Just Annual Report and Accounts 2020

STRATEGIC REPORT

INDIVIDUAL RETIREMENT INCOME MARKET Guaranteed Income for Life (“GIfL”) products are bought by individual 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, postcode, premium size and, prior to 31 December 2012, gender. An individually underwritten GIfL takes into account an individual’s medical conditions 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 an external GIfL quotation showing the best quote 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 customer is eligible. This should provide 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 maintained a 50% share of the total GIfL market, 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 2019/20. 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 first COVID-19 lockdown impacted the ability for some customers to transact business in the market which has resulted in a reduction in the size of the GIfL market in 2020. Volumes of transactions in the second half of the year have started to return to near pre-pandemic levels. The FCA has announced they intend to complete further work on the suitability of advice and associated disclosure (known as “Assessing

PROVIDING SECURITY AND PEACE OF MIND

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

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

Closed to new members (open to benefit accrual)

Source: The Purple Book 2020, PPF Closed to future accrual

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

2011 2012 2013 2014 2015 2016

2017 2018 2019 2020 (forecast)

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

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