How would you describe Standard Life’s performance in 2016? Overall, we performed well. Our results show a picture of a business that is playing to its strengths and growing in times of profound political change and market volatility. We improved our financial discipline to increase profits, maintain our financial strength and grow dividends. We also saw our targeted investments in diversification help increase our assets and revenues.
The process and implications of the UK leaving the EU remain uncertain and we continue to monitor developments closely. However, Standard Life has a strong track record of adapting to changing markets and regulation. As a business we already operate successfully throughout the world as well as across borders in the EU. We have clients in 45 countries around the world, served by our own presence in 18 countries, and we operate across various regulatory regimes. I’m confident that we will continue to identify new opportunities that our developing relationship with the EU will bring. The uncertainty created by the UK’s exit from the EU reinforces the global nature of our business. This aspect of our strategy won’t change. We will continue to focus on creating innovative solutions, funds and propositions and working with regulators to deliver them to our customers and clients across the world.
Objective Efficient and effective operations are critical for our business. They help us provide outstanding service to our customers, advisers and employers at a competitive unit cost.
We successfully embedded our new trade order management system – the core investment platform for our fund managers – and we’ve made significant progress with improving the technology and systems we use to manage investment data.
Growth opportunity  Financial advisers are turning to platforms to drive scalability and efficiency and address the growing need for advice
Efficiency  We have an established track record of driving down unit costs  We see opportunities for further efficiencies including streamlining our customer operations and the integration of Elevate 1 Source: Fundscape. 2 Source: Spence Johnson.
We’re also competing against offerings from other organisations. We therefore aim to offer a premium service, consistent with our overall proposition.
 Continue to collaborate across our business to keep improving customer, client and adviser experiences
Advice We offer financial planning and advice to help clients achieve a wide range of financial goals. We also offer a platform for independent advisers that helps them capitalise on the growing demand for their services and to serve their clients more efficiently.
In April 2016, we increased our stake in HDFC Life from 26% to 35%.
Operating profit before tax increased by 9% and IFRS profit from continuing operations1 increased by 33%.
Solvency II capital surplus3 Our capital surplus is the amount of capital resources (referred to as Own funds) that the Group holds in excess of its capital requirement. The calculation of the Group’s capital resources and requirement is governed by the Solvency II regulatory regime. Under Solvency II, every insurer is required to identify its key risks – e.g. that equity markets fall – and hold sufficient capital to withstand adverse outcomes from those risks. The capital required to withstand these outcomes is the Solvency capital requirement (SCR). The SCR is calibrated so that the likelihood of a loss being greater than the SCR in one year is less than 1 in 200. Around 90% of the Group SCR relates to Standard Life Assurance Limited (SLAL), our principal insurance company.
Operating return on equity continues to be diluted by the impact of the c£1bn pension scheme surplus. Excluding the impact of the pension scheme, operating return on equity was 18.8% (2015: 16.9%).
 EBITDA margin of 45% (2015: 42%), achieved one year ahead of stated target on acquisition of Ignis
“We want to help and support people in managing their money today and saving for their future. By understanding their needs we use our skills and knowledge to advise, guide, inform and importantly, develop the right products and services.” Paul Matthews, Chief Executive Pensions and Savings
Europe growth fee In our Europe business, AUA in our growth channels of £11.2bn is up 17% on 2015 with net inflows of £0.5bn and favourable foreign exchange and market movements.
UK mature Retail As expected, we continue to see stable net outflows on our UK mature Retail book of business. This included £0.3bn transferred to our Active Money Personal Pension product (included in our growth channels), with customers continuing to take advantage of pension freedoms. We engage with our customers who are approaching retirement or have maturing policies to help ensure they are equipped to make informed decisions. This is valued by our customers with many choosing to continue to save with us.
(2015: (£54m)) and restructuring and corporate transaction expenses of (£38m) (2015: (£75m)). 3 After tax attributable to equity holders of Standard Life plc from continuing operations.
The key processes used by the Board to assess the prospects of Standard Life are set out below. The assessment process is overseen by the Risk function and is subject to challenge from executive management and the Risk and Capital Committee, as well as Board consideration.
Oversight of risk within the business delivered through the Own Risk and Solvency Assessment (ORSA) processes described in this section.
 �Second line: Risk oversight is provided by the Chief Risk Officer and supported by the specialist Risk Management and Compliance functions across Standard Life as well as through established risk committees such as the Enterprise Risk Management Committee (ERMC) and with reporting to the Risk and Capital Committee (RCC). The majority of members of the ERMC are senior first line representatives. Independent oversight is provided by non-executive Directors at the RCC.
The risks to our business and how we managed them in 2016 Our principles in managing these risks Link to strategy
 We review our internal processes and investment decisions in light of results on an ongoing basis
Standard Life Investments has delivered a number of new solutions to meet client needs. For example, the Integrated Liability Plus Solution (ILPS) fund range for our Institutional growth channel and the expansion of our Global Focused Strategies Range into the US.
In today’s dynamic world successful businesses need to be able to respond effectively and efficiently to changes around them.
The strength of our business is built on our people and it is essential that we are able to attract and retain people with the skills and capabilities that we need to deliver our business plan.
Employee proposition As we continue to create a world-class investment company we appreciate the value that attracting, developing and retaining talented people brings to our business and the impact that they make on our global ambitions and our customers and clients. We offer a range of benefits and financial rewards to our people through our Total Reward package. Our people can tailor their package to suit their individual needs.
Talent pipeline2 Male 143 58 60 1 If you include employees who are directors of consolidated subsidiaries, the percentage increases to 27% female and 73% males.
Luke was appointed Director and Chief Financial Officer in August 2014. He has been a Director for 2 years.
Melanie was appointed Director in November 2015. She has been a Director for 1 year.
John joined the Board in July 2016. He brings extensive financial and asset management experience to the Board.
Tenure: Noel was appointed Director in July 2012. She has been a Director for 4 years.
You can read more on our people strategy in the Sustainability section of the Strategic report
During 2016, the Committee oversaw the implementation of the governance map and processes to support SIMR and the preparation for the introduction of MAR.
Director election and re-election At the 2017 AGM, all of the current Directors will retire. John Devine and Barry O’Dwyer, having been appointed since the previous AGM, will retire and stand for election. All the others, except Paul Matthews who will have resigned as at 1 March 2017, will stand for re-election.
Director induction and development The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme is tailored to their individual requirements and takes their background knowledge and experience into account. All Directors are required to complete the Financial Conduct Authority’s (FCA) approval process and, if relevant, the Prudential Regulation Authority’s (PRA) SIMR notification or approval process before they are appointed and to self-certify annually that they remain competent to carry out this aspect of their role. These processes continue to adapt to meet evolving best practice in respect of SIMR.
Key responsibilities The Audit Committee’s responsibilities are to oversee and report to the Board on:  �The appropriateness of the Group’s accounting and accounting policies, including the going concern presumption and viability
 �The findings of its reviews of the financial information in the Group’s annual and half year financial reports
Understandable “The language we use and the way we structure our report is helping us present our business and its performance clearly – in a way that someone with a reasonably informed knowledge of financial statements and our industry would understand”
Prepare, Review and Challenge The above principles and supporting statements are considered in each stage of the Annual report and accounts production process. They represent a set of key criteria that the Annual report and accounts are prepared, reviewed and challenged against. The financial reporting team are required to provide direct responses to any challenges raised by the Internal Review Group (see more below) in respect of the above principles and supporting statements.
The Committee is satisfied that the non-audit fees do not impair PwC’s independence.
A Steering Committee, chaired by the Group Financial Controller and Treasurer, and consisting of the Company Secretary and the Deputy Company Secretary, the Head of Group Reporting and the Strategic Procurement Manager was set-up to coordinate and execute the audit tender process. The main responsibilities of the different governance bodies were: Governance body Key responsibilities
Transition We are now working closely with both PwC and KPMG LLP to ensure an efficient transition of the external audit. KPMG LLP are shadowing key meetings and regular reports on transition are provided to the Committee.
Martin Pike, Chairman 7/7 John Devine 3/3 Melanie Gee 4/4 Noel Harwerth 7/7 Kevin Parry 7/7
Other matters considered by the Committee during the year included:  �Advised the Remuneration Committee regarding the delivery of performance in 2015 relative to risk appetites
During the year, the Committee has continued to monitor the structure and implementation of the Group’s ERM framework to ensure the framework remains suitable for identifying, assessing and managing current and new risk types and for reacting to forward-looking risk issues and the changing nature of risks.
Regulatory compliance During the year we reviewed and assessed the regulatory compliance plans detailing the planned assurance activities to be performed across the Group in 2016. Subsequent reporting presented to the Committee provided updates on the progress of this work and key findings from it. In reviewing this reporting we noted improvements to the controls supporting regulatory compliance in both the Investment and Pensions and Savings businesses.
The Committee also agreed that until a new policy is approved by shareholders, 400% will be the maximum annual award grant level for executive Directors and it reviewed the approach to bonuses during garden leave for executive Directors and agreed to adopt best practice.
The key achievements for each scorecard quadrant are detailed on page 90. Having reviewed our performance, including the delivery of the key financial, strategic and non-financial objectives during the year, the Remuneration Committee approved a score of 4.325 out of 5 for performance against the Group annual bonus scorecard in 2016. In making the evaluation under each quadrant, we sought input from both the Risk and Capital Committee and Audit Committee as referenced below.
 79% of the Chief Executive Pensions and Savings’ maximum potential bonus (119% of salary)
Maximum opportunity Car allowance up to a maximum of £16,585 per annum.
Purpose and link to strategy To support the delivery of the Group’s annual business plan.
Service contracts The executive Directors’ terms and conditions of employment are detailed in their respective executive service contracts. In these contracts, the Remuneration Committee aims to strike the right balance between the Company’s interests and those of the executive Directors, while ensuring that the contracts comply with best practice, legislation and the agreed remuneration principles. Contracts are not for a fixed term, but set out notice periods in line with the executive Director’s role.
Base salary (audited) The table below shows the annual base salary paid to executive Directors in 2016.
 Strong delivery on our people agenda, including laying the foundations for increased engagement and a shared culture across the Group
Workplace customer and clients with new investment propositions across a range of asset classes and geographies
 Continued growth in our strategic partnerships serving our clients in markets worldwide, including John Hancock
 Maintenance of strong relationships with customers, clients and advisers and delivery of resilient flows in growth channels in a challenging market environment
Deliver meaningful progress in brand advocacy as measured through Net Promoter Score measures or equivalent indices/measures.
Threshold 60% of target 0% Maximum 140% of target 200% 1 Vesting takes place on a straight line basis between 60% of target cumulative three-year third party EBITDA and 140% of target cumulative three-year third party EBITDA.
Promoting all�employee share ownership We believe that share ownership by our employees helps them to understand the interests of the Company’s shareholders. On 31 December 2016, 73% of our employees were Standard Life plc shareholders through participation in the Standard Life (Employee) Share Plan. We promote employee share ownership with a range of initiatives:  �The Standard Life (Employee) Share Plan which allows employees to buy Standard Life plc shares directly from their earnings. A similar taxapproved plan is used in Ireland. At 31 December 2016, 3,915 employees in the UK were making a monthly average contribution of £58 and 171 employees in Ireland were making an average contribution of €44. Even though the plan cannot be structured on a tax-favourable basis in Germany and Austria, 119 employees in these countries participated in December 2016 with an average contribution of €40.
In respect of the population and policyholder data which is used by the model:  Evaluating the controls applied by management over the extraction of the data from the underlying customer data systems and its subsequent analysis to obtain the appropriate data set
Operating profit/(loss) before tax Standard Life Investments 383 342 - 342
(a) Basis of segmentation The Group’s reportable segments are as follows: Continuing operations: Standard Life Investments Standard Life Investments provides a range of investment products for individuals and institutional customers through a number of different investment vehicles. Investment management services are also provided by Standard Life Investments to the Group’s other reportable segments. This segment includes the Group’s share of the results of HDFC Asset Management Company Limited.
The Group has a widely diversified customer base and is therefore not reliant on any individual customers.
Share of associates’ and joint ventures’ profit before tax2 31 - 25 - - 56 - 56 Operating profit/(loss) before tax 342 357 27 (61) - 665 3 668
Non-controlling interests and capital management 72 - 71 Singapore included in discontinued operations segment1 - - 6 (48) Total revenue or expenses from continuing operations as presented on the consolidated income statement 18,729 (18,003) 8,892 (8,386) 1 Under IFRS 5, Singapore did not constitute a discontinued operation and was included under continuing operations in the consolidated income statement. Therefore the reconciliation includes the reclassification of Singapore results between discontinued and continuing operations.
UK and Ireland unitised with profits life contracts (fee business via RCF) Unitised with profits life business comprises single or regular premium endowment and whole life contracts held in the HWPF under which a percentage of the premium is used to allocate units on a participating basis. The death benefit under regular premium contracts is the greater of the bid value of units allocated and sum assured under the contract. Some contracts also contain critical illness cover providing for payment of a critical illness sum assured on diagnosis of certain defined serious illnesses. These contracts, principally Homeplan, With Profits Bonds and Versatile Investment Plans, are classified as participating insurance contracts.
Acquisition costs deferred during the year 17 (51) (83) Impairment of deferred acquisition costs 17 - 73 Amortisation of deferred acquisition costs 17 96 124 Total other administrative expenses from continuing operations 1,494 1,540
 The Group’s non-controlling interests primarily relate to private equity vehicles which do not incur significant tax expense and therefore this gives rise to a reconciling item. Other interests in these vehicles are held by policyholders and therefore do not contribute to profit before tax.
Tax relating to components of other comprehensive income from continuing operations is as follows: £m £m
Transferred from investment property 19 28 - 28 Reclassified as held for sale (8) - (8) Disposals and adjustments1 (22) (10) (32)
All other debt securities are classified as AFS and are recognised at fair value with changes in fair value recognised in other comprehensive income. Interest is credited to the consolidated income statement using the effective interest rate method. On disposal of an AFS security any gains or losses previously recognised in other comprehensive income are recognised in the consolidated income statement (recycling).
Recognised in other comprehensive income Fair value gains on cash flow hedges - 57 - - - - - - - - 57
32. Non-controlling interests and third party interest in consolidated funds (a) Non�controlling interests The movement in non-controlling interests during the year was: £m £m
Applying the policy noted above:  The value of participating insurance and participating investment contract liabilities is reduced by future expected (net positive) cash flows arising on participating contracts  Future expected cash flows on non-participating contracts are not recognised as an asset of the HWPF. However, future expected cash flows on non-participating contracts that are not recourse cash flows under the Scheme are used to adjust the value of participating insurance and participating investment contract liabilities.
Total insurance and participating contracts Reinsurance contracts Net 2015 £m £m £m £m £m £m
(c) Movement in components of unallocated divisible surplus (UDS) The movement in UDS was as follows: £m £m
The valuation interest rates used are: Non-participating 2016 2015 1. Business held within the PBF Annuities: Individual and group
Mortality rates The future mortality assumptions are based on historical experience, with an allowance for future mortality improvement in annuities. The Group’s own mortality experience is regularly assessed and analysed, and the larger industry-wide investigations are also taken into account.
The change in non-participating investment contract liabilities was as follows: Notes £m £m
Callable at par at option of the Company from 4 December 2022 and on every interest payment date (semiannually ) thereafter 12 July 2027 and on every fifth anniversary thereafter 6 January 2020 and on every anniversary thereafter
The Group has not provided for any possible FCA-levied financial penalty relating to the review. Disclosure of related contingent liabilities is included in Note 45.
The Group manages market risks through the use of a number of controls and techniques including:  Defined lists of permitted securities and/or application of investment constraints and portfolio limits  Clearly defined investment benchmarks for policyholder and shareholder funds  Stochastic and deterministic asset/liability modelling  Active use of derivatives to improve the matching characteristics of assets and liabilities and to reduce the risk exposure of a portfolio  Setting risk limits for main market risks and managing exposures against these appetites
Scheme of Demutualisation and the Principles and Practices of Financial Management (PPFM)  The need to ensure that regulatory and capital requirements are met
Deposits received from reinsurers reflect the liability to repay the deposit received from an external reinsurer under the reinsurance transaction referred to in Section (c). The timing and amount of the payment of the cash flows under this liability are defined by the terms of the treaty, under which there is no defined contractual maturity date to repay the deposit as at 31 December 2016 or 31 December 2015.
The assessment of operational risk exposures is performed on a qualitative basis using a combination of impact and likelihood, and on a quantitative basis using objective and verifiable measures. The maximum amount of operational risk the Group is willing to retain is defined using both quantitative limits, for example financial impact, and also qualitative statements of principle that articulate the event, or effect, that needs to be limited.
(b) Unconsolidated structured entities As at 31 December 2016 and 31 December 2015, the Group has not provided any non-contractual financial or other support to any unconsolidated structured entities and there are no current intentions to do so.
Non-participating investment contract liabilities 102,059 92,890 - - 102,059 92,890 - Liabilities in respect of third party interest in consolidated funds 16,835 17,196 - - 15,607 15,889 1,228 1,307
(ii) Short-term incentive plan (annual bonus deferred shares) The majority of the members of the executive and senior management including executive Directors participate in the Group annual bonus. Under the terms of the 2016 and 2015 annual bonus, half of any bonus earned by executive Directors and members of the executive team above 25% of salary will be settled in nil-cost options which are deferred for a period of three years (two years for the 2015 annual bonus), subject to the deferred amount being worth 10% or more of salary. Further details of the annual bonus are set out in the Directors’ remuneration report.
The plan includes the entitlement to the receipt of dividends in respect of awards that ultimately vest between the date of grant and the vesting date No dividend entitlement
The Group’s SII SCR primarily consists of the consolidated SII SCR for insurance entities (including Standard Life plc) which is calculated on the basis of management’s own regulator-approved internal model. In addition, the Group’s SCR also includes SII SCRs for other insurance entities whose SCRs are calculated on the basis of the standard formula within the SII regulations, and the capital requirements of other regulated entities in the Group that are set by their regulator. The SII SCRs for insurance entities are calibrated so that the likelihood of a loss exceeding the SII SCR in one year is less than 0.5%. The SII capital resources are also subject to Minimum Capital Requirements.
Surplus capital at individual entity level is assessed for availability to the Group and therefore may be restricted when determining Group own funds.
Standard Life Investment Company III Enhanced-Diversification Growth Fund OEIC 98% MyFolio Managed I Fund OEIC 69% MyFolio Managed II Fund OEIC 66% MyFolio Managed III Fund OEIC 75% MyFolio Managed IV Fund OEIC 58% MyFolio Managed V Fund OEIC 69% MyFolio Managed Income I Fund OEIC 41% MyFolio Managed Income II Fund OEIC 45%
Standard Life Investments GS (Mauritius Holdings) Limited6 Ordinary Shares 87% Standard Life Investments (Hong Kong) Limited41 Ordinary Shares 100% Standard Life Investments ICVC plc
County of New Castle, Delaware, 19808, USA 31 Clayton Wood Close, West Park Ring Road, Leeds, LS16 6QE 32 Wesley House, Bull Hill, Leatherhead, KT22 7AH 33 70 Sir Rogerson's Quay, Dublin, Republic of Ireland 34 Level 2 West, Mercury Tower, The Exchange Financial & Business Centre, Elia Zammit
Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Brought forward retained earnings 837 785 Profit for the year 351 1,090 Other movements in retained earnings 163 (1,038)
Liabilities Subordinated liabilities L 1,319 1,318 Deferred tax liabilities N 3 1 Derivative financial liabilities L - 2 Other financial liabilities L 8 52 Other liabilities P - 1 Total liabilities 1,330 1,374 Total equity and liabilities 5,948 5,934
(a)(iii) Financial guarantee contracts The Company recognises and measures financial guarantee and indemnity contracts initially at fair value. The Company must reassess the value at each subsequent reporting date by estimating the expenditure required to settle the contract and comparing this to the fair value (net of any amortisation). The higher of these values is recognised on the statement of financial position.
The amount of deferred tax liabilities expected to be settled after more than 12 months is £3m (2015: £1m).
T. Fair value of assets and liabilities The Company’s approach to the fair value of assets and liabilities is aligned with the Group policy detailed in Note 43 of the Group financial statements. An analysis of the Company’s financial investments and financial liabilities in accordance with the categories of financial instrument set out in IAS 39 Financial Instruments: Recognition and Measurement is presented in Notes C and L and includes those financial assets and liabilities held at fair value.
(a) Methodology used to determine fair value of assets and liabilities The fair value hierarchy, and the methods and assumptions used to determine fair value by the Company are aligned with the Group, as detailed in Note 43 of the Group financial statements, with the following exceptions: Investments in subsidiaries at FVTPL Investments in subsidiaries at FVTPL comprises £201m (2015: £200m) of investments on a recognised exchange which are valued using prices sourced from the primary exchange on which they are listed. These instruments are generally considered to be quoted in an active market and are therefore treated as level 1 investments within the fair value hierarchy.
11. Supplementary Information 11.1 Alternative performance measures We assess our performance using a variety of measures that are not defined under IFRS and are therefore termed alternative performance measures (APMs). The APMs that we use may not be directly comparable with similarly named measures used by other companies.
Opening AUA at 1 Jan 2015 Gross flows Redemptions Net flows
The members are appointed by the SLAL board on the recommendation of the Nomination and Governance Committee. Directors of the Standard Life plc and SLAL boards, the UK and Europe Chief Risk Officer and senior actuaries, in particular the With Profits Actuary and the UK and Europe Actuarial Director, routinely attend these meetings.
The committee’s routine formal interaction with the SLAL board is by the submission of the minutes of its meetings to the board, together with the provision of feedback on its advice, and by an annual report to the SLAL board in which it reviews the management of with profits business having regard to SLAL’s duty to treat its with profits policyholders fairly and to meet their reasonable benefit expectations. The committee has authority to make a report to the with profits policyholders. It did not do so during 2016 and would not expect to do so unless it disagreed materially with SLAL’s own annual report to its with profits policyholders (which is required by FCA regulations) on the management of the with profits business. Minutes of the committee meetings are also submitted to the Board of Standard Life plc and, in May 2016, the committee Chairman attended a meeting of the Standard Life plc Board which focused on three key with profits issues – investment strategy, the implementation of the new Solvency II insurance regulation regime and the terms on which the main with profits fund secures guaranteed annuities for customers.
Balance of interests A fundamental responsibility of the WPC is to ensure that with profits customers’ interests are protected, with appropriate balance between different cohorts of customers, and that shareholder interests do not compromise this protection.
UK Retail This relates to business where we have a relationship with the customer either directly or through an independent financial adviser. We analyse this type of business into growth and mature categories. Retail growth includes the products, platforms, investment solutions and services of our UK Retail business that we continue to market actively to our customers. Retail mature includes business that was predominantly written before demutualisation.
Last date for DRIP elections for 2016 final dividend 03 May