Just Annual Report and Accounts 2021

Just group PLC Annual Report and accounts 2021

THE RET IREMENT SPECI AL IST

Growing the just way

OUR PURPOSE

We help people achieve a better later life

We believe that every decision we make and every action we take should help us achieve our purpose.

Individuals We provide guaranteed income for life to deliver security and peace of mind for our customers and we provide regulated advice, guidance and information services to help people make the most of their pensions and other savings.

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Homeowners We provide the resources to improve the later life of homeowners and their families.

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All Just Group plc regulatory announcements, shareholder information and news releases can be found on our Group website, www.justgroupplc.co.uk

Pension scheme trustees We provide improved security of income for members of defined benefit pension schemes by transferring the risk to Just.

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Companies We provide advisory, technology and customer services to help UK companies with retirement focused solutions to meet the needs of their customers and clients in later life.

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FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

The Strategic Report has been prepared in accordance with the UK Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

FEATURE STORIES

Strategic Report 1 Our purpose 2

Investment case

3 4 6 8

Financial and operational highlights

At a glance

Chair’s Statement

Chief Executive Officer’s Statement

10 Market context 14 Business model 16 Strategic priorities

18 Sustainability and the environment 20 Sustainable investment strategy 22 Sustainability strategy: TCFD disclosure framework 30 Colleagues and culture 36 Relationship with stakeholders 38 Section 172 statement 43 Non-financial information statement 46 Key performance indicators 48 Business review 58 Risk management 60 Principal risks and uncertainties 64 Returned to growth 68 Board of Directors 72 Senior leadership 74 Governance in operation 81 Nomination and Governance Committee Report 84 Group Audit Committee Report 90 Group Risk and Compliance Committee Report 93 Directors’ Remuneration Report 109 Directors’ Report 113 Directors’ Responsibilities Governance REPORT 66 Chair’s introduction to Governance 123 Consolidated statement of comprehensive income 124 Consolidated statement of changes in equity 125 Consolidated statement of financial position 126 Consolidated statement of cash flows 127 Notes to the consolidated financial statements 174 Statement of changes in equity of the Company 175 Statement of financial position of the Company 176 Statement of cash flows of the Company 177 Notes to the Company financial statements Financial Statements 114 Independent Auditors’ Report

INVESTING THE JUST WAY PAGE 20

INNOVATION THE JUST WAY PAGE 64

180 Additional financial information 183 Information for shareholders 185 Directors and advisers 186 Glossary 188 Abbreviations

JUST GROUP PLC Annual Report and Accounts 2021

INVESTMENT CASE

Purpose, PRofitable and sustainable growth, innovation and delivery

Deploying the capabilities of our highly effective new business franchise to create value from leadership positions in attractive and high-growth segments of the UK retirement income market.

WE HELP PEOPLE ACHIEVE A BETTER LATER LIFE Just has a compelling, clear purpose, to help people achieve a better later life by providing financial advice, guidance, competitive products and services to those approaching, at and in-retirement.

GROWING RETIREMENT MARKETS As the population ages, our retirement markets grow. Whether it is defined benefit schemes de-risking or individual retirees seeking to turn their pension into a guaranteed income for life, our markets have many years of growth ahead of them.

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FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

FINANCIAL AND OPERATIONAL HIGHLIGHTS

KEY PERFORMANCE INDICATORS

AWARDED FURTHER RECOGNITION FOR OUTSTANDING SERVICE

Return on equity 1

Underlying organic capital generation 1 £ 51 m £18m at 31 December 2020

FINANCIAL ADVISER: 5 STAR SERVICE AWARD

9.4 % 9.7% at 31 December 2020

Retirement Income sales 1

New business operating profit 1

£ 2,674 m 2020: £2,145m, up 25%

£ 225 m 2020: £199m, up 13%

FINANCIAL ADVISER: 5 STAR SERVICE AWARD

Adjusted operating profit before TAX 1

underlying operating profit 1

£ 238 m 2020: £239m, down less than 1%

£ 210 m 2020: £193m, up 9%

FINANCIAL ADVISER: 5 STAR SERVICE AWARD

IFRS (LOSS)/profit before TAX

MANAGEMENT EXPENSES 1

£ (21) m 2020: £237m, down 109%

£ 147 m 2020: £159m, down 7%

IFRS net assets

Solvency II capital coverage ratio (estimated) 2 164 % 156% at 31 December 2020

£ 2,440 m 2020: £2,490m, down 2%

PENSIONS AGE

FINANCIAL STRENGTH AND OTHER INDICATORS

CONFIRMIT ACE AWARDS

Fitch insurer financial strength rating

Fitch issuer default rating

A for Just Retirement Limited (2020: A+)

A for Just Group plc (2020: A)

1 Alternative performance measure (see glossary on page 186 for definition). Underlying organic capital generation is reconciled to Solvency II excess own funds on page 53. Return on equity, new business operating profit, management expenses, underlying operating profit, and adjusted operating profit are reconciled to IFRS profit before tax on pages 50 and 52. Retirement Income sales are reconciled to gross premiums written in note 6 to the consolidated financial statements on page 139. 2 Solvency II capital coverage ratio allows for a notional recalculation of transitional measures on technical provisions (“TMTP”) at 31 December 2020. In 2021, the ratio includes the estimated impact of the biennial reset of TMTP as at 31 December 2021 and the TMTP has been calculated excluding the contribution from the LTMs that have been sold on 22 February 2022.

JUST GROUP PLC Annual Report and Accounts 2021

AT A GLANCE

Leaders in our markets. We positively disrupt markets where we can become a leader and deliver great outcomes for customers so we may deliver value for shareholders.

WE ARE A SPECIALIST IN OUR CHOSEN MARKETS, SERVING FOUR DISTINCT GROUPS…

TRUSTEES AND SCHEME SPONSORS: PROVIDING MEMBER SECURITY AND DE-RISKING PENSION LIABILITIES Defined benefit pension schemes de-risking their liabilities by securing member benefits with an insurance contract.

INDIVIDUALS: PROVIDING RETIREMENT INCOME

MARKET VALUE OF DEFINED CONTRIBUTION PENSION SAVINGS £ 1 trillion People who have built up pension savings throughout their career and want a guaranteed income, flexible income or a combination in retirement.

ADDRESSABLE MARKET

£ 1 trillion

CORPORATE CLIENTS: SOLVING PROBLEMS FOR COMPANIES We develop scalable retirement-focused

HOMEOWNERS: ACCESSING PROPERTY WEALTH People aged 55+ who want to access wealth locked up in their property.

solutions for banks, building societies, life assurance companies, pension scheme trustees, other corporate clients and for their customers, clients and members. retirement-focused solutions

PROPERTY WEALTH OWNED BY PEOPLE AGED 55 +

£ 3.5 trillion

FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

Competitive position: A leader

…WITH PRODUCTS AND SERVICES

Developing

SERVICES

BENEFIT AND COMPETITIVE POSITION

Just’s innovative approach and underwriting expertise in this segment delivers better prices for trustees.

DEFINED BENEFIT DE-RISKING SOLUTIONS (“DB”) Solutions for pension scheme trustees to reduce the financial risks of operating pension schemes and increase certainty that members’ pensions will be paid in the future.

MARKETED PRODUCTS 1

By using our unrivalled intellectual property, Just provides an individually tailored solution providing customers typically with double-digit percentage increases in income compared to standard products. Just’s pioneering Secure Lifetime Income product enables customers to select a guaranteed income fromwithin a Self-Invested Personal Pension. This enables a customer to manage and blend their total pension assets tax efficiently within a single technology platform. Just’s Care Plans can be tailored to the individual and offer a tax-efficient solution to making payments to residential care providers. By using our unrivalled intellectual property, Just provides an individually tailored solution providing around six-in-ten customers with a lower interest rate or a higher borrowing amount compared to standard products. Just provides a range of lifetime mortgages, enabling people to meet a variety of needs in later life.

GUARANTEED INCOME FOR LIFE (“GIFL”) A solution for individuals/couples who want the security of knowing they will receive a guaranteed income for life.

SECURE LIFETIME INCOME (“SLI”) Launched in 2019, SLI is a tax-efficient solution for individuals who want the security of knowing they will receive a guaranteed income for life and the flexibility to make changes in the early years of the plan.

CARE PLANS ( “ CP ” ) A solution for people moving to residential care who want the security of knowing a regular payment will be made to the care provider for the rest of their life.

Lifetime Mortgages (“LTM”) Solutions designed for people who want to release some of the value of their home.

1 Reported in our

Insurance segment.

SERVICES

BENEFIT AND COMPETITIVE POSITION

HUB Financial Solutions offers an innovative approach that provides affordable regulated advice to people with modest pension savings. It also delivers face-to-face nationwide advice at a time and place to suit the client, and enables pension schemes to deliver efficient and robust scheme-led defined benefit transfer programmes. + Provides a range of business services tailored to the needs of the organisation, ranging from consultancy and software development to fully outsourced customer service delivery and marketing services.

HUB GROUP Our professional services and distribution businesses delivering technology, broking and advice solutions for corporate clients and pension schemes. We also provide regulated financial advice on how people should use pension savings, or release some of the value from their homes. + Support for organisations wanting to deliver whole-of- market shopping around services to source retirement income products for their customers, employees or pension scheme members. HUB Financial Solutions is the UK’s largest GIfL broker.

PROFESSIONAL SERVICES 2

2 Reported in our Other segment.

JUST GROUP PLC Annual Report and Accounts 2021

CHAIR’S STATEMENT

Growing the just way

We are delivering profitable and sustainable growth to fulfil our purpose and create value for shareholders.

John Hastings-Bass Chair

ANNUAL GENERAL MEETING 2022 10.00 am 10 May 2022

at Just Group plc Enterprise House Bancroft Road Reigate Surrey RH2 7RP

FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

I am pleased to introduce Just Group plc’s 2021 Annual Report. Our focus in this period shifted to sustainably growing the business after we successfully completed the programme to strengthen our capital position in 2020. Before commenting on the Company’s performance, on behalf of the Board I would like to express our gratitude to Keith Nicholson who retired from the Board at the end of December. Keith was Senior Independent Director of Just Group since its creation, and was part of a team that steered our Group through significant regulatory change. He has provided me with wise counsel, for which I am grateful and he takes with him our best wishes for the future. OUR PRIORITY IN 2021 The primary focus of our Group in 2021 has been to capture profitable growth opportunities. There are strong structural drivers of growth which make our markets very attractive, including demographics and the appetite of company directors and pension trustees to transfer the risk of operating defined benefit pension schemes to insurance companies. The segments of the market we choose to operate in are growing, which enables us to be selective in the risks we take on, whilst still enabling our Group to achieve double-digit levels of profitable and sustainable growth. In 2020 we successfully completed the programme to strengthen our capital position and the Board remains content with our position. We have continued with our management actions to reduce our exposure to UK house price movements by selling a portfolio of lifetime mortgages. During the year we made good progress with the Prudential Regulation Authority (“PRA”), receiving approval to make changes to the Group’s Solvency II internal capital model. The UK government is seeking to conclude its Future Regulatory Framework (“FRF”) Review to deliver the vision for the sector set out by the Chancellor in his Mansion House speech in July 2021. We are hopeful that the FRF will deliver opportunities for Just Group to increase our investment in the UK economy to drive productivity and contribute to our net zero commitments. The Group’s financial strength and performance is explained in detail in the Business Review. DIVIDEND Having met our commitment to strengthen the Group’s capital position by attaining capital self-sufficiency and delivering positive organic capital generation, and following a strong financial operating performance the Board proposes restarting dividends and recommends a final dividend of 1.0 pence per share. BOARD COMPOSITION AND GOVERNANCE Following Keith Nicholson’s retirement, I am pleased that Ian Cormack has taken up the role of Senior Independent Director and that Kalpana Shah will now Chair the Group Risk and Compliance Committee. Mary Kerrigan was appointed a Director of the Group on 1 February 2022. Mary is already, and will continue to be, a Non-Executive Director of Just’s subsidiary life companies, and is Chair of the Investment Committees. John Perks joined the Group on 1 April and became Non-Executive Chair of the Group’s subsidiary life companies in May, following the decision by Nick Poyntz-Wright to step down. I’d like to thank Nick for his service to the Group over his six year tenure and his diligent work in ensuring that the policyholders’ expectations of the insurance products are met. Kathy Byrne was appointed as a Non-Executive Director of the Group’s subsidiary life companies on 1 February 2022 and joined the Investment Committees. You can read more about the Directors of the Company on page 68.

I take great pride in leading the Board and the Group’s governance function, and my introduction to the Corporate Governance Report on page 66 provides further information on our governance and decision making processes. I would like to thank the entire Board for their significant contribution, and look forward to working with them in 2022. CONTRIBUTING TO A MORE SUSTAINABLE FUTURE We have an important role in helping the world transition towards a sustainable environment and low carbon global economy. We announced a number of new carbon net zero commitments, which builds on the excellent progress already made to reduce the carbon intensity of our business. We’ve also incorporated a new section into this year’s report to provide a better understanding of climate-related risks and opportunities. Our disclosures are consistent with those recommended by the Taskforce on Climate-related Financial Disclosures and you can read more on pages 22 to 29. I was delighted that Just became the first European insurance company to launch a Sustainability Bond. This follows our pioneering launch of the first Green Bond by a UK insurance company in October 2020. You can read more about this on page 18. Growing the Just way is a theme our colleagues across the Company want to be active in shaping and the Board has received input from our colleagues before approving the Group’s sustainability strategy during this period. We are on an exciting journey as a Company, as an industry, as a country and as individuals. You can read more about our sustainability strategy on page 20 and at justgroupplc.co.uk . ENGAGEMENT WITH OUR STAKEHOLDERS The Board engages directly and indirectly with our customers, shareholders, colleagues, regulators, legislators, professional bodies and wider society to promote the interests of our customers more broadly. We place great importance on working effectively with these groups and actively seeking their feedback. We work hard to ensure our customers benefit from our services and our shareholders receive the benefit of long-term value creation. Throughout this report you can read how the Board takes into consideration feedback from the Company’s stakeholders and how the Board, and colleagues from across the Group, promote the success of the Company. OUR PURPOSE We are a purpose driven Company with a compelling and credible purpose. Quite simply, we help people achieve a better later life. We achieve this by providing competitive products, services, financial advice and guidance to help our customers achieve security, certainty and provide themwith peace of mind in retirement. Our purpose remains as relevant today as it did all those years ago when we created it. It’s clear, authentic and it acts as a beacon for colleagues across the entire Group to live the purpose every day. Our customers, existing and prospective, are at the heart of everything we do at Just. OUTLOOK The fundamental drivers for growth in our core markets continue to be strong and we have focused our leadership team on driving long-term profitable growth. We have continued to increase the Group's balance sheet resilience by taking actions to reduce our capital sensitivity to residential property exposure. The commercial outlook remains favourable for our Group. On behalf of the Board, I would like to close by thanking all of our colleagues across the Group for their commitment to providing award winning services to our customers and business partners. I’d also like to thank our business partners who have trusted us to provide outstanding service to their clients. We are growing the Just way, delivering profitable and sustainable growth, fulfilling our purpose and helping contribute to a net zero economy. We are increasingly optimistic about the future.

JUST GROUP PLC Annual Report and Accounts 2021

CHIEF EXECUTIVE OFFICER’S STATEMENT

Purpose driven, focused on profitable sustainable growth

2021 has been a significant and positive year in our history. We have built on the foundations we put in place over the previous two years to transform the way that we do business. We are excited about the growth potential for the Group.

DAVID RICHARDSON Group Chief Executive Officer

new business operating profit 1 £ 225 m 2020: £199m

retirement income sales 1

£ 2,674 m 2020: £2,145m

1 Alternative performance measure. IFRS loss before tax £21.4m (2020: profit before tax £236.7m).

FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

The growth that we have achieved in 2021 is a testament to the success of our transformation. We are investing the increased levels of organic capital generated into writing more new business that delivers profitable and sustainable growth at attractive levels of return to shareholders. This year we have achieved record new business sales and new business profits and more than doubled our underlying organic capital generation a year ahead of our 2022 target. The results build on our strong track record of delivering on our commitments. In 2020, we achieved capital self-sufficiency more than a year earlier than originally planned. In 2021, we have reduced our Solvency II balance sheet sensitivity to property to a comfortable level and eliminated our cost overruns. RETIREMENT SALES GROWTH I am pleased to report that during 2021 we have increased Retirement Income sales by 25% to £2.7bn. DB sales were up 28% to £1.9bn including two transactions in the over £250m segment. The market is becoming more focused on Buy-out transactions and so our enhanced capability to meet the needs of deferred members has been an important part of this growth; almost 40% of our transactions were DB deferred. Our start to 2022 has been encouraging and we have a £4bn pipeline of potential DB transactions. In our retail market, sales of £739mwere up 16% on 2020 and were 8% higher than the pre-pandemic sales of 2019. GROWTH AND INNOVATION We participate in retirement markets that offer long-term structural growth and the capital which we invest in that growth is achieving high levels of return. We are investing in all of these markets, developing our propositions and also innovating to build improved retirement products and services. OUR PURPOSE AND SUSTAINABILITY Just has a strong purpose: we help people achieve a better later life. We help our customers achieve security, certainty and peace of mind. We achieve our goals responsibly and are committed to a sustainable strategy that protects our communities and the planet we live in. The most material impact we can make to reduce carbon emissions will be achieved through the decisions we take with our investment portfolio, which currently exceeds £24bn. We are diversifying these investments, investing in more sustainable assets and reducing the carbon intensity of our entire asset portfolio. We plan to become signatories of The Science Based Targets Initiative (“SBTi”) and we are committed to ensure that our investment portfolio will have halved its emissions by 2030 and will be carbon net zero by 2050. You can read more on page 20 and in our new sustainability content available at justgroupplc.co.uk . Our commitment to invest in sustainable assets is underscored by our bond issuance programme. After becoming the first UK insurer to issue a Green Bond in 2020, we continued to be a market innovator by issuing a Sustainability RT1 Bond, the first of its kind in the UK and European insurance sector. Additionally we are aiming for our operations to be carbon net zero in terms of emissions by 2025. I am very proud that over the last two years we have reduced our operational carbon intensity per employee by 85% and that we have achieved by far the lowest intensity amongst life insurance companies operating in the FTSE 350 1 . However, there is still considerably more work to do over the next few years to reach our goal of carbon net zero.

CUSTOMERS We have ambitious targets to continuously improve the customer experience we deliver and are investing to enhance our digital capabilities. For our business partners this will make Just easier to do business with and provide our customers with more options to engage with us. COLLEAGUES During 2021 we successfully transitioned colleagues from homeworking in light of COVID-19, to embracing hybrid ways of working. The skills and commitments of our colleagues across the Group have achieved external recognition from our business partners. We were delighted to be named Company of the Year at the Financial Adviser Service Awards for 2021 in recognition of the outstanding service we have consistently delivered over the past decade. In addition we achieved five star awards in both the Pensions and Protection, and Mortgages categories. We have a key priority to build a diverse workforce and strengthen our inclusive culture. I am proud that we have increased gender diversity across senior roles by a further three percentage points in 2021. As a signatory to the Women in Finance Charter we have pledged that 33% of our senior leaders will be female by 2023 and during 2021 we have committed to increasing the percentage of senior leaders from a Black, Asian or Minority Ethnic background to 15%, in line with the percentage in the broader UK population. You can read in detail how we have supported our colleagues and achieved our highest ever Best Companies score on page 30. FINANCIAL PERFORMANCE Over the last two years we have moved successfully to a profitable and sustainable growth model, as demonstrated by the excellent 25% sales growth which has helped us to grow new business profits by 13%. Adjusted IFRS operating profit is slightly reduced due to a lower assumption change compared to 2020. Our interest rate hedging programme has successfully protected our solvency capital position, but the rise in interest rates during the year has resulted in an economic loss, which means we have a small overall IFRS loss before tax of £(21)m for 2021. The strength and resilience of our overall capital position and our ability to improve our underlying capital generation remain extremely important metrics for us. In 2020 we delivered £18m underlying organic capital generation (“UOCG”) and set a target to "at least double" this amount by 2022. We have achieved that one year early in 2021 with £51m UOCG, helped by a new business strain of 1.5%. This is a level of capital generation that gives us more choice over capital allocation decisions, including the ability to pay a sustainable dividend. We are pleased to report a Solvency II capital coverage ratio at end 2021 of 164%, up from 156% at end 2020. We continue to be comfortable with our capital coverage. GEOPOLITICAL VOLATILITY As I write this report Europe is facing military aggression and we are carefully monitoring events. Our business has very limited direct exposure resulting from the conflict but our thoughts are with the many people impacted. IN CONCLUSION During this unprecedented period of the pandemic we are continuing to ensure we live up to our purpose. I am very grateful to my colleagues for their resilience, commitment and adaptability during this period of changing working patterns. With our capital base now strengthened we have shown that we can grow the business sustainably. This means that we are able to help more people achieve a better later life while also rewarding shareholders.

1 The determination of carbon intensity per employee is based on published information from peer group companies from the UK FTSE 350 for 2020.

JUST GROUP PLC Annual Report and Accounts 2021

MARKET CONTEXT

HELPING CUSTOMERS STRENGTHEN THEIR FINANCIAL RESILIENCE

Structural drivers in our markets mean we can grow profits sustainably while delivering better outcomes for customers.

DEFINED BENEFIT DE-RISKING SOLUTIONS Defined benefit pension schemes have an obligation to pay members a retirement income based on their earnings history and length of employment. Operating these schemes has become more costly for employers and the benefits of providing them have fallen, creating an opportunity for guaranteed income providers to fully or partially de-risk an employer’s defined benefit obligations. Defined benefit de-risking can occur via a Buy-in, whereby a pension scheme pays a premium to an insurance company to purchase an income stream that matches its defined benefit obligations to some or all of its members, but retains legal responsibility for those obligations. An alternative is to Buy-out, where a pension scheme removes its obligations by purchasing individual insurance policies to pay the benefits of some or all of its members, who then become policyholders of the de-risking provider. CURRENT MARKET The first half of 2021 was slow in comparison to recent years and this resulted in strong competition between insurers for the small and mid-market transactions. In contrast, new project invitations picked up in the second half which was busy with transactions forecast to exceed £23bn (source: WTW). This volume is greater than the same period in 2019, pre COVID-19, but was achieved without the contribution of the volume of megadeals that characterised that record breaking year. So in aggregate, 2021 achieved premiums of around £30bn for the full year, a similar total to that achieved in 2020 which was the second busiest on record (source: WTW).

OUTLOOK The structural drivers of growth for the de-risking market are unchanged and the outlook for 2022 and beyond is strong. There are an estimated £2.3tn of defined benefit liabilities (source: PPF). The Pension Regulator’s (“TPR”) defined benefit funding code, which is expected to come into force by 2023, is likely to increase demand for pension scheme de-risking, as it seeks to improve funding and reduce reliance on sponsor contributions. Employee benefit consultants have projected that the market will grow to between £30-50bn per annum until 2025 with the potential for larger volumes thereafter (sources: Aon and LCP). We expect much of this projected growth will be delivered by mega-transactions underpinned by continued demand for small and mid-market transactions. While insurer capacity to write a higher volume of individual transactions is likely to increase in the longer term, over the medium termwe believe the demand for de-risking transactions will exceed the supply available. For the first time, Buy-out has become the preferred long-term ambition for schemes, overtaking self-sufficiency. With improving levels of funding, demand for Buy-outs is anticipated to continue building (source: Aon). As a result, we believe small and medium schemes targeting Buy-out will need to have their data and benefit specifications in good order to secure insurer engagement. In June 2020 TPR issued guidance for trustees and sponsoring employers considering transacting with a defined benefit superfund model and other similar models. These so-called superfunds are a pension consolidation solution for schemes and sponsors to transfer risk where they cannot achieve a Buy-out from an insurance company. TPR has also issued guidance for those considering setting up and running a superfund and an assessment process that TPR will use to establish whether an application to establish a superfund has met the required standards. Following assessment and inclusion on the TPR approved list, superfunds will be subject to a further assessment when TPR is notified of an intended transfer into it.

Taking the risk out of paying company pensions

FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

87% o dfnd bnft pnin s hms a e coe t nw mme s ad ic esnl t ftr a c ul (%) OF DEFINED BENEFIT PENSION SCHEMES ARE CLOSED TO NEW MEMBERS AND INCREASINGLY TO FUTURE ACCRUAL (%)

100

Providing security and peace of mind

2018 2019 2020 2021 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Closed to new members (open to benefit accrual)

Source: The Purple Book 2021, PPF Closed to future accrual

Clara-Pensions has stated they will serve as a bridge to Buy-out for schemes with weak or insolvent sponsors and particularly those exiting the pension protection fund assessment. So schemes they secure will eventually come to the insurance market. Not all superfund models may target Buy-out, so these would be competitors for parts of the market we target. However, we believe the scale of the market and strength of demand for “gold standard” insurance solutions will mean that trustees and their consultants will continue to compete for insurer attention. The continued attractiveness of pricing offered by insurance companies will be impacted by the availability and ability of insurers to secure high-yielding illiquid assets such as infrastructure debt and lifetime mortgages. The government’s reform of the financial services legislation, Future Regulatory Framework (“FRF”) Review, could have a positive impact in making it more efficient and attractive for insurers to invest in a range of illiquid assets. Heightened government, regulatory and fiduciary focus alongside consumer activism has pushed environmental, social and governance (“ESG”) considerations up the agenda for UK defined benefit pension schemes. With new regulations for climate reporting introduced with the Pensions Schemes Act 2021, we expect more trustees considering de-risking to seek assurance that ESG considerations underpin the asset choices in insurers’ investment portfolios. customers to convert some or all of their accumulated pension savings into a guaranteed lifetime retirement income. The solution provides people with peace of mind from the security of knowing the income will continue to be paid for as long as the customer and, where relevant, for as long as they or, typically, their spouse, lives. In the UK, GIfLs traditionally offered an income payable without reference to the individual’s health or lifestyle, and were differentiated only by reference to a limited number of factors such as age, premium size and, prior to 31 December 2012, gender. INDIVIDUAL RETIREMENT INCOME MARKET Guaranteed Income for Life (“GIfL”) products are bought by individual An individually underwritten GIfL takes into account an individual’s medical conditions, personal and lifestyle factors to determine their life expectancy. People who are eligible and purchase an individually underwritten GIfL typically achieve double-digit percentage increases in income compared to purchasing a GIfL which is not individually underwritten. CURRENT MARKET AND OUTLOOK Pension customers are encouraged to compare the GIfL offer provided by their existing pension company to those offered on what is the open or external market. In March 2018 the Financial Conduct Authority (“FCA”) introduced rules requiring pension companies to provide customers with a comparison to best income available from the external market alongside the quotation from the incumbent firm. These requirements were subsequently strengthened and from January 2020 all firms are required to provide a medically underwritten comparison where a

Epce got i D d-r sig tascin (£b) DB DE-RISKING TRANSACTIONS (£BN)

2011 2012 2013 2014 2015 2016

2017 2018 2019 2020 2021 (forecast)

Buy-in/Buy-out Source: Just analysis, WTW

Backbook acquisition

2,500 EXTERNAL GIFL MARKET (£M)

2,000

1,500

1,000

500

2015

2016

2017

2018

2019

2020

Source: Just analysis, ABI

Regulation by TPR is outside of the insurance regime and so these new consolidators would not be subject to the more robust capital requirements of the Solvency II regulations. If these new arrangements are regulated as proposed, they would provide a lower cost solution to a Buy-out of liabilities for some pension schemes, albeit with reduced protection for members compared to an insurance solution. This new superfund regime could provide additional competition for parts of the market we target. This won’t be clear until the government has introduced legislation to replace the temporary guidance published by TPR. The first superfund, Clara-Pensions, completed the TPR assessment process in late 2021 and announced they would be ready to transact in 2022. They have been cleared as a provider but are yet to have a transaction approved. At the time of writing, no other superfund has been cleared as a provider.

JUST GROUP PLC Annual Report and Accounts 2021

MARKET CONTEXT CONTINUED

customer is eligible. This has provided new opportunities for Just Group as we compete in the open market when these customers choose to shop around; this is our addressable market as we do not have an existing base of pension savings customers. The open market share of the total GIfL market, for 2021 was not published at the time of preparing this report. In 2020 it was 50% unchanged from 2019 (source: ABI). Continuing developments are driving growth in our addressable market: • the structural drivers of growth in the retirement income market are strong and assets accumulating in defined contribution (“DC”) pension schemes are projected to increase consistently over the next decade. This growth arises from an increase in the number of people joining workplace pension schemes as a result of the successful state auto-enrolment policy and the increase in contribution rates implemented in 2018; • growth in DC pension assets also arises as companies close down final salary or defined benefit pension schemes and offer their employees DC pensions instead; • some people are transferring out of defined benefit pension schemes into DC pension schemes to take advantage of Pension Freedoms. When transferring, many people are choosing to secure a guaranteed income for life, by using some of the transfer value to purchase an individually underwritten GIfL; and • many life and pension companies are choosing to put in place broking solutions to offer their pension savings customers access to the best individually underwritten GIfL deals in the market. Some are choosing to transfer their obligations to provide a guaranteed GIfL rate to their customers to an alternative product provider or broking solution. This grows our addressable market and provides customers with better outcomes. Our HUB group of companies is providing many of these corporate services. The number of individual retail customers transferring their pension benefits into defined contribution pensions from their final salary (defined benefit) pension has reduced significantly in the last two years. This reduction follows a review and introduction of remediation measures by the FCA into the quality of advice provided to individual retail customers exploring transferring their benefits. A proportion of the proceeds from these transfers are used to secure a guaranteed income by investing in a GIfL. This reduction in activity will be a drag on the positive growth factors above. The FCA previously announced they intend to complete further work on the suitability of advice and associated disclosure (known as “Assessing Suitability Review 2”). The review will focus on initial and on-going advice to consumers on taking an income in retirement. At the time of writing this report the FCA had paused this review and not committed to a future date to start the work. This evolving market has changed significantly following the Pension Freedom reforms and the FCA wants to assess the outcomes consumers are receiving. The Governor of the Bank of England has expressed concerns that people may not have the financial resilience to withstand significant asset price volatility and the FCA has expressed concerns that people may not have sufficient sources of sustainable income. These comments and regulatory reviews shine a spotlight on the importance of securing a guaranteed income for life.

LIFETIME MORTGAGES A lifetime mortgage (“LTM”) allows homeowners to borrowmoney secured against the equity in their home. The amount borrowed is repayable together with accrued interest on the death of the last remaining homeowner or their move into permanent residential care. This product can be used by retirees to supplement savings, top up retirement income or to settle any outstanding indebtedness. The typical lifetime mortgage customer is around 69 years old, has a house valued at around £275,000 and borrows 29% of the property value. People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family. The compound annual growth rate of the lifetime mortgage market between 2011 and 2021 was 20.1% and this has attracted new providers to enter the market in the last few years. Just Group is a leading product provider of lifetime mortgages. Our HUB Financial Solutions business is a leading distribution business providing consumers with regulated advice on equity release solutions from across the market. CURRENT MARKET AND OUTLOOK Just Group expects Lifetime Mortgages to continue to provide an important, but reducing proportion of the investments it uses to back its Retirement Income new business liabilities. Homeowners aged over 55 are estimated to own property wealth of over £3.5tn (source: ONS). We estimate that the existing industry loan book including interest is just £36bn. Increased competition stemming from the new entrants to the marketplace has increased the availability of product variants, rising from 525 at the end of 2019 to 1,200 at the end of December 2021 (source: Just estimates), in turn resulting in greater product choice and flexibility for customers. The levels of activity in the market during 2021 returned to those observed prior to the pandemic as customers looked to take advantage of the broad range of competitive solutions available. Just Group introduced medical underwriting into a niche segment of the lifetime mortgage market some years ago. This year we have extended it across the Just for You mortgage range. We estimate by collecting medical information and lifestyle factors from applicants, we are able to provide six-in-ten a lower interest rate, or for those who need it, a higher borrowing amount. We believe this will revolutionise how lifetime mortgages are advised. You can read more about our disruptive innovation on page 64. Just is forecasting that the LTMmarket will grow to exceed £6bn per annum by the end of 2024, which is a compound annual growth rate of 7.7% from 2021. The primary drivers of growth are: • households wanting to top up their retirement income to improve their standard of living in later life; • an increase in the number of people with outstanding interest-only mortgages who are entering retirement and require a solution to settle the debt with the existing mortgage company; • strong demographic growth. The number of people aged 65 and over is forecast to increase from around 12 million today to around 17 million by 2040; and • strong investment in advertising which results in people becoming aware of LTMs, combined with people becoming more disposed to using some of their housing equity. In October 2020 the FCA wrote to Chief Executive Officers and board directors of lifetime mortgage lenders and mortgage intermediaries. The FCA set out their view of the key risks these firms pose to their consumers or the markets in which they operate. They outlined their expectations of firms including how firms should be mitigating these key risks. They described their supervisory strategy and programme of work to ensure that firms are meeting the regulators’ expectations and that any harms and risks of harm are being remedied and/or mitigated.

Enabling people to improve their later-life living standards

FINANCIAL STATEMENTS

STRATEGIC REPORT

GOVERNANCE

The FCA stated they would be engaging with a number of firms across the industry and that phase of work was due to conclude in May 2021. They committed to write to firms after this date to provide an updated view of the key risks posed by firms in this sector and their supervisory plans. At the time of writing this report, we have not been advised the FCA has started this work. LONG-TERM CARE SOLUTIONS Care Plans, or immediate needs annuities, are a form of purchased life annuity. In exchange for an up-front premium, they provide a guaranteed income for the life of the insured to help contribute to the cost of their care. Under current rules this income is tax free when paid directly to a registered care provider, with Care Plans available both to individuals entering care facilities and receiving domiciliary support. As such, Care Plans provide a form of longevity insurance to an individual against the on-going costs of receiving care until their death. On 7 September 2021, the UK Prime Minister announced plans to substantially increase funding for health and social care over the next three years (2022-2025), to be funded by a new tax, the Health and Social Care Levy. From October 2023, the government plans to introduce a new £86,000 cap on the amount anyone in England will have to spend on their personal care over their lifetime. The cap will apply irrespective of a person’s age or income. The government said that the publication of the November 2021 document marked the start of a period of co-production of the statutory guidance with the sector, building on draft regulations and guidance published in 2015. It added that this would be followed by a public consultation in the new year with the intention that the final regulations and guidance will be published in spring 2022. CURRENT MARKET AND OUTLOOK There is a substantial market for care in the UK. The drivers of the need for care are strong because: • there are currently around 1.6 million people aged 85 or over in the UK – this is the average age at which people go into care homes; • this is the fastest growing demographic cohort, with its number expected to almost double over the next 25 years, suggesting a rate in excess of 2.6%; • 40% of all people in the UK aged 65 and over are estimated to have a limiting long-standing illness, which may require care in the future; and • the recent focus on pressures within the care sector has highlighted the need to plan for care, and any government reformwill provide additional focus on the limited number of solutions currently available.

Lftm mrgg mre sz ad go t rt (£m) LIFETIME MORTGAGE MARKET SIZE AND GROWTH RATE (£M)

5,000

4,000

3,000

2,000

1,000

2011 2012 2013 2014 2015 2016

2017 2018 2019 2020 2021

Lump sum mortgage sales

Existing drawdown mortgages – further advances Source: Equity Release Council New drawdown mortgages – initial advance

Nme o pol (mlin) a e 65 + NUMBER OF PEOPLE (MILLIONS) AGE 65

% of UK population over age 65

18.3% 18.7% 19.9% 21.7% 23.2% 24.1%

2018

2020

2025

2030

2040

2035

Source: Oce for National Statistics

People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family

A LEADER IN UK LONG-TERM CARE FINANCIAL SOLUTIONS FOR 21 Years

JUST GROUP PLC Annual Report and Accounts 2021

BUSINESS MODEL

Our business model converts the growth opportunities in our markets to deliver positive outcomes for customers, shareholders and colleagues.

GROWTH OPPORTUNITIES:

HOW WE CREATE VALUE:

We have a growing ageing population with evolving needs.

We have created a sustainable business model that organically generates capital to support growth. We assess the risks related to the policies we sell and howmuch income we expect to provide to our customers. We charge a margin on the initial amount received in exchange for accepting the risk over the lifetime of the policy. We invest the margin and our customers’ pension savings in high quality assets, including the lifetime mortgages we originate. This generates financial value whilst ensuring we are able to pay policyholder pensions as they fall due.

People approaching and in-retirement will have a unique set of circumstances and be exposed to a number of risks. These risks include: • their defined benefit pension scheme running into financial difficulty; running out of money; • being unable to plan their financial affairs; • increasing and uncertain care costs; • not achieving the lifestyle which they could actually afford; • being invested in inappropriate products and securities; and • inflation outpacing their savings. Our solutions service these needs and our scalable and sustainable business model is built to optimise value from those solutions.

RISK SELECTION Selecting the right risks and pricing our products appropriately PrognoSys™ is our powerful proprietary tool for pricing and reserving that allows the Group to identify and price for the risks we want and to improve customer outcomes. And because we operate in attractive markets that are growing, this further allows us to be selective in the risks we choose to write. INVESTMENT STRATEGY Continuous improvements in our investment strategy to generate value for shareholders and better value for customers We invest in private placements, commercial property mortgages and infrastructure loans, as well as investment grade fixed income securities such as government and corporate bonds. We originate lifetime mortgages to provide matching cash flows for longer duration liabilities and to achieve a higher return than liquid financial assets. Read about our sustainable investment strategy on page 20.

The key characteristics of our business model:

SPECIALIST FOCUS

RISK SELECTION

PRODUCT INNOVATION

COST DISCIPLINE

FOCUS ON ORGANIC CAPITAL GENERATION

SCALABLE OPERATING MODEL

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