board is available on the Company’s website. | | upon which the Group is directed and | Matters which are not reserved for the | | | controlled. Our framework provides | Board, delegated to its Board Committees | Time Commitment | | adaptability and agility to enable Phoenix | or for shareholders in general meetings, | In order to ensure that the Board and | | to operate as a successful and sustainable | are delegated to the executive | each of its Committees is able to function | | business, responding to the needs of | Management team under a schedule | effectively, each Non-Executive Director | | stakeholders (including future generations | of delegated authorities approved by | (‘NED’) must commit sufficient time to their | | of stakeholders) and evolving market | the Board. | respective roles in order to discharge their | | conditions in which we operate. | | responsibilities. Time commitment is | | To ensure the adaptability, agility and | More detailed operational and | considered on an ongoing basis, for | | accountability required to achieve our | policyholder matters are addressed at the | example, where a new Director is being | | purpose, the Board drives a culture of | subsidiary board and committee level, | considered for appointment to the Board, | | empowerment through delegation to its | including the Phoenix Life Companies | any additional external appointments or | | Board Committees and other individuals | Board and Board Committees. | an increase in Board responsibilities. | within Management. Empowerment fosters | diversity of thought and innovation | Role of the Board | Following an assessment by the | | --- | --- | --- | | to ensure we achieve our strategy | The Board is responsible to the | Nomination Committee during the year, it | | and purpose, under the stewardship | shareholders and wider stakeholders for | is expected that on average, each of the | | of our Board. | the overall performance of the Group. The | eight scheduled Board meetings is likely to | | | Board’s role is to provide leadership, | require two days of participation (including | | The Group’s high standards of corporate | promoting the long-term sustainable | Committee meetings, education sessions, | | governance and our governance | success of the Company, generating value | travel and Board dinners) and at least a | | framework are anchored to compliance | for shareholders and positively | further day of preparation time. It is further | | with the Code which sets standards of | contributing to wider society, within a | estimated that each Director is required to | | good governance for UK listed companies. | framework of prudent and effective | spend at least an additional day each | | | controls, which enables risk to be assessed | month reviewing information supplied by | | Phoenix’s governance framework is | and managed. | the Company. In addition, a two day | | structured in three layers. The Board | | strategy session is held and there are also | | oversees the Group – setting the purpose | Matters reserved for the Board | regular briefing sessions for the Board | | and strategy; ensuring appropriate | The Board has a schedule of matters | Committees. On this basis, the basic time | | resources are in place to achieve that | reserved for its consideration and approval | commitment required of each Board | | strategy; establishing a framework of | supported by a set of operating principles. | member is estimated to be at least 40 days | | effective controls aligned with suitable risk | | each year (unless agreed as 24 days for a | | appetites; holding Management to | These matters include: | full-time executive undertaking a NED role | | account (including through monitoring of | | and chairing one Committee). The basic | • Group strategy and business plan; behaviours and culture); and, ultimately, time commitment can be significantly promote the long-term sustainable success • oversight of the Group’s culture; increased on account of transactional or of the Group. other activity. The Nomination Committee • major acquisitions, investments and confirms that all NEDs have demonstrated capital expenditure; The Board delegates certain matters to they have sufficient time to devote to their its five Board Committees. The Board • financial reporting and controls; present roles. Committees support the Board in line with • dividend policy; the Code and have established roles and Independence responsibilities prescribed in terms of • capital structure; During the year the Nomination reference, approved by the Board. High Committee assessed the independence of • the constitution of Board committees; | level roles and responsibilities of Board | | the NEDs to ensure that they are able to | | --- | --- | --- | | Committees can be found within the | • appointments to the Board and Board | properly fulfil their roles on the Board and | | governance framework diagram on | committees; | provide constructive challenge to the | | page 79. | | Executive Directors. | • senior executive appointments; and • key Group policies. Phoenix Group Holdings plc Annual Report and Accounts 202278 Corporate governanceCorporate governance ### Our governance framework ### Phoenix Group Holdings plc Board Chair, Alastair Barbour • Group Strategy • Performance Monitoring • Group Budget • Group Risk Appetite • Major Transactions • External/Shareholder Reporting • External Debt Committee and management accountability and performance measuring Audit Nomination Risk Remuneration Sustainability Committee Committee Committee Committee Committee Chair, Chair, Chair, Chair, Chair, Katie Murray Alastair Barbour John Pollock Kory Sorenson Karen Green • Financial Reporting • Board and • Risk Appetite and • Group remuneration • Sustainability senior executive high-level risk framework strategy • Internal Controls appointments matters • Executive director • ESG reporting • External Audit • Diversity and • The Group’s Risk remuneration • Culture monitoring • Internal Audit inclusion Management • Employee share • Whistleblowing Framework • Board and senior schemes executive succession planning Board oversight and delegation to committees and management See pages 96 to 101 See pages 88 to 91 See pages 102 to 104 See pages 110 to 146 See pages 105 to 107 ### Phoenix Group Holdings plc ExCo Chair, Andy Briggs • Formulation of objectives and strategy • Business division objectives and budgets • Operational capacity, resourcing • Embedding of culture and priorities monitoring • Business performance • Management development • Recommendation of major capital and succession expenditure proposals | The independence criteria set out in the | Conflicts of interest | Additional appointments | | --- | --- | --- | | Code were taken into account as part of | A register of conflicts of interest is | If any Director wishes to take on an | | the selection process for Katie Murray and | maintained by the Group Company | additional external appointment, they | | Maggie Semple who joined Phoenix during | Secretary. The Directors each understand | are required to seek permission from | | 2022, both of whom were considered to | their responsibility to identify and manage | the Board. The Board will take into | | be independent. | conflicts of interest, bringing conflicts to | consideration the additional time | | | the attention of the Board and the Group | commitments, independence and any | | During 2022, the Committee determined | Company Secretary as required under the | potential conflicts of interest in relation | | that all NEDs were free from any | Companies Act 2006. Conflicts of interest | to the Directors’ current roles and | | relationship or circumstances that could | are managed through individual director | responsibilities before any permission | | affect, or appear to affect, their | declarations, through discussion whereby | is given. | | independent judgement. In line with the | the conflicted Director does not | | | Code, over half of our Board members, | participate in discussions relating to the | Independent advice | | excluding the Chair, are independent | conflict and, where the conflicted Director | All directors have access to the advice and | | NEDs. The shareholder nominated | does not participate in any decision | services of the Group Company Secretary | | Directors, Hiroyuki Iioka and Stephanie | making relating to the conflict. | in relation to the discharge of their duties | | Bruce do not meet the independence | | on the Board and any committees they | | criteria under the Code. The Chair, Alastair | The Board continues to monitor and note | serve on. Furthermore, any directors may | | Barbour was independent on appointment. | any potential conflicts of interest that each | take independent professional advice at | | However, as a consequence of becoming | Director may have and recommends to the | the Company’s expense. During the year, | | Chair whilst Nicholas Lyons is on | Board whether these should be authorised | no directors sought to do so. | | sabbatical, Alastair will have served | and whether conditions should be attached | | | on the Board for more than nine years | to any such authorisation. Due care and | The Company arranges appropriate | | from the date of his first appointment | process is, of course, applied in respect of | insurance cover in respect of legal actions | | (1 October 2013). Alastair Barbour will | shareholder nominated Board Directors. | against its directors and has also entered | | retire when Nicholas Lyons returns from | | into indemnities with its directors as described | | his sabbatical which is expected in early | | in the Directors’ report on page 149. | November 2023. Phoenix Group Holdings plc Annual Report and Accounts 2022 79 ### Board leadership and Company purpose continued ## Purpose-led and ## integrated governance ### Governance unites our purpose, strategy, values and culture. ### The Board has continued to oversee the Group’s high standards ### of corporate governance and business performance throughout 2022. The Group’s purpose is to help people The Board considers relevant stakeholder secure a life of possibilities which is at the groups in the decision-making process centre of decision-making processes. whilst remaining focused on ensuring that outcomes are aligned with the Group’s purpose, strategy, culture and values. ### Purpose Strategy Helping people secure a life of possibilities Our strategy is set to ensure we continually progress As the pensions landscape and societal needs evolve, towards the achievement of our purpose and our aim Phoenix has an important role in society through its to provide customers with the best possible outcomes. long-term savings and retirement business. Robust and The Board is responsible for establishing the strategy purpose-led decision-making from the Board and for the Group, ensuring that this is aligned with not throughout the Group drives responsible and sustainable only our purpose but also with the values and culture investment, a strong sustainability strategy and enables of the business. long-lasting impact for our customers. ## Governance ## Governance ### Values Culture Our values articulate the behaviours and qualities Phoenix Our culture defines us and has, and continues to be, colleagues are expected to demonstrate throughout developed through our values being lived by colleagues the Group. Our values are embedded within our each day. The Board sets the cultural tone from the top policies (approved by the Board), operational practices and acts as the guardian of our values and culture which, (overseen by the Board) and our culture (role modelled together, support the achievement of our strategy, driving by the Board). our purpose to help people secure a life of possibilities. Board Directors reinforce our culture and values through their conduct (individually and collectively), decisions and strategic oversight. Phoenix Group Holdings plc Annual Report and Accounts 202280 Corporate governance Corporate governance ### Purpose, values and strategy Sustainability • Approval of Annual Operating Plan. • Approval of the Group’s 2022 sustainability strategy. • Oversight of the launch of the Phoenix Master Brand Visual Identity. • Monitoring progress against the Group’s sustainability agenda • Approval of the acquisition of Sun Life of Canada UK. and strategy. • Two day strategy meeting. • Approval of the Group’s 2022 Modern Slavery Statement. • Monitoring of internal perception of culture and alignment with the • Approval of Phoenix’s Climate Biennial Exploratory Scenario Phoenix purpose and values. round 2 submission. • Approval of Phoenix’s SBTi targets for submission and subsequent validation. • Participation in a significant programme of education on climate change, decarbonisation, and sustainability. See pages 94 and 95 for further information on Board education activities. | Financial management and performance | | Workforce policies and culture oversight | | | --- | --- | --- | --- | | • Monitoring of the Group’s solvency and liquidity positions. | | • Approval of Group risk policies. | | | • Monitoring of capital resilience, financial performance and | | • Whistleblowing oversight. | | | | growth in Heritage and Open divisions. | • Oversight of insights from colleague engagement surveys and | | | • Approval of the Group’s dividend policy. | | | culture dashboards. | | • Recommendation of the 2021 Final Dividend and 2022 | | • Monitoring of colleague engagement initiatives. | | | | Interim Dividend. | • Regular updates from the Designated Non-Executive Director | | | • Approval of the Group’s funding and capital strategy. | | | for Workforce Engagement. | • Approval of the Group’s tax strategy. ### Stakeholder engagement People strategy, diversity & inclusion ### and succession planning • Monitoring of customer service, operational resilience and • Monitoring of data collation through the ‘Who We Are’ application colleague well-being. (including data on social mobility, ethnicity, gender and sexual • Monitoring of investor engagement activities, oversight of the orientation within Phoenix). year-end investor presentation and Capital Markets Event • Oversight of people capability requirements and management presentation materials. actions to enhance capabilities. • Consideration of investor and media reaction to YE21 and • Monitoring of diversity in ExCo +1 (Business Leadership) and ExCo +2 HY22 results. (Senior Leadership) role hires and challenge to the hiring process. • Consideration of investor feedback and analyst reports, including • Approval of Board and Executive Succession Plans. investor sentiment and deep dive session with the corporate brokers. • Approval of appointment of Group and material subsidiary • Participating in open and honest dialogue with all Board changes. applicable regulators. • Reviewing changes to the Executive Management Team and • Interaction with colleagues, through the PCRF and Designated succession planning. Non-Executive Director for Workforce Engagement (see pages 108 to 109 for more detail) and the Colleague Interaction Session between the Board and colleagues at various stages of their career. • Annual General Meeting. • Consultation with major shareholders on executive remuneration policy. | Risk management and assurance | | Corporate governance and reporting | | | --- | --- | --- | --- | | • Climate change Stress and Scenario Testing. | | • Simplification of governance continued. | | | • Monitoring of the Group’s risk culture. | | • Monitoring compliance with the Code. | | | • Approval of the Group’s Risk Appetite and assessment of the | | • Internal Board effectiveness review. | | | | approach to identifying and managing emerging risks. | • Subsidiary governance oversight. | | | • Approval of Principal Risk and Uncertainties disclosures. | | • External reporting including Annual Report & Accounts, | | | • Monitoring performance against the Group’s operational risk | | | Sustainability and Climate reports. | | | management framework. | • 2022 Annual General Meeting. | | • Receiving and considering regular updates from the Board Audit and Risk Committees. Phoenix Group Holdings plc Annual Report and Accounts 2022 81 ### Division of responsibilities ## Valuing diversity of thought and ## independence on the Board ### Clear roles and responsibilities to drive forward our purpose and strategy The Directors of Phoenix Group Holdings of the Group’s purpose. The Board ensures The independence of Directors not plc (‘Phoenix ’ or the ‘Company’) the appropriate division of responsibilities only supports good governance, but understand their role as individuals, and as on the Board, ensuring no existence of also facilitates diversity of thought and a collective, to ensure the long-term unfettered power nor over-reliance on any inclusion on the Board. success of the Company and achievement one person. ### Division of responsibilities on the Board Chair Chief Executive Officer Senior Independent Director Alastair Barbour is Chair of the Board Andy Briggs is Group Chief Executive Officer Karen Green is the Senior Independent Director (‘SID’) of Phoenix. (‘CEO’) of Phoenix. of the Board. The Chair is responsible for: The Chief Executive Officer is responsible for: The SID is responsible for: • the leadership and effective operation • overall management and operation of the • being available to shareholders whose concerns of the Board; Group within the limits delegated by the are not resolved through the normal channels or • chairing, and overseeing the Board; and when such channels are inappropriate; performance of the role of the • operational matters relating to: • leading the annual appraisal of the Chair’s governing body of the firm; performance by the Non-Executive Directors ; - Business Strategy and Management • leading the development of and - Investment and Financing • acting as the sounding board for the Chair; monitoring the effective - Risk Management and Controls • serving as an intermediary between the Chair implementation of policies and - Regulation and the other Directors as necessary; and procedures for the induction, training - Communication • ensuring an orderly succession process for and professional development of all - HR Policies. the Chair. members of the firm’s governing body; The CEO’s external commitments are set out • leading the development of the firm’s The SID’s external commitments are set out on page 74 on page 74 within this report. culture by the governing body as a within this report. whole; and • ensuring an orderly succession process for the Group Chief Executive Officer and the Board as a whole. The Chair’s external commitments are set out on page 74 within this report. Independent Non-Executive Designated Non-Executive Director Shareholder nominated Directors for Workforce Engagement Non-Executive Directors The Board considers the following Maggie Semple is the Designated Non- Hiroyuki Iioka and Stephanie Bruce are shareholder Non-Executive Directors (‘NEDs’) to Executive Director for Workforce Engagement nominated NEDs. Hiroyuki Iioka is appointed to the be independent: (‘DNED’). Board on behalf of MS&AD Insurance Group Holdings Inc. and Stephanie Bruce is appointed to the Board on The DNED is responsible for: • Karen Green behalf of abrdn plc. • Katie Murray • acting as the primary Board contact in facilitating and developing communication In accordance with the Phoenix acquisition of • John Pollock between colleagues across the Group and ReAssure from Swiss Re in July 2020, MS&AD were • Belinda Richards entitled to appoint a representative Non-Executive the Board; • Maggie Semple Director to the Phoenix Board. A relationship • providing the Employee Voice to the Board • Nicholas Shott agreement between Phoenix and abrdn plc (‘abrdn’) by raising relevant matters, or issues of includes the right for abrdn to appoint a • Kory Sorenson concern, highlighted by engagement with representative Non-Executive Director, provided they the workforce; and As at 10 March 2023, 58% of the Board continue to hold 10% or more of Phoenix’s shares. • challenging the Executive Directors, as are considered to be independent. needed, as to the way in which workforce Full descriptions of the roles and responsibilities of The Board uses the independence criteria engagement is undertaken and steps taken the Chair, CEO, SID and DNED are available on the as set out in the Code to assess and to address workforce concerns. Company’s website. confirm independence. Phoenix Group Holdings plc Annual Report and Accounts 202282 Corporate governance Corporate governance | Board support | The Group Company Secretary supports | The Group Company Secretary ensures | | --- | --- | --- | | All Board Directors have access to the | the Chair, ensuring that directors receive | that accurate records of Board and | | advice and services of the Group | accurate, timely and clear information. | Committee meetings are prepared on a | | Company Secretary to support the | Appropriate policies, processes, time and | timely basis enabling unresolved concerns | | discharge of their duties and on matters | resources are available to the Board to | of Directors to be duly recorded. No | | of governance. | ensure its effective and efficient operation. | concerns were recorded during 2022. | ### 2022 Board and Committee meeting attendance | The Board met formally eight times | The Board have continued with these | The following Board and Board | | --- | --- | --- | | during 2022, including a two-day | briefing calls which serve as a valuable | Committee attendance table below | | strategy setting meeting. During the | bridge outside of formal Board meetings. | details all formal Board and Board | | pandemic, the Board met additionally | Additional meetings have also been held | Committee meetings held during 2022. | | for regular briefing meetings to | in respect of M&A activity. | | | continue to monitor the volatile | | The Nomination Committee has | | macro-economic environment | The NEDs met with the Chair on | confirmed its absolute satisfaction | | and oversight of the Group’s | seven occasions without Executive | with the time and commitment given | | strategic objectives. | Directors present. | to the Phoenix Board and its | Committees by all Directors. Audit Risk Remuneration Nomination Sustainability Board Committee Committee Committee Committee Committee Actual/Max Actual/Max Actual/Max Actual/Max Actual/Max Actual/Max Chair 1 Nicholas Lyons 6/6 4/4 2 Alastair Barbour 8/8 7/7 7/7 5/6 Executive Directors Andy Briggs (CEO) 8/8 Rakesh Thakrar (Group CFO) 8/8 Non-Executive Directors 3 Karen Green 8/8 8/9 7/8 2/3 5/6 Hiroyuki Iioka 8/8 Wendy Mayall 8/8 9/9 6/6 4 Maggie Semple 4/4 2/2 2/2 5 John Pollock 8/8 9/9 9/9 1/1 6 Katie Murray 4/5 3/4 7 Belinda Richards 8/8 7/9 8/8 Nicholas Shott 8/8 9/9 8/8 6/6 6/6 8 Kory Sorenson 8/8 8/9 8/8 6/6 6/6 9 Mike Tumilty 5/5 3/3 10 Stephanie Bruce 3/3 1 Nicholas Lyons commenced his sabbatical on 1 September 2022. 2 Alastair Barbour commenced his position as Chair on 1 September 2022. Alastair was unable to attend a Nomination Committee meeting due to a scheduling conflict. 3 Karen Green was appointed as SID following the conclusion of the Annual General Meeting in May 2022. Karen was unable to attend Committee meetings in October 2022 due to illness. 4 Maggie Semple was appointed as a director on 1 June 2022 and became DNED on 1 July 2022 and a member of the Risk and Sustainability Committees on 1 September 2022. 5 John Pollock joined the Nomination Committee on 1 November 2022 and was unable to attend one Nomination Committee meeting due a pre-existing commitment. 6 Katie Murray was appointed as a director on 1 April 2022 and became Chair of the Audit Committee on 1 September 2022 . Katie was unable to attend a Board and Committee meeting due to pre-existing commitments arranged prior to joining the Phoenix Board. 7 Belinda Richards was unable to attend two meetings of the Risk Committee due to a scheduling conflict and delayed travel. 8 Kory Sorenson was unable to attend a Risk Committee meeting due to the meeting being held at short notice and conflict with a previously scheduled engagement. 9 Mike Tumilty retired from the Board on 30 June 2022. 10 Stephanie Bruce was appointed as a director on 1 July 2022. The above table excludes ad-hoc or additional meetings. In addition to the above, the Board’s ad-hoc M&A Advisory Committee, comprised of Nicholas Shott (Chair), Alastair Barbour, Karen Green and Belinda Richards, met three times during 2022. The Board’s ad-hoc Advisory Committee comprised of Alastair Barbour, Karen Green and Rakesh Thakrar met twice during 2022. Phoenix Group Holdings plc Annual Report and Accounts 2022 83 ### Stakeholder engagement ## Stakeholder engagement from the top Strategic priorities key Optimise our Grow our business to support Enhance our operating in-force business both new and existing customers model and culture Key stakeholder groups Customers Suppliers Colleagues Community Investors Government, trade ### bodies and regulators Our customers are core to our purpose and We depend on our suppliers in order to deliver services Our colleagues are a key asset to the Group and to Our purpose to help people secure a life of Our investors continue to be crucial to the growth and As the UK’s largest long-term savings and retirement strategic priorities. By listening to their needs and to our customers and provide the Group with operational the achievement of our strategic priorities and possibilities extends to our communities. These achievements of the Group. Phoenix is dedicated to business, our business is subject to financial services what matters most, the Group is able to truly support, working in partnership with Phoenix to achieve long-term success. Their dedication, commitment communities comprise our colleagues (including delivering long-term value to our shareholders and intends to regulation. Phoenix Group Holdings plc is also subject progress towards helping people to secure a our strategic priorities. and capabilities are integral to the Group’s success. future colleagues), customers (including future provide a dividend that is sustainable and grows over time. to listed entity regulation. The way we operate and life of possibilities. generations of customers), suppliers and many interact with our regulators provides the trust and The Board understands that the quality of relationships we Our values unite our colleagues enabling a The Board understands the value our investors add to other stakeholders. reassurance needed by stakeholders to enable The Board recognises its responsibility and maintain and develop with our suppliers, strategic or otherwise champion led culture to reach our purpose and safeguarding the Group’s governance through monitoring Phoenix to deliver its purpose. duty to oversee the success of the business for is a core objective as we seek to fulfil our ultimate purpose of achieve our strategy. Oversight of our culture, The Board understands the importance of of performance and engagement with the Board all customers. helping people secure a life of possibilities. purpose, values and colleague initiatives and is a building trust and inspiring confidence through throughout the year. The Board acknowledges the importance of core focus for the Board. The Board considers community engagement and partnerships. maintaining positive relationships with the Government, colleagues in the widest sense, including the trade bodies and regulators to enable the Group to act Group’s relationships with its pension schemes and as a thought leader and to communicate the views and members who are former colleagues as well as concerns of our customers and society generally. members of the Group’s workforce who are not employed directly by the Group. Link to strategic priorities How the Board has engaged with and had oversight of stakeholder views during the year? | • The Board received regular updates from | • The Board received regular updates from the CEO on | • The Board received updates on colleague | • The Board Sustainability Committee | • The Board received regular updates from the CEO on | • During the year, the Board as a whole met with the | | --- | --- | --- | --- | --- | --- | | management on the potential impact on | customer service performance and outsourced services | well-being and engagement levels. | received updates on progress against KPIs | investor relations activities and feedback/questions | FCA and PRA during the year on a range of issues | | customer service as a result of projects | (including any ongoing impact of COVID-19), with | • The Board monitored the impact of projects | and targets aligned with the Group’s | received from investors. | relating to the impact of each regulators’ strategic | | undertaken, with detailed oversight of | additional detailed oversight being undertaken by the | and the Group’s change agenda on | community engagement strategy, with | • Investor feedback from the Group’s results | objectives and routine regulatory matters. | | customer service being undertaken by | subsidiary Board for the Phoenix Life Companies and | colleagues, including potential areas of | relevant highlights reported to the Board. | announcements and investor roadshows was | • At the request of the PRA and FCA, certain | | the subsidiary Board for the Phoenix Life | its committees. | stretch on resource. | • Through educational deep dives and | reported to the Board during the year. | Board directors may be required to meet on a | | Companies and its committees. | • The Board and its Risk Committee monitored risks related | • Members of management, beyond the ExCo, | external perspectives, the Board | • The Board considered key considerations relating | formal basis. | | • The Board monitored the impact of the | to suppliers, including the potential for poor customer | were invited to join the Board to present and | Sustainability Committee has continued to | to investor messaging and various investor | • The Board received updates on management’s | | Group’s change agenda, including sufficient | service and risks connected with the migration of acquired | take part in discussions at meetings | broaden and develop Committee members’ | communication approaches. | interactions with regulators and any feedback | | resource to maintain focus on customer | books of business. Such monitoring included discussions | throughout the year. | understanding of specific community- | • The Board considered and provided feedback on | received from those bodies. | | outcomes and conduct risk management. | with regulators to ensure clarity of Phoenix’s focus on | • The Board and Board Sustainability | related themes such as financial inclusion, | the contents of the year-end investor presentation. | • The Board challenges Management on ensuring | | • The Board approved the Customer | positive customer outcomes. | Committee received updates from the DNED | stewardship and public awareness building | • Board members, including the Board Chair and | that Phoenix maintains open and honest dialogue | | Acceptance Criteria as a part of Phoenix’s | • The Board Risk Committee received updates from the | following engagement sessions with | activities in sustainability-related areas. | Non-Executive Directors acting in the capacity of | with the FCA, PRA, Central Bank of Ireland, TPR | | toolkit for future acquisition which provide | Group Chief Risk Officer on service levels provided by | colleagues, including meetings with the PCRF. | • The Group HR Director provides regular | Committee Chairs, were available to investors for | and other jurisdictional regulators. | | details of Group’s plans for inclusion of | suppliers and considered fulfilment of Service Level | The Board members met a range of colleagues | updates on colleague engagement | engagement, including to answer questions on | | | an assessment of customer impact and | Agreement terms in the year, with detailed oversight of | and listened to their views, ideas and | activities, initiatives and progress on | significant matters related to their areas of | | | customer fair treatment benefits in its | customer service being undertaken by the subsidiary | experiences which will inform Board agenda | community related KPIs which can be found | responsibility. Prior to, and at, the Company’s AGM, | | | acquisition strategy | Board for the Phoenix Life Companies and its committees. | and decision-making as a part of the | in the Sustainability Report. | investors were able to submit questions to be answered | | | • The Board Remuneration Committee (which | • The Board approved the Group’s Modern Slavery and | Colleague Interaction Session. | | by each of the above. | | | reported to the Board on a regular basis) | Human Rights Statement (‘Modern Slavery statement’) | • Received updates on the cost of living crisis | | • The Capital Markets Event held in December 2022 | | | focused on customer outcomes during the | which outlines steps that Phoenix took, in the financial year | and the impact on colleagues, including | | enabled the Board and Executive management team | | | year, allocating 25% of the 2022 Annual | ended 31 December 2021, to ensure slavery and human | establishment of cost of living working group | | to interact with potential and existing investors. | | | Incentive Plan to be aligned with customer | trafficking has not taken place in our supply chain; and sets | and implementation of a number of incentives | | • The Chair has, since the end of 2022 (January 2023), | | | satisfaction metrics (see the Directors’ | out an expectation for suppliers to meet the Group’s | such as free lunches and bonuses. | | undertaken a schedule of meetings with major investors | | | Remuneration Report on pages 110 to 146 for | Supplier Code of Conduct. The Modern Slavery | | | to discuss topical matters of importance to them. | | | more detail). | statement is available on the Company’s website. | | | • Major shareholders were consulted as part of the | | process in developing Directors’ remuneration policy The Board’s role in promoting positive stakeholder relationships The Board held management to account The Board monitors the performance of suppliers to ensure The Board sets the cultural tone from the top and The Board, through the Board Sustainability The Board monitors investor sentiment and feedback As the guardian of the Group, (ensuring robust throughout the year, ensuring due care and Phoenix is able to provide the best customer outcomes to engages with colleagues (both directly and Committee, has monitored management’s throughout the year to ensure Phoenix is able to respond to governance, controls and risk management) the attention was given to customer outcomes and deliver its operational and financial targets. Positive indirectly) which is key to ensuring positive engagement activities with our communities, investor concerns, which is key to the success of the Group. Board is responsible for holding management to needs, especially in the context of data and relationships with suppliers are vital to the success of both relationships. Two-way engagement enables ensuring that Phoenix is able to fulfil its account for day to day compliance with regulation The Board also ensures that the Group’s strategy and platform migration work and projects to grow Phoenix and our suppliers. colleagues to be kept informed of how the Board purpose and colleagues have the opportunity and legislation; ensuring transparent communication purpose are set to ensure the long-term success of the and develop the Group. is driving the Group in the right direction and to participate in charitable giving and of such compliance to maintain trust in Phoenix. business and generation of value for shareholders. enables the Board to stay connected to what’s volunteering within the community. It is the important to colleagues and how the decisions it Board’s role to hold management to account makes impacts their working lives. in maintaining sufficient resources needed to support our communities. Phoenix Group Holdings plc Annual Report and Accounts 202284 Corporate governance Details of the Group’s broader stakeholder engagement and related The Directors have applied Section 172 of the Act in a manner consistent with outcomes can be found in the Strategic Report on pages 42 to 43. the Group’s purpose, values and strategic priorities, having due regard to the Group’s ongoing regulatory responsibilities as a financial services operation. Section 172 of the Companies Act 2006 (the ‘Act’) requires each director of a To support the fulfilment of the Directors’ duties outlined above, each paper company to act in the way they consider, in good faith, would most likely promote prepared for consideration by the Board contains an analysis of the potential the success of the company for the benefit of its members as a whole. In doing so, impact of proposals to be considered by the Board in light of the factors each director must have regard, amongst other matters, to the: contained in Section 172. • likely consequences of any decisions in the long term; Pages 86 to 87 contain examples of key decisions of the Board, their alignment to • interests of the company’s employees; the Group’s strategy, how the Board reached its decision (including • need to foster the company’s business relationships with suppliers, consideration of matters set out in Section 172; the interests of stakeholders; customers and others; related risks and opportunities; and challenges it faced) and the outcome of • impact of the company’s operations on the community and the environment; those considerations. The examples shown are provided to demonstrate how • desirability of the company maintaining a reputation for high standards of the Directors of the Company have carried out their duties under Section 172 business conduct; and of the Act. • need to act fairly as between members of the company. Key stakeholder groups Customers Suppliers Colleagues Community Investors Government, trade ### bodies and regulators Our customers are core to our purpose and We depend on our suppliers in order to deliver services Our colleagues are a key asset to the Group and to Our purpose to help people secure a life of Our investors continue to be crucial to the growth and As the UK’s largest long-term savings and retirement strategic priorities. By listening to their needs and to our customers and provide the Group with operational the achievement of our strategic priorities and possibilities extends to our communities. These achievements of the Group. Phoenix is dedicated to business, our business is subject to financial services what matters most, the Group is able to truly support, working in partnership with Phoenix to achieve long-term success. Their dedication, commitment communities comprise our colleagues (including delivering long-term value to our shareholders and intends to regulation. Phoenix Group Holdings plc is also subject progress towards helping people to secure a our strategic priorities. and capabilities are integral to the Group’s success. future colleagues), customers (including future provide a dividend that is sustainable and grows over time. to listed entity regulation. The way we operate and life of possibilities. generations of customers), suppliers and many interact with our regulators provides the trust and The Board understands that the quality of relationships we Our values unite our colleagues enabling a The Board understands the value our investors add to other stakeholders. reassurance needed by stakeholders to enable The Board recognises its responsibility and maintain and develop with our suppliers, strategic or otherwise champion led culture to reach our purpose and safeguarding the Group’s governance through monitoring Phoenix to deliver its purpose. duty to oversee the success of the business for is a core objective as we seek to fulfil our ultimate purpose of achieve our strategy. Oversight of our culture, The Board understands the importance of of performance and engagement with the Board all customers. helping people secure a life of possibilities. purpose, values and colleague initiatives and is a building trust and inspiring confidence through throughout the year. The Board acknowledges the importance of core focus for the Board. The Board considers community engagement and partnerships. maintaining positive relationships with the Government, colleagues in the widest sense, including the trade bodies and regulators to enable the Group to act Group’s relationships with its pension schemes and as a thought leader and to communicate the views and members who are former colleagues as well as concerns of our customers and society generally. members of the Group’s workforce who are not employed directly by the Group. Link to strategic priorities How the Board has engaged with and had oversight of stakeholder views during the year? | • The Board received regular updates from | • The Board received regular updates from the CEO on | • The Board received updates on colleague | • The Board Sustainability Committee | • The Board received regular updates from the CEO on | • During the year, the Board as a whole met with the | | --- | --- | --- | --- | --- | --- | | management on the potential impact on | customer service performance and outsourced services | well-being and engagement levels. | received updates on progress against KPIs | investor relations activities and feedback/questions | FCA and PRA during the year on a range of issues | | customer service as a result of projects | (including any ongoing impact of COVID-19), with | • The Board monitored the impact of projects | and targets aligned with the Group’s | received from investors. | relating to the impact of each regulators’ strategic | | undertaken, with detailed oversight of | additional detailed oversight being undertaken by the | and the Group’s change agenda on | community engagement strategy, with | • Investor feedback from the Group’s results | objectives and routine regulatory matters. | | customer service being undertaken by | subsidiary Board for the Phoenix Life Companies and | colleagues, including potential areas of | relevant highlights reported to the Board. | announcements and investor roadshows was | • At the request of the PRA and FCA, certain | | the subsidiary Board for the Phoenix Life | its committees. | stretch on resource. | • Through educational deep dives and | reported to the Board during the year. | Board directors may be required to meet on a | | Companies and its committees. | • The Board and its Risk Committee monitored risks related | • Members of management, beyond the ExCo, | external perspectives, the Board | • The Board considered key considerations relating | formal basis. | | • The Board monitored the impact of the | to suppliers, including the potential for poor customer | were invited to join the Board to present and | Sustainability Committee has continued to | to investor messaging and various investor | • The Board received updates on management’s | | Group’s change agenda, including sufficient | service and risks connected with the migration of acquired | take part in discussions at meetings | broaden and develop Committee members’ | communication approaches. | interactions with regulators and any feedback | | resource to maintain focus on customer | books of business. Such monitoring included discussions | throughout the year. | understanding of specific community- | • The Board considered and provided feedback on | received from those bodies. | | outcomes and conduct risk management. | with regulators to ensure clarity of Phoenix’s focus on | • The Board and Board Sustainability | related themes such as financial inclusion, | the contents of the year-end investor presentation. | • The Board challenges Management on ensuring | | • The Board approved the Customer | positive customer outcomes. | Committee received updates from the DNED | stewardship and public awareness building | • Board members, including the Board Chair and | that Phoenix maintains open and honest dialogue | | Acceptance Criteria as a part of Phoenix’s | • The Board Risk Committee received updates from the | following engagement sessions with | activities in sustainability-related areas. | Non-Executive Directors acting in the capacity of | with the FCA, PRA, Central Bank of Ireland, TPR | | toolkit for future acquisition which provide | Group Chief Risk Officer on service levels provided by | colleagues, including meetings with the PCRF. | • The Group HR Director provides regular | Committee Chairs, were available to investors for | and other jurisdictional regulators. | | details of Group’s plans for inclusion of | suppliers and considered fulfilment of Service Level | The Board members met a range of colleagues | updates on colleague engagement | engagement, including to answer questions on | | | an assessment of customer impact and | Agreement terms in the year, with detailed oversight of | and listened to their views, ideas and | activities, initiatives and progress on | significant matters related to their areas of | | | customer fair treatment benefits in its | customer service being undertaken by the subsidiary | experiences which will inform Board agenda | community related KPIs which can be found | responsibility. Prior to, and at, the Company’s AGM, | | | acquisition strategy | Board for the Phoenix Life Companies and its committees. | and decision-making as a part of the | in the Sustainability Report. | investors were able to submit questions to be answered | | | • The Board Remuneration Committee (which | • The Board approved the Group’s Modern Slavery and | Colleague Interaction Session. | | by each of the above. | | | reported to the Board on a regular basis) | Human Rights Statement (‘Modern Slavery statement’) | • Received updates on the cost of living crisis | | • The Capital Markets Event held in December 2022 | | | focused on customer outcomes during the | which outlines steps that Phoenix took, in the financial year | and the impact on colleagues, including | | enabled the Board and Executive management team | | | year, allocating 25% of the 2022 Annual | ended 31 December 2021, to ensure slavery and human | establishment of cost of living working group | | to interact with potential and existing investors. | | | Incentive Plan to be aligned with customer | trafficking has not taken place in our supply chain; and sets | and implementation of a number of incentives | | • The Chair has, since the end of 2022 (January 2023), | | | satisfaction metrics (see the Directors’ | out an expectation for suppliers to meet the Group’s | such as free lunches and bonuses. | | undertaken a schedule of meetings with major investors | | | Remuneration Report on pages 110 to 146 for | Supplier Code of Conduct. The Modern Slavery | | | to discuss topical matters of importance to them. | | | more detail). | statement is available on the Company’s website. | | | • Major shareholders were consulted as part of the | | process in developing Directors’ remuneration policy The Board’s role in promoting positive stakeholder relationships The Board held management to account The Board monitors the performance of suppliers to ensure The Board sets the cultural tone from the top and The Board, through the Board Sustainability The Board monitors investor sentiment and feedback As the guardian of the Group, (ensuring robust throughout the year, ensuring due care and Phoenix is able to provide the best customer outcomes to engages with colleagues (both directly and Committee, has monitored management’s throughout the year to ensure Phoenix is able to respond to governance, controls and risk management) the attention was given to customer outcomes and deliver its operational and financial targets. Positive indirectly) which is key to ensuring positive engagement activities with our communities, investor concerns, which is key to the success of the Group. Board is responsible for holding management to needs, especially in the context of data and relationships with suppliers are vital to the success of both relationships. Two-way engagement enables ensuring that Phoenix is able to fulfil its account for day to day compliance with regulation The Board also ensures that the Group’s strategy and platform migration work and projects to grow Phoenix and our suppliers. colleagues to be kept informed of how the Board purpose and colleagues have the opportunity and legislation; ensuring transparent communication purpose are set to ensure the long-term success of the and develop the Group. is driving the Group in the right direction and to participate in charitable giving and of such compliance to maintain trust in Phoenix. business and generation of value for shareholders. enables the Board to stay connected to what’s volunteering within the community. It is the important to colleagues and how the decisions it Board’s role to hold management to account makes impacts their working lives. in maintaining sufficient resources needed to support our communities. Phoenix Group Holdings plc Annual Report and Accounts 2022 85 ### Stakeholder engagement continued ## Key board decisions Strategic priorities key Optimise our Grow our business to support Enhance our operating in-force business both new and existing customers model and culture Example key Board decision Acquisition of Sun Life of Canada UK Link to strategic priorities How the Board reached its decision Consideration of section 172 matters During the year, the Board considered and agreed to acquire the business of SLF of Canada UK Limited (‘Sun Life of Canada UK’). It was agreed that the Risk Committee and the M&A Advisory Committee would have oversight of specific elements of the transaction to support the Board in reaching its decision. The Board identified customers, colleagues, investors, regulators and suppliers as key stakeholders in the decision making process. Discussions of the potential risks and opportunities for each category of stakeholders were considered throughout the acquisition process. During the due diligence process, the Risk Committee and M&A Advisory Committee had oversight of various risks including market risks, counterparty risks, regulatory risks, conduct risks and operational risks with updates provided to the Board on intended mitigation actions being or due to be taken in advance of the final Board decision. Furthermore, supported by appropriate opinions from the Group Risk function, a formal acquisition impact assessment and an assessment of any potential barriers to completion and integration were reviewed. The Board fully considered the Group’s strategic priorities and duty to promote the success of the Company. The Board considered the impact of the decision to acquire Sun Life of Canada UK on customers, existing and future, taking into account Sun Life of Canada UK’s products and the potential to access a larger portfolio of product choices under the Phoenix brand. The Board also considered outcomes for Sun Life of Canada UK employees and reflected on the principles of Consumer Duty. In the wider context of customers and suppliers, the Board sought to understand the viability of integrating operations, outsourcing partners and potential expense synergies whilst maintaining appropriate levels of customer service and customer experience. The Board also considered the long-term interests of shareholders and value creation from smaller M&A transactions with key focus on valuation and financing (including solvency projections). Outcome Announced the Group’s first ever cash-funded acquisition of Sun Life of Canada UK for consideration of £248 million. This transaction, which is expected to complete in April 2023, is expected to deliver c.£0.5 billion of incremental long-term cash generation, including c.£0.1 billion of integration synergies, net of costs. This transaction also benefits from a simplified operational integration programme, due to the majority of policy administration already being undertaken by our strategic outsourcing partner (TCS Diligenta). The significant value we expect to generate from this transaction enabled the Board to recommend a 2.5% inorganic dividend increase this year (as part of the 2022 final dividend) which demonstrates the significant value to shareholders of smaller, cash funded M&A that provides a sustainable dividend that is growing over time. Phoenix Group Holdings plc Annual Report and Accounts 202286 Corporate governance Example key Board decision Payment of 2021 final dividend Link to strategic priorities How the Board reached its decision Consideration of section 172 matters The Board considered the long-term impact of paying the 2021 Final Dividend on the Group’s liquidity and solvency positions by reviewing the outcome of market sensitivities and stress scenarios. The stress scenarios included COVID-19 related uncertainties, associated economic recovery periods, credit downgrades and impact of a one in ten market stress calibrated to the Group’s internal model. The Board also considered reverse stress testing and market volatility associated with the inflationary pressures and impact of the Ukraine-Russia conflict. The Board also considered the impact of the dividend decision on shareholder expectations as it relates to the Group’s dividend policy. In reviewing the appropriateness of the payment or non-payment of the dividend, the Board considered the impact of its decision on the wider economy, the investment case and business model. The Board focused on ensuring a robust review was carried out before making its final decision to ensure the highest standards of business conduct were maintained, as expected by all our stakeholders. Outcome Following due consideration of all the matters set out in section 172 of the Act, the Board determined that the payment of the 2021 Final Dividend was consistent with the Group’s risk appetite having assessed the likely impact on the business and its stakeholders (including in the long term). Phoenix Group Holdings plc Annual Report and Accounts 2022 87 ### Composition, succession and evaluation ## Nomination Committee report ## Q&A ### with the Nomination Committee ### Chair, Alastair Barbour | What were the key highlights of | How has the Nomination Committee | What do you see as the Committee’s | | --- | --- | --- | | the Nomination Committee activity | approached succession planning | key areas of focus in 2023? | | during 2022? | during 2022? | Continued focus on forward-looking | | 2022 has been a year characterised | In 2021, the Nomination Committee | Board succession planning, enhancing | | by further progress and focus on | (‘Committee’) recognised that the skills | talent and succession planning for | | succession planning activities taking | and experience on the Board could be | Executive Directors and senior | | into account the skills, experience and | enhanced in respect of the oversight of | Management and continuing to focus on | | diversity required at Board level. This | our growing Open business, digital and | developing Board skills, capability and | | progress is underpinned by a clear | customer focused businesses and at the | experience in actuarial/life and | | intention to continue to harness the | same time continue to develop diversity | investment in line with strategic priorities | | capability, skills and experience of the | in the broadest sense (skills, experience, | to grow the asset Management business. | | Board as a whole in the spirit of | ethnicity, gender, background and age) | | | continuous improvement. Further steps | to support robust decision making, | How has the Committee considered | | have been taken to enhance diversity in | avoiding ‘group think’ and enabling | Board composition and diversity and | | the broadest sense through the | consideration of different perspectives | inclusion during the year? | | appointment of Maggie Semple. | when taking action to drive forward the | A Board skills review was carried out to | | | Group’s strategic priorities. This process | ensure we have the right breadth of skills | | What were the key considerations | continued into 2022 and when | and capability needed to oversee our | | for the Nomination Committee | appointments were made in the year, | strategic priorities and we have | | during 2022? | feedback on the succession planning | enhanced the quality of the Board and | | The Board was cognisant of the number | activities was sought through the Board | senior Management through hiring | | of changes that were taking place to the | Evaluation exercise conducted in late | individuals that bring additional valued | | membership of the Board during the | 2022. Additionally, the Committee was | attributes such as diversity of experience, | | year, with Nicholas Lyons going on | mindful that a number of Board | skills and perspective. We prioritise this | | sabbatical, Wendy Mayall retiring, myself | members would reach their nine year | in all our engagements with search firms | | taking over as Chair, Karen Green | tenure over the next three years and | and ensure that they, as suppliers of | | assuming the role of the SID, Katie | has taken steps to maintain orderly | services to Phoenix, are aligned with | | Murray becoming the Chair of the Audit | succession where possible by staggering | these aims. In 2022 the focus was on | | Committee and two new directors | Board member retirements. This | enhancing diversity in the broadest | | joining the Board; Maggie Semple and | approach enables the Board to benefit | sense and the Board continues to focus | | Stephanie Bruce. The Board worked | from stability as well as continuing | on improving diversity and inclusion in | | hard to ensure there was a smooth | to ensure the most appropriate balance | the Boardroom and will continually | | handover process with minimum | of skills and experience, diversity in | mandate search firms to produce diverse | | disruption. All Board members have | the broadest sense and remains | and balanced short lists whilst | | adapted to their new roles extremely | forward looking. | recognising at all times that the best | | efficiently with positive feedback. | | candidate for the role will be appointed. | Phoenix Group Holdings plc Annual Report and Accounts 202288 Corporate governance | Members Attendance at | | | | • The appointment of Alastair Barbour as | signatories to the Executive Search Firms’ | | --- | --- | --- | --- | --- | --- | | Committee meetings | | | | Chair for the duration of Nicholas Lyons’ | Voluntary Code of Conduct and neither | | (actual/maximum eligibility) | | | | sabbatical as Lord Mayor of the City of | firm had any other connections with the | | | | 1 | | London from September 2022 to | Company or its directors during the year. | | Alastair Barbour | | | 5/6 | | | | | | 1 | | November 2023. Alastair reached a | | | Nicholas Lyons | | | 4/4 | | | | | 2 | | | tenure of nine years on the Board in | Executive succession planning is | | Karen Green | | | 2/3 | | | | | | | | October 2022 and is therefore not | undertaken by the Committee for | Nicholas Shott 6/6 considered independent. However, his Executive Directors and for ExCo roles Kory Sorenson 6/6 appointment as Chair is considered to ensuring appropriate succession in an 3 | John Pollock | 1/2 | | | | --- | --- | --- | --- | | | | be in line with Provision 19 of the Code | emergency situation with at least one | | 1 Alastair Barbour was appointed Chair of the | | where an extension past the nine year | successor who is ready now or expected to | | Committee on 1 September 2022 and was unable | | period is deemed acceptable for a | be ready in one to two years. The Board | to attend a meeting due to a scheduling conflict. limited time particularly where the Chair also had a deep dive into the broader Nicholas Lyons took up his sabbatical effective 1 is an existing non-executive director. talent, capabilities and broader diversity September 2022. agenda. It remains a particular ongoing 2 Karen Green became a member of the Committee • The appointment of Karen Green as on 5 May 2022 and was unable to attend a meeting area of focus and interest as the Company Senior Independent Director from the in October 2022 due to illness. continues to build its capabilities and 3 John Pollock became a member of the Committee conclusion of our AGM on 5 May 2022. strengthens the succession pipeline. on 1 November 2022 and was unable to attend a • The appointment of Katie Murray meeting due to a pre-existing arrangement. | | as a NED from 1 April 2022 and as a | Board skills | | --- | --- | --- | | | Chair of the Audit Committee from | A Board skills review was undertaken | | | 1 September 2022. | during the second half of 2022 and | | 2022 highlights | | concluded that skills could be expanded | • The appointment of Maggie Semple as further in actuarial/life company • Board and Executive Director a NED from 1 June 2022 and her experience, investment and wider financial succession planning subsequent appointments as Designated services experience. The search for Wendy NED for Workforce Engagement on 1 • Board skills review and renewal Mayall’s successor was based on this July 2022 and as a member of the Risk of terms of appointment criteria. Board skills are separated into core and Sustainability Committees from 1 and secondary skills which can be found • Non-Executive Director September 2022. on page 92. recruitment – actual and planned • The retirement of Wendy Mayall from • Talent, capability, diversity and the Board from 31 December 2022 Board diversity inclusion reviews and associated succession activity. The Board supports and complies with the FTSE Women Leaders Review (formerly • Review of Directors’ time • Support for the appointment of known as the Hampton-Alexander Review) commitments and independence Stephanie Bruce as the nominated guidance for FTSE 350 companies that the representative of abrdn adding Board should be comprised of at least 33% valuable and relevant skills through female directors. As at 10 March 2023, her executive role as CFO of a major the Board is comprised of 50% female financial institution. | Role of the Committee | | directors. In addition, the Board met the | | --- | --- | --- | | The Committee is responsible for | The standard process used by the | recommendations of the Parker Review | | considering the size, composition and | Committee for Board appointments | for FTSE 100 companies that there should | | balance of the Board; the retirement and | involves the use of an external search | be at least one director from an ethnic | | appointment of Directors; succession | consultancy to source external candidates | minority background on the Board by | | planning for the Board and senior | and, in the case of executive appointments, | 2021. As at 10 March 2023, the Board has | | Management, focused on the development | also considers internal candidates. | three Board members of an ethnic minority | | of a diverse succession pipeline; and | Detailed assessments of shortlisted | background representing 25% of the total | | making recommendations to the Board | candidates are undertaken by the search | Board composition. Further information | | on these matters. | consultancy and the Committee ensuring | can be found on page 92. | there is a balanced shortlist from a diversity | Composition of the Committee | perspective, followed by interviews with | The Committee meets the requirements | | --- | --- | --- | | With the exception of the Chair, all of | Committee members and other Directors | set out in the FCA’s Listing Rules (LR | | the members of the Committee are | and obtaining references prior to the | 9.8.6(9)) on diversity, the targets are: | | Independent Non-Executive Directors. | Committee recommending the | | • At least 40% of the board are women appointment to the Board. The Committee | Board succession | requires search firms to ensure that both | • At least one of the senior board positions | | --- | --- | --- | | During 2022, the Committee has remained | long-lists and short-lists are balanced from | (Chair, Chief Executive Officer, Senior | | active in its consideration of Non-Executive | a diversity and inclusion perspective. | Independent Director or Chief Financial | | Director (‘NED’) succession, which | | Officer is a woman | | following further consideration by the | This process was followed for the | | • At least one member of the board is from full Board, has led to: appointment of Katie Murray and Maggie a minority ethnic background Semple and the search firms engaged were Sainty Hird & Partners and Korn The tables are over the page: Ferry, respectively. Both search firms are Phoenix Group Holdings plc Annual Report and Accounts 2022 89 ### Composition, succession and evaluation Gender diversity Number of senior positions on the Number in Percentage Number of Percentage board (CEO, CFO, executive of executive board members of the board SID and Chair) Management Management As at 10 March 2023 Men 6 50% 3 6 55% Women 6 50% 1 5 45% As at 31 December 2022 Men 6 46% 3 7 58% Women 7 54% 1 5 42% Ethnic diversity Number of senior positions on the Number in Percentage Number of Percentage board (CEO, CFO, executive of executive board members of the board SID and Chair) Management Management 1 As at 10 March 2023 White British or other White (including minority-white groups) 9 75% 3 10 91% Mixed/Multiple Ethnic Groups – – – – – Asian/Asian British 2 17% 1 1 9% Black/African/Caribbean/Black British 1 8% – – – Other ethnic group, including Arab – – – – – Not specified/ prefer not to say – – – – – 1 As at 31 December 2022 White British or other White (including minority-white groups) 10 77% 3 11 92% Mixed/Multiple Ethnic Groups – – – – – Asian/Asian British 2 15% 1 1 8% Black/African/Caribbean/Black British 1 8% – – 0% Other ethnic group, including Arab – – – – – Not specified/ prefer not to say – – – – – 1 Based on the ONS classification and included: Asian, Black, Mixed/multiple ethnic groups, Other ethnic groups, White and Prefer not to say. Board diversity policy Board policy Progress The Board’s overriding aim is to appoint the right During the year, Katie Murray and Maggie Semple joined the Board. Both of their experience, Directors to the Board to drive forward the Group’s background and skills are aligned with the Group’s strategy. The Board will endeavour to strategy within a compliant framework. appoint the right candidate for the role and seeks to enhance diversity in the broadest sense at all times. The Board promotes the enhancement of diversity, In line with our succession planning processes, we undertake a formal, rigorous and including gender and ethnicity, as a consideration transparent search process for each appointment, considering the current balance of skills, when recruiting new Directors. experience and diversity amongst our directors. Each appointment is made subject to receipt of the requisite regulatory approvals (where required). The Committee strives to achieve balanced recruitment longlists demonstrating diversity in the broader sense, including gender, ethnicity and other diversity attributes and will challenge search firms to ensure this aim is achieved. The Board intends to comply on a continual basis As at 10 March 2023: with the FTSE Women Leaders Review that the • 6 female directors representing 50% of Board composition. Board should be comprised of at least 33% female • 3 minority ethnic directors representing 25% of Board composition. directors and with the guidance of the Parker Review for FTSE 100 companies that there should be at least one director of a minority ethnic group on the Board. The Board will undertake regular skills audits to The Board skills review has been carried out during 2022 and concluded that enhancing the ensure the Board’s skills remain appropriate for its skills in the following areas, actuarial/life company, investment and wider financial services strategy and providing diversity where possible. experience would be valuable going forward. Phoenix Group Holdings plc Annual Report and Accounts 202290 Corporate governance | The Committee has been active in | Each Director is required to spend at least | is considered to be open, constructive and | | --- | --- | --- | | promoting gender and ethnic diversity on | an additional day each month reviewing | respectful. The 2022 review concluded that | | the Board and continues to take an active | information provided by the Company. In | the Board and its Committees operated and | | role in oversight and guidance of the | addition, a two day strategy session is held | were chaired effectively and the balance of | | executive diversity and inclusion process | and there are regular briefings for the | material discussed at the Committee level | | including a focus on the development of a | Board Committees. On this basis, the | was appropriate. | | diverse succession pipeline. Details of the | estimated time commitment of each Board | | | diversity and inclusion initiatives for | member is approximately 40 days each | In line with the recommendations from the | | Phoenix colleagues (including the | year (who serves on more than one | 2021 review, the Board continued to focus | | executives) are contained in the Group’s | committee). This basic time commitment | and make progress on the strategy and | | Sustainability Report. The Group’s senior | can be significantly increased on account | appropriate time was allocated to | | Management gender diversity data | of transaction or other activity. | understanding and review of key areas of | | (including statutory requirements) is | | business during the Board’s strategy | | contained in the Strategic Report | Board evaluation | meeting in June 2022 as well as having | | on page 44. | An evaluation of the performance of the | regular strategic matters presented to the | | | Board and its Committees and individual | Board during the course of the year. | | Board independence | Directors was carried out in the latter part | Information provided to the Board has | | With the exception of the Chair and | of 2022. The process, which was led by | improved with a new Board paper template | | shareholder appointee directors, all NEDs | the Chair with the support of the Group | introduced, clearer executive summaries | | are considered independent in character | Company Secretary, involved completion | and signposting whether papers are for | | and judgement. The independence criteria | by Directors of a questionnaire covering | information, discussion or approval and | | set out in the Code were taken into | all aspects of Board and Committee | short written summaries of Committee | | account as part of the selection process for | operations and Director effectiveness, | activities provided by the respective Chairs. | | the NEDs who joined Phoenix during the | education and training followed by | | | year, Katie Murray and Maggie Semple | individual meetings with each Director. | Committee Effectiveness | | were considered to be independent. | The findings were discussed by the Board | The Committee effectiveness was | | Stephanie Bruce was not considered to | in November 2022. The focus of the review | undertaken as part of the Board Evaluation | | be independent in her capacity as a | was on ways for the Board to manage | process and concluded that it operates | | shareholder nominated director. Over | its time effectively, drive strategy and | effectively and performs strongly. All | | half of our Board members, excluding | monitor performance. | duties set out in the Committee’s Terms of | | the Chair, are independent NEDs. The | | Reference were addressed during the year. | | independence of NEDs is reviewed and | The review concluded that the Board is | The areas of enhancement for the | | confirmed annually by the Committee. | cohesive, well-balanced and operates as a | Committee for 2023 are focused on | | | team. Management value the nature of | continuing to strengthen the talent and | | Time commitment | challenge and support from the Board which | succession planning for the Board, | | All Directors are expected to commit | | Executive Directors and the Executive | | sufficient time tothe Board, and the | | Committee and ongoing improvement | | Company, as is necessary to carry out their | | of information to the Committee. | ### Board evaluation – duties as a Director. Time commitments for ### directors are reviewed by the Committee areas of development Assessment of the Chair’s Performance on a regular basis including: prior to Led by the SID, two assessments were ### for 2023 | recommendation for appointment to | | conducted to reflect the transition | | --- | --- | --- | | the Board, on changes in role (joining | • Strategic Topics – further deep dives | between Nicholas Lyons and Alastair | | additional committees or taking on further | into the Open Business, including the | Barbour for the respective periods served | | responsibility) and prior to approving | existing European business’ strategy. | as Chair during 2022. A questionnaire was | | external appointments. | • Education/Training – determination of | circulated to the Board and followed by a | | | the topics to be included in 2023 and | Board meeting to assess performance | | The Company Secretary maintains a | ensure compliance/regular required | without the Chair present. Following the | | register of Directors’ commitments which | matters are covered in the most | meeting, feedback was provided by the | | is regularly reviewed by the Committee. | efficient manner. | SID to Nicholas Lyons and Alastair Barbour. | | As part of the Board evaluation process, | • Colleague Engagement – to enhance | The Board consider Nicholas Lyons to | | theBoard, supported by the Committee | colleague engagement for Directors | be a high performing Chair who has made | | considered each individual Director’s | working with the Designated NED for | a significant impact on the Management | | attendance, contribution and external | Workforce Engagement. | of Phoenix. Directors believe Alastair | | appointments, and has concluded that the | | Barbour has transitioned very effectively | • Talent and Succession Planning – | time given by individual Directors during | closer focus as the Group continues to | into the role of Chair. | | --- | --- | --- | | 2022 exceeded the level expected in their | build its capabilities and strengthens | | | appointment terms. It is expected that on | the succession pipeline. | | average, each of the eight scheduled • Board Information – ongoing Board meetings is likely to require two days Alastair Barbour improvement in the quality and | of participation (including Committee | content of information to the Board | Chair | | --- | --- | --- | | meetings, education sessions, travel | building on the progress made | | | and Board dinners) and at least a day | in 2022. | | of preparation time. Phoenix Group Holdings plc Annual Report and Accounts 2022 91 ### Composition, succession and evaluation continued ## Board diversity Overall diversity progress ### The composition of the FTSE Women Leaders ### Board ensures a diverse 33%Target target – female board Achieved 50% representation ### mix of backgrounds, skills, FCA Listing Rules 40%Target ### knowledge and expertise to target – female board Achieved 50% representation ### enhance decision-making; Minority ethnic ### reduce the risk of ‘group- background Achieved ### think’; and support robust Female Chair, Target ### Management of risk. CEO, CFO or SID Achieved 1 Board gender balance Board ethnicity Board tenure | Female 50% | White (English) 50% | Directors of colour 25% | Less than 1 year 25% | | --- | --- | --- | --- | | Male 50% | White (Scottish) 17% | Directors of non-colour 75% | 1–3 years 25% | | | Asian (Indian) 9% | | 3–6 years 34% | 1 As at 10 March 2023, 50% Asian (Japanese) 8% 6–9 years 8% Female Board Black (Caribbean) 8% 9 years or more 8% representation which exceeds recommendations White (Other) 8% of FTSE Women Leaders and new FCA Listing Rules Board Skills and Expertise Average age of the Board The Board skills and expertise below shows a high level of skills in the expected categories and a wide breadth of skills across the Board. The assessment of Board skills and areas of expertise feeds into its succession planning and the ongoing recruitment of Non-Executive Directors, with action being taken to address areas highlighted for strengthening. ## 59 8 6 4 2 0 12 | | | | Financial | Change | | | IT/Digital | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 10 | Regulatory | | | | | & solutions | | Marketing | | | | Experience | | | Operations | | | | Life assurance | | Capital Markets | FTSE 100 Board | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Risk management | | | | | Customer service | Human resources | | | | | | Asset management | Sustainability / ESG | | | Sales / Distribution | Mergers & Acquisitions Core Skills Secondary Skills Phoenix Group Holdings plc Annual Report and Accounts 202292 Target Corporate governance ## Board induction The Chair is responsible for leading the development of, and monitoring the effective implementation of, training policies and procedures for the Directors. On appointment, each Director receives a formal and tailored induction. In addition, there is a programme of ongoing education ### Katie Murray Maggie Semple, OBE and deep dives for Directors. Joined the Board on 1 April 2022 Joined the Board on 1 June 2022 The Directors are committed to their own Board responsibilities: • Designated NED for Workforce ongoing professional development and • Chair of the Audit Committee Engagement the Chair discusses training with each • Member of Risk Committee NED at least annually. The Group “My onboarding experience at • Member of Sustainability Committee Company Secretary supports the Chair Phoenix was well-structured in the oversight of the induction and and has been characterised “The induction programme at development plans for the NEDs. by meetings with relevant Phoenix has been exemplary. stakeholders and absorbing I have been impressed by the All NEDs are encouraged to suggest relevant information to help me quality of the information and training topics of interest. understand Board and Group level of preparation by my new operations, risks and opportunities colleagues in advance of the All directors are able to access a Board and key areas of focus. meetings. Each person had read portal where additional resources are available. my CV and encouraged me to The schedule of meetings with contact them after the meeting senior Management and other key for follow up discussions. Each internal stakeholders was well- meeting left me with a strong managed. In addition during my sense of support and eagerness first year of joining the Board, I to succeed in my new role. was appointed as Chair of the Audit Committee and I am grateful The impact of these meetings to Alastair Barbour for the smooth has enabled me to accelerate handover of responsibilities. ” my understanding of the business, key stakeholders, risks and opportunities. In my first year at Phoenix and in my role as Designated NED for Workforce Engagement, I continue to develop my knowledge of the business and in my interactions with colleagues, the theme of living Phoenix values is regularly demonstrated.” Typical induction programme features Meetings Site tours and meetings with Management Key documents • Chair • London • Board operations, minutes and meeting packs, • Group Company Secretary • Edinburgh framework, policies, delegations of authority, • Group Head of Internal Audit • Birmingham conduct/regulatory responsibilities • Head of M&A and Corporate Development • Telford • Financial, strategic and operation plans and priorities • Group treasurer • Directors’ & officers’ liability insurance summary • Other members of the ExCo, as appropriate • Other documents as appropriate in relation to the • External stakeholders which may include level of Board or Board Committee responsibilities Group auditor, brokers, major shareholders or remuneration consultants. Phoenix Group Holdings plc Annual Report and Accounts 2022 93 ### Composition, succession and evaluation continued ## Board development Each year, through its annual performance review, the Board ensures a continuous improvement cycle and clear focus on personal and collective development through a formal programme of education/ deep-dive sessions. The following education/deep dive sessions were provided for the Board during 2022. Board Committees may have specific educational or deep dive session which are relevant to the work of each Committee. ## Q2Q1 | Customer migration programmes | Colleague insight & engagement | Cyber & data security | Sustainable supply chain & operations | | --- | --- | --- | --- | | Programme structure; migration sequencing; new | The Group’s strategy and approach to colleague | Bi-annual update of most significant threats, | ESG supply chain strategy, its evolution and standards; | | business enhancements, financial metrics; and | engagement; dashboard functionality; scoring; | enhancements to controls implemented in 2022 | operational climate and environmental strategy; | | programme costs. | employee engagement and engagement drivers; | and intended key areas of focus in 2023. | operational carbon emissions; supply chain emissions; | | | benchmarking; key areas of future focus. | | and the Science Based Target initiative. | | Phoenix Asset Management | | Third Party Risk Management | | | | Strategy | | Consumer Duty Programme | | Portfolio overview; asset Management strategy; | | Supply chain overview; Phoenix’s supplier | | | overview of credit risk governance and oversight; | Various matters considered within the context of the | Management model; life cycle and risk Management; | Background of the new consumer duty and FCA | | sustainable investments; and shareholder assets | two-day strategy off-site including Digital and fintech | Management reporting and escalation; supplier | proposals; gap analysis including recommendations | | and direct investments. | landscape and Sustainability: decarbonisation and | classification and segmentation. | and observations; strategic issues; next steps and top | | | engaging people in better financial futures. | | priorities for the programme. | | Cyber & data security | | Solvency II Reforms | | ### Internal Model | Bi-annual update of most significant threats, | Key objectives of PRA and HMT consultations and key | | | --- | --- | --- | | enhancements to controls implemented in 2022 | messages underpinning response from Phoenix, BPA | Building on previous Board education sessions | | and intended key areas of focus in 2023. | pricing impacts, balance sheet impacts and next steps. | and the approach used to calculate Solvency | Capital Requirements and demonstrate effective risk Management and decision making. ### Committee deep dives and education sessions ### Sustainability Committee: Sustainability Committee: Sustainability Committee: Sustainability Committee: • Diversity and inclusion strategy • Social and economic impact of increased • Financial inclusion • Culture & values • Stewardship code and proxy voting policy longevity for UK society • SBTi targets ### Audit Committee: ### Audit Committee: Audit Committee: • IFRS 17 transition balance sheet | • IFRS 17 Methodology | • Solvency II regime reforms | | | --- | --- | --- | | • IFRS 17 Impact assessment | | Remuneration Committee: | | | Risk Committee: | • Investor and proxy guidelines and | | Remuneration Committee: | | remuneration principles | • Solvency II regime reforms • Remuneration policy review ### Remuneration Committee: • Directors’ remuneration policy • Wider remuneration review of remuneration structure and practices Phoenix Group Holdings plc Annual Report and Accounts 202294 Corporate governance ## Q3 Q4 | Customer migration programmes | Colleague insight & engagement | Cyber & data security | Sustainable supply chain & operations | | --- | --- | --- | --- | | Programme structure; migration sequencing; new | The Group’s strategy and approach to colleague | Bi-annual update of most significant threats, | ESG supply chain strategy, its evolution and standards; | | business enhancements, financial metrics; and | engagement; dashboard functionality; scoring; | enhancements to controls implemented in 2022 | operational climate and environmental strategy; | | programme costs. | employee engagement and engagement drivers; | and intended key areas of focus in 2023. | operational carbon emissions; supply chain emissions; | | | benchmarking; key areas of future focus. | | and the Science Based Target initiative. | | Phoenix Asset Management | | Third Party Risk Management | | | | Strategy | | Consumer Duty Programme | | Portfolio overview; asset Management strategy; | | Supply chain overview; Phoenix’s supplier | | | overview of credit risk governance and oversight; | Various matters considered within the context of the | Management model; life cycle and risk Management; | Background of the new consumer duty and FCA | | sustainable investments; and shareholder assets | two-day strategy off-site including Digital and fintech | Management reporting and escalation; supplier | proposals; gap analysis including recommendations | | and direct investments. | landscape and Sustainability: decarbonisation and | classification and segmentation. | and observations; strategic issues; next steps and top | | | engaging people in better financial futures. | | priorities for the programme. | | Cyber & data security | | Solvency II Reforms | | ### Internal Model | Bi-annual update of most significant threats, | Key objectives of PRA and HMT consultations and key | | | --- | --- | --- | | enhancements to controls implemented in 2022 | messages underpinning response from Phoenix, BPA | Building on previous Board education sessions | | and intended key areas of focus in 2023. | pricing impacts, balance sheet impacts and next steps. | and the approach used to calculate Solvency | Capital Requirements and demonstrate effective risk Management and decision making. ### Committee deep dives and education sessions ### Sustainability Committee: Sustainability Committee: Sustainability Committee: Sustainability Committee: • Diversity and inclusion strategy • Social and economic impact of increased • Financial inclusion • Culture & values • Stewardship code and proxy voting policy longevity for UK society • SBTi targets ### Audit Committee: ### Audit Committee: Audit Committee: • IFRS 17 transition balance sheet | • IFRS 17 Methodology | • Solvency II regime reforms | | | --- | --- | --- | | • IFRS 17 Impact assessment | | Remuneration Committee: | | | Risk Committee: | • Investor and proxy guidelines and | | Remuneration Committee: | | remuneration principles | • Solvency II regime reforms • Remuneration policy review ### Remuneration Committee: • Directors’ remuneration policy • Wider remuneration review of remuneration structure and practices Phoenix Group Holdings plc Annual Report and Accounts 2022 95 ### Audit, risk and internal controls ## Audit Committee report Role of the Committee To assist the Board by establishing, reviewing and monitoring the Group’s ## Q&A financial reporting, internal controls framework, internal audit framework and ### with the Audit Committee Chair, changes in regulatory requirements. The Committee’s terms of reference set ### Katie Murray out the responsibilities and duties of the Committee, which are reviewed and approved annually, are available on the How did you navigate the What challenges has the Committee Phoenix Group website. handover process? faced during 2022? I was appointed on 1 April 2022 to the The volatile economic environment has Members attendance at Committee Board and on 1 September as Chair of produced a variety of challenges for meetings (actual/maximum eligibility) the Audit Committee (‘Committee’). I Group, and the Committee has played a 1 Alastair Barbour 7/7 would like to thank the Board for their key role in ensuring that the impact on 2 Katie Murray 3/4 support and Alastair Barbour for such the Group’s financial results and internal 3 Karen Green 8/9 a smooth transition and handover control environment has been carefully 4 John Pollock 9/9 allowing me to assume the role of Chair monitored and managed. The year has Nicholas Shott 9/9 of the Committee. also seen the further growth of the Group and with an increased number of 1 Alastair Barbour stepped down as Chair of the | What were the key activities of the | initiatives being undertaken in support | Committee on 1 September 2022 on his | | --- | --- | --- | | Committee during 2022? | of the Group’s Strategy, clear oversight | appointment as Chair of the Board | | Financial reporting continues to be a | of the Risk Management Framework has | 2 Katie Murray joined the Board on 1 April 2022 and | became Chair of the Committee on 1 September. key focus alongside ensuring that the been required, especially when Katie was unable to attend a meeting due to internal control environment remains considering the prioritisation of pre-existing travel commitments arranged prior robust as the Group delivers its strategic resources across the various projects. to joining Phoenix. agenda whilst navigating volatile 3 Karen Green was unable to attend a meeting due to illness. economic conditions. Through our What do you see as the Committee’s 4 John Pollock is Chair of the Risk Committee and calendar of scheduled meetings we key areas of focus in 2023? member of the Committee | actively engage with Management and | To ensure the implementation of IFRS 17 | | --- | --- | | the risk and internal audit functions to | reporting processes and a safe landing | | ensure that the Group’s financial results | of the first Group results under the new | | and accompanying disclosures are | standard. The Committee will also | | accurate, fair, balanced and | consider the reporting and control | ### 2022 highlights | understandable. Underpinning this, the | implications of the inclusion of the | | | --- | --- | --- | | Committee has continued to monitor | acquired Sun Life of Canada UK | • Recommended approval | | the control environment through | business for the first time within the | of the Company’s 2022 Annual | | regular reporting of the Internal Control | Group financial results, and will | Report and 2022 Interim | | Self Assessment which provides an | continue to monitor the impacts of | Financial Statements. | | important level of assurance. The | anticipated developments in the | | • Approval of audit plans (external Committee is responsible for regimes for financial reporting, and internal for 2022) | monitoring the impacts of new | corporate governance and audit. | | | --- | --- | --- | | governance and financial reporting | | • Monitored the progress of the | | requirements for the Group, which | | IFRS 17 implementation | during 2022 included oversight of the • Continued oversight on implementation of the new accounting government reforms relating to standard IFRS 17, updates on the reform Solvency II and Department for of Solvency II rules and the Department Business & Trade for Business & Trade proposals on changes to the audit regime and • Reviewed and monitored corporate transparency. the effectiveness and independence of the Company’s External Auditors. • Reviewed the adequacy of the control environment in light of economic volatility Phoenix Group Holdings plc Annual Report and Accounts 202296 Corporate governance Committee composition Examples of collaborative governance: The Board confirms that all members of Audit, Risk & Sustainability Committees (February 2022) Audit & Risk Committees (April 2022) the Committee are Independent Non- Executive Directors and have been • Year end 2021 reporting, including proposed • SFCR approval (including Risk 2021 final dividend, going concern and Disclosures in Solvency II Pillar III appointed to the Committee based on investor presentation Reporting) their individual finance and commercial • Sustainability related reporting and disclosures, • Interim year reporting and experience. The Board is satisfied that including, TCFD update/Climate report and interim dividend Katie Murray, as Chair of the Committee Sustainability report • IFRS17 education sessions has recent and relevant financial experience to chair this Committee through her current Chief Financial | Officer role at Natwest plc and career | These events have had a significant impact | • Receiving regular updates on the | | --- | --- | --- | | experience. The Committee, as a whole, | on the financial markets which in turn has | implementation of IFRS 17 and | | has financial and commercial competence | implications for the Group’s financial | reviewing key judgements and | | relevant to the insurance sector in which | position and operating environment. As a | accounting policy decisions. | | the Group operates. Further information | result, one of the key areas of focus of the | | • Monitoring the change activities within on the skills, expertise and experience of Committee has been to ensure that careful the Finance and Actuarial function to the Committee members can be found monitoring and oversight of the financials ensure that the resource framework on pages 74 to 76. of the Group has occurred and the control aligns with the strategic direction environment has continued to work of the Group. | Committee meetings | effectively. The support of the Risk and | | | --- | --- | --- | | The Committee met nine times during | Internal Audit functions as well as the | • Oversight of activities of subsidiary audit | | 2022. Meetings are attended by the Chair | independent review by the External | committees through a review of minutes, | | of the Risk Committee (who is also a | Auditors has provided the Committee with | discussions between the Chairs of | | member of the Committee), the Group | further assurance as to the integrity of the | the Committee and subsidiary audit | | Chief Financial Officer, the Group | Company’s financial reporting and the | committees, and the Committee | | Financial Controller, the Group Head of | soundness of its internal controls. | Chair’s attendance at the Phoenix Life | | Internal Audit, the external auditors and | | Companies Board Audit Committee on | | usually also by the Group Board Chair and | The following were the key areas of focus | an occasional basis, as well as all Phoenix | | Group Chief Executive Officer. The | for the Audit Committee during 2022 and | Life Companies Board Audit Committee | | Committee holds private meetings at least | to the date of this report: | papers. This oversight has been | | annually with each of the Group Chief | | enhanced further through the | • Receiving and reviewing the Group’s Financial Officer, the Group Head of attendance at the Committee’s external financial reporting, and Internal Audit and the External Auditors. meetings, at least annually, by the recommending their approval to The Committee acts independently of Chair of the Phoenix Life Companies the Board. | Management, and engages closely with | | Board Audit Committee. | | --- | --- | --- | | both the Group Risk Committee and the | • Received and reviewed the Group’s | | | Phoenix Life Companies Board Audit | sustainability and climate reporting. | External reporting and controls | | Committee to ensure there is a good | | Throughout 2022 and up to the date of this | • Monitoring the overall integrity of understanding of the work undertaken by report, the Committee has carried out the financial reporting by the Company and each and enable efficient communication following activities in relation to the its subsidiaries and the effectiveness of between the committees. Group’s external reporting and the the Group’s internal controls. effectiveness of its internal controls: During the year, the Committee has also • Provision of advice to the Board to • Reviewed the Company’s 2021 and met jointly with the Risk Committee and/or enable the Board to report on whether 2022 Annual Report and Accounts, Sustainability Committees to consider and the Annual Report and Accounts, taken 2022 Interim Financial Statements, and recommend certain matters to the Board. as a whole, are fair, balanced and related disclosures recommending their This collaborative form of governance has understandable and provide the approval to the Board, supported by enabled greater agility and effectiveness information necessary for shareholders reports from Management and the around decision making across different to assess the Group’s position, External Auditors. committees. Examples of the collaborative performance, business model and integrated approach to governance is and strategy. • Reviewed the Group’s annual Solvency II shown in the table at the top of the page. results and the Solvency and Financial • Making recommendations to the Board Condition Report, recommending their on the appointment of the External Activities during 2022 approval by the Board. Auditors and their terms of engagement 2022 has seen a number of challenges for including approval of External Auditor • Reviewed a number of significant the Group, reflective of the volatile fees and non-audit services and for matters in relation to the Group’s IFRS economic and inflationary backdrop, as reviewing the performance, and Solvency II reporting as summarised well as the ongoing impact of the Russia/ objectivity and independence of in the table on page 101. These matters Ukraine conflict. the External Auditors. were considered by the Committee to be areas subject to the most significant • Considering and approving the remit of levels of judgement or estimation, and the Internal Audit function and identified with regard to the key audit reviewing its effectiveness. Phoenix Group Holdings plc Annual Report and Accounts 2022 97 ### Audit, risk and control continued | matters assessed by the Group’s | • Reviewed and approved updates to the | Assessment of the effectiveness of | | --- | --- | --- | | External Auditors as set out in their audit | Group Tax strategy, Group External | the external audit process | | opinion on pages 156 to 167. They were | Auditor policy and the Group Liquidity | Overall, the Committee has concluded | | assessed by the Committee in | & Funding policy. | that EY have carried out their audit | | conjunction with the External Auditors | | for 2022 effectively. Effectiveness of | | and on the basis of initial review by | Committee effectiveness | the external audit process has been | | the Phoenix Life Companies Board | In 2022, the Committee carried out an | considered throughout the year | | Audit Committee. | internal effectiveness review whereby | by the Committee and included | | | aside from the members of the Committee, | the following activities: | • Reviewed the financial forecasts and members of Management and regular target setting prepared by Management, • a review of the detailed audit plan attendees were also requested to provide supported by the sensitivity analysis on and consideration of its coverage feedback. From the review it was the key assumptions underpinning the and approach to identified risks; concluded that overall the Committee forecasts and the impacts of IFRS 17, in works effectively and focuses on the right • an assessment of the quality of support of the assumption that the issues. In addition, the transition of the interactions between the Audit Group will continue as a going concern, Committee Chair from Alastair Barbour to team and the Committee, including the Group’s ongoing viability and in Katie Murray during the year had been a the provision of technical and support of dividend payments. smooth process and the operation of the industry knowledge; • Reviewed Line 1 risk and controls reports Committee remains constructive. Further • consideration of the level of insight from Management, Line 2 internal information of the Board evaluation can provided by the audit findings in the key control assessments from Group Risk, be found on page 91. areas of judgment, including quality of and Line 3 internal control environment benchmarking with regard to valuation opinions from Internal Audit and External Auditor assumptions and supporting analysis, considered the appropriateness of A key part of the role of the Audit and the ability of the audit team to consequential proposed actions. Committee is the review and oversight of demonstrate that they had applied the work of the Group’s External Auditor. • Reviewed reports from Internal Audit on professional scepticism in their dealings EY LLP (‘EY’) is the Group’s External the control environment in the Group’s with Management; Auditor. The External Auditor partner outsource service providers and on the attended all Committee meetings during • a comprehensive assessment and review effectiveness of the Internal Audit work 2022 and to the date of this report, of the External Auditor where feedback undertaken within the outsourced presenting reports on the external audit was received from Management, service providers, noting that this process, a hot-topics survey and Phoenix Life Companies Directors as was addressed in more detail by assessments on methodology and actuarial well as members of the Committee; the Phoenix Life Companies Board assumptions. The External Auditor Audit Committee. • meeting privately with EY to discuss provided details on benchmarking with in depth their approach to quality • Received dedicated briefings on matters regard to assumptions setting as well as assurance and internal assurance including Business Readiness, Life challenging and providing guidance processes across the audit firm that Finance Change, Taskforce on Climate- on reporting matters and disclosure ensure the quality of the audit service; related Financial Disclosures reporting requirements. Where necessary and BPA Annuity Buy-Out. the External Auditor challenged • consideration of the findings of external Management’s view on certain evaluations of EY, notably the findings • Through regular briefings during assumptions and reporting requirements from the Financial Reporting Council’s scheduled meetings and a series of which were reported to and discussed Audit Quality Inspection Report; and additional education sessions, the with the Committee. Committee has overseen the progress • consideration of the findings of EY’s of the IFRS 17 implementation project ‘Transparency and Report and The Committee reviewed and discussed and the preparedness for first time Audit Quality Report’ which various reports from the External Auditor reporting in 2023. outlines their governance and risk throughout 2022, including the 2022 Management practices. • Reviewed a number of policy, Audit Plan, progress reports against methodology and assumption related that plan, and a report on their audit Independence of the External Auditor matters pertinent to the implementation procedures on the 2022 annual IFRS and The External Auditor’s independence of IFRS 17, including judgments with Solvency II results, and their interim review was reviewed and monitored against the regard to the approach to transition and of the half year 2022 IFRS results. The Group’s External Auditor policy, including the application of the different Committee considered throughout 2022 their provision of non-audit services. measurement models within IFRS 17 and for the 2022 audit, the effectiveness, This included an assessment of their to the Group’s insurance contracts. engagement and remuneration of the independence and a review of services current External Auditors. | • Considered and approved the | provided by EY during the 2021 and 2022 | | --- | --- | | disclosures on IFRS 17 in Note A.5 of the | financial years. The Committee is | | IFRS financial statements as appropriate | satisfied that EY are fully independent | | to be included in the 2022 Annual | from Management and free from | | report and accounts. | conflicts of interest. | Phoenix Group Holdings plc Annual Report and Accounts 202298 Corporate governance | Statement of compliance – audit partner | Auditor’s independence and External | | | | In 2022, total fees of £17.9 million were | | --- | --- | --- | --- | --- | --- | | rotation and tender of external audit | Auditor policy | | | | paid to EY. Of this amount £15.5 million | | The Group’s External Auditor policy also | The Company has an External Auditor | | | | related to statutory audit fees of the | | governs the policy regarding audit partner | policy which requires the Company and | | | | parent and its subsidiaries, with a further | | rotation with the expectation that the audit | the external auditors to take measures to | | | | £1.8 million incurred in relation to services | | partner will rotate at least every 5 years. | safeguard the objectivity and | | | | provided pursuant to legal or regulatory | | EY have served as auditor to the Company | independence of the External Auditors. | | | | requirements. | | since December 2018. | These measures are in respect of specific | | | | | | | areas, such as secondments to | | | | The remaining fees of £0.6 million relate to | | Under the Audit Ethical Standards, signing | Management positions, or those which | | | | other services including review of the | | audit partners for public interest entities | could create a conflict or perceived | | | | Group’s interim report, sustainability report | | should retain the role for up to five years. In | conflict. During the year, the Committee | | | | and provision of assurance services over | | order to safeguard the quality of the audit, | has continued to monitor matters which | | | | the internal controls relevant to financial | | in light of the Group’s extensive change | could impair the objectivity and | | | | reporting operating within certain of the | | programme, the Committee requested a | independence of the external audit and is | | | | Group’s outsourced services providers. | | tenure extension for Stuart Wilson as a | satisfied that there are no circumstances | | | | This gives rise to a non-audit to audit fee | | result of reaching his fifth year of tenure | that could affect the independence or | | | | ratio under the EU Directive and | | associated with the Group following | objectivity of the auditors. | | | | Regulations of 4% for the 2022 year, and | | completion of the 2021 audit. For two of | | | | | 6% based on a three year average audit | | those years Stuart Wilson acted as audit | External Auditor fees | | | | fee. This lies well within the limits | | partner for Phoenix Life Limited, with the | The engagement of EY to perform any | | | | prescribed in the Group’s policy. | | remainder as lead audit partner for the | non-audit service is subject to a process of | | | | | | Phoenix Group. Such an extension is | pre-approval by the Committee to | | | | In light of the above, the Committee | | permissible under the Audit Ethical | safeguard the auditor’s objectivity and | | | | is satisfied that the non-audit services | | Standards for a maximum of two additional | independence. Furthermore, the Group’s | | | | performed during 2022 have not | | years. EY confirmed that Stuart Wilson is | External Auditor policy prescribes a limit | | | | impaired the independence of EY in | | able to continue as lead audit engagement | for fees associated with non-audit services | | | | its role as External Auditor. | | partner for the 2022 financial period | of 70% of the average statutory audit fee | | | | | | which was approved by shareholders | for the three preceding years in line with | | | | Internal audit | | at the 2022 AGM. In view of the Group’s | statutory requirements. | | | | During 2022, the Committee continued to | | extensive change programme and the | | | | | receive regular updates from the Head of | | | | 2022 | 2021 | 2020 | | | forthcoming acquisition of Sun Life of | | | | | Internal Audit on all Internal Audit-related | | | | £m | £m | £m | | | Canada UK, a request for a further | | | | | matters. This included the annual update | Non-audit fees – – 0.5 extension to allow Stuart Wilson to of the Group Internal Audit Charter and Audit fees 15.5 11.6 11.7 continue as lead audit partner for the the Group Internal Audit Plan, both of Audit related fees 2.4 2.3 2.3 | Group for the 2023 audit has been made | | which were approved as well as | | --- | --- | --- | | and confirmed by EY. We note that 2023 | Total 17.9 13.9 14.5 | developments in the use of data analytical | | will be the last year of EY’s appointment as | Ratio of non- | techniques to support and enhance | audit:audit fees 4% 6% 9% Group auditors. EY have confirmed their Internal Audit’s operations. The Committee willingness to continue in office for 2023 Rolling 3 year received regular reports to monitor average audit fee 6% 8% 17% and shareholders’ approval will be sought progress against the plan and are satisfied at the AGM on 4 May 2023. that the internal audit function has adequate resources to deliver the in-year | As announced, the Committee concluded | plan. The Committee also reviewed the | | --- | --- | | an audit tender process in 2021 resulting in | Internal Audit control environment opinion | | KPMP LLP being appointed as the Group’s | which included Internal Audit’s view of the | | External Auditors commencing for the | Risk Management Framework across the | | financial period starting 1 January 2024. | Group at both the half year and full year | | A transition process will be undertaken in | end in 2022. | 2023 including regular review meetings with Management, EY, Internal Audit and Committee members, prior to their formal appointment at the AGM in 2024. The Committee confirms that it has complied with the provision of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use Of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the year ended 31 December 2022. Phoenix Group Holdings plc Annual Report and Accounts 2022 99 ### Audit, risk and control continued | Internal controls | During 2022 there were a total of 18 | IFRS 17 implementation | | --- | --- | --- | | The Committee, alongside the Risk | notifications reported to the Speak-Up | During 2022, Management provided the | | Committee, is responsible for supporting | Office of which five were triaged as | Committee with regular updates regarding | | the Board in ensuring a robust system of | “whistleblows”, 11 notifications related to | its progress with the implementation of | | internal control and risk Management is in | people policy matters and two customer | IFRS 17 and its impact on the financial | | place. In supporting this framework, the | complaints were notified using the system. | statements in relation to insurance | | Committee receives regular reports on the | Of the five Speak Up matters, one remains | contracts, that came into effect from 1 | | status of the control environment and | currently open and under investigation. | January 2023. The Committee has held | | updates on the Management of the risks | For the others, no material wrongdoing or | sessions dedicated to IFRS 17, where there | | and controls across the Group’s Risk | control failures were found, however | has been discussion of the judgements in | | Management Framework. The Committee | on-going oversight/monitoring has | methodology, the financial impacts and | | considers bi-annual control reports from | been put in place. | the controls around the transformation | | Lines 1 and Line 2 (Risk) as well as the | | programme. Transition to IFRS 17 will | | annual Line 3 (Internal Audit) internal | Climate change | continue to receive continuous attention | | control environment opinion. These | Sustainability is a significant area of focus | from the Committee through 2023. This | | reports provide assessments of the design | for the Group. The Committee has a key | will include oversight of the control | | and operation of the control environment | oversight role of climate-related reporting | environment as it relates to the transfer of | | across the Group’s risk universe. | including TCFD and other sustainability | IFRS 17 into a business as usual production | | | disclosures. Regular updates are received | environment, and also relating to the | | The Committee throughout 2022 | from our Sustainability team on target | continuing transformation activities as the | | reviewed the internal control environment | setting and disclosure requirements. The | Group looks to further streamline and | | regularly and challenged Management to | Committee works with other committees to | automate its reporting under the new | | ensure clear rectification plans were | ensure our reporting is aligned with | standard. | | incorporated where there were any | strategy and regulatory requirements. | | | weaknesses or failings reported. In 2022, | There will be continued focus on ESG in | Department for Business & Trade | | this included a focus on the Group’s | 2023 with regular updates being provided | The Committee continues to receive | | control environment with regard to the | on the Group’s Net Zero Transition Plan | updates from Management in relation to | | hedging of interest rate risks. In light of the | and approach to the implementation of | the ongoing government proposals | | extent of the economic volatility | TNFD as well as updates on regulatory | regarding the Department for Business & | | experienced in the period, the Committee | disclosures. | Trade reforms on Corporate Governance | | considered Management’s findings and | | and Audit. Management continue to | | proposed enhancements that will ensure | FRC review | monitor FRC announcements and maintain | | the control environment in this regard | During the year, the Company received a | dialogue with external advisers. An internal | | appropriately reflects the complexity of | letter from the FRC’s Corporate Reporting | cross-functional working group has been | | the Group’s operations and the macro- | Review team requesting information in | established to prepare for the changes | | economic outlook. The Committee will | relation to their review of the 2021 financial | once published by the FRC. | | continue to monitor closely the internal | statements. The request was for provision | | | control framework throughout 2023 to | of quantitative details of the significant | Audit Committee Standard consultation | | ensure it is appropriate as the Company | unobservable inputs used to measure the | Management continue to monitor FRC | | continues to deliver on its strategic aims. | fair value of assets held at level 3 in the fair | announcements and the Group issued a | | | value hierarchy. The FRC Review team was | supportive response in February to the | | Whistleblowing | satisfied with the response from the | consultation on a minimum standard for | | Bi-annually, the Committee receives formal | Company and the proposed | Audit Committees, the requirements of | | updates from the Group’s General | enhancements to disclosures which have | which we were already substantively | | Counsel on whistleblowing activities and | been reflected in the 2022 IFRS financial | complying with. | | the operation of our processes to enable | statements. The scope of the review by the | | | confidential reporting. If necessary, | FRC was limited to reviewing the 2021 | Katie Murray | | involvement in the assessment and | Annual Report to consider compliance | Chair of the Audit Committee | | resolution of individual matters raised in | with reporting requirements and does not | | | accordance with our established policy. | provide assurance that the report and | | | Whistleblowing arrangements within the | accounts are correct in all material | | | Group as well as any whistleblowing | respects. Letters are written on the basis | | | activity where an employee raised | that the FRC (which includes the FRC’s | | | concerns, in confidence, about any | officers, employees and agents) accept no | | | possible improprieties. | liability on them by the Group or any third | | party, including but not limited to investors and shareholders. Phoenix Group Holdings plc Annual Report and Accounts 2022100 Corporate governance Significant matters considered by the Committee in relation to the financial statements Significant matters in How these issues were addressed relation to the 2022 IFRS financial statements Review of the IFRS and Management presented papers to the Phoenix Life Companies Board Audit Committees detailing recommendations for Solvency II actuarial the actuarial assumptions and methodologies to be used for the interim and year end reporting periods with justification valuation process, to and benchmarking as appropriate. This included assumptions related to longevity, mortality, expenses, persistency and include the setting of policyholder behaviour, as well as economic assumptions. These assumptions and methodologies were debated and actuarial assumptions challenged by the Phoenix Life Companies Board Audit Committees, prior to their approval, including consideration and methodologies, of the impacts of continued economic volatility, expense inflation and the COVID-19 pandemic. and the robustness of actuarial data A summary of these papers was presented for oversight review by the Committee, and the Life Companies Board Audit Committees’ conclusions were reported to the Committee through minutes of its meeting and a discussion between the Chairs of the committees. The Committee discussed, and questioned Management and EY on, the content of the summary papers and the Phoenix Life Companies Board Audit Committee’s conclusions. The Committee considered and debated the basis of valuation for adjustments to actuarial provisions that arise at a consolidated Group level. This included consideraton of the results of a detailed review of the Group’s maintenance expense assumptions in light of the increased investment in the Group’s growth strategy and strategic transformation initiatives. Pension assumptions for use in the IAS 19 Employee Benefits valuations were reviewed and approved by the Committee. The Committee received and considered detailed written and verbal reporting from the External Auditors setting out their observations and conclusions in respect of the assumptions, methodologies and actuarial models including benchmarking analysis. Valuation of Management presented papers setting out the basis of valuation of financial assets, including changes in methodology complex and illiquid and assumptions, for the interim and year-end reporting periods to the Phoenix Life Companies Board Audit Committees. financial assets The assumptions, valuations and processes, particularly for financial assets determined by valuation techniques using significant non-observable inputs (Level 3), were debated and challenged by the Phoenix Life Companies Board Audit Committee prior to being approved. This included a review of judgements made in respect of data and inputs driving the valuation of equity release mortgages, assumptions utilised in the valuation of modelled debt securities such as bond spreads, and the impacts of continued economic uncertainty. The valuation information was then presented for oversight review by the Committee who considered and further challenged the information prior to confirmation of the appropriateness of the basis of valuation. Valuation and Management presented papers detailing the results of annual impairment testing carried out in respect of goodwill recoverability of balances and reviews for indicators of impairment performed in respect of finite life intangibles. This included intangible assets assessing the potential impact of the risk of climate change. The Committee considered the results of the work performed and confirmed the appropriateness of the conclusions reached. Provisions Management presented papers detailing the basis of recognition and measurement of accounting provisions recognised by the Group. The Committee considered the results of the analysis performed, the uncertainties surrounding measurement adopted and confirmed the appropriateness of the conclusions reached. Adjusted The Committee reviewed the allocation of key items to adjusted operating profit to ensure the allocations were in line with operating profit the Group’s adjusted operating profit framework and consistent with previous practice. The Committee also considered the treatment upon consolidation of the buy in transactions between one of the Group’s Life companies and its staff pension schemes and the impact this has had on the IFRS loss for the period. The Committee confirmed the approach to disclosure to explain the resultant movements in the IFRS financial statements and accompanying commentary. Climate risk The Committee considered a paper from Management as to the consideration of the effects of climate-related matters on the financial statements and the resultant disclosures. Assessment of The Committee considered and confirmed agreement with the analysis of the processes and conclusions in support of whether the Annual Management’s conclusions that the Annual Report and Accounts are fair, balanced and understandable. As part of the Report and Accounts year-end procedures, the Committee discussed with Management and EY the review processes that operated over are fair, balanced and the production of the Annual Report and Accounts. understandable Going concern and The Committee reviewed information on the capital and liquidity position of the Group, together with a review of the viability analysis associated risks and supporting stress and scenario testing. This was part of a comprehensive assessment undertaken prior to the Committee recommending to the Board that the Group financial statements should be prepared on a going concern basis and that the disclosures with regard to the long-term viability of the Group were sufficient and appropriate. Phoenix Group Holdings plc Annual Report and Accounts 2022 101 ### Audit, risk and control continued ## Risk Committee report ## Q&A ### with the Risk Committee Chair, ### John Pollock | What were the key highlights of the | How has the Committee approached | How has the Committee monitored the | | --- | --- | --- | | Risk Committee activity during 2022? | the Group’s risk appetite monitoring | Group’s Operational Resilience during | | The Risk Committee (‘Committee’) has | during 2022? | the year? | | continued to focus on the key risks | The Group’s risk appetite framework | We receive regular updates from the | | impacting operational resilience and the | comprises of six risk appetite statements | Group Chief Risk Officer (‘CRO’) and | | control environment, including oversight | that are adopted by the Group. The | the Chief Operating Officer in respect | | of capital and liquidity Management | Committee receives and regularly | of the Group’s operational resilience. | | in light of market volatility in 2022. | reviews the consolidated risk report | The Group’s scenario and stress testing | | Oversight and review of strategic | which provides a view of the overall | programme is regularly reviewed by | | and emerging risks has also been | principal risks, risk environment, | the Committee to also help identify | | important to ensure that the Group | risk profile and assessment against | operational resilience vulnerabilities | | meets it strategic priorities whilst | the risk appetite. | and drive improvement where | | ensuring delivery of appropriate | | weaknesses are found. Our Group’s | | customer outcomes. | What do you see as the Committee’s | Recovery and Resolution Plan was | | | key areas of focus in 2023? | considered by the Committee during | | What challenges has the Committee | The Committee will continue to focus on | the year and adds a further layer to | | faced during 2022? | the application of the Risk Management | the robustness of the framework. | | 2022 has been a challenging year for the | Framework, taking into account the | | | Group with the economy, customers and | strategic direction and priorities for the | Read more on Our Risk Management | | colleagues all being impacted by the | Group throughout 2023 as well as the | Framework on pages 52 to 55 | | Ukraine-Russian conflict, the impact of | changing economic environment | of the Strategic Report | | inflation and the Cost of Living crisis and | resulting from the macro economic | | | the economic turbulence in autumn | impact from the Ukraine-Russian conflict. | Read more on Principal risks & | | 2022. The Committee has continued to | In addition, the Committee will continue | uncertainties on pages 56 to 67 | | monitor our Risk Management | to monitor the impacts and associated | of the Strategic Report | | Framework ensuring that it remains | risks arising from the regulatory | | | robust and where necessary enhanced | landscape, including oversight of risks | | | to ensure that the Group’s evolving | associated with the implementation of | | | business operating model provides | IFRS 17,climate change and sustainability, | | | support and delivers for our new and | with a particular focus on consideration | | | existing customers. The Group’s | of emerging risks. | | sustainability initiatives (including climate change) and associated customer and conduct risks have remained high on the agenda. Remote working and the Cost of Living crisis have been key features of the operating model this year and emphasis has been placed on colleagues’ well-being and ensuring that the risk culture remains strong and embedded in managing internal risk and internal controls. There will be continued focus by the Committee on ensuring these key challenges are monitored going forward into 2023. Phoenix Group Holdings plc Annual Report and Accounts 2022102 Corporate governance Members attendance at The role of the Committee Other regular attendees to the Committee Risk Committee meetings The role of the Committee is to advise include the Group Chief Actuary, Group (actual/maximum eligibility) the Board on risk appetite and tolerance Chief Financial Officer, the Chief Attendance in setting the future strategy, taking Executives of the Phoenix Life Companies, (actual/ account of the Board’s overall degree of the General Counsel and the Group Head maximum risk aversion, the current financial situation of Internal Audit. Members eligibility) of the Group and the Group’s capacity John Pollock (Chair) 9/9 to manage and control risks within the The evaluation of the performance of the 1,3 Alastair Barbour 7/7 agreed strategy. It advises the Board on Committee during 2022 was an internally 1 Belinda Richards 7/9 all high-level risk matters. facilitated review. The conclusions 1 Kory Sorenson 8/9 demonstrate that the Committee continues 2 Maggie Semple 2/2 Committee meetings to operate effectively, has the appropriate 4 Wendy Mayall 9/9 The Committee met formally nine times in skills set and structure with good 2022 and an additional four meetings were interaction between Group and the 1 Belinda Richards was unable to attend two held. The Committee is comprised of four Phoenix Life Companies Board Risk meetings of the Risk Committee due to a scheduling conflict and delayed travel. Kory Independent NEDs. Committee. Further information on the Sorenson was unable to attend a meeting due internal review can be found on page 91. to a scheduling conflict. The majority of the Committee’s meetings 2 Maggie Semple became a member of the were attended by the Chair of the Audit Risk Committee’s principal activities Committee on 1 September 2022. | 3 Alastair Barbour stepped down as a member of | Committee which allows the review of | during 2022 | | --- | --- | --- | | the Committee on 1 September 2022 on assuming | internal control effectiveness to be | In addition to the key activities discussed | | the role of Board Chair. | managed through collaborative working | in 2022, the Committee also: | 4 Wendy Mayall retired from the Board on and oversight. 31 December 2022. • Considered and recommended Terms of Reference for the Committee. A set of ‘Operating Principles’ are in place to define the responsibilities and • Reviewed Conflicts of Interest registers. accountabilities of the Risk Committees • Reviewed and approved the of Phoenix Group and its subsidiary principal risks disclosures in the company boards to mitigate overlap of 2021 Annual report. focus or assurance activity and reviewed on annual basis to ensure that they • Considered and recommended the ### 2022 highlights remain appropriate. scenario analysis and risk Management • Monitored the Group’s risk content of the TCFD report. appetite. The Chair of the Phoenix Life Companies • Reviewed the risks associated with the Board Risk Committees and Model • Reviewed the Group’s annual acquisition of Sun Life of Canada UK Governance Committee is a regular ORSA report. in light of due diligence findings, attendee to the Committee’s meetings and acquisition impact assessments and the • Reviewed and approved the Risk provides members with regular updates report on the acquisition from the CRO. Management strategy. on the risk matters pertinent to relevant subsidiaries and the matters being dealt • Received updates on status • Considered and discussed the with at the Model Governance Committee. of regulatory relationships. implications of the Ukraine/Russia The Chair of the Phoenix Life Companies conflict and associated risks. • Reviewed adherence to the Group Risk Board Investment Committee, also Management Framework (‘RMF’) and • Oversight of liquidity and capital periodically attends the Committee considered the appropriateness of the Management in the context of meetings to provide key updates, which Group’s overall risk appetite statements. significant market volatility. helps to facilitate discussions relating to investment risk. • Reviewed and approved changes to • Reviewed the 2022 Group Annual the Liquidity and Funding Policy. Operating Plan, considering the The CRO has full access to the Chair and extent to which it supports the • Received a number of updates which the Committee and attends all Committee delivery of Group strategy. covered cyber risk, phishing, financial meetings. The Committee receives risks arising from climate change, • Considered enhancements arising frequent reporting from the CRO and customer and conduct risk, and from an external review to further Group risk function on consolidated risk emerging risks and opportunities that strengthen the Internal Control matters affecting Phoenix including risk could impact the Group. Framework, including controls in profile assessments and emerging risks. respect of liquidity Management • Approved the Group market risk and hedging. appetite limits, taking into account the affordability of the market risk inherent in the 2022 Annual Operating Plan. Phoenix Group Holdings plc Annual Report and Accounts 2022 103 ### Audit, risk and control continued • Considered the Group’s risk appetite • Discussed and approved the process and approved the updated capital risk and governance related to acquisition appetite framework. strategy for smaller M&A activity. • Monitored compliance with, and • Reviewed and discussed the approved the updates to the Group’s performance across Change, Delivery, principal risk policies, satisfying itself Schedule Management and Operational that action plans to address policy Capacity for the Group. breaches were sufficient. Review of system of internal controls • Reviewed the Group’s risk profile, The Board has overall responsibility for monitoring it against the risk categories the Group’s risk Management and internal of Market, Insurance, Credit, Financial control systems and for reviewing their Soundness, Customer and Operational effectiveness in accordance with the with particular attention to risk appetite, Code. The Group’s systems of internal risk trends, risk concentrations, controls are designed to manage rather provisions, experience against budget than eliminate the risk of failure to achieve and key performance indicators for risk business objectives and can provide only as well as contingency planning. reasonable and not absolute assurance • Reviewed and discussed the operation against material misstatement or loss. of the RMF and approved the updated The Board (and its subsidiary companies’ RMF Policy. Details of the RMF, for boards) monitor internal controls on which the Committee has oversight, a continual basis, in particular through are provided in the Risk Management the Audit and Risk Committees. section of the Strategic Report on pages 52 to 55. There is an ongoing process for identifying, evaluating and managing the • Considered risks, issues and matters that significant risks faced by the Group, which are escalated from the Phoenix Life has been in place throughout the period Companies Board Risk Committee. covered by this report and up to the date | • Reviewed reverse stress-testing analysis | of approval of the Annual Report and | | --- | --- | | results, completed and provided | Accounts for 2022, in accordance with the | | oversight of, and challenge to, the | ‘Guidance on Risk Management, Internal | | design and execution of the Group’s | Control and Related Financial and | | stress and scenario testing, including | Business Reporting’ published by the FRC. | | any changes of assumptions. | The assessment for 2022 was presented to | the Board, following review by both Group • Informed the Remuneration Committee Audit and Risk Committees. Where any regarding the Management of the significant weaknesses were identified, Group’s material risks to support their corrective actions have been taken, or are consideration of executives’ Annual being taken and monitored by both the Incentive Plan awards. business and the Committees accordingly. • Monitored and received regular updates on the status of the current relationship John Pollock with the regulators including PRA, FCA, Chair of the Risk Committee TPR and Central Bank of Ireland. • Monitored the risk culture within the Group, including the results of the Group Audit Annual Risk Culture Assessment across four categories; people and purpose, governance, customers and leadership. Phoenix Group Holdings plc Annual Report and Accounts 2022104 Corporate governance ### Sustainability governance ## Sustainability Committee report Members attendance at Committee meetings (actual/maximum eligibility) ## Q&A 1 Karen Green (Chair) 5/6 2 Maggie Semple 2/2 ### with the Sustainability Committee Nicholas Shott 6/6 ### Chair, Karen Green Kory Sorenson 6/6 3 Mike Tumilty 3/3 4 Wendy Mayall 6/6 What were the key highlights of the How have Committee members 1 Karen Green was unable to attend a meeting due to Sustainability Committee’s activity increased their knowledge illness, this meeting was chaired by Nicholas Shott during 2022? and expertise of sustainability 2 Maggie Semple joined the Committee on Phoenix has set a clear strategic related matters? 1 September 2022 3 Mike Tumilty retired from the Board on ambition to be a leader in sustainability. In addition to regular briefings from 30 June 2022. As such, the Sustainability Committee the Chief Sustainability Officer, Group 4 Wendy Mayall retired from the Board on | (the ‘Committee’) has continued to | HR Director and Director of Corporate | 31 December 2022 | | | --- | --- | --- | --- | | focus on the development of its | Affairs and Investor Relations, the | | | | sustainability strategy including setting | Committee has held a number of | | | | progressive sustainability KPIs. The | deep dives and external perspective | | | | benchmarking and materiality review | sessions to enable Committee members | 2022 highlights | | | carried out in the year enables the | to deepen their understanding of | • Review and recommendation of the | | | Committee to remain focussed on | sustainability related matters. Topics | | Group’s 2022 sustainability strategy. | | prioritising Environmental, Social and | covered during the year by external | • Approval of the Group’s 2022 | | | Governance (‘ESG’) themes over the | speakers included: building | | Sustainability KPIs. | | next few years as well as building a view | engagement and awareness around | | | • Approval of the Group’s Science Based of progress by peers and in the wider sustainable focussed pension (Make Targets Initiative (‘SBTi’) targets. financial services sector in sustainability My Money Matter), stewardship • Review of the Group’s people strategy matters. The Committee has continued (Hermes EOS) and financial inclusion and monitoring of the Group’s culture to monitor and challenge the (Toynbee Hall). through regular people and culture Management dashboards. development of the Group’s Net Zero Transition Plan which it intends to What do you see as the Committee’s • Consideration of feedback from the PRA on Phoenix’s submission for the Climate publish in 2023. key areas of focus in 2023? Biennial Exploratory Scenarios (‘CBES’) and The Committee will continue to focus review of the Group’s round 2 submission How has the Committee approached on driving the Group’s ambition to be (jointly with the Board Risk Committee). monitoring the Group’s culture a leader in sustainability and ensuring • Oversight of the pilot implementation of during 2022? tangible, measurable progress against mid-life MOT, a new initiative intended to Phoenix has a clear people vision, to the Group’s sustainability strategy. help colleagues aged 45 and over to plan make Phoenix the best place colleagues The Committee will remain focussed for their futures, and consideration of the impact on the Group’s culture. have ever worked. In order to ensure on monitoring the development and tangible and measurable progress in this progress of the Groups’ Net Zero • Review and recommendation of he Group’s 2021 Modern Slavery and Human area, the Committee receives regular Transition plan ahead of final Rights Statement. updates from the Group HR Director publication and ensuring oversight of on the Group’s people strategy and progress with TNFD. The Committee • Education and external perspectives sessions undertaken, covering topics the progress of key initiatives including; will also continue to monitor of stewardship, financial inclusion, diversity and inclusion strategy, developments in sustainability and culture, SBTi target setting and the leadership capability, reward, ways of emerging practice, and provide Group’s Net Zero Transition Plan. working and colleague engagement. oversight of regulatory compliance • Deep dive sessions covering: the | The Committee also received regular | and actions being taken to enhance | Group’s D&I Strategy, the strategy and | | --- | --- | --- | | briefings on engagement scores and | the Group’s contribution to a more | activities of Phoenix Insights (see pages 24 | | | sustainable world. | to 25), the Group’s approach to Stewardship | updates on our core people and culture and Financial Inclusion. metrics. These insights were further supplemented by regular updates from • Review of the Committee’s effectiveness and terms of reference. the Designated Non-Executive Director for Workforce Engagement enabling • Updates from the Group’s Designated Non-Executive for Workforce Engagement the Committee as a whole to understand to support two-way engagement between the views of colleagues and impact of colleagues and the Board. engagement activities. Phoenix Group Holdings plc Annual Report and Accounts 2022 105 ### Sustainability governance continued Role of the Committee Key Committee activities Impact/Outcome The Committee, which met six times during Engaging people in better financial futures 2022, is responsible for assisting the Board in overseeing the Group’s sustainability Financial Inclusion Deep Dive Enhanced understanding of the Group’s strategy and related activity, and approach session, considering the ambitions commitment to deliver a financial inclusion to ESG matters. The Committee met jointly of the Group against external strategy during 2022 and to launch a targeted with the Risk Committee to discuss research undertaken and pilot for women aged 40 to 55, as an Phoenix’s CBES submission and themes from thought leadership underserved customer cohort. proposed response. on this topic. The Committee’s duties include: Approval of the Group’s financial Short-term and longer-term goals were set inclusion strategy, as part of the including areas such as: (i) ensuring the Group’s • ensuring the appropriateness of the wider sustainability strategy. colleague offering was comprehensive, (ii) Group’s sustainability strategy. leveraging and scaling customer initiatives | • supporting the Board and Board Audit | across the Group and (iii) launching targeted | | --- | --- | | and Risk Committees in respect of the | initiatives for mid-career women aged 40 to 55 | | Group’s sustainability related reporting | as an underserved customer cohort. | (including TCFD reporting). | | Approval of customer related | Strong results were delivered against the 2022 | | --- | --- | --- | | • reviewing and challenging activities | targets and KPIs for 2022. | targets (see the Group’s Sustainability Report | | carried out within the Group to | | for more detail). | monitor alignment with the Investing in a sustainable future sustainability strategy, ensuring the embedding thereof. Approval of responsible Management were encouraged to set investment related targets and KPIs stretching targets to enable the Group to • keeping sustainability best practice for 2022 and monitoring of progress its responsible investment objectives and market insights under review. progress against these and delivered strong results against those • assisting the Board with its oversight commitments during the year. targets (see the Group’s Sustainability of the Group’s culture and values. Report for more detail). Stewardship Deep Dive session, Increased understanding of Management The Committee’s terms of reference are covering the Group’s vision, actions with respect to the Group’s strategy, available on the Company’s website and current commitments and approach, and governance on stewardship. are reviewed annually. assessment of its strategic asset managers. The Committee is comprised of four Independent NEDs of the Board, selected External presentation on and to ensure cross-Board Committee focused discussion of Stewardship. membership to facilitate engagement on sustainability matters across the Group’s Review and consideration of the Improved clarity on the approach towards and governance framework. This is further Group’s Net Zero Transition Plan. timeline for developing the Net Zero Transition- supported by attendance of a nominated Plan and delivery of Phoenix’s ambitious climate NED of the Phoenix Life Companies Board targets. as a standing attendee. Review and approval of SBTi targets have been set for Phoenix across SBTi targets. investments, operations and supply chain. Other standing attendees of the Committee include the CEO, Group HR Building a leading responsible business Director, Director of Corporate Affairs and Investing in our people and culture Investor Relations and the Chief Sustainability Officer. During the year, the Consideration of the Group’s Enhanced understanding of the Group’s Chair of the Board regularly attended ‘people vision’ (‘to make Phoenix ‘people vision’ and the importance of diversity, Committee meetings. the best place any of us have ever equality, and inclusion in achieving this vision. worked’), taking into account that The Committee’s activities during 2022 diversity, equality and inclusion covered all elements of the Group’s were key to realising this vision. sustainability strategy which is grouped into three areas of focus: Investing in a sustainable future. Engaging people in better financial futures and Building a leading responsible business. An overview of the Committee’s activities is set out on the following page(s): Phoenix Group Holdings plc Annual Report and Accounts 2022106 Corporate governance Committee effectiveness Key Committee activities Impact/Outcome During the year, the effectiveness of the Consideration of colleague Understanding of colleagues’ perspectives in Committee was considered as part of the engagement and culture relation to topics such as ‘mental well-being’, annual Board evaluation. Overall, it was Management information. ‘flexible working’, ‘diversity and inclusion’ and concluded that the Committee was support offered by the business, and insights operating effectively. Members of the into the tone of the Group’s culture from the Committee agreed that the meetings ground up. are constructive with all members demonstrating a high level of engagement Monitoring/oversight of pilot Pilot launch and implementation of mid-life in the topics throughout the year. The implementation of mid-life MOT, MOT, helping colleagues aged 45 and over to agenda remains well balanced with a new colleague initiative intended plan for their futures and encouraging them to appropriate information and insight and to help colleagues aged 45 and make decisions to achieve a life of possibilities the rolling schedule of education on over to plan for their futures, for themselves. sustainability related matters and external and consideration of the impact perspective sessions remains highly valued on the culture. by the Committee to increase and broaden | Received reports from the | A key element of the two-way engagement | their knowledge of emerging best practice | | --- | --- | --- | | Designated NED for Workforce | process between the Board and colleagues | and topics. It was agreed that further time | | Engagement and attendance at | enabling colleagues to express areas of | be added for free form discussion. Further | | the PCRF. | concern and positives directly to members of | information on the Board evaluation | | | the Group Board. Further information on the | activity can be found on page 91. | role and activities of the Designated NED for Workforce Engagement is on pages 108 to 109. Climate change In addition to the above, the Committee Approval of people related targets Management delivered strong results against received regular reports, including and KPIs for 2022. the 2022 targets (see the Group’s Sustainability updates from the Chief Sustainability Report for more detail). Officer, relating to the Group’s compliance Reducing our environmental impact with climate change regulation and other emerging climate change related topics. Approval of environment targets Management delivered strong results against This included continued progress made and KPIs. the 2022 targets (see the Group’s Sustainability on activities aligned to the TCFD Report for more detail). recommendations within the Group and Decarbonisation targets under the Increased understanding of Science Based a review of the Group’s CBES submission SBTi Process education. Targets and SBTi, progress monitoring content in collaboration with the Board mechanisms; and consequences of not Risk Committee. The Board Risk meeting the targets. Committee has monitored the Group’s compliance with the PRA’s supervisory Working responsibly with Suppliers statement SS3/19, supplementing the | Review of the Group’s Modern | Approval of the Group’s statement by | Committee’s oversight of climate change | | --- | --- | --- | | Slavery and Human | the Board, published in August 2022 on | related activities undertaken by the Group. | | Rights Statement for the year | the Phoenix website. | The PRA’s CBES activity resulted in | | ended 31 December 2021, | | enhanced Committee awareness and | | recommended for approval | | understanding of climate change risks and | | by the Board. | | opportunities, and a clearer view of the | impact that different climate change Approval of supplier targets Delivery of strong results against the 2022 scenarios might have on Phoenix, enabling and KPIs. targets (see the Group’s Sustainability Report the development of strategies and actions for more detail). to address the risk of climate change. | Review of the outcomes of the risk | Direct engagement with suppliers who were | The Committee has played a vital role | | --- | --- | --- | | assessment to identify suppliers | deemed to be high risk for modern slavery | in developing the strategic ambition of | | deemed to be high risk for | to mitigate such risks, together with action | the Group’s Net Zero Transition Plan which | | modern slavery. | plans being put in place for relevant | is expected to be published in 2023. | service providers. The Committee is committed to ensuring Supporting our Communities the success of the Group’s sustainability | Approval of community related | Management delivered strong results against | strategy which plays a key role in the | | --- | --- | --- | | targets and KPIs. | the 2022 targets (see the Group’s Sustainability | fulfilment of the Group’s purpose to help | | | Report for more detail). | people secure a life of possibilities. The | strategy has been developed to align with the Group’s enterprise strategy, our values and culture. Karen Green Chair of the Sustainability Committee Phoenix Group Holdings plc Annual Report and Accounts 2022 107 ### Workforce engagement ## Engagement in action ## – listening to the ## colleague voice ### Engagement with colleagues is integral to our ### strategy and vision to be the best company that ### colleagues have ever worked for. Our colleagues ### are what enable Phoenix to grow and succeed, ### and through regular two-way dialogue, the ### Board seeks to understand the issues that ### matter most to our colleagues. ### Supporting colleagues Through the monthly colleague “I was delighted to get the 2022 has been another year where engagement survey, the Executive Team ### chance to meet Maggie to external factors have created challenges and the Board are able to gain insight ### hear more about her role | for businesses and for their teams. The | direct from colleagues into the moments | | | --- | --- | --- | | aftermath of the COVID-19 pandemic | that matter. This insight has enabled us | and what she hoped to do for | | together with the wider economic | to proactively engage with colleagues | | ### colleagues. She spent time backdrop and rising rates of inflation and create actions to support our ### listening to our experiences | have exacerbated challenges that | colleagues across the business. | | | --- | --- | --- | | colleagues are facing. | | and exploring ways she can | | | How the Board has engaged with | help Phoenix to innovate | | Throughout 2022 we have continued to | colleagues and supported them | | ### and ensure it remains a support our colleagues through these throughout 2022 ### great place to work. I was difficult periods. Central to this has been The Board sets the cultural tone for ### a wide-ranging support package to help the organisation and seeks to engage impressed by how open the ### colleagues navigate the cost of living with colleagues, both directly and conversation was and her challenges, which included giving all indirectly, throughout the year. The Board ### willingness and excitement colleagues, except our most senior staff, recognises that colleagues are central ### to meet with colleagues on | a net £1,000 payment in August, free | to the achievement of our strategic | | | --- | --- | --- | | personalised financial coaching and | priorities and the Group’s ability to | a regular basis.” | | planning, assistance with cost of parking | provide customers and wider stakeholders | | Alannah Couper, at work, and assistance with cost of lunch with the best outcomes possible. Sustainability Manager at work. This was in addition to the robust well-being support that is available. I joined as the Designated NED for Workforce Engagement on 1 July 2022, | Listening to and understanding colleagues | taking over the role from Karen Green. | | --- | --- | | A strategic priority has been to create a | I would like to thank Karen for the seamless | | single Phoenix purpose-led culture that | handover and support. Between Karen | | colleagues feel connected to. The creation | and myself we carried out a programme | | of a new visual identity for Phoenix, and | of virtual and in-person visits and sessions | | alignment of our customer brands within | across the business in 2022. | this, has helped to enhance the sense of | belonging for colleagues. Further to this, | One of our key points of connection with | | --- | --- | | focus has continued on improving the | colleagues has been in meeting with the | | day-to-day colleague experience through | Phoenix Colleague Representation Forum | | our Diversity, Equity and Inclusion strategy, | (‘PCRF’) on a quarterly basis. This is an | | developed using a data-led approach | autonomous forum made up of colleague | | following the roll out of our ‘Who We Are’ | representatives from each of our functions. | | app in 2021. | Our partnership with the PCRF enables | us to have direct, honest and open discussions about strategic topics and how they impact colleagues. Phoenix Group Holdings plc Annual Report and Accounts 2022108 Corporate governance ### After the quarterly meetings, the PCRF “The PCRF work with Maggie, and formerly Karen, representatives share a summary of ### to share the colleague voice with the Board, giving the meeting and topics discussed ### regular updates of how colleagues feel about the topics with colleagues within their regular ### PCRF newsletter. that affect their working lives at Phoenix. Meeting at ### regular points throughout the year keeps the colleague In addition to regularly meeting with the ### voice relevant and in line with strategic change and PCRF, we have taken the opportunity ### to invite wider colleagues to informal evolution. Colleagues feel heard by the Board and ### meetings to enable them to share what is that their collective views feed into discussions on their mind in the moment. Often similar ### about their working environment” themes come up through both channels of engagement, and I am encouraged that PCRF colleagues feel that they can be honest in these discussions. The following key themes were discussed ### “The People and Culture agenda is of great importance with colleagues throughout the year: ### to the Phoenix Board, and a topic that I regularly speak • Pace and volume of change: reflecting ### with them on. We have a vision to make Phoenix the a combination of large-scale change ### best place any of our colleagues have ever worked, projects within the overall change ### agenda, and the evolution of the underpinned by four culture ambitions that make ### Group Operating Model. Phoenix ‘our place’ – a place in which everyone dreams ### • Ways of Working: embedding our hybrid to be, a place in which everyone belongs, and where they ### working model to get the best out of can be authentic and happy, a place in which everyone people and protect our customers. ### leads, and a place in which everyone helps to create. • Diversity, Equity & Inclusion: The steps ### we are taking to enable everyone to Our partnership this year with Karen Green and now ### be their authentic selves at work. Maggie Semple meant we have had a true two-way ### • Cost of living: supporting colleagues feedback cycle that benefits our colleagues and Phoenix. ### through challenging periods. Karen and Maggie have had regular dialogue with ### • Sustainability agenda: sharing aims colleagues across Phoenix, across all levels, departments to make Phoenix a responsible ### and locations, and have shared insights on the Board’s employer and committed to ### activities at these sessions. Alongside this, our a sustainability agenda. ### continuous listening approach to colleague engagement ### In my role as the Designated NED for means we can understand the areas of focus for our Workforce Engagement I share regular ### colleagues and respond to the moments that matter feedback from my sessions to the Board, ### through the Executive Committee. which provides additional perspective and insights on colleagues. ### The regular interaction which our colleagues have ### Continuing to develop two-way had with Karen and Maggie throughout 2022 have ### communication enables colleagues been open, honest and transparent. This really speaks to be kept informed of how the Board ### to the culture that our Board are interested and is engaged in overseeing the development ### responsive to the challenges our colleagues may and execution of the Group’s strategy ### and enables the Board to stay connected be facing, and that our colleagues know that they are ### to what is important to our colleagues and in a safe environment to know that they will be heard the impact of Board decisions. ### if they speak up. Maggie Semple ### Maggie has joined us from outside of the Financial Designated NEDfor Workforce ### Services sector, and brings a different perspective to Engagement ### discussions. Her vast experience in matters relating ### to People, and her unique outlook in this area, will set ### her up for great success in fulfilling the Designated ### Workforce Non-Executive Director role.” Sara Thompson, Group HR Director Phoenix Group Holdings plc Annual Report and Accounts 2022 109 ### Directors’ remuneration report ## Directors’ ## remuneration report ### Remuneration Committee Chair ### Kory Sorenson | Members | At the recent Capital Markets Day, Phoenix | Based on its assessment of the corporate | | --- | --- | --- | | Kory Sorenson (Chair) | outlined our strategy to deliver sustainable | metrics, the Committee determined that | | Karen Green | organic growth, through both meeting | the Annual Incentive Plan (‘AIP’) outcome | | Belinda Richards | more of the evolving needs of our existing | should be 87.7% of the maximum | | Nicholas Shott | customers and by acquiring new | opportunity. With regard to the | | | customers. The Group set its first ever | achievements under the Strategic | | Key Committee activities in 2022 | organic growth target of c.£1.5 billion | Scorecard which represents 20% of the | | • Triennial review of Directors’ | of incremental new business long-term | Executive Directors’ AIP, the Committee | | Remuneration Policy | cash generation by 2025, which is a 25% | determined outcomes should be 83.0% | | • Incentive outcomes for the 2022 AIP | increase on the strong performance | for Andy Briggs and 74.0% for Rakesh | | and 2020 LTIP | in 2022. | Thakrar. This results in total awards of | 86.8% and 85.0% respectively of the • Executive Director and Executive Wider workforce and actions to address maximum bonus opportunity in line with Committee salary decisions for 2023 the cost of living the overall assessment. Further details are • Metrics for 2023 variable pay schemes As the UK’s largest long-term savings and set out on pages 129 to 130. to align with our/the Group’s evolving retirement business, Phoenix is driven by business strategy its core social purpose of helping people The 2020 Long-Term Incentive Plan (‘LTIP’) • Oversight of wider employee secure a life of possibilities as demonstrated award covering the years 2020–2022 was remuneration review and cost by our support for our customers and based on Net Operating Cash Receipts, of living support colleagues impacted by the current Return on Shareholder Value, Persistency, macro-economic circumstances. In and Relative TSR. The overall vesting Dear Shareholder, particular, the Committee supported the outcome is 44.3% of the maximum On behalf of the Board and its decision to make a £1,000 net payment to opportunity. Further details are set out Remuneration Committee (‘Committee’), all permanent colleagues (excluding the on page 131. I am pleased to present the Directors’ Top 100 leaders) in August 2022, and since Remuneration Report for the year ended September 2022, to provide free lunches As reported in the FY 2020 Directors’ 31 December 2022. and parking to all UK colleagues on a Remuneration Report, the Committee temporary basis to support them through reviewed the grant price of the 2020 LTIP Summary of the year the current cost of living challenges. The (620.5p) compared to the grant price of Phoenix has again performed very strongly average salary increase for employees in the 2019 LTIP (700.4p) and was satisfied in 2022, as it executed against its strategic the next pay round will be 6%, to reflect that no adjustments were required to the priorities and delivered on its financial the emphasis of supporting the wider awards on grant for windfall gains. The framework of cash, resilience and growth. workforce in the cost of living crisis. Committee has again reviewed the The Group delivered £1.5 billion of cash position ahead of the vesting, taking into generation, exceeding our 2022 target Executive remuneration account the Phoenix share price as at range of £1.3 to £1.4 billion. Our Solvency II outcomes for 2022 28 February 2023 (633.69p) and is balance sheet remains resilient with a £4.4 The incentive outcomes for 2022 reflect satisfied that no windfall gains have billion SII surplus and a 189% Solvency II the strong financial and non-financial occurred and that no adjustment is shareholder capital coverage ratio. We also performance and progress on key strategic required on vesting (see page 131). delivered c.£1.2 billion of incremental new objectives during the year as described business long-term cash generation, with on pages 128 to 130 of this report. The resulting single total figure of the Group’s organic growth once again remuneration for Andy Briggs was £3,058k more than offsetting the run-off of our and for Rakesh Thakrar was £1,555k. Full in-force business. details are set out on page 127. Phoenix Group Holdings plc Annual Report and Accounts 2022110 Corporate governance The Committee is satisfied that the The Committee reviewed market data The Committee will continue to review the remuneration outcomes for 2022 are an against a sector peer group of FTSE 350 performance and development of both ## Directors’ | appropriate reflection of the year’s | insurers, and a sized-based peer group of | roles over the next three year policy | | --- | --- | --- | | business performance and its trajectory | FTSE 31–100 companies from all sectors. | period. Subject to the Committee’s | | providing strong alignment between pay | Phoenix ranked 68 in the FTSE 100 at the | assessment of performance, the | ## remuneration report | and performance and with appropriate | time of the exercise, consolidating its | Committee may consider further | | --- | --- | --- | | regard to both the management of risk | position since the last triennial review in | adjustments to incentive levels but these | | within our incentives and the broader | 2019 broadly at the median of the FTSE | would be within the proposed Policy limits | | stakeholder experience. | 31–100 peer group in terms of market | and therefore limited to the LTIP (which has | | | capitalisation taking into account | a maximum of 300% of salary). No further | | Amendments to the Directors’ | market volatility. | increases to the AIP would be possible | | Remuneration Policy | | under the proposed Policy. | | This year, the Committee has conducted | The data evidenced that the current AIP | | | its triennial review of the current Directors’ | opportunity for the Group Chief Executive | Updated metrics to align remuneration | | Remuneration Policy which received a vote | Officer (‘CEO’) and Group Chief Financial | with our evolving strategy | | in favour of 99.31% at the 2020 AGM. | Officer (‘CFO’) is appreciably behind the | For the 2023 AIP, the Committee has | | As part of the review, the Committee | median of our peer group, particularly | decided to replace the existing | | considered market best practices, the | given the quality of the executive team. | Shareholder Value metric (25% weighting) | | alignment of our existing structures with | The Committee is therefore proposing to | by a Net Flows metric for the Group’s | | our strategy and a comparison of both | increase the maximum AIP opportunity | Pensions and Savings businesses (15% | | structure and quantum to our peers. | under the Policy from 150% to 200% of | weighting). The new metric will measure | | Our objective is to ensure that the Group | salary and to implement this opportunity | growth and in-force business retention | | continues to have a remuneration package | for both Executive Directors from FY 2023. | within our Open business and is | | for Executive Directors which motivates | 50% of AIP outcomes will continue to be | stakeholder focused and aligned to our | | and retains, and is aligned with the Group’s | deferred in shares for three years and | strategy. The Long-Term Cash Generation | | strategy and Shareholders’ objectives. | malus and clawback provisions will | from New Business metric has been | | | continue to apply. 80% of executive | amended to include Own Funds | | Based on the review, the Committee | director total remuneration is now subject | Management Actions and increased from | | believes that the remuneration structures | to the achievement of robust and | 20% to 30% weighting. This amended | | within the current Policy remain fit for | stretching performance targets aligned | metric will provide a wider assessment of | | purpose and aligned to business strategy. | with value delivered to shareholders. | value creation by including Own Funds | | The core structure will therefore retain the | | enhancing management actions. This will | | market-standard elements of base salary, | To reflect the increased AIP opportunity | provide a holistic view on the sources of | | benefits, pension aligned to the workforce, | and to strengthen further the alignment | future cash generation driving the Group’s | | AIP and LTIP. The Policy continues to meet | between the Executive Directors and | in-force Long-Term Free Cash metric, and | | UK best practice standards with features | shareholders, the Committee proposes to | therefore underpinning the sustainability | | such as 50% deferral of AIP outcomes into | increase the Share Ownership Guidelines | of the dividend. | | shares for three years, 2-year post-vesting | (‘SOGs’) from 300% to 350% of salary for | | | holding periods for LTIP awards, malus | the CEO and from 250% to 300% of | The customer metric relating to the | | and clawback, and ambitious in-post and | salary for the CFO and for two years | percentage of complaints resolved in eight | | post-employment share ownership | post-employment in line with best practice. | weeks will be replaced by one relating to | | guidelines. For this reason, the Committee | This positions the SOGs above the | the percentage of claims resolved in three | | is not intending to make any changes | upper quartile of comparably sized | days. This new measure is felt to align more | | to our remuneration structure. | FTSE companies. | closely to the direction of travel for | published industry standards and the Satisfied with the core remuneration By making these changes, the Committee Consumer Duty, whilst incentivising structure, the Committee analysed the believes that the Policy will provide an appropriate behaviours for complaint competitiveness of the package in light of effective framework to ensure that the management in the Group. Resolution of the quality of the executive management remuneration structure for the Executive complaints in eight weeks remains an team, their commitment to success for all Directors over the next three year period important metric for the Group and stakeholders and the strong progress is motivating and creates a strong continues to be included in the ongoing made in executing their ambitious growth incentive to deliver sustainable growth dashboard of management information. strategy. This is clearly demonstrated in the and value to shareholders. second consecutive year of strong organic growth delivered in 2022, as well as the cash-funded M&A acquisition of SLF of Canada UK Limited that was announced in August 2022. Both demonstrate that Phoenix is now truly a growing, sustainable business. Phoenix Group Holdings plc Annual Report and Accounts 2022 111 ### Directors’ remuneration report continued Incremental Long-term Deferral 50% Cash Generation Shareholder Value cash generation less Customer Experience Strate gic Scorecard for a period 2022 24% 20% new business strain 20% 20% of 3 years 16% Incremental New Business Deferral 50% Open (Pensions | | | | Long-term Cash Generation | | | | | | for a period | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Cash Generation | | | and Savings) | Customer Experience | | Strategic Scorecard | | | | 2023 | | | (less strain) plus Own Funds | | | | | | | | | | 24% | | net flows | | 20% | | 20% | of 3 years | impacting Management Actions 12% 24% Corporate Element – 80% of AIP metrics rm incentive plan | | Net Operating | | | Return on | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Persistency | | Decarbonisation | | Relative TSR | | | | Cash Receipts | | Shareholder Value | | | | | | | | | 2022 | | | | | | 20% | | 20% | | 20% | | | | 20% | | 20% | | | | | | | | | Net Operating | | Group In-force | | | | | | | | | 2023 | | | | | Persistency | | Decarbonisation | | Relative TSR | | | | Cash Receipts | | Long-term Free Cash | | | | | | | | | | | | | | | 20% | | 20% | | 20% | | | | 20% | | 20% | | | | | | | | For the 2023 LTIP, Group In-force Long- | Looking forward | 2022 marks my last full financial year | | --- | --- | --- | | Term Free Cash replaces the existing | The Board and Committee believe that our | as Chair of the Remuneration Committee. | | Return on Shareholder Value metric. | proposed Remuneration Policy provides | I will be succeeded as Chair of the | | This measures the Group’s ability to ensure | strong alignment between pay and | Committee by Nicholas Shott, who has | | its recurring sources of long-term cash | performance and appropriately reflects | been a member of the Remuneration | | exceed its recurring uses over the | the experience of our stakeholders. We | Committee since 20 October 2016 and is | | performance period and therefore that | hope that the revised Remuneration Policy | well qualified for this role. It has been | | the Group is delivering sustainable growth. | and the implementation of pay as detailed | a privilege to serve as Committee Chair | | The proposed changes to both the AIP and | in the Annual Report on Remuneration will | and I am grateful for the support of the | | LTIP metrics support the ambitions set out | meet our shareholders’ clear expectations | Committee members during my tenure | | at the Capital Markets Day in December | for an appropriate remuneration approach | as well as the valuable feedback from | | 2022 and are set out above. | and will be voted for favourably in the | our shareholders. I wish Nicholas well | | | resolutions proposed at the 2023 AGM. | in his new role. | A salary increase of 4% effective from | 1 April 2023 is proposed for the Executive | Kory Sorenson | | --- | --- | | Directors, below the average increase | Remuneration Committee Chair | | for all employees of 6% to reflect the | 10 March 2023 | emphasis of supporting the wider workforce in the cost of living crisis as part of our core purpose. Annual incentive plan Long-te Phoenix Group Holdings plc Annual Report and Accounts 2022112 Corporate governance ## At a glance 2022 | Remuneration for 2022 | Fixed vs variable pay | Fixed vs variable pay | | --- | --- | --- | | 2022 Single Figure | (% weighting) | (% weighting) | | The outcomes under the AIP and LTIP | Group CEO | Group CFO | resulted in a single figure outcome for Andy Briggs of £3,058k and for Rakesh Thakrar of £1,555k. Further details are £809k £420k £471k on page 127. £1,100k Fixed Pay Fixed Pay 30% 34% £11k Variable Pay Variable Pay £85k 70% 66% £13k £50k £601k £1,053k | Fixed Pay | Fixed Pay | | --- | --- | | Salary 27% | Salary 30% | | Benefits 0% | Benefits 1% | | Pension 3% | Pension 3% | | Variable Pay | Variable Pay | | AIP 34% | AIP 39% | | LTIP 3 6% | LTIP 27% | Group performance measures Annual Incentive Plan (‘AIP’): Below we show the target ranges and outturn against the Group metrics within the 2022 AIP. More details of the 2022 AIP can be found on page 128. All metrics align remuneration to the group strategy and were felt by the Committee to be reflective of the shareholder experience. Further information on how the Committee determined the AIP outcomes in the context of the wider stakeholder experience this year is set out on pages 129 to 130. Formulaic outcome (% of Threshold for maximum Weighting payout Target Maximum Outcome incentive) Cash generation (£m) 30.0% 1,301 1,401 1,501 1,504 30.0% Incremental Long-term cash generation less new 20.0% 580 630 680 890 20.0% business strain (£m) Shareholder 25.0% 6,621 6,721 6,921 6,848 20.5% value (£m) Customer satisfaction – 6.3% 90 91 92 92 6.3% Telephony (%) Customer satisfaction – 6.3% 92 94 96 94 3.1% Digital (%) Complaints resolved in <8 6.3% 91 93 95 94 4.7% weeks (%) Service Levels (demand 6.3% 90 92 94 92 3.1% processed) (%) Total 87.7% Phoenix Group Holdings plc Annual Report and Accounts 2022 113 ### Directors’ remuneration report continued Group performance measures Long-Term Incentive Plan (‘LTIP’): Below we show outturn against the measures which applied for the 2020 LTIP awards which are reflected in the Single Figure Table on page 127. Net Operating Cash Receipts , Return on Shareholder Value, Persistency and Relative Total Shareholder Return (‘TSR’) performance are shown over the three-year performance period (financial years 2020, 2021 and 2022). TSR is measured against the constituents of the FTSE 350 (excluding Investment Trusts), with threshold vesting achieved for median (50th percentile) performance and maximum vesting achieved for upper quintile (80th percentile) performance. Further details are shown on page 131. Weighting Threshold Maximum Outcome Formulaic outcome (% of maximum award) Net Operating Cash Receipts (£m) 35.0% 4,411 4,966 4,627 21.9% Return on Shareholder Value (%) 25.0% 2.0 4.0 (1.8) 0.0% Persistency (%) 20.0% 8.0 6.5 7.0 13.8% Relative TSR (percentile) 20.0% 50th 80th 57th 8.6% Total 44.3% 2022 AIP weighted 2020 LTIP weighted performance outturn performance outturn | Outturn | | | | Outturn | | --- | --- | --- | --- | --- | | | Outturn | | Outturn | | | 17.2% | | | | 21.9% | | | | 30% | 8.6% | | 20% 25% 30% 35% 20% 25% 20% | | | Outturn | 25% | | --- | --- | --- | --- | | Outturn | | 13.8% | | | 20.5% | Outturn | | | Outturn 20% 0% Operating Cash generation Net Operating Cash Receipts Incremental Long-Term Cash Generation (less New Business strain) Return on Shareholder Value Shareholder value Persistency Customer satisfaction – Telephony Relative TSR Customer satisfaction – Digital Complaints resolved in <8 weeks Service Levels (demand processed) Share Ownership Guidelines (‘SOGs’) Group CEO Group CFO A significant proportion of executive remuneration is delivered in shares Andy Briggs Rakesh Thakrar which are released over a period of five years. In combination with our shareholding guidelines, this aligns Executive Directors with shareholders 324% over the long-term. As at 31 December 2022, shareholdings for Andy 300% Briggs and Rakesh Thakrar are shown below. 250% 223% Further details on shareholding guidelines, including post-cessation requirements are included in the Remuneration Policy on page 121. As set out on page 137 the SOGs are increasing from 2023 under the new Remuneration Policy. Guideline GuidelineActual Actual Shareholding Guidelines percentage shown for Andy Briggs and Rakesh Thakrar includes the value of shares held based on a share price of £6.086 (as at close of business on 30 December 2022). Shares included are those shares held directly and beneficially, any vested LTIP awards that have not been exercised and unvested DBSS options taking into account tax liabilities. Phoenix Group Holdings plc Annual Report and Accounts 2022114 Corporate governance ## At a glance 2023 Alignment to strategy This table demonstrates how each of our performance measures for AIP and LTIP align with the Group’s strategic priorities. Performance measures 2023 | | Optimise | Enhance our | Grow organically | | | --- | --- | --- | --- | --- | | | our in-force | operating model | and through | | | 2023 Corporate metrics | business | and culture | | M&A | AIP Cash Generation – Incremental New Business Long-Term Cash Generation (less strain) plus Own Funds impacting Management Actions – – Open (Pensions and Savings) Net Flows – – Customer Experience – Strategic Scorecard LTIP Net Operating Cash Receipts – Group In-force Long-Term Free Cash Decarbonisation – Operations – – Decarbonisation – Investment Portfolio – – Persistency – Relative TSR All employees participate in a common incentive plan ensuring consistency of corporate goals and individual performance management. The Committee reviews the performance measures and targets of the AIP and LTIP each year to ensure these are aligned to Phoenix’s strategic priorities, are appropriately challenging, support the Company’s culture and values, and create value for stakeholders. Alignment to shareholders Our Executive remuneration is designed to align with shareholder interests to deliver long-term sustainable value. The diagram below shows how a significant portion of Executive remuneration under the remuneration policy is delivered in shares and deferred for up to five years. Under the maximum scenario, over 63% of the Group CEO’s maximum remuneration is delivered in shares. Over 63% of total maximum remuneration for Group CEO is paid in shares 3 year LTIP performance period Shares Shares CEO: 275% vested released CFO: 200% 2 year holding period 1 year performance 50% awarded AIP period in cash CEO: 200% CFO: 200% 50% awarded Shares in shares 3 year deferral period vested | Pension | Pension | | --- | --- | | CEO: 12% | CEO: 12% | | CFO: 12% | CFO: 12% | Benefits Benefits | Salary | Salary | | --- | --- | | CEO: £844k | CEO: £844k | | CFO: £504k | CFO: £504k | Maximum 2023 2024 2025 2026 2027 2028 Performance period Deferral Holding period Phoenix Group Holdings plc Annual Report and Accounts 2022 115 ### Directors’ remuneration report continued Alignment to wider workforce The Committee considers a range of factors when setting the remuneration for Executive Directors, one of which is the alignment with remuneration practices across the wider workforce. Phoenix provides colleagues across the Group with a competitive reward package with details of each element included in the table below. Further details on wider workforce pay are shown on page 140. Executive Directors & Executive Senior Management Wider workforce Committee Salary Salaries are reviewed annually and increases are typically in line with or less Base salary is the basis for a than the wider employee population. competitive total reward package for all employees, and these are reviewed annually with engagement from employee representatives. Regular benchmarking exercises are carried out to ensure salaries remain competitive against the market. We are an accredited Living Wage employer and all employees are paid at least the Real Living Wage. Benefits & Pension All employees are eligible to participate in our range of flexible benefits and wellbeing initiatives in respective markets. Core benefits include private medical cover, 12 times life assurance cover, group income protection and a range of flexible benefits. The level of core benefits is the same across all grades. Colleagues can participate in a share matching plan under the Phoenix Share Incentive Plan (‘SIP’) and, in the UK, the Phoenix Sharesave Scheme. All employees are automatically enrolled in the Company’s Mastertrust pension scheme with a 10% core contribution and 2% matching contribution (plus salary sacrifice uplift of 10% of the employee contribution). Payment in lieu of contribution, reduced for the impact of employer’s NIC is permitted where lifetime or annual limits are reached. Separate occupational pension schemes with varying contribution rates operate in Ireland and Germany. | Annual Incentive Plan | All permanent and fixed-term employees are eligible to participate in an AIP which is based on Group measures, | | | | --- | --- | --- | --- | | (‘AIP’) | business unit performance (where applicable) and personal objectives. Malus and clawback provisions apply. | | | | Deferral Half of any AIP award is subject | | One third of any AIP award is | Any AIP awards over £50k are subject | | | to deferral into shares for a three | subject to deferral into shares f | to deferral into shares for a three | | | year period. | or a three year period. | year period. Deferral is 50% of the | excess above £50k in blocks of £5k. Malus and clawback Malus and clawback provisions apply. Threshold varies slightly in Ireland. provisions apply. Malus and clawback provisions apply. Long-Term Incentive Senior executives participate in a LTIP with a three year performance A number of colleagues with Plan (‘LTIP’) period and vesting is subject to Group performance outcomes. exceptional achievements and value-aligned behaviours during the Measures and targets for long-term incentive plans are consistent for all performance year are considered for participants and measured over a three year period. a long-term incentive award in the form of Phoenix shares with a vesting Malus and clawback provisions apply. period of three years. Holding period A two-year holding period after the No holding period. Not applicable vesting date also applies for LTIPs. Shareholding Shareholding requirements ensure No SOGs required. Not applicable requirements (‘SOGs’) greater alignment with interests of shareholders. • 350% of salary for Group CEO • 300% of salary for Group CFO • 150% of salary for Executive Committee members Phoenix Group Holdings plc Annual Report and Accounts 2022116 Corporate governance How our policy addresses the following factors set out in the UK Corporate Governance Code Clarity and simplicity Risk • The reward framework seeks to embed simplicity and transparency • The Committee undertakes an annual review of risk before confirming the in the design and delivery of remuneration. Both the Corporate outcomes for the AIP to ensure that there are no risk-related concerns that Element and the Strategic Scorecard relating to the AIP have require the moderation of AIP outcomes. transparent, measurable metrics. • Malus and clawback operate in respect of the AIP and LTIPs (see page 123 for • We have included diagrams and charts in this Remuneration Report details on trigger events). to improve clarity for readers regarding the alignment of Executive • The Committee may apply discretion to override formulaic outcomes if they remuneration with shareholders and our strategy. are considered inconsistent with the underlying performance of the Group. Proportionality Predictability • A high percentage of rewards are delivered in the form of shares, • The range of potential award levels to individual Executive Directors are set out meaning Executive Directors are strongly aligned with in the scenario chart on page 126 which also demonstrates the impact of shareholders. Executive Directors are required to hold shares from potential share price growth by 50% over the three-year performance period LTIP awards for two years following vesting which provides focus until LTIP vesting. on sustainable share price growth. Significant deferral levels under the AIP further align remuneration outcomes to shareholders. • We have increased the share ownership guidelines to 350% for the Alignment to culture CEO and 300% for the CFO and have a post-employment shareholding requirement for our Executive Directors to ensure • We have engaged with our employees through Peakon (our employee that they are aligned to the long-term performance of the Group. engagement survey), PCRF (our colleague representative forum), our many employee networks, and our Designated Director for Workforce Engagement (see page 108) to develop our values and to improve our understanding of what is required to become a high-performing organisation. Our remuneration philosophy supports our purpose and core values. Phoenix Group Holdings plc Annual Report and Accounts 2022 117 ### Directors’ remuneration report continued ## The Directors’ remuneration policy ## (the ‘Policy’) ### Subject to approval from shareholders, the 2023 Directors’ remuneration policy ### set out below will be effective from the date of the 2023 AGM. It will apply for ### a period of three years, until the 2026 AGM, unless a revised Policy is approved ### by shareholders before then. Comparing the new Policy with the current Policy The main features of the 2023 Policy are summarised in the table below. The table also includes details of how the Policy is intended to apply subject to approval by shareholders at the 2023 AGM. Current Proposed Base salary Base salary | Pension 12% of salary for Group CEO | Pension 12% of salary for Group CEO and | | --- | --- | | and Group CFO | Group CFO | | Annual Incentive 150% of salary for | Annual Incentive 200% of salary for | | Group CEO and Group CFO | Group CEO and Group CFO | | Long-term Incentive | Long-term Incentive | | 275% of salary for Group CEO | 275% of salary for Group CEO | | 200% of salary for Group CFO | 200% of salary for Group CFO | | Shareholding Guidelines | Shareholding Guidelines | | 300% of salary for Group CEO | 350% of salary for Group CEO | | 250% of salary for Group CFO | 300% of salary for Group CFO | General policy The Remuneration Policy for Executive Directors is summarised in the table below along with the policy on the Chair’s and the Non- Executive Directors’ fees. Remuneration Principles The Company’s overall positioning on remuneration for Executive Directors has been set with reference to the provisions of the UK Corporate Governance Code, best practice and feedback received from shareholders during consultation. An appropriate balance is maintained between fixed and variable components of remuneration. Remuneration is aligned to the long-term success of the Group. Remuneration takes account of the risk profile of the Group. Remuneration supports a strong pay for performance culture. Our updated Remuneration Policy benchmarks the total target remuneration for the Executive Directors using appropriate market data sets which are consistent with those used for other roles in the Group. This section does not form part of the Remuneration Policy and is for information only. Phoenix Group Holdings plc Annual Report and Accounts 2022118 Corporate governance Remuneration policy table Element and purpose Policy and operation Maximum Performance measures in supporting strategic objectives Base Salary • Base salaries are reviewed each year • Salary levels are specific to • N/A against companies of similar size and the role and individual. This is the core complexity. Both salary levels and • Maximum salary will be the element of pay which overall remuneration are set by median level of salaries for supports the reference to the median data of CEOs in the FTSE31–100 recruitment and comparators which the Remuneration (currently £812,000), retention of Executive Committee considers to be suitable provided that this figure may Directors and reflects based on index, size and sector. be increased in line with UK the individual’s role • The Remuneration Committee uses RPI inflation for the duration this data as a key reference point in of this policy. and position within considering the appropriate level of • However, when reviewing the Group as well as salary. Other relevant factors salaries for Executive their capability including corporate and individual Directors, the Remuneration | and contribution. | performance and any changes in an | Committee will also review | | --- | --- | --- | | | individual’s role and responsibilities, | the salaries, and salary | | | and the level of salary increases | increases, for senior | | | awarded to other employees of the | management and employees | | | Group are also considered. | in relevant countries to | | | • Base salary is paid monthly in cash. | maintain consistency. | | | • Changes to base salaries normally | Percentage increases for | | | take effect from 1 April. | Executive Directors will not | exceed that of the broader employee population, other than in specific circumstances identified by the Remuneration Committee (e.g. in response to a substantial change in responsibilities). Benefits • The Group provides market • It is not possible to prescribe • N/A competitive benefits in kind. Details of the likely change in the cost To provide other the benefits provided in each year will of insured benefits or the benefits valued be set out in the Implementation cost of some of the other by recipient. Report. The Remuneration Committee reported benefits reserves discretion to introduce new year-to-year, but the benefits where it concludes that it is in provision of benefits the interests of the Group to do so, will normally operate. having regard to the particular • The Remuneration circumstances and to market practice. Committee will monitor the • Where appropriate, the Group will costs in practice and ensure meet certain costs relating to that the overall costs do not Executive Director relocations and increase by more than the other exceptional expenses. Remuneration Committee considers to be appropriate in all the circumstances. • Relocation expenses are subject to a maximum limit of £50,000. Pension • The Group provides a competitive • Pension contributions for • N/A employer sponsored defined Executive Directors are To provide retirement contribution pension plan. aligned with the wider benefits which keep • All Executive Directors are eligible workforce rate which is Phoenix Group to participate in the Defined currently 12% of salary competitive within the (reduced to 10.6% when Contribution Pension Plan available marketplace and to all new joiners or they may opt to taken as cash in lieu provide for the future receive the contribution in cash if they of contribution). of our employees. are impacted by the relevant lifetime or annual limits. Any such cash payments are reduced for the effect of employers’ National Insurance Contributions. • Phoenix will honour the pensions obligations entered into under all previous policies in accordance with the terms of such obligations. Phoenix Group Holdings plc Annual Report and Accounts 2022 119 ### Directors’ remuneration report continued Element and purpose Policy and operation Maximum Performance measures in supporting strategic objectives Annual Incentive • AIP levels and the appropriateness of • The maximum annual • The performance measures applied to AIP will be set by the measures are reviewed annually to incentive level for an Remuneration Committee and may be financial or Plan (‘AIP’) and ensure they continue to support the Executive Director is 200% non-financial and corporate, divisional or individual and in Deferred Bonus Group’s strategy. of base salary per annum. such proportions as it considers appropriate. However, the Share Scheme • AIP outcomes are paid in cash in weighting of financial performance measures will not be (‘DBSS’) reduced below 60% of total AIP potential in any year for the one tranche (less the deferred | To motivate | share award). | duration of this policy. | | --- | --- | --- | | employees and | • At least 50% of any annual AIP award | • In respect of the financial and non-financial performance | | incentivise delivery | is to be deferred into shares for a | measures, attaining the threshold performance level produces | | | period of three years although the | a £nil annual incentive payment. | of annual Remuneration Committee reserves • On-target performance on all measures produces an outcome performance targets discretion to alter the current practice of 50% of maximum annual incentive opportunity. However, aligned to strategy. of deferral (whether by altering the the Remuneration Committee reserves the right to adjust the portion deferred, the period of threshold and target levels for future financial years in light of deferral or whether amounts are competitive practice. deferred into cash or shares). Such • The AIP operates subject to three levels of moderation: alterations may be required to ensure • i. The Committee seeks to set suitable ranges for each compliance with regulatory guidelines measure in the context both of the Group’s own internal for pay within the insurance sector, but budgets and of external projections (whether through will not otherwise reduce the current management guidance or consensus forecasts). Recognising deferral level or the period of deferral. that the business of the Group is to engage in corporate | • Deferral of AIP outcomes into shares | | activity, the Remuneration Committee may adjust targets | | --- | --- | --- | | is currently made under the DBSS. | | during the year to take account of such activity and ensure | | • Awards under DBSS will be in the form | | the targets continue to reflect performance as originally | | of awards to receive shares for nil-cost. | | intended. | | • DBSS awards are typically made | • ii. There is a specific adjustment factor of 80%–120% of the | | | automatically each year on the fourth | | provisional outturn whereby the Remuneration Committee | | dealing day following the | | may adjust the provisional figure (but subject to any | | announcement of annual results, using | | over-riding cap) to take account of its broad assessment of | | the average of the preceding three | | performance both against pre-set targets, risk | | dealing days’ share prices to calculate | | considerations, and more generally, of the wider universe of | | the number of shares in awards. | | stakeholders. With respect to financial performance | | • The three-year period of deferral | | measures, this assessment will include consideration of the | | will run to the third anniversary of | | quality of how particular outcomes were achieved. | | the award date. | • The AIP remains a discretionary arrangement and the | | | • Dividend entitlements will accrue over | | Remuneration Committee reserves discretion to adjust the | | the three-year deferral period and be | | outturn (from zero to any cap) should it consider that to be | | delivered as additional vesting shares. | | appropriate. In particular, the Remuneration Committee may | operate this discretion in respect of any risk concern. • Malus/clawback provisions apply to the AIP and to amounts deferred under DBSS as explained in the notes to this table. Long-Term Incentive • Awards under the LTIP may be in any • The formal limit under the • The Remuneration Committee may set such performance of the forms of awards to receive LTIP is 300% of base salary measures for LTIP awards as it considers appropriate Plan (‘LTIP’) shares for nil-cost (as described for per annum (and 400% per (whether financial or non-financial and whether corporate, To motivate and DBSS above). annum in exceptional cases). divisional or individual). incentivise delivery • LTIP awards are typically made • The Remuneration • The Remuneration Committee retains discretion to adjust the of sustained automatically each year on the Committee’s practice is to weightings or substitute metrics but would expect to consult performance over the fourth dealing day following the make LTIP awards to with its major shareholders regarding any material changes long-term in line with announcement of annual results, using Executive Directors each of the current performance measures applied for LTIP awards our strategy and the average of the preceding three year over shares with a value made to Executive Directors or the relative weightings dealing days’ share prices to calculate (as at the award date) of up to between these performance measures. purpose, and to the number of shares in awards. 275% of the CEO’s annual • For every LTIP award, appropriate disclosures regarding the promote alignment | | • The vesting period will be at least | base salary and 200% of the | proposed performance conditions will be made in the annual | | --- | --- | --- | --- | | with shareholders’ | | CFO’s annual base salary | | | | three years and run until the third | | Implementation Report. | | interests, the Group | anniversary of the award date (unless a | although discretion is | | • Once set, performance measures and targets will generally operates the Phoenix longer vesting period is introduced). reserved to make awards up remain unaltered unless events occur which, in the Group Holdings plc to the maximum levels for the • A holding period will apply so that Remuneration Committee’s opinion, make it appropriate policy as stated above. | LTIP. | Executive Directors may not normally | to make adjustments to the performance measures to | | --- | --- | --- | | | exercise vested LTIP awards until the | ensure alignment with strategic objectives, provided | | | fifth anniversary of the award date. | that any adjusted performance measure is, in its opinion, | | | • Dividend entitlements will accrue until | neither materially more nor less difficult to satisfy than | | | the end of the holding period in | the original measure. | | | respect of performance vested | • For each part of an LTIP award subject to a specific | | | shares and be delivered as additional | performance condition, the threshold level of vesting will | | | vesting shares. | be no more than 25% of that part of the LTIP award. | | | • Malus/clawback provisions apply on a | • The performance period for LTIP awards will be at least three | | | basis consistent with the equivalent | years, but the Remuneration Committee reserves discretion to | | | provisions in the AIP and DBSS and as | lengthen the applicable performance periods for LTIP awards. | explained in the notes to this table. • The Group will honour the vesting of all awards granted under previous policies in accordance with the terms of such awards. Phoenix Group Holdings plc Annual Report and Accounts 2022120 Corporate governance Element and purpose Policy and operation Maximum Performance measures in supporting strategic objectives All-employee • Executive Directors are able to • Sharesave – the • Consistent with normal practice, such awards are not subject participate in all-employee share Remuneration Committee to performance conditions. share plans plans on the same terms as other has the facility to allow To encourage share Group employees as required by individuals to save up to a ownership by | | HMRC legislation. | maximum of £500 each | | --- | --- | --- | | employees, thereby | | month (or such other level as | | allowing them to | | permitted by HMRC | | participate in the | | legislation) for a fixed period | of three or five years. At the long-term success of end of the savings period, the Group and align individuals may use their their interests with savings to buy ordinary those of the shares in the Company at a shareholders. discount of up to 20% of the market price set at the launch of each scheme. • Share Incentive Plan (‘SIP’) – the Remuneration Committee has the facility to allow individuals to have the opportunity to purchase, out of their pre-tax salary, shares in the Company and receive up to two matching shares for every purchased share. Maximum saving is £150 each month (or up to such level as permitted by the Company in line with HMRC legislation). SIP also has the facility to allow for reinvestment of dividends in further shares, or the award of additional free shares (up to the limits as permitted by HMRC legislation). Shareholding • Executive Directors are expected to • N/A • N/A retain all shares (net of tax) which vest guidelines under the DBSS and under the LTIP (or To encourage share any other discretionary long-term ownership by the incentive arrangement introduced in | Executive Directors | the future) until such time as they hold | | --- | --- | | over the long term, | a minimum of 350% of base salary in | | including post | shares for the CEO and 300% of base | salary in shares for the CFO. cessation of • Only beneficially owned shares, employment, vested share awards, and unvested and ensure interests share awards not subject to are aligned. performance conditions (discounted for anticipated tax liabilities), may be counted for the purposes of the guidelines. Share awards subject to performance conditions do not count prior to vesting. • Once shareholding guidelines have been met, individuals are expected to retain these levels as a minimum. The Remuneration Committee will review shareholdings annually in the context of this policy. • Post cessation of employment, Executive Directors are expected to retain the lower of their full level of employment shareholding guideline or their actual shareholding at termination for a period of two years. Phoenix Group Holdings plc Annual Report and Accounts 2022 121 ### Directors’ remuneration report continued Element and purpose Policy and operation Maximum Performance measures in supporting strategic objectives Chair and Non- • The fees paid to the Chair and the fees • The aggregate fees of the • N/A of the other Non-Executive Directors Chair and Non-Executive Executive are set to be competitive with other Directors will not exceed Director fees | listed companies of equivalent size | the limit from time to time | | --- | --- | | and complexity. | prescribed within the | | • The Group does not adopt a | Company’s Articles of | | quantitative approach to pay | Association for such fees | | positioning and exercises judgement | (currently £2 million per | | as to what it considers to be | annum in aggregate). | | reasonable in all the circumstances | • The Company reserves the | | as regards quantum. | right to vary the structure of | | • Additional fees are paid to | fees within this limit | | Non-Executive Directors who chair or | including, for example, | | are a member of a Board committee, | introducing time-based | | or sit on the board of a subsidiary | fees or reflecting the | | company or on the Solvency II Model | establishment of new | | Governance Committee, and to the | Board or subsidiary | | Senior Independent Director (‘SID’) | company committees. | and Designated Director for Workforce Engagement. • Fees are paid monthly in cash. • Fee levels for Non-Executive Directors are reviewed annually with any changes normally taking effect from 1 January. Additional reviews may take place in exceptional circumstances, such as following major corporate events, to ensure that fees remain appropriate in the context of the Group’s size and complexity and to reflect the time commitment required. Notes to the Remuneration Policy table 1. Differences between the Policy on Remuneration for Directors and the Policy on Remuneration of other employees When determining Executive Directors’ remuneration, the Committee takes into account pay throughout the Group to ensure that the arrangements in place remain appropriate. The Group has (as required by Solvency II regulations) one consistent reward policy for all levels of employees and this policy is made available to all staff. Therefore, the same reward principles guide reward decisions for all Phoenix employees, including Executive Directors, although remuneration packages differ to take into account appropriate factors in different areas of the business as follows: • AIP – all Phoenix employees participate in an annual incentive plan, although the quantum and balance of corporate to individual objectives varies by level. The most senior staff are subject to the regulatory requirements of Solvency II, and these individuals also receive part of their bonus in Company shares deferred for a period of three years. A different scorecard of AIP performance measures applies for Solvency II Identified staff in ‘control functions’ (risk, compliance, internal audit and actuarial) to exclude financial performance measures. • LTIP – our most senior employees participate in the LTIP currently based on the same performance conditions as those for Executive Directors, although the Committee reserves the discretion to vary the performance conditions for awards made to employees below the Board for future awards. • All-employee share plans – the Committee considers it is important for all employees to have the opportunity to become shareholders in the Company. The Company offers two HMRC tax advantaged arrangements in which all UK employees can participate and acquire shares on a discounted and tax advantaged basis (Sharesave and SIP), and equivalent arrangements in foreign jurisdictions (including on a tax advantaged basis permitted under local laws). In addition, selected individuals may receive ad-hoc share awards under a long-term incentive in recognition of exceptional commercial outcomes and is contingent on continued employment. 2. Stating maximum amounts for the Remuneration Policy The Directors’ Remuneration Report (‘DRR’) regulations and related investor guidance encourages companies to disclose a cap within which each element of remuneration policy will operate. Where maximum amounts for elements of remuneration have been set within the Remuneration Policy, these will operate simply as caps and are not indicative of any aspiration. Phoenix Group Holdings plc Annual Report and Accounts 2022122 Corporate governance 3. Malus and clawback Malus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to claim repayment of paid amounts as a debt) provisions apply to the AIP, DBSS and LTIP. These provisions may be applied where the Remuneration Committee considers it appropriate to do so following: • a review of the conduct, capability or performance of an individual; • a review of the performance of the Company or a Group member; • any material misstatement of the Company’s or a Group member’s financial results for any period; • any material failure of Risk Management by an individual, a Group member or the Company; or • any other circumstances that have a sufficiently significant impact on the reputation of the Company or Group. 4. Travel and hospitality While the Remuneration Committee does not consider this to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by the Company or another Group Company) and certain instances of business travel (including any related tax liabilities settled by the Company or another Group company) for Directors may technically be considered as benefits and so the Remuneration Committee expressly reserves the right to authorise such activities and reimbursement of associated expenses within its agreed policies. 5. Discretions reserved in operating incentive plans The Remuneration Committee will operate the AIP, DBSS and LTIP according to their respective rules and the above Remuneration Policy table. The Remuneration Committee retains certain discretions, consistent with market practice, in relation to the operation and administration of these plans including: • (as described in the Remuneration Policy table) the determination of performance measures and targets and resulting vesting and pay-out levels; • (as described in the Remuneration Policy table) the ability to adjust performance measures and targets to reflect events and/or to ensure the performance measures and targets operate as originally intended; • (as described in the Termination Policy) determination of the treatment of individuals who leave employment, based on the rules of the incentive plans, and the treatment of the incentive plans on exceptional events, such as a change of control of the Company; • the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e.g. rights issues, corporate restructurings or special dividends). Any exercise of discretion will be disclosed in the Implementation Report for the year; • consistent with the latest Corporate Governance Code, the Remuneration Committee may apply discretion to override formulaic outcomes if they are considered inconsistent with the underlying performance of the Group (see pages 117 and 120); • Legacy arrangements – for the avoidance of doubt, the Committee may approve payments to satisfy commitments agreed prior to the approval of this Remuneration Policy, for example, those outstanding and unvested incentive awards which have been disclosed to shareholders in previous Remuneration Reports. Recruitment remuneration policy The Group’s recruitment remuneration policy aims to give the Remuneration Committee sufficient flexibility to secure the appointment and promotion of high calibre executives to strengthen the management team and secure the skill sets to deliver our strategic aims. In terms of the principles for setting a package for a new Executive Director, the starting point for the Remuneration Committee will be to apply the general policy for Executive Directors as set out above and structure a package in accordance with that policy. The AIP and LTIP will operate (including the maximum award levels) as detailed in the general policy in relation to any newly appointed Executive Director. For an internal appointment, any variable pay element awarded in respect of the prior role may either continue on its original terms or be adjusted to reflect the new appointment as appropriate. For external and internal appointments, the Remuneration Committee may agree that the Company will meet certain relocation expenses as it considers appropriate subject to the limit of £50,000 set out in the policy table. For external candidates, it may be necessary to make awards in connection with the recruitment to buy-out awards forfeited by the individual on leaving a previous employer. For such buy-out awards, Phoenix Group will not pay more than is, in the view of the Remuneration Committee, necessary and will in all cases seek, in the first instance, to deliver any such awards under the terms of the existing incentive pay structure. It may, however, be necessary in some cases to make such awards on terms that are more bespoke than the existing annual and equity-based pay structures in Phoenix Group in order to secure a candidate. Details of any buy-out awards will be appropriately disclosed. Phoenix Group Holdings plc Annual Report and Accounts 2022 123 ### Directors’ remuneration report continued All such buy-out awards, whether under the AIP, LTIP or otherwise (for example, specific arrangements made under Listing Rule 9.4.2), will take account of the service obligations and performance requirements for any remuneration relinquished by the individual when leaving a previous employer. The Remuneration Committee will seek to make buy-out awards subject to what are, in its opinion, comparable requirements in respect of service and performance. However, the Remuneration Committee may choose to relax this requirement in certain cases (such as where the service and/or performance requirements are materially completed), and where the Remuneration Committee considers it to be in the interests of shareholders and where such factors are, in the view of the Remuneration Committee, reflected in some other way, such as a significant discount to the face value of the awards forfeited. Exceptionally, where necessary, this may include a guaranteed or non pro-rated annual incentive in the year of joining. • For the avoidance of doubt, such buy-out awards are not subject to a formal cap. • A new Non-Executive Director would be recruited on the terms explained in the Remuneration Policy for such Directors. Directors’ service contracts Executive Directors Executive Director service contracts, which do not contain expiry dates, provide that compensation provisions for termination without notice will only extend to 12 months of salary, certain fixed benefits and pension (which may be payable in instalments and subject to mitigation). By excluding any entitlement to compensation for loss of the opportunity to earn variable pay, the Remuneration Committee believes the contracts to be consistent with best practice. The Remuneration Committee also has discretion to mitigate further by paying on a phased basis with unpaid instalments ceasing after the initial period of six months if the Executive Director finds alternative employment. Contracts do not contain change of control provisions. The template contract is reviewed from time to time and may be amended provided it is not overall more generous than the terms described above. Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards and retain associated fees as long as these are not deemed to interfere with the business of the Group. Non-Executive Directors The Non-Executive Directors, including the Chair, have letters of appointment which set out their duties and responsibilities. Appointment is for an initial fixed term of three years (which may be renewed), terminable by one month’s notice from either side (six months in the case of the Chair). Non-Executive Directors are not eligible to participate in incentive arrangements or receive pension provision or other benefits such as private medical insurance and life insurance. Copies of Executive Director service contracts and Non-Executive Director letters of appointment are available for inspection at the Company’s registered office. Phoenix Group Holdings plc Annual Report and Accounts 2022124 Corporate governance Termination policy summary In practice, the facts surrounding any termination do not always fit neatly into defined categories for good or bad leavers. Therefore, it is appropriate for the Remuneration Committee to consider the suitable treatment on a termination having regard to all of the relevant facts and circumstances available at that time. This policy applies both to any negotiations linked to notice periods on a termination and any treatment which the Remuneration Committee may choose to apply under the discretions available to it under the terms of the AIP, DBSS and LTIP plans. The potential treatments on termination under these plans are summarised below. 1 Incentives Good Leaver Bad Leaver Exceptional Events A participant is considered a Good A participant would typically be For example change in control Leaver if leaving through redundancy, considered a Bad Leaver following or winding-up of the Company serious ill health or death or a voluntary resignation or leaving otherwise at the discretion of for disciplinary reasons the Remuneration Committee AIP Pro-rated annual incentive. Pro-rating No awards made Either the AIP will continue for the to reflect only the period worked. year or there will be a pro-rated Performance metrics determined annual incentive. Performance by the Remuneration Committee metrics determined by the Remuneration Committee DBSS Deferred awards vest at the end Deferred awards normally lapse Deferred awards vest of the original vesting period LTIP Will receive a pro-rated award subject All awards will normally lapse Will receive a pro-rated award subject to the application of the performance to the application of the performance conditions at the normal measurement conditions at the date of the event. date and, generally, any holding period Remuneration Committee discretion will continue to apply. Remuneration to disapply pro-rating Committee discretion to disapply pro-rating or to accelerate vesting to the date of leaving (subject to pro-rating and performance conditions) and/or the release of any holding period 1 Where the reason for leaving is retirement, the individual will be required to provide confirmation of their continued retirement before any payments are released to them after the end of the vesting period. The Group has power to enter into settlement agreements with executives and to pay compensation to settle potential legal claims. In addition, and consistent with market practice, in the event of termination of an Executive Director, the Group may pay a contribution towards the individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees would be disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of termination payments. In the event of cessation of a Non-Executive Director’s appointment (excluding the Chair) they would be entitled to a one month’s notice period. The Chair, as detailed in his letter of appointment, would be entitled to a six months’ notice period. Consideration of employment conditions elsewhere in the Group As explained in the notes to the Remuneration Policy table, the Remuneration Committee takes into account Group-wide pay and employment conditions. The Remuneration Committee reviews the average Group-wide base salary increase and annual incentive costs and is responsible for all discretionary and all-employee share arrangements. Consistent with previous practice, the Remuneration Committee did not consult with employees in preparing the 2023 Remuneration Policy although has established further employee engagement in accordance with the requirements under the Corporate Governance Code. Phoenix Group Holdings plc Annual Report and Accounts 2022 125 # Directors' remuneration report continued # Consideration of shareholders' views when shaping the Remuneration policy Each year the Remuneration Committee takes into account the approval levels of remuneration-related matters at our AGM in determining that the current Remuneration Policy remains appropriate for the Company. The Remuneration Committee also seeks to build an active and productive dialogue with investors on developments in the remuneration aspects of corporate governance generally and any changes to the Company's executive pay arrangements in particular. The Remuneration Committee consulted with major shareholders prior to submission of this policy, we are pleased to disclose the majority that could provide a prior voting intention were supportive. Areas of discussion were maximum AIP incentive opportunity, FTSE peer pay, the level of stretch in performance targets and the expectation that the percentage increase of Executive Directors' base salary would be lower than that of the wider workforce during the current economic climate. # Potential rewards under various scenarios (E000) The charts below compare the maximum levels of Total Remuneration payable under the Directors' Remuneration Policy. Group CEO – Andy Briggs ![img-1.jpeg](img-1.jpeg) Group CFO – Rakesh Thakrar ![img-2.jpeg](img-2.jpeg) ■ Total fixed pay ■ AIP ■ LTIP ■ Share price growth and dividend Minimum, on-target and maximum represent the scenario charts required under the Directors' Remuneration Policy – see the data assumptions below. 'Maximum with growth' is the maximum scenario, but with the LTIP element increased to reflect a 50% share price growth assumption over the three-year period until LTIP vesting. The element of the total representing the value from these assumptions on share price growth and dividends is shown separately. | Name | Base salary E000 | Benefits E000 | Pension E000 | Total fixed E000 | | --- | --- | --- | --- | --- | | Andy Briggs | 844 | 10 | 90 | 944 | | Rakesh Thakrar | 504 | 10 | 53 | 587 | Minimum: Consists of base salary, benefits and pension. - Base salary is the salary to be paid in 2023. - Benefits measured as benefits to be paid in 2023 - Pension measured as the full entitlement of approximately 10.6% of base salary receivable (after the reduction to payments made in cash for employers' National Insurance Contributions). On-target: Based on what the Executive Director would receive if performance was on-target: - AIP consists of the on target annual incentive (100% of base salary). - LTIP consists of the threshold level of vesting (50% of base salary for Group CEO and Group CFCI). In addition, the potential value of Sharesave and Share Incentive Plan (SIP) participation is also recognised. Maximum: Based on the maximum remuneration receivable: - AIP consists of the maximum annual incentive (200% of base salary). - LTIP assumes maximum vesting of awards and valued as on the date of grant (award of 275% of base salary for Group CEO and 200% of base salary for Group CFCI). Sharesave and SIP valued on the same basis as in the on target row. 126 Phoenix Group Holdings plc Annual Report and Accounts 2022 Corporate governance ## Annual report on Remuneration ### This section of the Remuneration report sets out the Executive Directors’ ### remuneration for 2022. It contains the annual report on remuneration which ### forms part of the Directors’ remuneration report to be proposed for approval ### by the Company’s shareholders at the Company’s 2023 AGM on 4 May 2023. Introduction This report contains the material required to be set out as the Directors’ remuneration report (‘Remuneration Report’) for the purposes of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008 (as amended) (‘the DRR regulations’). Directors’ remuneration policy The Remuneration Policy to be approved by the shareholders at the 2023 AGM is included in the previous section of this remuneration report. Implementation report – Audited information single figure table | | | | | | | | Annual | | Long-term | | | | Total | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1,2 | | 3 | | 4 | | | 5 | | | | | | | | | Salary/fees | | Benefits | | Pension | | Total Fixed Pay | Incentive | | incentives | | | Variable Pay Total | | | | | | | | | | | | | | | | 7 | | | | 7 | | | | | | | | | | | | 2021 | | | | 2021 | | 6 £000 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 (restated) 2022 2021 2022 (restated) Executive Directors Andy Briggs 809 800 11 11 85 84 905 895 1,053 936 1,100 – 2,153 936 3,058 1,831 Rakesh Thakrar 471 428 13 11 50 46 534 485 601 499 420 234 1,021 733 1,555 1,218 1 Rakesh Thakrar’s salary increased to £485k with effect from 1 April 2022. Andy Briggs’ salary increased to £812k with effect from 1 April 2022. 2 The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before individual elections. 3 Benefits for Executive Directors include car allowance, private medical insurance, other taxable allowances, Sharesave and matching shares awarded under the Share Incentive Plan. 4 Executive Directors are entitled to each receive a Company pension contribution of 12% which may be paid as a cash supplement, reduced for the effect of employers’ National Insurance contributions. Andy Briggs received his whole contribution as a cash supplement (10.5%) and Rakesh Thakrar received a combination of cash supplement and contribution (10.6%). No Director participated in a defined benefit pension arrangement in the year and none have any prospective entitlement to a defined benefit pension arrangement. 5 Annual incentive amounts are presented inclusive of any amounts which must be deferred into shares for three years and which are subject to continued employment (i.e. 50% of the AIP award for 2022). In 2022 £526,416 of Andy Briggs’s incentive payment is subject to three-year deferral delivered in shares (2021: deferral of £468,120), and £300,280 of Rakesh Thakrar’s incentive payment is subject to a similar deferral (2021: deferral of £249,350). 6 In accordance with the requirements of the DRR regulations, the 2022 value for long-term incentives is an estimate of the vesting outcomes for LTIP awards granted in 2020 and which are due to vest on 13 March 2023. This vesting level is at 44.3% reflecting outcomes against the Net Operating Cash Receipts, Return on Shareholder Value, Persistency and Relative TSR performance measures to 31 December 2022 (see page 131). This vesting outcome is then applied to the average share price between 1 October 2022 and 31 December 2022 (570.578p) to produce the estimated long-term incentives figures shown for 2022 in the above table. The assumptions will be trued up for actual share price at the day of vesting in the report for 2023. For Andy Briggs, the disclosed LTIP figure of £1,100k comprises the disclosed LTIP figure of £896,129 for the value of the proportion of the original LTIP award which ultimately vested, plus the value of dividend roll-up on those shares of £204,177. All values are calculated using the three month average share price to 31 December 2022 (570.578p). For Rakesh Thakrar, the disclosed LTIP figure of £420k comprises the disclosed LTIP figure of £342,157 for the value of the proportion of the original LTIP award which ultimately vested, plus the value of dividend roll-up on those shares of £77,953. All values are calculated using the three month average share price to 31 December 2022 (570.578p). No portion of the awards for Andy or Rakesh related to share price appreciation. 7 For 2019’s LTIP awards which are reflected in the 2021 long-term incentives column above, the performance conditions were met as to 78.4% of maximum. The 2021 long-term incentives values in the above table reflect the value of the Company’s shares on the date of vesting which was 11 March 2022 (626.0p per share) multiplied by the number of shares vesting whereas the equivalent figure within the published 2021 Single Figure Table was an estimate which reflected the average share price between 1 October 2021 and 31 December 2021 (652.406 p per share) and certain assumptions regarding the cumulative value of dividends on the number of shares vesting. Phoenix Group Holdings plc Annual Report and Accounts 2022 127 ### Directors’ remuneration report continued AIP outcomes for 2022 – Audited information Against the specific Corporate measures, outturns were as follows: % of incentive | | | Threshold | | Target | | Maximum | Performance | | | | potential | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | performance | | performance | | performance | | level attained | | | | based on | | | | | | level of | | level for | | level for | | for 2022 | | Performance | | | % | | Performance measure | | 2022 AIP | | 2022 AIP | | 2022 AIP | | | AIP | | Measure | achieved | | Cash Generation (£m) 1,301 1,401 1,501 1,504 30.0% 30.0% Incremental Long-Term Cash Generation less New Business Strain (£m) 580 630 680 890 20.0% 20.0% Shareholder Value (£m) 6,621 6,721 6,921 6,848 25.0% 20.5% Customer Experience 1 Customer Satisfaction – Telephony (%) 90% 91% 92% 92% 6.3% 6.3% 2 Service Levels (Demand Processed) (%) 90% 92% 94% 92% 6.3% 3.1% 3 Customer Satisfaction – Digital (%) 92% 94% 96% 94% 6.3% 3.1% 4 Complaints Resolved in < 8 weeks (%) 91% 93% 95% 94% 6.3% 4.7% Total 100.00% 87.7% 1 Customer satisfaction scores from entities across the Group are combined, each entity currently takes different approaches to measurement. Standard Life telephone customer feedback surveys are delivered to customers after key interactions using the Rant & Rave solution, either by SMS or email, the question asks “Using a scale of 5 (excellent) to 1 (very poor) reply to tell us how you would rate your call experience today?” and the score is calculated as the % of responses of 4 or 5. For Phoenix Life, the rating is a customer satisfaction score based on the results of a satisfaction survey following telephony interaction managed by Ipsos MORI, customers surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions (with a rating of 4 or 5 regarded as satisfied). ReAssure surveys use the Feedback Ferret solution to ask customers a similar question rated on a scale of 1–5, with 4 or 5 regarded as satisfactory. 2 The percentage of all back office manual workflow completed within service level (services levels vary across entities). Across entities this includes Claims & Servicing, with Standard Life also including new business acquisition. 3 Digital customer satisfaction surveys are offered to customers on Standard Life & Phoenix Life secure customer platforms, including the Standard Life mobile app, asking them to rate their experience after completing a key transaction. Digital transactions measured include Payments, Retirement, Subsequent Withdrawal and Fund Switch. Customer Satisfaction (‘CSAT’) is measured as the percentage of responses rating their experience as ‘good’ or ‘excellent’. 4 The rating is a percentage based upon the total volume of all complaints resolved within eight weeks from date of receipt divided by the total number of complaints resolved. This is a strategic requirement to allow for external benchmarking within the complaints peer group. AIP Underpin and Discretion on Corporate element As described in the Committee Chair’s covering letter (page 110), Phoenix has achieved strong financial and non-financial performance and progress on key strategic objectives during the year. The Committee is satisfied that the remuneration outcomes for 2022 are an appropriate reflection of the year’s business performance and its trajectory providing strong alignment between pay and performance and with appropriate regard to both the management of risk within our incentives and the broader stakeholder experience. Prior to confirming the outcomes for the 2022 AIP, the Committee reviewed in detail the extent to which the Group had operated within its stated risk appetite during the year and determined that no moderation of the 2022 formulaic outcome was necessary. Phoenix Group Holdings plc Annual Report and Accounts 2022128 Corporate governance Strategic Scorecard The Strategic Scorecard represents 20% of the overall incentive opportunity with the Corporate (financial and customer) measures representing 80%. Metrics and targets relating to this scorecard were agreed by the Remuneration Committee at the start of the year. The table below details the outcome against targets of the Strategic Scorecard with the exception of those which are considered as commercially sensitive, together with respective weightings for the Group CEO and Group CFO. Objective CEO CFO Description Base Performance Outcome Customer 20% 10% Net Fund flows for Group £(7.7)bn £(5.7)bn 100% Significant outperformance BPA IRR 8.60% 15.83% on net fund flows, underpinned by investment in our Workplace proposition and continued focus New Workplace assets £400m £294m on customer outcomes. won Secured c.£2bn of new scheme wins, with assets scheduled to transfer over the next 12 to 24 months. Continued investment in our BPA proposition to support significant outperformance of internal rate of return. | Our People 25% 20% Employee engagement | | 24 30 100% | | | --- | --- | --- | --- | | | eNPS | | Significant outperformance | | | Diversity and Inclusion | 40 47 | against all three employee | | | eNPS | | Net Promoter Score targets, | with Colleagues being Health and Wellbeing 32 42 central to Our Purpose. eNPS Continued improvement in Increase female 38.9% 39% female representation as part representation (% senior of the broader DE&I agenda. leaders) Regular engagement of managers with our Peakon engagement tool continues to be an area of focus. | Sustainable | 10% 20% ReAssure integration – | | £62m £169m 50% | | | --- | --- | --- | --- | --- | | Operating Model & | | capital synergies in year | | Key planned migrations | | Business Integration | | ReAssure integration – | £5m £18m | were successfully and safely | | | | cost synergies in year | | delivered, and good progress | made on the majority of Safe delivery of two Delivered Delivered material projects, although planned, critical policy there remains significant migrations activity to be done. BAU Total BAU expenses £937m £953m expenses outturn was Deliver/Progress five Assessment against plan Green x2 adverse to plan due to higher agreed, material projects (time, cost, benefits) Amber x3 than planned regulatory and Red x1 audit fees, with ongoing work to deliver committed cost savings. ReAssure integration cost synergy delivery was behind plan, although capital synergies were significantly ahead. | Capital, Asset & Risk | 15% 20% Total Group Management | | £160m £542m 50% | | | | --- | --- | --- | --- | --- | --- | | Management | | Actions – Own Funds | | | Outperformance of | | | | Operating with risk | Within Appetite 1 of 6 outside appetite | | Management Actions, | | | | appetite | | (Control) | continuing our track record | of generating further Open action plans Green (<=10% actions Amber (86% delivered) value. Continued focus on overdue) embedding risk management Customer incidents 80% category A Green (87% and 75% capabilities and controls to management remediated in 2 months respectively) support our ambitions, with 72.5% category B good progress in the year, remediated in 9 months but clear prioritisation of RMF effectiveness rating Green Amber further work in 2023 Regulatory action delivery Green Amber Phoenix Group Holdings plc Annual Report and Accounts 2022 129 ### Directors’ remuneration report continued Objective CEO CFO Description Base Performance Outcome 1 | Sustainability | 20% 10% Launch financial inclusion | | Launched financial | Complete 90% | | | --- | --- | --- | --- | --- | --- | | | | strategy, focussed on a | inclusion strategy | | Outperformance or | | | | specific underserved | | | successful delivery against | | | | customer group, providing | | | all but one of our ambitious | | | | targeted support to | | | targets, reflecting that our | | | | empower better | | | sustainability performance | | | | financial decisions | | | is on track, building on the | | | | Number of Phoenix | 1m customers Complete – 1.2 million | | momentum from 2021. We | | | | Group customers that | | customers | remain committed to being a | | | | are directly offered the | | | leading responsible business, | | | | chance to review our | | | with sustainability embedded | | | | Digital Literacy materials | | | throughout. | and/or initiatives % of SLAL customers c.£15bn AUM and 1.5m Complete in sustainable customers multi-asset default Develop and submit Developed and submitted Complete for validation emission reduction targets in line with the SBTi financial sector guidance % of originated illiquid 60% 53% investments into sustainable investments Reduce Scope 1 and 2 0.79 CO 2 /FTE 0.73 tonnes CO 2 /FTE for occupied premises % of colleagues involved 40% 41.9% in community activities % of key suppliers 75% 82% committed to SBTi/race to net zero Financial outcomes 10% 20% Long Term Free Cash £13bn £13.3bn 75% Shareholder ratio 160% 189% Strong performance against targets for Long-Term Free Fitch leverage ratio 28% 30% Cash and Shareholder ratio, NBC £408m £386m reflecting another year of strong delivery against our clear financial framework. Fitch leverage ratio adversely impacted by economics from rising yields. NBC marginally adverse largely due to lower levels of customer response driven by the cost of living crisis. 1 All outcomes of the sustainability metrics have been independently verified. In light of the above achievements during the year, the Committee determined it was appropriate to pay the following outcomes under the Strategic Scorecard element for the Group CEO and Group CFO: % outturn of maximum 20% opportunity Andy Briggs 83% Rakesh Thakrar 74% Phoenix Group Holdings plc Annual Report and Accounts 2022130 Corporate governance The Committee was also satisfied that it was appropriate to pay out the incentives according to the formulaic outcomes in the context of the experience of Phoenix’s stakeholders during the year. The table below shows the actual outturn against the annual incentive maximum. Corporate Strategic Scorecard Total Maximum Total As a % of As a % maximum of maximum As a % Corporate As a % scorecard As a % As a % As a % of maximum element of salary element of salary of salary of salary opportunity Andy Briggs 87.7 105.2 83.0 24.9 130.1 150.0 86.8 Rakesh Thakrar 87.7 105.2 74.0 22.2 127.4 150.0 85.0 As described in the Remuneration Policy, 50% of 2022 AIP outcomes will be delivered as an award of deferred shares under the DBSS which will vest after a three-year deferral period subject to continued employment or good leaver status. Whilst the performance measures for the 2023 AIP have been disclosed (see Implementation of Remuneration Policy for 2023 on page 137), the actual performance targets for these measures are regarded as commercially sensitive at the current time and accordingly are not disclosed. However, as in previous years, the Group intends to disclose the performance targets for 2023’s AIP retrospectively in next year’s Remuneration Report on a similar basis to the disclosures made above in respect of 2022’s AIP. LTIP outcomes for 2020 awards – Audited information | Performance measure and | | Performance | | Vesting | | % | | --- | --- | --- | --- | --- | --- | --- | | weighting Target range | | | achieved | outcome | achieved | | | Net Operating Cash | Target range between Net Operating Cash Receipts of £4.411bn and | | £4.627bn 62.7% 21.9% | | | | | Receipts (35%) | Net Operating Cash Receipts of £4.966bn | | | | | | | Return on Shareholder | Target range between 2% CAGR and 4% CAGR (1.8)% 0.0% 0.0% | | | | | | Value (25%) Persistency (20%) Target range between 8.0% and 6.5% 7.0% 69.0% 13.8% Relative TSR (20%) Target range between median performance against the constituents 57.1% 43.0% 8.6% of the FTSE 350 (excluding Investment Trusts) rising on a pro rata basis until full vesting for upper quintile performance. In addition, the Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company Total 44.3% The above targets were all measured over the period of three financial years 1 January 2020 to 31 December 2022. As detailed on page 136 of the 2020 Annual Report and Accounts, the 2020 LTIP targets were amended to reflect the new organisation following the acquisition of ReAssure Group plc by the Group on 22 July 2020. The adjustments were made in line with the Committee’s established principles for target setting in the event of an acquisition and the Committee was satisfied that the revised targets were equally stretching as those originally set. The impact these adjustments had on the 2020 LTIP are as follows: Net Operating Cash Receipts –the threshold target (where 25% of this part of the award vests) was increased from £2.375 billion to £4.411 billion with maximum target (full vesting of this part of the award) increased from £2.725 billion to £4.966 billion. Return on Shareholder Value – consistent with the approach taken on previous transactions and in compliance with the Group’s documented principles established for adjusting remuneration targets to reflect the impacts of acquisitions, there were no amendments to the target ranges for compound annual growth rates as a result of the acquisition of ReAssure. However, the opening Shareholder Value balance used to calculate the return was rebased by the value of equity issued (£2 billion) in consideration for the acquisition. Persistency – no changes to this target were made as Persistency relates to the Open business only and is therefore not impacted by the ReAssure transaction. Underpin and Discretion In addition to the above targets, the Committee confirmed that the underpin performance condition relating to risk management within the Group, customer satisfaction and, in exceptional cases, personal performance had been achieved in the performance period. Windfall Gains As reported in the FY 2020 Directors’ remuneration report, the Committee reviewed the grant price of the 2020 LTIP (620.5p) compared to the grant price of the 2019 LTIP (700.4p) and was satisfied that no adjustments were required to the awards on grant for windfall gains. The Committee has again reviewed the position ahead of the vesting, taking into account the Phoenix share price as at 28 February 2023 (633.69p) and is satisfied that no windfall gains have occurred and that no adjustment is required on vesting. Phoenix Group Holdings plc Annual Report and Accounts 2022 131 ### Directors’ remuneration report continued Payments for loss of office – Audited information No payments were made to Directors in 2022 for loss of office. Payments to past directors – Audited information Clive Bannister, who resigned from the Board on 10 March 2020, received title to shares during 2022 in respect of the 2019 LTIP. The value of these shares at the point of vesting on 11 March 2022 was £397,303. Taking into account the performance outturn of 78.4% and time pro-rating, this reflected a grant of 52,136 shares with a value of £326,371 plus dividend accrual of 11,331 shares with a value of £70,932. Clive also received title to shares during 2022 in respect of the 2019 DBSS. The value of these shares at the point of vesting on 11 March 2022 was £390,655. This related to the vesting of the deferred element of his 2019 AIP so there were no performance conditions or time pro-rating. This reflected a grant of 51,265 shares with a value of £320,919 plus dividend accrual of 11,140 shares with a value of £69,736. James McConville, who resigned from the Board on 15 May 2020, received title to shares during 2022 in respect of the 2019 LTIP. The value of these shares at the point of vesting on 11 March 2022 was £295,572. Taking into account the performance outturn of 78.4% and time pro-rating, this reflected a grant of 38,786 shares with a value of £242,800 plus dividend accrual of 8,430 shares with a value of £52,772. James also received title to shares during 2022 in respect of the 2019 DBSS. The value of these shares at the point of vesting on 11 March 2022 was £252,729. This related to the vesting of the deferred element of his 2019 AIP so there were no performance conditions or time pro-rating. This reflected a grant of 33,166 shares with a value of £207,619 plus dividend accrual of 7,206 shares with a value of £45,110. Non-executive fees – Audited information The emoluments of the Non-Executive Directors for 2022 based on the current disclosure requirements were as follows: 1 | | Directors’ salaries/fees Benefits | | | | | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2022 | 2021 | 2022 | 2021 | 2022 | | 2021 | | Name | | £000 | £000 | £000 | £000 | £000 | | £000 | Non-Executive Chair 2 Alastair Barbour 255 161 21 10 276 171 3 Nicholas Lyons 307 370 8 1 315 371 Non-Executive Directors 4 Stephanie Bruce – – – – – – 5 Karen Green 159 141 3 1 162 142 6 Hiroyuki Iioka – – – – – – 7 Wendy Mayall 129 111 1 – 130 111 8 Katie Murray 74 – 2 – 76 – John Pollock 141 141 3 – 144 141 Belinda Richards 116 111 2 – 118 111 9 Maggie Semple 63 – 1 – 64 – 10 Nicholas Shott 139 129 2 – 141 129 Kory Sorenson 141 141 1 – 142 141 11 Mike Tumilty – – – – – – Total 1,524 1,305 44 12 1,568 1,317 1 The amounts within the benefits columns reflect the fact that the reimbursement of expenses to Non-Executive Directors for travel and accommodation costs incurred in attending Phoenix Group Holdings plc Board and associated meetings represent a taxable benefit. This position has been clarified with HMRC and the amounts shown are for reimbursed travel and accommodation expenses (and the related tax liability which is settled by the Group). 2 The fee for Alastair Barbour increased to £460k with effect from 1 September 2022 following his appointment as Interim Chair. 3 The fee for Nicholas Lyons reduced to zero following his sabbatical leave with effect from 1 September 2022. 4 Stephanie Bruce was appointed as a member of the Board of Directors on 1 July 2022 and has waived all current and future emoluments with regard to her Directors’ fees. 5 Karen Green was appointed as Senior Independent Director on 5 May 2022. 6 Hiroyuki IIoka has waived all current and future emoluments with regard to his Directors’ fees. 7 Wendy Mayall was appointed as a member of the Life Companies Board Investment Committee on 1 January 2022. She retired as a member of the Board of Director on 31 December 2022. 8 Katie Murray was appointed as a member of the Board of Directors on 1 April 2022 and Chair of the Group Audit Committee with effect from 1 September 2022. 9 Maggie Semple was appointed as a member of the Board of Directors on 1 June 2022 and was appointed as Designated Director for Workforce Engagement on 1 September 2022. 10 Nicholas Shott was appointed as Chair of the M&A Advisory Group on 29 June 2022. 11 Mike Tumilty waived all current and future emoluments with regard to his Directors’ fees up to his date of resignation from the Board on 30 June 2022. The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of pensions and annual incentive was £6.181 million (2021: £4.376 million). Phoenix Group Holdings plc Annual Report and Accounts 2022132 Corporate governance Share-based awards – Audited information As at 31 December 2022, Directors’ interests under long-term share-based arrangements were as follows: LTIP | | | | No. of | | | | No. of | | | | | | | | No. of | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | shares | No. of | | dividend | | | | | | | | | shares | | | | | | | as at | shares | | | shares | | | No. of | | | No. of | | as at | | | | | Date of | Share price | 1 Jan | granted | accumulating | | | | | shares | | shares not | | | 31 Dec | Vesting | | | | | | | | | | | 1 | | | 2 | | | 3 | | | 4 | | Name | grant | on grant | 2022 | in 2022 | | at vesting | | | exercised | | | | vested | | 2022 | date | | Andy Briggs LTIP Buyout Award 7 Nov 2019 751.5p 87,221 – 12,760 (99,981) – – 27 Mar 2020 LTIP 13 Mar 2020 620.5p 354,529 – – – – 354,529 13 Mar 2023 LTIP 12 Mar 2021 736.2p 298,831 – – – – 298,831 12 Mar 2024 LTIP 18 Mar 2022 635.9p – 351,133 – – – 351,133 18 Mar 2025 740,581 351,133 12,760 (99,981) – 1,004,493 Rakesh Thakrar LTIP 11 Mar 2019 700.4p 39,259 – 8,529 – (10,323) 37,465 11 Mar 2022 LTIP 13 Mar 2020 620.5p 135,365 – – – – 135,365 13 Mar 2023 LTIP 12 Mar 2021 736.2p 116,816 – – – – 116,816 12 Mar 2024 LTIP 18 Mar 2022 635.9p – 152,530 – – – 152,530 18 Mar 2025 291,440 152,530 8,529 – (10,323) 442,176 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 2022 were £645,224 (2021: £306,053). Andy Briggs gain was £645,224 arising from an LTIP award exercised on 29 March 2022 at a share price of £6.4534. 3 The 2019 LTIP award vested at 78.4% of maximum. The 2018 LTIP award vested at 99.9% of maximum. 4 All LTIP awards are now subject to a holding period so that any LTIP awards for which the performance vesting requirements are satisfied will not be released for a further two years from the third anniversary of the original award date. Phoenix Group Holdings plc Annual Report and Accounts 2022 133 ### Directors’ remuneration report continued LTIP targets The performance conditions for the 2020, 2021 and 2022 awards are set out below. These targets reflect adjustments made following the acquisition of ReAssure in July 2020 as described on page 136 of the 2020 Annual Report and Accounts. 2022 award | | 2020 award | | 2021 award | 20% Net Operating Cash Receipts | | | --- | --- | --- | --- | --- | --- | | 35% Net Operating Cash Receipts | | 35% Net Operating Cash Receipts | | 20% Return on Shareholder Value | | | 25% Return on Shareholder Value | | 25% Return on Shareholder Value | | | 20% Relative TSR | 1 | Performance measure | | 20% Relative TSR | | | 20% Relative TSR | | | | 20% Persistency | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 20% Persistency | | | 20% Persistency | | | 20% Decarbonisation | | | Net Operating Cash Receipts Target range | | | | | Target range | | | | Target range | | | of £4.411bn to £4.966bn | | of £4.330bn to £4.780bn | | | of £3.800bn to £4.100bn. | | | | | Return on Shareholder Value Between 2% CAGR | | | | Between 2% CAGR | | | | Between 3% CAGR | | | | | and 4% CAGR | | | and 4% CAGR | | | | and 5% CAGR. | | Persistency Target range between | | | | Target range between | | | Target range between | | | | | | 8.0% and 6.5% | | | 7.4% and 6.1% | | | | 7.6% and 6.2% | De-carbonisation – Investment Portfolio Net zero strategy applied between target range of 75% and 85% of assets in scope by 2025 Reduction of 18%–22% in portfolios where a Net Zero strategy has been applied Decarbonisation – Operations Target range of 15%–25% reduction year on year against 2019 carbon intensity of Scope 1 and 2 emissions from occupied premises and Scope 3 emissions from business travel 2 | Relative TSR | Target range between median | | | Target range between median | | | Target range between median | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 25% of this part vests at threshold | | performance against the | | | performance against the | | | performance against the | | | performance rising on a pro rata | constituents of the FTSE 350 | | | constituents of the FTSE 350 | | | constituents of the FTSE 350 | | | | basis until 100% vests. | (excluding Investment Trusts) | | | (excluding Investment Trusts) | | | (excluding Investment Trusts) | | | | | rising on a pro rata basis until | | | rising on a pro rata basis until | | | rising on a pro rata basis until | | | | | full vesting for upper quintile | | | full vesting for upper quintile | | | full vesting for upper quintile | | | | | | | performance. | | | performance. | | | performance. | 1 For each measure above, 25% of the award vests at threshold performance rising on a pro rata basis until 100% vests. Measured over three financial years commencing with the year of award. 2 The Committee must also consider whether the TSR performance is reflective of the underlying performance of the Company measured over three financial years commencing with the year of award. LTIP Underpin: 2020 LTIP – notwithstanding the formulaic outcome under the above performance targets, if the Committee determines that the Group’s debt levels and associated interest costs have not remained within parameters acceptable to the Committee over the performance period, and that the Group has not made progress considered to be reasonable by it in executing any strategy agreed by the Board on debt management, capital structuring and Risk Management, the level of awards vesting will either be reduced or lapse in full. The underpin also includes consideration of customer satisfaction and, to meet Solvency II requirements, in exceptional cases, personal performance. 2021 and 2022 LTIP – awards are subject to an underpin relating to risk management within the Group, consideration of customer satisfaction and, to meet Solvency II requirements, in exceptional cases, personal performance. This underpin relating to the formulaic outturn of the LTIP has been revised to better reflect the extent to which the Group has operated within its stated Risk Appetite and ensures that management is not incentivised to accept risk outside of appetite in the pursuit of improved delivery against LTIP performance targets. It also offers a broader assessment than the previous focus on the management of the Group’s debt position. Phoenix Group Holdings plc Annual Report and Accounts 2022134 Corporate governance DBSS – Audited information | | | | | No. of | | | | | No. of | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | shares | | No. of | | dividend | | | | | | No. of | | | | | | | | granted | | | shares | | | shares | | | No. of | | shares | | No. of | | | | Date | Share price | | as at | granted in | | accumulating | | | | | shares | | lapsed/ | shares as at | | Vesting | | | | | | | | | | | | 1 | | | 2 | | | | | | of grant | | on grant | 1 Jan 2022 | | | 2022 | | at vesting | | | exercised | | | waived | 31 Dec 2022 | | date | Andy Briggs DBSS 12 Mar 2021 736.2p 67,269 – – – 67,269 12 Mar 2024 DBSS 18 Mar 2022 635.9p – 73,610 – – – 73,610 18 Mar 2025 67,269 73,610 – – – 140,879 Rakesh Thakrar DBSS 11 Mar 2019 700.4p 11,740 – 2,548 (14,288) – 11 Mar 2022 DBSS 13 Mar 2020 620.5p 15,262 – – – – 15,262 13 Mar 2023 DBSS 12 Mar 2021 736.2p 27,381 – – – 27,381 12 Mar 2024 DBSS 18 Mar 2022 635.9p – 39,209 39,209 18 Mar 2025 54,383 39,209 2,548 (14,288) – 81,852 1 In addition to the shares awarded under the DBSS presented above, participants receive an additional number of shares (based on the number of DBSS awards which actually vest) to reflect the dividends paid during the vesting period. 2 Gains of Directors (Rakesh Thakrar only) from share options exercised and vesting shares under the DBSS in 2022 was £91,800 (2021: £59,922) arising from an award exercised on 25 March 2022 at a share price of £6.4249. The DBSS is the share scheme used for the deferral of AIP. No performance conditions apply therefore, although awards are subject to continued employment or good leaver status. Scheme interests awarded in the year – Audited information Percentage | | | | | | | How the | | | vesting at | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Date | | Type | Nature of | award is | Face value | | threshold | | Vesting | Performance | | | | | | | | | | | | | | 1 | | | | 1 | | Recipient | of award | | of award | | the Award | calculated | of award | performance | | | date | | Measures | | See page Andy Briggs 18 March 2022 LTIP Nil Cost Option 275% of salary £2,232,995 25% 18 March 2025 134 Andy Briggs 18 March 2022 DBSS Nil Cost Option 50% of AIP £468,115 – 18 March 2025 None See page Rakesh Thakrar 18 March 2022 LTIP Nil Cost Option 200% of salary £969,999 25% 18 March 2025 134 Rakesh Thakrar 18 March 2022 DBSS Nil Cost Option 50% of AIP £249,345 – 18 March 2025 None 1 The DBSS awards have no threshold performance level. The face value represents the maximum vesting of awards granted (but before any credit for dividends over the period to vesting) and is calculated using a share price of the average of the closing middle market prices of Phoenix shares for the three dealing days preceding the award date (2022 LTIP and DBSS award share price was 635.9p). Sharesave – Audited information As at As at Options Options Options 31 Dec Exercise Exercisable Date of 1 Jan 2022 granted exercised lapsed 2022 price from expiry Andy Briggs 3,056 – – – 3,056 £5.89 1 Jun 2024 1 Dec 2024 Rakesh Thakrar 1,604 – (1,604) – – £5.61 1 Jun 2022 1 Dec 2022 Rakesh Thakrar 2,546 – – – 2,546 £5.89 1 Jun 2026 1 Dec 2026 Rakesh Thakrar – 1,768 – – 164 £5.09 1 Jun 2025 1 Dec 2025 Sharesave options are granted with an option price that is a 20% discount to the three-day average share price when invitations are made. This is permitted by HMRC regulations for such options. Following the exercise of 1,604 options under the 2019 Sharesave scheme, Rakesh Thakrar received a total gain of £1,963 (2021: £nil). Aggregate gains of Directors from share options exercised under all share plans in 2022 were £738,988 (2021: £365,975). During the year ended 31 December 2022, the highest mid-market price of the Company’s shares was 701.4p and the lowest mid-market price was 506.8p. At 31 December 2022, the Company’s share price was 608.6p (30 December 2022 price). Phoenix Group Holdings plc Annual Report and Accounts 2022 135 ### Directors’ remuneration report continued Directors’ interests – Audited information The number of shares and share plan interests held by each Director and their connected persons are shown below: | Share interests | | | Share interests | | | Total share plan | | Total share plan | | Total share plan | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | as at | | | as at | interests as at | | interests as at | | interests as at | | 1 January 2022 | | | 31 December | | | 31 December | | 31 December | | 31 December | | | or date of | | | 2022 or | | 2022 – Subject | | 2022 – Not subject | | 2022 – Vested | | appointment | | | | retirement | | to performance | | to performance | | but unexercised | | | | if later | | if earlier | | | measures | | measures | scheme interest | Andy Briggs 285,897 359,111 1,004,493 140,879 – Rakesh Thakrar 102,822 116,201 404,711 81,852 37,465 Alastair Barbour 9,716 9,716 – – – Nicholas Lyons 65,990 65,990 – – – Stephanie Bruce – – – – – Karen Green – – – – – Hiroyuki Iioka – – – – – Wendy Mayall 55,000 55,000 – – – Katie Murray – 4,600 – – – John Pollock 14,666 14,666 – – – Belinda Richards – – – – – Maggie Semple – – – – – Nicholas Shott 38,995 69,473 – – – Kory Sorenson 38,300 45,000 – – – Mike Tumilty – – – – – The Directors’ share interests of the following Directors have increased between 31 December 2022 and 10 February 2023 (being one month prior to the date of the notice of the AGM). Andy Briggs and Rakesh Thakrar acquired an additional 64 shares each following purchases under the Group’s Share Incentive Plan. There were no other changes between these dates. Shareholding requirements – Audited information As explained in the Remuneration Policy under the Shareholding Guidelines section, the Executive Directors are subject to shareholding requirements during their employment with the Group and for a period of two years post termination of employment. Andy Briggs and Rakesh Thakrar are subject to a post-cessation shareholding of 100% of their in-employment shareholding for a period of two years post-employment. The extent to which Executive Directors have achieved the requirements by 31 December 2022 (using the share price of 608.6p pence as at 30 December 2022) is summarised below. Unvested share awards no longer subject to performance conditions (discounted for tax liabilities) are included within the Guidelines. In addition to the unvested share awards and shares previously acquired, Andy Briggs purchased 20,000 shares and Rakesh Thakrar purchased 3,133 shares independently throughout 2022. As detailed in the Chair’s covering statement, the Shareholding Guidelines are increasing to 350% for Andy Briggs and 300% for Rakesh Thakrar with effect from 2023 as part of the 2023 Remuneration Policy. Value of shares | | Shareholding | | | held at | | --- | --- | --- | --- | --- | | | | Guideline | 31 December | | | | (minimum % | | | 2022 | | Position | | of salary) | (% of salary) | | Andy Briggs 300% 324% Rakesh Thakrar 250% 223% The post cessation shareholding requirement is monitored and enforced by direct liaison and confirmation with the Directors and their brokers, all trades and transfers are discussed and notified to the Group by the relevant Director. The Executive Directors are required to sign a declaration that they have not and will not at any time during their employment with Phoenix, enter into any hedging contract in respect of their participation in the AIP, LTIP, Sharesave, Share Incentive Plan or any other incentive plan of the Company, or pledge awards in such plans as collateral, and additionally that they will neither enter into a hedging contract in respect of, nor pledge as collateral, any shares which are required to be held for the purposes of the Company’s Shareholding requirements or any vested LTIP award shares subject to a LTIP holding period. Phoenix Group Holdings plc Annual Report and Accounts 2022136 Corporate governance # **Implementation of remuneration policy in 2023 – Non-auditable** A summary of the packages of the Executive Directors is set out in the table below. | | Andy Briggs | Rebech Thakrar | | --- | --- | --- | | **Salary** | £844,480, a 4% increase, below the level of the wider workforce pay budget. | £504,400, a 4% increase, below the level of the wider workforce pay budget. | | **Benefits** | Benefits in line with the rest of the workforce including legacy car allowance of £10,000 and Private Medical Insurance cover for self only. Executive Directors are also entitled to receive benefits in accordance with our Directors' Remuneration Policy which will be reported in the Single Figure Table each year. | | | **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. | | | **Annual bonus** | 200% of base salary at maximum. Details of the 2023 AIP are set out below. | | | **LTIP** | 275% of base salary. Details of the 2023 LTIP awards are set out overleaf. | 300% of base salary. | | **Shareholding requirement** | 350% of base salary. Where any performance-ended LTIP awards are subject to a holding period requirement, the relevant LTIP award shares (discounted for anticipated tax liabilities) will count towards the shareholding requirements. Unvested awards under the DBSS which are not subject to performance conditions are included in this assessment on a net of tax basis. Unvested awards under the LTIP are not included in this assessment. | 300% of base salary. | | **Post cessation shareholding requirement** | Executive Directors are expected to retain the lower of their shareholding on termination or their full in employment shareholding requirement for two years. | | | **Element of Remuneration Policy** | | | | Annual Incentive Plan ('AIP') | The Committee regularly reviews the performance measures of the incentive plans to ensure they remain aligned with our strategy. As detailed in the Committee Chair's covering letter on page 111 the metrics for the 2023 AIP are shown below. | | | | The Strategic Scorecard reflects 20% of the Executive Directors' AIP. This will include a number of the strategic priorities for the year (but avoiding duplication with any outcomes under the Corporate element) and which can be clearly articulated and measured. Sustainability remains at the heart of our purpose and ESG continues to form part of the Strategic Scorecard elements of the Executive Directors. | | | | The overall weightings between Corporate measures and Strategic Scorecard for AIP in 2023 are - Corporate financial and customer performance measures – 80%, no change from 2022 - Strategic Scorecard (strategic company priorities) – 20%, no change from 2022 | | | | The weightings of the AIP performance measures for 2023 are summarised below. | | | | **Performance measure** | | | | **Corporate measure** | **% of incentive potential** | | | Cash Generation | 24% (30% of Corporate component) | | | Incremental New Business Long-term Cash Generation (less drain) plus Own Funds impacting Management Actions | 24% (30% of Corporate component) | | | Open (Pensions and Savings) net flows | 12% (15% of Corporate component) | | | Customer Experience | 20% (25% of Corporate component) | | | Strategic Scorecard | 20% | | | **Total** | **100%** | | | Outcomes from performance measures for 2023's AIP may be moderated by the Remuneration Committee in line with the approved Remuneration Policy. This will include a review by the Remuneration Committee of the extent to which the Group has operated within its stated risk appetite and that there are no other risk-related concerns that would necessitate moderation before any 2023 AIP outcomes are confirmed. The targets for the specific performance measures for the AIP in 2023 are regarded as commercially sensitive by the Group but will be disclosed retrospectively in the Remuneration Report for 2023. | | | | 50% of AIP outcomes for 2023 will be delivered as an award of deferred shares under the DBSS which will vest after a three-year deferral period. | | | Deferred Bonus Share Scheme ('DBSS') | DBSS awards made in 2023 (in respect of 2022's AIP outcome) will be made automatically on the fourth dealing day following the announcement of the Group's 2022 annual results in accordance with the Remuneration Policy. | | | | The number of shares for DBSS awards will be calculated using the average share price for the three dealing days before the grant of the DBSS awards. The three-year deferral period will run to the three-year anniversary of the making of the DBSS awards. Dividend entitlements for the shares subject to DBSS awards will accrue over the three-year deferral period. | | Phoenix Group Holdings plc Annual Report and Accounts 2022 137 ### Directors’ remuneration report continued Long-Term Incentive Awards under the LTIP will be made automatically on the fourth dealing day following the announcement of the Group’s 2022 Plan (‘LTIP’) annual results under a procedure similar to that described above for awards under the DBSS. The number of shares for LTIP awards will be calculated using the average share price for the three dealing days before the grant of the LTIP awards. The initial three-year vesting period will run to the three-year anniversary of the granting of the LTIP awards. At this time, the performance conditions will be determined. All annual LTIP awards made to Executive Directors are subject to a holding period so that any LTIP awards for which the performance conditions are satisfied will not be released for a further two years from the third anniversary of the original award date. Dividend accrual for LTIP awards will continue until the end of the holding period. The performance targets are measured over a period of three financial years, commencing with financial year 2023. As detailed in the Committee Chair’s covering letter on page 112 the 2023 LTIP measures have changed. Measures, weightings and targets are shown below: Performance measure and weighting Threshold target Full vesting target Net Operating Cash Receipts (20%) £3,556m £4,006m Group In-force Long-Term Free Cash (20%) £14.7m £15.4m Persistency (20%) 7.1% 6.08% | Decarbonisation – Investment Portfolio (10%) 75% reduction pre-offset, | | 85% reduction pre-offset, | | --- | --- | --- | | | plus net zero post offset | plus net zero post offset | | | (provided in the best interests | (provided in the best interests | | | of customers) | of customers) | | Decarbonisation – Operations (10%) Net-zero strategy applied to | | Net-zero strategy applied to | | | 80% of in-scope assets and | 90% of in-scope assets and | | | 25% reduction in carbon | 25% reduction in carbon | | | intensity | intensity | | Relative TSR measure against the constituents of the FTSE | 50th percentile 80th percentile | | 350 (excluding Investment Trusts), subject to the Committee considering whether the TSR performance is reflective of the underlying financial performance of the Company (20%) All 2023 LTIP awards are subject to an underpin relating to risk management within the Group, consideration of customer satisfaction and, to meet Solvency II requirements, in exceptional cases, personal performance. This underpin relating to the formulaic outturn of the LTIP reflects the extent to which the Group has operated within its stated Risk Appetite and ensures that management is not incentivised to accept risk outside of appetite in the pursuit of improved delivery against LTIP performance targets. It also offers a broader assessment than the previous focus on the management of the Group’s debt position. For the Group CEO, awards vesting under the LTIP will be subject to a cap on threshold performance of the lower of 50% of salary or 25% of maximum vesting. The rules of the Company’s LTIP reserves discretion for the Committee to adjust the outturn for any LTIP performance measures (from zero to any cap) should it consider that to be appropriate. The Committee may operate this discretion having regard to such factors as it considers relevant, including the performance of the Group, any individual or business. All-Employee Executive Directors have the opportunity to participate in HMRC tax advantaged Sharesave and Share Incentive Plans on the Share Plans same basis as all other UK employees. Chair and Fee levels from 1 April are: £460,000 for the Chair, £78,000 for the role of Non-Executive Director with additional fees of: Non-Executive (i) £20,000 payable for the role of SID; and/or (ii) £30,000 payable where an individual also chairs the Audit, Remuneration, Directors’ fees Risk or Sustainability Committee; and £18,000 for the other members of those committees, the Model Governance Committee and attendees to the Life Company Investment Committee. (iii) £20,000 payable where an individual chairs the M&A Advisory board; (iv) £15,000 payable for the Designated Director for Workforce Engagement, and £10,000 for other members of the M&A Advisory Board. The fee structure levels for Non-Executive Directors were last reviewed in December 2020 (effective 1 January 2021) with no fee increase in 2022. For 2023 the base fee will increase by 4% with effect from 1 April 2023, lower than that of the wider workforce. This is to ensure the fees reflect the time commitment and workload for the role and they remain competitive with other listed companies of similar size and complexity. All incentive plans are subject to malus/clawback. See page 123 ‘Notes to the Remuneration Policy Table’ for details. Phoenix Group Holdings plc Annual Report and Accounts 2022138 Corporate governance # **Distribution statement** The DRR Regulations require each quoted company to provide a comparison between profits distributed by way of dividend and overall expenditure on pay. # **Relative importance (£m)** ![img-3.jpeg](img-3.jpeg) Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial year. For 2022 this is the interim dividend paid (£248 million) and the recommended final dividend of 26.0 pence per share multiplied by the total share capital issued at the date of the Annual Report and Accounts as set out in note D1 in the notes to the consolidated financial statements. No share buy-backs were made in the year. Overall expenditure on pay has been taken as employee costs as set out in note C3 'Administrative expenses' in the notes to the consolidated financial statements. Expenditure on pay has increased by 15% in the period reflecting the impact of the expansion of the Open business, as well as the increased headcount in Asset Management and Group areas, which has also resulted in higher AIP and share scheme costs. One-off payments were also made in August 2022 in addition to general salary increases to help with the impacts of the current cost of living challenges. These increases have been partly offset by the impact from the Group's Transition and Transformation programme which has reduced headcount in certain areas of the business. # **Voting outcomes on remuneration matters** The table below shows the votes cast to approve the Directors' remuneration report for the year ended 31 December 2021 and the Directors' Remuneration Policy at the 2020 AOM held on 15 May 2020 | | For | | Against | | Abstentions | | --- | --- | --- | --- | --- | --- | | | Number | % of votes cast | Number | % of votes cast | Number | | To approve the Directors' remuneration report for the year ended 31 December 2020 (2022 AOM) | 772,702,304 | 98.15 | 14,593,901 | 1.85 | 777,768 | | To approve the Directors' remuneration policy (2020 AOM) | 563,455,468 | 99.31 | 3,899,742 | 0.69 | 744,467 | Phoenix Group Holdings plc Annual Report and Accounts 2022 139 ### Directors’ remuneration report continued Dilution The Company monitors the number of shares issued under the Group’s employee share plans and their impact on dilution limits. The Company’s current practice is for all the executive share plans to use market purchase shares on exercise of any awards. For the Company’s all-employee Sharesave scheme only, new shares are issued. Therefore the usage of shares compared to the 10% dilution limits (in any rolling ten-year period) set by the Investment Association in respect of all share plans as at 31 December 2022 is 0.75% and no shares count towards the dilution limit for executive plans only (5% in any rolling ten-year period). Consideration of employee pay When determining the Remuneration Policy and remuneration for our Executive Directors, the Committee took into consideration the pay and benefits of the wider workforce to ensure that our reward offering remains competitive, attractive and suitably aligned to our Group performance, while supporting our values and purpose of helping people secure a life of possibilities. Throughout the Sustainability report (on pages 50 to 56) there are examples of how our reward proposition played an integral role in supporting the Group culture that encourages diversity and inclusion, colleague development, rounded wellbeing, and supporting a sustainable society. We have a reward policy that is broadly consistent for all levels of employees, with the same remuneration principles guiding reward decisions for all Group colleagues, including Executive Directors. The AIP and LTIP performance metrics are the same for Executive Directors as for other eligible colleagues, with a higher proportion of total remuneration for the Executive Directors linked to corporate performance. For certain areas, business unit aligned metrics are also included in their AIP. Pay for the wider colleague base is driven primarily by market practice and there is a standard benefit offering across all levels, except where external market drives differences based on role accountability. Colleagues are also eligible to participate in the Group’s success through our share schemes (Sharesave and Share Incentive Plan) on the same basis as those offered to Executive Directors. Diversity, Equity and Inclusion is embedded in the Group culture through our industry leading family friendly policies, holistic wellbeing strategy that supports mental, physical and financial needs of colleagues and encouraging volunteering. Additionally, the Committee considers feedback on pay and benefits through Peakon, a short monthly survey of colleagues’ anonymous views on various matters, including reward. Further feedback from colleagues is received through extensive collaboration with the Phoenix Colleague Representation Forum (‘PCRF’) and the Designated Director for Workforce Engagement (see page 108). In response to the cost of living challenge throughout 2022, we recognised colleagues’ needs and provided a one-off £1,000 net lump-sum payment to all colleagues below senior management. Our financial wellbeing offering was also enhanced by including free personalised financial coaching and planning, and piloting a midlife MOT as part of our purpose to help people live better, longer lives. Additionally, throughout 2022 we provided assistance with car parking costs, a free lunch option and free sanitary items in all offices. We are a proud Real Living Wage employer and we made salary increases effective immediately following the announcement of the new Real Living Wage for those impacted. Equal pay and consistency of treatment for all colleagues, irrespective of gender 1 or ethnicity are integral guiding principles of the reward practices across the Group. The remuneration principles and framework are reviewed on a regular basis to ensure these are aligned with the Group’s purpose, values and sustainability strategy. 1 Further details on the Women in Finance Charter figures can be found on page 50 of the Sustainability Report. Further details on the statutory Gender Pay Gap figures can be found on the Phoenix Group website. Phoenix Group Holdings plc Annual Report and Accounts 2022140 Corporate governance # CEO pay ratio The table below details the CEO pay ratio for the year ended 31 December 2022, in line with the UK regulatory requirements. The ratios compare the CEO total pay against the pay of three UK employees, whose earnings represent the lower quartile, median, and upper quartile positions of the UK employee population. The calculations are based on Option A of the three methodologies, which we believe is the most statistically robust approach. The CEO value used is the total single figure remuneration data for 2022 (as detailed on page 127). For the 2022 ratio, the total compensation figure for UK employees follows the same methodology as for the CEO and is based on a full time equivalent of actual earnings including amounts due from incentive plans. The Group reviewed the pay of the three identified employees at 25th percentile, 50th percentile (median) and 75th percentile and concluded that they were a fair representation of pay at the relevant quartiles of the UK employee base. Each individual was a direct employee on a permanent or fixed-term contract during 2022 and received remuneration in line with Group wide remuneration policies. None received an exceptional award that would otherwise inflate their pay figure. The table below sets out the salary and total single figure remuneration for the Group CEO and percentile employees included in the below ratios. | | Year | Methodology | CEO | 25th percentile | 50th percentile (median) | 75th percentile | | --- | --- | --- | --- | --- | --- | --- | | Salary | 2022 | Option A | 809,000 | 23,413 | 40,000 | 53,508 | | Total remuneration (single figure) | 2022 | Option A | 3,058,279 | 30,600 | 44,223 | 75,368 | | 2022 Ratio (total compensation) | | | | 100.1 | 69.1 | 41.1 | | 2021 Ratio (total compensation) | | | | 66.1 | 46.1 | 26.1 | | 2020 Ratio (total compensation) | | | | 78.1 | 54.1 | 31.1 | | 2019 Ratio (total compensation) | | | | 94.1 | 62.1 | 40.1 | The increase in the ratio for 2022 reflects the fact that the CEO's single figure has increased compared to 2021 primarily due to the vesting of this 2020 LTIP award. To better compare to the 2021 figure, an additional ratio has been calculated excluding the value of LTIPs from both the CEO single figure and that of other employees, resulting in a median pay ratio of 44.1. The total compensation figure for the three identified employees is higher than last year due to the addition of the £1,000 cost of living payment described above under the 'Consideration of Employee Pay' section and our philosophy of pay progression within the Group. UK colleagues are also eligible to participate in our Sharewave and Share Incentive Plan offerings, which were not included in the values in the employee single figure. Around 32% and 35% of UK employees participate in Phoenix Group's growth and success through the Sharewave and Share Incentive Plan respectively. Phoenix Group is committed to attracting best in class talent at all levels with a compelling and competitive total reward proposition. This includes a holistic core and flexible suite of benefits with the ability to customise these to meet individual needs, as well as industry leading people policies including equal parental leave. We are an accredited Living Wage employer and committed to paying colleagues a fair rate for their role by conducting regular market reviews of salary ranges to maintain competitiveness against market. We are confident that the median pay ratio reported this year is consistent with our approach to pay, reward, career progression and growth for all colleagues. All colleagues have the opportunity for annual pay awards, performance driven pay and recognition as well as access to opportunities to develop their careers at Phoenix ensuring we create an environment for everyone to feel it is the best place our colleagues have ever worked. Phoenix Group Holdings plc Annual Report and Accounts 2022 141 ### Directors’ remuneration report continued Performance graph and table The graph below shows the value to 31 December 2022 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 31 December 2012 compared with the value of £100 invested in the FTSE 100 Index (excluding Investment Trusts). The FTSE 100 Index (excluding Investment Trusts) is considered to be an appropriate comparator for this purpose as it is a broad equity index of which the Company is a constituent. Total shareholder return Value of a 100 unit investment made on 31 December 2012. 400 £3,500 350 £3,000 300 £2,500 250 £2,000 200 £1,500 150 CEO remuneration £000 £1,000 100 | 50 | | | £500 | | --- | --- | --- | --- | | 0 | | | 0 | | | Dec 2013 | Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Dec 2022 | | Phoenix Group CEO remuneration Phoenix Group Holdings / Phoenix Group Holdings plc share price The total figure of remuneration for 2020 shown above is a combination of the single figures for Clive Bannister and Andy Briggs to reflect the change in Group CEO in 2020. The single figure for Andy Briggs for 2022 reflects the first year of vesting of his LTIP award. The DRR regulations also require that this performance graph is supported by a table summarising aspects of the Group CEO’s remuneration for the period covered by the above graph. Group chief executive officer remuneration | | | Annual variable | | | | Long-term | | --- | --- | --- | --- | --- | --- | --- | | | | element award | | | incentive vesting | | | Single figure | | rates against | | | | rates against | | | of total | | maximum | | | maximum | | remuneration | | | opportunity | | | opportunity | | | (£000) | | | (‘AIP’) | | (‘LTIP’) | 2022 Andy Briggs 3,058 87% 44.3% 1 2021 Andy Briggs 1,831 78% n/a | | | 2 | | 3 | | --- | --- | --- | --- | --- | | 2020 Andy Briggs | | | 1,706 83% 0.0% | | | | | 2,4 | | 5 | | | Clive Bannister | | 321 81% n/a | | 6 2019 Clive Bannister 2,715 92% 68.5% 2018 Clive Bannister 2,567 86% 49.5% 2017 Clive Bannister 2,888 86% 64.0% 2016 Clive Bannister 2,878 84% 55.0% 2015 Clive Bannister 2,867 82% 57.0% 7 2014 Clive Bannister 3,104 68% 57.0% 7 2013 Clive Bannister 2,737 69% 67.0% 1 Andy Briggs was not in receipt of a 2019 LTIP due to the timing of his appointment. 2 Clive Bannister left the role of Group Chief Executive Officer on 10 March 2020 and left Phoenix Group on the same date. Andy Briggs was appointed to the Board on 10 February 2020 and remained as CEO-designate until 10 March 2020. 3 See footnote 11 on page 130 of the 2020 Annual Report and Accounts for details of Andy Briggs’s LTIP vesting. 4 Clive Bannister’s 2020 single figure of total remuneration does not include compensation for loss of office. 5 Clive Bannister’s 2020 single figure of total remuneration does not include any value in respect of the 2018 LTIP. LTIP awards which vested after Clive Bannister stepped down from the Board of the Company have been reported as Payments to Past Directors on page 132 and are not included in the single figure of total remuneration, in line with the reporting regulations. 6 The single figure of total remuneration for 2019 has been restated and now reflects the actual price of shares on the day the 2017 LTIP vested (24 March 2020, 557.4p per share) rather than the three-month average share price to 31 December 2019 (717.09p per share) which was required to be used last year for the single figure of total remuneration. 7 The long-term incentive vesting rate for 2013 is shown at 67% and for 2014 is shown as 57%. In both years the Group CEO decided to waive voluntarily any entitlement in excess of two-thirds of the shares which would otherwise have vested. Phoenix Group Holdings plc Annual Report and Accounts 2022142 FTSE 100 Index Corporate governance Percentage change in pay of the Group Chief Executive Officer 2021 to 2022 In accordance with the DRR regulations, the table below provides a comparison of the percentage change in the prescribed pay elements of each individual who was a Director during the year (salary, taxable benefits and annual incentive outcomes) between financial years 2021 and 2022 and the equivalent percentage changes in the average of all staff employed by Phoenix Group. As no staff are employed directly by Phoenix Group Holdings plc, we have disclosed information for an appropriate group that is representative of the employees of Phoenix Group and its subsidiaries, in line with the regulatory guidance for this disclosure). This group was selected as being representative of the wider workforce using the same process as was used for this comparison in last year’s Annual Report and Accounts. Salary / Fees Taxable Benefits Annual incentive Year-on-year % change 2022 2021 2020 2022 2021 2020 2022 2021 2020 1 Executive Directors 2 Andy Briggs 1.1% 0.0% – 2.6% 3.3% – 12.4% (5.5)% – 2 Rakesh Thakrar 10.2% 2.3% – 20.7% 3.3% – 20.4% (3.3)% – 3 Non-Executive Directors 4 Alastair Barbour 58.4% 11.0% 0.0% 109.1% 66.6% (60%) n/a n/a n/a 4 | Nicholas Lyons (17.1)% 13.8% 0.0% 897.6% n/a | | | | | | | (100%) n/a n/a n/a | | --- | --- | --- | --- | --- | --- | --- | --- | | | 5 | | 4 | | 4 | | | | Stephanie Bruce | | n/a | | – – n/a | | – – n/a n/a n/a | | 4 Karen Green 12.8% 12.8% 6.8% 362.9% n/a (100%) n/a n/a n/a Hiroyuki Iioka 0.0% 0.0% – 0.0% 0.0% – n/a n/a n/a 4 | Wendy Mayall 16.2% 5.7% 0.0% n/a | | | | | | 0.0% (100%) n/a n/a n/a | | --- | --- | --- | --- | --- | --- | --- | | | 5 | | 4 | | 4 | | | Katie Murray | | n/a | | – – n/a | | (100)% – n/a n/a n/a | 4 John Pollock 0.0% 4.4% 0.7% n/a 0.0% (100%) n/a n/a n/a 4 | Belinda Richards 4.5% 5.7% 0.0% n/a | | | | | | 0.0% (100%) n/a n/a n/a | | --- | --- | --- | --- | --- | --- | --- | | | 5 | | 4 | | 4 | | | Maggie Semple | | n/a | | – – n/a | | (100)% – n/a n/a n/a | Nicholas Shott 7.7% 22.8% 0.0% 208.3% (100)% (80%) n/a n/a n/a 4 Kory Sorenson 0.0% 12.8% 0.0% n/a 0.0% (100%) n/a n/a n/a 4 Mike Tumilty 0.0% 0.0% 0.0% n/a 0.0% (100%) n/a n/a n/a Wider Employee Population 4.4% 4.7% 3.9% 57.2% 1.4% 7.4% 27.6% 9.1% n/a 1 The Taxable Benefits figures used for Andy Briggs and Rakesh Thakrar includes ongoing taxable benefits only. 2 The Taxable Benefits figures reflect a change in approach to reporting whereby the benefits under the Sharesave and Share Incentive Plan (previously included within the LTIP figure within the Single Figure Table) are now included within Taxable Benefits instead. This amounts to £2.5k for Rakesh Thakrar and £600 for Andy Briggs. 3 See page 132 for further details on fees and taxable benefits for Non-Executive Directors. Non-Executive Directors do not participate in the Annual Incentive Plan. 4 No taxable benefit received in the prior year and therefore not possible to calculate a percentage change. 5 Stephanie Bruce, Katie Murray and Maggie Semple are newly appointed Board members and therefore it is not possible to calculate a percentage change. The Salary figures for the Executive Directors reflect the increases agreed in 2022. Annual Incentive figures for the Executive Directors are higher than in 2021 due to the higher outturn under the 2022 AIP compared with the 2021 AIP reflecting the strong performance of the business, and the increase to base salary in April 2022. The fee increases for the Non-Executive Directors reflect the increases agreed in 2022 and changes in Board roles and responsibilities. Stephanie Bruce, Katie Murray and Maggie Semple were appointed during the year and as such it is not possible to calculate a percentage change. Taxable benefits have increased for certain Non-Executive Directors as a consequence of resuming travel compared to the prior year. The figures for the wider employee population are generally higher compared to 2021 due to a number of factors: • Pay review in April 2022 was operated under a consistent approach with a pay budget of 3.5%. In the context of the economic environment, a flat increase was given to lower graded colleagues ensuring a higher flat increase for this population compared to more senior colleagues. Additional salary increases were awarded throughout the year, where appropriate, to ensure consistency, internal relativities, and to retain talent. • The change to benefits is largely as a result of the one-off lump sum payment of £1,000 to all colleagues below senior management in response to the cost of living challenge (see page 140). By way of comparison the benefit figure excluding this one-off cost of living payment has reduced by 3.6% as a result of a reduction in PMI premium and the ending of the working from home allowance that was provided to colleagues during the pandemic. As in previous years, Sharesave and Share Incentive Plan values are not included in the wider employee population figures • As with the Executive Directors, the increase in annual incentive payments is due to the higher outturn under the corporate element than in 2021, and reflects the strong performance achieved in 2022. Phoenix Group Holdings plc Annual Report and Accounts 2022 143 ### Directors’ remuneration report continued Directors’ service contracts The dates of contracts and letters of appointment and the respective notice periods for Directors are as follows: Executive Directors’ Service Contracts Notice period Date of Date of from either Name appointment contract party (months) Andy Briggs 1 January 2020 7 November 2019 12 Rakesh Thakrar 15 May 2020 6 March 2020 12 Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards as long as these are not deemed to interfere with the business of the Group. They are also entitled to retain any external fees. Andy Briggs is a board member of the Association of British Insurers and is the UK Government’s Business Champion for Older Workers. Rakesh Thakrar is a Non-Executive Director and Chair of the Board Audit Committee of Bupa Insurance Limited and Bupa Insurance Services Limited for which he received payment of £37,382 in 2022 on a pro-rated basis. He remains as a Director of Mythili Magha for which no payments are received. Non-Executive Directors’ letters of appointment Date of | | | | | joining | | | | Unexpired | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Date of letter | | Phoenix Group | | | | Date of last | | term | | | | | | | | 1 | | | | | 2 | | Name | of appointment | Holdings Plc Board | | | | re-appointment letter Date of expiry | | (months) | | | Alastair Barbour 1 November 2018 1 October 2013 1 September 2022 November 2023 8 3 Nicholas Lyons 15 October 2018 31 October 2018 31 October 2021 1 September 2022 – Stephanie Bruce 9 May 2022 1 July 2022 n/a 1 July 2025 28 Karen Green 1 November 2018 1 July 2017 1 July 2020 30 June 2023 3 Hiroyuki Iioka 23 July 2020 23 July 2020 n/a 23 July 2023 4 4 Wendy Mayall 1 November 2018 1 September 2016 1 September 2022 31 December 2022 – Katie Murray 1 April 2022 1 April 2022 n/a 1 April 2025 24 John Pollock 31 October 2022 1 September 2016 1 September 2022 30 August 2025 29 Belinda Richards 1 November 2018 1 October 2017 1 October 2020 30 September 2023 6 Maggie Semple 9 May 2022 1 June 2022 n/a 31 May 2025 26 Nicholas Shott 1 November 2018 1 September 2016 1 September 2022 30 August 2025 29 Kory Sorenson 1 November 2018 1 July 2014 1 July 2020 30 June 2023 3 5 Mike Tumilty 14 August 2019 1 September 2019 n/a 30 June 2022 – 1 Date of expiry refers to each individual directors’ letter of appointment which covers a three year term. All Directors are subject to annual re-election at the AGM on 4 May 2023. 2 The unexpired term is from date of the signing of these accounts to the end of each Directors’ current letter of appointment and includes whole months only. 3 Alastair Barbour is expected to retire from the Board subsequent to Nicholas Lyons resuming his role as Chair of the Board which is expected to be in November 2023. 3 Nicholas Lyons commenced his sabbatical on 1 September 2022 and is expected to rejoin the Board in November 2023. 4 Wendy Mayall retired from the Board on 31 December 2022. 5 Mike Tumilty retired from the Board on 30 June 2022. The tables above have been included to comply with UKLA Listing Rule 9.8.8. In the event of cessation of a Non-Executive Director’s appointment (excluding the Chair) they would be entitled to a one-month notice period. The Chair, as detailed in his letter of appointment, would be entitled to a six-month notice period. Phoenix Group Holdings plc Annual Report and Accounts 2022144 Corporate governance Remuneration Committee governance The terms of reference of the Committee are available at www.thephoenixgroup.com. The main determinations of the Committee in 2022 in respect of the application of the Remuneration Policy are summarised in the Committee Chair’s letter to shareholders at the start of the Remuneration Report. The table below shows the independent Non-Executive Directors who served on the Committee during 2022 and their date of appointment: Member From To Kory Sorenson (Committee Chair from 11 May 2017) 1 July 2014 To date Karen Green 1 July 2017 To date Belinda Richards 2 July 2019 To date Nicholas Shott 20 October 2016 To date Under the Committee’s Terms of Reference, the Committee meets at least twice a year but more frequently if required. During 2022, eight formal Committee meetings were held and details of attendance at meetings are set out in the Corporate Governance Report on page 83. Consistent with the requirements of Solvency II, the Committee is responsible for establishing, implementing, overseeing and reviewing the Company-wide remuneration policy in the context of business strategy and changing risk conditions. The Group-wide remuneration policy focuses on ensuring sound and effective risk management so as not to encourage risk-taking outside of the Company’s risk appetite. None of the Committee members have any personal financial interest (other than as shareholders), conflicts of interests arising from cross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to the Board. No Director plays a part in any discussion about his or her own remuneration. Remuneration committee activities in 2022 Q1 Q2 Q3 Q4 | • Chief Risk Officer report noted | • Group-wide Remuneration | • Chief Risk Officer mid-year | • 2022 AIP Phoenix Re targets | | --- | --- | --- | --- | | • Approval of Group and | Review | Report noted | • Remuneration Review | | functional AIP outturns for | • Remuneration Policy Review | • AIP / LTIP forecasts and | (including Remuneration Policy | | 2021 and Group and functional | • Investor feedback on DRR | outturns | approval) | | AIP metrics and targets for | • Share schemes update | • Approve LTIPs mid-year grant | • Shareholder consultation | | 2022 | | • Remuneration Review update | • Review of Group CEO / CFO | | • Approval of LTIP outturns for | | (including Remuneration | remuneration for 2023 | | 2021 and metrics and targets | | Policy) | • Shareholding Guidelines noted | | for 2022 | | | • Committee Effectiveness | | • Executive Directors and | | | Review. | Executive Committee salary decisions for 2023. • Approval of 2022 Share Plan Awards • Oversight of wider employee remuneration and cost of living support Phoenix Group Holdings plc Annual Report and Accounts 2022 145 ### Directors’ remuneration report continued Advice provided to the Committee During the year, the Committee received independent remuneration advice from its appointed adviser, PwC, who is a member of the Remuneration Consultants Group (the professional body for remuneration consultants) and adheres to its code of conduct. The Remuneration Committee was satisfied that the advice provided by PwC was objective and independent. PwC also provided general consultancy services to management during the year including support on other Board and Risk matters and technical advice regarding share schemes. Separate teams within PwC provided unrelated services in respect of tax, assurance, risk consulting, sustainability and transaction support during the year. The Committee is satisfied that these activities did not compromise the independence or objectivity of the advice it has received from PwC as remuneration committee advisers. PwC’s fees for work relating to the Committee for 2022 were £191,461 which included support for the renewal of the Remuneration Policy. These were charged on the basis of the firm’s standard terms of business for advice provided. The Committee assesses the performance of its advisers regularly, the associated level of fees and reviews the quality of advice provided to ensure that it is independent of any support provided to management. The Committee completed an internal effectiveness review for 2022. From that evaluation the Committee requested focused education sessions from PwC during 2023 on wider employee pay and how our peers and other FTSE100s are not only navigating remuneration in the current geo-political and UK economic uncertainty, but how new Director Remuneration Policies are being communicated to the wider workforce in line with the Corporate Governance Code. The formal review of the Committee’s effectiveness was covered as part of this year’s internal Board and Committee evaluation process for 2022. From that evaluation it was agreed that formal education sessions from PwC during 2023 be arranged on wider employee pay and how our peers and other FTSE100s are not only navigating remuneration in the current geo-political and UK economic uncertainty, but how new Directors Remuneration Policies are being communicated to the wider workforce in line with the Corporate Governance Code The Group CEO, Group HR Director, Executive Reward Director and Group Financial Controller and delegates, attend by invitation, various Committee meetings during the year. No executive is ever permitted to participate in discussions or decisions regarding his or her own remuneration. The Committee consults with the Chief Risk Officer (without management present) on a regular basis. The Chief Risk Officer is asked to detail the extent to which the Group has operated within its stated risk appetite during the year and to keep the Committee informed of any risk-related concerns that required the Committee to consider using its judgement to moderate incentive plan outcomes. The Chair of the Remuneration Committee also sits on the Risk Committee to enable additional linkage between risk matters and remuneration outcomes. Approval This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by: Kory Sorenson Remuneration Committee Chair Approved by the Board on 10 March 2023 Phoenix Group Holdings plc Annual Report and Accounts 2022146 Corporate governance Directors' report # Directors' report The Directors present their report for the year ended 31 December 2022. Phoenix Group Holdings plc is incorporated in England and Wales (registered no. 11606773) and has a premium listing on the London Stock Exchange. | **Description** | | | --- | --- | | **Dividends** | | | **Dividends for the year ended 31 December 2022** | Dividends for the year are as follows: | | | **Ordinary shares** | | | Paid interim dividend 24.8p per share (2021: 24.1p per share) | | | Recommended final dividend 26.0p per share (2021: 24.82p per share) | | | Total ordinary dividend 50.8p per share (2021: 48.92p per share) | | | Dividends declared in respect of the Company's ordinary shares must be capable of being cancelled and withheld or deferred at any time prior to payment. This is so that the Company's ordinary shares can be counted towards Group capital. Accordingly, the final dividend will be declared on a conditional basis and the Directors reserve the right to cancel or defer the recommended dividend. The Directors do not expect to exercise this right other than where they believe that it may be necessary to do so as a result of legal or regulatory requirements. | | **Share capital** | | | **Issued Share Capital** | The issued share capital of the Company increased by 816,419 shares during 2022 which related to shares issued under the Company's Sharesave Scheme. | | | At 31 December 2022, the issued ordinary share capital totalled 1,000,352,477. Subsequently, 15,998 ordinary shares have been issued in 2023 in connection with the Company's Sharesave Scheme to bring the total in issue to 1,000,368,475 at the date of this Directors' Report. Full details of the issued and fully paid share capital as at 31 December 2022 and movements in share capital during the period are presented in note D1 to the IFRS consolidated financial statements. | | **Authority to Purchase Own Shares** | At the Company's 2022 AGM, shareholders approved the renewal of the Company's authority to make purchases of up to 99,958,427 of its own shares and make payment for the redemption or purchase of its own shares in any manner permitted by the Companies Act 2006 including without limitation, out of capital, profits, share premium or the proceeds of a new issue of shares. The authority was not used and none of the Company's ordinary shares were purchased by the Company during 2022. The authority will expire at the 2023 AGM. A resolution to renew this authority shall be proposed in the 2023 AGM Notice of Meeting. | | **Treasury Shares** | The Company held no treasury shares during the year or up to the date of this Directors' Report. | | **Rights and Obligations Attached** | The rights and obligations attaching to the Company's ordinary shares are set out in the Company's Articles of Association (the 'Company's Articles') which are available on the Company's website at www.thephoenixgroup.com/about-us/governance. | | **Phoenix Group Employee Benefit Trust ('EBT')** | Where the EBT holds shares for unvested awards, the voting rights for these shares are exercisable by the trustees of the EBT at their discretion, taking into account the recommendations of the Group. | | **Restrictions on transfer of shares** | Under the Company's Articles, the Directors may in certain circumstances refuse to register transfers of shares. Certain restrictions on the transfer of shares may be imposed from time to time by applicable laws and regulations (for example, insider trading laws) and pursuant to the Listing Rules of the FCA and the Group's own share dealing rules whereby Directors and certain employees of the Group require individual authorisation to deal in the Company's ordinary shares. | Phoenix Group Holdings plc Annual Report and Accounts 2022 147 ## Directors' report continued | Observations | | | | --- | --- | --- | | Board capital | | | | **Substantial shareholdings** | Information provided to the Company pursuant to Chapter 5 of the FCA's Disclosure Guidance and Transparency Rules (DTR 5) is published on a Regulatory Information Service and on the Company's website. As at 31 December 2022, the following interests with voting rights in the Ordinary share capital of the Company had been notified to it under DTR 5. No changes have occurred in respect of the holdings below between 31 December 2022 and 10 March 2023. | | | | Name | Number of voting rights in shares Percentage of shares in issue | | | MS&AD Insurance Group Holdings Inc. | 144,877,304 14.48% | | | abrdn plc | 107,025,201 10.69% | | | BlackRock, Inc. | 51,251,518 5.14% | | Annual General Meeting (2022) | | | | **2023 AGM** | The AGM of the Company will be held at 9th Floor, 20 The Old Bailey, London, EC4M 7AN on 4 May 2023 at 10am. A separate notice concerning this meeting will be distributed to shareholders in due course and will include an explanation of the items of business to be considered at the meeting. | | | Investor communications | | | | **Investor communications** | The Company's Annual Report and Accounts, together with the Company's Interim Report and other public announcements and presentations, are designed to present a fair, balanced and understandable view of the Group's activities and prospects. These are available on the Company's website at www.thephoenixgroup.com, along with a wide range of relevant information for private and institutional investors, including the Company's financial calendar. | | | Board | | | | **Board membership** | The membership of the Board of Directors during 2022 is given within the Corporate Governance Report on pages 74 to 76, which is incorporated by reference into this Directors' Report. During 2022 end up to the date of this Directors' Report, the following changes to the Board took place - • Katie Murray was appointed as a director on 1 April 2022 - • Maggie Semple was appointed as a director on 1 June 2022 - • Mike Tumilty, abrdn plc Nominated Director, retired from the Board on 30 June 2022 - • Stephanie Bruce, abrdn plc Nominated Director, was appointed as a director on 1 July 2022 - • Nicholas Lyons commenced his sabbatical on 1 September 2022 - • Alastair Barbour commenced his position as Chair on 1 September 2022 - • Wendy Mayall retired from the Board on 31 December 2022 | | | **Related party transactions** | Details of related party transactions which took place during the year with Directors of the Company and consolidated entities where Directors are deemed to have significant influence, are provided in note 14 to the IFRS consolidated financial statements. | | | **Appointment, re-election and removal of Directors** | The rules about the appointment and replacement of Directors are contained in the Company's Articles. These state that a Director may be appointed by an ordinary resolution of the shareholders or by a resolution of the Directors. If appointed by a resolution of the Directors, the Director concerned holds office only until the conclusion of the next AGM following their appointment. In accordance with the UK Corporate Governance Code, Directors must stand for election/re-election annually. The Board of Directors will be unanimously recommending that all of the Directors should be put forward for election/re-election at the forthcoming AGM to be held on 4 May 2023. The Company's Articles give details of the circumstances in which Directors will be treated as having automatically vacated their office and also state that the Company's shareholders may remove a Director from office by passing an ordinary resolution. | | | **Director powers and authorities** | The powers of the Directors are determined by the Companies Act 2006, the provisions of the Company's Articles and by any valid directions given by shareholders by way of special resolution. The Directors have been authorised to allot and issue securities and grant options over or otherwise dispose of shares under the Company's Articles. | | | **Directors' remuneration and interests** | A report on Directors' remuneration is presented within the Directors' Remuneration Report on pages 127 to 146 including details of their interests in shares and share options or any rights to subscribe for shares in the Company. | | 148 Phoenix Group Holdings plc Annual Report and Accounts 2022 Corporate governance ### “Our Going Concern Statement, detailed on the ### following page, is made following a rigorous ### assessment of whether the Group and Company ### have adequate resources to continue in ### operational existence over the next 12 months, ### based on severe but plausible scenarios.” Rakesh Thakrar Group Chief Financial Officer Board Directors’ indemnities The Company has entered into deeds of indemnity with each of its Directors whereby the Company has agreed to indemnify each Director against all losses incurred by them in the exercise, execution or discharge of their powers or duties as a Director of the Company, provided that the indemnity shall not apply when prohibited by any applicable law. The deeds of indemnity remain in-force as at the date of signature of this Directors’ Report. Directors’ conflicts of The Board has established procedures for handling conflicts of interest in accordance with the Companies Act 2006 interest and the Company’s Articles. See page 79 of the Corporate Governance Report for more detail. On an ongoing basis, Directors are responsible for informing the Group Company Secretary of any new, actual or potential conflicts that may arise. Directors’ and Officers’ The Company maintains Directors’ and Officers’ liability insurance cover which is renewed annually. liability insurance Governance Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The Strategic Report includes details of the Group’s cash flow and solvency position, including sensitivities for both, alongside details of any key events affecting the Company (and its consolidated subsidiaries) since the end of the financial year. Principal risks and their mitigation are detailed on pages 56 to 67. In addition, the IFRS consolidated financial statements include, amongst other things, notes on the Group’s borrowings (note E5), management of its financial risk including market, credit and liquidity risk (note E6), its commitments and contingent liabilities (notes I5 and I6) and its capital management (note I3). The Strategic Report (on pages 14 to 17 ) sets out the business model and how the Group creates value for shareholders and policyholders. As part of its comprehensive assessment as to whether the Group and the Company are a going concern, the Board has considered financial projections over the period to 31 March 2024, which demonstrate the ability of the Group to withstand market shocks in a range of severe but plausible stress scenarios. Further details of these stress scenarios are included in the viability statement on pages 68 to 69, but they include a recessionary economic stress that reflects a further increase in inflation, additional credit downgrades and falling equity and property values. The projections demonstrate that appropriate levels of capital would remain in the Life Companies under both the base and reasonably foreseeable stress scenarios, thus supporting cash generation in the going concern period. In addition, the Board noted the Group’s access to additional funding through its undrawn £1.25 billion Revolving Credit Facility. The stresses do not give rise to any material uncertainties over the Group’s ability to continue as a going concern. The Directors therefore have a reasonable expectation that the Group and the Company have adequate resources to meet its liabilities as they fall due and continue in operational existence over the period to 31 March 2024, the period covered by the going concern assessment. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Directors have acknowledged their responsibilities in the Statement of Directors’ Responsibilities in relation to the IFRS financial statements for the year ended 31 December 2022. Viability statement The Viability Statement, as required by the UK Corporate Governance Code, has been undertaken for a period of three years to align to the Group’s business planning and is contained in the Risk Management section on pages 52 to 67. Phoenix Group Holdings plc Annual Report and Accounts 2022 149 ## Directors' report continued | Corporate governance statement | | | | --- | --- | --- | | The disclosures required by section 7.2 of the FCAs Disclosure Guidance and Transparency Rules can be found in the Corporate Governance Report on pages 72 to 146 which is incorporated by reference into this Directors' Report and comprises the Company's Corporate Governance Statement. | | | | The 2018 UK Corporate Governance Code (the 'Code') applies to the Company and details on the Company's compliance with the Code are included in the Corporate Governance Report on page 77. The Code is available on the website of the FRC – www.frc.org.uk. | | | | The disclosures required by the Companies Act 2006 in respect of the following matters are set out in the Strategic Report, as below: | | | | **Our strategy and future developments** | The Company's strategy and priorities for 2022 are highlighted in the 'Strategy and KPIs' section of the Strategic Report. | See pages 18 to 27 of the Strategic Report | | **Our people and diversity** | The Company's People strategy for colleagues is detailed in the Group's Sustainability Report. The Company's diversity and inclusion targets for colleagues are also detailed in the Group Sustainability Report, with highlights set out in the Strategic Report. | - See pages 26, 27 and 42 of the Strategic Report - See the Company's supplementary Sustainability Report | | **Disability** | The Group has an Equal Opportunities and Diversity Framework which ensures full and fair consideration is given to applications from, and the continuing employment and training of, disabled people. The Group also has a Reasonable Adjustments Policy which sets out Phoenix's duty to make reasonable adjustments to help ensure that all colleagues can access opportunities and thrive in employment. In addition, the Group has a Dignity at Work policy which sets out Phoenix's commitment to creating a work environment free of discrimination where everyone is treated with dignity and respect. Our colleague inclusion networks includes a group 'Enable' which promotes the interests of colleagues with disabilities and other long-term health conditions. | - See the Company's website for more information | | **Our people and engagement** | Details of how the Company has engaged with employees during the year can be found in the Stakeholder Engagement section of the Strategic Report and 'Engagement in Action' section of the Corporate Governance Report. In addition, details of how the Board has considered the interests of employees in key decision making can be found in the section 172 statement included in the Strategic Report and the Corporate Governance Report. Information about how the Board has engaged with the workforce can also be found in the Corporate Governance Report. During the year, information about the Group's performance and market trends impacting Phoenix was shared via an all-employee intranet. In addition, colleagues were invited to participate in the Group's Shareware scheme, advertised through the all-employee intranet. | - See page 42 of the Strategic Report and pages 108 to 109 of the Corporate Governance Report (for colleague engagement) and 84 to 87 (for section 172 statement) of the Strategic Report | | **Our business relationships** | Details of how the Company has engaged with its customers, suppliers and others can be found in the Stakeholder Engagement section of the Strategic Report. In addition, details of how the Board has considered the need to foster the Company's business relationships with suppliers, customers and others can be found in the section 172 statement included in the Strategic Report on page 43 and Corporate Governance Report on pages 84 to 87. | - See pages 42 to 43 (stakeholder engagement) and page 43 (for section 172 statement) of the Strategic Report | | **Greenhouse gas emissions** | All disclosures concerning the Group's greenhouse emissions are contained in the Group's Streamlined Energy and Carbon Reporting ('SECR') Statement forming part of the Strategic Report. | - See pages 46 to 47 of the Strategic Report | 150 Phoenix Group Holdings plc Annual Report and Accounts 2022 Corporate governance | Governance | | | --- | --- | | Other disclosures required within this corporate governance statement are set out below: | | | **Task Force on Climate-related Financial Disclosures ('TCFD')** | In accordance with LR 9.8.6R, climate-related financial disclosures consistent with the TCFD Recommendations and Recommended Disclosures are contained in the Group's Climate Report, a summary of which has been included in the Strategic Report on pages 48 to 51 due to their strategic importance. During 2022, significant progress has been made in further embedding the recommendations of the TCFD and aligned with the expectations of the PRA's Supervisory Statement 3/19. In light of this progress, the recognised strategic importance of climate risks and opportunities and the increasing need for transparent climate reporting, Phoenix has published a standalone Climate Report which is available on the Company's website. | | **Board diversity – gender and ethnicity** | In accordance with LR 9.8.6R, a statement on board diversity targets and numerical data on the ethnic background and gender of the Board of Directors and Executive Committee are included in the Corporate Governance report on page 50. Data was collated through the standard process for preparing the Group's annual submission to the Department for Business & Trade (formerly BEIS) in respect of the Parker Review, FTSE 350 Ethnic Diversity Data Submission and FTSE Women Leaders review, under applicable data protection laws. | | **Energy usage and Carbon Emissions under the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (SI 2018/1155)** | The Group's Streamlined Energy and Carbon Reporting ('SECR') statement on the Group's UK and global energy consumption and GHG emissions for the financial year 1 January 2022 to 31 December 2022, and the 2021 comparative year is contained in the Strategic Report on pages 46 to 47. | | **Branches** | The Company, through its subsidiaries, has established branches in Germany, Hong Kong and Ireland as countries in which the Group operates. | | **Political donations** | During 2022, the Group made no political donations. (2021 no political donations made) | | **Articles of Association** | Changes to the Company's Articles require prior shareholder approval by special resolution. The Company's Articles are available on the Company's website at www.thephoenixgroup.com/about-us/governance | | **Re-appointment of the Auditors** | EY has indicated its willingness to continue in office and shareholders' approval will be sought at the AGM on 4 May 2023. There is no cap on auditor liability in place in relation to audit work carried out on the IFRS consolidated financial statements and the Group's UK subsidiaries' individual financial statements. Details of fees paid to EY during 2022 for audit and non-audit work are disclosed in note C4 to the IFRS consolidated financial statements. | | **Disclosure of information to Auditors** | The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware and that each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. | | **Group Company Secretary** | The Group Company Secretaries during the 2022 financial period were Gerald Watson (until 31 March 2022) and Kullander Dosen (since 1 April 2022). | | **Fair, balanced and understandable** In accordance with the UK Corporate Governance Code, the Directors confirm that they have reviewed the Annual Report and consider that it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy. | | Phoenix Group Holdings plc Annual Report and Accounts 2022 151 ### Directors’ report continued Contractual/Other Significant agreements The £1.25 billion revolving credit facility has provisions which would enable the lending banks to require repayment impacted by a change of of all amounts borrowed following a change of control. control of the Company All of the Company’s employee share and incentive plans contain specific provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable/available on the date of notification, subject to the satisfaction of any performance conditions and pro rata reduction as may be applicable under the rules of the employee share incentive plans. Apart from the aforementioned, there are a number of agreements that take effect, alter or terminate upon a change of control of the Company, such as commercial contracts. None is considered to be significant in terms of their potential impact on the business of the Group. Important post balance Details of important events affecting the Company which have occurred since the end of the financial year sheet events are contained in note I7 to the IFRS consolidated financial statements. Disclosures under Listing For the purposes of Listing Rule 9.8.4CR, the information required to be disclosed under Listing Rule 9.8.4R can be Rule 9.8.4R found within the following sections of the Report and Accounts: Section Requirement Location 1 Statement of interest capitalised Note E5 to the Consolidated Financial Statements 2 Publication of unaudited financial information Not applicable 3 Deleted Not applicable 4 Details of long-term incentive schemes Directors’ Remuneration Report 5 Waiver of emoluments by a Director Directors’ Remuneration Report 6 Waiver of any future emoluments by a Director Directors’ Remuneration Report 7 Non pre-emptive issue of equity for cash Not applicable 8 As per 7, but for major subsidiary undertakings Not applicable 9 Parent participation in any placing of a Not applicable subsidiary 10 Contracts of significance Not applicable 11 Controlling shareholder provision of services Not applicable 12 Shareholder dividend waiver Not applicable 13 Shareholder dividend waiver – future periods Not applicable 14 Controlling shareholder agreements Not applicable Phoenix Group Holdings plc Annual Report and Accounts 2022152 Corporate governance ### Statement of Directors’ responsibilities ## Statement of Directors’ responsibilities Statement of Directors’ responsibilities in respect of the • prepare the consolidated and the Company financial Annual Report and Accounts of Phoenix Group Holdings plc statements on the going concern basis unless it is inappropriate The Directors are responsible for preparing the Annual Report, to presume that the Company and/or the Group will continue consolidated financial statements and the Company financial in business. statements in accordance with applicable United Kingdom law and regulations. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and The Board has prepared a Strategic Report which provides an Group’s transactions and disclose with reasonable accuracy at any overview of the development and performance of the Group’s time the financial position of the Company and the Group, and business for the year ended 31 December 2022, covers the future enable them to ensure that the Company and the consolidated developments in the business of Phoenix Group Holdings plc and financial statements and the Directors’ Remuneration Report its consolidated subsidiaries and provides details of any important comply with the Companies Act 2006. They are also responsible events affecting the Company and its subsidiaries after the for safeguarding the assets of the Group and Company and year-end. For the purposes of compliance with DTR 4.1.5R(2) and hence for taking reasonable steps for the prevention and DTR 4.1.8R, the required content of the ‘Management Report’ can detection of fraud and other irregularities. be found in the Strategic Report and this Directors’ Report, including the sections of the Annual Report and Accounts Under applicable law and regulations, the Directors are also incorporated by reference. responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Company law requires the Directors to prepare the consolidated Statement that comply with that law and those regulations. The and the Company financial statements for each financial year. Directors are responsible for making, and continuing to make, Under that law the Directors have elected to prepare the the Company’s Annual Report and Accounts available on the consolidated and Company financial statements in accordance Company’s website. Legislation in the United Kingdom governing with UK-adopted international accounting standards (‘IASs’) in the preparation and dissemination of financial statements may conformity with the requirements of the Companies Act 2006. differ from legislation in other jurisdictions. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair The Directors as at the date of this Directors’ Report, whose names view of the state of affairs of the Group and the Company and of and functions are listed in the Board of Directors section on pages the profit or loss of the Group and the Company for that period. 74 to 76, confirm that, to the best of their knowledge: • the consolidated financial statements, prepared in accordance In preparing these financial statements the Directors are with UK-adopted international accounting standards give a true required to: and fair view of the assets, liabilities, financial position and profit • select suitable accounting policies in accordance with IAS 8 or loss of the Company and undertakings included in the Accounting Policies, Changes in Accounting Estimates and consolidation taken as a whole; Errors and then apply them consistently; • the Annual Report, including the Strategic Report, includes a • make judgements and accounting estimates that are reasonable fair review of the development and performance of the business and prudent; and the position of the company and undertakings included in the consolidation taken as a whole, together with a description • present information, including accounting policies, in a manner of the principal risks and uncertainties that they face; and that provides relevant, reliable, comparable and understandable information; • they consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information • provide additional disclosures when compliance with the necessary for users (who have a reasonable knowledge of specific requirements in IASs is insufficient to enable users to business and economic activities) to assess the Company’s understand the impact of particular transactions, other events position, performance, business model and strategy. and conditions on the Group and Company financial position and financial performance; The Strategic Report and the Directors’ Report were approved by • in respect of the consolidated financial statements, state the Board of Directors on 10 March 2023. whether UK-adopted international accounting standards have been followed, subject to any material departures disclosed and By order of the Board explained in the consolidated financial statements; • in respect of the Company financial statements, state whether UK-adopted international accounting standards, have been Andy Briggs Rakesh Thakrar followed, subject to any material departures disclosed and Group Chief Group Chief explained in the financial statements; and Executive Officer Financial Officer 10 March 2023 Phoenix Group Holdings plc Annual Report and Accounts 2022 153 ## Financials Phoenix Group Holdings plc Annual Report and Accounts 2022154 Financials Independent auditors’ report 156 IFRS consolidated financial statements 168 Notes to the consolidated financial statements 175 Parent company financial statements 290 Notes to the parent company financial statements 293 Additional Life Company asset disclosures 307 Additional capital disclosures 312 Alternative performance measures 314 Phoenix Group Holdings plc Annual Report and Accounts 2022 155 ### Independent auditor’s report ## Independent auditor’s report ## to the members of Phoenix ## Group Holdings plc Opinion The financial reporting framework that has been applied in their In our opinion: preparation is applicable law and UK-adopted international accounting standards and as regards the Parent Company • Phoenix Group Holdings plc’s consolidated financial statements financial statements, as applied in accordance with section 408 and Parent Company financial statements (the ‘financial of the Companies Act 2006. statements’) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2022 Basis for opinion and of the Group’s loss for the year then ended; We conducted our audit in accordance with International • the consolidated financial statements have been properly Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. prepared in accordance with UK-adopted international Our responsibilities under those standards are further accounting standards; described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the • the Parent Company financial statements have been properly audit evidence we have obtained is sufficient and appropriate prepared in accordance with UK-adopted international to provide a basis for our opinion. accounting standards as applied in accordance with section 408 of the Companies Act 2006; and Independence • the financial statements have been prepared in accordance We are independent of the Group and Parent Company in with the requirements of the Companies Act 2006. accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s We have audited the financial statements of Phoenix Group Ethical Standard as applied to listed public interest entities, and Holdings plc (the ‘Parent Company’) and its subsidiaries (the we have fulfilled our other ethical responsibilities in accordance ‘Group’) for the year ended 31 December 2022 which comprise: with these requirements. Group Parent Company The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we Consolidated income Statement of financial position remain independent of the Group and the Parent Company in statement for the year ended as at December 2022 conducting the audit. 31 December 2022 Statement of comprehensive Statement of changes in Conclusions relating to going concern income for the year ended equity for the year ended In auditing the financial statements, we have concluded that the 31 December 2022 31 December 2022 Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. In Statement of consolidated Statement of cash flows for the evaluating the Directors’ assessment of the Group and Parent financial position as at year ended 31 December 2022 Company’s ability to continue to adopt the going concern basis 31 December 2022 of accounting we: | Statement of consolidated | Related notes 1 to 22 to the | • confirmed our understanding of management’s going concern | | --- | --- | --- | | changes in equity for the year | financial statements, including | assessment process and obtained management’s assessment | | ended 31 December 2022 | a summary of significant | which covers the period to 31 March 2024; | accounting policies • with support from our actuarial team, challenged the key Statement of consolidated actuarial assumptions used in management’s five-year Annual cash flows for the year ended Operating Plan (‘AOP’) and determined that the models are 31 December 2022 appropriate to enable management to make an assessment on the going concern of the Group. We have observed that Related notes A1 to I7 to assumptions used in the five-year AOP form basis for the consolidated financial management’s going concern projections; statements (except for note I3 where it is marked as unaudited), • assessed the accuracy of management’s analysis by testing the including a summary of inputs and the clerical accuracy of the models used; significant accounting policies Phoenix Group Holdings plc Annual Report and Accounts 2022156 Financials • assessed management’s consideration of how solvency and Overview of our audit approach liquidity has been managed in response to the current Audit scope • We performed an audit of the complete economic environment and evaluated the liquidity and solvency financial information of the Group position of the Group by reviewing base case liquidity and Function, Phoenix Life Division (which solvency projections that incorporate an estimated view of includes Phoenix Life Limited and Phoenix the potential future economic downturn; Life Assurance Limited), Standard Life Assurance Limited and ReAssure Limited • challenged the key assumptions, such as expense assumptions and audit procedures on specific balances underlying mandatory obligations of the Group and property for Other Companies (the ‘reporting market forecasts up to 31 March 2024, used in management’s components’). Our scope is explained stress scenarios based on our understanding of the Group and further below and on page 157 to 158. the available external data, respectively; • The components where we performed full or specific audit procedures accounted for • evaluated management’s forecast analysis to understand how more than 99% (2021: 99%) of the equity severe the downside scenarios would have to be to result in and 98% (2021: 98%) of the loss before tax the elimination of solvency headroom and concluded it to of the Group. be remote; Key audit matters • Valuation of insurance contract liabilities, • assessed management’s considerations of operational risks, comprising the following risk areas: including those related to Outsourced Service Providers – actuarial assumptions; (‘OSPs’) and their impact on the going concern assessment; – actuarial modelling; and • assessed the plausibility of available management actions to – policyholder data. • Valuation of certain complex and illiquid mitigate the impact of the key risks by considering the success financial investments. of previous similar management actions and the robustness of • Recoverability of intangible assets arising the plans in the context of our understanding of the Group; from the acquisition of ReAssure Limited, • checked that all mandatory debt and interest payments are Standard Life Assurance Limited and other forecast to be met under the base case and adverse stress acquired entities. scenarios and that the Group is able to meet target debt Materiality • Overall Group materiality of £83 million (2021: repayments throughout the going concern period; £116 million) which represents 2% (2021: 2%) • performed enquiries of management and those charged with of total equity attributable to owners of the governance to identify risks or events that may impact the Parent (‘adjusted Group equity’). Group’s ability to continue as a going concern. We also reviewed management’s assessment approved by the Board, An overview of the scope of the Parent Company minutes of meetings of the Board and its committees; and and Group audits • assessed the appropriateness of the going concern Tailoring the scope disclosures by comparing the disclosures with management’s Our assessment of audit risk, our evaluation of materiality and our assessment and considering their compliance with the relevant allocation of performance materiality determine our audit scope reporting requirements. for each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. Based on management’s assessment, we have observed that the We take into account size, risk profile, the organisation of the Group continues to have surplus cash and solvency above its Group and effectiveness of Group-wide controls, changes in Solvency Coverage Ratio in a number of extreme downside the business environment and other factors such as recent Internal scenarios and the Group continues to service customers and audit results when assessing the level of work to be performed meet its commitments in the current environment. at each company. Based on the work we have performed, we have not identified In assessing the risk of material misstatement to the consolidated any material uncertainties relating to events or conditions that, financial statements, and to ensure we had adequate quantitative individually or collectively, may cast significant doubt on the coverage of significant accounts in the financial statements, we Group and Parent Company’s ability to continue as a going identified five reporting components of the Group. The Group concern for the period to 31 March 2024. reporting components consist of Phoenix Life Division, Standard Life Assurance Limited, ReAssure Limited, the Group Function In relation to the Group and Parent Company’s reporting on how and Other Companies. they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the In the Phoenix Life Division component, the most significant Directors’ statement in the financial statements about whether insurance companies are Phoenix Life Assurance Limited and the Directors considered it appropriate to adopt the going Phoenix Life Limited. Standard Life Assurance Limited and concern basis of accounting. ReAssure Limited are the most significant companies of those respective components. The Group Function consists of Group Our responsibilities and the responsibilities of the Directors entities that primarily hold external debt and the pension schemes with respect to going concern are described in the relevant of the Group as well as the consolidation adjustments. The Other sections of this report. However, because not all future events Companies include the Phoenix Life and Standard Life service or conditions can be predicted, this statement is not a guarantee companies, ReAssure Life Limited, ReAssure UK Services Limited, as to the Group and Parent Company’s ability to continue as ReAssure MidCo Limited, ERIP Limited Partnership and Standard a going concern. Life International Designated Activity Company (‘SLIDAC’). Phoenix Group Holdings plc Annual Report and Accounts 2022 157 ### Independent auditor’s report continued Four of the reporting components were audited by component The charts below illustrate the coverage obtained from the work teams as set out below: performed by our audit teams. Equity Loss before tax Component Scope Auditor Phoenix Life Full EY component team Division (includes Phoenix Life Limited and Phoenix Life Assurance Limited) Standard Life Full EY component team Assurance Limited | | Full Scope 98% | Full Scope 94% | | --- | --- | --- | | ReAssure Limited Full EY component team | Specific scope 1% | Specific scope 4% | | | Out of scope 1% | Out of scope 2% | Group Function Full EY primary team Involvement with component teams Other Companies Specific (including EY component team In establishing our overall approach to the Group audit, we specified determined the type of work that needed to be undertaken at procedures) each of the components by us, as the primary audit engagement team, or by component auditors operating under our instruction. Of the five reporting components selected, we performed an The primary audit team provided detailed audit instructions to audit of the complete financial information of four components the component teams which included guidance on areas of focus, (‘full scope components’) which were selected based on their size including the relevant risks of material misstatement detailed or risk characteristics. For the remaining Other Companies above, and set out the information required to be reported to component, we performed audit procedures on specific accounts the primary audit team. Of the four full scope components, audit of Phoenix Life and Standard Life service companies (cash and procedures were performed on one of these directly by the cash equivalents, provisions, accruals and deferred income, primary audit team whilst the remaining three components were administrative expenses excluding acquisition costs), ReAssure audited by the component audit teams. For Other Companies, Life Limited (cash and cash equivalents, collective investment where the work was performed by component auditors, we schemes), ReAssure UK Services Limited (administrative expenses determined the appropriate level of involvement to enable us to excluding acquisition costs), ReAssure MidCo Limited (pension determine that sufficient audit evidence had been obtained as a scheme surplus) and ERIP Limited Partnership (cash and cash basis for our opinion on the Group as a whole. equivalents, derivative liabilities). We also instructed the SLIDAC component audit team to perform specified procedures over The primary audit team followed a programme of planned visits insurance contract liabilities. that has been designed to ensure that the Senior Statutory Auditor visited each of the full scope components. For all full scope The reporting components where we performed audit components, in addition to the component visits, the primary audit procedures accounted for 99% (2021: 99%) of the Group’s equity team reviewed key working papers and participated in the and 98% (2021: 98%) of the Group’s loss before tax. For the component teams’ planning, including the component teams’ current year, the full scope components contributed 98% (2021: discussion of fraud and error. The primary audit team attended the 87%) of the Group’s equity and 94% (2021: 75%) of the Group’s closing meetings with the management of the Phoenix Life loss before tax. The specific scope components, including the Division, Standard Life Assurance Limited and ReAssure Limited component with specified procedures contributed 1% (2021: 12%) and the Audit Committee meetings at the components. of the Group’s equity and 4% (2021: 23%) of the Group’s loss before tax. The audit scope of these components may not have For the specific scope components, the primary audit team have included testing of all significant accounts of the component but reviewed the audit procedures performed by the component will have contributed to the coverage of significant accounts teams on the specific accounts, by reviewing relevant workpapers tested for the Group. and holding meetings with the component teams as necessary. The work performed on the components, together with the additional procedures performed at the Group level, gave us appropriate evidence for our opinion on the consolidated financial statements as a whole. Climate change There has been increasing interest from stakeholders as to how climate change will impact the Group. The Group has determined that the most significant future impacts from climate change on their operations will be from financial assets and in insurance and investment contract liabilities. These are explained on pages 48 to 51 in the required Task Force for Climate related Financial Disclosures, and on page 59 in the principal risks and uncertainties. Phoenix Group Holdings plc Annual Report and Accounts 2022158 Financials The Group has also explained their climate commitments on pages 20 to 21. All of these disclosures form part of the 'Other information' rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit in line with our responsibilities on 'Other information'. In planning and performing our audit we assessed the potential impacts of climate change on the Group's business and any consequential material impact on its financial statements. As explained in note A3.7 within the accounting policies, governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be taken into account when determining asset and liability valuations and the timing of future cash flows in accordance with UK-adopted international accounting standards. As explained in the note management believe that reasonably possible changes arising from climate risks would only have a limited impact on asset and liability valuations at the year-end date. Our audit effort in considering climate change was focused on validating this assertion, through considering the potential effects of climate risks on liability and asset valuations and associated disclosures where values are determined through modelling future cash flows. As part of this evaluation, we performed our own risk assessment, supported by our climate change internal specialists, to determine whether any risks of material misstatement in the financial statements from climate change needed to be considered in our audit. We also challenged the Directors' considerations of climate change in their assessment of going concern and viability and associated disclosures. Whilst the Group have stated their commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2050, the Group are currently unable to determine the full future economic impact on their business model, operational plans and customers to achieve this and therefore, as set out above, the potential impacts are not fully incorporated in these financial statements. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to materially impact a key audit matter. #### Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. #### Risk Valuation of insurance contract liabilities (£103.4bn; 2021: £130.7bn) Refer to the Audit Committee Report (page 101), Critical accounting estimates (page 116), Accounting policies and note F1 of the consolidated financial statements (pages 230 to 232). We considered the valuation of insurance contract liabilities to be a significant risk for the Group. Specifically, we considered the actuarial assumptions and modelling that are applied, as these involve complex and significant judgments about future events, both internal and external to the business, for which small changes can result in a material impact to the resultant valuation. Additionally, the valuation process is reliant upon the accuracy and completeness of the data. We have split the risks relating to the valuation of insurance contract liabilities into the following component parts: - actuarial assumptions; - actuarial modelling; and - policyholder data. The specific audit procedures performed to address the significant risk are set out below. In addition, we assessed management's analysis of movements in insurance contract liabilities and obtained evidence to support large or unexpected movements as this provided important audit evidence over the valuation of insurance contract liabilities. Phoenix Group Holdings plc Annual Report and Accounts 2022 159 ### Independent auditor’s report continued Key observations communicated to the Risk area Our response to the risk Audit Committee Actuarial assumptions To obtain sufficient audit evidence to conclude on the appropriateness of actuarial We determined that assumptions, using EY actuaries as part of our audit team, we performed the the actuarial Refer to the Audit Committee following procedures: assumptions used by Report (page 101); management are • obtained an understanding and tested the design and operating effectiveness There has been no change in our reasonable based on of key controls over management’s process for setting and updating key assessment of this risk from the the analysis of the actuarial assumptions; prior year. experience to date, • challenged and assessed whether the methodology and assumptions applied industry practice Economic assumptions are set by were appropriate based on our knowledge of the Group, industry standards and the financial management taking into account and regulatory and financial reporting requirements; and regulatory market conditions as at the requirements. valuation date and require minimal • reviewed and challenged the results of management’s experience analysis, judgment. Non-economic including the base longevity, persistency and assured mortality, to assess assumptions are set based on the whether these justified the adopted assumptions; Group’s past experience, market • challenged and assessed management’s decisions on the inclusion or exclusion experience and practice, of data relating to COVID-19 when setting individual assumptions, including regulations and expectations longevity, mortality, morbidity and persistency; about future trends. • in respect of trend longevity, we evaluated the results of management’s analysis The assumptions that we consider on longevity trend, challenged the judgments applied by management in setting to have the most significant impact the parameters and benchmarked the output against other industry participants are the base and trend longevity, and the results from the industry standard Continuous Mortality Investigation persistency, assured mortality (‘CMI’); and expenses. • assessed the expense assumptions adopted by management considering an Given the recent economic impact of the recent economic volatility on the components of expense inflation. volatility we place additional focus Our focus has been on the change in the nature of the cost base arising in the on future economic assumptions increase in volumes of new insurance business written. We have challenged the such as inflation assumptions at assumed development of expenses including inflation across the AOP period, the 2022 year-end date. the allocation of those expenses between acquisition and maintenance and the resulting calculation of unit costs, as well as the inclusion of benefits arising from planned future management actions; • performed procedures to test that the assumptions used in the year end valuation were consistent with the approved basis; and • benchmarked the demographic and economic assumptions, against those of other comparable industry participants. We performed full and specific scope audit procedures over this risk area in four components representing 100% of the risk amount. Phoenix Group Holdings plc Annual Report and Accounts 2022160 Financials Key observations communicated to the Risk area Our response to the risk Audit Committee Actuarial modelling To obtain sufficient audit evidence to conclude on core actuarial modelling systems We determined that and balances calculated outside these systems, using EY actuaries as part of our the models used are The migration of the ReAssure audit team we performed the following procedures: appropriate, that business to a new actuarial model changes to the • obtained an understanding of management’s process for model changes to increases the risk of error this year. models were the core actuarial system and tested the design, implementation and operating implemented as effectiveness of key controls over that process; We consider the integrity and intended, and that appropriateness of models to be • challenged and evaluated the methodology, inputs and assumptions applied controls over critical to the overall valuation of to model changes made in the core actuarial modelling systems over the year; management’s insurance contract liabilities. processes for • reviewed the governance process around model changes by review of the modelling insurance relevant committee minutes; contract liabilities Over £92bn of the £103.4bn • with respect to the migration of ReAssure business onto a new model we tested using the core (2021: over £120bn of £130.7bn) management’s process with a focus on both the robustness of the outputs and actuarial modelling insurance contract liabilities are ensuring that the differences between current and previous models were systems were modelled using the core actuarial understood; operating effectively. modelling systems, with the residual balance modelled outside • assessed the results of management’s analysis of movements in insurance these systems to cater for any We also determined contract liabilities to corroborate that the actual impact of changes to additional required liabilities not that liabilities models was consistent with that expected when the model change was reflected in the models. modelled outside implemented; and these core actuarial • stratified the components of the balance modelled outside the core actuarial modelling systems We consider the key risks to system as at the balance sheet date and focused our testing on those that, in our are reasonable. relate to: professional judgment, present a higher risk of material misstatement. As part of i) model developments applied to the testing, we gained an understanding of the rationale for balances calculated the core actuarial models; outside of the core actuarial system and assessed the appropriateness of the applied calculation methodology. In addition we also perform an independent ii) liabilities modelled outside the valuation of a sample of insurance contract liabilities which are modelled outside core actuarial modelling the core actuarial system. systems; and iii) the appropriateness of the core We performed full and specific scope audit procedures over this risk area in four actuarial model. components representing 100% of the risk amount. In addition, the migration of the ReAssure business to a new actuarial model is considered a key risk area for 2022. Phoenix Group Holdings plc Annual Report and Accounts 2022 161 ### Independent auditor’s report continued Key observations communicated to the Risk area Our response to the risk Audit Committee Policyholder data To obtain sufficient audit evidence to assess the integrity of policyholder data We determined we performed the following procedures: based on our audit There has been no change in our work that the data • obtained an understanding and tested the design and operating effectiveness assessment of this risk from the used for the actuarial of the key controls, including information technology general controls, over prior year. model inputs is management’s data collection, extraction and validation process; materially complete The insurance contract data held • focussed our testing on the changes to the data process as a result of the and accurate. on policy administration systems migration of the ReAssure business to a new actuarial model; (‘the policyholder data’) is a key • for Outsourced Service Providers (‘OSP’) where we have placed reliance on the input into the valuation process. ISAE 3402 Service Organisation Controls (‘SOC’) reports, we have reviewed the The valuation of insurance contract ISAE 3402 SOC reports where relevant to determine the impact of any liabilities is therefore reliant upon identified control exceptions; the accuracy and completeness of the data used. • for OSPs where we do not receive a ISAE 3402 SOC report we have obtained an understanding of the process over data extraction and input into the actuarial models and performed direct testing of the design and operating effectiveness of the key controls; • confirmed that the actuarial data extracted from policy administration systems and those provided by the OSPs were those used as an input to the actuarial model; • assessed the appropriateness of management’s grouping of data for input into the actuarial model; • through the use of our data visualisation and analytics techniques, performed focussed substantive testing over the completeness and accuracy of the policyholder data and the appropriateness of management’s data cleansing rules; and • performed the comparison of policy level data between data in the actuarial models and that contained within the policy administration systems. We evaluated the accuracy of policyholder data by agreeing a sample back to the policyholder documents. We performed full and specific scope audit procedures over this risk area in four components representing 100% of the risk amount. Phoenix Group Holdings plc Annual Report and Accounts 2022162 Financials Key observations communicated to the | Risk area Our response to the risk | | Audit Committee | | --- | --- | --- | | Valuation of certain complex and | We used EY valuation specialists and actuaries to test the valuation of ERM financial | Based on our | | illiquid financial investments | investments and modelled debt securities. To obtain sufficient audit evidence to | procedures | | (Equity release mortgages £3.9bn; | conclude on the valuation of ERM financial investments, we: | performed on the | | 2021: £4.2bn); (Modelled debt | | ERM financial | • tested the design and operating effectiveness of key controls over securities £6.3bn; 2021: £7.0bn) investments and the management’s assumption setting processes for valuing these instruments; modelled debt There has been no change in our • tested the completeness of the ERM financial investments and underlying data securities, we are assessment of this risk from the at the period end through independent confirmations; satisfied that the prior year. valuation of these • tested the accuracy of mortgage data used in the valuation model by agreeing Refer to the Audit Committee complex and illiquid a sample of new loans to supporting evidence and validating any movements Report (page 101); Critical assets is reasonable. on static data over the period; accounting estimates (page 176); Accounting policies and notes E1 • evaluated the methodology, inputs and assumptions used to value the ERM and E2 of the consolidated financial investments including the No Negative Equity Guarantee (‘NNEG’) financial statements (pages 201 (such as house price inflation, residential house price volatility, longevity to 213). improvement and base mortality, as well as economic assumptions such as discount rate); The extent of judgment applied by management in valuing the • validated the key assumptions by comparing them to published market Group’s financial investments benchmarks and demographic and economic assumptions used by other varies with the nature of securities industry participants, to confirm that key valuation inputs were consistent held, the markets in which they are with industry norms and our understanding of the instrument type and traded and the valuation were appropriate considering the current economic volatility; and methodology applied. • developed our own independent model to value the ERM financial investments Observable inputs are not readily and compared the output to the results produced by the Group. available for the valuation of equity To obtain sufficient audit evidence to conclude on the valuation of modelled release mortgages (‘ERM’) debt securities, we: financial investments and the • reviewed the ISAE 3402 SOC report of the OSPs covering the period to modelled debt securities, such as 30 September 2022, including those controls over the valuation of modelled private placements, local authority debt securities outsourced to the third party, and determined the impact of loans, infrastructure loans and any identified control exceptions; commercial real estate loans. Consequently, management use • obtained the bridging letter for the period 1 October 2022 to 31 December 2022 models with other inputs to to review that the controls over the valuation of modelled debt securities were estimate their value. operating during the period; We consider that the key risks on • inspected evidence of the operation of management’s oversight controls the valuation of ERM financial over the OSPs; investments relate to: • understood the valuation process of modelled debt securities applied by i) assumptions, as these are largely the OSP of the Phoenix Life Division, Standard Life Assurance Limited and based on non-observable inputs ReAssure Limited components and assessed the appropriateness of any and are highly judgmental, and methodology and assumption changes during the year, including the impact of the current economic volatility on economic assumptions; ii) the completeness and accuracy of data feeding the valuation • for modelled debt securities overseen by the in-house Independent Pricing model. Valuation (‘IPV’) and Credit and Valuation Committee, we have obtained an understanding of the valuation methodology and tested the design and We consider the key risks related operating effectiveness of the key controls; to valuation of modelled debt securities to be: • engaged EY valuation specialists to evaluate the appropriateness of the valuation methodology, calculate an independent range of comparable values i) the use of complex valuation for a sample of modelled debt securities using an independent valuation methodologies as opposed to model and considered reasonable alternative key assumptions based on observable prices; comparable securities; ii) significant judgments involved • validated the accuracy of security related inputs to the valuation of modelled in setting the spread above debt securities by tracing a sample of inputs to the underlying agreements risk-free rate; and documentation; iii) the subjectivity surrounding the • performed independent calibration on securities by reviewing the implied selection of the comparable rate and sector credit spreads to validate the reasonableness of credit ratings bonds to derive that spread; and used in the comparable values assessment; and iv) the reasonableness of credit • considered the downgrade of credit ratings or changes of spread in ratings considering the ongoing management’s credit watchlist and known market risks in our independent impact of COVID-19. comparable values assessment. Given the recent economic volatility we place additional focus We performed full scope audit procedures over this risk area in three components, on economic assumptions. which covered 100% of the risk amount. Phoenix Group Holdings plc Annual Report and Accounts 2022 163 ### Independent auditor’s report continued Key observations communicated to the Risk area Our response to the risk Audit Committee Recoverability of AVIF intangible To obtain sufficient audit evidence to assess recoverability of AVIF intangible assets Based on our assets arising from the acquisition arising from the acquisition of ReAssure and Standard Life, using EY actuaries as procedures of ReAssure Limited, Standard Life part of the audit team we performed the following procedures: performed on the Assurance Limited, and other recoverability of • understood and evaluated management’s process, model and assumptions associated entities (AVIF £3,835m; intangible assets supporting the recoverability assessment; 2021: £4,323m) arising from the • tested design and implementation of the completeness and accuracy of the data acquisition of Refer to the Audit committee used in the recoverability assessment; ReAssure and report (page 101), critical Standard Life, we are accounting estimates (page 176), • challenged management’s assessment of impairment indicators by considering satisfied that there the accounting policies and note current market factors including the recent economic volatility and assumption is no impairment G2 of the consolidated financial changes not modelled in the fair value exercise at the acquisition date and necessary as at statements (pages 256 to 259) assessed their impact on the ReAssure and Standard Life AVIF values as at 31 December 2022. 31 December 2022; and On 22 July 2020, the Group | acquired ReAssure Limited, | • obtained management’s expectations of future profitability of the acquired | In addition, we | | --- | --- | --- | | ReAssure Life Limited, ReAssure | entities, assessed appropriateness of the models used to estimate the fair value | consider the | | UK Services Limited, Ark Life | and value in use and challenged the assumptions applied by management by | sensitivity ranges | | Assurance Company and other | comparing key assumptions and judgments with our independent view and | disclosed in the | | related entities (collectively | experience of the wider market. | Annual Report and | | ‘ReAssure’) from Swiss Re Finance | | Accounts to be | | Midco (Jersey) Limited for total | | appropriate given | | consideration of £3.1bn. | | current economic | volatility. On 31 August 2018, the Group acquired Standard Life Assurance Limited and other associated entities (collectively ‘Standard Life’) from Standard Life Aberdeen plc (‘SLA plc’) for total consideration of £3.0bn. These acquisitions gave rise to the recognition of intangible assets relating to the acquired in force business (‘AVIF’) Each reporting period management is required to perform an assessment on the acquired intangible assets to identify any indicators of impairment. Where such indicators exist, management performs a recoverability assessment. Recoverability assessment of these intangible assets involves consideration of a number of judgmental and sensitive assumptions such as: • market movements, especially those arising from the current economic volatility and their impact on economic assumptions such as cost of capital; and • significant changes to core valuation assumptions, being: lapses, longevity, late retirements. As a result, we consider valuation of the acquired intangible assets to have a higher risk of material misstatement. Phoenix Group Holdings plc Annual Report and Accounts 2022164 Financials # Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. # Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be £83 million (2021: £195 million), which is 2% (2021: 2%) of adjusted Group equity. Whilst profit before tax or operating profit are common bases used across the life insurance industry and might be an appropriate measure for an open business, we believe that the use of equity as the basis for assessing materiality remains more appropriate given that the Group is primarily a closed life assurance consolidator and as such equity provides a more stable, long-term measure of value. We note also that equity more closely correlates with key Group performance metrics such as Solvency II capital requirements and Own Funds. However, as these measures are non-GAAP measures, we consider equity to be more appropriate. We determined materiality for the Parent Company to be £139 million (2021: £148 million), which is 2% (2021: 2%) of equity of the Parent Company equity attributable to owners. We have used a capital based measure for determining materiality considering the nature of the Parent Company as a holding company. This is also consistent with the approach taken for the Group where we consider equity to be the most appropriate basis when considering against other measures such as IFRS profit before tax. For the Group audit purposes, we performed our audit procedures to the lower of the Parent Company and the Group allocated performance materiality. | Starting | Starting point – £5,187m (Total equity) Based on 31 December 2022 | | --- | --- | | Materiality | Details of adjustments – £1,026m Removal of NCI and Tier 1 loan notes | | Materiality | Totals £4,161m (Adjusted equity) Materiality of £83m (2% of equity) | During the course of our audit, we reassessed initial materiality for the Group from £100 million to £83 million due to a decrease in the Group's total equity for 31 December 2022 between our forecast total equity (upon which our initial materiality was based) and the final total equity for 31 December 2022. We considered the impact of this on the extent of our audit procedures. We also reassessed initial materiality for the Parent Company from £156 million to £139 million due to a decrease in the Parent Company's total equity for 31 December 2022 between our forecast total equity (upon which our initial materiality was based) and the final total equity for 31 December 2022. We considered the impact of this on the extent of our audit procedures. # Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 50% (2021: 50%) of our planning materiality, namely £41 million (2021: £58 million). Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was £8 million to £27 million (2021: £12 million to £32 million). # Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £4 million (2021: £6 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. # Other information The other information comprises the information included in the annual report set out on pages 1 to 153 and 307 to 326, other than the financial statements and our auditor's report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Phoenix Group Holdings plc Annual Report and Accounts 2022 165 ### Independent auditor’s report continued Opinions on other matters prescribed by the Companies • The section of the Annual Report that describes the review of Act 2006 effectiveness of risk management and internal control systems In our opinion, the part of the Directors’ Remuneration Report to set out on page 100; and; be audited has been properly prepared in accordance with the • The section describing the work of the audit committee set Companies Act 2006. out on page 96 to 101. In our opinion, based on the work undertaken in the course of Responsibilities of Directors the audit: As explained more fully in the Directors’ statement of • the information given in the Strategic Report and the Directors’ responsibilities set out on page 153, the Directors are responsible Report for the financial year for which the financial statements for the preparation of the financial statements and for being are prepared is consistent with the financial statements; and satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the • the Strategic Report and the Directors’ Report have been preparation of financial statements that are free from material prepared in accordance with applicable legal requirements. misstatement, whether due to fraud or error. Matters on which we are required to report by exception In preparing the financial statements, the Directors are In the light of the knowledge and understanding of the Group responsible for assessing the Group and Parent Company’s ability and the Parent Company and its environment obtained in the to continue as a going concern, disclosing, as applicable, matters course of the audit, we have not identified material misstatements related to going concern and using the going concern basis of in the Strategic Report or the Directors’ Report. accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have We have nothing to report in respect of the following matters no realistic alternative but to do so. in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: Auditor’s responsibilities for the audit of the • adequate accounting records have not been kept by the Parent financial statements Company, or returns adequate for our audit have not been Our objectives are to obtain reasonable assurance about whether received from branches not visited by us; or the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an • the Parent Company financial statements and the part of auditor’s report that includes our opinion. Reasonable assurance the Directors’ Remuneration Report to be audited are not in is a high level of assurance, but is not a guarantee that an audit agreement with the accounting records and returns; or conducted in accordance with ISAs (UK) will always detect a • certain disclosures of Directors’ remuneration specified by material misstatement when it exists. Misstatements can arise law are not made; or from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence • we have not received all the information and explanations the economic decisions of users taken on the basis of these we require for our audit. financial statements. Corporate Governance Statement Explanation as to what extent the audit was considered We have reviewed the Directors’ statement in relation to going capable of detecting irregularities, including fraud concern, longer-term viability and that part of the Corporate Irregularities, including fraud, are instances of non-compliance Governance Statement relating to the Group and Company’s with laws and regulations. We design procedures in line with our compliance with the provisions of the UK Corporate Governance responsibilities, outlined above, to detect irregularities, including Code specified for our review by the Listing Rules. fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from Based on the work undertaken as part of our audit, we have error, as fraud may involve deliberate concealment by, for concluded that each of the following elements of the Corporate example, forgery or intentional misrepresentations, or through Governance Statement is materially consistent with the financial collusion. The extent to which our procedures are capable of statements or our knowledge obtained during the audit: detecting irregularities, including fraud is detailed below. • Directors’ statement with regards to the appropriateness of However, the primary responsibility for the prevention and adopting the going concern basis of accounting and any detection of fraud rests with both those charged with governance material uncertainties identified set out on page 149; of the Company and management. • Directors’ explanation as to its assessment of the Group’s • We obtained an understanding of the legal and regulatory prospects, the period this assessment covers and why the frameworks that are applicable to the Group and determined period is appropriate set out on page 68; that the relevant laws and regulations related to elements of • Director’s statement on whether it has a reasonable expectation company law and tax legislation, and the financial reporting that the Group will be able to continue in operation and meets framework. Our considerations of other laws and regulations its liabilities set out on page 69; that may have a material effect on the financial statements included permissions and supervisory requirements of the • Directors’ statement on fair, balanced and understandable set Prudential Regulation Authority (‘PRA’), the Financial Conduct out on page 151; Authority (‘FCA’) and the UK Listing Authority (‘UKLA’). • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 56; Phoenix Group Holdings plc Annual Report and Accounts 2022166 Financials • We understood how Phoenix Group Holdings plc is complying Other matters we are required to address with those frameworks by making enquiries of management and • Following the recommendation from the Audit Committee, those responsible for legal and compliance matters. We also we were appointed by the Company on 13 December 2018 reviewed correspondence between the Company and UK to audit the financial statements for the period ending regulatory bodies; reviewed minutes of the Group Board and 31 December 2018 and subsequent financial periods. its Committees; and gained an understanding of the Group’s approach to governance, demonstrated by the Board’s The period of total uninterrupted engagement including approval of the Group’s governance framework. previous renewals and reappointments is five years, covering the years ending 31 December 2018 to 2022. • We assessed the susceptibility of the consolidated financial statements to material misstatement, including how fraud • The audit opinion is consistent with the additional report to might occur by considering the controls that the Group has the Audit Committee. established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud. Our Use of our report procedures over the Group’s control environment included This report is made solely to the Company’s members, as a body, assessment of the consistency of operations and controls in in accordance with Chapter 3 of Part 16 of the Companies Act place within the Group and the OSPs as they continued to 2006. Our audit work has been undertaken so that we might state adopt a hybrid model throughout 2022. to the Company’s members those matters we are required to state • The fraud risk was considered to be higher within the valuation to them in an auditor’s report and for no other purpose. To the of insurance contract liabilities We considered management fullest extent permitted by law, we do not accept or assume override risk to be higher in this area due to the significant responsibility to anyone other than the Company and the judgments and estimates involved. Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Our procedures, as detailed in the key audit matters above, included: Stuart Wilson (Senior statutory auditor) – Reviewing accounting estimates for evidence of management for and on behalf of Ernst & Young LLP, Statutory Auditor bias. Supported by our actuarial team and specialists, we London assessed if there were any indicators of management bias 10 March 2023 in the valuation of insurance contract liabilities; – Testing the appropriateness of journal entries recorded in the general ledger, with a focus on manual and non-routine journals; and – Evaluating the business rationale for significant and/or unusual transactions. • On this audit we do not believe there is a fraud risk related to revenue recognition because there is limited management judgement involved on the recognition and measurement of the transaction price for all material revenue streams. • Our procedures involved: making enquiries of those charged with governance and senior management for their awareness of any non-compliance of laws or regulations, enquiring about the policies that have been established to prevent non-compliance with laws and regulations by officers and employees, enquiring about the Company’s methods of enforcing and monitoring compliance with such policies, and inspecting significant correspondence with the PRA and FCA. • The Company operates in the insurance industry which is a highly regulated environment. As such the Senior Statutory Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and capabilities, which included the use of specialists where appropriate. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report. Phoenix Group Holdings plc Annual Report and Accounts 2022 167