We have revised our key performance indicators (KPIs) in 2019 to reflect our increased focus on revenue rather than flows/AUMA and also to include IFRS profit as a KPI in addition to APMs. The KPIs that we use may not be directly comparable with similarly named measures used by other companies.
The Annual report and accounts 2019 and the Strategic report and financial highlights 2019 are published on the Group’s website at www.standardlifeaberdeen.com/annualreport Access to the website is available outside the UK, where comparable information may be different.
Financial information 6. Independent audit report ......................................................... 114 7. Group financial statements ..................................................... 121 8. Company financial statements ............................................... 232 9. Supplementary information ..................................................... 243
Other information 10. Glossary ................................................................................... 256 11. Shareholder information .......................................................... 258 12. Forward-looking statements ................................................... 259 13. Contact us ................................................................................ IBC
This symbol indicates further information is available within this annual report or on the Group corporate website. Download this report from: www.standardlifeaberdeen.com/annualreport 1 Continuing operations excludes the UK and European insurance business which was sold to Phoenix on 31 August 2018. 2 Percentage of AUM above benchmark over three years. Calculated on a Pro forma basis (which combines the results for Standard Life Group and Aberdeen prior to completion of the merger in 2017) and gross of fees. A full definition is included in the Glossary. 3 The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated. Refer to the basis of preparation section of the Group financial statements. 4 In accordance with IAS 33, earnings per share has not been restated following the share consolidation in 2018 as there was an overall corresponding change in resources. As a result of the share consolidation and share buybacks, earnings per share from continuing operations for the year ended 31 December 2019 is not directly comparable with the prior year. Refer to Note 12 of the Group financial statements for information relating to the calculation of diluted earnings per share.
5 Net outflows excluding Lloyds Banking Group (LBG) do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group financial statements.
• Wealth management, financial planning and advice services, either directly to customers or through financial advisers
We also have significant holdings in associate and joint venture businesses: Phoenix in the UK, HDFC Life and HDFC Asset Management in India, and Heng An Standard Life in China.
Our operations We are headquartered in Scotland and listed in London, with around 6,000 employees in over 50 locations worldwide. We have operations in global financial capitals and important regional centres, which bring us closer to our clients and customers around the world, and provide invaluable knowledge and insight to share with our people.
A business with purpose 2019 was, in many respects, a pivotal year in areas of great significance for our industry and for your company. We have more clarity on a number of geopolitical uncertainties; the finalisation of the agreement by which the UK departed from the European Union; a first stage agreement between the United States and China on trade matters which brought some relief to a trade war that had escalated during 2019; and, the election of a government in the UK with a sizeable majority, unlocking the potential for clear policy choices after a period of inactivity while the UK’s position on exiting the EU was settled. In financial markets, we saw smooth leadership transitions at both the European Central Bank and the Bank of England. And finally, in investment markets, the importance of Environmental, Social and Governance (ESG) considerations was elevated into mainstream cognisance as the impact of human influence on climate change was compellingly exposed. Keith talks more about the market context for our business in his review.
Together we invest for a better future Never has it been more important to recognise the impact we can have, not just in the financial returns we can deliver for our ultimate beneficiaries, but in the influence we have with the companies in which we invest and how this can contribute to a better future for all our stakeholders. In uncertain times, we have anchored our business with a common and unifying purpose to ensure that we deliver good financial outcomes responsibly, taking into account the concerns and aspirations of all our stakeholders.
Market conditions however were very favourable to the unlocking of value from our Indian stakes. We completed four share sales with regard to HDFC Life, no longer regarded as strategic following the sale of our UK and European insurance business in 2018. In addition, we sold 3.02% of our stake in HDFC Asset Management, progressing towards the requirement to create a minimum free float. Together these stake sales realised £1.7bn and generated a profit of £1.5bn. We returned £0.5bn during 2019 through share buybacks. This was a contributing factor to our excellent share price performance over the year, resulting in a total shareholder return of 39%.
Together with the adjusted profits in 2019, these gains also allowed us, as planned, to maintain the dividend at a constant level while the business is transformed, cost synergies are delivered, and future financial performance confirms the sustainability of the level of distribution and provides line of sight to its future growth. As a consequence of this, your Board is proposing a final dividend of 14.3p, the same amount as last year. Assuming shareholders vote to approve this at the upcoming AGM, this would give a total dividend for 2019 of 21.6p, again the same as last year.
In his roles as Senior Independent Director and Remuneration Committee Chair, Jonathan has over the past six months spent time with many of our largest institutional shareholders to understand their views on the Company. One important outcome of this is that we will be proposing a new remuneration policy in 2020, a year ahead of the usual cycle. Jonathan shares more about this, and the approach we have taken, in his introduction to the Directors’ remuneration report on page 78. We will be asking you to vote on the new proposed policy at our AGM in May.
Looking ahead At the opening to my statement I recognised that we now have more clarity, at least in the short term, on some key issues in the last year. Unsurprisingly in these times, other issues have emerged and a level of uncertainty remains for existing geopolitical tensions, all of which deserve continuing watchful oversight.
The spread of the COVID-19 coronavirus in China and beyond has already had a significant impact and could have a material disruptive effect on trade, supply chains and international travel.
Let me close by expressing on behalf of shareholders my gratitude to all my colleagues who have worked so hard in the past year to deliver the improved investment performance and organisational change needed to position Standard Life Aberdeen well for future success.
Section 172 statement The Board recognises that the long-term success of our business is dependent on the way it works with a large number of important stakeholders. The Directors have had regard to the interests of our stakeholders (including, for example, our clients and customers, our people, society and our shareholders) while complying with their obligations to promote the success of the Company in line with section 172 of the Companies Act. The Board has discussed these obligations throughout the year, including how stakeholder engagement is incorporated into our long-term decision-making with further details provided on page 59.
We welcomed Jonathan Asquith and Cecilia Reyes to the Board in September and October respectively. Jonathan brings a wealth of experience in the asset management industry and in financial services more generally and is chairing the Remuneration Committee as well as taking on the responsibilities of Senior Independent Director. Cecilia joins us after a long and distinguished career as Chief Investment Officer and Chief Risk Officer at one of Europe’s leading insurance companies.
In February of this year, we announced the appointment of Brian McBride, with effect from 1 May. As we position our business for a technology driven future, his direct experience of developing digital strategies and solutions in consumer-facing businesses tackling rapidly evolving markets will be of great benefit.
Turning to our executive Board directors, at the end of December, Rod Paris stepped down from the Board as part of simplifying our governance structure; he remains Chief Investment Officer and a key member of the executive leadership team.
Likewise the resetting of the UK’s trading relationships with the EU and the rest of the world will create both opportunities and challenges for national economies – and investment markets will respond accordingly.
You can read more about how we connect with our stakeholders in the pages that follow.
Transforming today, investing for tomorrow 2019 was another year of intense change for both our industry and our business. To take advantage of the undoubted opportunities that these changes bring, we continued to invest in transforming the business in order to ensure we are future fit. While there is still important work to be done, particularly on systems integration, I am pleased to report significant progress on the priorities highlighted by Sir Douglas in his report.
Investment performance improved throughout the year. We built on the work done to bring our people together and created a single executive leadership team. This has put strong foundations in place for the development of a shared culture across the business. The heavy lifting to integrate our systems is also well underway.
Driving performance, delivering for clients and customers Turning to the financial results, I am pleased with the improved momentum in the second half of the year. IFRS profit before tax from continuing operations increased to £243m (2018: loss of £787m) primarily reflecting the gains realised from the sale of shares in HDFC Life and HDFC Asset Management. Adjusted profit before tax from continuing operations of £584m was a 10% reduction on 2018, mainly due to the impact on revenue of the outflows in both 2018 and 2019.
We have seen a significant improvement in investment performance following a particularly challenging year in 2018. At the end of 2019 74%, 60% and 67% of AUM was outperforming its benchmark over one, three and five years respectively. The three-year metric reflects improved performance in Multi-asset and continued strong performance in Fixed income and Asia Pacific equities. This in turn reflects the work of the team on our process enhancement plans, which helped us review and refine our investment approach on an ongoing basis. We have also developed decision support tools and quantitative frameworks to aid portfolio construction.
We have evolved our multi-channel approach to focus on four channels: Institutional, Wholesale, Strategic insurance and Platforms and Wealth. This model reflects the new shape of our business and gives a sharp focus to our activities and how we can best utilise our brands. We also work with our partners to get closer to more UK consumers. We made some significant developments in our business in the UK in 2019 including our joint venture with Virgin Money and the launch of a strategic partnership with Skipton Building Society.
I have realigned my executive leadership team to ensure we can be quick and effective in decision-making. I have also brought together a wider global leadership group, a team of our top leaders from across the organisation who hold collective responsibility for delivering our business plan. These leaders have a key role in achieving our strategy.
Not least in this programme of work is a significant project to complete the full separation of our business from the operations that transferred to Phoenix. As an important strategic partner we will continue to work closely with Phoenix, helping to grow their open book business and as their asset manager of choice.
Given the context for our business – the pace of change, the final stages of our transformation plan and the need to align our people’s focus and energy – we are continually evolving our strategy to accelerate our progress towards achieving our ambitions. Alongside our purpose, we have defined our strategic drivers, the imperatives that underline how we will deliver and move forward as a business. Our people are coming together behind this single, focused approach. Details of these strategic drivers are opposite, and on pages 32 to 33.
Our plan is working but there is still more we need to do, and we will need to sustain our focus and energy on this work while also looking to the future for our business.
In 2021 we will be a very different business to what we were at the start of 2018. This will mean a sharp focus on our Asset management, Platforms and Wealth activity. For shareholders who have held our stock for ten years, this represents a total return of 162%. We believe that we are well placed to continue to reward our patient shareholders with long-term value.
Read more about our strategic priorities on pages 32 to 33.
Over 2019 we saw global equities rise over 20%, global bonds rise almost 7% and gold rise nearly 20% – a group of assets that rarely march in such close step.
It was also a year when many of the worries expressed by investors at the start of the year proved less taxing by the end. Trade wars, Brexit, a looming US recession and rising interest rates were all much discussed over the year – but all proved less troublesome to markets than many had feared.
The rise and rise of technology stocks fuelled further significant outperformance of ‘growth’ over ‘value’ styles. Similarly, in debt markets the hunt for yield and increased risk appetite resulted in huge demand for emerging market and high yield debt compared to low or negative yielding developed market government debt.
Key global trends Democratisation of financial risk Changes in regulation, legislation and demographics are shifting the savings landscape. Increasingly the financial risk of long-term saving is shifting away from governments and institutions towards the individual. In recognition of this, we are scaling up our advice business, which completed two significant acquisitions during 2019. Our strategic partnerships mean we have potential access to millions of UK savers.
Rebuilding trust in financial services The global financial crisis damaged trust, and rebuilding this trust in the industry has not been helped by some poor corporate practices. We believe the best way we can help regain this trust is investing responsibly, encouraging diversity of thought and practising what we preach in how we act. It also means a continued focus on robust governance and risk management. As an example of acting on our principles, we are offsetting our operational carbon footprint to become carbon neutral in 2020.
Slow growth, low inflation, compressed return environment Market volatility and uncertainty will be with us for some time and will continue to drive clients’ and customers’ demand for outcome-oriented products. We are a leader in ‘new active’ investment globally. This is an area of focus for us and we have brought together our private markets franchise with our real estate team, and we continue to invest in designing innovative funds.
We will also have to deal with the practical challenges that Brexit, and retaining regulatory equivalence, will bring as we continue to serve our valued clients in the European Union. The negotiations on a Free Trade Agreement (FTA) between the UK and EU have begun. As part of our Brexit planning we have considered a range of scenarios and put in place arrangements to mitigate any potential disruption for our customers, clients and operations. We will continue to follow developments closely and regularly review the arrangements we have in place. As a global asset manager we have extensive experience of adapting to regulatory change and working across borders.
In 2019 we took further action to improve our resilience so that our business is well placed to deal with the uncertainties the constantly changing external environment brings. We continue to invest in innovation, in our culture, our investment processes, our platforms and in the way we develop new funds, alongside the transformation programme, so that we can meet changing client and customer needs as they evolve.
A positive force for change One area of notable change in 2019 was the increased attention on ESG factors in investment. Our responsible investment capabilities are nearly 30 years in the making and our impact on the companies we hold to account is important and necessary. In 2019, we voted on issues from human rights and employment practices to single-use plastics and pesticides. The number of environmental and social resolutions we voted on in 2019 increased by 26% compared to the previous year.
One issue that has characterised the past year, probably more than any before, is the overwhelming call to action by people around the world to address the urgent crisis of climate breakdown. We cannot underestimate the role our industry has in addressing this issue. Acting alone, governments around the world will not be able to provide the investment, or the will, to decarbonise the economy. It will need large scale realignment of capital. Through engagement and our voting rights, we can have a positive influence on companies around the world.
Sustainable stakeholder value Our simple business model is designed to create value and deliver long-term sustainable benefits to all our stakeholders. Read more about our stakeholders on page 59.
We have important responsibilities to society and the environment. Through active engagement with the companies in which we invest, we maintain constructive relationships that help us understand their risks and opportunities, and positively influence their business practices. By investing responsibly, we play a critical role in financing the transition to a low-carbon economy, limiting environmental damage, protecting human rights and promoting fair work and pay. We apply the same principles to our own corporate practices.
We invest in products and services so that they are relevant to our clients and customers today and in the future.
Talented people Our ability to deliver for clients and customers relies on having people with the right skills and knowledge, drawn from diverse backgrounds and experiences and through encouraging a collaborative approach.
The skills and knowledge of our people cover a range of areas including planning and advice, investment management and customer service.
Financial strength We have a strong capital position which is further supported by substantial listed investments.
We balance investing for business growth, investing in our people and continuing to provide returns to shareholders.
Optimising the balance sheet We ensure that we have the appropriate level of capital and liquidity to support and protect our operations while continuing to invest in our business.
We aim for high-quality service and targeted interactions to build enduring relationships. Our clients and customers want to engage with us in different and evolving ways. Technology is a powerful enabler, so we utilise our digital capabilities, while others prefer a personal, tailored approach.
Our annual conferences, regular events, roadshows and sponsorship activity enable us to share knowledge and gain valuable feedback, while showcasing our capabilities and enhancing our relationships.
Our multi-channel approach We offer our clients and customers investment capabilities and services through four channels: Institutional We are a chosen investment partner for organisations ranging from financial institutions and pension funds to local authorities and charities.
Working with our partners Our strategic partnerships help us reach more clients and customers globally. In the UK, this includes our partnership with Phoenix, the largest life and pensions consolidator in Europe. Through this partnership we manage money on behalf of Phoenix’s customers as their asset manager of choice. We have also established a joint venture with Virgin Money – with the ambition to combine their brand, scale and retail distribution with our marketleading investment solutions and digital expertise to meet the needs of retail investors.
We are also working with Skipton Building Society and their customers now have access to a new range of MyFolio Index funds using our Focus Solutions market-leading technologies.
World-leading global fundamental research platform, providing deep company-level insights across a comprehensive suite of equity funds.
Fixed income One of Europe’s largest fixed income managers, offering capabilities across the full spectrum of fixed income markets.
Multi-asset Distinct and complementary multi-asset capabilities to meet a broad range of client needs.
Capabilities across real estate, private equity, infrastructure, private credit and real assets, helping to deliver flexible solutions to clients.
Alternatives Full range of global hedge fund and diversification strategies across the liquidity spectrum following active and passive approaches.
Outcome-orientated portfolios that use a disciplined and proven research-driven investment process.
Quantitative Experienced team managing assets across a range of strategies: traditional passive indexation, enhanced indexation, smart beta and active quant using artificial intelligence.
One of the first long-only asset managers to offer an active quantitative approach that uses machine learning to find potential sources of returns.
In combining real estate with the rest of our private markets capabilities, we believe it will help us improve cohesion and collaboration – leading to improved access to growth markets globally and best-in-class performance for clients.
Arrangements that we have put in place to mitigate any potential disruption include the establishment of a fully staffed and operational EU MiFID firm in Dublin and we have also expanded the activities of our Luxembourg-based management company.
We encourage collaboration across asset classes, sharing research, experiences and understanding.
Scale and growth • More than 1,000 investment professionals worldwide • Spanning a broad range of markets, asset classes and strategies • Deep knowledge of local markets with the power of coordinated global oversight to drive better investment outcomes • Across a full suite of asset class capabilities, we seek to provide the solutions to our clients at all stages of their investment life cycle • Targeted approach to growth that concentrates on the markets where we have a strong track record • Promotion of our strong brands
Active expertise We continue to believe that active management and engagement deliver superior outcomes for clients over the long term.
We believe in a connected team-based ethos and fundamental research delivering insights to exploit market inefficiencies.
To deliver solutions for clients and customers that focus on their desired outcomes, rather than on benchmarks, we believe that all investment approaches require active decision-making at some level. This could be through incorporating fundamental discretionary or through systematic quantitative techniques.
Preparing for Brexit Our priority is to ensure we are in the best possible position to provide our customers and clients with continuity of service, regardless of the scope and terms of any agreement which takes effect between the UK and the EU when the transition period comes to an end on 31 December 2020.
Regional investment teams are further supported by our centralised ESG Investment & Stewardship team. We believe that ESG factors have a material impact on a company’s long term performance.
In 2019 we were awarded 33 ‘Green Stars’ across the real estate funds we manage by GRESB – the global ESG benchmark for real estate and infrastructure investments. Four funds achieved Five Star status, placing them in the top 20% of their peers. Additionally, three funds achieved the highest ESG performance of their peer group.
Platforms and Wealth With changes in demographics and regulation, particularly in the UK, individuals are increasingly having to take responsibility for their savings and investments. As they do so, there is an increasing demand for advice and guidance to meet their needs. The financial adviser community has a vital support role to play.
• We also support customers directly to help them make informed and effective financial decisions. Through our UK-based wealth management services, we offer full financial planning and personal tax advice services to meet long-term financial goals.
As individuals take greater responsibility for their financial future, demand for quality support and guidance increases. We enable advisers to meet that challenge, as well as support customers directly with their planning. Keith Skeoch, Chief Executive
The highly rated and award-winning platforms we offer in the UK provide differentiated services to suit the full range of customer needs.
To help customers with complex investment requirements, Wrap offers financial advisers one of the fullest and most flexible adviser platforms on the market. Combining technology with customer service, it enables advisers to deliver high-quality financial planning to large numbers of customers.
Elevate is a lower-cost proposition for advisers. Elevate provides advisers with the core services to deliver advice at scale, offering an extensive range of investment options from across the market.
• We launched Parmenion’s Sterling Solution in response to demand from advisers – whose customers are looking to diversify their portfolio by investing in a low-risk solution that still has the potential for positive returns.
Leveraging the value of our strategic partnerships When we completed the sale to Phoenix of our UK and European insurance business in 2018, we created a strategic partnership with Phoenix in respect of our activity in the UK savings market. Wrap, Elevate and 1825 are all part of the Standard Life brand, through which we already have a relationship with millions of individuals throughout the UK, and are key to this strategic partnership.
Our strategic partnership with Phoenix provides us with the potential access to up to 10 million of their customers in the UK. Under our partnership, Phoenix also uses the Standard Life brand under licence from our company.
Our financial planning and advice activity is undertaken through 1825, which brings together experienced professionals from across the UK to help people make sound financial decisions and plan effectively for their futures.
• In November, we completed the acquisition of the wealth advisory business of Grant Thornton UK LLP
We continue to see strong opportunity for growth in other areas, particularly retirement advice. We announced our digital retirement advice proposition in 2019 and we will continue to develop this in 2020.
Through Aberdeen Standard Capital we provide a discretionary investment management service across the UK and internationally.
In 2019 we further evolved our responsible investing offering, as we launched Aberdeen Standard Capital’s Global Impact Strategy and fossil-fuel-free income unconstrained strategy. These strategies invest in companies whose activities or products are designed to have a positive social and environmental impact.
Building a workplace fit for the future Extraordinary change in our industry means ongoing change for our people. We must ensure that how we work, our capabilities and the culture we foster are right for today, tomorrow and the future.
Leading through change and developing our people In common with most companies, change is constant and leaders at all levels have a critical role in supporting their teams through this change.
More than 700 of our managers have benefited from workshops to help them understand what we expect from our people.
In January 2020, we also launched our new system for learning and development, providing an improved experience for our people.
Central to this new proposition is the importance we place on providing access to the training and development to succeed in our organisation.
We designed our proposition to support our multi-generational workforce and the upcoming generation that will take our business forward. We are leading the industry in designing a family friendly proposition that is fully inclusive and helps our people to manage their personal and professional responsibilities in a flexible way.
Employee feedback As we reported last year, 69% of our workforce responded to our global employee survey at the end of 2018. The engagement score was 56%.
Our purpose, together we invest for a better future, is the North
Star for our colleagues that ensures we are truly building a one-team culture across all our businesses and geographies.
By equalising the opportunity to take paid leave for parents of all genders, the policy is a tangible step towards ensuring that becoming a parent does not limit their career potential.
The policy has generated positive feedback both from our people and the market. In January 2020 members of the Scottish Parliament lodged a cross-party motion congratulating us on our new parent leave policy.
Employees were asked which three ESG themes were most important to them in how we operate as a business
In 2019 our progress was recognised by the HamptonAlexander Review in which we ranked tenth in the FTSE 100, up from ranking 92nd in 2018. We are pleased with this progress but we are not complacent. We know that sustaining improvement is vital.
A key driver of our gender pay and bonus gaps is the lower number of women in senior roles and the higher number of women in junior roles; and we believe progress against our senior leadership targets will result in a reduction of these gaps.
Hampton-Alexander Review 2019 10th position and most improved company in FTSE 100
Board 45% (5 of 11) 33% +20% CEO-1 & CEO-22 36% (53 of 146) 33%1 +9% Subsidiary directors3 40% (8 of 20) N/A N/A UK 46% (2,209 of 4,846) 50% (+/-3%) -1% Global 46% (2,861 of 6,213) 50% (+/-3%) -1% 1 Data shown as at 7 January 2020. 2 Targets are set for our senior leadership population CEO-1 and CEO-2 (leaders one and two levels below CEO, minus administration roles). 3 Relates to Directors of the Company’s principal subsidiaries as defined in the Standard Life
How we engage with society At a time when trust in businesses remains low, and people are having to take more responsibility for their own financial futures, it is important that we engage with how today’s investment choices can determine the world we live in tomorrow: • We promote global economic development that is sustainable for the planet and society. As a signatory to the UN Global Compact, we integrate the UN Sustainable Development Goals into our business. These goals offer a clear shared vision for a better future, and a framework that helps us align to client and customer interests.
• We aim to take a lead role in addressing key societal issues, through our investment approach and innovative products and services. An example is impact investing – strategies that seek to generate attractive returns while having a measurable, positive environmental and societal impact.
As investors, we always pay close attention to the strategy, financial resilience and management performance of the companies in which we invest. We also believe environmental and social factors have a material impact on a company’s long-term performance. The number of environmental and social resolutions we voted on in 2019 increased by 26% compared to the previous year. Climate change, environmental reporting and renewable energy topics made up the highest percentage of such resolutions we voted on.
Voting at shareholder meetings represents one of our most important duties, and we cast our votes in line with our investment views. During the year we voted at 5,193 shareholder meetings, and on 58,839 resolutions.
Environmental, social and governance (ESG) investment focuses on active engagement, with the goal of improving the performance of assets we manage around the world.
There are numerous academic studies and research that examine the relationship between integrating ESG considerations and strong stewardship with investment performance. We believe, supported by strong evidence, that
Through our discussions we share insights from our experiences and knowledge across geographies and asset classes.
In 2019, we challenged, advocated, or made recommendations to companies around the world on topics including climate change and the transition to a low carbon economy, executive remuneration, deforestation, labour practices, plastics recycling and board composition.
Using our influence To help encourage best practice where we operate, we are actively involved, directly and indirectly, in the ongoing development of policy initiatives on a broad range of topics, including stewardship, sustainable finance, ESG integration, audit quality, the audit market, gender diversity and climate change.
We seek opportunities to engage with policymakers directly by replying to calls for evidence and feedback on policy developments, and also by meeting with officials to discuss changes to policy relating to sustainable finance, ESG integration and corporate governance.
• We also took part in the German Regierungskommission consultation on proposed amendments to the Deutscher Corporate Governance Kodex, which proposes improvements to governance arrangements in German companies
Our objective is to deliver the best outcomes for our clients and customers, and that is why we make ESG considerations core to our investment approach.
The risks of climate change, and the implications for individuals, businesses and investors, are increasing. We believe companies should be transparent on the financial implications of climate change for their business, and set out what action they are taking.
Providing climate-related research and data to understand its financial materiality is a core part of our strategy. We have developed capabilities to assess the carbon footprint across our Equity and Credit portfolios. We have also selected a specialist provider to help deepen our understanding of the financial impact of different climate change scenarios on our portfolios.
Operationally, we focus on the material areas of our carbon footprint and have long-term targets to reduce our emissions. We aim to reduce where we can, then offset what remains. We have pledged to offset our entire operational footprint in 2020 by supporting projects around the world that help to reduce carbon emissions – such as renewable energy and social impact projects.
Having reliable climate-related data is critical to effective investment decisions. We currently provide a carbon footprint for portfolios in Equities, Fixed income and Real estate. This helps identify carbonintensive companies and drive corporate engagement, but has limitations as a backwards-looking measure. As of 2020 we introduced an ESG House Score for each listed company to create a consistent framework for analysing and communicating our ESG company views across our listed company investments. One quadrant of the scorecard is climate change, providing both backward (carbon footprint) and forward looking data (such as targets and projects) to assess a company’s response to its climate risks.
Read more in our TCFD report, available on our website www.standardlifeaberdeen.com/annualreport 25Standard Life Aberdeen 2019
We want to drive meaningful social and environmental change, but we know we cannot do this alone. Collaborating with others is key to delivering innovative solutions that address key societal issues.
We are taking direct action relating to a number of the UN’s 17 Sustainable Development Goals (SDGs). SDG 17, Partnerships for the Goals, underpins everything we do as we believe collaborating with others enables greater impact. We work to understand the material risks and opportunities for our business and stakeholders, and link up with others to take targeted action – whether as part of investor groups or in multi-partner charity projects.
We believe that people have a right to equality of opportunity, for work to pay fairly, and to find routes out of poverty. Promoting fair work and inclusive employment is an area of particular focus for us, and aligns with SDG 8 – Decent Work and Economic Growth.
Our company has also been part of the Living Wage Foundation’s steering group, providing strategic guidance on this project.
In 2019 we published the fund’s first annual report assessing the impact it has made since it was launched in 2018, which highlights the positive progress the fund is making towards its societal aims. A percentage of the fund’s annual management charge also goes to Big Issue Invest, to help finance social enterprises that deliver business solutions to social problems.
Some of our key charity partnerships in recent years have highlighted the significant value they get from our strategic support and in-kind expertise. These include: • Career Ready and The Prince’s Trust in the UK – which focus on building skills and confidence in young people, to help break down barriers to employment
Additionally, there is clear demand from our people and the public for us to do more to respond to climate and ecological breakdown. We aim to reflect the insights built up in our new social and environmental impact strategy later in 2020.
17,921 total number of volunteering hours donated by our people in 2019 (2018: 15,118)
Gender representation Our people (pages 19 to 21) Anti-bribery and corruption Our role in society (page 27) Human rights Human rights policy1 Our role in society (page 27)
Non-financial KPIs Highlights (Inside front cover) Our role in society (page 25)
Working with our suppliers We aim to build effective and supportive relationships with our suppliers. Our supplier code of conduct sets out the standards and principles we require our suppliers to follow, and that we expect them to demand from their own supply chains.
Financial crime prevention We have a zero-tolerance approach to financial crime, bribery and corruption. Policies, frameworks and controls are in place to help ensure that we only receive or pay money to or from clients, third parties, partners and suppliers that we’ve identified as suitable to do business with. Mandatory annual training is held for our employees, which requires passing a test that confirms their understanding of both our policies and the part our people play. We also maintain a register for gifts and entertainment we receive or provide. Processes for reporting and reviewing breaches of our policies are in place. In 2019 we had no breaches. Further information on our approach to managing the risk of fraud and financial crime is included within the Risk management section.
How we engage with our investors and shareholders We have an extensive programme of investor engagement involving Directors and members of our executive leadership team. This includes meeting with institutional investors, fund managers, analysts and shareholder representative groups to discuss a wide range of topics including business strategy, financial performance, operational activities and corporate governance.
“Our strong capital position has enabled us to reward shareholders through the period of transformation of the business.”
As well as the payment of regular dividends, we have also returned an additional £1.75bn to shareholders during 2018 and 2019 through the ‘B’ share scheme and the share buyback programme. On 7 February 2020 we announced a further share buyback of up to £400m.
+162% Total shareholder return over 10-year period to 31 December 2019 (FTSE 100: +104%)
• Maintaining dividend through period of transformation • Over £1bn returned to shareholders in 2019 • Creating strong capital surplus and distributable reserves
• Leading asset manager in India, one of the world’s fastest growing markets
• Sale of 3.02% for £0.2bn in 2019 – further reduction in stake required to achieve 25% required free float by August 2021 (free float currently c20%)
Holding1 14.73% Listed value of holding1 £1.6bn • Long-term strategic opportunity through exposure to the pensions market in China which is expected to grow significantly
Over the last three years we have generated total cash proceeds of £2.2bn which allows us to invest for future business growth and deliver returns to shareholders.
• Managed for capital realisation and efficiency on the balance sheet 1 Stated prior to eliminations. 2 Listed value as at 9 March 2020.
• Won industry awards across all three of our UK platforms recognising our service to clients and customers
Connections without borders Bring the best of our business to all our markets by constantly connecting our people, capabilities and assets to deliver a seamless proposition.
• Achieved key integration milestones: employees are now co-located, and we are making strong progress towards one common IT platform with employees now on the same human resources and risk management systems
• Experienced delays in the integration of our investment platform due to additional complexity resulting from the separation of technology infrastructures
• Develop market-leading digital capability to provide digital advice at retirement
Net flows Excl. Lloyds Banking Group £17.4bn outflow 2018: £40.9bn outflow
• Optimise performance for our chosen channels: Institutional, Wholesale, Strategic insurance, Platforms and Wealth – in order to drive profitable growth
• Drive accelerated growth and increase flows through combining proven capabilities in platforms and wealth channel
Conduct risk People Fraud and financial crime Financial management process 32 Standard Life Aberdeen 2019
• Enable the technology strategy that will deliver the digital needs of the business for engaging with clients and customers
• Continue to embed our group-wide culture and the agreed behaviours that have been collectively identified by our leaders in order to drive successful team performance
• Build increased connectivity between teams to enable delivery of shared strategic priorities
• Seek further opportunities to grow and diversify our business, including by selective bolt-on acquisitions
• Further improve scalability of our platforms to benefit from industry growth in this channel
Financial risk Process execution and trade errors Business resilience and continuity Supplier risk
Looking forward we will continue to focus on: • Diversification of revenue streams to drive profitable growth • Ensuring our cost base is future fit • Capital generation to support investment in the business and shareholder returns
IFRS profit benefited from India stake sales: We delivered IFRS profit before tax from continuing operations of £243m in 2019, an increase of £1bn from the loss of £787m in 2018. This principally reflects the gains realised from the sale of shares in HDFC Life and HDFC Asset Management of £1.5bn. In addition, the arbitration case with Lloyds Banking Group (LBG) was resolved in our favour, resulting in receipt of compensation of £140m. In 2019 there was an asset management goodwill impairment of £1,569m (2018: £880m) partly offset by a reversal of the impairment relating to our investment in Phoenix of £243m (2018: loss on impairment £228m).
4 Net outflows excluding LBG do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Note 5 of the Group financial statements.
Adjusted profit before tax of £584m is a decrease of 10% on 2018, reflecting principally the impact on revenue of the outflows in both 2018 and 2019. The fee based revenue decrease of 13% has been driven by a 19% reduction in revenue in the institutional and wholesale channels, with revenue in Platforms and Wealth channel increasing by 4%. Revenue has been adversely impacted by flows and margin, partly offset by a benefit from markets.
Adjusted operating expenses are 4% lower than 2018. We are undertaking a targeted cost reduction programme of which more details are provided below and also continuing to invest in the business to support future sustainable growth. However, our cost income ratio at 71% remains too high, reflecting the fact that our cost base has a high proportion of fixed costs. Our focus will continue on reducing and altering our cost base as we reshape our business in order that it is set up to take advantage of the trends impacting our industry globally.
Adjusted diluted earnings per share was 19.3p. We have continued to deliver value to shareholders through a substantial return of capital which continues to benefit earnings per share. This includes £515m returned in 2019 in respect of the previously announced £750m share buyback programme which completed in 2019. On 7 February 2020, we announced a further share buyback of up to £400m and expect that it will complete in the second half of 2020.
Fee based revenue £1,634m £1,868m Investment performance – 3 years1 60% 50% Cost/income ratio2 71% 68% IFRS profit/(loss) before tax2 £243m (£787m) Adjusted profit before tax2 £584m £650m Adjusted diluted earnings per share2,3 19.3p 17.8p Full year dividend per share 21.6p 21.6p
Assets under management and administration £544.6bn £551.5bn Diluted earnings per share (including discontinued operations)2,3 11.1p 29.1p
Asset management, Platforms and Wealth Reduction in revenue reflects impact of net outflows in Institutional and Wholesale. Positive impact of synergies on operating expenses.
Institutional and Wholesale 1,011 1,253 42.8 47.9 Strategic insurance partners 317 347 12.2 13.1 Platforms and Wealth
Fee based revenue Institutional and Wholesale Fee based revenue in Institutional and Wholesale reduced by 19% to £1,011m (2018: £1,253m) reflecting outflows which were concentrated in Equities and Multi-asset. The average fee revenue yield decreased to 42.8bps (2018: 47.9bps), reflecting the lower proportion of higher margin Multi-asset and Equity assets.
Platforms and Wealth Platforms and Wealth comprises our Wrap and Elevate platforms, our Parmenion discretionary investment management platform, our 1825 financial planning and advice business, and the Aberdeen Standard Capital discretionary investment management business. It also includes assets relating to our joint venture with Virgin Money which will utilise Parmenion platform technology.
Revenue from Wrap and Elevate increased by 6% to £150m (2018: £142m) reflecting the continuing growth in our platform offering.
Wealth fee based revenue increased to £107m (2018: £105m) largely due to higher average assets. The average revenue yield decreased to 48.4bps (2018: 57.5bps), as a result of £3.5bn of lower margin assets in this channel from Virgin Money in Q1 2019.
Capital management Capital management generated a profit of £37m (2018: loss £9m) mainly due to the positive impact of markets on pooled investment fund holdings and the benefit of lower finance costs following the repurchase of £408m of subordinated debt in 2019.
Asset management associates and joint ventures Our share of profit from asset management associates and joint ventures increased to £57m (2018: £46m) due to strong revenue growth in HDFC Asset Management.
Our percentage ownership of HDFC Asset Management at 31 December 2019 reduced to 26.91% (2018: 29.96%) due to the sale of 3.02% of the shares in December 2019 in order to increase the public shareholding towards the minimum required under Indian listing rules by August 2021. This sale generated net cash proceeds of £195m.
Adjusted profit before tax in our insurance associates and joint ventures increased by 35% to £189m (2018: £140m) mainly due to the inclusion of a full 12-month share of Phoenix adjusted profit in 2019 arising from our stake in Phoenix following the sale of our UK and European insurance business on 31 August 2018. Our share of Phoenix adjusted profit before tax included a reduced benefit from actuarial assumption changes of £30m (2018: £42m).
HDFC Life profits increased in 2019 due to strong premium growth. However, our share of profits decreased to £36m (2018: £42m) due to the reduction in our shareholding from 29.23% to 14.73%. Our combined sales of 14.49% of HDFC Life generated net cash proceeds of £1.5bn.
Our share of HASL profits increased to £17m (2018: £12m) mainly due to favourable investment returns.
Profitability IFRS profit before tax from continuing operations increased to £243m (2018: loss £787m) mainly due to the gain on sale of shares in both HDFC Life and HDFC Asset Management.
The profit on disposal of interests in associates of £1,542m includes £1,337m relating to the combined sales of 14.49% of the shares in HDFC Life and £204m, pre-tax, from the sale of 3.02% of the shares in HDFC Asset Management.
Investment return variances and economic assumption changes loss of £25m relates to our share of Phoenix adjusting items. Further details are provided in Note 13.
Profit on disposal of interests in associates 1,542 185 Restructuring and corporate transaction expenses (407) (239) Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts (1,844) (1,155) Reversal of/(loss on) impairment of associates 243 (228) Investment return variances and economic assumption changes (25) 54 Other 158 (14) Total adjusting items from continuing operations (333) (1,397)
See pages 123 and 152 for further details on adjusted profit and reconciliation of adjusted profit to IFRS profit.
We are pleased with the settlement with LBG and believe that it represents a fair and positive outcome. The retention of c£35bn of assets in our passive strategies as well as active real estate portfolios, positions us to benefit from scale and growth in these growing parts of the asset management industry. As part of the settlement we received an upfront payment of £140m. Further details are included in Note 5 of the Group financial statements.
The initial withdrawals of £41bn of the previously announced c£70bn of transferring LBG AUM were made in H2 2019. An additional c£25bn is expected to be withdrawn by the end of March 2020. The remaining tranche withdrawals are expected to be made over the following 12 months.
IFRS profit from discontinued operations The IFRS profit from discontinued operations of £56m in 2019 reflects a change in the value of indemnities relating to the sale of the UK and European insurance business to Phoenix. 2018 included the £1,780m gain on sale of the insurance business.
The FCA announced in July 2019 that they had fined SLAL £31m for failures relating to non-advised sales of annuities. As part of the sale of SLAL we provided an indemnity to Phoenix covering this fine, and provided for an estimate of the financial impact of this indemnity in our 2018 results. As a result of this indemnity provision there was no adverse impact of the fine on our 2019 results.
Phoenix separation costs We announced in May 2018 that we expected to incur one-off costs relating to the separation of the UK and European insurance business sold to Phoenix of approximately £250m. As this work has progressed additional complexity has been identified relating to the separation of the technology infrastructure and as a result these one-off separation costs are now expected to be £310m. Total separation costs accounted for to date amount to £170m and include £37m in 2019 (£133m in 2018).
These factors are partially offset by: • Impairment losses on intangible assets are not tax deductible • Deferred tax assets have not been recognised on tax losses in some jurisdictions in which we operate and existing deferred tax assets relating to certain overseas tax losses brought forward have been written down due to uncertainty of recovery
The tax expense attributable to adjusted profit before tax totalled £115m (2018: £138m), of which £46m (2018: £43m) represents equity holders’ share of tax which is borne directly by our associates and joint ventures. The effective tax rate on adjusted profit is 19.7% (2018: 21.2%). This difference to the 19% UK rate primarily reflects the deferred tax not recognised on certain tax losses and the write down of deferred tax assets.
Investment performance Investment performance over three years improved in 2019 to 60% (2018: 50%). % of AUM ahead of benchmark1
Three-year investment performance improved in 2019, with 60% (2018: 50%) of total assets under management ahead of benchmark on a gross of fees basis. This reflects improved investment performance within Multi-asset, in particular in absolute return strategies such as GARS, and strong performances for Fixed income, Cash/Liquidity and Alternatives. This was partly offset by weaker performance in Real estate and Quantitatives.
Weaker three-year performance continued in most Equity classes, although strong performance continued in Asia Pacific equities. Shorter-term equity performance over one year improved in most Equity classes with Emerging markets equities particularly strong. A number of capabilities such as Smaller Companies and European Long-Term Quality equities have maintained strong performance resulting in top decile ranking relative to peers.
The investment performance calculation covers 79% of total AUM, with certain assets excluded where no applicable index is available, such as private markets and Aberdeen Standard Capital funds. Further details about the calculation of investment performance are included in the Glossary.
You can read our tax strategy on our website www.standardlifeaberdeen.com/annualreport 39Standard Life Aberdeen 2019
Assets under management and administration and net flows AUMA at £545bn is lower than 2018 (£552bn) due to redemptions, including LBG tranche withdrawals of £41bn, partly offset by increased gross inflows and positive market movements. Net outflows continued but slowed to £17bn excluding LBG tranche withdrawals. Gross inflows Net flows
Institutional 27.1 19.3 (14.2) (27.7) Wholesale 20.2 18.4 (7.3) (12.1) Strategic insurance partners (Excluding LBG tranche withdrawals1) 26.9 28.6 (3.4) (5.5) Platforms and Wealth
Net outflows continued reflecting investor sentiment towards emerging markets and equity markets more generally, as well as weaker 2018 investment performance in both Equities and Multi-asset. However, net outflows for Institutional and Wholesale significantly reduced to £21.5bn (2018: £39.8bn) due to lower redemptions in Equities and Multi-asset, strong Cash/Liquidity flows and the higher gross inflows described above.
Multi-asset redemptions were dominated by GARS, despite the significant improvement in investment performance, with GARS net outflows of £10.6bn (2018: £16.7bn) reducing GARS AUM in Institutional and Wholesale channels to £10.6bn (2018: £19.9bn).
For 2019, we changed our definition of AUMA to include assets under advice as we continue to build scale in the 1825 business. Opening assets under advice of £4.0bn are included within market and other movements in the chart above.
We hold £275m (2018: £179m) in newly established investment vehicles which the Group has seeded and co-investments of £84m (2018: £37m). The Group sets limits for investing in seed capital and co-investment activity and regularly monitors exposures arising from these investments. Additional detail is provided in Note 38.
Common Equity Tier 1 capital resources 2.2 1.1 Tier 2 capital resources 0.6 0.6 Total capital resources 2.8 1.7 Total capital requirements (1.1) (1.1) Surplus regulatory capital 1.7 0.6
The principal defined benefit staff pension scheme, which is closed to future accrual, continues to have a significant surplus of £1.1bn (2018: £1.1bn). Further details are provided in Note 34.
Adjusted capital generation This measure aims to show how adjusted profit contributes to regulatory capital, and therefore provides insight into our ability to generate capital to support the payment of dividends to shareholders. As explained further in Section 9, Supplementary information, adjusted capital generation is a new APM that we are reporting for the first time.
Opening 1 January 0.6 Adjusted capital generation 0.3 HDFC Life and HDFC Asset Management sale proceeds 1.7 Restructuring and corporate transaction expenses (net of tax) (0.3) Dividends (0.5) Remainder of £750m share buyback programme (0.4) Other 0.3 Closing 31 December 1.7 41Standard Life Aberdeen 2019
Liquidity management Cash and liquid resources Cash and liquid resources were £2.7bn at 31 December 2019 (2018: £2.6bn) which includes cash and cash equivalents of £1.3bn (2018: £0.9bn), short-term debt securities (Certificates of Deposit) of £0.9bn (2018: £1.2bn), bonds of £0.3bn (2018: £0.3bn) and holdings in pooled investment funds of £0.2bn (2018: £0.2bn). Of these cash and liquid resources £1.4bn were held in the Standard Life Aberdeen plc holding company (2018: £1.3bn).
Cash inflows from investing activities of £1.8bn includes proceeds of £1.7bn from the sale of shares in HDFC Life and HDFC Asset Management.
Cash outflows from financing activities of £1.6bn primarily relate to the repayment of subordinated debt of £0.5bn, the purchase of shares as part of the buyback programme of £0.5bn and £0.5bn for dividends paid in the year.
The dividend payment is expected to be £322m. At 31 December 2019 Standard Life Aberdeen plc held £1.4bn of cash and liquid resources and £2.3bn of distributable reserves, which will be used to support the dividend.
How the dividend is funded External dividends are funded from the cumulative dividend income that Standard Life Aberdeen plc receives from its subsidiaries and associates. To provide some protection against fluctuations in these dividends, Standard Life Aberdeen plc holds a buffer of distributable cash and liquid resources. The need to hold appropriate regulatory capital is the primary restriction on the Group’s ability to pay dividends. Further information on the principal risks and uncertainties that may affect the business and therefore dividends is provided in the Risk management section of this Strategic report.
Interim Final 19.82p 21.60p 13.35p 14.30p 14.30p 21.30p 21.60p 14.30p 7.30p
FTSE 100 Standard Life Aberdeen plc 1 year 10 years5 years 42 Standard Life Aberdeen 2019
Viability We consider that three years is an appropriate period for this viability assessment as this is in line with our business planning horizon and the period over which strategic actions such as the launch of new investment propositions are typically delivered.
Stress testing and scenario analysis looks at the key risk exposures of the business and the financial resilience of the business to severe, and in some cases extreme, individual and combined stresses. We explored a broad range of stresses that could adversely impact future profitability, capital and liquidity including: • Individual stresses applied to fixed interest, equity and property market values, reduction in bps fees and increased costs
• Combined stress scenarios considering severe economic conditions, poor fund performance, adverse flows, a spike in operational errors, integration/ separation/ transformation stalling and pressure on fees
Whilst capital was eroded and liquidity fell under all scenarios, the strength and quality of our capital base and the diverse range of management actions available mean that the Group is able to withstand these extreme stresses and remain viable. The range of possible management actions that are available includes reducing costs, deferring project expenditure, realising the value of our holdings in joint ventures and listed associates, and reducing dividends.
Reverse stress testing gives a quantitative and qualitative understanding of extreme but plausible risk scenarios which could threaten business model viability.
• The outage of a key payment mechanism: SLA’s viability was considered most at risk from a prolonged outage impacting one or more of SLA’s significant customer / client segments or SLA’s main corporate banking counterparty. Mitigants are in place to reduce this risk including contingency plans to respond to short-term outages and controls around the use of outsourced service providers.
Developments relating to reverse stress tests performed in previous years were also reassessed to support the Board in their assessment of viability.
Assessment of viability The Directors confirm that they have a reasonable expectation that Standard Life Aberdeen will be able to continue in operation and meet its liabilities as they fall due over the next three years.
Longer-term prospects The Directors have determined that three years is an appropriate period over which to assess prospects. In addition to aligning with our business planning horizon this reflects the timescale over which changes to major regulations and the external landscape affecting our business typically take place.
• The substantial holdings of Group cash and liquid resources as set out on page 42
• The Group’s holdings in listed associates as set out on page 30
Our approach to risk management A strong risk and compliance culture flows from our strategic drivers and behaviours and is fundamental to how we manage the business. Effective risk-based decision-making is essential to the delivery of the right outcomes for our clients, customers and all our stakeholders. Ultimate accountability for risk management rests with the Board who oversee the effectiveness of the Enterprise Risk Management (ERM) framework.
Compliance function which reports to the Chief Risk Officer • Third line: Independent verification of the adequacy and effectiveness of our risk and control management systems is provided by our Internal audit function under the direction of the Chief Internal Auditor
Enterprise Risk Management framework As part of our corporate transformation, we have continued to strengthen the ERM framework and embed it in the activities of our business. This ensures that the framework keeps pace with industry standards and is appropriate for the risk profile of the business.
During 2019, key improvements to the ERM framework included: • Streamlining the policy framework to support the management of risk in all locations
• Extending and refining our risk taxonomy to support better articulation and discussion of the risks
• Implementing a single internal capital adequacy assessment process across Standard Life Aberdeen
Emerging risks We are vigilant to emerging risks which could impact our strategy and operations. Many of these have geopolitical, economic, societal, technological, legal/regulation and environmental themes. We draw on internal experts and external specialist reports to build a picture of how these risks could crystallise in the future and inform our approach to addressing them. Specifically, emerging risks include availability of talent in our future workplace, new cyber threats, disruptive technologies, unprecedented market shifts and climate change.
Our principal risks and uncertainties The specific risks we face as a business are driven by what we choose to do and how we do it, as well as the wider environment in which we operate. We group these under 12 principal risks which form the basis of our detailed risk taxonomy. This sets the framework for assessing, monitoring, controlling and governing the risks of the business. Our principal and emerging risks were subject to robust assessment by the Board and the principal risks are described in the following pages.
Those risks which threaten the achievement of the strategy through failing to meet customer/client expectations, poor strategic decision-making, implementation or response to changing circumstances. Our strategy is to build a vibrant and value-creating purpose-led organisation, with the current and future needs of our stakeholders at the heart of what we do. We build solutions for our customers and clients to create wealth and help meet their needs. We have strategic holding in associates and joint venture businesses in the UK, India and China that generate value for our shareholders. Performance failure in any of these strategic activities may have short-term and/or long-term financial impacts.
The risk that we have insufficient financial resources or suffer loss from adverse markets or the failure/default of counterparties. Our business is exposed to the overall level of revenue margins on our investment mandates, platforms and wealth services as well as inflows and outflows throughout the year and global markets. Financial discipline is required to manage our cost base and align it to our revenue outlook to manage our overall financial efficiency. Our capital and liquidity positions are directly impacted by our profitability.
• In light of the ongoing transformation activities, we remain vigilant to opportunities to generate further cost efficiencies
• Conduct embedded within our Enterprise Risk Management Committee, Client Committee and Conduct & Conflicts Committee to ensure we are meeting our commitments
Our conduct risk framework was strengthened during 2019 and our conduct risk metrics have been stable throughout the year.
The risk of regulatory or legal sanction, reputational damage or financial consequences as a result of a failure to comply with, or adequately allow for changes in, all applicable laws and legislation, contractual requirements or regulations in any of the countries in which we operate. As part of a highly regulated global industry, we work with a number of different regulators and legal systems. The high volume of regulatory change continues and this often presents interpretation and implementation challenges and hence risk of non-compliance.
• Open and transparent relationships with our key regulators to support trust and clarity in terms of their expectations
• Monitoring underlying causes of operational errors with a view to identify commonalities that require action
• Strengthening our three lines of defence by promoting greater accountability and awareness of risks and improving processes to address risk issues
The ongoing transformation programme and industry environment continued to place extensive demands on our people. Involuntary turnover remained stable in 2019 and well within acceptable business levels.
• Ongoing programme of investment and improvements in enhancing and developing controls in IT infrastructure
Separation of our technology infrastructure is proving more complex than anticipated. This is covered in more detail in the Chief Financial Officer’s overview on page 37.
• Enhancing our operational resilience framework to strengthen our responses to disruptions
• Operating workplace recovery locations to allow key functions to continue servicing clients and customers
During 2019, the risk of internally-generated disruption remained broadly stable however, the risks from external parties especially cyber intruders increased as tools for exploiting IT vulnerabilities became more widely available. Concerns around Brexit-related supplier disruption abated as 2019 progressed.
The risk of fraudulent and dishonest activities. As a business, we handle clients’ and customers’ money which exposes us to the risk of fraud. We also engage with a wide number of external parties and we have to be vigilant to the risk that these parties are connected with criminal behaviour or are subject to sanctions by national or global authorities.
• Controls covering anti-money laundering, anti-bribery, fraud and other areas of financial crime
• Central management of major change projects with clear governance processes and consolidation of our change workload
The complexity of this work has led to some delay and to increased budget forecasts for the change programme. We are closely managing the potential impact of the IR35 tax change on our contractor population.
Risks to our business Our approach to managing these risks Strategic drivers
• Strong relationships with our external providers to ensure we understand the risks that they pose to our operations and reputation
The risk of the failure of financial planning processes. Sound and reliable financial reporting is critical to informing how the business is performing and for future planning. It is also essential for the disclosures that we provide to external stakeholders. Failures in these processes have the potential to result in sub-optimal decisions being taken by our business and our shareholders.
• The second line challenges our business plan to support decision-making
Governance Contents 2. Board of Directors ............................................................................................................................................................... 52 3. Corporate governance statement ........................................................................................................................................ 56 3.1 Audit Committee report ................................................................................................................................................ 65 3.2 Risk and Capital Committee report .............................................................................................................................. 72 3.3 Nomination and Governance Committee report........................................................................................................... 76 3.4 Directors’ remuneration report ..................................................................................................................................... 78 5. Statement of Directors’ responsibilities ............................................................................................................................. 111 51Standard Life Aberdeen 2019
Our business is overseen by our Board of Directors. Biographical details (and shareholdings) of the Directors as at 9 March 2020 are listed below.
Keith started his career in 1979 at the Government Economic Service. He moved into financial services in 1980 and became chief economist with James Capel (HSBC Securities from 1996), where he was latterly managing director of international equities.
She holds a Bachelor of Laws (LLB) from the University of Edinburgh.
Keith joined the business in 1999 as Chief Investment Officer of Standard Life Investments, before becoming Chief Executive of that division in 2004. In 2015 he was appointed Chief Executive of Standard Life plc, and led the merger with Aberdeen Asset Management in 2017. He was named as sole Chief Executive in 2019. He has accountability for the day-to-day running of the business, and leads its integration and transformation activities.
Keith holds a BA from the University of Sussex and an MA from the University of Warwick. In recognition of his wider contribution to the financial services industry, particularly his work in response to the global financial crisis, he has been awarded honorary doctorates from the University of Sussex and Teesside University. For services to the economics profession, he has been named a Fellow of the Society of Business Economists.
Before joining Standard Life Aberdeen, Stephanie was a partner at PwC, a member of the Assurance Executive and led the financial services assurance practice. She joined Price Waterhouse in 1990, qualified as a chartered accountant in 1993 and joined the PwC partnership in 2002.
Martin is a non-executive director and senior independent director of Glencore plc, and non-executive chairman of the online bank Revolut. He is a member of the Monetary Authority of Singapore’s international advisory panel and the BritishAmerican Business international advisory board. From January 2016 to October 2018 he was deputy chairman of Sky PLC having joined the board in 2011.
John was appointed a Director of Standard Life plc in July 2016. From April 2015 until August 2016, he was non-executive Chairman of Standard Life Investments (Holdings) Limited.
From 2008 to 2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to this, he held a number of senior executive positions at Merrill Lynch in London, New York, Tokyo and Hong Kong.
Martin was appointed as a Director of Standard Life plc in September 2013. He is also chairman and non-executive director of Faraday Underwriting Limited – where he is a member of the audit and risk committee and chair of the nomination and remuneration committee. Between 2015 and 2018 he served as a non-executive director of esure Group plc where he was chair of the remuneration committee.
He joined R Watson and Sons, consulting actuaries, in 1983, and progressed his career with the firm to partner level. His senior roles included head of European insurance and financial services practice, Watson Wyatt from 2006 to 2009, vicepresident and global practice director of insurance and financial services, Watson Wyatt during 2009, and managing director of risk consulting & software for EMEA, Towers Watson from 2010 to 2013.
She holds an MBA from New York University and a BS from the University of Baltimore.
Key to Board committees Remuneration Committee Risk and Capital Committee Audit Committee Nomination and Governance Committee Committee Chair
Before joining our Board, Cecilia was with Zurich Insurance Group Ltd (Zurich) for 17 years where she was most recently its group chief risk officer, leading the global function comprising group risk management and responsible for its enterprise risk management framework.
Prior to that, she was their group chief investment officer, responsible for the execution of the investment management value chain – including analysis, development and global implementation of the investment strategy for the group's investments. In both positions, she was a member of Zurich’s executive committee.
Jutta has extensive knowledge of international management and strategy, from sector operational roles in a number of listed companies. Her previous experience, which includes group finance and auditing, risk management and mergers and acquisitions, allows her to offer valuable perspectives to strategic discussions.
Previously, she was the executive vice president, chief financial officer, of ALKAbelló A/S and was chairman of Det Danske Klasselotteri A/S.
A qualified accountant, she holds a Master’s degree in Business Economics and Auditing from Copenhagen Business School.
The revised UK Corporate Governance Code (the Code) We have taken time to identify how our governance framework needed to be amended to allow us to implement the revised Code. This gave us the opportunity to revisit our governance processes on stakeholder engagement, employee engagement, succession planning, diversity and inclusion, and some elements of remuneration. Where we have proposed revisions as a result, they have been reflected in the Board Charter. Revisions approved include a specific reference to the Board’s commitment to hearing the employee voice in the Boardroom.
Stakeholder engagement and the Board’s duty Recognising our obligations under the Companies (Miscellaneous Reporting) Regulations 2018, the Directors have explained how we have complied with our duty to have regard to the matters in section 172 (1) (a)-(f) of the Companies Act. These matters include our responsibilities with regard to the interests of employees, suppliers, customers, the community and the environment, all within the context of promoting the success of the Company. During the year the Nomination and Governance Committee mapped out our key stakeholder groups and how engagement with them is incorporated into our discussions. The Strategic report includes our section 172 compliance statement, and on page 59, the Corporate governance statement shows how we consider these responsibilities in our discussions and decision-making.
Employee engagement As we announced in the Annual report and accounts 2018, Melanie Gee was appointed as the non-executive Director (NED) who would take forward employee engagement and you can read about progress during the year on page 58. Melanie’s work has built upon the strong processes we had in place and her direct communication with our employees has been very well received. We report later in this statement on the various engagement mechanisms including employee surveys, Meet the NEDs sessions and NED dinners.
External Board evaluation Acknowledging that the Board continues to refresh and develop following on from the transformational transactions in 2017 and 2018, we agreed that it would be beneficial to have a further externally facilitated review during 2019 to build on the findings and recommendations from the 2018 review. Independent Board
Statement of application of and compliance with the UK Corporate Governance Code 2018 The statement below, together with the rest of the Corporate governance statement, explains the main aspects of the Company’s corporate governance structure and gives a greater understanding of how the Company has applied the principles in the Code. For the year ended 31 December 2019, the Board considers that it has complied in full with the provisions of the Code, available at www.frc.org.uk. The Corporate governance statement also explains the relevant compliance with the Disclosure Guidance and Transparency Sourcebook. The table on page 110 sets out where to find each of the disclosures required in the Directors’ report in respect of Listing Rule 9.8.4 R.
Together with the Directors’ remuneration report, this statement explains how our governance framework supports the way we apply the Code’s principles and provisions of good governance.
Governance framework Board The Board’s role is to organise and direct the affairs of the Company and the Group 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. During 2019, these included approving, overseeing and challenging:  The development and implementation of strategy and the business plan
 Oversight of culture, our standards and ethical behaviours  Dividend policy  Financial reporting which during 2019 included the impact of the arbitration with Lloyds Banking Group  How risks are managed, including the Enterprise Risk Management
 The sustainability of the Group’s business and our own sustainability responsibilities to stakeholders, including wider society and the environment
Chief Executive (CE) The CE operates within authorities delegated by the Board to:  Develop strategic plans and structures for presentation to the
On 13 March 2019, Keith Skeoch became sole CE and Martin Gilbert continued his individual accountability for managing relationships with clients, winning new business and realising the potential from our global network and product capabilities. This structure was in place until 2 October 2019 when the timing of Martin’s standing down from the Board was announced. Since then, he has continued to focus on strengthening the Group’s relationships with clients.
Senior Independent Director (SID) The SID is available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of the Chairman, the CE or Chief Financial Officer, or where a shareholder considered these channels as inappropriate.
Audit Committee (AC) Financial Reporting Internal audit External audit Whistleblowing Financial crime Regulatory financial reporting
Remuneration Committee (RC) Development and Implementation of remuneration policy Incentive design and setting of targets Employee benefit structures
Investment Management Committee Support the Chief Investment Officer by overseeing the application of investment processes across asset classes.
Operating Committee Support the Chief Operating Officer by overseeing global functions and the delivery of functional priorities.
Board employee engagement (BEE) Melanie Gee is the designated NED to support workforce engagement and during 2019, she has sought to engage from two standpoints – top-down engagement through direct all-employee surveys on key topics and bottom-up engagement from regular meetings with relevant employee representatives.
Lighthouse, Balance, Armed Forces, Mind Matters)  Regional HR representatives to discuss local initiatives on employee engagement  The Talent and Leadership team and the Diversity and Inclusion
Team to discuss how they are taking forward employee engagement matters, including those arising from the Viewpoints survey
 The Innovation Team, to consider how employees’ views are reflected in innovation activities
At these meetings, there is general discussion of engagement themes which have been raised to the various representatives. At each Board meeting, Melanie gives a formal report on the issues that have been raised through both the general discussion and the surveys, and the Board considers how the ELT can be asked to take any specific actions to address the points raised, and agree who is accountable to implement the action.
In further BEE activities, there were three Meet the NEDs sessions – in Edinburgh, Philadelphia and London. These informal sessions were hosted either by Melanie Gee or the Chairman, and employees took the opportunity to raise a wide variety of questions with the NEDs. Feedback from the NED engagement dinners and the Meet the NEDs sessions has been very positive and they complement the ‘Town Hall’ sessions held by the ELT throughout the year, all across the Group’s operations.
The general feedback themes which Melanie escalated to the Board during 2019 included the need for continuing focus on comprehensive and quality communications to help employees understand clearly the ongoing transformation activities, and resolving the outstanding practical challenges arising from these activities cost effectively and pragmatically. The ELT, in particular the Chief HR Officer, the Chief Communications Officer and the Chief Operating Officer (COO), have taken forward the points raised.
C lie nt s an d cu st om er s
 The Chairman, CE and ViceChairman meet directly with key clients and report to the Board
 Full specific programme supported by the Board (see page 58)
 Reports on the results of active participation through industry groups
Committees from representative Directors  Two ELT members serve on the Phoenix
 Results, AGM presentations and Q&A  Chairman, CE and CFO meetings with investors  Remuneration Committee Chair meetings with institutional investors  Publication of Shareholder News  Dedicated mailbox and shareholder call centre team  Chairman/CE/CFO direct shareholder correspondence
 Regular reports from the Investor Relations Director/ Chairman/ Chairman of Remuneration Committee summarising the output from their programmes of engagement
3. Composition, succession and evaluation 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 decision-making framework. The Directors believe that at least half of the Board should be made up of independent nonexecutive Directors. As at 10 March 2020, the Board comprises the Chairman, seven independent non-executive Directors and three executive Directors. The Board is made up of six men (55%) and five women (45%) (2018: men 75%, women 25%). The Board continues to support its Board Diversity statement which states that the Board:  Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, ethnicity, age, and educational and professional background when undertaking a search for candidates, both executive and nonexecutive
 Believes that it should have a blend of skills, experience, independence, knowledge, ethnicity and gender amongst its individual members that is appropriate to its needs
 Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations
 Is committed to maintaining its diverse composition  Supports the CE’s commitment to achieve and maintain a diverse workforce and an inclusive workplace, both throughout the Group, and within the ELT
 Has a zero tolerance approach to unfair treatment or discrimination of any kind, both throughout the Group and in relation to clients, customers and individuals associated with the Group
Board changes during the period Appointments Stephanie Bruce was elected to the Board at the 2019 AGM as Executive Director and Chief Finance Officer, and took up those roles on 1 June 2019. Jonathan Asquith was appointed as non-executive Director and SID on 1 September 2019, and Cecilia Reyes was appointed as a non-executive Director on 1 October 2019. MWM Consulting were engaged to support the appointments of Jonathan and Cecilia. The Group has additionally used the services of MWM Consulting to support other senior management searches. As announced on 26 February 2020, Brian McBride will join the Board on 1 May 2020.
Retirements Simon Troughton and Richard Mully retired from the Board on 14 May 2019. Bill Rattray retired from the Board on 31 May 2019. As announced, Rod Paris stood down from the Board on 31 December 2019, remaining as CIO, and Martin Gilbert will retire from the Board at the conclusion of the 2020 AGM.
The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year, once they have met all of the approval and induction requirements, is a minimum of 35 days. The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company’s registered address (which can be found in the Shareholder information section) and at the 2020 AGM. Nonexecutive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively.
As well as in Section 2, you can read more background information about the Directors, including the reasons why the Chairman, following their annual reviews, believes that their individual skills and contribution supports their election or re-election, in our AGM guide 2020, which will be published online at www.standardlifeaberdeen.com in advance of this year’s AGM.
Board Committee. They also had access to the papers for each of these meetings. In addition to this observation and analysis, they held individual meetings with each Board member, members of the Executive leadership team who are regular attendees at Board meetings and the key members of the Board and Committee support teams. Following this, IBE prepared a draft report for review and discussion. The Board then reviewed and discussed the report, and a representative of IBE attended to present the report and recommendations.
 Prioritising strategy work to align it with the work on purpose, strategic drivers and behaviours and create an overall framework to support Board decision making
 Considering other ways of connecting non-executive Directors with senior executives such as Committee visits to relevant locations, and Board and Committee NED only sessions with key members of the ELT and senior managers
 Continuing to refine the annual board objectives as a guide to setting agendas and cascading them down to the Committees, as a basis for reporting back to the board
Progress to implement the recommendations is monitored by the Company Secretary and reported to the Nomination and Governance Committee.
Chairman The review of Sir Douglas’s performance as Chairman was led by the SID, Jonathan Asquith, and supported by IBE. It was based on feedback given in individual interviews between the external facilitator and each Director as well as focused discussions between the SID and the other NEDs.
The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except Sir Douglas. The Directors, led by Jonathan Asquith and without Sir Douglas being present, met to consider the report. They concluded that in his first year as Chairman, Sir Douglas had performed his role very effectively and shown strong leadership of the Board. He had brought his own experienced style to the Boardroom and was building strong relationships with the EDs while supporting the NEDs in challenging and holding the ELT to account. The NEDs were looking forward to continuing to work with him, individually and collectively, to deliver continued progress in 2020. Jonathan Asquith met with Sir Douglas to pass feedback from the review directly to him.
Directors As part of the review, IBE prepared an individual evaluation of the members of the Board to support the Chairman’s annual round of feedback to Directors and to assist him in leading the Nomination and Governance Committee’s ongoing succession planning. Sir Douglas discussed the individual results with each Director. These discussions also considered individual training, development and engagement opportunities.
The formal preparation and induction programme includes:  Meetings with the executive Directors, key members of senior management, the heads of the operating businesses and business functions
 Focused technical meetings with internal l experts on specific areas including investments, CRD IV, ESG, conduct risk, risk and capital management, and financial reporting
 Visits to business areas to meet our people and gain a better insight into the operation of the business and its culture
 Meetings with the external auditors and contact with the FCA supervisory teams
 Meetings with the Company Secretary on the Group’s corporate governance framework and the role of the Board and its Committees, and with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities as holders of a Senior Management Function role
Background information is also provided including:  Key Board materials and information, stakeholder and shareholder communications and financial reports
Similarly, the relevant Board Committees received updates on developments in financial reporting, remuneration and corporate governance.
In line with the requirements of the Code, the Board has reviewed the effectiveness of the system of internal control. The system was in place throughout the year and up to the date of approval of the Annual report and accounts 2019.
Additionally, with regard to regular financial reporting and preparing consolidated accounts, the Finance function sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges submissions and receives formal sign-off on financial reporting from business unit finance heads. In addition, the Finance function runs the Technical Review Committee and the Financial Reporting Executive Review Group which review external technical developments and detailed reporting disclosure and accounting policy issues.
The Board is equally committed to the interests of the Company’s 1.1 million individual shareholders who hold approximately one third 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. We encourage shareholders to receive their communications electronically and around 410,000 shareholders receive all communications this way. We actively promote self service via our share portal and over 400,000 shareholders have signed up to this service. Share portal participants can maintain their personal details and dividend instructions online, and view and download personal documents such as statements and tax documents. Shareholders have the option to hold their shares in the Standard Life Aberdeen Share Account where shares are held electronically in a secure environment and around 90% of individual shareholders hold their shares in this way.
The 2019 AGM was held in Edinburgh on 14 May 2019 when Directors were available to answer shareholders’ questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, including proxy votes lodged prior to the meeting, were made available on our website the same day. 46% of the shares in issue were voted and all resolutions were passed.
Our 2020 AGM will be held on 12 May in Edinburgh.
Following on from the level of the vote to approve the 2018 Directors’ Remuneration Report, the Board issued a regulatory announcement on 14 November 2019. The announcement summarised the engagement which Jonathan Asquith, the recently appointed Chairman of the Remuneration Committee, had had with institutional investors and proxy voting agencies. The engagement took the form of a series of meetings and phone calls which also allowed Jonathan to hear investors’ views on other remuneration-related matters and this engagement also allowed Jonathan to capture feedback in his capacity as SID. Following on from this engagement, shareholders will be invited to vote on a revised remuneration policy at the 2020 AGM. You can read more about this engagement on page 79 of the Directors’ remuneration report.
Directors  How the Company appoints and replaces Directors  Directors’ interests in shares
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. In September 2019, the Board held its meeting in Philadelphia. As well as meeting with clients, this allowed the Board to spend time with locally-based employees. During the year, the Board held specific sessions to consider the Group’s strategy and business planning. The Chair and the non-executive Directors also met during the year, formally at each Board meeting, and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed.
Non-executive Directors Jonathan Asquith 3/3 John Devine 9/9 Melanie Gee 9/9 Martin Pike 8/9 Cathleen Raffaeli 9/9 Cecilia Reyes 2/2 Jutta af Rosenborg 9/9
3.1 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. I am pleased to present my report as Audit Committee Chairman.
 Considered reports from the Chief Internal Auditor  Reviewed CRD IV reporting following the change in the prudential supervision of the group in late 2018  Received reports on compliance with the FCA Client Assets
Sourcebook (CASS) rules in the Company’s CASS permissioned regulated legal entities
John Devine, Chair 7/7 Melanie Gee 6/7 Martin Pike 7/7 Jutta af Rosenborg 7/7
The Board believes Committee members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management, and have competence in accounting and auditing as well as recent and relevant financial experience. John Devine is a member of the Chartered Institute of Public Finance and Accounting. Jutta af Rosenborg is also a qualified accountant and sits on other audit committees.
The Committee schedules six meetings per annum, four of which are co-ordinated with external reporting timetables. In 2019, there was one additional meeting, which was focused on a specific year end accounting matter.
The Audit Committee meets privately for part of its meetings and also has regular private meetings separately with the External auditors and the Chief Internal Auditor. These meetings address the level of cooperation and information exchange and provide an opportunity for participants to raise any concerns directly with the Committee.
 Internal controls over financial reporting and procedures to prevent money laundering, financial crime, bribery and corruption
 Outcomes of investigations resulting from whistleblowing  The appointment or dismissal of the Chief Internal Auditor, the approved Internal audit work programme, key audit findings and the quality of Internal audit work
In accordance with the Senior Managers and Certification Regime the Audit Committee Chairman is responsible for the oversight of the independence, autonomy and effectiveness of our policies and procedures on whistleblowing including the procedures for the protection of employees that raise concerns from detrimental treatment. Throughout the year the Audit Committee Chairman met regularly with the Chief Internal Auditor and the Head of Financial Crime to discuss their work, findings and current developments.
Committee effectiveness The Committee reviews its remit and effectiveness annually. The 2019 review was carried out by external consultants IBE. The review included observation of a meeting, access to papers and interviews with Committee members. The key points arising from the review were:  The overall feedback was very positive and Committee members believe that the Committee’s oversight of the financial governance of the Company is conducted with diligence and due process
3.1.2 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 the Finance function on significant financial accounting, reporting and disclosure matters
 Reports from the chairs of the subsidiary audit committees  Updates on work completed by the External auditors  Details of non-audit services requested of the External auditors by the business  Other agenda items
Other agenda items were aligned to the annual financial cycle as set out below:  Annual report and accounts 2018  Strategic report and financial highlights 2018  Financial reporting judgements  Liaison with the Remuneration Committee on targets and measures  External auditors’ review of Full year results
 Half year results 2019  External auditors’ review of Half year results
 Initial findings from the 2019 year end work  Regulatory reporting  The Internal audit plan  Integration cost and synergies update  Effectiveness of the External auditors and related non-audit services
The indicative proportion of time spent on the business of the Committee is illustrated below: Financial reporting External audit Internal audit Regulatory reporting
Detail of work The focus of work in respect of 2019 is described below.
Financial reporting Our accounts are prepared in accordance with International Financial Reporting Standards (IFRS). The Committee believes that some Alternative Performance Measures (APMs) which are also called nonGAAP measures can add insight to the IFRS reporting and help to give shareholders a fuller understanding of the performance of the business. The Committee considered the presentation of APMs and related guidance as discussed further in the ‘Fair, balanced and understandable’ section below.
Significant accounting estimates, judgements and assumptions for the year ended 31 December 2019
How the Audit Committee addressed these significant accounting estimates and assumptions
Annual reviews for impairment triggers are also required for other intangibles. The intangibles with material judgements are the customer relationship and investment management contract intangibles.
The Committee also considered analysis provided by management on impairment triggers relating to the customer relationship and investment management contract intangibles. The Committee agreed with management that there were no indicators of impairment for these intangibles.
The Committee considered analysis of the contingent assets and liabilities prepared by management and related key assumptions including those relating to persistency and the past sales practices for annuities. The Committee also considered assumptions in relation to certain disagreements under discussion with Phoenix. The Committee was satisfied that the fair value of the contingent consideration was appropriate at this time. Further details are disclosed in Note 40.
Investments in associates There were significant sales of the holding in HDFC Life in 2019, and therefore determining whether this investment should continue to be classified as an associate was a critical accounting policy judgement.
In relation to the Phoenix associate, judgements were also required relating to the recoverable amount and carrying value of the investment.
During 2019 the shareholding in HDFC Life was reduced to 14.73%. The Committee considered whether HDFC Life should continue to be classified as an associate, and concluded that this classification remained appropriate, notwithstanding that the holding was less than 20%. The classification as an associate was based on significant influence from the Group’s Board representation on HDFC Life’s board. The Committee noted that if the holding was considered an investment rather an associate it would give rise to a significant increase in the carrying value (to fair value) and the recognition of a significant gain in the income statement. See Note 16 for further disclosures.
The Committee reviewed analysis from management on separation costs which noted that the total estimate of separation costs had increased by £60m compared to previous estimates. The Committee agreed with management that no additional provision should be recognised in the year ended 31 December 2019 for the additional costs as these related to expenditure from which the Group will derive future benefits. The Committee concluded that the year end separation costs provision was appropriate. See Note 37 for further details.
Fair, balanced and understandable The Committee supported the financial reporting team’s continued aim to draft the Annual report and accounts to be ‘fair, balanced and understandable’. A focus in 2019 was ensuring that the Strategic report appropriately explained transformation synergies and related costs, and risks relating to the COVID-19 virus.
 The narrative contained in the Annual report and accounts is honest and accurate
 Fair, balanced and understandable guidance was provided to all key stakeholders involved in the Annual report and accounts production process
Adjusted profit before tax is a key profit APM. The Committee considered whether the allocation of items to adjusted profit was in line with the defined accounting policies, consistent with previous practice and appropriately disclosed. Where there were judgemental areas, such as in relation to certain restructuring costs, the Committee specifically reviewed the proposed treatments and ensured that the Annual report and accounts provided appropriate disclosures.
We agreed to recommend to the Board that the Annual report and accounts 2019, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry.
Prudential reporting During 2019 the Group published its first Standard Life Aberdeen plc Pillar 3 report, following the move to group level CRD IV reporting in late 2018. The Committee reviewed the Pillar 3 report and reviewed and discussed papers which set out the control and verification processes followed in the compilation of the report.
Internal controls As noted earlier, the Directors have overall responsibility for the Group’s internal controls and for ensuring their ongoing effectiveness. Together with the Risk and Capital Committee, the Committee provides comfort to the Board of their ongoing effectiveness.
The internal audit plan is reviewed and approved by the Committee annually, but is flexed during the year to respond to internal and external developments. The function’s coverage aligns to the Group’s activities and footprint, taking account of local Internal audit requirements. 2019 saw a heavy focus on the Group’s transformation programme, along with regulatory priorities such as operational resilience and conduct, as well as specific items such as the Senior Mangers & Certification Regime and client money.
The Chief Internal Auditor reports to the Committee Chairman. During the year, regular dialogue takes place, at least monthly, between the Committee Chairman and the Chief Internal Auditor.
3.1.4 External auditors The appointment The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG’s performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2020 AGM.
The members of the Committee attend some industry and governance events arranged by KPMG. The Chairman of the Committee is a director of Credit Suisse International, currently audited by KPMG, with PwC taking over the audit for 2020. Jutta af Rosenborg is a member of the supervisory board of BBGI SICAV SA, currently audited by KPMG, and a director of JPMorgan European Investment Trust which uses KPMG for tax advice on withholding tax.
 Payroll services  Designing and implementing internal control or risk management procedures related to the preparation and/or control of financial information or designing and implementing financial information technology systems
 Promoting, dealing in, or underwriting shares in the audited entity  The majority of human resources services
Non-audit fees amounted to £1.2m (2018: £1.8m) all of which related to other assurance services (2018: £1.6m). Other assurance services in 2019 primarily related to control assurance reports (£0.7m), which are closely associated with audit work, and assurance reporting relating to fund mergers where KPMG are the auditors of the relevant funds (£0.4m). 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. The Committee also monitors audit and non-audit services provided to non-consolidated funds and were satisfied fees for those services did not impact auditor independence.
Audit quality and materiality The Committee places great importance on the quality and effectiveness of the External audit. The Senior Statutory Auditor is Jonathan Mills, who is completing his third audit as the lead audit partner. The Committee looks to the audit team’s objectivity, professional scepticism, continuing professional education and its relationship with management, all in the context of regulatory requirements and professional standards. Specifically:  The Committee discussed the scope of the audit prior to its commencement
 The Committee receives updates on KPMG’s work, compliance with independence and its findings
 The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See the discussion on materiality in the next paragraph for more detail.
Martin Pike 3.2 Risk and Capital Committee report The Risk and Capital Committee supports the Board in providing effective oversight and challenge of risk management and the use of capital across the Group.
Over the year, the Risk and Capital Committee has focused on ensuring the effective oversight and independent challenge of the management of risks in the business so as to ensure that we could meet the expectations of our shareholders, clients and customers.
The Committee has closely monitored developments from our regulators across the world who have increased their focus on operational resilience to further strengthen the integrity of the financial system and protect customers and clients. The overall risk environment for the Group remains at an elevated level given the combination of business transformation activity and the difficult market environment.
Key areas of focus for the Committee during 2019 were on the assessment, challenge and review of key risks arising from the ongoing transformation activity across the Group and risk and capital implications arising from the delivery of the business plan. Particular attention was given to the risks of IT disruption and data loss which could be very disruptive for our clients and customers. In light of ongoing uncertainty in the political landscape over the year, the Committee regularly assessed Standard Life Aberdeen’s preparations for a disorderly Brexit scenario to ensure we continue to be able to provide our customers and clients with continuity of service, whatever the outcome.
Furthermore, the Committee continued to challenge and advise the Board in respect of key activities undertaken by the business throughout 2019, including:  The ongoing development of the Enterprise Risk Management (ERM) framework and the Risk transformation programme.
 Reviewing the external assessment of our cyber risk exposures against the US National Institute of Standards and Technology (NIST) framework
 Reviewing Standard Life Aberdeen’s exposure to climate change and management of related risks and opportunities
Martin Pike, Chair 7/7 John Devine 7/7 Melanie Gee 6/7 Cathleen Raffaeli 6/7 Cecilia Reyes (first attendance in October 2019) 2/2
Key responsibilities Our purpose of investing for a better future results in exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these risks and uncertainties are key to fulfilling this purpose.
 Changes to the risk appetite framework and quantitative risk limits  Risk aspects of major investments, major product developments and other corporate transactions  Regulatory compliance across the Group
 Ongoing activity to enhance and develop Standard Life Aberdeen’s ERM framework, for example the Risk Appetite and Policy frameworks
 Minutes from the Standard Life Aberdeen plc Enterprise Risk Management Committee (ERMC) and from those risk committees comprising non-executives that operate in Standard Life Aberdeen plc’s directly-held subsidiaries
 Findings included in the 2018 Internal controls report issued for Aberdeen Standard Investments
 Proposed changes to the risk appetite framework  Overview of the steps taken to refresh the policy framework  Update on Standard Life Aberdeen’s preparations for a disorderly Brexit  Discussion of the key points following Woodford Fund
 Update on the management of IT obsolescence  Review of Standard Life Aberdeen’s exposure to and management of climate change related risks and opportunities
 Update on Standard Life Aberdeen’s preparations for a disorderly Brexit
Risk exposures and risk strategy Standard Life Aberdeen’s risk appetite framework provides a common framework to enable the communication, understanding and control of the types and levels of risk that the Board is willing to accept in its pursuit of the strategy of the Group, including the business plan objectives and the capital it requires.
The Committee has continued to support the Board through monitoring exposures against tolerances and appetites throughout the year. The Committee reviewed and proposed updates to the framework to ensure that the risk appetites and risk limits appropriately reflected changes to the risk profile in view of the ongoing transformation of the business. Additional metrics for Supplier Risk, Strategic Risk and Conduct Risk were created to strengthen our oversight in these areas. In advance of the new prudential regime for investment firms, the tolerances in relation to our capital management framework have been revised.
Key items that the Committee discussed during the year in this context included:  Risks relating to the status of the Group’s Brexit preparations and the possibility of a disorderly exit from the EU
We received a number of one-off reports during the year which directly supported the Committee in our oversight of risk appetites, exposures and capital.
Stress testing and scenario analysis performed in 2019 also supported the Committee in understanding, monitoring and managing the risk and capital profile of the business under stressed conditions. This provided a forward-looking assessment of resilience to potentially significant adverse events affecting key risk exposures and comprised:  Individual stresses – looking at stresses to a range of financial variables in isolation
Enterprise Risk Management (ERM) framework During the year the business continued to embed the ERM framework used to identify, assess, control and monitor the Group’s risks.
The Committee has obtained assurance regarding the operation of the ERM framework through its review of regular content within the Views on Risk report. In particular we have used our review of the various risk and capital dashboards, including the consolidated dashboard on key conduct risk indicators and board risk appetite metrics to understand the Group’s risk profile and the effectiveness of the framework in supporting the management of these risks.
The Committee receives reporting from the Risk and Compliance function on the results of the quarterly risk management survey of regional and functional executives which is used to support identification of key risks facing the business. The completion of this survey along with subsequent discussion of the results at the ERMC is noted as helping to drive greater risk awareness and accountability. Furthermore, through reviewing the results of the survey, the Committee has been able to ensure there is appropriate focus on the key risks facing the business.
 In line with feedback on the Board pack, members commented that while the quality of materials is seen as high, they could be too long and complex and they would encourage the paper sponsors to simplify and reduce the levels of complexity
Overall, Board members have confidence in the Committee and its Chairman and appreciate the care and diligence with which it fulfils its duties.
Membership The members of the Committee are the Chairman and a number of the independent non-executive Directors. The table below reflects the composition of the Committee and the members’ attendance during 2019: Member Attendance
Sir Douglas Flint 5/5 Melanie Gee 5/5 Jonathan Asquith 2/2 John Devine 3/3 Martin Pike 3/3 Former member Richard Mully 2/2 Simon Troughton 2/2
Keith Skeoch and Martin Gilbert, in their CE and Deputy Chairman of Aberdeen Standard Investments roles, were invited to Committee meetings to discuss relevant topics, such as the role and membership of key executive management committees, talent development and management succession.
The Committee’s role is to support the composition and effectiveness of the Board, and oversee the Group’s activities to strengthen its talent pipeline. It also oversees the ongoing development and implementation of the Group’s governance framework.
Key responsibilities:  Identifying and recommending Directors to be appointed to the
Board and the Board Committees  Reviewing and assisting in the development and implementation of the Company’s culture, diversity and inclusion activities  Reviewing Board diversity, skills and experience  Supporting the process and output of the Board’s effectiveness review  Overseeing succession planning, leadership and talent management development and diversity levels throughout the Group
Governance Code 2016 for the 2018 ARA  Considered the gender diversity action plan  Considered the 2019 ethnicity action plan  Reviewed the proposal for Board employee engagement  Reviewed the Board Charter and Committees’ terms of reference  Recommended the appointment of the CFO
Board Effectiveness Review  Reviewed ELT development activities  Reviewed ELT succession planning
An indicative breakdown as to how the Committee spent its time is shown below: The key governance activities during the year included:  Maintaining high-quality membership of the Board and its
Committees  Reviewing the executive governance structures, including the move to a single CE and the rebalance between the CE role and the client relationship role
 Supporting the externally facilitated Board effectiveness review for 2019 and ensuring the feedback from the 2018 review was fully considered
The related role profile is then submitted to external search consultants along with the request to prepare a list of suitable candidates. The Committee then 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 notifications or approvals. The other Board members are also offered the opportunity to meet the recommended candidates. Part of this includes considering 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. This process was followed for the appointments of Stephanie Bruce, Jonathan Asquith, Cecilia Reyes and Brian McBride.
The Committee also 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. Martin Pike’s continued appointment was reviewed during the year. This was his third term of appointment, and the Committee agreed that he continued to meet all independence and time commitment expectations
In particular, the Committee discussed the future leadership and talent needs of the Group and how the current programmes would be revised to take account of the skills and expertise required by the Board and the executive leadership team. The programmes recognise the changing shape of the Group, and also identify both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief HR Officer, with input from the CE and supported by the Group Talent and Organisation Development team. Also during 2019, the non-executive Directors held specific private discussions on Board and executive succession, the results of which fed into the overall plan.
Culture During the year the Committee also received updates on the initiatives on corporate culture. These included co-creating, articulating and embedding the drivers and behaviours to support our strategy, as well as the leadership role to support these, and then measurement via a proposed scorecard. This work also included the initiatives on Board employee engagement and bringing the employee’s voice into the Boardroom, work which will continue to evolve in 2020.
Jonathan Asquith 3.4 Directors’ remuneration report Remuneration Committee Chairman’s statement This report sets out what the Directors of Standard Life Aberdeen were paid in 2019 and how we will pay them in 2020, together with an explanation of how the Remuneration Committee reached its recommendations. It also sets out the proposed remuneration policy which, subject to shareholder approval at the 2020 AGM, will apply from that date. Where tables and charts in this report have been audited by KPMG LLP we have marked them as ‘audited’ for clarity.
 The new remuneration policy, which is subject to a shareholder vote at the 2020 AGM
On appointment, I took the opportunity to meet with a number of our key institutional shareholders and their representatives as well as to undertake a review of our approach to executive remuneration. The outcome is the new remuneration policy which I now present for your approval, together with the Remuneration Committee’s report on Directors’ remuneration for the year ended 31 December 2019.
We recognise that it is important for all companies, not least major investors such as Standard Life Aberdeen, to consider carefully how their executives are paid. We need to be able to attract and retain talented individuals from diverse backgrounds to manage our businesses and ensure that they are appropriately incentivised. In setting the terms of remuneration for the most senior employees, we must ensure that the interests of a broad range of stakeholders including shareholders, clients, regulators and the wider workforce are respected; their trust is central to our Company and therefore of foremost importance to the pay decisions that we take.
Stephanie Bruce was appointed to the Board as CFO with effect from 1 June 2019. Her remuneration arrangements were disclosed as part of our Annual report and accounts 2018. The performance targets attached to her initial award are set out on page 89. Her predecessor, Bill Rattray retired from the Board on 31 May 2019 and remained employed to support transition to Stephanie until 31 December 2019. His remuneration for the period of time he was on the Board is set out on page 85 and his remaining remuneration is detailed on page 87.
There were also extensive changes on the non-executive Director front. Sir Douglas Flint stepped up to Chairman on 1 January following the retirement of Sir Gerry Grimstone. Richard Mully and Simon Troughton stepped down from the Board at the Annual General Meeting in May. Following my appointment on 1 September 2019, Cecilia Reyes also joined the Board as a non-executive Director and a member of the Remuneration Committee from 1 October 2019. All non-executive Directors’ fee arrangements are set out on page 93.
It should be noted that four of the financial performance metrics are included in the Underpin condition for the 2018 EIP Deferred Award. The final outcome of this award is not due to be assessed until 2022 and will be reported at that time; it is likely, however, that the result will be negatively impacted by the financial performance for 2019.
Non-financial performance In addition to the above, the Committee set a range of non-financial (10%) and personal (10%) performance targets for the executive Directors, amounting to 20% of bonus opportunity in total. The Remuneration Committee assessed that a final score of 6.5% out of 10% of the maximum on non-financial measures was appropriate. This was driven by the following key factors:  A positive assessment for achievements under strategic delivery, in particular unlocking of value from our Indian stakes
Remuneration Committee assessment To consider whether the awards generated by the scorecard were fair in the broader performance and risk context, the Remuneration Committee considered the following factors:  The outcome from the perspective of overall Company performance including one-off items
Looking back at the 2019 AGM The Board changes announced in March 2019 included the transition away from the co-CEO structure and Martin Gilbert’s appointment as Vice Chairman, the prospective appointment of Stephanie Bruce as Finance Director and the detailed terms of the appointment of the new Chairman. All of these changes had remuneration implications and it became clear in the lead up to the 2019 AGM that some shareholders had concerns in this area. As such, prior to the 2019 AGM, the Chairman held discussions with a number of our largest shareholders and their representatives. Having listened to the concerns raised, the Committee approved further conditionality on the one-off deferred award made to Stephanie Bruce. This was in the form of a performance condition linked to efficiency targets and was communicated to the Stock Exchange on 30 April 2019. At the AGM 57.98% of shareholders’ votes cast were in favour of the resolution to approve the Directors’ remuneration report. As a result, the Company committed to consult further with shareholders and report back on their concerns and how the Company proposed to address them. This consultation got under way as soon as practicable after my appointment as Chairman of the Remuneration Committee and involved letters to our leading shareholders and follow up meetings with them and their proxy voting advisers in the fourth quarter of 2019. In these meetings, the discussion points around the 2019 AGM were recognised to be one-off issues of which the key agenda items were:  Martin Gilbert’s remuneration with effect from 13 March 2019 to reflect his new role as Vice Chairman. By the time of the consultation, Martin’s decision to step down from this role and retire from the Company had already been announced and the issue was treated as closed.
Our existing remuneration policy is only two years old, but changes to the business since it was first proposed and practical issues around its implementation in the form of the current EIP have undermined its suitability. In particular, much of the current remuneration policy focuses on the achievement of budgetary targets around adjusted profits; this gives rise to four key issues:  The Company has a substantial and costly programme of integration and systems restructuring work to complete following the Standard Life/Aberdeen Asset Management merger and the sale of the UK and European insurance businesses to Phoenix in 2018. The cost-effective and timely delivery of these ‘below the line’ items is not addressed by the incentives embedded in the EIP.
 The EIP has been established as a multi-year plan, with financial performance measured in the main over trailing periods of up to three years; awards are then subject to annual re-tests on challenging criteria until vesting. The complexity of the structure makes outcomes highly unpredictable and significantly weighted towards trailing performance rather than future growth, while its rigidity does not equip it well to deal with evolving strategic challenges in a fast-changing environment.
These factors, together with feedback obtained from our investors through our meetings over the last six months, have led the Committee to develop the new remuneration policy which is proposed for approval at this year’s AGM. It has been designed to address the shortcomings identified above and to ensure that our remuneration policy is structured appropriately to drive delivery of our strategy and meet the following core principles: Simple and transparent: easy for participants and wider stakeholders to understand.
Alignment to performance: executive remuneration aligned to overall performance of the Company.
Reward short and long-term performance: rewards delivery of short-term plans and long-term shareholder returns.
Market competitive: attracts and retains the right talent to deliver our strategy.
Key elements of our new policy For simplicity and ease of understanding, the new remuneration policy is structured to conform substantially with existing market norms. It has six key features: Base salary – set to reflect the role and experience of the relevant individual, with increases typically in line with the wider workforce, adjusted where appropriate for changes in role or responsibilities. Benefits and pensions – aligned with the wider workforce. Annual bonus – rewarding management for the efficient and timely execution of the stretching plan agreed with the Board over the short term (12 months), with a majority focus (75%) on financial performance. Non-financial performance (20%) makes up most of the balance, concentrating on the achievement of desired outcomes in our relationships with our customers and our people. The remaining 5% is reserved to reward the achievement of specific personal targets set for each of the executive Directors. Underpinning the final outcome is Board discretion, where Risk and Conduct matters are considered along with any other contextual references such as sustainability of outcomes. Given the importance of these aspects, they can have a substantial impact on final awards, notwithstanding performance against the targets set.
Long-Term Incentive Plan (LTIP) – aligning management expectations with those of the Board and shareholders over the long term (five years), with a three year performance measurement period and subsequent two year retention period. Performance measures are linked to the creation of long-term shareholder value and must include a minimum of two measures of which one should be absolute and one relative in nature.
Quantum – there is no increase in the overall opportunity available to any of the executive Directors as a result of the change from the existing to the proposed remuneration policy.
 Greater levels of transparency for both management and shareholders on how performance and remuneration outcomes align through a simplified model for delivery which removes trailing performance measures and performance retests
At a glance – 2019 Remuneration outcomes This section sets out our 2019 remuneration policy, the 2019 award outcomes for each executive Director, the performance against the executive incentive plan scorecard and the performance against each of the 2019 performance measures contained in this scorecard.
2019 outcome of the financial and non-financial performance metrics used to determine the 2019 EIP vesting percentage The following chart shows performance against the target range for each of the financial and non-financial metrics which form the EIP. Financial metrics contribute a maximum of 80% of the outcome, with non-financial metrics contributing a maximum of 10% of the outcome. Further detail on the assessment of the performance conditions, including highlights from the personal performance assessment (which account for a maximum of 10% of the final outcome) can be found on page 86.
Current policy summary The following table describes the remuneration policy applicable in 2019. A comparison between the current and the proposed policy is presented on page 84.
Vested awards are subject to a holding period until the fifth anniversary of the grant date.
Pension and benefits: Provides a competitive and flexible retirement benefit that does not create an unacceptable level of financial risk or cost to the Company. Provides market competitive cost effective benefits. The level of pension and benefits is reviewed periodically in line with the opportunity offered to other employees in the Company. Change from current policy: Reduction in pension quantum proposed. This is to bring executive Director pension into line with the opportunity available to the wider workforce.
Bonus: Annual plan designed to reward the delivery of the Company’s business plan in a range of financial and non-financial areas.  Performance assessed against key financial, non-financial and personal performance measures  Awards will vest at 25% for threshold performance, 50% for target performance and 100% for maximum performance with straight line vesting between these points  Awards are delivered 50% in the form of cash and 50% in the form of a deferred award. The deferred award is delivered in shares and vests in equal tranches over three years. Retention is applied as required by regulation. Cash and deferred awards are subject to malus and clawback.
Change from current policy: The EIP is replaced by an annual bonus and LTIP award. Annual bonus performance will be assessed against forward looking metrics measured over 12 months, rather than based on trailing performance.
Change from current policy: New element of remuneration (partly replaces the EIP).
Quantum: There is no increase in the quantum of opportunity available to any of the executive Directors as a result of the change from the existing to the proposed remuneration policy.
Due to commercial sensitivity, actual targets and ranges will be disclosed at the end of the performance period.
The proposed peer group1 to be used for the relative TSR measure consists of the following global asset management peers: Affiliated Managers DWS Group Jupiter Fund Management SEI Investments Alliance Bernstein Eaton Vance M&G St James’s Place Ameriprise Financial Franklin Resources Man Group T Rowe Price Group Amundi Invesco Quilter Ashmore Group Janus Henderson Group Schroders 1 This peer group will be subject to re-evaluation throughout the performance period to adjust for the effects of corporate events such as mergers and acquisitions, with substitutes introduced where necessary to maintain the approximate size and comparability of the group.
Comparison of opportunities of the policy in 2020 compared to 2019 The following chart compares the implementation of the previous policy to the proposed policy. Salary and pension for 2020 shown below includes the following adjustments:  Salary of £615k for the CE, and £538k for the CFO (representing a 2.5% increase, in line with the wider workforce)  Pension of 18% of salary (a reduction from 20% of salary, and in line with the maximum contribution in place across the wider workforce)
The Committee recognises that the split between annual bonus and LTIP is typically more heavily weighted towards the longer term performance. Under the new policy, the maximum variable opportunity is 300% of salary for the annual bonus, and 500% of salary for the LTIP, with a maximum total combined variable award of 700% of salary. The Committee therefore retains flexibility to vary the balance between short and long-term remuneration in the future.
The terms of Martin Gilbert’s retirement were agreed at the time of the announcement relating to his departure. In line with the prevailing policy at that time, Martin Gilbert will continue to receive a pension of 20% of salary until his departure. He will have a maximum opportunity for 2020 Annual Bonus of 204% of salary, to be pro-rated for time served (he will not be eligible to receive a 2020 long-term incentive award). His salary will remain as £480,000, reflecting the pro-rated value based on his working four days per week.
Bill Rattray8 1 This includes the taxable value of all benefits paid in respect of the relevant year. Included for 2019 are medical premiums at a cost to the group of £518 for Keith Skeoch and Rod Paris and £1,274 for Martin Gilbert.
3 This figure shows the annual cash bonus paid in respect of the year. 4 This figure shows the annual deferred EIP awarded in respect of the year. In the event that all, or part, of the award fails to satisfy the Underpin performance condition and subsequently lapses, the single figure outcome will be restated in the following Annual report and accounts. 5 The values reported for 2018 have been restated to reflect the value of the shares vesting in respect of the three-year performance measurement period ending on 31
December 2018. Where the awards vested in 2019 the price has been restated using the share price on the vesting date. For 2018, the Executive LTIP vested at 0% and the Standard Life Investments LTIP vested at 3.175% of maximum, with the outcome restated in the table above at the vesting price of £2.5775. The previous share price used (based on the three month average to 31 December 2018) was £2.6415.
Long-term financial Adjusted diluted EPS (pence) 1,2 20% 40.1 44.3 49.1 41.5 3.33% Gross new business flows (all channels) (£bn)1,3,4 10% 137.7 153.0 168.2 138.3 0.2% Net new business flows (excl. Strategic insurance partners) (£bn)1,3 10% (11.2) 2.9 17.2 (50.2) 0%
Short-term financial Cost/income ratio 6 20% 70.6% 68.6% 66.6% 70.9% 0% 1 Includes eight months of discontinued business in 2018 2 Includes 2018 adjusted diluted EPS outcome, which is aligned to the 2018 adjusted profit outcome 3 Flows excludes investment in cash and liquidity funds and Advice flows net of eliminations 4 Excludes Lloyds in 2019 5 Includes an adjustment for GARS returns below LIBOR +2.5% or equivalent 6 Cost/income ratio targets have been restated following the HDFC Life and AM stake sales 85Standard Life Aberdeen 2019
– Global Brand rank remained in the top 10 of the NMG client survey, in line with the target. The Retail Gatekeeper and Retail Advisor rankings remained static.
– Top awards received in respect of the Group’s IFA platforms – Activity rates were measured at 112% of the stretch target – Strong levels of client retention from the high risk profile, above target range – AUM at high risk fell by approximately 1/3rd
– Most improved company in the Hampton-Alexander FTSE 100 index, to 10th position and a 9% increase in women in senior roles since 2017 to 36%, ensuring strong progress towards the Women in Finance targets
– Global Code of Conduct attestation rate across all employees of over 99%, in line with the stretch target – Successful planning and execution of organisational and customer documentation changes to prepare for the full range of possible Brexit scenarios – Company operating at an elevated level of risk as a result of the transformation environment, however positive management action has resulted in improvements over the second half of the year – Improvement in Cyber threat defences and preparedness
– Ongoing and impressive outreach to a diverse client base while successfully transitioning key client and industry relationships to senior colleagues
– Enhancement of Board financial information and support for the Audit Committee. Effective oversight of the regulatory and capital management requirements and relationship building with key regulators
Bill Rattray – Provided support and effective handover of his finance function responsibilities to Stephanie Bruce – Supported Stephanie Bruce in initial dealings with the investor community and provided ad hoc input as required on complex historic matters
The Remuneration Committee determined there should be no adjustments made to the EIP scores as a result of this review. The final outcome, including how this impacted the payout for each Director, is set out on page 82.
The following table sets out each of the performance Underpins: Performance measure Weighting Underpin level
– Rewards a key driver of AUMA – Cumulative performance between 2020-2022 – For Gross new business flows, Underpin set at greater than or equal to £235bn (excludes flows arising from investment in cash and liquidity funds and flows from LBG) – For Net new business flows, Underpin set at greater than or equal to £30bn (excludes flows arising from investment in cash and liquidity funds and excludes Strategic Insurance Partners)
Cost/income ratio including associates and joint ventures 25% – Rewards strategy of building an efficient and effective business – Measured based on performance in 2022 – Underpin set at less than or equal to 65%
Payments to past Directors and payments for loss of office (audited) Payments made to former Directors that have not been previously reported elsewhere are reported if they are in excess of £20,000.
Bill Rattray stepped down from the Board with effect from 31 May 2019 but remained employed until 31 December 2019 to support transition to Stephanie Bruce, after which point he left the Company. Details of his pro-rata remuneration until stepping down from the Board are included in the table on page 85. He continued to be eligible for his salary and benefits until his termination date of 31 December 2019. The amounts payable in respect of the period 1 June to 31 December 2019 include base salary, contractual benefits and pension (totalling £316k). No further payments were made to him in respect of 2019. For the remaining portion of his notice period, until 31 May 2020, Bill Rattray will be entitled to payment for his base salary, contractual benefits and pension (totalling £226k).
As Bill retired from the Company, he was treated as a good leaver for the purpose of outstanding incentive awards. In line with the respective plan rules, the following treatment applied:  Legacy awards under the Aberdeen Deferred Share Plan: Unvested awards will vest in full at the normal vesting date  Deferred awards under the EIP: Unvested awards will pay-out at the normal time, subject to performance against the Underpin conditions
Rod Paris remains employed with the Company in his role as CIO following stepping down from the Board and his outstanding incentive awards will continue to vest in line with their original terms.
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 2019 Fees
Keith Skeoch Non-executive Director Financial Reporting Council £nil Director and deputy chair of the Investment Association £nil Martin Gilbert Non-executive Director Glencore plc US$300,000 Chairman of the Practitioner Panel – Prudential Regulation Authority1 £nil Stephanie Bruce Board and council member of ICAS £nil Bill Rattray Non-executive Director Curtis Banks Group PLC £50,833 1 Stepped down from this position with effect from November 2019.
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2017: Performance condition Performance measurement period Threshold Maximum Actual % Vesting
Cumulative Group adjusted profit before tax1 1 January 2017 to 31 December 2019 £2,635m £3,210m £2,171m 0% Cumulative Group net flows2 £27.7bn £45.9bn (£70.1bn) 0% 1 These are the performance targets after the adjustments in 2017 in light of the merger and in 2018 following the transaction with Phoenix. Further adjustments were made to this target in 2019 as a result of the Lloyds Banking Group withdrawal and associate and joint venture share reduction changes. These adjustments resulted in a reduction in the threshold and maximum targets of £30m and £35m respectively. These formulaic adjustments have not resulted in a change to vesting outcome.
2 No change was made to the net flows condition in 2017 from those originally set at grant.
Rod Paris participated in the 2017 SLI LTIP which was dependant on the achievement of adjusted profit targets and subject to Underpins relating to investment performance. After the performance conditions were assessed, it was determined that the award did not meet the required thresholds against the measure and the award lapsed in full. The actual adjusted profit targets are not disclosed as Aberdeen Standard Investments is a subsidiary of the Company and the Board deems that this is commercially sensitive information which, if disclosed, could seriously prejudice the Company’s business.
Directors’ interests in shares (audited) A shareholding requirement was implemented in 2014 and amended in 2018. We continue to require executive Directors and senior management to maintain a material long-term investment in Standard Life Aberdeen plc shares. The Remuneration Committee reviews progress against the requirement annually and retains discretion to require executive Directors to purchase shares to meet the requirement. Personal investment strategies (such as hedging arrangements) are not permitted. For the purpose of the shareholding requirement, awards qualifying include 50% of the value of deferred awards held by the executive Directors that have vested but not been exercised and 50% of the value of long-term incentive awards that are no longer subject to a performance condition but have not been exercised (as a proxy for the tax due on exercise of the awards). All executive Directors have complied with the current requirement as at 31 December 2019, with the exception of Stephanie Bruce who was appointed during 2019.
The following table shows the total number of Standard Life Aberdeen plc shares held by the executive Directors and their connected persons: Total number of shares owned at 1 January 2019
The following table shows the number of qualifying awards included in assessing achievement towards the shareholding requirement, as at 31 December 2019: Qualifying awards
Number of shares under option under long-term incentive plans which are no longer subject to performance conditions
Total of the value of shares (from table above) and 50% of the value of qualifying awards at 31 December 2019 as a % of salary
1 The closing price at 31 December 2019 used to determine value was 328.10 pence.
1 Includes LTIP awards made in 2017 and 2018 and awards granted in 2019 disclosed below, excluding, in each case, shares to be awarded in lieu of dividend equivalents. 2 This comprises awards under the LTIP granted in 2015 and deferred bonus awards (including unvested awards under the Aberdeen Variable Pay plans). It does not include shares to be awarded in lieu of dividend equivalents. Also included are options granted under the Standard Life Sharesave Plan. 3 This comprises awards made under the Aberdeen Variable Pay plans which are now exercisable. 4 For Martin Gilbert, this comprises of deferred bonus awards. The dividend equivalent value of £1,706,173 for these shares was settled in cash. For Rod Paris, this comprises an award made under the 2016 Standard Life Investments LTIP. It includes shares awarded in lieu of dividend equivalents. 5 The closing market price of Standard Life Aberdeen plc shares at 31 December 2019 was 328.10 pence and the range for the year was 231.05 pence to 336.90 pence.
Awards granted in 2019 (audited) The table below shows the key details of the EIP deferred awards granted in 2019: Participant Type of award Basis of award Face value at grant
EIP deferred awards are subject to performance Underpins measured over three years as set out on page 91 in the Annual report and accounts 2018
Stephanie Bruce Nil-cost option One-off award2 £750,000 281,571 66.6% See below 1 The share price used for the deferred bonus awards was 265.88p. 2 The share price used for the deferred awards was 266.36p.
Performance targets for the award made to Stephanie Bruce As set out in the announcement made on 30 April relating to the one-off award for Stephanie Bruce, efficiency targets of £350m had previously been disclosed, with £230m still to be realised at 31 December 2018. Two-thirds of her award will vest to the extent that an efficiency target of £175m is achieved. If the total remaining efficiencies of £230m are delivered by 3 June 2022, the award vests in full. Awards will be assessed based on progress made over the three years from grant, with performance measured prior to vest for each tranche. The Committee believes that the targets attached to this award are challenging, ambitious and stretching, and also central to the Company's strategic transformation. The first anniversary of the award is 3 June 2020, and vesting of the first tranche will be determined based on performance up to that date. Performance will be assessed by the Committee, with input from the Audit Committee to be received to aid the assessment of performance.
Share dilution limits All share plans operated by the Company which permit awards to be satisfied by issuing new shares contain dilution limits that comply with the guidelines produced by The Investment Association (IA). On 31 December 2019, the Company’s standing against these dilution limits was:  1.56% where the guideline is no more than 5% in any 10 years under all discretionary share plans in which the executive Directors participate  2.03% where the guideline is no more than 10% in any 10 years under all share plans
Promoting all-employee share ownership The Company promotes employee share ownership with a range of initiatives, including:  The Standard Life (Employee) Share Plan which allows eligible employees to buy Standard Life Aberdeen plc shares directly from earnings.
 The Sharesave Plan offered in 2019 to eligible employees in the UK. This plan allows UK tax resident employees to save towards the exercise of options over Standard Life Aberdeen plc shares with the option price set at the beginning of the savings period at a discount of up to 20% the market price. At 31 December 2019, 2,479 individuals were saving towards one or more of the Sharesave offers.
Pay compared to performance The graph shows the difference in the total shareholder return at 31 December 2019 if, on 1 January 2009 £100 had been invested in Standard Life Aberdeen plc and in the FTSE 100 respectively. It is assumed dividends are reinvested in both. The FTSE 100 has been chosen as Standard Life Aberdeen plc is a member of this FTSE grouping.
Total shareholder return of Standard Life Aberdeen plc compared to the FTSE 100 index
The following table shows the single figure of total remuneration for the Director in the role of Chief Executive for the same 10 financial years as shown in the graph above. Also shown are the annual incentive awards and LTIP awards which vested based on performance in those years: Year ended 31 December Chief Executive
Dec 2019Dec 2018Dec 2017Dec 2016Dec 2015Dec 2014Dec 2013Dec 2012Dec 2011Dec 2010Dec 2009
Pay ratio The table below sets out the ratio of Keith Skeoch’s pay to the median, 25th and 75th percentile total remuneration of full-time equivalent UK employees in accordance with the legislation published by the Government in 2018. We have identified the relevant employees for comparison using our gender pay gap data set (snapshot data from April 2019) and updated the figures for remuneration received in respect of the 2019 performance year ending 31 December 2019 (methodology B). This was chosen by the Committee as it utilised a data set which had already been processed and thoroughly reviewed, and this enabled timely reporting for disclosure purposes. Some employing entities are excluded from the gender pay gap calculation due to the number of individuals employed by these entities being less than 250, in line with the regulations. The Committee considered this would not have a material impact on the outcome of the pay ratio calculation given the limited number of individuals this excludes, relative to the total population being captured and the range of the remuneration for those excluded individuals, which was spread across quartiles.
The remuneration paid to the individuals identified under methodology B was reviewed and considered representative of the quartiles and the trends seen across the Company on remuneration in respect of both the salary and bonus. Benefits figures were based on the medical premium paid by the Company on behalf of employees.
CE remuneration 600 1,472 25th percentile employee 32 44 50th percentile employee 47 64 75th percentile employee 71 117
The Group engaged with its employee associations from an early stage in the annual remuneration cycle. The areas discussed include: external market data, economic factors, employee expectations and congruence of executive pay with that of the wider workforce in terms of overall pay budgets and approach. The Group operates a Compensation Committee consisting of the Chief HR Officer (Chair), Chief Financial Officer and Chief Risk Officer. The role of the Compensation Committee is to consider the implementation of the remuneration policy across the Group. The Compensation Committee refers its terms of reference to the Remuneration Committee for approval and the Chair of the Compensation Committee formally reports to the Remuneration Committee on all matters which fall within the Compensation Committee’s remit.
Total remuneration for the year ended 31 December £000s 2018 – – –
The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company’s registered address (details of which can be found on page 258) and at the 2019 AGM. Details of the date of appointment to the Board and date of election by shareholders are set out below: Chairman/ non-executive Director Initial appointment to the Board Initial election by shareholders
Chairman Sir Douglas Flint 1 November 2018 AGM 2019 Senior Independent Director Jonathan Asquith 1 September 2019 Non-executive Directors John Devine 4 July 2016 AGM 2017 Melanie Gee 1 November 2015 AGM 2016 Martin Pike 27 September 2013 AGM 2014 Cathleen Raffaeli 1 August 2018 AGM 2019 Jutta af Rosenborg 14 August 2017 AGM 2018 Cecilia Reyes 1 October 2019 92 Standard Life Aberdeen 2019
Implementation of policy for non-executive Directors in 2020 The following table sets out non-executive Director fees to be paid in 2020. No increases were made to the level of fees from 2019. Role 2020 fees1 2019 fees
Chairman’s fees2 £475,000 £475,000 Non-executive Director fee3 £73,500 £73,500 Additional fees: Senior Independent Director £25,000 £25,000 Chairman of the Audit Committee £30,000 £30,000 Chairman of the Risk and Capital Committee £30,000 £30,000 Chairman of the Remuneration Committee £30,000 £30,000 Committee membership (Audit, Risk and Capital, Remuneration and Nomination Committees) £10,000 £10,000 Employee engagement4 £15,000 £15,000 1 The core fee of £73,500 paid to each non-executive Director (including the Chairman) is expected to total £662k for 2020 (2019: £588k). This is within the maximum £1,000,000 permitted under Article 87 of Standard Life Aberdeen plc’s articles of association. Total fees including additional duties are expected to amount to £1,408k for 2020 (2019: £1,413k).
4 This fee was introduced in 2019. Details on the role responsibilities are set out on page 79 of the Annual report and accounts 2018.
Total number of shares owned at 31 December 2019 or date of cessation if earlier4
Sir Douglas Flint, as Chairman, is subject to a shareholder guideline holding of 100% of the value of his annual fee in Standard Life Aberdeen plc shares to be reached within four years of appointment.
The Remuneration Committee Membership During 2019 the Remuneration Committee was made up of independent non-executive Directors.
 2018 Directors’ remuneration report  2018 bonus payments and 2016 LTIP outcomes  Set 2019 EIP scorecard targets  Review remuneration outcomes for executive Directors and the Material Risk Taker population  Approval of the remuneration arrangements for the incoming CFO, and departure terms for the previous CFO
 Review of relevant disclosures required under regulation, including CE pay ratio data  Review of Martin Gilbert’s retirement arrangements  Mid-year review of performance against target for annual bonus and LTIP awards  Review investor consultation material
 Review overall approach to remuneration philosophy at Standard Life Aberdeen  Material Risk Takers and related 2019 disclosures  Update on the regulatory position of Standard Life Aberdeen and the Committee’s Terms of Reference  Review gender pay gap data  Update on investor consultation and consider proposals for the executive remuneration policy  Review of the Deferred Share Plan and Discretionary Share plan rules  Update on the terms and conditions harmonisation across the wider workforce
Remuneration Committee effectiveness The Remuneration Committee reviews its remit and effectiveness annually. In 2019 an independent externally facilitated review was conducted by IBE. This included observation of a meeting, review of papers and interviews with Remuneration Committee members. The key points arising from the review were:  The Remuneration Committee had a significant period of change in 2019, due to the change in leadership, which led to some loss of momentum. However, there were positive early signs of a fresh approach under the new Chair.
 Remuneration Committee members were considered engaged and well informed  Remuneration Committee reports to the Board were considered specific, concise and timely  Going forward, the Committee will consider holding routine private sessions at each meeting to agree how best to focus their time and review progress
The remuneration policy was subject to a vote at the 2018 AGM on 29 May 2018 and the following table sets out the outcome of the vote.
% of total votes 97.91% 2.09% No. of votes cast 1,412,472,135 30,105,977 15,014,089
The Directors’ remuneration report was subject to a vote at the 2019 AGM on 14 May 2019 and the following table sets out the outcome.
% of total votes 57.98% 42.02% No. of votes cast 607,428,291 440,226,225 89,312,048 95Standard Life Aberdeen 2019
Future remuneration policy This section sets out the remuneration policy for executive Directors and non-executive Directors, which is subject to a binding vote of shareholders and will, if approved, take effect from the date of the 2020 AGM.
The Remuneration Committee agreed the following core principles designed to support our strategy, culture and values which guided the design of the remuneration framework going forward:  Simple and easy to understand for participants and wider stakeholders alike  Aligns executive remuneration with the overall performance of the Company  Rewards executives for the delivery of both short-term plans and long-term returns to shareholders  Takes into consideration the external landscape relating to executive reward  Is market competitive to ensure that the Company is able to attract and retain the right talent to deliver the Company’s strategic ambitions
Remuneration policy for executive Directors Base salary – there is no change in the operation of this element of pay compared to the previous policy
Purpose and link to strategy To provide a core reward for undertaking the role, commensurate with the individual’s role, responsibilities and experience.
Maximum opportunity Salaries for executive Directors are set at an appropriate level to attract and retain individuals of the right calibre and with the experience required.
The Remuneration Committee may determine larger increases in certain circumstances, such as: development in role; change in responsibility; where a new or promoted employee's salary has been set lower than the market level for such a role and larger increases are justified as the individual becomes established in the role.
Pension – the maximum opportunity has been reduced to align with that available to the wider workforce in the UK
Maximum opportunity Maximum employer contribution aligned to those available to the wider workforce in the relevant jurisdiction.
Operation Employee contributions are made to the Company‘s defined contribution pension arrangement, or equivalent cash allowances are paid.
The level of contribution/cash equivalent is reviewed periodically taking into account the pension opportunity offered to other employees within the Company.
Benefits – there is no change to the operation of this element of pay compared to our previous policy
Purpose and link to strategy To provide market competitive and cost effective benefits.
Operation In line with other employees, executive Directors are provided with a package of core benefits, which include (i) private healthcare; (ii) death in service protection; (iii) income protection (iv) reimbursement of membership fees of professional bodies; and (v) eligibility for the all employee share plan. Executive Directors are also eligible to participate in the Company’s flexible benefits programme.
Annual Bonus – this element (together with the new Long-Term Incentive Plan) replaces the Executive Incentive Plan
Maximum opportunity The maximum award opportunity in respect of any financial year is based on role and is up to 300% of salary.
Where required, for regulatory purposes, deferred awards may be made in a combination of share awards and fund awards (which are conditional rights to receive a cash sum based on the value of a notional investment in a range of Standard Life Aberdeen funds).
The Remuneration Committee exercises its judgement to determine awards at the end of the performance period, which in normal circumstances will be one financial year, and will use its discretion to amend them if material change is required to ensure that the outcome is fair in the context of overall Company and individual performance and conduct. The Risk and Capital Committee and the Audit Committee advise the Committee as part of this process to ensure that the performance outcomes have not been achieved by assuming inappropriate levels of risk.
Long-Term Incentive Plan – this is a new element which (together with the Annual Bonus) replaces the Executive Incentive Plan
However, when combined with the annual bonus, the total incentive opportunity may not exceed 700% of salary. This means that in financial years where the Annual Bonus opportunity is set at the maximum (300% of salary), the maximum LTIP award would be 400% of salary.
Up to 25% of the award vests for threshold performance 97Standard Life Aberdeen 2019
Performance targets are normally set annually for each three-year cycle by the Remuneration Committee.
Performance metrics are set by the Remuneration Committee and are linked to the achievement of the Company’s long-term strategic priorities and the creation of long-term shareholder value.
For 2020, the LTIP award will be based on the following metrics:  Adjusted diluted earnings per share (50%)  Relative total shareholder return measured against a bespoke competitor peer group (50%) (the provisional peer group to be used for the 2020 LTIP is set out on page 84).
The Remuneration Committee retains the discretion to amend the final vesting level of awards if material change is required to ensure that they reflect fairly the performance of individuals or the Company.
Malus and clawback provisions apply to annual bonus and LTIP awards.
 Material corporate failure  An error in the information or assumptions on which the relevant award was paid/granted or vests, as a result of erroneous or misleading data or otherwise
Executive Directors are required to build up a substantial interest in Company shares.
High impact intelligence Harness our intellectual capital, emotional intelligence and data to generate best in class impact.
 Investment performance is measured as part of the annual bonus assessment, incentivising best in class impact
 By ensuring our performance metrics are focused on Company performance and KPIs, individuals are incentivised to deliver strong performance across all Company activity globally
Future fit Build a strong organisation, positioned for growth and ready to anticipate and meet the challenges of tomorrow.
 The achievement of strategic milestones sets out a number of key objectives which have been identified for future success will be recognised within the annual bonus assessment
Clarity Incentive arrangements are based on clearly defined financial, non-financial and individual performance metrics which are aligned with the Company’s strategy for sustainable long-term growth.
 Long-term incentive: LTIP which incentivises financial performance over a three-year period, promoting long-term sustainable value creation for shareholders tied to established and transparent shareholder value metrics. Awards are subject to a two-year holding period post vesting.
In line with regulatory requirements, remuneration arrangements across the Company are designed to ensure that they do not encourage excessive risk taking. Performance targets for incentive arrangements are set to reward delivery of the Company’s business plan which is set in line with the Company’s risk appetite statement.
The Remuneration scenario charts, set out on page 103, provide estimates on the potential future reward opportunity in a range of scenarios, including below threshold, target and maximum performance (including share price appreciation). Conditions around vesting are clear and understandable.
Notes to the policy table Performance measures and approach to target setting Performance targets for the Company’s incentive arrangements are set on an annual basis by the Remuneration Committee. The Committee takes into account a range of factors including business forecasts, prior year performance, degree of stretch against the performance targets in the business plan, the economic environment, market conditions and expectations.
The following table sets out details on why the performance measures for the purpose of the annual incentive plan were chosen. These metrics and the balance between them may vary over time, but financial metrics will be weighted no less than 75% of the total.
Measures to support the delivery of performance in each area are set as part of the Company’s annual business plan. For reasons of commercial confidentiality detailed measures will be disclosed annually in arrears as part of the remuneration policy implementation report.
Non-financial metrics chosen to focus management on the delivery of the business strategic priorities for the financial year.
Metrics may be linked to factors including, but are not limited to:  Investing in our People and our Customer experience (20%): Performance against key people objectives (including people engagement and diversity) may be used to focus management on developing organisational capability and encouraging desired behaviours. Customer objectives (including customer advocacy) may be used to measure our success in ensuring that customers remain at the forefront of our sustainable strategy
The following table sets out details on why the performance measures for the purpose of the Long-term Incentive Plan (LTIP) were chosen for the 2020 awards.
Aligns executive reward with the creation of shareholder value and provides an external assessment of Company performance against relevant peers which is less influenced by market effects.
Variable remuneration is directly aligned to the Company’s strategic priorities (through the selection of key financial and non-financial performance metrics), with payments calibrated to ensure that payments are only made where strong performance is delivered.
As noted above, the Remuneration Committee retains the flexibility to review formulaic outcomes to ensure that they are appropriate in the context of overall performance of the Company.
Remuneration Committee discretion in relation to existing commitments The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed: (i) before the policy set out above, or (ii) at a time when a previous policy, approved by shareholders, was in place provided the payment is in line with the terms of that policy, or (iii) at a time when the relevant individual was not a Director of the Company and the payment was not in consideration for the individual becoming a Director of the Company. For these purposes, payments include the Remuneration Committee satisfying awards of variable remuneration. This means making payment in line with the terms that were agreed at the time the award was granted.
Overview of key terms for awards Executive Incentive Plan Awards granted in 2019 and 2020.
 Awards (in the form of nil-cost options) granted to executive Directors under the Executive Incentive Plan prior to the approval of this policy are subject to the achievement of Underpin performance conditions relating to investment performance, flows, return on adjusted equity and cost/ income ratio performance over a threeyear performance period
 The Remuneration Committee has the discretion to amend the extent to which the Underpin performance conditions have been met to ensure that the outcome is fair in the context of overall Company performance
 The awards accrue dividend equivalents over the deferral and holding period
 Adjustments have been made to update the profit measure to adjusted profit before tax in the 2016 and 2017 LTIP performance measures and to adjusted profit excluding spread/risk margin in the 2018 LTIP performance measures. In addition, the net flows target has been updated in the 2018 LTIP performance measures to Company growth net flows. Finally the cumulative targets which relate to the 2018 performance year onwards reflect the enlarged Company.
 Awards granted post-merger – awards (in the form of nil-cost options) that were granted to executive Directors under the Aberdeen Deferred Share Plan 2009. Awards will be released in equal tranches over five years from grant. Awards are eligible to receive dividend equivalents between the date of grant and the date of exercise, which may be paid only after the earliest vesting date has passed.
Principles In determining remuneration arrangements for new executive appointments to the Board (including internal promotions), the Committee applies the following principles:  The 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 Company and its shareholders
The maximum level of variable remuneration which may be awarded to a new executive Director, at or shortly following recruitment, shall be limited to 700% of salary. This limit excludes buyout awards which are in line with the policy as set out below.
Where appropriate, the Committee retains the discretion to utilise Listing Rule 9.4.2 for the purpose of making an award to buy out remuneration terms forfeited on leaving a previous employer or to utilise any other incentive plan operated by the Company.
For the purpose of awards under the annual bonus, long-term incentive plan and Executive Incentive Plan, approved leavers are defined as those whose office or employment comes to an end because of death, ill-health, injury or disability, redundancy, or retirement with the agreement of the employing company; the sale of the individual’s employing company or business out of the Group or any other reasons at the discretion of the Committee.
Annual bonus plan Leavers during the award year For approved leavers, rights to awards under the annual bonus will typically be pro-rated for time in service to termination as a proportion of the performance period, and will be paid at the normal time in the normal manner (i.e. in cash/ deferred awards as appropriate and subject to performance), unless the Committee determines that payments should be accelerated (e.g. on death). For other leavers, rights to awards under the annual bonus will be forfeit.
Awards under the Long-Term Incentive Plan Leavers during the performance period For approved leavers, outstanding awards under the LTIP will typically be pro-rated for time in service to termination as a proportion of the performance period and will be released at the scheduled vesting date subject to performance. Subsequent holding periods will also apply. The Committee retains the discretion to dis-apply time prorating for approved leavers.
Remuneration policy for non-executive Directors No changes are being proposed to the remuneration policy for the Chairman and non-executive Directors. The policy remains as follows: Area Policy
 Board membership fees are subject to a maximum cap which is stated in the Company’s articles of association. Any changes to the cap would be subject to shareholder approval.
Board in the case of the other non-executive Directors, to reflect, for example, life assurance, housing, office, transport and other business-related expenses incurred in carrying out their role
If a new Chairman or non-executive Director is appointed, the remuneration arrangements will normally be in line with those detailed in the remuneration policy for non-executive Directors above.
Prior to the 2020 AGM, as detailed in the Committee Chairman’s cover statement, the Committee consulted with key institutional shareholders on the proposed policy and the changes that were being made. The proposed policy reflects the discussions with shareholders during the consultation process.
The Chairman’s statement, the Directors’ responsibility statement and the Corporate governance statement form part of the Directors’ report. The Corporate governance statement is submitted by the Board.
Dividends The Board recommends paying a final dividend for 2019 of 14.30p per ordinary share. This will be paid on 19 May 2020 to shareholders whose names are on the register of members at the close of business on 3 April 2020.
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 26 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2019, in the Shareholder information section.
As at 31 December 2019, there were 2,338,723,724 ordinary shares in issue held by 98,984 registered members. The Standard Life Aberdeen Share Account (the Company-sponsored nominee) held 651,170,271 of those shares on behalf of 1,005,103 participants. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
Between 1 January 2019 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 Guidance and Transparency Rules of the Financial Conduct Authority (FCA). The companies detailed below notified their positions.
You can also obtain a copy of the Articles from Companies House or by writing to the Company Secretary at our registered address (details of which can be found in the Contact us section). The Articles may only be amended by a special resolution passed by the shareholders.
 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 105Standard Life Aberdeen 2019
Subject to the Companies Act 2006, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any shares held as treasury shares). These rights can also be varied with the approval of a special resolution passed at a separate general meeting of the holders of those shares. At every separate general meeting (except an adjourned meeting) the quorum shall be two persons holding, or representing by proxy, not less than one-third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).
Power to purchase the Company’s own shares At the 2019 Annual General Meeting (AGM), shareholders granted the Directors limited powers to:  Allot ordinary shares in the Company up to a maximum aggregate amount of £115,557,697
 Disapply, up to a maximum total nominal amount of £17,333,654 of its issued ordinary share capital, shareholders’ pre-emption rights in respect of new ordinary shares issued for cash
 Make market purchases of the Company’s ordinary shares up to a maximum of 248,186,418 of its issued ordinary shares
As noted earlier in the share capital section, at the general meeting on 25 June 2018, shareholders authorised directors to undertake a share buyback programme. During 2019, under the authorities granted at the 2018 general meeting and the 2019 AGM, the Company has purchased 190,689,614 of its ordinary shares of 13 61/63 pence each, paying an aggregate amount of £515,099,546. As at 31 December 2019, the percentage of share capital represented by these purchased shares was approximately 8.2%.
Having been appointed since the 2019 AGM, Jonathan Asquith, Cecilia Reyes and Brian McBride will stand for election at the 2020 AGM.
All remaining Directors as at the date of the 2020 AGM will retire and, if they wish to continue in office, will stand for re-election. As announced by the Company on 2 October 2019, Martin Gilbert will not stand for election at the 2020 AGM and will retire from the Company on 30 September 2020.
Biographies of the current Directors can be found on pages 52 to 55.
Directors’ liability insurance During 2019, the Company maintained directors’ and officers’ liability insurance on behalf of its directors and officers to provide cover should any legal action be brought against them. The Company also maintained pension trustee liability indemnity policies (which includes third party indemnity) for the boards of trustees of the UK and Irish staff pension schemes where required to do so.
We invited UK and Ireland based employees to participate in the Standard Life Aberdeen Sharesave plan in 2019 and 1,736 (36%) employees accepted the invitation. They will have the opportunity to acquire Standard Life Aberdeen plc shares for £1.994 (UK) and €2.197 (Ireland) with their accumulated savings when their savings contracts end in three or five years’ time. At 31 December 2019, 2,479 employees in UK and Ireland were saving towards the purchase of Standard Life Aberdeen plc shares through the current Sharesave plans.
Employee engagement The Board takes employee engagement at all levels very seriously. As noted in the Annual report and accounts 2018, Melanie Gee accepted the role as the designated non-executive Director to support workforce engagement. During 2020, we will continue to develop her role to ensure it remains effective. You can find out more about this in the Corporate governance statement on page 58.
We engaged our people in discussions about what would further enhance Standard Life Aberdeen as a great place to work. Drawing on what we learned, we drove forward a series of activities at a local and company-wide level, such as local engagement committees and a range of leadership initiatives.
Employees place significant value on seeing and hearing from our leaders, and being given the opportunity to directly engage with them. In 2019 we also held more than twenty ‘In conversation with …’ sessions, using our global video conference facilities to connect our people across the world with our senior leaders. They had the opportunity to hear and discuss strategic messages directly with leaders thereby helping to embed these messages and encourage collaboration across our global business. We received great feedback on the sessions: 76% of attendees told us that they feel they have a better understanding of our strategy and 91% found the leaders to be open and honest during the sessions.
Recognising that our people want more clarity on our direction, we will continue with a programme of work, started at the end of 2019, to engage our people with our case for change, our purpose, strategic drivers and behaviours. We will rely heavily on our leadership population to deliver and ensure understanding of these strategic messages so that we can create the commitment and belief across every employee to power the business forwards.
Talent Attracting, nurturing and retaining high quality people is critical to our strategic objectives and future prosperity, and we are fully committed to developing the required pools of talent (at all levels of our organisation) to meet our current and anticipated needs. We’re creating an environment where our people can achieve their full potential at every stage of their career.
Structured succession planning helps us ensure we have a strong pipeline of talent, with both the technical expertise and leadership capabilities to support our growth agenda and enable smooth succession into our most critical roles. Our Board and Executive leadership team are highly engaged in our talent and succession agenda and in mentoring future talent.
Where gaps are identified in our succession plans, we are proactive in enhancing our talent pool through selective and focused external hiring, as well as through development. Our recruitment effectiveness has improved, through a combination of active market intelligence, innovative candidate attraction/assessment technology and a skilled in-house recruitment team that is increasingly able to source the highest quality of candidates directly rather than via search firms.
Developing our people During 2019 we constructed My Development as the primary learning and development system for the whole Company and this was launched in early January 2020. The system uses artificial intelligence to recommend resources and development opportunities to our people based on the topics they are interested in. It’s available for all employees and underpins our philosophy of individual-driven development.
We have continued to upskill our people through vocational qualifications, supporting new and experienced hires through Modern and Graduate level apprenticeships. We have also been an active voice along with Scottish Government and other industry leaders to modernise apprenticeship frameworks currently used in our sector, as well as lobbying for improvements to the apprenticeship levy policy in devolved nations.
Inclusion and diversity At Standard Life Aberdeen we consider diversity in the broadest sense – in our backgrounds, experiences, strengths and thinking. Our aim is to create a workplace where everyone can be themselves and can perform and progress, regardless of their background. By building and sustaining a diverse talent pipeline and enabling people to reach their potential, we provide our global customers with the diversity of thought and creativity required to bring long-term value.
Achieving a better gender balance at all levels remains a priority for us. Last year we published our gender update, including gender pay gap figures, an update on our HM Treasury Women in Finance Charter targets, and progress against our gender actions. We know we have more to do to improve representation of women but welcome the progress made over the past 12 months at Board and Executive (CE-1 and CE-2) levels. Our Board is currently comprised of 45% female members; surpassing our 33% target for June 2020 and our pledge to the 30% Club. At Executive (CE-1 and CE-2) levels we have improved female representation from 34%, as at 31 December 2018 to 36% as at 7 January 20201. Our progress was recognised by the Hampton-Alexander Review which ranked us 10 in the FTSE 100 in 2019, up from ranking 92 in 2018. Following analysis last year into how men and women join, progress and leave our organisation, we have prioritised actions to address the differences we uncovered. The actions we have in place to improve representation of women at all levels in our organisation are stretching, benchmarked and sponsored by our CE. Increasing women in our senior roles will also improve our gender pay gap, which is heavily influenced by the significant number of men in senior and most highly remunerated roles, and by the larger number of women in more junior roles.
As one of the inaugural signatories to the Race at Work Charter, we are committed to tackling barriers that ethnic minority people face in recruitment and progression. We published an ethnicity action plan and during 2019 we have improved understanding and awareness of experiences of ethnic minority employees, improved attraction and outreach to ethnically diverse candidates and built the capability for us to know more about the ethnicity of our employees. At Board level, appointments are made based on merit and with due consideration for the Board’s gender and ethnicity composition, as outlined in our Board Charter.
Sustainability The commercial aims of our business are linked to our environmental, social and governance responsibilities. You can find out more about how we run our business sustainably throughout the Strategic report. Our non-financial information statement on page 27 summarises where you can find key information on our approach. For details of our greenhouse gas emissions, please see page 25.
Auditors The Audit Committee is responsible for considering the Group’s External audit arrangements. Resolutions proposing the reappointment of KPMG LLP as auditors of the Company and giving authority to the Audit Committee to determine their remuneration will be submitted at the 2020 AGM.
1 Data shown as at 7 January 2020. Data has been reported as at 31 December in previous years but due to data impacts associated with migrating HR systems on 6 January 2020, data is shown as at 7 January for this reporting cycle only.
Annual General Meeting The 2020 AGM will be held in Edinburgh on 12 May. Details of the meeting content can be found in our AGM guide 2020. The AGM guide and other materials will be published online at www.standardlifeaberdeen.com in advance of this year’s AGM.
Post balance sheet events On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases commencing on 10 February 2020 and ending no later than 30 September 2020. As at 6 March 2020, the Company had repurchased 20,214,403 shares for a consideration of £60m.
Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic report. This includes details on our liquidity and capital management and our viability statement in the Chief Financial Officer’s overview section and our principal risks in the Risk management section. In addition, the Group financial statements section includes notes on the Group’s subordinated liabilities (Note 33), management of its risks including market, credit and liquidity risk (Note 38), its contingent liabilities and commitments (Notes 42 and 43), and its capital structure and position (Note 46).
5. Statement of Directors’ responsibilities in respect of the Annual report and the financial statements
Financial information Contents 6. Independent auditors’ report ............................................................................................................................................. 114 7. Group financial statements ............................................................................................................................................... 121 8. Company financial statements .......................................................................................................................................... 232
Note 26. Issued share capital and share premium ........ 177 Note 27. Shares held by trusts ...................................... 177 Note 28. Retained earnings ........................................... 178 Note 29. Movements in other reserves ......................... 178 Note 30. Non-controlling interests and other equity ....... 181 Note 31. Insurance contracts, investment contracts and reinsurance contracts ............................... 182 Note 32. Financial liabilities ........................................... 185 Note 33. Subordinated liabilities .................................... 186 Note 34. Pension and other post-retirement benefit provisions ............................................ 187 Note 35. Deferred income .............................................. 194 Note 36. other financial liabilities .................................. 194 Note 37. Provisions and other liabilities ......................... 194 Note 38. Financial instruments risk management ......... 195 Note 39. Structured entities ........................................... 203 Note 40. Fair value of assets and liabilities ................... 204 Note 41. Statement of cash flows .................................. 210 Note 42. Contingent liabilities and contingent assets .... 213
6. Independent auditors’ report to the members of Standard Life Aberdeen plc 1. Our opinion is unmodified We have audited the financial statements of Standard Life Aberdeen plc (the Company) for the year ended 31 December 2019 which comprise the Consolidated income statement; Consolidated statement of comprehensive income; Consolidated statement of financial position; Consolidated statement of changes in equity; Consolidated statement of cash flows; Company statement of financial position; Company statement of changes in equity and the related notes, including the reconciliation of consolidated adjusted profit before tax to IFRS profit for the year and the accounting policies in the Basis of preparation.
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee.
Materiality: Group financial statements as a whole £31m (2018: £32m) 4.4% (2018: 4.8%) of normalised profit before tax
Coverage 97% (2018:78%) of profits and losses that made up Group profit before tax
Carrying value of investment in Phoenix – share of Phoenix Profit
(Parent Company: Investments in subsidiaries, Impairment of subsidiaries: £795m (2018: 589m))
Our procedures included: Our valuation and sector expertise: We used our own valuation specialists to assist us in assessing the appropriateness of the Group's valuation model. This included comparing the Group discount rate assumptions with our own estimate of a range of reasonable discount rates, based on comparable company information. We also used our sector experience to evaluate the appropriateness of assumptions applied in key inputs such as revenue from customers, operating costs, growth rates and discount rates.
Sensitivity analysis: We performed our own sensitivity analysis which included assessing the effect of reasonably possible reductions in growth rates, discount rates and forecast cash flows to evaluate the impact on the carrying value of goodwill and the investment in subsidiaries.
6. Independent auditors’ report to the members of Standard Life Aberdeen plc continued
The calculation of the provision for separation costs arising out of the disposal of Standard Life Assurance Limited (‘SLAL’) in 2018 requires the Directors to determine a number of key inputs. The determination of these is judgemental and requires the Directors to consider a range of information connected to the Separation Plan. The most significant input is the costs that are estimated to relate to separating the business and which do not relate to costs related to the Group’s ongoing business, including development of new systems. The risk is that the provision is misstated and includes future costs from which the Group will derive ongoing benefit.
Our procedures included: Test of details: We assessed the terms in the Sale and Purchase Agreement (‘SPA’) and other documents to confirm that the Group has a legal obligation to pay for separation costs.
Personnel interviews: We interviewed relevant managers, including project staff, to validate the current progress of the Separation Plan, including current cost forecasts.
Refer to page 68 (Audit Committee Report), page 158 (accounting policy) and page 159 (financial disclosures).
The calculation of Phoenix’s profit is judgemental and dependent on a number of management estimates, in particular the actuarial assumptions underpinning the movements in insurance contract liabilities. In this regard, the assumptions that have the most significant impact over the Phoenix profit are the base and trend longevity and persistency assumptions.
Our procedures included: Control design and operation: We tested the design and operating effectiveness of key controls including over management’s process for modelling insurance contract liabilities and for setting and updating actuarial assumptions.
The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the pension scheme obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (Note 34) disclose the range estimated by the Group.
Our procedures included: Our actuarial experience: We used our own actuarial specialists to perform procedures in this area.
We considered the appropriateness of the mortality improvement assumptions by reference to industry based expectations of future mortality improvements. We considered the appropriateness of the discount rate and inflation assumptions by reference to industry practice.
Benchmarking assumptions and our sector experience: We utilised the results of KPMG benchmarking of base mortality, mortality improvement, discount rate and inflation assumptions and our knowledge of industry practice to inform our challenge of the Group’s assumptions in these areas.
Lastly, we previously reported a key audit matter in respect of the valuation of intangible assets. There were no impairment triggers identified during the year to 31 December 2019 and therefore we no longer consider this a key audit matter.
Materiality for the parent company financial statements as a whole was set at £19m (2018:£19m), determined with reference to a benchmark of normalised profit before tax, of which it represents 1.08% (2018:3.6%).
The remaining 3% of total Group revenue, 3% of Group profit before tax and 7% of total Group assets is represented by 18 reporting components, none of which individually represented more than 5% of any of total Group revenue, or total Group assets. For these residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these.
The work on 8 of the 10 continuing components (2018: 8 of the 9 components) was performed by component auditors and the rest, including the audit of the parent company, was performed by the Group team. The Group team performed procedures on the items excluded from normalised Group profit before tax.
The Group team visited 8 (2018: 8) component teams in 5 locations (2018: 5) to assess the audit risk and strategy. Video and telephone conference meetings were also held with these component auditors. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor.
Full scope for group audit purposes 2019 Specific risk-focused audit procedures 2019 Residual components
 The related statement under the Listing Rules set out on page 110 is materially inconsistent with our audit knowledge
5. We have nothing to report on the other information in the Annual Report The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Disclosures of emerging and principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:  The Directors’ confirmation within the viability statement page 43 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 and liquidity
 The section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
 The parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns
 Certain disclosures of directors' remuneration specified by law are not made
Irregularities – ability to detect We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to component audit teams of relevant laws and regulations identified at Group level.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further rem oved non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of nondetection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.