IFRS profit after tax attributable to equity holders £1,423m (2014: £503m)
Return of value following sale of our businesses in Canada £1.75bn or 73p per share returned to shareholders
Find out more about all our non�financial measures in Section 1.6
Strategic report 4 1.1 Chief Executive’s overview 6 1.2 Our business 8 1.3 Chief Financial Officer’s overview 14 1.4 Business performance 19 1.4.1 Standard Life Investments 20 1.4.2 UK and Europe 24 1.4.3 India and China 28 1.4.4 Discontinued operations 30 1.5 Risk management 31 1.7 Basis of preparation 43
Governance 44 2. Board of Directors 46 3. Directors’ report 50 4. Corporate governance statement 56 5. Directors’ remuneration report 75 6. Directors’ responsibilities 99
Despite challenging market conditions, thanks to the support of our customers and clients, our hard work has yielded another set of good financial results. The assets that we look after grew by 4 per cent and our unit costs continued to decrease which helped us increase our Group operating profit by 9 per cent to £665 million. Our performance also means another year of increased dividends, with our final dividend of 12.34 pence per share (up 8.0 per cent on 2014) giving a total dividend for 2015 of 18.36 pence per share (up 7.8 per cent on 2014). If approved at our AGM in May this year, this is due to be paid to shareholders on 24 May 2016.
The Solvency II regime, which was introduced on 1 January 2016, gives a more rational way of measuring the capital strength of insurance companies and we remain well capitalised under these new rules with a Group solvency capital surplus of £2.1 billion representing a Group solvency cover of 162 per cent. Standard Life Assurance Limited (SLAL), our principal insurance company, is strongly capitalised and is able to withstand market and other volatility to a considerable extent. To ensure this is maintained, we plan to strengthen further the governance of SLAL by incorporating a strong independent element onto its board with a particular responsibility to oversee prudential and conduct matters backed up by our very effective With Profits Committee and Independent Governance Committee. Members of our With Profits funds and our workplace pension schemes should rest assured knowing that their interests are being well looked after. We want our governance to be amongst the best in the market. This strengthening of the SLAL board and the greater delegation to it will further allow the plc Board to spend appropriate time on all aspects of our business as we continue to evolve.
We’re focused on meeting the needs of our customers and clients. In this evolving market, insurance is increasingly a complement to our investment activities; however, it still makes an important contribution, both in terms of our propositions in this market and to our finances. To be excellent in the pensions and savings market, you need to be a well-capitalised name that people trust; to provide high standards of service; and, very importantly, to have market insights and skills that allow you to generate superior investment performance. Our positioning across this whole value chain is the key source of our long-term shareholder value.
We made three new appointments to the Board in November 2015. I’m pleased to welcome Melanie Gee, Paul Matthews and Colin Clark to the team. Melanie joins as a non-Executive Director and brings a wealth of experience both from her time at Lazard and from serving on other major boards. Paul and Colin strengthen the executive component on the Board which is much in line with our stewardship philosophy. Through their roles as Chief Executive, UK and Europe and Global Client Director of Standard Life Investments respectively, they bring the voice of our customers and clients directly into the boardroom. I’m very pleased that having four women out of thirteen Board members continues our journey of becoming a thoroughly diverse Board.
For those of us who have spent much of their working lives in and around financial services, it’s been a source of great regret how financial service companies have lost the trust of society in recent years. Pontificating about this doesn’t achieve anything, as it requires deep work within companies and constant attention to detail to rebuild trust and confidence. It has to be constantly at the forefront of boards’, managements’ and everyone in financial services minds. Calling out wrong behaviour whenever and wherever it occurs is a powerful starting point.
We do try to do the right thing but, even so, we don’t always succeed. For example, the introduction of pension freedoms in the UK and the need to spend time for regulatory and other reasons to explain this properly to those of our customers who contacted us, put unprecedented strain on our systems and I’ve had many letters from people who were kept waiting on the phone or for an appointment longer than they should have been. I’m very sorry about that and I’m pleased that things are now returning to normal. We’re always happy to hear from customers when things don’t go smoothly and to try and put things right.
Across the globe, we employ 6,500 people and another 17,000 through our partnerships in India and China. There are also a further 69,000 Financial Consultants who work with these partnerships, marketing products and services to clients. We want to provide inclusive employment with no barriers to entry other than competency. We champion social mobility and diversity backed up by paying sustainable, meaningful wages. I’m pleased with the public recognition that we have had for this work.
Our charitable activities, both directly and indirectly through the Standard Life Charitable Trust, have made a real difference to people’s lives and wellbeing in 2015 and our Sustainability Report gives full details of these. When we demutualised in 2006, unclaimed shares were put into a special trust. We have made, and continue to make, every effort to trace those entitled to these shares and we continue to do so ten years on. This special trust will come to an end in 2016 and we intend to use the assets to strengthen considerably our charitable activities. It’s very important therefore that people who haven’t done so come forward and claim their shares before it is too late.
Unusually, we have also spoken out on two matters of constitutional importance within the UK. Following the historic referendum on independence for Scotland – where we were very clear about the potential impact on Standard Life and how we would respond – the passing of a new Scotland Bill into law includes areas that may affect our customers, employees and some aspects of our business. Chiefly this will be around taxation, which will become a devolved power for the Scottish Government. We are monitoring this closely to help ensure that we don’t suffer any competitive disadvantage.
The debate on whether or not the United Kingdom should stay part of the European Union (EU) is reaching its climax and coming closer to the time when the UK public will have their say. We are conducting a thorough study of the impact of this on our business. We stay clear of the politics but, as you would expect, we are closely following developments and assessing the implications for our businesses as they emerge. As we have stated before, we believe that access to the EU Single Market is in the best interests of our customers and clients. The principle behind the Single Market – to encourage the free movement of goods and services – has created an environment that gives individuals and businesses the confidence to invest for the long term and it would be potentially damaging to the UK economy and therefore to companies such as Standard Life if the UK were to leave it.
Looking forward So much has changed in our company but much still remains to be done as we carry on the journey of seeking to reach our full potential as a world-class investment company. As asset managers, we employ some of the most talented people in the business worldwide. Our UK business has a very strong position in the pensions and longterm savings market. We have important savings businesses in Ireland and Germany. And our positions in India and China offer great future potential. Not a bad place to be in!
Introduction It is both an honour and a privilege to be asked to lead Standard Life, and our talented people, through the next phase of its strategic development to create a world-class investment company. We made considerable progress in 2015 despite volatile global financial markets, a shifting savings and investment landscape in the UK and the transition to the new Solvency II regulatory regime. We saw strong growth in the assets we manage or administer for clients to £307.4bn, which, together with the careful management of costs, helped to drive an increase of 9% in our operating profit to £665m.
Successes in 2015 Standard Life became a much simpler business in 2015 when we completed the sale of our Canadian business. In line with both our long-term strategy and our simple and consistent business model, over 90% of our total income came from the fees clients and customers pay us to look after their assets.
We continued to invest in our brand to ensure that our name and strengths are increasingly recognised around the world. Sponsorship is bringing our brands to a wider global audience. We have been careful to select partners where we share common ground on teamwork and a commitment to excellence.
Investment performance and innovation Standard Life Investments continued to build strong strategic positions as a manager of institutional and wholesale assets, through its delivery of excellent investment performance and innovative investment solutions. Our historic strength was built on the management of large-scale institutional assets, and the integration of Ignis is helping improve our offering to insurance companies. 2015 also saw our presence in wholesale markets continue to increase both at home and abroad. We are now the third largest manager of UK mutual funds, up from eighteenth in 2010, and continue to see increased penetration in overseas markets through our strategic partners.
Our ‘Focus on Change’ investment philosophy – followed by all our investment teams – helped generate excellent investment performance. It also helped drive innovation; providing solutions for changing client needs. Thirteen new investment solutions were launched during 2015. Over the last five years, more than ten new fund launches have been seeded by current clients.
Evolving in our markets Our UK pensions and savings business continued to enhance the strength of its strategic positions in our domestic market with employers, intermediaries and retail customers. Assets under administration rose to £131.6bn and revenue associated with fee based assets increased to £631m.
‘We have simplified our business, generating sustainable growth through a well-diversified client base.’
We continued to attract retail assets to Standard Life – through our market leading Wrap platform, and growing regular workplace contributions from auto enrolment into company pension schemes. The contribution to our profits from these products was significantly more than that from traditional insurance products, like annuities, where as expected sales fell during the year. This means that 82% of the revenue for our UK business relates directly to our fee based business.
Increased co-operation and collaboration, including the efficient allocation of resources, is critical if we are to build a successful and sustainable investment company. With this in mind I have created a new Strategic Executive team to help me lead Standard Life. This will help ensure that we maintain momentum behind our growth businesses and continue to improve the efficiency of our valuable mature books.
Outlook The start of 2016 has seen difficult conditions in global financial markets which have negatively impacted asset values as well as investor and consumer sentiment. While these conditions may persist for some time and regulatory and political changes may impact the markets we operate in, Standard Life remains well positioned to meet the needs of clients and customers around the world.
We expand our business into India and China, and open new offices in London and Montreal.
Launch our first company pension, which is a big part of what we do today.
Our goal is to deliver good outcomes for our customers and clients, for example, investing for growth, income, or some protection against market volatility. Depending on where they are in their lives, our customers and clients may want one or a combination of these outcomes for life events like getting married, starting a family or planning their retirement.
We increasingly see ourselves as an investment company, focusing on managing assets and investing on behalf of our customers and clients. We don’t use our capital to attract new assets, which was the traditional model for insurance companies.
This focus allows us to operate in markets that insurers have traditionally found difficult to penetrate: asset and wealth management. It’s the ability to diversify our business model in this way that makes it sustainable, as we have the potential to attract assets from a variety of sources, customer and client channels, asset classes and geographies. Financial strength also plays an important part in what our brand is and means, not just with customers and clients, but with shareholders and other key stakeholders too.
Our customer and client channels We operate a variety of businesses positioned across the value chain. These are designed to meet a range of client and customer investment needs.
There is continued momentum in both our Ireland domestic and international bond businesses as well as growing demand for unit-linked products in Germany.
In China, Heng An Standard Life has around five million customers and operates 74 sales offices across 53 cities in 8 provinces.
We secure a place in one of the world's leading sustainability indices: DJSI
We sell our businesses in Canada to Manulife for CAN$4bn. We launch 1825, a new financial advice business, in the UK.
We buy Ignis Asset Management and integrate it into Standard Life Investments.
We buy the private clients arm of Newton Management Limited and merge it with
Strategic partners: Sumitomo Mitsui, Phoenix Group, Manulife and John Hancock 10 Standard Life
Democratisation of financial risk: As employers aim to reduce costs of funding retirement benefits and governments around the world look to reduce their citizens’ reliance on the state, individuals are increasingly having to take responsibility for their financial future. This responsibility also increases both the options available and the complexity of decisions for customers and is driving a growing need for guidance and advice.
Rebuilding trust in financial services: The recent financial crisis has resulted in increased scrutiny of financial services companies from customers, politicians and regulators. This has created opportunities for trusted brands and providers that allow their clients to look through to the clients’ underlying assets without having to rely on the strength of providers’ balance sheets.
Read more about how we help to make a positive impact on wider society in Section 1.6
Lowering units costs 4 Invest in scalable platforms 4 Continue to realise operational benefits from our simple and scalable business model
Increasing assets 4 Focus on sustaining strong investment performance 4 Grow our regional hubs in Europe, North America and Asia to help expand our global reach 4 Develop our investment funds, solutions and propositions to suit evolving client needs, for example liability aware and multi-asset funds 4 Leverage best in class distribution in the UK
In January 2016, we announced Standard Life Investments as a Principal Partner of The British & Irish Lions rugby team, which included becoming their jersey sponsor for their 2017 tour to New Zealand.
Aligning our brand with partners who share our values and ambition will help us to further strengthen and build our business around the world. We have found such a partner in The British & Irish Lions who represent the best of the best in English, Irish, Scottish and Welsh rugby.
Commitment to excellence - Our financial strength and professional reputation give us the ability to consistently strive to deliver excellence for our clients around the world.
Forward thinking - We place significant emphasis on rigorous research. We constantly think ahead and strive to anticipate change before it happens, ensuring that our clients can look to the future with confidence.
Supporting The Ryder Cup Our partnership with The Ryder Cup, the biennial golf competition between Europe and the USA, complements our reputation as a leading global asset manager with strong performance and a distinctive team culture. Uniting our distinct talents through teamwork is what really creates the unique advantage for our clients. Our shared commitment drives us to deliver excellent performance and outstanding service.
We’re #withAndy Tennis champion Andy Murray has goals beyond simply winning. As a sportsman, his commitment is to excellence and his focus is on improvement and innovation. As an entrepreneur, he is focused on building businesses and investing for the future. And as a person, he knows the importance of giving something back by contributing to his community, to charity and to helping inspire the next generation.
Like us, Andy believes in advancing ambition. We believe in giving our people the tools, support and environment best suited to realising their potential.
Key financial performance indicators, including comparatives, exclude discontinued operations1 unless otherwise stated. The acquisition of Ignis completed in July 2014 and therefore our 2015 results include a full 12 months compared to 6 months for 2014.
Total Group gross inflows increased to £43.0bn (2014: £34.0bn) and Group net inflows increased to £6.3bn (2014: £1.0bn) driven by strong demand in our growth channels. This included Standard Life Investments third party growth net inflows which increased to £10.3bn (2014: £1.7bn) with continued strong demand for our multi-asset and MyFolio funds. UK & Europe growth business net inflows of £6.7bn (2014: £5.8bn) were driven by record flows into our Wrap platform.
This was offset by net outflows in our mature books. This was largely due to net outflows of £4.8bn (2014: £1.6bn) from the assets managed on behalf of Phoenix Group2, which included a £1.4bn one-off outflow.
Fee based revenue for our mature book of business benefited from the inclusion of a full year of revenue from Phoenix Group2.
Spread/risk margin Spread/risk margin, which mainly relates to the margin earned on UK annuities, decreased by 21% to £145m. The benefit of asset and liability management actions which focus on ensuring an efficient use of capital was lower than 2014, in line with our guidance, due to fewer opportunities in the low yield environment. Spread/risk margin was also impacted by reduced annuity sales following the 2014 Budget changes.
1 Discontinued operations for segmental reporting comprises the Canadian business which was sold on 30 January 2015 and the Dubai and Singapore businesses, the closures of which were announced in November 2014 and June 2015 respectively. Further details are included in Section 1.4.4.
Standard Life Investments third party 10.3 1.7 UK & Europe growth business 6.7 5.8 Eliminations and other growth (2.1) (1.4) Total growth 14.9 6.1 Standard Life Investments third party strategic partner life business (4.8) (1.6) UK & Europe mature business (3.1) (2.8) UK & Europe spread / risk (0.9) (0.9) Total mature (8.8) (5.3) Associate and joint venture life businesses 0.2 0.2 Group total 6.3 1.0 14 Standard Life
Group operating profit before tax Group operating profit before tax continues to be a key measure which provides an indication of our ability to deliver returns for our shareholders.
Group underlying performance Group underlying performance increased by 12% to £630m. This excludes the benefit of operating assumption and actuarial reserving changes of £44m (2014: £43m) and an expense relating to shareholder support provided to the German With Profits Fund (GWPF) of £9m (2014: £nil).
IFRS profit after tax IFRS profit after tax from continuing operations decreased to £276m (2014: £376m) mainly due to higher nonoperating losses including short-term fluctuations in investment return and economic assumption changes which generated a loss of £63m (2014: gain £17m) and a £46m charge in Hong Kong following regulatory change. Further information is included on page 17.
Fixed and intangible asset adjustment (18) (20) Group underlying cash generation 447 419
1 Receipt of sale proceeds of £2.2bn and £1.75bn return of value both assumed to have taken place on date of disposal of the Canadian business (30 January 2015) for calculation of the Group operating return on equity. This assumption increased Group operating return on equity from 13.2% to 14.2%.
Group operating return on equity Return on equity measures our success in generating profit relative to our shareholder capital. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.
Our key growth channels including Standard Life Investments third party and UK workplace and retail are capitallite – this means that they do not require significant amounts of additional capital as they continue to grow.
Insurance Group Directive Group IGD capital surplus over regulatory requirements decreased to £2.7bn2 (2014: £2.9bn) primarily due to a net £0.2bn reduction resulting from the sale of our Canadian business comprising of:  The removal of its contribution to
Group surplus of £0.6bn at FY 2014  The return of value to shareholders in
April 2015 of £1.75bn  Partially offset by the disposal proceeds of £2.2bn received in January 2015
These Group figures do not take account of £1.2bn of capital in subsidiaries that is not deemed to be freely transferrable around the Group. This additional capital helps absorb market and other volatility, resulting in a resilient Group Solvency II capital surplus. For example the Group Solvency II capital surplus of £2.1bn would change by £0.1bn or less following a:  20% fall in equities, or  100bps rise or fall in fixed interest yields, or  50bps rise or fall in credit spreads
Liquidity management Standard Life plc, the Group holding company, holds substantial cash and liquid resources. At 31 December 2015, Standard Life plc held £571m (2014: £300m) of cash and short-term debt securities, £290m (2014: £357m) of bonds and £200m (2014: £nil) of holdings in pooled investment funds managed by Standard Life Investments.
Standard Life plc cash and liquid resources were boosted by the net retained proceeds from the disposal of the Canadian business, consisting of the proceeds received from the disposal less the return of value to shareholders of £1.75bn.
The Group continues to maintain a strong liquidity position and this was again shown in the stress testing undertaken during 2015.
In May 2015, we reduced our syndicated revolving credit facility which we hold as part of our contingency funding plans, to £400m (2014: £500m) in line with our lower risk profile following the sale of the Canadian business. The maturity date for this facility was extended until 2020 and is currently undrawn.
Continuing operations: Group operating profit before tax 665 608 Non operating loss before tax (257) (157) Total tax expense (77) (42) Other3 (55) (33) IFRS profit from continuing operations 276 376 IFRS profit from discontinued operations 1,147 127
A reconciliation of Group operating profit to IFRS profit for the year is included in the Group financial statements section of this report.
Group tax expense from continuing operations The tax expense attributable to equity holders’ profit in 2015 was £77m (2014: £42m) of which £114m (2014: £82m) related to operating items and a £37m credit (2014: credit £40m) to nonoperating items. The increase in the total tax expense reflects prior year adjustments and deferred tax not recognised (such as from losses on the closure of our Singapore business) due to the uncertainty of the availability of tax relief in the future.
In 2015, our total tax contribution from continuing operations to tax authorities in all the jurisdictions in which we operated was £1,059m (2014: £791m). Of the total, £332m (2014: £331m) was taxes borne by the Group whilst £727m (2014: £460m) represents tax collected by us on behalf of tax authorities. Taxes borne and tax collected are higher than 2014 mainly due to increased taxes collected at source (e.g. tax deducted from pension payments), increased VAT collected and increased employment taxes. The increase was primarily related to the UK, where the total tax contribution was £944m (2014: £565m), out of the total £1,059m.
Of the taxes collected items the largest are PAYE deducted from both pension payments made to customers and from employee payroll payments.
In addition, the Group participates in the development of tax policy and legislation through engagement with tax authorities on tax consultations and involvement with representative bodies such as the Association of British Insurers and the Investment Association. This is done in line with our business strategy and to promote a stable environment for long term savings and investments.
How the dividend is funded External dividends are funded from the cumulative dividend income that Standard Life plc receives from its subsidiaries. To provide some protection against fluctuations in subsidiary dividends, Standard Life plc holds a buffer of distributable cash and liquid resources. This buffer is dynamic and takes into account expected future subsidiary dividend flows and the risks to those dividends. Further information on the principal risks and uncertainties that may affect the business and therefore dividends is provided in Section 1.5.
The total payment for the final dividend is expected to be £243m. This is strongly supported by the £1.1bn of cash and liquid resources which are backed by £1.1bn of Standard Life plc distributable reserves as at 31 December 2015.
Return of value We also returned an additional £1.75bn or 73p per share to shareholders in 2015 following the completion of the sale of the Canadian business.
Continuing operations The performance of the Group’s continuing operations are set out in Sections 1.4.1 to 1.4.3. The table below presents analysis of operating profit from continuing operations.
Discontinued operations Following changes in the Group structure and operations in 2014/15, continuing operations for segmental reporting purposes excludes our Canadian business which was sold on 30 January 2015 and our Dubai and Singapore businesses, the closures of which were announced in November 2014 and June 2015 respectively. Further information on discontinued operations can be found in Section 1.4.4.
Fee based revenue 843 686 808 802 38 49 - - (110) (108) 1,579 1,429 Spread/risk margin - - 145 183 - - - - - - 145 183 Total income 843 686 953 985 38 49 - - (110) (108) 1,724 1,612 Total operating expenses (532) (450) (610) (605) (36) (44) (56) (54) 110 108 (1,124) (1,045) Capital management - - 14 10 - - (5) (8) - - 9 2 Share of associates’ and JVs’ PBT 31 21 - - 25 18 - - - - 56 39 Group operating profit before tax 342 257 357 390 27 23 (61) (62) - - 665 608
Underlying adjustments5 - - (35) (43) - - - - - - (35) (43) Group underlying performance 342 257 322 347 27 23 (61) (62) - - 630 565 1 Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs, impairment of intangible assets, amortisation of intangible assets acquired in business combinations, gain or loss on the sale of a subsidiary, associate or joint venture and other significant one-off items outside the control of management and not indicative of the long-term operating performance of the Group. The impact of the restructuring of the UK staff pension scheme has been adjusted so that 2015 operating profit is based on the expected long-term pension expense, which results in a £35m increase to 2015 operating profit before tax (2014: £15m) and a corresponding increase to 2015 non-operating restructuring and corporate transaction expenses – Refer to Note 10 in the Group financial statements section for further information.
Our associate business, HDFC Asset Management, remains the largest private sector asset manager in India with AUM of £17.4bn2.
Our global reach continues to expand and we now have presence in 27 cities worldwide including our Head Office in Edinburgh and regional hubs in Boston and Hong Kong. As well as our own distribution, we also benefit from leveraging our strategic partner relationships in the US, Canada, India, Asia, Japan and with the wider Standard Life Group.
We continue to invest to drive performance to both raise our profile and enhance our infrastructure to support our growth ambitions. We are strengthening the range of investment solutions we offer, including new innovative propositions across the range of asset classes.
£m £m Fee based revenue 843 686 Operating expenses (532) (450) Share of associates profit before tax 31 21 Operating profit before tax 342 257 Interest, depreciation, amortisation, FX movements 10 9
Our track record of superior investment performance attracts customers towards our higher margin products.
Increased fee based revenue Fee based revenue increased by 23% (£157m) due to increased AUM, a continued shift in mix towards our higher margin third party products and benefiting £33m from a full year’s revenue from Ignis (2015: £106m, 2014: £73m). Our revenue yield on third party2 AUM remained strong at 52bps (2014: 53bps) reflecting the inclusion of Ignis, which is lower average margin, for the full year. The revenue yield for strategic partner life business increased 1bp to 17bps.
Controlled operating expense growth We have maintained our operating expenses at 22bps (2014: 22bps) and the integration of Ignis remains on track to deliver £50m of annual cost synergies by 2017.
Total operating expenses increased by 18% (£82m) reflecting the increased scale of our business, including an increase of £23m from a full year of operating expenses in Ignis (2015: £60m, 2014: £37m). We continue to see a larger increase in revenue relative to expenses showing our ability to be a scalable business through investment in expanding distribution and geographic reach.
EBITDA increased to £352m (2014: £266m) including £50m (2014: £37m) contribution from Ignis. Our EBITDA margin of 42% (2014: 39%) remains strong, and we are on track to achieve our target margin of 45% by 2017.
Increased global presence We continue to expand our global reach and now have a presence in 27 cities worldwide with clients in 46 countries around the globe.
Our Head Office is in Edinburgh supported by regional hubs in Boston and Hong Kong. These regional hubs provide a variety of shared resources and services to support sales and client servicing.
We reach retail customers either through Standard Life’s wholesale, workplace or direct distribution in the UK or through strategic partnerships with Sumitomo Mitsui in Japan, HDFC in India, John Hancock in the US and Manulife in Canada and Asia.
 Diversified Growth Fund Manager of the year – Financial Times PIPA Awards 2015
 DC Investment Manager of the Year – Professional Pension Awards 2015
 Global Equity Income Fund won the Best Smaller Global Equity Income Fund category at the Money Observer awards 22 Standard Life
AUM and net flows detailed analysis Total AUM increased 3% to £253.2bn (2014: £245.9bn) largely as a result of strong investment performance and good net inflows. AUM comprised third party1 AUM of £130.5bn (2014: £117.5bn) and strategic partner life business AUM of £122.7bn (2014: £128.4bn). Third party1 AUM increased to 52% of total AUM (2014: 48%). Strong third party1 net inflows of £10.3bn (2014: £1.7bn) represent 9% of opening assets under management. Institutional and wholesale net inflows more than doubled to £12.6bn (2014: £6.0bn).
Wealth Standard Life Wealth continues to develop and as we improve the operational scalability of the business, we expect it will start to gain momentum in the market. AUM increased to £6.5bn (2014: £6.1bn) due to £0.2bn of net inflows (2014: £nil) and positive market movements.
By asset class2: Multi-asset continued to have strong net inflows, contributing £9.5bn (2014: £5.1bn) as AUM increased to £50.3bn (2014: £38.6bn). MyFolio saw net inflows of £1.9bn (2014: £1.6bn) as AUM increased to £8.1bn (2014: £5.9bn).
Net flows were also improved in fixed income of £0.3bn (2014: £1.0bn outflows), and equities £nil (2014: £1.3bn outflows). Real estate net inflows were £0.3bn (2014: £0.7bn).
Net flows AUM 2015 2014 2015 2014 £bn £bn £bn £bn
Strategic partner life business AUM Third party1 AUM Third party1 net flows Third party1 (excl Ignis) net flows
A period of change and opportunity 2015 saw the implementation of significant new regulations within the UK. The pension freedoms, effective from 6 April 2015, have provided customers with increased flexibility when accessing income in retirement. This resulted in operational challenges across the industry, with unprecedented levels of customer contact as our customers sought to understand their options. Call volumes have now dropped but relative to 2014 we experienced a 50% increase in calls where customers were looking for guidance and support with their retirement decisions. The increased complexity of options means call times have lengthened considerably. Feedback from customers shows that they really value the thorough approach we take but one consequence is that customers have had to wait longer to speak to our experts than we would have liked. We are sorry about this. We have recruited additional customer support staff, trained our people and improved processes to respond and help deliver this valuable service more quickly and efficiently. In the first nine months of the pension freedoms, 10% of our eligible customers made use of the new regulations.
In a market influenced by regulatory change, our workplace business continues to build scale. Since auto enrolment began in 2012, we have helped over 5,100 employers set up Qualifying Workplace Pension Schemes (QWPS) with over 820,000 members enrolled into these. In April 2015, we upgraded pension schemes to ensure that all schemes used for auto enrolment complied with new regulations capping charges for QWPS. It also means that the vast majority of new members are now joining one of our two flagship workplace pension solutions.
The Solvency II regime came into force in January 2016 bringing consistency to the way EU insurers manage capital and risk. We have enhanced our controls, risk models, technology and processes. Our internal model application has been approved by the Prudential Regulation Authority which means the capital we hold will be directly related to the risks we are exposed to and will take account of the benefits of the risk management tools we have in place.
Net flows AUA 2015 2014 2015 2014 £bn £bn £bn £bn Workplace3 1.9 2.2 33.0 32.0 UK retail1 3.9 2.9 42.6 37.3
Total growth business 6.7 5.8 85.2 78.0 UK mature retail (2.4) (2.2) 32.7 33.5 Spread/risk (0.9) (0.9) 14.9 16.1 Europe mature fee4 0.2 0.4 8.4 8.5 Conventional with profits (0.9) (1.0) 1.3 2.1 Total mature business (4.0) (3.7) 57.3 60.2 Assets not backing products - - 7.7 7.7 Total UK and Europe 2.7 2.1 150.2 145.9 1 Wrap AUA reported predominantly within UK retail fee business (2015: £23.4bn, 2014: £19.2bn), offshore bond is reported within Europe growth fee (2015: £2.1bn, 2014: £1.7bn). 2 Highest net sales in Q3 YTD 2015, source Fundscape. 3 In 2015 UK corporate assets have been renamed as workplace. 4 Europe mature fee includes German with profits business which closed to new business during 2015.
Increasing assets UK and Europe AUA increased by 3% to £150.2bn (2014: £145.9bn). Fee based AUA which accounts for 85% of total AUA increased by 5% to £127.6bn (2014: £122.1bn), benefiting from a combination of net inflows and favourable market movements.
Our success in attracting new flows through auto enrolment has resulted in a 9% increase in regular premiums to £2.9bn. Regular premiums now account for over 70% of workplace inflows. In addition, our workplace business provided £2.1bn of assets into our retail business in 2015. 73% of our workplace AUA is managed by Standard Life Investments.
UK mature retail Our UK mature retail book of business saw a 9% increase in net outflows to £2.4bn with customers taking advantage of pension freedoms. We look to 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. We continue to benefit from ongoing increments, customers transferring to our UK retail propositions from our workplace business and positive market movements.
Europe In our Europe business, AUA in our growth channels of £9.6bn is up 10% on 2014 with net inflows of £0.9bn (2014: net outflow £0.7bn) offset partly by adverse foreign exchange movements. Within this, net inflows in Germany from unit linked business doubled in 2015. In Ireland net inflows increased 8% to £0.7bn with growth in both our domestic and international bond businesses.
Further information on AUA and net flows is included in Section 11
Fee based revenue 631 619 177 183 808 802 Spread/risk margin 143 176 2 7 145 183 Total income 774 795 179 190 953 985 Operating expenses (455) (456) (155) (149) (610) (605) Capital management 15 11 (1) (1) 14 10 Operating profit before tax 334 350 23 40 357 390 Underlying adjustments1 (43) (42) 8 (1) (35) (43) Underlying performance 291 308 31 39 322 347 1 Relates to operating assumption changes of £44m (2014: £43m), included in spread/risk margin and principally in respect of mortality assumption changes, and to shareholder support provided to the German with profits business of £9m (2014: £nil), included in operating expenses.
Spread/risk margin UK spread/risk margin which mainly relates to our annuity business decreased by £33m to £143m. This included the expected reduction in the benefit from asset and liability management to £30m, as fewer opportunities for more effective management of our assets existed in the current low yield environment. This was accompanied by a reduction in the new business margin of £14m to £6m, caused by a 68% reduction in annuity sales as a result of the 2014 Budget changes.
Our investment in technology has allowed further process automation and customer self service which has helped to lower unit costs. Examples of our progress include:  Our online retirement journey allows customers to access their savings on a fully self-serve basis. Since April 2015, 70% of direct customers moving to AMPP drawdown used this journey and 90% of customers would recommend us to a friend
 The introduction of greater automation to our SIPP drawdown process which will reduce the set-up time by up to 80% and facilitate tax efficient income withdrawals
UK UK operating profit reduced by £16m to £334m, as robust performance in fee business was more than offset by the £33m reduction in spread/risk margin which included a lower contribution from asset and liability management as expected.
Return on equity Operating return on equity decreased to 15.2% (2014: 21.8%) reflecting the decrease in operating profit after tax to £303m (2014: £347m) and higher opening shareholder net assets.
Other awards:  Best Use of Technology – UK Financial Services Experience Awards 2015  Best New Product – UK Financial Services Experience Awards 2015  Income Drawdown Provider of the Year – Financial Adviser Life & Pensions Awards 2015  Best New Product for our new customer led online retirement journey – UK Customer Experience Awards 2015
We are extremely well positioned in India to deliver on our future growth aspirations and we announced our intention to increase our stake in HDFC Life from 26% to 35%1
We continue to strengthen our operations in India and China. We are well positioned for future growth in the region.
Strengthening position in India HDFC Life is one of India’s leading life insurance companies with a 15% market share in the private sector. Its comprehensive product portfolio provides over 20 million customers with innovative needs-based insurance and savings solutions.
India remains a highly attractive market with a number of positive growth factors. The International Monetary Fund has estimated that the country’s GDP will grow by 8% per annum over 2015-2020. Life insurance penetration rates in India are currently low compared to developed economies, and the introduction of new welfare schemes by the Indian Government should help to emphasise the importance of insurance coverage among the large uninsured population.
In August 2015, we announced that terms had been agreed with HDFC, our partner in India, to seek regulatory approval for us to take an increased stake in HDFC Life for a consideration of Rs 1,706 crore (£175m based on INR exchange rate as at 31 December 2015). This proposed investment demonstrates our belief in the strength of HDFC Life and the long-term growth prospects of the business and the Indian insurance market.
A new regulatory environment came into effect on 1 January 2015 in Hong Kong, which banned advance payment of commission on all investment-linked products and has impacted the market significantly. We are supportive of these changes in creating a more professional advisory marketplace but it will take time for the market to adjust. We are adapting our propositions in light of these changes and launched two new single premium products in 2015.
We announced the closure of our insurance businesses in Dubai in November 2014 and Singapore in June 2015. The Singapore business formally closed in November 2015 following finalisation of regulatory approvals. Further details are included in our discontinued operations segment in Section 1.4.4.
Total AUA increased to £2.8bn, due to a 10% increase for our associate and joint venture businesses’ AUA to £2.3bn (2014: £2.1bn). Hong Kong’s AUA increased to £0.5bn (2014: £0.4bn).
HDFC Life’s investment in digital and ecommerce platforms has established it as a leader in this fast growing online space.
Heng An Standard Life has delivered a 19% growth in sales with an increased new business profit margin.
Hong Kong operating profit decreased to £2m (2014: £5m) due to lower sales volume and a different new business product mix as we re-position the business and develop new customer propositions.
Our Hong Kong business continued to manage costs whilst investing in new propositions in response to changes in regulation. 2015 saw falls in both expenses and revenue as the business product mix is adjusted.
Following the regulatory changes in Hong Kong, a review of expense and reserving assumptions was undertaken which resulted in a £46m non-operating loss being recognised, primarily relating to impairment of deferred acquisition costs.
On 30 January 2015, we successfully concluded the sale of the Canadian business to Manulife for a fixed consideration of C$4.0bn (£2.2bn including related hedging derivative contracts). We recognised a gain on disposal of £1,102m.
The sale of our Canadian business was significant for the Group, and reaffirms our continued focus on growing fee based business, whilst reducing our exposure to spread/risk business. In addition, the expanded relationship with Manulife deepens Standard Life Investments’ ongoing access to Canadian and wider global distribution.
Dubai and Singapore The regulatory landscapes in the markets in which we operate in Asia changed significantly in 2014 / 2015 and we responded by reviewing our strategy. Our increasing focus in Asia is building on our relationships with our partners in India and China, expanding our asset management presence through Standard Life Investments and growing our wholly owned business in Hong Kong. As a result, we announced the closure of the Dubai business in November 2014 and Singapore in June 2015. Our Singapore business closed on 18 November 2015.
Find out more about the gain on sale in Note 1 in the Group financial statements section
Our approach to risk management Effective and pre-emptive risk management, over both the short and long term, is essential for the continued success of our strategic development to create a world-class investment company.
We have a strong governance culture and our approach to risk management is a fundamental part of this, supporting the development of longterm value by ensuring that:  Well informed risk-reward decisions are taken in pursuit of the Group’s business plan objectives
 Capital is delivered to areas where most value can be created from the risks taken
From within these broad categories we have identified a number of specific principal risks and uncertainties. This list should not be considered to be exhaustive but rather those which we currently believe have the greatest potential to affect our business model, future performance, solvency or liquidity. These principal risks were subject to a robust assessment by the Board during 2015. As our strategic development continues, and we respond to changes in our external environment, it is to be expected that both the risks themselves and the relative importance of these may change. We have provided our assessment of the forward trend for these risks. In 2015 the sale of our Canadian businesses and the changes in the UK pensions market mean spread business and the inherent risks involved are becoming less significant. In turn, the acquisition of Ignis and the continued strong growth of our fee business mean that our exposure to market risk on fee revenue is becoming more important.
The key processes used by the Board to assess the prospects of the Group are: The business and strategic planning processes: Strategic planning is a continuous process which underpins business planning. Business planning is an annual process which projects the performance, regulatory capital and liquidity of the Group over a three year period, and considers base, downside and severe downside economic scenarios. Our projected capital positions are a measure of the capital we need in the business to cover our risks, including financial and operational risks, under stress scenarios.
Oversight of risk within the business delivered through the Own Risk and Solvency Assessment (ORSA) processes which are described within this section.
‘At Standard Life, our risk culture is at the core of how we operate and run our business. Risk is at the forefront of decisions we take as an organisation and drives important discussions in the boardroom and throughout the business.’
Enterprise risk management framework The Group’s Enterprise Risk Management (ERM) framework enables a risk based approach to managing our business. It integrates concepts of strategic planning, operational management and internal control. Our framework has been developed and embedded in the business over several years.
 Risk control processes: The practices by which we manage financial and non-financial risks within the Group. They are used to identify, assess, control and monitor risk throughout the business.
 Strategic risk management: Forms an integral part of the strategic planning process and is directly linked to the Group’s corporate objectives. It supports the development of long-term value by ensuring that well informed risk-reward decisions are taken in pursuit of the Group’s business plan.
 Emerging risks: The aim of emerging risk management is to identify risks before they materialise. This gives us time to engage with the risk, understand it and respond accordingly. We use our emerging risk process to inform reverse stress testing and capital adequacy requirements across the Group. Our pro-active screening process which looks across broad sources of risk including geopolitical, technological, environmental and societal, helps us to anticipate future threats.
The ORSA is the set of processes that underpin our ERM framework. The purpose of the ORSA is to inform and develop:  Our understanding of the current and potential risks to the business over the product lifecycles. This includes both financial and non-financial risks including environmental, social and governance (ESG) risks and their potential to affect both the long and short term value of the business.
We operate a ‘three lines of defence’ model of risk management, with clearly defined roles and responsibilities for boards, committees and individuals:  First line: Day-to-day risk management is delegated from the Board to the
Chief Executive and, through a system of delegated authorities and limits, to business managers
 Second line: Risk oversight is provided by the Group Chief Risk Officer and established risk management committees, such as the Group Enterprise Risk Management Committee. These management committees are supported by the specialist risk management and compliance functions across the Group.
Decisions taken by the UK, Scottish and other governments could impact demand for our propositions or significantly change the business environment. The impact could be felt in one of our businesses or more broadly across the organisation.
 We constructively engage with key decision makers on political change which could impact our company in the best interests of our stakeholders, for example by contributing to consultations
 Political risks are considered as part of our stress and scenario testing programme (which includes both quantitative and reverse stress testing) and emerging risk process
Our industry is subject to high levels of regulation which regularly change. As we expand our investment business into new countries, this in turn increases the breadth of regulations with which we must comply.
2015 was a year of significant regulatory change in the UK, in particular with the implementation of pension freedoms which had a significant impact on our insurance business. We also participated in a number of industry wide thematic reviews. Regulatory change is expected to be a continuing theme in the coming years, for example with MiFID II expected to be a significant development for our investment business in particular.
New or changing regulations can create opportunities for our business but can also increase risk. Complying with new or changing regulations can increase our compliance costs, impact the profitability and demand for our propositions, or tie up resources which may restrict other developments that we have planned to support our business plan.
 Regulatory changes are considered as part of our stress and scenario testing programme and emerging risk process
 Standard Life Investments aims to deliver consistently strong investment performance with its commitment to excellence in active management
Poor business conduct can lead to material financial losses, through fines or remediation activity and can cause significant reputational damage.
 Our Conduct Risk Policy helps to ensure that the standards and outcomes we set are implemented consistently across the business
 We maintain a strong and open relationship with the Financial Conduct Authority and other regulators
This exposes us to the risk of failure of key systems, and security risks such as fraud and cyber-attacks. As our global profile increases, for example via the investment business’s sponsorship of the Ryder Cup and British & Irish Lions, we may become a higher profile target.
The crystallisation of these risks could mean that we are unable to operate core processes and serve our customers which could lead to reputational damage and to remedial costs.
 Cyber risk is a constantly evolving threat. We work with specialist third parties to identify new risks and develop our response to them.
We use a number of outsourcing partners to operate and deliver core systems, capabilities and processes. Key relationships include Citigroup’s with our investment business and FNZ’s role in the delivery of our platform functionality for our insurance business.
 Our Group Outsourcing Policy sets out standards that must be complied with
 We maintain strong relationships with partners to ensure that the risks arising are well understood
The Group runs a significant change programme. This exposes us to the risk that change takes longer or costs more than expected or that the change does not meet its intended objective.
Key changes in 2015 included the integration of Ignis within our investment business, the development of 1825 our new UK advice business and the changes we put in place to respond to pension freedoms in our insurance business. Additionally, across the organisation we continue to develop, enhance and upgrade our operational processes.
 In recent years, our business has built up significant experience of successfully responding to change, whilst continuing to develop marketleading propositions for customers
We are exposed to the risk that we are not able to do this, that it can only be achieved at a higher cost than expected or that key individuals leave the business unexpectedly.
 We regularly benchmark our terms and conditions against the market
 Our sustainability section (1.6) explains the range of initiatives that we use to support employee wellbeing and engagement
Our business is exposed to market risk from the direct investment of shareholder assets, indirectly from UK and German with profits funds in our insurance business and as a result of fluctuations in fees that we earn which are linked to the value of underlying assets in both our insurance and investment businesses.
 We set limits for market risk exposures  We use our stress and scenario testing programme to understand our sensitivities to markets and identify mitigating actions
 Limits for individual counterparties are overseen by the Group Credit Risk Committee
 Exposures are pro-actively monitored with mitigation action taken where necessary
DEMOGRAPHIC AND EXPENSE RISK Risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience differing from that expected, which for the purpose of risk management includes liabilities of insurance and investment contracts. The Group has an appetite for such risks since we expect acceptance of the risk to be value additive.
 We set limits for longevity risk exposure  We have a robust governance process for setting our longevity assumptions using the latest data sources
 We have a reinsurance arrangement with Canada Life which transfers a material part of our longevity exposure
1.6 Sustainability We are here to help people save and invest for their future.
Our strategy and approach During 2015, we reassessed our sustainability strategy and completed a materiality review. The review helps make sure our sustainability goals are meaningful, challenging and relevant to our commercial aims, as well as what our stakeholders expect of us. We examined long-term environmental, social and governance (ESG) risks and opportunities and worked with a wide range of sources and inputs, including:  Investors in our Company  Our people and subject matter experts  Leaders and opinion formers within our industry  Recognised initiatives like the United
As a result of the review, our sustainability strategy covers four priorities: 1. Responsible business 2. Employment 3. Pensions and savings 4. Investment
Doing the right thing Our first priority is to operate ethically, as a responsible business. This covers many aspects of our business, from our Code of Conduct to managing our environmental impact. Operating this way helps build trust with our stakeholders.
Through our products and services, we help people manage their money so they can support their lives and future ambitions.
We received our best ever DJSI and FTSE4Good index scores Getting independent, objective validation of how well we’re working towards our sustainability targets is very important. We take part in the Dow Jones Sustainability Index (DJSI) and FTSE4Good surveys because they are widely known and respected independent surveys.
You can read our 2015 sustainability report and find out more about our materiality review at www.standardlife.com/sustainability
1. Responsible business This includes our business ethics, managing our environmental impact and contributing to local communities.
A new Code of Conduct We revised and re-launched our Code of Conduct in 2015. We also published it on our website to reinforce our belief in transparency. Our culture is based on doing the right thing and we want our people to understand our Code – applying it to everything they do, every day.
Human rights statement We updated and published our human rights statement in 2015. It covers our approach to our people, our customers, how we invest and the influence we have in wider society.
To promote our aims in these areas, in 2015 we continued to run our programme of awareness-raising activity amongst our people, including an environment champions network, promoting ‘green’ travel and collaborative technology, and ongoing energy reduction and recycling initiatives.
In 2013, we set a target for 20% reduction in greenhouse gas (GHG) emissions by 2020. To date, we have achieved a 2.1% reduction. In 2016, we plan to review our environmental strategy and targets.
We report our most material GHG emissions, but we also measure our emissions in more detail too.
1 Note: Talent pipeline includes graduates and members of the Emerging Leaders Development Support (ELDS) and Accelerated Development Support (ADS) programmes. 2014 figures exclude graduates.
We believe that people networks are a great way to support our people and provide development opportunities. We continued to run and support our Women’s Development, Armed Forces, and Lesbian, Gay, Bisexual and Transgender (LGBT) networks. In 2015 we formed the LGBT allies group. Allies are people who actively advocate for equality at Standard Life. We also launched two new networks: the Young Persons’ Development network and the Carers’ network.
You can read our global real estate investment portfolio GHG emissions at www.standardlifeinvestments.com/ CO_Sustainable_RE_Investment_Re port/getLatest.pdf
You can get a complete breakdown of our emissions and read our methodology at www.standardlife.com/sustainability
Total 25,699 26,380 26,238 (2.1%) (8%) FTE / Tonnes CO2e ratio4 Total 3.39 3.55 3.75 (9.6%) (4%) Paper used (tonnes) Total 485 494 603 (19.6%) (10%)
You can read our new Code of Conduct and Human Rights statement at www.standardlife.com/sustainability 38 Standard Life
Although we’ve made good progress during the year on diversity, we know there are areas that we need to improve on. For example, the gender mix of our senior management population is 20% female and 80% male.
Talent pipeline As a globally expanding business, we need to invest in a strong talent pipeline. This helps ensure our future leaders and senior managers can grow to fill future roles.
We launched a non-executive Development Curriculum in 2015 to encourage and develop our people to gain external board-level experience in preparation for Executive Team and increasingly complex Board appointments. The curriculum is available to senior leaders and those participating on development programmes.
Wellbeing and employee engagement We want to engage our people and support them both in and outside of work.
The survey also highlighted areas where we can do better: building an emotional connection with our strategy and future, helping ensure our people feel valued in their roles and enhancing collaboration across teams.
To address the feedback, a number of actions have been taken including ensuring all teams have the opportunity to consider local actions for local issues, investing in management training to enhance career conversations and the implementation of SharePoint to make it easier to collaborate across the Company.
Our InterAction scores were 63% for engagement and 64% for enablement, slightly below the global financial services average scores of 66% and 67% respectively.
Helping people get career ready We partner with Career Ready, a charity that supports young people in their last two years of school to fulfil their potential. Our people offer mentoring over a two year period, including a four week work placement at one of our offices, paid at the UK Living Wage.
We were awarded Corporate Responsibility Award of the Year at the HR Network Awards in recognition of our employability work.
Our charity partners We work with charities voted for by our employees with a focus on employability.  Scope and Capability Scotland in the
UK  Barnardos Ireland in Ireland  Let's Get Ready in the USA  Hong Kong Society for the Protection of Children in Hong Kong 40 Standard Life
Each year, we carry out a client survey across all markets and distribution channels. In 2015, around 800 of our worldwide clients helped us to understand how they felt about our brand reputation and the products and services we provide. The insights are used to ensure we have the right capabilities, solutions and services to meet client needs around the world.
We support the need to encourage more people to start saving into a pension as early as they can in their working lives. Of the 5.2 million more people saving, around 822,000 are saving into our pension schemes.
We carried out research in 2015 that showed, on average, UK adults have only an eight year horizon as far as their financial plans are concerned. So when the changes came into effect we wanted to make sure that people were fully informed so that they made good decisions.
A new advice business – 1825 The new freedoms available to people with pensions savings highlighted the importance of professional financial advice in the UK. We felt that there was a significant opportunity to create a new advice business to support our clients to understand better their financial situation and help them achieve their goals. In acquiring Pearson Jones – an existing UK financial advice firm – we created a new business called 1825 (this is the year that Standard Life was originally established).
Engagement and education Wherever we operate, we want to engage and educate our customers to help them manage their money.
Our MoneyPlus blogs have continued to prove successful in engaging with people on financial issues. We focused much of the content on the pension freedoms, covering topics like pension scams and how to avoid them, as well as alternative ways to save and manage money.
Our Governance and Stewardship team focuses on governance and oversight of our investee companies. We actively use our influence through engagement and voting in order to hold boards to account and promote high standards of governance. When voting, the team implements considered policies which are based on our Governance and Stewardship Guidelines and we seek to vote our clients' shares in a manner consistent with their best interests. We publish regular reports detailing our voting and engagement activities. We also exercise influence in matters of public policy and regulation where these relate to governance and stewardship and the interests of our clients.
In 2015, Standard Life Investments collected Global Real Estate Sustainability Benchmark (GRESB) 'Green Stars' for 16 of our real estate funds. The GRESB 'Green Star' is the top ranking for sustainability management, policy, implementation and measurement.
Promoter Score  Voting at shareholder meetings of investee companies  Environment, social and governance engagements with companies
We voted at 1,732 shareholder meetings of investee companies 659 ESG engagements with companies
You can find out more about our measures and definitions in our 2015 sustainability report at www.standardlife.com/sustainability 42 Standard Life
The Group’s International Financial Reporting Standards (IFRS) consolidated financial statements have been prepared in accordance with IFRS, as endorsed by the European Union (EU). However, our Board believes that non-Generally Accepted Accounting Principles (non-GAAP) measures, which have been used in the Strategic report, are useful for both management and investors and make it easier to understand our Group’s performance.
The most important non-GAAP measures in the Strategic report include operating profit, assets under administration and Group underlying cash generation.
The Strategic report has been approved by the Board and signed on its behalf by
2 Board of Directors 46 3 Directors’ report 50 4 Corporate governance statement 56 5 Directors’ remuneration report 75 6 Directors’ responsibilities 99
Tenure Sir Gerry was appointed Chairman in May 2007, having been deputy Chairman since March 2006. He has been a Director for 10 years. He became a Director of The Standard Life Assurance Company in July 2003.
Keith has been Chief Executive of Standard Life Investments Limited since 2004, having joined in 1999 as Chief Investment Officer. Previously he spent nearly 20 years at James Capel & Company Limited in a number of roles, including chief economist and managing director international equities. He is a non-executive director of the Financial Reporting Council, where he is a member of the codes and standards committee. He has been awarded honorary doctorates from the University of Sussex and Teesside University for services to the financial services industry.
Crawford was appointed Director in January 2007. He has been a Director for 9 years.
He is a board member of the Association of British Insurers.
Crawford is a non-executive director of Barclays PLC where he chairs its remuneration committee and is a member of the audit and nominations committees. He is also the senior independent director of SSE plc. In addition, he is chairman of Control Risks Group Holdings Ltd and a member of the advisory board for the School for CEOs. Crawford spent 22 years with Bain & Company Inc., where he was managing director Europe.
Background Colin was appointed to the Board of Standard Life Investments in 2004 as a non-executive Director. In 2010, he assumed executive responsibility for global client relationship activity, including client management, product development, distribution management and also brand management. Previously he spent twenty years with Mercury Asset Management (MAM)/Merrill Lynch Investment Managers (MLIM), becoming head of global marketing at MLIM in 1999.
He holds a B.A. (Hons.) Philosophy, Politics, and Economics degree from the University of Oxford.
Noel was appointed Director in July 2012. She has been a Director for 3.5 years.
Tenure Pierre was appointed Director in October 2011. He has been a Director for 4.5 years.
Noel is chairman of GE Capital Bank Limited. She also holds non-executive director appointments with the London Metal Exchange, the British Horseracing Authority and Sirius Minerals Plc. Noel was previously with Citicorp for 15 years, latterly as the chief operating officer of Citibank International. Her previous non-executive directorships include Alent plc, Logica PLC, RSA Insurance Group plc and Sumitomo Mitsui Bank.
He holds a degree in Civil Engineering, Ecole Nationale des Ponts et Chaussées, Paris, a Law degree from the Faculté de droit, Paris, together with an MBA from HEC Paris.
Martin is also a non-executive director of esure Group plc, where he chairs the remuneration committee and is a member of the risk committee. He is a nonexecutive director of Faraday Underwriting Limited which manages a syndicate at Lloyds.
Martin spent nearly thirty years as a strategic risk consultant carrying out a wide range of strategic consulting projects and M&A assignments. His senior roles included managing director, risk consulting & software, EMEA at Towers Watson.
He holds an MA, Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries.
Isabel’s previous non-executive directorships include QBE Insurance Group Ltd and the Pensions Regulator and she was also a member of the With Profits Committee of Standard Life Assurance Limited.
Committee memberships 4 Audit 4 Risk and Capital 4 Audit (c) 4 Risk and Capital
Dividends The Board recommends paying a final dividend for 2015 of 12.34p per ordinary share. This will be paid on 24 May 2016 to shareholders whose names are on the register of members (the Register) at the close of business on 15 April 2016.
Share capital You can find full details of the Company’s share capital, including movements in the Company’s issued ordinary share capital during the year, in Note 28 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2015, in the Shareholder information section.
On 13 March 2015, shareholders voted at a general meeting to approve a return of value of 73p per share (approximately £1.75bn in total) via a B/C Share Scheme, along with an associated share capital consolidation. The number of ordinary shares in issue was reduced by broadly the same ratio as the ratio of the return of value of 73 pence to the ordinary share price. Shareholders received 9 new ordinary shares for every 11 existing ordinary shares held. The total number of shares in issue at 6pm on Friday 13 March 2015 was 2,395,185,122 ordinary shares of 10 pence each. The total number of shares in issue at the open of markets on Monday 16 March 2015 was 1,959,696,918 (new) ordinary shares of 122/9p each. Based on shareholders' elections (or deemed elections), 668,370,013 B Shares of 73 pence each and 1,726,815,109 C Shares of 0.0000001 pence each were allotted and issued on 19 March 2015. No application was made to the UK Listing Authority or to the London Stock Exchange, respectively, for any of the B Shares or C Shares to be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor were the B Shares or C Shares listed or admitted to trading on any other recognised investment exchange.
During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (FCA).
On 26 November 2015 as a result of the implementation of changes to the Transparency Directive, a baseline notification was made by BlackRock, Inc. As a result BlackRock, Inc. has 102,052,974 voting rights, totalling 5.18% of total voting rights. On 27 November 2015, following a disposal of voting rights, The Capital Group Companies, Inc. recorded 97,655,470 voting rights, which is 4.96% of total voting rights.
In 2015, in accordance with the terms of the Standard Life Employee Trust Deed, the Trustees of the Standard Life Employee Trust waived all entitlements to current or future dividend payments for shares they hold under option on behalf of participants in the Company’s discretionary share plans between the grant and vest dates. Details of ordinary shares under option in respect of the Company’s discretionary share plans are 50 Standard Life
Restrictions on the transfer of shares and securities Except where listed below, there are no specific restrictions on the size of a holding or on the transfer of shares. Both are governed by the general provisions of the Company’s articles of association (the Articles) and current legislation and regulation. You can read the Articles on our website www.standardlife.com/annualreport
 An uncertificated share, in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and, in the case of a transfer to joint holders, where the transfer is in favour of no more than four joint transferees
 A certificated share by a person with a 0.25 per cent interest (as defined in the Articles) in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm’s length sale under the Articles)
The Company did not make any market purchases of its ordinary shares during the year ended 31 December 2015, and has not done so since then and up to the date of this report.
Directors and their interests The Directors who served throughout the year were:  Sir Gerry Grimstone (Chairman)  Colin Clark (appointed 1 November 2015)  Pierre Danon  Crawford Gillies  Melanie Gee (appointed 1 November 2015)  David Grigson (retired 12 May 2015)  Noel Harwerth  Isabel Hudson  Paul Matthews (appointed 1
November 2015)  David Nish (Chief Executive resigned 5 August 2015)  Kevin Parry  John Paynter (resigned 28 April 2015)  Lynne Peacock  Martin Pike  Luke Savage  Keith Skeoch
Biographies of the Directors can be found on pages 46 to 49.
No Director has any interest in the Company’s listed debt securities or in any shares, debentures or loan stock of the Company’s subsidiaries. No Director has any material interest in any contract with the Company or a subsidiary undertaking which was significant in relation to the Company’s business, except for the following:  The benefit of a continuing third party indemnity provided by the Company (in accordance with company law and the Articles)
Copies of the following documents can be viewed at the Company’s registered office (details of which can be found in the Contact details section) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company’s AGM on 17 May 2016:  The Directors’ service contracts or letters of appointment  The Directors’ deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles
 The rules of the Standard Life plc Executive Long Term Incentive Plan
Our people Our people have always been central to delivering our strategy, and we remain focused on bringing out the best in them, shown in Section 1.6 of the Strategic report.
As part of our performance culture, employees and their managers have regular conversations together where they agree performance goals and how to develop and address the employee’s aspirations, strengths and development areas. We believe great performance should be rewarded, and we think the process we follow to do that should be clear to everyone. Our approach continues to support our reward principles and links pay to performance. This ensures our remuneration remains competitive in the market.
Changes to the UK employee pension were confirmed in 2014 and will be implemented from 16 April 2016, when pension scheme members will build up future pension in the scheme on a defined contribution basis rather than a career average defined benefit basis.
We believe that we provide a consistent and competitive level of support for our employees in their retirement savings provision, and that this is sustainable going forward to ensure that we remain competitive.
We are in the process of launching our new intranet, which is already live in Ireland and which will be rolled out to all employees by the middle of March 2016. The site connects employees through one system, helping them to do their job more quickly and easily as well as enhancing collaboration and communication across the whole business. By linking search functionality with Lync and SharePoint, Standard Life employees can now find people and share skills and knowledge across the whole business with ease. This helps to improve employee engagement with what’s happening inside the business and also to increase awareness of any financial, economic, social or environmental factors which may affect the performance of the Group.
The Group also encourages share ownership in the Company in the UK and Ireland through the Standard Life Sharesave Plan which was launched in August 2011. In September 2015, we launched a fifth invitation to UK employees and at the same time made a fourth invitation to employees in the Republic of Ireland. On 1 November 2015, the second of the Sharesave invitations matured and participating employees have the opportunity, until 1 May 2016, to buy Standard Life plc shares at a price of £2.21 per share with their accumulated savings.
There are now over 3,500 employees in the UK and Ireland participating in Sharesave plans. The exercise price is £2.21 (€2.81) under the 2012 invitations; £2.72 (€3.22) under the 2013 invitations; £2.96 (€3.70) under the 2014 invitations and £3.28 (€4.48) under the 2015 invitations.
 Introduction – the Chairman will introduce the Directors and outline the business of the AGM
David Nish and then Keith Skeoch, as Chief Executives during the year, were invited to Committee meetings to discuss relevant topics, such as talent development and management succession.
 Overseeing succession planning, leadership and talent development and diversity levels throughout the Group
The Committee’s work in 2015 An indicative breakdown as to how the Committee spent its time is shown below: Committee effectiveness The Committee reviews its remit and effectiveness each year. The 2015 review was carried out via an internal self-assessment questionnaire. The review concluded that the Committee:  Continued to focus Director recruitment on the skills and experience required by the Board
 Saw progress in the succession, talent and development, diversity and leadership programmes across the Group including agreeing principles for managing and developing succession
 Had worked well with the Appointments Committee to oversee Chief Executive succession 56 Standard Life
The roles and responsibilities of the Board, Chairman and Chief Executive are outlined below: The Board The Board’s role is to organise and direct the affairs of the Company and the Group to maximise value for shareholders, in accordance with the Company’s constitution, all relevant laws, regulations, corporate governance and stewardship standards. The Board’s role and responsibilities, collectively and for individual Directors, are set out in the Board Charter. The Board Charter also identifies matters that are specifically reserved for decision by the Board. These include approving, overseeing and challenging:  The development and implementation of strategy, objectives and business plans  Capital and management structures, including the return of value and share consolidation which took place in 2015
 Significant corporate and other transactions, which during 2015, focused on concluding the sale of the Canadian business, increasing our stake in HDFC Life (subject to regulatory approval) and closing our operations in Singapore
 Remuneration policy  Succession planning which, during 2015, focused on Chief
Executive succession  The sustainability of the Group’s business, our ethical standards and behaviours and our corporate responsibilities
 Significant external communications  Terms of reference of Board Committees  Appointments to the Board and to Board Committees  The matters to be escalated from subsidiary boards to the
Code Compliance As well as covering the formal disclosure requirements of the UK Corporate Governance Code (the Code), this statement describes how the Board meets its governance responsibilities.
Throughout 2015, the Company complied with all of the provisions set out in the Code issued by the Financial Reporting Council (FRC) in September 2014. This is available at www.frc.org.uk
During 2015, the Committee oversaw the development of the governance map, a key element of the new Senior Insurance Managers Regime (SIMR). The map documents our governance structure and the key functions and function holders within it. The governance framework sets out the Board’s relationship with the boards of the principal subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries are required to refer to the Board or to a Committee of the Board for approval. It also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.
The roles of the Chairman and the Chief Executive are separate. Each has clearly defined responsibilities, which are described in the Board Charter. The heads of each business unit and the corporate centre functions manage their teams within authorities set out in the Board Charter and within an approved scheme of delegation. This includes reporting to the Chief Executive on how they are complying with Group policies and performing against approved plans and budgets. The Company Secretary is responsible for advising the Board on governance matters.
Board composition, balance and diversity The Board’s policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decisionmaking framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 19 February 2016, the Board comprises the Chairman, eight independent non-executive Directors and four executive Directors. The Board is made up of nine men (69%) and four women (31%) (2014: men 77%, women 23%). The Board continues to support its Diversity statement which states that it:  Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and non-executive
 Recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness
 Believes that it should have a blend of skills, experience, independence, knowledge and gender amongst its individual members that is appropriate to its needs
The Nomination and Governance Committee receives updates on progress towards achieving and maintaining diversity throughout the Group. This includes reviewing statistics on age, gender and full/part time working at all levels. The Group also promotes initiatives and programmes to raise awareness of why diversity matters. You can read more about our diversity activities in Section 1.6 of the Strategic report.
Board changes during the period Appointments Paul Matthews and Colin Clark joined the Board on 1 November 2015 as Executive Directors. Paul joined Standard Life in 1989 and, since 2012, has been the Chief Executive UK and Europe. Colin joined Standard Life Investments as a nonexecutive Director in 2004 and since 2012, has been Standard Life Investments’ Global Client Director. As noted earlier in the report, Keith Skeoch was appointed Chief Executive on 5 August 2015.
David Nish retired from the Board on 5 August 2015 after nearly nine years’ service as Chief Financial Officer and then Chief Executive.
During 2015, the Committee supported changes to the composition of the board of SLAL, in particular that a nonexecutive Chairman and a number of independent non-executive Directors should be appointed to the SLAL Board. Having identified the capabilities needed for Board roles, and the succession timeframe, the Committee considers the related role profile submitted to external search consultants along with the request to prepare a list of suitable candidates. The Group has used the services of JCA Group, Egon Zehnder and Odgers Berndtson to support its recent recruitment searches and Egon Zehnder has also provided executive development assessment support. These consultants have no other connection with the Group.
The Nomination and Governance Committee considers the potential suitable candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory approvals. The other Board members are also offered the opportunity to meet the recommended candidates. The
Committee considers the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address.
Each non-executive Director is appointed for a three-year fixed term and shareholders then vote on whether to reelect him or her at every AGM. Once a three year term has ended, a nonexecutive Director can continue for further terms if the Board is satisfied with the non-executive Director’s performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a nonexecutive Director can serve, although the Board recognises the Code provisions regarding length of service when considering whether or not their appointment should be continued. The current average length of service of the non-executive Directors (excluding the Chairman) is just over three years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance – or continued appointment – is being considered. During 2015, the Committee recommended to the Board that the appointments of Lynne Peacock and Noel Harwerth should be continued for a second term.
You can see our standard letter of appointment on our website at www.standardlife.com/annual report or by writing to the Company Secretary
The letter of appointment confirms that the amount of time we expect each nonexecutive Director to commit to each year, once they have met all of the approval and induction requirements, is 30 to 35 days. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.
Sir Gerry Grimstone was Chairman of the Board throughout the year. He retired from his role as chairman of TheCityUK in September 2015. He has retained his non-executive positions with Deloitte LLP, the UK Government’s Ministry of Defence and his membership of the shareholder executive board of the Department for Business, Innovation and Skills. He is also senior adviser to the board of the Abu Dhabi Commercial Bank. In January 2016, Sir Gerry was appointed to the board of Barclays PLC as deputy chairman and senior independent director. Prior to this, the Board convened a meeting of the Standing Committee where this proposed appointment was fully discussed in terms of any potential or actual conflicts this might give arise to, and how they would be managed should they arise, as well as the potential impact on the Chairman’s time availability. Sir Gerry and Crawford Gillies, as a nonexecutive director of Barclays PLC, did not take part in this meeting.
Advice Directors may sometimes need external professional advice to carry out their responsibilities. The Board’s policy is to allow them to seek this where appropriate and at the Group’s expense. Directors also have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. No Directors sought external advice in 2015.
As well as planning the 2015 review, the Nomination and Governance Committee also considered how the themes from the 2014 review, which was facilitated externally, have been taken forward. Risk reporting was developed to introduce the “Views on Risk” from the Chief Risk Officer. In respect of engagement, the Board hosted a talent dinner where the Directors met and heard from participants in the leadership programmes, and non-executive Directors took part in a programme to support employees who take up board appointments outside the Group as part of their development. Executive Directors held regular interactive sessions open to all employees.
Outcome Following the review process, the Company Secretary analysed the selfassessment responses and prepared a summary report which also included the findings from his interviews and a series of related points for possible action. The report was considered in detail by the Nomination and Governance Committee at its October meeting before being formally presented to the Board in December.
 Continuing to review the format and content of Board information to meet the needs of the Directors
Chairman The review of the Chairman’s performance was led by the SID, Crawford Gillies. It was based on feedback given in the confidential online questionnaires. The questions covered: 1. The Chairman’s role to lead the Board and encourage effective participation and consensus decision-making 2. How he informs the Board of stakeholders’ views 3. His relationship with both executive and non-executive Directors
Directors The Chairman led the performance review of the Directors. He held one-toone meetings to assess their individual performance and contribution against 60 Standard Life
duties set out in the Board Charter and in their appointment letters.
 Meetings with the Company Secretary on the Group’s corporate governance framework and the role of the Board and its Committees, with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities both as Directors and as holders of a Controlled Function/SIMR role.
Background information is also provided including:  Key Board materials and information, including financial and non-financial measures, shareholder communications and financial reports
The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further. As mentioned above, during 2015, Paul Matthews, Colin Clark and Melanie Gee were all appointed to the Board. Given the strength of each of their careers in the financial services industry or with Standard Life, their induction programmes were tailored to complement this.
 An influential strategic visionary leader who would be viewed as highly credible, particularly with the City and regulators
 A proven global track record including expansion across Asia and North America
 Someone ideally experienced in developing strong relationships with institutional and wholesale clients
To allow all the non-executive Directors to be involved directly in the selection process the Nomination and Governance Committee established an Appointments Committee, comprising all of the nonexecutive Directors. The Appointments Committee began by considering whether there were internal candidates on the executive succession plan who fitted the above profile. Keith Skeoch was identified as a very strong internal candidate with the relevant skill set having a great understanding and appreciation of the Group’s history, journey and strategic direction, and as a key contributor to the current strategy who had delivered high performance in the investments business.
The selection process then had the following stages:  Keith was invited to present to the
Appointments Committee, sharing his vision for Standard Life and his proposals to deliver his vision
 This was followed by a detailed question and answer session based on Keith’s presentation against the elements of the agreed skills profile
Annual review of internal control The Directors have overall responsibility for the Group’s System of Governance (SoG), which includes the Enterprise Risk Management (ERM) framework and System of Internal Control, and for the ongoing review of their effectiveness. The SoG is designed to manage, rather than eliminate risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The SoG covers all of the Group’s risks as set out in the ERM Framework section in the Strategic report. Internal Audit regularly audits the effectiveness of internal controls, which will include elements of the SoG. Internal Audit reports its findings to the Audit Committee and the Risk and Capital Committee.
In line with the Code and associated guidance, the Board has conducted ongoing monitoring and review of the SoG through the Risk and Capital Committee and the business unit Enterprise Risk Management Committees (ERMCs). On behalf of the Board, the Risk function has also carried out an annual review of the effectiveness of the SoG. The SoG was in place throughout 2015 and up to the date of approval of the Annual report and accounts 2015. In preparation for Solvency II requirements, the review included all elements of the SoG as follows:  General requirements – governance structure, board decision making documentation, allocation of responsibilities, policy framework, contingency plans, internal review of system of governance, organisational and operational structure
In carrying out the annual effectiveness review of the SoG, the risk function liaised with Subject Matter Experts (SMEs) around the business and reviewed and challenged all elements of the SoG to ensure they were fit for purpose and had operated effectively during 2015. Risk also produced a report detailing the assurance activity which had been conducted throughout the year in relation to the System of Internal Control and a summary of the key risk items discussed at business unit risk committees on an ongoing basis throughout the year.
found material issues, recommendations have been made to restore process effectiveness
 Significant control breakdowns identified through the risk management and internal control systems were reported during the year and necessary actions have been or are being taken to remedy these
Communicating with investors The Company continues to develop a dialogue with its shareholders. As part of this, our investor relations and Group secretariat teams support communication with investors. During 2015, the Group continued its programme of domestic and international presentations and meetings between Directors and institutional investors, fund managers and analysts. The wide range of relevant issues discussed, in a regulatory compliant way, at investor presentations and meetings includes business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found in the Directors’ remuneration report.
The Board is equally committed to the interests of the Company’s 1.2 million individual shareholders who hold approximately 52% of the Company’s issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. The Company has continued to gather and respond to shareholders’ views on the services and means of communication available to them, mainly via the Shareholder Questions mailbox and surveys conducted with shareholders contacting the shareholder helpline. We believe that communicating electronically with our shareholders supports our sustainability strategy, and around 430,000 shareholders receive all communications electronically. We encourage shareholders to use our share portal to access information relating to their personal shareholding and dividend history and around 300,000 have signed up to this service. Share portal participants can also change their details and dividend mandates online and receive tax information electronically. We also encourage our individual shareholders to hold their shares in the Standard Life Share Account where shares are held electronically in a secure environment and 86% of individual shareholders hold their shares in this way.
To give all shareholders access to the Company’s announcements, all material information reported via the London Stock Exchange’s regulatory news service is published on the Company’s website. We have continued to host formal presentations to support the release of both the full year and half year financial results together with conference calls for our two Quarterly AUA and flows updates. These results-related events are also made available live on the Group’s website, with the facility for all listeners to ask questions, as well as having a permanent replay facility.
The Chairman’s statement and the Strategic report in the Annual report and accounts aim to provide a balanced overall assessment of the Group’s activities, performance and prospects. This information will be supported by a presentation at the 2016 AGM. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlife.com after the meeting. These will include the number of votes withheld.
In addition, a General Meeting was held on 13 March 2015 at which shareholders were asked to consider the resolution, recommended by the Board, to approve the return of 73 pence per share, the implementation of the B/C share scheme, and the share consolidation. 45% of the shares in issue were voted and the resolution was passed.
Our role as an institutional investor Standard Life Investments, the Group’s principal asset management company, is a signatory to and a supporter of the UK Stewardship Code. It understands and promotes the importance of good governance and stewardship, believing that it is mutually beneficial for companies and long-term investors such as Standard Life Investments to have a relationship based on accountability, engagement and trust. As a major investor, it monitors and analyses the governance of the companies it invests in holding regular meetings with their senior management representatives. Standard Life Investments maintains principles and policy guidelines on corporate governance, stewardship and voting. These guidelines are applicable on a global basis. The guidelines support Standard Life Investments’ approach to engaging and to voting at shareholder meetings. Standard Life Investments also makes voting reports available to clients and publishes summary information on its website. The policy guidelines are applied pragmatically, after all relevant information has been carefully considered. When assessing the Company’s compliance with the principles and provisions of the UK Corporate Governance Code, the Nomination and Governance Committee also reviewed the Company’s compliance with these principles and policy guidelines. The Committee concluded that the Company complied with the guidelines during the year.
Directors  How the Company appoints and replaces Directors  Directors’ interests in shares 64 Standard Life
Board meetings and meeting attendance The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. During the year, the Board held specific sessions to consider the Group’s strategy and business planning. The Chairman and the non-executive Directors also met on three occasions during the year, formally and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed.
The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. During 2015 the Standing Committee met three times including in relation to the Chief Executive’s appointment and the Chairman’s appointment to the board of Barclays PLC. Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are generally distributed before meetings. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting.
Directors’ attendance at the 2015 Board meetings is shown in the table below. The Board met eight times during the year.
Non-executive Directors Pierre Danon 8/8 Melanie Gee 0/1 Crawford Gillies 8/8 Noel Harwerth 8/8 Isabel Hudson 7/8 Kevin Parry 8/8 Lynne Peacock 8/8 Martin Pike 8/8
Former members David Nish 6/6 David Grigson 4/4 John Paynter 2/2
The Chairman of each Committee and of the Nomination and Governance Committee review Committee membership at regular intervals. The Nomination and Governance Committee considers all proposed appointments before they are recommended to the Board.
This statement includes reports from each Committee Chairman other than the report on the responsibilities and activities of the Remuneration Committee which can be found in the Directors’ remuneration report following this statement. The Committee Chairmen are happy to engage with you on their reports. Please contact them via questions@standardlifeshares.com In the interests of transparency we have included the reports from the Chairmen of the key Committees of Standard Life Assurance Limited – the With Profits Committee and the Independent Governance Committee. You can read more in Section 12.
4.2 Audit Committee report The Audit Committee assists the Board in discharging its responsibilities for financial reporting, internal control and the relationship with the External Auditors
Dear Shareholder During 2015, the activities of the Audit Committee significantly increased. We:  Prepared for Solvency II, the new prudential regime that took effect from 1 January 2016
The Committee has worked with executive management to improve the financial reporting and considered carefully new disclosures on viability.
I took over the chairmanship of the Committee at the 2015 AGM and should like to thank my predecessor, David Grigson, for guiding the Committee through its work over the previous three years.
I look forward to engaging with you on the work of the committee.
Former member David Grigson, Chairman* 3/3 John Paynter 2/3 *the Chairmanship changed on 12 May 2015
 Its view of the ‘fair, balanced and understandable’ reporting obligation
 The findings of its review of key prudential returns and disclosures
 The independence of the External Auditors, the appropriateness of the skills of the audit team, the approved audit plan, the quality of the firm’s execution of the audit, and the agreed audit and non-audit fees
 Any external audit tender process and the outcome of the tender
Committee effectiveness The Committee reviews its remit and effectiveness annually. The 2015 review was carried out using an internal selfassessment questionnaire. The review concluded that the Committee had:  Performed effectively during the year and should continue its close liaison with the Risk and Capital Committee to embrace efficiency and enhance coverage
 Received sufficient, reliable and timely information from management and the External Auditors to enable it to fulfil its responsibilities, recognising a desire to provide focused information in the face of increasing obligations
Report on the year Audit agenda The Audit Committee has a rolling agenda comprising recurring business, seasonal business and other business. As recurring business, at every meeting the Committee reviews and discusses:  Updates from Group Finance on significant financial accounting, reporting and disclosure matters
Other agenda items Other agenda items are aligned to the annual financial cycle as set out below.
 Q1 AUA and flows update  Completion of the 2014 external audit for all audited entities  2014 external audit fee and the proposed 2015 fee for all audited entities
concern basis of preparation of the financial statements. In doing so, it considered the Group’s cash flows resulting from its business activities and factors likely to affect its future development, performance and position together with related risks, as set out in more detail in the Strategic report. The Committee recommended the going concern statement to the Board (see Section 1.7). In addition to the going concern statement the Committee considered the form of the viability statement. In particular there was a debate over the period of time that it was appropriate to consider. The debate centred on the long- term nature of the life business and our obligations to policyholders in the context of the risks that could emerge. The Committee decided that it was appropriate to limit our statement to three years reflecting both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee used the same information as it uses when considering the risks that are taken into account to determine regulatory capital. The Committee recommended the viability statement to the Board (see page 31, in Section 1.5). The Committee reviewed the two quarterly AUA and flows updates, the Half year results and the Annual report and accounts. For the half year it received written and/or oral reports from the Chief Financial Officer, subsidiary audit committee chairmen or boards, the Company Secretary, the Chief Internal Auditor and the External Auditor. In addition for the year end it received a report from the Head of Group Actuarial. The Committee uses these reports to aid its understanding of the composition of the financial statements, to confirm verification and compliance with reporting standards and to justify accounting judgements and estimates. The Committee then seeks clarifications and any further information required to support the appropriateness of the numbers reported. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board. In particular, the Committee was satisfied that the annual and half year financial statements complied with laws and regulations and had been appropriately compiled.
Accounting estimates and judgements The Committee focused on the disclosure of key accounting estimates and judgements. In compiling a set of Group financial statements, it is necessary to make judgements and estimates about outcomes that are typically dependent on future events. This is particularly relevant to a life assurance business where profitability is inherently dependent on economic and health related outcomes. Further, we have a substantial defined benefit pension plan which will close to all contributions on 15 April 2016. Its liabilities are also dependent on economic and health related outcomes. Estimates are not however limited to liabilities. Our business and pension funds invest in some hard to value investments, such as over-the-counter derivatives, private equity, real estate and commercial mortgages. The value of those assets cannot be readily determined without estimations. The Audit Committee considered all estimates and judgements that Directors believed could be material to the financial statements. In particular, actuarial valuations were considered in the context of our experience over the short and medium term against base assumptions and future assessed improvements. We compared our actuaries’ views with estimates made by other companies and pension funds drawing on available benchmark data and looked at the changes in outcomes attributable to a change in estimates (known as sensitivity analysis). We determined that annuitant mortality was the most material estimate (see Note 33 of the Group financial statements for more detail). The Committee also discussed changes to persistency and expense assumptions in Hong Kong which resulted in a writedown of deferred acquisition costs. We enquired about revenue recognition. In particular, we discussed performance fees associated with the Ignis business. We were satisfied that revenue was appropriately recognised. We considered key assumptions determining the pension fund surplus: inflation (including the gap between RPI and CPI), mortality and the discount rate. The assumptions were compared with market data and expert opinions. We additionally considered the relevance of proposed new guidance on recognising a pension surplus on the consolidated statement of financial position. Interpretation remains uncertain and so the Committee supported additional disclosures. Further details are set out in Note 37 of the Group financial statements. We considered the carrying value of intangible assets, notably those relating to the acquisition of Ignis and agreed with management that it was necessary to write them down by £5m (2014: £43m) resulting from the loss of clients and the resultant revenue decline. See Note 16 of the Group financial statements for further detail. We considered conduct issues, particularly in respect of the sale of nonadvised annuities, taking account of an FCA review of practice across a selection of firms in the industry. After careful consideration of known facts and uncertainties, we recommended to the Board the disclosure of a contingent liability. See Note 45 of the Group financial statements.
We carried out a detailed review of the processes and controls for valuing hard to value assets and were satisfied that we could rely on the procedures for determining valuations. See Note 43 of the Group financial statements. Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.
Fair, balanced and understandable The Committee supported the financial reporting team’s thorough review of the Annual report and accounts. This has resulted in some significant changes in presentation which are designed to assist readers. Notably, accounting policies, estimates and judgements are co-located with relevant notes to the accounts, the accounts have been decluttered by the removal of trivial information and there is greater use of newly designed graphics.
The Committee formed the view that tax reporting could be clearer. Consequently, it discussed the opportunities for improvement with the Tax Director resulting in presentational clarifications.
The Committee reviewed the non-GAAP measures which complement the statutory IFRS numbers in order to give a more complete view of the performance of the business. In particular we ensured that the allocation of items to operating profit were in line with our established accounting policies and were consistent with previous practice. The Committee was satisfied with the consistency and reasonableness of the measures. The Committee discussed a future change to the definition of operating profit (see Note 14 of the Group financial statements), noting that the Remuneration Committee would continue to give appropriate consideration to items excluded from operating profit. Additionally, the Committee relied on the verification process for other non-GAAP measures notably assets under administration.
We agreed to recommend to the Board that the Annual report and accounts 2015, taken as a whole, is fair, balanced and can be understood by an experienced reader of the accounts.
The Committee considered actuarial assumptions used for year end 2015 for Solvency II reporting, including mortality, persistency and expense assumptions. Similar work was undertaken as for financial reporting (see above). The Committee reviewed disclosures relating to Solvency II results included in the Strategic report section of this Annual report and accounts, and related assurance reports and was satisfied with the disclosures.
Group Finance sets formal requirements for financial reporting, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting segment submissions. Further, Group Finance runs a technical review committee and is responsible for monitoring external technical developments.
The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal Audit functions, the Committee directs the investigation. The Committee is currently satisfied that the Group’s procedures are operating effectively.
 The status of management’s implementation of agreed improvement actions, including where and why dates have been rescheduled
The Committee considers Internal Audit’s effectiveness annually, monitoring its independence, objectivity and resourcing in the context of the Institute of Internal Auditors’ professional standards. To assist the Committee, EY LLP was engaged to review the effectiveness of the GIA function and reported the results to the Committee. The team earned the Institute of Internal Auditors’ highest rating. GIA also carried out its own quality assurance processes and reported the satisfactory results back to the Committee. During the year, Committee members significantly increased the amount of time spent with senior team members, meeting them before each formal meeting to discuss emerging topics and to advise on the scope of work they would like undertaken. This enhanced the regular dialogue that takes place at least monthly between the Committee chairman and the Chief Internal Auditor. During the year there was a process of succession for the Chief Internal Auditor led by the Committee chairman and with the full Committee approving the recommended candidate. An external appointment has been made to broaden the experience of the senior team. Based on its review, the Committee concluded that the function continued to be highly effective. In accordance with the relevant independence standards, the External Auditors do not place reliance on the work of Internal Audit.
External audit The appointment The Committee has responsibility for making recommendations to the Board on the reappointment of the External Auditors, for determining their independence from the Group and its management and for agreeing the scope and fee for the audit. Following its review of the quality and independence of the 2014 audit, the Committee recommended to the Board that PricewaterhouseCoopers (PwC) should be recommended to shareholders as the auditors for 2015. The shareholders voted in favour of the reappointment. PwC has been the Group’s auditors since 1994 and the audit was last retendered in 2003. The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable and the provisions of the EU Regulation on Audit Reform and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. In compliance with those regulations, the Committee has determined that it should tender the audit for the year ending 31 December 2017 to coincide with the rotation off the engagement of the lead partner, Stephanie Bruce (who has led the Standard Life audit team for four years).
 Recruitment of senior management  Certain tax services including those related to Base Erosion and Profit Shifting (BEPS)
 Tax compliance and advisory services  Employee benefit plan audits  Attesting to services not required by statute or regulation  Assurance services relating to regulatory developments affecting the Group
fee is commensurate with permitting PwC to provide a quality audit. Non-audit fees amounted to £1.3m (2014: £2.5 million). The fees primarily relate to services connected with controls assurance reports and tax compliance. Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Board’s policy for non-audit fees. Depending on the level of the proposed fee, the approval of the Chairman or members of the Committee and/or the whole Committee is required. The External Auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by external audit and the firm’s skill sets. Further details of the fees paid to the External Auditors for audit and non-audit work carried out during the year in are set out in Note 9 of the Group financial statements. The ratio of non-audit fees to audit and audit related assurance fees is 22% (2014: 40%). The Committee is satisfied that the nonaudit fees do not impair PwC’s independence.
We have discussed the accuracy of financial reporting (known as materiality) with PwC both as regards accounting errors that will be brought to the Committee’s attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at £31 million (2014: £37 million). This equates to approximately 5% of continuing pre-tax operating profit. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, PwC agreed to draw the Committee’s attention to all identified uncorrected misstatements greater than £2 million (2014: £2 million). There were no such items noted by PwC that impacted pre-tax profit. The gross differences were attributable to various individual components of the income statement. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External Auditors.
PwC has confirmed to us that the audit complies with their independent review procedures. Last year’s audit was not subject to either an independent quality assurance process undertaken internally by PwC or externally by the FRC. If this year’s audit is selected by either process, we will seek assurances that recommendations for improvements are embraced by the audit team.
Audit tender We have commenced the formal audit tender process. A pre-requisite of participation in the tender is that the firm can demonstrate its ability to meet ethical standards and be independent. We are at an advanced stage of concluding our work on independence.
The procedure being followed is as follows:  Briefing of pre-selected firms by
 Mutual agreement on the ability to be independent for 1 January 2017
 Interviews of partners led by the Committee Chairman and Chief Financial Officer respectively
I took over as Chairman of the Committee during the year and would like to thank my predecessor, Noel Harwerth, for her Chairmanship over recent years.
The Committee meetings are attended by the Group Chief Risk Officer and Deputy Group Chief Risk Officer with those invited to attend on a regular basis including the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive Standard Life Investments, the Chief Executive UK and Europe, the Company Secretary and the Chief Internal Auditor as well as the External Auditors.
The Group’s strategy of being a global investment business with a leading presence in investment management and in the UK long-term savings and investments market is subject to risks and uncertainties. The Group’s risk function seeks to understand and actively manage the sources and scale of these risks and uncertainties and provides reporting to the Committee on these matters accordingly. This includes providing each meeting of the Committee with a “Group Views on Risk” presentation which contains a holistic view of the key risks and uncertainties across all of the Group’s businesses and the actions being taken to manage these. The Committee’s role is to provide oversight, advice and challenge regarding:  The Group’s risk appetite, material risk exposures and the impact of these on the levels and allocation of capital
 The structure and implementation of the Group’s Enterprise Risk Management (ERM) framework and its suitability to react to forwardlooking issues and the changing nature of risks
 Material risk and capital matters affecting the Heritage With Profits Fund
(ORSA) In addition to these standing agenda items, the Committee also receives periodic reports from the Business Risk Review team. This team was created in the risk function in 2014 to focus on reviewing specific business issues and provide independent assessments and reports that assist management to manage and mitigate risk. After each meeting, the Chairman reports to the Board, summarising the key points from the Committee’s discussions.
 The use of cloud services and wider consideration of cyber risks
The Committee also discussed the implications of Standard Life Investments changing its outsourced provider of transfer agency services (including the maintenance of client investment records and certificates) given the potential impact of this on the business’s operational risk.
A key component of the Group’s ERM framework is the risk appetite framework. During the year the Committee received proposals regarding changes to the Group’s risk appetite framework and risk limits. This included receiving proposals regarding the quantitative risk limits to be used to manage the business during 2016 accompanied by risk assessments of the business plan for 2016. Specific items discussed by the Committee in respect of the risk limit proposals included the impact of changes in interest rates on the measurement of longevity risk and the approach used in
In addition to receiving information on liquidity risk through the dashboard reporting, the Committee received the results of the Group’s quantitative assessment of liquidity risk, setting out the estimated realisable value of assets in a distressed market relative to requirements following significant adverse shifts in customer demand. This allowed the Committee to understand the extent of liquidity risk in the context of the appetite approved under the risk appetite framework. The results indicated that, for the scenarios considered, all entities were able to meet customer demands.
During the year the Committee received an overview of hedging activity which included a focus on hedging performed within SLAL’s with profits business. This supported the Committee in scrutinising material risk and capital matters within SLAL’s with profits business and provided the Committee with information on:  The exposure being hedged and the rationale for the hedge  The instruments used for hedging  How the hedges are calibrated  The process for rebalancing the hedge  Conditions where the hedge may be ineffective
Regulatory compliance During the year the Committee reviewed and assessed the 2015 regulatory compliance plans detailing the planned assurance activities to be performed across the Group. The Committee also received various updates on thematic reviews being undertaken by the Group’s regulators.
Thematic items and Business Risk Review reporting During the year the Committee received a number of presentations supporting a wider understanding of risks and risk management activity across the Group.
The Committee also received a thematic presentation regarding implications of the UK government’s plan to hold a referendum on the UK remaining a member of the EU. This highlighted potential risks including the ability of UK entities to continue providing regulated services to European entities in the event of the UK exiting the EU (‘Brexit’). In addition to monitoring external developments, the Committee agreed a number of further actions to be taken by the business at this time to ensure the business is well-prepared for the possibility of a Brexit.
The presentations allowed informed discussion to take place regarding the progress of these businesses and made a number of recommendations which the Committee endorsed aimed at supporting the businesses in meeting their respective objectives.
Dear Shareholder I am pleased to present the Remuneration Committee’s report on Directors’ remuneration for the year ended 31 December 2015. As we are not changing our policy for 2016, unlike the two previous years, we do not have a policy report to present to you but have provided a summary of the policy in operation this year. Whilst there have been a number of management changes with the resultant consideration of new remuneration packages, all of the decisions reached were within the policy agreed at the 2015 Annual general meeting (AGM).
In this year of change, the business has delivered an excellent set of results, with increased assets under administration, increased net flows and higher Group operating profit and underlying cash generation while maintaining our financial strength in challenging market conditions.
The assets that we looked after increased by 4% and our unit costs continued to decrease which helped us increase our operating profit by 9% to £665m. This excellent performance also means another year of increased dividends, with our recommended final dividend of 12.34 pence per share (up 8.0 per cent on 2014) giving a total dividend for 2015 of 18.36 pence per share, up 7.8 per cent on 2014.
Given his promotion to a group-wide role, the Remuneration Committee considered it both appropriate and necessary to move Keith to a remuneration package commensurate with his group-wide responsibilities. The structure of pay and quantum is consistent with our move towards becoming a global investment business and when determining this structure we considered the remuneration arrangements for similar roles in asset management peer group companies as well as the more traditional insurers.
 A maximum short term bonus opportunity set at 175% of salary. This is a significant reduction on the maximum opportunity in his previous role of 365% of salary as we increased the importance of variable remuneration now delivered over the long term.
 A shareholding requirement of 500% of salary (increased from 300% of salary). Keith Skeoch must maintain this value in the form of Standard Life plc shares during employment and for a period of one year following his departure from the Group.
As we had previously agreed to consult if increases were made to award levels for executive Directors, following the announcement of Keith Skeoch’s appointment we wrote to 29 of our largest institutional investors, representing 35.74% of our shares. We had an open and transparent dialogue with a number of our largest shareholders and received a range of views and opinions on the remuneration package, the most common feedback being that we needed to demonstrate that the targets set for long term incentives going forward were sufficiently stretching in order to justify the increase in the maximum level of opportunity.
The weighting remains unchanged year on year with 70% of the award vesting based on cumulative Group operating profit and 30% based on cumulative Group net flows.
The Remuneration Committee considers that the increase in long term incentive opportunity is justified by Keith’s larger role and that the proposed targets are sufficiently stretching to ensure that the maximum opportunity will only be earned for outstanding performance and that the targets balance financial performance and risk.
The Chief Executive succession allowed us to build on David Nish’s strong performance in repositioning Standard Life for the future. The Remuneration Committee considered this sustained high level of performance, his role in repositioning the Company, including the overseeing of the sale of our Canadian business and the acquisition of Ignis, and his support of the successful Chief Executive transition and determined that he would be treated as a good leaver under the plan rules for the purposes of Group annual bonus awards and all outstanding long term-incentive awards. David’s 12 month notice period commenced on 1 July 2015 and he is now on garden leave until 31 March 2016, at which point his employment terminates. Since stepping down, and while on garden leave, David will, in line with the terms of his executive service agreement continue to receive his base salary of £835,000 per annum, his allowances and all benefits. During this time restrictions are in place on his ability to take up further employment and he remains available for consultation to the Group. In line with our normal practice, David will continue to be eligible to receive bonus under the rules of the Group annual bonus plan during this period (pro-rated for time).
Paul Matthews was appointed with a salary of £630,000 and Colin Clark with a salary of £600,000. Their short and long term variable pay opportunities are in line with our policies and are set out in detail in the implementation report on pages 82 to 94.
Colin’s appointment to the Board from his role in Standard Life Investments results in his remuneration becoming capped in line with our executive Directors’ remuneration policy and there will be a substantial increase in the deferral period for his awards.
Although it is not usual for roles similar to Colin’s to be held by board members, and for the role holder therefore to be subject to executive directors’ remuneration policies, we believed it was important to make this appointment in order to create a board composition which reflects our business strategy and is best placed to deliver to the needs of our customers and shareholders.
Given Colin’s skills, the value his appointment will bring to the Group and the impact stepping up to the Board has had on both quantum and time horizons of his remuneration, the Remuneration Committee considered it appropriate, before his appointment, to grant him a one-off award, to the value of £700,000, over Standard Life plc shares. The award will vest in 2017 subject to Colin maintaining a personal performance level above a pre-determined threshold and is forfeited in the event he resigns from the Company before vesting.
to three years which will apply for bonuses in respect of 2016 onwards.
In line with the spirit of increased transparency we will now also disclose the financial target, in addition to threshold and maximum targets for annual bonus awards at the point of disclosure. The threshold, target and maximum which were used in determining the bonuses arising under the Group annual bonus plan for the 2014 performance period are presented alongside the outcome on page 86.
Under the recently amended European Banking Authority guidance on remuneration requirements under the EU Capital Requirements Directive (CRD IV), it is anticipated we may no longer be able to apply proportionality to dis-apply the remuneration regulations for material risk takers of companies subject to CRD IV. As at the end of 2015 we have two entities that are subject to the remuneration requirements under CRD IV which are Standard Life Savings Limited and Pearson Jones plc. In anticipation of this, we have drafted an AGM resolution requesting shareholders’ agreement to give us the flexibility to pay variable remuneration to the impacted employees of these entities up to a maximum of 200% of their fixed remuneration. As the size and nature of the activities that are subject to this requirement have a very limited impact on the overall risk profile of the firm we have only 20 employees impacted by this requirement. None of the Directors of Standard Life plc are impacted by this requirement. This resolution and an explanation of it and can be found in the AGM guide 2016 which will be available online at www.standardlife.com from 17 March 2016.
5.2 Overview of the remuneration policy The following sets out a summary of the current remuneration policy as it applies to the Company’s executive Directors. This summary does not override the Company’s Directors’ Remuneration Policy which was approved by shareholders at the 2015 AGM. That policy came into effect on 12 May 2015 and can be found on our website at and in the Annual report and accounts 2014.
Operation The Remuneration Committee sets base salaries taking into account a range of factors including:  The individual’s skills, performance and experience  Internal relativities and wider workforce salary levels  External benchmark data  The size and responsibility of the role  The complexity of the business and geographical scope  Economic indicators
Core benefits include health screening, private healthcare, death in service protection, disability benefit and reimbursement of membership fees of professional bodies.
To provide a competitive, flexible retirement benefit in a way that does not create an unacceptable level of financial risk or cost to the Group.
Operation Executive Directors are auto enrolled into a defined contribution pension plan and are offered the alternative of a cash allowance.
The Remuneration Committee exercises its judgement to determine awards at the end of the year to ensure that the outcome is fair in the context of overall Group performance and against personal goals.
Deferred bonus shares are subject to malus between grant and vest and cash awards are subject to clawback for two years from the date of awards.
The maximum award possible under the plan rules is 500% salary.
There is currently no intention to make further awards under the following plans to executive Directors:  Standard Life Investments personal and company bonus plans – last operated (for an executive Director) for the Chief Executive
Principles In determining remuneration arrangements for new appointments to the Board (including internal promotions), the Remuneration Committee applies the following principles:  The Remuneration Committee takes into consideration all relevant factors, including the calibre of the individual, local market practice and existing arrangements for other executive Directors, adhering to the underlying principle that any arrangements should reflect the best interests of the Group and its shareholders
 Remuneration arrangements for new appointments will typically align with the remuneration policy approved by shareholders  In the case of internal promotions, the Remuneration Committee will honour existing commitments entered into before promotion  The Remuneration Committee will explain to shareholders the rationale for the relevant arrangements in the following year’s
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. The terms and provisions that relate to remuneration in each of the executive Directors’ contracts (that are not set out elsewhere in this report) are set out below. It is intended that the terms for any new appointment would be in line with these: Provision Policy
Notice periods Six months by the executive Director to the Company. Up to 12 months by the Company to the executive Director. A payment in lieu of notice can be made.
Non-compete clauses Applies during the contract and, at the Company’s choice, for up to six months after leaving. Contract dates Director
Date of current contract 5 October 2015 24 April 2014 29 October 2015 1 November 2015
Keith Skeoch signed a new contract in October 2015, reflecting his appointment to Chief Executive from 5 August 2015, his previous contract was signed on 3 April 2006. Luke Savage’s contract was effective from 18 August 2014. Paul Matthews’ and Colin Clark’s contracts were effective from 1 November 2015.
The remuneration policy for loss of office for executive Directors is as follows: Provision Policy Pay in lieu of notice
The annual remuneration report is set out in section 5.3 and section 5.4 and is subject to an advisory vote of shareholders at the AGM.
5.3 Annual remuneration report – what we did in 2015 for executive Directors Single total figure of remuneration – executive Directors (audited) The following table sets out the single total figure of remuneration for each of the executive Directors who served as a Director at any time during the financial year ending 31 December 2015. Where a Director has been appointed or stepped down during the year the remuneration included in the table is that paid for the period for which they were an executive Director.
Total remuneration for the year £000s £000s £000s £000s £000s £000s £000s 1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2015. This includes car allowances of £15,867 for Luke Savage, £2,337 for Paul Matthews and £9,896 for David Nish. Luke Savage also received a travel allowance payable at a rate of £7,500 per month for a maximum period of six months from his appointment with the final payment made 15 February 2015. The amount payable in respect of the period 1 January 2015 to 15 February 2015 was £11,087. Keith Skeoch received reimbursement for personal expenses incurred as a result of business requirements. Also included for all executive Directors is private health cover at a cost to the Group of £375 per employee.
5 Luke Savage and David Nish participate in the Standard Life Sharesave Plan – their options are not yet exercisable. Both Keith Skeoch and David Nish participate in the Standard Life (Employee) Share Plan – the maximum annual award of matching shares is currently £300.
Total base salary paid in 2015 1 Paul Matthews and Colin Clark were appointed with effect from 1 November 2015 and the salary shown is that paid from 1 November to 31 December 2015. 2 David Nish ceased to be a Director on 5 August 2015 and the salary shown is that paid from 1 January 2015 to 5 August 2015.
Pension (audited) Executive Directors received a cash allowance in lieu of pension as follows: Cash allowances in lieu of pension contribution as a %
of salary Paid in 1 Paul Matthews and Colin Clark were appointed with effect from 1 November 2015 and the pension allowance shown is that paid from 1 November 2015 to 31 December 2015.
The bonus award is based on Group performance and personal performance. The relative weightings are 90% based on Group performance and 10% on personal performance for Keith Skeoch and David Nish and 80% based on Group performance and 20% on personal performance in respect of the other executive Directors. The scorecard is based on a scale of 1 to 5 with 5 reflecting maximum, 3 on target and 1 unsatisfactory performance.
Management of the Group’s strategy and its deployment in each business unit including the annual investment programme, any corporate actions and the efficiency of the Group’s balance sheet.
Continuation of progress toward becoming a world-class investment company including:  Completion of the sale of the Canadian business  Return of value to shareholders  Integration of Ignis Asset Management into Standard Life Investments  Launch of 1825, 56°and Standard Life Savings brands  Bank of England approval of Solvency II internal capital model  Plc revolving credit facility reduced and extended for a further five years
Key achievements  Continued commitment to youth employment. Awarded gold status by Investors in People.  Continued strong engagement, measured by our interaction survey, during a year of change  First corporate employer to become a Living Wage Friendly Funder  Diversity and inclusion focus has continued with an increase in female participants in our emerging leaders programme to 56% and inclusion in The Times Top 50 Employers for Women
Based on performance against each of the four Group performance elements and considering the performance of the Group as a whole, the Remuneration Committee approved a rating of 4.6 out of 5 for performance against the Group scorecard during 2015.
2015 Standard Life Investments bonus outcome Keith Skeoch participated in the Standard Life Investments’ personal and company bonus plans until 4 August 2015, in addition to the Group annual bonus. These plans reward participants based on Standard Life Investments’ corporate and investment performance. Consistent with fund management practice, the amount of the bonus pool is determined by reference to Standard Life Investments’ financial performance, having regard to the total remuneration spend.  Personal bonus plan – rewards participants for personal performance in the year. Keith Skeoch’s opportunity for 2015 was 105% of salary  Company bonus plan – Keith Skeoch’s company bonus opportunity for 2015 was equal to 200% of salary
Based on Keith Skeoch’s and Standard Life Investments’ performance in 2015, the Remuneration Committee approved a personal bonus award of 105% of salary and a company bonus award of 200% of salary. These were based on his salary at 4 August 2015 and were pro-rated.
Summary of bonus outcomes (audited) The following table shows the total bonus awards made in respect of 2015. Annual bonus payments are not pensionable.
deferred bonus Total 2014 Group annual bonus – disclosure of financial targets The financial targets used in the determination of the 2014 Group annual bonuses paid in March 2015 and not previously disclosed are shown below. As disclosed in the Directors’ remuneration report in the Annual report and accounts 2014 the targets for 2014 performance were restated to remove the Canadian business sold in January 2015 and include Ignis, acquired in July 2014. The restated targets for the 2014 performance year were as follows: Performance measure Threshold Target Maximum Outcome
Operating return on equity1 14.5% 15.5% 16.7% 17.6% 1 Excluding Life joint ventures which referred in 2014 to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company
Long-term incentives Standard Life Long-Term Incentive Plan (Group LTIP) The plan under which awards were made in 2013 is the Group LTIP. The Executive LTIP has been used to grant awards since May 2014. The awards granted in 2013 under the Group LTIP have a performance condition based on Group operating profit before tax. The awards are also subject to two underpins when assessing the Group performance. The first requires the Risk and Capital Committee to be satisfied that performance obtained has been achieved within acceptable defined risk parameters. The second requires the Remuneration Committee to be satisfied that Group operating profit performance reflects overall Group performance.
Actual performance £663m1 1 The targets and actual performance include Singapore which has had an adverse impact on the vesting outcome. Canada is excluded from the targets and actual performance following the restatements in the Annual report and accounts 2014.
The level of vesting is then subject to consolidated cumulative third party EBITDA performance as shown in the following table. The actual EBITDA targets are not disclosed as the Board deems that this is commercially sensitive information and, if disclosed, could seriously prejudice the Group’s business.
Consolidated cumulative three-year third party EBITDA % of target award of shares that vest1
Maximum 140% of target 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.
<60% of target 60% of target 100% of target 140% of target
As performance was above the lower quartile of the moneyweighted average of all assets under management (both captive and third party assets) compared to other asset managers and the consolidated cumulative three-year third party EBITDA was 127.3% of target, the Remuneration Committee determined that 168.4% of the target award (84.2% of the maximum award) granted to Keith Skeoch in 2013 would vest in 2016.
Basis of award (% of salary and face value at grant) Performance criteria
Consolidated cumulative threeyear third party Standard Life Investments (Holdings) Limited EBITDA to 31 December 2017; subject to an investment gateway
All of the above awards are subject to an additional personal performance underpin whereby, if an executive Director performs at an unsatisfactory level in any year during the three-year performance period, their original award would be reduced by onethird, unless the Chief Executive, or the Remuneration Committee in the case of the Chief Executive, recommends otherwise.
1 The Standard Life Restricted Stock Plan is a plan under which the Company can make share-based awards (options and conditional awards) to all employees other than executive Directors.
Keith Skeoch is required to hold 500% (increased from 300% at the time of his appointment to Chief Executive) of the value of his base salary in the form of Standard Life plc shares. Luke Savage, Paul Matthews and Colin Clark are required to acquire and hold Standard Life plc shares to the value of 200% of their base salary from awards granted under the Executive LTIP and deferred annual bonus plan following their appointment to the Board.
The shares which the executive Directors are required to hold to reach their respective shareholding requirement are based on the net vested shares arising from the exercise of an award. Net vested shares are those shares which the executive Director would retain after selling sufficient shares to cover the costs of the income tax and employee national insurance payable when the award is exercised. Executive Directors will be required to hold shares arising from the following awards:  100% of the net vested shares that could be acquired from the exercise of awards granted from 2014 onwards or the date of their appointment if later (this includes the awards arising from the deferral of annual bonus and awards granted under the Executive LTIP and the Standard Life Investments LTIP)
 50% of the net vested shares that could be acquired from the exercise of awards granted prior to the introduction of the new requirement (this includes awards arising from the deferral of annual bonus and awards granted under the Group LTIP and the Standard Life Investments LTIP)
Paul Matthews was subject to previous shareholding guidelines and from 2014, when the requirement was introduced, to a shareholding requirement. As Colin Clark was not subject to the previous shareholding guidelines, under the requirement he is only required to hold shares from awards granted in 2016 onwards. Executive Directors will be required to retain shares held in respect of the requirement for a period of one year following their departure from the Group. The Remuneration Committee reviews progress against the requirement annually and retains discretion to require executive Directors to purchase shares to meet the requirement.
Total number of shares owned at 31 December 2015 or date of cessation if earlier
This table shows, in relation to each executive Director, the total number of share options with and without performance conditions held at 31 December 2015: Options with performance measures1 Options without performance measures2 Vested but unexercised Exercised during the year3
2 This comprises deferred bonus awards made in 2014 and 2015 and options granted under the Standard Life Sharesave Plan excluding shares to be awarded in lieu of dividend equivalents. All awards granted to Paul Matthews were granted before his appointment as executive Director on 1 November 2015.
3 This comprises exercises of awards made under the 2012 Group and Standard Life Investments LTIPs and deferred share awards from the 2012 Group bonus plan including dividend equivalents. This excludes awards exercised by Paul Matthews and Colin Clark which were granted before their appointments as executive Directors on 1 November 2015.
Total value on exercise date Keith Skeoch 28/03/13 28/03/15 18,907 - 2,162 21,069 - - £3.3260 £4.8080 30/03/2015 £101,300 28/03/14 28/03/16 14,503 - 1,194 - - 15,697 £3.4480 - - - 27/03/15 27/03/17 - 17,825 695 - - 18,520 £4.0710 - - - 33,410 17,825 4,051 21,069 - 34,217 Luke Savage 27/03/15 27/03/17 - 30,076 1,173 - - 31,249 £4.0710 - - - - 30,076 1,173 - - 31,249 David Nish2 28/03/13 28/03/15 153,751 - 17,594 171,345 - - £3.3260 £4.7589 31/03/2015 £815,414 28/03/14 28/03/16 121,991 - 10,062 - - 132,053 £3.4480 - - - 27/03/15 27/03/17 - 140,063 5,464 - - 145,527 £4.0710 - - - 275,742 140,063 33,120 171,345 - 277,580 1 Based on the average share price for the month of December preceding the date the awards were granted. 2 All unvested awards will vest in full on the date employment ends (31 March 2016).
The Standard Life Restricted Stock Plan As detailed in the Chairman’s statement the Remuneration Committee granted Colin Clark an award under this plan, before his appointment on 1 November 2015.
The Standard Life Sharesave Plan David Nish was granted options over 9,669 Standard Life plc shares exercisable from 1 November 2016 under the Sharesave Plan on 15 September 2011. The exercise price for these options is £1.5746. Under the rules of the plan he will be permitted to exercise the option within 6 months of the date his employment ceases. Luke Savage was granted options over 5,116 Standard Life plc shares exercisable from 1 November 2019 under the Sharesave Plan on 12 September 2014. The exercise price for these options is £2.961.
Executive Directors’ external appointments Subject to the Board’s approval, executive Directors are able to accept a limited number of external appointments to the boards of other organisations and can retain any fees paid for these services. Significant executive Director appointments held during the year are shown below: Executive Director Role and organisation 2015 Fees
Member of the Financial Services Advisory Board Member of the Advisory Council of TheCityUK Deputy Chairman of the Association of British Insurers Non-Executive Director of the UK Green Investment Bank £17,836 1 Appointments held at 5 August 2015 and fees earned to that date.
Loss of office payments (audited) The Board announced on 19 June 2015 that David Nish was stepping down as Chief Executive on 5 August 2015 with his notice period commencing on 1 July 2015. The Company’s policy for payment for loss of office is set out on page 81.
August 2015 to 31 December 2015). This vests in 2016 and is performance tested in line with the rest of the award as described on page 87. In line with the approach taken in the single figure table in section 5.3, the value of this award is based on the average Standard Life plc share price for the quarter 1 October 2015 to 31 December 2015. The award will vest on 25 March 2016.
As disclosed when his departure was announced on 19 June 2015, David Nish will be on garden leave until 31 March 2016 at which point he will cease to be an employee. Until this point he will continue to receive his base salary of £835,000 per annum, his allowances and all benefits in line with the terms of his executive service agreement. When his employment ceases on 31 March 2016 he will be entitled to payment in lieu of notice in respect of the remainder of his notice period (three months) which will be paid in instalments and is subject to mitigation. The payment in lieu of notice will include his salary, car allowance and pension allowance. In line with our normal practice, David Nish will remain eligible to receive a bonus in respect of the period to 31 March 2016. He will also receive a payment of £105,981 in respect of untaken holidays, and £560 in respect of private medical cover.
Treatment of outstanding incentive awards On cessation of employment, David’s unvested deferred share award will vest in full in line with the plan rules.
Unvested long-term incentive plan awards made in 2014 and 2015 will be pro-rated to the end of the period of garden leave, and will vest subject to performance.  2014 Executive LTIP – pro-rated between 1 January 2014 and 31 March 2016 and will vest on 20 May 2019. The maximum number of shares anticipated to vest subject to performance (excluding future dividend-equivalents) is 337,576  2015 Executive LTIP – pro-rated between 1 January 2015 and 31 March 2016 and will vest on 27 March 2020. The maximum number of shares anticipated to vest subject to performance (excluding future dividend-equivalents) is 149,918.
Performance graph: the graph shows the difference in value at 31 December 2015 between having invested £100 on 1 January 2009, respectively, in Standard Life plc and in the FTSE 100. It is assumed dividends are reinvested. The FTSE 100 has been chosen as the comparator index because Standard Life plc is a member of this FTSE grouping.
20141 577 358 608 1 The group operating profit comparative for the year ended 31 December 2014 has been restated to exclude Singapore which is a discontinued operation.
UK based employees of the Group 3% 1% 0% 1 Due to the change in Chief Executive during the year, the movement in salary reflects the difference between David Nish’s salary at 31 December 2014 and
Pension Cash allowances of 25% of salary are paid in lieu of pension contributions to all executive Directors. Long-term incentive arrangements The Remuneration Committee proposes to grant awards set out in the table, in the form of nil-cost options under the Executive LTIP. Vesting of these awards, in 2021, is based on the following performance measures measured over the period to 31 December 2018:  Cumulative Group operating profit before tax performance weighted at 70% of the award  Cumulative Group net flows weighted at 30% of the award
Performance criteria Cumulative Group operating profit before tax (70%) and cumulative Group net flows (30%) for the threeyear period ending 31 December 2018
Vesting: 0% Cumulative Group operating profit Threshold: £2,130m Cumulative Group net flows Threshold: £30.8bn
Vesting: 100% Cumulative Group operating profit Maximum: £2,595m Cumulative Group net flows Maximum: £51.0bn 94 Standard Life
5.4 Annual remuneration report – what we did in 2015 for non-executive Directors Single total figure of remuneration – non-executive Directors (audited) The following table sets out the single total figure of remuneration for each of the non-executive Directors who served as a Director at any time during the financial year ending 31 December 2015. Non-executive Directors do not participate in bonus or long-term incentive plans and do not receive pension funding.
2 Appointed with effect from 1 November 2015. 3 Stepped down from the Board following the conclusion of the AGM on 12 May 2015. 4 Stepped down from the Board with effect 28 April 2015.
Date of letters of appointment Director Current letter of appointment Sir Gerry Grimstone1 6 June 2003 as Director and 28 February 2007 as Chairman (continuation 27 May 2010 and 28
Implementation of policy for non-executive Directors in 2016 Following a review of non-executive Director fees, the Board (and the Remuneration Committee in respect of the Chairman) considered it appropriate to increase the Chairman’s fees by £10,000 (2.7%) and the non-executive fee by £2,100 (2.9%). In addition the fee paid to the Senior Independent Director is increased by £500 (2.9%) with effect from 1 January 2016.
4 This role is not currently held by a non-executive Director.
The Remuneration Committee Membership During 2015 the Remuneration Committee was made up of independent non-executive Directors: Lynne Peacock (Chairman), Pierre Danon, Melanie Gee (from 7 December 2015), John Paynter (until 28 April 2015) and Martin Pike.
Committee effectiveness The Committee reviews its remit and effectiveness annually. The 2015 review was carried out via an internal selfassessment questionnaire. The review concluded that the Committee had:  Remained effective and fulfilled its remit during the year and liaised appropriately with the Risk and Capital Committee
A representative from Deloitte LLP attends, by invitation, all Remuneration Committee meetings to provide information and updates on external developments affecting remuneration as well as specific matters raised by the Remuneration Committee. Outside of the meetings, the Remuneration Committee’s Chairman seeks advice on remuneration matters on an ongoing basis. As well as advising the Remuneration Committee, Deloitte LLP also provided tax, risk, data and real estate advice to the Group during the year. Deloitte Total Rewards and Benefits is an investment adviser to the trustees of the Standard Life Staff Pension Scheme. In addition, Standard Life is the current appointed provider for the Defined Contribution Master Plan that Deloitte LLP provides for its employees and Deloitte LLP is one of the employee benefit consultants through which Standard Life has been appointed to provide defined contribution arrangements for Deloitte’s clients through competitive tender. Fees paid to Deloitte LLP during 2015 for professional advice to the Committee were £111,250.
Remuneration Committee continue to monitor this position and are satisfied that the continuing appointment does not give rise to a conflict of interest. Deloitte LLP operates appropriate safeguards to maintain the independence of its advice, for example, the team responsible for providing advice to the Remuneration Committee are not rewarded for cross-selling nonrelated services to Standard Life and work is contracted for independently from work performed by the rest of the firm. Whilst Sir Gerry Grimstone has access to the Remuneration Committee adviser to the extent that he is invited to attend Remuneration Committee meetings, he does not meet with the Remuneration Committee advisor, other than in those meetings, to discuss matters relating to Standard Life. Communication between Deloitte LLP and the Remuneration Committee is on instruction from the Remuneration Committee Chairman.
July to September October to December  Executive Director appointments – remuneration  Mid-year review of annual bonus and LTIP performance conditions against target  Regulatory update
Shareholder voting We remain committed to on going shareholder dialogue and take an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to Directors’ remuneration, we seek to understand the reasons for any such vote, and will detail here any actions in response to it.
2014 Directors remuneration report (No. of votes cast) 832,166,681 26,794,607 27,414,399
 The Standard Life Ireland Sharesave Plan which launched in August 2012. Invitations have been made annually from August 2012. As at 31 December 2015, over 100 employees were saving towards one or more of the Sharesave Ireland offers.
The Directors are responsible for preparing the Annual report and accounts 2015. It is also their responsibility to state that they consider that the Annual report and accounts 2015, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. Under the Companies Act 2006, the Directors are required to prepare and approve financial statements for each financial year. The Directors must only approve the financial statements when they are satisfied that they give a true and fair view of how the Group and the Company have performed at the end of the financial year, and that they give a true and fair view of the profit of the Group and the Company for that year. The financial statements of the Group and, where relevant, the Company have been prepared in accordance with:  International Financial Reporting
 Prepare the financial statements on the basis that the Group is a going concern, unless it is inappropriate to presume that the Group will continue in business
Company and the Group  Taking reasonable steps to prevent and detect fraud and other irregularities
Note 32. Non-controlling interests and third party interest in consolidated funds
Group financial statements Note 26. Assets and liabilities held for sale
 Overall Group materiality of £31m represents 5% of operating profit before tax.
 We identified 7 of these reporting units which, in our view, required an audit of the complete financial information, either due to their size and/or their risk characteristics. These focused on the material reporting units within the Standard Life Investments and UK and Europe segments.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified and considered by our audit.
The Directors’ determination of assumptions for the valuation of life insurance contract liabilities involves complex judgements about future events, both internal and external to the business. Changes in assumptions can result in material impacts to the valuation of the liabilities. The methodology used can also have a material impact on the valuation of the insurance contract liabilities. As part of our consideration of assumptions, we gave specific focus to the annuitant mortality assumptions used in valuing life insurance contract liabilities, given the sensitivity of the Group’s profit to changes in these assumptions and the level of judgement involved in setting these assumptions. Annuitant mortality assumptions are those related to the life expectancy of annuitants and the rate at which expectancy is likely to increase. These assumptions are driven by past experience and assumptions about future changes which are based on the Group’s experience, together with industry standard data tables.
Our audit work in respect of methodologies used in the valuation of life insurance contract liabilities included:  Challenging management’s methodology, focusing on changes to methodology in the year, by applying our industry knowledge and experience to compare whether the methodology and / or changes are in compliance with recognised actuarial practices and regulatory and reporting requirements
Our audit work in respect of actuarial assumptions in respect of pension scheme liabilities included:  Testing management’s discount rate by creating an independent discount rate expectation based on our knowledge of the Standard Life pension scheme and other schemes of a similar nature
We determined based on our audit work that the assumptions used are in line with financial reporting requirements and industry accepted practice and reflect the nature of the value of the Group’s pension scheme.
We determined that the assumptions used in the valuation appropriately reflected the change in circumstances.
Area of focus How our audit addressed the area of focus We determined that the impairment charge recognised in the financial statements for the year appropriately reflected the changes in assumptions.
Valuation of complex financial instruments and investment property Refer to page 68 (Audit Committee report), page 117 (Critical accounting estimates and judgements), pages 151 to 156 (Accounting policies and notes).
We focused on this area as valuation, specifically in respect of derivatives, commercial mortgages and investment property, is an area which requires the use of judgement by the Directors and/or the involvement of valuation experts. Derivative and commercial mortgage valuations require judgements because, for some instruments, quoted prices are not readily available. As such, management use models to estimate their fair value. The key judgement for derivative valuations is whether there are any changes required to the methodology of these models as a result of market practice, accounting or regulatory updates. Commercial mortgage valuations require the use of judgement over the discount rates applied to the future contractual cash flows, particularly in respect of the credit risk of the borrowers.
Investment property valuations are complex as they require the selection of assumptions, such as future rental income to determine expected yields. Management engage property experts to assist in selecting these assumptions.
Our audit work in respect of the valuation of derivative assets and liabilities included:  Evaluating the design and testing the operational effectiveness of key controls over derivative valuations, such as controls to reperform valuations calculated by outsourced operations using independent source data
During the year, the UK business implemented a new general ledger. The implementation involved migrating historic financial information from the old ledger to the new ledger and designing a new mapping of the policy and claims administration systems to the new general ledger and to existing reconciliation tools. We focused on this system change due to the risk of material misstatement of the financial statements arising from errors during the migration process that may remain undetected. Accordingly, we allocated a significant proportion of our resources across the year to perform audit procedures over the implementation, including the completeness and accuracy of the data migration.
Our audit work over the completeness and accuracy of the data migration included:  Performing independent reconciliations between the old general ledger and the new general ledger for account balances within the UK business’ reporting units as at the migration date
testing the implementation of the changes along with manual intervention into the system
Our audit work in respect of the valuation of the intangible asset arising through the acquisition of Ignis included:  Evaluating and challenging assumptions used in forecasting fund flows.
 Evaluating the forecast operating margins used against those experienced by the acquired business, as well as the ongoing business into which it is being integrated and our own expectation of the range of experience in the industry
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group consists of four segments: Standard Life Investments, UK and Europe, India and China and Other. These segments are disaggregated into reporting units. The financial statements are a consolidation of these reporting units.
In determining our materiality, we have considered financial metrics which we believe to be relevant and concluded that operating profit before tax was a relevant benchmark as it is the key performance measure reported by management and used by other stakeholders to reflect the underlying performance of the business in both its internal and external reporting to stakeholders, including shareholders and analysts.
To allocate materiality to full scope reporting units, we considered the specific risks and balances within the reporting units, as well as considering the level of materiality that would impact the individual entity’s statutory financial statements as this is a focus for management when preparing their financial information. This resulted in materiality being allocated of between £25m and £10m to each of the full scope reporting units.
Group acquired in the course of performing our audit  Otherwise misleading
 The section of the Annual report and accounts on pages 66 to 71, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group
Under ISAs (UK & Ireland), we are required to report to you if we have anything material to add or to draw attention to in relation to:  The Directors’ confirmation on page 31 of the Annual report and accounts, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity
 The disclosures in the Annual report and accounts that describe those risks and explain how they are being managed or mitigated
Under the Listing Rules, we are required to review the Directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
Directors’ remuneration 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.
Under the Listing Rules, we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review.
In addition, we read all the financial and non-financial information in the Annual report and accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies, we consider the implications for our report.
We have reported separately on the Company financial statements of Standard Life plc for the year ended 31 December 2015 and on the information in the Directors’ remuneration report that is described as having been audited.
Stephanie Bruce (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 19 February 2016
(a) The maintenance and integrity of the Standard Life plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Expenses Claims and benefits paid 4,543 4,389 Claim recoveries from reinsurers (514) (533) Net insurance benefits and claims 4,029 3,856 Change in reinsurance assets and liabilities 33 520 (60) Change in insurance and participating contract liabilities 33 (1,693) 3,834 Change in unallocated divisible surplus 33 (117) (71) Change in non-participating investment contract liabilities 34 3,363 5,362 Expenses under arrangements with reinsurers 6 42 639 Administrative expenses
Equity holders of Standard Life plc 1,423 503 Non-controlling interests 32 62 4 1,485 507 Earnings per share from continuing operations Basic (pence per share) 13 13.5 15.8 Diluted (pence per share) 13 13.4 15.7
Earnings per share Basic (pence per share) 13 69.4 21.1 Diluted (pence per share) 13 69.1 21.0
Equity movements transferred to unallocated divisible surplus 31 (4) (4) Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss 11 - -
Total items that will not be reclassified subsequently to profit or loss 167 293
Other comprehensive income for the year from discontinued operations (187) (18)
Gain on sale of Canadian business 1 - 1,102 1,102 - - -
Profit attributable to non-controlling interests 2 62 - 62 4 - 4 Profit before tax expense attributable to equity holders’ profits 415 1,167 1,582 422 188 610
Profit for the year 338 1,147 1,485 380 127 507 1 Dubai and Singapore businesses, the closure of which were announced in November 2014 and June 2015 respectively, are included as discontinued operations for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. These were previously included in the Asia and Emerging Markets segment which has been renamed India and China. Under IFRS 5, Dubai and Singapore do not constitute discontinued operations and are included under continuing operations in the consolidated income statement. Therefore the pro forma reconciliation above includes the reclassification of Dubai and Singapore results between discontinued and continuing operations. Comparatives have been restated.
2 Following regulatory change in Hong Kong a review of expense and reserving assumptions was undertaken which resulted in a £46m non-operating loss being recognised, primarily relating to an impairment of deferred acquisition costs. This is included in Other non-operating items from continuing operations for the year ended 31 December 2015. Other non-operating items from discontinued operations for the year ended 31 December 2015 includes £31m in respect of impairment of deferred acquisition costs and plan enhancements relating to the closure of the Singapore business. See Note 14 for further details.
The Group’s chosen supplementary measure of performance is operating profit. The Directors believe that operating profit provides a more useful indication of the long-term operating performance of the Group. To align the measure of the Group’s performance with the long-term nature of its business, operating profit excludes items which create short-term volatility. Refer to Note 14 for further details.
Assets Intangible assets 16 566 565 Deferred acquisition costs 17 646 771 Investments in associates and joint ventures 18 5,719 4,508 Investment property 19 9,991 9,041 Property, plant and equipment 20 91 186 Pension and other post-retirement benefit assets 37 897 760 Deferred tax assets 11 35 33 Reinsurance assets 33 5,515 6,036 Loans 21 811 400 Derivative financial assets 21 2,444 4,021 Equity securities and interests in pooled investment funds 21 71,679 71,327 Debt securities 21 66,657 64,441 Receivables and other financial assets 21 1,447 1,248 Current tax recoverable 11 168 191 Other assets 25 89 116 Assets held for sale 26 327 29,338 Cash and cash equivalents 21 9,640 10,617 Total assets 176,722 203,599 Equity Share capital 28 241 239 Shares held by trusts 29 (6) 1 Share premium reserve 28 628 1,115 Retained earnings 30 2,162 1,816 Other reserves 31 977 1,501 Equity attributable to equity holders of Standard Life plc 4,002 4,672 Non-controlling interests 32 347 278 Total equity 4,349 4,950 Liabilities Non-participating insurance contract liabilities 33 21,206 21,841 Non-participating investment contract liabilities 34 92,894 88,207 Participating contract liabilities 33 29,654 31,276 Deposits received from reinsurers 35 5,134 5,642 Third party interest in consolidated funds 32 17,196 15,805 Subordinated liabilities 35 1,318 1,612 Pension and other post-retirement benefit provisions 37 33 44 Deferred income 38 236 276 Deferred tax liabilities 11 205 214 Current tax liabilities 11 113 172 Derivative financial liabilities 23 1,254 1,693 Other financial liabilities 35 2,900 3,734 Other liabilities 40 147 100 Liabilities of operations held for sale 26 83 28,033 Total liabilities 172,373 198,649 Total equity and liabilities 176,722 203,599
Purchase of ‘C’ shares 28 - - - - - - - - Dividends due on unclaimed shares not held in the Unclaimed Asset Trust - - - (2) - (2) - (2) Reserves credit for employee sharebased payment schemes 31 - - - - 34 34 - 34 Transfer to retained earnings for vested employee share-based payment schemes 30, 31 - - - 32 (32) - - - Transfer between reserves on disposal of subsidiaries 1 - - - 827 (827) - - -
Shares acquired by employee trusts - (9) - - - (9) - (9) Shares distributed or sold by employee and other trusts 30 - 2 - (2) - - - - Other movements in non-controlling interests in the period - - - - - - 7 7 Aggregate tax effect of items recognised directly in equity 11 - - - 5 (1) 4 - 4
Dividends paid on ordinary shares 15 - - - (386) - (386) - (386)
Issue of share capital 28 1 - 5 - - 6 - 6 Reserves credit for employee sharebased payment schemes 31 - - - - 27 27 - 27 Transfer to retained earnings for vested employee share-based payment schemes 30, 31 - - - 27 (27) - - - Transfer to retained earnings of sale of owner occupied property - - - 4 (4) - - -
The Notes on pages 116 to 236 are an integral part of these consolidated financial statements.
Purchase of intangible assets not acquired through business combinations (61) (54)
Distributions paid to third party interest in consolidated funds and non-controlling interests (110) (172)
Return of cash to shareholders under ‘B/C’ share scheme 15 (1,749) -
Effects of exchange rate changes on cash and cash equivalents (92) (140)
(a)(i) New interpretations and amendments to existing standards that have been adopted by the Group The Group has adopted and early adopted the following new interpretations and amendments to existing standards which have been endorsed by the EU.
The Group’s accounting policies have been updated to reflect these. The implementation of the above interpretations and amendments to existing standards has had no significant impact on the Group’s financial statements.
(a)(ii) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group
The Group’s revenue generated from the following contracts are exempt from this standard: • Lease contracts within scope of IAS 17 Leases • Insurance contracts within scope of IFRS 4 Insurance Contracts • Financial instruments within scope of IAS 39 Financial Instruments: Recognition and Measurement, IFRS 9 Financial
A detailed impact assessment was commenced in 2015, reviewing contracts and analysing the revenue recognised by the Group. From the work completed to date, no material impact on profit or net assets has been identified. Further analysis of the revenues generated within the Group’s investment management business and by investment contract within the Group’s insurance businesses will be completed in 2016.
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018) IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 allows two measurement categories for financial assets in the statement of financial positon: amortised cost and fair value. All equity instruments and derivative instruments are measured at fair value. A debt instrument is measured at amortised cost only if it is held to collect contractual cash flows and the cash flows represent principal and interest, otherwise it is classified at fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL) depending on the business model it is held within or whether the option to adopt FVTPL has been applied. Changes in value of all equity instruments and derivative instruments are recognised in profit or loss unless an OCI presentation election is made at initial recognition for an equity instrument or a derivative instrument is designated as a hedging instrument in a cash flow hedge. IFRS 9 also introduces a new impairment model, an expected credit loss model which will replace the current incurred loss model in IAS 39. An impairment loss may now be recognised prior to a loss event occurring. Accounting for financial liabilities remains the same as under IAS 39 except that for financial liabilities designated as at FVTPL, changes in the fair value due to changes in the liability’s credit risk are recognised in OCI.
An Exposure Draft was issued by the IASB in December 2015 proposing amendments to IFRS 4 Insurance Contracts. The amendments are intended to address the consequences of the different effective dates of IFRS 9 and the new insurance contracts standard by permitting insurers to either defer implementation of IFRS 9 to align with the implementation of the new insurance standard, if they satisfy criteria regarding the predominance of their insurance activities, or apply an overlay approach to remove incremental volatility from the income statement.
Financial statement area Critical accounting estimates and assumptions Related note Participating contracts, non-participating insurance contracts and reinsurance contracts
Determination of the valuation interest rates, and investment returns Determination of longevity and mortality assumptions Determination of expense assumptions
(a)(iv) Foreign currency translation The consolidated financial statements are presented in millions pounds Sterling.
(b) Basis of consolidation The Group’s financial statements consolidate the financial statements of the Company and its subsidiary undertakings.
Notes to the Group financial statements 1. Group structure (a) Composition The following diagram is an extract of the Group structure at 31 December 2015 and gives an overview of the composition of the Group.
(b) Acquisitions On 6 February 2015, the Group announced the launch of its wholly owned, UK-wide financial advice business, 1825. At the same time, the Company agreed to purchase the entire share capital of Pearson Jones plc from Skipton Group Holdings Limited. Pearson Jones is an established advice firm with assets under advice of £1.1bn at the acquisition date. The acquisition completed on 11 May 2015 and is not material to the Group.
(c) Disposals On 3 September 2014 the Group announced its intention to sell its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife). The sale of the Group’s Canadian long-term savings and retirement, individual and group insurance business (Standard Life Financial Inc.) and Canadian investment management business (Standard Life Investments Inc.) completed on 30 January 2015. The assets and liabilities of the Canadian branch of Standard Life Assurance Limited (SLAL Canada branch) were transferred on 31 December 2015 following the fulfilment of certain conditions to completion, including regulatory approval. The consideration, which was received on 30 January 2015, was CA$4.0bn (£2.1bn) and a further £0.1bn was received from the settlement of related hedging derivative contracts. The Group recognised a gain on disposal in respect of the sale which is included in profit from discontinued operations in the consolidated income statement for the year ended 31 December 2015.
UK and Europe UK and Europe provide a broad range of long-term savings and investment products to individual and corporate customers in the UK, Germany, Austria and Ireland.
Dubai The business in Dubai provided a range of savings and investment products. The closure of this business was announced in November 2014. This business was previously included in the Asia and Emerging Markets segment. The results of this business were included as discontinued operations for segmental reporting purposes as at 31 December 2014 as this was reflective of the presentation of information provided to the Chief Operating Decision Maker. Under IFRS 5, Dubai did not constitute a discontinued operation and was included under continuing operations in the IFRS consolidated income statement. Therefore the segmental analysis disclosures include the reclassification of Dubai results between discontinued and continuing operations.
(b) Reportable segments – Group operating profit, revenue and asset information The key performance metrics of the Group include operating profit before tax and assets under administration (AUA), which are analysed below by reportable segment. The following change was made to the financial information provided to the strategic executive committee in the year to 31 December 2015: • On 25 June 2015, the Group announced the closure of the Singapore business. The results of this business are included as discontinued operations for segmental reporting purposes as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Singapore was previously included in the Asia and Emerging Markets segment (now India and China). Under IFRS 5, Singapore does not constitute a discontinued operation and is included under continuing operations in the IFRS consolidated income statement. Therefore the segmental analysis disclosures include the reclassification of Singapore results between discontinued and continuing operations.
(b)(i) Analysis of Group operating profit by segment As described beneath the pro forma reconciliation of consolidated operating profit to profit for the year, operating profit is considered to present an indication of the long-term operating performance of the Group. Operating profit is the key measure utilised by the Group’s management in their evaluation of segmental performance and is therefore also presented by reportable segment.
Capital management - 14 - (5) - 9 2 11 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
Impairment of intangible assets 16 (5) (2) - - - (7) (2) (9) Gain on sale of Canadian business 1 - - - - - - 1,102 1,102
Profit for the year attributable to equity holders of Standard Life plc
Profit for the year 338 1,147 1,485 1 Under IFRS 5, Singapore does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement.
Therefore the analysis of Group operating profit by segment above includes the reclassification of Singapore results between discontinued and continuing operations.
Tax on operating profit (51) (43) (1) 13 - (82) (42) (124) Share of associates’ and joint ventures' tax expense 11 (7) - 2 - - (5) - (5)
Operating profit/(loss) after tax 199 347 24 (49) - 521 85 606
Profit for the year 380 127 507 1 Under IFRS 5, Dubai and Singapore do not constitute discontinued operations and are included under continuing operations in the consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Dubai and Singapore results between discontinued and continuing operations.
Change in insurance and participating contract liabilities (1,693) 1,693 3,834 (3,834)
2. Segmental analysis continued (b) Reportable segments – Group operating profit, revenue and asset information continued (b)(iii) Analysis of assets under administration by segment Group AUA presents a measure of the total assets of the Group including those administered on behalf of customers and institutional clients. AUA represents the IFRS gross assets of the Group adjusted to include third party AUA, which is not included on the consolidated statement of financial position. In addition, certain assets on the consolidated statement of financial position are excluded from the definition, including reinsurance assets, deferred acquisition costs and intangible assets.
Other - Total assets per consolidated statement of financial position 177 1 In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.
Deferred acquisition costs 1 Assets attributable to third party interest in consolidated funds and non-controlling interests 16
(d) Non-current non-financial assets by geographical location 2015 2014 £m £m
UK 9,954 8,345 Rest of the world 694 1,447 Total 10,648 9,792
SLAL – Insurance and investment contracts issued since demutualisation The liabilities and associated supporting assets for contracts issued since demutualisation are held in the PBF except for the element of any contract where the customer has chosen to invest in a with profits (i.e. participating) fund. The assets and associated liabilities, including liabilities for financial guarantees, for such with profits investment elements are held in the GWPF, GSMWPF or UKSMWPF. The PBF is sub-divided into internal linked funds (unit linked funds) and a non-unit linked fund. Where a customer invests on a unit linked basis, the assets and corresponding liabilities for such unit linked investment elements are held in the unit linked funds. Asset management charges are transferred from the unit linked funds to the non-unit linked subfund of the PBF as they arise. Any liabilities for insurance features or financial guarantees contained within a contract that has a unit linked investment element are held in the non-unit linked sub-fund of the PBF. Any liabilities for insurance features contained within a contract that has a with profits element are held in the non-unit linked sub-fund of the PBF. Deferred income and deferred acquisition costs arising on contracts that have a unit linked investment element or a with profits investment element are held in the non-unit linked sub-fund of the PBF.
Under the Scheme of Demutualisation (the Scheme) the residual estate of the HWPF exists to meet amounts which may be charged to the HWPF under the Scheme. However, to the extent that the board of SLAL is satisfied that there is an excess residual estate, it shall be distributed over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. The Scheme provides that certain defined cash flows (recourse cash flows (RCF)) arising in the HWPF on specified blocks of UK and Irish business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the SHF, and thus accrue to the ultimate benefit of equity holders of the Company. The Scheme also provides for additional expenses to be charged by the PBF to the HWPF in respect of German branch business. Under these mechanisms, profits, on an RCF basis, on non-participating business excluding investment spread profits on annuities and profits, on an RCF basis or German additional expenses basis, on unitised with profits contracts, are transferred to the SHF. All investment return on HWPF investments is retained in the HWPF for the ultimate benefit of participating policyholders. Under the Scheme, transfers to the SHF are subject to certain constraints in order to protect policyholders.
Standard Life International Limited The UK and Europe reportable segment also contains the International Bond issued by Standard Life International Limited (SLIL) to UK residents. SLIL operates using a shareholder fund and a long-term business fund which is sub-divided into unit linked funds and a non-unit linked fund. Where a customer invests on a unit linked basis, the assets and associated liabilities for such unit linked investment elements are held in the unit linked funds. Any liabilities for insurance features contained within a contract that has a unit linked investment element are held in the non-unit linked fund. Deferred income and deferred acquisition costs arising on contracts that have a unit linked investment element are held in the non-unit linked fund.
(a)(ii) India and China The entity in the India and China reportable segment that issues insurance and investment contracts, other than associates and joint ventures, is Standard Life (Asia) Limited (SLA) which is a Hong Kong entity. SLA operates using a shareholder fund and a long-term business fund which is sub-divided into unit linked funds and a non-unit linked fund. Where a customer invests on a unit linked basis, the assets and associated liabilities for such unit linked investment elements are held in the unit linked funds. Any liabilities for insurance features contained within a contract that has a unit linked investment element are held in the non-unit 128 Standard Life
linked fund. Deferred income and deferred acquisition costs arising on contracts that have a unit linked investment element are held in the non-unit linked fund.
The total liability at 31 December 2015 for RPI linked annuities in payment (including any guaranteed minimum rate of escalation) is £373m (2014: £373m) and this represents approximately 9% (2014: 9%) of the total liability for UK annuity in payment contracts held within the PBF. There is a subset of annuities where the RPI linked annuity payment cannot fall or is guaranteed to increase at a minimum rate; the majority of such annuities are those whose payment cannot fall. If the market moves in line with the adverse scenarios as shown in the market risk sensitivity analysis in Note 41(b), then the impact on shareholder equity from these RPI linked annuities and corresponding assets is not significant.
For those annuities in payment which increase at a predefined rate, the total liability at 31 December 2015 is £348m (2014: £343m) and this represents approximately 9% (2014: 8%) of the total liability for UK annuity in payment contracts held in the PBF. If the market moves in line with the adverse market conditions as shown in the market risk sensitivity analysis, the impact on shareholder equity from those annuities with a predefined rate of increase and the corresponding assets is not significant.
Contracts are categorised as retail (e.g. UK Active Money Self Invested Personal Pensions (SIPP), UK Active Money Personal Pension, UK Stakeholder, Irish Synergy Personal Pension), corporate (e.g. UK Group SIPP, UK Group Flexible Retirement Plan, UK Group Stakeholder) and institutional (Trustee Investment Plan). These contracts do not contain a with profits investment option except for UK Group Stakeholder and UK Stakeholder, under which customers may invest in the UKSMWPF.
HWPF participating contract allocations of regular and final bonuses This section firstly describes the method used by the Group to determine the regular and final bonuses allocated to participating contracts held in the HWPF. It then describes the significant types of insurance and investment contracts held in that fund, the nature of any guarantees provided and significant reinsurance contracts. As shown in the market risk sensitivity analysis in Note 41(b), there is no impact on shareholder equity arising from contracts in the HWPF for either of the market movements scenarios. As explained in the limitations of the sensitivity analysis, this is because although shareholders are potentially exposed to the full cost if the assets of the HWPF are insufficient to meet policyholder obligations, the assumption changes given are not severe enough for such an event to occur.
When calculating asset shares, the Group may, at its discretion, make fair deductions to reflect its assessment of the cost of guarantees. The Group takes an allowance for the assessed costs of guarantees when determining final bonuses payable on claims, calculating policy switch values and calculating surrender and transfer values. These allowances vary between types of 130 Standard Life
policies, reflecting the nature of the guarantees provided. These allowances are kept under review. A deduction is also taken from participating asset shares determined on an expense basis of 0.5% pa as a contribution to the capital of the HWPF.
UK and Irish unitised with profits pension contracts (fee business via RCF) This class of business comprises single or regular premium contracts held in the HWPF under which a percentage of the premium is used to allocate units on a participating basis. Such contracts include hybrid contracts (see Note 33) resulting in the unitised with profits investment elements being classified as participating investment contracts, although there are some contracts that are classified as participating insurance contracts, for example those with guaranteed minimum pensions. The major unitised with profits pension contracts include Individual Personal Pension Plans (retail), Group Personal Pension Plans, Executive Pensions and Stakeholder (corporate) and Trustee Investment Plans (institutional).
• Certain Trustee Investment Plan contracts where, subject to specified conditions and limits, it is guaranteed that there will be no unit price adjustment (UPA) when units are encashed
UK and Irish 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.