Just Annual Report and Accounts 2023

Strategic Report | Governance | Financial Statements | 11

2. Pension Protection Fund In his Autumn statement, the Chancellor confirmed that he will publish a consultation on how the Pension Protection Fund (“PPF”) can act as a consolidator for schemes unattractive to commercial providers. Ultimately, the Chancellor hopes to increase opportunities for pension funds to invest in productive finance without compromising on the security of members’ benefits or trustees’ fiduciary duties. The government also plans to consult on enabling 100% PPF coverage for DB schemes that opt to pay a higher levy. We welcome innovative solutions to the market, but irrespective, 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 prioritise the insurer pathway where possible. WIDENING THE INVESTMENT OPPORTUNITY Insurers cash flow match liabilities through the origination of a mix of investment grade liquid and illiquid fixed income assets. To offer attractive new business pricing, insurers must have strong capabilities to originate high-yielding, medium and long duration illiquid assets. Illiquid assets are split between the lifetime mortgages that we originate and manage ourselves and other illiquid assets, which includes a diverse range of investments such as infrastructure debt, private placements, commercial real estate mortgages, ground rents and income strips. The government’s reforms of the current Solvency II regime, known as Solvency UK, when implemented, will widen asset eligibility criteria. This could unlock over £100 billion of investment from insurers into the UK. Insurer long-term capital is particularly suitable for investments to decarbonise the economy, develop affordable and social housing, to make improvements to infrastructure and to support the UK’s world class science and research capabilities. SUSTAINABLE INVESTING 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, more trustees considering de-risking have sought assurance that ESG considerations underpin the asset choices in insurers’ investment portfolios. OUTLOOK In conclusion, the structural growth drivers for the defined benefit de-risking market continue to accelerate and the outlook for 2024 and beyond is exciting. The increase in gilt yields has reduced the estimated liabilities of defined benefit pension schemes and dramatically improved funding levels. Employee Benefit Consultants expect that this will translate into rising market volumes and that demand will remain strong over the long term. It is expected that c.£600bn of defined benefit scheme funds will move to de-risk over the next decade of which potentially more than £360bn could transact in the next 5 years (source: LCP). There is a vibrant market for schemes of all sizes and insurance capacity has kept pace with demand. As transaction volumes continue to increase, pressure on scarce human resources may be felt across the wider ecosystem. When selecting new business, insurers will prioritise pension schemes that have their governance, data and benefit specifications in good order. Just Group is continuing to invest in its proposition, resources and service to ensure that schemes we work with can realise their de-risking ambition.

88% OF DEFINED BENEFIT PENSION SCHEMES ARE CLOSED TO NEW MEMBERS AND INCREASINGLY TO FUTURE ACCRUAL (%)

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

100

Closed to new members (open to benefit accrual)

Closed to future accrual 2023

Source: The Purple Book 2023, PPF

EXPECTED GROWTH IN DB DE-RISKING TRANSACTIONS (£BN)

2023 (est.) 2022