This article was taken from the Summer 2025 issue of 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications. Information within this article is correct at the time of writing in July 2025.
As the UK pension landscape evolves, investors may look for ways to benefit from an aging population and the increasing need to save for later life. The long-term savings and retirement market is already large, with a total £3.2tr in savings and annual flows between £220bn and £270bn. Phoenix Group could be one business positioned to benefit from the proposed pension reform and demographic changes in the UK. The FTSE 100 company consists of several brands working in the long-term savings and retirement sector. It has grown over time through a series of mergers and acquisitions, notably with the purchase of Standard Life Assurance in 2018, as well as buying closed books from other providers. The group now includes Standard Life, SunLife, and ReAssure. Across its businesses, it looks to support individuals throughout all stages of their retirement saving life cycle and has 12 million customers with £292bn total Assets Under Administration (AUA).
Around two thirds of these assets are in Pensions and Savings, including the Standard Life brand, which uses a fee-based model whereby the company charges a fixed percentage to manage and invest pension savings. It is supported by Phoenix Asset Management, which partners with external asset managers to provide fund solutions to address different customer needs. It also helps with pension consolidation through a partnership with fintech company Raindrop, which specialises in tracking down and compiling lost pensions. Phoenix Group is one of the largest providers of workplace pensions, and AUA grew by 11% in 2024.
Its second largest division is Retirement Solutions, comprising around 14% of the business by assets, which includes the group’s annuity offering. Annuities allow customers to pay a certain amount of money up-front, and in exchange receive a guaranteed set income, typically for the rest of their life. This offers individuals stability and predictability of cash flows, with new innovative annuity structures also offering greater flexibility. Phoenix offers both individual annuities sold directly to customers, and Bulk Purchase Annuities (BPA) which are sold to companies with Defined Benefit pension schemes and are obligated to pay their members a set amount. By using BPA, the company can de-risk its pension scheme with guaranteed future cash flows to meet its obligations to members.
In March 2024, Phoenix Group announced a three-year strategy, working towards the vision of becoming the UK’s leading retirement savings and income business. This represented a shift from focusing on generating cash, to a growth strategy with the company looking to acquire new business through both attracting new customers and developing new propositions to serve its existing customer base. While this has added a degree of complexity to the business, it remains highly cash generative. In the most recent annual report covering 2024, the company upgraded its financial targets reflecting strong progress towards its objectives. This included generating £1.4bn of cash from core business activities, a target previously set for 2026.
Phoenix Group also runs a think tank looking to drive industry change and pensions reform, the Standard Life Centre for the Future of Retirement. It is supporting the government’s retirement adequacy review, which is looking to assess the risks to our current system and develop a timeline for reforms. The think tank is suggesting a slew of changes, including furthering automatic enrolment, and a gradual increase in contribution rates from 8% to 12%. Unsurprisingly, Standard Life could be a key beneficiary if the reforms are adopted.
As well as the potential for growth and consolidation in the pensions business, some investors may be interested in Phoenix Group as an income opportunity. With a highly cash generative model, the group has a progressive dividend wherein it aims to grow the distribution per share each year. With a share price of £6.42 at the time of writing, the company offers a dividend yield of 8.41%. In March 2025, it announced a dividend per share of 54p, a 2.56% increase on the year prior.
While the structural pension growth story and the cash generative business is attractive, some investors and industry analysts have hesitations around Phoenix Group. It is notably divisive, in part due to the complex financial reports of the company and the complicated nature of some of its businesses and subsidiaries. The group is subject to numerous regulations and legislative factors, including Solvency II which sets rules for insurance and reinsurance companies in order to ensure financial stability and manage risks. Phoenix Group also has a high level of debt and relatively weak balance sheet compared to some peers. There are also some concerns that the business is now expensive relative to peers, especially after a 25.5% shareholder total return year to date, to the current price. While this could limit some of the upside, if the group can deliver on its growth targets while maintaining a high level of dividend payouts, it may continue to interest investors on a total return basis.
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publishing but may have changed at point of reading.