Standard Life plc ($SDLF)

Welcome to Standard Life's Full Year 2025 results presentation. I'd like to introduce the stage, Andy Briggs, Group Chief Executive Officer. Andy, over to you.

Thank you, Claire. Good morning, and welcome. It was a privilege to be here just 2 weeks ago, ringing the opening bell on the London Stock Exchange, and I'm delighted to be here today presenting a Standard Life plc. For more than 200 years, Standard Life has been standing beside its customers. And today, as real life for customers is less predictable, our role as a retirement specialist is more important than ever. So to our agenda today. I'll begin with an update on progress on our strategic priorities, and the operating momentum we are building across the group. Nic will take you through the detail of our financial performance. I'll then return to outline the strategic developments to come before taking your questions. When we set out our 3-year strategy in 2024, we were clear on the scale of the opportunity in front of us. Two years on, I'm delighted with the progress we've made. First, we are uniquely positioned in our markets. The U.K. market is one of the most attractive globally for retirement savings and income. Second, strong execution means we're driving better customer outcomes and meeting even more of their needs, deepening our relevance. Third, that, in turn, is driving profitable growth, which is translating into a stronger balance sheet. We are firmly on track to deliver our 2026 targets. All of this supports strong shareholder returns and creates financial flexibility that gives us more strategic optionality than ever before. Our strategy is underpinned by 3 strategic priorities: grow, optimize and enhance. Two years into our 3-year strategy, we delivered material progress across each. To grow, we strengthened our products and engagement capabilities. Following product launches in 2025, we now have a full product suite to support customers across all stages of their retirement journey. The launch of our advice proposition and our wide range of digital offerings from our family finance hub to our mixed income builder tool are all helping customers navigate their retirement journey, unlocking the ability to further engage and support households with excellent budgeting and planning options. Within optimize, our in-house asset management expertise continues to enhance returns and deliver better customer outcomes. Deleveraging remains a clear priority, and we're driving progress here. We paid down a further GBP 200 million of debt in December, which was underpinned by business growth, improving our leverage ratio to 33%. On enhance, we've delivered GBP 180 million of run rate cost savings, ahead of expectations again as we leverage technology to reshape our organization. Lastly, our migrations are progressing well with 75% of customers now on end-state platforms, up from 45% in 2024. To summarize, our colleagues have delivered 2 years of meaningful operational progress across the board. And I know that there's much more to come from Standard Life. Our strategic progress is translating into strong financial performance across cash, capital and earnings. Operating cash generation has grown at 13% CAGR over the past 2 years, and we remain confident in mid-single-digit percent growth into the long term. Our growing business is generating surplus capital, which we are currently using to strengthen the capital position by paying down debt. Even through our deleveraging program, we remain in the upper half of our solvency range. Finally, on earnings, we remain firmly on track to achieve our circa GBP 1.1 billion operating profit target in 2026 having delivered another year of strong operational performance. And we continue to grow our dividend up by 2.6%. Now I've had the privilege of working in this sector for nearly 40 years. And maybe it's just me, but I think the U.K. retirement market has never been this exciting. The GBP 3.6 trillion market is set to grow by 70% over the next decade, driven by structural long-term demographic trends, including the aging population and the shift to defined contribution. On the top of that, on the right of the slide, we see encouraging regulatory and political proposals to create additional tailwinds to our industry. These will accelerate the existing structural growth drivers in the market, so we see growth potential beyond this 70%. Through our active role in shaping the market and the strategy we've defined, Standard Life is well positioned to benefit from these tailwinds. And better still, in the fast-growing market, we're the only scale player, solely focused across the full retirement and savings life cycle. And our ambition is to grow faster than the market and gain further market share. On this slide, we can see strong flows in each market. In Workplace, our ambition is to consolidate our top 3 position as this market grows rapidly and concentrates down to fewer providers. In Retail, we're looking to move from a top 10 to a top 5 position, again, in a rapidly growing market. And in Retirement Solutions, we aim to maintain a top 5 position across individual annuities and PRT combined. Our success is underpinned by our competitive advantages. I will come on to these in more detail later, but I will highlight here that the diversification of our business model across the capital-light Pensions and Savings and capital utilizing Retirement Solutions brings capital efficiencies and customer benefits. Whether it's joining the Workplace 18 years or staying in consolidating in Retail or securing income in retirement through our annuities business, we are well positioned to serve our customers and their evolving needs at all life stages. In Workplace, we're a scale player with 3 million and growing customers. Winning in Workplace requires 3 things: a leading employer proposition, excellent customer service and scale-driven cost efficiency, and we are strong on all 3 of these. Employers are the key decision makers here and our leading employer proposition is underpinned by our award-winning Master Trust. And our sustainable multi-asset proposition, one of the U.K.'s largest sustainable default funds supporting millions of Workplace members. In 2025, we delivered several sector firsts, ranging from new tools to supporting families to FCA-aligned sustainability labeling to Shariah-compliant offerings. Very high on the agenda for employers is excellent customer service. I hear from employers time and again that the quality of our service is a key differentiator here. I'd like to join some of our Workplace pitches and employers consistently highlight that we genuinely care about every client and member, with quality of service their #1 priority and they say this really stands out when they visit Standard Life. This is enabled by our brilliant colleagues and our digital-first member engagement, reflected in our app rating of 4.7 stars, again, with continuous developments. Thirdly, cost efficiency is delivered by leveraging technology and our ongoing migration program, which in turn means our margins continue to expand and are ahead of peers. On the right, you will see that our winning Workplace formula is translating through to strong outcomes. An excellent Net Promoter Score of 60. We welcomed 247,000 new Workplace members in 2025, up from 226,000 in 2024, and we won over 200 schemes in 2025. So this market is key for customer acquisition. Thirdly, Workplace assets are up almost 40% in 3 years, importantly, driven by strong positive net fund flows. With GBP 10 billion of gross flows reached this year, our market share grew well into double digits. So great progress and hugely exciting that this will be further supercharged by market consolidation as minimum fund size is enforced and expected contribution increases. Turning to Retail. Success in this market is driven by 3 things: effective customer engagement, offering products that meet their evolving needs and using digital infrastructure to do all this proactively. We have the first 2 and a significant opportunity to leverage the third. On the left, we engage customers through multiple channels, including our award-winning app and telephony guidance. And of course, the rollout of our advice proposition, which launched last year. Here, we're pleased that we can support customers in providing financial advice for a single flat fee regardless of pot size. Second, our full product suite addresses customer needs and now supports them across their entire savings and retirement journey. Distribution has widened as our products are now on both the Quilter and Fidelity platforms and continue to scale with strong investment performance. Thirdly, we have a significant opportunity to leverage digital infrastructure. A key area of focus is building out our Salesforce CRM integration. This is improving our outflows, which Nic will come on to. It gives us deeper insight to support customers so we can proactively help by nudging customers to make active decisions to ensure they're doing enough at each stage of their journey to and through retirement. I was call listening last week and heard a great example. In our new pension consultation service, our CRM system uses propensity modeling to proactively target customers who will benefit from this service. The outcomes of our efforts in Retail are visible on the right of the page. Our customer satisfaction scores are in the 90s, with 93% of customers rating us good or excellent. This is translating to more digital customer engagement with total log-ins up 50% in 2 years. Lastly, on this slide, we're seeing positive customer outcomes feed through to flows. Gross Retail flows of GBP 7 billion, up nearly GBP 3 billion over the last 3 years. But the bottom line is that we're only scratching the surface, and there is so much more to come here. I'm delighted to have welcomed Angela Byrne as CEO of Pensions and Savings this year as we build the next stage in our journey. In the Annuity business, which includes both PRT and individual annuities, winning is all about having a leading employer proposition, excellent member experience and competitive pricing. And our strength in all 3 is why we're winning in these markets. Our comprehensive buy-in and buyout capabilities and a full product suite means that we can serve customers however complex their needs may be. Member experience is critical in this market. Members want clarity, speed and service, all of which we provide. Our digital capabilities allow customers to understand their position in real time. For example, our digital quote platform underwrites and returns over 90% of individual annuity quotes within seconds. Our core service rates are excellent versus peers, and we're also Amazon Web Services largest European insurance client, a testament to our scale. Our diversified business mix is a huge advantage with most peers effectively undiversified mono lines. We also continue to leverage our in-house asset management capabilities to deliver superior returns, particularly through recurring management actions, all of which means we can price competitively and generate attractive returns. All these factors are driving strong outcomes. We've nearly doubled our individual annuity market share to 15% from 8% in only 2 years and expect to grow further. We also wrote our largest-ever PRT deal of GBP 1.9 billion. As outlined earlier on this slide, our comprehensive capabilities, which includes our innovative market-leading track record for longevity swap novations was key to winning this deal. We are disciplined in our approach to Annuities, choosing to deploy up to GBP 200 million of capital and seek value over volume. This is evidenced by the attractive returns generated with lifetime IRRs on our annuity business of more than 20%. This strong performance across Workplace, Retail and Annuities is driving growth in our key financial metrics operating cash generation. We are confident of mid-single-digit OCG growth going forward. Our GBP 1 billion of free cash flow has doubled from 2023, now comfortably covering our growing dividend of about GBP 550 million. This means dividends and excess cash will both grow as OCG grows, particularly as recurring users are reducing. 2026 is our final year of using this excess cash to delever. So from the end of this year, this financial flexibility will enable us to deploy excess cash to the highest returning opportunities in line with our capital allocation framework. And I'll now hand you over to Nic, who can run through the numbers in detail. Nic?

Thank you, Andy, and good morning, everyone. When I stood here a year ago, I talked about how our balance sheet pivot had lagged the strategic business pivot and highlighted the key role that operational performance plays in improving our balance sheet quality and enhancing our financial flexibility. The upgraded 2026 financial targets were set with exactly this in mind. One year on, I'm pleased to be reporting a strong set of results for 2025, alongside clear progress on the balance sheet. Starting my presentation with the financial headlines. Operating cash generation grew by 5% to GBP 1,474 million, with total cash generation at GBP 171 million, both in line with previous guidance. The solvency leverage ratio improved to 33%, while our solvency cover increased to 176%, remaining in the upper half of our operating range. IFRS operating profit was 15% higher at GBP 945 million, supported by asset growth and cost savings, which reached GBP 180 million on a run rate basis. Adjusted IFRS shareholders' equity was GBP 3.1 billion, benefiting from a strong increase in the CSM, which partly offset the negative hedge market-related impacts. We have recommended a final dividend of 28.05p per share, up 2.6% year-on-year, bringing the total dividend for the year to 55.4p per share. This performance puts us firmly on track to deliver all of our 2026 targets. I will now cover the financials in more detail, starting with the performance of our main businesses. Backed by our leading propositions and brand, our Pensions and Savings business continues to grow assets, margin and profitability. Workplace saw GBP 10 billion of inflows in 2025, GBP 1.5 billion of which were from new scheme wins. We have carried good momentum into 2026 with around GBP 1 billion of wins secured so far this year. Excluding new schemes, gross inflows were GBP 8.5 billion, highlighting the strong flywheel effect of this business. Outflows reflect the higher asset base and the natural attrition from members taking their pensions. Scheme retentions remain high, with only GBP 200 million of scheme losses for the second year running. In Retail, our gross inflows continued to improve, up 16% to GBP 7.1 billion in 2025, benefiting from a greater take-up of our drawdown product and a 60% rise in international bond sales. Outflows include GBP 5 billion of withdrawals from customers accessing their retirement savings in the form of annuity income, drawdown payments or tax-free lump sums. They also include GBP 2 billion of internal transfers to more modern retail products. While the remaining outflows are sizable, we expect them to improve as a percentage of AUA as we increase our focus on retention. In the top right, you can see how these flows have combined with positive market effects to lift the overall P&S asset base by 9%. In the bottom half of the slide, I summarize the drivers of the financial performance for this business. We now publish both OCG and IFRS operating profit driver analysis for our main businesses, which enable us to better explain their respective performance and to express the results as a basis points margin on AUA. Now given the capital-light fee-based nature of the P&S business, we consider IFRS operating profit lens to be the most suitable performance measure here. Average AUA grew by 7% in 2025 to GBP 204.6 billion, which combined with the improved margin of 19 basis points drove operating profit 23% higher to GBP 389 million. This performance highlights our scale advantage and operating leverage with further margin improvement expected near term as the full benefits of our cost savings program come through. Our Retirement Solutions business also delivered a strong operating performance in 2025. As a reminder, new volumes are not the primary driver of profits here. We run over GBP 40 billion of annuity assets, and it is the management of this large book that drives most of our profitability. We have 2 main product lines in this business, being individual annuities and pension risk transfers. For individual annuities, product innovation and rising consumer demand saw new premiums grow 20% to GBP 1.2 billion, which is double the 2023 level. PRT premiums were lower at GBP 3.9 billion, reflecting reduced market volumes and our disciplined approach to pricing. In a narrow credit spread environment and competitive market, we took the decision to protect economics and forgo volumes. Our overall capital efficiency improved in 2025, with the reduction in capital invested outpacing the overall decline in new premiums. As we look forward, our aim is to deploy up to GBP 200 million of capital to annuities this year, provided we secure sufficiently attractive returns. We remain confident in our ability to win in this market with GBP 1.6 billion of PRT transactions completed or at an exclusive stage in 2026 so far. The bottom half of the slide depicts the drivers of performance for Retirement Solutions. Given the capital-utilizing spread-based nature of this business, we consider OCG to be the most appropriate performance measure. Our effective management of the in-force book compared with our scale, efficiency and expertise in delivering portfolio optimization actions, enabled us to sustain the spread-based margin at 219 basis points. Applied to our growing average AUA of GBP 40.2 billion, produced OCG of GBP 879 million, up 3% year-on-year. I will now move to the group metrics, starting with operating cash generation. The OCG increased to GBP 1,474 million, was driven by a 6% increase in surplus emergence to GBP 914 million and by another strong performance in delivering GBP 560 million of recurring management actions, driven by our developed asset management capabilities. The contribution of the 3 components that make up these actions are broadly similar year-on-year, with further detail provided in the appendix. We're confident in achieving our guidance of GBP 500 million recurring management actions each year as the capabilities and dynamics that underpin this performance are both differentiated and enduring. On the right, you can see the business segment analysis of OCG, which we disclosed for the first time as promised. P&S grew its OCG by 13% to GBP 396 million, equivalent to 19 basis points on AUA. Three quarters of this margin reflects the release of in-force profit based on real-world returns and the benefit of actions to reduce operating costs. The balance reflects the uplift from simplifying fund structures. Retirement Solutions accounted for over half of the group's OCG at GBP 879 million, equivalent to 219 basis points on AUA. This reflects the steady release of capital and spread margins as our liabilities run off, and the benefit from both yield reoptimization and capital improvement actions. Taken together with profits, Europe and other produce a steady level of OCG at around GBP 200 million per annum. Total cash generation on this next slide combines OCG with cash generated from items that are one-off in nature. As previously stated, we are targeting GBP 5.1 billion of TCG over '24 to '26. Two years into this 3-year period, we have delivered TCG of GBP 3.5 billion, comprising GBP 2.9 billion operating and GBP 0.6 billion nonoperating capital generation. A further GBP 1.6 billion TCG is expected in 2026, primarily from operating sources. On the right, you can see how the GBP 5.1 billion cumulative TCG is expected to fund our planned recurring uses and the onetime investment to deliver our strategic priorities over this period, generating GBP 1.2 billion of excess cash. This excess is what provides us with the means to reduce our debt stack over the '24 to '26 period. I would like to spend a moment to take stock of the notable transformation in our ability to generate positive excess cash since 2023. By growing OCG from GBP 1.1 billion to nearly GBP 1.5 billion and by moderating our recurring uses depicted in blue, we have significantly improved our ability to cover the growing dividend shown in orange and generated a rising level of excess cash being GBP 296 million in 2024 and GBP 423 million in 2025. We expect this pattern to repeat in 2026, generating around GBP 0.5 billion of excess cash. We deploy excess cash in line with our capital allocation framework, which remains unchanged. Our near-term priority is to deleverage to our 30% target. We expect to complete this by the end of '26, after which this excess will be directed to the most attractive return opportunities across growth investment, targeted M&A and increasing returns to shareholders. We're very optimistic about the potential future opportunities for our group. Turning next to the group's 2025 solvency walk, where I'm pleased to report an improvement in the drivers of solvency capital. After covering recurring uses, we generated GBP 0.4 billion of net recurring capital, mostly in the form of own funds, which added 9 percentage points of solvency cover. Nonrecurring items netted to a small positive amount, which includes a GBP 0.1 billion positive contribution from economics net of hedging. Delivering a broadly neutral nonrecurring component has been one of my key areas of focus since joining the group. As a result, we were able to return GBP 0.4 billion of debt while growing both our solvency surplus to GBP 3.6 billion, and our coverage ratio to 176%. Turning next to leverage. Our ratio improved to 33%, reflecting the own funds growth and the GBP 0.4 billion of debt redemptions outlined in the previous slide. We remain firmly in control of our path to 30%, which will be managed within the upper half of our solvency operating range. With our capital emerging in a broadly even pattern through 2026 and with 2 debt instruments having June maturity or call date, the in-year leverage and solvency ratio paths will not be linear. Moving to the IFRS results. Our adjusted operating profit increased by 15% to GBP 945 million. Profits from pensions and savings grew by 23% to GBP 389 million, while those from Retirement Solutions increased by 19% to GBP 563 million. These performance improvements were driven by business expansion, cost savings and higher investment margins, reflecting the successful delivery of our grow, optimize and enhance strategic initiatives. Turning next to cost savings. Here, we have accelerated delivery from faster progress on migrations and from leveraging technology to enhance our business and adopt a more efficient operating model. On a run rate basis, we have achieved GBP 180 million of savings across '24 and '25, meaningfully ahead of our planned delivery profile. Savings on an earned basis were GBP 110 million last year, up from the GBP 28 million in 2024. The year-on-year benefit is, therefore, GBP 82 million, with GBP 55 million coming through our segmental results as operating margin improvements or reduced non-attributable expenses. The cost savings that relate to insurance contracts are driving meaningful increases in our CSM. This next slide completes the IFRS basis picture. As you can see in the dotted box, the improved operating profit performance means that we're now close to covering our recurring uses. The uncovered portion last year was only GBP 29 million, significantly better than the GBP 182 million in the previous year. The 2026 operating profit target of GBP 1.1 billion will comfortably cover recurring uses. And by 2027, we expect to cover all uses, enabling us to grow our contribution to shareholders' equity before economic variances. Nonoperating items include GBP 264 million, reflecting the planned investment spend to deliver our strategic priorities. This is expected to normalize to below GBP 100 million after the end of our current investment program. Adverse economic variances of GBP 604 million were almost entirely driven by negative marks on equity hedges following a 19% blended rise in markets. As I have previously explained, this is a known consequence of our hedging strategy which protects cash and solvency capital, but gives rise to an accounting mismatch volatility under IFRS. Specifically for 2025, the GBP 604 million represents an accounting timing effect and is not an economic loss. This is because of the negative equity hedge effects from the rising markets is booked in full through earnings, while the related positive effect from higher future fee revenues will come through earnings over time. You can clearly see these future benefits elsewhere in our financials, and I will come back to this on the next slide. Adjusted shareholders' equity, shown on the right, stood at GBP 3.1 billion at the end of 2025. While this is still a partial picture, it remains the most relevant measure of a life insurance balance sheet under IFRS as it includes the future store of value of insurance contracts. I referred to it as a partial picture because it excludes the investment contract value in-force, which is recognized in our solvency capital. Let me now demonstrate where the offsets to the GBP 604 million adverse economic variance are evident elsewhere in our financial results. The related benefits are captured within 2 stores of value. The first being the insurance contract CSM and the second being the investment contracts value in-force, which forms part of the Solvency II own funds. Both of these are significant in size with a combined value of almost GBP 10 billion on a pretax discounted basis. Both have increased at a strong double-digit rate since 2023 driven firstly by our operational actions to drive flows, reduce costs and improve risk-adjusted yields, but also from the equity market appreciation over this period. In 2025, positive market effects accounted for GBP 0.1 billion of the increase in pretax CSM and for GBP 0.5 billion of the increase in the value in-force. These stores of value will come through earnings in future years and provide a strong underpin to our performance trajectory for many years to come. Turning briefly to dividend where our approach remains unchanged. We're a highly cash-generative business. We operate a sustainable and progressive policy and have a strong track record of consistent dividend growth. The metrics that the Board considers when undertaking the annual dividend assessment are repeated on this slide, being OCG, solvency coverage ratio and parent company distributable reserves, which stood at GBP 5.8 billion at end '25. These metrics remain at very healthy levels. So to conclude, we have made significant progress last year in growing our operating cash and earnings metric, and we have improved the quality of our balance sheet. This performance puts us firmly on track to deliver all of our 2026 targets. Our business is now tuned to generate sizable recurring excess cash, which will enable us to complete our deleveraging this year and provide us with enhanced strategic and financial flexibility thereafter. Thank you for your attention. I will now hand you back to Andy.

Thank you, Nic. So we're 2 years into a 3-year strategy. And while I'm encouraged by the progress we've made so far, I'm focused on the year ahead and delivering on our promises for 2026. In Q4, we'll come back and talk to you about what next, but the broad strategic direction will be in line with our current vision. When we started this strategic plan, we set out a clear vision to be the U.K.'s leading retirement savings and income business. We began building out the capabilities shown here to achieve this vision. The green ticks highlight areas where we've made material progress or are complete. We've streamlined our group structure, optimized asset management, completed the rollout of our full product suite. The light blue box at the top shows our next area of focus, as I outlined earlier, a digitally enabled and personalized customer interface focused on data, guidance and advice. This is more about building capability rather than material investment. We deliver this strategic vision by executing on our strategic priorities, so let's move on to what that means for 2026. Under grow, we're further enhancing our technology and customer engagement capabilities. Our Salesforce CRM platform gives us a richer view of customer needs, enabling us to proactively nudge and support them at key life stages when decisions matter most. Targeted support will be a further unlock going forward as we engage more deeply with customers, supporting them in making the right decisions as they journey to retirement. We're focused on scaling our products and deepening our intermediary partnerships, widening our access to potential customers. While for Workplace and Annuities, it's about continuing to deliver excellent performance. For optimize, we remain firmly on track for our leverage target, and we will bring more assets in-house, which increases certainty of delivering recurring management actions. Lastly, on enhance, we'll complete our cost savings target, and we'll progress our migrations with only 25% of customers to be transitioned to their end-state platforms. We're also embedding technologies into our culture. We want AI to enhance the human skills, judgment and expertise that make us great. Let me finish by bringing this all together and reminding you why Standard Life is winning today and why we will continue to win. Across the top of the page, engaging with our customers, combined with our capital and cost efficiencies, uniquely positions us to win in this exciting market. Starting with customer engagement, we delivered over GBP 15 billion of net fund flows in Workplace over the last 3 years. This was a barely in positive territory when I started 6 years ago. Our group rebrand has brought our strongest brand to the fore. Walking around our offices last week, it's been really energizing to see how enthusiastic colleagues are about the name change and what it means for us. With 12 million U.K. adults, a customer Standard Life Group, we are uniquely positioned to engage them about their futures. Looking ahead, we will proactively support far more of our customers, helping them in further turbocharging our growth. Moving to capital efficiency. This is particularly important in our capital utilizing annuities business. The fact that we're more diversified than peers is a key driver of our lifetime IRRs of greater than 20%, which is attractive compared to those peers. These IRRs are supported by recurring management actions, driven by the excellent asset management capability that we've built. Looking ahead, we will manage more assets in-house, and we continue to explore strategic partnerships here. Thirdly, our cost efficiency continues to strengthen as we grow. This is particularly important in our capital-light Pensions and Savings business. Our sector-leading margin expansion from 11 bps in 2023 to 19 bps in 2025 reflects the scale of our business and how we leverage technology. It compares favorably to our major peers who typically report single-digit margins here. And looking ahead, we will utilize technology advancements as we scale and drive operating leverage further. I'm very confident that we will continue to win, given these competitive advantages, which will drive our growing operating cash generation over the long term. To summarize, we operate in one of the most attractive retirement and savings markets in the world, and our strengthening competitive advantages means we are well placed to benefit. Our strong execution is delivering better customer outcomes. And all of this is translating into shareholder returns and provides attractive financial flexibility.

So with that, we will move to questions. We'll start with questions in the room. We'll then move to questions online. If you have a question in the room, please raise your hand and wait for the microphone and state the organization you're from. We'll do the questions in the room first and then online. And Nic looks like he's staying sat here. You are actually coming up and joining me, Nic. You don't get away without that. So the other thing Nic also offered this time to chair the Q&A, and why am I doing that? Because you ask all your questions, I decide the ones I like the sound of and then pass the rest to him. So let's start with Thomas here, and we'll go across from there.

First question is just on the P&S margin. The 20 bps, I think, in the second half of the year seems pretty good to me. But I'm just trying to gauge that relative to what you assumed in the GBP 1.1 billion guidance that you had. I can't work out if we're running a bit ahead or not. And similarly with the costs because I think we've only earned about GBP 80 million out of the GBP 180 million. So I think you said you're ahead on costs. So I'm just trying to put those 2 things in context, the GBP 1.1 billion. And then the second question is just on the Lifeco free surplus. A number of my friends on the buy side highlighted Slide 44 to me this morning. Could you explain what the outlook is for the Lifeco free surplus? Because my message that I take away is that capital returns can increase at the end of the year, but that seems different to what the Lifeco free surplus is doing. So can you explain maybe the difference in your message versus what's happening there?

Sure. Yes. I mean I'll make a brief comment on the second and then pass to Nic to give a bit more color, and Nic will pick up the first. So I mean, I would look at the group solvency walk because that's what kind of matters in terms of what the group has overall. The Lifeco free surplus is basically the surplus above the capital management policy. So it's got a higher bar in the first place. And ultimately, having GBP 1.5 billion above the capital management policy means we've got excellent excess cash there. But we run the capital and cash of the group at a group level primarily, and that's our primary focus. But Nic, do you want to add to that and then pick up the first question?

Okay. I guess what I would add to what Andy has said is that we do manage the balance sheet in aggregate, not just at the Lifeco level, there are interaction effects between the Lifeco balance sheet and the rest of the group. To give you an example, we carry a lot of the deferred tax asset in -- at the group level, which the group has losses. They will be recovered from future earnings in the Life business. So that has an interplay as to the location of the capital between Life. And also, I guess, part of the overall solvency picture is contributed to particularly on the nonrecurring management actions from our Irish business, which completed its work on the partial internal model, but there was some additional mass lapse reinsurance that's kind of contributed to the overall picture. I reinforce what Andy said that the -- at any given point in time, the excess in the Life company is only a partial picture. Our GBP 1.5 billion, it's plenty enough over our capital management policy. In relation to your question on P&S, when we -- the GBP 250 million, just to give you some guidance around that, roughly 70% of that or 30% of that will relate to insurance contracts and will be accounted through the CSM. The balance will come through earnings, which will be about GBP 170 million. And we expect roughly 2/3 of that, around GBP 110 million to come through onto the P&S result. At the moment, the -- what you've seen so far is a GBP 26 million benefit in the P&S results. So there's another GBP 80 million or so to come through as we complete and as the full costs earn out. So that will correspond to a 3 or 4 further basis point improvement in the margin before any mix effects as that portfolio evolves. So already, we're seeing benefits that are coming through in improving the performance, but more to come as the full GBP 250 million program is completed and earns through in the next year or 2.

Mandeep?

Mandeep Jagpal, RBC Capital Markets. Three questions for me, please. First one is you have significant excess recurring capital generation versus your dividend cost. Nic mentioned the potential to use this for buybacks. I mean what are the largest constraints for buybacks once the leverage target is achieved? For example, is a negative IFRS equity viewed as any kind of constraint by you? And Andy, you touched on targeted support. Could you provide an update on what Standard Life is doing in respect of targeted support? And could this be a meaningful opportunity for you to retain more of your heritage clients over time? And then finally, on DC decumulation, some of your peers have recently announced hybrid investment and annuity solutions. What do you think could be the scale of demand for this type of product? And are you working on something similar?

Okay. So thanks, Mandeep. I'll take the second and third of those and then let Nic take the first. So targeted support, we are working on. We've recently had further detail from the FCA on how all that works through. And we definitely think it could be really helpful. The reality is, at the moment, only about 10% of consumers in the U.K. are getting advice as they journey to and through retirement. So 90% really aren't getting the help and support they need, and we see targeted support as being a really helpful way to do that. I think it's a huge opportunity for us. And I'm pleased with how we're going in the annuities market and how we're going in Workplace. We're only scratching the surface of the opportunity in Retail at the moment. And with 1 in 5 adults in the U.K., customers of Phoenix Group for each GBP 1 they have with us, they have GBP 3 elsewhere and only 10% are going to pay for advice. So the opportunity is huge there, and that's why we're building out our capabilities in that space. On the DC decumulation, what you're seeing roughly at the moment, so last year, about GBP 60 billion went over into retirement income in the U.K. About GBP 20 billion of that was taken as cash, so effectively 25% tax-free cash plus some smaller pots. And the balance of GBP 40 billion, roughly GBP 30 billion went to drawdown and GBP 10 billion went to annuities. That was kind of roughly how that went. But if I sort of roll the clock forward 10 years from now, the GBP 60 billion will be more like GBP 120 billion. I still think maybe GBP 40 billion of that will be cash. But our view would be the residual GBP 80 billion would be much more half and half in terms of annuities and drawdown, particularly as more customers get to sort of age 70 plus, I think more and more will say, with rates being higher, I can turn my accumulated pension pot into a 10% per annum income for life, and I know I've got it for life, and I don't have to worry about it. I think we'll see more and more of that. We offer -- we already offer a range of hybrid solutions. We offer fixed annuities. We have the smooth managed fund that's now got a 10% per annum performance over the last 2 years. So we have a good range of propositions to feed into this. And I completely agree that -- and we offer this already to customers, a number will want to take some of their income in guaranteed form and some in more variable drawdown form. Nic, do you want to take the first question?

Yes. I mean I'll repeat what I've said before that kind of IFRS is not a good reference point for the economic capital picture of the organization. Solvency II is. So for as long as we generate the cash, which we have been doing over the last few years, for as long as the overall level of solvency is healthy, which it is at 176% and as long as we have healthy distributable reserves, GBP 5.8 billion, there are no constraints to either paying a dividend or indeed undertaking any share buyback should we opt to do that. Distributable reserves is key. I'll repeat what I said at the half year point. Those are sustained at the group level from the U.K. GAAP basis distributions in our Life companies. On a U.K. GAAP basis, our Life companies delivered GBP 550 million of profit, actually up on last year, notwithstanding the fact that the hedge -- the negative marks on the hedges go through those accounts and retain GBP 1.4 billion of distributable reserves within those Life companies. So for as long as all these numbers remain healthy, then there's no constraint to the way we think about capital that are no constraint vis-a-vis the IFRS lens. What might prevent us from doing it ultimately is what it competes with. So we will be entirely value rational. And we will undertake any of those 3 options on our financial framework based on value metrics.

We'll keep going across Andrew.

Andrew Baker, Goldman Sachs. So Nic, I appreciate everything you just said on shareholders' equity not being a constraint, but the first one is on shareholders' equity. Just give us a sense of what you're expecting for the nonoperating expenses for 2026? And then anything you've seen in terms of year-to-date mark-to-market impacts would be helpful. Secondly, just on Europe. I think you did the strategic review here in 2021. I think at the time, obviously, the decision was to replatform and it would take probably 2 to 3 years. Is that now done? And then I guess, how should we think about Europe in the context of your wider vision for the group being U.K.'s leading retirement savings and income business? And then thirdly, on -- we've seen some press reports on alternative asset manager, BPA partnership. Anything you can say there would be really helpful. And I guess, more generally, just what would you be trying to achieve if you did go down the partnership route there?

Sure. Yes. So I'll take the second and third. So in terms of Europe, the -- basically, we've migrated 75% of customers to target platforms, 25% haven't. Europe is part of the 25%. So that hasn't happened yet. Frankly, we prioritized the U.K. customers in that transition. So our position on Europe remains the same, as I said before. The thing I would say is that one of our strongest propositions is actually our international bond. Nic mentioned that the sales there are up 60% year-on-year. That comes from our Standard Life international operation in Dublin sold back into U.K. advisers with the changes around inheritance tax we're seeing far more customers using international bonds now as a result, and we're keen to have that full and comprehensive suite of products. On the BPA side, so we're very determined that we want to keep a balanced diversified business mix across capital-light pensions and savings, Workplace and Retail and the Annuities business. And therefore, we're disciplined in the amount of capital we allocate to Annuities. The way that plays out in practice is we basically participate in the market up to about GBP 2 billion premium size. We wrote our largest scheme of GBP 1.9 billion last year. And that's just under half of the total market, just over half the total market that we expect over the next decade is schemes above GBP 2 billion. So what we're exploring is could we partner with third-party players that want to deploy more capital into this space to use our brand and our origination capability to take origination fees and participate in that larger end of the market and potentially also then get some really differentiated unique private credit capability as well. So that's what we're exploring. We explore lots of things as a business in terms of looking to drive stronger returns for shareholders. As and when -- if and when something comes of that, we'll obviously tell you more at that point in time. Nic, do you want to take the first one?

Okay. So Andrew, on the nonoperating items, I'd expect those to decline in 2026 as the investment on our strategic initiatives tapers off. And as I said in my pre-prepared remarks, once we get to '27, it will be under GBP 100 million. In relation to economic movements so far this year, so what are the kind of the 4 hedged indices? Currencies are flat, so no impact. Equity markets as of Friday blended to a net neutral, just over 0. Again, no impact on IFRS. At the 15-year end of the curve, interest rates were 37 basis points higher. That's negative on IFRS, but inflation was also at the 15-year point, 35, 37 basis points higher and the 2 on the IFRS metric offset. Net-net, the IFRS impact on all the market movements this year is neutral. And of course, it goes without saying that on a solvency basis, they're also neutral. We've given some additional disclosure on the Solvency II sensitivities this time, if you go to the sensitivity slide on Solvency II. Before we used to give you the impact on the surplus. Now we break that for each one of those between the impact on own funds and the impact on SCR, so that you're better able to model those 2 components separately. And I hope that you find that useful on a go-forward basis.

Farooq?

Farooq Hanif from JPMorgan. Just going back to the Lifeco surplus. Would you be able to tell us what the capital ratios are of your subs just so that we can build comfort around that? Secondly, on your greater than 20% IRR on annuities, I mean that's really high, I think, compared to what other companies tell us online and offline about what they're targeting. So is that a target? And has that been the main driver of your drop in volume? Or have there been other factors? So it was quite a big drop in bulk annuity volume. I'm just kind of trying to understand where that leaves you going forward. I know that you can offset that with other products and retail, especially. And the last question is on your ambition to be top 5 in retail. If you wanted to do that organically, how quickly do you get there? And what are your -- what are the things that you will launch that will accelerate that?

Sure. So again, I'll take the second and third and Nic take the first. So on the annuity side, I wouldn't describe over 20% as a target. I mean, ultimately, our cost of capital is materially lower than that. We would consider annuity business at less than 20%. It's more a recognition of what returns we're actually achieving because we are more diversified. I mean we -- I don't sort of view last year as kind of a poorer year for annuity volumes. This is sort of lumpier stuff generally. The market was generally lower. We've already written GBP 1.2 billion so far this year. We've secured a further GBP 0.4 billion. So we kind of look at it in the round over time in terms of what we're doing. We're very confident that we can compete going forward because as I say, most of our competitors are either monolines or effectively monolines. We have a really material advantage in being diversified. We're also have a real capability on the asset management side that Nuwan sat in the front here and Nuwan Goonetilleke and his team have built out to do these recurring management actions, which creates additional value and is part of that 20% lifetime IRR. So we're confident in our ability to compete going forward for those reasons. In terms of Retail, the market is actually quite spread. So we sort of talk about the gross flows, and we're up at GBP 7 billion now of gross flows. You need to sort of get north of GBP 10 billion of gross flows to be top 5 in that market. So we're confident we're on a trajectory to do that. What that's all about? I mean, just sort of recapping what I said before. But basically, we've got this huge structural advantage of a large customer base where only 10% will pay fees for advice. So we've got a great opportunity there. We've now built out -- obviously, targeted support is nascent at the moment, but we've built out a really strong app, really strong telephony guidance capability, now have the advice capabilities. So all the ways customers want to engage, we have. All of the propositions they might want from a product perspective for that journey to and through retirement. Again, we have all those in place. But what's happening is all of that is basically still happening reactively. And what we need to do is to build out that digital infrastructure, the CRM system to be much more proactively targeting customers. And we'll be using AI as part of all of that to really use the propensity modeling to identify what sorts of propositions will be attractive to which segments of customers at which stage of the journey. I see Angela sit in the front here. So Angela used to run all of this as the interim CEO of the Retail bank at NatWest, where they've got, I think, 94% now of their customer engagements are digital. So we're very focused on building out that capability. This will take a period of time. It's not going to happen overnight because we've made brilliant progress on Annuities and Workplace, but in those markets, you have a small number of professional buyers, the employee benefit consultants and the corporates, so you can move the needle quite quickly. When it comes to the Retail side, you've got thousands of advisers, you've got millions of customers. It will take more time there, but we're really confident over time that we've got, again, structural advantages to compete and win. Do you want to take the first one, Nic?

So the solvency ratio, at least on a shareholder basis of the subsidiaries have typically been in the high 170s, low 180s. There are a handful of points of that. But also relevant to kind of where they land in a particular year is the timing of when we take the dividend out. Clearly, if we take a dividend out in October, then capital will replenish in the 2 months. If we take the dividend out later in the year, that replenishment will be lower. So we're not concerned by the overall solvency level of the subsidiaries.

We go behind to Don, just so we don't miss him out.

Dom O'Mahony, BNP Paribas. So 3 questions, if that's all right. First, just operationally, you spoke at the beginning about the impact of minimum DC fund legislation. Could you just play through what you think is going to happen to the market there? I mean, presumably some funds will set up shop. Is that going to create M&A opportunities? Does it create organic non-M&A opportunities? What do you think will happen to that market? And what does it mean for Standard Life? And then a couple of sort of financial questions. The nonoperating cash spend, you very helpfully break it down between the sort of the planned restructuring, the FX hedge collateral call and there's GBP 153 million of other. Could you just help us understand what's driving that, that GBP 153 million? And then the last question is just playing through the financials. I think bond yields started the year lower than they did a year ago. How much, if any, of a headwind is this to the profit or indeed the capital generation?

Okay. So I'll do one. You do 2 and 3, yes. Happy with that?

Yes.

That's good. So minimum DC funds. So I mean, the legislation is still working through. And I think there's still some question in the market about how kind of rigorously it will be driven through by government. Will it be sort of a complete red line? Or will there be an easier sort of comply and explain bar across, if you like. But the overall driver here, so the workplace market is growing really fast because ultimately, sort of 10, 20 years ago, pensions in the U.K. were done in DB. It's set outside of the world of insurance. For 10, 20 years now, it's been inside -- DC has been inside the world of life insurers like ourselves and substantial GBP 80 billion of flows coming into that sector every year. So it's growing really strongly anyway with market growth as well. We've got the review of auto enrollment contributions with the Independent Pension Commission, and I'm delighted that's been set up as an independent commission because there's no way you can conclude 8% is sufficient for a decent retirement. That has to recommend an increase in contributions. But then you've got the minimum DC default of GBP 25 billion. And what that's going to do is it's going to drive both the smaller players out of the market. M&A-wise, that's possible, although generally, I think what will happen is corporate trustees will move to -- want to move to a bigger provider quite soon as well. So there will be an organic way that will happen. And so M&A is possible, but potentially, it remains to be seen how desirable that is. What we're seeing a lot of, though, Dom, is you kind of have 3 regimes you can use. You can have your own trust. It used to be just 2 own trust and then a contract-based scheme. The challenge with contract base is it's much less sort of bespoke to you as an employer. But now you have a Master Trust in the middle ground, Standard Life is one of the largest Master Trust in the U.K. That gives you the sort of the benefits of bundling and the efficiencies of bundling, but also gives you a high degree of personalization of what you put in the scheme. So our pipeline on workplace at the moment is over GBP 10 billion of scheme inquiries because an awful lot of larger own trust schemes are wanting to move to Master Trust. So I think that the regulation is definitely driving that, but you're seeing a market drive in that direction anyway. And that's good news for all of us as the big insurers playing in this workplace pension space because the own trust is unbundled and generally outside of our remit to a degree, and it will come into our world. Nic, do you want to take the second and third?

Okay. So in relation to the nonoperating items, look, the reality is when we announced the program on to the strategic priorities 3 years ago, we plan to spend the money that we said that we will spend, and we're on track with that. But the world doesn't stay still. There are new pronouncements, -- there's new activity that comes on to our work plan. And -- and that's what drives a proportion of those additional costs. Importantly is that we have funded that out of the outperformance that we've delivered in our overall capital generation. So we started our journey at 176% solvency ratio. You've seen us retire about 13 points of debt. And at the end of 2025, we're finishing at 176%. So yes, there is additional spend for that because the world doesn't stay still because additional thing -- additional initiatives that we have in mind, not least some of the additional -- to support some of the additional disclosures that we're providing you, but they're funded by the outperformance. Sorry, I didn't catch your third question. It was in relation to IFRS.

It was basically bond yields being start of the year lower, what impact does that have on operating profit? I mean I know just while Nic thinks about that, the equity markets higher and the AUM in pensions and savings higher is definitely a positive effect for operating profit for the year ahead. But I'll let Nic comment on the rate side. I don't think [indiscernible].

No. On the operating result, no, no, it doesn't.

Yes. So I think the starting year economics is probably positive for IFRS profit outlook for the year. Right. If we come down to Abid. Have I missed anyone on this side of the room? All right. If you come down to Andreas, then we'll go across to Abid, then we can get across.

Andreas van Embden from Peel Hunt. On pension savings, would it be possible to compare the profit margin on the inflows versus the outflows? How much extra margin can you or are you capturing on the inflows versus the book that is flowing out? Obviously, part of the outflows you're recapturing in individual annuities. So there's a margin uplift there, I suppose. I just want to triangulate that and compare that. And the second question is on your, on the VIF on investment contracts, I just want to test how sticky that is. Obviously, financial markets help, equity markets going up, AUM going up helps. But in terms of your lapse assumptions, what are your current lapse rates? And what is your target lapse rate once you've gained the scale that you want and address the outflows over time?

Okay. So I'll take the first and Nic will take the second. So the best way to kind of think about that on pensions and savings is that we have a kind of blended revenue margin of 43 basis points. And it's kind of 43.4% or something. And last year, it was 44.6%. So numbers won't be exactly accurate, but it's down just over 1 basis point in a year. And what's basically going on there is that new workplace business is kind of coming on typically in the high 20s of revenue margin. Obviously, the average of the book is around that sort of mid-40s level. Then some of the older business will be running off at sort of above 50 basis points. So the net effect of all of that is roughly a basis point per annum kind of reduction in the revenue margin. So the revenue margin is GBP 212 billion of assets at 43 basis points gets you around the sort of GBP 900 million level of revenue, yes. So there's roughly a basis point reduction there. But then when you look at the cost side, we've got growing assets, and we've got the absolute costs reducing. So the cost basis points is coming down more rapidly. And what that means is we still expect the blended margin of pensions and savings, which was 19 -- so 2 years ago, it was 11 basis points then 17 then 19. As we earn through the rest of the cost reductions and benefit from this operating leverage, we expect that to get up towards mid-20s as all that works through. That just hopefully gives you a kind of sense of it. We don't split it the profits down by the different segments because basically, so much of the cost is fixed, you just end up making bad decisions, yes. So we look at the -- internally, we look at the variable cost associated with each line of business and the revenue margin because we then make better commercial decisions to optimize value creation for shareholders, yes. Do you want to pick up the second one, Nic?

Maybe if I can add to the I mean the P&S.

This is what I get wrong.

No, no, no, that's entirely right. But just to put it in maybe a slightly different way to frame it in a different way. The P&S result increased by 23%, 17 percentage points of that 23% came from literally the combination of fee income of a bigger -- a higher asset base, less the costs, which benefited from the savings. So yes, nearly 2/3 of that uplift, more than 2/3 of that uplift have come from the operational leverage that you see in the business model with the reducing expenses. On the VIF, we saw a GBP 1.3 billion increase on the IFRS 9 investment contract VIF. 40.5 billion of that, as I said in my preprepared remarks, 40% of that came from the improvement or the higher markets. Another 25% of that came from the new business flows that we attracted in the year. A further 25% came from the capitalized effect of the efficiency savings to the extent that they relate to this business. And the final 10% came from experience and other assumption changes. The biggest component of that was persistency. So actually, on persistency, we're seeing that as a tailwind, not a headwind into our business.

It's Abid Hussain from Panmure Liberum. I've got 3 questions. The first one is on margins. Just coming back to the annuities business. I think it's the first time we've seen a print of more than 20% IRRs -- just wondering, does that assume new business strain after the capital management policy, so holding the sort of 150-ish percentage points on Solvency II capital? And then just more broadly, curious how you're achieving the sort of 20% IRR because I think some of the diversified peers are still in the sort of mid-teens IRRs region. Is it just the -- essentially you're including the recurring management actions? Is that the sort of the missing piece, I think you touched upon earlier. The second question is on...

That was 2 questions.

It was 1 with 2 subparts. On shareholders' equity, so you've said the IFRS adjusted equity will increase from '27 onwards. What's the timing of the own funds, so the regulatory balance sheet? When does that start to increase? And then just finally on excess cash generation and the uses there. So beyond the debt retirement, which opportunities are you seeing for reinvesting for growth? And then in terms of M&A within that associated with that, is something like the Aegon U.K. book of interest to you, would you consider that? Or would you hold capital back for when spreads finally do widen and then redeploying that into annuities?

Sure. Yes. So I'll take 1 and 3 and let Nic take 2. So on your first question on the annuities, yes, so the over 20% lifetime IRR is -- it includes capital management policy. It includes the recurring management actions that we would expect to do as well on that book of business over time. And I think it is because most of our peers are monolines or effectively monolines that that's the main reason why that number is higher. But also, we have built out a really strong capability in managing assets of annuity business in doing these recurring management actions, and that definitely helps that outcome. And I think the key point I'm sort of trying to land is we are able to generate very attractive returns in this space. In terms of your third question, I mean, ultimately, the priority in the short term is using the excess cash. So as Nic said, we expect GBP 0.5 billion of excess cash this year on top of the north of GBP 550 million dividend. The plan is we use that to delever and get to the 30% leverage ratio target. Then from the end of this year, we'll be able to use against whatever the highest return opportunity is, be that organic growth, be that considering M&A or be that additional shareholder returns. Specifically on M&A, you mentioned Aegon U.K. So I won't sort of comment on specifics. But the way I think about this, what's kind of changed for Standard Life compared to Phoenix 5 or 6 years ago. And by the way, I'm so pleased so far. I've not said Phoenix in the wrong place. It's -- I got away with Bloomberg TV and radio, and I've got it right. So we've got a square box that it will be expensive if I do. But what's changed for us is that back then, we relied on M&A to grow at all. We've now really built out a very strong franchise that's growing strongly organically. And therefore, firstly, we no longer need M&A. Secondly, there's a higher bar for considering M&A because we can deploy capital against organic growth options. Having said that, when any business is available in the market, we will always take a look. And what we're basically looking at is 2 things. Firstly, strategic fit. So for example, does it bring capabilities that accelerate the strategic journey we're on. And then secondly, financial attractiveness. But it will be a high bar given the alternatives that we have available to us. Nic, do you want to -- I think own funds are already increasing before debt reductions.

On a recurring basis, after funding our recurring uses, own funds is accretive -- we're striving to make sure that the nonrecurring items are flat, whether it's on a surplus basis or on an own funds basis, and we're kind of almost there on that. And what's -- therefore, what is reducing own funds at the moment is the debt program. So once we get kind of past this year, ultimately depending on what use we put that excess, we're going to be own funds accretive. Unrestricted Tier 1 increased. So it just gives you a sense that the underlying performance of the business is coming through. And on equities, yes, we -- I'll repeat what I've said earlier that excluding the economic effects, we should get to a place where we are increasing our shareholders' equity from 2027. But the market effects, we can't control. I don't want to -- if markets go down this year, I don't want to claim early victory any more than if markets continue to ramp up in 2027, again, we can't control that. So the bits we control will -- which is everything before that on an IFRS basis, we will manage in 2027 to put it on a positive tack. Michael?

Thanks very much. Three questions. So GLP-1, credit and Makastream. So GLP-1, does it change the world at all either on your mortality or longevity or how you look at developments there? I've asked the questions of some of your peers. The answer so far has been not really not yet or it's in our assumptions or whatever, but I'd be really interested. The second on credit, you -- I think you said something on Bloomberg, Andy, about 20% Yes, if you repeat it, but also if you give us a little bit more color, that would be hugely helpful. It really is a topic where it seems that my salespeople are really worried and you're obviously not, so there's a gap here. And then the making us dream, so you gave us numbers, the current mix of what the money is doing. So I took a figure of EUR 10 billion going into individual annuities, I have individual annuities rather than the rest and then EUR 40 billion maybe at some stage in the future. Can you say what that does to your own metrics? I'd be most interested, obviously, in the cash.

Okay. So I think I'll ask Nic to do the first. I'll repeat what I said to Bloomberg for those that weren't on Bloomberg, but then I'm sure Nic will add to that, and I'll take the last question as well. I mean what I'd say, Michael, is that we're pretty agnostic. So if we want to basically help more and more people on their journey to and through retirement. If it's right for the customer to go into drawdown, then we'll take our circa 20 basis points margin on that. but it's capital light. And then whereas if customers prefer individual annuities, then we'll support them with that as well. We can comfortably manage that within the -- because ultimately, we can then be more selective about how much PRT we do to stay within the overall amount of balance of business we want. So we're really keen to -- in the same way as we offer an excellent digital app, award-winning app. We offer telephony guidance. We'll add targeted support. We offer advice. So however customers want to engage with us, we want to be there. We very much see ourselves as customer orientated, having the right propositions to meet their needs. What I said on Bloomberg on the credit side, and say Nic will add to this is that -- so we've got GBP 317 billion of assets overall for our 12 million customers. About GBP 40 billion of that is the shareholder assets backing the annuity business. GBP 3.7 billion of that is private corporate credit. Within that GBP 3.7 billion of private corporate credit, only about 20% is the U.S. and we've got no exposure to software, for example, within that. I even had a journalist earlier saying, you're underexposed, should do more of this. So yes, so all of what we're doing is investment grade. We have a 500 strong team in -- on our asset management side that are doing really rigorous detailed work, exploring the credit risk of anything we're doing. We're very diversified in what we're doing. In the private asset side, a large proportion is either government-backed and/or secured against physical assets. It's very diversified. Do you want to add anything to that, Nic? And then I'll let you do TLP1s.

Yes. On the overall $42 billion now sort of fixed income book that backs the annuities, no change in credit quality. It's 100% investment grade. only 17% is BBB. And when you get a chance to study the detailed disclosures, you'll see that the proportion of that 42 billion that's now invested in government bonds, gilts, other sovereign bonds, supranational has increased from EUR 6 billion to EUR 12 billion. A lot of the money that we've taken this year, partly our pricing strategy was on new flows on annuities has been parked in gilts, even the component that relates to the liquid credit. Spreads are quite narrow. We're warehousing that temporary strain at the moment on our balance sheet, and we're waiting for spreads to normalize. But in doing so, it's increasing, if you like, the government-backed component of our overall portfolio and is actually giving us more in the hopper, so to speak, at the point at which spreads normalize in terms of rotating out of gilts at that point. We are GBP 4 billion to GBP 5 billion longer in U.K. gilts alone this year-end than we were at the previous year-end. And to the earlier question, that's another tailwind to own funds at the point at which spreads begin to normalize to historic norms, and we come out of gilts into that. In relation to the GBP 3.7 billion of corporate private credit, there's 62 securities names that back that. We have -- we're highly selective in our approach on what we onboard in terms of private corporate credit. We want to make sure that it meets the matching adjustment requirements. It meets the duration requirements, that we're getting appropriately rewarded vis-a-vis equivalent credit risk on the liquid side and that we're getting appropriately rewarded if there's any complexities. So we execute less than 3% of the ideas that come across our desk. That's how selective we are on that particular piece. On your question on longevity mortality, we undertake our own reviews each year. We consult medical experts. We factored in societal trends, kind of the impact of potential impact of weight loss drugs, any movement in health treatments and project forward what might happen. We do that annually. We repeated it this year. And if anything, that study unlocked some additional longevity assumption benefits, which are part of the reason why the CSM increased in the course of this year. The CSM has been driven by a combination of market movements, which I highlighted, expense savings and also sort of positive experience and some assumption changes, including longevity.

Andrew?

It's Andrew Crean,Bernstein Autonomous. Three questions, if I can. The first one is on your P&S margin, where you said you're higher than everyone else. How do you know that? You've got within there basically a legacy business, the individual pension business. Can you tell us what the profits are on that? And then we can look at more sort of capitalized elements and make comparison there. Secondly, on the uses of excess cash from '27 onwards, -- the debt leverage on a shareholder basis is still well above 30% at that point. Is debt deleveraging off the table from '27? Or is that part of the choices of which you could do? Those are the first 2 questions. And then the last question, I wonder whether you could talk a little bit more about third-party capital in BPAs relative to -- I mean you've lost quite a lot of your management team there in the last month or 2 as to whether that may affect partners coming in with you.

Okay. I'll take the first and third, and Nic, let you take the second. So look, let me just talk about what we do. So the reason all of our pensions and savings business is capital-light. So it's all unit-linked non-guaranteed capital-light business. The reason we run it as a business as a whole is ultimately, we want to make sure we're engaging with all of our customers and helping them on the journey to and through retirement, given only 10% take advice, the other 90% need our help and support. And as people get into their 50s, very, very few, hardly any, have a strong existing advisory type relationship, so we want to be the place they turn to. As I say, for each pound they have with us, they typically have GBP 3 elsewhere. and they have no particularly strong allegiance at that stage in any particular direction. So that's why we run the thing holistically as a whole. And I think that's the right way to run that business. And ultimately, we're then looking to meet the needs of those customers over time. I mean the numbers we quote for others are just what they publish, yes. So I'm -- you're probably better placed than we are to comment on that. What we're doing in our business is incorporating all the customers in capital-light retirement savings propositions and looking to meet their needs to and through retirement, and we make a 19 basis points margin on doing that.

Workplace margins, I think the best in the market around 11.5 basis points. Is that where you are?

Yes. So the way we run the business is we look at it holistically, and I talked earlier about the revenue margins, yes, and we manage those. But the reality is -- and one of the reasons why our margins are strong is because an awful lot of the costs of being in this business are fixed costs, and they then spread across the scale of business that you have. So yes, we're running it looking at the revenue margins and the variable costs is how we run internally. On your third question, so the level of interest in terms of third-party capital and BPA is really high and very strong, and I haven't seen that dim at all. Yes, Mike Eakins has got the group CEO role at PIC pleased for Mike. He's a great guy, and he's done a great job by us. He's got a group CEO role and good luck to him. One of the things that's the only sort of person we've lost there. The -- one of the reasons that Mike has been so successful in that business is the strength of talent and capability that he's built in the team. And Nuwan is Nuwan Goonetilleke's the interim CEO of that business. Nuwan is the guy who runs what we call capital markets. It's basically all of the annuity investing, the private assets, private credit, shareholder assets, the recurring management actions. We've got strength in depth across that team. We're very confident we can continue to compete and win. And as -- yes, the external capital interest in this sector has not dimmed in the last 2 weeks in any shape or form. Do you want to take the second one, Nic?

On debt. When we get to 30%, Andrew, we'll be much more market approximate than we've been historically. As to what is an appropriate debt leverage for this business, throughout my entire career, I've come to that question in the various organizations that have worked by asking myself 3 questions. One is what is the weighted average cost of capital that makes sense for that entity in the context of its strategy and the returns that it wants to generate for its shareholders. That's question number one. The second one has been what is the company's ability through the free cash that it generates to cover the interest burden. And the third question is what rating is appropriate for that organization and what are the constraints imposed by that. At 30%, I think that will be the appropriate level of leverage for Standard Life as we go forward and prosecute our strategy. So I will be comfortable to stop there. Maybe let as own funds grow, let the thing drift down organically or not as a case maybe depending on how I view the weighted average cost of capital and the opportunities that we have. So no, once we get there, then the other 3 aspects of our financial framework will loom larger in our option list.

So I'm conscious we kept people on the phone waiting. I'm going to go to online, if that's all right, Michael. Joe, do we have any questions online?

No questions online, Andy, no.

No questions online. So right. Final 2 questions then. One for Michael, and I can't see in the dark there, but there's a hand over there. From Kailesh, Sorry. yes.

Just one, the over 20% IRR, how much of that is management action? And how much is a day 1, if you like, margin? I'm probably expressing myself completely wrong here.

Yes. So in summary, day 1, we would talk about mid-teens and then recurring management actions being the balance, yes. Kailesh, sorry, I need my glasses and i'm 60 a week tomorrow, yes. So the glasses are needed more often now. So apologies.

Just a couple left. First one is on Slide 56. Could you just clarify, there's a line in there, trading profit. Is that -- that's basically asset optimization. So what's the bridge to the OCG world? Or are there other trading profits in other business lines? Second one is just on U.K. PRT. How are competitive conditions are evolving given the international players coming in? And obviously, one of your peers last week talking about with profits annuity with potentially lower hurdle rates.

Okay. So Slide 56 is definitely a mix.

Do you want me to start with that?

Go for it.

Yes, it is the yield optimization actions. I mean, clearly, when we undertake them on an OCG lens, some of the benefit may be in the form of reduced capital requirements, some of it will be in the form of own funds. So it's the own fund component that is driven here. So practically, the difference between the 2 lenses is the form that the optimization takes and then clearly, the IFRS component doesn't include the capital release. But more broadly, if you wanted to bridge the 219 basis points, roughly 220 basis points that you see on OCG to the 140 basis points that you see on -- this is at the overall profit level that you see on IFRS, 60 points of that is to do with the capital requirement and the other 20 points is just differences in the way you look at the sources of value. For example, if we save costs, we're able to capitalize that effect in OCG, but it will go into the CSM and amortize more slowly. So there are valuation differences. But hopefully, that broad bridge gives you a sense.

Thanks, Nic. And then on your second question, yes, the U.K. PRT market is competitive. Obviously, last year, it was a bit smaller and there definitely was increased competition then from [indiscernible] who felt that they really needed to get certain levels of volume on board. It remains competitive coming into this year. But as I said earlier, we've already either written or secured exclusivity on GBP 1.6 billion. So we're comfortable we're confident we're in a good position. What I would say though is, say, throughout my nearly 40 years in the sector, annuity markets -- so I've seen, for example, companies offer with profit bonds 20-odd years ago with bonus rates that just weren't sustainable, and we all know where that ended up. And I've definitely seen people go into capital-light markets offering low prices that just aren't economically rational -- but I guess it's sort of lower risk being capital-light. Annuities has always been economically rational always. So when rates move, when longevity moves, people reflect that and are economically rational. So I'm not at all concerned that new capital coming in will behave irrationally. I think people will be rational. And then ultimately, it's about the asset management capability and the yields you're able to get. It's about the strength of proposition and customer offering that you have. And obviously, from our perspective, it's the diversification that is a real advantage we have in that market. So look, I think we're timed out there, but thank you very much indeed for coming along and listening to our first results as Standard Life plc. Management team will be around for a few minutes afterwards if you have any further questions you want to catch up on. But otherwise, thank you very much indeed. We look forward to seeing what you all write. Thank you.