Good morning, everyone, and welcome both to those of you in the room and those joining online. I'm Andy Sinclair, L&G's Chief Strategy and Investor Relations Officer. After many years of following L&G from the outside and sitting in this audience asking questions, I'm delighted to now be part of the team. We've got great businesses, great people, and we understand the need to increase investor engagement. Our running order for today will be as follows. António will open with an update on progress we've made delivering our strategy, along with a summary of our full year results. Andrew will then cover off the financial results in more detail, and then António will be back up to make closing statements before opening to Q&A. At which point, António will be joined by Andrew and the CEOs of our three businesses to take your questions.
For Q&A, we'll be keeping it to two questions each, and yes, I totally appreciate the irony that I am limiting you to two questions. With that, over to you, António.
Thank you, Andy, and welcome to the team. Good morning, everyone. We've had a strong 2025 with continued year-on-year growth in our headline numbers, which you can see on the page. Our excellent earnings growth with core operating EPS up 9%. If you remember, that's at the top end of our guided range of 6%-9%. Our OSG is up 5% to GBP 1.5 billion. That's an increase in OSG per share of 8%. Our coverage ratio is 210% after the completion of the Meiji Yasuda transaction. This is a strong capital position that allows us to continue to deploy capital for growth. We are delivering increased shareholder returns with a dividend per share up 2% to 21.79p, and we are starting a GBP 1.2 billion share buyback.
This is the largest in our history following the GBP 500 million share buyback that we did last year and the GBP 200 million that we did back in 2024. We are firmly on track to achieve our financial targets, and we are reshaping L&G into a growing, simpler, better-connected business. Put simply, we are doing what I said we would do back in 2024. First, our three core businesses are growing. We have delivered another year of impressive new business volumes in Institutional Retirement and in Retail, and I'm particularly pleased with the inflection point in the annualized net new revenue in Asset Management, which will translate into positive financial performance in 2026. Second, I promised a sharper strategic focus. Last month, we completed the sale of our U.S. protection business for $2.3 billion to Meiji Yasuda.
We are growing the strategic partnership with them, Meiji Yasuda, and they are building a 5% shareholding in L&G. On top of that, since creating the Corporate Investments Unit back in the second half of 2024, we have now completed GBP 1.5 billion of asset disposals. Finally, back in 2024, I introduced a new capital allocation framework and promised stronger returns to shareholders. That's exactly what we are doing through a combination of dividends and share buybacks. I'm particularly pleased with the commercial momentum in our three core businesses. In Institutional Retirement, we have written almost GBP 12 billion of PRT volumes globally at a capital strain of 1.6%. We secured large transactions last year with Ford, BP, and NatWest. Several of our 2025 wins will have potential for additional PRT follow-on transactions.
We've also, as you can see, more than doubled the profit from asset optimization to GBP 331 million. In Asset Management, as I said, we turned a corner from a revenue perspective with GBP 34 million of annualized net new revenue. Private markets AUM continue to expand now at GBP 75 billion, supported by strong fundraising momentum and strategic partnerships you can see there on the page as well. This growth has contributed to an increase in our average fee margin to 9.1 basis points. In Retail, our workplace DC assets grew by 21% to GBP 114 billion. We had strong net flows and excellent new scheme wins, with GBP 3.7 billion pounds to be onboarded over the next twelve months.
In Retail Annuities, we had another strong year at GBP 1.8 billion of new business with an acceleration in the second half of the year. We are in a stronger position, delivering on our strategy and with good growth momentum. Today, as you've seen, we want to provide you with greater clarity, both on the results themselves and also on our future trajectory. Why now? This is the culmination of the process that I set in train when I became CEO back in 2024, of clarifying our strategy, disposing of non-core assets, establishing rigorous capital discipline, and putting in place a refreshed leadership team. With the heavy lifting now done, and as a refreshed team, we have taken important steps to enter 2026 with stronger foundations, ensuring legacy issues are fully behind us.
Today's presentation, I said to a few of you outside, will be slightly longer than usual as Andrew will talk you through the detail of the three blocks shown on this slide. First, further transparency on the drivers of our performance, particularly on investment variance and what sits behind it. Second, we are giving you guidance on a 160%-190% target operating range for our coverage ratio. This is something that many of you have asked for. Finally, we are addressing the resilience of our business model, particularly of our dividend. Before I hand over to Andrew, I will go through a few slides reiterating how positive I am about L&G's future. Our investment case is clear and compelling.
First, as you have seen from last year's performance, we have strong market-leading businesses, many of them with more than 20% market share in growing markets that are benefiting from structural tailwinds. Second, we have a synergistic business model that our peers cannot replicate, linking our three businesses. Finally, that means that the whole is worth more than the sum of our parts and that we can deliver attractive and sustainable capital returns. Let me go through the three key reasons to invest, starting with our market-leading businesses. We have circa 20% or above, as I said, market shares in the three markets you can see on this slide, pension risk transfer, retail annuities, and DC. Importantly, and unusually, each of these markets have strong structural tailwinds and are expected to more than double over the next decade.
In PRT, we are the market leader with a position that is difficult to replicate. First, we've been doing this for nearly 40 years and have a track record of smooth execution. Second, we benefit from long-standing relationships with DB clients and their trustees in our asset management business. Finally, we have exceptional asset origination capabilities internally, which are complemented by partnerships like the one we have done with Blackstone. In retail annuities, we see this market more than doubling in terms of flows as more people want to secure income for their retirement. We have circa 20% of this market, and in 2025, we continued to be the number one provider. Importantly, the number of our own workplace members taking out an L&G annuity grew by over 15% year-on-year, and we expect this trend to continue for years to come.
Finally, on the right-hand side, we manage 25% of the defined contribution assets in the market between our asset management and our retail businesses. The market is growing strongly, as you know, and is expected to double by 2034 to GBP 1.5 trillion. As we mentioned at our retail deep dive with Laura back in October. Was it October? Yes. There is a significant operational leverage in our business as we continue to grow and scale. We have great positions in growing markets, but what does that mean for us financially? I think of the financials of L&G in two ways, really. In terms of spread and fee-related earnings. Let me start with the spread earnings.
We are the U.K.'s largest annuity provider with a portfolio of GBP 93 billion, which grew 11% in 2025 as we wrote GBP 13.6 billion of annuities between PRT and retail. That book, as you can see, will continue to grow at more than 6% per year. We invest in safe and diversified investment-grade assets and operate with a track record of close to zero defaults. Given the current geopolitical and macro uncertainty, we want to reassure you about the quality of our book, and Andrew will cover this later. We will also describe the sustainable profits we make from asset optimization and the significant upside that we see as credit spreads widen. We are growing our fee-related earnings from asset management and workplace even faster. Over the next three years, we expect them to grow at more than 20% per annum.
We have delivered a record ANNR of GBP 34 million in 2025, as I mentioned earlier. The full year revenue impact of that growth will now be seen in our 2026 numbers. We have increased our average revenue margin to 9.1 basis points. As you recall, we went from 7 to 8, and then now from 8 to 9 basis points, with the target to be in the double digits by 2028. We are one of the few global asset managers, maybe the only one, increasing average fee margin, and this is because we are shifting our asset mix towards higher margin products. We are growing strongly in private markets with GBP 75 billion of AUM and on track to beat our GBP 85 billion target by 2028. We're already at GBP 75 billion.
Fees from our workplace business will continue to grow both in retail and asset management as we then continue to grow our assets under administration. We have leading businesses in growing markets. As you can see here, these businesses have clear synergies between them. This is the second argument of our investment case. We use scale as a competitive advantage. As the largest asset manager in the U.K., 80% of our U.K. PRT deals are with existing asset management clients. When we transfer these clients to PRT, as you know, the investment shift, the invested mix shifts to more direct investments, and therefore we increase the fees in asset management by three times. On the right-hand side, you can see that our asset management business manages over 90% of our annuity assets and over 95% of our workplace DC assets. This is pretty unique.
This is a strong underpin to our ANNR ambitions. Beyond these commercial synergies, we also have significant operational synergies across our businesses. You can see there at the bottom, our PRT and retail annuities businesses share investment and customer services teams, creating scale advantages. We make broader investments in technology and AI across all of L&G. This is the final argument, these synergistic market-leading businesses will continue to deliver attractive capital returns for shareholders. Back in June of 2024, I promised we would return more to shareholders, and that is exactly what we are doing. At the time, I announced a new dividend and capital return framework for the subsequent three years, 2025, 2026, and 2027.
We introduced share buybacks, and I committed to return more capital to shareholders over that period that we would have done by maintaining the 5% annual dividend per share growth. You can see that on the right-hand side of the page. Even excluding the GBP 1 billion share buyback that's related to the Meiji Yasuda transaction, with our guided dividend growth, we have delivered on that promise. Looking forward, we are investing to meet our growth ambitions, and my priority is our growing and sustainable dividend. Beyond that, future capital allocation decisions, including share buybacks, will be assessed at the time and subject to market environment, our views on solvency, and opportunities to invest in the business.
Overall, you can see on the slide that we are on track to return more than GBP 5 billion of capital to shareholders over the period of 2025, 2026, and 2027, and we will be returning GBP 2.4 billion of that over the next twelve months between dividends and share buybacks. We have a compelling investment case, and I'm excited about the growth ahead of us with stronger foundations and a new team to execute on that vision. You can see on the slide the appointments I have made with a combination of both internal promotions and external hires. On that note, let me welcome on stage Andrew Kail for his first set of results as CFO. Andrew, over to you.
Thanks, António, and good morning, everybody. I'm delighted to be here presenting a strong set of results for the first time as the Group CFO. As António highlighted today, we're committed to providing greater clarity on the drivers of our performance and the future trajectory. Over the past few months, I've been in listening mode. I've been engaging with investors, analysts, and my own team, and it's clear we have an opportunity to provide more clarity on our performance and to reinforce the strength of our investment case. Today, I'll start with our results, and then I'll turn to the foundations that position us for sustained growth. Let me begin with what we delivered in 2025. Our group financial headlines are strong. Core operating profit grew solidly, reflecting the resilience of our earnings base.
Core operating EPS grew at the top end of our 6%-9% target range, demonstrating our commitment to delivering sustainable compounding returns. Solvency II operational surplus generation, OSG, is up 5% year-on-year. Our OSG per share metric is growing at 8%, creating increasing headroom over the 2% dividend per share growth. We're now presenting OSG excluding the amortization of transitional measures on technical provisions. This is to better reflect underlying capital generation. 2024 OSG has been restated and going forward, we will continue to separately disclose the TMTP amortization. Our pro forma Solvency II coverage ratio remains strong at 210%. That's after the Meiji Yasuda transaction and its related buyback. Now let me take you through our IFRS performance, beginning with each of our businesses.
Institutional retirement delivered a strong result, with operating profit up 6% year-on-year, driven by higher releases from our store of future profit and a substantial uplift in asset optimization. Asset management remained broadly stable at GBP 402 million, but importantly, we now believe we've reached an inflection point in the financial performance of this business. Retail operating profit increased 4% to GBP 447 million, driven by predictable earnings from our insurance entities, and similar to institutional retirement, also benefiting from higher asset optimization. Across the group, expenses and debt costs were flat year-on-year, highlighting continued cost discipline to offset inflationary pressures and ongoing investment in the business.
As a result, core operating profit is up 6% to GBP 1.6 billion, demonstrating the reliability of earnings from our insurance businesses and the turning point in the performance of our Asset Management business. Investment variances, while improved compared to recent years, continue to be material in 2025 at GBP 771 million. Moving to our business P&Ls. Institutional Retirement delivered another year of predictable high-quality growth. Operating profit increased 6% to GBP 1.2 billion, driven by high release from CSM and the continued strength in the expected investment margin. Asset optimization contributed GBP 258 million, more than double last year and what we believe a sustainable level going forward. Investment variance largely reflects our modeling changes in the year.
Across our insurance businesses, this added GBP 290 million to our store of future profits, but generates a day one adverse investment variance, as we've seen in the past, and this effect will unwind into profit over time. The Institutional Retirement annuity portfolio grew to GBP 75 billion, up 12%, driven by the strong PRT flows. The risk profile remains well matched and new business strain continued at around 1% in the U.K. and 1.6% across all of PRT. This business continues to deliver recurring and capital-efficient growth, fully aligned to our strategy. As you can see, PRT continues to grow strongly as we wrote close to GBP 12 billion in 2025. In the U.K., we wrote over GBP 10 billion. That's about 25% market share, and this was written at attractive margins under the capital-light investment strategy.
Our overall IFRS new business margin of 6.5% reflects a continued tighter credit spread environment and doesn't capture the increased opportunities this generates for asset optimization, which I'll cover later. Our international PRT business is down on the prior year, given an overall slower market in the U.S.. Looking forward, I am extremely optimistic about the prospects for our PRT business. Client demand remains high with a GBP 17 billion active pipeline here in the U.K., and we have line of sight of over 10 schemes of in excess of GBP 1 billion, and we expect the market overall this year to be circa GBP 50 billion. Asset Management delivered a stable operating profit in 2025, despite the market volatility in the first half of the year.
Markets were positive in the second half of the year, setting us up well for what's been a strong start so far in 2026. Revenues grew 4% to over GBP 1 billion, supported by favorable market conditions and continued progress in pivoting the business toward higher margin strategies. The rebalancing of our product mix continues to take effect with overall fee margin increasing to 9.1 basis points, up from 8.8 basis points last year. However, expenses also increased by 5% as we continue to invest in growth initiatives, digital capabilities, and enhancements to our operating platform. Therefore, as a result, the cost income ratio was 75%. Operating profit from balance sheet investments was GBP 144 million, broadly unchanged from the prior year. Performance included strong contributions from Pemberton and good performance of assets within our digital infrastructure portfolio.
The investment variance was more adverse in 2025, driven by in-year performance relative to expected longer term performance and from revaluations across several assets, of which I'll cover later. As I said, we're at an inflection point in asset management's financial performance. U.K. DB, our largest channel, is naturally shrinking. While it continues to support growth in PRT, we've not been replacing lost revenues quickly enough. We're now seeing higher margin new channel growth beginning to accelerate. We've generated GBP 34 million of ANNR in 2025, which provides a tailwind to our 2026 revenues. Our targeted cost actions taken in 2025 are also beginning to come through into our numbers, maintaining lower cost growth. Therefore, our current run rate for 2026 shows revenue growth significantly outpacing cost growth, increasing fee related earnings and reducing the cost income ratio.
Retail delivered another year of positive high-quality growth. Operating profit rose 4% to GBP 447 million, driven by higher release from CSM and risk adjustment and the continued strength in the expected investment margin. Asset optimization added GBP 73 million, more than double last year, similar to Institutional Retirement. Our workplace DC assets grew 21%, supported by strong win rates and our member-focused proposition. As we outlined at the Retail deep dive, we look at workplace profitability across both Asset Management and Retail combined with an all-in revenue margin for this business around 30 basis points. In Retail, workplace is broadly break even before investment spend. For the first time, we've shown our workplace administration profit split on the slide.
We expect to invest around GBP 30 million per year on average up to 2028, higher in some years, such as 2025, as we focus on member engagement and technology-driven efficiencies. Workplace is core to our growth story in retail and the wider group. This chart shows the trajectory of the combined profit in retail and asset management that workplace is expected to contribute over the next decade. This is driven by the scale of our GBP 114 billion assets on which we administrate pensions in workplace, benefiting from the compounding economics of growing monthly contributions and our high client retention rates. Over the next decade, we will deliver significant operating leverage from tech and operational efficiencies, and we expect the cost income ratio from these combined to fall to below 50% from its 75% today.
The result is a greater than 15% CAGR over the longer term and higher in the short term as we expect to triple our workplace earnings by 2028. Our balance sheet position is strong with a 2025 pro forma Solvency II ratio of 210%. On this slide, I've provided a detailed Solvency II walk for the first time, including both movements in own funds and SCR. OSG from our in-force book added 26 percentage points to the ratio before we paid our dividend and invested in new business. Other variances include the impact from market movements, which is similar to the impact we see under IFRS. Our acquisition of a 75% stake in Proprium had a further 3 percentage points impact on the solvency after allowing for the option to acquire the remaining stake.
Our pro forma closing position of 200% post the major uses of the transaction and is net of the related GBP 1 billion share buyback. This includes a temporary eligibility restriction on Tier 2 own funds. This is available to us under stress and is expected to unwind over the next five years as we continue to deploy capital to meet our growth ambitions. Our results this year reflect both strong operational delivery and continued strategic transition. We've maintained solid momentum across each of our core businesses while simplifying our portfolio and reinforcing capital discipline. Our progress against targets is encouraging. We're on track or ahead on every measure. I want to take a longer-term view on what I see as the significant opportunities for our business, building on some of the points that António made earlier today.
We have great businesses, well-positioned in growing markets, which will be enhanced by our synergistic model. This combination will drive compelling returns. I'm really excited about the prospects for the group. As António mentioned, we've taken important steps to address some legacy issues, and these are now behind us. We enter 2026 with a stronger, more resilient foundation. As I mentioned earlier, I've been in listening mode. After many, many conversations with several of you here in the room, it's clear there are aspects of our disclosure that are opaque. Today, I'm taking steps to address this and provide you with greater clarity on our results. In addition, I'll more clearly explain how we think about the longer-term trajectory of capital generation and how we're going to deploy that capital. Let me take you through each of these in turn, including some new disclosures.
Over the past three years, one recurring feature in our results has been negative investment variances. It's important to unpack to see what's really driving these movements. Not all adverse variances erode long-term value. Some result from positive impacts on future profit. Let me talk you through what's going on here, both in our annuities portfolio and in our shareholder funds. Firstly, modeling and assumption changes in our annuities portfolio. This reflects the mismatch that arises between the impact of reserving changes on today's liabilities compared with calculating these changes using the locked-in discount rates at the time we wrote the business. This mismatch appears as an adverse investment variance, but actually represents a positive contribution to our CSM, increasing the profit that will emerge in future periods. Secondly, market impacts on our annuity portfolio, where movements in asset values aren't fully matched to the movements in our liabilities.
As interest rates rose in 2023 and 2024, we saw roughly GBP 700 million of negative variances arise as the fall in asset values was greater than the fall in the liabilities. We hold these assets for their cash flows, not their short-term price. In 2025, we've seen this start to reverse with over GBP 100 million of net positive movements. The risk we care most about with annuity assets is defaults. With 99% of the portfolio investment grade, we've seen no defaults since 2008, and even then, extremely small at GBP 25 million. Thirdly, the variance that arrives in our shareholder funds from the actual linear returns versus the long-term expected return that we assume in our operating profit.
Over the last three years, we've seen around GBP 600 million of cumulative negative variances as the higher interest rate backdrop has caused many asset classes to underperform their long-term averages. Each year, we reassess our return assumptions, and today, our average blended long-term expectation is around 6%, including our cash assets, which we view as appropriately conservative. Finally, revaluation of our balance sheet assets. Specific sectors such as commercial real estate and venture capital have seen more pronounced challenges since 2022. This is reflected through reductions in asset values in line with market movements and views on future performance. In addition to the investment variance as shown in this slide, we incurred close to GBP 200 million of M&A restructuring and transformation costs, which we report outside of operating profit.
Beyond M&A related expenses, these costs reflect organizational restructuring and our multi-year transformation programs as we strengthen our operating platform to capture the significant growth opportunities ahead. I expect these costs to remain at around GBP 100 million-GBP 200 million per year over the next two years. Following Eric and his team's detailed review of balance sheet investments in asset management, alongside my broader assessment of the overall shareholder portfolio, I'm confident the current valuations of shareholder funds are appropriate and materially de-risk the balance sheet and earnings from future downward revisions. The dynamics are different across each of the three pools of shareholder funds we invest. In corporate investments, we expect our assets to be materially sold down by the end of 2027 at current valuations, further simplifying the balance sheet and reducing exposure to sectors experiencing structural repricing.
In Asset Management, we've completed a rigorous review, challenging ourselves on the strategic relevance of our future balance sheet investments. We transferred close to GBP 200 million of assets that no longer meet our strategic or funding criteria into the Corporate Investments Unit. The remaining portfolio is well-positioned and will drive long-term future value for the group. We remain confident in delivering our Asset Management profit target of between GBP 500 million and GBP 600 million by 2028. This is now more heavily weighted to high-quality fee earnings as balance sheet investments are expected to generate around GBP 80 million-GBP 100 million of profit, approximately GBP 50 million lower than previously guided. Finally, the balance sheet investments in our insurance entities, where we have delivered strong traded profits and where the fall in assets largely reflects routine disposals for liquidity management.
We expect returns to remain stable at around 5% with opening balances broadly unchanged. That was transparency on where we are today. I'll now add some clearer guidance on the sources of annuity lifetime value and the trajectories of our Solvency II coverage ratio and debt leverage. First, lifetime value from our insurance businesses, a subject definitely close to my heart as the previous CEO of Institutional Retirement. Under IFRS 17, our earnings have become increasingly predictable and reliable, with nearly two-thirds coming from the release of our store of future profit. We added GBP 1.2 billion to our CSM in the year through new business and locked-in interest. This represents 2% growth on what is already a very large CSM base.
However, as we've adapted our investment strategy for writing annuities under a tighter credit spread environment, the sources of value have also shifted with the store of future profit now only telling part of the story. We are now seeing a growing contribution to our earnings from recurring asset optimization. Writing new business on gilts-based investment strategies over the past two years feeds this optionality. While day one IFRS profitability metrics are moderately lower due to the lower initial yield, the ability to rotate our investments to capture higher risk-adjusted spreads is scoped to deliver increased lifetime value. Asset optimization doesn't require large market volatility. We have the optionality to rotate across ratings, currencies, and sectors in credit and in sovereigns. A recent example is how we've monetized elevated relative positions in cross-jurisdiction rotations between U.K. and U.S. sovereign bonds.
We increased our sovereign exposure, reduced derivative-related exposure, and remained cash flow matched, and in doing so, delivered GBP tens of millions of earnings and capital with no increase in the capital requirement. In fact, the opposite. We are confident in delivering asset optimization of more than GBP 300 million per year. We believe we have enough optionality across the various components of our greater than GBP 90 billion portfolio to deliver this, and we see opportunity to deliver further upside as and when spreads widen. Turning to Solvency II outlook, where we are well capitalized to invest in future growth. Today, we are sharing with you our medium-term Solvency II coverage target operating range of 160%-190%. We will continue to deploy capital to meet our growth ambitions and expect to take us into this range compared to where we sit today.
How we think about our ratio changes under different market environments. The actions we might take to manage solvency depend on why the ratio is at that level and how we expect risks to evolve from that point. Interest rate hedging is a good example of where we might take action to change our approach as our solvency changes. We're comfortable that we can withstand a variety of market stresses from any point in this range. Below this range, we would seek to respond to be within the range quickly. This is not an automatic trigger for capital measures. Our dividend is still sustainable at a lower ratio. Our Solvency II balance sheet on debt leverage has increased in the short term to 33%, and that's on a pro forma basis following the sale of U.S. protection and the related buyback.
This sits well within our comfort levels. The ratio is likely to remain around this level for a few years before it declines as the growth in own funds accelerates. All three major rating agencies currently have us on strong ratings and stable outlook, reflecting their confidence in our balance sheet position. We have a strong balance sheet, but we are also a highly resilient business in terms of our flows. Our businesses continue to deliver strong, sustainable and increasingly diversified capital generation. On this slide, we outline OSG by business and its trajectory, and in the appendix, we've provided you with more breakdown of this by own funds and SCR. Through our share buyback program, we have returned GBP 700 million since its launch in 2024, and we will return a further GBP 200 million in 2026.
As a result of this, OSG per share grew by 8% in 2025, which is ahead of total OSG growth of 5%. We expect growth in OSG per share to continue outpacing OSG through to 2027 post the GBP 1.2 billion buyback. The returns previously generated in our insurance businesses from this excess surplus are being replaced by growth across the group. As this transition completes, OSG will grow below 5% in 2026, returning to greater than 5% by 2028, supported with strong momentum in fee-based earnings. OSG starts from a robust base, adding more than 25 percentage points to our Solvency II coverage ratio each year, reinforcing our balance sheet, supporting shareholder returns, and the continued investment in our growth.
Overall, we have high quality, resilient releases from our large existing book and clear visibility on compounding OSG growth through 2028. This clear trajectory underpins our confidence in the sustainability of the dividend. OSG comfortably covers the dividend on a per share basis and grows more rapidly than our guided 2% annual increase in the dividend per share. Our dividend coverage on a net surplus generation basis is sensitive to our in-year new business strain. Given the size of the annuity opportunity in front of us and the long-term potential for OSG growth in later years, we view the investment in new business at the expense of the payout ratio to be a good trade-off in the near term. By 2027, we expect Solvency II net surplus generation to cover our dividend under a range of new business strain scenarios.
I want to close by returning to what I said earlier. I am really excited about the prospects for our group. Over the long term, we see a huge opportunity for growth in our core markets, and we're investing today to meet that opportunity. The investment requires some trade-offs in the short term, like on the dividend payout ratio, but these are trade-offs we are happy to make with the long-term sustainable growth of our business in mind. Let me now hand back to António for his closing statements.
Thank you, Andrew. To close, I'm pleased with our 2025 performance. As you've just heard from Andrew, it was important for us to provide you with greater clarity on the drivers of our financial performance, particularly on the adverse investment variance that you've just addressed, and also provide clearer guidance on our future trajectory. I hope you got that from Andrew's presentation. I'm confident that we now have strong foundations with legacy issues fully behind us. We have positive business momentum. I've talked about the positive business momentum of 2025. We've carried that into this year, into 2026, and this year we expect to deliver another year of core operating EPS growth at the top end of our 6%-9% target range.
In institutional retirements, our PRT pipeline is as strong as we've ever seen it, and we are expecting a bigger U.K. market this year of GBP 50 billion, as Andrew also mentioned. Last year, GBP 40 billion, this year, closer to GBP 50 billion. In asset management, we have reached an inflection point with the GBP 34 million of annualized net new revenue last year that will translate into positive financial performance in 2026. This year we have had good client wins so far with strong revenue momentum. In retail, our annuities business is continuing the strong performance seen in the second half of last year. Our monthly workplace inflows are compounding steadily, kind of this is a really great business from that perspective, and we still have that GBP 3.7 billion pounds of schemes won last year due to onboard this year.
This momentum is a testament to the compelling investment case that I outlined earlier. First, we have scaled businesses in growing markets and Asset Management financial performance is turning a corner now in 2026. Second, we have a synergistic model between our three core businesses and are adding to that through the partnerships that we've established. We use scale as a competitive advantage, driving efficiencies across the business. Finally, we are delivering sustainable long-term value for shareholders and are firmly on track to deliver our three-year targets. With that, Laura, Gareth, Eric will join me on stage to take your questions, which Andy will help facilitate.
Thank you. Remember, it's gonna be two questions each this time. Try to hold yourself back, and if we have time at the end, we'll be able to circle back for a second choice. Remember to say your name and the financial institution you represent, and please wait for a microphone to come round. Farooq, we'll start with you. Just one more. There you go. Thanks.
Thank you very much. Farooq Hanif from JP Morgan, and thanks for the disclosure. I think we all agree that it's gonna be helpful, and we'll enjoy typing it in tonight.
Thank you, Farooq.
Um
Yes. We were thinking of you when we did that. Thank you.
Of course. I will stick to two questions. Firstly, can we just think about the sustainability of the buyback? If you go to the chart on the Solvency II percentage point movement, it's 6 points negative after strain and dividends. It feels like we'll have a negative even in 2027. In that context, you know, if we start approaching the 160%-190%, how do we think about the buyback? You've talked a lot about the sustainability of the dividend, but just kind of how are you thinking about the buyback and how should we think about it? Second question, you know, thanks for the detailed description of the investment variances. I think that will help a lot.
If we just go to the CIU, charges and restructuring, am I right in thinking that you're saying, look, the negatives from that are going to die down in 2026? I mean, you've talked about the ongoing project restructuring costs and the markets, but just on that alone, that'll be helpful. Thank you.
Great. Let me start with the sustainability of the capital distribution, and then you can add to that, Andrew, and maybe make a point on CIU, which by the way, the answer is yes, we don't expect more. so
I won't be getting much.
This is the new duo here. Look, my priority is a sustainable growing dividend and the sustainability of that dividend. I was very clear, and that's why I sort of talked slower than usual in that chart where I said, if you go back to 2024 in that chart that I showed you, at that time, with the numbers that we were doing at that time, I said that in 2025, 2026, and 2027, we would distribute GBP 4.2 billion in between dividends and. We would have if we had grown the dividend at 5%. Now with the share buybacks that we've done and the growth of the dividend at 2%, we have delivered on that. I was clear on that.
Future decisions, Farooq, to your point, are exactly what I've been saying all along, so that hasn't changed, which is we will look, to your point, at the coverage ratio, and now we actually have a range that we are disclosing to you. We'll look importantly at the market conditions and what are the business opportunities ahead of us. If we see a fantastic year, I think this year will be a fantastic year for PRT. The strain continues to be low. If next year we see that spreads have widened and we've gone back to the old way of writing PRT with a higher strain and still with GBP 50+ billion in the market, at that time, I will make a judgment on capital distribution, particularly share buybacks.
Priority on the dividend, we've said we delivered what we said we would do, and we will do the assessment of future, any future distributions, including share buybacks at the time, which will be a year from now. Anything else on that? Then on CIU or IV?
I mean, just to reinforce the solvency guidance we've given you, the range. Now, we don't see the bottom of that as a trigger. It very much we see, you know, our capital policy being, you know, achievable within that range, reinforcing António's point about PRT in particular.
Where we see attractive markets deploying capital even at higher levels than we've deployed in the last couple of years, where the margin return is worth it, we see that trade-off as a sensible one. Just reaffirming that and then reaffirming the Corporate Investments Unit question, Farooq. Fantastic progress in the last couple of years on the Corporate Investments Unit. We've mentioned we'd transferred another couple of assets in there, but we're drawing a line today on that. Just expect that to be zero going forward.
Quick, quick clarification. Buybacks are possible depending on all of the above-
Yeah
- in between 160 and 190.
160. Yes. Yeah, they are possible. The point I made was we will look at a time where we are on our coverage ratio and what are the growth opportunities at that point, and what's the market environment. By the way, on the rest of investment variance, this is the first line, but also I made the point, and you made the point, Andrew, as well, which is this is the culmination of two years of when I first arrived, I looked at everything that's strategic and not strategic. That part is done. That led to the disposal of Cala and other assets. Then Eric arrived and did a forensic review of everything in asset management. Those strategic type of decisions we've taken, those are done. We've also drawn a line under those.
What you can expect is now what Andrew described as the more normal IV.
Yeah, there's. I think. I'm sure other questions will come up. We got two pieces on IV. The discount mismatch, the market movements, we'll still expect those to flow through. As I made in the comments earlier, adverse movements there aren't necessarily adverse to profit, they're just, it's accounting. The final piece of investment variance is the M&A and transformational work, and I guided you to expect between GBP 100 million-GBP 200 million in that line for the next couple of years. That's not zero guidance. The other asset movements should be.
That's correct.
Thank you, Farooq. Mandeep.
Morning, everyone. Mandeep Jagpal, RBC Capital Markets. Two questions from me as well, please. First one on Asset Management. Good result on the ANNR of GBP 34 million. It seems that a lot of it was from your internal sources. How much of that is from third parties? And as we head into 2026, where do you see the highest growth potential for external third-party flows and ANNR? Secondly, on your Blackstone partnership to originate North American private credit, you have the option to invest up to 10% of annuity premiums. With all the recent negative headlines in the space, how attractive are you viewing the market at the moment in terms of new deployment and the private credit on your balance sheet at the moment?
Thank you. Thank you, Mandeep. I think, Eric, you should definitely take the first one. Gareth, can I ask you on the second one? Just one point, and I'm sure Eric will make this point, but when we say internal sources, a big internal source for us is DC money. That's external money. Of course, one is really internal, our annuity book. The other really powerful side of our synergy, and I think this is an important detail, yes, we've said that those things are the underpinning of our ANNR, but DC money is one of the most attractive channels which we as L&G have as a captive channel because more than 95% of our DC money comes into. That is third-party money, right? Just to be clear on that. Eric, and then Gareth.
Yeah. Thanks, António. I think that's a good point. I will answer specifically the question you asked, but I think it's important to put it into context. The context is the trend from 2024. We were at -5%, we're up to 34%. Importantly, the synergistic business model, we clearly have gone a step further in 2025, we're really pleased with how much more we can generate, but it existed before. When you look at the previous -5%, there was a lot of internal money, whether that's through annuity, PRT outcome from that, and the third-party money that we generate together with Laura's business through the workplace solutions.
I wanna put everything in the context 'cause that means by its very nature, the third party ANNR was frankly above my expectations in terms of how quickly we've turned it into a positive number. To answer your question specifically, roughly half of the 34 is coming from that IR PRT money, which you could call internal, right? Another third is coming from the business we do together with Laura, and I just wanna underline what Antonio said. This is an area that all of our competitors are desperate to get in. We have the leading market share. Although it is internally generated, it's part of our value-added synergistic business model. This is a true third-party channel that I think we just have an edge on everyone else.
that leaves about a third, so call it GBP 10-ish million, that is the net result from true arm's length third party. Of course, within that, you're contending with an ongoing negative ANNR in our LDI business.
Mm-hmm
Because the natural shift from LDI to PRT. In some ways, as that continues to happen, you'll continue to get negative flows out of our LDI business. To be clear, we're a leader in that space. We will remain a leader. We actually won quite a few new mandates 'cause it's going down, but there's a lot of movement within that. As we shift to the 3x revenue PRT business, in many ways, that's an affirmation of our model. When you just look at DB, it is gonna naturally shift towards more in-house money. That's a very healthy development.
We've got 10 or 11 of really completely arm's length, not linked to the synergistic business model, positive ANNR, taking into account, I mean, I can give the number, it's roughly GBP 10 million of negative ANNR, which is to be expected from LDI. In many ways, there's the absolute number, but the change from 2024 frankly happened quicker than I thought it would when I-
Yeah
-when we were talking about this-
Exactly
-about a year ago.
Exactly. Look, Eric has been in role for a year. Let's go back to the targets for a second. We said 100-150 million ANNR cumulative, 2025, 2026, 2027 and 2028, four years. Eric won't like me saying this, but if you just multiply the 34, and you do the 34 every year, just 34, and our plans are more ambitious than that, you'd be at 136. So we're well within towards the top end of our range. So at the moment I'm very pleased with the turnaround of the commercial performance that Eric has led. Blackstone and what we're doing, Gareth, and maybe Andrew may want to add to that as well.
Sure. I'm sure there'll be other questions this morning about the competitiveness of the PRT market. Right now, I think it's really important to have diversified sourcing channels, and Blackstone offers us diversified sourcing channels. Where we see attractive opportunities, then, we will add that to what we already are able to generate. We have made our first investment through the Blackstone partnership, lending money on a triple net lease to a credit that we really like, called Ahold Delhaize. We like the credit in the public market, but the private asset offered a significant premium to the public issuance. That's exactly the sort of investment that we want to be making in the current market.
Actually, as you know, this is also Gareth's first time as the CEO here. He was the CIO of the business and of course succeeded Andrew, so the right guy to be talking about this. He led a lot of the negotiation with the partnership with Blackstone.
Can we go to Dom and then on to Larissa?
Thanks. Dominic O'Mahony, BNP Paribas. So sticking to the two, I'll start with just a technical one, which is, if I understand it correctly, the operating profit assumption is driven off a short-term yield, I think a one-year yield. That's come down quite a lot over the last 12 months. Is that gonna be a headwind to earnings into 2026? I hope that question made sense. Broader strategic question about the corporate investments. Sounds like you're making good progress there, and thank you. Thanks for the transparency on the way that you're accounting for those and the investment returns on the broader balance sheet. Could you just spell out for us how the proceeds from those disposals are fueling your business?
If we go back to the Cala disposal, there wasn't much solvency uplift, but of course, there's plenty of cash coming out of that. I think cash still coming and presumably further liquidity also from the other disposals. How does that play into the rest of your business and support your ambitions? Thank you.
Thank you, Dom. You should take both, Andrew. Just to reinforce, I said that in my script, but you may have heard it. The core EPS growth for 2026, we're again guiding to be at the top end of our 6%-9% range. We should talk about the yield. The overall number we're guiding towards the top end of the range. Andrew.
Yeah, thanks, Dom. On the first question on the bond yield, no, it's not a headwind for 2026. I mean, that's something we've, again, I talked earlier, we've looked at those yields. We look at them regularly, and we're comfortable with those now. So don't view those as a headwind for 2026. On the second point on disposals, yeah, number of disposals, you mentioned them. Those in a sense, you've seen the level of buybacks that we've done, so those have been recycled through. But we've also invested in the business, in M&A that we've done, and investing in the PRT business. So, you know, we take that into the round as we're thinking through, as Antonio said, you know, what's the investment in the business?
You know, what's the dividend ability and how we use that capital? It forms part of the evaluation as to what we do. As we get further proceeds through from CIU, we'll do exactly the same. For António, he made the point, so did I. Each of our businesses has investment opportunities behind it because of the future growth that we see. We're balancing that. We recognize the importance of a dividend and the sustainability of that, and hopefully, the guidance we've given you today is that. It's really important we keep growing the business and therefore the needs that Gareth, Eric, and Laura have to do that. You know, those proceeds are being recycled back where we see the return on our capital being appropriate.
That's not something we major on in the presentation, but each decision we take has that IRR calculation at the center of it and saying, "Is it going to generate the return we need?" Otherwise, we think about distribution of that to shareholders.
Yeah. This is an important point to stress. We have the capital discipline that I talked about. It's a return on cash and return on capital. We look at the sources and uses of that cash and liquidity, as well as the returns on the business. That's something we put in place two years ago. It's in a really rigorous way, and so all of that goes into that. Thank you. Thank you, Dom.
On to Larissa. We'll just keep passing along to Andrew.
Larissa Van Deventer from Barclays. Thank you very much for the detail in the OSG numbers. On the divisional side, the underlying OSG was flat year-on-year. However, if you look, you give guidance as to where that may grow to in 2028, which is roughly 7% compound annual growth rate. How do you get confidence in reaching that? What are the key drivers that need to be in place to get there? You've mentioned the current gilt environment quite a few times. New business strain was low, with spreads narrow and gilts being attractive. How do you see that evolving, if gilts continue to come down and spreads widen or do not widen over the next few years?
Get it.
Does that still meet the IRR that you just mentioned?
Get it. Andrew, you should take the underlying OSG, but maybe Gareth can also talk a bit about gilts and how that reflects, well, impacts all of our businesses, particularly PRT. Gareth should take that.
Yeah. I thought it was really important we gave you this information. I said I'd been listening. I heard this ask a number of times to see that OSG by business, so I'm really pleased we've done that. As we've done that, as you say, it tells a story, Larissa, where the year-on-year growth in those in the underlying business ones is actually down in most cases. Why am I confident it grows up? The reason it's down year-on-year is we took surplus assets out of the business in 2024 through dividend remittances, and that's why, you know, we use it to fund buybacks and dividends.
That's why you see the OSG per share growth growing faster than OSG 'cause effectively it's that those surplus assets have reduced the share count. That's why the year-on-year movement is down slightly. The reason we're confident about the underlying growth in OSG is the growth prospects we've talked about for the business. In each of those markets, we're expecting to see, you know, growth in PRT, as we've talked about, you know, workplace, you know, asset management Eric's talked about. The underlying OSG growth going forward, the CAGR that you see is driven by the business plans we have in place for the business.
Gareth, gilts
Over the last year, our investment strategy has been similar to historic in terms of traded assets and private assets. The traded assets, we've seen a lot more value in structured sovereigns than we have in credit. The spreads have been higher, the capital usage has been lower. As we look into 2026, as you say, the spread between gilts and swaps has come in. We still think that they are attractive. There comes a point at which they become so tight that then there's an opportunity for us to optimize on the back book and reinvest into credit. I guess there's a point both for new business, which is we look at the best asset allocation on a go-forward basis between traded credit and structured sovereigns to pair with our private credit.
There's also the back book, which is that there becomes an opportunity where we can generate more profit in optimizing some of the back book structured sovereigns into credit.
Do you believe that you can make your hurdle rate either way, though?
Yes. We've done it in the past. If you go back to pre the end of 2024, we did that in the past through investing in credit. At the moment, we do that through consuming less capital, but continuing to make our returns using more of a structured sovereigns-based strategy.
I think I may have said this at the half year when we were discussing this, that in many ways, we would rather the IRRs were lower, but with slightly higher capital strength so that we generate more pounds, the trade-off. Everything we do meets that 14% hurdle for every transaction, and particularly for the very large ones that you should expect because we price this one by one, including all the way to our board. One thing to say that to stress is the GBP 300 million in that chart on the back book optimization, the asset optimization. We're assuming, and we've told you the guidance before, more than GBP 300 million, but assuming that there's no more volatility.
Because I've sometimes I get the question on are you assuming that is the sustainable level. That's why both Andrew and I said with credit spreads widening, we would see more upside in the back book for us to optimize. That's we're making all of that, and this is, Gareth is leading this. We're making the back book optimization much more systematic, and the GBP 300+ million is sustainable in any market environment. If we see credit spreads widening, it has the impact on new business that Gareth mentioned, but on the back book, we would see further upside.
Andrew.
Hi, yeah, Andrew Baker, Goldman Sachs. That leads right into my first question, actually. You mentioned the-
Good
Asset optimization upside from corporate credit spreads widening if that happens. Are you able to give us a sense of sort of what that could look like? If we see 50, 100 basis point widening, what that upside could look like for asset optimization, both from IFRS and OSG lens, and then also any considerations on the SCR that we should be thinking about there. Then secondly, just on the U.K. strain. It was 1% of the half year, 1% for the full year. You did a lot more funded re in the second half. I guess, why should I now expect to see that strain lower given the proportion of funded re was so much higher in the second half versus the first?
Yeah.
Thank you.
Maybe, Andrew, we'll ask Gareth to talk a bit more about what we're doing from an assets optimization perspective and the upside, and maybe you want to add then in terms of numbers. Do you want to start, Gareth? Yeah.
Sure. So it's very difficult to give numbers without knowing what future scenarios will look like. I think António has already anchored us at the GBP 300 million level with minimal levels of volatility. We would expect to be able to materially exceed that in moments of significant spread widening. I mean, it's probably easier just to do some modeling on different scenarios and then we could look at the capital consumption and also the spreads. Broadly speaking, with spreads wider, going back to António's point, we generate more profit. We're happy to consume some more capital, and we'll continue to generate a return of more than 14% on that capital.
It's fair to say both Andrew and I will say we don't want to give specific guidance on what that. Because Gareth is right. It will really depend on what the scenario is. But we can have a discussion on the sensitivities on that. Do you want to talk about strain as well? Why is the strain 1% and kind of the
Yeah. I mean, I can't do the math in my head, I'm afraid. The investment mix was not materially different in the second half of the year versus the first half of the year. I mean, go back to my answer to Larissa's question. Our investment strategy over the course of the whole of 2025 was continuing to invest in structured sovereigns on the traded side and private credit on the private side. That continued throughout 2025. Yes, we did increase funded reinsurance, but all of that came out with a 1% strain. I can't do the math in my head, I'm afraid.
I'd agree with Gareth. I'd just say, you know, the asset mix was the same, but, you know, the profiles of some of the transactions are quite different.
Yeah.
You know, when you have the type of book we have, and you have a, you know, a Ford deal landing, you know, those individual transactions influence half year results very significantly, and therefore thinking that through will be.
I was going to say that. If you look at Ford, BP and NatWest, the three that are public, and they were on the slide, they have completely different profiles. When we talk about an average 1%, some had actually higher strain with better metrics, and some had lower strain but with worse metrics. We fundamentally didn't change anything in the strategy. It just happens those quite lumpy deals, and Ford was the one in the second half, skewed probably the metrics that way versus the first. Yeah.
Just to add, Andrew, on the SCR, when we look at asset optimization opportunities, we are very much factoring in the impact on the SCR. There are some rotations that are worth doing because they're effectively capital-free. Other ones, there's a strain that we have to take into account and therefore, again, coming back to the 14% IRR, we're always looking to say, "Is the rotation capital accretive? And if it is, then we're likely to proceed," and the SCR is very central to that deliberation.
Kailash.
Good morning. Excuse me. Kailesh Mistry, Deutsche Bank. Couple of questions. First one is, sorry, on the solvency ratio. At the bottom end of the target, the 160, what happens at that point? Does the dividend come under stress? Does it affect your ability to write new business? Secondly, just going back to slide 30, on the first two lines of that slide, is it possible to provide any sensitivities around that to help with the modeling, interest rates, credit spreads, et cetera? Thank you.
Yes. Andrew, both.
Yeah.
Reassuring that the dividend is not at risk.
Yeah
in that situation.
Yeah, just on reiterating the comments I made just a few minutes ago. As we get towards, you know, the 160, clearly we're monitoring that. I think it's really important to remember we have to look why we're there and the market environment that we find ourselves in around that position, 'cause that will likely determine some of the management actions we would take. As I said before, this is not a trigger point. At, you know, at 160, the dividend is sustainable and we are comfortable operating at that level. We're just making the point it's our target operating range, and were the business to fall below that, we would look at actions to get us back into that range.
Yeah.
It's not triggering concerns over dividend.
Historically, we've been close to those levels where the market was, so we continue to be above most of competitors in the market, so it will depend, as Andrew says, on how we get there. Thank you. Did we answer your second question? 'Cause they were both related.
Disclosure.
Second bit of that question was, does it impact-
Yeah.
-how you think?
It would depend where we're in the range. One management action available to us, to manage our solvency ratio is to change the level of new business we write depending on the strain environment. In theory, the answer is yes. Again, you know, given we're comfortable at that level, and as António says, we've operated at that level before, depending on why we found ourselves at that level, we'd still be expecting to write new business.
Yeah. I think a key difference of what we're saying today versus the last six times I stood in front of you in different scenarios was we are giving you the 160%-190%. We are saying deliberately that we want to be within 160%-190%, which implies that we're writing business and we are growing PRT, and that's why the solvency comes down, one of the reasons why the solvency comes down. Thank you. Thank you, Kailash.
Sorry. Kailesh, sorry, you had the second question about sensitivities as well. I think the answer to that is we'll have a look, and we haven't disclosed anything today. We won't be disclosing anything in the presentation, but absolutely, we'll take that into account. Michael.
Thank you.
Do you have a number for the stressed solvency? Allianz gives a figure, 197. They say that's actually the number you should manage your. They manage themselves on. The second question is, I was curious. I spoke to Excellence IR this morning, and they highlighted the very strong new business in the second half, a strong run rate in individual annuities. I just wondered if you can talk a little bit about more the growth and also the IRR. I'm always curious 'cause I'll be buying one of these soon.
I know we have some people outside, and so we can just, we can take care of that, and Laura will be very happy. Definitely Retail Annuities, Laura, you should address that in the run rate of the second half. First question, do you want to take that first?
Sorry, can you-
Yeah. I actually also didn't.
I didn't quite catch-
I didn't quite catch the question.
I didn't quite catch the question.
Yes. Can we repeat the first part?
I mean, at the stressed solvency. If you were in a GFC situation, Allianz would be today at 197, and they say that's the number they manage themselves on. They don't use the current number, they use a stressed number. I just wondered what is your stressed number today if we had GFC or some crisis?
Yeah. We don't look at the business that way. It's not I can't give you Allianz is 197, ours is something else. It's you know, it's the range that we think about, and as I said before, where we find ourselves in that range, depending on the market conditions. There's no singular 197 figure that I would.
What we do, we do it ourselves with the board and then with the regulators. We do the ORSA, which is basically the stress tests. To reassure you, when we look at our five-year plan, we look at all the different scenarios and what could happen, and we are still comfortable that everything that we're talking about, including the GBP 1.2 billion buyback, is backed by stressing our numbers to different scenarios. We can maybe pick that up afterwards.
Yeah. I think what we'd say is we are happy throughout that 160%-190%. We're happy to operate in the 160s, we're happy to operate in the 180s. Even in the 160s, we're happy to grow our dividend, we're happy to invest in growing new business. We're happy throughout that range, bearing in mind that there could be stresses after that. As Andrew said, like, the reasons why we're at a certain ratio will depend. Have we had a big credit cycle? Have we had government bond yields down 200 basis points or up 100 basis points? It will depend why we're there, how we act.
Thank you. Laura, individual annuities.
Individual annuities. We predict that the accumulation flows will sort of double over the next decade. I think just looking back at the last two years, where on average we've seen individual annuities grow on average 20% each year. As António said, we had a really strong second half of last year, a run rate of about GBP 1 billion, having had, I suppose, a slightly slower run rate in the first half of about GBP 0.8 billion. Actually a really strong start this year. Our run rate is pretty much where it was at the second half of last year and certainly where it was in 2024.
In terms of your question on IRR, we do have an internal target of 14%, so everything needs to meet that hurdle rate.
Yeah. We then manage the individual annuities with the bulk annuities in one big annuity business, and so they have to all meet the target hurdles. There was one statistic that I mentioned that also reinforces. The majority of what we do is still with clients that are not necessarily L&G clients. I mentioned that we had a 15% year-on-year increase of workplace customers taking an individual annuity. If you fast-forward, the average age of our book is 42 years old on the workplace.
Still.
Yeah.
About 42, yeah.
Yes, exactly. It's one year later, but still 42. I guess we're getting a few younger people. As they get closer to retirement, there's more and more people that want to take an individual annuity, to your point earlier about it's actually a really good thing to do, and there is an important potential for us that we haven't yet seen. It's still a very small percentage of our own customers that are getting to the age where they take individual annuities, but as we continue to grow workplace, that's a massive upside. It's a 15% year-on-year increase on a small number. We see that trend continuing for a real long time.
I just gotta say one extra point, Michael, on the solvency. The sensitivities aren't exactly the same. If you're at 165% versus if you're at 210%, the sensitivities change as well. It's not exactly the case that we apply the exact same sensitivities at that point. Andrew, down the front.
Thank you.
Hello. It's Andrew Crean at Autonomous Research. Could I ask a couple of questions? Firstly, your comment that by 2027, the net surplus generation will cover the dividend. At what point of cover would you be prepared to start growing the dividend in line with the growth in net surplus generation, bearing in mind that the operating variances have been consistently a dumping ground of negative hits below the net operating or net surplus generation. That was one question. The second question was on workplace. Profits went down from GBP 60 million to GBP 55 million, I think, all totaled, including asset management. What was going on there, and why do you see them trebling to GBP 180 million by 2028 on that basis?
Andrew, thank you. On your first question, there's two sides to that. One, what we're trying to do today is draw a line on some of those hits, to your point, that we've had. In terms of the dividend itself, I will need to be standing here in front of you next year telling you how the dividend is going to grow in 2028, 2029, 2030, right? We've given you the 2025, 2026, 2027, the 2% growth with the share buybacks. You're right, the underlying business is growing faster than how I'm growing the dividend at the moment. I'm not yet at the stage to actually tell you what the next three-year plan is.
It is very much in my mind, and something we need to discuss as a team and with our board, what's going to be the capital distribution policy going forward for 2028, 2029 and 2030.
Okay. Sorry, I think you said this year, you're drawing a line under the investment variance. What I was talking about is the negative operational variances-
Yeah
-which sit below. I don't think you've talked about that.
No. No, you're right. But from a dividend perspective, your first comment, we're going to, in the second half of next year, outline what the next three-year plan is going to look like. I appreciate, you know, not giving you more guidance on what that is. We've said that the OSG per share grew at 8% last year and is growing at more than 5% going forward. It gives you a sense of where the underlying business is growing.
António, just if I could maybe add. On the operating variances, we gave some disclosure of that on the Solvency walk earlier in the slide pack. Large components of that map directly to the IFRS investment variances I was talking about earlier. Drawing a line under those variances for IFRS is drawing a line under those for Solvency II. The other major components of those other variances that you referred to, outside of the 100-200 I guided around the transformational projects, then those won't recur either. When we're drawing a line, we're making a very significant statement around those variances under Solvency II as well as IFRS.
Okay.
Yeah. Workplace-
Oh, yes.
- where I responded to the second question. Workplace pensions and we are comfortable that it will triple in the three years. Two-thirds of that is in Asset Management, a third is in workplace. Laura, do you want to address that?
Yeah, no. I mean, I think obviously, the profits will come through scaling efficiently. We are doing a lot, making huge amounts of investment actually at the moment through our digital channels and into our proposition, which will sort of tail off and allow us to run the business more efficiently. We talked a little bit at the capital markets event about our customer agent desktop, which is effectively embedding Agentic AI into operations. So that will be a big source of that sort of efficiency, if you like. I think we're sort of well on track to improve those profitability and the efficiency of the business.
Yeah.
Just to be clear, the 55 and 60 are before investments.
They are.
They are, yeah.
Yeah. That's the number that triples. If you remember that, you have it there in front of you, slide 24. It doesn't help that it doesn't have the actual numbers in it. You see that I was using the 2024 numbers when Laura stood up. That's still our guidance. From 2024 to sort of 2028, from 2025 to 2028, it triples before investment. We also gave guidance that it will be a bit lumpy. It was high, the investment last year, but that investment is now reducing because a lot of the heavy lifting we've done, including in technology, is now done.
Tom.
Hi, good morning. Thomas Bateman from Mediobanca. Thank you for your new disclosure. One of the slides that I think changed was on Asset Management, and just on the investment cost there. I think one of the things that was missed today was the overrun on investment costs. I'm not quite sure what the guidance is, whether it's incremental, what the total is. Can you just clarify what you think the investment is into the Asset Management business at the moment? And then the second question is, my understanding is that the capital strain weighs about 100% rather than the solvency ratio target. If you were to weight it against the new solvency ratio target, when would the dividend be covered under NSG?
I ask because the ineligibility of the leverage of the debt doesn't seem to be temporary to me as long as NSG is not covering the dividend. Similarly, I don't really see how you can continue to do buybacks after 2027 because of that reason. Yeah. When does it cover the dividend under the full capital strain?
Andrew, you should take that. On the Asset Management question, Tom, can you clarify? Maybe you got it, but was it the investment variance that you were talking about in Asset Management or the balance sheet investment as well?
I think you gave guidance before of GBP 50 million-GBP 100 million. I think people took-
Oh, yes.
- that as-
The returns on the balance sheet investment. Yeah.
-GBP 50 million-GBP 100 million balance
Yeah. Yeah
investment.
Yeah.
But-
Absolutely. 50-100
My understanding is that it's incremental actually, not a kind of annual spend. It's GBP 50 million potentially on top every year, and that's.
Yeah, absolutely right. Sorry. On that, we should start there. I was confused, more. When we talked about the costs in Asset Management, we said we were investing in the business at a 50-100. That's the number I gave before Eric 's arrival. When Eric then did this capital markets event, he was saying, "Actually, we're spending less than that at the moment." You're right, we didn't include it on the slides. Do you want to talk about how are we investing? Also there's this slide that Andrew showed on the revenues. It said indicative. The revenue's growing more in 2026 than the costs, both of those.
No, it's great. It's true, we skipped the slide. I think we are par for the course for last year. I feel like what the answer I had last year would be the same this year. The 50-100, we are in a growth strategy, so I really appreciate the potential flexibility if we saw a real investment opportunity. In our build, buy and partner strategy, the 50-100 really is around the build, which is organic. When I look at what we already have in place, we will continue to make incremental investments. I feel extremely comfortable with never having to get out of the 50-100 range.
As of now, I, again, my prediction for 2026 is we won't hit the bottom end of the range, just like last year.
Yeah
the sense. We don't have any particularly material spend in an area that would make me feel we have to be well into that range. It's a lot of little things we're doing to continue to grow the top line, and it seems to be adding up to well below that range.
Yes. Originally, they were incremental. Remember, Tom, we were saying it was every year we're going to do another 50 to 100, was, let's say, 75, 75. We are actually spending less than that incrementally.
Yeah.
We've been much more cost conscious since Eric's arrival in Asset Management because, to be honest, we need to those jaws need to go the other way. You know, Eric has closed them in the first year, so the revenues and costs are growing roughly at the same level. We now need they now need to cross. We need in 2026.
Yeah.
For the revenues to grow more than costs.
Yeah, it's worth it and maybe why that slide's not up. The way we look at this.
24 actually
is holistic
22.
Yeah. It's really holistically. In other words, we need to keep our overall growth and costs within a range that we're happy with. That has to include this number as well. We look at it in the round. The important thing, I think António underlined it, is we need to see the revenues growing faster than the costs from here on in. The only reason why you'd see us up the investment spend specifically is because we can see a direct line to higher revenues. That's how we think about it.
Andrew.
Tom, thanks for the question. Might want to pick up with the team on the detail, but just a couple of observations. On the eligibility restriction, I mean, that exists because our Tier 2 own funds are capped at 50% of the SCR. As we grow OSG, that grows own funds, that effectively starts to reduce. And therefore it is temporary because we grow our way out of it. Then as we have guided, NSG will cover dividend by 2027, and then grow significantly after that. In terms of working you through your question, we'll pick up with the team afterwards, but it is temporary, and NSG is covering dividend by 2027 and beyond.
Yeah. We're actually in an interesting position where the more capital intensive the business we write, the faster we start qualifying again because the SCR rises faster. So its own funds generation is actually covering the dividend today. But then we choose to invest a lot of that in growing our SCR and growing our business. As we grow the SCR, the restriction is 50% of the SCR, so the more we grow the SCR, the faster that comes back.
Yeah.
It comes back over time. We'll catch up on the detail.
Actually, today, I appreciate we're giving you much more information than usual, so we can also at the end kind of with Andy and the team kind of follow up on any more specific questions. Thank you, Tom. Will.
Hi. Thank you very much. William Hawkins from KBW. Yeah. Again, thanks so much for the enhanced disclosure. I'm sure there's a lot of work that's gone in behind the scenes. Back to workplace, please. Getting the commentary so far, but I'm still a bit uncertain about the flows that we're seeing in workplace, 'cause you did GBP 6 billion in the full year, which implies about GBP 2 billion in the second half of the year. Quite a step down from GBP 4 billion in the first half. I'm not sure in retrospect if I'm sort of missing some big issue of seasonality, or if there's some other kind of driver around that. Understanding a bit more about workplace flows would be helpful, please. Secondly, sorry, 'cause there's so much helpful stuff that you've said.
The core guidance for this year of core EPS rising 6%-9%. I mean, my back of envelope is you're gonna get most of that from the buyback. The implication is either that your guidance is hugely conservative or that the absolute earnings figure isn't growing very much. If that's the case, I can't figure out myself what the headwinds or one-offs have just been. Thank you.
Yeah. Andrew, you should address the EPS, but the underlying core earnings are growing, first point. Bear in mind that we start the largest buyback in our history, which we're starting this week, the first tranche of it. You have a 12-month, not year. You have quite a long period where the EPS itself is going to be impacted more in 2027 than in 2026. When we actually look at the math that you were doing in your mind, there isn't a massive, there's half of it, but there isn't a massive EPS upside from the GBP 1.2 billion 'cause a lot of this is going to be done throughout 2026.
We can actually give you the exact numbers 'cause, of course, we have that behind it. Do you want to add on that, and then we should come to the workplace please?
I was just gonna reiterate the point you just made. I think if you look at our operating profit growth by business, then we're, as I said before, we're on track or ahead on all targets. So those are growing positively. The point you just made, António, is that the buyback really has a bigger impact in 2027 and 2026 just because of the timing of it, and therefore that, I suspect that's flowing through your numbers.
Yeah. We're giving additional disclosure because the buyback is quite big. Every week we'll have it on the investor-
We'll have a tracker.
We'll have a tracker on the website. I'm not sure if we said that already. Which will track exactly where we are on the GBP 1.2 billion, and it will give you a sense of how it's impacting the EPS. On the GBP 6 billion, there is a lot that we've done last year, as I said, that is coming into 2026 but
No, I mean, there's no sort of seasonality at all that impacts the business. I suppose the two main sort of inflows, if you like, are the regular contributions, which are very sort of regular and predictable. The scheme wins can be a bit lumpy like PRT. In the GBP 3.7 billion that we talked about that we actually won last year but will not fund until this year, for example, there was a GBP 2 billion scheme in there. It does tend to be a little bit lumpy in terms of the sort of new business wins, if you like. For us, we have a 99% client retention rate, so no big outflows, if you like.
It really was just the sort of timing of when we've won those sort of some of those bigger deals.
Yeah, which goes back to 2024. In 2024, we won some of the schemes that funded in the first half of 2025. There were more of those funding in the first half of 2025 than in the second half of 2025. This, we have it in the slide, the GBP 1 billion monthly contributions, as Laura says, there's no seasonality. They just, well, they just keep on increasing actually 'cause the book is bigger.
Kind of go for Abid and then Nasib.
Morning. It's Abid Hussain from Panmure Liberum. Just, I'll limit it to two questions. The first one is on bulk annuities. Could you just talk to what the competitive landscape is now in the U.K. versus the last couple of years, given the increased capital and capacity being deployed across the industry? And then is that then driving the margins down or are the margins coming down because of the tighter credit spreads and the business mix that you're writing? That's the first one. And then the second one, can I just come back to the net surplus generation? Just trying to understand and work our way through this in terms of which numbers we should be focusing on. Is it excluding or including TMTP?
Should we be thinking about 100% surplus to cover or 160% surplus to cover on new business strain? Ultimately, where do you want that net dividend cover to get to in the medium to long term? Thank you.
Andrew, you should take that. Gareth, you start. Can you start with competitiveness of? By the way, I feel super proud that we're at 25% of the market in 2025, and so we somehow just skip through that and the GBP 10.4 billion. I think great, you know, Andrew and Gareth as well and the team before. Can you talk about it going forward? We get a lot of these questions given the new entrants, so.
Sure. I'm impressed that it's 11:04, and that's the first time we've had the competitive landscape question. The market's competitive. The market's been competitive for a long time. If you think about what's been happening over the last couple of years, then one of the changed competitors, if you like, has been one of our most formidable competitors for a long time as well. We expect the market to continue to be competitive, but not materially different to what we've seen in 2025 in particular. On to new business margin. The first thing just to say is to reiterate that we are making our return on capital.
All of our deals have got to make our 14% hurdle, and so we are continuing to write in a price-disciplined way. You're right, and you alluded to this in your question, that the reason that the margins are a bit lower is because we're using less capital-intensive investment strategies and buying optionality for the future. The way that you would expect that to change would be if we continue to write low capital strain, relatively lower spread, investments to back our business, then you'd expect the numbers to start out low and then give more optimization opportunity in the future. If credit spreads start to widen, then you'd expect that new business margin to grow again and to perhaps have less future opportunity 'cause we'll crystallize more upfront.
I would say one thing about the new entrants. They are certainly very rational and sophisticated. The sophisticated part could worry you, but the rational part actually is reassuring. I mean, they have the same return hurdles we have or higher actually, if you think about their own shareholder structures. We expect you know, you were mentioning PIC as one of our competitors. You know, PIC is already one of our biggest competitors. We expect it to market maybe different from some of the parts of retail and others, where sometimes you have competitors that's come into the market in a slightly more irrational way. We are a big player in the U.S. as well, as you know, where we compete against those same competitors.
It's a very professional market and, mostly a very rational market, so we feel reassured by that as well. NSG covering dividend by 2027?
Yeah. Just let me talk about the TMTP and why we've done that. The reason we made that adjustment this year, and to be really transparent, is we're trying to because we've guided for the first time on the OSG by business, that TMTP adjustment will run out over time. It can be sort of, you know, volatile in places, and therefore, we wanted to give you a cleaner underlying view of what each business was generating and where the runway would go. The reason we've then transparently disclosed that is you can just add it back if you need to, you can see where it goes. So that drive therefore to give that transparency was the important one. Using that basis, that's what, you know.
We've talked here about OSG rather than NSG, because that's by business, that growth in per share OSG in particular is what gives us the confidence on the dividend coverage, which is at 2%. Of course, NSG depends on the strain environment that we're finding ourselves in, which obviously impacts Gareth's and Laura's business. To the point of dividend coverage, I think I made some comments earlier about in terms of things like payout ratio, it's a decision we're currently comfortable with the payout ratio. It will trend down over time, but currently we are comfortable with the payout ratio that we have, recognizing there's some short-term trade-offs on the amount of strain we're going to deploy against new business.
That's where we cover. Back to NSG, yes, it covers the dividend by 2027 onwards.
Thank you. Abid.
Nasib?
Thanks. Nasib Ahmed from UBS. PRT new business, there's different ways to cut it. You've got IRR, you've got IFRS new business, you've got lifetime value. What is the kind of the bottom on the IFRS new business value where you say, "Okay, I'm gonna walk away. I'm not making enough pounds," as António, you said, on the IRR? I'm still meeting 14%. You could do more structured sovereigns, still meet the 14%, but is 6.5% the bottom where you say, "Okay, if I go lower than this on IFRS margin, I'm gonna walk away"? Question number one. Question number two, on slide 38, you give the 2028 OSG underlying of GBP 1.4 billion, and then you've got to add management actions on top.
Am I adding GBP 300 million, or you did GBP 238 million last year, and then you had GBP 172 million of balance sheet optimization. Is that 410 equivalent to the 300 or is it 238 going to 300?
I'll give that to you, Andrew, in a second. On the first one, look, there are many constraints. Not only that, when we look at the beauty of this business is that we price in a very specific way deal by deal, and so every deal has a different makeup in terms of how many deferreds, kind of duration, et cetera. The binding constraint is the IRR of 14%. Like, whatever way we structure it, if it has more funded RE, less, we have the per pound of capital that we're deploying needs to be above 14%. On when we approve it, when you may want to add to this, Gareth, there's lots of, there's many more than those metrics.
From my simplistic view as the Group CEO, is this capital, this pound of capital better deployed here versus in those two other businesses? We need to look at the return on capital and the return on cash. From a PRT perspective, it needs to meet that. There was many deals last year where we didn't bid or where we bid and we didn't win. We are the largest player in the market, so I'm very conscious that we need to have that pricing discipline. Actually, the number one objective I have from the board is pricing discipline, not market share or volumes. We want to maintain the health of the market from a profitability perspective.
Do you want to say something on that, and I'll come back?
We, maybe one more thing just to kind of bring to life. If you imagine we're bringing one of our bigger deals to discuss with António and Andrew and then on to the board, then we've got our base metrics that we're underwriting on, but we then also look at what might happen over the lifetime of the business. One of the things we did over the course of last year was we slightly reduced the duration of some of the credit that we're investing in, which gives us a little bit more optionality later on.
In some of the scenarios, let's say that we were pricing a scenario which hit the 14% IRR but had a relatively lower IFRS new business margin, one of the things that António and Andrew would definitely ask is, "What are the numbers that can drive those up over time?" If we see that there is more optionality that we're able to access in that particular deal, then that might make us feel more comfortable underwriting at a lower headline IFRS new business margin, but with the opportunity to be able to go and redeploy in the future. That was definitely the case for some of the deals that we looked at over the course of last year.
Slide 38.
Yep. I mean, just, this will definitely one for the team to walk you through. Think about the 331 number that we've disclosed in the 300. That's an IFRS number, and that's for asset optimization. When we disclose asset optimization on a Solvency II basis, you know, one important adjustment is that gets disclosed net of tax. You have to sort of translate the numbers through to it, through a different basis. What we've done on this slide is embed the 331, the asset optimization OSGs within the underlying business, so you see that coming through, and then other management actions sit on top of that. The equivalent of the 331 on a sort of pre-tax basis is.
I'm sorry, on a post-tax basis is sitting in the charts, and other actions would sit around that.
If that's not clear, we can talk to you at the end. Well, we spent a lot of time on these charts. I mean, we didn't just put this together yesterday. There is a sort of there's a lot of thinking on. But I appreciate that there's a lot of new numbers, so we can take you through that, Andy. Yeah.
Got the last couple of minutes left. We've got some questions online. I think, Farhad's questions have already been answered there. I'm just gonna take two follow-ups in the room. Andrew, and then Andrew.
We only have to-
It's not just an Andrew thing.
Yeah, exactly, yes. There's a bias there towards the Andrews.
Okay, one question. Sorry. Thank you for giving me the extra shot. Listen, you've just done 9% EPS growth for 2025. You're doing 9% again, you say, for 2026. You say that share buybacks will be more impactful for 2027. Why not raise the 6%-9% guidance?
We'll think about it. The serious answer is, in June of 2024 I gave guidance for three years, 2025, 2026, and 2027, and our number one focus is deliver on those numbers. I've said here on stage I'd love to beat the targets that we've announced, but as we continue to deliver. We're not changing the guidance, but I want to beat our targets.
Okay.
Thank you, Andrew.
Behind you. Left.
Thank you. Thank you for the follow-up as well. Just quick question. The modeling and assumption changes, the negative variance that you mentioned, was that longevity? I guess if it is longevity or I guess if it's not as well, how are you thinking about longevity going forward given where, I guess, mortality trends are going in the U.K.? How should we think about the risk of at some point having to strengthen longevity reserves, not next couple years, but down the road? Thank you.
Yeah, this is the first line of page 30, which are the ones that we said, you know, we focus a lot on the other three lines, which are the ones that are more, that we regard more explanation. But on the modeling changes?
Broadly, no, it's not longevity, those changes. It's more around. We did some cash flow, some changes to our cash flow modeling. The principal change is around persistency. On longevity, you know, I think we've disclosed we use a CMI 2023 table, but we have taken. I mean, 2025 was a light year for deaths, so taking our experience has been overlaid onto 2023. And we'll continue that process going forward. Short answer to your question is no, it's not really driven by longevity changes this year.
Thank you.
Well done to everyone in the room for keeping it to two questions. Just one final question. It's actually just come through online. It's from Marcus Rivaldi from Jefferies. Which is just, given the level of Tier 2 debt restriction, is there an appetite to consider a liability management to right-size Tier 2 and accelerate debt deleveraging?
Andrew?
Been working closely with the treasury team. There are no shortage of helpers, including from many organizations in the room, to help us suggest how we might manage some of our sort of treasury and capital requirements. The answer to that question is we are looking, you know, at the mix of Tier 2 and Tier 1 and financing structures that optimize the balance sheet.
Great point to end on. Like, look, thank you for all of your questions. I know we've covered a lot today actually, even more than usual. I'm very happy with the progress that we're making and the strong foundations that we've been stressing that we have to build on for 2026 and beyond. We'll see you back here on the 5th of August for our half year results. Andy was saying this, our investor relations team is available if you have any follow-up questions. I appreciate some of the questions today and the numbers as you digest them. Thank you for coming today, and see you.