Notes to the condensed consolidated financial statements

For the year ended 31 December 2021

4: Business combinations

4(a): Business disposals

On 30 November 2021, the Group completed the sale of Quilter International to Utmost Group for consideration of £481 million. The Group has recognised a profit on disposal of £89 million. Provisions established in respect of this disposal are shown in note 16. Separation, migration and decommissioning expenses incurred as a result of the disposal of £19 million are included within Other operating and administrative expenses in the discontinued operations income statement.

Profit/(loss) on sale of operations
		£m
	Year ended  31 December 2021	Year ended  31 December 2020
	Quilter International and Single Strategy business	Quilter Life Assurance and Single Strategy business
Consideration received	481	-
Less: transaction costs	(17)	-
Net proceeds from sale	464	-
Carrying value of net assets disposed of	(324)	-
Goodwill allocated and disposed of	(50)	-
Recycling of foreign currency translation reserve	(1)	-
Profit on sale of Quilter International	89
Change in accrued expenses in relation to the Single Strategy business (sold in 2018) and QLA (sold in 2019)	1	(1)
Profit/(loss) on sale of operations before tax	90	(1)
Separation, migration and decommissioning costs	(19)	-
Profit/(loss) on disposal after separation, migration and decommissioning costs	71	(1)

In 2021, the Group also sold LighthouseCarrwood Limited generating a profit of £2 million which is not reflected in the table above as the former subsidiary's activities did not represent a major line of business and therefore is regarded as being part of the Group's continuing operations.

Carrying value of net assets disposed of
		£m
		At 30 November 2021
		Quilter International
Assets
Intangible assets		2
Property, plant and equipment		11
Contract costs		383
Loans and advances		175
Financial investments		23,836
Trade, other receivables and other assets		228
Cash and cash equivalents		253
Total assets		24,888
Liabilities
Investment contract liabilities		24,058
Provisions		2
Deferred tax liabilities		2
Current tax payable		1
Borrowings and lease liabilities		11
Trade, other payables and other liabilities		114
Contract liabilities		376
Total liabilities		24,564
Carrying value of net assets disposed		324

4(b): Discontinued operations - income statement

The Group's discontinued operations principally relate to Quilter International, the sale of which completed on 30 November 2021.

			£m
	Notes	Year ended 31 December   2021	Year ended 31 December   2020
Income
Gross earned premiums		1	1
Premiums ceded to reinsurers		(1)	(1)
Net earned premiums		-	-
Fee income and other income from service activities		169	206
Investment return		1,816	1,061
Other income		1	-
Total income		1,986	1,267
Expenses
Change in investment contract liabilities	15	(1,818)	(1,056)
Fee and commission expenses, and other acquisition costs		(72)	(91)
Other operating and administrative expenses		(55)	(42)
Finance costs		-	(1)
Total expenses		(1,945)	(1,190)
Profit/(loss) on sale of operations before tax1	4(a)	90	(1)
Profit before tax attributable to equity holders from discontinued operations		131	76
Tax expense attributable to equity holders	7(a)	-	(1)
Profit after tax from discontinued operations		131	75
Attributable to:
Equity holders of Quilter plc		131	75
Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc
Basic - from discontinued operations (pence)	8(b)	8.0	4.2
Diluted - from discontinued operations (pence)	8(b)	7.8	4.1

¹Loss on sale of operations before tax in the prior year relates to transaction and separation costs associated with the historical sales of the QLA and Single Strategy businesses.

£10 million of Other operating and administrative expenses (31 December 2020: £17 million) previously reported in Quilter International are now presented within continuing operations, as costs of this nature did not transfer to Utmost Group (the acquirer) on disposal.

4(c): Discontinued operations - statement of comprehensive income

		£m
	Year ended 31 December   2021	Year ended 31 December  2020
Profit after tax	131	75
Items that may be reclassified subsequently to profit or loss:
Exchange gain on translation of foreign operations	-	1
Total comprehensive income from discontinued operations	131	76

4(d): Discontinued operations - net cash flows

			£m
		Year ended 31 December  2021	Year ended 31 December 2020
Total net cash flows from operating activities		276	126
Total net cash used in investing activities		(411)	(87)
Total net cash used in financing activities		(2)	(24)
Net (decrease)/increase in cash and cash equivalents		(137)	15

4(e): Business acquisitions

There have been no material acquisitions during the year ended 31 December 2021 or the year ended 31 December 2020.

Contingent consideration arising from historical business acquisitions:

The table below details the movements in the contingent consideration balance during the current and prior year arising from the business acquisitions in previous years.

		£m
	31 December   2021	31 December 2020
Opening balance	16	39
Payments	(7)	(20)
Financing interest charge	1	2
Unused amounts reversed and other movements	(5)	(5)
Closing balance	5	16

Contingent consideration represents the Group's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis used for each acquisition varies but includes payments based on a percentage of the level of assets under administration, funds under management and levels of ongoing fee income at future dates.

5: Alternative performance measures ("APMs")

5(a): Adjusted profit before tax and reconciliation to profit after tax

Basis of preparation of adjusted profit before tax

Adjusted profit before tax is one of the Group's alternative performance measures and represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed in note 5(b). Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results.                                                                                             

							£m
		Year ended 31 December 2021			Year ended 31 December 2020
	Notes	Continuing operations	Discontinued operations1	Total	Continuing operations	Discontinued operations1	Total
Affluent		111	50	161	105	60	165
High Net Worth		56	-	56	39	-	39
Head Office		(29)	-	(29)	(36)	-	(36)
Adjusted profit before tax		138	50	188	108	60	168
Reallocation of Quilter International costs	4(b)	(10)	10	-	(17)	17	-
Adjusted profit before tax after reallocation	6(b)	128	60	188	91	77	168
Adjusting items:
Impact of acquisition and disposal related accounting	5(b)(i)	(41)	-	(41)	(42)	-	(42)
Profit/(loss) on business disposals	4(a)	2	90	92	-	(1)	(1)
Business transformation costs	5(b)(ii)	(51)	(19)	(70)	(70)	-	(70)
Managed separation costs	5(b)(iii)	(2)	-	(2)	-	-	-
Finance costs	5(b)(iv)	(10)	-	(10)	(10)	-	(10)
Policyholder tax adjustments	5(b)(v)	(7)	-	(7)	9	-	9
Customer remediation	5(b)(vi)	(7)	-	(7)	(5)	-	(5)
Total adjusting items before tax		(116)	71	(45)	(118)	(1)	(119)
Profit/(loss) before tax attributable to equity holders		12	131	143	(27)	76	49
Tax attributable to policyholder returns	7(a)	73	-	73	36	-	36
Income tax (expense)/credit	7(a,b)	(62)	-	(62)	4	(1)	3
Profit after tax2		23	131	154	13	75	88

¹Discontinued operations includes the results of Quilter International.

²IFRS profit after tax.

5(b): Adjusting items 

In determining adjusted profit before tax, the Group's IFRS profit before tax is adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature. These are detailed below.

5(b)(i): Impact of acquisition and disposal related accounting

The recognition of goodwill and other acquired intangibles is created on the acquisition of a business and represents the premium paid over the fair value of the Group's share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired intangible assets, any acquisition costs, finance costs related to the discounting of contingent consideration and incidental items relating to past disposals.

The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations.

			£m
	Note	Year ended  31 December 2021	Year ended  31 December 2020
Amortisation of other acquired intangible assets	9	45	45
Fair value gains on revaluation of contingent consideration		(5)	(4)
Acquisition and disposal related income1		-	(1)
Unwinding of discount on contingent consideration		1	2
Total impact of acquisition and disposal related accounting		41	42

¹Acquisition and disposal related income in the year ended 31 December 2020 includes a £1 million credit for the acceleration of the discounting unwind following settlement of a loan receivable from TA Associates that related to deferred consideration arising from the sale of the Single Strategy Asset Management business.

5(b)(ii): Business transformation costs

Business transformation costs include three key items: costs associated with the UK Platform Transformation Programme; Optimisation programme costs and business separation costs following disposal of Quilter International. For the year ended 31 December 2021, these costs totalled £70 million (31 December 2020: £70 million) in aggregate, the principal components of which are described below:

UK Platform Transformation Programme - 31 December 2021: £28 million, 31 December 2020: £38 million 

The Platform Transformation Programme commenced in 2017 to replace our UK Platform, significantly upgrading its functionality as well as ensuring its underlying technology was brought up to modern standards, making it highly resilient and scalable to support business growth for the foreseeable future. The last of three phased migrations completed successfully in February 2021 with all Quilter Investment Platform assets now live on the new platform. The total lifetime costs of the programme are £202 million to 31 December 2021, and no further costs are expected.        

Optimisation Programme costs - 31 December 2021: £22 million, 31 December 2020: £33 million

The Optimisation programme commenced in 2018 to provide closer business integration, creating central support, rationalising technology and reducing third-party spend. It is due to be largely complete by mid-2022. Since inception, the programme has delivered £61 million of run-rate cost savings with associated implementation costs of £81 million during this time, with the overall target of £65 million of run-rate benefits and associated delivery cost of up to £91 million.

During 2021, the Group successfully deployed the new finance, HR and procurement modules as part of our general ledger consolidation and modernisation activity.  The Group continues to consolidate its technology estate and in particular the data centre, telephony and data reporting solutions. In Quilter Financial Planning the streamlining and improvement in productivity of the business has delivered cost savings during the year. 

Business separation costs following disposal of Quilter International - 31 December 2021: £19 million, 31 December 2020: £nil

The costs of business separation arise from the process to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data and contracts facilities. A programme team has been established to ensure the transformation of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource costs to achieve the separation. The costs are predominantly expected to occur over a three-year period.

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work has taken place during 2021 in preparation for migration. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of its past experience of previous IT migrations following business disposals, including the recent migration of QLA.

Quilter Investors' build out costs - 31 December 2021: £nil, 31 December 2020: £(1) million

The Group incurred build out costs to develop Quilter Investors as a separate business distinct from the Single Strategy business, which was sold on 29 June 2018. The build was substantially completed in 2019, resulting in the release of the remaining £1 million of the provision during 2020 which was established to complete the build.

Restructuring costs following disposal of Quilter Life Assurance - 31 December 2021: £1 million, 31 December 2020: £nil

Following the disposal of Quilter Life Assurance on 31 December 2019, the Group recognised £1 million for the cost of decommissioning IT systems as the Transitional Service Agreement with ReAssure runs off.

5(b)(iii): Managed separation costs

For the year ended 31 December 2021, these costs were £2 million (31 December 2020: £nil) and relate to further rebranding of the Quilter business. These one-off costs relating to the Group's separation from Old Mutual have been excluded from adjusted profit on the basis that they relate to a fundamental restructuring of the Group and are not representative of the operating activity of the Group.

5(b)(iv): Finance costs

The nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of interest costs on external borrowings are removed when calculating adjusted profit. For the year ended 31 December 2021, finance costs were £10 million (31 December 2020: £10 million).

5(b)(v): Policyholder tax adjustments

For the year ended 31 December 2021, the total policyholder tax adjustments to adjusted profit is £(7) million (31 December 2020: £9 million). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS profit/(loss) before tax attributable to equity holders. For a further explanation of the impact of markets on the policyholder tax charge see note 7(a). Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items.

5(b)(vi): Customer remediation

Lighthouse pension transfer advice provision - 31 December 2021: £7 million, 31 December 2020: £5 million

The provision for the potential redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases has been increased by £7 million in the year, which has been recognised in the income statement (31 December 2020: £5 million). This increase reflects the impact of post-acquisition market and discount rate movements, together with further consideration of the cases where redress is potentially payable, as part of the ongoing skilled person review. This has been excluded from adjusted profit on the basis that the advice activities to which the charge relates was provided prior to the Group's acquisition of the business. Further details of the provision are provided in note 16.

5(c): Reconciliation of IFRS income and expenses to "Total net fee revenue" and "Operating expenses" within adjusted profit

This reconciliation shows how each line of the Group's consolidated IFRS income statement is allocated to the Group's APMs: Net management fees, Total net fee revenue and Operating expenses, which are all defined in the Alternative Performance Measures section, and form the Group's adjusted profit before tax for continuing operations. The IFRS income statement column in the table below, down to "Profit/(loss) before tax attributable to equity holders from continuing operations", reconciles to each line of the Group's consolidated income statement. Allocations are determined by management and aim to show the Group's sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from year to year to ensure comparability, unless otherwise stated.

							£m
Year ended 31 December 2021	Net mgmt. fees1	Other revenue1	Total net fee revenue1	Operating expenses1	Adjusted profit before tax	Consol. of funds2	Consolidated income statement
Income
Fee income and other income from service activities	633	111	744	-	744	(78)	666
Investment return	-	3,294	3,294	-	3,294	708	4,002
Other income	-	1	1	15	16	2	18
Total income	633	3,406	4,039	15	4,054	632	4,686
Expenses
Change in investment contract liabilities	-	(3,293)	(3,293)	-	(3,293)	-	(3,293)
Fee and commission expenses, and other acquisition costs	(52)	4	(48)	-	(48)	(13)	(61)
Change in third-party interest in consolidated funds	-	-	-	-	-	(599)	(599)
Other operating and administrative expenses	(15)	1	(14)	(602)	(616)	(20)	(636)
Finance costs	-	-	-	(14)	(14)	-	(14)
Total expenses	(67)	(3,288)	(3,355)	(616)	(3,971)	(632)	(4,603)
Profit on business disposal	-	2	2	-	2	-	2
Tax expense attributable to policyholder returns	(73)	-	(73)	-	(73)	-	(73)
Profit/(loss) before tax attributable to equity holders from continuing operations	493	120	613	(601)	12	-	12
Adjusting items:
Impact of acquisition and disposal related accounting	-	-	-	41	41
Profit on business disposal	-	(2)	(2)	-	(2)
Business transformation costs	-	-	-	51	51
Managed separation costs	-	-	-	2	2
Finance costs	-	-	-	10	10
Customer remediation	-	-	-	7	7
Policyholder tax adjustments	7	-	7	-	7
Adjusting items	7	(2)	5	111	116
Adjusted profit before tax after reallocation	500	118	618	(490)	128
Reallocation of Quilter International costs4	-	-	-	10	10
Adjusted profit before tax - continuing operations	500	118	618	(480)	138

 

							£m
Year ended 31 December 2020	Net mgmt. fees1	Other revenue1	Total net fee revenue1	Operating expenses1	Adjusted profit before tax	Consol. of funds2	Consolidated income statement
Income
Fee income and other income from service activities3	552	113	665	-	665	(80)	585
Investment return3	-	2,279	2,279	-	2,279	577	2,856
Other income	-	2	2	14	16	4	20
Total income	552	2,394	2,946	14	2,960	501	3,461
Expenses
Change in investment contract liabilities	-	(2,272)	(2,272)	-	(2,272)	-	(2,272)
Fee and commission expenses, and other acquisition costs3	(48)	(1)	(49)	-	(49)	(3)	(52)
Change in third-party interest in consolidated funds3	-	-	-	-	-	(461)	(461)
Other operating and administrative expenses	(13)	(3)	(16)	(598)	(614)	(37)	(651)
Finance costs	-	-	-	(16)	(16)	-	(16)
Total expenses	(61)	(2,276)	(2,337)	(614)	(2,951)	(501)	(3,452)
Tax expense attributable to policyholder returns	(36)	-	(36)	-	(36)	-	(36)
Profit/(loss) before tax attributable to equity holders from continuing operations	455	118	573	(600)	(27)	-	(27)
Adjusting items:
Impact of acquisition and disposal related accounting	-	-	-	42	42
Business transformation costs	-	-	-	70	70
Finance costs	-	-	-	10	10
Policyholder tax adjustments	(9)	-	(9)	-	(9)
Customer remediation	-	-	-	5	5
Adjusting items	(9)	-	(9)	127	118
Adjusted profit before tax after reallocation	446	118	564	(473)	91
Reallocation of Quilter International costs4	-	-	-	17	17
Adjusted profit before tax - continuing operations	446	118	564	(456)	108

¹The APMs "Net Management Fees", "Other revenue", "Total net fee revenue" and "Operating expenses" are commented on within the Financial review.

²Consolidation of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a). This grossing up is excluded from the Group's adjusted profit.

³See note 3(c) for details of changes to comparative amounts.

⁴See note 4(b) for details of cost reallocations.

6: Segmental information

6(a): Segmental presentation

The Group's operating segments comprise High Net Worth and Affluent, which is consistent with the manner in which the Group is now structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income statement. Head Office includes certain revenues and central costs that are not allocated to the segments.

Adjusted profit before tax is an Alternative performance measure ("APM") reported to the Group's management and Board. Management and the Board use additional APMs to assess the performance of each of the segments, including net client cash flows, assets under management and administration, total net fee revenue and operating margin.

Consistent with internal reporting, income and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of remaining costs following the disposal of those businesses.

The segmental information in this note reflects the adjusted and IFRS profit measures for each operating segment as provided to management and the Board. Income is analysed in further detail for each operating segment in note 6(c).

Continuing operations:

High Net Worth

This segment comprises Quilter Cheviot and Quilter Private Client Advisers.

Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to the individual needs of high net worth customers, charities, companies and institutions through a network of branches in London and the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland.

Quilter Private Client Advisers provide financial advice for protection, mortgages, savings, investments and pensions.

Affluent

This segment is comprised of Quilter Investment Platform, Quilter Investors and Quilter Financial Planning.

Quilter Investment Platform is a leading investment platform provider of advice-based wealth management products and services in the UK, which serves a largely affluent customer base through advised multi-channel distribution.

Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form of funds for the Group and third-party clients. It has several fund ranges which vary in breadth of underlying asset class.

Quilter Financial Planning is a restricted and independent financial adviser network including Quilter Financial Advisers and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with property wealth and personal and business protection needs.

Head Office

In addition to the Group's two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances.

Discontinued operations:

Quilter International, which would have formed part of the Affluent operating segment, has been classified as a discontinued operation following the Group's announcement on 1 April 2021 of the disposal of the business and subsequent disposal on 30 November 2021. See note 4 for full details. Comparative amounts for the year ended 31 December 2020 have been restated accordingly.

Quilter International is a cross-border business, focusing on high net worth and affluent local customers and expatriates in the UK, Asia, the Middle East, Europe and Latin America.

6(b)(i): Adjusted profit statement - segmental information for the year ended 31 December 2021

The table below presents the Group's continuing operations split by operating segment, reconciling the segmented IFRS income statement (to "Profit/(loss) before tax attributable to equity holders from continuing operations") to adjusted profit before tax.

							£m
		Operating segments
	Notes	Affluent	High  Net Worth	Head Office	Reallocation of Quilter International costs1	Consolidation adjustments2		Consolidated income statement
Income
Fee income and other income from service activities		532	213	-	-	(79)		666
Investment return		3,293	-	1	-	708		4,002
Other income		110	-	-	-	(92)		18
Segmental income		3,935	213	1	-	537		4,686
Expenses
Change in investment contract liabilities		(3,293)	-	-	-	-	(3,293)
Fee and commission expenses, and other acquisition costs		(48)	-	-	-	(13)	(61)
Change in third-party interest in consolidated funds		-	-	-	-	(599)	(599)
Other operating and administrative expenses		(463)	(187)	(51)	(10)	75	(636)
Finance costs		(4)	-	(10)	-	-	(14)
Segmental expenses		(3,808)	(187)	(61)	(10)	(537)	(4,603)
Profit on sale of subsidiary		2	-	-	-	-	2
Profit/(loss) before tax from continuing operations		129	26	(60)	(10)	-	85
Tax expense attributable to policyholder returns		(73)	-	-	-	-	(73)
Profit/(loss) before tax attributable to equity holders from continuing operations		56	26	(60)	(10)	-	12
Adjusted for non-operating items:
Impact of acquisition and disposal related accounting	5(b)(i)	11	30	-	-	-	41
Profit on business disposals		(2)	-	-	-	-	(2)
Business transformation costs	5(b)(ii)	32	-	19	-	-	51
Managed separation costs	5(b)(iii)	-	-	2	-	-	2
Finance costs	5(b)(iv)	-	-	10	-	-	10
Policyholder tax adjustments	5(b)(v)	7	-	-	-	-	7
Customer remediation	5(b)(vi)	7	-	-	-	-	7
Adjusting items before tax		55	30	31	-	-	116
Adjusted profit/(loss) before tax after reallocation		111	56	(29)	(10)	-	128
Reallocation of Quilter International costs	4(b)				10	-	10
Adjusted profit/(loss) before tax - continuing operations		111	56	(29)	-	-	138

¹See note 4(b) for details of cost reallocations.

²Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

 

6(b)(ii): Adjusted profit statement - segmental information for the year ended 31 December 2020

							£m
		Operating segments
	Notes	Affluent	High  Net Worth	Head Office	Reallocation of Quilter International costs1	Consolidation adjustments2	Consolidated income statement
Income
Fee income and other income from service activities3		476	190	-	-	(81)	585
Investment return		2,275	3	1	-	577	2,856
Other income		118	4	5	-	(107)	20
Segmental income		2,869	197	6	-	389	3,461
Expenses
Change in investment contract liabilities		(2,272)	-	-	-	-	(2,272)
Fee and commission expenses, and other acquisition costs3		(50)	-	-	-	(2)	(52)
Change in third-party interest in consolidated funds3		-	-	-	-	(461)	(461)
Other operating and administrative expenses		(446)	(191)	(71)	(17)	74	(651)
Finance costs		(5)	(1)	(10)	-	-	(16)
Segmental expenses		(2,773)	(192)	(81)	(17)	(389)	(3,452)
Profit/(loss) before tax from continuing operations		96	5	(75)	(17)	-	9
Tax expense attributable to policyholder returns		(36)	-	-	-	-	(36)
Profit/(loss) before tax attributable to equity holders from continuing operations		60	5	(75)	(17)	-	(27)
Adjusted for non-operating items:
Impact of acquisition and disposal related accounting	5(b)(i)	10	34	(2)	-	-	42
Business transformation costs	5(b)(ii)	39	-	31	-	-	70
Finance costs	5(b)(iv)	-	-	10	-	-	10
Policyholder tax adjustments	5(b)(v)	(9)	-	-	-	-	(9)
Customer remediation	5(b)(vi)	5	-	-	-	-	5
Adjusting items before tax		45	34	39	-	-	118
Adjusted profit/(loss) before tax after reallocation		105	39	(36)	(17)	-	91
Reallocation of Quilter International costs	4(b)	-	-	-	17	-	17
Adjusted profit/(loss) before tax - continuing operations		105	39	(36)	-	-	108

¹See note 4(b) for details of cost reallocations.

²Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

³See note 3(c) for details of changes to comparative amounts.

6(c): Breakdown of income

This note analyses the Group's income into further detail based on the types of fees earned and split by operating segment, which is aligned to the Group's customer base.

					£m		£m
Year ended 31 December 2021	Affluent	High  Net Worth	Head Office	Consolidation adjustments	Total continuing operations		Discontinued operations
Premium-based fees	87	24	-	-	111		45
Fund-based fees1	376	189	-	(79)	486		81
Retrocessions received, intra-group	-	-	-	-	-		6
Fixed fees	2	-	-	-	2		26
Exit fees	-	-	-	-	-		11
Other fee and commission income	67	-	-	-	67		-
Fee income and other income from service activities	532	213	-	(79)	666		169
Investment return	3,293	-	1	708	4,002		1,816
Other income	110	-	-	(92)	18		1
Total income	3,935	213	1	537	4,686		1,986
					£m		£m
Year ended 31 December 2020	Affluent	High  Net Worth	Head Office	Consolidation adjustments	Total continuing operations		Discontinued operations
Premium-based fees	90	22	-	-	112		70
Fund-based fees1,2	334	168	-	(94)	408		88
Retrocessions received, intra-group	-	-	-	-	-		6
Fixed fees	2	-	-	-	2		29
Exit fees	-	-	-	-	-		13
Other fee and commission income	50	-	-	13	63		-
Fee income and other income from service activities	476	190	-	(81)	585		206
Investment return2	2,275	3	1	577	2,856		1,061
Other income	118	4	5	(107)	20		-
Total income	2,869	197	6	389	3,461		1,267

¹Income from fiduciary activities is included within fund-based fees.

²See note 3(c) for details of changes to comparative amounts.

7: Tax

7(a): Tax charged to the income statement

			£m
	Note	Year ended 31 December   2021	Year ended 31 December  2020
Current tax
United Kingdom		36	18
Overseas tax		1	3
Adjustments to current tax in respect of prior periods		-	(7)
Total current tax charge		37	14
Deferred tax
Origination and reversal of temporary differences		36	(22)
Effect on deferred tax of changes in tax rates		(12)	-
Adjustments to deferred tax in respect of prior periods		1	4
Total deferred tax charge/(credit)		25	(18)
Total tax charged/(credited) to income statement - continuing operations		62	(4)
Total tax charged to income statement - discontinued operations	4(b)	-	1
Total tax charged/(credited) to income statement		62	(3)
Attributable to policyholder returns - continuing operations		73	36
Attributable to equity holders - continuing operations		(11)	(40)
Total tax charged/(credited) to income statement - continuing operations		62	(4)
Attributable to equity holders - discontinued operations		-	1
Total tax charged to income statement - discontinued operations		-	1
Total tax charged/(credited) to income statement		62	(3)

Policyholder tax

Certain products are subject to tax on policyholders' investment returns. This "policyholder tax" is an element of total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders' profits are shown separately in the income statement.

The tax attributable to policyholder returns is the amount payable in the period plus the movement of amounts expected to be payable in future years. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders.

The Group's income tax charge on continuing operations was £62 million for the year ended 31 December 2021, compared to a credit of £(4) million for the prior year. This income tax expense/credit can vary significantly period on period as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility in the Group's IFRS profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in note 5(b)(v).

Market movements during the year ended 31 December 2021 resulted in investment gains of £343 million on products subject to policyholder tax. The gain is a component of the total "investment return" gain of £4,002 million shown in the income statement. The impact of the £343 million investment return gain is the primary reason for the £73 million tax expense attributable to policyholder returns in respect of the continuing operations for the year ended 31 December 2021 (31 December 2020: £36 million expense in respect of continuing operations and £nil expense in respect of discontinued operations).

Impact of changes in UK corporation tax rate

On 3 March 2021, the Chancellor of the Exchequer announced in the Budget a future increase in the Corporation Tax rate from 19% to 25%, effective from 1 April 2023. This change has been substantially enacted by 31 December 2021 resulting in rebasing of deferred tax assets and liabilities.

The £11 million tax credit attributable to equity holders (continuing operations) includes a tax credit of £12 million relating to the change in the UK corporation tax rate and a tax credit of £4 million in relation to first time recognition of trade losses (31 December 2020: £38 million credit in relation to first time recognition of accrued interest expense).

7(b): Reconciliation of total income tax expense

The income tax charged to profit or loss differs from the amount that would apply if all of the Group's profits from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below:

			£m
	Note	Year ended 31 December   2021	Year ended 31 December   2020
Profit before tax from continuing operations		85	9
Tax at UK standard rate of 19% (2020: 19%)		16	2
Different tax rate or basis on overseas operations		1	4
Untaxed and low taxed income		-	(1)
Expenses not deductible for tax		-	2
Adjustments to current tax in respect of prior years		-	(7)
Net movements on unrecognised deferred tax assets		(4)	(38)
Effect on deferred tax of changes in tax rates		(12)	-
Adjustments to deferred tax in respect of prior years		1	4
Income tax attributable to policyholder returns (net of tax relief)		60	30
Total tax charged/(credited) to income statement - continuing operations		62	(4)
Total tax charged to income statement - discontinued operations	4(b)	-	1
Total tax charged/(credited) to income statement		62	(3)

7(c): Reconciliation of income tax expense in the income statement to income tax on adjusted profit

			£m
	Note	Year ended 31 December  2021	Year ended 31 December  2020
Income tax expense/(credit) on continuing operations1		62	(4)
Tax on adjusting items
Impact of acquisition and disposal related accounting		4	3
Business transformation costs		10	13
Finance costs		2	2
Customer remediation		1	1
Tax adjusting items
Policyholder tax adjustments	5(b)(v)	(7)	9
Other shareholder tax adjustments2		7	36
Tax on adjusting items - continuing operations		17	64
Less: tax attributable to policyholder returns within adjusted profit - continuing operations3		(66)	(45)
Tax credited on adjusted profit - continuing operations		13	15
Tax charged on adjusted profit - discontinued operations		-	1
Tax charged on total adjusted profit		13	16

¹Includes both tax attributable to policyholders and equity holders, in compliance with IFRS reporting.

²Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 5(b)(v) and shareholder tax adjustments for one-off items in line with the Group's adjusted profit policy.

³Adjusted profit treats policyholder tax as a pre-tax expense (this includes policyholder tax under IFRS and the policyholder tax adjustments) and is therefore removed from tax charge on adjusted profit.

8: Earnings per share

The Group calculates earnings per share ("EPS") on a number of different bases. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS reflects earnings that are consistent with the Group's adjusted profit measure and Headline earnings per share ("HEPS") is a requirement of the Johannesburg Stock Exchange. The Group's EPS (in aggregate, including both continuing and discontinued operations) on these different bases are summarised below.

Basic EPS is calculated by dividing profit after tax attributable to ordinary equity shareholders of the Parent by the weighted average number of Ordinary Shares in issue during the year. The weighted average number of shares excludes Quilter plc shares held within Employee Benefit Trusts ("EBTs") to satisfy the Group's obligations under employee share awards, and Quilter plc shares held in consolidated funds ("Own shares"). Own shares are deducted for the purpose of calculating both basic and diluted EPS.

Diluted EPS recognises the dilutive impact of shares awarded and options granted to employees under share-based payment arrangements, to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full year.

The Group is also required to calculate HEPS in accordance with the Johannesburg Stock Exchange ("JSE") Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 1/2021 Headline Earnings. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa.

				Pence
	Source of guidance	Notes	Year ended 31 December  2021	Year ended 31 December   2020
Basic earnings per share	IFRS	8(b)	9.4	5.0
Diluted basic earnings per share	IFRS	8(b)	9.2	4.9
Adjusted basic earnings per share	Group policy	8(b)	10.7	8.6
Adjusted diluted earnings per share	Group policy	8(b)	10.4	8.5
Headline basic earnings per share (net of tax)	JSE Listing Requirements	8(c)	3.9	5.2
Headline diluted earnings per share (net of tax)	JSE Listing Requirements	8(c)	3.8	5.1

8(a): Weighted average number of Ordinary Shares

The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit). Details of the impact on the number of shares from the Quilter share buyback scheme are detailed in note 14.

			Millions
		Year ended 31 December   2021	Year ended 31 December  2020
Weighted average number of Ordinary Shares		1,721	1,842
Own shares including those held in EBTs		(77)	(82)
Basic weighted average number of Ordinary Shares		1,644	1,760
Adjustment for dilutive share awards and options		39	37
Diluted weighted average number of Ordinary Shares		1,683	1,797

8(b): Basic and diluted EPS (IFRS and adjusted profit)

							£m
		Year ended 31 December 2021			Year ended 31 December 2020
	Notes	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
Profit after tax		23	131	154	13	75	88
Total adjusting items before tax	5(a)	116	(71)	45	118	1	119
Tax on adjusting items	7(c)	(17)	-	(17)	(64)	-	(64)
Less: Policyholder tax adjustments	7(c)	(7)	-	(7)	9	-	9
Adjusted profit after tax after reallocation		115	60	175	76	76	152
Reversal of:
Reallocation of Quilter International costs1		10	(10)	-	17	(17)	-
Adjusted profit after tax		125	50	175	93	59	152

¹Reallocation of Quilter International costs includes £10 million of costs (31 December 2020: £17 million) previously reported as part of Quilter International which are presented within continuing operations as these costs did not transfer to Utmost Group (the acquirer) on disposal. Adjusted profit is presented both before and after the reallocation of these costs. See note 4(b) for additional details.

		Year ended 31 December 2021			Year ended 31 December 2020
	Post-tax profit measure used	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
		Pence	Pence	Pence	Pence	Pence	Pence
Basic EPS	IFRS profit	1.4	8.0	9.4	0.8	4.2	5.0
Diluted EPS	IFRS profit	1.4	7.8	9.2	0.8	4.1	4.9
Adjusted basic EPS	Adjusted profit	7.6	3.1	10.7	5.3	3.3	8.6
Adjusted diluted EPS	Adjusted profit	7.4	3.0	10.4	5.2	3.3	8.5

8(c): Headline earnings per share

					£m
			Year ended 31 December   2021		Year ended 31 December 2020
	Note	Gross	Net of tax	Gross	Net of tax
Profit attributable to ordinary equity holders			154		88
Adjusted for:
(Profit)/loss on sale of subsidiaries	4(a)	(90)	(90)	1	1
Impairment loss on right-of-use assets		-	-	3	2
Headline earnings			64		91
Headline basic EPS (pence)			3.9		5.2
Headline diluted EPS (pence)			3.8		5.1

9: Goodwill and intangible assets

9(a): Analysis of goodwill and intangible assets

The table below shows the movements in cost and amortisation of goodwill and intangible assets.

				£m
	Goodwill	Software development costs	Other intangible assets	Total
Gross amount
1 January 2020	350	101	428	879
Acquisitions through business combinations	6	-	1	7
Additions	-	4	-	4
31 December 2020	356	105	429	890
Disposal of interests in subsidiaries	(50)	-	(4)	(54)
Disposals1	-	(65)	-	(65)
31 December 2021	306	40	425	771
Amortisation and impairment losses
1 January 2020	-	(93)	(194)	(287)
Amortisation charge for the year	-	(2)	(45)	(47)
31 December 2020	-	(95)	(239)	(334)
Amortisation charge for the year	-	(2)	(45)	(47)
Disposal of interests in subsidiaries	-	-	2	2
Disposals1	-	65	-	65
31 December 2021	-	(32)	(282)	(314)
Carrying amount
31 December 2020	356	10	190	556
31 December 2021	306	8	143	457

¹Disposals of £65 million in the year ended 31 December 2021 relate to the write-off of fully amortised software in respect of the Platform Transformation Programme and following the final migration of client assets in February 2021, with all Quilter Investment Platform assets now live on the new platform.

9(b): Analysis of other intangible assets

		£m
	31 December 2021	31 December 2020	Average estimated useful life	Average period remaining
Net carrying value
Distribution channels - Quilter Financial Planning	9	15	8 years	2 years
Customer relationships
Quilter Cheviot	86	114	10 years	3 years
Quilter Financial Planning	27	31	8 years	5 years
Quilter Private Client Advisers	18	23	8 years	5 years
Other	3	7	8 years	2 years
Total other intangible assets	143	190

9(c): Allocation of goodwill to cash-generating units ("CGUs") and impairment testing

Goodwill is monitored by management at the level of the Group's two operating segments: Affluent and High Net Worth, as disclosed in note 6(a). Both operating segments represent a group of CGUs. The allocation of goodwill to these segments was based on their individual value-in-use calculations relative to the combined total.

	£m
	31 December 20211
Goodwill (net carrying amount)
Affluent	225
High Net Worth	81
Total goodwill	306

¹At 31 December 2020, the goodwill was allocated to the Group's previous segments Advice and Wealth Management and Wealth Platforms.

Goodwill of £50 million was included in the Quilter International disposal group and disposed of as part of the sale of Quilter International. The goodwill allocated to the Quilter International disposal group was determined by reference to the value-in-use of Quilter International as a proportion of the value-in-use of the Wealth Platforms operating segment to which it belonged at the point that held-for-sale accounting was first applied to the disposal group. The Group subsequently changed its operating segments as disclosed in note 3.

Impairment review

In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Affluent and High Net Worth CGU groups is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU group to which the goodwill relates to the recoverable value of that CGU group, being the higher of that CGU group's value-in-use or fair value less costs to sell. If applicable, an impairment charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls, the absence of positive Net Client Cash Flows ("NCCF"), significant falls in profits and an increase in the discount rate.

During the year ended 31 December 2021, management considers there to be no indicators of impairment for continuing operations across the Affluent and High Net Worth CGU groups. The impairment assessment was performed, using the latest cash flow forecasts from the Group's three-year business plan, approved by the Board. The Group's business plan takes into account the increase in equity markets experienced in 2021, which has resulted in an increase in the Group's AuMA and revenue.

The following table details the separate percentage change required in each key assumption before the carrying value would exceed the recoverable amount, assuming all other variables remain the same. The table continues to demonstrate that further adverse movements to the key assumptions used in the CGU value-in-use calculation would be required before impairment is indicated.

		Affluent	High Net Worth
Reduction in forecast cash flows		72%	73%
Increase in discount rate required		53%	34%

Forecast cash flows are impacted by movements in underlying assumptions, including equity market levels, revenue margins and NCCF. The Group considers that forecast cash flows are most sensitive to movements in equity markets because they have a direct impact on the level of the Group's fee income. 

The principal sensitivity within equity market level assumptions relates to the estimated growth in equity market indices included in the three-year revenue forecasts. Management forecasts equity market growth for each business using estimated asset specific growth rates that are supported by internal research, historical performance, Bank of England forecasts and other external estimates.

Value-in-use methodology

The value-in-use calculations are determined as the sum of net tangible assets and the expected cash flows from existing and expected future new business derived from the business plans. Future cash flow elements allow for the cost of capital needed to support the business.

The cash flows that have been used to determine the value-in-use of the CGUs are based on the most recent management approved three-year profit forecasts, which incorporate anticipated equity market growth on the Group's future cash flows, and costs associated with incorporating climate-related risks within the Enterprise Risk Management Framework and climate-related financial disclosures. These cash flows change at different rates because of the different strategies of the CGUs.

In cases where the CGUs have made significant acquisitions in the recent past, the cash flows are forecast to grow faster than the more mature businesses. Post the three-year forecasts, the growth rate used to determine the terminal value of the CGUs in the annual assessment approximates to the UK long-term growth rate of 2% (2020: 0.6%). Market share and market growth information are also used to inform the expected volumes of future new business.

IAS 36 does not permit any cost savings linked to future restructuring activity to be included within the value-in-use calculation unless an associated restructuring provision has also been recognised. Consequently, for the purpose of the value-in-use calculation, a number of planned cost savings (and the related implementation costs), primarily in relation to the Business Simplification programme, have been removed from the future cash flows.

The Group uses a single cost of capital of 9.5% (2020: 9.0%) to discount future expected business plan cash flows across its two groups of CGUs because they are perceived to present a similar level of risk. Capital is provided to the Group predominantly by shareholders with a small amount of debt. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return required by bond and property lease holders). When assessing the systematic risk (i.e. beta value) within the calculation of the cost of equity, a triangulation approach is used that combines beta values obtained from historical data, a forward-looking view on the progression of beta values and the external views of investors.

10: Financial investments

The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf of third parties (policyholder funds).

		£m
	31 December   2021	31 December   2020
Government and government-guaranteed securities	649	632
Other debt securities, preference shares and debentures	1,662	1,952
Equity securities	7,251	14,163
Pooled investments	38,002	46,518
Short-term funds and securities treated as investments	1	9
Total financial investments	47,565	63,274
Recoverable within 12 months	47,565	63,274
Recoverable after 12 months	-	-
Total financial investments	47,565	63,274

The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets are held to cover the liabilities for linked investment contracts, all of which can be withdrawn by policyholders on demand.

11: Categories of financial instruments

The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities category.

For information about the methods and assumptions used in determining fair value, refer to note 12. The Group's exposure to various risks associated with financial instruments is discussed in note 18.

31 December 2021
							£m
Measurement basis	Fair value
	Mandatorily at FVTPL	Designated at FVTPL		Amortised cost		Non-financial assets and liabilities	Total
Assets
Investments in associated undertakings1	-	-		-		2	2
Loans and advances	-	-		29		-	29
Financial investments	47,564	-		-		1	47,565
Trade, other receivables and other assets	-	-		325		56	381
Derivative assets	14	-		-		-	14
Cash and cash equivalents	1,216	-		848		-	2,064
Total assets that include financial instruments	48,794	-		1,202		59	50,055
Total other non-financial assets	-	-		-		685	685
Total assets	48,794	-		1,202		744	50,740
Liabilities
Investment contract liabilities	-	41,071		-		-	41,071
Third-party interests in consolidation of funds	6,898	-		-		-	6,898
Borrowings and lease liabilities	-	-		299		-	299
Trade, other payables and other liabilities	-	-		370		114	484
Derivative liabilities	15	-		-		-	15
Total liabilities that include financial instruments	6,913	41,071		669		114	48,767
Total other non-financial liabilities	-	-		-		234	234
Total liabilities	6,913	41,071		669		348	49,001

¹Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

 

31 December 2020
							£m
Measurement basis	Fair value
	Mandatorily at FVTPL	Designated at FVTPL		Amortised cost		Non-financial assets and liabilities	Total
Assets
Investments in associated undertakings1	-	-		-		1	1
Loans and advances	186	-		33		-	219
Financial investments	63,248	1		25		-	63,274
Trade, other receivables and other assets	-	-		444		257	701
Derivative assets	43	-		-		-	43
Cash and cash equivalents	1,064	-		857		-	1,921
Total assets that include financial instruments	64,541	1		1,359		258	66,159
Total other non-financial assets	-	-		-		1,213	1,213
Total assets	64,541	1		1,359		1,471	67,372
Liabilities
Investment contract liabilities	-	57,407		-		-	57,407
Third-party interests in consolidation of funds	6,513	-		-		-	6,513
Borrowings and lease liabilities	-	-		319		-	319
Trade, other payables and other liabilities	-	-		590		82	672
Derivative liabilities	20	-		-		-	20
Total liabilities that include financial instruments	6,533	57,407		909		82	64,931
Total other non-financial liabilities	-	-		-		563	563
Total liabilities	6,533	57,407		909		645	65,494

¹Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

12: Fair value methodology

This section explains the judgements and estimates made in determining the fair values of financial instruments that are recognised and measured at fair value in the financial statements. Classifying financial instruments into the three levels of fair value hierarchy (see note 12(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value.

12(a): Determination of fair value

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market exit prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs:

·      for units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published quoted prices representing exit values in an active market;

·      for equity and debt securities not actively traded in organised markets and where the price cannot be retrieved, the fair value is determined by reference to similar instruments for which market observable prices exist;

·      for assets that have been suspended from trading on an active market, the last published price is used. Many suspended assets are still regularly priced. At the reporting date all suspended assets are assessed for impairment; and

·      where the assets are private company shares or within consolidated investment funds, the valuation is based on the latest available set of audited financial statements where available, or if more recent, financial statements for the fund or a statement of valuation provided by the management of the private company or fund.

There have been no significant changes in the valuation techniques applied when valuing financial instruments. Where assets are valued by the Group, the general principles applied to those instruments measured at fair value are outlined below:

Loans and advances

Loans and advances include loans to policyholders, loans to brokers, and other secured and unsecured loans. Loans and advances to policyholders of investment-linked contracts are measured at fair value. All other loans are stated at their amortised cost.

Financial investments

Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as investments and certain other securities.

Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that are regularly updated.

Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market prices, these investments and securities are fair valued utilising various approaches including discounted cash flows, the application of an earnings before interest, tax, depreciation and amortisation multiple or any other relevant technique.

Derivatives

The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. The fair value of over-the-counter forward foreign exchange contracts is determined by the underlying foreign currency exchange rates.

Investment contract liabilities

The fair value of the investment contract liabilities is determined with reference to the underlying funds that are held by the Group.

Third-party interest in consolidated funds

Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.

Borrowings and lease liabilities

Borrowings and lease liabilities are stated at amortised cost.

12(b): Fair value hierarchy

Fair values are determined according to the following hierarchy:

Description of hierarchy	Types of instruments classified in the respective levels
Level 1 - quoted market prices: financial assets and liabilities with quoted prices for identical instruments in active markets.	Listed equity securities, government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities, policyholder loans (where they form part of a policyholder's unit-linked policy) and investment contract liabilities directly linked to other Level 1 financial assets.
Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable.	Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data. Over-the-counter ("OTC") derivatives, certain privately placed debt instruments and third-party interests in consolidated funds which meet the definition of Level 2 financial instruments.
Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable.	Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments.

The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process.

The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs.

In this context, 'unobservable' means that there is little or no current market data available from which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the asset or liability being measured.

12(c): Transfer between fair value hierarchies

The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of the instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.

There were transfers of financial investments of £16 million from Level 1 to Level 2 during the year (31 December 2020: £9 million). There were transfers of financial investments of £85 million from Level 2 to Level 1 during the year (31 December 2020: £3 million). These movements are matched closely by transfers of investment contract liabilities. See note 12(e) for the reconciliation of Level 3 financial instruments.

12(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy

The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there have been no significant changes during the year.

The linked assets are held to cover the liabilities for linked investment contracts (net of reinsurance). The difference between linked assets and linked liabilities is principally due to short-term timing differences between policyholder premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within the Group's tax liabilities.

Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2.

The following table presents a summary of the Group's financial assets and liabilities that are measured at fair value in the consolidated statement of financial position according to their IFRS 9 classification (see note 11 for full details).

	31 December 2021		31 December 2020
	£m	%	£m	%
Financial assets measured at fair value
Level 1	41,996	86.0%	56,927	88.2%
Level 2	6,771	13.9%	5,793	9.0%
Level 3	27	0.1%	1,822	2.8%
Total	48,794	100.0%	64,542	100.0%
Financial liabilities measured at fair value
Level 1	41,047	85.5%	55,135	86.3%
Level 2	6,913	14.4%	6,985	10.9%
Level 3	24	0.1%	1,820	2.8%
Total	47,984	100.0%	63,940	100.0%

The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 12(b):

				£m
31 December 2021	Level 1	Level 2	Level 3	Total
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)	41,996	6,771	27	48,794
Financial investments	40,780	6,757	27	47,564
Cash and cash equivalents	1,216	-	-	1,216
Derivative assets	-	14	-	14
Total assets measured at fair value	41,996	6,771	27	48,794
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)	-	6,913	-	6,913
Third-party interests in consolidated funds	-	6,898	-	6,898
Derivative liabilities	-	15	-	15
Designated (fair value through profit or loss)	41,047	-	24	41,071
Investment contract liabilities	41,047	-	24	41,071
Total liabilities measured at fair value	41,047	6,913	24	47,984
				£m
31 December 2020	Level 1	Level 2	Level 3	Total
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)	56,926	5,793	1,822	64,541
Loans and advances1	186	-	-	186
Financial investments	55,676	5,750	1,822	63,248
Cash and cash equivalents	1,064	-	-	1,064
Derivative assets	-	43	-	43
Designated (fair value through profit or loss)	1	-	-	1
Financial investments	1	-	-	1
Total assets measured at fair value	56,927	5,793	1,822	64,542
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)	-	6,533	-	6,533
Third-party interests in consolidated funds	-	6,513	-	6,513
Derivative liabilities	-	20	-	20
Designated (fair value through profit or loss)	55,135	452	1,820	57,407
Investment contract liabilities	55,135	452	1,820	57,407
Total liabilities measured at fair value	55,135	6,985	1,820	63,940

¹Loans and advances mandatorily at fair value through profit or loss, included within fair value Level 1, solely relate to policyholder loans in Quilter International.

12(e): Level 3 fair value hierarchy disclosure

The majority of the assets classified as Level 3 are held within linked policyholder funds. Where this is the case, all of the investment risk associated with these assets is borne by policyholders and the value of these assets is exactly matched by a corresponding liability due to policyholders. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned.

During the year ended 31 December 2021, Level 3 assets also include investments within consolidated funds to the value of £1 million (31 December 2020: £2 million) relating to private equity investments. The Group bears no risk from a change in the market value of these assets and any changes in market value are matched by a corresponding Level 2 liability within Third-party interests in consolidated funds.

The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end:

		£m
	31 December   2021	31 December 20201
At beginning of the year	1,822	1,717
Fair value losses charged to income statement	(3)	(121)
Purchases	-	16
Sales	-	(8)
Transfers in	8	930
Transfers out	(393)	(714)
Disposal of subsidiaries2	(1,406)	-
Foreign exchange and other movements	(1)	2
Total Level 3 financial assets	27	1,822
Unrealised fair value losses charged to income statement relating to assets held at the year end	(4)	(110)

¹During the year ended 31 December 2020, Level 3 assets also included a shareholder investment in suspended funds of £2 million; this was not matched by a corresponding liability and therefore the changes in market value were recognised in the Group's consolidated income statement.
²During the year ended 31 December 2021, Level 3 assets decreased by £1,406 million following the sale of Quilter International to Utmost Group.

Transfers into Level 3 assets in the current year total £8 million (31 December 2020: £930 million). This is mainly due to suspended funds previously shown within Level 1. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current year of £393 million (31 December 2020: £714 million) result from a transfer to Level 1 assets relating to assets that are now being actively repriced (that were previously stale) and where fund suspensions have been lifted.

The table below analyses the type of Level 3 financial assets held:

			£m
		31 December   2021	31 December 2020
Pooled investments		26	522
Unlisted and stale price pooled investments		1	87
Suspended funds		25	435
Private equity investments		1	1,300
Total Level 3 financial assets		27	1,822

All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked policyholder funds.

The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end:

		£m
	31 December   2021	31 December 2020
At beginning of the year	1,820	1,717
Fair value losses charged to the income statement	(3)	(120)
Purchases	-	16
Sales	-	(8)
Transfers in	5	927
Transfers out	(391)	(714)
Disposal of subsidiaries	(1,406)	-
Foreign exchange and other movements	(1)	2
Total Level 3 financial liabilities	24	1,820
Unrealised fair value losses charged to the income statement relating to liabilities held at the year end	(4)	(110)

12(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives

Details of the valuation techniques applied to the different categories of financial instruments can be found in note 12(a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets.

The majority of the Group's Level 3 assets at 31 December 2020 were held within private equity investments, where the valuation of these assets was performed on an asset-by-asset basis using a valuation methodology appropriate to the specific investment and in line with industry guidelines. Private equity investments are valued at the value disclosed in the latest available set of audited financial statements or, if more recent information is available, from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment. For this reason, no reasonable alternative assumptions are applicable and the Group therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (31 December 2020: 10%), representing a reasonable possible alternative judgement in the context of the current macro-economic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of £2 million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2020: £182 million). As described in note 12(e), changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value of liabilities due to policyholders and therefore have no impact on the Group's net asset value or profit or loss, except to the extent that it has an impact on management fees earned.

12(g): Fair value hierarchy for assets and liabilities not measured at fair value

Certain financial instruments of the Group are not carried at fair value. The carrying values of these are considered reasonable approximations of their respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. Their classification within the fair value hierarchy would be as follows:

Trade, other receivables, and other assets         Level 3

Trade, other payables, and other liabilities          Level 3

Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.

Fixed-term deposits, which are included within Financial investments, are held at amortised cost and therefore not carried at fair value. The fixed-term deposits that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.

Loans and advances are financial assets held at amortised cost and therefore not carried at fair value, with the exception of policyholder loans which are categorised as FVTPL. The loans and advances that are held at amortised cost would be classified as Level 3 in the fair value hierarchy.

Borrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. Borrowed funds relate to subordinated liabilities and would be classified as Level 2 in the fair value hierarchy.

Lease liabilities valued under IFRS 16 are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the fair value hierarchy.

13: Cash and cash equivalents

13(a): Analysis of cash and cash equivalents

			£m
		31 December 2021	31 December 2020
Cash at bank		559	550
Money market funds		1,216	1,064
Cash and cash equivalents in consolidated funds		289	307
Total cash and cash equivalents per statement of financial position		2,064	1,921

The Group's management does not consider that the cash and cash equivalents balance arising due to consolidation of funds £289 million (2020: £307 million) is available for use in the Group's day-to-day operations. The remainder of the Group's cash and cash equivalents balance of £1,775 million (2020: £1,614 million) is considered to be available for use by the Group.

13(b): Analysis of net cash flows from operating activities:

			£m
	Notes	31 December 2021	31 December 2020
Cash flows from operating activities
Profit before tax from continuing operations		85	9
Profit before tax from discontinued operations	4(c)	131	76
		216	85
Adjustments for
Depreciation and impairment of property, plant and equipment		16	23
Movement on contract costs		18	44
Movement on contract liabilities and fee income receivable		10	(7)
Amortisation and impairment of intangibles	9	47	47
Fair value and other movements in financial assets		(5,102)	(3,319)
Fair value movements in investment contract liabilities	15	4,467	2,632
Other change in investment contract liabilities		3,454	2,187
(Profit)/loss on sale of subsidiaries	4(a)	(91)	1
Other movements		32	40
		2,851	1,648
Net changes in working capital
Decrease/(increase) in derivatives		24	(11)
Decrease/(increase) in loans and advances		15	(5)
Increase in provisions	16	17	1
Movement in other assets/liabilities1		(20)	(245)
		36	(260)
Taxation paid		(10)	(28)
Net cash flows from operating activities		3,093	1,445

¹Working capital changes in respect of other assets and liabilities primarily relate to consolidated funds.

14: Share capital, capital redemption reserve and merger reserve

Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. At 31 December 2021, the Parent Company's equity capital comprises 1,655,827,217 Ordinary Shares of 7 pence each with an aggregated nominal value of £115,907,905 (31 December 2020: 1,783,969,051 Ordinary Shares of 7 pence each with an aggregated nominal value of £124,877,834).

This note gives details of the Company's Ordinary Share capital, shows the movements during the year and gives details of the release of £124 million of the merger reserve:

			£m	£m
		Number of shares	Nominal value	Share premium
At 1 January 2020		1,902,251,098	133	58
Shares cancelled through share buyback programme		(118,282,047)	(8)
At 31 December 2020		1,783,969,051	125	58
Shares cancelled through share buyback programme		(128,141,834)	(9)
At 31 December 2021		1,655,827,217	116	58

14(a): Share capital

On 11 March 2020, the Company announced a share buyback programme to purchase shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company.

During the year ended 31 December 2021, the Company acquired the committed remainder from 2020 and, as part of tranches 3 and 4 of the share buyback, a further 128.1 million shares (31 December 2020: 118.3 million) for a total consideration of £197 million (31 December 2020: £153 million) and incurred additional costs of £3 million (31 December 2020: £4 million). The shares, which had a nominal value of £9 million (31 December 2020: £8 million), have subsequently been cancelled, increasing the capital redemption reserve of the same value as required by the Companies Act 2006. At 31 December 2021, the committed remaining share buyback for which a legally binding instruction had been provided by the Board, of £26 million (31 December 2020: £22 million) was accrued as a liability against retained earnings.

There is one class of Ordinary Share of 7 pence each. All share issued carry equal voting rights. The holders of the Company's Ordinary Shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company.

14(b): Merger reserve

During the year ended 31 December 2021, there was a dividend paid by Quilter Perimeter Holdings Limited up to its Parent Quilter plc. The resulting decrease in Quilter Perimeter Holdings Limited's net asset value gave rise to a £124 million impairment of Quilter plc's investment in Quilter Perimeter Holdings Limited and an associated release of the merger reserve reducing it to £25 million.

15: Investment contract liabilities

The following table provides a summary of the Group's investment contract liabilities:

		£m
	2021	2020
Carrying amount at 1 January	57,407	52,455
From continuing operations
Fair value movements	2,821	1,760
Investment income	472	512
Movements arising from investment return	3,293	2,272
From discontinued operations
Fair value movements	1,646	872
Investment income	172	184
Movements arising from investment return	1,818	1,056
Contributions received	6,837	4,871
Maturities	(406)	(97)
Withdrawals and surrenders	(3,460)	(3,226)
Claims and benefits	(162)	(59)
Other movements	1	2
Change in liability	7,921	4,819
Currency translation (gain)/loss	(199)	133
Disposal of subsidiaries	(24,058)	-
Investment contract liabilities at 31 December	41,071	57,407

For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.

The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This investment mix is unique to individual policyholders.

The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date. There will be no difference between the carrying amount and the maturity amount at maturity date.

For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on a retrospective basis no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in assessing whether the total of the contract costs asset and contract liability is greater than the present value of future profits expected to arise on the relevant blocks of business (the "recoverability test"). If this is the case, then the contract costs asset is restricted to the recoverable amount. For linked contracts, the assumptions are on a best estimate basis.

16: Provisions

					£m
31 December 2021	Compensation provisions	Sale of subsidiaries	Property provisions	Clawback and other provisions	Total
Balance at beginning of the year	42	10	-	25	77
Charge to income statement1	23	17	7	2	49
Utilised during the period	(12)	(4)	-	(4)	(20)
Unused amounts reversed	(10)	(1)	-	(5)	(16)
Reclassification within statement of financial position2	-	-	2	3	5
Disposals	(2)	-	-	-	(2)
Balance at 31 December 2021	41	22	9	21	93
					£m
31 December 2020	Compensation provisions	Sale of subsidiaries3	Property provisions	Clawback and other provisions	Total
Balance at beginning of the year	31	16	-	17	64
Additions from business combinations	12	-	-	-	12
Charge to income statement1	10	-	-	1	11
Utilised during the year	(5)	(4)	-	(4)	(13)
Unused amounts reversed	(6)	(2)	-	(3)	(11)
Reclassification within statement of financial position	-	-	-	14	14
Balance at 31 December 2020	42	10	-	25	77

¹Part of the charge to income statement is included within the discontinued operations income statement.

²Property provisions related to dilapidations and other provisions related to historical licence agreements have been reclassified during the year from lease liabilities and accruals respectively reflecting the uncertainty of the amounts to be settled. During 2020, the Clawback provision was reclassified, with the liability due to product providers on indemnity commission disclosed within provisions and the recoverable amount from brokers disclosed within receivables.

³Sale of subsidiaries in the year ended 31 December 2020 was previously split between provisions related to the sale of QLA (balance of £3 million) and the sale of the Single Strategy business (balance of £7 million).

Compensation provisions

Compensation provisions total £41 million (31 December 2020: £42 million), and are comprised of the following:

Lighthouse pension transfer advice provision of £29 million (31 December 2020: £28 million)

Lighthouse pension transfer advice provided to British Steel members of £21 million (31 December 2020: £28 million)

A provision for DB to DC pension transfer advice provided by Lighthouse advisers in respect of pension transfers for British Steel Pension Scheme members, prior to Lighthouse transitioning to our systems and controls following our acquisition of Lighthouse, was established within the fair value of the Lighthouse assets and liabilities acquired.

During 2020, the FCA reported the results of its thematic review into the general market of DB to DC pension transfers, which included British Steel Pension Scheme pension transfers. The FCA review determined that the percentage of unsuitable files for British Steel Pension Scheme transfers generally for the industry was higher than those for other DB to DC pension transfers in their thematic sample. The FCA review included a sample of British Steel Pension Scheme pension transfer advice provided by Lighthouse advisers.

In April 2020, the Group was informed by the FCA that it would be required to appoint a skilled person to review the DB to DC pension transfers that Lighthouse advisers advised on in the period up to Lighthouse transitioning to Quilter's systems and controls following Quilter's acquisition of Lighthouse. A skilled person was appointed, and during 2020 they performed initial provisional calculations for a significant portion of the British Steel Pension Scheme complaints received by Lighthouse where the advice given to customers was assessed as being unsuitable to obtain an indication of how much redress (if any) may be payable to these customers to the extent that they sustained losses as a result of that unsuitable advice. The methodology employed to perform these initial provisional redress calculations uses assumptions and estimation techniques which are consistent with principles under the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers". The provisional redress amounts calculated on the complaints were extrapolated to the entire population of 266 British Steel Pension Scheme transfers on which Lighthouse advisers provided advice and the relevant customers proceeded to make a transfer, in order to determine an approximation of the estimated redress that may be payable to customers who are found to have received unsuitable advice which caused them to sustain losses. The provision was determined by (a) subdividing the population into cohorts with similar characteristics, including the results in 2020 of the skilled person's assessment of the number of cases where unsuitable advice was given, and also (b) dividing the population into transfers pre and post June 2017 when the Trustees of the British Steel Pension Scheme changed the basis on which transfer values were calculated. The timing of any benefits withdrawn by the member after the transfer also has an impact upon the provisional redress amounts calculated. The estimated redress per client as a proportion of the transfer value of the pensions was determined for each cohort and extrapolated to the population of cases assessed as unsuitable where advice was provided and acted upon through Lighthouse.

During 2021, a loss assessment and redress calculation methodology has been designed by the skilled person following discussions and in collaboration with the FCA, to ensure consistency and compliance with the FCA's Final Guidance 17/9, which is being used to calculate redress offers for those cases where the skilled person determines that a customer received unsuitable defined benefit pension transfer advice which caused them to sustain losses. At 31 December 2021, offers relating to the majority of the provision balance have been made to customers and, subject to FCA confirmation, we expect the skilled person review to be completed during 2022. The majority of suitability reviews were completed by the skilled person during the year. The provision has been updated at 31 December 2021 reflecting the outcome of the suitability review on a case-by-case basis, redress calculations performed by the skilled person using the redress calculation methodology and the offers made to customers who received unsuitable advice which caused them to sustain a loss.

A total provision of £21 million (31 December 2020: £28 million) has been calculated for the potential redress of British Steel Pension Scheme cases, including anticipated costs associated with the redress activity. This is comprised of two parts:

(a)   Client redress provision of £19 million, comprised of £23 million (31 December 2020: £25 million) redress payable, less payments made to customers of £4 million during 2021,

(b)   Anticipated costs associated with redress activity of £2 million (31 December 2020: £3 million), comprised of £4 million costs payable, less payments made of £2 million during the year. This provision is recognised in respect of the anticipated costs of legal and professional fees related to the cases and redress process, which includes the expected costs to review advice provided of a similar nature in relation to cases that the Group believes may have similar characteristics. The costs do not include any potential regulatory fines or penalties as a result of the unsuitable advice.

The £3 million insurance recoverable that was included in the fair value of the acquired net assets of Lighthouse has not changed. Discussion with insurers is ongoing, insurers have not confirmed coverage and the Group will review the recoverable amount as and when they receive further certainty, which is not expected until after the completion of the skilled person review. The insurance asset at 31 December 2021 is disclosed within "Trade, other receivables and other assets".

The final costs of redress for cases upheld will depend on specific calculations on a case-by-case basis, which will be calculated per the detailed redress methodology designed by the skilled person following discussions and in collaboration with the FCA and also impacted by market movements and other parameters affecting the defined contribution scheme asset, and is therefore exposed to volatility from this, and may vary from the amounts currently provided.

The key assumptions which have an impact upon the redress payable calculation are the discount rate and changes in market levels. For the purpose of the redress calculation, changes in the discount rate impact the valuation of the defined benefit ("DB") scheme at the reporting date, and market level changes impact the valuation of the personal pension scheme for each client.

At the date of signing the financial statements, a redress calculation has been performed for the majority of customers who have had an assessment of unsuitable pension transfer advice, leading to greater certainty over the range of the provision balance and therefore provision sensitivity for changes in assumptions has not been disclosed. The range of outcomes for the remaining provision, including anticipated costs, varies from £19 million (decrease of £2 million) to £22 million (increase of £1 million), with full settlement of payments expected to be completed during 2022.

Lighthouse pension transfer advice provided to members of other schemes of £8 million (31 December 2020: £nil)

During 2021, the skilled person review has identified unsuitable DB to DC pension advice provided by Lighthouse advisers for pension schemes other than the British Steel Pension Scheme. The majority of the suitability assessments for cases currently identified as being in scope have been completed. Using provisional calculations of redress for similar cases where customers had sustained losses a factor was determined representing average redress as a proportion of average pension transfer value. The factor was used to estimate a provision of £8 million for the unsuitable cases, which has been recognised at 31 December 2021. If the factor was to increase or decrease by 10%, the impact upon the provision would be £2 million. Payments are expected to be completed during 2022.

Compensation provisions (other) of £12 million (31 December 2020: £14 million)

Other compensation provisions of £12 million are held within the Group's continuing operations and include amounts relating to the cost of correcting deficiencies in policy administration systems, including restatements, any associated litigation costs and the related costs to compensate previous or existing policyholders and customers. This provision represents management's best estimate of expected outcomes based upon previous experience, and a review of the details of each case. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. The best estimate of timing of outflows is that the majority of the balance is expected to be settled within 12 months.

A provision of £6 million, included within the balance, has been recognised during 2021 relating to potentially unsuitable pension advice provided by advisers including advice provided prior to Quilter's acquisition of the relevant advice businesses. Of this balance, £2 million has been recognised for potentially unsuitable pension advice provided to British Steel Pension Scheme members by Quilter Financial Planning firms other than Lighthouse, following the receipt of a "Dear CEO" letter from the FCA in December 2021 outlining their consideration of an industry-wide consumer redress scheme for British Steel Pension Scheme pension transfers between 1 March 2017 and 31 March 2018. These British Steel Pension Scheme cases have yet to be reviewed for suitability and an estimate of the provision has been made based upon experience of the Lighthouse skilled person review. 

An indemnification asset of £2 million relating to a certain portion of the potentially unsuitable advice has been recognised within "Trade, other receivables and other assets" representing the amount receivable from the sellers under the terms of the sale agreement.

During the year, compensation provisions of £2 million within Quilter International were disposed of as a result of the sale of the business.

The Group estimates a reasonably possible change of +/- £3 million from the £12 million balance, based upon a review of the cases and the range of potential outcomes for the customer redress payments.

Sale of subsidiaries

Sale of subsidiaries provisions total £22 million (31 December 2020: £10 million), and are comprised of the following:

Provisions arising on the disposal of Quilter International of £16 million (31 December 2020: £nil)

Quilter International was sold on 30 November 2021, resulting in provisions totalling £17 million being established in respect of costs related to the disposal including the costs of business separation and data migration activities.

The costs of business separation arise from the process required to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, and contracts facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource costs to achieve the separation, which is expected to occur over a two-year period.

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work has taken place during 2021 in preparation for migration. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of its past experience of previous IT migrations following business disposals, including the recent migration of QLA. The Group estimates a provision sensitivity of +/-25% (£4 million), based upon a review of the range of time periods expected to complete the work required. The provision is expected to be fully utilised over three years from the sale, with £7 million forecast to be paid within one year.

During the year £1 million of the provision has been utilised.

Provisions arising on the disposal of Quilter Life Assurance of £1 million (31 December 2020: £3 million)

Quilter Life Assurance was sold on 31 December 2019, resulting in a number of provisions totalling £6 million being established in respect of the costs of disposing the business and the related costs of business separation.

The costs of business separation arise from the process to separate QLA's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, contracts and facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource costs to achieve the separation.

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work has taken place during 2020 and concluded during 2021. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of past experience of previous IT migrations following business disposals.

During the year £2 million of the provision has been utilised. The remaining provision is expected to be utilised during 2022, as the final costs to close the project are paid.

Sale of Single Strategy Asset Management business provision of £4 million (31 December 2020: £7 million)

In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business (now known as Jupiter Investment Management ('Jupiter')) to enable the remaining Quilter Investors business to function as a standalone operation going forward. The remaining provision relates to various sale-related future commitments, the outcome of which was uncertain at the time of the sale and the most significant of which is in relation to the guarantee of revenues for the seller in future years arising from funds invested by customers of Quilter. The balance has decreased to £4 million during 2021 as a result of the settlement of £2 million related to the 2020 measurement year and £1 million reversed for the latest estimate for the 2022 measurement year.

The provision considers sensitivities including potential scenarios which would result in a reduction in Group assets under management held in the relevant Jupiter funds, leading to a reduction in the management fees paid to Jupiter. The scenarios are based upon assumptions determined considering historical outflows over the past three years, expectation of outflows to December 2022 and the latest information received from Jupiter. Per the conditions of the sale agreement, the maximum remaining potential exposure is £14 million for the 2022 calendar year. The expected range of payments based upon the latest information received from Jupiter and the Group's reasonable expectations of AUM invested within Jupiter funds during the 2022 assessment period is between £2 million and £8 million.

The £4 million provision outstanding is estimated to be payable after one year, with expected final settlement due in the first half of 2023.

Property provisions

Property provisions represent the discounted value of expected future costs of reinstating leased property to its original condition at the end of the lease term. During 2021, management reviewed the Group's property provisions and the assumptions on which these provisions are based. The review included consideration of external advice on potential future costs, in order to determine a reasonable estimate of the amount to be recognised. The estimate is based upon property location, size of property and an estimate of the charge per square foot. Property provisions are utilised or released when the reinstatement obligations have been fulfilled. The associated asset for property provisions is included within "Property, plant and equipment".

Of the £9 million provision outstanding, £1 million is estimated to be payable within one year. The majority of the balance relates to leased property which has a lease term maturity of more than five years.

Clawback and other provisions

Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties and indemnity commission provisions. Where material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded.

Included within the balance in 2021 is £16 million (31 December 2020: £18 million) of clawback provisions in respect of potential refunds due to product providers on indemnity commission within the Quilter Financial Planning business. This provision, which is estimated and charged as a reduction of revenue on the income statement at the point of sale of each policy, is based upon assumptions determined from historical experience of the proportion of policyholders cancelling their policies, which requires Quilter to refund a portion of commission previously received. Reductions to the provision result from the payment of cash to product providers as refunds or the recognition of revenue where a portion is assessed as no longer payable. The provision has been assessed at the reporting date and adjusted for the latest cancellation information available. At 31 December 2021, an associated balance of £9 million recoverable from brokers is included within "Trade, other receivables and other assets" (31 December 2020: £13 million).

The Group estimates a reasonably possible change of +/- £5 million, based upon the potential range of outcomes for the proportion of cancelled policies within the clawback provision, and a detailed review of the other provisions.

Of the total £21 million provision outstanding, £13 million is estimated to be payable within one year (2020: £13 million).

17: Contingent liabilities

The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. The Group recognises a provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made (see note 16). Possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Contingent liabilities - acquisitions and disposals

The Group routinely monitors and assesses contingent liabilities arising from matters such as business reviews, litigation, warranties and indemnities relating to past acquisitions and disposals.

In April 2020, the Group was informed by the FCA that it would be required to appoint a skilled person, under section 166(3)(a) of the Financial Services and Markets Act 2000 ("FSMA"), in relation to DB to DC pension transfer advice provided by Lighthouse advisers. The review covers Lighthouse Advisory Services Limited only, and no other companies within the Group. The review covers the period from 1 April 2015 to 27 January 2020, which is the date that Lighthouse converted to the Quilter Financial Planning advice process for their Defined Benefit transfer activity following the acquisition of Lighthouse by Quilter.

The review covers British Steel Pension Scheme DB to DC pension transfer advice activity undertaken by Lighthouse advisers, and a representative sample of other Lighthouse DB to DC pension transfer advice activity in the relevant period. The skilled person also calculates redress, using a redress methodology that the skilled person has designed following discussions and in collaboration with the FCA, and to ensure consistency with the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers" guidance for those cases where the skilled person determines that a customer received unsuitable DB to DC pension transfer advice which led to the customer sustaining losses. Until the skilled person review has finalised, uncertainty exists as to the value of total redress which will be payable and a reliable estimate of all amounts cannot be determined. Subject to FCA confirmation, we expect the skilled person review to be completed during 2022.

For the British Steel Pension Scheme cases, and a portion of the other cases reviewed by the skilled person, the Group currently considers that the likelihood of redress is probable on a proportion of the cases, but this is subject to confirmation through the ongoing skilled person review process. An estimate of the amount of redress payable has been made and is included within Provisions in note 16.

It is possible that further material costs of redress may be incurred in relation to the skilled person review, as well as customer redress for other potential unsuitable pension transfer advice cases.

Any further redress costs, and any differences between the provision and final payment to be made for any unsuitable DB to DC pension transfer cases, will be recognised as an expense or credit in the income statement.

Tax

The tax authorities in the principal jurisdictions in which the Group operates routinely review historical transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in which it operates. All interpretations made by the Group are made with reference to the specific facts and circumstances of the transaction and the relevant legislation.

There are occasions where the Group's interpretation of tax law may be challenged by the tax authorities. The financial statements include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such potential settlements are sufficient.

Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised.

Complaints, disputes and regulations

The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. The Group does from time to time receive complaints and claims from customers, enters into commercial disputes with service providers, and is subject to regulatory discussions and reviews in the normal course of business. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established under IAS 37.

18: Capital and financial risk management

18(a): Capital management

The Group manages its capital with a focus on capital efficiency and effective risk management. The capital management objectives are to maintain the Group's ability to continue as a going concern while supporting the optimisation of return relative to the risks. The Group ensures that it can meet its expected capital and financing needs at all times having regard to the Group's business plans, forecasts, strategic initiatives and regulatory requirements in all businesses in the Group.

The Group's overall capital risk appetite is set with reference to the requirements of the relevant stakeholders and seeks to:

·      maintain sufficient, but not excessive, financial strength to support stakeholder requirements;

·      optimise debt to equity structure to enhance shareholder returns; and

·      retain financial flexibility by maintaining liquidity including unutilised committed credit lines.

The primary sources of capital used by the Group are equity shareholders' funds of £1,739 million (31 December 2020: £1,878 million) and subordinated debt which was issued at £200 million in February 2018. Alternative resources are utilised where appropriate. Risk appetite has been defined for the level of capital, liquidity and debt within the Group. The risk appetite includes long-term targets, early warning thresholds and risk appetite limits. The dividend policy sets out the target dividend level in relation to profits.

The regulatory capital for the Group is assessed under Solvency II requirements.

18(a)(i): Regulatory capital (unaudited)

The Group is subject to Solvency II group supervision by the PRA. The Group is required to measure and monitor its capital resources under the Solvency II regulatory regime.

The Group's insurance undertakings are included in the Group solvency calculation on a Solvency II basis. Other regulated entities are included in the Group solvency calculation according to the relevant sectoral rules. The Group's Solvency II surplus is the amount by which the Group's capital on a Solvency II basis (own funds) exceeds the Solvency II capital requirement (solvency capital requirement or "SCR"). 

The Group's Solvency II surplus is £1,030 million at 31 December 2021 (31 December 2020: £1,021 million), representing a Solvency II ratio of 275% (31 December 2020: 217%) calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2021 allows for the impact of the recommended final dividend payment of £62 million (31 December 2020: £61 million). This disclosure includes the capital movements associated with the sale of Quilter International and the £200 million share buyback (Tranches 3 and 4).

The Solvency II results for the year ended 31 December 2021 (unaudited estimate) and 31 December 2020 were as follows:

		£m
	31 December 20211	31 December 20202
Own funds	1,617	1,897
Solvency capital requirement (SCR)	587	876
Solvency II surplus	1,030	1,021
Solvency II coverage ratio	275%	217%

¹Filing of annual regulatory reporting forms due by 20 May 2022.

²As represented within the Group Solvency and Financial Condition Report for the year ended 31 December 2020.

The Group's own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.

		£m
Group own funds	31 December 2021	31 December 2020
Tier 11	1,412	1,688
Tier 22	205	209
Total Group Solvency II own funds	1,617	1,897

¹All Tier 1 capital is unrestricted for tiering purposes.

²Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018.

The Group's insurance subsidiary based in the UK is also subject to Solvency II at entity level. Other regulated entities in the Group are subject to the locally applicable entity-level capital requirements in the jurisdictions in which they operate. In addition, the Group's asset management and advice businesses are subject to group supervision by the FCA under the UK Investment Firms Prudential Regime.

The solvency and capital requirements for the Group and its regulated subsidiaries are reported and monitored through regular Capital Management Forum meetings. Throughout 2021, the Group has complied with the regulatory capital requirements that apply at a consolidated level and Quilter's insurance undertakings and investment firms have complied with the regulatory capital requirements that apply at entity level.

18(a)(ii): Loan covenants

Under the terms of the revolving credit facility agreement, the Group is required to comply with the following financial covenant: the ratio of total net borrowings to consolidated equity shareholders' funds shall not exceed 0.5.      

			£m
		31 December 2021	31 December 2020
Total external borrowings of the Company		199	199
Less: cash and cash equivalents of the Company		(503)	(314)
Total net external borrowings of the Company		(304)	(115)
Total shareholders' equity of the Group		1,739	1,878
Tier 2 bond		199	199
Total Group equity (including Tier 2 bond)		1,938	2,077
Ratio of Company net external borrowings to Group equity		-0.157	-0.055

The Group has complied with the covenant since the facility was created in February 2018.

18(a)(iii): Own Risk and Solvency Assessment ("ORSA") and Internal Capital Adequacy Assessment Process ("ICAAP")

The Group ORSA process is an ongoing cycle of risk and capital management processes which provides an overall assessment of the current and future risk profile of the Group and demonstrates the relationship between business strategy, risk appetite, risk profile and solvency needs. These assessments support strategic planning and risk-based decision making.

The underlying ORSA processes cover the Group and consider how risks and solvency needs may evolve over the planning period. The ORSA includes stress and scenario tests, which are performed to assess the financial and operational resilience of the Group.

The Group ORSA report is produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the Group. The ORSA report is submitted to the PRA as part of the normal supervisory process and may be supplemented by ad hoc assessments where there is a material change in the risk profile of the Group outside the usual reporting cycle.

In addition to the Group ORSA process, an entity level ORSA process is performed for Quilter Life & Pensions Limited.

The Group ICAAP process is similar to the ORSA process although the ICAAP process is performed for a subset of the Group consisting of the investment and advisory firms within the Group (the "ICAAP Group"). The Group ICAAP report is also produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the ICAAP Group. The ICAAP report is submitted to the FCA as part of the normal supervisory process and may be supplemented by ad hoc assessments where there is a material change in the risk profile of the ICAAP Group outside the usual reporting cycle. Due to the implementation of the Investment Firms Prudential Regime on 1 January 2022, the ICAAP process will be replaced by the Internal Capital Adequacy and Risk Assessment (ICARA) process in 2022.

The conclusions of ORSA and ICAAP (and the new ICARA) processes are reviewed by management and the Board throughout the year.

18(b): Credit risk

Overall exposure to credit risk

Credit risk is the risk of adverse movements in credit spreads (relative to the reference yield curve), credit ratings or default rates leading to a deterioration in the level or volatility of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. This includes counterparty default risk, counterparty concentration risk and spread risk.

The Group has established a Credit Risk Framework that includes a Credit Risk Policy, Credit Risk Standard and Credit Risk Appetite Statement. This framework applies to all activities where the shareholder is exposed to credit risk, either directly or indirectly, ensuring appropriate identification, measurement, management, monitoring and reporting of the Group's credit risk exposures.

The credit risk arising from all exposures is mitigated through ensuring the Group only enters into relationships with appropriately robust counterparties, adhering to the Group Credit Risk Policy. For each asset, consideration is given as to:

·      the credit rating of the counterparty, which is used to derive the probability of default;

·      the loss given default;

·      the potential recovery which may be made in the event of default;

·      the extent of any collateral that the firm has in respect of the exposures; and

·      any second order risks that may arise where the firm has collateral against the credit risk exposure.

The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, to ensure there is appropriate diversification of counterparties and to ensure that exposures are within approved limits. At 31 December 2021, the Group's material credit exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund managers) and individuals (primarily through fund management trade settlement activities).

There is no direct exposure to European sovereign debt (outside of the UK) within the shareholder investments. The Group has no significant concentrations of credit risk exposure.

Other credit risks

The Group is exposed to financial adviser counterparty risk through a number of loans that it makes to its advisers and the payment of upfront commission on the sale of certain types of business. The risk of default by financial advisers is managed through monthly monitoring of loan and commission debt balances.

The Group is also exposed to the risk of default by fund management groups in respect of settlements and rebates of fund management charges on collective investments held for the benefit of policyholders. This risk is managed through the due diligence process which is completed before entering into any relationship with a fund group. Amounts due to and from fund groups are monitored for prompt settlement and appropriate action is taken where settlement is not timely.

Legal contracts are maintained where the Group enters into credit transactions with a counterparty.

Impact of credit risk on fair value

Due to the limited exposure that the Group has to credit risk, credit risk does not have a material impact on the fair value movement of financial instruments for the year under review. The fair value movements on these instruments are mainly due to changes in market conditions.

Maximum exposure to credit risk

The Group's maximum exposure to credit risk does not differ from the carrying value disclosed in the relevant notes to the financial statements.

Loans and advances subject to 12-month expected credit losses ("12-month ECL") are £29 million (31 December 2020: £31 million) and other receivables subject to lifetime expected credit losses ("lifetime ECL") are £252 million (31 December 2020: £525 million). These balances are not rated; they represent the pool of counterparties that do not require a rating. These counterparties individually generate no material credit exposure and this pool is highly diversified, monitored and subject to limits.

Exposure arising from financial instruments not recognised on the statement of financial position is measured as the maximum amount that the Group would have to pay, which may be significantly greater than the amount that would be recognised as a liability. The Group does not have any significant exposure arising from items not recognised on the statement of financial position.

The table below represents the Group's exposure to credit risk from cash and cash equivalents.

														£m
		Credit rating relating to cash and cash equivalents that are neither past due nor impaired
31 December 2021		AAA		AA		A		BBB		<BBB		Not rated1		Carrying value
Cash at amortised cost, subject to 12-month ECL		-		105		451		-		3		289		848
Money market funds at FVTPL		1,216		-		-		-		-		-		1,216
Total cash and cash equivalents		1,216		105		451		-		3		289		2,064
													£m
	Credit rating relating to cash and cash equivalents that are neither past due nor impaired
31 December 2020	AAA		AA		A		BBB		<BBB		Not rated1		Carrying value
Cash at amortised cost, subject to 12-month ECL	-		81		464		1		4		307		857
Money market funds at FVTPL	1,062		-		-		-		2		-		1,064
Total cash and cash equivalents	1,062		81		464		1		6		307		1,921

¹Cash included in the consolidation of funds is not rated (see note 13(a)).

Impairment allowance

Assets that are measured and classified at amortised cost are monitored for any expected credit loss ("ECL") on either a 12-month or lifetime ECL model. The majority of such assets within the Group are measured on the lifetime ECL model, with the exception of some specific loans that are on the 12-month ECL model.

Impairment allowance	£m
Balance at 1 January 2020	(1.2)
Reduction due to reassessment of broker loans impairment modelling	0.4
31 December 2020	(0.8)
Change due to change in counterparty balance	(0.4)
31 December 2021	(1.2)

18(c): Market risk

Market risk is the risk of an adverse change in the level or volatility of market prices of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. Market risk arises from changes in equity, bond and property prices, interest rates and foreign exchange rates. Market risk arises differently across the Group's businesses depending on the types of financial assets and liabilities held. The Group recognises that climate change and other environmental risks can contribute to market risk.

The Group has a market risk policy which sets out the risk management framework, permitted and prohibited market risk exposures, maximum limits on market risk exposures, management information and stress testing requirements which are used to monitor and manage market risk. The policy is cascaded to the businesses across the Group, and Group-level governance and monitoring processes provide oversight of the management of market risk by the individual businesses.

The Group does not undertake any principal trading for its own account. The Group's revenue is however affected by the value of assets under management and consequently it has exposure to equity market levels and economic conditions. Scenario testing is undertaken to test the resilience of the business to severe but plausible events, including assessment of the potential implications of climate-related risks and opportunities, and to assist in the identification of management actions. 

18(c)(i): Equity and property price risk

In accordance with the market risk policy, the Group does not generally invest shareholder assets in equity or property, or related collective investments, except where the exposure arises due to:

·      mismatches between unitised fund assets and liabilities. These mismatches are permitted, subject to maximum limits, to avoid excessive dealing costs; and

·      seed capital investments. Seed capital is invested within new unit-linked funds at the time when these funds are launched. The seed capital is then withdrawn from the funds as policyholders invest in the funds.

The above exposures are not material to the Group.

The Group derives fees (e.g. annual management charges) and incurs costs (e.g. outsourced service provider and adviser fund-based renewal commissions) which are linked to the performance of the underlying assets. Therefore, future earnings will be affected by equity and property market performance.

Equity and property price sensitivity testing

A movement in equity and property prices would impact the fee income that is based on the market value of the investments held for the policyholders. The sensitivity is applied as an instantaneous shock to equity and property prices at the start of the year. The sensitivity analysis is not limited to the unit-linked business and therefore reflects the sensitivity of the Group as a whole.

		£m
Impact on profit after tax and shareholders' equity	31 December 2021	31 December 2020
Impact of 10% increase in equity and property prices	34	32
Impact of 10% decrease in equity and property prices	(34)	(32)

18(c)(ii): Interest rate risk

Interest rate risk arises primarily from bank balances held with financial institutions. A small amount of the Group's assets is held in fixed interest UK Government bonds, which are exposed to fluctuations in interest rates.

Fixed interest UK Government bonds are mainly held to match liabilities by duration and so the exposure to interest rate risk is not material.

A rise in interest rates would also cause an immediate fall in the value of investments in fixed income securities within unit-linked funds, resulting in a fall in fund-based revenues.

Conversely, a reduction in interest rates would cause a rise in the value of investments in fixed income securities within unit-linked funds. It would also reduce the interest rate earned on bank balances and could potentially result in the Group incurring interest charges on these balances, if interest rates become negative.

Exposure of the IFRS income statement and statement of financial position to interest rates are summarised below.

Interest rate sensitivity testing

The impact of an increase and decrease in market interest rates of 1% is tested (e.g. if the current interest rate is 5%, the test allows for the effects of an instantaneous change to 4% and 6% from the start of the year). The test allows consistently for similar changes in investment returns and movements in the market value of any fixed interest assets backing the liabilities. The sensitivity of profit to changes in interest rates is provided.

		£m
Impact on profit after tax and shareholders' equity	Year ended  31 December 2021	Year ended  31 December 2020
Impact of 1% increase in interest rates	11	16
Impact of 1% decrease in interest rates	-	(8)

18(c)(iii): Currency translation risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's functional currency is sterling, which accounts for the majority of the Group's transactions. The Group has minor exposure to Euros, through the Group's Irish subsidiary and to the South African Rand, due to the listing on the Johannesburg Stock Exchange and the payment of a proportion of shareholder dividends in Rand. During 2021, the Group had minor exposures to foreign exchange risk in respect to accounts receivable and future revenues denominated in US Dollars, Euros and Swedish Krona through its international operations and foreign currency transactions.

18(d): Liquidity risk

Liquidity risk is the risk that there are insufficient assets or that assets cannot be realised in order to settle financial obligations as they fall due or that market conditions preclude the ability of the Group to trade in illiquid assets in order to maintain its asset and liability matching ("ALM") profile. The Group manages liquidity on a daily basis through:

·      maintaining adequate high-quality liquid assets and banking facilities, the level of which is informed through appropriate liquidity stress testing;

·      continuously monitoring forecast and actual cash flows; and

·      monitoring a number of key risk indicators to help in the identification of a liquidity stress.

Individual businesses maintain and manage their local liquidity requirements according to their business needs within the overall Group Liquidity Risk Framework that includes a Group Liquidity Risk Policy, Group Liquidity Risk Standard and Group Liquidity Risk Appetite Statement. The Group framework is applied consistently across all businesses in the Group to identify, manage, measure, monitor and report on all liquidity risks that have a material impact on liquidity levels. This framework considers both short-term liquidity and cash management considerations and longer-term funding risk considerations

Liquidity is monitored centrally by Group Treasury, with management actions taken at a business level to ensure each business has liquidity to cover its minimum liquidity requirement, with an appropriate buffer set in line with the Group Risk Appetite Statement.

Throughout the ongoing COVID-19 pandemic Quilter plc and its subsidiaries have operated above their individual liquidity targets and there were no material liquidity stresses identified over this period to include in the liquidity monitoring process. Daily liquidity monitoring continues across the Group to enable timely identification of any emerging issues.

The Group maintains contingency funding arrangements to provide liquidity support to businesses in the event of liquidity stresses that are greater than their risk appetite. Contingency Funding Plans are in place for each individual business in order to set out the approach and management actions that would be taken should liquidity levels fall below minimum liquidity requirements. The plans undergo an annual review and testing cycle to ensure they are fit for purpose and can be relied upon during a liquidity stress.

Information on the nature of the investments and securities held is given in note 10.

The Group has a £125 million five-year Revolving Credit Facility with a five-bank club that represents a form of contingency liquidity for the Group. No drawdown on this facility has been made since inception or through the period of the COVID-19 pandemic. The Group has exercised the option to extend the facility for a further two-year period, to February 2025, and has continued to meet all the covenants attached to its financing arrangements.

The financing arrangements are considered sufficient to maintain the target liquidity levels of the Group and offer coverage for appropriate stress scenarios identified within the liquidity stress testing undertaken across the Group.

The Group does not have material liquidity exposure to special purpose entities or investment funds.

18(e): Insurance risk

18(e)(i): Overview

Group entities assume insurance risk by providing:

·      life investment bonds, which provide a small amount of life insurance cover in the event of the death of the life assured; and

·      professional indemnity insurance cover to Quilter Financial Planning Limited via a captive insurer domiciled in the Isle of Man.

Insurance risk arises through exposure to variable claims experience on life assurance and professional indemnity insurance, exposure to variable operating experience in respect of factors such as persistency levels and management expenses. Unfavourable persistency, expenses, mortality and professional indemnity claim rates, relative to the actuarial assumptions made in the pricing process, may result in profit margins reducing below the target levels included in the pricing process.

The Group has implemented an insurance risk policy which sets out the Group's requirements for the management, measurement, monitoring and reporting of insurance risks. The Group has implemented the Technical Provisions Standard to support the insurance risk policy.

The sensitivity of the Group's earnings and capital position to insurance risks is monitored through the Group's capital management processes.

The Group manages its insurance risks through the following mechanisms:

·      Management of expense levels relative to approved budgets.

·      Analysis and monitoring of experience relative to the assumptions used to determine technical provisions.

Persistency

Persistency risk is the risk that the level of surrenders or withdrawals on insurance policies occur at levels that are different to the levels assumed in the determination of technical provisions. Persistency statistics are monitored quarterly and a detailed persistency analysis at a product group level is carried out on an annual basis. Management actions may be triggered if persistency statistics indicate significant adverse movement or emerging trends in experience.

Expenses                       

Expense risk is the risk that actual expenses and expense inflation differ from the levels assumed in the determination of technical provisions. Expense levels are monitored on a quarterly basis against budgets and forecasts. Expense drivers are used to allocate expenses to entities and products. Some product structures include maintenance charges. These charges are reviewed annually in light of changes in maintenance expense levels and the market rate of inflation. This review may result in changes in charge levels.

18(e)(ii): Sensitivity analysis 

Sensitivity analysis has been performed by applying the following parameters to the statement of financial position and income statement as at 31 December 2021 and 31 December 2020. Interest rate and equity and property price sensitivities are included within the Group market sensitivities above.

Expenses

The increase in expenses is assumed to apply to the costs associated with the maintenance and acquisition of contracts. It is assumed that these expenses are increased by 10% from the start of the year, so is applied as an expense shock rather than a gradual increase. The only administrative expenses that are deferrable are sales bonuses but as new business volumes are unchanged in this sensitivity, sales bonuses and the associated deferrals have not been increased. Administrative expenses have been allocated equally between life and pensions.

An increase in expenses of 10% would have decreased profit by £6 million after tax (2020: £11 million).

Mortality

Mortality risk is not material as the Group does not provide material mortality insurance on its products and mortality benefits are reinsured.

18(f): Operational risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events. Operational risk includes all risks resulting from operational activities, excluding the risks already described above and excluding strategic risks and risks resulting from being part of a wider group of companies.

Operational risk includes the effects of failure of administration processes, IT and Information Security maintenance and development processes, investment processes (including settlements with fund managers, fund pricing and matching and dealing), product development and management processes, legal risks (e.g. risk of inadequate legal contracts with third parties), poorly managed responses to regulatory change, change and physical and transitional financial risks from climate change, risks relating to the relationship with third-party suppliers and outsourcers, and the consequences of financial crime and business interruption events.

In accordance with Group policies, management has primary responsibility for the identification, measurement, assessment, management and monitoring of risks, and the escalation and reporting on issues to executive management.

The Group's executive management has responsibility for implementing the Group Operational Risk Framework and for the development and implementation of action plans designed to manage risk levels within acceptable tolerances and to resolve issues identified.

18(g): Contractual maturity analysis

Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies, and these liabilities are therefore classified as having a maturity of less than three months. Although these liabilities are payable on demand, the Group does not expect that all liabilities will be settled within this period.

19: Related party transactions

In the normal course of business, the Group enters into transactions with related parties. Loans to related parties are conducted on an arm's length basis and are not material to the Group's results. There were no transactions with related parties during the current and prior year which had a material effect on the results or financial position of the Group. Full details of transactions with related parties, including key management personnel compensation is included within note 39 of the financial statements within the Group's 2021 Annual report. The Group's interest in subsidiaries and related undertakings are set out in Appendix B of the financial statements within the Group's 2021 Annual report.

20: Events after the reporting date

On 9 March 2022, the Group announced a proposed capital return of £328 million to the shareholders of Quilter plc by way of a B share scheme. The proposals will require regulatory engagement and shareholder approval at the General Meeting to be held on 12 May 2022. To maintain comparability of shareholder metrics before and after the capital return, it is further proposed that the scheme will be accompanied by a share consolidation. Further information on the proposed capital return is contained in the Financial review within the Strategic Report. The Group will provide full details of the proposed B share issue and ordinary share consolidation in the Circular and Notice of General Meeting that will be posted to shareholders in early April 2022. Assuming these proposals are duly approved, the capital return is expected to conclude by the end of June 2022. The proposed capital return would reduce the Group's IFRS net assets and Solvency II own funds by £328 million and would reduce the Group's Solvency II coverage ratio from 275% to 220%. Further information on the Group's capital position on a Solvency II basis is presented in note 18(a).