For more information visit our corporate website: www.standardlife.com/ annualreport 1. Strategic report
Company financial statements 220 10. Company financial statements 222 11. Supplementary information 236
The Annual report and accounts 2016 and the Strategic report and financial highlights 2016 are published on the Group’s website at www.standardlife.com/annualreport
Net flows Underlying cash generation £2.6bn outflow 2015: £6.3bn inflow £502m 2015: £459m
We include measures here which have not been determined to be KPIs but we believe are integral to the Group’s performance.
Basic earnings per share £368m 2015: £276m 2015 comparatives are in relation to continuing operations unless otherwise stated. 1 Comparative has been restated. See Chief Financial Officer’s overview. 2 Comparative includes discontinued operations.
Key performance indicators (KPIs) are defined as the measures by which the development, performance or position of the business can be measured effectively.
Our purpose is to invest for a better future. We do it to make a difference. For our customers and clients, our people and our shareholders. This takes the combined skills, expertise and collaboration of a team of people who are committed to excellence in all they do.
1 Relates to geography of customer and client. 2 Diagram excludes operating loss from ‘Other’.
We look after the investment needs of customers and clients in 45 countries.
Overview Standard Life Investments specialises in active asset management. Our key markets are in the UK, Europe, North America and Asia. We offer a wide range of investment solutions and funds, all supported by a distinctive investment philosophy Focus on Change.
Our Pensions and Savings business is a leading provider of long-term savings and investment propositions. We are primarily based in the UK, with operations in Ireland and Germany and serve around 4.5 million customers and clients. Our main aim is to help people manage their money today and save for their future.
Our Wholesale channel provides funds and solutions to retail investors through wholesale distributors and platforms.
Our associate business, HDFC Asset Management, is a leading manager of mutual funds in India.
In the UK, through our Workplace channel, we offer pensions, savings and flexible benefits schemes to employees through their employers.
Our Retail channel is a mix of intermediary relationships (financial advisers), direct customer relationships and our own financial planning business (1825).
We operate as Standard Life in Hong Kong, selling insurance and savings products via insurance brokers.
Outlook We expect the low interest rate and compressed return climate in financial markets to continue.
We will continue to expand our geographic reach through developing our own distribution and building strong relationships with strategic partners.
We believe the demand for financial advice will continue to grow. To meet that demand, we aim to continue growing our platform business and to pursue further opportunities to build scale in our 1825 financial advice business.
We will respond to European Union developments in a way that takes into account the best interests of customers, clients and our business.
An unpredictable and changing world 2016 was not a good year for experts and much happened that was unpredicted and unexpected. In the UK we have had a change of leadership in Government and a great shift in terms of the future direction for the nation as a result of the decision to leave the European Union. In the US there is a new President, clearly different from his predecessor. It has been a time of great and significant change and it will be some years for the long-term effects to become apparent. The good news is that our business has had, in its 191-year history, a very good track record of being able to navigate times of internal, economic, and societal change, all whilst keeping its customers and clients absolutely at the heart of what it does. Change brings comparative advantage for well-run businesses, provided they anticipate and adapt.
Our dividend Together with our focus to deliver against our established strategy, we have again generated another solid set of financial results. We continued to make good profits, continued to invest in our operations for the future, and continued to manage our balance sheet effectively.
I am very pleased to confirm, as a result of our strong performance, another year of increased dividend payments to our shareholders. Our final dividend for 2016 is 13.35p per share (up 8.2% on 2015) and gives a total 2016 dividend of 19.82p per share (up 8.0% on 2015). If our shareholders approve the final dividend at our Annual General Meeting in May this year, it will be paid out on 23 May 2017.
Business overview During 2016, we made several key announcements, designed to further our ambitions. We made a significant strategic investment in the adviser platform market by acquiring Elevate. Together with our own Wrap platform, this gives us a much bigger footprint in the UK marketplace. The demand for platforms and also for professional financial advice has grown as more people are empowered to take control of their long-term savings plan. We also acquired three independent advice businesses as part of our growth strategy for our 1825 brand.
Our investment expertise in both public and private markets continued to develop and our global investment activities further expanded both geographically and in the range of clients we serve. We are closely monitoring potential changes both in regulation and customer behaviour in asset management and we are determined to maintain our position as a successful global investment company of significant expertise and scale.
It is no secret that, prior to the referendum, I publicly advocated the advantages that membership of the single market gives to the financial services industry in the UK, and to Standard Life, our customers and clients. It’s now clear that many of these advantages will no longer be available. The people have spoken, the politicians are preparing for the Article 50 negotiations and we, as a responsible business, will do everything we can to make a success of the UK’s new position in the world.
Against this background, it was particularly disappointing that the outcome of the Financial Conduct Authority’s thematic review into the sale of non-advised annuities showed that a portion of annuity sales that we made since July 2008 did not adequately explain to customers that they may have been eligible for an enhanced annuity. We are continuing the work to ensure we put things right and have made a provision in our accounts for the costs that we may incur in relation to this.
We have strengthened the governance and oversight of our principal insurance company, Standard Life Assurance Limited, by appointing an independent Chairman, Lynne Peacock, who already sits on the plc Board, and an additional three very experienced non-executives, Amanda Bowe, Richard Houghton and David Marock. This in turn will allow the plc Board to devote more time to its strategic oversight of the whole of Standard Life.
In other Board changes, we said goodbye to Crawford Gillies and Isabel Hudson, and I was very pleased to welcome John Devine as a nonExecutive Director. John previously chaired Standard Life Investments and is a highly experienced operational practitioner and independent director, with previous roles at Threadneedle Asset Management Limited and Merrill Lynch.
Sustainability As you would expect for a business that has been around for 191 years, operating in a sustainable way is central to what we do. I am very pleased that, once again, our people’s hard work and dedication to making your business efficient, effective and responsible, was recognised in our best-ever achievements in both the Dow Jones and FTSE4Good sustainability rankings. We also received a ‘Silver Class’ award from independent experts RobecoSam for our corporate sustainability work. You can read more about our corporate and social responsibility activities in the Sustainability section of this report.
Standard Life Foundation I announced the launch of the Standard Life Foundation at our AGM in May 2016. This independent charity carries on the spirit of the former Standard Life Charitable Trust, but with a new and enhanced focus. I also announced that a substantial endowment would be gifted to the Foundation too. This endowment, in the region of £80 million, represents the vast majority of the proceeds of the disposal of unclaimed demutualisation shares and related dividends.
Finally… Businesses only succeed if they hold true to their values and constantly try to do the right thing. In a business like ours, customers and clients need to trust us and this trust is hard-earned.
However, we experienced modest net outflows of £2.6bn, less than 1% of assets at the start of 2016. This included outflows from our mature books which are in long-term run-off. Against these headwinds fee based revenue grew by 5% which, combined with careful cost control, helped us deliver a 9% increase in operating profit. Our strategy to build a well-diversified business helps our company to cope with significant change. What was encouraging was the £4.1bn of net inflows into the areas we regard as the long-term drivers of Standard Life’s growth.
To do this we will have to bring together the best from our successful active asset management, wealth management and pension and savings businesses to meet the changing shape of saver and investor needs.
We will build on our asset management skills, the quality of our advice to customers, the strength of the propositions that sit on our distribution platforms and the administration skills that lie behind them. This combination has allowed us to attract a highly diversified customer and client base which we want to continue growing.
You talk about world�class – what does this mean? I believe to be world-class will mean our business is truly valued by savers, admired by the market and a source of pride for our people.
Building on the work undertaken in 2016, we will continue to broaden and deepen our investment capabilities through new product innovation and identifying investment opportunities. This will allow us to both strengthen our relationships with our customers and, ultimately, give them the investment outcomes they expect.
You have been in the role for 18 months now, what changes have you introduced to make the business operate more effectively? My role is to ensure the business continues to evolve and progress. In my view the best way of doing this is to build a well-diversified global investment company where we work effectively together to drive value for customers, clients, and shareholders.
Since I took on the role of Chief Executive I’ve focused on improving our financial discipline and on ensuring we continue with targeted investments in diversification to generate growth. Delivering long-term value is not just about growing the business but also bringing it closer together and building a strong culture focused on delivering for shareholders and customers. It is a culture based on collaboration, diversity, respect and inclusion.
We opened a Tokyo office to further our reach in Japan and began a new strategic collaboration with Bosera International – one of China’s leading asset managers. In North America and Asia, we continued to develop strategic partnerships with global names like John Hancock and Sumitomo Mitsui.
We also announced a very exciting development for our associate business in India, with the proposed combination of the life insurance businesses of HDFC Life and Max Life.
Our ambition to be world–class is also expressed through our sponsorships and each one has a direct link to our shared values.
Sir Andy Murray It’s been a fantastic year for current world number one Andy Murray, capped off with a knighthood. His commitment to excellence and ambition to be the best is directly aligned to our values and reflects what we stand for.
A key element of our strategy is recognising the importance of effective succession planning within that leadership population. We actively demonstrated this following the recent announcement that Paul Matthews is to retire this year. Barry O’Dwyer, a key member of the Pension and Savings management team, will take on Paul’s responsibilities and replace him on the plc Board. I think this is a great example of the strength of talent we have at Standard Life and the importance we place on effective succession planning.
How will the UK’s exit from the European Union impact on Standard Life’s strategy?
What’s next for the business? For me it’s simple, we need to continue to deliver steady progress in becoming the world-class business that I’ve described.
The external environment may be challenging at the moment but I believe we need to continue to look to the long term. As a business we’ll be celebrating our 200th birthday in 2025 and we are proud of our heritage. Our longevity has been built on holding true to our values, understanding the evolving needs of our customers and clients and continuously rising to meet the demands of the world around us.
Our scalable businesses are well positioned to manage, administer and advise on assets to meet a range of customer and client needs, and to create value for our stakeholders.
…is designed to be sustainable and resilient over the long term...
We are well positioned to take advantage of four trends that continue to shape the global savings and investment landscape.
Democratisation of financial risk Customers and clients are having to take more responsibility for their and their families’ financial futures – driving the need for financial guidance, advice and simpler products and services.
Rebuilding trust in financial services The global financial crisis damaged trust in financial services organisations. We will play our part in helping to rebuild this trust – by demonstrating we are committed to doing the right thing, being transparent in the way we operate and, through our products and services, offering value to our customers and clients.
Slow growth, low inflation, compressed return environment In these market conditions, customers and clients are looking for simple and transparent products, with clear outcomes that will meet their investment needs.
 Using our influence as an investor to encourage responsible thinking and practices in other organisations
Building a world-class investment company means providing real value for our customers and clients over the long term. It takes a commitment to teamwork and excellence in everything we do – and ensuring that our people have the skills, resources and knowledge to deliver.
Key activities  Continued to expand our liability aware range with launch of our unique Integrated Liability Plus Solutions
 Enhanced choice of investment funds with 16 funds launched during 2016
 Embedded Environmental, Social and Governance principles into our investment processes
Objective Broadening and deepening our investment capability gives us the potential to attract a wider range of future customers and clients. We design propositions and fund choices to deliver the outcomes they expect over the long term.
Market forces We are well positioned to benefit from global trends that are shaping the savings and investments landscape. This includes the potential for slower economic growth and the compressed return environment continuing for longer which we expect will drive demand for active asset management.
We launched 16 new funds across a range of different asset classes, including Equities, Multi-asset and Fixed income. New funds, with specific objectives, are part of our ongoing aim to meet the investment needs of our customers and clients
Outlook and 2017 objectives We expect the compressed/low-return market environment to persist during 2017. Our main objective is to continue to innovate and seek new, diverse investment opportunities, including:  Further strengthen our private markets capability such as private equity, real estate and illiquid credit
 Convert our strong pipeline for our Integrated Liability Plus Solution with further variants planned
Today, our ability to offer a broader range of funds compared to 2009 is a direct result of focusing on what our customers and clients want in terms of fund choice and expected outcome, together with continuing to follow our Focus on Change philosophy.
“Our continuing investment in technology is helping us to develop increasingly scalable operations. We are able to administer growing volumes of assets efficiently.” Colin Walklin, Group Chief Operating Officer
Key activities  Continued to evolve our IT systems to reduce ongoing costs and increase scalability
 Enhanced our position as a leading platform provider following the acquisition of Elevate
Cost/income ratio 62% �1% pt Assets under administration £357.1bn +16% Operating profit £723m +9%
We’re transforming our operating platform to make it more modern, flexible and scalable. We are also focusing on efficiency – allowing us to deliver new products to market faster and effectively manage unit costs. The surrounding architecture – which includes our IT systems, the processes we follow and external service providers we use – gives us greater flexibility and reduces ongoing maintenance costs.
The cost/income ratio, which measures our efficiency, improved by 1% point to 62%. This includes the benefit of synergies delivered from the integration of Ignis. We have generated over £50m of annual cost synergies from this acquisition.
Outlook and 2017 objectives  Invest in technology to increase scalability, reduce ongoing costs and increase our ability to adapt to change
A focus on growing our business and efficiency Advised platform and DC pension markets expected to grow strongly (£bn)
 The shift from defined benefit to defined contribution (DC), together with auto enrolment, is driving growth in DC pensions
Key activities  Developed our people managers with a tailored 12-month training programme  Encouraged our people to develop their skills through external board appointments
Objective We invest in our employees’ development because we know that engaged people are central to building long-term customer and client relationships, contributing to our businesses’ performance, reputation, profitability and long-term shareholder value.
Our peoples’ contribution to business innovation and support for our communities was celebrated through our annual Inspiration Awards.
 Identify and address key actions from our employee engagement survey
See p45 for more information about our employee engagement and enablement
Trusted We build trust with all our stakeholders and always aim to do the right thing. We are honest, transparent and operate ethically at all times
Responsibility We operate responsibly to deliver sustainable value and make a di�erence for our clients, customers and shareholders
In September 2016, we signed the UK’s HM Treasury Women in Finance Charter. This makes firm and public commitments to support actions which will improve the representation of women in our industry, including progressive target setting for our leadership population. By the end of 2021, we aim to have 30-35% women in leadership roles across our business (2016: 25%).
We have established partnerships in parts of the world that are strategically important to us. This includes North America – one of the most competitive markets in the world for institutional and wholesale asset management – where we partner with leading financial services company John Hancock.
“Our strong relationships with customers, clients and advisers have been the driving force of our success.” Colin Clark, Global Client Director
Standard Life Investments’ client base by geography, channel, client type and range of funds – supported by innovative solutions and commitment to service excellence
 Continued to grow strategic partnerships that serve clients in markets worldwide – including John Hancock in the US
Down 11 Key risks Read more on p36-41  Customer and client outcomes  Customer and client preferences and demand  Outsourcer relationship management
Objective We focus on putting customers and clients first, and we always aim to operate in a timely and efficient way. If we don’t meet our own high standards, we look to put it right. Our processes and technology are designed to enable us to deliver great customer experiences that are also scalable, to support the future growth of our business.
2016 performance During 2016 we continued to strengthen how we support the needs of our increasingly diverse range of institutional and wholesale clients. We’ve also looked for opportunities to diversify through our strategic relationships.
With individuals taking more responsibility for their finances and seeking advice, our Wrap platform has remained a popular choice for advisers – as it allows them to consolidate and manage clients’ financial plans more efficiently. The acquisition of Elevate has strengthened our position in the UK advised platform market, connecting us with more advisers and customers.
We have also continued our work to address the findings of the Financial Conduct Authority’s thematic review into the sale of non-advised annuities. The review showed that a portion of annuity sales that we made since July 2008 did not adequately explain to customers that they may have been eligible for an enhanced annuity.
Outlook and 2017 objectives  Continue to develop client relationships –
including through new distribution partnerships and growing global brand awareness – and how we connect with advisers through our platform business
Ad m in ist ra tio n Asset m anagem ent
In August 2016, it was announced that HDFC Life and Max Life had agreed terms to combine their life insurance businesses. They are working towards completing this transaction which is expected to strengthen HDFC Life’s position as a leading private sector life insurance business in India. The proposed transaction is subject to regulatory, court and other necessary approvals.
The strategic benefits include increased scale and enhanced distribution and product mix. For example, the combined business would have bank assurance relationships – where insurance products are sold through bank branches– with three of the top six private sector banks in India.
 Counterparty risk  Investment performance  Longevity risk  Market risk  Regulatory change
Objective We remain focused on growing and diversifying revenue and profit, to deliver sustainable value for our shareholders and other key stakeholders. We aim to do this by creating a world-class investment company that is well diversified by geography, distribution channel, client type, asset class and across the value chain.
Market forces As people are having to take more responsibility for their financial futures, we’ve seen a growing demand for financial advice and guidance. This presents an opportunity for us to diversify and grow our sources of revenue – in particular, through our financial advice business 1825.
 Grow our 1825 financial advice business through organic growth and acquisitions
Delivering diversified and sustainable growth Growth fee based revenue (£m) Full year dividend per share Growth, diversification, performance
 We continue to diversify geographically  We are well positioned to capture revenue across the value chain through advice, administration and asset management
 Our performance allows us to continue to pursue our progressive dividend policy
See the Glossary for definitions of our growth channels and mature books of business
Standard Life has demonstrated the benefits of our diversified business, delivering a robust set of results against a backdrop of challenging market conditions.
Further details on alternative performance measures including reconciliations to relevant IFRS metrics are provided in Supplementary information in Section 11. Definitions for APMs are included in the Glossary.
Net outflows were £2.6bn (2015: inflows £6.3bn) against a backdrop of market uncertainty and weaker short-term investment performance. Resilient net inflows of £4.1bn across our growth channels were offset by net outflows of £7.1bn from our mature books, which are in long-term run-off. Gross inflows remained strong at £42.1bn (2015: £43.0bn) but redemptions increased to £44.7bn (2015: £36.7bn).
Our growth channels saw continued positive net flows, benefiting from product and client diversification. Standard Life Investments experienced net outflows of £0.7bn (2015: inflows £10.3bn). Institutional benefited from the breadth of our product offering with net inflows of £1.1bn (2015: £3.3bn). This was outweighed by net outflows of £1.7bn (2015: inflows £9.3bn) from Wholesale where investors reacted to market volatility and short-term investment performance. Pensions and Savings growth net inflows of £5.9bn (2015: £6.7bn) were driven by strong platform flows and growing contributions into existing Workplace schemes.
Net outflows from our mature books reduced by £1.7bn to £7.1bn, helped by a £1.2bn new mandate secured from Phoenix.
Standard Life Investments growth (0.7) 10.3 Pensions and Savings growth 5.9 6.7 Eliminations and other growth (1.1) (2.1) Total growth channels 4.1 14.9 Standard Life Investments third party strategic partner life business (2.7) (4.8) Pensions and Savings mature fee (3.5) (3.1) Pensions and Savings spread/risk (0.9) (0.9) Total mature books (7.1) (8.8) Associate and joint venture life businesses 0.4 0.2 Total net flows (2.6) 6.3
Fee based revenue Fee based revenue increased by 5% to £1,651m (2015: £1,579m) driven by higher average asset levels, including the benefit of exchange rate movements. Average fee revenue yield remained broadly in line with the prior year.
Fee based revenue in the UK Pensions and Savings and Standard Life Investments growth channels increased by 11% and 9% respectively. This was partly offset by a £21m reduction in Hong Kong due to lower regular premium new business. Fee based revenue from our mature business reduced in line with expected outflows.
Operating profit before tax Operating profit before tax continues to be a key measure which helps to give shareholders a fuller understanding of the performance of the business by identifying and analysing non-operating items.
Underlying performance Underlying performance increased by 8% to £681m (2015: £630m) and includes the £22m spread/risk margin benefit from an acceleration of payments from our main with profits fund relating to changes to the Scheme of Demutualisation in response to the transition to Solvency II. Underlying performance excludes the £42m (2015: £44m) of operating assumption and actuarial reserving changes which benefited operating profit.
2015 also included a £46m non-operating restructuring loss in Hong Kong following regulatory change.
The non-operating loss includes £175m relating to the provision for annuity sales practices.
Other2 profit from continuing operations comprises the share of associates’ and joint ventures’ tax of £13m (2015: £13m). In 2015, this also included a Singapore IFRS loss before tax of £42m which largely related to expenses in respect of the closure of that business. The 2015 IFRS profit from discontinued operations of £1,147m included the gain on sale of the Canadian business of £1,102m.
Operating profit before tax 723 665 Non-operating loss before tax (274) (257) Total tax expense (68) (77)
results, see the Group’s IFRS consolidated income statement on p113. 2 Singapore was presented as a discontinued operation within operating profit, but under IFRS
5 it was included in continuing operations. Therefore a reclassification was required. For further details see Note 2 in the Group financial statements section.
Share of associates and JVs 2016 operating pro t underlying adjustment 2016 underlying performance
Underlying cash generation This measure provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to our shareholders.
In 2016, our total tax contribution from continuing operations to tax authorities in all the jurisdictions in which we operated was £1,149m (2015: £1,059m). Of the total, £451m (2015: £332m) was taxes borne by the Group whilst £698m (2015: £727m) represents tax collected by us on behalf of tax authorities. Taxes borne are higher than 2015 mainly due to increased UK corporation tax payments relating to investment returns on policyholder investments. Of the taxes collected, the largest items are pay-as-you-earn (PAYE) deductions from pension payments made to customers and from employee payroll payments.
Tax policy Understanding tax risk, how to manage it, and how it impacts all our stakeholders are important parts of running our business responsibly. The Group proactively manages tax risks and employs an experienced in-house tax team to oversee the affairs of the Group. We have a tax risk management policy that is approved annually by the Board and have published our tax strategy on our website at www.standardlife.com/annualreport
The Regulatory view solvency cover prescribed by Solvency II regulations is 176% (2015: 162%). The Regulatory view capital surplus excludes £0.2bn (2015: £1.2bn) of capital in subsidiaries that is not deemed to be freely transferrable around the Group. The Regulatory view capital surplus increased to £3.1bn (2015: £2.1bn) due to a reduction in unrecognised capital following methodology and legislative changes. In addition, the Regulatory view solvency cover is diluted by the inclusion of £1.2bn (2015: £0.7bn) of capital requirements for with profits funds and our defined benefit pension scheme. These capital requirements are covered in full by capital resources in those funds.
Operating return on equity increased to 15.2% (2015: 14.2%) reflecting strong operating profit partly offset by a higher tax charge.
Dividends Dividend policy Our progressive dividend policy is to grow the annual dividend from the prior year pence per share payment at a rate that is sustainable over the long term.
Proposed dividend The Board is recommending a final dividend for 2016 of 13.35p per ordinary share which is an increase of 8.2% on last year’s final dividend. Subject to shareholder approval, this will be paid on 23 May 2017 to shareholders on the register at close of business on 18 April 2017.
The final dividend, combined with the 2016 interim dividend of 6.47p, brings the total dividend for the year to 19.82p – an increase of 8.0% on the 2015 full year dividend.
How the dividend is funded External dividends are funded from the cumulative dividend income that Standard Life plc receives from its subsidiaries. To provide some protection against fluctuations in subsidiary dividends, Standard Life plc holds a buffer of distributable cash and liquid resources. This buffer is dynamic and takes into account expected future subsidiary dividend flows and the risks to those dividends. Further information on the principal risks and uncertainties that may affect the business and therefore dividends is provided in the Risk management section of this Strategic report.
The increase in dividends received from subsidiaries includes approximately £50m related to capital released following the integration of Ignis.
Canada net retained proceeds - 460 Dividends received from subsidiaries 457 355 Cash dividends paid to shareholders (370) (343) Cash investments in associates and JVs (177) (3) Cash investments in subsidiaries (31) (44)
1 31 December 2016 excludes £36m of cash in the Unclaimed Assets Trust. The residual assets of this trust (after claims and costs have been settled) are expected to be donated to the Standard Life Foundation. IFRS presentation at 31 December 2016 consists of investments in subsidiaries at FVTPL of £276m, debt securities of £605m and cash and cash equivalents of £55m.
Total continuing £m £m 2016 £m £m £m £m £m £m 2016 £m £m
Share of associates’ and joint ventures’ profit before tax 35 31 - - 41 25 - - - - 76 56
Share of associates’ and joint ventures’ tax expense (11) (11) - - (2) (2) - - - - (13) (13)
Singapore included in discontinued segment - - - - - (42) - - - - - (42) Profit for the year attributable to equity holders of Standard Life plc 259 225 130 188 31 (59) (52) (78) - - 368 276 1 Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumption changes, restructuring costs, amortisation and impairment of intangible assets acquired in business combinations, gain or loss on the sale of a subsidiary, associate or joint venture and other one-off items which are not indicative of the long-term operating performance of the Group. The impact of the restructuring of the UK staff pension scheme has been adjusted so that 2016 operating profit is based on the expected long-term pension expense, which results in a £5m increase to operating profit before tax (2015: £35m) and a corresponding increase to non-operating restructuring and corporate transaction expenses – refer to Note 10 in the Group financial statements section for further details.
2 UK and Europe has been renamed as Pensions and Savings. 3 Other primarily relates to corporate centre costs and head office related activities. 4 Eliminations primarily relate to revenue and expenses included in both the Pensions and Savings business and Standard Life Investments. Therefore, at a Group level an elimination adjustment is required to remove intra Group impacts. 5 Relates to operating assumption changes of £42m (2015: £44m), included in the spread/risk margin and principally in respect of longevity assumption changes. The 2015 underlying adjustment also included £9m shareholder support provided to the German with profits business, included in operating expenses.
“Continued revenue growth, together with controlled management of costs, has delivered increased profitability.” Keith Skeoch, Chief Executive, Standard Life Investments
 Wholesale: providing funds and solutions to retail investors through wholesale distributors and platforms
We recognise that corporate governance along with responsible stewardship of a business’ capital, employees, customers, environment and society has a fundamental impact on long-term investment returns. Our commitment to socially responsible investing is a fundamental component of our Focus on Change investment philosophy and process.
Investing for the longer term An uncertain political backdrop has the potential to dampen global economic growth: the form Brexit takes and the trade and immigration policies implemented by the new US administration makes the path for asset prices more complicated. A number of supportive factors are still in play: the US corporate profits recession is ending, fiscal policy is expected to be expansionary, and financial stress is contained at least for the time being. China is experiencing a slowing economy but remains on course to rebalance away from investment and to consumption.
In a world of slow growth, low inflation and compressed returns, there are still cyclical opportunities to be found. Our view emphasises sustainable yield as an investment theme, while searching for specific growth opportunities.
We remain well positioned to deliver profitable and diversified growth. We are broadening our offering to clients through a strong pipeline of new investment funds and solutions. Our track record of client codevelopment and commercialising innovation positions us well to continue to meet the changing demands of our clients. At the same time we continue to invest to drive performance, to raise our profile and to enhance our infrastructure to support our growth ambitions.
 Total AUM up 10% to £277.9bn  Fee based revenue from growth channels increased by 9% to £680m  Gross inflows, in our growth channels, were resilient at £28.5bn
 Cost/income ratio improved to 58% (2015: 61%) with continued integration of the Ignis business and ongoing cost discipline
 Weaker short-term investment performance with 20% of growth channels funds ahead of benchmark over one year, 76% over three years and 88% over five years 26 Standard Life 2016
AUM increased by 10% to £277.9bn (2015: £253.2bn) driven by market and other movements, of which around one-third relates to favourable foreign exchange gains. The increase has been offset somewhat by the natural run-off from our mature books together with net outflows in our Wholesale channel against a background of volatile markets.
Resilient growth channels flows Gross flows across our growth channels remained strong at £28.5bn (2015: £31.4bn), largely into Institutional and Wholesale. This result reflects the breadth of our product offering, our expanding global distribution capability and the increasingly diverse range of client segments served. Net outflows of £0.7bn (2015: inflows £10.3bn) were recorded; Institutional net inflows of £1.1bn (2015: £3.3bn) were offset by Wholesale net outflows of £1.7bn (2015: inflows £9.3bn). This reinforces the benefit of our diversified client base where we have seen a clear difference in investor sentiment in our two main distribution channels. Wholesale redemptions increased as retail clients react quickly to volatile markets and weaker short-term investment performance while Institutional clients have longer term investment horizons and are happier to ride out periods of market volatility.
By asset class: Multi-asset experienced net outflows of £3.8bn (2015: inflows £9.5bn), £3.9bn of net outflows from Wholesale offset by £0.1bn of Institutional inflows. Gross flows into GARS slowed during 2016 to £10.2bn (2015: £17.0bn) with redemptions also increasing to £14.5bn (2015: £7.7bn) resulting in net outflows of £4.3bn (2015: inflows £9.3bn). The launch of the Liability Aware Absolute Return III fund and the Global Focused Strategies fund in the US helped other multi-asset solutions net inflows to reach £0.5bn.
Total growth channels gross flows excluding GARS were £18.3bn (2015: £14.4bn) with net inflows of £3.6bn (2015: £1.0bn). Our diversified fund offering is demonstrated by continued demand for asset classes such as our MyFolio range of funds, which saw net inflows of £1.6bn (2015: £1.9bn) as AUM increased to £10.5bn (2015: £8.1bn). Other flows echoed market sentiment with investors continuing to retreat from equities towards fixed income with net outflows of £0.3bn (2015: £nil) and net inflows of £1.1bn (2015: £0.3bn) respectively. Real estate also saw net outflows of £0.3bn (2015: inflows £0.3bn). Other asset classes saw net inflows of £1.0bn (2015: £0.8bn).
Total strategic partner life business – mature books 4.7 4.3 (4.8) (6.8) 134.0 122.7 1 During 2016 Ignis funds were merged into Standard Life Investments funds and are now reported within Institutional and Wholesale. This has resulted in a transfer of £11.1bn AUM out of Ignis into Institutional (£9.8bn) and Wholesale (£1.3bn) through Market and other movements. 2 Source: Pridham market report Q4 2016. 3 Source: Investment Association Q4 2016.
Fee based revenue 885 843 Operating expenses (537) (532) Share of associates’ profit before tax 35 31 Operating profit before tax 383 342 Interest, depreciation and amortisation 12 10
Reversal of interest, depreciation and amortisation (12) (10) Non-operating items (50) (53) Tax expense2 (74) (64) Total IFRS profit1 259 225 1 After tax, from continuing operations, attributable to equity holders of Standard Life plc. 2 Tax expense includes share of associates’ tax expense.
Increasing diversification We continue to build efficient and effective global operations with a presence in 29 cities worldwide including our Head Office in Edinburgh and regional hubs in Boston and Hong Kong. As well as our own distribution, we have developed strong relationships with strategic partners in the US, Canada, India, Asia, Japan and in the UK including the wider Standard Life Group, giving us an increasingly international client base across 45 countries. A recent example of this is our strategic partnership with Bosera International, in mainland China, with whom we are collaborating on a manufacturing basis, including joint product innovation and investment management cooperation. In February 2017 we also announced the commencement of a strategic partnership with Challenger, a leading retirement income group in Australia.
We are increasingly diversified with innovative investment solutions, such as liability aware and a range of multi-asset investment solutions as well as investment capabilities in traditional asset classes, including equities and fixed income. We are also working to strengthen our private markets capability.
Awards and recognition Our dedication to meeting clients’ financial needs resulted in us winning a number of industry awards, including:  �UK Fixed Income Manager of the Year and Global Fixed Income Manager of the Year 2016 – Professional Pensions Investment Awards
Fund Awards 2016  �UK Core Fixed Income and Pan-Europe Small Cap Equity winner –
Institutional Investor 2016 European Money Management Awards  �Global Fixed Income – Financial Times PIPA Awards 2016  �Best Application of ESG – Asia Asset Management Best of the Best 2016  �Best House for Absolute Returns – Asia Asset Management Best of the
Building our private markets capability A large and growing asset base  Traditionally only larger more sophisticated investors were able to target this market through specialist managers  More investors are looking to ‘capture’ illiquidity premia and
‘dampen’ listed market volatility  c10% annual growth in private market assets over the last decade
Creating one private markets platform  Focus on co-creation, product development and distribution  Leverage existing capabilities and client relationships – typically our institutional clients have one individual responsible for private markets
Our Pensions and Savings business is a leading provider of long-term savings and investment propositions. Our main aim is to help people manage their money today and save for their future.
 Workplace: pensions, savings and flexible benefits to employees through their employers
Our valuable mature book includes UK mature Retail, which includes business that was predominantly written before demutualisation and spread/risk products, such as annuities and protection, which provide a sustained contribution to our profit.
We continue to grow our 1825 financial advice business which offers a full financial planning and personal tax advice service. Offering a wide range of investment options, supported by investment experts and technology, clients are able to access support how and when they need it. We have completed the acquisition of four quality adviser firms to date, broadening our reach across the country and bringing total assets under advice in 1825 up to £3.2bn.
The EU referendum result in favour of leaving the EU surprised global markets in June and combined with other factors brought challenging conditions for sales. We operate branches in Ireland and Germany and there is a risk that regulations may change and impact on our current operating structure. We will respond to these developments in a way that takes into account the best interests of customers, clients and our Pensions and Savings business.
The Financial Conduct Authority’s thematic review into the sale of nonadvised annuities showed that a portion of annuity sales that we made since July 2008 did not adequately explain to customers that they may have been eligible for an enhanced annuity. We are continuing the work to ensure we put things right and have made a provision in our accounts for the costs that we may incur in relation to this.
 AUA up 21% to £181.5bn driven by the acquisition of Elevate, market movements and net inflows
Assets not generating revenue from products - - - - 8.9 7.7 1 Platform AUA of £44.2bn (Wrap, Elevate and Fundzone) comprises of £41.7bn (2015: £24.4bn) reported within UK Retail and £2.5bn (2015: £2.1bn) relating to Wrap International Bond reported within Europe growth fee.
UK Retail UK Retail AUA has increased 48% to £62.9bn (2015: £42.6bn), reflecting the acquisition of Elevate, strong platform inflows and positive market movements. Retail gross inflows exceeded £8bn for the first time.
Our Workplace business continues to be a source of growth for our retail businesses with £2.2bn of assets transferring in 2016.
Spread/risk Spread/risk AUA increased by 8% to £16.1bn, with net outflows from scheduled annuity payments of £0.9bn, offset by the benefit from reductions in yields increasing the value of bond investments backing our annuity book.
Europe mature fee Europe mature fee includes our German with profits book which was closed to new business in April 2015, resulting in net outflows of £0.1bn in 2016.
Spread/risk margin UK spread/risk margin decreased by £24m to £119m. Operating assumption and actuarial reserving changes provided a benefit of £38m (2015: £43m), primarily relating to future longevity assumption changes. Although we had expected fewer asset and liability opportunities to exist in the low yield environment, we took advantage of volatility in financial markets mainly in H1 2016 to deliver a benefit of £25m (2015: £30m). A number of other components contributed to a lower spread/risk margin than 2015 including adverse mortality experience and reduced new business. These reductions were partly offset by an £18m payment in 2016 from our main with profits fund relating to changes to the Scheme of Demutualisation in response to the transition to Solvency II. This effectively brings forward some of the payments expected in future years under the previous scheme rules.
 Our online Good to Go proposition meets the needs of smaller employers efficiently by processing pension schemes on the same day and has secured c3,500 schemes in 2016 (c7,500 to date)
UK UK operating profit reduced by £15m to £319m. The reduction was due to a £24m reduction in the spread/risk margin and a £5m loss for Elevate. Excluding this our operating profit improved by £14m, with an 11% increase in our growth channels fee revenue.
Europe Europe operating profit increased by £20m to £43m. The 2015 result was lower due to the impact of the £9m one-off shareholder support provided to the German with profits business. In 2016 our German business benefited from a £5m reduction in actuarial reserves due to lower maintenance expenses. The 2016 spread/risk result includes the benefit of a £4m payment from our main with profits fund relating to changes to the Scheme of Demutualisation in response to the transition to Solvency II. The 2016 result also benefited from favourable foreign exchange movements of £2m.
Total IFRS profit Pensions and Savings total IFRS profit decreased by £58m to £130m. This is mainly due to a higher non-operating loss of £207m (2015: £131m). The non-operating loss includes a provision of £175m for the costs that we may incur in relation to the FCA’s review of our annuity sales practices. This was partly offset by favourable short-term fluctuations in investment return and economic assumption changes and lower restructuring and corporate transaction expenses compared to 2015.
Schroders UK Platform Awards 2016  Elevate awarded Best Platform Provider with AUM up to £15bn,
Schroders UK Platform Awards 2016  Elevate awarded Best Platform for Adviser Service, Schroders UK
This award shows the exceptionally high standard of our Wrap Platform.
These awards are important because they are voted for by the adviser community, advocating the strength of our advisory relationships.
Our online retirement journey We want to expand our provision of advice and guidance to more people, enhancing engagement with our customers and the opportunity for Standard Life.
By 31 December 2016, almost 54,000 customers had used our online retirement journey.
Well positioned for future growth Our India and China life business consists of our life associate in India, HDFC Life; our life joint venture in China, Heng An Standard Life; and our wholly owned business in Hong Kong. The results of our Indian asset management associate business, HDFC Asset Management Company, are included in the Standard Life Investments section of this Strategic report.
Our operations in India and China continue to strengthen and are well positioned for future growth in the region.
Growing our presence in India HDFC Life is currently one of India’s leading life insurance companies with a 16% market share in the private sector. It has a broad product portfolio which provides over 20 million customers with innovative insurance and savings solutions.
In April 2016, we completed the transaction to increase our stake in HDFC Life from 26% to 35% for £179m.
The proposed transaction is subject to several regulatory, court and other necessary approvals. Although the Insurance Regulatory and Development Authority of India (IRDAI) expressed reservations on the proposed scheme, the transaction parties are working through these with the IRDAI and aim to complete the transaction in the next 12 months.
Anticipated shareholdings in post-completion HDFC Life, based on current shareholdings in HDFC Life and anticipated pre-completion shareholdings of Max Life. Max FS is listed on the National Stock Exchange of India (MFSL NSE) and the Bombay Stock Exchange (500271 BSE).
Positioned for future growth in China and Hong Kong Heng An Standard Life continues to build a sustainable and profitable business by offering a range of insurance and savings products to a growing customer base in mainland China. Both profitability and sales are ahead of 2015.
The Chinese insurance market has grown in recent years to become the second largest in the world and we believe that the prospects for future growth remain very positive, driven by an increasing middle class and wealthy population who are living longer and are more aware of the need for protection, medical insurance and retirement provision. Heng An Standard Life, through its extensive sales network and product range, is well positioned to meet this need. It also continues to investigate opportunities to increase its presence in the growing pensions market and has now submitted an application to the China Insurance Regulatory Commission for a new pension insurance company licence.
India  Increased our stake in HDFC Life to 35% in April 2016  Proposed combination of the life insurance businesses of HDFC Life and Max Life announced in August 2016  HDFC Life operating profit increased to £34m in 2016 driven by the growth in premium income  HDFC Life dividend, paid in December 2016, was 22% higher compared to the prior year and Standard Life’s share of the dividend was £8m
China  Heng An Standard Life’s operating profit and net flows increased by
Hong Kong  Fee based revenue and net flows reduced in Hong Kong due to lower regular premium business which we stopped selling in 2015
 Life insurance penetration expected to rise from 2.7% today towards the global average of 3.5% benefitting from factors such as a growing middle class, young insurable population and increasing awareness of the need for protection and retirement planning
India ASEAN-5 China G7 South Africa Russia Brazil 34 Standard Life 2016
AUA in Heng An Standard Life increased to £0.6bn (2015: £0.5bn) and Hong Kong also increased to £0.6bn (2015: £0.5bn).
Net inflows continued to increase in our associate and joint venture businesses to £362m in 2016 (2015: £230m). Net inflows in HDFC Life were £295m of which £49m relates to the increased ownership. Net flows in Heng An Standard Life increased to £67m compared to net flows of £36m in the prior year.
Further information on AUA and net flows is included in the Supplementary information section of this report
In Hong Kong, we continue to manage costs whilst investing in new propositions in response to changes in regulation. Our focus on cost management resulted in a reduction in operating costs compared to 2015.
This increase was partly offset by an operating loss in Hong Kong of £5m (2015: operating profit £2m), due to falls in both revenue and expenses as the business product mix continues to adjust following the regulatory changes in 2015. We are considering further actions to address the loss making position.
Total IFRS profit increased to £31m (2015: loss £59m). 2015 included a £46m non-operating restructuring loss in Hong Kong following regulatory change and a Singapore IFRS loss before tax of £42m which largely related to the closure of that business.
Share of associates’ and joint ventures’ profit before tax 41 25 Hong Kong fee based revenue 17 38 Hong Kong operating expenses (22) (36) Operating profit before tax 36 27 Share of associates’ and joint ventures’ tax expense (2) (2) Non-operating loss (3) (47) Total tax expense - 5 Singapore included in discontinued segment - (42) Total IFRS profit/(loss) after tax 31 (59)
shareholding the operating profit in 2016 would have been £28m compared to £21m in 2015.
“Our risk management framework continues to operate effectively in a constantly changing risk environment. This is essential for protecting the interests of our customers and clients while providing a sound platform for growth and building long-term value.” Raj Singh, Chief Risk Officer
We also received two external awards; Insurance Risk Manager of the Year (February 2016, Risk Magazine) and Insurance Risk and Actuarial Function of the Year for 2017 (January 2017, Insurance ERM).
Business and risk environment The wider environment proved to be challenging in 2016. We continue to operate under a heightened level of uncertainty with political, financial and regulatory risks being the predominant themes over the year. We expect this heightened level of uncertainty to continue in 2017.
The outlook for financial markets is uncertain; however, we have a robust Focus on Change investment philosophy and a strong, resilient capital position which we have subjected to a wide range of stress and scenario testing. This allows us to be prepared for whatever market conditions we face.
Given the vital role that our industry has in society, we are subject to high levels of political and regulatory focus. In 2017 the regulatory agenda will continue to evolve with the outcome of a number of market studies and new regulatory initiatives. Also, the UK Government will look to determine its priorities and agenda. We are directly engaged with government, industry bodies and regulators to make sure that our knowledge and experience informs the decisions that are taken.
Our principal risks and uncertainties The specific risks that 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 are operating. We group these risks into categories which include Strategic, Conduct, Operational, Financial Market and Credit and Demographic and Expense.
As our strategic development continues and we respond to changes in the external environment, it is to be expected that both the risks themselves and the relative importance of these may change.
Viability statement The Directors confirm that they have a reasonable expectation that Standard Life will be able to continue in operation and meet its liabilities as they fall due over the next three years. The Directors’ assessment takes into account Standard Life’s current capital and liquidity position, as described in the Chief Financial Officer’s overview, which shows a Solvency II regulatory capital surplus of £3.1bn and substantial cash and liquid resources held by Standard Life plc.
The business and strategic planning processes: Strategic planning is a continuous process which underpins business planning. Strategic planning considers the sustainability and resilience of our business model as described on page 8 of this report, which is key to ensuring our business remains viable. Business planning is an annual process which projects the performance, regulatory capital and liquidity of Standard Life over a three year period, and considers multiple scenarios including a severe downside economic scenario. The severe downside used in 2016 assumes that the global economy tips into a severe recession; global equities fall and long-term interest rates reach new lows. Our projected capital positions are a measure of the capital we need in the business to cover our risks, including financial and operational risks, under such stress scenarios. Our analysis shows that, whilst capital is eroded under the severe downside scenario, the strength and quality of our capital base is such that regulatory solvency is maintained and our business remains viable.
Reverse stress testing which gives a quantitative and qualitative understanding of plausible but severe risk scenarios which could threaten the viability of Standard Life, and informs related management actions. The scenarios assessed evolve over time and are informed by the principal risks set out later in this section. Whilst a limited number of scenarios can be assessed each year the insight from previous years’ exercises often remain relevant. This year scenarios assessed risk events related to failures of key third parties, significant regulatory change and political change, major shocks to financial markets, cyber threats, and reputational damage caused by matters of conduct in parts of Standard Life or its joint ventures. The assessment showed that, taking into account mitigating actions, Standard Life is resilient to extreme events as a result of its embedded risk management framework.
We consider that three years is an appropriate period for this viability assessment, which is in line with our core business planning process. It is the period over which major strategic actions, such as the launch of new investment propositions, are typically delivered. It also takes into account the uncertain economic environment and changing political and regulatory environment, and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. We consider that the severe scenarios assessed as part of our reverse stress testing are appropriate over this three year period.
Risk governance Enterprise risk management framework Standard Life’s ERM framework enables a risk based approach to managing our business. It integrates concepts of strategic planning, operational management and internal control. Our framework has been developed and embedded in the business over several years.
 Risk culture: The way we think and act as individuals and as a business. It encompasses our attitudes, capabilities and behaviours. Our culture drives how we identify, understand and openly discuss, and act on, current and future risks.
 �Risk control process: The practices by which we manage financial and non-financial risks within Standard Life. They are used to identify, assess, control and monitor risk.
 �Strategic risk management: This forms an integral part of the strategic planning process and is directly linked to our corporate objectives. It supports the development of long-term value by ensuring that well informed risk-reward decisions are taken in pursuit of our business plan. It also helps to ensure that capital is distributed to the areas where most value can be created from the risks taken.
 Risk and capital models: The models that we use to measure our risk exposures and capital position and the work that we do to test and understand the sensitivity of these positions
Three lines of defence We operate a ‘three lines of defence’ model of risk management, with clearly defined roles and responsibilities for individuals and committees:  �First line: Day-to-day risk management is delegated from the Board to the Chief Executive and, through a system of delegated authorities and limits, to business managers
 �Third line: Independent verification of the adequacy and effectiveness of the internal risk and control management systems is provided by our internal audit function. This is independent from all other operational functions. It operates subject to supervision and challenge by the Audit Committee.
Our definition and appetite Risks which threaten the achievement of our strategy through poor strategic decision making, implementation or response to changing circumstances. We recognise that core strategic activity brings with it exposure to strategic risk. However, we seek to proactively manage and control these exposures.
 Our investment philosophy is designed to operate through the cycle and provides the opportunity to outperform throughout the cycle
Delivering our business plan requires us to attract and retain customers and clients across our business. We are therefore exposed to the risk that our propositions do not keep pace with emerging customer preferences or fail to meet the needs and expectations of customers and clients.
The UK pensions and savings market continues to evolve as we seek to meet our customers’ savings and retirement needs. As customer needs and behaviours develop we continue to place a focus on ensuring their long-term investment solutions are fit for purpose.
We have made a number of key propositional enhancements to our Pensions and Savings business with the purchase of Elevate and growth of our financial advice business 1825. Also, our highly differentiated Workplace proposition continues to increase engagement with employers and employees.
 The development of our new and existing propositions start from the customer or client need
Political change can impact us directly through new laws or indirectly by altering the wider environment. Decisions taken by the UK and Scottish governments, but also those in other locations where we operate, can significantly alter circumstances and change the way we do business. We witnessed several significant political events in 2016.
The result of the presidential election in the US is likely to result in policy changes that may impact global growth and financial markets.
In light of actual and potential political changes we are evaluating possible scenarios and preparing to adapt our business as appropriate.
 We constructively engage with key decision makers in the best interests of our stakeholders, for example by contributing to consultations
In 2016 the FCA carried out a number of thematic reviews, which we were part of, and also published the initial findings of its Asset Management Market Study which we await the final conclusions of in 2017.
 Ongoing regulatory compliance is governed via our Standard Life Policy Framework
 Regulatory changes are considered under our stress and scenario testing programme and emerging risk process
We have continued to deliver on our transition over 2016 with the growth of our investment business and through acquisitions such as Elevate.
 Our Strategic Executive Committee has responsibility for our corporate strategy and execution of a single strategic plan
 Inorganic growth opportunities are fully assessed to ensure they align with strategic priorities
Our definition and appetite The risk that through our behaviours, strategies, decisions and actions the business, or individuals within the business, do not do the right thing and/or do not behave in a manner which:  Pays due regard to treating our customers and clients fairly  Is consistent with our disclosures and setting of customer and client expectations  Supports the integrity of financial markets
We recognise that our core strategic activity brings with it exposure to conduct risk which must be understood and managed. However, there is no appetite for purposeful or deliberate actions (behaviours/decisions) which result in conduct risk.
We are exposed to the risk of unfair customer and client outcomes as a result of our business not acting in the right way. This can arise from failed or poorly designed processes, badly designed or performing propositions, poor customer communications or conduct by our people. Unfair customer outcomes can also lead to significant reputational damage and material financial losses for our business.
The standards that we aspire to internally, as well as those expected of us by regulators, third parties and our customers are consistently being raised. However, higher standards mean that there is a greater risk of failing to meet these, which leads to our assessment that this risk is increasing.
Our response to increased redemption requests after the EU referendum, from UK property funds, protected investors. We took action to do the right thing to achieve the best possible outcome for our customers and clients.
 Our Standard Life Code of Conduct sets out the standards required of colleagues and mandatory training embeds this across the business
 Our Conduct Risk Policy helps to ensure that the standards and outcomes we set are implemented consistently across the business
 Ensuring fair treatment of our customers and clients is continually reinforced through the culture of Standard Life
Our business relies on a wide range of IT systems and our strategy requires greater use of online functionality to meet customer preferences, improve efficiency and manage costs.
This exposes us to the risk of failure of key systems, and technological security risks such as cyber-attacks.
Over time we expect our increasing global profile to raise the threat from cyberattacks. We continue to work with our external providers to ensure that our response is appropriate to the scale and nature of the threat.
In 2016 we established a Chief Information Security Office to oversee and set the security priorities across the business. The Security Office has specified our risk appetite for cyber risk in order to better measure the risk and drive the appropriate responses to it.
 We work with specialist external cyber risk experts to identify new risks and develop our response to them
 IT failure, security and cyber risk are considered under our stress and scenario testing programme and emerging risk process
These types of business arrangements allow us to access specialist services and skills, and enable our business to run more efficiently and cost effectively.
The failure of a material outsourcing provider could lead to significant costs and disruption to our operations until we recover the situation or put alternative solutions in place.
We run a large change portfolio with an increased level of activity arising from regulatory changes, transition activity for acquisitions and wider strategic initiatives. This exposes us to the risk that change takes longer or costs more than expected or that the change does not meet its intended objective.
 Change management forms part of our operational risk management framework which provides a robust and established framework under which change is managed, reported and implemented
 We maintain succession plans for key individuals which are regularly reviewed
 Our Emerging Leaders Development Support and Accelerated Development Support programmes help to build our talent pipeline
Over time this risk is becoming more important as the contribution of spread business to our overall revenue reduces and we become more focused on fee based revenue as we transition to a world-class investment company.
 We set limits for market risk exposures where this is appropriate
 Hedging is used to manage market risks faced by policyholders in our with profits funds where appropriate
During this time our governance processes in relation to investment mandates have operated effectively and we remain comfortable with the credit quality of our cash counterparties and other investments.
 Our credit risk management policy sets out the standards that must be complied with
 Exposures are proactively monitored with mitigation action taken where necessary
In 2016 annuity sales continued to be materially lower following the introduction of Pension Freedoms in the UK. In November we took the decision to restrict annuity sales to existing customers only.
 We have a reinsurance arrangement with Canada Life which transfers a material part of our longevity exposure. We monitor opportunities to implement further transactions to reduce our exposure.
Investing for a better future Our sustainability strategy covers four key priorities and enables us to manage environmental, social and governance (ESG) risks and opportunities. This helps us make a positive contribution to the futures of our people, customers and clients, and wider society.
This materiality review highlighted a number of areas that matter most to our stakeholders including trust and transparency, governance, sustainable economic growth, cyber-crime, climate change, responsible investment and stewardship, financial inclusion and decent work and pay. This input will also help focus our activity in 2017 and beyond.
Sustainability at Board level An update on internal and external ESG issues is provided for each Board meeting. Non-financial measures, which monitor progress against our sustainability strategy, are also highlighted on a quarterly basis.
Supporting saving We help people manage their money to support their lives and ture ambitions
This is the core of how we run our business and build a positive culture. We aim to operate in a way that builds trust, to contribute to our communities and to manage our environmental impact.
In 2013, we targeted a 20% reduction in GHG emissions by 2020. At the end of December 2016, we had achieved an absolute 5% reduction, however, on a like-for-like basis we are ahead of target with a 16% reduction. The table below shows GHG emissions for our business operations. We also measure GHG emissions for our global real estate investment portfolio. You can find out more at www.standardlife.com/annualreport
We know that the biggest impact we can have on environmental issues, including climate change, is through how we invest. You can find out more about this within our sustainability report at www.standardlife.com/sustainability
Our charity partners Our people vote for the charities we support. They pick charities close to their hearts and carry out vital fundraising during the partnership. Our current charities are:  In the UK, Place2Be – provides emotional support to children in schools
 In Ireland, ARC Cancer Centres – therapies and counselling for people with cancer and their carers
 In Austria, Österreichische Krebshilfe Wien – provides cancer support in Vienna
 In the US, Let’s Get Ready – supports low-income high school students
 In Hong Kong, Hong Kong Society for the Protection of Children – focusing on the care and welfare of children 2016 total charitable contribution £2.6m1 1 This consists of time given to the community, Raise and Match, Standard Life Foundation, Standard Life Charity Fund, donation of equipment and services and our employability scheme funding.
Greenhouse gas emissions (CO2e) Scope 12 2,227 2,675 2,134 4% (6%)
2 Scope 1 emissions include gas (and fluorinated greenhouse gas from 2014). 3 Scope 2 emissions include electricity. 4 Scope 3 emissions include business travel (air, rail and leased fleet), transmission and distribution losses for electricity and electricity use by a third party data centre. 5 Based on a full-time equivalent (FTE) employee figure which includes contingent FTE. 6 Figures have been restated to reflect full calendar year. 7 vs 2013 baseline.
We use a performance-based remuneration system, including a variable pay scheme which is based on the performance of the relevant business unit as well as that of individual employees. Our people can access a range of our savings and investment products at preferential rates and have the opportunity to join two different company share schemes. One matches employees’ share purchases of up to £50 per month (an increase of £25 in 2016) and the other enables employees to save for a fixed term and exercise their option to purchase shares at the end of the term at a discounted set price.
Our people strategy is consistent with both the United Nations and International Labour Organisation’s standards.
In 2016 we created new policies and continued activity in a number of areas for our people to feel part of a more inclusive workplace. Examples include the launch of our Carers Policy, the promotion of our Shared
 By September 2017: 26-30% leadership population will be female  By September 2021: 30-35% leadership population will be female  By end 2025: our leadership population will represent the gender split of our workforce (currently 49% female)
Employee engagement and enablement Our 2015 employee engagement survey highlighted the importance our people placed on effective and transparent communication across our business. We want to enable collaboration and, during 2016, we made significant steps to address this by:  Introducing a new company-wide intranet, built on the principles of social sharing and conversation
 Running new engagement programmes where our people meet and hear from senior leaders and subject matter experts covering all aspects of our business and the markets we operate in
 Embedding Microsoft SharePoint as our chosen way to collaborate on projects and share knowledge across our global locations
Our employee engagement survey scores were 65% for engagement and 62% for enablement, below the global financial services average scores of 69%.
Customer trust and advocacy Our brand Net Promoter Score (NPS) is an important measure of customer advocacy. The score indicates how likely a customer is to recommend Standard Life to family and friends. In 2016 our brand NPS fell by 11 points. We believe the reasons for this include the processes around pension freedoms – which some customers may have considered more complex – and lower customer confidence in financial services as a whole. We’ve planned a number of actions for 2017 to improve customer experiences.
Customer complaints We aim to always do the right thing for our customers – and if something goes wrong, we are committed to putting it right. We carry out root cause analysis for any issue raised by a customer so we can understand what went wrong and take action. In 2016 we received 7,576 complaints from our customers (2015: 7,516 complaints), which is 17.8 complaints per 10,000 policies in force (2015: 18.5 complaints). 3% of these complaints went to the Financial Ombudsman Service (FOS). Of the complaint cases considered by FOS in H1 2016, they agreed with our decision in 77% of cases against an industry average of 70%.
In 2016, Standard Life Investments achieved 15 ‘Green Stars’ in the annual Global Real Estate Sustainability Benchmark (GRESB) Assessment – the leading global benchmark for real estate sustainability. This is the highest number gained of all participants for the second consecutive year. Three of our 15 Green Stars also attained GRESB’s new 5 Star rating – putting us in the top 20% of our peers.
Our measurement and assurance Our non-financial performance measures are aligned across our four priority areas: responsible business, engaging employment, supporting saving, and investing responsibly. They are independently assured by PricewaterhouseCoopers (PwC):  Total employee days volunteered  Carbon footprint  Total people directly employed through employability programmes  InterAction employee survey results  Gender diversity of the talent pipeline  Gender diversity of the leadership population  Total customer complaints  Annual movement in the Brand Net Promoter Score (NPS)  Voting at shareholder meetings of investee companies  Environmental, social and governance engagements with companies
ESG engagement – BHP Billiton BHP Billiton is a UK-listed metals and mining firm with global operations. We met with the company during 2016 on several occasions. We primarily discussed the tragic incident of the Fundão tailings dam failure, in November 2015, at an iron ore mine operated by Samarco in Minas Gerais, Brazil. The dam collapse caused a 416 mile mudslide, affecting communities downstream, leaving at least 17 people dead and 700 homeless. BHP has a joint venture in the dam.
We believe BHP Billiton has responded proactively to the Samarco incident, both contributing resources and capabilities to the response effort and helping to establish a foundation to develop and deliver around 40 environmental and socioeconomic programmes to help restore and compensate the affected communities. The accident at Samarco calls into question the control companies have over nonoperated joint ventures and the extent to which companies can ensure that health, safety and environmental standards are consistently applied across all operations to which they have financial exposure. We continue to monitor BHP’s remediation and compensation programmes and encourage best practice.
The Group’s International Financial Reporting Standards (IFRS) consolidated financial statements have been prepared in accordance with IFRS, as endorsed by the European Union (EU). However, our Board believes that alternative performance measures (APMs), which have been used in the Strategic report, are also useful for both management and investors.
The most important APMs in the Strategic report include operating profit and underlying cash generation.
Further details on alternative performance measures, financial ratios and assets under administration are included in the Supplementary information section of this report
Having assessed the principal risks and the other matters discussed in connection with the viability statement, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Operating profit The 2016 reconciliation of consolidated operating profit to IFRS profit for the year, presented on page 115 of this report, presents profit before tax expense attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in Note 14. Operating profit reporting provides further analysis of the results reported under IFRS and the Directors believe helps to give shareholders a fuller understanding of the performance of the business by identifying and analysing non-operating items.
Forward�looking statements This document may contain certain ‘forward-looking statements’ with respect to Standard Life's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. For example, statements containing words such as ‘may’, ‘will’, ‘should’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘plans’, ‘pursues’, ‘seeks’, ‘targets’ and ‘anticipates’, and words of similar meaning, may be forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they are based on information available at the time they are made, including current expectations and assumptions, and relate to future events and circumstances which may be or are beyond Standard Life's control, including among other things: UK domestic and global political, economic and business conditions (such as the United Kingdom’s exit from the European Union); market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the impact of inflation and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the impact of competition; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; default by counterparties; information technology or data security breaches; natural or man-made catastrophic events; the failure to attract or retain necessary key personnel; the policies and actions of regulatory authorities; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Standard Life and its affiliates operate as well as other factors described in the Risk management section of this Strategic report. These may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Standard Life’s actual future financial condition, performance and results may differ materially from the plans, goals, strategy and expectations set forth in the forward-looking statements. Persons receiving this document should not place undue reliance on forwardlooking statements. Standard Life undertakes no obligation to update any of the forward-looking statements contained in this document or any other forward-looking statements it may make. Past performance is not an indicator of future results and the results of Standard Life in this document may not be indicative of, and are not an estimate, forecast or projection of, Standard Life’s future results.
2. Board of Directors Our business is managed by our Board of Directors. Biographical details (and shareholdings) of the Directors as at 24 February 2017 are listed below.
Tenure: Sir Gerry was appointed Chairman in May 2007, having been Deputy Chairman since March 2006. He has been a Director for 11 years.
Background: Sir Gerry has continued his excellent track record with the Group, leading the Board during a period of significant change and strategic development. His international experience, insight and firm advocacy of the benefits of strong governance are a great asset to the Board and to the Group.
Sir Gerry is senior independent director and deputy chairman of Barclays PLC. He has continued in his role as an independent, public interest, nonexecutive board member of Deloitte LLP and as the lead non-executive at the Ministry of Defence. He is an adviser to the board of the Abu Dhabi Commercial Bank. Previously, he held senior positions within the Department of Health and Social Security and HM Treasury and with Schroders plc in London, Hong Kong and New York. He was vice chairman of Schroders’ worldwide investment banking activities from 1998 to 1999.
Keith joined Standard Life Investments Limited in 1999 as Chief Investment Officer, and has been its Chief Executive since 2004. Previously he spent nearly 20 years at James Capel & Company Limited in a number of roles, including chief economist and managing director international equities. He is a nonexecutive director of the Financial Reporting Council, where he is a member of the codes and standards committee. He has been awarded honorary doctorates from the University of Sussex and Teesside University for services to the financial services industry.
Prior to joining Standard Life, Luke spent 10 years as director of finance and operations at Lloyd’s of London. Previously, he held senior finance roles at Deutsche Bank (UK), Morgan Stanley & Company (UK) and Lloyds Bank plc. He is a member of the governing body of Queen Mary University of London.
Tenure: Colin was appointed Director in November 2015. He has been a Director for 1 year.
Kevin was appointed Director in October 2014. He has been a Director for 2 years.
Colin was appointed to the Board of Standard Life Investments Limited in 2004 as a non-executive director. In 2010, he assumed executive responsibility for global client relationship activity, including client management, product development, distribution management and also brand management. Previously he spent 20 years with Mercury Asset Management/Merrill Lynch Investment Managers, becoming head of global marketing in 1999.
He holds a BA (Hons) Philosophy, Politics and Economics degree from the University of Oxford.
Paul’s appointment reflected his depth of knowledge of Standard Life and experience in the financial services industry spanning over 30 years. He brings a strong customer focus and significant marketing and distribution expertise to the Board.
Paul joined Standard Life in 1989, working in a variety of roles before being appointed UK Chief Executive in 2011 and then UK and Europe Chief Executive in 2012. His senior management roles have included UK Take to Market Director, Managing Director of UK Distribution, and Head of IFA Sales.
Paul started work straight from school, initially balancing his work with a rugby career, captaining the England U19s before a serious injury ended his sporting ambitions. Before joining Standard Life, Paul held a variety of sales and investments roles with National Mutual Life from 1979 to 1989.
He is a board member of the Association of British Insurers and is a member of the Financial Conduct Authority Practitioner Panel.
He holds an MA (Hons) in Management Studies from the University of Cambridge. He is a Fellow of the Institute of Chartered Accountants in England and Wales.
Tenure: Pierre was appointed Director in October 2011. He has been a Director for 5 years.
John was appointed Director on 4 July 2016. He has been a Director for 8 months.
He holds a degree in Civil Engineering, École Nationale des Ponts et Chaussées, Paris, a Law degree from the Faculté de droit, Paris, together with an MBA from HEC Paris.
Background: Noel’s executive background is in international banking. She brings extensive knowledge of financial and governance issues to the Board.
In January she was appointed chair of the UK Export Finance board. As part of this role she is also a non-executive member of the Department of International Trade board. Noel is outgoing chairman of GE Capital Bank Limited. She also holds non-executive director appointments with CHAPS Clearing Company Limited, the London Metal Exchange, the British Horseracing Authority and Sirius Minerals Plc.
Noel was previously with Citicorp for 15 years, latterly as the chief operating officer of Citibank International. Her previous non-executive directorships include Alent plc, Logica PLC, RSA Insurance Group plc and Sumitomo Mitsui Bank.
In April 2016, Lynne was appointed as non-executive chairman of Standard Life Assurance Limited. Lynne is a nonexecutive director of Scottish Water, where she chairs its audit committee. She is a non-executive director and senior independent director of Nationwide Building Society and chairs its remuneration committee. She is also a member of its audit, risk and nomination and governance committees. Lynne joined National Australia Bank Limited in 2003 and, from 2004 to 2011, she was chief executive officer, UK (Clydesdale Bank plc and Yorkshire Bank). Previously, Lynne was with Woolwich plc from 1983 to 2003, finishing her career there as chief executive officer.
He holds an MA in Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries.
Committee memberships:  Audit  Nomination and Governance  Risk and Capital
3. Directors’ report The Directors present their annual report on the affairs of the Standard Life group of companies (the Group), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements for the Group, financial information for the Group and financial statements for Standard Life plc (the Company) for the year ended 31 December 2016.
Reporting for the year ended 31 December 2016 The Company is the holding company of the Group. You can find out about the relevant activities of the Company’s principal subsidiary undertakings and their overseas branches in the Strategic report. During 2016, the Company’s principal undertakings operated branches in Germany, Hong Kong, India and Ireland.
The main trends and factors likely to affect the future development, performance and position of the Group are outlined in the Chief Executive’s overview section of the Strategic report. Reviews of the operating and financial performance of the Group for the year ended 31 December 2016 are given in the Strategic report.
The total payment is estimated at £262m for the final dividend and together with the interim dividend of 6.47p per share totalling £127m paid on 19 October 2016, the total dividend for 2016 will be 19.82p per share (2015: 18.36p) totalling £389m (2015: £362m).
As at 31 December 2016, there were 1,978,884,437 ordinary shares in issue held by 102,942 registered members. The Standard Life Share Account (the Company-sponsored nominee) held 746,304,323 of those shares on behalf of 1,060,964 participants. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA).
Restrictions on the transfer of shares and securities Except where listed below, there are no specific restrictions on the size of a holding or on the transfer of shares. Both are governed by the general provisions of the Company’s articles of association (the Articles) and current legislation and regulation.
 ¡A certificated share by a person with a 0.25 per cent interest (as defined in the Articles) in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm’s length sale under the Articles)
by the order that the names appear on the Register for joint shareholders.
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 sanction 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 2016 Annual General Meeting (AGM), shareholders granted the Directors limited powers to:  �Allot ordinary shares in the Company up to a maximum aggregate amount of £80,259,685
India – under a shareholders' agreement dated 15 January 2002 (as amended) which is now between Housing Development Finance Corporation Limited (HDFC) and Standard Life (Mauritius Holdings) 2006 Limited (SLMH06), being the relevant Group company which holds the interest in HDFC Standard Life Insurance Company Limited (HDFC Standard Life), upon a change of control of the Company which results in a change of control of SLMH06 (as described in the shareholders' agreement), HDFC potentially has the right to terminate the venture and to purchase, or nominate a third party to purchase, SLMH06's shares in HDFC Standard Life for a price determined in accordance with the agreement.
Directors and their interests The Directors who served throughout the year were:  �Sir Gerry Grimstone (Chairman)  Keith Skeoch  Luke Savage  �Colin Clark  Paul Matthews  Kevin Parry  �Pierre Danon  �John Devine (appointed 4 July 2016)  �Melanie Gee  �Noel Harwerth  Lynne Peacock  �Martin Pike  Crawford Gillies (retired 17 May 2016)  ��Isabel Hudson (resigned 24 June 2016)
Details of the Directors’ interests in the Company’s ordinary shares, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan
 ­Service contracts between each executive Director and subsidiary undertakings (Standard Life Employee Services Limited and Standard Life Investments Limited)
Copies of the following documents can be viewed at the Company’s registered office (details of which can be found in the Contact us section) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company’s AGM on 16 May 2017:  ­The Directors’ service contracts or letters of appointment  ­The Directors’ deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles  ­The rules of the Standard Life plc Executive Long-Term Incentive Plan  ­The Company’s Articles
The UK Corporate Governance Code recommends that directors of FTSE 350 companies should stand for election every year. In line with this, all our Directors as at the date of the AGM will retire at the AGM on 16 May 2017. Paul Matthews is standing down as Director on 1 March 2017 and Barry O’Dwyer will be appointed to the Board as Director on the same day. John Devine and Barry O’Dwyer, having been appointed since the last AGM, will stand for election at the 2017 AGM. All remaining Directors who wish to continue in office will stand for re-election.
Our people Our people have always been central to delivering our strategy, and we remain focused on bringing out the best in them.
Diversity and Inclusion Standard Life takes pride in the high achieving, diverse and healthy working environment it has created, where all employees are valued, empowered and treated as individuals. Our approach to diversity and inclusion is defined in its broadest sense including, for example, age, socio-economic background, gender, disability, sexual orientation, experience and ethnicity. We are committed to enabling all our people to fulfil their potential and to providing an inclusive workplace where all forms of diversity are valued. This covers our recruitment process, policies, working practices and our people networks.
In 2016 our established people networks continued to support our people across the business. At present we have a successful Women’s Development Network, LGBT Network, Carers’ Network, Armed Forces Network and Young Persons’ Development Network. In addition, we have an LGBT+ Allies Group.
We are committed to retaining and attracting the best talent and our recruitment campaigns advertise our flexible approach to working patterns, capturing individuals at the beginning and middle years of their careers. Our veteran and ‘returnship’ programmes also support those in the middle and later years of their careers.
Engagement There are several separate employee representation arrangements across the organisation aimed at providing insights from our people to help drive the business towards becoming a world-class investment company. In the UK, most employees are represented through partnership agreements with the Group's staff associations, Vivo and Bridge. In Ireland, there is an established agreement with Unite, and a works council was established in Germany in 2008.
Reward We rely on highly skilled employees. We are committed to policies that are progressive and attract and retain the talent we need to continue to build a world-class investment company. We offer a range of benefits and financial rewards to our people. As we are all different, our people can tailor their package to suit their needs.
As part of our performance culture, employees and their managers have regular conversations together where they agree performance goals and how to develop and address the employee’s aspirations, strengths and development areas. We believe great performance should be rewarded and our approach continues to support our reward principles and links pay to performance. This ensures our remuneration remains competitive in the market.
The Group also encourages share ownership in the Company in the UK and Ireland through the Standard Life Sharesave Plan which was launched in August 2011. In September 2016, we launched a sixth invitation to UK employees and at the same time made a fifth invitation to employees in Ireland. On 1 November 2016, the 2013 three-year UK and Ireland Sharesave invitations matured. Participating employees have the opportunity, until 1 May 2017, to buy Standard Life plc shares at a price of £2.834 per share (UK) and €3.216 per share (Ireland) with their accumulated savings. On 1 November 2016 the 2011 five-year Sharesave invitation also matured. Participating employees have the opportunity, until 1 May 2017, to buy Standard Life plc shares at a price of £1.576 per share (UK) with their accumulated savings.
As a result, there are now over 3,400 employees in the UK and Ireland participating in Sharesave plans.
Political donations We did not make any political donations in the year ended 31 December 2016. The Company has limited authorisation from shareholders to make political donations and incur political expenditure (Resolution 14, 2016 AGM). We request this as a precaution against any inadvertent breach of political donations legislation. While Standard Life has regular interaction with government and elected politicians in the UK and other jurisdictions in which we operate, we are strictly apolitical. We have a long-standing policy of not making political donations and we have no plans to do so.
Annual General Meeting – Tuesday 16 May 2017 at 2pm (UK time)
Interest capitalised x Publication of unaudited financial information in a class 1 circular or in a prospectus, other than in accordance with Annexes 1 and 2 of the FCA’s Prospectus Rules �x Details of long-term incentive schemes �x Waiver of emoluments by a director x Waiver of future emoluments by a director x Non pre-emptive issues of equity for cash x Non pre-emptive issues of equity for cash in relation to major subsidiary undertakings �x Parent participation in a placing by a listed subsidiary x Contracts of significance x Provision of services by a controlling shareholder x Shareholder waivers of dividends x Shareholder waivers of future dividends x Agreements with controlling shareholders x
 Established the Investment Committee to support the Board in its oversight role
Membership The members of the Committee are the Chairman and independent nonexecutive directors. Their attendance at Committee meetings was: Member Attendance Sir Gerry Grimstone, Chairman 6/6 Pierre Danon 5/6 Kevin Parry 5/5 Noel Harwerth 6/6 Former member Crawford Gillies 1/1
Keith Skeoch, in his role as Chief Executive, was invited to Committee meetings to discuss relevant topics, such as talent development and management succession.
Ultimate responsibility for these important topics rests with the Board and the Committee reports regularly to the Board so that all Directors can be involved as appropriate.
 Reviewed executive succession and talent  �Reviewed emerging talent and support and development programmes  Appointment of subsidiary board members  Reviewed preparation to support the Market Abuse
 Reviewed results of Board Effectiveness  Recommended establishment of Investment
 Worked to deliver effective subsidiary board composition and processes to support changing governance requirements
 �Recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness
 �Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations
The Nomination and Governance Committee receives updates on progress towards achieving and maintaining diversity throughout the Group. This includes reviewing statistics on age, gender and full/part time working at all levels. The Group also promotes initiatives and programmes to raise awareness of why diversity matters. During 2016, the Board signed up to the Women in Finance Charter and has published our progressive target ranges for our leadership population to represent the gender split of our workforce by 2025. You can read more about our diversity activities in the Sustainability section of the Strategic report.
Appointments John Devine was appointed to the Board on 3 July 2016. John had served as the non-executive chairman of SLIH from 28 April 2015 until the end of August 2016. From 2008 to2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to joining Threadneedle, John held a number of senior positions at Merrill Lynch in London and New York. As recently announced, Barry O’Dwyer will be appointed as an executive Director to the Board on 1 March 2017, to replace Paul Matthews as CEO Pensions and Savings.
Retirements Crawford Gillies retired from the Board at the conclusion of the 2016 AGM, having served for nine years. Isabel Hudson stood down from the Board on 24 June 2016, having served for 18 months. As recently announced, Paul Matthews, CEO Pensions and Savings will stand down from the Board on 1 March 2017 prior to his retirement later this year.
Recognising strategic developments and the impact of the change noted above, the Committee also supported changes to the composition of the board of SLIH, in particular that the independent non-executive Directors should stand down. Following this, to provide increased connectivity with Standard Life Investments, the Committee supported the proposal to establish an Investment Committee which will become operational in 2017 and which is discussed in more detail in the Other committees section on page 66.
The Nomination and Governance Committee considers the potential suitable candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory approvals. The other Board members are also offered the opportunity to meet the recommended candidates. The Committee considers the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address.
Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect him or her at every AGM. Once a three-year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the non-executive Director’s performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive Director can serve, although the Board recognises the Code provisions regarding length of service when considering whether or not their appointment should be continued. The current average length of service of the non-executive Directors (excluding the Chairman) is just over three years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance – or continued appointment – is being considered. During 2016, the Committee recommended to the Board that the appointment of Martin Pike should be continued for a second term.
You can see our standard letter of appointment on our website at www.standardlife.com/annualreport or by writing to the Company Secretary
Crawford Gillies served as the Senior Independent Director (SID) until his retirement on 17 May 2016, and Kevin Parry was appointed as SID on that date. In this role, Kevin supports the Chairman, and often meets with him one-to-one. He is also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chairman, Chief Executive or Chief Financial Officer, or where a shareholder considers these channels are inappropriate. As part of his induction we offered institutional shareholders the chance to meet with him, and one chose to do so.
The Directors continued to review and authorise Board members’ actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company’s Articles. As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group’s Outside Appointments and Conflicts of Interest policies.
In January 2017, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until January 2018. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board and relevant Committees follow this process when appropriate. For example, during 2016, when considering the external audit tender, the Board recognised the Chairman’s conflict resulting from his role with Deloitte LLP and he took no part in the tender process. The Audit Committee also considered Kevin Parry’s previous employment with KPMG. As this ended in 1999, the Committee did not consider that it brought any potential conflict to the tender exercise or decision.
You can read more about the Directors’ outside appointments in their biographies in Section 2 62 Standard Life 2016
Review process The Board has, with the help of the Nomination and Governance Committee, developed a formal review process to assess how well the Board, its Committees, the Chairman and the Directors are performing collectively and individually and how performance could be improved.
As well as planning the 2016 review, the Nomination and Governance Committee also considered how the themes from the previous reviews continued to be taken forward. In respect of engagement, the nonexecutive Directors continued their support for participants in the leadership programmes, and executive Directors held regular interactive sessions open to all employees.
 �Recognising the Board’s role in supporting effective behaviours in the Boardroom and constructive leadership and management across the Group
 �Acknowledging that there had been improvements to Board papers, but that there was still the need to focus on papers to support succinct decision-making
Directors The Chairman led the performance review of the Directors. He held oneto -one meetings to assess their individual performance and contribution against duties set out in the Board Charter and in their appointment letters.
 �Focused technical meetings with internal and external experts on specific areas including investments, Solvency II, conduct risk, risk and capital management, and financial reporting
 �Visits to business units to meet our people and gain a better insight into the operation of the business and its culture
 �Meetings with the External auditors and the FCA/PRA supervisory teams
 �Meetings with the Company Secretary on the Group’s corporate governance framework and the role of the Board and its Committees, with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities both as Directors and as holders of a Controlled Function/SIMR role
Background information is also provided including:  �Key Board materials and information, shareholder communications and financial reports
 �The Group’s organisational structure, strategy, business activities and operational plans
 �The Group’s key performance indicators, financial and operational measures and industry terminology
The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further. As mentioned above, during 2016, John Devine was appointed to the Board. Given the strength of his asset management experience, the induction programme was tailored to complement this.
When a non-executive Director is appointed to one of the Board’s Committees, they receive relevant induction training on the Committee’s role and duties.
During the year, the Nomination and Governance Committee also received updates on how the programmes at graduate and emerging leader levels, as well as the accelerated programme for senior leaders, and overseas placements, have operated to deliver a more diverse leadership pipeline. In addition, they received updates on the specific individual development programmes in place for executive team members and their potential successors.
The Board members are keen to interact with the members of the development schemes and have met with, and had presentations from, key talent across the Group.
Annual review of internal control The Directors have overall responsibility for the Group’s System of Governance (SoG), which includes the Enterprise Risk Management (ERM) framework and System of Internal Control, and for the ongoing review of their effectiveness. The SoG is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The SoG covers all of the Group’s risks as set out in the ERM framework section in the Strategic report. Internal audit regularly audits the effectiveness of internal controls, which will include elements of the SoG. Internal audit reports its findings to the Audit Committee and the Risk and Capital Committee.
With regard to regular financial reporting and preparing consolidated accounts, Group Finance participates in the control self-assessment and policy compliance elements of the ERM framework. Group Finance sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges business unit submissions and receives formal sign-off on financial reporting from business unit finance directors. In addition, Group Finance 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.
In line with the Code and associated guidance, the Board has conducted ongoing monitoring and review of the SoG through the Risk and Capital Committee and the business unit Enterprise Risk Management Committees (ERMCs). On behalf of the Board, the Risk function has also carried out an annual review of the effectiveness of the SoG. The SoG was in place throughout 2016 and up to the date of approval of the Annual report and accounts 2016.
(ORSA)  �Prudent person principle  �Own fund requirements  �Internal controls (covering strategic, financial, operational and compliance)  �Internal audit function  �Actuarial function plus opinion on technical provisions  �Valuation of assets and liabilities other than technical provisions  �Outsourcing  �Group governance specific requirements
Summaries of the evidence of the effectiveness review, assurance report and the key risk items were then presented for certification to the business unit Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Group function executive. Completed certifications and supporting documentation were also presented to the business unit ERMCs.
The certification exercise asked the Chief Executive Officers, Chief Financial Officers, Chief Risk Officers and Group function executives to confirm the following:  �An effectiveness review over each component of the SoG has been conducted
 �Where the effectiveness review of the processes related to the SoG has found material issues, recommendations have been made to restore process effectiveness
 �Significant control breakdowns identified through the risk management and internal control systems were reported during the year and necessary actions have been or are being taken to remedy these
The Risk function prepared a report combining the output from the business units and Group function executives. This was presented to the Chief Executive, Chief Financial Officer and Chief Risk Officer and they also completed the certification exercise. The results of the output from 64 Standard Life 2016
To give all shareholders access to the Company’s announcements, all material information reported via the London Stock Exchange’s regulatory news service is published on the Company’s website. We have continued to host formal presentations to support the release of both the full year and half year financial results. These results-related events are also made available live on the Group’s website, with the facility for all listeners to ask questions, as well as having a permanent replay facility. We also held a Capital Markets Day in May 2016 during which we took the opportunity to update investors on the developments at Standard Life Investments, the Group’s principal asset management company, including our broad range of investment solutions and growing international reach. We also discussed the strength of our Pensions and Savings business and the ongoing focus on improving efficiency in our business.
The Chairman’s statement and the Strategic report in the Annual report and accounts aim to provide a balanced overall assessment of the Group’s activities, performance and prospects. This information will be supported by a presentation at the 2017 AGM. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlife.com after the meeting. These will include the number of votes withheld.
The 2016 AGM was held at etc venues St. Paul’s on 17 May 2016 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. 43% of the shares in issue were voted and all resolutions were passed. The formal results announcement also included an extract from the Chairman’s script about the Board’s continuing commitment to respond to feedback from shareholders.
Our 2016 AGM was held in London for the first time. To give more shareholders the opportunity to attend, we plan to hold the AGM in Edinburgh and London in alternate years.
Our role as an institutional investor Standard Life Investments is a signatory to and a supporter of the UK Stewardship Code and the United Nations Principles for Responsible Investment. It understands and promotes the importance of good governance and stewardship including the management of broader aspects of risk relating to the environment, society and governance (ESG). In 2016, Standard Life Investments published a new climate change statement demonstrating how climate related factors are embedded in the investment process. Standard Life Investments believes that it is mutually beneficial for companies and the long-term investors it represents, to have a relationship based on accountability, engagement and trust. As a major asset manager, it monitors and analyses the long-term ESG investment factors relating to the companies it invests in and holds regular meetings with their senior management representatives. Standard Life Investments maintains principles and policy guidelines on ESG matters, stewardship and voting. These guidelines are applicable on a global basis. The guidelines support Standard Life Investments’ approach to engaging and to voting at shareholder meetings. Standard Life Investments also makes voting reports available to clients and publishes summary information on its website. The policy guidelines are applied pragmatically, after all relevant information has been carefully considered. When assessing the Company’s compliance with the principles and provisions of the Code, the Nomination and Governance Committee also reviewed the Company’s compliance with the Standard Life Investments principles and policy guidelines. The Committee concluded that the Company complied with the guidelines during the year.
Standard Life Investments has made public its processes to comply with the Stewardship Code’s seven best practice principles. In line with Principle 7 of the Stewardship Code, Standard Life Investments obtains appropriate independent assurance over the policies and procedures which underpin its stewardship policy statements.
You can read more about this and Standard Life Investments’ governance and stewardship annual review at www.standardlifeinvestments.com
Other information You can find details of the following, as required by Disclosure and Transparency Rule 7.2.6, in the Directors’ report and in the Directors’ remuneration report: Share capital  �Significant direct or indirect holdings of the Company’s securities  �Confirmation that there are no securities carrying special rights with regard to control of the Company  �Confirmation that there are no restrictions on voting rights in normal circumstances  �How the Articles can be amended  �The powers of the Directors, including when they can issue or buy back shares
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 2016, the Board travelled to Boston to meet with key members of staff and hear presentations on developments in the North American business. During the year, the Board held specific sessions to consider the Group’s strategy and business planning. The Chairman and the non-executive Directors also met several times during the year, formally and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed.
Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are distributed before meetings other than, by exception urgent papers which may need to be tabled at the meeting. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting. The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Standing Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. During 2016, the Standing Committee did not meet.
Non-executive Directors Pierre Danon 9/9 John Devine 4/4 Melanie Gee 9/9 Noel Harwerth 9/9 Kevin Parry 9/9 Lynne Peacock 9/9 Martin Pike 9/9
These terms of reference are published within the Board Charter on our website at www.standardlife.com/annualreport
Investment Committee The Board has established the Investment Committee to provide increased connectivity with, and Standard Life plc non-executive Director oversight of, the investment performance of Standard Life Investments, and to strengthen the Board’s engagement with the fund management team. The Board recognises the value this will bring, both internally in terms of liaison with the Chief Investment Officer and his fund management team, and externally from the perspective of our clients. The Investment Committee has been operational from the beginning of 2017. It is chaired by Pierre Danon and the other members are John Devine and Melanie Gee. There will be an open invitation to the other non-executive Directors to attend the Committee’s meetings.
 �Monitored the implementation of Solvency II, the new prudential regime that took effect from 1 January 2016, including preparing for external narrative reporting required in 2017
The Committee has also worked with executive management to continue to improve the financial reporting. In July 2016 we received a letter from the Financial Reporting Council (FRC) informing us that they had carried out a review of our Annual report and accounts 2015. I am pleased to report that the FRC letter noted that there were no questions or queries that the FRC wished to raise on our report and accounts. The FRC asked that we make clear the inherent limitations of their review, which we have set out in the financial reporting section of this report.
Our report to you is structured in four parts:  �Governance  �Report on the year  �Internal audit  �External audit
Membership All members of the Audit Committee are independent non-executive Directors. Their attendance at Committee meetings was: Member Attendance
Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive UK and Europe, the Group Financial Controller and Treasurer, the Chief Internal Auditor and the Group Chief Risk Officer.
 �Its view of the ‘fair, balanced and understandable’ reporting obligation
 �The findings of its review of key prudential returns and disclosures  �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
 �The independence of the External auditors, the appropriateness of the skills of the audit team, the approved audit plan, the quality of the firm’s execution of the audit, and the agreed audit and non-audit fees
 �Any external audit tender process and the outcome of the tender
During the year, the audit, risk and compliance committee of Standard Life Investments (Holdings) Limited was stood down as all important financial and regulatory reporting matters are considered at the Group Audit Committee from the overall perspective of the Group. To comply with new EU rules for public interest entities, a Standard Life Assurance Limited (SLAL) audit committee was established. Its work is to be closely
In accordance with the Senior Insurance Manager’s 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 staff 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 2016 review was carried out using an internal self-assessment questionnaire. The review concluded that the Committee had:  �Performed effectively during the year and conducted a robust process to appoint new auditors
 �Regular refreshes and updates to the Internal audit plan  �Results of the monitoring of financial crime, fraud risk assessments and whistleblowing including calls to our dedicated Speak Up helpline
 Annual report and accounts 2015  �2015 Strategic report and financial highlights  ��Solvency II reporting  �Audit tender
 �2015 external audit fee and the proposed 2016 fee for all audited entities
 Half year results 2016  �External auditors’ review of Half year results  �External audit plan for 2016 for all audited entities  �2016 external audit engagement letter for all audited entities  �Solvency II reporting
 Initial findings from the 2016 year end work  �The Internal audit global charter and the Internal audit plan  �Effectiveness of the External auditors  �Group non-audit services provided by External auditors  �Effectiveness of the Committee  �Solvency II reporting and related assurance provisions and asset valuations  �Liaison with the Remuneration Committee on targets and measures  �External Financial Reporting Policy  �Taxation policy and reporting  �Audit transition
The indicative proportion of time spent on the business of the Committee is illustrated below: Detail of work The focus of work in respect of 2016 is described below.
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2016 Group financial statements. There are no important changes this year. The Committee also considered future changes to accounting standards (in particular, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments) and ensured that the impact of these future changes was appropriately disclosed in the financial statements. The Committee also discussed that status of the new insurance contracts standard (IFRS 17) which is expected to be issued in 2017.
The Committee reviewed the Annual report and accounts 2015 and the Half year results 2016. For the half year it received written and/or oral reports from the Chief Financial Officer, subsidiary audit committee chairmen or boards, the Company Secretary, the Chief Internal Auditor and the External auditors. In addition for the year end it received a report from the Head of Group Actuarial. The Committee uses these reports to aid its understanding of the composition of the financial statements, to confirm verification and compliance with reporting standards and to justify accounting judgements and estimates. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board, being satisfied that the annual and half year financial statements complied with laws and regulations and had been appropriately compiled.
In compiling a set of Group financial statements, it is necessary to make judgements and estimates about outcomes that are typically dependent on future events. This is particularly relevant to a life assurance business where profitability is inherently dependent on economic and health related outcomes. Further, we have a substantial defined benefit pension plan with liabilities that are also dependent on economic and health related outcomes. Estimates are not however limited to liabilities; our business and pension funds invest in some hard to value investments, such as over-the-counter derivatives, private equity, real estate and commercial mortgages.
The Audit Committee considered all estimates and judgements that Directors understood could be material to the financial statements. In particular, actuarial valuations were considered in the context of our experience over the short and medium term against base assumptions and future assessed improvements. We compared our actuaries’ views with estimates made by other companies and pension funds drawing on available benchmark data and looked at the changes in outcomes attributable to a change in estimates determining that annuitant mortality was the most material estimate (see Note 33 of the Group financial statements for more detail).
We considered key assumptions determining the pension fund surplus: inflation (including the gap between the retail price index and the consumer price index), mortality and the discount rate. The assumptions were compared with market data and expert opinions. As with last year we also noted proposed new accounting guidance on recognising a pension surplus on the consolidated statement of financial position. Interpretation remains uncertain and so the Committee supported continuing with additional disclosures. Further details are set out in Note 37 of the Group financial statements.
We carried out a detailed review of the processes and controls for valuing hard to value assets and were satisfied that we could rely on the procedures for determining valuations. See Note 43 of the Group financial statements.
The creation of a core set of fair, balanced and understandable principles for Standard Life has enhanced our approach towards engraining these concepts throughout our Annual report and accounts production and review process. These principles along with our enhanced approach are detailed below.
Fair "We are being open and honest in the way we present our discussions and analysis, and are providing what we believe to be an accurate assessment of business and economic realities"
 The narrative contained in the report is honest and accurate
 The level of prominence we give to successes in the year versus challenges faced is appropriate
 The narrative and analysis contained in the report effectively balances the information needs and interests of each of our key stakeholder groups
 The layout is clear and consistent and the language used is simple and easy to understand (industry specific terms are defined where appropriate)
 �We, as an Audit Committee, reviewed the messaging in the Annual report and accounts, taking into account material received and discussion taken place during the year
Prudential reporting Solvency II reporting applied with effect from 1 January 2016. During 2016, the Group submitted regular reporting to the PRA. The Committee built on procedures established last year that allow it to adopt a compliance approach to Solvency II reporting drawing on work undertaken by management, Group Risk, Internal audit and the External auditors. The procedures are designed to give the Audit Committee a high degree of comfort that returns have been properly prepared.
The Committee reviews the whistleblowing arrangements for employees to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters.
Internal audit operates in accordance with a global charter which is reviewed by the Committee every year. Their work plan covers all businesses in the Group after holding risk based discussions with management, regulators, the External auditors and the Committee. Identified areas of focus are mapped to the key risks within the Own Risk and Solvency Assessment (ORSA), which is a dynamic forward looking tool for decision making and strategic analysis at the heart of the Solvency II prudential regime. Consistent with that methodology, our regulators request specific reviews as part of the Risk Mitigation Plan. The Committee approves the scope and content of the annual internal audit plan, which is updated on a rolling basis to allow Internal audit to address any emerging issues and reflect changes in the Group’s organisation.
The Committee receives regular reports from the Chief Internal Auditor on:  �The implementation of the approved plan and proposed changes to it  �Key findings from completed reviews, including the impact on financial reporting processes and related applications  �The status of management’s implementation of agreed improvement actions, where dates have been rescheduled  �The assessment of the internal control environment at each business unit
The Committee considers Internal audit’s effectiveness annually, monitoring its independence, objectivity and resourcing in the context of the Institute of Internal Auditors’ professional standards. During the year, Internal audit carried out its own internal effectiveness review as well as quality assurance processes and reported the satisfactory results back to the Committee.
Following the succession process carried out in 2015, the new Chief Internal Auditor commenced his role in May 2016. This was an external appointment to broaden the experience of the senior team.
Based on its review, the Committee concluded that the function continued to be highly effective.
Following its review of the quality and independence of the 2015 audit, the Committee recommended to the Board that PricewaterhouseCoopers (PwC) should be recommended to shareholders as the auditors for 2016. The shareholders voted in favour of the reappointment at the 2016 AGM.
PwC has been the Group’s auditors since 1994. A tender was held in 2016 to take effect for the year ending 31 December 2017. Whilst PwC could have continued as auditors for three more years under applicable law, a change of auditor has been co-ordinated with the PwC partner rotation.
Auditor independence The Board has an established policy setting out what non-audit services can be purchased from the firm appointed as External auditors. The Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the External auditors and to comply with the FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee’s prior approval.
 �Recruitment of senior management  �Certain tax services including those related to Base Erosion and Profit
These include:  �Accounting consultations and audits in connection with acquisitions and sales of businesses
 �Due diligence related to mergers and acquisitions  �Tax compliance and advisory services  �Employee benefit plan audits  �Attesting to services not required by statute or regulation  �Assurance services relating to regulatory developments affecting the
During 2016, the Committee approved a revised non-audit services policy talking into account the revised Ethical Standards. The revised policy sets out an updated list of prohibited services which applies to KPMG LLP (subject to shareholder approval, our auditors for the 2017 financial year), in line with the Ethical Standards. This updated list of prohibited services is more restrictive than the current list and, in particular, prohibits KPMG LLP from providing almost all taxation services.
The ratio of non-audit fees to audit and audit related assurance fees is 25% (2015: 22%). The level of non-audit fees is expected to reduce in 2017 as a result of the revised non-audit services policy discussed above.
 PwC’s transparency report for the year ended 30 June 2016 was reviewed
 �The Committee approved a formal engagement with the auditor and agreed its audit fee
 �The Committee received at nearly every meeting an update of PwC’s work, compliance with independence and its findings
 �There was a detailed interview by the Committee Chairman with the audit partners on the subject of the work undertaken to support their opinion on the financial statements and the consistency of the remainder of the Annual report and accounts with their work 72 Standard Life 2016
 �Additional work was again undertaken on Solvency II reporting and the Committee also reviewed separate papers from PwC covering this specific work
Audit tender This section sets out the audit tender process followed since our announcement in last year’s Annual report and accounts that we would commence a tender process for the appointment of the External auditors, through to the announcement to propose the appointment of KPMG LLP as the Group’s auditor for the financial year ending 31 December 2017.
Scope The scope of the tender consisted of the Standard Life Group audit and statutory audits of subsidiaries with effect from the 2017 financial year for a tenure of five years* with the option of an extension by another five years. The audit tender also considered relevant fund audits, although recognising that these are also subject to separate governance and appointment arrangements. * The appointment of KPMG LLP as External auditors for a financial year is subject to approval by the Annual General Meeting in that year.
Governance The overall objective of the audit tender was to select the best auditor in terms of quality within a reasonable price range. To ensure a transparent and robust selection and evaluation process, the following governance model was applied. A Selection Committee, chaired by the Chairman of the Audit Committee and consisting of two members of the Audit Committee and co-opting the Chief Financial Officer (CFO) was formed to oversee the tender process.
Audit Committee Ultimate authority over the tender process and audit firm evaluation Approve tender strategy
Steering Committee Approve Request for Proposal and Information Requirements Coordinate detailed assessment of individual audit firms Execute audit tender process
To avoid influencing or the perception of influencing the tender decision, a strict policy was agreed with the participants in the tender process prohibiting the provision of any gifts and hospitality and restricting other engagement with key decision makers to regular business matters only.
Market assessment and selection criteria A desktop market assessment focusing on the audit market and firms’ capabilities, network, experience in the financial services industry and findings of audit regulator reports, was completed in November 2015 and resulted in a shortlist of three audit firms.
Selection criteria:  Technical criteria, including the proposed audit plan, audit quality, structure of audit, innovative tools and the transition plan  Team quality, including lead partner and team, industry knowledge, access to specialists and mitigation of frequent team changes  Resources and organisation, including representation in industry and accounting bodies and conflict resolution mechanism in the audit firm  Value added, including access to accounting training and additional assurance obtained  Weight factors were applied to each of the selection criteria with the technical criteria and team quality being the most significant criteria
The selection criteria to evaluate each of the audit firms participating in the tender formed the basis for the questions included in the request for proposal.
Request for proposal In December 2015, the request for proposal was issued to the three audit firms invited to the audit tender. Relevant information on Standard Life was shared with each of the firms through an electronic data room that was accessible during the tender period. In this period a structured Q&A process was in place where responses to clarification questions and additional information requests were shared with all participating firms through the electronic data room.
The report that follows provides further detail on the activities performed by the Committee in 2016 in discharging its responsibilities.
Membership All members of the Risk and Capital Committee are independent nonexecutive Directors. Their attendance at Committee meetings was: Member Attendance
The Committee meetings are attended by the Group Chief Risk Officer, the Deputy Group Chief Risk Officer and the UK and Europe Chief Risk Officer. Others invited to attend on a regular basis include the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive Pensions and Savings, the Chief Investment Officer, the Company Secretary and the Chief Internal Auditor as well as the External auditors. During 2016, the Chief Investment Officer was invited to attend meetings on a regular basis reflecting the increased significance of Standard Life Investments within the business and the importance attached to the management of investment risk.
Further detail on the work performed in each of these areas is set out in the report below.
An indicative breakdown as to how the Committee spent its time is shown below: The Committee operates a rolling agenda which comprises both recurring items and items that are more ad hoc in nature. Recurring items that are reviewed and discussed in our meetings include:  �Matters escalated from the Standard Life Enterprise Risk Management Committee
 �Customer proposition developments  �The Group’s Own Risk and Solvency Assessment (ORSA)
In addition to these standing agenda items, the Committee also receives periodic reports from the Business Risk Review team. The Business Risk Review team is tasked with reviewing specific business activities and issues and providing independent assessments and reports that assist management to anticipate, manage and mitigate risk. Items subject to Business Risk Reviews are proposed by members of the executive team with the Committee also providing input into this process.
 �Process used to manage IT obsolescence  �Overview of the management awareness of risks
 Review of third party supplier management  �Conduct risk in the context of Workplace pricing policy  �Review stress test results ahead of the results of the
 Update on the market response to the results of the UK referendum on EU membership
 �Plans to introduce a new governance, risk and compliance system
 Proposed changes to the Committee’s terms of reference relating to the governance of Standard Life Investments Limited, Standard Life Assurance Limited (SLAL), Standard Life Savings Limited and AXA Portfolio Services Limited.
During the year we received the results of the Risk function’s annual review of the framework. This concluded that the framework remained fit for purpose and recommended quantitative risk limits for use in managing the business during 2017. The Committee also reviewed minor changes proposed to the framework, including an update to the conduct risk appetite statement to reflect the increasing maturity of conduct risk management within Standard Life and to support further embedding of this through improving the articulation of behaviours considered unacceptable. The Committee supported the conclusions and recommendations from the Risk function and advised the Board accordingly.
The Group Views on Risk report includes dashboards on financial exposures, conduct and operational risks and capital. The Committee reviews this information at each meeting to monitor risks relative to quantitative and qualitative appetites and the resilience of the capital position under current and stressed conditions. The report also includes dashboards covering regulatory risk and financial crime providing the Committee with status updates on the regulatory outlook and the financial crime framework with the latter addressing risks related to money laundering, terrorist financing, market abuse, fraud and bribery and corruption. Environmental, social and governance risks are actively managed within the business and updates on this are also included within the report. Using this material, the Committee is able to oversee, challenge and advise the Board on the Group’s risk appetite, material risk exposures and the impact of these on the levels and allocation of capital.
The Group’s stress and scenario testing programme has continued to support the Committee in understanding, monitoring and managing the Group’s risk and capital profile under stressed conditions. The programme provides a forward-looking assessment of resilience to significant adverse events affecting key risk exposures and in 2016 comprised:  �Univariate stresses – looking at stresses to financial and demographic risks in isolation
 �Tail risk analysis – exploring the possible sequential development of a low likelihood but high impact scenario
The tail risk analysis performed by the Risk function investigated a severe financial stress prompted by falling oil prices and record low growth in China which, given the severity of the overall stress, was estimated as having a less than 0.5% likelihood of occurrence. The choice of scenario recognised the reliance of Standard Life’s business plan on fee revenue from assets under management and that solvency is sensitive to changes in yields and credit spreads and sought to provide insight relating to this.
In addition to receiving information on liquidity risk through the dashboard reporting, the Committee received the results of the Group’s annual quantitative assessment of liquidity risk. This highlighted the estimated realisable value of assets in a distressed market relative to requirements following significant adverse shifts in customer demand. This allowed the Committee to understand the extent of liquidity risk and indicated that the Company and its subsidiaries were able to meet customer demands in the scenarios considered.
Having reviewed the regular updates presented regarding developments affecting the ORSA processes, the Committee determined that these were well understood and there was no need for the full ORSA report to be updated outside of the routine annual cycle.
At a high level the Committee has gained assurance regarding operation of the ERM framework from its review of regular content within the Group 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 conduct risk outcomes, to understand the Group’s risk profile and the effectiveness of the framework in supporting the management of these risks.
The Committee specifically monitors risk control processes through reviewing the results of policy compliance reporting and updates regarding action plans raised in response to risk events which is included within the Group Views on Risk report.
Emerging risks have been actively monitored and assessed during the year with regular reporting provided to the Committee through the Group Views on Risk report. This reporting focuses on the key geo-political, economic, societal, legal, regulatory, technological and economic risks that are emerging and provides an assessment of the relative likelihood and significance of these. In supporting the management of emerging risks, we also received a paper highlighting the potential impacts on the business of global risks identified by external organisations. Although we are not directly exposed to many of these risks, the increasing global footprint of Standard Life presents indirect exposures as a consequence of risks to financial markets and the environment of our customers and clients.
Recognising the importance of risk culture and good risk governance within the ERM framework, changes have been made to the governance arrangements within certain operating subsidiaries with effect from 2017. This includes the creation of risk and capital committees within SLAL, Standard Life Savings Limited and AXA Portfolio Services Limited with an audit committee also being established in SLAL. The terms of reference for the Committee were also refreshed to reflect the impact of the Standard Life Investments (Holdings) Limited (SLIH) audit, risk and compliance committee standing down in 2016.
The Committee noted the enhanced data analytics capability developed in Standard Life Investments during the year relating to transactions monitoring and oversight of trading decisions. This enhanced capability helps support regulatory compliance through providing improved monitoring and detection of potential instances of conflicts of interest or market abuse.
The Committee also noted enhancements to the assurance processes within the Pensions and Savings business through improvements made to the framework for monitoring customer calls. Other improvements in this business resulted from the completion of internal thematic reviews performed to further support regulatory compliance and reflected:  �Regulatory changes  �External risk events  �Components of the ERM framework  �Results of regular compliance testing  �Business changes
The regulatory agenda for the financial services sector in 2016 has been a busy one, prompted by numerous data requests and industry thematic reviews from regulators. As a Committee we have closely monitored these developments to understand and seek to anticipate potential implications for Standard Life and the wider financial services sector. One example of this was the FCA’s Meeting Investors’ Expectations thematic review which, amongst other things, prompted the Committee to consider the processes used by Standard Life Investments to monitor and control fund literature published on websites including those owned by third parties. To support us in understanding and anticipating the regulatory agenda, and to provide an independent perspective, we engaged an external consultant to provide a presentation on potential future developments relating to conduct risk regulatory activity.
 �Pensions and Savings’ guidance at retirement proposition – assessing the sustainability of the telephone and on-line journeys offered to non-advised customers
 �Pensions and Savings’ non-advised income drawdown proposition – assessing the extent to which the proposition is commercially viable and risks are at an acceptable level
The responsibilities of the Committee remain largely unchanged as a result of the creation of these new committees, other than responsibility for scrutinising with profits risk and capital matters, which is transferred to the SLAL risk and capital committee.
Governance arrangements have been put in place to ensure that the Committee retains appropriate oversight of material risk and capital matters following the introduction of the new committees. This includes this Committee being responsible for approving the terms of reference for the risk and capital committee of SLAL (being a direct subsidiary of the Company) and any subsequent material changes to those terms of reference.
The overall conclusion of the review was that the Committee operated effectively in 2016. In particular, comments highlighted the benefits of the Business Risk Review reports in highlighting and assessing risks and the role of the risk assessments in supporting consideration of proposed corporate transactions.
 A summary of our Directors' remuneration policy on pages 84 to 87. The policy was approved at the 2015 AGM. No changes are proposed and so there will be no resolution for a vote on the Directors' Remuneration Policy at the 2017 AGM.
 Our annual report on remuneration, beginning on page 88, details the decisions we took and how we applied our remuneration policy for our Directors for the 2016 performance year. This will be subject to an advisory shareholder vote at the 2017 AGM.
This is my first report as Chairman of the Remuneration Committee having taken over the role after the 2016 AGM. I would like to thank Lynne Peacock who served as the previous Committee Chairman, the Board, and my fellow Committee members for their support.
Executive remuneration remains under intense scrutiny and we recognise that it is important that companies, especially a major investor such as Standard Life, must consider very carefully how senior executives are paid. We remain conscious of the societal impact of executive remuneration and views of the Government, investors and their representatives and also the general public. However, we must attract and retain talented individuals to manage our company and ensure that they are appropriately incentivised within the global market place.
Having listened to the concerns raised, Keith volunteered a reduction in the 2016 Executive Long-Term Incentive Plan (Executive LTIP) award that had been granted to him on 24 March 2016. The Committee approved a reduction equivalent to 100% of Keith’s basic salary, from 500% to 400%, in the face value of this 2016 Executive LTIP award. This was communicated by an announcement to the Stock Exchange on 11 May 2016. A number of shareholders had voted before the announcement was made, but others changed their position as a result of the decision, with the result that 77.69% of shareholders voted for the resolution to approve the Directors’ remuneration report.
As a long-term investor, Standard Life champions the principles of good governance and stewardship. As part of these principles my fellow Board members and I strongly believe that constructive engagement with our investors is essential to building relationships based on trust and accountability. As such, recognising that 22.31% of shareholders voted against the resolution to approve the Directors’ remuneration report, the Committee felt it was essential that I, as the new Chairman of the Remuneration Committee, follow up with our investors (including those who supported the resolution and those who voted against or abstained), to understand fully their views in relation to our executive remuneration. During the summer of 2016, I met with a number of our 80 Standard Life 2016
largest investors, the IA and ISS to understand fully the concerns raised in the lead up to the 2016 AGM. We also discussed our thinking regarding our future remuneration arrangements and solicited their views on the shape and direction of executive remuneration. The meetings were open, frank and constructive and were very helpful in gaining a detailed understanding of the concerns. The points raised by investors were discussed with the Remuneration Committee members and have informed our thinking regarding 2016/2017 remuneration and continue to inform our consideration of a new remuneration policy to be presented at the 2018 AGM. I would like to thank our investors and the IA and ISS for their time.
Our performance in 2016 and alignment with remuneration 2016 has been a year in which we have seen increased political uncertainty, regulatory and legislative complexity and market volatility. Against this complex backdrop our people have delivered a strong set of results while continuing to drive our strategic agenda. Our business model is based on increasing assets, growing revenue and lowering unit costs to drive profit. For 2016 operating profit has increased to £723m (2015: £665m) and operating return on equity has increased to 15.2% (2015: 14.2%). Net outflows were £2.6bn (2015: £6.3bn inflow), however, gross inflows remained strong at £42.1bn (2015: £43.0bn). The proposed final dividend, combined with the 2016 interim dividend brings the total dividend for the year to 19.82p – an increase of 8.0% on the 2015 full year dividend.
We have continued to develop strong relationships with our customers and clients. Standard Life Investments has continued to expand and diversify by geography, channel, client type and range of solutions. We have partnered with leading advisers and consultants in the UK – embedding workplace and platform solutions, and continued to grow strategic alliances that serve our markets worldwide. However, we have seen a fall of 11 points in our brand net promoter score which is an important measure of customer advocacy and a key consideration in the customer quadrant of the Group annual bonus scorecard. We’ve planned a number of actions for 2017 to improve customer experiences.
As detailed in the Chairman’s statement and Chief Financial Officer’s overview we have made a provision in our accounts for the costs we may incur in relation to the outcome of the Financial Conduct Authority’s thematic review into the sale of non-advised annuities. This has been discussed by the Committee as part of its consideration of performance in respect of the Group annual bonus scorecard and the 2014 Executive LTIP.
Attracting, retaining and developing talented people is critical to successful delivery of our strategy and we believe that engaged people are central to building long-term customer and client relationships. To support our diverse workforce we have a number of employee networks and we remain committed to youth employment. We continue to develop our people managers with a tailored 12-month training programme, recognising the critical role of people managers in the engagement of our employees. In our 2016 employee survey we saw a 2% point increase in employee engagement to 65%. However employee enablement, the measure of how well employee skills are utilised and working environments facilitate productivity, dropped by 2% points to 62%. Action plans are being put in place to address key themes from the survey.
The Group continues to evolve and progress towards building a world- class investment company. We continued to expand and diversify Standard Life Investments’ client base by geography, channel, client type and range of funds. The integration of Ignis is also substantially complete. Within Pensions and Savings we completed the acquisition of Elevate enhancing our position as a leading platform provider and three acquisitions were completed by 1825, our financial advice business. In Asia we completed the stake increase in HDFC Life and the aim is to complete the proposed combination of the life insurance businesses of HDFC Life and Max Life within the next 12 months subject to necessary approvals.
 Customer and external leadership – 10% – Drive customer focus within the organisation and build advocacy for the Standard Life brand – Protect and enhance Standard Life’s corporate reputation
 People – 10% – Develop our organisational capability by building the environment, the resources, and the capabilities we will need through developing the right behaviours
In reaching its decisions in terms of the annual bonus scorecard the Remuneration Committee considered a range of factors in order to ensure that the awards are fair and appropriately reflect overall Group performance. As well as considering the achievement against the targets, the Committee reviewed the individual components which contributed to the delivery of this financial performance. Looking externally, the Committee also considered the alignment of its decisions on remuneration with the interests of shareholders.
Considering this scorecard rating in conjunction with the personal performance of each of the executive Directors, the Remuneration Committee approved the following awards under the Group annual bonus, for 2016;  81% of the Chief Executive's maximum potential bonus (141% of salary)
Last year, as announced in the 2015 Directors’ remuneration report, having considered our bonus deferral levels in the light of regulatory direction and best practice, the Committee decided to increase the deferral period for bonuses from two to three years. This three-year deferral will apply in respect of the bonuses for 2016 as detailed in this report. Normally, 50% of any bonus above 25% of salary is deferred into shares (subject to the deferred amount being at least 10% of salary).
In its consideration of how performance for both the annual bonus and LTIP has been achieved the Committee receives formal input from the Risk and Capital Committee and Audit Committee. The Audit Committee provided comments on material financial and reporting issues that it considered during the year. The Risk and Capital Committee provided advice on how the performance outcome was achieved including specific advice in respect of the Financial Conduct Authority’s thematic review into the sale of non-advised annuities.
As announced, Paul Matthews will retire from the Company on 31 August 2017. With effect from 1 March 2017 Paul will step down as an executive Director but will remain employed until 31 August 2017 in the capacity of Strategic Advisor to the Chief Executive. Paul will continue to be eligible to receive salary and benefits until 31 August 2017 and will accrue bonus until this date. Given his retirement, and in line with best practice, he will not be eligible to participate in the 2017 Executive LTIP award. Existing Executive LTIP grants will be pro-rated up to 31 August 2017 and will vest on the normal vesting dates, subject to the published performance conditions and in line with plan rules. The Remuneration Committee has agreed that any bonus for the 2016 and 2017 performance years will be subject to deferral in line with our remuneration policy. The deferred portion will be deferred for a period of three years. However, the portion of his bonus for the 2015 performance year, which was deferred into shares, will vest on cessation in line with the plan rules.
Given the continuing, volatile external environment we will be making a change to the weighting of the Executive LTIP targets for the 2017 award. In order to improve incentivisation in these volatile conditions, align our employees with our strategy, and increase the focus on delivering shareholder value, the Remuneration Committee feels it appropriate to increase the weighting given to operating profit to 80% from 70%, with a corresponding reduction in measures of outright generation of net flows. In addition the Remuneration Committee has increased the period for which cash awards, made under the Group annual bonus plan, are subject to clawback to three years to align with the deferral period.
I hope that you find this report a clear account of how the Committee has implemented the policy during 2016 and that you are able to support the remuneration decisions we have taken. I would again like to thank our investors for their time and for sharing their views during our meetings during 2016.
Operating profit before tax £723m £663m Operating return on equity 15.2% 14.5% Overall Group annual bonus scorecard outcome (financial and non-financial measures) 4.325/5 4.6/5
A definition of operating profit can be found in the Glossary. Further information including reconciliations to relevant IFRS metrics are provided in Supplementary information in Section 11.
Total remuneration In this table maximum remuneration includes the value of dividend equivalents added to LTIP awards and share price movement from the value when the awards were granted. The LTIPs are valued on the same basis as in the single figure table.
Pay Ratios The Committee is mindful of the relationship between Chief Executive pay and the pay of other employees across the Standard Life Group. In line with emerging best practice, the Committee has therefore voluntarily decided to include the pay ratio between the Chief Executive and the median pay of other employees within the Group.
Based on the Chief Executive’s single figure set out on page 88 the ratio of pay to the median of all other UK based employees is 61:1. Employee pay includes base salary, employer pension contributions, benefits and incentive payments.
There is no external guidance on the methodology to be used for the calculation of the pay ratio. The Remuneration Committee used the median as the comparator as it is affected less by changes in the remuneration of a small number of employees when comparing between years. We look forward to any additional guidance that may be provided on the methodology going forward.
5. Directors’ remuneration report continued 5.2 Overview of the remuneration policy The following sets out key aspects of the current remuneration policy as it applies to the Company’s executive Directors. The policy was approved by shareholders at the 2015 AGM. That policy came into effect on 12 May 2015 and can be found on our website at www.standardlife.com/annualreport and in the Annual report and accounts 2014. A shareholder vote on the remuneration policy is not required in 2017.
Purpose and link to strategy To provide a core reward for undertaking the role, positioned at a level needed to recruit and retain the talent required to develop and deliver the business strategy.
Operation The Remuneration Committee sets base salaries taking into account a range of factors including:  The individual’s skills, performance and experience  �Internal relativities and wider workforce salary levels  �External benchmark data  �The size and responsibility of the role  �The complexity of the business and geographical scope  �Economic indicators
Increases will normally be in line with the typical level of increases awarded to other employees at Standard Life and will be a reflection of the individual’s performance.
Operation Executive Directors are provided with a package of core benefits and are invited to participate, in line with other employees, in the voluntary benefits programme which they fund themselves through salary sacrifice.
The deferral period for bonuses in respect of 2016 onwards will be three years.
Deferred bonus shares are subject to malus between grant and vest and cash awards are subject to clawback for three years from the date of award.
The performance scorecard is weighted with at least 50% of bonus based on financial performance and no less than 30% based on non-financial performance. A portion of the award may be based on individual performance objectives. This will be no more than 20% of the overall award.
Operation Award of shares subject to performance measured over a three-year period with a subsequent two-year holding period. Awards may only be exercised after the combined five-year period.
Dividend equivalents, or equivalents for other forms of awards, accrue over the five-year period on a re-invested basis.
Performance measures Vesting of the award is based on the following Group performance measures:  �Cumulative Group operating profit performance before tax weighted at up to 100% of the award
Further details on these plans are set out in the Annual report and accounts 2014
Principles In determining remuneration arrangements for new appointments to the Board (including internal promotions), the Remuneration Committee applies the following principles:  �The Remuneration Committee takes into consideration all relevant factors, including the calibre of the individual, local market practice and existing arrangements for other executive Directors, adhering to the underlying principle that any arrangements should reflect the best interests of the Group and the Company’s shareholders
 �The Remuneration Committee will explain to shareholders the rationale for the relevant arrangements in the following year’s Directors’ remuneration report
Components and approach The remuneration package offered to new appointments may include any element of remuneration included in the remuneration policy, or any other element which the Remuneration Committee considers is appropriate given the particular circumstances but not exceeding the maximum level of bonus and long-term incentive awards detailed above. In considering which elements to include, and in determining the approach for all relevant elements, the Remuneration Committee will take into account a number of different factors, including (but not limited to) typical market practice, existing arrangements for other executive Directors, internal relativities and market positioning.
Buyouts To facilitate recruitment, the Remuneration Committee may make an award to buy out remuneration terms forfeited on leaving a previous employer. In doing so, the Remuneration Committee will adhere to the FCA guidance in relation to the practice of buyout awards to new recruits and, in particular, the requirements for Material Risk Takers (as defined by the Group’s regulators). In considering buyout levels and conditions, the Remuneration Committee will take into account such factors as the type of award and performance measures and the likelihood of performance conditions being met. The buyout award will reflect the foregone award in amount and terms (including any deferral or retention period and performance conditions) as closely as possible but within the structures and timing of equivalent Group plans. Where appropriate, the Remuneration Committee retains the discretion to utilise Listing Rule 9.4.2 (a rule, set by the United Kingdom Listing Authority, which permits an arrangement to be made without shareholder approval, specifically to facilitate, in unusual circumstances, the recruitment or retention of the relevant individual) 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 Group.
The terms and provisions that relate to remuneration in each of the executive Directors’ contracts (that are not set out elsewhere in this report) are set out below. It is intended that the terms for any new appointment would be in line with these.
Up to 12 months by the Company to the executive Director.
There is no contractual entitlement to participate in the annual bonus plan or receive long-term incentive awards.
Individuals are notified of these discretionary schemes at the beginning of each year.
Apply during the contract and, at the Company’s choice, for up to six months after leaving.
Keith Skeoch signed a new contract on 5 October 2015, reflecting his appointment to Chief Executive from 5 August 2015; his previous contract was signed on 3 April 2006. Luke Savage’s contract was effective from 18 August 2014. Paul Matthews’ and Colin Clark’s contracts were effective from 1 November 2015.
The service agreements for executive Directors are available for shareholders to view on request from the Company Secretary at the Company’s registered address (details of which can be found in Section 14) and at the 2017 AGM.
Loss of office remuneration The Remuneration Committee will consider the following factors when considering remuneration for loss of office:  �The individual’s service contract and the rules of the relevant incentive plans
 �Circumstances of the loss of office  �Performance during office  �The commercial justification for any payments 86 Standard Life 2016
The payment may be made in phased instalments and the policy is to do this for notice periods of over six months.
Typically, for good leavers, rights to annual bonus and long-term incentive awards will be pro-rated for time in service to termination as a proportion of the performance period and will, subject to performance, be paid at the usual time (which in the case of the Executive LTIP will normally include the holding period). Outstanding deferred share awards typically vest in full at the date of termination.
In the rules of the annual bonus plans and long-term incentives plans distinction is made between good leavers and other leavers. A good leaver is someone whose employment comes to an end because of death, ill health, injury, disability, redundancy or retirement as determined by their employing company, sale of the employing company or business or any other circumstance at the discretion of the Remuneration Committee. For the purposes of the Standard Life Investments Long-Term Incentive Plan, a good leaver may also include an individual who is transferred out of Standard Life Investments to another company in the Group. In determining whether an individual is a good leaver, the Remuneration Committee will exercise its judgement in a manner which seeks to be in the Group’s interests taking into account all relevant factors in relation to the departure. Where judgement has been exercised, the Remuneration Committee would provide an explanation in the following year’s Directors’ remuneration report.
Other payments such as the outgoing Director’s legal fees or outplacement costs may be paid if considered commercially appropriate.
Change of Control In the event of a change of control, executive Directors may receive a cash bonus in respect of the year in which the change of control occurs which, unless the Remuneration Committee determines otherwise, will be time pro-rated by reference to the bonus year. Outstanding deferred share awards will typically vest in full. Long-term incentives will normally vest early, taking into account the extent to which any relevant performance conditions have been met and, unless the Remuneration Committee determines otherwise, the time that has elapsed from the beginning of the relevant performance period. If the Company undergoes a winding up or is subject to a demerger, delisting, special dividend or other event, which, in the opinion of the Remuneration Committee, may affect the current or future share price, the Remuneration Committee may allow awards to vest on the same basis as for a change of control.
All awards are subject to Remuneration Committee discretion and may be adjusted (or reduced to zero) where it determines that the overall level of the Company or Group performance does not warrant payment of variable remuneration, or it considers that risks (such as financial, regulatory, compliance or brand risk) have not adequately been reflected in awards.
Long-term incentives with performance period ending during the year £000s2,3 Other payments £000s4
Total remuneration for the year £000s 1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2016. This includes car allowances of £15,825 for Luke Savage and £13,820 for Paul Matthews. Also included for all executive Directors is private health cover at a cost to the Group of £380 per employee. 2 The value reported for 2016 is the market value of the Executive LTIP awards that will vest in 2019 and Standard Life Investments LTIP awards that will vest in March 2017. As the share price at the date of vesting is not known at the date of publication of this report the number of Standard Life plc shares that will vest (including additional Standard Life plc shares received in respect of accrued dividends from grant through to 31 December 2016) has been multiplied by the average share price over the quarter ending 31 December 2016 (350.94 pence).
Pension (audited) Executive Directors received a cash allowance of 25% of salary in lieu of pension as follows: Paid in 2016
In addition to the cash allowance shown above Paul Matthews is a member of the Standard Life Staff Pension Scheme. Under the pension scheme rules his normal retirement date is at age 60. At 31 December 2016 he was aged 56 and his accrued defined benefit pension was £144,044 per annum. There is no additional value paid on early retirement.
Operating profit before tax £500m £544m £589m £663m Operating return on equity 10.7% 11.6% 12.6% 14.5%
Year ended 31 December 2016 As explained in the Remuneration Committee Chairman’s statement (Section 5.1), in the interests of transparency, the Committee has decided to accelerate the disclosure of the financial bonus targets, and as such the threshold, target and maximum for the financial targets used to determine 2016 Group bonus payments payable in March 2017 are detailed below.
Keith Skeoch 75% 175% Luke Savage 65% 150% Paul Matthews 65% 150% Colin Clark 75% 175%
The bonus award is based on Group performance and personal performance. The relative weightings are 90% based on Group performance and 10% on personal performance for Keith Skeoch and 80% based on Group performance and 20% on personal performance in respect of the other executive Directors.
More information on the Group’s financial key performance indicators can be found in the Chief Financial Officer’s overview section of the Strategic report.
Before approving the level of performance in 2016, the Remuneration Committee sought the views of the Group Audit Committee on material accounting issues that it considered during the year and the Group Chief Risk Officer and the Risk and Capital Committee on the management of risk within the business.
 Relatively strong financial performance delivered in difficult markets and with a close focus on costs, particularly in Standard Life Investments
 Development of reporting to provide additional clarity and insight into the performance of the business
Paul Matthews  Leadership of the Pensions and Savings business through a period of market and industry change and challenging conditions for sales  The expansion of our already successful platform business with the acquisition of Elevate which complements our existing Wrap platform and enhances our position as a leading platform provider
Performance measures Management of the Group’s strategy and its deployment in each business unit including the annual investment programme, any corporate transactions and the efficiency of the Group’s balance sheet.
Continuation of progress toward becoming a world-class investment company including:  Substantial completion of migration of Ignis business onto the Standard Life Investments platform delivering annual synergies, earlier than targeted, in excess of £50m  Purchase of Elevate, building on our successful Wrap platform business and growth of financial advice business 1825, with three further acquisitions in this business  Increased stake in HDFC Life and proposed combination between the life companies of HDFC Life and Max Life announced August 2016  Successful embedding of our new trade management system and significant progress with improving the technology and systems we use to manage investment data
 Our brand net promoter score is an important measure of customer advocacy. In 2016 our score fell by 11 points. We’ve planned a number of actions for 2017 to improve customer experiences - including automating key processes, better self service online and greater collaboration to better understand customer needs
 Signed HM Treasury Women in Finance charter, demonstrating our ongoing commitment to diversity.  Continued strong engagement, (+2% points) measured by our InterAction survey although enablement, the measure of how well employee skills are utilised and working environments facilitate productivity, dropped by 2% points. Action plans are being developed to address key themes.
As a result of the approved ratings, the Group annual bonus outcome as approved by the Remuneration Committee for 2016 is: Bonus opportunity based on Group performance as a % of total bonus
If the bonus payable amounts to more than 25% of salary, then half of the amount above 25% of salary is deferred for three years into an award over Standard Life plc shares. The deferral is not made if the amount to be deferred is less than 10% of salary.
2016 Group annual bonus outcomes (audited) The following table shows the total bonus awards made in respect of 2016 and the cash and deferred elements. Annual bonus payments are not pensionable.
The awards granted in 2014 under the Executive LTIP have two performance conditions. The outcome is based 70% on cumulative Group operating profit before tax and 30% on cumulative Group net flows. The awards are also subject to two underpins when assessing the Group performance. The first requires the Risk and Capital Committee to be satisfied that performance obtained has been achieved within acceptable defined risk parameters. The second requires the Remuneration Committee to be satisfied that Group operating profit performance and Group net flows performance reflect overall Group performance.
In line with the above results, and following consideration of performance over the three-year period as set out in the Remuneration Committee Chairman’s statement, the Remuneration Committee determined a vesting factor of 31.02% more appropriately reflects the overall performance of the Group and therefore reduced the vesting factor from the arithmetically calculated 41.02% in respect of awards granted in 2014 to executive Directors. These awards will be delivered to the executive Directors at the end of the holding period in 2019.
Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP) In 2014, Keith Skeoch participated in the Standard Life Investments LTIP. An award was also granted to Colin Clark who was not a Director when the award was made. Under the Standard Life Investments LTIP, awards will only begin to vest if Standard Life Investments’ investment performance (three-year money-weighted average) is above the lower quartile of the money-weighted average of all assets under management (both captive and third party assets) compared to other asset managers.
The level of vesting is then subject to consolidated cumulative threeyear third party EBITDA performance shown in the following table. The actual EBITDA targets are not disclosed as Standard Life Investments is a subsidiary business of Standard Life plc and the Board deems that this is commercially sensitive information which, if disclosed, could seriously prejudice the Group’s business.
2014 Standard Life Investments LTIP awards vesting in respect of performance ending in 2016 (audited) In line with the above, Keith Skeoch received an award under this plan in March 2014 equivalent to 200% of salary (at maximum vesting).
As performance was above the lower quartile of the money-weighted average of all assets under management (both captive and third party assets) compared to other asset managers and the consolidated cumulative three-year third party EBITDA was 109.96% of target, the Remuneration Committee determined that 124.89% of the target award (62.44% of the maximum award) granted in 2014 would vest in 2017.
Awards granted in 2016 Awards to executive Directors were made in 2016 under the Executive LTIP only.
All of the awards are subject to an additional personal performance underpin whereby, if an executive Director performs at an unsatisfactory level in any year during the three-year performance period, their original award would be reduced by one-third, unless the Chief Executive, or the Remuneration Committee in the case of the Chief Executive, recommends otherwise.
The number of shares under option and the share price at the date of grant are set out in the table on page 95.
Cumulative Group operating profit before tax (70%) and cumulative Group net flows (30%) for the threeyear period ended 31 December 2018
Vesting: 100% Cumulative Group operating profit before tax Maximum: £2,595m Cumulative Group net flows Maximum: £51.0bn 1 A grant of 500% of salary was made to Keith Skeoch but the award was reduced to 400% of salary, as explained in the Remuneration Committee Chairman’s statement.
Share ownership A shareholding requirement was implemented in 2014 and we continue to require executive Directors and senior management to maintain a material long-term investment in Standard Life plc shares.
 �50% of the net vested shares that could be acquired from the exercise of awards granted prior to the introduction of the new requirement (this includes awards arising from the deferral of annual bonus and awards granted under the Group LTIP and the Standard Life Investments LTIP)
Directors’ interests in shares (audited) The following table shows the total number of Standard Life plc shares held by the executive Directors and their connected persons.
At 31 December 2016 all executive Directors have complied with the requirement in respect of retaining shares from vested awards. Keith Skeoch holds significantly more shares than his shareholding requirement requires. Luke Savage was appointed in August 2014. No share awards granted since his appointment have yet vested. He has not yet met his shareholding requirement. Paul Matthews holds shares valued at 140% of salary, including shares acquired from awards not subject to either a guideline or the requirement. Colin Clark holds shares valued at 470% from previous awards not subject to either a previous guideline or the requirement.
David Nish, our former Chief Executive, is required to hold 703,651 shares until 31 March 2017. This number of shares was equivalent in value (at 31 March 2016) to 300% of his salary at 31 March 2016 (the date his employment ceased). At 31 December 2016, he held the number of shares required.
This table shows, in relation to each executive Director, the total number of share options with and without performance conditions held at 31 December 2016: Options with performance measures1 Options without performance measures2 Vested but unexercised Exercised during the year3 1 This comprises Executive LTIP awards made in 2014, 2015 and 2016 and awards under the Standard Life Investments LTIP made in 2014 and 2015 excluding shares to be awarded in lieu of dividend equivalents. In the case of Colin Clark this also includes awards made under the Standard Life Restricted Stock Plan. All awards granted to Paul Matthews and Colin Clark other than 2016 Executive LTIP awards were granted before their appointments as executive Directors on 1 November 2015.
The closing market price of Standard Life plc shares at 31 December 2016 was 372.0p and the range for the year was 262.1p to 375.0p.
The Standard Life Restricted Stock Plan The award lapses six months after the expected first date of exercise and carries the right to receive rolled-up dividends, but only to the extent awards vest.
Total value on exercise date 1 Based on the average share price for the five dealing days immediately before the awards were granted. 2 The award will vest in 2017 subject to Colin maintaining a personal performance level above a pre-determined threshold and is forfeited in the event he resigns before 31 March 2017. The award was granted prior to his Board appointment in 2015.
The Standard Life Sharesave Plan Luke Savage was granted an option under this plan on 12 September 2014 over 5,116 Standard Life plc shares exercisable from 1 November 2019. The exercise price for these options is £2.961.
Luke Savage Member of Council, Queen Mary University of London £nil
UK-based employees of the Group 3% (2.8%) 1 There was no change to the salary awarded to the Chief Executive from his appointment on 5 August 2015 to 31 December 2016. 2 This is the difference between the bonus awarded to Keith Skeoch for 2016 and 2015, as shown on page 88. It reflects both the movement in performance between years and the reduction of the maximum bonus opportunity from his previous role as the importance of variable remuneration delivered over the long term increases.
Base salary The Remuneration Committee has not awarded increases to base pay for executive Directors. Base pay for 2017 is therefore: Base pay
In evaluating the non-financial metrics, the Remuneration Committee will reference, where possible, objective data and will exercise judgement in determining achievement of objectives when assessing performance. Disclosure of the financial targets, performance and how performance has been evaluated by the Remuneration Committee will be provided in the Directors’ remuneration report at the end of the performance period.
Long-term incentive arrangements The Remuneration Committee proposes to grant awards, in the form of nil-cost options, in 2017 under the Executive LTIP plan, which will vest in March 2022. These are set out in the table below.
Vesting: 0% Cumulative Group operating profit before tax Threshold: £2,240m Cumulative Group net flows Threshold: £27.7bn
Letters of appointment The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are: Provision Policy
Time commitment Two to three days per week for the Chairman. For other non-executive Directors – 30 to 35 days a year
Pierre Danon John Devine Melanie Gee Crawford Gillies2 Noel Harwerth Isabel Hudson3 Kevin Parry4 Lynne Peacock Martin Pike 6 June 2003 as Director 28 February 2007 as Chairman (continuation 27 May 2010, 28 May 2013 and 17 May 2016) 28 November 2011 (continuation 6 October 2014) 4 July 2016 26 October 2015 7 December 2006 (continuation 11 January 2010, 3 December 2012 and 18 December 2015) 18 July 2012 (continuation 29 June 2015) 15 October 2014 27 October 2014 13 March 2012 (continuation 13 March 2015) 27 September 2013 (continuation 8 September 2016)
1 Initially appointed as a director of The Standard Life Assurance Company and appointed as a Director of Standard Life plc effective from 30 March 2006. 2 Retired from the Board, having concluded nine years' service at the conclusion of the AGM on 17 May 2016. 3 Resigned with effect from 24 June 2016. 4 Appointed Senior Independent Director with effect from the conclusion of the AGM on 17 May 2016.
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 in Section 14) and at the 2017 AGM.
Non-executive Directors’ interests in shares (audited) The following table shows the total number of Standard Life plc shares held by each of the non-executive Directors and their connected persons: Total number of shares owned at 1 January 2016 or date of appointment if later
Shares acquired/(sold) by the Directors during the period to 31 December 2016
Shares acquired/ (sold) by the Directors during the period 31 December 2016 to 22 February 2017 1 Appointed with effect from 4 July 2016. 2 Retired on 17 May 2016. 3 Resigned on 24 June 2016.
The Chairman continues to be subject to a guideline holding of 100% of the value of his annual fee in Standard Life plc shares within four years of appointment. Sir Gerry Grimstone, as Chairman, fully met this requirement in 2016 with the value of his shares at the end of the year being 202% of his fees.
Chairman’s fees2 £380,000 £380,000 Non-executive fees3 £73,500 £73,500 Additional fees: Senior Independent Director £18,000 £18,000 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 Chairman of the Investment Committee4 £30,000 Chairman of Standard Life Assurance Limited5 £75,000 £50,000 1 The core fee of £73,500 paid to each non-executive Director (including the Chairman) is expected to total £588,000 for 2017 (2016: £603,303). This is within the maximum £1,000,000 permitted under Article 87 of Standard Life plc’s articles of association. Total fees including additional duties are expected to amount to £1,107,500 for 2017 (2016:£1,099,000).
4 An appointment was made to this role in November 2016. 5 An appointment was made to this role in April 2016 at which time the fee was revised from 5.5 The Remuneration Committee Membership During 2016 the Remuneration Committee was made up of independent non-executive Directors: Lynne Peacock (Chairman and member until 17 May 2016), Melanie Gee (Chairman from 17 May 2016), John Devine (from 4 July 2016), Pierre Danon (until 24 October 2016), and Martin Pike.
The role of the committee To consider and make recommendations to the Board in respect of the total remuneration policy across the Group, including:  �Rewards for the executive Directors, senior employees and the Chairman
External advisers The Remuneration Committee received information on comparative pay data from Towers Watson. Pinsent Masons LLP provided legal interpretation of remuneration related regulations to the Remuneration Committee.
During the year, the Remuneration Committee also took advice from Deloitte LLP (a member of the Remuneration Consultants Group), who were appointed as external advisers to the Remuneration Committee from October 2011.
 Investor response to the 2015 Directors' remuneration report and executive Directors’ remuneration
 Reward regulation and practice update  Material risk taker populations and disclosures for 2016  All employee share plans
 End of year review of performance against target for annual bonus and LTIP awards
(% of total votes) 96.6% 3.4% (No. of votes cast) 852,195,858 29,881,743 4,276,901
The Directors’ remuneration report was subject to a vote at the 2016 AGM and the following table sets out the outcome.
(% of total votes) 77.7% 22.3% (No. of votes cast) 639,048,996 183,477,683 22,528,635
Having listened to the concerns raised, the Chief Executive volunteered a reduction in the 2016 LTIP award that had been granted to him on 24 March 2016. The Committee approved a reduction equivalent to 100% of salary from 500% to 400% in the value of the 2016 LTIP award that was granted to the Chief Executive. The Committee have also agreed that 400% will continue to be the maximum annual award grant level for the duration of the current remuneration policy.
In response to the 2016 vote on the remuneration report the Chairman of the Remuneration Committee met with a number of our largest investors, the Investment Association (IA) and Institutional Shareholder Services Inc. (ISS) with a view to understanding investors’ concerns. The meetings were very helpful in gaining a detailed understanding of these concerns and their views of the evolving remuneration landscape more
 5.5% where the guideline is no more than 10% in any 10 years under all share plans (Executive LTIP, Group LTIP, Standard Life LTIP, Standard Life (Employee) Share Plan, the Sharesave Plan and Sharesave Ireland Plan)
6. Statement of Directors’ responsibilities The following statements should be read with the statement of auditors’ responsibilities included in the independent auditors’ reports. They are made to help shareholders distinguish between the responsibilities of the Directors and those of the auditors in relation to the financial statements for 2016.
Financial Conduct Authority (FCA)  �Article 4 of the International Accounting Standards (IAS) Regulation
 �Prepare the financial statements on the basis that the Group is a going concern, unless it is inappropriate to presume that the Group will continue in business
UK legislation governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Board of Directors section, confirms that to the best of their knowledge and belief:  The Group and the Company financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and of the Company and taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s performance, business model and strategy
How to navigate our Group financial statements The Group’s significant accounting policies are included at the beginning of the relevant notes to the Group financial statements with this background colour. Critical judgements in applying accounting policies are summarised in the Presentation of consolidated financial statements section which follows the primary financial statements. Accounting policies that are relevant to the financial statements as a whole are also set out in that section.
Contents 7. Independent auditors’ report – Group financial statements 106 8. Group financial statements 113 9. Independent auditors’ report – Company financial statements 220 10. Company financial statements 222 11. Supplementary information 236
7. Independent auditors’ report to the members of Standard Life plc Report on the Group financial statements Our opinion In our opinion, Standard Life plc’s Group financial statements (the ‘financial statements’):  Give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of its profit and cash flows for the year then ended  Have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union  Have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation
What we have audited The financial statements, included within the Annual report and accounts (the ‘Annual Report’), comprise:  The Consolidated statement of financial position as at 31 December 2016  The Consolidated income statement and consolidated statement of comprehensive income for the year then ended  The Consolidated statement of cash flows for the year then ended  The Consolidated statement of changes in equity for the year then ended  The accounting policies and notes to the financial statements, which includes the Presentation of consolidated financial statements section and other explanatory information
We have not audited the pro forma reconciliation of consolidated operating profit to profit for the year ending 31 December 2016 set out on page 115 which was prepared by Standard Life plc.
Certain required disclosures have been presented elsewhere in the Annual report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law.
 We selected 23 reporting units (as explained on page 109) on whose financial information we conducted audit procedures
 We identified 8 of these reporting units which, in our view, required an audit of the complete financial information, either due to their size and/or their risk characteristics. These focused on the material reporting units within the Standard Life Investments and Pensions and Savings segments.
 Procedures were also performed at the Group level over the Group consolidation process
Our areas of focus included:  Determination of actuarial assumptions for valuation of assets and liabilities  Valuation of complex financial instruments and investment property  Valuation of identifiable intangible assets arising from the acquisition of Ignis Asset Management Limited (‘Ignis’)  Provision for annuity sales practices
Area of focus How our audit addressed the area of focus Determination of actuarial assumptions for valuation of assets and liabilities The Directors’ determination of assumptions for the valuation of life insurance contract liabilities involves complex judgements about future events, both internal and external to the business. Changes in assumptions can result in material impacts to the valuation of the liabilities. The methodology used can also have a material impact on the valuation of the insurance contract liabilities.
As part of our consideration of assumptions, we gave specific focus to the annuitant mortality assumptions used in valuing life insurance contract liabilities, because of the sensitivity of the Group’s profit to changes in these assumptions and the level of judgement involved in setting these assumptions.
 Benchmarking management’s assumptions in the UK against over 20 of the largest life insurers in the UK which were included in PwC’s independent benchmarking survey. This allowed us to compare the assumptions used relative to those used by the Group’s industry peers.
We determined, based on our audit work, that the assumptions used in the models are appropriate, and that the methodologies applied are in line with financial reporting requirements and industry accepted practice and reflect the nature of the Group’s life insurance contracts.
 Benchmarking management’s key assumptions (pensioner and nonpensioner mortality, spread between Retail Price Index and Consumer Price Index and inflation rate premium) against over 25 companies which were included in PwC’s independent benchmarking survey. This allowed us to compare the assumptions used relative to those used by other companies.