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RISK WARNING
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. There is an extra risk of losing money when shares are bought in some smaller companies. Redmayne Bentley has taken steps to ensure the accuracy of the information provided.
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.
THE FIRST YEAR
ALASTAIR POWER
INVESTMENT RESEARCH MANAGER
Equity market performance has been broadly positive through 2025 to date, although the announcement of trade tariffs and the associated economic impacts called into question the US exceptionalism viewpoint previously held by many. European markets benefitted from increased attention with strong performance in both Continental Europe and the UK. For the flagship UK FTSE 100 index, mid-July marked a new record having passed through the 9,000 level intraday before closing lower. Topperforming UK companies remain concentrated in the banking and defence sectors, with the likes of Rolls Royce and NatWest rising 77.3% and 27.4% respectively in the year thus far.
Across major Western developed markets, focus remains on the direction of central bank interest rates. Throughout the first half of the year, multiple cuts were announced by the European Central Bank and two by the Bank of England to the 4.25% level. In contrast, the US Federal Reserve has maintained its target level of interest rates at 4.5% given a cautious stance on geopolitical events and resilience in both consumer spending and labour markets. While the trajectory of rates remains downwards, the pace of rate cuts is slow. A faster pace for cuts is expected to be driven by sustainably lower rates of inflation and deterioration in economic data, especially within labour markets.
While interest rates can be seen as restrictive to economic activity at current levels, the focus of the Labour government remains on driving economic growth. Credit where due, this is a positive approach with a focus on cutting through red tape via planning reforms and a recent announcement of the ‘Leeds Reforms’ aimed at rewiring the financial system. One of the larger initiatives comes in the pensions sector, continuing activity of the previous Conservative government. The Pension Schemes Bill aims to replicate the success of the mega funds found in Australia and Canada, while tackling the gradual decline in domestic investment. The recently announced ‘Mansion House Accord’ aims to unlock £25bn in investment for the UK economy through a commitment from pension funds to invest 5% of assets in UK private markets. Seventeen pension providers expressed intent to meet the target, but opinions remain divided with some raising concerns and drawing parallels to capital controls.
Our Stock Focus article highlights one of the seventeen signatories, Phoenix Group. The company is one of the UK’s leading long-term savings and retirement businesses, offering services across a range of business arms. The flagship brand of the group remains Standard Life, the investment business formerly part of the Standard Life Aberdeen group, offering solutions across retail investment and workplace pensions. With greater emphasis on levels of retirement savings and potential increases to pension contribution rates, the company looks to be benefitting from a longerterm structural tailwind that could drive further increases in Assets Under Administration (AUA) over time.
Looking forward, central bank policy movements and geopolitical events around trade tariffs will continue to hold attention, but recent concerns around the UK’s fiscal position remain heightened. Recent policy U-turns on welfare and winter fuel payments and the potential for downward revisions to growth forecasts are expected to either compress or fully erode the government’s fiscal headroom, leaving the Chancellor in a challenging situation with rising speculation over further tax increases in the autumn.
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.
PHOENIX GROUP
RUTH HARRIS | INVESTMENT RESEARCH ANALYST
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.
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.
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.
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 3-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
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 cashgenerative model, the group has a progressive dividend wherein it aims to grow the distribution per share each year. At the current £6.42 share price, 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.
TOPIC OF THE MONTH
DO WE HAVE AN ACCORD?
ALASTAIR POWER | INVESTMENT RESEARCH MANAGER
July marked the one-year anniversary of the current Labour government, with the first twelve months marred by tax increases and political U-turns around welfare and winter fuel payments. Aside from the political flipflopping, Chancellor Reeves has been consistent in the need for an improvement in the rate of economic growth. Alongside increased spending on infrastructure, reforms to areas such as planning have been received as positive for the country’s growth outlook, which unfortunately remains anaemic with the Bank of England forecasting just 1.3% growth to the second quarter of 2026.
The growth outlook remains of considerable importance for the UK to aid in financing government spending, especially with fiscal headroom minimal at £9.9bn before any increases in spending or potential downward revisions to the Office for Budget Responsibility’s (OBR) growth forecasts. Investment borrowing remains a method by which to unlock economic growth, but it’s slow, with considerable time needed to initially deploy capital before the lagging nature of growth impacts feed through. Reducing regulation is another viable alternative and the focus of the Chancellor’s recent Mansion House speech alongside the ‘Leeds Reforms’ announced on the same day.
The ‘Leeds Reforms’ aim to rewire the financial system, cutting red tape, allowing increased mortgage lending at over 4.5x buyer income, and boosting retail investment through improved initiatives such as ‘targeted support’, which will enable customers to be alerted to specific investment opportunities in a bid to move cash from low return cash accounts to investments. Further measures were announced during the Mansion House speech, including changes to banking regulations and the enabling of investment into ‘Long-Term Asset Funds’, also known as LTAFs, within Stocks and Shares ISAs with the aim of increasing retail access to private market investments.
A desire to foster an investment culture is positive, the UK reportedly has the lowest level of retail equity ownership in the G7 which, if brought in-line with peers in the US, would unlock up to £3.5tn for capital markets according to investment group Aberdeen. Share ownership, as a percentage of household wealth, is likely to remain low, given general risk averse attitudes, preferences for property ownership, and retention of larger cash balances within the older demographics where both desire and capacity to increase risk remains muted.
Pensions were an area of interest within the Mansion House speech based on topics of inclusion and omission. Comments on pension adequacy were omitted, a topic which remains of critical importance given the expectations that 39% of private sector employees are not on track to achieving a target replacement rate of income in retirement needed to avoid large declines in living standards. Included within the speech were comments on the Pension Schemes Bill which seeks consolidation of smaller employer Defined Contribution pension schemes and continue in the consolidation of Local Government Pension Schemes (LGPS).
One of the most interesting announcements around pension schemes was released in May under the ‘Mansion House Accord’. Up to £25bn of investment into the UK is expected to be unlocked through pledges of 17 workplace pension providers to invest 10% of assets into private markets, half of which would be in the UK. Reception has generally been positive given the potential for improved returns and diversification, but there was a notable absentee in Scottish Widows who recently announced a sizeable reduction in allocation to UK equity markets. Those not in favour of the accord are most likely to argue against government mandating and highlight the fiduciary duty of pension funds to invest where they see the highest returns for scheme members. A point of note remains in the lack of a backstop to force pension funds to meet targets and that some pension funds already meet the pledges, including Universities Superannuation Scheme. Other considerations are to whether a 10% allocation to private markets is enough to influence overall fund performance and whether the returns will be inline with expectations. As to the risks of underperformance, we can reasonably expect strategies to be outsourced to external managers wherein private markets the dispersion between top and bottom quartile investment performance remains considerably wider than that in public markets.
Overall, the rhetoric remains positive, but concerns remain around whether announced reforms go far enough to reignite economic growth. Attention is expected to remain on the Autumn Budget and the associated speculation around the potential for tax increases given the precarious fiscal position and steadfast attitude to meeting the outlined fiscal rules.
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 writing but may have changed at point of reading.
