Committee report ...................................... 70 3.4 Directors’ remuneration report ................. 73 4. Directors’ report ............................................... 96 5. Statement of Directors’ responsibilities .......... 103 Financial information 6. Independent audit report ................................. 106 7. Group financial statements ............................. 115 8. Company financial statements ....................... 211 9. Supplementary information............................. 222 Other information 10. Glossary......................................................... 236 11. Shareholder information ............................... 238 12. Forward‑looking statements ......................... 239 13. Contact us ..................................................... IBC
This symbol indicates further information is available within this annual report or on the Group corporate website. Download this report from: www.standardlifeaberdeen.com/annualreport
Certain measures such as fee based revenue and adjusted profit before tax are not defined under International Financial Reporting Standard (IFRS) and are therefore termed alternative performance measures (APMs).
All figures are shown on a continuing operations basis unless otherwise stated.
See page 31 for details on all of our financial key performance indicators (KPIs) and page 21 for details on our employee engagement KPI. See Supplementary information for details about the investment performance calculation.
futurists We are better investors enabling our clients to be * fjuːtʃərɪst: Systematically explores possibilities about the future and how they can emerge from the present 1Standard Life Aberdeen 2020
We operate across three vectors that reflect how our clients interact with us. Through these vectors, and using time, technology and talent, Standard Life Aberdeen has the full ecosystem of capabilities to enable our clients to be better investors.
Our market-leading UK financial adviser business provides services through the Wrap and Elevate platforms to wealth managers and advisers.
Our Personal business combines our financial planning business 1825, our digital direct-to-consumer services and discretionary fund management services from Aberdeen Standard Capital. Our range of services includes ISAs and investment accounts.
We deliver advice and outcomes for a growing population of charities, advisers and individuals who are seeking guidance at the moments of time that matter to them.
Our goal is to excel on experience, as well as the efficiency of our services to wealth managers and advisers.
Our goal is to provide good advice and high-quality and accessible services direct to consumers to help them plan for, and meet, their financial futures.
Delivering for our stakeholders through unprecedented times 2020 was a year like no other. The COVID-19 pandemic touched every corner of society, affecting lives to an extent not experienced for generations, changing the ways we live and work. Resilience and adaptability were essential to our continuing to deliver for our clients and customers and I am proud of the way the leadership of the company, with the support of all our colleagues, stepped up to meet the challenges.
From the outset, we prioritised both the safety and wellbeing of our colleagues, and equipped them with the tools and resources to work remotely to meet the needs of our clients and customers. Virtually all our colleagues are still working from home, and we are evolving safe, new, working practices for people who need to collaborate with their colleagues face-to-face. We have taken the opportunity to redesign and re-purpose our main offices. When restrictions ease, we will be back working in a new way, making time spent in the office more collaborative and constructive.
Everyone, of course, is still concerned about the wellbeing of their loved ones and many are juggling caring responsibilities. On top of this, turbulent markets and a faltering economy have led to mental stress and uncertainty around finances and futures. Some of our colleagues are caring for vulnerable family members and friends, others have been negotiating home schooling, or feelings of isolation. The vaccine roll-out brings hope, but until the programme is complete and we can find our way back to a new version of normal life, my deepest thanks to all our colleagues who continue to deliver in these difficult circumstances.
Positioning for growth The economic backdrop caused by the pandemic meant we did not build revenue in 2020 but we made encouraging progress in related areas. Notably, we reduced net outflows, improved both consultant ratings and investment performance and met major milestones in delivering the technology framework needed to underpin future growth. Additionally, following Stephen Bird’s appointment, we repositioned the company around three growth vectors. We added emphasis to our personal business and adviser platforms, increased our commitment to technologydriven investment solutions and repositioned our real estate business through the planned sale of our direct real estate business in the Nordics. In December, we announced the acquisition of one of Europe’s leading logistics real estate fund managers, Tritax. On top of this, we announced the intention to sell Parmenion, one of our three adviser platform businesses, in order to bring clarity to our adviser platform strategy.
Our capital resources and liquidity position remain strong. At the end of December capital resources stood at £3.4bn, an excess over regulatory requirements of £2.3bn. During 2020 we returned £0.5bn to shareholders through dividends and a further £0.4bn by way of share buyback.
The Board recognises that the long-term success of our business is dependent on the way it works with a large number of important stakeholders. The Directors have had regard to the interests of all our stakeholders (including, for example, our clients, our people, our communities and our shareholders) while complying with their obligations to promote the success of the Company in line with section 172 of the Companies Act.
The Board has discussed these obligations throughout the year, including how stakeholder engagement is incorporated into our longterm decision-making with further details provided on pages 50 to 51.
The Board’s decision-making considers both risk and reward in pursuit of delivering long-term value for all of our stakeholders, and protecting their interests. Awareness and understanding of the current and the potential risks to the business, including both financial and non-financial risks, are fundamental to how we manage the business. Further information on how risks are appropriately assessed, monitored, controlled and governed is provided in the Risk management section.
The Board is therefore recommending a final dividend in respect of 2020 of 7.3p, bringing the total dividend for the year to 14.6p, a 32% reduction from the total dividend paid in respect of 2019 (21.6p). It is the Board’s current intention to maintain the total dividend at this level (with the interim and final at the same amount per share), until it is covered at least 1.5 times by adjusted capital generation, at which point the Board will seek to grow the dividend in line with its assessment of the underlying medium term growth in profitability.
New leadership In terms of Board changes, as previously intimated, we welcomed Brian McBride to the Board in May. Brian’s experience in digital business, and in particular using technology effectively in markets facing disruptive new entrants, is proving extremely valuable as we build our adviser and personal growth vectors.
Stephen has already made a significant impact. He has made a careful evaluation of our business based on dialogue with all of our stakeholders and, as a result, reformulated his leadership team and realigned our strategy for long-term growth. He shares more detail in the following pages.
I want to take this opportunity to thank Keith Skeoch and recognise his accomplished leadership as our Chief Executive and, for a period, Co-Chief Executive over five years. Given the scale and range of his contributions, transitioning away from his leadership was always going to be a challenge. Keith was central in the creation of Standard Life Investments and led the business to being a global asset manager in its own right. Foreseeing the industry trends which would force complex strategic choices, Keith, alongside Martin Gilbert, guided the business through the merger between Standard Life and Aberdeen Asset Management – as well as the deal with Phoenix Group – reconfiguring the business at a time of significant change within our industry. He was a decisive and empathetic leader during the COVID-19 crisis and has supported the transition to the new leadership selflessly. For all this we owe him a huge debt of gratitude. Martin Gilbert, whose retirement was announced at this time last year, left the Board at last year’s AGM and finally retired in September. We wish them both well in their future endeavours.
“ We play an important role in identifying opportunities for clients in challenging global markets, providing the capital to help rebuild and reshape the postpandemic recovery, and ensuring that capital is prioritised to businesses with sustainable futures as part of global commitments to ‘build back better’.
Our role in society The global pandemic reminds us that the major challenges facing society can only be solved through global co-ordination and cooperation. Companies are, rightly, under mounting pressure to conduct business in a way that is not only economically sound, but also socially and environmentally responsible. This means ensuring that a company is governed in the interests of all stakeholders, including employees, customers, society as a whole and the planet.
We are very conscious of the wider contribution we can make to the communities we serve. This ranges from directing funds to communities most in need, to investing in the skills of the next generation that will be critical for long-term economic recovery.
As we look ahead to the important UN Climate Conference (COP26) meeting in Glasgow this year, we are taking further steps to ensure our ESG strategy is fully and transparently integrated into how our business operates and that our approach demonstrates leadership within our industry. Stephen shares more about this on page 7.
I remain hugely optimistic for the future success of this business. With our leadership succession secured, a refreshed strategic focus, and investment in our growth vectors, innovation and talent, we have everything we need to meet the challenges and opportunities ahead and deliver for our stakeholders today, and in the future.
Strong businesses that grow sustainably obsess over consistently providing exceptional client value. We are in the process of strengthening that client obsession and optimistic sense of urgency to put Standard Life Aberdeen in its best possible competitive position as we prepare to enter our third century of serving clients in 2025. This is the reason I joined the company, and why I test every decision we make against that goal. It is a privilege to have this leadership responsibility and I am confident that we as a team are already moving quickly in the right direction.
Our one true north is enabling our clients to be better investors. That is the value we bring, we harness the power of time, technology and talent to enable our clients to achieve their goals. Different clients with different goals and different solutions, all powered by meticulous research, a global perspective, sound judgement and a relentless drive to both understand and shape the future.
When I joined the company in summer last year, my priority was to get under the skin of the firm so I could begin to understand it inside out. I met with and listened carefully to our clients, colleagues and shareholders so that I could understand the journey we were on and the expectations each group had of us. My goal was to form a realistic picture of our strengths and weaknesses, combined with opportunities and threats.
Client led growth Our strategy is to deliver client led growth. Client led growth is always the highest quality growth. This is because it is rooted in understanding client outcomes, driven by needs, wants and aspirations – which in turn allows the delivery of intuitive, satisfying client experiences.
We are futurists. This means we harness the compounding power of time, we leverage technology to connect with our clients and to invest intelligently and we channel the relentless curiosity of our team so that we keep learning and improving every day. The talent of our team when harnessed to enable client goals is the core of our business. I know that we must continue to invest in making this a great place to work, attracting and nurturing talent. We operate across three ‘vectors’ that reflect how our clients interact with us: Investments – a truly global asset management business serving institutional and wholesale clients; Adviser – a UK financial adviser technology platform that helps financial advisers and the firms they work for deliver advice over the length and breadth of the UK; and Personal – a high-potential UK wealth and savings business. Through these three vectors, and using time, technology and talent, Standard Life Aberdeen has the full ecosystem of capabilities to enable our clients to be better investors.
On pages 16 to 19 we share more detail about the opportunities in each.
In response to this feedback, we will be rebranding to use one consistent brand name for our publicly listed company and for all our client facing businesses. Our brand will make a promise that we will fulfil and having a single brand will allow us to get a better return on the investments we make in marketing and sales.
A culture of curiosity and ownership As a team we have already implemented a series of decisions to drive long-term success. We have a growth strategy and structure that supports this goal. Of course all change starts with personal change and I am asking our people to think and act differently too. As futurists, we need to be incredibly curious about the changing world around us. Huge change is taking place in the world right now, technological, environmental and social changes are disrupting companies and industries – behaviour and society is changing quickly, all of these changes impact our clients and their investment needs. We are actively and constantly evaluating these trends and understanding what they mean for our clients and our business model – our capabilities must and will keep pace with these changes.
Looking ahead 2020 was an unprecedented year for everyone, and I echo the Chairman in my deep gratitude for how our colleagues responded, and for Keith’s leadership. Standard Life Aberdeen acted responsibly in the interests of all of our stakeholders and, in an incredibly challenging year, investment performance was strong and our overall business performance held up. Stephanie Bruce talks more about our performance for the year in her Chief Financial Officer’s review.
I want to look ahead now and, in the context of our new strategy, tell you about the key elements of our plan for Standard Life Aberdeen.
Firstly, our integrated ecosystem of Investments, Adviser and Personal businesses allows us to operate at scale leveraging shared research, data sources and analytics, investment management, technology development, infrastructure, brand and partnerships.
Our future-focused talent – I have worked in this industry for a long time, all over the world, and I know we have some of the best people at Standard Life Aberdeen. We can see this in the strength of our investment performance and in the quality of our client propositions. We will continue to augment and empower this talent through a culture of collaboration, innovation and a focus on delivery, powered by a passion for clients.
The curiosity of our talent creates opportunity enabling our clients to be
We are focused on growth markets and on clients who are actively investing. We are prioritising growth in Asia.
Our platforms are designed to deliver a great service experience and we are investing to make it even easier.
We are growing in the UK by earning the right to be the primary platform for our clients. We will relentlessly improve our platform through time, consistently delivering great service.
Our strategy is to connect these businesses in a model that is central to meeting the needs of the UK savings and wealth market.
Investing responsibly to build a better world better investors 9Standard Life Aberdeen 2020
Delivering client led growth Our strategy has been designed to capture the upside and protect against the downside risk of significant market opportunities. By focusing our global resources on the following strategic priorities, Standard Life Aberdeen is building a long-term, sustainable business, whilst delivering for our clients today.
UK adviser and consumer market The population is ageing and advancements in life sciences are improving health and longevity. Responsibility for providing for a longer retirement is increasingly being passed to the individual. On top of this, the pandemic has reinforced the need for personal financial resilience to provide a buffer against unexpected events. Fundamentally, individuals need to save more and start earlier. Our UK Adviser platforms and Personal vectors are already focused on helping financial advisers and individuals invest and we are focused on making their experience even easier, providing a full range of products and solutions aligned to their desired outcomes.
Growth in Asia The economic centre of gravity continues to move East and building on our strong legacy there is a major strategic focus. Demand for global capabilities in Asia will continue to grow quickly as the expanding middle class saves and invests more in the coming years and the savings institutions into which they entrust their funds expand their investment horizons beyond their own markets. Likewise, this higher rate of growth and economic development will continue to attract significant investment from the rest of the world. We are reconfiguring our business for faster growth in Asia, bringing global capabilities and local expertise.
Investing responsibly In a rapidly changing world on a path to net zero, we believe targeting sustainability improves our clients’ long-term returns. As futurists, we are relentlessly curious and seek to identify those technologies, companies and sectors that will thrive in the economy, environment and society of tomorrow. In a constantly changing world, investing in sustainable solutions and engaging with companies seeking to transform drives positive change. We will develop our products and solutions to target sustainability in improving long-term returns and empowering clients to make better informed investment decisions to help them navigate this era of rapid change.
Private markets In a world of low expected returns from liquid asset classes, fewer public companies and where traditional approaches to portfolio diversification are less efficient, private market and real estate opportunities are playing an increasingly important part in making our clients better investors. We are focused on the growth themes which will be better accessed via private markets and real estate investments and we are strengthening and leveraging our business in this strategically important area.
Our business model is designed to enable our clients to be better investors, deliver for our shareholders and provide an environment where our talent can thrive – and make a positive, lasting contribution to the future world.
Growth vectors We focus on three vectors of growth to deliver strategic ambitions, profitably, simply and efficiently, both organically and inorganically. We earn revenue primarily from fees charged based on AUMA.
Our strategic priorities are described on pages 10-11. Our execution priorities for 2021 are described below.
For our people • Performance-driven culture where we listen to, and act on, our people’s views • Technology to develop talent and improve collaboration
• A refreshed framework to guide our diversity and inclusion priorities
For society and our communities • Fair and inclusive employment, removing barriers to realising potential • A response to the interlinked crises of climate change and biodiversity loss • ESG focus running through our operations and our investments
For our shareholders • Sustainable shareholder value • Financial resilience in uncertain and challenging market conditions • Continued investment in our business to further diversify our sources of revenue Group capital surplus of £2.3bn
Operating leverage Investing in our growth priorities, while reducing our commitment to non-core areas.
Finish transformation Completing transformation in 2021, enabling us to realise further cost savings and free up resources for our growth agenda.
Stewardship of capital Maintaining our strong capital position to enable resilience in uncertain times, while investing selectively to accelerate growth.
Business simplification Simplifying and further localising decision making, removing unnecessary layers and costs, empowering our people and creating efficiencies.
We are building the future now, by enhancing the technologies we use, as well as simplifying data sources and processes. This makes our institutional-grade investment expertise easy to access. It also enables assessment of investee companies against ESG risks and opportunities to be more straightforward. We are providing our clients with the solutions they need, now and for the future.
Schroders UK Platform Awards 2020 for Aberdeen Standard Capital at the PAM Awards 2020
AUM ahead of benchmark over 3 years for 1825, as endorsed by Personal Finance Society
Private markets Further enhancing our direct alpha capabilities and diversifying further into Asia and North America, taking advantage of attractive market conditions such as strong growth and resilient fundamentals.
Responsible investing Targeting sustainability to improve our clients’ long term returns. Empowering clients to make better informed investment decisions to help them navigate this era of rapid change.
Solutions Building on our existing ‘liability aware’ heritage, broad investment and technology capability set, and the strength of our client ecosystem to deliver bespoke and ‘whole of portfolio solutions’ to solve clients’ increasingly complex investment problems.
Exchange Traded Funds (ETFs) Expanding our existing ETF capabilities beyond the US, combining our active and passive expertise through a range of European UCITS ETFs with a specific focus on thematic strategies.
Technology and data Continuing to invest in agile technology, advanced data analytics and next generation computing as critical capabilities to enhance our wide range of outcomes and efficiencies as a global, client led investment manager.
Collaborative partnerships are important for client led growth, where deep understanding allows us to tailor our products and solutions to meet client needs. We have strengthened our relationship with our key partner Phoenix with over £170bn of their assets being managed by our skilled team. We continue to innovate together to support their ongoing needs. In 2020, we collaborated with several clients and platforms such as China Construction Bank International in Hong Kong, HUB24 in Australia, FAPES in Brazil and Skipton Building Society in the UK, to provide bespoke solutions.
Research, data and technology underpin our investment decision-making. We continue to make improvements to our infrastructure, enhancing the way we invest on behalf of clients to meet their desired outcomes. In the last year, we have integrated our operational investment systems, improved our research capabilities with our ESG House Score, and have launched our proprietary data capability to support our deep understanding of our clients.
Fixed in com e £117bn 0b n 16 Standard Life Aberdeen 2020
• The creation of a proprietary ESG House Score, across public markets, combining external data with our internal insights and forward looking research
Sustainable options to empower our clients We are working with clients on solutions that allow them to achieve their future goals whilst ‘dialling up’ the impact of their investments. For example, we can provide our clients with higher exposure to companies or assets that are solving the climate and environmental crisis. In line with this, we are working with Phoenix and other institutional clients on the transition to net zero.
We are working with FNZ to consider additional services that could become available through the new partnership. This includes the FNZ app store and enhanced insights. We can also make these services available through direct-to-consumer channels, providing opportunities for growth in our Personal business.
We will become the easiest business for wealth managers and advisers. This will give wealth managers and advisers more time to spend with their clients, maximising their service and revenue streams.
• Elevate is a lower-cost proposition which, through a range of investment options, offers advisers the core features they need to deliver their services at scale
In 2020, we launched our Platform Experience Programme to further improve adviser experience. The programme has driven significant change for the business with its three core aims: 1. Modernising platform components, as we separate operational activity from Phoenix 2. Aligning our operating system to adviser needs and expectations 3. Consistent innovation and incremental improvements
The strategy is underpinned by our revised and extended strategic relationship with technology provider FNZ. This partnership allows us to combine best-in-class platform services with a commercial model that ensures sustainable growth.
In 2021, we will continue to enhance our solutions so they become even more flexible, more efficient for clients and more insight-led. Advisers’ needs will be the starting point for all improvements and design.
Advisers will be at the heart of what we do, with their actions and viewpoints forming the core of our design. To underline this adviser-centricity, we have made four commitments to them that are embedded across our business: 1. Always efficient 2. Aim to be right first time 3. Listen and understand 4. Provide leading functionality £67.0bn £48.1bn £15.3bn £51.7bn £14.5bn £62.6bn £41.7bn
The sale allows us to invest in a single client facing brand. As an interconnected business, this is vital across all our vectors. It is particularly important in our Personal vector where, to date, we have a number of direct-to-customer propositions which have very different brand identities. Our new brand identity will be a core enabler in bringing these businesses together into a proposition that connects more deeply with clients and provides consistency as their needs evolve.
This does not mean we will be taking a ‘one-size-fits-all’ approach. Instead we will be developing one core recognisable business that provides options for all clients who want to deal with us direct, from those who want a simple app-enabled savings proposition, to retirement advice, and those clients who need more specialist or bespoke support.
Within our discretionary fund management business, we have seen substantial AUM growth. In our Charities business, for example, AUM is up over 60% in the last two years.
Our Personal business seamlessly connects our capabilities to help clients be in a better position to achieve their goals. Where relevant, we can also leverage the power of our adviser platforms and investment product range to help them achieve the best outcomes.
AUMA1 1 Includes assets that are reflected in both Aberdeen Standard Capital and Advice businesses. This impact (31 Dec 2020: £0.9bn) is removed within Eliminations.
An organisation of futurists has to be able to unlock the full potential of its people. It needs to attract, nurture and retain the very best, and its thinking needs to be diverse, energetic and future focused.
Defining a clear strategic vision 74% 74% 75% Colleagues told us that improving on this should be our number one priority, and this was a key focus during the second half of 2020
Developing our leaders We know that effective leadership is critical if we are to unlock the full and true potential of our talent. In 2020, we adapted our People Management Academy to be delivered online. This is the learning framework that helps our people managers to develop and enhance the behaviours and skills we expect from them. We measure its effectiveness through the employee engagement survey. In 2020, these were some of the results: • 83% said they felt their manager is a role model for our behaviours, and creates a collaborative and inclusive environment where colleagues can be themselves and perform to their potential
• 79% said their manager motivates and engages, and that colleagues know what is expected of them, how they are performing and how their role supports the business
Identifying, attracting and retaining talent A diverse and inclusive workplace To attract the best talent, and to grow leadership for the future, diversity is vital. At the end of 2019, our Board Employee Engagement Group, led by non-executive Director, Melanie Gee, ran an employee survey on diversity and inclusion.
Over 1,000 employees took part. Survey feedback stressed the importance of diversity of thinking across our teams and leadership, and the role it plays in building an inclusive culture. We combined these findings with feedback from networks and regional groups, as well as insights from external research and benchmarking. Based on all of this, we refreshed the framework that guides our diversity and inclusion priorities.
With the pandemic and the Black Lives Matter movement shining a light on societal disparities, we are maintaining our focus on creating inclusive environments in which all types of diversity can thrive. Our leaders, our Global Inclusion Committee, our colleague-led networks and regional groups work collaboratively to turn discussion into action, and to influence others to do the same.
Young talent In 2020 we upheld our commitment to taking on 22 new trainees in the UK, as part of our traineeship programme for school leavers, as well as 37 new university graduates across our global programmes. Full-scale assessments, selections, onboarding and induction processes were carried out online.
We have also been using technology to enhance the recruitment process itself. This includes building metrics into our HR system to monitor diversity and inclusion at all points.
Top 50 Rankings for undergraduate and apprenticeships programmes The Rate My Placement awards are based on the feedback and experiences of our people who participate in our programmes.
• Created remote induction programmes • Offered advice and support for safe and healthy remote working • Shifted our entire learning and development offering online, leveraging technology to provide interactive, virtual learning • Provided an allowance so colleagues could buy home working equipment We knew our people were having to balance competing demands on their time, especially caring and working. We therefore empowered managers to help their teams adapt their ways of working where needed.
Achieving targets We have had gender targets in place since 2016, and achieved these in 2020. For the percentage of women in roles at Board and senior leadership levels, both targets were 33%. We reached 45% at Board level and 37% among senior leadership.
The Board will continue to track progress in diversity and inclusion over the coming years, and our targets will help us to maintain progress. From 1 January 2021, we have new targets which build on our progress and reflect our ongoing commitment to improving ethnic diversity. These will run to the end of 2025, with regular review by our Board and Executive Leadership Team. The targets are structured differently for these reasons: • To align them with our external engagement approach and voting standards
• To be sure we maintain our policy of always appointing the best person for a role
Across the world, societies are also turning their attention to economic recovery, in the wake of the pandemic. We are looking at the role we can play in rebuilding in ways that are both green and fair. This ranges from making sure employment is fair, inclusive and free of barriers, to actively responding to the interlinked crises of climate change and biodiversity loss.
Living Hours employer A new standard for employers who want to do more than provide a Living Wage
C-19 Business Pledge for businesses committed to tackling the effects of the pandemic colleagues in pilot to monitor home working emissions with eco-tech business Pawprint 25Standard Life Aberdeen 2020
Asking more of ourselves Every day we look for ways to go further for our clients, to be a better and more inclusive employer, and to reduce our environmental impacts.
Our positive influence comes primarily through our investment approach. Client demand for responsible investing continues to grow at a rapid pace, and sustainability considerations are integral to all portfolio decisions. By combining this with the positive impact we can have through our operations, we can make a difference for our clients, society and the wider world.
As an active owner, responsible investing is about more than simply selecting appropriate investment opportunities. Engaging with companies to ensure they retain the standards we expect of them is just as important. Where companies fail to achieve these standards, we may consider selling our holding.
For example, following allegations in 2020 of underpayment of statutory minimum wages and poor working conditions in the supply chain of the UK-based retailer Boohoo, we divested from them in all our actively managed funds. We have engaged with Boohoo to improve its ESG standards since 2017, but found their response to these allegations inadequate. We decided to divest after considering a number of elements, including Boohoo’s culture, control mechanisms and business model, the Fund’s investment process and its investors’ best interests. We are now considering how we engage with other businesses facing similar labour-related risks.
Through our Aberdeen Standard Investments brand we are a sponsor of Good Money Week, an annual UK campaign to help people use sustainable, responsible and ethical investment options. The theme for 2020, Clean Slate, Green Slate, made the case that there has never been a more important time to think about the social and environmental impact of wealth protection. We provided online seminars, podcasts and articles covering the impact of the crisis on climate policy, what it means for investors and what we are doing to support a fair recovery.
Supporting our communities through the pandemic From the start of the pandemic, we have recognised the significant effect on our communities and that not everyone in our communities was equally impacted. We therefore released £500,000 from our charitable budget, and focused our donations on three key areas: • Emergency and crisis supplies to deal with the immediate impact
Our business put in place a programme for matching donations that our people chose to make to causes on an individual basis. This is in addition to our existing matching schemes for employee fundraising and payroll giving. We also worked with charities that needed specific support to adapt the ways they worked. This included: • Support for a financial education initiative to develop free online resources for children and their families
• Helping food banks and supper clubs to be able to cook and deliver hot meals
Our approach to managing our operational emissions is to reduce as much as we can, and we have long-term targets in place to achieve this. We then offset what remains. A dramatic change in the nature of our carbon footprint took place in 2020 as a result of the pandemic. Emissions from our offices and business travel reduced, and emissions from home working became our biggest emission source. You can read more on our carbon footprint, and our environmental metrics and targets, on page 28.
Every year, we offset our greenhouse gas emissions by purchasing carbon credits through our partnership with ClimateCare. We support accredited projects that help people to engage with and protect nature, and to support habitat and wildlife restoration. This in turn promotes wellbeing, builds community and helps wildlife and ecosystems thrive for generations to come.
The transition to a net zero world means we have to be able to assess which companies and assets will perform well in a net zero environment. This includes identifying where we need to influence to drive best practice. In 2020 we kept up engagement with peers and policymakers, and collaboration with industry associations and initiatives.
Our commitment to the Living Wage Even before the pandemic, over five million workers in the UK had low-paid, insecure work. There is a growing body of evidence that the inequalities this causes negatively impact overall economic growth.
We have been a UK Living Wage employer for some time. In 2020, we became one of the first employers accredited as a Living Hours employer. The Living Hours programme sets a new standard for employers who want to do more than provide a Living Wage. Accredited employers agree to offer decent notice periods for shifts, as well as the right to a guaranteed minimum number of work hours each week. This commitment covers our employees, interns and suppliers on our premises.
We also supported the ‘toolkit for responsible investors’ initiative from the Living Wage Foundation and ShareAction. This helps investors in UK markets understand why and how to encourage portfolio companies to adopt the real Living Wage.
Investing in young people Today’s environment is challenging for many workers, but particularly for young people starting out in their careers. We believe that investing in young people is critical for long-term economic recovery. Alongside our internship and graduate recruitment programmes, we are continuing to recruit from schools and colleges through our traineeship programme. We offer salaries above the real Living Wage, with structured training and the opportunity to gain qualifications. We also continue to collaborate with partners such as Career Ready to support young people to build skills, confidence and connections.
In 2020 we had reduced our total greenhouse gas emissions by 55%. Our emissions per full-time equivalent (FTE) employee had fallen by 53% from 1.57 to 0.73 tonnes of CO2e per FTE (Scopes 1 and 2). We had also reduced our energy use globally by 50% from 35,109 MWh to 17,722 MWh, and in the UK by 47%, from 26,658 MWh to 14,238 MWh.
Our next TCFD Report is available in Q2 2021. Read the current version at www.standardlifeaberdeen.com/annualreport
In 2020, 93% of employees completed the online training module to confirm they had understood and would comply with the code. Where employees fail to complete mandatory training, we have taken steps to ensure that managers and HR are made aware. This has led to an improved completion rate for the updated module, launched in December 2020, with 99% completing this by the end of January 2021.
Scope 3: Working from home, business travel and transmission and distribution
Non-financial information statement Standard Life Aberdeen aims to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. This information is intended to help stakeholders better understand how we address key non-financial matters. This aligns with the work we already do in support of the Taskforce on Climate-Related Financial Disclosures, UN Global Compact and UN Sustainable Development Goals. Further details of the activities we undertake in supporting these frameworks are available on our website. Details of our principal risks and how we manage those risks are included in the Risk management section. Reporting requirement Relevant policies and publications Where to find more information
Employees Global code of conduct1 Non-financial information (page 28) Employee policies Our people (pages 22 to 23) Anti-bribery and corruption Non-financial information (pages 28 to 29) Human rights Human rights policy1 Non-financial information (page 29) Modern slavery statement1 Non-financial information (page 29) Social matters Social policies Our society (pages 24 to 27) Third party code of conduct1 Non-financial information (page 29) Other matters Business model Our strategy and business model (pages 9 to 13) Non-financial KPIs Our people (page 21) Non-financial information (page 28) 1 Group policy published on our website at www.standardlifeaberdeen.com/annualreport
Modern slavery statement In 2020 we continued to help tackle human trafficking, forced labour, bonded labour and child slavery. In total, 99% of UK and Europe colleagues completed training on modern slavery issues. We found no instances of modern slavery in our supply chain. However, we have robust processes in place which would allow any future issues to be escalated and remedied.
We further integrated considerations for tackling modern slavery into our investment process. This included implementing a global programme targeting companies in high-risk sectors and geographies. We have also used our expertise to support crossindustry, anti-modern slavery collaborations. Our 2020 statement and outcomes reinforce our commitment to this important issue, and it can be found on our website.
Human rights policy Our policy summarises our approach to identifying and upholding the human rights of our people, clients, communities and everyone impacted by our suppliers, partners and the companies we invest in. As an investor, we use our internally developed Human Rights Index to help identify high-risk geographies – and we have published position statements on integrating human rights into our investment approach. We assess the management of human rights impacts and, whenever appropriate, engage to highlight issues and promote good practice. We publish the outcomes of our ESG engagements with investee companies in a quarterly summary, which is available on our website.
Operating leverage In 2020, our cost/income ratio remained higher than our peers and we will continue to take action to reduce costs and improve the balance between fixed and variable costs. We are on track to deliver the targeted £400m of synergies and we continued to create further efficiencies in 2020 which will benefit in 2021. In particular our focus is to complete transformation, improving the operational leverage of our business through reductions in operational and technology costs and non-permanent staff, resulting in near term cost reductions. Specific actions also include reorganisations in the US and APAC to address those areas of lower contribution, and the proposed disposals of Parmenion and the Nordics real estate activity. As we move into revenue growth, we expect growth-related increases in certain costs but we will maintain the operating leverage created by the rebalanced cost base. Overall we are targeting to exit 2023 at a cost/income ratio of around 70%. As the transformation and separation processes complete towards the end of 2021, we expect to see a reduction in the associated restructuring charges from current levels to less than £50m in 2022.
2 Percentage of AUM above benchmark over three years. Calculations for investment performance are made gross of fees except where the stated comparator is net of fees. Further details about the calculation of investment performance are included in Supplementary information.
3 Excludes the share of associates’ and joint ventures’ profit before tax. 4 Net outflows excluding LBG do not include the tranche withdrawals relating to the settlement of arbitration with LBG. Refer to Glossary LBG tranche withdrawals.
Creating momentum for the future While the results for 2020 reflect the impact of declining revenue due principally to prior year outflows and market conditions, we have also seen evidence of positive momentum in our performance which will support the execution of the strategy.
• Investment performance drives success with our clients and has improved to 66% on the three year benchmark
• We have seen an 82% improved position in net outflows of £3.1bn (excluding LBG tranche withdrawals), as redemptions are significantly lower than the prior year
The IFRS profit before tax of £838m increased by 245% compared with 2019, reflecting lower impairments of goodwill and intangibles of £1.1bn (2019: £1.6bn) and increased profit on disposal of interests in associates of £1.9bn (2019: £1.5bn) which included the benefit of a £1.1bn one-off accounting gain.
Fee based revenue £1,425m £1,634m Investment performance2 66% 60% Cost/income ratio3 85% 82% IFRS profit before tax £838m £243m Adjusted profit before tax £487m £584m Adjusted capital generation £262m £333m Adjusted diluted earnings per share 18.1p 19.3p Full year dividend per share 14.6p 21.6p Diluted earnings per share 37.9p 8.8p
In 2020, the assets we manage for Institutional and Wholesale clients increased despite the market volatility as a result of COVID-19. We have maintained our focus on serving our clients globally, switching to digital channels to maintain relationships, providing continuing client service, launching products, generating sales and winning mandates. Our focus on delivering for clients is particularly evident through continued robust investment performance.
Fee based revenue £224m £317m Fee revenue yield 10.9bps 12.2bps AUM £205.2bn £235.8bn Gross inflows £17.6bn £26.9bn Redemptions excluding LBG3 (£24.5bn) (£30.3bn) LBG tranche withdrawals3 (£25.9bn) (£41.0bn) Net flows excluding LBG3 (£6.9bn) (£3.4bn)
Within Investments, Insurance comprises the assets we manage for Phoenix of £171.5bn, as well as those we manage for others, including Lloyds Banking Group. We have a deep understanding of the unique investment needs of insurance companies and a comprehensive range of investment solutions to meet their complex objectives.
As Phoenix’s core strategic asset management partner, we received a further £2bn of assets from bulk purchase annuity agreements during the year.
In April 2020, we introduced a simplified pricing structure on the Wrap platform to make it more competitive and attractive to advisers. With effect from April 2020, a Drawdown Price Lock feature, the first of its kind in the UK, was made available for Wrap clients. This innovative feature allows Wrap SIPP clients to lock in their platform charges so that the charges will not increase as they draw down on their savings. Our pricing actions on the Wrap platform in 2020 and on Elevate in 2019, combined with an enhanced digital offering have had a positive impact on the number of overall Platform users.
Fee based revenue £80m £70m Fee revenue yield2 58.5bps 59.2bps AUMA £13.3bn £12.8bn Gross inflows £1.1bn £1.1bn Redemptions (£1.1bn) (£1.0bn) Net flows – £0.1bn
AUM in Aberdeen Standard Capital reached a record level of £7.8bn at 31 December 2020 (2019: £7.1bn). The AUAdv for 1825 decreased to £5.5bn (2019: £5.7bn) due to the fall in UK equity markets.
Three-year investment performance saw further improvement during 2020, with 66% of assets under management covered by this metric ahead of benchmark. This reflects continued improvement in three-year performance within Equities and ongoing strong performance in Alternatives, Cash/Liquidity and the majority of Fixed income franchises.
Most Equity classes delivered an improvement over one, three and five years. There is ongoing strength in European, Small Cap and China A shares and in 2020 there was significant progress made in the performance of Global Emerging Markets and Japanese Equities. This is partly offset by weaker performance in Real estate and Quantitatives, reflecting challenging market conditions. Although Multi-asset performance declined overall, our Absolute Return suite continued to deliver strong investment performance.
Capital and Advice businesses. This double count is also removed within Eliminations.
Calculations for investment performance are made gross of fees except where the stated comparator is net of fees. Further details about the calculation of investment performance, AUMA and fee revenue yield are included in the Supplementary information section of this report.
Analysis of profit The IFRS profit before tax of £838m (2019: £243m) mainly reflects the profit on disposal of interests in associates partially offset by impairments of goodwill and intangibles. Adjusted profit before tax of £487m (2019: £584m) decreased by 17% largely due to the lower revenue.
Adjusted operating expenses Adjusted operating expenses decreased by 10% to £1,206m driven by the benefits of ongoing transformation activity, lower total staff costs, discretionary spend savings (including COVID-19 related savings) and lower change related spend.
Total non-staff costs reduced by £54m to £563m (2019: £617m) including a c£20m benefit from lower discretionary spend including travel and events during this period of COVID-19 restrictions, and also lower consultancy and change costs.
At 31 December 2020, actions have been taken which are expected to deliver £351m of annualised synergies, benefiting 2020 operating expenses by £287m (2019: £234m) with further benefits expected in 2021. Cost synergies have been realised from a reduction in staff costs, rationalisation of premises, and efficiencies in supplier spend, including procurement and other actions to avoid cost increases the benefits of which are not included in the £287m above. We remain on track to meet the overall synergy target of £400m in 2021.
• Reduced net finance costs of £17m (2019: £18m) • Reduced net interest credit relating to the staff pension schemes of £20m (2019: £29m) reflecting a lower discount rate
Asset management associates and joint ventures We reduced our shareholding in HDFC Asset Management in December 2019 and in 2020. This was the main factor in the 23% reduction in adjusted profit to £44m (2019: £57m). Profitability was also impacted by adverse movements in exchange rates and market conditions.
Our percentage ownership of HDFC Asset Management at 31 December 2020 was 21.24% (2019: 26.91%) and the value of our holding at 5 March 2021 was £1.4bn.
Phoenix 1.0 14.42 163 19.97 136 HDFC Life3 1.3 8.89 19 14.73 36 HASL 50.00 21 50.00 17 Total 2.3 203 189 1 Listed value as at 5 March 2021. 2 Ownership as at 31 December. 3 From 3 December 2020, HDFC Life is no longer classified as an associate of the
Our share of HASL profits increased to £21m mainly due to favourable investment returns.
The lower share of HDFC Life profits primarily reflects the reduction in our shareholding following the combined sales of 5.83% in 2020. Following the share sale on 3 December 2020, our remaining shareholding in HDFC Life is no longer classified as an associate of the Group. See Note 16 of the Group financial statements for further details.
The impairment of associates and joint ventures of £45m relates to our joint venture with Virgin Money.
Other adjusting items of £86m primarily relates to Insurance associate and joint ventures, largely reflecting our share of Phoenix gains relating to the acquisition of ReAssure.
Taxation Our approach to tax plays a significant role in supporting our purpose. Our tax strategy is guided by a commitment to ethical, legal and professional standards and being open and transparent about what we are doing to meet those standards.
The total IFRS tax credit attributable to the profit for the year was £15m (2019: £28m expense), resulting in an effective tax rate of negative 2% on the total IFRS profit (2019: positive 12%). The effective tax rate is lower than the UK corporation tax rate of 19% due mainly to the sale of shares in HDFC Asset Management being subject to tax in India at a lower rate than the UK corporation tax rate and the sales of shares in HDFC Life not giving rise to tax in India due to reliefs available under India’s tax legislation and international tax treaties. In addition, the gain relating to the HDFC Life reclassification did not give rise to a tax charge. These factors are partially offset by impairment losses on goodwill which are not deductible for tax purposes.
Capital and liquidity Our strong capital position and balance sheet supports ongoing investment in the business and delivering shareholder returns.
Adjusted profit after tax 411 469 Less net interest credit relating to the staff pension schemes (20) (29) Less associates’ and joint ventures’ adjusted profit after tax (209) (200) Add associates’ and joint ventures’ dividends received 80 93 Adjusted capital generation 262 333
In addition to the adjusted capital generation, £0.9bn of additional capital was generated in 2020 through the sale of shares in HDFC Life and HDFC Asset Management. The £2.3bn indicative capital surplus below includes a deduction to allow for the final dividend which will be paid in May 2021.
Other in 2020 includes a £0.5bn increase relating to HDFC Life following our shareholding falling below 10%.
Note 46 of the Group financial statements includes a reconciliation between IFRS equity and surplus regulatory capital and also details of our capital management policies.
IFRS net cash inflows Net cash inflows from operating activities were £56m which includes outflows from restructuring costs, net of tax, of £232m.
The principal defined benefit staff pension scheme, which is closed to future accrual, continues to have a significant surplus of £1.5bn (2019: £1.1bn), with the increase resulting from asset returns and non-economic assumption changes offset by changes in economic assumptions. See Note 34.
Financial investments increased to £3.1bn (2019: £2.1bn) as a result of HDFC Life being reclassified from an associate to an investment. Financial investments also include holdings of £277m (2019: £275m) in newly established investment vehicles which the Group has seeded and co-investments of £86m (2019: £84m). Additional detail is provided in Note 38.
Earnings per share Adjusted diluted earnings per share reduced by 6% to 18.1p (2019: 19.3p). This reflects the 12% reduction in adjusted profit after tax, partly offset by the benefit of 6% from the ongoing share buybacks. Diluted earnings per share increased to 37.9p (2019: 8.8p).
Return of capital and distributable reserves On 7 February 2020, we announced a share buyback of up to £400m. We completed this buyback in February 2021, with 158m shares repurchased at an average price of £2.53 per share.
At 31 December 2020 Standard Life Aberdeen plc had £2.1bn (2019: £2.3bn) of distributable reserves.
The Group’s prospects are primarily assessed through the strategic and business planning process which considers our business model and how this is designed to deliver efficient, sustainable growth. The assessment also reflects the Group’s strategic priorities as set out on pages 10 to 11.
In forming this assessment, the Directors have also taken into account: • The Group’s strong regulatory capital position as set out on page 36
• The Group’s holdings in listed associates and other listed equity investments as set out on page 34
• The Group’s principal risks as set out on pages 38 to 40
Assessment of prospects The Directors consider the Group’s focus on delivering on its strategic priorities will provide the environment to drive efficient, sustainable growth while maintaining the Group’s strong capital position and the dividend policy described on page 31.
Stress testing and scenario analysis applies severe, and in some cases extreme, stresses to the business plan to understand the financial resilience of the business.
The Group had sufficient liquid resources to withstand all of the stresses and the extent of management actions required in those scenarios with regulatory capital shortfalls was moderate given the strength and quality of the Group’s financial position. The Group also has a diverse range of management actions available to respond to stressed conditions. This includes management actions wholly within the Group’s control and of sufficient scale to ensure that none of the scenarios explored threatened the Group’s viability.
A reassessment of reverse stress tests performed in prior years was also undertaken to confirm there has been no material increase in risks to viability.
• Second line: Oversight from our Risk and Compliance function, which reports to the Chief Risk Officer
• Third line: Our Internal Audit function, reporting to the Chief Internal Auditor, independently verifies our systems of control
• Extending the Senior Manager and Certification Regime across all of our UK regulated subsidiaries including the roll-out of training on conduct rules and other support for our senior managers and certified employees
We have strengthened our capital and liquidity positions, while also returning capital to our shareholders through our buyback programme.
The UK’s withdrawal from the EU caused political and commercial uncertainty in 2020 though we had prepared extensively for the UK’s exit. This has been partly addressed by the Trade and Cooperation Agreement although questions still remain about the longer-term UK/EU relationship for financial services. We also continue to closely monitor developments and actively engage with industry groups, including the Investment Association.
ESG risks We have a responsibility to shareholders, clients and all stakeholders to assess, report on, manage and mitigate our ESG risks. For ‘Environment’, risks are primarily related to climate change and these are an important aspect of integrating ESG considerations in our portfolio management activities. In addition, we continue to review climate-related risks and manage our own business impact on climate change. Our TCFD report provides further discussion. For ‘Social’, our risks primarily relate to our people engagement, wellbeing, development and diversity and inclusion. For ‘Governance’, our risks primarily relate to corporate governance, conduct, ethics and cyber-crime. These ESG risks are discussed further under Principal risks and throughout the Annual report and accounts. We have a materiality review every 2-3 years to ensure we are focusing on the right ESG risks and issues. Our latest review is included in our 2019 Corporate sustainability report.
Principal risks and uncertainties The risks we face as a business have as much to do with our actions and approaches internally, as they do with the external environment. These risks fall into 12 areas that form the basis of our ERM framework. This framework gives us the structure to assess, monitor, control and govern the risks in our business. Principal and emerging risks are subject to active oversight and robust assessment by the Board, and the principal risks are described in the following table.
Our new CEO and the executive leadership team (ELT) have developed a three year strategic plan, focusing on our vectors of growth. Our ability to deliver for clients will depend on the progress we make against this plan.
We actively scan and assess emerging risks so that we can take timely and proportionate action.
2 Financial risk This is the risk of having insufficient resources, suffering losses from adverse markets or the failure or default of counterparties. It could be influenced by inflows and outflows, global market trends, as well as margins on investment mandates, platforms and wealth management services. For example, we have seen revenues impacted by reducing margins on flows.
Our capital and liquidity position remains strong despite the economic effects of the pandemic. As a result of the impact of COVID-19 and achieving transformation milestones we have reduced non-staff costs.
3 Conduct risk Our business relies on our ability to deliver fair client outcomes. There is a risk that we fail to achieve this in our strategies, decisions and actions which could lead to customer and client harm, reputational damage and loss of income.
In response to COVID-19 we prioritised running our business with minimal client impact while maintaining an effective control environment for remote working.
Our ERM framework supports the management of conduct risk with clear expectations around conduct goals and responsibilities. In 2020 we refreshed our Global Code of Conduct, for all employees.
With the impact of COVID-19 we engaged closely with our regulators throughout 2020 and were able to provide assurance around our ability to serve our customers and clients without interruption. The risk of regulatory uncertainty arising from Brexit was another important issue to manage.
This is the risk that processes, systems or external events could produce operational errors. During 2020 there was a rise in events requiring investigation and remediation. This has not led to material adverse impact on clients.
We dealt with potentially important systems outages using established incident management processes. Senior risk committees have been reviewing the impact of COVID-19 on these processes.
There is a risk that our technology may fail to adapt to business needs. There is also a risk of unauthorised users accessing our systems, and of our systems being subject to cyber attacks.
Our current IT estate is complex and will remain so until separation from Phoenix is complete. Our dependence on third party suppliers also needs to be managed in a dedicated way. 2020 only saw minor disruptions to service and improvement plans are now in place.
We continue to enhance our operational resilience framework and strengthen our response to disruption. Business continuity and contingency planning processes are regularly reviewed and tested, and have enabled us to minimise disruption for people working from home. We also implemented protective controls to allow critical workers to be in our offices.
9 Fraud and financial crime As a business that handles clients’ money we are exposed to the risk of fraudulent and dishonest activity.
Along with other asset managers, a small number of our products were cloned by fraudsters. We worked with the financial authorities and industry peers to assist those who had been targeted by these scams.
10 Change management This is the risk of failing to manage strategic and operational change initiatives effectively. In 2020 we closely monitored and managed the impact of the pandemic on transformation timelines, particularly around technology infrastructure.
We continued to implement significant change projects relating to embedding ESG principles and the discontinuation of LIBOR. We also maintained a focus on managing the impact of our transformation activity and the associated costs.
We manage major change projects centrally, with clear governance processes and consolidation of our change workload. Second and third lines have clear roles in overseeing progress, and we deliver projects in ways that help us to protect client outcomes.
11 Third party management We outsource activities to suppliers with specialist capabilities which means we are exposed to the risk of third parties failing to deliver in line with contractual obligations. It’s our responsibility to make sure these firms deliver, so we continue to streamline delivery and reduce complexity.
Our Third Party Code of Conduct requires third parties to acknowledge their best practice responsibilities.
Contents 2. Board of Directors .........................................................................................................................................................44 3. Corporate governance statement .................................................................................................................................48 3.1 Audit Committee report .......................................................................................................................................59 3.2 Risk and Capital Committee report .....................................................................................................................66 3.3 Nomination and Governance Committee report .................................................................................................70 3.4 Directors’ remuneration report ............................................................................................................................73 4. Directors’ report ............................................................................................................................................................96 5. Statement of Directors’ responsibilities ......................................................................................................................103 43Standard Life Aberdeen 2020
Sir Douglas’ wide-ranging international and financial experience is an important asset to the business as it delivers against its strategy. His strong track record of board leadership as a chairman helps to facilitate open and constructive boardroom discussion.
Previously, Sir Douglas served as chairman of HSBC Holdings plc from 2010 to 2017. For 15 years prior to this he was HSBC’s group finance director, joining from KPMG where he was a partner. Between 2005 and 2011 he also served as a non-executive director of BP plc.
Stephanie was appointed Chief Financial Officer on joining the Board in June 2019. She is a highly experienced financial services practitioner with significant sector knowledge, both technical and commercial. She brings experience of working with boards and management teams of financial institutions in respect of financial and commercial management, reporting, risk and control frameworks and regulatory requirements.
Stephanie is an associate of the Association of Corporate Treasurers. She holds a Bachelor of Laws (LLB) from the University of Edinburgh.
She is also a member of the Institute of Chartered Accountants of Scotland and served as the chair of its audit committee.
Stephanie Bruce – Chief Financial Officer 44 Standard Life Aberdeen 2020
John’s previous roles in asset management, his experience in the US and Asia and his background in finance, operations and technology, are all areas of importance to our strategy. John’s experience is important to the Board’s discussions of financial reporting and risk management, and in his role as Chair of our Audit Committee.
John was appointed a Director of Standard Life plc in July 2016. From April 2015 until August 2016, he was nonexecutive Chairman of Standard Life Investments (Holdings) Limited.
He is non-executive chairman of Credit Suisse International, Credit Suisse Securities (Europe) Limited and a nonexecutive director of Citco Custody Limited and Citco Custody (UK) Limited.
In his executive career, Brian has worked for IBM, Crosfield Electronics and Dell before serving as chief executive officer of T-Mobile UK and then managing director of Amazon.co.uk. As a nonexecutive director, Brian has served on the boards of AO.com, the BBC, Celtic Football Club PLC, Computacenter PLC and S3 PLC, and as chair of ASOS PLC.
He holds an MA (Hons) in Economic History and Politics from the University of Glasgow.
Martin provides broad commercial insight into strategy and risk to the Board, and to his role as Chair of our Risk and Capital Committee. He has particular knowledge of enterprise-wide risk management. His actuarial and strategic consultancy background brings a strong understanding of what drives success in the markets in which we operate.
Martin was appointed as a Director of Standard Life plc in September 2013. He is also chairman and non-executive director of Faraday Underwriting Limited – where he sits on the audit and risk committee, and chairs the nomination and remuneration committee. In 2021 he was appointed chairman and nonexecutive director of AIG Life Limited, as well as becoming a member of its audit committee and chair of its remuneration committee.
Martin holds an MA in Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries and a Fellow of the Institute of Directors.
Cathi is managing partner of Hamilton White Group, LLC which offers advisory services, including business development, to companies in financial services growth markets. In addition, she is managing partner of Soho Venture Partners Inc, which offers third-party business advisory services.
Previously, Cathi was lead director of E*Trade Financial Corporation, nonexecutive director of Kapitall Holdings, LLC and president and chief executive officer of ProAct Technologies Corporation. She was also a nonexecutive director of Federal Home Loan Bank of New York – where she was a member of the executive committee, and vice chair of both the technology committee and the compensation and human resources committee.
Cecilia brings great insight from operating in leadership positions in international financial markets. Her knowledge and many years of direct experience of risk management and insurance investment management are of great benefit to the work of the Board.
Jutta was appointed a non-executive director of Aberdeen Asset Management PLC in January 2013. She is a nonexecutive director of JPMorgan European Investment Trust plc and chair of its audit committee. In addition, she is a non-executive director of NKT A/S and Nilfisk Holding A/S, and chairs the audit and remuneration committees of both organisations. She is also a member of the supervisory board of BBGI SICAV S.A, where she chairs the audit committee.
The Corporate governance statement and the Directors’ remuneration report, together with the cross references to the relevant other sections of the Annual report and accounts, explain the main aspects of the Company’s corporate governance framework and seek to give a greater understanding as to how the Company has applied the principles and reported against the provisions of the UK Corporate Governance Code 2018 (‘the Code’).
Oversight of culture The Board and the Nomination and Governance Committee play an important role in overseeing how the Group assesses and monitors the culture evident within the business and how the desired behaviours are embedded across the Group and contribute to its success. ‘Building a culture of curiosity and ownership’ and the activities to support it are covered on pages 22 and 23. The ELT reviewed the Group’s internal culture document – the Blueprint – which was updated to reflect the input of Stephen Bird as incoming CEO – to make sure that it remained aligned with the Company’s evolving purpose and strategy, and also some of the lessons learned from different ways of working during the pandemic, such as increased collaboration spaces being available when we are able to return to working in the office. The Nomination and Governance Committee has asked that measures are developed during 2021 to monitor and assess culture consistently across the Group. In addition, page 26 includes a summary of the charitable actions taken to support local communities during the pandemic.
Engaging with investors The Investor Relations and Secretariat teams support the direct investor engagement activities of the Chairman, CEO, CFO and, as relevant, Committee chairs. During 2020, and within COVID-19 restrictions, there was a programme of domestic and international meetings with investors and analysts. The wide range of relevant issues discussed included CEO succession, progress on transformation, business strategy, financial performance, operational activities and corporate governance, including diversity and inclusion. The Chairman, CEO and CFO bring relevant feedback from this engagement to the attention of the Board. Following his appointment as CEO, Stephen Bird undertook a specific programme of engagement to meet with, and introduce himself to, major institutional investors. Prior to recommending the revised remuneration policy to shareholders at the 2020 Annual General Meeting, the Remuneration Committee Chairman also consulted extensively with major institutional investors regarding the design of the Company’s executive remuneration plans.
To give all shareholders easy access to the Company’s announcements, all information reported via the London Stock Exchange’s regulatory news service is published on the Company’s website. The CEO and CFO continue to host formal presentations to support the release of both the full year and half year financial results with the related transcript and webcast available on the Company’s Investor Relations website www.standardlifeaberdeen.com/annualreport The 2020 Annual General Meeting was held in Edinburgh on 12 May 2020. As a consequence of COVID-19 restrictions, no more than two people were permitted to assemble publicly and so shareholders were not able to attend in person. The meeting took place with the CEO and the Company Secretary present as members. Shareholders were invited to submit questions in advance of the meeting and the Chairman recorded a video presentation which addressed the main themes of the questions raised. The CEO also recorded a presentation providing a business update, including an overview of the COVID-19 response planning. Both videos were posted on the Company’s website on the day of the AGM. The results were made available on the website the same day. 49% of the shares in issue were voted and all resolutions were supported although resolution 16 did not reach the necessary threshold to pass as a special resolution. Investor feedback made it clear that the lack of support was in relation to the interpretation that the proposed changes to the Company’s Articles of Association would allow the Company to hold virtualonly meetings. To emphasise, neither the current nor proposed 48 Standard Life Aberdeen 2020
Statement of application of and compliance with the Code For the year ended 31 December 2020, the Board has carefully considered the principles and provisions of the Code (available at www.frc.org.uk) and has concluded that its activities during the year and the disclosures made within the Annual report and accounts comply with the requirements of the Code. The Corporate governance statement also explains the relevant compliance with the Disclosure Guidance and Transparency Sourcebook. The table on page 102 sets out where to find each of the disclosures required in the Directors’ report in respect of Listing Rule 9.8.4 R.
Stakeholder engagement Recognising their obligations under the Companies (Miscellaneous Reporting) Regulations 2018, the Annual report and accounts explains how the Directors have complied with their duty to have regard to the matters set out in section 172 (1) (a)-(f) of the Companies Act. These matters include responsibilities with regard to the interests of employees, suppliers, customers, the community and the environment, all within the context of promoting the success of the Company. The table on pages 50 to 51 sets out the Board’s focus on its key relationships and shows how the relevant stakeholder engagement is reported up to the Board or Board Committees. During 2020, the means to deliver effective engagement needed to be adjusted to reflect the impact of COVID-19, but was done so successfully.
The Board pays particular attention to the interests of the Company’s 1.1 million individual shareholders who hold more than one third of the Company’s issued shares. Given the nature of this large retail shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model followed for institutional investors. Shareholders are encouraged to receive their communications electronically and around 410,000 shareholders receive all communications this way. The Company actively promotes self service via the share portal and over 450,000 shareholders have signed up to this service. Share portal participants can maintain their personal details and dividend instructions online, and view and download personal documents such as statements and tax documents. Shareholders have the option to hold their shares in the Standard Life Aberdeen Share Account where shares are held electronically in a secure environment and around 90% of individual shareholders hold their shares in this way.
To give all shareholders easy access to the Company’s announcements, all information reported via the London Stock Exchange’s regulatory news service is published on the Company’s website. The CEO and CFO continue to host formal presentations to support the release of both the full year and half year financial results with the related transcript and webcast available on the Company’s Investor Relations website www.standardlifeaberdeen.com/annualreport The 2020 Annual General Meeting was held in Edinburgh on 12 May 2020. As a consequence of COVID-19 restrictions, no more than two people were permitted to assemble publicly and so shareholders were not able to attend in person. The meeting took place with the CEO and the Company Secretary present as members. Shareholders were invited to submit questions in advance of the meeting and the Chairman recorded a video presentation which addressed the main themes of the questions raised. The CEO also recorded a presentation providing a business update, including an overview of the COVID-19 response planning. Both videos were posted on the Company’s website on the day of the AGM. The results were made available on the website the same day. 49% of the shares in issue were voted and all resolutions were supported although resolution 16 did not reach the necessary threshold to pass as a special resolution. Investor feedback made it clear that the lack of support was in relation to the interpretation that the proposed changes to the Company’s Articles of Association would allow the Company to hold virtualonly meetings. To emphasise, neither the current nor proposed
Articles would allow the Company to hold a virtual-only AGM. The proposed change was to allow electronic participation in a physical meeting.
At present, we do not expect the COVID-19 restrictions to have eased sufficiently to allow shareholders to be able to attend this year’s AGM in person. Instead shareholders will be able to view the AGM live by webcast. Questions can be submitted in advance or during the meeting and Directors will respond to as many questions as possible during the meeting.
The AGM guide 2021 will be published online at www.standardlifeaberdeen.com in advance of this year’s meeting. The voting results, including the number of votes withheld, will be published on the website at www.standardlifeaberdeen.com after the meeting.
The BEE group continued to operate and met four times in 2020. Employees attending these meetings included: • The UK employee representative forum • Representatives of all the employee networks (Unity, YPDN,
• The Diversity and Inclusion Team to discuss how they are taking forward employee engagement matters, including those arising from the Viewpoints survey
• The Sustainability team, to consider how operational ESG and climate change initiatives and charitable initiatives are being taken forward, and how charitable initiatives were focused on local needs in the light of the COVID-19 pandemic
During 2020, Melanie also met the chairs of all of the employee networks on a 1:1 basis. At these meetings, the network chairs responded to her ask of ‘one request’ which the networks wanted the Board to be aware of from their perspective. The results of these meetings were reported to the Board and the Board was supportive of the resulting actions which included the NEDs giving further masterclasses on their careers and each network being able to present directly to the Board.
At each Board meeting, Melanie gives a formal report on BEE activities, including the issues that have been raised through the discussions, and the Board considers how the ELT, in particular the Chief HR Officer, the Chief Brand, Marketing and Corporate Affairs Officer and the COO, are taking forward the points raised.
The BEE programme will continue in 2021, adjusted to take account of COVID-19.
• The Chairman meets with key clients at international conferences and industry membership boards where he represents the Group
• The Board members feed into Board discussions feedback received directly from clients
• The heads of the Growth Vectors report at Board meetings on key client engagement, support programmes and client strategies
• Market share data and competitor activity are routinely reported to the Board
• Analysis of successes and failures on client proposals is reported to the Board
• Investment processes are driven by understanding client needs and designing appropriate solutions taking into account client risk appetite and sophistication
• Employee engagement NED in place and active with the employee diversity networks as well as with all employees through their representatives. Reports from the BEE NED are a standing report at each Board meeting.
• Chairman and NEDs all mentor one or two CEO-1 or -2 level emerging talent
• CHRO reports to each Nomination and Governance Committee meeting on key hires and employee issues
Summary of Stakeholder engagement activities Under s.172, the Directors consider their responsibilities to stakeholders in their discussions and decision-making.
• The CEO meets regularly with key clients (virtually when pandemic restrictions are in place) and reports to the Board on such meetings
• The CEO takes part in key client pitches to hear directly from clients on their requirements (again virtually when pandemic restrictions are in place)
• The creation of the Growth Vectors was designed to position the business around client needs with performance accountability measured on that basis
• Meet the NEDs town hall sessions and NED engagement dinners for a diverse mix of staff at all levels (when permitted) allow direct feedback in informal settings
• CEO leads on relationships with key business partners and reports back to the Board
• Risk and Capital Committee routinely reviews dependency on critical suppliers and how they are managed
• The Board received detailed papers supporting the outsourcing of a number of technology services, the renegotiation of the Group’s contracts with FNZ in relation to the Platforms business and the revisions made to the Group’s relationship with Phoenix
• Supplier surveys undertaken • Tendering process include smaller level firms • Access and audit rights in place to key suppliers • Modern slavery compliance process in place • Procurement/payment principles in place • Certain key suppliers regularly discussed at Audit Committee, Risk and Capital Committee and Board
• The overriding guidelines for business partnerships have been established as working for both parties and creating world-class operations
• The Board sought assurance on the ability of key suppliers to continue to operate during the pandemic
• Chairman/EDs represent the Group on public policy and community organisations
• CEO has taken on detailed handling of the Phoenix relationship with regular meetings with his opposite number
• The development of our business through our relationships with Strategic partners is a critical element of the Board’s strategy
• Regular updates from the EDs/ Investor Relations Director/ Chairman/ Chairman of Remuneration Committee summarising the output from their programmes of engagement
• Publication of Shareholder News • Dedicated mailbox and shareholder call centre team
• Engagement supported various decisions including the proposed remuneration policy approved at the 2020 AGM
Speaking up The workforce has the means to raise concerns in confidence and anonymously. The Audit Committee’s oversight of the whistleblowing policy is covered in the Audit Committee report on page 64.
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 their 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.
Governance framework Board The Board’s role is to organise and direct the affairs of the Company and the Group in accordance with the Company’s constitution, all relevant laws, regulations, corporate governance and stewardship standards. The Board’s role and responsibilities, collectively and for individual Directors, are set out in the Board Charter. The Board Charter also identifies matters that are specifically reserved for decision by the Board. During 2020, the Board’s key activities included approving, overseeing and challenging: • The updated strategy and the 2021 to 2023 business plan to implement the strategy
• Oversight of culture, our standards and ethical behaviours • Dividend policy including the recommendation to pay the 2019 final dividend and approval of the 2020 interim dividend • Financial reporting, including the impact of the amortisation and impairment of intangibles acquired through acquisition • Risk management, including the Enterprise Risk Management
(ERM) framework, risk strategy, risk appetite limits and internal controls and in particular how this was adapted for COVID-19
Chairman • Leads the Board and ensures that its principles and processes are maintained • Promotes high standards of corporate governance • Together with the Company Secretary, sets agendas for meetings of the Board • Ensures Board members receive accurate, timely and quality information on the Group and its activities
• Leads the performance assessments and identification of training needs for the Board and individual Directors
Non-executive Directors (NED) The role of our NEDs is to participate fully in the Board’s decision-making work including advising, supporting and challenging management as appropriate.
Nomination and Governance Committee (N&G) • Board and Committee composition • Succession planning • Board appointments • Governance framework
Executive leadership team (ELT) The ELT supports the CEO by providing clear leadership, line of sight and accountability throughout the business. The ELT is responsible to the CEO for the development and delivery of strategy and for leading the organisation through challenges and opportunities.
Growth vectors Support the CEO to deliver Growth across the business: • Investments • Adviser • Personal
Talent Support the CEO and Chief Human Resources Officer (CHRO) in developing leading talent management and succession planning.
World-class operations Support the CEO and Chief Operating Officer (COO) by overseeing global functions and the delivery of functional priorities.
The Directors have access to the governance advice of the Company Secretary whose appointment and removal is a matter reserved to the Board.
The framework is formally documented in the Board Charter which also sets out the Board’s relationship with the boards of the key subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries refer to the Board or to a Committee of the Board for approval or consultation.
• Has a zero tolerance approach to unfair treatment or discrimination of any kind, both throughout the Group and in relation to clients and individuals associated with the Group
The letter of appointment confirms that the amount of time each non-executive Director is expected to commit to each year, once they have met all of the approval and induction requirements, is a minimum of 35 days. The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company’s registered address (which can be found in the Shareholder information section) and will be accessible for the 2021 AGM. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. Their letters of appointment confirm that their primary roles include challenging and holding to account the executive directors as well as appointing and removing executive directors.
External search consultants may be used to support Board appointments. MWM Consulting was engaged to support the appointment of Stephen Bird. The Group has additionally used the services of MWM Consulting to support other senior management searches.
As well as in Section 2, the AGM guide 2021 includes more background information about the Directors, including the reasons why the Chairman, following their annual reviews, believes that their individual skills and contribution supports their election or reelection.
You can read more about the Directors’ outside appointments in their biographies in Section 2.
Board effectiveness Review process The Board commissions externally facilitated reviews regularly. As the 2018 and 2019 reviews were facilitated externally, the Nomination and Governance Committee agreed that the 2020 review should be conducted internally.
• An increased programme of virtual Board training sessions/deep dives to make sure the Board remains up to date on wider industry and market matters, using external commentators and experts as relevant
• Creating more agenda time to discuss and measure ESG, Culture and Diversity and Inclusion, making sure they have a clear link to corporate strategy and its execution
Through these meetings, Jonathan Asquith sought feedback on: the Chairman’s overall leadership role; his relationships with the EDs and the NEDs; Boardroom behaviours; and any development areas to take forward in 2021.
Directors The Chairman met each Director individually to discuss their performance during 2020. These discussions considered individual training, development and engagement opportunities and any agreed development actions are taken forward by the individual Director together with the Company Secretary and the Chairman.
Director induction and development The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme takes their background knowledge and experience into account. If relevant, Directors are required to complete the FCA’s approval process before they are appointed and Directors self-certify annually that they remain competent to carry out this aspect of their role. These processes continue to adapt to meet evolving best practice in respect of SMCR.
• Focused technical meetings with internal experts on specific areas including investments, regulatory reporting, ESG, conduct risk, risk and capital management, and financial reporting
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 its Committees and to support them as they build their knowledge and strengthen their performance further. This process was particularly relevant in 2020 to support Stephen Bird’s induction as CEO.
When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group’s business. The Secretariat, Finance, Risk and Reward teams monitor relevant external governance and risk management, financial and regulatory developments and keep the ongoing Board training and information programme up to date. Specific Board and Committee awareness and deep-dive sessions took place on: • Platform transformation • Finance transformation • Technology strategy • LIBOR transition • The activity of the ESG investment team and the broader
5. Remuneration The Directors’ remuneration report (DRR) on pages 73 to 95 sets out the work of the Remuneration Committee and its activities during the year, the levels of Directors’ remuneration and the shareholder approved remuneration policy. The Company’s approach to investing in and rewarding its workforce is set out on page 87 of the DRR and in the Reward section of the Directors’ report on page 100. The Board believes that its remuneration policies and practices are designed to support strategy and longterm sustainable success. You can read about the policies and practices in the DRR.
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
• 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 Board’s view of its principal and emerging risks and how they are being managed is contained in the risk management section of the Strategic report on pages 38 to 40.
Directors • How the Company appoints and replaces Directors • Directors’ interests in shares
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. 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. Recognising that some Directors may have existing commitments they cannot change at very short notice, 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. All Directors are invited to attend Standing Committee meetings. The Standing Committee met once during 2020.
The Chairman is not a member of the Audit, Risk and Capital, or Remuneration Committees. He may attend meetings of all Committees, by invitation, in order to keep abreast of their discussions. The table below reflects the composition of the Board and Board Committees during 2020 and records the number of meetings and members’ attendance.
Executive Directors Stephanie Bruce 12/12 – – – – Stephen Bird4 5/5 – – – –
Former members Keith Skeoch (stood down on 31 August 2020) 8/8 – – – – Martin Gilbert (stood down on 14 May 2020) 4/4 – – – – 1 Brian McBride was appointed to the Board and Remuneration Committee on 1 May 2020. 2 John Devine stood down from the Remuneration Committee after the 2020 AGM. 3 Melanie Gee stood down from the Risk and Capital Committee after the 2020 AGM. 4 Stephen Bird was appointed to the Board on 1 July 2020.
The Committee Chairmen are happy to engage with you on their reports. Please contact them via questions@standardlifeaberdeenshares.com 3.1 Audit Committee report The Audit Committee assists the Board in discharging its responsibilities for financial reporting, internal control and the relationship with the External auditors. I am pleased to present my report as Audit Committee Chairman. A major role of the Committee in 2020 was to consider the impact of COVID-19 on financial reporting, particularly on the Half year results 2020, and internal controls. During the year the Committee also: • Considered the carrying value of intangible assets, in particular asset management goodwill and customer relationship intangibles
The report is structured in four parts: 1. Governance 2. Report on the year 3. Internal audit 4. External audit
Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive Officer, the Chief Financial Officer, the Group Financial Controller, the Chief Internal Auditor and the Group Chief Risk Officer. The Audit Committee meets privately for part of its meetings and also has regular private meetings separately with the External auditors and the Chief Internal Auditor. These meetings address the level of co-operation and information exchange and provide an opportunity for participants to raise any concerns directly with the Committee.
• The findings of its reviews of the financial information in the Group’s annual and half year financial reports
• The clarity of the disclosures relating to accounting judgements and estimates
• The findings of its review of key Group prudential returns and disclosures
In accordance with the Senior Managers and Certification Regime the Audit Committee Chairman is responsible for the oversight of the independence, autonomy and effectiveness of our policies and procedures on whistleblowing including the procedures for the protection of employees who raise concerns related to 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.
• Internal audit findings • CASS reporting update • Pillar 3 regulatory reporting • Initial financial reporting matters for Half year 2020 • Financial crime and Whistleblowing
The Committee members did not raise any material issues or concerns regarding the above areas or the overall effectiveness of the Committee during 2020. They were very supportive of the Chair’s effective role in leading the Committee through the volume of technical papers. The Committee members always aim to find the right balance in their discussion time to make sure that, while they cover technical financial and regulatory reporting to the appropriate level, they are also able to spend enough time considering all of the other matters under their remit. The Committee also recognised the ongoing external changes in relation to audit reform and the provision of audit services and will consider any changes/best practice that may arise from this.
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2020 Group financial statements. This year there were no new accounting standards which had a significant impact on the Group accounting policies.
In addition, the Committee considered the form of the viability statement and in particular whether the three-year period remained appropriate, and concluded that it did. This reflects both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee considered the result of stress testing and reverse stress testing presented to the Risk and Capital Committee. The Committee recommended the viability statement to the Board.
The Committee discussed the impact of COVID-19 on the Annual report and accounts 2020 and Half year results 2020 production process, and supported the steps put in place by management to ensure that controls were maintained and that the timetables remained appropriate for a remote working environment.
Accounting estimates and judgements The Audit Committee considered all estimates and judgements that Directors understood could be material to the 2020 financial statements. The Committee also focused on disclosure of these key accounting estimates and judgements.
The half year 2020 impairment review of asset management goodwill resulted in the recognition of an impairment of £915m. The Committee spent time at two meetings reviewing and challenging assumptions relating to the fair value, less costs of disposal, of the asset management cash-generating unit. The Committee considered a number of different valuation approaches, and discussed that the key assumptions relating to the earnings multiple valuation approach were projected forecasts of maintainable earnings, price to earnings multiples, and premiums for control and discounts for lack of liquidity. The Committee considered these assumptions were within the range of reasonable outcomes. See Note 15 for further details.
UK defined benefit pension plan In compiling a set of financial statements, it is necessary to make some judgements and estimates about outcomes that are dependent on future events. This is particularly relevant to the defined benefit pension plan surplus which is inherently dependent on how long people live and future economic outcomes.
Note 34 of the Group financial statements provides further details on the actuarial assumptions used, and sets out the impact of mortality, discount rate and inflation sensitivities. Note 34 also provides details on the accounting policy applied and accounting policy judgements relating to the Group’s assessment that it has an unconditional right to a refund of a surplus, and the treatment of tax relating to this surplus.
Investments in associates During 2020 the Group’s associate Phoenix issued new shares relating to the acquisition of ReAssure Group plc, which resulted in the Group’s holding in Phoenix of 19.97% becoming 14.4% of the enlarged group. Determining whether Phoenix should continue to be classified as an associate was a critical accounting policy judgement during 2020.
Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.
The Committee considered the proposed assumptions taking into account market data and information from pension scheme advisors. In relation to inflation the Committee considered the long-term gap between the Retail Price Index (RPI) and the Consumer Price Index (CPI), as pensions in payment are generally linked to CPI, taking into account recent government announcements relating to the future of RPI.
The Committee noted that following the sale of HDFC Life shares on 3 December 2020 we no longer had the right to appoint a director to the HDFC Life Board and therefore accounting as an investment was appropriate, giving rise to a significant increase in the carrying value (to fair value) and a significant gain in the 2020 income statement.
Fair, balanced and understandable The Committee supported the financial reporting team’s continued aim to draft the Annual report and accounts to be ‘fair, balanced and understandable’. A focus in 2020 was ensuring that the Strategic report appropriately explained risks relating to and impact of the COVID-19 virus.
Standard Life Aberdeen’s principles To create clarity around what Standard Life Aberdeen means when it talks of being fair, balanced and understandable, a set of principles was developed, which can also act as an organisational definition for each aspect: 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 Key Performance Indicators (KPIs) for the period are consistent with the key messages outlined in the Strategic report
Balanced ‘We are fully disclosing our successes, the challenges we have faced in the period, and the challenges and opportunities we anticipate in the future – all with equal importance and at a level of detail that is appropriate for our stakeholders’
• The level of prominence we give to successes in the year versus challenges faced is appropriate
Understandable ‘The language we use and the way we structure our report is helping us present our business and its performance clearly – in a way that someone with a reasonably informed knowledge of financial statements and our industry would understand’
• The layout is clear and consistent and the language used is simple and easy to understand (industry specific terms are defined where appropriate)
• There is a consistent tone across and good linkage between all sections in a manner that reflects a complete story and clear signposting to where additional information can be found
Activities • An Internal Review Group (IRG) is in place which reviews the
• Fair, balanced and understandable guidance was provided to all key stakeholders involved in the Annual report and accounts production process
• Three drafts of the Annual report and accounts 2020 were reviewed by the Audit Committee at three meetings. The Committee complemented its knowledge with that of executive management and the Internal and External auditors. An interactive process allowed each draft to embrace contributions.
We agreed to recommend to the Board that the Annual report and accounts 2020, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry.
Financial crime and whistleblowing Our people are trained via mandatory training modules to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee receives regular updates from the Head of Financial Crime who reports on compliance with the Group’s Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk. During 2020, the Committee reviewed the output of an internal audit on the anti-financial crime framework and it has continued to oversee the progress to implement the report’s recommendations.
The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal audit functions, the Committee directs the investigation. The Committee is satisfied that the Group’s procedures are currently operating effectively. The Committee Chairman reports to the Board on the updates the Committee receives.
controls reports) • Other reports required by a regulator or assurance services relating to regulatory returns • Sustainability reports audits/reviews • Fund merger assurance engagements, where the engagement is with the manager and the external auditor is also the auditor of the fund 64 Standard Life Aberdeen 2020
The Committee Chairman is the designated whistleblower’s champion and the Committee receives regular updates on the operation of the whistleblowing procedures (Speak Up) from the Conduct and Conflicts Oversight Manager. The anonymised reports include a summary of the incidents raised as whistleblowing, and information on developments of the arrangements in place, to ensure concerns can be raised in confidence about possible malpractice, wrongdoing and other matters.
3.1.3 Internal audit The role and mandate of the Internal audit function is set out in its Charter, which is reviewed and approved by the Committee annually. An exercise was undertaken during the year to benchmark Internal audit resources, with increased consideration of how audit assurance activity across the Group is aligned and coordinated, avoiding gaps and overlaps. Whilst Internal audit maintains a relationship with the External auditors, in accordance with relevant independence standards, the External auditors do not place reliance on the work of Internal audit.
The Internal Audit plan is reviewed and approved by the Committee annually, but is flexed during the year to respond to internal and external developments. The function’s coverage aligns to the Group’s activities and footprint, taking account of local Internal Audit requirements. As a result of COVID-19, the audit plan year was adjusted to support a full programme of COVID-19 related audit work, ahead of a transition to a revised plan. Key areas of focus over the year were operational resilience, conduct and the Group’s Transformation programme.
The Committee formally assess the effectiveness of the function via a scorecard, which is aligned to the Group’s objectives, along with assessing its independence and quality assurance practices. Independent external reviews are also undertaken at regular intervals. These have been positive and allow the function to continue to measure itself against best practice. Regular reporting is provided to the Committee to illustrate plan progress, and the status of implementation of recommendations. The Committee’s review of 2020 was positive and supports the continuous evolution and enhancement of the function.
The Internal Audit function completed its functional transformation programme in March 2020, subsequently launching an updated strategy focusing on quality, delivery, people, and stakeholders, underpinned by a number of pillars including digital.
3.1.4 External auditors The appointment The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG’s performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2021 AGM.
Auditor independence The Board has an established policy (the Policy) setting out which 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 revised FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services, and by setting out which non-audit services are permitted. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee’s prior approval. KPMG has implemented its own policy preventing the provision by KPMG of most non-audit services to FTSE 350 companies which are audit clients. There is a 70% fee cap on non-audit services to audit clients in place.
These include: • Audit related services, such as regulatory reporting • Investment circular reporting accountant engagements • Attesting to services not required by statute or regulation (e.g.
controls reports) • Other reports required by a regulator or assurance services relating to regulatory returns • Sustainability reports audits/reviews • Fund merger assurance engagements, where the engagement is with the manager and the external auditor is also the auditor of the fund
Further details of the fees paid to the External auditors for audit and non-audit work carried out during the year are set out in Note 8 of the Group financial statements.
Audit quality and materiality The Committee places great importance on the quality of the External audit and carries out a formal annual review of its effectiveness. This was particularly relevant in 2020 as both the Finance team and the External audit team had to overcome the challenges of remote working.
The Committee looks to the audit team’s objectivity, professional scepticism, continuing professional education and its relationship with management, all in the context of regulatory requirements and professional standards. Specifically: • The Committee discussed the scope of the audit prior to its commencement
• The Committee Chairman had at least monthly meetings with the lead audit partner to discuss Group developments
• The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See the discussion on materiality in the next paragraph for more detail.
The Committee discussed with KPMG how remote working would impact their audit and were satisfied that there would be no impact on audit quality.
We have discussed the accuracy of financial reporting with KPMG both as regards accounting errors that will be brought to the Committee’s attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. KPMG have set overall audit materiality at £25m (2019: £31m). This equates to approximately 2.7% of normalised profit before tax (as set out in the KPMG independent auditors’ report) and 5% of adjusted profit before tax. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, KPMG agreed to draw the Committee’s attention to all identified uncorrected misstatements greater than £1.25m (2019: £1.6m). The aggregated net difference between the reported pre-tax profit and the auditor’s judgement of pre-tax profit was less than £3m which was significantly less than audit materiality. The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors.
The overall risk environment for the Group remains at an elevated level as a result of the combination of the difficult market environment and our ongoing business transformation activity.
Group • Work to develop our approach to managing cyber resilience in line with the US National Institute of Standards and Technology (NIST) framework
• The Group’s exposure to climate change and management of related risks and opportunities
Membership All members of the Risk and Capital Committee are independent non-executive Directors. For their names, the number of meetings and committee member attendance during 2020, please see the table on page 57.
The role of the Committee is to provide oversight and advice to the Board, and where appropriate, the board of each relevant Group company on: • The Group’s current risk strategy, material risk exposures and their impact on the levels and allocations of capital
3. Corporate governance statement continued 3.2 Risk and Capital Committee report I am pleased to present my report as Chairman of the Risk and Capital Committee. The Risk and Capital Committee supports the Board in providing effective oversight and challenge of risk management and the use of capital across the Group so as to ensure that we meet the expectations of our shareholders, regulators and clients.
Key responsibilities The Company’s purpose results in exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these risks and uncertainties are key to fulfilling this purpose.
• Ongoing activity to enhance and develop Standard Life Aberdeen’s ERM framework, for example the Risk Appetite and Policy frameworks
• Minutes from those non-executive risk committees that operate in Standard Life Aberdeen plc’s directly-held subsidiaries
Brexit • The FCA Focus on Non-financial Misconduct and reviewing Standard Life Aberdeen’s approach and activity in relation to the FCA's 5 Conduct Questions
• Monitoring of risks related to overall transformation and integration activities
• Review of Standard Life Aberdeen’s principal risks and risk disclosures for the Annual report and accounts
• Proposed changes to the risk appetite framework • Aberdeen Standard Investments’ approach to
• The management of IT obsolescence • Aberdeen Standard Investments’ portfolio advisory proposition • Climate risk in funds • Procurement transformation programme • Cyber resilience • Review of the roll-out of the Tripartite process to
ERM framework including risk policies and appetites Operational risks Conduct and compliance risks Capital adequacy Other controls (including transaction risk assessments)
Through reviewing this reporting the Committee supports the Board by monitoring risks relative to applicable risk appetites and the resilience of the capital position under current and stressed conditions. Key items that the Committee discussed during the year in this context included: • Risks that have emerged as a result of the global COVID-19 pandemic
Stress testing and scenario analysis performed in 2020 also supported the Committee in understanding, monitoring and managing the risk and capital profile of the business under stressed conditions. This provided a forward-looking assessment of resilience to potentially significant adverse events affecting key risk exposures and comprised: • Individual stresses – looking at stresses to a range of financial variables in isolation
Enterprise Risk Management (ERM) framework During the year the business continued to evolve the ERM framework used to identify, assess, control and monitor the Group’s risks.
Exceptions-based reporting is provided to the Committee through the Views on Risk report setting out any matters of significance in respect of the results of policy compliance reporting and actions being taken in response to risk events. These two items also support the Committee in performing its oversight of the ERM framework.
The Committee reviewed and proposed updates to the risk appetite framework to ensure that the risk appetites and risk limits reflected changes to the risk profile in view of the external environment and ongoing transformation of the business. In particular additional metrics for Operational Risk and Third Party Management were created to strengthen our management of impacts caused by the COVID-19 pandemic.
• Combined stress scenarios – looking at simultaneous stresses impacting on economic conditions, flows and idiosyncratic factors specific to the Group
Regulatory developments and compliance The Committee reviews and assesses regulatory compliance plans detailing the planned schedule of monitoring activities to be performed by the Risk and Compliance function to ensure there is appropriate coverage. Regular updates on key findings from regulatory compliance activity and progress against the plan were reported to the Committee through the Views on Risk report.
The Committee receives updates and minutes from these committees in order to maintain awareness and oversight of risks across the Group. The Committee also reviews the terms of reference for these committees in order to ensure their remit is suitably aligned. In addition to the Committee reviewing reporting from the subsidiary risk committees, arrangements also exist for the Committee’s Chairman to attend those subsidiary risk committees on request.
Key responsibilities: • Identifying and recommending Directors to be appointed to the
• Reviewing Board diversity, skills and experience • Supporting the process and output of the Board’s effectiveness review • Overseeing succession planning, leadership and talent management development and diversity levels throughout the Group
Employee engagement Melanie Gee has continued in her role as the non-executive Director (NED) taking forward employee engagement and you can read about those activities during the year on page 49. Although we had to make some changes to our engagement plans during 2020 as a result of COVID-19, Melanie’s direct communication with our employees continues to be both effective and well received.
Board and the Board Committees • Reviewing and assisting in the development and implementation of the Company’s culture, diversity and inclusion activities
• Considering how the Group should comply with developing corporate governance requirements, guidance and best practice and relevant directors’ duties
The Committee’s work in 2020 An indicative breakdown as to how the Committee spent its time is shown below: • Reviewed compliance with the UK Corporate Governance Code for the 2019 ARA
• Reviewed the continued appointment of Jutta af Rosenborg at the end of her second three-year term
• Received the half year update on the Culture, Diversity and Inclusion action plans
• Recommended the CEO succession process • Reviewed ELT succession planning • Reviewed progress on the recommendations from the 2019 Board effectiveness review • Reviewed the revised approach to 2021 ESG
An indicative breakdown as to how the Committee spent its time is shown below: Board appointments When seeking to make Board appointments, the Committee identifies the skills, experience and capabilities needed for particular Board roles. This recognises the need to secure a pipeline of potential successors to be able to chair the Board Committees, and also the need to plan ahead to take account of the length of time served on the Board by the current independent NEDs. In addition, it also recognises the skills which the Board will need as it moves forward to oversee the implementation of its approved strategy and takes account of the Group’s commitments to achieve and maintain its published Board diversity target.
The Committee also oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance – or continued appointment – is being considered. Jutta af Rosenborg’s continued appointment was reviewed during the year. This was her third term of appointment, taking account of her service on the Aberdeen Asset Management PLC Board and the Committee agreed that she continued to meet all independence and time commitment expectations.
Also during 2020, the non-executive Directors held specific private discussions on Board and executive succession, the results of which fed into the overall plan.
Chief Executive Officer succession As a result of the ongoing transformation strategy, the Committee recognised the need to plan for change and that the next stage of the Company’s evolution put a focus on accelerating delivery from global growth capabilities. Together with Keith Skeoch, the Committee spent time considering the executive leadership and succession planning needed to continue the delivery of this next phase of the Group’s strategy. In light of this, and the fact that working practices would need to be reshaped in the aftermath of the pandemic, the Board and Keith agreed that the time was right to hand over to his successor to enable that successor to plan and execute the necessary changes from the outset. With that agreement, the Committee oversaw the process to recruit a new CEO to succeed him. As a first step, the Committee agreed that the skills required of a new CEO included: • A leader who put the well-being of clients at the heart of what we do and appreciated the criticality of organisational culture in developing the business
• An influential strategic visionary leader who would be viewed as highly credible, particularly with the City and regulators
The Appointments Committee met three times during the process, reviewed the output from each of the above stages, and, taking account of the recommendation from the Remuneration Committee, agreed to recommend to the Board that Stephen should be appointed to succeed Keith Skeoch as CEO. Stephen’s across-the-board eligibility was unanimously endorsed by the Board and was reinforced by his enthusiasm for the role and the ambition he demonstrated to harness the talent within the Group to deliver for all stakeholders. Stephen’s appointment as Director and CEO designate was announced on 1 July 2020, subject to regulatory approval, which was obtained.
• A strong financial services and global markets background • A proven track record in business transformation, in particular to embed digital delivery • A proven global track record of business success, including expansion across Asia and North America • Someone ideally experienced in developing strong relationships with institutional and wholesale clients • Someone who understood the need to deliver strong returns for shareholders
Taking account of the need to comply with COVID-19 restrictions, the selection process then had the following stages: • Stephen was invited to meet individually with the members of the Appointments Committee, who challenged him on how he would deliver against the agreed role profile
Diversity and inclusion The Board’s diversity statement is on page 54. The Committee has a key role in supporting this through its oversight of diversity and inclusion activities. The Global Head of Diversity and Inclusion attends the Committee at least twice a year to report on progress on delivering against our action plans and initiatives.
• An overview of the 2020 remuneration outcomes and how we proposed to implement the remuneration policy in 2021
• The annual remuneration report, which sets out in detail how the remuneration policy was implemented in 2020
• A summary of our Directors’ Remuneration Policy on pages 92 to 95. The policy was approved at the 2020 AGM. No changes are proposed and so there will be no resolution for a vote on the Directors' Remuneration Policy at the 2021 AGM.
At a glance – 2020 remuneration policy implementation 77 2021 Remuneration policy implementation 78 2020 annual remuneration report 79 Shareholdings and outstanding share awards 82 Executive Directors’ remuneration in context 85 Remuneration for non-executive Directors and the Chairman
Executive Summary 2020 has been a year of change for Standard Life Aberdeen which has taken place against the background of the extraordinary societal and economic impact of COVID-19 and considerable market volatility.
Our new Directors’ Remuneration Policy was submitted at the 2020 AGM and approved by shareholders with 92% of the vote. I would like to thank shareholders for the strong level of support given to the policy and their continued dialogue on remuneration matters. The policy was designed to drive delivery of our strategy through a simple and transparent structure for executive remuneration with a focus on sustainable long-term performance.
During 2020, with integration following the merger between Standard Life and Aberdeen Asset Management well progressed, we launched the next phase of evolution of the Group aimed at developing and expanding its revenue base. To lead this next phase Stephen Bird was appointed to the role of Chief Executive Officer (CEO) Designate on 1 July 2020 and was appointed to CEO effective 1 September 2020, replacing Keith Skeoch. The remuneration aspects of this transition were handled in conformity with the new Directors’ Remuneration Policy.
2020 also brought changes on the non-executive Director front. Brian McBride joined the Board as a non-executive Director and we were happy to welcome him as a member of the Remuneration Committee from 1 May 2020.
Changes to the executive team and Board succession during 2020 On 30 June 2020 it was announced that Stephen Bird would be appointed as a Director of the Group and as Chief Executive Officer Designate (subject to regulatory approval) with effect from 1 July 2020. As detailed in that announcement Stephen Bird’s remuneration package comprises: • Base salary of £875,000
Keith Skeoch’s 12 month notice period commenced on 1 July 2020. He stepped down from the Board on 1 September 2020 when regulatory approval for Stephen Bird's appointment was received. Keith will serve as non-executive Chairman of Aberdeen Standard Investments Research Institute until the end of his notice period and during this time will continue to receive his base salary of £615,000 per annum as well as his benefits and allowances in line with the terms of his Executive Service Agreement. His bonus for the 2020 performance year has been pro-rated to 1 September 2020. He is not eligible for any further bonus or LTIP awards. His unvested deferred bonus and LTIP awards will continue to vest in line with the relevant plan rules on the original vesting dates and subject to the applicable performance measures. He will be subject to a post-employment shareholding requirement for two years post cessation of employment of 500% of salary.
Our performance in 2020 and alignment with remuneration Against a difficult market background in 2020, the business has experienced a decline in revenues which, alongside a reduced cost base (which still remains high in relation to income), resulted in a fall in adjusted profit before tax. Notwithstanding this, considerable momentum was gained from realigning the business around our three growth vectors, and reduced net outflows, climbing consultant ratings and improved investment performance in the year all set the stage for future growth, while major milestones in our transformation were also met. How our remuneration policy was applied in 2020 Annual bonus The 2020 executive Director bonus plan was designed in line with our Remuneration Policy to reward management for the efficient and timely execution of a stretching 12 month plan agreed with the Board, with a majority focus (75%) on financial performance targets. Non-financial performance objectives (20%) made up most of the balance, concentrating on the achievement of desired outcomes in our relationships with our customers and our people. The remaining 5% was reserved to reward the achievement of specific personal targets set for each of the executive Directors.
The key achievements are set out on pages 79 and 80 and summarised below, together with the range of factors considered by the Remuneration Committee in approving these outcomes.
• The balance of financial metrics in the scorecard has, however, resulted in performance behind target 74 Standard Life Aberdeen 2020
• Cash in lieu of pension of 18% of base salary and other benefits in line with the Directors’ Remuneration Policy
By the time that Stephen Bird joined us, the market disruptions caused by the pandemic had impacted income and changed the outlook for new business for the year, reducing substantially the chances of meeting a number of the financial and other targets set out in the annual bonus scorecard for the previous management team. He nonetheless elected, as a matter of principle, to be judged by the same scorecard as his new colleagues rather than insisting on a bespoke arrangement; as a result he received a bonus in line with the other Executive Directors despite delivering on all of the personal objectives agreed with the Board at the time of his recruitment.
2 Annual salary has been pro-rated to reflect the period of time spent on the Board. 3 Annual salary has been pro-rated to the date of departure.
Financial performance (75%) • There has been strong investment performance for our clients and customers, as well as effective execution in realisation of value from strategic shareholdings
• The balance of financial metrics in the scorecard has, however, resulted in performance behind target
• In particular, revenue weakness has driven poor results against cost/income ratio targets and shortfalls in annual profit progress in some areas of strategic importance
This has resulted in an overall assessment of 34.21% out of a maximum of 75% on financial measures.
Non-financial performance (25%) The non-financial measures included objectives around relationships with our People (10%) and our Customers (10%), both of which are important to the sustainability of our business.
• We made good progress in People objectives under our employee engagement target but fell short of our diversity targets
This has resulted in an overall assessment of 8.75% out of a maximum of 20% on non-financial measures.
Details on the Committee’s assessment of individual performance against personal objectives, which make up the final 5% of the bonus opportunity, are provided on page 80.
• The impact of the COVID-19 pandemic. This was reflected in reduced revenues for 2020, which directly impacted award outcomes via the scorecard. Note that aside from adapting some personal objectives, no remuneration measures or targets were adjusted as a result of the pandemic; nor was any application made for government support to mitigate the effects of COVID-19, while in the background the company increased its charitable giving and community engagement to support others affected by the pandemic.
• The mixed shareholder experience during 2020; our 1 year total shareholder return is ahead of all but one of our UK peers, but remains behind the majority of our overseas peers (using the same peer group that applied to the Executive Director 2020 Long Term Incentive Plan). There was a steadily improving share price performance after March 2020.
Stephanie Bruce – One-Off Deferred Award The Remuneration Committee assessed the performance condition around the vesting of the first tranche of the one-off deferred award made to Stephanie Bruce on her appointment as Chief Financial Officer (CFO) in 2019 and approved the vesting level at 100% of maximum. Further detail is included on page 82. As part of the due diligence process around this determination, the Remuneration Committee received an independent report from the Chief Internal Auditor prior to making their assessment, in line with previous undertakings to shareholders.
Keith Skeoch - Vesting of the 2018 Executive LTIP Keith Skeoch participated in the 2018 Executive LTIP, the outcome of which was dependent on the achievement of stretching performance conditions by reference to adjusted profit and net flows targets. On assessment of performance against these conditions, it was determined that the award did not meet the required thresholds against either of these measures and the award lapsed in full. Further details of the 2018 Executive LTIP can be found on page 82.
Policy implementation in 2021 This year the Committee has decided not to increase the salaries for the executive Directors or the fees for the non-executive Directors or the Chairman. This follows a Company-wide decision not to carry out a salary review at the beginning of 2021.
In line with the previous practice, we will continue to set stretching targets for the annual bonus and the LTIP to ensure that the maximum opportunity will only be earned for exceptional performance.
The scorecard for the 2021 annual bonus is detailed on page 78 and the targets, which are commercially sensitive, will be disclosed at the end of this performance year in the Annual report and accounts 2021. The scorecard retains the structure of focusing 75% of opportunity on the achievement of financial targets and 25% on the delivery of non-financial and personal objectives around people, customers, innovation and similar areas.
At a glance – 2020 remuneration policy implementation 2020 Outcome of the financial and non-financial performance metrics The following charts show performance against the target range for each of the financial and non-financial metrics which govern the annual bonus. Further detail on the assessment of the performance conditions can be found on pages 79 and 80.
2020 annual bonus scorecard outcome The following table sets out the final outcome for the 2020 annual bonus, including the personal performance assessment (noting that the same measures and scoring for both the financial and non-financial metrics have been applied to executive Directors irrespective of the periods during which they worked during the year). A detailed breakdown of performance can be found on pages 79 and 80.
Stephen Bird2 5.00% 47.96% 875 50% 250% 120% 527 Keith Skeoch3 5.00% 47.96% 615 67% 300% 144% 590 Stephanie Bruce 4.00% 46.96% 538 100% 150% 70% 379 Martin Gilbert4 4.00% 46.96% 480 75% 204% 96% 344 1 The % is applied to the pro-rated salary for Stephen Bird, Keith Skeoch and Martin Gilbert. 2 Stephen Bird’s total opportunity for 2020 was 250% of salary. His award has been pro-rated to reflect his joining date of 1 July 2020. 3 Keith Skeoch stepped down from the Board on 1 September 2020. His award has been pro-rated to reflect the period of time he served on the Board. 4 Martin Gilbert’s total opportunity for 2020 was 204% of salary. His award has been pro-rated to reflect his leaving date of 30 September 2020.
Total remuneration outcomes in 2020 The chart below shows the remuneration outcomes for each executive Director in 2020 based on performance compared to the maximum opportunity.
The 2021 LTIP award Under the Remuneration Policy, LTIP awards are subject to at least two performance metrics which are linked to the achievement of the Company’s long-term strategic priorities and the creation of long-term shareholder value, with at least one being absolute in nature and one being a relative metric. Due to changes to the accounting for Adjusted Earnings per Share and their effect on the 2020 LTIP target measure of Compound Annual Growth Rate (CAGR) in Adjusted Diluted Earnings per Share, the Committee has decided to move to a new measure for the absolute element of the LTIP metrics for 2021. The new metric of CAGR in Adjusted Diluted Capital Generation per Share (page 222) captures a broad measure of the rate of increase in the company’s ability to generate capital to sustain investment and dividend flows. Adjusted Capital Generation comprises Adjusted Profit after Tax (excluding the Group’s share of profit after tax of associates and joint ventures) plus dividends from associates/joint ventures/significant listed investments less returns relating to pension schemes in surplus; it is closely aligned to the measurement of management’s performance in generating sustainable increases in shareholder value from its growth vectors and strategic relationships, while excluding mark-to-market changes in the fair value of significant listed investments, which are beyond management’s direct control. The nominal performance targets for this measure are higher than for its predecessor, reflecting the elevated growth in returns expected from the key operating elements of the Group’s business.
This section sets out how we propose to implement our remuneration policy in 2021 including the performance measures that will be used to determine outcomes under the annual bonus and the LTIP. A summary of our Directors' Remuneration Policy can be found on pages 92 - 95. The policy for the Chairman’s fees and those of the non-executive Directors is set out on page 89.
The following table sets out the performance scorecard to be used based on the Company’s strategic priorities: Focus area Weighting Example performance metrics to be used to assess 2021 bonus
Financial 75% Investment Performance, Adjusted profit before tax, Net flows, Transformation
Equal to, or in excess of, the upper quartile company 1 Straight-line vesting occurs between threshold and maximum. 2 Relative TSR will be calculated using a 90-day average share price, both at the beginning and at the end of the performance period. The 90-day averaging will commence 45 days prior to the beginning and also 45 days prior to the end of the performance period. The calculation will be performed on a local currency basis.
2 Eaton Vance, which is in a sale process, has been removed from the peer group for 2021 awards. No other changes are proposed to the peer group from 2020.
Following the same logic that led the Committee to select the new performance measure of CAGR in Adjusted Diluted Capital Generation per Share for 50% of the 2021 LTIP, the Committee also decided to use its discretion to redefine the equivalent condition in the in-flight 2020 LTIP. This change, of which further details are available (page 84), was implemented on the basis that the new targets set (subject to rounding) would be no less difficult to achieve than those set at the time that plan was agreed.
Directors’ Remuneration in 2020 This section reports remuneration awarded and paid at the end of 2020 in further detail, including payments to past Directors.
Single total figure of remuneration – executive Directors (audited) The following table sets out the single total figure of remuneration for each of the individuals who served as an executive Director at any time during the financial year ending 31 December 2020: Executive Directors
Martin Gilbert8 1 This includes the taxable value of all benefits paid in respect of the relevant year. Included for 2020 are medical premiums at a cost to the group of £606 for all executive Directors.
4 For 2019, awards granted under the 2017 Executive LTIP lapsed in full as threshold performance was not achieved. 5 For 2020, awards granted under the 2018 Executive LTIP lapsed in full as threshold performance was not achieved. 6 Stephen Bird was appointed on1 July 2020 – all figures reflect amounts paid/awarded since the date of appointment. 7 Keith Skeoch stepped down from the Board on 1 September 2020 and remained eligible for an award under the annual bonus plan until that date. The values shown represent the emoluments paid for the period spent on the Board to 1 September 2020. 8 Martin Gilbert stepped down from the Board on 12 May 2020 and retired from the company on 30 September 2020. He remained eligible for an award under the annual bonus plan to the date of retirement. The values shown represent the emoluments paid to 30 September 2020.
Annual Bonus Plan The following section contains details on the targets and the Remuneration Committee’s assessment of outcomes for the period 1 January 2020 to 31 December 2020 against each of the elements of the executive Director bonus scorecard.
Positioning for growth (45%) Investment performance – % AUM > benchmark average of 3 year and 5 year for all asset classes
Annual profit progress on key areas – Wealth and Platforms (£m)2
Delivery of transformation synergies (£m) 10% 315 350 385 351 5.14% 1 £760m target is IFRS gain on sale before tax. 2 Platforms includes Wrap and Elevate. Wealth includes Aberdeen Standard Capital, Parmenion, Focus, threesixty, Advice (including Digital and SLCM). Profit progress defined as the increase in year on year adjusted profit before tax between 2019 and 2020.
– Close attention to the people agenda, developing the senior executive group and building strong support from them, as well as amongst the wider workforce, for the momentum being created. This was alongside establishment of a strong working relationship with the Board.
– Progress with Investments towards redesigning how we build around the customer and enhance opportunities through strategic relationships.
Investing in our people (10%) Diversity of leadership and the wider workforce (measured at 31 December 2020): % female representation in CEO -1 and CEO-2 2.5% 33% 37% >=39% 37% 1.25% % female representation in Global workforce 2.5% 46% 47% >=49% 45% 0.00% People engagement: outcome of the Viewpoints full company survey
– Little demonstrable progress overall in customer satisfaction indices in Investments and failure to achieve top 10 ASI NMG Brand Net Promotor score
Before approving the level of performance in 2020, the Remuneration Committee sought the views of the Audit Committee on material accounting, reporting and disclosure matters that it considered during the year and the Risk and Capital Committee on the management of risk within the business. When reflecting on whether the formulaic outcome could be considered fair in the context of the overall results, the Remuneration Committee took into account the feedback received as well as factors including the impact of the COVID-19 pandemic, shareholder experience and pay for the wider workforce. A final determination was made that no adjustment should be made to the bonus outcomes set out above as a result of this review.
Payments to past Directors and payments for loss of office (audited) Payments made to former executive Directors that have not been previously reported elsewhere are reported if they are in excess of £20,000.
• Deferred awards under the EIP: Keith holds outstanding deferred awards under the 2018 EIP (138,107 shares) and the 2019 EIP (273,160 shares). The total shares do not include shares to be awarded in lieu of dividend equivalents. These awards will vest at the original vesting dates subject to performance against the Underpin conditions (further details of which can be found in previous Directors’ remuneration reports). Vested awards will be subject to a holding period until the fifth anniversary of grant and will accrue dividend equivalents.
• Deferred awards to be granted in respect of the 2020 annual bonus (as detailed on page 79) will vest in equal tranches on the first, second and third anniversary of grant.
As Martin retired from the Company, he was treated as a good leaver for the purpose of outstanding incentive awards. In line with the respective plan rules, the following treatment will apply: • Legacy awards under the Aberdeen Asset Management Deferred Share Plan (436,083 shares). Unvested awards will vest in full at the normal vesting date. The dividend equivalent value for these shares will be settled in cash at vesting in accordance with the relevant plan rules.
• Deferred awards under the EIP: Martin holds outstanding deferred awards under the 2018 EIP (138,107 shares) and the 2019 EIP (181,483 shares). The total shares do not include shares to be awarded in lieu of dividend equivalents. These awards will vest at the normal time, subject to performance against the Underpin conditions. Vested awards will be subject to a holding period until the fifth anniversary of grant and will accrue dividend equivalents.
Stephen Bird Not applicable – Keith Skeoch Non-executive Director Financial Reporting Council1 £nil Director and Chair of the Investment Association2 £nil Member of Takeover Panel3 £nil Stephanie Bruce Board and council member of ICAS4 £nil Martin Gilbert5 Non-executive Director, Glencore plc
Chairman, Revolut7 £49,590 1 Stepped down from position on 31 July 2020. 2 Served as Deputy Chair up until 30 April 2020 then appointed to Chair from 1 May 2020. 3 Commenced position on 1 May 2020. 4 Stepped down from position on 24 April 2020. 5 All values have been pro-rated up to 12 May 2020 (the date that Martin stepped down from the Board). 6 Appointed 9 March 2020. 7 Appointed 1 January 2020. 2 3 4 81Standard Life Aberdeen 2020
Shareholdings and outstanding share awards This section reports our executive Directors’ interests in shares.
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2018: Performance condition Performance measurement period Threshold Maximum Actual % Vesting
Cumulative Group adjusted profit before tax1 1 January 2018 to 31 December 2020 £2,160m £2,920m £1,872m 0% Cumulative Group net flows £36.5bn £67.9bn £(55.7)bn 0% 1 These are the performance targets after the adjustments in 2018 following the transaction with Phoenix (details of which were provided to shareholders at the time of the adjustment). Further adjustments were made to this target in 2019 as a result of the Lloyds Banking Group withdrawal and in 2019 and 2020 for associate and joint venture share reduction changes. These adjustments resulted in a reduction in the threshold and maximum targets of £135m and £185m respectively.
Vesting of the first tranche of the CFO Deferred Award The first anniversary of the award was 3 June 2020 and vesting of the first tranche was determined based on performance up to that date. The award had a maximum value at grant of £750,000.
As set out in the announcement made on 30 April 2019 relating to this award, efficiency targets of £350m had previously been disclosed by the Company, of which £230m was still to be realised as of 31 December 2018. The award was structured such that two-thirds would vest to the extent that £175m (baseline target) of the remaining £230m was achieved by 3 June 2022 with the final third vesting if the full £230m was met or exceeded by that date.
Stephen Bird and Stephanie Bruce, who were appointed during 2020 and 2019 respectively, have not yet met the shareholding requirement. Keith Skeoch and Martin Gilbert complied with the requirements until they stepped down from the Board and are now subject to the post cessation shareholding requirements as detailed below.
Total of the value of shares held (from table above and 50% of the value of qualifying awards at 31
Martin Gilbert4 1,529,596 – 1,195,959 £3,364,233 300% £480,000 701% Yes 1 The closing market price at 31 December 2020 used to determine the value of each holding was 281.30 pence. 2 Reflects position from start date of 1 July 2020 until 31 December 2020. 3 Reflects position until stepping down from the Board on 1 September 2020. 4 Reflects position until stepping down from the Board on 12 May 2020.
In line with the previous shareholding policy, which was in place at the time of the announcement relating to Martin Gilbert’s departure, Martin Gilbert is required to hold 300% of his final basic salary in shares until 30 September 2021.
Stephen Bird 945,765 – – 945,765 – – Keith Skeoch 2,032,456 102,833 – 2,135,289 329,705 £730,496 Stephanie Bruce 778,775 7,944 – 786,719 103,859 £275,538 Martin Gilbert 319,590 436,083 1,529,596 2,285,269 – – 1 Includes: LTIP awards made in 2018 (awards subject to performance targets over the three-year period ending 31 December 2020), 2019 deferred bonus awards and the 2020 LTIP awards granted in 2020 disclosed below (awards subject to performance targets over the three-year period ending 31 December 2022), excluding, in each case, shares to be awarded in lieu of dividend equivalents.
2020 LTIP Target Restatement Coinciding with the publication of these accounts, the Group issued an RNS announcement dealing with future changes to the reporting of Adjusted Profit and Adjusted Diluted Profit per Share. The Committee reviewed the impact of these changes on remuneration measures and targets set for in-flight incentive arrangements and determined that it was appropriate to change both the per Share measure and the associated performance targets of those schemes which currently use CAGR in Adjusted Diluted Earnings per Share as a performance indicator. The revised measure selected as that most adjacent to the original test was CAGR in Adjusted Diluted Capital Generation per Share (see definition on page 222 and detail on page 78). In accordance with the rules of the various schemes, the underlying principle applied in setting the revised measures and targets was that (subject to rounding) they should be neither more nor less difficult to achieve than the original targets. The Remuneration Committee considered the projections that underpinned the targets set for CAGR in Adjusted Diluted Earnings per Share (as then defined) when the performance conditions for the 2020 LTIP awards were agreed, and how the new measure would have been expected to perform based upon the same assumptions. Based on this analysis it set the threshold and maximum levels for CAGR in Adjusted Diluted Capital Generation per Share of 11% and 23% respectively (previous measure 5% and 15%). As with the previous measure, performance below threshold will result in a nil vesting, rising to 25% of opportunity at threshold and 100% of opportunity at or above maximum; straight line vesting will continue to be applied between threshold and maximum.
Performance Measures1 Original Target: Adjusted diluted EPS Compound Annual Growth Rate (CAGR)
Awards granted in 2020 (audited) The table below shows the key details of the LTIP and EIP deferred awards granted in 2020: Participant Type of award
Threshold target (25% vesting) 5% 11% Maximum (100% vesting) 15% 23% 1 No change has been made to the original Relative TSR target which is set out on page 84 of the Annual report and accounts 2019.
Annual percentage change in remuneration of Directors compared to UK based employees The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December 2019 and the year ended 31 December 2020 for the executive Directors, along with any percentage change in fees for the non-executive Directors, compared to the average UK-based Group employee. The Remuneration Committee considers this the most appropriate comparison given the location of the executive Directors and that the Group does not operate a harmonised salary and benefits structure across its global operations.
4 Remuneration for non-executive Directors and the Chairman is disclosed on page 88. 5 Jonathan Asquith was appointed to the Board on 1 September 2019, Cecilia Reynes was appointed to the Board on 1 October 2019. Details of any changes to the fees paid to non-executive Directors and the Chairman on a full time year-on-year basis can be found on page 93 of the of the Annual report and accounts 2019. 6 Sir Douglas Flint is eligible for life assurance of 4x his annual fee. For 2019 this figure relates to the period 19 December-31 December 2019 which was the relevant period that cover was in place. He received a full year of this benefit in 2020.
Pay ratio The table below sets out the ratio of CEO pay (based on Stephen Bird‘s pay from the date of his appointment on 1 July 2020 plus Keith Skeoch’s pro-rata pay up to 30 June 2020) to the median, 25th and 75th percentile total remuneration of full-time equivalent UK employees in accordance with legislation published by the Government in 2018. We have identified the relevant employees for comparison using our gender pay gap data set (snapshot data from 5 April 2020) and updated the figures for remuneration received in respect of the 2020 performance year ending 31 December 2020 (methodology B). This was chosen by the Remuneration Committee as it utilised a data set which had already been processed and thoroughly reviewed, and this enabled timely reporting for disclosure purposes. Some employing entities are excluded from the gender pay gap calculation in line with the regulations due to the number of individuals employed by these entities being less than 250. The Committee considered this would not have a material impact on the outcome of the pay ratio calculation given the limited number of individuals this excludes, relative to the total population being captured, and the range of the remuneration for those excluded individuals, which was spread across quartiles.
The ratio has increased from 2019, which reflects the outcome of the Committee’s assessment of performance in each of the relevant years as well as greater differentiation for performance and reward which was applied across the organisation in 2020. The Committee is comfortable that the pay ratio reflects the pay and progression policies across the Company. Further detail on workforce pay is set out below.
The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are set out in the remuneration policy, and can be found on page 104 of the Annual report and accounts 2019.
Non-executive Directors’ interests in shares (audited) The following table shows the total number of Standard Life Aberdeen plc shares held by each of the non-executive Directors and their connected persons: Total number of shares owned at 1 January 2020 or date of appointment if later
Sir Douglas Flint, as Chairman, is subject to a shareholding guideline of 100% of the value of his annual fee in Standard Life Aberdeen plc shares to be reached within four years of appointment.
• Development of 2020 Directors’ Remuneration Policy • Review stakeholder commentary on draft Remuneration Policy • 2019 Directors’ remuneration report • 2019 bonus payments and 2017 LTIP outcomes • 2020 annual bonus scorecard targets and 2020 LTIP targets • Review remuneration outcomes for executive Directors and the Material Risk Taker population
Fees paid to Deloitte LLP during 2020 for professional advice to the Remuneration Committee were £171,165.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive Officer, Chief Financial Officer, Chief HR Officer, Global Head of Reward, Chief Risk Officer, and the Head of Stewardship and ESG Investments. This input never relates to their own remuneration. The Remuneration Committee also receives input from the Risk and Capital Committee and Audit Committee.
Shareholder voting We remain committed to ongoing shareholder dialogue and take an active interest in voting outcomes.
% of total votes 91.66% 8.34% No. of votes cast 1,003,905,073 91,323,405 10,346,991
The Directors’ remuneration report was subject to a vote at the 2020 AGM on 12 May 2020 and the following table sets out the outcome. 2019 Directors’ remuneration report For Against Withheld
% of total votes 98.05% 1.95% No. of votes cast 1,067,884,391 21,284,114 16,406,965 91Standard Life Aberdeen 2020
Pension To provide a competitive, flexible retirement benefit in a way that does not create an unacceptable level of financial risk or cost to the Company.
Details on the performance metrics for to 2021 annual bonus are set out on page 78. Due to commercial sensitivity, actual targets and ranges will be disclosed at the end of the performance period.
Maximum employer contribution aligned to those available to the wider workforce in the relevant jurisdiction.
The current maximum employer contribution available to the UK wider workforce is 18% of salary.
Benefits include (i) private healthcare; (ii) death in service protection; (iii) income protection (iv) reimbursement of membership fees of professional bodies; and (v) eligibility for the all employee share plan. Executive Directors are also eligible to participate in the Company’s flexible benefits programme and are provided with a health screening assessment.
Annual performance is assessed against a range of key financial (at least 75% weighting), non-financial and personal performance measures (no more than 10% weighting).
Awards subject to clawback for a period of five years from the date of the award. Any unvested awards will be subject to malus during the deferral period.
To align with our shareholders and promote sustainability by rewarding the delivery of long-term growth in shareholder value.
Awards are subject to a three-year performance period, with a subsequent two-year holding period.
Performance targets are set annually for each three-year cycle by the Remuneration Committee. Awards are subject to at least two performance metrics which are linked to the achievement of the Company’s long-term strategic priorities and the creation of long-term shareholder value, with at least one being absolute in nature and one being a relative metric.
Awards will be subject to clawback for a period of five years from the date of the award. Any unvested awards will be subject to malus during the deferral period.
Executive Directors are required to build up a substantial interest in Company shares. For new joiners the shareholding requirement aligns with the higher of maximum LTIP opportunity or 200%. The shareholding requirement for Stephanie Bruce remained at 300% of salary in line with the policy in place at the time of her recruitment.
The post cessation of employment share ownership policy for executive Directors requires shares up to the value of the shareholding requirement to be held for a period of two years following departure from the Board.
Under the malus and clawback provisions, the Remuneration Committee has the ability to reduce awards that have not yet vested (malus) and can require repayment of an award (clawback) for a period of up to five years from the date of award.
• Target – fixed pay, 50% of the maximum bonus award, 50% of LTIP vesting • Maximum – fixed pay, 100% of maximum bonus award, 100% of LTIP vesting • Maximum + share price growth assumes share price growth of 50% for the LTIP element
Remuneration policy extract – Service Contracts and loss of office for executive Directors Area Policy Notice period – Six months by the executive Director
– Up to 12 months by the employer to the executive Director
Apply during the contract and for up to 12 months after leaving, at the Company’s choice.
Principles In determining remuneration arrangements for new executive appointments to the Board (including internal promotions), the Remuneration Committee applies the following principles: – The Committee takes into consideration all relevant factors, including the calibre of the individual, local market practice and existing arrangements for other executive Directors, adhering to the underlying principle that any arrangements should reflect the best interests of the company and its shareholders
The remuneration package offered to new appointments will not exceed the maximum level of variable remuneration of 700% of salary. This limit excludes buyout awards which are in line with the policy as set out below.
Outcomes for the 2021 scenario chart are based on the following: • Minimum – fixed pay, comprising salary and pension effective 1 April 2021 (18% of salary), and benefits (the value of taxable benefits are as shown in the Single Total Figure of Remuneration table for 2020 on page 79)
For the purpose of awards under the annual bonus, long-term incentive plan and Executive Incentive Plan, approved leavers are defined as those whose office or employment comes to an end because of death, illhealth, injury or disability, redundancy, or retirement with the agreement of the employing company; the sale of the individual’s employing company or business out of the Group or any other reasons at the discretion of the Committee.
Annual bonus plan Leavers during the award year For approved leavers, rights to awards under the annual bonus will typically be pro-rated for the period of employment to the date of termination, and will be paid at the normal time in the normal manner, unless in very limited circumstances (such as death), the Committee determines that payments should be accelerated. For other leavers, rights to awards under the annual bonus will be forfeit.
Legacy awards under the Executive Incentive Plan Leavers during the deferral period Outstanding deferred awards under the EIP will typically be paid at the normal time, subject to performance against the Underpin performance conditions. The Committee retains the discretion to apply time pro-rating (over the deferral period) for approved leavers and to accelerate the vesting and/or release of awards if it considers it appropriate. For other leavers, rights to deferred awards will be forfeited.
The Committee reserves the right to make any other payments (including appropriate legal fees) in connection with an executive Directors’ cessation of office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the cessation of that executive Directors’ office or employment.
Company’s stakeholders (also covered in the Corporate governance statement on pages 50 and 51)
Reporting for the year ended 31 December 2020 During 2020, the Group operated primarily in the UK, rest of Europe, Asia and the Americas. You can find out about the relevant activities of the Company’s principal subsidiary undertakings and their overseas branches in the Strategic report on pages 1 to 41.
This report was prepared by the executive leadership team together with the Board and forms part of the management report for the purposes of the Disclosure Guidance and Transparency Rules (DTR 4.1.8R) of the Financial Conduct Authority (FCA) .
Between 1 January 2020 and the date this report was signed, the Company received no notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure Guidance and Transparency Rules of the FCA.
You can read the Articles on our website www.standardlifeaberdeen.com/annualreport 96 Standard Life Aberdeen 2020
The results of the Group are presented in the Group financial statements on pages 115 to 210. A detailed description of the basis of preparation of the IFRS results (including adjusted profit) is set out in the Group financial statements section. The Group uses derivative financial instruments in the normal course of its business and information covering these instruments and related financial risk management matters can be found in Note 20 and Note 38 to the Group financial statements. These notes are incorporated into this report by reference.
Company’s issued ordinary share capital during the year, in Note 26 to the Group financial statements, which is incorporated into this report by reference. You can also find an analysis of registered shareholdings by size, as at 31 December 2020, in the Shareholder information section on page 238
On 7 February 2020, the Company announced the commencement of a share buyback programme of the Company’s ordinary shares up to a maximum aggregate consideration of £400m. This programme completed on 10 February 2021. The purpose of this programme was to return value to shareholders and reduce the share capital of the Company. All shares purchased have been cancelled. In total 158,003,158 shares were cancelled through this programme, of which 144,610,296 were purchased and cancelled between 10 February 2020 and 31 December 2020.
As at 31 December 2020, there were 2,194,115,616 ordinary shares in issue held by 97,591 registered members. The Standard Life Aberdeen Share Account (the Company-sponsored nominee) held 665,021,873 of those shares on behalf of 994,615 participants. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
Restrictions on the transfer of shares and securities Except as 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 member will not be entitled to vote at any general meeting or class meeting in respect of any share they hold if any call or other sum then payable by them for that share remains unpaid or if they have been served with a restriction notice (as defined in the Articles) after failing to provide the Company with information about interests in those shares required to be provided under the Companies Act 2006.
A shareholder’s rights will not change if additional shares ranking pari passu with their shares are created or issued – unless this is expressly provided in the rights attaching to their shares.
Power to purchase the Company’s own shares At the 2020 Annual General Meeting (AGM), shareholders granted the Directors limited powers to: • Allot ordinary shares in the Company up to a maximum aggregate amount of £108,085,497
• Make market purchases of the Company’s ordinary shares up to a maximum of 232,139,068 of its issued ordinary shares
Colleague engagement This year, our Viewpoints employee attitude survey recorded a meaningful increase in the overall engagement score from 56% in 2018 to 72%.While this improvement is welcome in what was a very difficult year for all our employees, given the impact of the pandemic on working practices, we strive to do better. Colleagues fed back some clear areas of focus such as greater clarity on our strategic direction, more leadership visibility, and minimising barriers to delivery. These areas of focus are understandable given the change of Chief Executive Officer and are all priority areas for attention by the Executive leadership team. We are pleased that, in this difficult year, colleagues were complimentary about the skills of managers as measured against four key criteria and evidencing the importance of management skills, colleague engagement was highest among those who scored their manager well against all four criteria.
All remaining Directors as at the date of the 2021 AGM will retire and stand for re-election.
No Director has any interest in the Company’s listed debt securities or in any shares, debentures or loan stock of the Company’s subsidiaries. No Director has any material interest in any contract with the Company or a subsidiary undertaking which was significant in relation to the Company’s business, except for the following: • The benefit of a continuing third party indemnity provided by the Company (in accordance with company law and the Articles)
• Service contracts between each executive Director and subsidiary undertakings (Standard Life Employee Services Limited and Aberdeen Asset Management PLC)
Given the ongoing COVID-19 situation, this is not practicable at the moment. Copies can be obtained by request from the Company Secretary.
Directors’ liability insurance During 2020, the Company maintained directors’ and officers’ liability insurance on behalf of its directors and officers to provide cover should any legal action be brought against them. The Company also maintained pension trustee liability indemnity policies (which includes third party indemnity) for the boards of trustees of the UK and Irish staff pension schemes where required to do so.
Employees fed back that they value spending time with leaders and each other to understand and discuss Company priorities and progress, but in a year when the majority of colleagues worked from home due to the pandemic, connecting with each other has been even more critical. To support this, we increased the frequency and interactivity of communications with leaders and across teams, via digital collaboration platforms, question and answer applications, and the social media functionality of the intranet. With home schooling affecting many, we also recorded leader updates and events to allow playback at times that worked for colleagues. From senior leaders, including our non-executive Directors, hosting interactive town halls for colleagues globally through to local line managers keeping their colleagues updated and involved on a day-to-day basis, our Viewpoints’ feedback and communications channel metrics evidenced that this approach supported colleagues during a very difficult year. Regular Board Employee Engagement (BEE) activities continued throughout the year. You can read more about this in the Corporate governance statement on page 49.
The Viewpoints survey highlighted the strong link between leadership effectiveness and colleague engagement and, taking this into account, we have recently developed a new Leadership Framework, which clearly articulates what good leadership looks like at different levels in the organisation. This framework provides a backbone for the core people processes – Succession, Recruitment, Development and Performance.
As indicated in the Strategic report, we continued the focus on Early Careers talent by taking on 22 new trainees in the UK and 37 new graduates across our global programmes, in spite of the challenges of doing this in the midst of a global pandemic. We took the opportunity to innovate our approach to recruitment and onboarding, notably through the Early Careers Chat Bot which provided candidates with 24/7 access to answers to key questions while supporting the navigation of the application process. Success of the new approach to trainee marketing materials, including a remotely-created Trainee video, profiling current trainees, and increased use of social media platforms and key inclusion partners, led to a 400% increase in applications for the Trainee programme.
In 2020 we were recognised for our early careers provision, as covered in the Strategic report – through a Top 50 Ranking for both the Undergraduate and Apprenticeships programmes at the ‘Rate My Placement’ awards. The Rate My Placement awards are based on feedback from individuals who participated in the programme. We believe this success is underpinned by our focus on supporting managers to ensure they deliver a positive experience for all participants on programmes. This includes intergenerational awareness training, a new hub with helpful resources and key dates, monthly development updates and line manager skills training.
Developing our people Our new learning and development system – My Development – has been established now for a year. The system uses artificial intelligence to recommend resources and development opportunities to our people based on the topics they are interested in. It is available for all employees and underpins our philosophy of individual-driven development.
Our People Management Academy is central to developing the skills and capability of people managers. In 2020, over 500 line managers attended courses and the global pandemic meant that we had to quickly adapt our learning delivery, through the introduction of virtual classrooms which have proved successful and popular.
Structured succession planning helps to ensure that we have a strong pipeline of talent, with both technical expertise and leadership capabilities assessed to support the growth agenda and enable smooth succession into the most critical roles. We actively monitor diversity within succession pipelines and take necessary actions to ensure that we have balanced representation at all levels in our workforce. The Board, through its Nomination and Governance Committee and the Executive leadership team work together to ensure the talent and succession agenda is effective in delivering the talent needed for future success.
We have specific policies to ensure that colleagues with disabilities face no discrimination or obstacles in relation to job applications, training, promotion and career development. Reasonable adjustments are also made to train and enable employees who become disabled to allow them to continue and progress in their career.
We believe that when employees own shares in the company, it increases their understanding of the interests of our shareholders. We invited UK and Ireland-based employees to participate in the Standard Life Aberdeen Sharesave plan in 2020 and 1,243 (26%) employees accepted the invitation. They have the opportunity to acquire Standard Life Aberdeen plc shares for £1.888 (UK) and €2.113 (Ireland) with their accumulated savings when their savings contracts end in three or five years’ time. At 31 December 2020, 2,298 employees in UK and Ireland were saving towards the purchase of Standard Life Aberdeen plc shares through the 100 Standard Life Aberdeen 2020
The 2020 Diversity and Inclusion report includes a refreshed diversity and inclusion framework, which drives outcomes in four priority areas of both diversity and inclusion. The framework reflects the expectations of clients, regulators, colleagues (including feedback from Board engagement work) and best practice. Progress against this is reviewed by the Nomination and Governance Committee biannually.
As a consequence of the pandemic, we adjusted benefits offered to take account of lack of availability due to restrictions imposed as well as allowing for one-off changes to certain benefits. We also worked with suppliers to offer solutions to some of the key issues colleagues were facing, including remote GP appointments and access to counselling for colleagues and families.
Sustainability The commercial aims of our business are linked to its environmental, social and governance responsibilities. You can find out more about how the business is run sustainably throughout the Strategic report. The non-financial information statement on page 29 summarises where you can find key information on the approach. For details of greenhouse gas emissions, please see page 28.
Details of the meeting content can be found in our AGM guide 2021. The AGM guide and other materials will be published online at www.standardlifeaberdeen.com in advance of this year’s AGM.
The Group have also agreed to sell the ‘Standard Life’ brand to Phoenix by mid-2021, replacing the existing agreement to licence the brand for no fee to Phoenix, and to transfer related employees to Phoenix. In addition the Group will pay £32m to Phoenix later in 2021 in return for Phoenix bearing the costs of workplace pensions marketing staff, who are currently employed by the Group but provide services to Phoenix. The sale of the brand and transfer of related marketing staff is not expected to materially impact on our results.
The strategic asset management partnership (under which the Group manages £171.5bn of Phoenix assets at 31 December 2020) will be extended and will now operate for at least 10 years up to February 2031.
The Group have also resolved legacy issues with Phoenix relating to the operation of certain aspects of the agreements that were entered into at the time of the sale of Standard Life Assurance Limited to Phoenix and which impacted the value of certain indemnities and other payments under the transaction terms. The impact of the resolution of these legacy matters is included in the 2020 results and resulted in the Group receiving a cash inflow of £34m in February 2021.
• For the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Contents 6. Independent auditors’ report ......................................................................................................................................106 7. Group financial statements .........................................................................................................................................115 8. Company financial statements ...................................................................................................................................211 9. Supplementary information ........................................................................................................................................222
Note 26. Issued share capital and share premium ...... 164 Note 27. Shares held by trusts .....................................164 Note 28. Retained earnings .........................................165 Note 29. Movements in other reserves ........................165 Note 30. Non‑controlling interests ................................167 Note 31. Insurance contracts, investment contracts and reinsurance contracts .............................168 Note 32. Financial liabilities ..........................................169 Note 33. Subordinated liabilities ...................................169 Note 34. Pension and other post‑retirement benefit provisions ...........................................170 Note 35. Deferred income ............................................176 Note 36. Other financial liabilities .................................176 Note 37. Provisions and other liabilities .......................176 Note 38. Financial instruments risk management........177 Note 39. Structured entities ..........................................183 Note 40. Fair value of assets and liabilities ..................184 Note 41. Statement of cash flows ................................188 Note 42. Contingent liabilities and contingent assets .. 190 Note 43. Commitments ................................................190 Note 44. Employee share‑based payments and deferred fund awards.....................................191 Note 45. Related party transactions .............................194 Note 46. Capital management .....................................195 Note 47. Events after the reporting date ......................197 Note 48. Related undertakings.....................................198
How to navigate our Group financial statements 105Standard Life Aberdeen 2020
 The Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
 The parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework
 The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation to the extent applicable
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.
Coverage 90% (2019: 97%) of profits and losses that made up Group profit before tax
Key audit matters vs 2019 Recurring risks (Group and Parent Company)
Carrying value of investment in Phoenix and the related share of profit
The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount of the goodwill and certain of the parent’s investment in subsidiaries has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount.
The financial statements (Note 15) disclose the range estimated by the Group.
Our procedures included: Our valuation expertise: We engaged our own valuation specialists to assist us in assessing the appropriateness of the Group’s primary valuation methodology and its application in the valuation of the goodwill and certain of the parent Company’s investment in subsidiaries, and the appropriateness of the input assumptions to the analyses.
Sensitivity analysis: We performed our own sensitivity analysis which included assessing the effect of reasonably possible changes in projected adjusted profits and reasonable alternative assumptions in respect of applicable price to earnings multiples and applied premiums and discounts to evaluate the impact on the carrying value of the goodwill and investment in subsidiaries.
Assessing transparency: We assessed whether the Group’s disclosures (in respect of goodwill) and the parent Company’s disclosures (in respect of investment in subsidiaries) reflect the risks inherent in the impairment assessment performed.
Our findings: We found the carrying value of goodwill and the related impairment charge to be cautious (2019: balanced) and the parent Company’s carrying value of certain of the investments in subsidiaries and the related impairment charge to be cautious (2019: balanced) with proportionate (2019: proportionate) disclosures of the related assumptions and sensitivities.
The risk Our response Carrying value of investment in Phoenix and the related share of profit
The value of the investment in Phoenix Group Holdings plc (Phoenix) is impacted by a number of judgemental factors and accounting estimates.
On 22 July 2020 Phoenix acquired ReAssure Group plc “ReAssure”; as part of this transaction the Group’s shareholding was diluted. This resulted in a risk that Phoenix should subsequently be accounted for as an equity investment rather than an associate. It additionally resulted in a risk associated with the acquisition accounting, in particular the valuation of the opening balance sheet (including intangible assets), and the determination of the bargain gain on purchase (recognised as part of the share of Phoenix profit).
The effect of these matters is that, as part of our risk assessment, we determined that the carrying value of the investment in Phoenix has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.
Our actuarial experience: Our component auditor used actuarial specialists to review and challenge the rationale for key assumptions adopted, including in respect of acquired businesses.
Our procedures in respect of any impairment to the carrying value include: Tests of detail: We performed an assessment of the carrying value of the investment in Phoenix by comparing to its market value at 31 December 2020.
Our findings: In determining that Phoenix should continue to be treated as an associate there is room for judgement and we found that, within that, the Group's judgement was balanced.
We found the Group’s carrying value of the investment in Phoenix and the related share of profit to be balanced (2019: balanced) with proportionate (2019: proportionate) disclosure of the related assumptions.
The effect of these matters is that, as part of our risk assessment, we determined that the value in use of these intangible assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount.
The financial statements (Note 34) disclose the sensitivity estimated by the Group.
We performed the tests below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.
Our procedures included: Test of detail and our sector experience: Our component auditor considered, with the support of internal actuarial specialists, the appropriateness of the base mortality assumption by reference to scheme and industry data on historical mortality experience and the outcome of the latest triennial report.
Our component auditor considered, with the support of internal actuarial specialists, the appropriateness of the mortality improvement assumptions by reference to industry based expectations of future mortality improvements. The component auditor considered the appropriateness of the discount rate and inflation assumptions by reference to industry practice.
Benchmarking assumptions and our sector experience: Our component auditor utilised the results of KPMG benchmarking of base mortality, mortality improvement, discount rate and inflation assumptions and our actuarial specialists’ knowledge of industry practice to inform our challenge of the Group’s assumptions in these areas.
We have summarised below the changes to our key audit matters from the 31 December 2019 year end audit. In our 31 December 2019 year end audit, we identified a significant risk around the share of profit from Phoenix. In considering the current market conditions and the ReAssure acquisition made by Phoenix in the period, we consider that these result in a range of additional factors for us to consider which will impact the carrying value of the investment. As such, we consider our key audit matter to be broader than the share of profit, and have updated this to include both the carrying value of the investment and the share of profit. We did not consider the impairment of intangible assets to be a key audit matter in the 31 December 2019 year end audit, as there were no impairment triggers identified. Given impairment triggers (and resulting impairments) were identified in the year to 31 December 2020, we consider this to be a key audit matter for the year. We continue to perform procedures over the provision for separation costs. However, ongoing progress in relation to the separation process has provided a greater level of certainty over the separation costs and so the level of estimation uncertainty associated with this provision has reduced in the year to 31 December 2020, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
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4. Going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group’s and the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (the going concern period).
We critically assessed the assumptions in the base case and downside scenarios in particular in relation to market volatility assumptions by comparing to published growth and economic forecasts and overlaying our knowledge of the entity's plans, based on approved budgets, and of the sector in which it operates.
Our conclusions based on this work:  We consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate
 We have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or Company's ability to continue as a going concern for the going concern period
 The related statement under the Listing Rules set out on page 102 is materially consistent with the financial statements and our audit knowledge
5. Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (fraud risks) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:  Enquiring of directors, the Group Audit Committee, Group
Internal Audit and the Group’s Legal team and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel for ‘whistleblowing’, as well as whether they have knowledge of any actual, suspected or alleged fraud
We did not identify any additional fraud risks other than those professional standards require us to consider.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements, how they analyse identified breaches and assessing whether there were any implications of identified breaches on our audit.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation and pension’s regulations and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
We have assessed the disclosure of provisions in Note 37 and contingent liabilities in Note 42 in light of our understanding gained through the procedures above, and consider that these are appropriate.
We discussed with the audit committee matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
 In our opinion the information given in those reports for the financial year is consistent with the financial statements
Directors’ remuneration report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:  The Directors’ confirmation within the Viability Statement and Risk Management report that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity 113Standard Life Aberdeen 2020
Corporate governance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge:  The directors’ statement that they consider that the Annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy
 The section of the Annual report describing the work of the Audit Committee, including the significant issues that the Audit Committee considered in relation to the financial statements, and how these issues were addressed
 The section of the Annual report that describes the review of the effectiveness of the Group’s risk management and internal control systems