Good morning, and a warm welcome to those of you in the room, and to those joining online. Just a few housekeeping points to start. Firstly, to those in the room, please make sure you've turned your devices to silent. In the event that the fire alarm sounds, colleagues will guide you towards the nearest exit. The normal forward-looking statements apply. Our running order will be as follows: António will open with a summary of our H1 results and an update on the progress we are making in delivering against our strategy. Jeff will cover the financial results in more detail, and then António will make closing statements before opening to Q&A. António, over to you.
Thank you, Ed, and good morning, everybody. It's great to see you here. We've made a good start to the year. Headline half-year numbers show core operating profit slightly up compared to last year. We have grown our store of future profit by 7%, and our solvency ratio remains strong at 223%. To reiterate what we said eight weeks ago at our capital markets event, we expect the full-year core operating profit to grow by mid-single digits year-on-year, reflecting the strength of our business. At the capital markets event on the 12th of June, we set out a clear and compelling vision for the group. That vision is for a simpler, better-connected L&G with three businesses: institutional retirement, asset management, and retail. With the ambition to become more capital-light over time, we're now focusing on executing against that strategy.
That execution is delivering three things, basically: sustainable growth, sharper focus, and enhanced returns. So first, in terms of sustainable growth, our three divisions have strong growth prospects in institutional retirement. We have written or are exclusive on GBP 5 billion of PRT deals in the year to date and have our strongest-ever pipeline. We're taking positive steps in asset management, particularly in private markets. And in retail, we have seen continued strong new business performance. We are delivering with sharper focus on execution. We're making good progress on creating a combined single global asset manager, and we are transforming our operating model, technology, and our culture. And in the newly created Corporate Investments Unit, we're going on with plans for assets disposals. So let me start with institutional retirement.
As we highlighted in June, we expect the sort of the new normal for the market to be around GBP 45 billion of volumes in the U.K. You can see it there. As mentioned, year to date, it is really important. We have written or are exclusive on GBP 5 billion of global PRT deals. That includes $525 million in the U.S., and many of these deals have come from our long-term asset management clients. Our pipeline for the second half of the year is the strongest that it has ever been. As I said before, we are currently quoting, you can see it there, on 15 deals over GBP 1 billion, with more than GBP 24 billion of U.K. market deals in the pipeline, most of which are expected to transact in 2024.
Our long-term relationships with pension schemes, our asset origination capabilities, and our ability to serve the whole market give us competitive advantage and give me the confidence in our delivery for the rest of the year at attractive margins. Turning to asset management, asset management revenues are up 6% year-over-year, despite lower AUM. This is important as we shift to higher margin business with positive growth in DC and in wholesale channels, and also in active fixed income and multi-asset strategies. Importantly, our investment returns for clients continue to outperform across our active strategies. The new combined asset management division is really well positioned, as I said on the 12th of June, through our scale, performance track record, and our asset origination capabilities.
The integration of our businesses, what used to be LGIM and LGC, is progressing well, with a number of client wins showcasing the value of our combined business. You can see here on the slide, we have transferred GBP 1.1 billion of balance sheet assets from LGC, comprising of basically two things: equity stakes in origination platforms, so think about affordable housing or SciTech, and seed assets for future fund launches to catalyze effectively the growth in private market fee earnings. We've made good progress in the search for a new CEO for the asset management division, and we have a strong field of candidates. I hope to make an announcement about this later in the year. As signaled at the capital markets event, we are investing to grow the asset management business. In the first half of the year, we have invested an additional GBP 23 million.
You can see that that's 7% of the division's cost base to drive growth and operational scalability. This has consisted with our stated annual investment of GBP 50 million-GBP 100 million. If you remember, we had this debate on the 12th of June, kind of that's the number for the year. In the first half, that's GBP 23 million. We are investing, where are we investing? We're investing to build out our European and Asian wholesale capabilities, so distribution channels, and to enhance private markets investment and distribution capabilities. We will direct our investment to where we are delivering growth, and importantly, we will moderate it if we are not achieving that growth. Underlying cost growth, you can see there, was 3% lower than the U.K. wage inflation. So we will continue to show strong discipline on underlying operating costs to be able to then reinvest in the business.
As a result, you can see that our cost to income has increased by 3 percentage points to 73%. As mentioned in June, we expect this to stabilize and then decline as revenues increase. Also, as I said in June, we have an ambition to grow our private markets AUM to GBP 85 billion by 2028. The three exciting client wins in private markets over the last month, all of this was done in July, shown here on the slide, demonstrate the synergies of our business model and the credibility of that strategy that we announced. Let me just go through the three. Our Private Markets Access Fund, which was launched on the 1st of July, provides our 5.3 million workplace DC customers with diversified private markets exposure. We anticipate the investment in this fund to reach GBP 12 billion by 2028.
On the middle, our Affordable Housing Fund was launched on the 15th of July and has two cornerstone local government pension schemes: ACCESS, which is a pool of 11 local government pension schemes, and the Greater Manchester Pension Fund. This fund puts pension capital to work to address the underinvestment in U.K. affordable housing. We expect this portfolio to be GBP 4 billion by 2028. And finally, we are expanding our Build to Rent platform with another cornerstone investor to increase U.K. rental supply and expect to create another GBP 4 billion portfolio by 2028. Taken together, we expect these three platforms to generate the GBP 12 billion, the GBP 4 billion, and the GBP 4 billion, GBP 20 billion of assets at an average revenue margin of 50-90 basis points, which is well above the average revenue margin of asset management. Turning to retail.
In retail, we expect material growth in the coming decades as U.K. personal accumulation and accumulation assets grow and they continue to compound. In the first half of the year, our workplace DC assets under administration continue to grow strongly with GBP 3.2 billion of net flows. Our other retail businesses performed well too, with individual annuity sales doubling versus last year, which was already a strong year. Our protection businesses are also showing strong growth, both here in the U.K. and in the U.S. So those are the businesses. We are executing, as you can see, our strategy at pace and with rigor. We're making progress in IT migrations, payments processing, and procurement. You can see it here on the left. We are simplifying our operating model, doing things once and well, and breaking down divisional silos to improve collaboration and to improve efficiency.
We have detailed plans in place, and our transformation office created earlier in the year is driving strategy execution across 20 thematic workstreams. And finally, our strategy is delivering enhanced returns to shareholders. Today, we have announced a 5% growth in the interim dividend, and we will be returning more to shareholders over the period of 2024 to 2027 than the equivalent of maintaining a 5% dividend growth. We started our GBP 200 million buyback program the day, just a day after the capital markets event. It's now almost 50% complete, 46% as of yesterday, and we are confident we will undertake further similar buybacks over the subsequent period. I'll now hand over to Jeff, who will take you through the financial highlights before returning to summarize and then open for questions. Jeff.
Thank you, António, and good morning, everyone. Welcome, those I haven't already met. I'm just going to grab a water. Our results today are in line with the guidance we gave at our capital markets event in June, and we continue to expect to achieve mid-single-digit growth in core operating profit for 2024 as a whole. Core operating profit was slightly up at GBP 849 million, driven by the predictable and ongoing releases of the contractual service margin and risk adjustment from our growing insurance businesses, reflecting the record volumes written last year. Investment variance mostly reflects the impact on our annuity portfolio of the increase in interest rates of 64 basis points and movements in inflation expectations, both of these in line with our published sensitivities. Our balance sheet remains strong with a solvency coverage ratio of 223%, which is net of the GBP 200 million buyback.
Capital generation is in line with expectations at GBP 0.9 billion. We continue to grow our store of future profit by writing profitable new business. In the last two years, we have added over GBP 1 billion to our CSM and risk adjustment, and this is net of GBP 2.5 billion that has been released into operating profit over that time. This store of future profit will continue to deliver steady and reliable earnings for shareholders into the future. We have added GBP 303 million to this from new business written in the first half of this year. Now, moving on to divisions. Operating profit from institutional retirement was up 6% to GBP 560 million. This strong performance was driven by the growing scale of CSM being released into earnings, up 18% year-on-year as a result of the record volumes written in 2023.
The expected investment margin is underpinned by the reliable performance of our well-managed and geographically diverse annuity assets. Profit before tax primarily reflects the impact of the interest rates and inflation that I mentioned earlier. As Antonio covered, we have now written or are exclusive on £5 billion of global PRT premium, and our U.K. PRT pipeline is the strongest it has ever been. Our guidance on U.K. PRT volumes remains unchanged, and we are well positioned to capitalize on the market opportunity. In the U.S., we have more than doubled volumes in the first six months of this year versus the first half of last year, and we continue to see the U.S. as an attractive and growing market opportunity. While U.K. new business continues to meet our internal return hurdles, the IFRS and solvency metrics for the first half are lower.
In simple terms, the lower duration of the business written means we capture the investment margins for a shorter period. In particular, the GBP 900 million buy-in with the ICI Pension Fund had a duration of less than eight years, nearly 40% lower than the average duration of new business written over the last three years. The asset management result reflects the profits generated from fee earning AUM, as well as from our balance sheet investments, which include asset origination platforms and seed assets for future funds. Operating profit from fee-related earnings is down 4%, reflecting the increased investment in the division. Fee revenue is up 6% despite a 4% fall in average AUM. This reflects our conscious shift towards higher margin business, illustrated by our DC and wholesale channels, which have seen increases in revenue of 20% and 7%, respectively.
Operating profit from balance sheet investments was lower at GBP 81 million. We again increased the valuation of Pemberton as it continues to successfully deploy and raise new capital, although the increase is lower than last year. Antonio has already covered our investment in this division and how we will be disciplined on underlying operating costs. External net flows continue to be dominated by U.K. defined benefit, with schemes adjusting their portfolios in response to improved funding positions. As we have said, PRT is a beneficiary of this trend, and excluding DB flows, ANNR was flat. We continue to see growth in higher margin areas, with workplace DC and wholesale generating GBP 5 million of ANNR from GBP 4.9 billion of net flows.
Private markets AUM was up 8%, with GBP 4 million of ANNR at an average free margin of 30 basis points, and we are making strong progress, having recently launched three new funds, as António covered earlier. Our leading position in the U.K. DC market, with GBP 176 billion of AUM, makes us strongly positioned for growth in this market. In addition, international AUM now represents 41% of the total, as we continue to diversify and extend our global reach. So in retail, total operating profit was up 6% to GBP 268 million. This strong performance was driven by the predictable and ongoing profit releases from our growing CSM balance and positive claims experience in the U.K. This was partially offset by increased non-attributable expenses, which are, however, in line with the second half run rate for 2023. Workplace net flows were GBP 3.2 billion.
We have now reached 5.3 million customers and expect continued growth. Individual annuities benefit from the higher interest rate environment, with volumes having doubled year-on-year for the first six months of 2024. Our U.S. protection platform adopts market-leading technology to drive continued growth. Annual new business premiums were up 18% to $103 million. As a result, solvency to new business value increased by 48% to GBP 176 million. We remain focused on leveraging technology and scaling efficiencies across all our retail businesses to deliver great customer outcomes and business growth. Moving on to our Corporate Investments Unit. In June, we announced the creation of this new unit, which is comprised of non-strategic assets such as Cala, legacy real estate and land, and fintech. We are assessing our options across the portfolio and moving forward with plans for asset disposal.
Operating profit is predominantly driven by the trade and performance of Cala, which delivered GBP 42 million of profit in the first six months of the year. This is down on the prior year, reflecting a combination of the higher rates environment and some planning delays, but slightly ahead of the second half run rate. Investment variance of GBP 187 million was primarily driven by a write-down of Salary Finance, as we consider options to manage the business outcome in the best interests of customers and shareholders. Total carrying value of the assets in the unit is flat at GBP 2 billion. Finally, onto our balance sheet. As we said, our solvency coverage ratio remains strong at 223%, and we continue to see the benefits of the diversification and synergies of our business model.
We remain well positioned to capitalize on the opportunities in front of us as we move into what we expect to be a busy second half. We have made a positive start, and as we have already said, we remain on track to deliver mid-single digit growth in core operating profit in 2024. With that, I will hand back to António.
Thank you, Jeff. So our strategy is to create a simpler and better connected business, and we are focused on growing L&G profitably. It's early days, but we're making good progress executing that strategy. My objective is to beat the targets we have set for ourselves and deliver for shareholders. As I said in June, our strategy builds on our strong sense of purpose and the ability to make a difference to real-world problems while, and this is important, delivering customer and shareholder value. We are encouraged by the new government's policy agenda, which is aligned to our priorities, growth and investment, particularly the planning reform, the pensions review, and the focus on energy transition, including the creation of the National Wealth Fund.
So in summary, our first half results reflect the ongoing strength of our business with stable core operating profits, growth in our store of future profits, and a strong solvency ratio, which gives us strategic optionality to continue to grow. We've had a good start to the year. We've made good progress on executing on our new strategy, and I expect, as Jeff also just said, full year 2024 core operating profit to grow by mid-single digits, and I'm confident in our ability to deliver enhanced returns for shareholders. So I would like to invite now onto stage Jeff again, Laura, Michelle, Andrew, and Bernie to take your questions. Take your water, yes. So please state your name and your company, and if you could try to limit yourself to three questions, I'll start right to left, if that's okay. Farooq there first.
Firstly, a question on the, sorry, Farooq Hanif from JPM organ. Firstly, a question on the pipeline. It's obviously a large pipeline. Do you expect to win your kind of natural market share? Do you think there are any capital constraints to you sort of writing a lot early on? Second question, you've obviously accelerated write-downs of Salary Finance and non-core assets. I mean, can you give us some idea of what's kind of left to look at so we can get an idea of when that might sort of end? Because obviously there's been a lot of chatter about that today. And the last question, kind of a more general one. Clearly, there's an article today in the FT about Rachel Reeves and the government and the encouraging of growth in private assets.
Just wanted to get your sense of whether, you know, upfront now you're seeing the potential for well before 2028 to get some of that growth coming through.
Great. Thank you, Farooq. So maybe I'll say a couple of words on pipeline, and I'll ask Andrew to comment on that. I'll ask you, Jeff, to comment on any write-downs, and then I'll come back to the chancellor questions. So on PRT, so let's step back. So we talked about being world-class at doing PRT. That's what we said back on the 12th of June. We gave the guidance at that point, as you know, of GBP 50 billion-GBP 65 billion over the next five years. So it's lumpy. We said that, but we talked about on average that would be a GBP 10 billion-GBP 13 billion. So everything I see, and I said a bit of that in the 12th of June, if you remember, actually, if anything, the pipeline is even stronger. And you asked me two months ago, the beginning of the year was reasonably slow.
It was slow in the market, but and you saw that in the slide that I put up, that we have the GBP 1.5 billion that we wrote in the first half, and then since then, i.e., in July, we've written another GBP 3.5 billion. So we're pretty confident about that. And then the ability, obviously, we gave you the overall number, GBP 24 billion plus. Of course, we want to do all of that. But so will we do our fair share? We expect that to be the case. But Andrew, do you want to?
Yeah, not too much about it. I mean, the pipeline, as we said, it's the strongest we've seen. 14 deals over GBP 1 billion, 2024 in total at various stages. I just, you know, reference what António said. It's lumpy, but we would expect, given the nature of that pipeline and where we are in those bid processes, to be at or around our market share. I think you asked, do we see capital constraints to delivering that? Not at the current time, no.
No, and actually, we gave the normal strain guidance for on the 12th of June. Actually, the strain has been reasonably low, actually. So we're very comfortable. We have the capacity. What's important is the pricing discipline of we will continue to maintain that pricing discipline, but everything we've seen so far would indicate a good 2024 in terms of overall numbers. Corporate Investments Unit?
Yes. So yeah, you mentioned the Salary Finance. As you can imagine, with the CFO taken over the unit, we've been through all of the assets in even more detail on the valuation.
That's why you're leading it.
And we laid out in the press release, you know, we get third-party valuations on a lot of those where they are land and real estate. It's very easy to get third-party collaboration on around that. What is it? What does the value do? We haven't seen more coming through in terms of rates, et cetera. So those have all been fairly flat on that side of things. The other big asset is Cala, which it's not relevant for. And then you have a couple of other smaller fintechs. By far, Salary Finance was the biggest fintech within there. We've really analyzed those. We've looked at things like cash runway. We've looked at their expectations, given they're not strategic to us. You know, where will funding come from? What will that look like? So everything is marked at what we think is a very sensible number now.
We're not sort of trailing that this is going to be an ongoing thing. Clearly, when we go and sell these, we will see what they're really worth in the market. You never know, but we've tried to put a sensible view on these.
Thank you. And then on Rachel Reeves and the question, so the engagement with the government has been very productive. And in the first few weeks, I said this in the slide, but what we outline in terms of our strategy, if anything, our objectives, which is to put institutional and pension capital to work in terms of the real economy, is absolutely aligned with the government's objectives. So that is positive. Particularly, we were involved in the creation of the National Wealth Fund and kind of, again, the same idea of public and private capital coming together. The pension review is particularly important for us. So that was launched a couple of weeks ago. And I think, Farooq, your question was linked to the story this morning on the papers, which is the comment from the chancellor that the local government pension schemes kind of bringing them together.
So if you link that to what I've just said, we've launched on the 15th of July our Affordable Housing Fund. It's exactly to do that. So you have ACCESS Pool of 11 local government pension schemes, the Greater Manchester Pension Fund, and they're investing alongside us to create affordable housing. That's exactly what we believe should be done from a societal perspective, but also with good returns for shareholders. And the final point, which I find encouraging, is the focus on planning reform. So in order for all of that institutional capital to come into the real economy, you need actually the practical infrastructure of being able to invest. And as you know, there's quite a lot of delays in terms of the planning system. And so the focus on that we've also found encouraging.
If I think about it from an L&G perspective, if anything, these are additional tailwinds, if you think about it that way, in terms of delivering our strategy. Thank you.
Good morning. Mandeep Jagpal, RBC Capital Markets. Thank you for the presentation and taking my questions. Three for me, please. First one on management actions. You did less annuity backbook optimization in the first half. So what's the pipeline here for the second half? And also, what is the pipeline for management actions more broadly for the rest of the year? Second, on asset management, overall net flows for asset management don't appear to be slowing overall. So what's your net flow outlook for the rest of the year? And you mentioned in the release that you've expertise in preparing schemes for run-on. Could this be a positive development for the asset management business? And finally, on PRT again, the funded reinsurance consultation concluded last month. From the PRA's findings, is there any notable implications for your funded reinsurance arrangements in the U.K. business or in your reinsurance function?
Thank you. So in terms of the, maybe, Jeff, I'll ask you to talk about backbook management actions and also touch on the funded re and PRT. Just a bit on asset management, I'll ask Michelle also to say a couple of words. So clearly, look, we don't like to see outflows, right? But this industry itself, as the DB pension industry, is in structural outflows, and therefore we have shown you what actually the NNR would be with and without. A lot of those outflows are obviously very positive for L&G when it is actually a buyout situation where the best example I can think of recently is the Boots that we did just before Christmas, where that's a massive outflow for our asset management business, but of course, very positive for PRT, and that creates actually then an internal inflow into asset management.
We need to differentiate those. As schemes prepare for buyout, when buyout happens, of course, that's more profitable overall from an L&G perspective. But Michelle, do you want to comment on that?
Yeah, no, and actually, if I step back, what's been going on over a period is, in looking at market volatility, what we're seeing from clients is more caution. And that's entirely understandable. What we're also seeing from clients is, given where rates are, a lot of them are staying in cash or shorter dated. And that's, I think, is also leading to some pretty mixed results across the asset management industry, as you'll have seen. As it relates to what's going on here at L&G, Antonio is absolutely right. 2/3 of those outflows actually are in DB. What you're also seeing coming through, and actually of that, roughly 50% is derivatives. So it's sort of how some of our clients are thinking about repositioning. So this is quite a lot of those underlying is LDI. The rest of those outflows are principally in index, broadly speaking.
So it's asset allocation changes. What you're also seeing coming through, though, is that mix shift into higher margin areas, and that's the story you're seeing coming through on the revenue line. And that really is about losing lower fee assets and gaining higher fee assets, broadly speaking. You asked about what does that look like for the future. As clients get more confident, then I would expect to see that flows picture pick up. We have a large unfunded pipeline. So where we know we've run the business, where clients are taking longer to invest. And we're also dealing, completely understandably with clients, working with them to get to the point at which they want to commit. That will change. Hopefully, we'll be able to say the markets are up by the end of this year.
You guys may know better than us, but that will change as our clients feel more confident. The really important thing is staying close to them throughout this whole piece.
And thank you, Michelle. And Mandeep, a great question. So when we were here on the 12th of June, we talked about the fact that our average revenue margin is 7 basis points, but actually for index and solutions, it's around 4, 3, 4 basis points. Whereas in active fixed income, we have around 15, and multi-asset, we're around 18. So if you think about the combination of that, we are losing flows that are in the 3, 4 basis points, and we are gaining flows that are at sort of 15, 18 basis points, or more, obviously, if it's private markets. But I think, as much as I don't like to see outflows, I think the important point is the 6% revenue growth. Jeff, backbook optimization and funded re.
Yeah, yeah, I mean, I wouldn't read too much into the backbook optimization timing. Clearly, we pay a lot of people to optimize when they do that. The spreads on direct investments versus spreads on credit, even versus spreads on gilts these days. And so we've been looking to optimize that. There's no issue in the pipeline of sourcing DI. It's very much a case of when do we think it's optimal to put this to work. So we had a run rate last year. We have a run rate this year. That's the sort of levels we're looking at. And to your other point, we have no issue of sort of the level of management actions that we'd expect. That's still bang in line with what we've been saying and would be in line with our sort of OSG guidance, if you like, and what's within that.
On the funded re, yeah, I mean, look, it's broadly sensible risk management. So in that case, we're supportive of the regulator, and therefore we do most of it. There's always one or two things that we can improve, and we already had as a plan to do as and when we scaled the use of funded re. But as I say, it is mostly sensible risk management. Think about your counterparties properly. Are they correlated to you? What assets are in there? What does it all look like if it ends up on your book? That's the sort of thing we already do. And what trade-in are you assuming at that point of stress? That sort of thing is sensible risk management. We absolutely do that. There aren't arbitrary limits imposed, which we think would not necessarily reflect a good risk management.
We think it's good to have a good standard in the market if people are using funded re. It doesn't impact our plans and the levels we're using. I mean, at the moment, it's not a large percentage of our portfolio. Even if we did 10%, 20%, 30% per annum, which interestingly, we didn't do in the first half, then it wouldn't grow to a big percentage over the five years. It hasn't changed the way we look at it. A little bit of work to do in some areas, as expected, but broadly, we're supportive and it makes sense.
Yeah, not a concern for us. I'll just come online. I'll come here to the room just because Don asked a few questions, but they're all similar to what we've just answered. So I think the first point was for those of you in the room. Great to see asset management revenue margins improve even before the recent new launches. Could you give a bit more detail on what is driving this? Presumably, outflows have been from lower margin strategies. Yes, you answered the question we've just answered. Anything else to note as a driver for this? No, it's the move to higher revenue strategies, to higher margin strategies. And it says LGRI and LGR is the half-year investment result likely to represent a fair view of the run rate. You should mention that, Jeff. And then or was there more or less backbook optimization than you would normally expect?
Just because it links to what you've just said, maybe you want to address that.
Yeah, well, I think it's sort of reiterating the same thing. I think in terms of run rate, I think you sort of do need to look at average over a slightly longer period for the reason I've said of us optimizing when we deploy those against the backbook and when it makes sense when we see the opportunities and when we source the assets. But otherwise, I don't think there's anything to add on that. And asset management was exactly what you've said.
Exactly. Good. Thank you, Don. Hope you're feeling better, actually. So there.
Thank you. Rhea Shah, Deutsche Bank. Three questions. So the first one around bulks. I mean, the margin was 6.1%, and you said that was partly because of the ICI fund being lower duration. If we exclude that, what would the margin have been on the rest of the bulks that you did? Second, again on bulks, but going abroad now. So what do you think, what is your pipeline for the U.S.? But then you also talked about Canada and the Netherlands as well. So is there more color you could give on those two markets, especially the Netherlands, because Dutch peers are diverging in what they're thinking about capital generation coming from that? So how are you thinking about it?
And then third, on the non-attributable costs in LGRI and in retail, are we to assume that that first half run rate is the same now for the full year and going beyond that as well?
Yeah, thank you. So just on costs, Jeff probably will add, but yes, the costs are in line with the second half, and they're what we expect going forward. But Jeff may want to add or disagree with me on bulks overall. So on the first half of the year, and Jeff, you should add. But actually, the thing is, as you've seen, we've written the GBP 1.5 billion, of which GBP 1.1 billion was the U.K. We have that chart. So actually, it's quite difficult to say excluding that very large number. So I think the better answer maybe, and you should answer this, Jeff, is how are we seeing the metrics more generally on the other GBP 3.5 billion? And then, Andrew, if you could address the pipeline, particularly from how we're seeing the U.S. and then Canada and the Netherlands.
As you may know, Lifetri, which is a partner we had in the Netherlands, they've decided to change their strategy. So we're looking at that market, where actually at the moment, not much is happening. But Andrew should add. First to you, Jeff, on the margins, and then to Andrew.
Yeah, and just on the non-attributable, as you said, I mean, that's pretty much the run rate. If you look at the second half last year, if you look at the total for institutional retirement over the year, divide by two, you get the right sort of numbers. So we're at that run rate now. There was a bit of IFRS 17 tidying up, shall we say, on some of it. And so we're at a sensible run rate, sensible allocation of those expenses. So it's not an underlying expense growth necessarily that's driving any of that and not what we expect to see going forward. Yeah, on the PRT margin, as you say, it only left GBP 200 million, where a lot of those would have been small schemes, etc. They have quite different dynamics.
The other GBP 3.5 billion, if you like, and probably how we're looking at the rest of the year, we obviously have the capital management framework. Everything is meeting or exceeding quite nicely. The sort of internal rate of return type targets, the 14% that we talked about in particular, because we see strain being quite a bit lower on those than that ICI deal. That was very much an outlier with strain, still less than 4%, but closer to it, whereas we're seeing strain now much closer to the lower levels that we've been able to achieve. And some of that is because we're finding gilts more attractive, as I said earlier, on the backbook optimization. So we're sort of balancing that to optimize the metrics all around. So yeah, the business is looking healthy with reasonably low capital usage, which I think is a good outcome.
Yeah, and it's important to reinforce what Jeff says. We outlined one of the things we've made quite a big deal out of on the 12th of June is this capital allocation framework that's consistent across all of our businesses. And you should reassure that every single pound of business that we're writing is meeting those hurdles. And the strain has been reasonably low on those other GBP 3.5 billion, which I mentioned also when I was answering Farooq earlier. So we'll keep on updating you this one when we write the second half. Numbers, international PRT.
Yeah, just on the international PRT. I mean, one of the reasons we don't publish the U.S. pipeline in quite the same way as the U.K. I mean, let's remember the U.S. is the largest PRT market in the world, and therefore the overall market pipeline is very significant. The market's very active there. Our business there is much more focused on business that we have a smaller balance sheet, and we tend to focus on much more targeted deals. So in that market space, the planned terminations at around $500 million, that market is active, and the pipeline is good. We just don't publish the multi-billion GBP pipeline. It's less relevant, but the U.S. market is certainly active for us and looking positive. Canada, remember, is through our Bermuda operation, which is reinsurance. So we have a singular partner in Canada.
Again, that's a business that's generally weighted almost to the Q4 of the year, certainly the second half. So we don't see much activity in the first half. But again, deal momentum is building there, and we're talking very actively to our partners there. I mean, on the Netherlands, as António said, a little bit of a pause about thinking about the market and a new partner. Our existing partner has paused our activity in the market. There is still some regulatory uncertainty as to how active the PRT market will be in the Netherlands. And therefore, we're watching that really closely and would like to be involved. But it's about deploying our capital sensibly, our resources sensibly, and being really confident that the market's there, and we've got a partner that can access that in a profitable way.
Thank you, Rhea.
Thank you. William Hawkins from KBW. Two numbers questions, please, just to help understand the solvency movements a bit better, please. You've shown the net change in surplus from market movements as a negligible number, but I'm assuming there could have been some big swings between own funds and SCR. So could you break that out, please? And then secondly, you have guided very clearly that the enforced run-off in the SCR will be much lower than it's been in the past. But I was very surprised to see that effectively it was a zero in the first half. So can you help me understand why it was so low in the first half? And do I just extrapolate? Presumably not. So what are we thinking is normal? Yeah, thank you.
It's a good assumption, Jeff.
Yeah, two good questions. Yeah, there's quite a bit going on in the market movements, as you say. I mean, it was quite surprising to people that rates increased 64 basis points over the first half, but actually it was just a low point at the end of the year. Yeah, there's some offset in there. Obviously, we saw spreads narrow, but most of it is its discount rate, which is both in SCR and own funds because obviously the reserves, the best estimate liability also reduces at the same time. So it is mostly all to do with discount rates. So the rates went up, which is a positive for us. Spreads came in, which would have been a negative because your discount rate goes down. But also we did benefit, which reduces SCR from spread dispersion. So we always love that one, don't we?
But especially the sub-investment grade assets came in quite a bit over that period, and that benefits us in the SCR because you're holding less for it. So those were really the main movements that were happening in there. There wasn't a lot more that went on, which is why it was negligible. Well, we didn't disclose that, did we? Yeah, so we don't disclose that. That's why it's not there. The SCR run-off, yeah, good spot. There's a couple of things. Some of that is to do with the rates again. As we talked about before, if you have a smaller SCR, you have less run-off coming through in the rates. So that's coming through. We had some of that in the second half of last year. The other bit is then really the influence of management actions on that.
So some management actions improve own funds, like backbook optimization, where you're really changing the same rated bond for another rated bond with a better spread because it's a direct investment. It doesn't do much to your capital, but it improves your own funds because you've improved your discount rate. Then there are other things like backbook reinsurance, which reduces SCR. We had some of those last year where we'd warehoused assets and put that through. So it's the balance of those management actions on SCR versus own funds that tends to influence that number as opposed to be able to see through. But I recognize that's not that helpful seeing a negative there.
So it's something our guys will be able to help you with, and we'll be happy to talk through a bit more detail of what's in there and maybe split by what's in the underlying divisions and take out some of the noise because I don't think it's particularly sensitive to tell you that's what's happening as an underlying. You could look back over the previous two half years, and you'll see that a better indication of the sort of underlying and the movements in that.
Thank you. Thank you, Will. Andrew.
It's Andrew Crean of Autonomous. A couple of questions. Pemberton, what are you carrying it at, and what's it realistically worth as a private credit manager? Secondly, I just want to go back on the sort of capital. Slowing the dividend to 2% and the GBP 200 million buyback holds the payout to about GBP 1.5 billion out to 2027. My understanding is that's been done because the operating surplus generation needs to catch up and get into balance. Could you tell us what, obviously you don't fund new businesses 100%, what would be a better ratio for us to look at to assess the balance? And I suppose, are you signaling that 2028 is a, all that is done by 27 and 28 is a very different picture, and you'll look again at the sort of capital return policy then?
Yeah. Thank you, Andrew. So Jeff should talk about the valuation. The thing I would say, having looked at this fresh, is we're pretty conservative when we look at the valuation of most of our assets. What you've seen with Pemberton is, so they've just won an ADIA deal of GBP 1 billion, and they've continued to make good progress. And maybe actually Laura may want to add. And therefore, we've continued to increase the valuation. But when you think about the increase we've done in the first half versus the increase we did in the first half of last year, that increase is lower. That's why, but overall, to reassure you, I still believe we're quite conservative the way you do it. You may want to answer that, and I'll come back on the capital policy.
Yeah, I mean, we actually thought about doing a whole piece on Pemberton because it's a reasonably important part there. But we thought that would probably make more sense as part of a broader asset management update that we will do at some point to the market. As António says, we definitely hold it at a different value to what you could sell it at because there are elements we don't give value to. So we don't give value to new strategies that are in the management plan that you would clearly have in the projection. And we don't give value to the carry. We don't anticipate that that's definitely going to come to us. And so for any sale in a market, there would clearly be upside on that compared to what we're carrying at. It's very much what's already there, what's funded.
And so, as António says, when they actively go and get more funds, such as the ADIA transaction, we simply put that through. Certainly not mechanically. We, again, take haircuts on performance and where we think that would be, come out with a range, you know, a sensible range within that. And so it's, you know, so we're definitely at a percentage of what a market sale would be. And so we will do that. When we do a, yeah, we'll tell you when we do a broader asset management update so that we can see that.
So yes. And so then on capital distribution, so to answer the end of your question, which is yes, we will then give an update. So 2024, 2025, 2026, 2027, that's what we've committed to. And then we would do a different update for 2028 and what's the policy going forward? Andrew, in your point, so is it, so we are, by the end of 2027, we have more flexibility on what we want to do afterwards. And so we've said that we are going to absolutely distribute more in these four years. That's why we're committing to 2024, 2025, 2026, and 2027. And that when we get there, compared to what are the business opportunities in front of us, you see what has just happened. We actually see a pipeline which is bigger than ever, but actually we're seeing strain that's lower.
So that's the type of calculation we'll need to look at at that time, which is what's the growth in front of us? What is the capital implied in that? And versus where we are in terms of buffers and our coverage ratio at that point, we will decide what's the right distribution going forward. But I think I told you earlier coming in, I've said I've seen more than 85 investors since the 12th of June. And I've kept on reinforcing that I believe this gives us more flexibility and we distribute more over the four years and gets us to a point that the absolute dividends we're paying at that point gives us flexibility to grow. Do you want to make the point about we're not assuming 100%, how much do we?
No, that's right. I mean, well, you can pick a number. It's clearly not 220 either. And so you can pick a number based on anything that people do, whether it's 160, 190, 200, you can pick it. It doesn't make much difference when the strain's down below 2% as it was last year, even at 2%, whether it doesn't actually make that much difference in there. And you just quickly get that capital back. And so at the levels we're at, as we said earlier, there's no capital constraints on writing the pipeline, no capital constraints on considering the buybacks. And so at this stage, it's not really relevant.
Thank you. Thank you, Andrew.
Hello, good morning. It's Fahad Changazi, Mediobanca. Could I ask a question regarding distribution, shareholder distributions? IFRS, profit after tax tax, as you said, took a hit, mark to market. Bond yields are lower now. That will help. And stable markets, you will have strong growth and IFRS retained reserves. But is this something you can do to buffer markets' impact on your distributable reserves? Or will disposal, of course, help in that regard? And that's what you're sort of looking to do as well. Could I just ask a question on just trying to get the capital markets, capital gen target? US protection. Could you give some color insight how that works for Solvency II OSG regarding the US capital regime? I just can't get my head around that.
Just to follow up on the DB outflows, given that we're still looking for UK PRT business at peak 2026, 2027, will the DB outflows presumably accelerate following that trend, or is there a lag, or how would that work? Thank you.
Good. Jeff, do you want to take the first two, and then maybe I'll ask Michelle, actually, well, Michelle and Andrew to think about that. But I think Michelle asked that earlier, but Jeff, you first.
Yeah, I mean, naturally, as you said, we've seen a dip in IFRS earnings as a result of the move to IFRS 17, you know, as anticipated. Clearly, you know, as we see growth in the CSM, those earnings will increase, then takes us above. We have done what we thought was sensible in terms of trying to neutralize rate sensitivity, market sensitivity in that result as much as possible by using some designation, as we've talked about, under IFRS 9. So we have moved assets that we use to match the solvency position are carried at amortized cost. And so we do that to try and reduce that sensitivity in the balance sheet, which has got us to where we are. We always look into trying to do more of that. As you say, rates down, rates down across the yield curve.
We've already got half of that investment variance back since the end of June. And so, you know, that's a positive that we're seeing. We can see rates lower. That would also lead to land valuations and everything else. So, you know, we would be positive around that. U.S. OSG, it is a very good question. Way too complicated to go into now. Some others have asked about that, especially post-capital markets. We've got some spreadsheets and cheat sheets and everything else that we can talk you through. I think that's easy. But there's a lot of impact there because we obviously optimize the impact. Everyone knows it used to be called Triple-X Financing, and now we do other financing, even under the principal-based reserving regime. And so it's easier to talk through the impacts and how we reflect that between new business strain and OSG.
It has two different impacts.
And then on DB, maybe actually both of you can comment. So we still continue to see a very, very good pipeline. So from that perspective, we'll continue to see outflows, those I called it the good cholesterol and bad cholesterol. So those are the good outflows. So outflows that come into PRT. But Michelle, do you want to say a word on that? And maybe Andrew, you want to.
Yeah, I mean, I think so the first thing to say is we are extraordinarily well positioned at L&G with the clients that we have in DB. So think about it from that position of strength. What we are really seeing is clients with the rates environment being very supportive for them, thinking more quickly about how they may go to buyout. And that's a natural extension of what we've been doing with them for many, many years. So a lot of these transactions, they don't happen overnight. This is how we work with our clients to get them to a position that they want to go to buyout. There are also conversations with those clients that I talked about in terms of the rebalancing, about how they get themselves into those positions. So we will work with them, whether that be putting hedges on or taking them off.
You'll see that coming through in the flows number. There are also clients, and we will continue to work with them for many, many years, thinking about how they might run on, is another conversation with clients. And we have schemes who are very large and schemes who are also mid to smaller range. And that's, you know, so it has to start with the position of strength that we're in and working extraordinarily collaboratively with our clients across L&G.
I think it's important that those derivatives, quite often those hedges are sort of offsetting derivatives at very low fee rates. And, you know, going back to the questions early on, you know, that therefore is much less than winning even 30%-50% of those and moving them to direct investments and fixed income managed as part of the PRT portfolio. And that's what you see in the revenue numbers and see what's happening.
Yeah, and just to say on the PRT volumes peaking in 2026, 2027, I think from the chart we put up earlier shows an illustrative market profile that that's about GBP 70 billion or GBP 80 billion of market volumes in the U.K. in those years is still showing market volumes of GBP 50 billion out to 2033. So if we take our strategy that we've published out to 2028, which shows the 11- 13, you know, we still got the capacity after 2028 for many years in all likelihood to write volumes at or around that level and a sustaining market as a DB runs off.
Yeah, no, I agree, actually. What we showed back on the 12th of June shows around GBP 500 billion or so over 10 years. That's why we said a new normal between GBP 45 billion and GBP 50 billion. So it will continue. Thank you, Fahad. Nasib.
Thanks. Nasib Ahmed from UBS. First question on capital allocation. So you mentioned a 14% hurdle rate on the 12th of June. What does it look like today given your equities come down a little bit? And then again, the quadrants that you presented, António, how do your businesses compare to that 14% or whatever it is now? The way I'm thinking about it is that PRT was the highest in terms of financial return, and you say mid- to high-teens%. So you're kind of getting closer to writing PRT or maybe doing a buyback. So that's kind of the underlying question there. Second question on the sensitivity of interest rates to OSG. Jeff, can you give an indication of, let's say, maybe minus 50 basis points or 100 basis points, what it does to OSG?
And then thirdly, on corporate investments, if you can give an update on Cala, and there was an article about Salary Finance merger as well. What's your thinking around those and any update you can give on those? Thank you.
Let me start on the overall strategic, kind of how we're thinking about this and how do the businesses look like. Then, Jeff, can you cover the other points, including OSG and the corporate investment units? So I think, look, I've thanked a few of you over coffee before. I mean, literally, it was kind of yesterday that we did the capital markets event. It was eight weeks ago. So fundamentally, this is the strategy for the future. And we feel very confident about that chart that we put up in terms of those two axes, which is strategically what are the businesses where we want to invest in, and in terms of returns where they are.
Interestingly, actually, we did say this for asset management, which was, if you remember, the chart was like this, and asset management was very strategic, but part of it, the returns were lower. Actually, lower interest rates for us actually are better because we're more on the fixed income side. Actually, equities were not as impacted as others. So in relative terms, the more recent moves in the market should make our returns better. But fundamentally, from where we are investing, all of those businesses have returns that are above the 14% hurdle. And in many cases, including PRT, many of those businesses, particularly now where Jeff and I were talking about the strain being lower, the internal rate of return is even higher than that. We're talking about high teens rather than the 14%.
So if you think about the strategy we've announced, nothing that has happened over these eight weeks actually changes the fundamental areas where we want to grow. And then on the left side of that chart that we talked about, the businesses that are not strategic continue to be not strategic, which is exactly a nice link to the Corporate Investments Unit. So do you want to talk about that impact on OSG and ratios?
Sure. Yeah. So just on the sensitivity of rates to OSG, I won't give a number now just in case I get it wrong. But I think the easiest way to think about it, if you look at the period where it was over 1 year or even a half, the movement in rates and the SCR went down by GBP 2 billion. If you put any sort of sensible release duration over that, that gives you the impact on what comes out. There's a little bit of offset. If rates are higher, you're in a little bit more, which offsets it a bit, but it doesn't offset all of it. But we can point you to the right numbers on that. But that's the best way to think about it. I don't give the answer because I might give the wrong number off the top of my head.
Yeah, there's been articles, Cala, Salary Finance. I could take them individually. They're both very strong businesses. Cala has been very successful, as António showed under our ownership in June. You know, that's a good, strong business. We are actively looking at the options around that business, but there is no update now. We look at the options and we weigh that up against keeping it for, call it two years and selling at that point. You know, what's the difference? What are the options? What's available today? And so as soon as there's an update on that, we will give it, but we are actively looking at it. But we wouldn't expect to be owning it at the end of the planned period. That's the whole point of them being in that corporate investments. Similarly, Salary Finance, you know, it's not strategic now. It will have funding needs.
It's the type of business, but it's a very good business with millions of potential customers, with very, very large reputable companies as clients. And so, you know, we're looking at who's going to be providing that funding. What does that look like? That's why we took that view on the valuation, given that it's not strategic to us. We won't be providing that funding going forward. So again, we'll look at options around that. Some have been talked about. And so we weigh those up. And as soon as there are anything, we'll announce those. But we can't update until things are more concrete either way.
Yeah. Thank you, Nasib. I'm going to take one here, and I'll come to you, Andy, in a second. I'm just going to take the one online. You concluded your presentation by saying that the 223% solvency margin gives strategic optionality to grow. What are the areas of non-organic growth might you be considering? So first, to restate that the strategy is an organic growth strategy. Kind of the optionality we're talking about in terms of continuing to grow is primarily growing organically. We have been very clear on the 12th of June, but it's worth saying here now that we would look at bolt-on acquisitions, and we would look at those, particularly in the asset management space. And maybe, Laura, I'll ask you to comment, particularly in private markets. So we have our ambition to reach GBP 85 billion in private markets.
We've been very clear in terms of the asset classes where we are growing. We've looked at the growth. There is also organic, but how could bolt-ons be a sort of a way to accelerate our growth? I'm conscious earlier I asked you to comment on Pemberton, and then I didn't give you the space. Could you also say something on Pemberton to Andrew's question? Yeah.
Well, starting with the non-organic growth, as you're probably very aware, we have done most of our private market activity in the U.K. in terms of asset manufacturing. So very proactively looking for strategic bolt-ons that will allow us to sort of do that outside the U.K., very much keeping in line with the asset classes that we set out we would be focusing on in June. So looking at both Europe and the U.S. And then just in terms of Pemberton, I think the only thing I would add to what has already been said, Pemberton has very proactively expanded their sort of product set. They started, they were very much focused on direct lending in mid-market. We talked about the valuation increase we saw over the last half year, half year 2023. That was in part due to that sort of expansive product offering.
They have actually, I think the sort of AUM has actually increased slightly more over the last half year compared with how it did in 2023. But it really is expanding the product offering. And as António alluded, ADIA has come in to help us launch a GBP 1 billion NAV fund as part of that product.
Yeah. Great. Thank you, Laura. And so organic strategy, primarily private markets, real estate, infrastructure, and private credit. And so if there are any bolt-ons, it will be roughly in that space, as Laura mentioned. Andy.
It's Andy Sinclair from Bank of America. First of my three was, I suppose, the evolution of my previous questions on LGC's cash generation. Cash generation from H1, just from the balance sheet components of asset management and from the corporate investments, if you can just give us some color on cash generation from those portions of the business. Second was just on Thames Water and broader water-related utilities companies. Can you give us some color on your exposure there today? Thank you very much. And third question was just on, I suppose we've talked about PRT being the outflow source for asset management, but I suppose we've also got the prospect of lower rates coming in the near term. That seems something that LDI immunization type strategies, which you've been quite good at in the lower rates world, would be quite powerful solutions.
Really, what are you doing and what's the engagement with clients today for those sorts of solutions with the prospect of lower rates? And is that something that's getting buy-in or should we say the scar tissue of what happened kind of around the noise, around the mini budget still lingering with clients? Thanks.
Great. Thank you. I'll come back maybe in a shell to you on what we're doing with clients on lower interest rates, particularly pension clients. Jeff, the cash generation on asset management is quite straightforward because actually it's an easy bit of it, but.
Yeah, that's right. Yeah, we thought about this. We thought of you, Andy. And given the way we've moved things around the balance sheet, it wasn't straightforward. So we added the extra disclosure. Here's the cash at Group. This is what we're holding because we'd lost some of the disclosure with what we used to show as the old LGC. I think it's complicated because they're now spread out across the divisions. We will think about this for the full year because I think it's a valid question and we saw it as something that wasn't there. But we need to think what makes sense across the divisions. I think because, and I was thinking about the numbers around it, there hasn't been any material disposals across the portfolio compared to previously.
So the cash generation has very much been in line with the average we've given you previously. Good cash generation from things like Cala or etc., which are the main businesses underlying that. So I think that's what we'll do. We're conscious of it and we'll look at that for the full year.
Thames Water? Next apology. Yes.
Yes. Yeah. Well, we looked at that. I mean, many years ago, there was a guy called Jeremy Corbyn, and we were looking at utilities at that point. And we talked about we've only very much been in the operating businesses. But even on Thames Water, we did take a view that the risk was non-zero to our debt, and we didn't like that. And so we have materially reduced that now. So we have a very small exposure at that level. We clearly have looked into all of the utilities and the structures of those, and we haven't fundamentally shifted anything. But there was already a list of names that we thought were more or less attractive depending on their features, especially in water. Some of those are actually very well run and are good businesses. Others less so.
We manage our exposure to those carefully as a result of it.
I think it's been a good, the way we've reduced the exposure to Thames Water, I think shows how conservative and prudent we are. Michelle, how are we helping clients in a lower interest rate environment?
You know, I think it's a really important question. So the engagement levels with clients have not changed at all. And actually, you think about where they are, what they are, depending on where they are in terms of the funding journey, I think there is a real need for how those assets, working with clients to figure out what are the right assets for them to have in their portfolio today, and what are the right assets for them to have as they think about the next stage. And the rate environment has given them an opportunity, many of them, an opportunity to think about that more structurally. And this is the fantastic benefit that we have of really great investment folk who really understand this book of business, and it's technical. And those conversations are ongoing. I would continue, and I expect them to be ongoing.
What's really interesting for us is in a lower rate environment, we talked about this at CME, is where we have massive strength in fixed income, particularly around credit management. We manage our own book, but managing that book for clients, we see a really big opportunity. And that is one of the areas for us, as we look to diversify and internationalize, is where we can use more of our fixed income capability with a broader client base. And we're seeing the fruits of that coming through already. And so that, I think, is a broader benefit in a lower rate environment.
Thank you. And thank you, Andy. And by the way, I was looking at, we have in the back some more detail on all the very well-diversified U.K. exposures. So we can give you some more if you want some more on utilities as well. Larissa.
Larissa van Deventer from Barclays. Two questions, please. Building on Andy's question on rates, could you help us understand what the benefit of lower rates would be on your asset management business conceptually? And also the extent to which those rates are baked into your guidance, your 2028 profit expectation of GBP 500 million-GBP 600 million, please. The second on consumer duty, the second wave being effective as of last week. If you can give some color on the impact on L&G's business, please.
Thank you. Thank you, Larissa. I'll ask Bernie to talk about consumer duty. In terms of asset management, we were pretty conservative. I said that. I'm not sure if you noticed the words I said earlier. We want to beat our targets, I think I said earlier. We've been pretty conservative in terms of the market assumptions in terms of our asset management numbers. I'm also conscious, and I said this on the 12th of June, that there's a lot that we need to deliver to improve those numbers. I wouldn't start changing your numbers just because of what I said with lower interest rates. We need to achieve the GBP 100 million-GBP 150 million of ANNR. That's a really important target that starts from next year.
That implies both public and private markets and kind of continuing the momentum, which I think is great momentum in a very short period of time since the 12th of June. But that, particularly that operating profit asset management number, as reasonably conservative market assumptions, because of course, and that of course will depend on how the market evolves. Do you want to say another word on that, Michelle?
Yeah, no, only to say that if you think about the overall mix of our business, we are relatively more exposed to rates than we would be to than other houses might be. And then we have relatively lower exposure to global equities. And that's the mix. What we've also painted a picture of in terms of our strategy is how we think about building out existing capabilities. Our private markets will be a big part of that. Fixed income will be a big part of that. And then the international component helps to bring that all together. So that blending of public and private, we think this is a supportive environment for us. But António is absolutely right. We haven't over-egged it in terms of the way we think about the future.
And even if you think of the turmoil over the last few days, if you think about it versus so equities had been going up for quite a long time, and the adjustment in equities is less relevant for us, as Michelle says. And actually slightly lower rates. We were discussing this for our business overall, or even just think from a U.K. reference rates perspective, actually coming down from 5% eventually to something like a 3% is actually quite a nice rate. That so we have a very well-diversified business that actually does well in high rates and low rates. I think that's a good message. But actually with rates slightly lower, actually you can reach this quite nice balance where it's better for our asset management business. We continue to have very well-funded PRT schemes that can come into PRT.
Actually from a retail perspective, as rates come down, also mortgage activity increases and therefore protection business. We haven't talked about Lifetime Mortgages that have actually suffered because of high interest rates. So there's a sort of rates coming, interest rates coming down is actually quite overall, as long as they don't come too further down, is a pretty good thing for our business. Bernie, consumer duty and implementation of that.
Yeah, so obviously we put considerable effort into delivering good customer outcomes well before consumer duty came along. But there's no doubt it has raised the bar for everyone. And we've had to, yeah, like everyone else, put a huge amount of effort into making sure we can evidence that more now to ourselves and to regulators and to external parties. The positives, we're more focusing, the program is coming to an end. We've got the board approvals that we needed. So we've gone from kind of regulatory compliance and switching into how do we use this to improve our business and deliver better outcomes for shareholders as well as customers. And so it's given us lots more really important data that we can talk to, say, trustees and employers who are really interested in how well you're going to treat their members, how well we treat vulnerable customers.
So there's a lot more evidence points, then. And then there's these, the real step up is how do we ensure we avoid foreseeable harm? How do we help customers achieve better outcomes? And that plays straight into our strategy for helping our workplace members achieve better outcomes in retirement. And so we're placed under a regulatory obligation to help our customers. So it's very aligned to our strategy and we're working hard on improving how we're engaging with customers to help them save more and then make more of their savings in retirement. So we're very much more into the, how do we use this to really help improve our business going forward? So, feeling in a really good place. The backbook, we've sold so many backbooks, that wasn't a big lift for us. So yeah, we've got that, it's all well under control.
Yeah. And I think just to stress what Bernie said in terms of what does this mean strategically, I think for us, being able to have either simplified advice or guide, different form, targeted guidance and advice that we can help the very large number of customers that we have, the 5.3 million that we have in workplace as they come to the at-retirement moment and decumulation is a big part of our strategy. And so there's a consumer duty aspect to this. There's us continuing to work with the FCA on making sure that this is a societal issue where people need to have that sort of guidance and help. And we can see at the moment that some of the outcomes are not the right ones for customers, but we can't quite advise them to not do that, so take too much cash, etc.
There's a big opportunity for us to support customers through their lifetime and their life cycle. That's a big part of the strategy, as you know, that we announced on the 12th of June. Thank you for that, Stephen.
And thank you, Steven Haywood from HSBC. Two questions. One on the IFRS 17 modeling refinements. Can you give us an indication of what they were for? And should we expect any more going forwards? And the second question is on the retail annuities business, which has obviously seen some very strong growth because of the change in interest rates. But actually, what is the underlying growth here going forwards? Considering that you have a lot more DC business coming, there are larger pots coming through. People have been obviously building up these DC pots much, much more over time. So if you could ignore the interest rate moves going forwards, can you give us an underlying retail annuities growth rate? Thank you.
Thank you. I think that's squarely for Bernie. You got two questions. So Jeff, IFRS 17 is the refinements.
Absolutely definitely shouldn't expect them going forward. They were very much non-recurring. We are very much looking at IFRS 17 as BAU now. You can never rule it out. There's lots of models, but absolutely these are things that we effectively found either finalized in the full year or as we've gone through and actually looked to improve the process a lot. So the types of examples, and if you apply our sensitivities to the annuity book, that's what's left over you'll see is the modeling. You can sort of remove that if you like as an assumption going forward. The sort of thing there was, there's been lots of debate over allocation of expenses, especially for when we go on risk or on a PRT business, what does it cost after that? Which ones go in CSM?
A lot of this is movement between what should be in a BEL, what should be in a CSM, where does that sit? And then there was quite a bit of refinement around different elements of the discount rate, which is that's why a lot of this stuff then ends up in investment variance. And so is it moving between CSM and the prior period? Is it in the best estimate liability? But it was really refinement of the discount rate modeling as we went through. And it doesn't take much, a few tens of GBP millions here or there on a GBP 80 billion book quickly adds up, unfortunately, but that should be it.
Retail annuities going forward, Bernie?
Yeah, thank you for the question. Obviously, you'll have seen volumes more than doubled in the first half. Part of that was the market growth. The market was up 60% Q1 to Q1. And so we're massively outcompeting the market. All our competitive advantages in pricing, underwriting, product, especially investments has enabled us to outcompete the market there. As we look ahead, there are a lot of structural drivers for more annuities going forward. So yeah, more savings going into DC, less DB incomes, both have an impact. Bigger pot sizes, as you point out, have a massive impact. And there's going to be more pot consolidation leading to the bigger pot sizes. And so just to bring that to life, the FCA helpfully published some data on pot size and a link with annuitization. And so it's quite stark.
If you've got pots below GBP 10,000 and a lot in the market are below GBP 10,000 right now, just 2% of that annuitizes. Whereas if you've got a pot that's GBP 50,000-GBP 100,000, it's 19%. It's almost 10 times as much annuitization in that GBP 50,000-GBP 100,000 pot. So as we look ahead, it's inevitable pot sizes are increasing and that's going to be an underlying growth driver for annuities. Obviously, you can't untangle that from interest rates, but obviously it is long-term interest rates. It's not the base rate that matters at all. It's long-term interest rates that matter.
So that's what we're going to do. But as António has said, we've got offsetting impacts there. Kind of lower rates helps protection, Lifetime Mortgages. And so yeah, there's a mixture of factors there. I can't really predict the market for you, but I can certainly see the trends in there.
The long-term ones are positive for the retail annuity market.
Agree. And just to build on that, and thank you for the question, because I was saying that it's good to have more questions on retail. The performance has been great in the first half, but also structurally on the 12th of June, we talked about this fact that workplace will be around GBP 1 trillion in five years' time. And that's we are 26% of that market. So the part that we do through workplace, particularly, given that we are also the largest individual annuities player, that there is, at the moment, I was looking at the numbers yesterday with Bernie, there aren't that many people that are choosing to take from that pot that are choosing to take an individual annuity product. And actually, back to my point about advice, a lot of those people for the slightly bigger pots, as Bernie says, should do that.
For us to connect what is a great product in terms of decumulation with our workplace offering where we want to grow by GBP 40 billion-GBP 50 billion in terms of flows is really powerful. We need to do more work there. Even with interest rates not being at this level, we are very bullish about the opportunity to link the two. For a lot of people, given how long all of us are living, taking part of your pot as an individual annuity that sort of safeguards your basic expenses throughout your life, that's a really good choice for most savers. So we really want to have those two things connected. Thank you, Stephen.
Very general question, Michael Huttner from Berenberg. At what level of interest rates do funds, so corporate funds, start thinking about PRTs?
At what level do they start to think about buyout? I mean, stop thinking. At what level do they stop thinking? It's very interesting, actually. Most of, Andrew, you should answer this. The debate we've been having right now is that most of the fund, most of the pension funds have locked in that surplus. So we're slightly less concerned, let's put it that way, that as interest rates come down. And so we still feel very bullish even as interest rates come down because that's what a lot of the pension funds have done. But.
Yeah, I wouldn't answer that. I think because of the schemes taking the action they did 18 months, two years ago, locking in a position, they're pretty much desensitized to rate rumors, not exclusively. And of course, some of their asset portfolios have got investments which are rate sensitive, but for the most part, they're locked in. So we're not seeing changes in volumes as a result of people thinking about interest rate outlooks.
Yeah. And there's another question you didn't ask, but I got asked in my 80. We got asked in our 85+ meetings, which is, are more schemes thinking of running on? And also the idea of with an extraction of surplus, is there less of an incentive? I think I said that I'm still to meet a CFO that likes to have a pension scheme from a sponsor perspective. Absolutely, the drive is the same. And from a trustee perspective, we see as much appetite as we saw before. So I don't think either the changes on the interest rate environment or even legislation in terms of surplus extraction is changing any of the appetite. And I go back to what I said when we started. We're seeing the largest ever pipeline we have seen. I was pretty bullish about it on the 12th of June.
I'm even more positive today than I was eight weeks ago. Thank you. Any other questions? Give you a chance of doing a second round for any of those. If not, just, well, thank you. Thank you for your questions. Thank you for coming. As I said earlier, we've had a really good start to the year. I feel good about it. We're making good progress on the execution of our strategy. It's early days, but encouraging. I look forward to updating you on our progress as we continue. Next time we meet, I hope you have a good rest of summer and that you enjoy the rest of the Olympics. Thank you.