Final Results - Part 2 of 7

RNS Number : 5275P

Standard Life plc

19 February 2016

 

Standard Life plc

Full year results 2015

Part 2 of 7

 

Chairman's statement

Delivering value in a responsible way

'Sustainable growth comes from knowing how to adapt to change in a way that's responsible and creates the best potential to deliver value for customers, clients and shareholders.'

Sir Gerry Grimstone

Chairman

We are a far simpler company than the one I became Chairman of in 2007, and I'm pleased that we've been able to stick to a consistent strategy that has stood the test of time. We made good progress in 2015. The completion of the sale of our Canadian business changed our shape, replacing David Nish with Keith Skeoch changed our leadership, the bedding in of the Ignis acquisition and the continued success of our asset management business changed our scale, and the new pension freedoms in the UK changed radically the market landscape. Our governance culture, founded on our strong sense of responsibility, persisted throughout all this and is a large factor in our continued success.

Despite challenging market conditions, thanks to the support of our customers and clients, our hard work has yielded another set of good financial results. The assets that we look after grew by 4 per cent and our unit costs continued to decrease which helped us increase our Group operating profit by 9 per cent to £665 million. Our performance also means another year of increased dividends, with our final dividend of 12.34 pence per share (up 8.0 per cent on 2014) giving a total dividend for 2015 of 18.36 pence per share (up 7.8 per cent on 2014). If approved at our AGM in May this year, this is due to be paid to shareholders on 24 May 2016.

The Solvency II regime, which was introduced on 1 January 2016, gives a more rational way of measuring the capital strength of insurance companies and we remain well capitalised under these new rules with a Group solvency capital surplus of £2.1 billion representing a Group solvency cover of 162 per cent. Standard Life Assurance Limited (SLAL), our principal insurance company, is strongly capitalised and is able to withstand market and other volatility to a considerable extent. To ensure this is maintained, we plan to strengthen further the governance of SLAL by incorporating a strong independent element onto its board with a particular responsibility to oversee prudential and conduct matters backed up by our very effective With Profits Committee and Independent Governance Committee. Members of our With Profits funds and our workplace pension schemes should rest assured knowing that their interests are being well looked after. We want our governance to be amongst the best in the market. This strengthening of the SLAL board and the greater delegation to it will further allow the plc Board to spend appropriate time on all aspects of our business as we continue to evolve.

We're focused on meeting the needs of our customers and clients. In this evolving market, insurance is increasingly a complement to our investment activities; however, it still makes an important contribution, both in terms of our propositions in this market and to our finances. To be excellent in the pensions and savings market, you need to be a well-capitalised name that people trust; to provide high standards of service; and, very importantly, to have market insights and skills that allow you to generate superior investment performance. Our positioning across this whole value chain is the key source of our long-term shareholder value.

We are pushing on with regulatory approvals to increase our stake in HDFC Life in India to 35 per cent. We see this as a precursor to the business having a successful IPO which should be one of the largest-ever Indian equity capital market transactions. In China, together with our partner TEDA, we are working on how to bring our Hong Kong and China businesses into much closer alignment and also how best to enter the China pensions market. We hope our strategic partnerships in India and China will add disproportionately to shareholder value in the years to come.

Our Board and Management

Our management and Board have had to evolve as the shape and nature of our company has changed. In August, Keith Skeoch became our new Chief Executive, succeeding David Nish. David did a great job repositioning Standard Life, both making us fit for purpose and also overseeing the sale of our Canadian businesses and the acquisition of Ignis. In appointing Keith as Chief Executive, the Board felt very strongly that he was the right person to take Standard Life forward in its new configuration. He has a deep understanding of the world's investment markets and built Standard Life Investments into the powerhouse it is today. The task set for him by the Board is to replicate that success throughout our businesses, not least through close co-operation and collaboration across the different parts of the business to create 'one company, one culture, one vision'.

We made three new appointments to the Board in November 2015. I'm pleased to welcome Melanie Gee, Paul Matthews and Colin Clark to the team. Melanie joins as a non-Executive Director and brings a wealth of experience both from her time at Lazard and from serving on other major boards. Paul and Colin strengthen the executive component on the Board which is much in line with our stewardship philosophy. Through their roles as Chief Executive, UK and Europe and Global Client Director of Standard Life Investments respectively, they bring the voice of our customers and clients directly into the boardroom. I'm very pleased that having four women out of thirteen Board members continues our journey of becoming a thoroughly diverse Board.

Crawford Gillies, our Senior Independent Director, steps down in May. Crawford has been with us for nine years serving with distinction throughout that time not least as Chairman of the Remuneration Committee, Chairman of the Standard Life Charitable Trust, and our Senior Independent Director. I'm very grateful to him.

Thinking and acting responsibly

For those of us who have spent much of their working lives in and around financial services, it's been a source of great regret how financial service companies have lost the trust of society in recent years. Pontificating about this doesn't achieve anything, as it requires deep work within companies and constant attention to detail to rebuild trust and confidence. It has to be constantly at the forefront of boards', managements' and everyone in financial services minds. Calling out wrong behaviour whenever and wherever it occurs is a powerful starting point.

We do try to do the right thing but, even so, we don't always succeed. For example, the introduction of pension freedoms in the UK and the need to spend time for regulatory and other reasons to explain this properly to those of our customers who contacted us, put unprecedented strain on our systems and I've had many letters from people who were kept waiting on the phone or for an appointment longer than they should have been. I'm very sorry about that and I'm pleased that things are now returning to normal. We're always happy to hear from customers when things don't go smoothly and to try and put things right.

For all businesses, it's more important than ever to be a good corporate citizen as governments and people around the world rightly more closely scrutinise how companies carry out their business affairs. In today's digital world, there is nowhere to hide. Businesses must be open and transparent on their strategy, decision making and how they operate if they are to succeed for the long term. We have redesigned our reporting this year with this in mind.

Across the globe, we employ 6,500 people and another 17,000 through our partnerships in India and China. There are also a further 69,000 Financial Consultants who work with these partnerships, marketing products and services to clients. We want to provide inclusive employment with no barriers to entry other than competency. We champion social mobility and diversity backed up by paying sustainable, meaningful wages. I'm pleased with the public recognition that we have had for this work.

Our charitable activities, both directly and indirectly through the Standard Life Charitable Trust, have made a real difference to people's lives and wellbeing in 2015 and our Sustainability Report gives full details of these. When we demutualised in 2006, unclaimed shares were put into a special trust. We have made, and continue to make, every effort to trace those entitled to these shares and we continue to do so ten years on. This special trust will come to an end in 2016 and we intend to use the assets to strengthen considerably our charitable activities. It's very important therefore that people who haven't done so come forward and claim their shares before it is too late.

Using our voice

There are other things that I believe are central to our continued success including a strong reputation for thought leadership. It's important to use our voice to drive improvements within our industry, including improving transparency on how companies like ours make money, pay taxes and mitigate their impact on the environment, particularly when governments and regulators are contemplating changes in laws and regulations that might affect us, our clients and customers. We try to be clear, forthright and constructive.

Unusually, we have also spoken out on two matters of constitutional importance within the UK. Following the historic referendum on independence for Scotland - where we were very clear about the potential impact on Standard Life and how we would respond - the passing of a new Scotland Bill into law includes areas that may affect our customers, employees and some aspects of our business. Chiefly this will be around taxation, which will become a devolved power for the Scottish Government. We are monitoring this closely to help ensure that we don't suffer any competitive disadvantage.

The debate on whether or not the United Kingdom should stay part of the European Union (EU) is reaching its climax and coming closer to the time when the UK public will have their say. We are conducting a thorough study of the impact of this on our business. We stay clear of the politics but, as you would expect, we are closely following developments and assessing the implications for our businesses as they emerge. As we have stated before, we believe that access to the EU Single Market is in the best interests of our customers and clients. The principle behind the Single Market - to encourage the free movement of goods and services - has created an environment that gives individuals and businesses the confidence to invest for the long term and it would be potentially damaging to the UK economy and therefore to companies such as Standard Life if the UK were to leave it.

Looking forward

So much has changed in our company but much still remains to be done as we carry on the journey of seeking to reach our full potential as a world-class investment company. As asset managers, we employ some of the most talented people in the business worldwide. Our UK business has a very strong position in the pensions and long-term savings market. We have important savings businesses in Ireland and Germany. And our positions in India and China offer great future potential. Not a bad place to be in!

Global financial markets have started 2016 in poor shape but, because of our investment expertise and the innovative solutions that we provide, this gives us opportunities to serve our clients as well. All of our achievements in 2015 were made possible thanks to our talented people and their dedication to keep trying to do the right thing and, of course, the support of our shareholders. My thanks go to everyone once again for their continued support.

Sir Gerry Grimstone
Chairman
19 February 2016

1. Strategic Report

1.1 Chief Executive's overview

Introduction

It is both an honour and a privilege to be asked to lead Standard Life, and our talented people, through the next phase of its strategic development to create a world-class investment company. We made considerable progress in 2015 despite volatile global financial markets, a shifting savings and investment landscape in the UK and the transition to the new Solvency II regulatory regime. We saw strong growth in the assets we manage or administer for clients to £307.4bn, which, together with the careful management of costs, helped to drive an increase of 9% in our operating profit to £665m.

Successes in 2015

Standard Life became a much simpler business in 2015 when we completed the sale of our Canadian business. In line with both our long-term strategy and our simple and consistent business model, over 90% of our total income came from the fees clients and customers pay us to look after their assets.

Almost two thirds of the assets we look after relate to our growth channels and have been attracted to Standard Life by our investment performance as well as our innovative products and the quality of our platforms and propositions. Our 'mature books' are valuable and well capitalised under Solvency II and provide capital that can act as a 'shock absorber' during periods of market turmoil, reinforcing our financial strength. We increasingly see ourselves as an investment company because investment is not only at the heart of what we do, it's also at the heart of what our customers and clients need. Our progress in 2015 was also marked by the fact that our global asset manager, Standard Life Investments, became the largest fee-generating part of the business.

While we have simplified our business, we also believe that the growth we have generated is sustainable because its sources are well diversified by geography, customer and client, as well as by asset class. We now have clients and customers in 46 countries around the world.

Subject to receiving regulatory approval we intend to increase our stake in HDFC Life to 35% and we currently have a 40% holding in HDFC Asset Management, India's largest mutual fund company.

I was also very pleased to see our sustainability credentials validated once more in the annual independent surveys from Dow Jones (Dow Jones Sustainability Indices World and Europe) and FTSE4Good.

We continued to invest in our brand to ensure that our name and strengths are increasingly recognised around the world. Sponsorship is bringing our brands to a wider global audience. We have been careful to select partners where we share common ground on teamwork and a commitment to excellence.

Investment performance and innovation

Standard Life Investments continued to build strong strategic positions as a manager of institutional and wholesale assets, through its delivery of excellent investment performance and innovative investment solutions. Our historic strength was built on the management of large-scale institutional assets, and the integration of Ignis is helping improve our offering to insurance companies. 2015 also saw our presence in wholesale markets continue to increase both at home and abroad. We are now the third largest manager of UK mutual funds, up from eighteenth in 2010, and continue to see increased penetration in overseas markets through our strategic partners.

Our 'Focus on Change' investment philosophy - followed by all our investment teams - helped generate excellent investment performance. It also helped drive innovation; providing solutions for changing client needs. Thirteen new investment solutions were launched during 2015. Over the last five years, more than ten new fund launches have been seeded by current clients.

Evolving in our markets

Our UK pensions and savings business continued to enhance the strength of its strategic positions in our domestic market with employers, intermediaries and retail customers. Assets under administration rose to £131.6bn and revenue associated with fee based assets increased to £631m.

We continued to attract retail assets to Standard Life - through our market leading Wrap platform, and growing regular workplace contributions from auto enrolment into company pension schemes. The contribution to our profits from these products was significantly more than that from traditional insurance products, like annuities, where as expected sales fell during the year. This means that 82% of the revenue for our UK business relates directly to our fee based business.

The UK business also faced some very challenging situations as a result of the radical pension changes that came into force in April 2015. However, our teams worked very hard to help customers understand the options available to them. I am pleased to report that 90% of those customers that had the opportunity to withdraw their entire pension have remained invested with Standard Life.

Leading through collaboration

Co-operation and collaboration across the business bore fruit in 2015. MyFolio, our leading multi-manager fund run by Standard Life Investments, saw its assets under management rise to £8.1bn with approximately 85% sourced from the UK businesses' distribution channels. This is a great demonstration of an enhanced level of co-operation and collaboration between our asset management and our UK pensions and savings businesses and a reflection of the demand from clients looking to invest in a multi-asset offering.

2015 saw volatility return to global financial markets, but also demonstrated that Standard Life has strengths across the broad range of institutional, wholesale, employer and retail channels. Throughout, we have sought to use our influence in capital markets to act in the best long-term interests of our clients and customers and, importantly, promote greater responsibility by asset managers and owners.

Increased co-operation and collaboration, including the efficient allocation of resources, is critical if we are to build a successful and sustainable investment company. With this in mind I have created a new Strategic Executive team to help me lead Standard Life. This will help ensure that we maintain momentum behind our growth businesses and continue to improve the efficiency of our valuable mature books.

This focus will help us deliver value for our shareholders and opportunity for our people, who I would like to thank, once again, for their support and dedication to our business.

Outlook

The start of 2016 has seen difficult conditions in global financial markets which have negatively impacted asset values as well as investor and consumer sentiment. While these conditions may persist for some time and regulatory and political changes may impact the markets we operate in, Standard Life remains well positioned to meet the needs of clients and customers around the world.

The breadth of our investment propositions underpinned by strong investment performance and innovation, combined with our strength in pensions and savings and the power of a trusted brand, means that we have a well-diversified and resilient business that will remain strategically focused on driving growth and returns to shareholders.

1.2 Our business

Our simple business model

Standard Life has a simple and consistent business model that we have successfully operated to deliver value for shareholders. It has served us well during demutualisation, during the transformation of our business and we believe it continues to be fit for purpose as we build a world-class investment company. The way we seek to generate value is equally simple, coming from two main avenues. We aim to drive increased assets and revenue from growth channels across our business. These areas are growing strongly and include Standard Life Investments Institutional and Wholesale, and Workplace and Retail in the UK pensions and savings business. At the same time, our established 'mature' books of business - eg older retail business - provide us with a strong foundation and make an important contribution to our revenue.

We aim to build scalable platforms and propositions, with a focus on lowering our unit costs. In doing these things, we aim to drive profits, deliver investment growth to our clients, dividends to our shareholders and wider value to our people and other key stakeholders.

Investment at the heart of our business

Investment is at the heart of what we do because it's at the heart of what our customers and clients need. They are looking for a good return on the investments they make with their savings to:

·   Build their wealth

·   Deliver income in retirement

·   Achieve a combination of both these things

Our goal is to deliver good outcomes for our customers and clients, for example, investing for growth, income, or some protection against market volatility. Depending on where they are in their lives, our customers and clients may want one or a combination of these outcomes for life events like getting married, starting a family or planning their retirement.

We increasingly see ourselves as an investment company, focusing on managing assets and investing on behalf of our customers and clients. We don't use our capital to attract new assets, which was the traditional model for insurance companies.

This focus allows us to operate in markets that insurers have traditionally found difficult to penetrate: asset and wealth management. It's the ability to diversify our business model in this way that makes it sustainable, as we have the potential to attract assets from a variety of sources, customer and client channels, asset classes and geographies. Financial strength also plays an important part in what our brand is and means, not just with customers and clients, but with shareholders and other key stakeholders too.

Our customer and client channels

We operate a variety of businesses positioned across the value chain. These are designed to meet a range of client and customer investment needs.

Standard Life Investments

Standard Life Investments, which includes Ignis Asset Management, looks after the assets of clients in 46 countries around the world.

We offer our solutions and expertise to:

·   Institutional clients, including corporations, pension schemes and sovereign wealth funds. We sell direct or via financial intermediaries.

·   Wholesale clients, including fund supermarkets, global financial institutions and private banks

Standard Life Wealth provides a discretionary fund management service with a range of specialist investment solutions. They work with private clients, charities, financial advisers and other professional intermediaries.

Our associate business, HDFC Asset Management, is the largest private sector asset manager in India.

UK and Europe Pensions and Savings

In our UK and Europe businesses, our main aim is to help our customers and clients invest their money.

We offer our products and services via two broad channels:

·   Workplace: pensions, savings and flexible benefits to employees through their employers

·   Retail: our relationship is either directly with the client, or with their financial adviser

We also own businesses that specialise in financial advice, employee benefits, and risk and compliance services.

There is continued momentum in both our Ireland domestic and international bond businesses as well as growing demand for unit-linked products in Germany.

India and China

We also have associate and joint venture businesses offering insurance and savings products to customers in India and China. HDFC Life is one of the leading life insurance companies in India. They offer a range of individual and group insurance products, for example protection, pensions, and savings. They have over 20 million client accounts serviced across a network of 414 offices and over 8,000 partner branches covering 980 towns across India.

In China, Heng An Standard Life has around five million customers and operates 74 sales offices across 53 cities in 8 provinces.

In Hong Kong, we offer insurance and savings products and services under the Standard Life brand.

Where we operate

In building a world-class investment company we aim to reach more clients in markets around the globe. We do this through a combination of regional hubs, where we have a large physical presence, offices in key financial centres, and partnerships with other companies that have well established operations in parts of the world that are strategically important to us.

Managing our risks effectively

The nature of a large part of what we do - investing in world markets - means we need to be sure that we are managing our risks effectively. Effective and pre-emptive risk management, over both the short and long term, is essential for the continued success of our strategic development to create a world-class investment company. We operate a robust risk management framework, underpinned by a set of processes that helps us manage our short and long term risks. Good governance goes hand-in-hand with risk management, so that it's easy to see what informs our business decisions. Effective governance helps us be more transparent and accountable to our stakeholders.

Read more about how we manage risk in Section 1.5, and governance in Section 4

A sustainable business model

Our simple business model takes advantage of four major long term trends/factors that are shaping the savings and investment landscape around the world.

Democratisation of financial risk: As employers aim to reduce costs of funding retirement benefits and governments around the world look to reduce their citizens' reliance on the state, individuals are increasingly having to take responsibility for their financial future. This responsibility also increases both the options available and the complexity of decisions for customers and is driving a growing need for guidance and advice.

Rebuilding trust in financial services: The recent financial crisis has resulted in increased scrutiny of financial services companies from customers, politicians and regulators. This has created opportunities for trusted brands and providers that allow their clients to look through to the clients' underlying assets without having to rely on the strength of providers' balance sheets.

Innovation, technology and digitalisation: Technology continues to enable scalability and drive efficiency, helping to

reduce the cost of guidance and advice. This improves access to assets for clients and also increases the importance of client relationships, product innovation as well as service and brand in creating a sustainable competitive advantage.

Slow growth, low inflation, compressed return environment: As the world economy continues to struggle to deliver growth, active investment management offers opportunities to deliver superior returns. Low inflation and interest rates in developed economies have made guaranteed products unattractive to customers and clients, who are instead turning to simple, transparent and outcome-oriented solutions.

A positive impact on wider society

·   Our total tax contribution in 2015 was £1,059m, of which £944m related to the UK. You can read more about this on page 18.

·   Promoting employability and social mobility: using our people's knowledge and expertise to encourage other organisations to create jobs

·   Using our influence as an investor to encourage ethical thinking and practices in other organisations

Read more about how we help to make a positive impact on wider society in Section 1.6

Increasing assets

·   Focus on sustaining strong investment performance

·   Grow our regional hubs in Europe, North America and Asia to help expand our global reach

·   Develop our investment funds, solutions and propositions to suit evolving client needs, for example liability aware and multi-asset funds

·   Leverage best in class distribution in the UK

Maximising revenue

·   Focus on increased collaboration across our business

·   Leverage our strong strategic positions in the UK

·   Build on our global distribution capability

·   Increase our stake in HDFC Life

Lowering units costs

·   Invest in scalable platforms

·   Continue to realise operational benefits from our simple and scalable business model

Optimising our balance sheet

·   Continued focus on risk management

·   Further optimisation of our Solvency II balance sheet

·   Focus on growing 'capital-lite' fee based business

·   Be seen as financially strong by our stakeholders

Sponsoring world-class excellence

Sponsorship helps us bring our brands to a wider audience. When selecting who to partner with, we look for common ground and shared values, with teamwork and a commitment to excellence front of mind. Our current sponsorships with The Ryder Cup, Andy Murray and our recently-announced British & Irish Lions partnership all embody those shared values.

1.3 Chief Financial Officer's overview

Key financial performance indicators, including comparatives, exclude discontinued operations¹ unless otherwise stated. The acquisition of Ignis completed in July 2014 and therefore our 2015 results include a full 12 months compared to 6 months for 2014.

¹      Discontinued operations for segmental reporting comprises the Canadian business which was sold on 30 January 2015 and the Dubai and Singapore businesses, the closures of which were announced in November 2014 and June 2015 respectively. Further details are included in Section 1.4.4.

Increasing assets

Group assets under administration and net flows

Group AUA increased by 4% to £307.4bn driven by strong net flows in our fee business and favourable market movements. Fee based AUA account for over 90% of total Group AUA.

Total Group gross inflows increased to £43.0bn (2014: £34.0bn) and Group net inflows increased to £6.3bn (2014: £1.0bn) driven by strong demand in our growth channels. This included Standard Life Investments third party growth net inflows which increased to £10.3bn (2014: £1.7bn) with continued strong demand for our multi-asset and MyFolio funds. UK & Europe growth business net inflows of £6.7bn (2014: £5.8bn) were driven by record flows into our Wrap platform.

This was offset by net outflows in our mature books. This was largely due to net outflows of £4.8bn (2014: £1.6bn) from the assets managed on behalf of Phoenix Group², which included a £1.4bn one-off outflow.

Maximising revenue

Fee based revenue

Fee based revenue increased by 10% to £1,579m driven by strong performance in our UK pensions and savings business and Standard Life Investments third party growth channels. The contribution from Ignis increased by £33m (2015: £106m, 2014: £73m) due to the inclusion of a full year's result.

Fee based revenue for our mature book of business benefited from the inclusion of a full year of revenue from Phoenix Group².

Spread/risk margin

Spread/risk margin, which mainly relates to the margin earned on UK annuities, decreased by 21% to £145m. The benefit of asset and liability management actions which focus on ensuring an efficient use of capital was lower than 2014, in line with our guidance, due to fewer opportunities in the low yield environment. Spread/risk margin was also impacted by reduced annuity sales following the 2014 Budget changes.

²      The mandate to manage the Phoenix Group assets was included as part of the acquisition of Ignis and was therefore not part of net flows and fee based revenue prior to the acquisition in July 2014.

Further information on AUA and net flows is included in Supplementary information in Section 11.

Group net flows	2015 £bn	2014 £bn
Standard Life Investments third party	10.3	1.7
UK & Europe growth business	6.7	5.8
Eliminations and other growth	(2.1)	(1.4)
Total growth	14.9	6.1
Standard Life Investments third party strategic partner life business	(4.8)	(1.6)
UK & Europe mature business	(3.1)	(2.8)
UK & Europe spread / risk	(0.9)	(0.9)
Total mature	(8.8)	(5.3)
Associate and joint venture life businesses	0.2	0.2
Group total	6.3	1.0

Lowering unit costs

Operating expenses increased by 8% to £1,124m (2014: £1,045m) reflecting further investment in expanding the global reach of Standard Life Investments, including a full year of expenses in relation to Ignis (2015: £60m, 2014: £37m), acquired in 2014. Whilst we invest to enhance our propositions and capabilities, we have also demonstrated our scalability with operating expenses expressed as a proportion of average AUA decreasing to 40bps.

Driving Profit

Group operating profit before tax

Group operating profit before tax continues to be a key measure which provides an indication of our ability to deliver returns for our shareholders.

Group operating profit before tax increased by 9% to £665m (2014: £608m), driven mainly by strong fee revenue performance in our growth channels. This was tempered by a combination of expected challenging conditions impacting spread/risk margin in the UK business due to the current low yield environment, and the 2014 Budget changes to annuities.

Our share of profit from associates and JVs also contributed to the growth in operating profit. This includes continued strong performance by HDFC Life and HDFC Asset Management in India and continued progress from Heng An Standard Life in China.

Group underlying performance

Group underlying performance increased by 12% to £630m. This excludes the benefit of operating assumption and actuarial reserving changes of £44m (2014: £43m) and an expense relating to shareholder support provided to the German With Profits Fund (GWPF) of £9m (2014: £nil).

IFRS profit after tax

IFRS profit after tax from continuing operations decreased to £276m (2014: £376m) mainly due to higher non-operating losses including short-term fluctuations in investment return and economic assumption changes which generated a loss of £63m (2014: gain £17m) and a £46m charge in Hong Kong following regulatory change. Further information is included on page 17.

Analysis of Group operating profit is included in Section 1.4.

Group underlying cash generation 

Group underlying cash generation aligns closely with how the business is managed and demonstrates our ability to generate cash that supports further investment in the business and the payment of dividends to our shareholders.

Group underlying cash generation increased to £447m due to higher Group underlying performance. The change in mix of profits towards our growth channels contributes to higher current tax on underlying performance.

Reconciliation of Group underlying cash generation	2015 £m	2014 £m
Group underlying performance from continuing operations	630	565
Exclude share of associates and JVs' profit before tax	(56)	(39)
Less current tax on underlying performance	(114)	(73)
DAC/DIR adjustment	5	(14)
Fixed and intangible asset adjustment	(18)	(20)
Group underlying cash generation	447	419

Visit www.standardlife.com/investor for more information on underlying cash generation

Optimising the balance sheet

Group operating return on equity 

Return on equity measures our success in generating profit relative to our shareholder capital. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.

Group operating return on equity, which includes discontinued operations, decreased to 14.2%¹ (2014: 14.9%) as a result of a higher tax charge and the impact of the low interest rate environment on the returns earned on the net retained proceeds from the disposal of the Canadian business. We intend to invest c£175m of the net retained proceeds to increase our stake in HDFC Life. 

Our key growth channels including Standard Life Investments third party and UK workplace and retail are capital-lite - this means that they do not require significant amounts of additional capital as they continue to grow.

¹      Receipt of sale proceeds of £2.2bn and £1.75bn return of value both assumed to have taken place on date of disposal of the Canadian business (30 January 2015) for calculation of the Group operating return on equity. This assumption increased Group operating return on equity from 13.2% to 14.2%.

Group capital surplus

Up to 31 December 2015 the Group capital surplus was measured in accordance with the Insurance Group Directive (IGD).

On 1 January 2016, the Solvency II regulatory regime came into force for insurers across Europe. Under Solvency II, every insurer is required to identify its key risks - e.g. that equity markets fall - and hold sufficient capital to withstand adverse outcomes from those risks. The capital required to withstand these outcomes is the Solvency II 'Solvency capital requirement', or SCR. The SCR is calibrated so that the likelihood of a loss exceeding the SCR is less than 0.5% over one year. This ensures that capital is sufficient to withstand broadly a '1 in 200 year event'. The capital resources available to meet the requirements are called 'Own funds'. Own funds differ materially from IFRS equity for a number of reasons, including the different treatment of certain items, such as pension scheme surpluses and most intangibles, and a different approach for calculating actuarial liabilities.

Insurance Group Directive

Group IGD capital surplus over regulatory requirements decreased to £2.7bn² (2014: £2.9bn) primarily due to a net £0.2bn reduction resulting from the sale of our Canadian business comprising of:

·   The removal of its contribution to Group surplus of £0.6bn at FY 2014

·   The return of value to shareholders in April 2015 of £1.75bn

·   Partially offset by the disposal proceeds of £2.2bn received in January 2015 

Capital generated by the business was offset by the payment of the 2014 final dividend of £224m in May 2015 and the 2015 interim dividend of £119m in October 2015.

Solvency II

The Group is well capitalised under these new rules with Group Solvency II capital surplus of £2.1bn representing a Group solvency cover of 162%.

These Group figures do not take account of £1.2bn of capital in subsidiaries that is not deemed to be freely transferrable around the Group. This additional capital helps absorb market and other volatility, resulting in a resilient Group Solvency II capital surplus.

For example the Group Solvency II capital surplus of £2.1bn would change by £0.1bn or less following a:

·   20% fall in equities, or

·   100bps rise or fall in fixed interest yields, or

·   50bps rise or fall in credit spreads

Solvency II capital position2	1 Jan 2016
Group own funds	£5.5bn
Group solvency capital requirement (SCR)	(£3.4bn)
Group Solvency II capital surplus	£2.1bn
Group solvency cover	162%

²    Based on draft regulatory returns.

Liquidity management

Standard Life plc, the Group holding company, holds substantial cash and liquid resources. At 31 December 2015, Standard Life plc held £571m (2014: £300m) of cash and short-term debt securities, £290m (2014: £357m) of bonds and £200m (2014: £nil) of holdings in pooled investment funds managed by Standard Life Investments.

Standard Life plc cash and liquid resources were boosted by the net retained proceeds from the disposal of the Canadian business, consisting of the proceeds received from the disposal less the return of value to shareholders of £1.75bn.

The Group continues to maintain a strong liquidity position and this was again shown in the stress testing undertaken during 2015.

In May 2015, we reduced our syndicated revolving credit facility which we hold as part of our contingency funding plans, to £400m (2014: £500m) in line with our lower risk profile following the sale of the Canadian business. The maturity date for this facility was extended until 2020 and is currently undrawn.

Subject to regulatory approval, we intend to increase our stake in HDFC Life in India by 9% to 35% (at a cost of approximately £175m). This would be paid from existing Standard Life plc cash and liquid resources.

Standard Life plc cash and liquid resources	2015 £m	2014 £m
Opening 1 January	657	907
Canada net retained proceeds	460	-
Dividends received from subsidiaries	355	613
Cash dividends paid to shareholders	(343)	(386)
Cash investments in subsidiaries	(44)	(431)
Cash investments in associates and JVs	(3)	(14)
Other	(21)	(32)
Closing 31 December1	1,061	657
1     Liquid resources include uncashed cheque payments relating to dividends and return of value of £49m (2014: £27m).

Further financial highlights

This section covers further financial highlights which help to explain the Group financial performance.

A reconciliation of Group operating profit to IFRS profit for the year is included in the Group financial statements section of this report.

IFRS profit²

Total IFRS profit, including discontinued operations, increased to £1,423m (2014: £503m) and included the £1,102m gain on sale of the Canadian business.

IFRS profit from continuing operations decreased to £276m (2014: £376m) due to an increased non-operating loss of £257m (2014: £157m). The non-operating loss consists of:

·   Short-term fluctuations in investment return and economic assumption changes which generated a loss of £63m (2014: gain £17m) mainly due to adverse UK economic variances driven by market movements on assets backing subordinated liabilities

·   Restructuring and corporate transaction expenses of £115m (2014: £109m), which included £35m for staff pension scheme restructuring, £27m for the integration of Ignis, and other business unit restructuring programmes

·   Other non-operating loss of £79m (2014: £65m), which includes a £46m loss in Hong Kong mainly due to an impairment of deferred acquisition costs following regulatory change and £20m (2014: £15m) amortisation of acquired intangibles primarily relating to the acquisition of Ignis. There was also a further £5m (2014: £43m) impairment charge on the Ignis intangible assets acquired following outflows from the Absolute Return Government Bond Fund.

The total tax expense attributable to equity holder's profit from continuing operations was £77m (2014: £42m). Further details are included on the next page.

Other³ profit from continuing operations comprises the share of associates and JV tax of £13m (2014: £5m) and Dubai and Singapore IFRS loss before tax of £42m (2014: loss £28m) which mainly relates to expenses for the closure of the Singapore business.

		2015	2014
		£m	£m
Continuing operations:
Group operating profit before tax	665			608
Non operating loss before tax	(257)			(157)
Total tax expense	(77)			(42)
Other3	(55)			(33)
IFRS profit from continuing operations	276			376
IFRS profit from discontinued operations	1,147			127
Total IFRS profit	1,423			503

²    After tax attributable to equity holders of Standard Life plc.

³      Dubai and Singapore are presented as discontinued operations in the Strategic report and in the Group operating profit by segment in line with internal management presentation. However, under IFRS 5, Dubai and Singapore do not constitute discontinued operations and are included in continuing operations in the consolidated income statement. Therefore, a reclassification of these results between discontinued and continuing operations is required. For further information see Note 2 in the Group financial statements section.

IFRS profit from discontinued operations is discussed in Section 1.4.4

Group tax expense from continuing operations

The tax expense attributable to equity holders' profit in 2015 was £77m (2014: £42m) of which £114m (2014: £82m) related to operating items and a £37m credit (2014: credit £40m) to non-operating items. The increase in the total tax expense reflects prior year adjustments and deferred tax not recognised (such as from losses on the closure of our Singapore business) due to the uncertainty of the availability of tax relief in the future.

The effective tax rate increased from 10% in 2014 to 19% in 2015, due to the above factors. There are a number of one-off items affecting both years but over time we would expect the effective tax rate on profit attributable to equity holders (excluding one-off items in any given year) to remain broadly in line with the UK corporation tax rate.

In 2015, our total tax contribution from continuing operations to tax authorities in all the jurisdictions in which we operated was £1,059m (2014: £791m). Of the total, £332m (2014: £331m) was taxes borne by the Group whilst £727m (2014: £460m) represents tax collected by us on behalf of tax authorities. Taxes borne and tax collected are higher than 2014 mainly due to increased taxes collected at source (e.g. tax deducted from pension payments), increased VAT collected and increased employment taxes. The increase was primarily related to the UK, where the total tax contribution was £944m (2014: £565m), out of the total £1,059m.

Of the taxes collected items the largest are PAYE deducted from both pension payments made to customers and from employee payroll payments.

Tax policy

Within the Group's enterprise risk management framework, the Group has a tax policy which supports the delivery of the Group's business objectives. The Group pro-actively manages tax risks and employs an experienced in-house tax team to oversee the tax affairs of the Group who report the Group's tax position and material tax issues to the Audit Committee.

In addition, the Group participates in the development of tax policy and legislation through engagement with tax authorities on tax consultations and involvement with representative bodies such as the Association of British Insurers and the Investment Association. This is done in line with our business strategy and to promote a stable environment for long term savings and investments.

Visit www.standardlife.com/annualreport for details of the key principles underlying our tax policy

Dividends

Dividend policy

Standard Life plc has a progressive dividend policy. The objective of the policy is to grow the annual dividend from the prior year pence per share payment. Our intention is to grow the dividend at a rate that is sustainable over the long-term.

How the dividend is funded

External dividends are funded from the cumulative dividend income that Standard Life plc receives from its subsidiaries. To provide some protection against fluctuations in subsidiary dividends, Standard Life plc holds a buffer of distributable cash and liquid resources. This buffer is dynamic and takes into account expected future subsidiary dividend flows and the risks to those dividends. Further information on the principal risks and uncertainties that may affect the business and therefore dividends is provided in Section 1.5.

Proposed dividend

The Board is recommending a final dividend for 2015 of 12.34p per ordinary share - an increase of 8.0% on last year's final dividend. This will be paid on 24 May 2016 to shareholders on the register at close of business on 15 April 2016.

The 2014 final dividend and 2015 interim dividends were paid on the lower adjusted number of ordinary shares following the share consolidation. The 2015 final dividend and future dividends will also be paid on this basis.

The total payment for the final dividend is expected to be £243m. This is strongly supported by the £1.1bn of cash and liquid resources which are backed by £1.1bn of Standard Life plc distributable reserves as at 31 December 2015.

The final dividend, combined with the 2015 interim dividend of 6.02p which was paid in October 2015, will bring the total dividend for the year to 18.36p - an increase of 7.8% on the 2014 full year dividend.

Return of value

We also returned an additional £1.75bn or 73p per share to shareholders in 2015 following the completion of the sale of the Canadian business.

1.4 Business performance

The Group's reportable segments have been identified in accordance with the way the Group is structured and managed.

Continuing operations

The performance of the Group's continuing operations are set out in Sections 1.4.1 to 1.4.3. The table below presents analysis of operating profit from continuing operations.

Analysis of operating profit1 from continuing operations
	Standard Life   Investments		UK and           Europe		India and        China2		Other3		Eliminations4		Total      continuing      operations
	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	843	686	808	802	38	49	-	-	(110)	(108)	1,579	1,429
Spread/risk margin	-	-	145	183	-	-	-	-	-	-	145	183
Total income	843	686	953	985	38	49	-	-	(110)	(108)	1,724	1,612
Total operating expenses	(532)	(450)	(610)	(605)	(36)	(44)	(56)	(54)	110	108	(1,124)	(1,045)
Capital management	-	-	14	10	-	-	(5)	(8)	-	-	9	2
Share of associates' and JVs' PBT	31	21	-	-	25	18	-	-	-	-	56	39
Group operating profit before tax	342	257	357	390	27	23	(61)	(62)	-	-	665	608
Underlying adjustments5	-	-	(35)	(43)	-	-	-	-	-	-	(35)	(43)
Group underlying performance	342	257	322	347	27	23	(61)	(62)	-	-	630	565
1       Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs, impairment of intangible assets, amortisation of intangible assets acquired in business combinations, gain or loss on the sale of a subsidiary, associate or joint venture and other significant one-off items outside the control of management and not indicative of the long-term operating performance of the Group. The impact of the restructuring of the UK staff pension scheme has been adjusted so that 2015 operating profit is based on the expected long-term pension expense, which results in a £35m increase to 2015 operating profit before tax (2014: £15m) and a corresponding increase to 2015 non-operating restructuring and corporate transaction expenses - Refer to Note 10 in the Group financial statements section for further information. 2       India and China segment was formerly known as Asia and Emerging Markets. Dubai and Singapore are included in discontinued operations in Section 1.4.4. 3       Other primarily relates to corporate centre costs and head office related activities. 4       Eliminations primarily relate to revenue and expenses included in the UK and Europe segment and Standard Life Investments. Therefore, at a Group level an elimination adjustment is required to remove intra Group impacts. 5       Relates to operating assumption changes of £44m (2014: £43m), included in spread/risk margin and principally in respect of mortality assumption changes, and to shareholder support provided to the German with profits business of £9m (2014: £nil), included in operating expenses.

Discontinued operations

Following changes in the Group structure and operations in 2014/15, continuing operations for segmental reporting purposes excludes our Canadian business which was sold on 30 January 2015 and our Dubai and Singapore businesses, the closures of which were announced in November 2014 and June 2015 respectively. Further information on discontinued operations can be found in Section 1.4.4.

1.4.1 Standard Life Investments

Overview 

Standard Life Investments is a leading active asset manager with total AUM of £253.2bn (2014: £245.9bn), representing over 80% of Group AUA.

We offer market-leading investment funds and solutions to our third party clients through two main distribution channels:

·   Institutional: selling to institutions either directly or through intermediaries

·   Wholesale: selling funds and solutions to retail investors through wholesale distributors and platforms

We have developed our investment capabilities across a range of asset classes, including equities, fixed income, real estate and private equity. We also provide innovative investment solutions, such as high quality multi-asset and liability aware investments, including our absolute return strategies, and our wealth proposition available through Standard Life Wealth.

We remain focused on meeting the needs of our institutional and wholesale clients globally and securing new business backed by consistently strong investment performance and exceptional levels of client service.

Our associate business, HDFC Asset Management, remains the largest private sector asset manager in India with AUM of £17.4bn¹.

Our global reach continues to expand and we now have presence in 27 cities worldwide including our Head Office in Edinburgh and regional hubs in Boston and Hong Kong. As well as our own distribution, we also benefit from leveraging our strategic partner relationships in the US, Canada, India, Asia, Japan and with the wider Standard Life Group.

Our distinctive 'Focus on Change' investment philosophy lies at the heart of our wide range of investment funds and solutions. As active managers, we place significant emphasis on rigorous research and a strong team ethos. This, combined with disciplined risk management and shared commitment to a culture of investment excellence, is fundamental to helping our clients look forward to their future with confidence.

¹    As at 31 December 2015, based on 100% shareholding.

Sustainable global growth

A multi-speed world remains in place at the start of 2016, with recessions and slower growth in some areas, especially emerging markets, offset by continued strength in others, especially in the US and Europe. Good cost control and lower commodity prices have allowed many companies to maintain profit levels, but weak financial markets at the start of the year reflect worries about earnings downgrades ahead. In this environment, selective allocation to risk markets and yield opportunities remains an appropriate strategy. In the UK, regulatory change impacting pensions presents ongoing opportunities for us to provide solutions to meet client needs, particularly for our multi-asset suite of products and MyFolio risk based funds.

We continue to invest to drive performance to both raise our profile and enhance our infrastructure to support our growth ambitions. We are strengthening the range of investment solutions we offer, including new innovative propositions across the range of asset classes.

We recognise that corporate governance along with responsible stewardship of a business' capital, employees, customers and environment has a fundamental impact on long-term investment returns. Our commitment to socially responsible investing was reflected in Standard Life Investments being voted as the leading UK asset management firm in this area at the Extel 2015 Awards.

We remain well positioned to deliver profitable growth. We have a strong pipeline of new investment funds and solutions which positions us well to continue to meet the changing demands of our clients through new and innovative investment solutions. Despite net outflows again in 2015, Ignis remains of strategic importance and value to us.  The integration of the business is on track and we expect to achieve £50m of annual cost savings by 2017.

Our focus on delivering consistently strong investment performance and strengthening relationships with our strategic partners continues.

Increasing assets

We are one of the five largest asset managers in the UK and one of the largest active managers in institutional and wholesale markets. We are also ranked as one of the 50¹ largest asset managers globally by AUM.

Strong investment performance

Growth in AUM to £253.2bn (2014: £245.9bn) was underpinned by excellent money weighted average investment performance. 90% of third party² funds were ahead of benchmark over five years, with 95% ahead over three years and 88% over one year (2014: five years 88%, three years 98%, one year 69%).

Our equity funds performed strongly with 94% of funds ahead of benchmark at three years (one year 89%, five years 78%). Fixed income funds also continued to perform strongly with 84% of funds ahead of benchmark at three years (one year 63%, five years 91%). 100% of our suite of multi-asset funds has outperformed their cash benchmark over three and five years (one year 99%).

Growth in third party net flows

Strong third party net inflows of £10.3bn (2014: £1.7bn), largely in our growth business channels of institutional and wholesale, were impacted by the disinvestment of a £1.7bn low revenue margin mandate within Ignis third party². Excluding Ignis, net inflows for third party² increased 113% to £12.8bn (2014: £6.0bn). This result reflects the diverse nature of our product offering, our expanding global distribution capability and the increasingly international nature of our client base.

Strategic partner life business

In our mature business channels, overall strategic partner life business net outflows increased to £6.8bn

(2014: £4.0bn). This was largely due to net outflows of £4.8bn from the assets managed on behalf of Phoenix Group, which included a £1.4bn one-off outflow. Net outflows from Standard Life Group reduced slightly to £2.0bn (2014: £2.4bn).

¹      Source: P&I Research Centre data for 2014 closing AUM.

²    Excluding strategic partner life business.

Further information on AUA and net flows is included in Supplementary information in Section 11.

Maximising revenue

Our track record of superior investment performance attracts customers towards our higher margin products.

Increased fee based revenue

Fee based revenue increased by 23% (£157m) due to increased AUM, a continued shift in mix towards our higher margin third party products and benefiting £33m from a full year's revenue from Ignis (2015: £106m, 2014: £73m). Our revenue yield on third party¹ AUM remained strong at 52bps (2014: 53bps) reflecting the inclusion of Ignis, which is lower average margin, for the full year. The revenue yield for strategic partner life business increased 1bp to 17bps.

¹    Excluding strategic partner life business.

Lowering unit costs

We are controlling our cost base as our business grows, capitalising on economies of scale across Standard Life Investments and the wider Group.

Controlled operating expense growth

We have maintained our operating expenses at 22bps (2014: 22bps) and the integration of Ignis remains on track to deliver £50m of annual cost synergies by 2017.

Total operating expenses increased by 18% (£82m) reflecting the increased scale of our business, including an increase of £23m from a full year of operating expenses in Ignis (2015: £60m, 2014: £37m). We continue to see a larger increase in revenue relative to expenses showing our ability to be a scalable business through investment in expanding distribution and geographic reach.

Driving Profit

Operating profit before tax increased 33% to £342m (2014: £257m). Key drivers included strong fee revenue growth, contribution of £46m (2014: £36m) from Ignis which was acquired on 1 July 2014 and increased share of profit before tax for HDFC AMC, our associate business in India, due to increased AUM in 2015.

Operating return on equity reduced to 36.3% (2014: 36.7%) reflecting that although profitability increased there was also increased equity following the Ignis acquisition.

EBITDA increased to £352m (2014: £266m) including £50m (2014: £37m) contribution from Ignis. Our EBITDA margin of 42% (2014: 39%) remains strong, and we are on track to achieve our target margin of 45% by 2017.

A further impairment charge of £5m (2014: £43m) has been made on the acquired Ignis intangible assets due to continued third party outflows. Ongoing management of costs, combined with improved revenue margins, has resulted in an 18% compound annual growth in EBITDA over the last 10 years.

	2015	2014
	£m	£m
Fee based revenue	843	686
Operating expenses	(532)	(450)
Share of associates profit before tax	31	21
Operating profit before tax	342	257
Interest, depreciation, amortisation, FX movements	10	9
EBITDA	352	266

Increased global presence

We continue to expand our global reach and now have a presence in 27 cities worldwide with clients in 46 countries around the globe.

Our Head Office is in Edinburgh supported by regional hubs in Boston and Hong Kong. These regional hubs provide a variety of shared resources and services to support sales and client servicing.

We reach retail customers either through Standard Life's wholesale, workplace or direct distribution in the UK or through strategic partnerships with Sumitomo Mitsui in Japan, HDFC in India, John Hancock in the US and Manulife in Canada and Asia.

Awards and recognition

Our dedication to meeting clients' financial needs resulted in us winning a number of industry awards, including:

·   Four Lipper Awards for Best Equity House for Austria, Switzerland, Netherlands and Hong Kong

·   UK Equity Income Unconstrained Fund won the UK Core Equity category at the Institutional Investor Awards and the UK Equity Income category at the Investment Adviser 100 Club Awards

·   Diversified Growth Fund Manager of the year - Financial Times PIPA Awards 2015

·   DC Investment Manager of the Year - Professional Pension Awards 2015

·   Best Targeted Absolute Return Fund Provider - Investment Life & Pensions Moneyfacts Awards

·   Best Fixed Income Manager - Annual Chief Investment Officer Innovation Awards 2015

·   Global Equity Income Fund won the Best Smaller Global Equity Income Fund category at the Money Observer awards

AUM and net flows detailed analysis

Total AUM increased 3% to £253.2bn (2014: £245.9bn) largely as a result of strong investment performance and good net inflows. AUM comprised third party¹ AUM of £130.5bn (2014: £117.5bn) and strategic partner life business AUM of £122.7bn (2014: £128.4bn). Third party¹ AUM increased to 52% of total AUM (2014: 48%). Strong third party¹ net inflows of £10.3bn (2014: £1.7bn) represent 9% of opening assets under management. Institutional and wholesale net inflows more than doubled to £12.6bn (2014: £6.0bn).

Total net inflows increased to £3.5bn (2014: £2.3bn outflows) reflecting our expanding distribution footprint.

Third party¹ 

By channel:

Institutional - increasingly global

Our increasingly global institutional business saw net inflows of £3.3bn (2014: £0.8bn). Our pipeline of institutional business continues to see fixed income, real estate and multi-asset propositions attract interest.

Wholesale - new record

We continued to perform well with record net inflows of £9.3bn (2014: £5.2bn). Net inflows into MyFolio, equities, fixed income and multi-asset strategies remain particularly strong.

Our position in the wholesale market in the UK strengthened with share of gross sales of 5.4% (2014: 4.5%). We are now the third largest manager of UK mutual funds, up from eighteenth in 2010. UK mutual funds AUM increased by 22% to £26.7bn and represents 20% of third party assets.

Wealth

Standard Life Wealth continues to develop and as we improve the operational scalability of the business, we expect it will start to gain momentum in the market. AUM increased to £6.5bn (2014: £6.1bn) due to £0.2bn of net inflows (2014: £nil) and positive market movements.

Ignis

Ignis, which is mostly institutional in nature, saw net outflows of £2.5bn, following the disinvestment of £1.7bn from one large low revenue margin mandate. The Absolute Return Government Bond Fund net outflows have reduced to £0.5bn in 2015 following the £2.6bn net outflow in 2014. 

By asset class²:

Multi-asset continued to have strong net inflows, contributing £9.5bn (2014: £5.1bn) as AUM increased to £50.3bn (2014: £38.6bn). MyFolio saw net inflows of £1.9bn (2014: £1.6bn) as AUM increased to £8.1bn (2014: £5.9bn).

Net flows were also improved in fixed income of £0.3bn (2014: £1.0bn outflows), and equities £nil (2014: £1.3bn outflows). Real estate net inflows were £0.3bn (2014: £0.7bn).

By geography²:

Continued strong net inflows in North America of £3.0bn (2014: £1.5bn) contributed to AUM reaching £11.7bn (2014: £8.1bn). European net inflows increased by 162% to £3.4bn (2014: £1.3bn). We began to see increasing success in Asia Pacific, with net inflows of £1.2bn (2014: £0.4bn). In India, our share of HDFC AMC net inflows were good at £0.8bn (2014: £0.9bn). Our domestic UK business also performed strongly with net inflows of £4.4bn (2014: £1.9bn).

¹    Excluding strategic partner life business.

²    'By asset class' and 'By geography' commentary excludes Ignis which is reported separately. Full information on AUM and flows can be found in the Supplementary information in Section 11.

AUM and net flows by channel

	Net flows				AUM
	2015	2014			2015		2014
	£bn	£bn			£bn		£bn
Institutional	3.3	0.8			67.0		61.4
Wholesale	9.3	5.2			45.9		35.5
Wealth	0.2	-			6.5		6.1
Ignis	(2.5)	(4.3)			11.1		14.5
Total third party1	10.3	1.7			130.5		117.5
Standard Life Group	(2.0)	(2.4)			83.1		84.6
Phoenix Group	(4.8)	(1.6)			39.6		43.8
Total strategic partner life business	(6.8)	(4.0)			122.7		128.4
Total	3.5		(2.3)		253.2	245.9

¹    Excluding strategic partner life business.

1.4.2 UK and Europe Pensions and Savings

Overview

Our UK and Europe business is a leading provider of long-term pensions, savings and investment propositions to workplace and retail customers. We remain focused on being customers' first choice for their life savings and aim to achieve this by providing engaging, digital-led solutions which can adapt to customers' needs over their lifetimes. AUA for our UK and Europe business has grown to £150.2bn (2014: £145.9bn). Within this, our market-leading workplace pensions now look after 1.7m customers with AUA of £33.0bn (2014: £32.0bn).

Our close collaboration with Standard Life Investments allows us to engage with customers across the value chain, providing benefit to our customers, our business and Standard Life as a whole. Over 85% of the MyFolio funds relate to assets distributed and administered by our UK and Europe business.

A period of change and opportunity

2015 saw the implementation of significant new regulations within the UK. The pension freedoms, effective from 6 April 2015, have provided customers with increased flexibility when accessing income in retirement. This resulted in operational challenges across the industry, with unprecedented levels of customer contact as our customers sought to understand their options. Call volumes have now dropped but relative to 2014 we experienced a 50% increase in calls where customers were looking for guidance and support with their retirement decisions. The increased complexity of options means call times have lengthened considerably. Feedback from customers shows that they really value the thorough approach we take but one consequence is that customers have had to wait longer to speak to our experts than we would have liked. We are sorry about this. We have recruited additional customer support staff, trained our people and improved processes to respond and help deliver this valuable service more quickly and efficiently. In the first nine months of the pension freedoms, 10% of our eligible customers made use of the new regulations.

Our drawdown propositions and our award-winning Wrap platform support advisers and provide customers with the quality and choice to make the most of their retirement. Whilst the new regulations give customers greater control and flexibility, with increased choice comes complexity. We anticipate a significant increase in demand for financial advice and in response to this are building our own financial advice business under the brand 1825 - the year Standard Life was founded.

In a market influenced by regulatory change, our workplace business continues to build scale. Since auto enrolment began in 2012, we have helped over 5,100 employers set up Qualifying Workplace Pension Schemes (QWPS) with over 820,000 members enrolled into these. In April 2015, we upgraded pension schemes to ensure that all schemes used for auto enrolment complied with new regulations capping charges for QWPS. It also means that the vast majority of new members are now joining one of our two flagship workplace pension solutions.

In January 2016, the Government announced that the Financial Conduct Authority would have the power to cap excessive exit charges for those eligible for pension freedoms. Less than 7% of our customers have a potential exit charge, with the average exit charge less than 1% of their fund value.

In the July 2015 UK Budget, the Chancellor announced a Green Paper consultation on pension tax relief. We have engaged constructively in the debate to help ensure that any changes to tax relief balances the short-term fiscal savings with the long-term need to ensure that UK citizens are incentivised to save for retirement.

The challenges arising from a prolonged low interest rate environment have been felt in a number of European jurisdictions. In Germany, we believe the level of guarantees typically provided by insurers have become unsustainable. Our German with profits business closed to new business in the year with the focus firmly on unit linked business where we have seen net inflows double in 2015.

The Solvency II regime came into force in January 2016 bringing consistency to the way EU insurers manage capital and risk. We have enhanced our controls, risk models, technology and processes. Our internal model application has been approved by the Prudential Regulation Authority which means the capital we hold will be directly related to the risks we are exposed to and will take account of the benefits of the risk management tools we have in place.

Increasing assets

UK and Europe AUA increased by 3% to £150.2bn (2014: £145.9bn). Fee based AUA which accounts for 85% of total AUA increased by 5% to £127.6bn (2014: £122.1bn), benefiting from a combination of net inflows and favourable market movements.

Workplace

AUA in our UK workplace growth channel increased 3% to £33.0bn benefiting from net inflows of £1.9bn (2014: £2.2bn). Whilst we have seen reduced net inflows from large scheme transfers as employers adapt to new pension regulations, we are benefiting from growing contributions into our existing schemes which provide a steady long term source of growth.

Our success in attracting new flows through auto enrolment has resulted in a 9% increase in regular premiums to £2.9bn. Regular premiums now account for over 70% of workplace inflows. In addition, our workplace business provided £2.1bn of assets into our retail business in 2015. 73% of our workplace AUA is managed by Standard Life Investments.

UK retail

Net inflows of £3.9bn (2014: £2.9bn) into our UK retail growth channel were driven by a 27% increase in gross inflows to £7.5bn (2014: £5.9bn).

Our Wrap¹ platform continues to lead the UK advised platform market² with AUA increasing 22% to £25.5bn (2014: £20.9bn). In 2015 we have added 123 new firms and now have 1,463 firms using our Wrap platform.

SIPP AUA rose to £29.7bn (2014: £26.2bn) with £13.6bn (2014: £11.5bn) of assets invested in our market-leading drawdown proposition. Our Active Money Personal Pension (AMPP) product grew 70% to £1.3bn. This provides customers with a simple means of accessing their income in retirement. Over 60% of funds in AMPP are invested in the Standard Life Active Retirement fund, which has been our fastest selling insured fund to date.

UK mature retail

Our UK mature retail book of business saw a 9% increase in net outflows to £2.4bn with customers taking advantage of pension freedoms. We look to engage with our customers who are approaching retirement or have maturing policies to help ensure they are equipped to make informed decisions. This is valued by our customers with many choosing to continue to save with us. We continue to benefit from ongoing increments, customers transferring to our UK retail propositions from our workplace business and positive market movements.

Spread/risk

UK and Europe spread/risk AUA decreased to £14.9bn (2014: £16.1bn), with net outflows of £0.9bn (2014: £0.9bn) as annuity sales were impacted by pension freedoms.

Europe

In our Europe business, AUA in our growth channels of £9.6bn is up 10% on 2014 with net inflows of £0.9bn (2014: net outflow £0.7bn) offset partly by adverse foreign exchange movements. Within this, net inflows in Germany from unit linked business doubled in 2015. In Ireland net inflows increased 8% to £0.7bn with growth in both our domestic and international bond businesses.

Further information on AUA and net flows is included in Section 11.

	Net flows			AUA
	2015	2014		2015	2014
	£bn	£bn		£bn	£bn
Workplace3	1.9	2.2		33.0	32.0
UK retail1	3.9	2.9		42.6	37.3
Europe growth fee1	0.9	0.7		9.6	8.7
Total growth business	6.7	5.8		85.2	78.0
UK mature retail	(2.4)	(2.2)		32.7	33.5
Spread/risk	(0.9)	(0.9)		14.9	16.1
Europe mature fee4	0.2	0.4		8.4	8.5
Conventional with profits	(0.9)	(1.0)		1.3	2.1
Total mature business	(4.0)	(3.7)		57.3	60.2
Assets not backing products	-	-		7.7	7.7
Total UK and Europe	2.7	2.1		150.2	145.9
1      Wrap AUA reported predominantly within UK retail fee business (2015: £23.4bn, 2014: £19.2bn), offshore bond is reported within Europe growth fee (2015: £2.1bn, 2014: £1.7bn). 2      Highest net sales in Q3 YTD 2015, source Fundscape. 3      In 2015 UK corporate assets have been renamed as workplace. 4      Europe mature fee includes German with profits business which closed to new business during 2015.

Maximising revenue

Fee based revenue

UK fee based revenue increased £12m to £631m benefiting from higher AUA as a result of favourable market movements and workplace and retail net inflows. Average fee revenue yield reduced to 59bps (2014: 62bps) reflecting the impact of changes in business mix including a growing proportion of newer style propositions, the impact of the price cap on qualifying workplace pension schemes and an £11m reduction in revenue earned on client cash balances.

Spread/risk margin

UK spread/risk margin which mainly relates to our annuity business decreased by £33m to £143m. This included the expected reduction in the benefit from asset and liability management to £30m, as fewer opportunities for more effective management of our assets existed in the current low yield environment. This was accompanied by a reduction in the new business margin of £14m to £6m, caused by a 68% reduction in annuity sales as a result of the 2014 Budget changes.

Lowering unit costs

UK operating expenses decreased £1m to £455m. Expressed as a proportion of average AUA, operating expenses decreased to 39bps (2014: 42bps) as we continue to benefit from the scalability of our business model and cost discipline.

Our investment in technology has allowed further process automation and customer self service which has helped to lower unit costs. Examples of our progress include:

·   Our online retirement journey allows customers to access their savings on a fully self-serve basis. Since April 2015, 70% of direct customers moving to AMPP drawdown used this journey and 90% of customers would recommend us to a friend

·   Our online Good to Go proposition meets the needs of smaller employers efficiently: processing schemes on the same day as application and has secured nearly 4,000 schemes to date

·   The introduction of greater automation to our SIPP drawdown process which will reduce the set-up time by up to 80% and facilitate tax efficient income withdrawals

Driving Profit

UK and Europe operating profit before tax reduced by 8% to £357m, with underlying performance decreasing by 7% to £322m.

UK

UK operating profit reduced by £16m to £334m, as robust performance in fee business was more than offset by the £33m reduction in spread/risk margin which included a lower contribution from asset and liability management as expected.

Europe

Europe operating profit reduced by £17m to £23m and includes the previously disclosed H1 2015 £9m shareholder support provided to the German with profits business. This is a one-off contribution as we no longer write new with profits business in Germany. Europe underlying performance was £8m lower at £31m with the impact of a reduced benefit from asset and liability management and adverse foreign exchange movements offsetting fee revenue growth in our German and Ireland business.

Return on equity

Operating return on equity decreased to 15.2% (2014: 21.8%) reflecting the decrease in operating profit after tax to £303m (2014: £347m) and higher opening shareholder net assets.

Profitability	UK		Europe		UK and Europe
	2015	2014	2015	2014	2015	2014
	£m	£m	£m	£m	£m	£m
Fee based revenue	631	619	177	183	808	802
Spread/risk margin	143	176	2	7	145	183
Total income	774	795	179	190	953	985
Operating expenses	(455)	(456)	(155)	(149)	(610)	(605)
Capital management	15	11	(1)	(1)	14	10
Operating profit before tax	334	350	23	40	357	390
Underlying adjustments1	(43)	(42)	8	(1)	(35)	(43)
Underlying performance	291	308	31	39	322	347
1      Relates to operating assumption changes of £44m (2014: £43m), included in spread/risk margin and principally in respect of mortality assumption changes, and to shareholder support provided to the German with profits business of £9m (2014: £nil), included in operating expenses.

Awards and recognition

The Aberdeen UK Platform Awards 2015:

·   Wrap awarded Platform of the year

·   Best Platform with assets over £12.5bn as voted for by advisers

·   Best Platform for Adviser Service as voted for by advisers

·   Best use of Platform Technology alongside FNZ

Other awards:

·   Best Use of Technology - UK Financial Services Experience Awards 2015

·   Best New Product - UK Financial Services Experience Awards 2015

·   Income Drawdown Provider of the Year - Financial Adviser Life & Pensions Awards 2015

·   Best New Product for our new customer led online retirement journey - UK Customer Experience Awards 2015

1.4.3 India and China

Overview

Our India and China segment consists of our life associate in India, our life joint venture in China and our wholly owned business in Hong Kong.

We continue to strengthen our operations in India and China. We are well positioned for future growth in the region.

Strengthening position in India

HDFC Life is one of India's leading life insurance companies with a 15% market share in the private sector. Its comprehensive product portfolio provides over 20 million customers with innovative needs-based insurance and savings solutions.

India remains a highly attractive market with a number of positive growth factors. The International Monetary Fund has estimated that the country's GDP will grow by 8% per annum over 2015-2020. Life insurance penetration rates in India are currently low compared to developed economies, and the introduction of new welfare schemes by the Indian Government should help to emphasise the importance of insurance coverage among the large uninsured population.

Also, the long awaited increase in foreign investment limits in insurance companies should provide an additional source of capital to help fund the growth prospects for the industry.

In August 2015, we announced that terms had been agreed with HDFC, our partner in India, to seek regulatory approval for us to take an increased stake in HDFC Life for a consideration of Rs 1,706 crore (£175m based on INR exchange rate as at 31 December 2015). This proposed investment demonstrates our belief in the strength of HDFC Life and the long-term growth prospects of the business and the Indian insurance market.

The regulatory landscape in India continues to evolve as the insurance market matures. The impact of these regulatory developments on HDFC Life and the industry is still uncertain. HDFC Life retains close, co-operative relationships with regulators and will continue to proactively manage and respond to regulatory change.

Continued development in China and Hong Kong

In China, our joint venture, Heng An Standard Life, continues to build a sustainable and profitable business by offering a range of insurance and savings products to a growing customer base.

In 2015, Heng An Standard Life has seen continued growth in sales and profitability. We will continue to develop our future business strategy in Mainland China and Hong Kong by exploring opportunities which could be beneficial to both Heng An Standard Life and to our Hong Kong business.

In Hong Kong, a changing regulatory and market environment has made growing AUA and flows challenging. However, we are continuing to evolve our propositions to meet the needs of the growing affluent and wealth segments both in Hong Kong and from mainland Chinese visitors.

A new regulatory environment came into effect on 1 January 2015 in Hong Kong, which banned advance payment of commission on all investment-linked products and has impacted the market significantly. We are supportive of these changes in creating a more professional advisory marketplace but it will take time for the market to adjust. We are adapting our propositions in light of these changes and launched two new single premium products in 2015.

We announced the closure of our insurance businesses in Dubai in November 2014 and Singapore in June 2015. The Singapore business formally closed in November 2015 following finalisation of regulatory approvals. Further details are included in our discontinued operations segment in Section 1.4.4.

Increasing assets

Total AUA increased to £2.8bn, due to a 10% increase for our associate and joint venture businesses' AUA to £2.3bn (2014: £2.1bn). Hong Kong's AUA increased to £0.5bn (2014: £0.4bn).

The growth in AUA was driven by continued positive net inflows in our associate and joint venture businesses of £230m (2014: £193m) with HDFC Life maintaining its market-leading position within the Indian private market. Heng An Standard Life's AUA has grown by around 30% over the last 2 years and the business now services over 5 million customers.

In Hong Kong, net inflows decreased to £63m (2014: £68m). New single premium propositions are under development to drive asset growth in the new market landscape.

Further information on AUA and net flows is included in Supplementary information in Section 11

Maximising revenue

HDFC Life's investment in digital and e-commerce platforms has established it as a leader in this fast growing online space.

Heng An Standard Life has delivered a 19% growth in sales with an increased new business profit margin.

Lowering unit costs

HDFC Life continues to maintain one of the lowest operating expense ratios among its peer group while continuing to invest in technology, training and product innovation.

Our Hong Kong business continued to manage costs whilst investing in new propositions in response to changes in regulation. 2015 saw falls in both expenses and revenue as the business product mix is adjusted.

Driving Profit

Operating profit before tax increased to £27m (2014: £23m) mainly driven by an increase in our associate and joint venture businesses' profit to £25m (2014: £18m) as they benefit from continued growth in premium income.

Hong Kong operating profit decreased to £2m (2014: £5m) due to lower sales volume and a different new business product mix as we re-position the business and develop new customer propositions.

Operating return on equity for the India and China segment decreased to 9.9% (2014: 11.8%) reflecting higher opening shareholder net assets and an increased tax charge.

Following the regulatory changes in Hong Kong, a review of expense and reserving assumptions was undertaken which resulted in a £46m non-operating loss being recognised, primarily relating to impairment of deferred acquisition costs.

		2015	2014
		£m	£m
Fee based revenue		38	49
Operating expenses		(36)	(44)
Share of associates' and joint ventures' profit before tax		25	18
Operating profit before tax		27	23
Share of associates' and joint ventures' tax expense		(2)	2
Non operating loss including impairment of DAC and related reserving changes in Hong Kong		(47)	-
IFRS (loss) / profit before tax	(22)		25

Note: Results are presented on the basis of Standard Life ownership percentages during 2015 and do not include the 40% share in HDFC AMC which is included in the results for Standard Life Investments. Hong Kong ownership is 100%, HDFC Life is 26% and Heng An Standard Life is 50%.

1.4.4 Discontinued operations

Sale of the Canadian business

On 30 January 2015, we successfully concluded the sale of the Canadian business to Manulife for a fixed consideration of C$4.0bn (£2.2bn including related hedging derivative contracts). We recognised a gain on disposal of £1,102m.

The sale of our Canadian business was significant for the Group, and reaffirms our continued focus on growing fee based business, whilst reducing our exposure to spread/risk business. In addition, the expanded relationship with Manulife deepens Standard Life Investments' ongoing access to Canadian and wider global distribution.

IFRS profit after tax for the Canadian business, which in 2015 included the results for the month of January, was £45m (2014: £127m) excluding the gain on sale. The result mainly benefited from favourable short-term fluctuations on investment return of £63m due to large yield movements in the month, offset by a £20m tax expense.

Find out more about the gain on sale in Note 1 in the Group financial statements section

Dubai and Singapore

The regulatory landscapes in the markets in which we operate in Asia changed significantly in 2014 / 2015 and we responded by reviewing our strategy. Our increasing focus in Asia is building on our relationships with our partners in India and China, expanding our asset management presence through Standard Life Investments and growing our wholly owned business in Hong Kong. As a result, we announced the closure of the Dubai business in November 2014 and Singapore in June 2015. Our Singapore business closed on 18 November 2015.

For segmental reporting the discontinued operations segment includes results for Dubai and Singapore. Singapore made an operating loss before tax of £2m (2014: loss £4m) and a £40m non-operating loss (2014: £2m) relating to closure costs. The Dubai business closed at the start of 2015 and therefore made an operating loss before tax of £nil (2014: loss £5m). Non operating losses for Dubai were £nil (2014: loss £17m).

1.5 Risk Management

Our approach to risk management

Effective and pre-emptive risk management, over both the short and long term, is essential for the continued success of our strategic development to create a world-class investment company.

We have a strong governance culture and our approach to risk management is a fundamental part of this, supporting the development of long-term value by ensuring that:

·   Well informed risk-reward decisions are taken in pursuit of the Group's business plan objectives

·   Capital is delivered to areas where most value can be created from the risks taken

The consistent application of risk management processes has underpinned our further successful delivery over 2015 as we completed the sale of our Canadian operations further simplifying our business, integrated Ignis into our investment business and responded to changes in the external environment, for example the new pensions freedoms in our UK market.

In May 2015 we were very pleased that the strength of our approach to risk management was externally recognised when Standard & Poor's upgraded their assessment of our Enterprise Risk Management (ERM) framework to 'strong'.

Our principal risks and uncertainties

The broad categories of risk that are faced by the Group, which include Strategic, Operational, Conduct and Financial have not changed over the year and we expect these to stay broadly consistent over time.

From within these broad categories we have identified a number of specific principal risks and uncertainties. This list should not be considered to be exhaustive but rather those which we currently believe have the greatest potential to affect our business model, future performance, solvency or liquidity. These principal risks were subject to a robust assessment by the Board during 2015. As our strategic development continues, and we respond to changes in our external environment, it is to be expected that both the risks themselves and the relative importance of these may change. We have provided our assessment of the forward trend for these risks.

In 2015 the sale of our Canadian businesses and the changes in the UK pensions market mean spread business and the inherent risks involved are becoming less significant. In turn, the acquisition of Ignis and the continued strong growth of our fee business mean that our exposure to market risk on fee revenue is becoming more important.

The broader risk environment remains challenging and in particular the current level of political and regulatory engagement with our industry remains very high. There are a number of policy areas which have the potential to lead to a material impact on our business, for example in the areas of pension tax relief, the full implementation of MiFID II, as well as ongoing industry reviews such as the FCA's Asset Management Market Study and the Financial Advice Market Review.

The FCA commenced in 2015 a sample-based review of non-advised annuity sales from a selection of firms across the industry in which Standard Life has been participating. We have carried out analysis including an initial sampling of historical sales and work is ongoing to understand the implications for relevant components of the Standard Life annuity population. The outcome and consequences are uncertain but could include requirements to compensate customers and could have an adverse effect on the Group's profits and/or financial position. See Note 45 of the Group financial statements.

Viability statement

The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the next three years. The Directors' assessment takes into account the Group's current position (in particular the Capital and Liquidity position as described in Section 1.3) and the principal risks as described in this section.

The key processes used by the Board to assess the prospects of the Group are:

The business and strategic planning processes: Strategic planning is a continuous process which underpins business planning. Business planning is an annual process which projects the performance, regulatory capital and liquidity of the Group over a three year period, and considers base, downside and severe downside economic scenarios. Our projected capital positions are a measure of the capital we need in the business to cover our risks, including financial and operational risks, under stress scenarios.

Quantitative stress and scenario testing which consider liquidity and capital positions under single and combined financial scenarios.

Reverse stress testing which gives a qualitative understanding of plausible but severe risk scenarios which could threaten the viability of the Group, and informs related management actions. The scenarios assessed are based on the principal risks and include a cyber-attack, a critical infrastructure breakdown, major regulatory changes and a major shock to financial markets.

Oversight of risk within the business delivered through the Own Risk and Solvency Assessment (ORSA) processes which are described within this section.

We consider that three years is an appropriate period for this viability assessment, which is in line with our core business planning process. It is the period over which major strategic actions, such as the launch of new investment propositions, are typically delivered. It also takes into account the uncertain economic environment and changing political and regulatory environment, and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. We consider that the severe scenarios assessed as part of our reverse stress testing are appropriate over this three year period.

Risk governance

Enterprise risk management framework

The Group's Enterprise Risk Management (ERM) framework enables a risk based approach to managing our business. It integrates concepts of strategic planning, operational management and internal control. Our framework has been developed and embedded in the business over several years.

·   Risk culture: The way we think and act as individuals and as a Group. It encompasses our attitudes, capabilities and behaviours.

·   Risk control processes: The practices by which we manage financial and non-financial risks within the Group. They are used to identify, assess, control and monitor risk throughout the business.

·   Strategic risk management: Forms an integral part of the strategic planning process and is directly linked to the Group's corporate objectives. It supports the development of long-term value by ensuring that well informed risk-reward decisions are taken in pursuit of the Group's business plan.

·   Risk and capital models: The models that we use to measure our risk exposures and capital position and the work that we do to test and understand the sensitivity of these positions

·   Emerging risks: The aim of emerging risk management is to identify risks before they materialise. This gives us time to engage with the risk, understand it and respond accordingly. We use our emerging risk process to inform reverse stress testing and capital adequacy requirements across the Group. Our pro-active screening process which looks across broad sources of risk including geopolitical, technological, environmental and societal, helps us to anticipate future threats.

ORSA process 

The ORSA is the set of processes that underpin our ERM framework. The purpose of the ORSA is to inform and develop:

·   Our understanding of the current and potential risks to the business over the product lifecycles. This includes both financial and non-financial risks including environmental, social and governance (ESG) risks and their potential to affect both the long and short term value of the business.

·   Our appetite for these risks and how we manage them

·   Our own assessment of current solvency and capital requirements with respect to the risks

·   A forward-looking assessment of the risk and solvency needs of the company over a multi-year time horizon in light of the business plans

The ORSA plays a key role in supporting decision making and strategy development at our boards and risk committees.

Three lines of defence

We operate a 'three lines of defence' model of risk management, with clearly defined roles and responsibilities for boards, committees and individuals:

·   First line: Day-to-day risk management is delegated from the Board to the Chief Executive and, through a system of delegated authorities and limits, to business managers

·   Second line: Risk oversight is provided by the Group Chief Risk Officer and established risk management committees, such as the Group Enterprise Risk Management Committee. These management committees are supported by the specialist risk management and compliance functions across the Group.

·   Third line: Independent verification of the adequacy and effectiveness of the internal risk and control management systems is provided by the Group internal audit function. This is subject to supervision and challenge from the Audit Committee.

Our principal risks and uncertainties 

STRATEGIC RISK Risks which threaten the achievement of the strategy through poor strategic decision-making, implementation or response to changing circumstances. The Group recognises that core strategic activity brings with it exposure to strategic risk. However, the Group seeks to proactively manage and control these exposures.
Principal Risk	Trend	The risk to our business	How we manage the risk
Political Change	Increasing	Decisions taken by the UK, Scottish and other governments could impact demand for our propositions or significantly change the business environment. The impact could be felt in one of our businesses or more broadly across the organisation. These decisions could be specific to our industry, such as the recent consultation on pension tax relief or broader initiatives such as the planned referendum on the UK's membership of the EU and the devolution and application of tax and spending powers within the UK.	·   We constructively engage with key decision makers on political change which could impact our company in the best interests of our stakeholders, for example by contributing to consultations ·   Political risks are considered as part of our stress and scenario testing programme (which includes both quantitative and reverse stress testing) and emerging risk process ·   We maintain appropriate business continuity and contingency plans which are regularly reviewed
Regulatory Change	Increasing	Our industry is subject to high levels of regulation which regularly change. As we expand our investment business into new countries, this in turn increases the breadth of regulations with which we must comply. 2015 was a year of significant regulatory change in the UK, in particular with the implementation of pension freedoms which had a significant impact on our insurance business. We also participated in a number of industry wide thematic reviews. Regulatory change is expected to be a continuing theme in the coming years, for example with MiFID II expected to be a significant development for our investment business in particular. New or changing regulations can create opportunities for our business but can also increase risk. Complying with new or changing regulations can increase our compliance costs, impact the profitability and demand for our propositions, or tie up resources which may restrict other developments that we have planned to support our business plan.	·   Ongoing regulatory compliance is governed via our Group Policy Framework ·   We maintain strong and open relationships with our regulators and engage early with areas of potential regulatory change ·   Regulatory changes are considered as part of our stress and scenario testing programme and emerging risk process
Customer and Client Preferences and Demand	Increasing	Delivering our business plan requires us to attract and retain customers and clients across all our key channels in both our insurance and investment businesses. We are therefore exposed to the risk that our propositions do not keep pace with emerging customer preferences or fail to meet the needs and expectations of customers. During 2015 we continued to invest to develop our propositions. Examples include the launch of our new advice business 1825 and the enhancements to our propositions to enable customers to take full advantage of pension freedoms.	·   New proposition developments start from the customer or client need ·   We invest in initiatives to build trust and long-term relationships with customers. In our sustainability section (1.6) we explain how we use insight to inform and develop our products and services as well as the methods we use to engage and educate our customers ·   Standard Life Investments aims to deliver consistently strong investment performance with its commitment to excellence in active management ·   We regularly seek customer feedback on our performance and use focus groups to help develop new propositions

CONDUCT RISK The risk that through our behaviours, strategies, decisions and actions the firm, or individuals within the firm, do not do the right thing and/or do not behave in a manner which: ·   Pays due regard to treating our customers and clients fairly ·   Is consistent with our disclosures and setting of customer and client expectations ·   Supports the integrity of financial markets The Group recognises that its core strategic activity brings with it exposure to conduct risk which must be understood and managed. However, there is no appetite for purposeful or deliberate actions (behaviours/decisions) which result in conduct risk.
Principal Risk	Trend	The risk in our business	How we manage the risk
Customer and Client Outcomes	Increasing	We are exposed to the risk of unfair customer and client outcomes as a result of our business not acting in the right way. This arises from a number of sources including failed or poorly designed processes, badly designed or performing propositions, poor customer communications or conduct by colleagues. The standards that we aspire to internally, as well as those expected of us by regulators and third parties are consistently being raised. However higher standards and the regulatory focus on conduct means that the risk of failing to meet these is higher which leads to our assessment that this risk is increasing. Poor business conduct can lead to material financial losses, through fines or remediation activity and can cause significant reputational damage.	·   Our Group Code of Conduct sets out the standards required by colleagues. This was revised and re-launched in early 2015. ·   Our Conduct Risk Policy helps to ensure that the standards and outcomes we set are implemented consistently across the business ·   Strong oversight and challenge is provided within our business by our Conduct and Compliance risk centre ·   We maintain a strong and open relationship with the Financial Conduct Authority and other regulators

OPERATIONAL RISK Risk of loss or adverse consequences for the business resulting from inadequate or failed internal processes, people or systems, or from external events. The Group has limited appetite for large operational losses due to the related reputational damage and opportunity costs. The Group will seek to manage existing operational risk exposures and proactively control new exposures.
Principal Risk	Trend	The risk in our business	How we manage the risk
IT Failure & Security, including cyber risk	Increasing	Our business relies on a wide range of IT systems to function and our strategy requires greater use of online functionality to meet customer preferences, improve efficiency and manage costs. This exposes us to the risk of failure of key systems, and security risks such as fraud and cyber-attacks. As our global profile increases, for example via the investment business's sponsorship of the Ryder Cup and British & Irish Lions, we may become a higher profile target. The crystallisation of these risks could mean that we are unable to operate core processes and serve our customers which could lead to reputational damage and to remedial costs.	·   We are continuously investing in and modernising our IT infrastructure via our EvolveIT programme ·   Cyber risk is a constantly evolving threat. We work with specialist third parties to identify new risks and develop our response to them. ·   IT failure and security is considered as part of our stress and scenario testing programme and emerging risk process ·   We maintain appropriate business continuity and contingency plans which are regularly reviewed
Outsourcing Relationship Management	Stable	We use a number of outsourcing partners to operate and deliver core systems, capabilities and processes. Key relationships include Citigroup's with our investment business and FNZ's role in the delivery of our platform functionality for our insurance business. These types of partnerships allow us to access specialist services and skills, and enable our business to run more efficiently and cost effectively. The failure of a material outsourcing partner could lead to significant costs and disruption to our operations until we recover the situation or put alternative solutions in place.	·   Our Group Outsourcing Policy sets out standards that must be complied with ·   We maintain strong relationships with partners to ensure that the risks arising are well understood ·   Outsourcing risks form part of our stress and scenario testing programme which help us to understand the impact of their failure and how we would continue to operate under such circumstances ·   We maintain appropriate business continuity and contingency plans which are regularly reviewed
Change Management	Stable	The Group runs a significant change programme. This exposes us to the risk that change takes longer or costs more than expected or that the change does not meet its intended objective. Key changes in 2015 included the integration of Ignis within our investment business, the development of 1825 our new UK advice business and the changes we put in place to respond to pension freedoms in our insurance business. Additionally, across the organisation we continue to develop, enhance and upgrade our operational processes.	·   Change management forms part of our operational risk management framework which provides a robust and established framework under which change is managed, reported and implemented ·   In recent years, our business has built up significant experience of successfully responding to change, whilst continuing to develop market-leading propositions for customers
Talent Management	Stable	It is essential that we are able to attract and retain people with the skills and capabilities that we need to deliver our business plans across all of our businesses. We are exposed to the risk that we are not able to do this, that it can only be achieved at a higher cost than expected or that key individuals leave the business unexpectedly.	·   We regularly benchmark our terms and conditions against the market ·   Our sustainability section (1.6) explains the range of initiatives that we use to support employee wellbeing and engagement ·   We maintain succession plans for key individuals which are regularly reviewed ·   Our Emerging Leaders Development Support and Accelerated Development Support programmes help to build our talent pipeline

FINANCIAL MARKET AND CREDIT RISKS Risk of losses due to risks inherent in financial markets. The Group has appetite for market risk exposures where exposures arise as a consequence of core strategic activity. We have an appetite for credit risk to the extent that acceptance of this risk optimises the group risk adjusted return.
Principal Risk	Trend	The risk in our business	How we manage the risk
Market Exposure	Increasing	Our business is exposed to market risk from the direct investment of shareholder assets, indirectly from UK and German with profits funds in our insurance business and as a result of fluctuations in fees that we earn which are linked to the value of underlying assets in both our insurance and investment businesses. As we continue our strategic development to create a world-class investment company this risk becomes more important as the contribution of spread business reduces and we become more focused on fee based revenue.	·   We set limits for market risk exposures ·   We use our stress and scenario testing programme to understand our sensitivities to markets and identify mitigating actions ·   We use hedging to manage market risks in our with profits funds
Counterparty Failure	Stable	Across the Group in both our insurance and investment businesses we use a number of credit and reinsurance counterparties to implement our business strategy. This exposes our business to losses should one of our counterparties fail to perform its financial obligations to us, including failure to perform these obligations in a timely manner.	·   Our credit risk management policy sets out the standards that are required ·   Limits for individual counterparties are overseen by the Group Credit Risk Committee ·   Where appropriate, counterparties are collateralised and internal credit assessments are used ·   Exposures are pro-actively monitored with mitigation action taken where necessary

DEMOGRAPHIC AND EXPENSE RISK Risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience differing from that expected, which for the purpose of risk management includes liabilities of insurance and investment contracts. The Group has an appetite for such risks since we expect acceptance of the risk to be value additive.
Principal Risk	Trend	The risk in our business	How we manage the risk
Longevity	Decreasing	This risk arises from the annuity policies that we have sold in our insurance business. We are exposed to the risk that policyholders live longer than expected and this causes a loss. As a direct result of the pension freedoms changes that were introduced in 2015 we now expect this risk to decrease over time as we do not expect volumes of new annuity sales to offset existing business running off.	·   We set limits for longevity risk exposure ·   We have a robust governance process for setting our longevity assumptions using the latest data sources ·   We have a reinsurance arrangement with Canada Life which transfers a material part of our longevity exposure ·   We monitor opportunities to implement further reinsurance or capital market transactions to reduce our exposure

1.6 Sustainability

We are here to help people save and invest for their future.

Our sustainability strategy helps us to identify opportunities and manage risks, inside and outside of our business. Our aim is to make a meaningful contribution to the futures of our people, clients and wider society.

You can read our 2015 sustainability report and find out more about our materiality review at www.standardlife.com/sustainability

Our strategy and approach

During 2015, we reassessed our sustainability strategy and completed a materiality review. The review helps make sure our sustainability goals are meaningful, challenging and relevant to our commercial aims, as well as what our stakeholders expect of us. We examined long-term environmental, social and governance (ESG) risks and opportunities and worked with a wide range of sources and inputs, including:

·      Investors in our Company

·      Our people and subject matter experts

·      Leaders and opinion formers within our industry

·      Recognised initiatives like the United Nations Sustainable Development Goals

As a result of the review, our sustainability strategy covers four priorities:

1.   Responsible business

2.   Employment

3.   Pensions and savings

4.   Investment

Doing the right thing

Our first priority is to operate ethically, as a responsible business. This covers many aspects of our business, from our Code of Conduct to managing our environmental impact. Operating this way helps build trust with our stakeholders.

The other priorities build on that responsibility. They relate to the nature of our business and areas where we can make a positive impact.

We provide jobs - both directly as an employer and indirectly through our charitable programmes. For us, work must provide more than just fair pay. Areas like skills, training and career progression make work more meaningful and sustainable. Sustainable work can also enable more savings behaviour.

Through our products and services, we help people manage their money so they can support their lives and future ambitions.

As an investor, we have a dual responsibility to meet clients' investment aims and, at the same time, consider the impact our investments have on the environment and wider society.

Sustainability at Board level

As part of the Chairman's regular update to the Board, internal and external ESG issues are highlighted. Non-financial measures, which monitor progress against our sustainability strategy, are also discussed on at least a quarterly basis.

During the year, the Board considered long-term trends in our sector and wider society that may affect our business. Young people from our school leaver programme and the UK charity Tomorrow's People, who focus on youth employment, attended a Board session to share their experiences of working life and what they want as clients themselves.

We received our best ever DJSI and FTSE4Good index scores

Getting independent, objective validation of how well we're working towards our sustainability targets is very important. We take part in the Dow Jones Sustainability Index (DJSI) and FTSE4Good surveys because they are widely known and respected independent surveys.

In 2015, we were listed for the fifth year running in the DJSI World and Europe indices, which include the top 10% and 20% respectively of sustainable companies in our sector who take part.

Overview of our four sustainability priorities 

1. Responsible business

This includes our business ethics, managing our environmental impact and contributing to local communities.

A new Code of Conduct

We revised and re-launched our Code of Conduct in 2015. We also published it on our website to reinforce our belief in transparency. Our culture is based on doing the right thing and we want our people to understand our Code - applying it to everything they do, every day.

Human rights statement

We updated and published our human rights statement in 2015. It covers our approach to our people, our customers, how we invest and the influence we have in wider society.

UK Modern Slavery Act

We welcome the legislation to protect those at risk of what's known as modern-day slavery, for example forced labour and human trafficking. We are working to make sure we are ready for the new Act and its objectives.

You can read our new Code of Conduct and Human Rights statement at www.standardlife.com/sustainability

Volunteering

Encouraging our people to volunteer in their community has been part of our culture and heritage for many years. During 2015 we launched our new volunteering policy to raise awareness of the increase in paid leave available for volunteering - this increased from two to three days. Our people donated 661 days for volunteering work in 2015 (2014: 331 days).

Managing our environmental impact

When it comes to minimising our impact on the environment, our main areas of focus are on the most material aspects for our business: energy use in our buildings and business travel (air and rail). We use 100% renewable electricity in our UK-owned and operated offices.

We're a global business, so international travel to meet clients and partners is a necessary part of our operations. We're currently reviewing ways that we can continue to reduce these types of emissions.

To promote our aims in these areas, in 2015 we continued to run our programme of awareness-raising activity amongst our people, including an environment champions network, promoting 'green' travel and collaborative technology, and ongoing energy reduction and recycling initiatives.

In 2013, we set a target for 20% reduction in greenhouse gas (GHG) emissions by 2020. To date, we have achieved a 2.1% reduction. In 2016, we plan to review our environmental strategy and targets.

You can read details of our GHG emissions for our own business operations below. This doesn't include GHG emissions for our global real estate investment portfolio.

You can read our global real estate investment portfolio GHG emissions at www.standardlifeinvestments.com/CO_Sustainable_RE_Investment_Report/getLatest.pdf

We report our most material GHG emissions, but we also measure our emissions in more detail too.

Environment (continuing operations)
		2015	2014	2013	Actual change5	2015 target5
Greenhouse gas emissions (CO2e)	Scope11	2,706	2,368	2,134	26.8%	(4%)
	Scope22	12,283	13,638	12,034	2.1%	(4%)
	Scope33	10,710	10,374	12,070	(11.3%)	(12%)
	Total	25,699	26,380	26,238	(2.1%)	(8%)
FTE / Tonnes CO2e ratio4	Total	3.39	3.55	3.75	(9.6%)	(4%)
Paper used (tonnes)	Total	485	494	603	(19.6%)	(10%)
Waste (tonnes)	Landfill	7	54	276	(97.5%)	N/A
	Divert from landfill	718	869	608	18.1%	N/A
	Total	725	923	884	(18.0%)	(4%)

¹      Scope 1 emissions include gas (and F gas from 2014).

²      Scope 2 emissions include electricity.

³      Scope 3 emissions include business travel and transmission and distribution losses for electricity.

⁴      Based on a full-time equivalent (FTE) employee figure which includes contingent FTE.

⁵    vs 2013 baseline.

2. Employment

We want to provide inclusive employment. We help to remove barriers to employment, encouraging meaningful jobs paid at a living wage. We aim to develop our people to reach their full potential and create an environment that supports healthy bodies and minds.

Gender		31 Dec 2015		31 Dec 2014
		Number	%	%
Board	Male	9	69	77
	Female	4	31	23
Senior mgt	Male	65	80	81
	Female	16	20	19
Talent pipeline1	Male	150	60	67
	Female	102	40	33
Employees	Male	3,140	51	50
	Female	2,989	49	50

¹      Note: Talent pipeline includes graduates and members of the Emerging Leaders Development Support (ELDS) and Accelerated Development Support (ADS) programmes. 2014 figures exclude graduates.

Our people and diversity

Diversity and inclusion have been a key focus of our activities in 2015.

We were named as one of UK newspaper The Times Top 50 Employers for Women, based on the support and development opportunities we offer to everyone and recognising the work of our Women's Development Network.

We believe that people networks are a great way to support our people and provide development opportunities. We continued to run and support our Women's Development, Armed Forces, and Lesbian, Gay, Bisexual and Transgender (LGBT) networks. In 2015 we formed the LGBT allies group. Allies are people who actively advocate for equality at Standard Life. We also launched two new networks: the Young Persons' Development network and the Carers' network. 

You can get a complete breakdown of our emissions and read our methodology at www.standardlife.com/sustainability

Although we've made good progress during the year on diversity, we know there are areas that we need to improve on. For example, the gender mix of our senior management population is 20% female and 80% male.

Detail about diversity and our Board is included in Section 4

We welcome the proposed UK legislation for gender transparency on pay and are working to make sure we're ready for the changes.

Talent pipeline

As a globally expanding business, we need to invest in a strong talent pipeline. This helps ensure our future leaders and senior managers can grow to fill future roles.

We launched a non-executive Development Curriculum in 2015 to encourage and develop our people to gain external board-level experience in preparation for Executive Team and increasingly complex Board appointments. The curriculum is available to senior leaders and those participating on development programmes.

Wellbeing and employee engagement

We want to engage our people and support them both in and outside of work.

To help support working families, we introduced enhanced maternity, adoption and parental leave policies in 2015.

We took part in the global corporate challenge healthy living initiative for the fourth year in a row, ranking in their global top 20 (out of 1,200 companies that took part). We have also promoted positive mental health through signing up to the Time for Change pledge. As part of this we have provided mental health manager training, raised awareness and organised events.

In 2015, 79% of our employees completed our group engagement survey - InterAction. The survey measures two dimensions - how engaged our people are and the extent to which they feel they are enabled to do their job. The responses gave us a clear update on how our people feel about a range of topics. The results pointed to some areas where we are strong: clarity on our strategy, doing the right thing for customers, and our ability to influence and raise standards in our industry.

The survey also highlighted areas where we can do better: building an emotional connection with our strategy and future, helping ensure our people feel valued in their roles and enhancing collaboration across teams.

To address the feedback, a number of actions have been taken including ensuring all teams have the opportunity to consider local actions for local issues, investing in management training to enhance career conversations and the implementation of SharePoint to make it easier to collaborate across the Company.

Our InterAction scores were 63% for engagement and 64% for enablement, slightly below the global financial services average scores of 66% and 67% respectively.

Working communities

One of the foundations for healthy communities is job creation. Providing the right environment, with access to skills and on-the-job experience, can turn jobs into careers. We have reinforced our commitment to the UK Living Wage by becoming the first private-sector company to become a UK Living Wage Friendly Funder. Living Wage Friendly Funders help charities they have funding relationships with to pay the Living Wage for any grant-funded posts. In Ireland we also pay our people at least the Irish Living Wage.

We have continued our work with the Edinburgh Guarantee - a partnership between Edinburgh City Council and Edinburgh's business community. In 2015, 18 young people joined us for paid six-month work experiences in Edinburgh, and we provided a similar scheme for two young people in London. 98% of those who have been through these work placement programmes have moved on to full time employment or further education.  Across our employment programmes we have provided 35 direct jobs in total.

We have increased the percentage of our people 25 and under from 0.4% in 2010 to 6.1% in 2015. 

Helping people get career ready

We partner with Career Ready, a charity that supports young people in their last two years of school to fulfil their potential. Our people offer mentoring over a two year period, including a four week work placement at one of our offices, paid at the UK Living Wage.

We were awarded Corporate Responsibility Award of the Year at the HR Network Awards in recognition of our employability work.

Our charity partners

We work with charities voted for by our employees with a focus on employability.

·   Scope and Capability Scotland in the UK

·   Barnardos Ireland in Ireland

·   Let's Get Ready in the USA

·   Hong Kong Society for the Protection of Children in Hong Kong

3. Pensions and savings

We want to help people manage their money and save for their future. By understanding their needs, we use our skills and knowledge to educate, inform and, importantly, develop the right products and services.

Client insight

We use insight from a variety of research to help us understand the emerging asset management trends and resulting impact on investor needs in order to better shape products and services.

Each year, we carry out a client survey across all markets and distribution channels. In 2015, around 800 of our worldwide clients helped us to understand how they felt about our brand reputation and the products and services we provide. The insights are used to ensure we have the right capabilities, solutions and services to meet client needs around the world.

More saving in the workplace

Around 5.2 million more people in the UK are now saving into a pension through their employer, since the UK government introduced the automatic enrolment initiative in October 2012.

We support the need to encourage more people to start saving into a pension as early as they can in their working lives. Of the 5.2 million more people saving, around 822,000 are saving into our pension schemes.

Around 2,000 new pension schemes set up with us in 2015 were from small to medium sized businesses. Our Good to Go service has helped these businesses to set up their scheme in as little as six minutes.

Pension freedoms in the UK

Major changes to how and when people could access their pension savings came into effect in April 2015. We offered the full flexibility to people from the first day the new rules came into effect.

We carried out research in 2015 that showed, on average, UK adults have only an eight year horizon as far as their financial plans are concerned. So when the changes came into effect we wanted to make sure that people were fully informed so that they made good decisions.

In the first nine months of pension freedoms, 10% of our eligible customers made use of the new regulations, 90% have not accessed their pension. For the10% who did access their pension, we helped them to understand the impact of their decisions and the risks involved. We received a record number of calls at the time the freedoms came into effect. The length of these conversations is much longer than normal, but we feel that it is the right thing to be thorough to help ensure our customers make informed decisions.

We received 7,516 complaints in 2015 compared to 6,156 in 2014; this represents 18 complaints per 10,000 active customer policies. The increase was largely driven by this significant spike in customer demand. Root cause analysis from these complaints has led to a number of enhancements to the customer retirement journey.

Award-winning customer experience

We also created a new online retirement journey to allow customers to access their savings. Through better content and user experience design, it's now easier for customers to compare, contrast and select their chosen options as well as transact online. This proposition won the 2015 Customer Experience Award for Best New Product / Product Improvement.

A new advice business - 1825

The new freedoms available to people with pensions savings highlighted the importance of professional financial advice in the UK. We felt that there was a significant opportunity to create a new advice business to support our clients to understand better their financial situation and help them achieve their goals. In acquiring Pearson Jones - an existing UK financial advice firm - we created a new business called 1825 (this is the year that Standard Life was originally established).

Engagement and education

Wherever we operate, we want to engage and educate our customers to help them manage their money.

Our MoneyPlus blogs have continued to prove successful in engaging with people on financial issues. We focused much of the content on the pension freedoms, covering topics like pension scams and how to avoid them, as well as alternative ways to save and manage money.

Heng An Standard Life - our joint venture business in China - runs a free knowledge sharing service aimed at current and potential new customers. It's called Cultural Forum, and during 2015 they held lectures from experts on various subjects such as health, education and investment, which were well attended. They're looking to run more interactive sessions including free health checks and information about different products in 2016, all with the aim of helping to meet the needs of society.

In Ireland, we ran two public events inviting people to come together and talk about the challenges that people thinking about retirement might face. This included financial planning as well as topics like health and wellbeing.

We use brand Net Promoter Score (NPS) as a key performance indicator of customer experience and brand advocacy. The score indicates how likely a customer is to recommend Standard Life to family and friends. In the last year our brand NPS, measured by an independent survey, has increased by 5.

We again ranked in the KPMG Nunwood survey of top 100 brands in the UK.

Vulnerable consumers

The FCA has placed a recent focus on how financial services companies interact with vulnerable consumers. We recognise there are challenges for our industry in ensuring products and services meet all consumer needs. We have plans in place for 2016 to make our products and services more inclusive.

4. Investment

By considering environmental, social and governance (ESG) issues we contribute to a better financial future for our clients and a sustainable world.

Standard Life Investments was one of the sponsors of Good Money Week - a UK campaign that raises awareness of sustainable, responsible and ethical finance.

Stewardship and responsible investment

As stewards of our clients' investments we act responsibly in our investment activities. Standard Life Investments is a signatory and strong supporter of the principles of good stewardship that are set out in the UK Stewardship Code. We believe that corporate stewardship and the ways in which companies manage ESG issues are significant components of investment risk and have a fundamental impact on the achievement of sustainable long-term investment returns. We therefore have dedicated teams who work collaboratively across Standard Life Investments to integrate ESG factors into our investment process and into mandates which have tailored responsible investment or ethical criteria.

Our Governance and Stewardship team focuses on governance and oversight of our investee companies. We actively use our influence through engagement and voting in order to hold boards to account and promote high standards of governance. When voting, the team implements considered policies which are based on our Governance and Stewardship Guidelines and we seek to vote our clients' shares in a manner consistent with their best interests. We publish regular reports detailing our voting and engagement activities. We also exercise influence in matters of public policy and regulation where these relate to governance and stewardship and the interests of our clients.

We voted at 1,732 shareholder meetings of investee companies

Our Responsible Investment team carries out research, analysis and engagement work on social and environmental issues affecting our clients' investments. We believe that companies concerned about the long-term interests of their shareholders should manage relationships with employees, suppliers and customers, and consider the long-term impact of their actions on the environment and society as a whole.

659 ESG engagements with companies

Research and insight

During the year, we published reports on current responsible investment topics, including the UK Living Wage, Modern Slavery Act and the Rise of the Millennials. The aim of these is to highlight possible risks and areas of concern amongst companies, as well as promote discussion on these topics.

Real estate investment

We are committed to environmental management in all phases of a property's life cycle - from acquisition through demolition, redevelopment and operational management to selling it on. We focus on energy conservation, limiting GHG emissions, maximising waste recycling and water conservation.

In 2015, Standard Life Investments collected Global Real Estate Sustainability Benchmark (GRESB) 'Green Stars' for 16 of our real estate funds. The GRESB 'Green Star' is the top ranking for sustainability management, policy, implementation and measurement.

Green investment

In 2015, we invested in Transport for London's £400m green bond. The bond raises capital to invest in projects that will help Transport for London address a wide range of infrastructure and environmental issues like energy and climate resilience, air quality and pollution prevention.

Our measurement and assurance

We have reviewed our annual non-financial measures to make sure they are relevant to our four priority areas: responsible business, employment, pensions and savings, and investment.

This is an ongoing process for us, so that we can create the right set of indicators that accurately reflect and track progress on these four areas.

Our performance measures are independently assured each year by PricewaterhouseCoopers (PwC):

·   Total employee days volunteered

·   Carbon footprint

·   Total people directly employed through employability programmes

·   InterAction employee survey results

·   Gender diversity of the talent pipeline

·   Gender diversity of senior management

·   Total customer complaints

·   Annual movement in the Brand Net Promoter Score

·   Voting at shareholder meetings of investee companies

·   Environment, social and governance engagements with companies

You can find out more about our measures and definitions in our 2015 sustainability report at www.standardlife.com/sustainability

1.7 Basis of preparation

Overview

Our Strategic report for the year to 31 December 2015 has been prepared in line with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the FCA. Under section 414 of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9, the Group is required to provide a fair, balanced and understandable review of the business and a description of the principal risks and uncertainties facing the Group. Principal risks and uncertainties are detailed in Section 1.5 and Note 41 in the Group financial statements section. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB) in 2006 and Guidance on the Strategic report issued by the Financial Reporting Council in 2014.

The Group's International Financial Reporting Standards (IFRS) consolidated financial statements have been prepared in accordance with IFRS, as endorsed by the European Union (EU). However, our Board believes that non-Generally Accepted Accounting Principles (non-GAAP) measures, which have been used in the Strategic report, are useful for both management and investors and make it easier to understand our Group's performance.

The most important non-GAAP measures in the Strategic report include operating profit, assets under administration and Group underlying cash generation.

Definitions of these measures are included in the Glossary

All non-GAAP measures should be read together with the Group's IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS consolidated statement of cash flows, which are presented in the Group financial statements section of this report.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in this Strategic report. This includes details on our liquidity and capital management in Section 1.3 and our key risks in Section 1.5. In addition, the Group financial statements section includes notes on the Group's subordinated liabilities (Note 36) management of its risks including market, credit and liquidity risk (Note 41), its contingent liabilities and commitments (Notes 45 and 46), and its capital structure and position (Note 49).

The Group continues to meet Group and individual entity capital requirements, and day-to-day liquidity needs through the Group's available credit facilities. The Company has a revolving credit facility of £400 million as part of our contingency funding plans and this is due to mature in 2020. The Group has considerable financial resources together with a diversified business model, with a spread of business and geographical reach. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they consider it appropriate to adopt the going concern basis of accounting in preparing these financial statements and have not identified any material uncertainties to the Company's ability to continue to do so over a period of at least 12 months from the date of approval of these financial statements.

IFRS reporting

The financial results are prepared on an IFRS basis. All EU-listed companies are required to prepare consolidated financial statements using IFRS issued by the International Accounting Standards Board (IASB) as endorsed by the EU. The IFRS financial results in the Strategic report and in the Group financial statements have been prepared on the basis of the IFRS accounting policies as disclosed in the Group financial statements section of this report.

Group operating profit

The 2015 reconciliation of consolidated operating profit to IFRS profit for the year, presented on page 111 of this report, presents profit before tax expense attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in Note 14. By presenting our results in this way, the Directors believe they are presenting a more meaningful indication of the underlying business performance of the Group. Group operating profit has not been audited by our independent auditors.

Forward-looking statements

This document may contain 'forward-looking statements' about certain of the Standard Life Group's current plans, goals and expectations relating to future financial conditions, performance, results, strategy and objectives. Statements containing the words: 'believes', 'intends', 'targets', 'estimates', 'expects', 'plans', 'seeks' and 'anticipates' and any other words of similar meaning are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond the Group's control. As a result, the Group's actual financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements, and persons receiving this document should not place undue reliance on forward-looking statements. The Standard Life Group undertakes no obligation to update any of the forward-looking statements in this document or any other forward-looking statements it may make.

The Strategic report has been approved by the Board and signed on its behalf by Kenneth A Gilmour Group Company Secretary
Standard Life plc (SC286832) 19 February 2016

Board of Directors as at 19 February 2016

Our business is managed by our Board of Directors. Biographical details of the Directors as at 19 February 2016 are listed below.

Sir Gerry Grimstone

Chairman

Nationality

British

Age

66

Tenure

Sir Gerry was appointed Chairman in May 2007, having been deputy Chairman since March 2006. He has been a Director for 10 years. He became a Director of The Standard Life Assurance Company in July 2003.

Background

Sir Gerry is senior independent director and deputy chairman of Barclays PLC. He has continued in his role as an independent, public interest, non-executive board member of Deloitte LLP and as the lead non-executive at the Ministry of Defence. He is an adviser to the board of the Abu Dhabi Commercial Bank. He is a member of the advisory councils of both the UK-India Business Council and the China-Britain Business Council. Previously, he held senior positions within the Department of Health and Social Security and HM Treasury and with Schroders plc in London, Hong Kong and New York. He was vice chairman of Schroders' worldwide investment banking activities from 1998 to 1999.

He holds an MA and MSc from the University of Oxford.

Committee memberships

·   Nomination and Governance, Chairman (c)

Keith Skeoch

Chief Executive

Nationality

British

Age

59

Tenure

Keith was appointed Chief Executive on 5 August 2015, having been a Director since May 2006. He has been a Director for 9.5 years.

Background

Keith has been Chief Executive of Standard Life Investments Limited since 2004, having joined in 1999 as Chief Investment Officer. Previously he spent nearly 20 years at James Capel & Company Limited in a number of roles, including chief economist and managing director international equities. He is a non-executive director of the Financial Reporting Council, where he is a member of the codes and standards committee. He has been awarded honorary doctorates from the University of Sussex and Teesside University for services to the financial services industry.

He holds a BA from the University of Sussex and an MA from the University of Warwick. He is a Fellow of the Chartered Institute for Securities and Investment and a Fellow of the Society of Business Economists.

Luke Savage

Chief Financial Officer

Nationality

British

Age

54

Tenure

Luke was appointed Director and Chief Financial Officer in August 2014. He has been a Director for 1.5 years.

Background

Luke was previously director of finance and operations at Lloyd's of London. In addition, he held senior finance roles at Deutsche Bank (UK), Morgan Stanley & Company (UK) and Lloyds Bank plc. He is a member of the governing body of Queen Mary University of London.

He holds an Electrical and Electronic Engineering degree (BEng), from the University of London. He is a Member of the Institute of Chartered Accountants in England and Wales.

Colin Clark

Executive Director

Nationality

British

Age

56

Tenure

Colin was appointed Director on 1 November 2015.

Background

Colin was appointed to the Board of Standard Life Investments in 2004 as a non-executive Director. In 2010, he assumed executive responsibility for global client relationship activity, including client management, product development, distribution management and also brand management. Previously he spent twenty years with Mercury Asset Management (MAM)/Merrill Lynch Investment Managers (MLIM), becoming head of global marketing at MLIM in 1999.

He holds a B.A. (Hons.) Philosophy, Politics, and Economics degree from the University of Oxford.

Paul Matthews

Executive Director

Nationality

British

Age

55

Tenure

Paul was appointed Director on 1 November 2015.

Background

Paul joined Standard Life in 1989, working in a variety of roles before becoming UK Chief Executive in June 2011 and gaining responsibility for Europe in 2012. His senior management roles have included UK Take to Market Director, Managing Director of UK Distribution, and Head of IFA Sales.

Paul started work straight from school, initially balancing his work with a rugby career, captaining the England U19's before a serious injury ended his sporting ambitions. Before joining Standard Life, Paul held a variety of sales and investments roles with National Mutual Life from 1979 to 1989.

He is a board member of the Association of British Insurers.

Crawford Gillies

Senior Independent Director

Nationality

British

Age

59

Tenure

Crawford was appointed Director in January 2007. He has been a Director for 9 years.

Background

Crawford is a non-executive director of Barclays PLC where he chairs its remuneration committee and is a member of the audit and nominations committees. He is also the senior independent director of SSE plc. In addition, he is chairman of Control Risks Group Holdings Ltd and a member of the advisory board for the School for CEOs. Crawford spent 22 years with Bain & Company Inc., where he was managing director Europe.

He holds a Law degree from the University of Edinburgh and an MBA from Harvard Business School. He is a Member of the Institute of Chartered Accountants in England and Wales.

Committee memberships

·   Risk and Capital

·   Nomination and Governance

Pierre Danon

Non-executive Director

Nationality

French

Age

59

Tenure

Pierre was appointed Director in October 2011. He has been a Director for 4.5 years.

Background

Pierre is vice chairman of TDC, executive chairman of Volia, independent director of CIEL Investment Limited and vice chairman of AgroGeneration. From 2000 to 2005, Pierre was chief executive officer of BT Retail and, subsequently, chief operating officer of Capgemini Group and chairman of Eircom. Until June 2012, he served as chief executive officer and then non-executive chairman of Numericable Completel in Paris.

He holds a degree in Civil Engineering, Ecole Nationale des Ponts et Chaussées, Paris, a Law degree from the Faculté de droit, Paris, together with an MBA from HEC Paris.

Committee memberships

·   Remuneration

·   Risk and Capital

·   Nomination and Governance

Melanie Gee

Non-executive Director

Nationality

British

Age

54           

Tenure

Melanie was appointed Director on 1 November 2015.

Background

Melanie is also a non-executive director of The Weir Group PLC where she chairs the remuneration committee and is a member of the audit and nomination committees. She is a non-executive director of Drax Group plc, where she serves as a member of the audit, nominations and remuneration committees. Melanie was appointed a managing director of Lazard and Co. Limited in 2008 and became a senior adviser in 2012. Previously, she held various roles with UBS, having been appointed a managing director in 1999 and served as a senior relationship director from 2006 to 2008.

She holds an MA, Mathematics from the University of Oxford. 

Committee memberships

·   Remuneration

Noel Harwerth

Non-executive Director

Nationality

British and American

Age

68

Tenure

Noel was appointed Director in July 2012. She has been a Director for 3.5 years.

Background

Noel is chairman of GE Capital Bank Limited. She also holds non-executive director appointments with the London Metal Exchange, the British Horseracing Authority and Sirius Minerals Plc. Noel was previously with Citicorp for 15 years, latterly as the chief operating officer of Citibank International. Her previous non-executive directorships include Alent plc, Logica PLC, RSA Insurance Group plc and Sumitomo Mitsui Bank.

She holds a Law degree from the University of Texas.

Committee memberships

·   Audit

·   Risk and Capital

·   Nomination and Governance

Isabel Hudson

Non-executive Director

Nationality

British

Age

56

Tenure

Isabel was appointed Director in October 2014. She has been a Director for 1.5 years.

Background

Isabel is a non-executive director of BT Group plc, where she chairs the pensions committee and the BT Equality of Access board and sits on the nominating and governance committee. She also chairs the National House Building Council and is a non-executive director of Phoenix Group Holdings, where she is a member of the remuneration and audit committees. She was previously executive director at Prudential UK and chief financial officer of Eureko BV.

Isabel's previous non-executive directorships include QBE Insurance Group Ltd and the Pensions Regulator and she was also a member of the With Profits Committee of Standard Life Assurance Limited.

She holds an MA from the University of Oxford.

Committee memberships

·   Audit

·   Risk and Capital

Kevin Parry

Non-executive Director

Nationality

British

Age

54

Tenure

Kevin was appointed Director in October 2014. He has been a Director for 1.5 years.

Background

Kevin is a non-executive director of Intermediate Capital Group plc (ICG) and Daily Mail and General Trust plc. At both companies he chairs the audit committee and is a member of the risk committee. At ICG he is the senior independent director and has been announced as the chairman designate. He is chairman of the Homes and Communities Agency and deputy chairman of the Royal National Children's Foundation.

He was formerly a director and the CFO of Schroders plc; chief executive of Management Consulting Group PLC; and a managing partner at KPMG.

He holds an MA (Hons) in Management Studies from the University of Cambridge. He is a Fellow of the Institute of Chartered Accountants in England and Wales.

Committee memberships

·   Audit (c)

·   Risk and Capital

Lynne Peacock

Non-executive Director

Nationality

British

Age

62

Tenure

Lynne was appointed Director in April 2012. She has been a Director for 4 years.

Background

Lynne is a non-executive director of Scottish Water, where she chairs its audit committee. She is a non-executive director of Nationwide Building Society and chairs its remuneration committee. She is also a member of its audit, risk and nomination committees. Lynne joined National Australia Bank Limited in 2003 and, from 2004 to 2011, she was chief executive officer, UK (Clydesdale Bank plc and Yorkshire Bank). Previously, Lynne was with Woolwich plc from 1983 to 2003, finishing her career there as chief executive officer.

She holds a BA from North East London Polytechnic.

Committee memberships

·   Remuneration (c)

·   Audit

Martin Pike

Non-executive Director

Nationality

British

Age

54

Tenure

Martin was appointed Director in September 2013. He has been a Director for 2.5 years.

Background

Martin is also a non-executive director of esure Group plc, where he chairs the remuneration committee and is a member of the risk committee. He is a non-executive director of Faraday Underwriting Limited which manages a syndicate at Lloyds.

Martin spent nearly thirty years as a strategic risk consultant carrying out a wide range of strategic consulting projects and M&A assignments. His senior roles included managing director, risk consulting & software, EMEA at Towers Watson.

He holds an MA, Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries.

Committee memberships

·   Risk and Capital (c)

·   Remuneration

·   Audit

3. Directors' report

The Directors present their annual report on the affairs of the Standard Life group of companies (the Group), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements for the Group, financial information for the Group and financial statements for Standard Life plc (the Company) for the year ended 31 December 2015.

Reporting for the year ended 31 December 2015

The Company is the holding company of the Group. You can find out about the relevant activities of the Company's principal subsidiary undertakings and their overseas branches in the Chief Financial Officer's overview and Business performance sections of the Strategic report. During 2015, the Company's principal undertakings operated branches in Bermuda, Canada, Dubai, Germany, Hong Kong, India, Ireland and Singapore.

The main trends and factors likely to affect the future development, performance and position of the Group are outlined in the Chief Executive's overview section of the Strategic report. Reviews of the operating and financial performance of the Group for the year ended 31 December 2015 are given in the Strategic report.

The Chairman's statement, the Directors' responsibility statement and the Corporate governance statement form part of the Directors' report. The Corporate governance statement is submitted by the Board.

Using the IFRS basis, the results of the Group are presented in the Group financial statements. A detailed description of the basis of preparation of the IFRS results (including operating profit) is set out in the Group financial statements section. More information about the Group's use of financial instruments and related financial risk management matters can be found in Note 23 and Note 41 to the Group financial statements.

This report was prepared by the Company's executive team together with the Board and forms part of the management report.

Dividends

The Board recommends paying a final dividend for 2015 of 12.34p per ordinary share. This will be paid on 24 May 2016 to shareholders whose names are on the register of members (the Register) at the close of business on 15 April 2016.

The total payment is estimated at £243m for the final dividend and together with the interim dividend of 6.02p per share totalling £119m paid on 20 October 2015, the total dividend for 2015 will be 18.36p per share (2014: 17.03p) totalling £362m (2014: £358m). The 2014 final dividend and 2015 interim dividends were paid on the lower adjusted number of ordinary shares following the share consolidation. The 2015 final dividend and future dividends will also be paid on this basis.

Share capital

You can find full details of the Company's share capital, including movements in the Company's issued ordinary share capital during the year, in Note 28 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2015, in the Shareholder information section.

On 13 March 2015, shareholders voted at a general meeting to approve a return of value of 73p per share (approximately £1.75bn in total) via a B/C Share Scheme, along with an associated share capital consolidation. The number of ordinary shares in issue was reduced by broadly the same ratio as the ratio of the return of value of 73 pence to the ordinary share price. Shareholders received 9 new ordinary shares for every 11 existing ordinary shares held. The total number of shares in issue at 6pm on Friday 13 March 2015 was 2,395,185,122 ordinary shares of 10 pence each. The total number of shares in issue at the open of markets on Monday 16 March 2015 was 1,959,696,918 (new) ordinary shares of 12²/₉p each. Based on shareholders' elections (or deemed elections), 668,370,013 B Shares of 73 pence each and 1,726,815,109 C Shares of 0.0000001 pence each were allotted and issued on 19 March 2015. No application was made to the UK Listing Authority or to the London Stock Exchange, respectively, for any of the B Shares or C Shares to be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor were the B Shares or C Shares listed or admitted to trading on any other recognised investment exchange.

A dividend of 73 pence was declared on each C Share issued and became payable on 20 March 2015. The relevant C Shares were automatically reclassified as Deferred Shares (having negligible value and carrying extremely limited rights) and the Company executed (on behalf of all holders of such Deferred Shares) a transfer of all such shares to the Company for the aggregate consideration of one penny. In view of the negligible amount of the aggregate consideration for the Deferred Shares, shareholders were not entitled to have any part of the aggregate consideration paid to them.

The B Shares were redeemed on 20 March 2015 for 73 pence per B Share. All B Shares were redeemed and cancelled.

As at 31 December 2015, there were 1,969,937,375 ordinary shares in issue held by 104,670 registered members. The Standard Life Share Account (the Company-sponsored nominee) held 746,258,569 of those shares on behalf of 1,074,753 participants. No person has any special rights of control over the Company's share capital and all issued shares are fully paid.

During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (FCA).

On 26 November 2015 as a result of the implementation of changes to the Transparency Directive, a baseline notification was made by BlackRock, Inc. As a result BlackRock, Inc. has 102,052,974 voting rights, totalling 5.18% of total voting rights.  On 27 November 2015, following a disposal of voting rights, The Capital Group Companies, Inc. recorded 97,655,470 voting rights, which is 4.96% of total voting rights.

In 2015, in accordance with the terms of the Standard Life Employee Trust Deed, the Trustees of the Standard Life Employee Trust waived all entitlements to current or future dividend payments for shares they hold under option on behalf of participants in the Company's discretionary share plans between the grant and vest dates. Details of ordinary shares under option in respect of the Company's discretionary share plans are shown in Note 47 to the Group financial statements.

The Trustees of the Standard Life (Employee) Share Plan voted the appropriate shares in accordance with any instructions received from participants in the plan. Details of the Company's employee share plan can be found in Note 47 to the Group financial statements.

Restrictions on the transfer of shares and securities

Except where listed below, there are no specific restrictions on the size of a holding or on the transfer of shares. Both are governed by the general provisions of the Company's articles of association (the Articles) and current legislation and regulation.  You can read the Articles on our website www.standardlife.com/annualreport

You can also obtain a copy from Companies House or by writing to the Group Company Secretary at our registered address (details of which can be found in the Contact details section). The Articles may only be amended by a special resolution passed by the shareholders.

The Board may decline to register the transfer of:

·   A share that is not fully paid

·   A certificated share, unless the instrument of transfer is duly stamped or duly certified and accompanied by the relevant share certificate or other evidence of the right to transfer, is in respect of only one class of share and is in favour of a sole transferee or no more than four joint transferees

·   An uncertificated share, in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and, in the case of a transfer to joint holders, where the transfer is in favour of no more than four joint transferees

·   A certificated share by a person with a 0.25 per cent interest (as defined in the Articles) in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm's length sale under the Articles)

These restrictions are in line with the standards set out in the FCA's Listing Rules and are considered to be standard for a listed company.

The Directors are not aware of any other agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.

Rights attached to shares

Subject to applicable statutes, any resolution passed by the Company under the Companies Act 2006 and other shareholders' rights, shares may be issued with such rights and restrictions as the Company may decide by ordinary resolution, or (if there is no such resolution or if it does not make specific provision) as the Board may decide. Subject to the Articles, the Companies Act 2006 and other shareholders' rights, unissued shares are at the disposal of the Board.

Every member and duly appointed proxy present at a general meeting or class meeting has one vote on a show of hands. On a poll, every member present in person or by proxy has one vote for every share they hold. For joint shareholders, the vote of the senior joint shareholder who tenders a vote, in person or by proxy, will be accepted and will exclude the votes of the other joint shareholders. For this purpose, seniority is determined by the order that the names appear on the Register for joint shareholders.

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.

The Company may, by ordinary resolution, declare dividends up to the amount recommended by the Board. Subject to the Companies Act 2006, the Board may also pay an interim dividend, and any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or 'pari passu' rights for losses that arise from paying interim or fixed dividends on other shares.

The Board may withhold payment of all or part of any dividends or other monies payable in respect of the Company's shares from a person with a 0.25 per cent interest (as defined in the Articles) if that person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information about interests in those shares, which is required under the Companies Act 2006.

Subject to the Companies Act 2006, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any shares held as treasury shares). These rights can also be varied with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every separate general meeting (except an adjourned meeting) the quorum shall be two persons holding, or representing by proxy, not less than one third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).

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 2015 Annual General Meeting (AGM), shareholders granted the Directors limited powers to:

·   Allot ordinary shares in the Company up to a maximum aggregate amount of £79,839,504

·   Disapply, up to a maximum total nominal amount of £11,975,925 or 5% of its issued ordinary share capital, shareholders' pre-emption rights in respect of new ordinary shares issued for cash

·   Make market purchases of the Company's ordinary shares up to a maximum of 195,969,691or 10% of its issued ordinary shares

The Company did not make any market purchases of its ordinary shares during the year ended 31 December 2015, and has not done so since then and up to the date of this report.

Significant agreements

There are a number of agreements to which the Company or one of its subsidiaries is party that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. These agreements are noted in the paragraphs below.

Credit Facility - Under a £400m revolving credit facility between the Company and the banks and financial institutions named therein as lenders (Lender) dated 22 May 2015 (the Facility), in the event that (i) any persons or group of persons acting in concert, gain control of the Company or (ii) Standard Life Assurance Limited ceases to be a member of the Group, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.

India - Under a shareholders' agreement dated 15 January 2002 (as amended) which is now between Housing Development Finance Corporation Limited (HDFC) and Standard Life (Mauritius Holdings) 2006 Limited (SLMH06), being the relevant Group company which holds the interest in HDFC Standard Life Insurance Company Limited (HDFC Standard Life), upon a change of control of the Company which results in a change of control of SLMH06 (as described in the shareholders' agreement), HDFC potentially has the right to terminate the joint venture and to purchase, or nominate a third party to purchase, SLMH06's shares in HDFC Standard Life for a price determined in accordance with the agreement.

India - Under a shareholders' agreement dated 10 June 2003 (as amended) between Standard Life Investments Limited (SLI) and HDFC, pursuant to which the relevant Group company holds its interest in HDFC Asset Management Company Limited (HDFC AMC), upon a change in the ownership structure of SLI that results in the acquisition by a third party, either directly or indirectly, of more than 20% of the issued, subscribed and paid-up capital of SLI, HDFC will have 90 days from the date upon which SLI notifies it in writing of the occurrence of such a change to purchase the relevant Group company's shares in HDFC AMC at a mutually agreed price.

China - Under a joint venture agreement dated 12 October 2009 (as amended) between the Company and Tianjin TEDA International Holding (Group) Co. Limited (TEDA), pursuant to which the Company holds its interest in Heng An Standard Life Insurance Company Limited (Heng An Standard Life), upon a change of control of the Company, TEDA has the right to terminate the joint venture and to purchase, or nominate a third party to purchase, the Company's shares in Heng An Standard Life for a price determined in accordance with the agreement.

A number of other agreements contain provisions that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. However, these agreements are not considered to be significant in terms of their likely impact on the business of the Group as a whole.

The Directors are not aware of any agreements with any employee that would provide compensation for loss of office or employment resulting from a takeover bid. The Company also has no agreement with any Director to provide compensation for loss of office or employment resulting from a takeover.

Directors and their interests

The Directors who served throughout the year were:

·   Sir Gerry Grimstone (Chairman)

·   Colin Clark (appointed 1 November 2015)

·   Pierre Danon

·   Crawford Gillies

·   Melanie Gee (appointed 1 November 2015)

·   David Grigson (retired 12 May 2015)

·   Noel Harwerth

·   Isabel Hudson

·   Paul Matthews (appointed 1 November 2015)

·   David Nish (Chief Executive resigned 5 August 2015)

·   Kevin Parry

·   John Paynter (resigned 28 April 2015)

·   Lynne Peacock

·   Martin Pike

·   Luke Savage

·   Keith Skeoch

Biographies of the Directors can be found on pages 46 to 49.

Details of the Directors' interests in the Company's ordinary shares, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan and the share-based executive long-term incentive plans (LTIPs) are set out in the Directors' remuneration report together with details of the executive Directors' service contracts and non-executive Directors' appointment letters.

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 Standard Life Investments Limited)

Copies of the following documents can be viewed at the Company's registered office (details of which can be found in the Contact details section) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company's AGM on 17 May 2016:

·   The Directors' service contracts or letters of appointment

·   The Directors' deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles

·   The rules of the Standard Life plc Executive Long Term Incentive Plan

·   The Company's Articles

Appointment and retirement of Directors

The appointment and retirement of Directors is governed by the Articles, the Companies Act 2006, the UK Corporate Governance Code and related legislation.

The UK Corporate Governance Code recommends that directors of FTSE 350 companies should stand for election every year. In line with this, all our Directors will retire at the AGM on 17 May 2016. Colin Clark, Melanie Gee and Paul Matthews will stand for election and all remaining Directors who wish to continue in office will stand for re-election. As announced, Crawford Gillies will retire from the Board at the conclusion of the 2016 AGM and, therefore, will not stand for re-election.

The powers of the Directors can also be found in the Articles.

Directors' liability insurance

During 2015, 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 a pension trustee liability indemnity policy (which includes third party indemnity) for the boards of trustees of the UK and Irish staff pension schemes. The trustees include individuals who are directors of subsidiaries within the Group.

Our people

Our people have always been central to delivering our strategy, and we remain focused on bringing out the best in them, shown in Section 1.6 of the Strategic report.

Standard Life takes pride in the high achieving, diverse and healthy working environment it has created, where all employees are valued, empowered and treated as individuals. We treat those with disabilities fairly in relation to job applications, training, promotion and career development. Adjustments are made to train and enable employees who become disabled whilst working at Standard Life to allow them to continue and progress in their role. In recent years we have seen considerable progress in our gender balance within our talent pipeline particularly in our graduate, emerging leaders and senior high potentials. However we recognise that work remains to be done to improve our gender balance in our senior management. We're committed as a business to achieving gender balance and being inclusive for all. We've launched a curriculum to encourage female talent to develop executive team and board experience and are working with our female employees to focus career conversations on development. In 2015 we established two new employee networks - the Carers' Network and The Young Persons' Development Network - and launched the LGBT Allies Group. In addition, we continue to run our LGBT, Armed Forces and Women's Development Networks. In addition, we're working with executive search partners who have signed up to providing an equal balance of men and women on shortlists provided. We've also strengthened our talent pipeline by ensuring we hire employees from a range of ages. Our recruitment campaigns advertise our flexible approach to working patterns, capturing individuals in the middle years of their careers, and our veteran and "returnship" programmes also support mid and later careers. Through initiatives like the Edinburgh Guarantee Scheme and by offering traineeships and apprenticeships, Standard Life demonstrates it is committed to youth employment. People with multiple years' service sit side by side with people at the start of their careers.

As part of our performance culture, employees and their managers have regular conversations together where they agree performance goals and how to develop and address the employee's aspirations, strengths and development areas. We believe great performance should be rewarded, and we think the process we follow to do that should be clear to everyone. Our approach continues to support our reward principles and links pay to performance. This ensures our remuneration remains competitive in the market.

Having positive employee relations is key to engaging our people and realising our business goals. By informing the business of the views and insights of our people, constructive staff representation will help Standard Life as it seeks to achieve a single strategic direction. There are separate employee representation arrangements across the organisation. In the UK, most employees are represented through partnership agreements with the Group's staff associations, vivo and Bridge. In Ireland, there is an established agreement with Unite, and a works council was established in Germany in 2008.

Changes to the UK employee pension were confirmed in 2014 and will be implemented from 16 April 2016, when pension scheme members will build up future pension in the scheme on a defined contribution basis rather than a career average defined benefit basis.

We believe that we provide a consistent and competitive level of support for our employees in their retirement savings provision, and that this is sustainable going forward to ensure that we remain competitive.

We are in the process of launching our new intranet, which is already live in Ireland and which will be rolled out to all employees by the middle of March 2016. The site connects employees through one system, helping them to do their job more quickly and easily as well as enhancing collaboration and communication across the whole business. By linking search functionality with Lync and SharePoint, Standard Life employees can now find people and share skills and knowledge across the whole business with ease. This helps to improve employee engagement with what's happening inside the business and also to increase awareness of any financial, economic, social or environmental factors which may affect the performance of the Group.

As at 31 December 2015, approximately 75% of the Group's employees were shareholders through participation in the Standard Life (Employee) Share Plan (the Plan). The Plan allows employees to buy ordinary shares in the Company directly from their earnings up to a market value of £125 per month, or an equivalent sum in a relevant currency. These are called partnership shares. For each partnership share that an employee buys under the Plan, the Company matches the purchase by allocating them ordinary shares up to a maximum total value of £25 per month, or an equivalent sum in the relevant currency. As at 31 December 2015, 3,796 of eligible employees in the UK were making a monthly average contribution of £45. A similar tax approved plan is used in Ireland and has a 47% take-up. Even though the Plan cannot be structured on a tax favourable basis in Germany or Austria, at the end of the year, more than 126 employees in these countries were buying shares on a monthly basis.

The Group also encourages share ownership in the Company in the UK and Ireland through the Standard Life Sharesave Plan which was launched in August 2011. In September 2015, we launched a fifth invitation to UK employees and at the same time made a fourth invitation to employees in the Republic of Ireland. On 1 November 2015, the second of the Sharesave invitations matured and participating employees have the opportunity, until 1 May 2016, to buy Standard Life plc shares at a price of £2.21 per share with their accumulated savings.

There are now over 3,500 employees in the UK and Ireland participating in Sharesave plans. The exercise price is £2.21 (€2.81) under the 2012 invitations; £2.72 (€3.22) under the 2013 invitations; £2.96 (€3.70) under the 2014 invitations and £3.28 (€4.48) under the 2015 invitations.

Sustainability

The commercial aims of our business are linked to our environmental, social and governance responsibilities. You can find out more about how we run our business sustainably in the Strategic report, under Section 1.5 and Section 1.6.

Details of our greenhouse gas emissions can be found in Section 1.6 of the Strategic report.

Political Donations

We did not make any political donations in the year ended 31 December 2015. The Company has limited authorisation from shareholders to make political donations and incur political expenditure (Resolution 13, 2015 AGM). We request this as a precaution against any inadvertent breach of political donations legislation. While Standard Life has regular interaction with government and elected politicians in the UK and other jurisdictions in which we operate, we are strictly apolitical. We have a long-standing policy of not making political donations and we have no plans to do so.

Auditors

The Audit Committee is responsible for considering the Group's external audit arrangements. Resolutions proposing the re-appointment of PricewaterhouseCoopers LLP as auditors of the Company and giving authority to the Audit Committee to determine their remuneration will be submitted at the AGM to be held on 17 May 2016.

Disclosure of information to the auditors

Each Director confirms that he or she has taken all reasonable steps necessary, in his or her role as a Director, to be made aware of any relevant audit information and to establish that PricewaterhouseCoopers LLP is made aware of that information.

As far as each Director is aware, there is no relevant audit information that PricewaterhouseCoopers LLP is not aware of as at the date this report was approved.

Annual General Meeting

Details of the meeting content can be found in our AGM guide 2016 which will be available online at www.standardlife.com from 17 March 2016. This is the first time that the AGM is being held in London. The intention is that the AGM will be held in Edinburgh and London in alternate years.

AGM

Overview

Tuesday 17 May 2016 at 2pm (UK time) 200 Aldersgate London EC1A 4HD England

·   Introduction - the Chairman will introduce the Directors and outline the business of the AGM ·   Presentations and question and answer session - the Chairman and the Chief Executive will review the business and provide an overview of Standard Life's plans for 2016. After this, there will be an opportunity to ask questions ·   Voting - shareholders will be asked to consider and vote on a number of resolutions

Other information

Under Listing Rule 9.8.4.CR, a listed company must include all information required by LR 9.8.4R in a single identifiable location or cross-reference table.  For the purposes of LR 9.8.4CR, the information required to be disclosed can be found in the following locations. All the relevant information cross-referenced below is hereby incorporated by reference into this Directors' report.

Topic	Location
	Directors' report	Directors' remuneration report	Not applicable
Interest capitalised			ü
Publication of unaudited financial information in a class 1 circular or in a prospectus, other than in accordance with Annexes 1 and 2 of the FCA's Prospectus Rules			ü
Details of long-term incentive schemes		ü
Waiver of emoluments by a director			ü
Waiver of future emoluments by a director			ü
Non pre-emptive issues of equity for cash			ü
Non pre-emptive issues of equity for cash in relation to major subsidiary undertakings			ü
Parent participation in a placing by a listed subsidiary			ü
Contracts of significance			ü
Provision of services by a controlling shareholder			ü
Shareholder waivers of dividends	ü
Shareholder waivers of future dividends	ü
Agreements with controlling shareholders			ü

The Directors' report was approved by the Board and signed on its behalf by

Kenneth A Gilmour
Group Company Secretary
19 February 2016

4. Corporate governance statement

4.1 Nomination and Governance Committee report

The Nomination and Governance Committee oversees the governance framework so the report on its activities is presented both in summary on this page and integrated in more detail into the relevant parts of the corporate governance statement.

Dear Shareholder

It is my pleasure to introduce the 2015 Corporate governance statement and Nomination and Governance Committee report, in line with my responsibility to help ensure effective corporate governance throughout the Group. Your Board adheres to the highest standards of corporate governance and ethical behaviour in directing the Group's affairs and in its accountability to you as shareholders. As Directors, we believe these commitments are key to understanding and managing our business effectively, providing engaged leadership, and delivering shareholder value over the longer term. Your Board takes the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment.  One of our key governance activities during 2015 was Chief Executive succession, and you can read more about the process to appoint Keith Skeoch to succeed David Nish later in this statement.

Sir Gerry Grimstone
Chairman, Nomination and Governance Committee

Membership

The members of the Committee are the Chairman and independent non-executive directors.

Member	Attendance
Sir Gerry Grimstone, Chairman	6/6
Pierre Danon	4/4
Crawford Gillies	6/6
Noel Harwerth	4/4
Former member
David Grigson	2/2
John Paynter	2/2

David Nish and then Keith Skeoch, as Chief Executives during the year, were invited to Committee meetings to discuss relevant topics, such as talent development and management succession.

The Committee supports the composition and effectiveness of the Board, oversees the development and implementation of the Group's governance framework and oversees the Group's activities to strengthen its talent pipeline at all levels.

In this statement you can read about the Committee's role in:

·   Identifying and recommending Directors to be appointed to the Board, in particular overseeing the process to appoint the new Chief Executive

·   Reviewing Board diversity, skills and experience

·   Supporting the review of the Board's effectiveness

·   Overseeing succession planning, leadership and talent development and diversity levels throughout the Group

Ultimate responsibility for these important topics rests with the Board and the Committee reports regularly to the Board so that all Directors can be involved as appropriate.

The Committee's work in 2015

An indicative breakdown as to how the Committee spent its time is shown below:

Committee effectiveness

The Committee reviews its remit and effectiveness each year. The 2015 review was carried out via an internal self-assessment questionnaire. The review concluded that the Committee:

·   Continued to focus Director recruitment on the skills and experience required by the Board

·   Saw progress in the succession, talent and development, diversity and leadership programmes across the Group including agreeing principles for managing and developing succession

·   Had worked well with the Appointments Committee to oversee Chief Executive succession

The roles and responsibilities of the Board, Chairman and Chief Executive are outlined below:

The Board The Board's role is to organise and direct the affairs of the Company and the Group to maximise value for shareholders, in accordance with the Company's constitution, all relevant laws, regulations, corporate governance and stewardship standards. The Board's role and responsibilities, collectively and for individual Directors, are set out in the Board Charter. The Board Charter also identifies matters that are specifically reserved for decision by the Board. These include approving, overseeing and challenging:
·   The development and implementation of strategy, objectives and business plans ·   Capital and management structures, including the return of value and share consolidation which took place in 2015 ·   Dividend policy ·   Financial reporting which, during 2015 included the approval of the internal model application and preparation for the introduction of Solvency II ·   How risks are managed, including the Enterprise Risk Management (ERM) framework, risk strategy, risk appetite limits and internal controls ·   Significant corporate and other transactions, which during 2015, focused on concluding the sale of the Canadian business, increasing our stake in HDFC Life (subject to regulatory approval) and closing our operations in Singapore	·   Remuneration policy ·   Succession planning which, during 2015, focused on Chief Executive succession ·   The sustainability of the Group's business, our ethical standards and behaviours and our corporate responsibilities ·   Significant external communications ·   Terms of reference of Board Committees ·   Appointments to the Board and to Board Committees ·   The matters to be escalated from subsidiary boards to the Board for approval
The Board regularly reviews reports from the Chief Executive and from the Chief Financial Officer on progress against approved strategies, plans and budgets, as well as updates on stock market and global economic conditions. There are also regular presentations from key business units and corporate centre functions including from the Chief Risk Officer. The Chairman reports at each Board meeting on the activities he has undertaken on behalf of the Board and the Group since the previous meeting.
Roles and Responsibilities
The Chairman The Chairman: ·   Leads the Board and ensures that its principles and processes are maintained ·   Promotes high standards of corporate governance ·   Together with the Chief Executive and the Company Secretary, sets agendas for meetings of the Board ·   Ensures Board members receive accurate, timely and clear information on the Group and its activities ·   Encourages open debate and constructive discussion and decision making ·   Leads the Board and individual Director performance assessments and training needs ·   Speaks on behalf of the Board and represents the Board to shareholders and other stakeholders		The Chief Executive The Chief Executive, within authorities delegated by the Board: ·   Leads the other executive Directors and the executive team in the day-to-day running of the Group ·   Develops appropriate capital, corporate, management and succession structures to support the Group's objectives ·   Makes and implements operational decisions ·   Develops strategic plans and structures for presentation to the Board ·   Reports to the Board with relevant and timely information ·   Together with the Chairman, represents the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities.

Code Compliance

As well as covering the formal disclosure requirements of the UK Corporate Governance Code (the Code), this statement describes how the Board meets its governance responsibilities.

Throughout 2015, the Company complied with all of the provisions set out in the Code issued by the Financial Reporting Council (FRC) in September 2014. This is available at www.frc.org.uk

With regard to Code provision C.3.7, which requires external audit contracts to be put out to tender at least every ten years, and which was introduced with transitional provisions allowing the period for tender to extend to the end of the current engagement partner's term of appointment, the Company, through the Audit Committee, has commenced a tender process for the appointment of its external auditor. This will be completed by mid-2016, with the chosen firm to be appointed for the financial year 2017 at the earliest. You can read about the tender process in the Audit Committee report in Section 4.2.

Together with the Directors' remuneration report, this statement explains how our governance framework supports the way we apply the Code's principles of good governance.

Governance framework

The Group's governance framework is approved by the Board and documented in the Board Charter.

You can read the Board Charter on our website at www.standardlife.com/annualreport

The Group's Code of Conduct complements the Board Charter. It sets out our standards of conduct and governing principles for operational excellence, compliance responsibilities, customer service, our people, and other stakeholders.

The Board expects the Group to be a leader in corporate governance activities through its own actions and through its stewardship activities. The Nomination and Governance Committee regularly reviews the Group's corporate governance framework against relevant generally accepted standards, guidance and best practice, and, as appropriate, recommends to the Board changes to the Board Charter.

During 2015, the Committee oversaw the development of the governance map, a key element of the new Senior Insurance Managers Regime (SIMR). The map documents our governance structure and the key functions and function holders within it.

The governance framework sets out the Board's relationship with the boards of the principal subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries are required to refer to the Board or to a Committee of the Board for approval. It also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.

The roles of the Chairman and the Chief Executive are separate. Each has clearly defined responsibilities, which are described in the Board Charter.

The heads of each business unit and the corporate centre functions manage their teams within authorities set out in the Board Charter and within an approved scheme of delegation. This includes reporting to the Chief Executive on how they are complying with Group policies and performing against approved plans and budgets.

The Company Secretary is responsible for advising the Board on governance matters.

Board composition, balance and diversity

The Board's policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 19 February 2016, the Board comprises the Chairman, eight independent non-executive Directors and four executive Directors. The Board is made up of nine men (69%) and four women (31%) (2014: men 77%, women 23%). The Board continues to support its Diversity statement which states that it:

·   Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and non-executive

·   Recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness

·   Believes that it should have a blend of skills, experience, independence, knowledge and gender amongst its individual members that is appropriate to its needs

·   Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations

·   Is committed to maintaining its diverse composition

·   Supports the Chief Executive's commitment to achieve and maintain a diverse workforce, both throughout the Group, and within his executive team

You can read more about our Directors in their biographies on pages 46 to 49.

The Nomination and Governance Committee receives updates on progress towards achieving and maintaining diversity throughout the Group. This includes reviewing statistics on age, gender and full/part time working at all levels. The Group also promotes initiatives and programmes to raise awareness of why diversity matters. You can read more about our diversity activities in Section 1.6 of the Strategic report.

Board changes during the period

Appointments

Paul Matthews and Colin Clark joined the Board on 1 November 2015 as Executive Directors. Paul joined Standard Life in 1989 and, since 2012, has been the Chief Executive UK and Europe. Colin joined Standard Life Investments as a non-executive Director in 2004 and since 2012, has been Standard Life Investments' Global Client Director. As noted earlier in the report, Keith Skeoch was appointed Chief Executive on 5 August 2015.

Melanie Gee joined the Board on 1 November 2015 as a non-executive Director.  She became a member of the Remuneration Committee at the same time. Melanie currently holds other non-executive directorships at the Weir Group plc and DRAX plc. She is also a senior adviser to Lazards. Her appointment reflects her strong knowledge of the financial services market and director experience.

Retirements

John Paynter retired from the Board as a result of ill health on 28 April 2015 after three years' service as Senior Independent Director and Chairman of Standard Life Investments (Holdings) Limited. David Grigson retired on 12 May 2015 after five years' service. As announced, Crawford Gillies will retire at the conclusion of the 2016 AGM having served for nine years.

David Nish retired from the Board on 5 August 2015 after nearly nine years' service as Chief Financial Officer and then Chief Executive.

Board appointment process, terms of service and role

Taking account of the Group's strategy, as well as industry and regulatory developments, the Nomination and Governance Committee evaluates the Board's balance of skills, diversity, knowledge and experience, in the context of the time served by non-executive Directors. The Committee uses the results of its analysis to direct its recruitment activities and appointment recommendations and reviews all recommendations to appoint independent non-executive Directors to the boards of subsidiary companies.

During 2015, the Committee supported changes to the composition of the board of SLAL, in particular that a non-executive Chairman and a number of independent non-executive Directors should be appointed to the SLAL Board.

Having identified the capabilities needed for Board roles, and the succession timeframe, the Committee considers the related role profile submitted to external search consultants along with the request to prepare a list of suitable candidates. The Group has used the services of JCA Group, Egon Zehnder and Odgers Berndtson to support its recent recruitment searches and Egon Zehnder has also provided executive development assessment support. These consultants have no other connection with the Group.

The Nomination and Governance Committee considers the potential suitable candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory approvals. The other Board members are also offered the opportunity to meet the recommended candidates. The Committee considers the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address.

Each non-executive Director is appointed for a three-year fixed term and shareholders then vote on whether to re-elect him or her at every AGM. Once a three year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the non-executive Director's performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive Director can serve, although the Board recognises the Code provisions regarding length of service when considering whether or not their appointment should be continued. The current average length of service of the non-executive Directors (excluding the Chairman) is just over three years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance - or continued appointment - is being considered. During 2015, the Committee recommended to the Board that the appointments of Lynne Peacock and Noel Harwerth should be continued for a second term.

The role of our non-executive Directors is to participate fully in the Board's decision-making work - advising, supporting and challenging management as appropriate.

You can see our standard letter of appointment on our website at www.standardlife.com/annualreport or by writing to the Company Secretary

The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year, once they have met all of the approval and induction requirements, is 30 to 35 days. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.

Director election and re-election

Since 2011, shareholders have voted annually on whether to re-elect each Director. At the 2016 AGM, all of the current Directors except Crawford Gillies, Melanie Gee, Paul Matthews and Colin Clark will retire and stand for re-election. Melanie, Paul and Colin, having been appointed since the previous AGM, will retire and stand for election. Crawford will retire from the Board following the conclusion of the AGM.

You can read more background information about the Directors including the reasons why the Chairman believes you should support their election or re-election, in our AGM guide 2016, which will be published online at www.standardlife.com from 17 March 2016, and in Section 2 - Board of Directors.

Director independence, external activities and conflicts of interest

The Board carries out a formal review of the independence of non-executive Directors annually. The review considers relevant issues including the number and nature of their other appointments, any other positions they hold within the Group, any potential conflicts of interest they have identified and their length of service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following this review, the Board has concluded that all the non-executive Directors are independent.

Sir Gerry Grimstone was Chairman of the Board throughout the year. He retired from his role as chairman of TheCityUK in September 2015. He has retained his non-executive positions with Deloitte LLP, the UK Government's Ministry of Defence and his membership of the shareholder executive board of the Department for Business, Innovation and Skills. He is also senior adviser to the board of the Abu Dhabi Commercial Bank. In January 2016, Sir Gerry was appointed to the board of Barclays PLC as deputy chairman and senior independent director. Prior to this, the Board convened a meeting of the Standing Committee where this proposed appointment was fully discussed in terms of any potential or actual conflicts this might give arise to, and how they would be managed should they arise, as well as the potential impact on the Chairman's time availability. Sir Gerry and Crawford Gillies, as a non-executive director of Barclays PLC, did not take part in this meeting.

The Standing Committee concluded that it would support this appointment.

John Paynter served as the Senior Independent Director (SID) until his retirement on 28 April 2015, and Crawford Gillies was appointed as SID on that date. In this role, Crawford supports the Chairman, and often meets with him one-to-one. He is also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chairman, Chief Executive or Chief Financial Officer, or where a shareholder considers these channels are inappropriate.

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 of association. As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group's Outside Appointments and Conflicts of Interest policies.

In January 2016, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until January 2018. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board and relevant Committees follow this process when appropriate. For example, during 2015, there were instances when Isabel Hudson did not receive information and excused herself from discussions, recognising her role as both a Director of the Company and a Director of Phoenix Group Holdings.

The Board's policy encourages executive Directors to take up one external non-executive director role. Keith Skeoch continued as a non-executive director of the Financial Reporting Council. You can read more about the Directors' outside appointments in their biographies on pages 46 to 49.

Advice

Directors may sometimes need external professional advice to carry out their responsibilities. The Board's policy is to allow them to seek this where appropriate and at the Group's expense. Directors also have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. No Directors sought external advice in 2015.

Board effectiveness

Review process

The Board has, with the help of the Nomination and Governance Committee, developed a formal review process to assess how well the Board, its Committees, the Chairman and the Directors are performing collectively and individually and how performance could be improved.

As well as planning the 2015 review, the Nomination and Governance Committee also considered how the themes from the 2014 review, which was facilitated externally, have been taken forward. Risk reporting was developed to introduce the "Views on Risk" from the Chief Risk Officer. In respect of engagement, the Board hosted a talent dinner where the Directors met and heard from participants in the leadership programmes, and non-executive Directors took part in a programme to support employees who take up board appointments outside the Group as part of their development. Executive Directors held regular interactive sessions open to all employees.

The 2015 review was facilitated internally. It comprised an online self-assessment questionnaire, followed up by individual meetings between each Director and the Company Secretary. Directors completed questionnaires about the Board, each Committee they sit on, the Chairman's performance and their own individual performance. They were encouraged to provide open and honest feedback, explain the ratings they gave and suggest how the Board or Committee could improve.

Outcome

Following the review process, the Company Secretary analysed the self-assessment responses and prepared a summary report which also included the findings from his interviews and a series of related points for possible action. The report was considered in detail by the Nomination and Governance Committee at its October meeting before being formally presented to the Board in December.

The Committee and the Board discussed the report and agreed recommendations to take forward.  These included:

·   Refreshing the Board's strategy-setting process to ensure it remained fit for purpose

·   Reviewing the Group's organisation and reporting structures following on from the new Chief Executive appointment

·   Continuing to review the format and content of Board information to meet the needs of the Directors

·   Continuing to discuss succession planning and talent development needs in light of the progressive re-shaping of the Group

Progress to implement the recommendations is monitored by the Company Secretary and reported to the Nomination and Governance Committee. Each Board Committee followed a similar questionnaire, reporting and discussion process and reviewed its own results and recommendations in detail.

Chairman

The review of the Chairman's performance was led by the SID, Crawford Gillies. It was based on feedback given in the confidential online questionnaires. The questions covered:

1. The Chairman's role to lead the Board and encourage effective participation and consensus decision-making

2. How he informs the Board of stakeholders' views

3. His relationship with both executive and non-executive Directors

The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except the Chairman. The Directors, led by the SID and without the Chairman being present, met to consider the report. They concluded that the Chairman had performed his role effectively, showed strong leadership of the Board, continued to devote significant time to the Group and continues to have sufficient time to carry out his duties. The SID was responsible for meeting with the Chairman to pass feedback from the review directly to him.

Directors

The Chairman led the performance review of the Directors. He held one-to-one meetings to assess their individual performance and contribution against duties set out in the Board Charter and in their appointment letters.

Before these meetings, the Directors assessed their own performance by completing a confidential online questionnaire. Individual development and engagement schedules were prepared to support each meeting. These built on the responses to particular questions and areas of interest and training needs identified by each Director. The meetings were designed to review whether each Director was contributing effectively to the Board and to the Board Committees, and whether they continued to have sufficient time to commit to the role. The meetings also considered individual training, development and engagement opportunities for each Director. The schedules also summarised the internal and external continuing development the non-executive Directors had undertaken during the year and considered the extent to which each non-executive Director had implemented the points raised in the previous year's review. Each Director takes forward the resulting actions, supported by the Chairman and the Company, using either internal or external resources.

Director induction and development

The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme is tailored to their individual requirements and takes their background knowledge and experience into account. All Directors are required to complete the Financial Conduct Authority's (FCA) and Prudential Regulation Authority's (PRA) Approved Persons approval programme before they are appointed and to self-certify annually that they remain competent to carry out this aspect of their role. These processes are being adapted to ensure the requirements of the Senior Insurance Managers Regime will be met.

The formal preparation and induction programme includes:

·   Meetings with the executive Directors, key members of senior management, the heads of the operating businesses and our corporate centre functions

·   Focused technical meetings with internal and external experts on specific areas including Solvency II, conduct risk, risk and capital management, and financial reporting

·   Visits to business units

·   Meetings with the external auditors and the FCA/PRA supervisory teams

·   Meetings with the Company Secretary on the Group's corporate governance framework and the role of the Board and its Committees, with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities both as Directors and as holders of a Controlled Function/SIMR role.

Background information is also provided including:

·   Key Board materials and information, including financial and non-financial measures, shareholder communications and financial reports

·   The Group's organisational structure, strategy, business activities and operational plans

·   The Group's key performance indicators, financial and operational measures and industry terminology

The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further. As mentioned above, during 2015, Paul Matthews, Colin Clark and Melanie Gee were all appointed to the Board. Given the strength of each of their careers in the financial services industry or with Standard Life, their induction programmes were tailored to complement this.

When a non-executive Director is appointed to one of the Board's Committees, they receive relevant induction training on the Committee's role and duties.

When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group's business. Our corporate centre monitors relevant external governance and financial and regulatory developments and keeps the ongoing Board training and information programme up to date. During 2015, specific Board sessions took place on Pensions Freedoms, Solvency II and the IMAP process, and with profits matters. Similarly, the relevant Board Committees received updates on developments in financial reporting, remuneration and corporate governance. Non-executive Directors are actively invited to all parts of the Group's business in order to familiarise themselves with how our business is conducted and to meet with our people.

Succession planning and talent management

Chief Executive succession

As a result of the ongoing strategy to transform Standard Life, key parts of which included the sale of the Canadian Business and the purchase of Ignis, the Nomination and Governance Committee recognised the need for change and that the next stage of our evolution put a focus on our global investment capabilities. Together with David Nish, the Committee spent time considering the executive leadership and succession planning needed to continue the delivery of this next phase of our strategy. In light of this, the Board and David agreed that the time was right to hand over to his successor and therefore the Nomination and Governance Committee oversaw the process to recruit a new Chief Executive to succeed him. As a first step, the Committee agreed that the skills required of a new Chief Executive included:

·   A leader who put the well-being of clients and customers 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

·   A strong asset management and markets background

·   A proven global track record including expansion across Asia and North America

·   Someone ideally experienced in developing strong relationships with institutional and wholesale clients

·   A proven track record of delivering strong returns for shareholders

To allow all the non-executive Directors to be involved directly in the selection process the Nomination and Governance Committee established an Appointments Committee, comprising all of the non-executive Directors. The Appointments Committee began by considering whether there were internal candidates on the executive succession plan who fitted the above profile. Keith Skeoch was identified as a very strong internal candidate with the relevant skill set having a great understanding and appreciation of the Group's history, journey and strategic direction, and as a key contributor to the current strategy who had delivered high performance in the investments business.

The selection process then had the following stages:

·   Keith was invited to present to the Appointments Committee, sharing his vision for Standard Life and his proposals to deliver his vision

·   This was followed by a detailed question and answer session based on Keith's presentation against the elements of the agreed skills profile

·   To understand how he would benchmark against other potential external candidates, Keith then completed an in-depth assessment and interview with a leading external executive search firm focused on core behavioural leadership competencies and experience

·   Regulatory approval for Keith's candidacy was sought from the PRA and the FCA

The Appointments Committee met three times during the process, reviewed the output from each of the above stages, and agreed to recommend to the Board that Keith should be appointed to succeed David Nish as Chief Executive. Regulatory approval was also given, and Keith's appointment was announced on 19 June 2015.

Succession and talent management activities

The Nomination and Governance Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes at all levels across the Group.

At its meetings, the Committee discussed the future leadership and talent needs of the Group and how the current programmes would be revised to take account of the skills and expertise required by the Board and senior management. The programmes recognise the changing shape of the Group, and also identify both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief People Officer, with input from the Chief Executive and supported by the Group Talent and Organisation Development team. You can read about them in Section 1.6 of the Strategic report.

During the year, the Nomination and Governance Committee also received updates on how the programmes at graduate and emerging leader levels, as well as the accelerated programme for senior leaders, and overseas placements, have operated to deliver a more diverse leadership pipeline. In addition, they received updates on the specific individual development programmes in place for executive team members and their potential successors.

The results of the Committee's discussions are presented at least annually to the Board. During 2015, the non-executive Directors held specific discussions on Board and executive succession, the results of which fed into the overall plan

The Board members are keen to interact with the members of the development schemes and have met with, and had presentations from, key talent across the Group.

Annual review of internal control

The Directors have overall responsibility for the Group's System of Governance (SoG), which includes the Enterprise Risk Management (ERM) framework and System of Internal Control, and for the ongoing review of their effectiveness.  The SoG is designed to manage, rather than eliminate risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The SoG covers all of the Group's risks as set out in the ERM Framework section in the Strategic report. Internal Audit regularly audits the effectiveness of internal controls, which will include elements of the SoG. Internal Audit reports its findings to the Audit Committee and the Risk and Capital Committee.

With regard to regular financial reporting and preparing consolidated accounts, Group Finance participates in the control self-assessment and policy compliance elements of the ERM framework. Group Finance sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges business unit submissions and receives formal sign-off on financial reporting from business unit finance directors. In addition, Group Finance runs the technical review committee and the financial reporting executive review group which review external technical developments and detailed reporting disclosure and accounting policy issues.

In line with the Code and associated guidance, the Board has conducted ongoing monitoring and review of the SoG through the Risk and Capital Committee and the business unit Enterprise Risk Management Committees (ERMCs).  On behalf of the Board, the Risk function has also carried out an annual review of the effectiveness of the SoG. The SoG was in place throughout 2015 and up to the date of approval of the Annual report and accounts 2015.

In preparation for Solvency II requirements, the review included all elements of the SoG as follows:

·   General requirements - governance structure, board decision making documentation, allocation of responsibilities, policy framework, contingency plans, internal review of system of governance, organisational and operational structure

·   Remuneration

·   Fit and proper requirements

·   Risk management including ORSA

·   Prudent person principle

·   Own fund requirements

·   Internal controls (covering strategic, financial, operational and compliance)

·   Internal audit function

·   Actuarial function plus opinion on technical provisions

·   Valuation of assets and liabilities other than technical provisions

·   Outsourcing

·   Group governance specific requirements  

In carrying out the annual effectiveness review of the SoG, the risk function liaised with Subject Matter Experts (SMEs) around the business and reviewed and challenged all elements of the SoG to ensure they were fit for purpose and had operated effectively during 2015. Risk also produced a report detailing the assurance activity which had been conducted throughout the year in relation to the System of Internal Control and a summary of the key risk items discussed at business unit risk committees on an ongoing basis throughout the year.

Summaries of the evidence of the effectiveness review, assurance report and the key risk items were then presented for certification to the business unit Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Group function executive. Completed certifications and supporting documentation were also presented to the business unit ERMCs. 

The certification exercise asked the Chief Executive Officers, Chief Financial Officers, Chief Risk Officers and Group function executives to confirm the following:

·   An effectiveness review over each component of the SoG had been conducted

·   Where the effectiveness review of the processes related to the SoG has found material issues, recommendations have been made to restore process effectiveness

·   Significant control breakdowns identified through the risk management and internal control systems were reported during the year and necessary actions have been or are being taken to remedy these

·   Steps have been taken to identify any relevant audit information that the external auditors should be made aware of

The risk function prepared a report combining the output from the business units and Group function executives. This was presented to the Chief Executive, Chief Financial Officer and Chief Risk Officer and they also completed the certification exercise. The results of the output from the effectiveness review of the SoG, which concluded that there had been no significant failings or weaknesses, were presented to the Audit Committee which subsequently reported this conclusion to the Board.

Communicating with investors

The Company continues to develop a dialogue with its shareholders. As part of this, our investor relations and Group secretariat teams support communication with investors. During 2015, the Group continued its programme of domestic and international presentations and meetings between Directors and institutional investors, fund managers and analysts. The wide range of relevant issues discussed, in a regulatory compliant way, at investor presentations and meetings includes business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found in the Directors' remuneration report.

The Board is equally committed to the interests of the Company's 1.2 million individual shareholders who hold approximately 52% of the Company's issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. The Company has continued to gather and respond to shareholders' views on the services and means of communication available to them, mainly via the Shareholder Questions mailbox and surveys conducted with shareholders contacting the shareholder helpline. We believe that communicating electronically with our shareholders supports our sustainability strategy, and around 430,000 shareholders receive all communications electronically. We encourage shareholders to use our share portal to access information relating to their personal shareholding and dividend history and around 300,000 have signed up to this service. Share portal participants can also change their details and dividend mandates online and receive tax information electronically. We also encourage our individual shareholders to hold their shares in the Standard Life Share Account where shares are held electronically in a secure environment and 86% of individual shareholders hold their shares in this way.

To give all shareholders access to the Company's announcements, all material information reported via the London Stock Exchange's regulatory news service is published on the Company's website. We have continued to host formal presentations to support the release of both the full year and half year financial results together with conference calls for our two Quarterly AUA and flows updates. These results-related events are also made available live on the Group's website, with the facility for all listeners to ask questions, as well as having a permanent replay facility.

We publish company profiles to provide a high level introduction to the Group and its divisions. We also distribute a quarterly newsletter featuring articles designed to give investors deeper insight into particular areas of our business. Copies of our Company profiles and newsletters are available on the Investors section of the Group's website.

The Chairman's statement and the Strategic report in the Annual report and accounts aim to provide a balanced overall assessment of the Group's activities, performance and prospects. This information will be supported by a presentation at the 2016 AGM. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlife.com after the meeting. These will include the number of votes withheld.

The 2015 AGM was held at the Edinburgh International Conference Centre on 12 May 2015 when Directors were available to answer shareholders' questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, along with proxy votes lodged prior to the meeting, were made available on our website the same day. 45% of the shares in issue were voted and all resolutions were passed.

In addition, a General Meeting was held on 13 March 2015 at which shareholders were asked to consider the resolution, recommended by the Board, to approve the return of 73 pence per share, the implementation of the B/C share scheme, and the share consolidation. 45% of the shares in issue were voted and the resolution was passed.

Our 2016 AGM will be held in London for the first time. To give more shareholders the opportunity to attend, we plan to hold the AGM in Edinburgh and London in alternate years. 

Our role as an institutional investor

Standard Life Investments, the Group's principal asset management company, is a signatory to and a supporter of the UK Stewardship Code. It understands and promotes the importance of good governance and stewardship, believing that it is mutually beneficial for companies and long-term investors such as Standard Life Investments to have a relationship based on accountability, engagement and trust. As a major investor, it monitors and analyses the governance of the companies it invests in holding regular meetings with their senior management representatives. Standard Life Investments maintains principles and policy guidelines on corporate governance, stewardship and voting. These guidelines are applicable on a global basis. The guidelines support Standard Life Investments' approach to engaging and to voting at shareholder meetings. Standard Life Investments also makes voting reports available to clients and publishes summary information on its website. The policy guidelines are applied pragmatically, after all relevant information has been carefully considered. When assessing the Company's compliance with the principles and provisions of the UK Corporate Governance Code, the Nomination and Governance Committee also reviewed the Company's compliance with these principles and policy guidelines. The Committee concluded that the Company complied with the guidelines during the year.

Standard Life Investments has made public its processes to comply with the Stewardship Code's seven best practice principles. In line with Principle 7 of the Stewardship Code, Standard Life Investments obtains appropriate independent assurance over the policies and procedures which underpin its stewardship policy statements.

You can read more about this and its governance and stewardship annual review at www.standardlifeinvestments.com

Other information

You can find details of the following, as required by Disclosure and Transparency Rule 7.2.6, in the Directors' report and in the Directors' remuneration report:

Share capital

·   Significant direct or indirect holdings of the Company's securities

·   Confirmation that there are no securities carrying special rights with regard to control of the Company

·   Confirmation that there are no restrictions on voting rights in normal circumstances

·   How the Articles can be amended

·   The powers of the Directors, including when they can issue or buy back shares

Directors

·   How the Company appoints and replaces Directors

·   Directors' interests in shares

Board meetings and meeting attendance

The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. During the year, the Board held specific sessions to consider the Group's strategy and business planning. The Chairman and the non-executive Directors also met on three occasions during the year, formally and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed.

The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. During 2015 the Standing Committee met three times including in relation to the Chief Executive's appointment and the Chairman's appointment to the board of Barclays PLC. Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are generally distributed before meetings. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting. 

The Chairman is not a member of the Audit, Risk and Capital, and Remuneration Committees. He does, however, attend the meetings of all Committees, by invitation, in order to keep abreast of their discussions.

Directors' attendance at the 2015 Board meetings is shown in the table below. The Board met eight times during the year.

Number of meetings	Board
Chairman
Sir Gerry Grimstone	8/8
Executive Directors
Keith Skeoch	8/8
Luke Savage	8/8
Paul Matthews	1/1
Colin Clark	1/1
Non-executive Directors
Pierre Danon	8/8
Melanie Gee	0/1
Crawford Gillies	8/8
Noel Harwerth	8/8
Isabel Hudson	7/8
Kevin Parry	8/8
Lynne Peacock	8/8
Martin Pike	8/8
Former members
David Nish	6/6
David Grigson	4/4
John Paynter	2/2

Standard Life plc Board
Audit Committee		Remuneration Committee		Nomination and Governance Committee		Risk and Capital committee

Board Committees

The Board has established Committees that oversee, consider and make recommendations to the Board on important issues of policy and governance. At each Board meeting, the Committee Chairmen provide reports of the key issues considered at recent Committee meetings, and minutes of Committee meetings are circulated to the appropriate Board members. The Committees operate within specific terms of reference approved by the Board and kept under review by the Nomination and Governance Committee. These terms of reference are published within the Board Charter on our website at www.standardlife.com/annualreport

All Board Committees are authorised to engage the services of external advisers at the Company's expense, whenever they consider this necessary.

The Chairman of each Committee and of the Nomination and Governance Committee review Committee membership at regular intervals. The Nomination and Governance Committee considers all proposed appointments before they are recommended to the Board.

This statement includes reports from each Committee Chairman other than the report on the responsibilities and activities of the Remuneration Committee which can be found in the Directors' remuneration report following this statement. The Committee Chairmen are happy to engage with you on their reports. Please contact them via [e-mail]

In the interests of transparency we have included the reports from the Chairmen of the key Committees of Standard Life Assurance Limited - the With Profits Committee and the Independent Governance Committee. You can read more in Section 12.

4.2 Audit Committee report

The Audit Committee assists the Board in discharging its responsibilities for financial reporting, internal control and the relationship with the External Auditors

Dear Shareholder

During 2015, the activities of the Audit Committee significantly increased.  We:

·   Prepared for Solvency II, the new prudential regime that took effect from 1 January 2016

·   Spent more time discussing the work of Internal Audit

·   Enhanced our assessment of the quality of the external audit

·   Agreed the process by which we tender our audit

The Committee has worked with executive management to improve the financial reporting and considered carefully new disclosures on viability.

Our report to you is structured in four parts:

·   Governance

·   Report on the year

·   Internal audit

·   External audit

I took over the chairmanship of the Committee at the 2015 AGM and should like to thank my predecessor, David Grigson, for guiding the Committee through its work over the previous three years.

I look forward to engaging with you on the work of the committee.

Kevin Parry

Chairman, Audit Committee

Governance

Membership

All members of the Audit Committee are independent non-executive Directors. Their attendance at Committee meetings was:

Member	Attendance
Kevin Parry, Chairman*	8/8
Noel Harwerth	8/8
Isabel Hudson	7/8
Lynne Peacock	8/8
Martin Pike	5/5
Former member
David Grigson, Chairman*	3/3
John Paynter	2/3

*the Chairmanship changed on 12 May 2015

The Board believes members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management. Kevin Parry is a former senior KPMG audit partner, was chief financial officer of Schroders plc and is an experienced audit committee chairman. For the business of the Committee, he is considered by the Board to have competence in accounting and auditing as well as recent and relevant financial experience.

The Committee schedules six meetings per annum, four of which are co-ordinated with external reporting timetables. This year there were two extra meetings focused on Solvency I and II.

Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive Standard Life Investments, the Chief Executive UK and Europe, the Group Financial Controller and Treasurer, 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, Chief Internal Auditor and Chief Financial Officer. 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.

Key responsibilities

The Audit Committee's responsibilities are to oversee and report to the Board on:

·   The appropriateness of the Group's accounting and its accounting policies, including the going concern presumption and viability

·   The findings of its reviews of the financial information in the Group's annual and half year financial reports

·   The clarity of the disclosures relating to accounting judgements and estimates

·   Its view of the 'fair, balanced and understandable' reporting obligation

·   The findings of its review of key prudential returns and disclosures

·   Internal controls over financial reporting and procedures to prevent money laundering, financial crime, bribery and corruption

·   Outcomes of investigations resulting from whistleblowing

·   The appointment or dismissal of the Chief Internal Auditor, the approved internal audit work programme, key audit findings and the quality of internal audit work

·   The independence of the External Auditors, the appropriateness of the skills of the audit team, the approved audit plan, the quality of the firm's execution of the audit, and the agreed audit and non-audit fees

·   Any external audit tender process and the outcome of the tender

In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.

Committee effectiveness

The Committee reviews its remit and effectiveness annually. The 2015 review was carried out using an internal self-assessment questionnaire. The review concluded that the Committee had:

·   Performed effectively during the year and should continue its close liaison with the Risk and Capital Committee to embrace efficiency and enhance coverage

·   Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date, recognising that in 2016 its regulatory reporting duties will be expanded to cover Solvency II

·   Received sufficient, reliable and timely information from management and the External Auditors to enable it to fulfil its responsibilities, recognising a desire to provide focused information in the face of increasing obligations

The Board's review similarly confirmed its satisfaction with the performance of the Committee.

Additionally the incoming Committee Chairman met individually with each member of the audit committee and discussed the performance of the committee.

The review supported:

·   A deeper assessment of the work undertaken by Internal and External Auditors in the light of evolving best practice

·   Greater scrutiny of non-GAAP measures, such as assets under administration and operating profit

·   An annual review of the Group's policy towards taxation

·   An evolution of work to reflect the changing profile of the Group

·   Better presented papers

Report on the year

Audit agenda

The Audit Committee has a rolling agenda comprising recurring business, seasonal business and other business.

As recurring business, at every meeting the Committee reviews and discusses:

·   Updates from Group Finance on significant financial accounting, reporting and disclosure matters

·   Findings from Internal Audit reports and how high priority findings are being followed up by management

·   Updates to the Internal Audit rolling plan

·   Results of the monitoring of financial crime, fraud risk assessments and calls to our dedicated Speak Up helpline

·   Reports from the chairmen of the subsidiary Audit Committees

·   Updates on work completed by the External Auditors

·   Details of non-audit services requested of the External Auditors by business units

Other agenda items

Other agenda items are aligned to the annual financial cycle as set out below.

January to March

·   Annual report and accounts 2014 ·   2014 Strategic report and financial highlights ·   External review of the effectiveness of Internal Audit (GIA)

April to June

·   Q1 AUA and flows update ·   Completion of the 2014 external audit for all audited entities ·   2014 external audit fee and the proposed 2015 fee for all audited entities ·   Solvency II preparatory reporting

July to September

·   Half year results 2015 ·   External Auditors' review of Half year results ·   External audit plan for 2015 for all audited entities ·   2015 external audit engagement letter for all audited entities ·   Solvency II reporting and asset valuations

October to December

·   Q3 AUA and flows update ·   Initial findings from the Financial Year 2015 year end work ·   The GIA global charter and the GIA plan ·   Effectiveness of the External Auditors and their proposed re-appointment at the 2016 AGM ·   Group Non-audit services provided by External Auditors ·   Effectiveness  of the Committee ·   Preparedness for Solvency II reporting and assurance provisions ·   Liaison with the Remuneration Committee on targets and measures ·   External Financial Reporting Policy

The indicative proportion of time spent on the business of the Committee is illustrated below:  Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document.

Detail of work

The focus of work in respect of 2015 is described below.

Financial reporting (including viability statement)

The Committee supported the recommendation that International Financial Reporting Standards provide a clearer view of the performance and condition of the Group compared to other accounting conventions such as embedded value. We no longer include embedded value reporting because the Group is not solely an insurance company and, in the opinion of the Committee, more than one accounting convention detracts from the clarity of reporting.

The Committee believes that some non-GAAP measures can add insight to the IFRS reporting and provide a more useful indication of the long-term operating performance of the Group (see 'fair, balanced and understandable' below).

The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2015 Group financial statements. There are no important changes this year. The Committee confirmed that it considered the Canadian business to be a discontinued business. The Committee also considered the accounting for the Singapore business which was closed during the year and concurred with the adopted presentation.

The Committee reviewed the basis of accounting and in particular the appropriateness of adopting the going concern basis of preparation of the financial statements. In doing so, it considered the Group's cash flows resulting from its business activities and factors likely to affect its future development, performance and position together with related risks, as set out in more detail in the Strategic report. The Committee recommended the going concern statement to the Board (see Section 1.7).

In addition to the going concern statement the Committee considered the form of the viability statement. In particular there was a debate over the period of time that it was appropriate to consider. The debate centred on the long- term nature of the life business and our obligations to policyholders in the context of the risks that could emerge. The Committee decided that it was appropriate to limit our statement to three years reflecting both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee used the same information as it uses when considering the risks that are taken into account to determine regulatory capital. The Committee recommended the viability statement to the Board (see page 31, in Section 1.5).

The Committee reviewed the two quarterly AUA and flows updates, the Half year results and the Annual report and accounts. For the half year it received written and/or oral reports from the Chief Financial Officer, subsidiary audit committee chairmen or boards, the Company Secretary, the Chief Internal Auditor and the External Auditor. In addition for the year end it received a report from the Head of Group Actuarial. The Committee uses these reports to aid its understanding of the composition of the financial statements, to confirm verification and compliance with reporting standards and to justify accounting judgements and estimates.  The Committee then seeks clarifications and any further information required to support the appropriateness of the numbers reported. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board. In particular, the Committee was satisfied that the annual and half year financial statements complied with laws and regulations and had been appropriately compiled.

Accounting estimates and judgements

The Committee focused on the disclosure of key accounting estimates and judgements. 

In compiling a set of Group financial statements, it is necessary to make judgements and estimates about outcomes that are typically dependent on future events. This is particularly relevant to a life assurance business where profitability is inherently dependent on economic and health related outcomes.  Further, we have a substantial defined benefit pension plan which will close to all contributions on 15 April 2016. Its liabilities are also dependent on economic and health related outcomes. Estimates are not however limited to liabilities. Our business and pension funds invest in some hard to value investments, such as over-the-counter derivatives, private equity, real estate and commercial mortgages. The value of those assets cannot be readily determined without estimations.

The Audit Committee considered all estimates and judgements that Directors believed could be material to the financial statements. In particular, actuarial valuations were considered in the context of our experience over the short and medium term against base assumptions and future assessed improvements. We compared our actuaries' views with estimates made by other companies and pension funds drawing on available benchmark data and looked at the changes in outcomes attributable to a change in estimates (known as sensitivity analysis). We determined that annuitant mortality was the most material estimate (see Note 33 of the Group financial statements for more detail).

The Committee also discussed changes to persistency and expense assumptions in Hong Kong which resulted in a write-down of deferred acquisition costs.

We enquired about revenue recognition. In particular, we discussed performance fees associated with the Ignis business.  We were satisfied that revenue was appropriately recognised.

We considered key assumptions determining the pension fund surplus: inflation (including the gap between RPI and CPI), mortality and the discount rate. The assumptions were compared with market data and expert opinions. We additionally considered the relevance of proposed new guidance on recognising a pension surplus on the consolidated statement of financial position. Interpretation remains uncertain and so the Committee supported additional disclosures. Further details are set out in Note 37 of the Group financial statements.

We considered the carrying value of intangible assets, notably those relating to the acquisition of Ignis and agreed with management that it was necessary to write them down by £5m (2014: £43m) resulting from the loss of clients and the resultant revenue decline. See Note 16 of the Group financial statements for further detail. 

We considered conduct issues, particularly in respect of the sale of non-advised annuities, taking account of an FCA review of practice across a selection of firms in the industry. After careful consideration of known facts and uncertainties, we recommended to the Board the disclosure of a contingent liability. See Note 45 of the Group financial statements. 

We carried out a detailed review of the processes and controls for valuing hard to value assets and were satisfied that we could rely on the procedures for determining valuations. See Note 43 of the Group financial statements. 

Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.

Fair, balanced and understandable

The Committee supported the financial reporting team's thorough review of the Annual report and accounts. This has resulted in some significant changes in presentation which are designed to assist readers. Notably, accounting policies, estimates and judgements are co-located with relevant notes to the accounts, the accounts have been decluttered by the removal of trivial information and there is greater use of newly designed graphics. 

The Committee formed the view that tax reporting could be clearer. Consequently, it discussed the opportunities for improvement with the Tax Director resulting in presentational clarifications.

We compared our Annual report and accounts with those of other major UK life insurers and asset managers and asked our auditors for improvement recommendations.

The Committee reviewed the non-GAAP measures which complement the statutory IFRS numbers in order to give a more complete view of the performance of the business. In particular we ensured that the allocation of items to operating profit were in line with our established accounting policies and were consistent with previous practice. The Committee was satisfied with the consistency and reasonableness of the measures. The Committee discussed a future change to the definition of operating profit (see Note 14 of the Group financial statements), noting that the Remuneration Committee would continue to give appropriate consideration to items excluded from operating profit. Additionally, the Committee relied on the verification process for other non-GAAP measures notably assets under administration.

Three drafts of the Annual report and accounts 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 2015, taken as a whole, is fair, balanced and can be understood by an experienced reader of the accounts. 

We are interested in feedback from stakeholders and will carefully consider any feedback received.

Prudential reporting

The Committee reviewed capital reporting for the Group under the existing Solvency I regime, and discussed the presentation of these results in this Annual report and accounts.

Solvency II reporting applies with effect from 1 January 2016. During 2015, the Group submitted preparatory phased reporting to the PRA as at the end of 2014 and as at the end of Q3 2015. The Committee established procedures that would allow it to adopt a compliance approach to future returns drawing on work undertaken by financial management, Group Risk, Internal Audit and External Audit. The procedures are designed to give the Audit Committee a high degree of comfort that returns have been properly prepared.

The Committee considered actuarial assumptions used for year end 2015 for Solvency II reporting, including mortality, persistency and expense assumptions. Similar work was undertaken as for financial reporting (see above).  The Committee reviewed disclosures relating to Solvency II results included in the Strategic report section of this Annual report and accounts, and related assurance reports and was satisfied with the disclosures.

Internal controls

As noted earlier, the Directors have overall responsibility for the Group's internal controls and for ensuring their ongoing effectiveness. Together with the Risk and Capital Committee, the Committee provides comfort to the Board of their ongoing effectiveness.

Internal audit regularly reviews the effectiveness of internal controls and reports to the Committee and the Risk and Capital Committee.

Group Finance sets formal requirements for financial reporting, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting segment submissions. Further, Group Finance runs a technical review committee and is responsible for monitoring external technical developments.

During 2015 the UK business implemented a new general ledger to transform business processes. Given the significant impact on finance processes, the Committee discussed the ledger implementation at a number of meetings. The Committee's discussions focused on:

·   Controls over data migration and related opening balance reconciliations

·   The impact of the transformation on ledger reconciliation processes and control

·   Systems access controls and change requests post go-live

There were a number of bedding-in issues associated with the implementation of the new accounting system. The Committee was satisfied that reconciliation controls were completed satisfactorily and by the additional substantive external audit work undertaken to address identified issues.

The control environment around financial reporting will continue to be monitored closely.

Financial crime and whistleblowing

Staff are trained to detect and report the signs of possible fraudulent or improper activity and how to report concerns. The Committee receives regular updates from the Group 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.

The Committee reviews the arrangements for Group employees to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters.

The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal Audit functions, the Committee directs the investigation. The Committee is currently satisfied that the Group's procedures are operating effectively.

Internal audit

The Group has an internal audit function comprising 40 people. In addition, there is a co-sourcing agreement with KPMG LLP and this is used to support specific technical reviews. KPMG will take part in the tender for the external audit and if they are selected, they will not undertake any internal audit work after 31 December 2016. The Chief Internal Auditor reports to the Committee Chairman. 

Internal Audit operates in accordance with a global charter which is reviewed by the Committee every year. Their work plan is drawn from all businesses in the Group after holding risk based discussions with management, regulators, the External Auditor and the Committee. Identified areas of focus are mapped to the key risks within the Own Risk and Solvency Assessment (ORSA), which is a dynamic forward looking tool for decision making and strategic analysis at the heart of the Solvency II prudential regime. Consistent with that methodology, our regulators request specific reviews as part of the Risk Mitigation Plan. The Committee approves the determined scope and content of the annual internal audit plan, which is updated on a rolling basis to allow Internal Audit to address any emerging issues and reflect changes in the Group's organisation.

The Committee receives regular reports from the Chief Internal Auditor on:

·   The implementation of the approved plan and proposed changes to it

·   Key findings from completed reviews, including the impact on financial reporting processes and related applications

·   The status of management's implementation of agreed improvement actions, including where and why dates have been rescheduled

·   The assessment of the internal control environment at each business unit

During 2015, approximately 85 internal audits were completed. The Committee considered the reports on data governance, end user applications and Solvency II assurance were particularly insightful and contributed to the strengthening of the control environment.  

The Committee considers Internal Audit's effectiveness annually, monitoring its independence, objectivity and resourcing in the context of the Institute of Internal Auditors' professional standards. To assist the Committee, EY LLP was engaged to review the effectiveness of the GIA function and reported the results to the Committee. The team earned the Institute of Internal Auditors' highest rating. GIA also carried out its own quality assurance processes and reported the satisfactory results back to the Committee.

During the year, Committee members significantly increased the amount of time spent with senior team members, meeting them before each formal meeting to discuss emerging topics and to advise on the scope of work they would like undertaken. This enhanced the regular dialogue that takes place at least monthly between the Committee chairman and the Chief Internal Auditor. 

During the year there was a process of succession for the Chief Internal Auditor led by the Committee chairman and with the full Committee approving the recommended candidate. An external appointment has been made to broaden the experience of the senior team.

Based on its review, the Committee concluded that the function continued to be highly effective.

In accordance with the relevant independence standards, the External Auditors do not place reliance on the work of Internal Audit.

External audit

The appointment

The Committee has responsibility for making recommendations to the Board on the reappointment of the External Auditors, for determining their independence from the Group and its management and for agreeing the scope and fee for the audit.

Following its review of the quality and independence of the 2014 audit, the Committee recommended to the Board that PricewaterhouseCoopers (PwC) should be recommended to shareholders as the auditors for 2015. The shareholders voted in favour of the re-appointment.  

PwC has been the Group's auditors since 1994 and the audit was last re-tendered in 2003.

The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable and the provisions of the EU Regulation on Audit Reform and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. In compliance with those regulations, the Committee has determined that it should tender the audit for the year ending 31 December 2017 to coincide with the rotation off the engagement of the lead partner, Stephanie Bruce (who has led the Standard Life audit team for four years).

Auditor independence

The Board has an established policy setting out what non-audit services can be purchased from the firm appointed as External Auditors. The Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the External Auditors and to comply with the ethical standards set out by the UK Audit Practices Board. It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee's prior approval.

The services prohibited by the Policy include:

·   Book-keeping or other services related to the accounting records or financial statements

·   Financial information system design

·   Appraisal or valuation services where the results would be material to the financial statements

·   Internal audit co-sourcing

·   Actuarial calculations

·   Management functions

·   Legal services

·   Forensic audit services

·   Temporary or permanent services as a director, officer or employee or performance of any decision-making, supervisory or monitoring function

·   Recruitment of senior management

·   Certain tax services including those related to Base Erosion and Profit Shifting (BEPS)

The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the external audit function and when the external audit firm's skills and experience make it the most suitable supplier.

These include:

·   Accounting consultations and audits in connection with acquisitions and sales of businesses

·   Due diligence related to mergers and acquisitions

·   Tax compliance and advisory services

·   Employee benefit plan audits

·   Attesting to services not required by statute or regulation

·   Assurance services relating to regulatory developments affecting the Group

·   Consultations concerning financial accounting and reporting standards not relating to the audit of the Group's financial statements

·   Sustainability audits/review

PwC has reviewed its own independence in line with these criteria and its own ethical guideline standards. PwC has confirmed to the Committee that following its review it is satisfied that it has acted in accordance with relevant regulatory and professional requirements and that its objectivity is not impaired.

Having considered compliance with our policy and the fees paid to PwC, the Committee is satisfied that PwC has remained independent.

Audit and non-audit fees

The Group audit fee payable to PwC in respect of 2015 was £3.7m (2014: £4.7m). The reduction in the audit fee reflects the disposal of the Canadian business. In addition £2.3m (2014: £1.5m) was incurred on audit related services. The increase largely relates to Solvency II related assurance services. The Committee is satisfied that the audit fee is commensurate with permitting PwC to provide a quality audit.

Non-audit fees amounted to £1.3m (2014: £2.5 million). The fees primarily relate to services connected with controls assurance reports and tax compliance.  Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Board's policy for non-audit fees. Depending on the level of the proposed fee, the approval of the Chairman or members of the Committee and/or the whole Committee is required. The External Auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by external audit and the firm's skill sets.

Further details of the fees paid to the External Auditors for audit and non-audit work carried out during the year in are set out in Note 9 of the Group financial statements. 

The ratio of non-audit fees to audit and audit related assurance fees is 22% (2014: 40%).

The Committee is satisfied that the non-audit fees do not impair PwC's independence. 

Audit quality and materiality
The Committee places great importance on the quality and effectiveness of the external audit. 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 discusses the scope of the audit prior to its commencement

·   The Committee reviewed the annual findings of the Audit Quality Review team of the Financial Reporting Council in respect of PwC's audits.  We requested a formal report from PwC of the applicability of the findings to Standard Life both in respect of the generally identified failings and failings specific to individual audits. We were satisfied insofar as the issues might be applicable to Standard Life's audit, that PwC had proper and adequate procedures in place for our audit.

·   The Committee enters into a formal engagement with the auditor and agrees its audit fee

·   The Committee Chairman has at least monthly meetings with the lead audit partner to discuss Group developments

·   The Committee receives at nearly every meeting an update of PwC's work, compliance with independence and its findings

·   There was a detailed interview by the Committee Chairman with the audit partners of the work undertaken to support their opinion on the financial statements and the consistency of the remainder of the report and accounts with their work

·   The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See materiality below for more detail.

·   This year additional work was undertaken on Solvency II reporting. The Committee considered that it should exercise similar governance procedures over such disclosures as over other financial information because surplus capital is important information to equity and credit investors.

We have discussed the accuracy of financial reporting (known as materiality) with PwC both as regards accounting errors that will be brought to the Committee's attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at £31 million (2014: £37 million). This equates to approximately 5% of continuing pre-tax operating profit. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, PwC agreed to draw the Committee's attention to all identified uncorrected misstatements greater than £2 million (2014: £2 million). There were no such items noted by PwC that impacted pre-tax profit. The gross differences were attributable to various individual components of the income statement. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External Auditors.

PwC has confirmed to us that the audit complies with their independent review procedures. Last year's audit was not subject to either an independent quality assurance process undertaken internally by PwC or externally by the FRC. If this year's audit is selected by either process, we will seek assurances that recommendations for improvements are embraced by the audit team.  

Taking account of all our work, the Committee was satisfied with the quality of audit and, in accordance with its appointment procedures, the Committee recommended that the current auditors be proposed for reappointment at the 2016 AGM until the conclusion of the 2017 AGM. The Committee's recommendation is not restricted by any contractual obligations.

Audit tender
We have commenced the formal audit tender process. A pre-requisite of participation in the tender is that the firm can demonstrate its ability to meet ethical standards and be independent.  We are at an advanced stage of concluding our work on independence.

The procedure being followed is as follows:

·   Briefing of pre-selected firms by Committee Chairman and Chief Financial Officer

·   Mutual agreement on the ability to be independent for 1 January 2017

·   Meetings with selected members of management

·   Mock audit tests based on data analysis

·   Interviews of partners led by the Committee Chairman and Chief Financial Officer respectively

·   Presentation to the Committee

·   Recommendation to the Board by the Committee subject to final agreement of engagement

·   Recommendation of Auditor to the 2017 AGM

PwC is not being invited to tender as the maximum time under the new regulations that they could serve as our auditor is three years. The business would be too disrupted by another audit tender in quick succession. We will use the 2016 audit as a year of transition and look forward to working with PwC and the successful firm to ensure efficient transition. 

The Committee will continue to follow the annual appointment process but does not currently anticipate re-tendering the audit before 2026.

4.3 Risk and Capital Committee report

The Risk and Capital Committee supports the Board in the effective oversight and challenge of risk management and the use of capital across the Group.

Dear Shareholder

The Risk and Capital Committee has continued to support the Board in the effective oversight and independent challenge of risk management and the use of capital across the Group. Changes in the external landscape over the past year, including an increased regulatory focus on conduct risk and the finalisation of requirements related to Solvency II, have been notable drivers of the Committee's activity in 2015. The Committee has also focused on the new risks that have arisen over the year as a result of the proposition launched in response to the pension flexibility and choice regime introduced by the UK government and the decision to enter into the UK advice business. 

I took over as Chairman of the Committee during the year and would like to thank my predecessor, Noel Harwerth, for her Chairmanship over recent years.

Martin Pike
Chairman, Risk and Capital Committee

Membership

All members of the Risk and Capital Committee are independent non-executive Directors. Their attendance at Committee meetings was:

Member	Attendance
Martin Pike, Chairman*	8/8
Noel Harwerth*	8/8
Pierre Danon	7/8
Crawford Gillies	8/8
Isabel Hudson	8/8
Kevin Parry	8/8
Former member
David Grigson	3/4

*the Chairmanship changed on 12 May 2015

The Committee meetings are attended by the Group Chief Risk Officer and Deputy Group Chief Risk Officer with those invited to attend on a regular basis including the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive Standard Life Investments, the Chief Executive UK and Europe, the Company Secretary and the Chief Internal Auditor as well as the External Auditors.

The Group's strategy of being a global investment business with a leading presence in investment management and in the UK long-term savings and investments market is subject to risks and uncertainties. The Group's risk function seeks to understand and actively manage the sources and scale of these risks and uncertainties and provides reporting to the Committee on these matters accordingly. This includes providing each meeting of the Committee with a "Group Views on Risk" presentation which contains a holistic view of the key risks and uncertainties across all of the Group's businesses and the actions being taken to manage these.

The Committee's role is to provide oversight, advice and challenge regarding:

·   The Group's risk appetite, material risk exposures and the impact of these on the levels and allocation of capital

·   The structure and implementation of the Group's Enterprise Risk Management (ERM) framework and its suitability to react to forward-looking issues and the changing nature of risks

·   Regulatory compliance across the Group

·   Material risk and capital matters affecting the Heritage With Profits Fund

In our meetings the Committee reviews and discusses:

·   Matters escalated from the Group Enterprise Risk Management Committee

·   Group Views on Risk

·   Material with profits risk and capital matters

·   Thematic developments of relevance to the business

·   Own risk and solvency assessment (ORSA)

In addition to these standing agenda items, the Committee also receives periodic reports from the Business Risk Review team. This team was created in the risk function in 2014 to focus on reviewing specific business issues and provide independent assessments and reports that assist management to manage and mitigate risk.

After each meeting, the Chairman reports to the Board, summarising the key points from the Committee's discussions.

The Committee's work in 2015

An indicative breakdown as to how the Committee spent its time is shown below:  Diagram removed for the purposes of this announcement.  However it can be viewed in full in the pdf document.

Risk exposures and risk strategy

The completion of the sale of the Canadian business in January has resulted in a notable shift in the Group's overall risk profile. This reduced the Group's exposure to credit and longevity risk in absolute terms whilst increasing the relative exposure to agency and technology risks arising from investment management activity.

During the year the Committee received regular risk reporting from the Group Chief Risk Officer in the form of the Group Views on Risk presentation. This contains standardised reporting on the customer, economic, regulatory, conduct and policy agenda environments providing an overview of the impact of the risk strategy on the Group's key risk exposures and capital profile. A significant portion of each meeting is spent considering this reporting with the information being used to review and challenge the Group's risk strategy, material risk exposures and capital position. During the year this prompted discussions including:

·   Low interest rates and the impact on the provision of guaranteed products in Germany - a discussion which led to the decision to withdraw from the marketing of these products

·   Regulatory developments regarding Markets in Financial Instruments Directive II including the implications for investment management

·   Progress regarding key items on the Group's change programme, such as the integration of Ignis Asset Management

·   The use of cloud services and wider consideration of cyber risks

·   The level and cause of customer and client complaints around the Group

A key aspect of the Committee's activities this year has been monitoring the Group's progress towards implementing Solvency II, the EU Directive focused on providing a harmonised insurance regulatory regime aimed at promoting policyholder protection and creating a safer, more resilient sector. As part of monitoring this progress, the Committee received regular updates on:

·   The development of methodology

·   The resolution of outstanding areas of uncertainty with the regulator

·   The steps being taken to meet the challenge associated with Solvency II reporting timescales

The Committee formally considered the Internal Model application submission to the regulator and provided advice concerning this to the Board and the boards of the insurance subsidiaries affected by this.

The Committee also discussed the implications of Standard Life Investments changing its outsourced provider of transfer agency services (including the maintenance of client investment records and certificates) given the potential impact of this on the business's operational risk.

The decision to acquire Pearson Jones during the year as part of the process to build a UK-advice business was also subject to scrutiny by the Committee. This included reviewing the business case and risk assessment relating to the proposed acquisition and considering the transaction in the context of the Group's risk strategy, material risk exposures and allocation of capital. A key focus for the Committee centred on customer considerations, including conduct and compliance risks within the business being acquired and how these were proposed to be mitigated.

On 6 April the UK and Europe business launched its response to the pension flexibility and choice regime introduced by the UK government.  This gave customers the ability through either an online or phone-based service to access their pension money as:

·   Full cash withdrawal

·   Flexible drawdown

·   A guaranteed income option

Prior to the launch of the proposition the Committee carried out an extensive review of the business's proposals and provided challenge regarding the potential conduct risks introduced by the proposition, the operational readiness of the business and risks relating to fraud and security. The Committee has continued to monitor these risks following launch through regular updates provided in the Views on Risk reporting.

The Committee also received regular updates on the Group's own risk and solvency assessment (ORSA). This comprised:

·   Periodic summary ORSA reports

·   Updates via Group Views on Risk reporting

·   Results of stress and scenario testing

·   Ad-hoc papers including specific reviews performed by the risk function

Stress and scenario testing is a forward-looking exercise that assists in assessing resilience to significant adverse events affecting key risk exposures. The stress and scenario tests performed by the businesses this year covered a range of scenarios and, in light of market conditions at the time, included a negative yield stress (where longer term yields were assumed to be less than 0%).

The results of the stress and scenario testing performed indicated that the Group's solvency continued to be well-immunised against stress due to the risk mitigation in place in the form of hedging, reinsurance and cash flow matching strategies.

Having reviewed the reporting presented, the Committee determined that developments in the ORSA environment were well understood and there was no need for the full ORSA report to be updated outside of the routine annual cycle.

In December the business went live with the "Living ORSA", an internally-developed online application that allows users to readily access and navigate the latest Group risk information, further embedding the ORSA process.

Enterprise Risk Management framework

The Committee monitors the structure and implementation of the Group's ERM framework primarily through the material contained in the Group Views on Risk and ORSA reporting. Material reviewed by the Committee during the year included:

·   The status of policy compliance and the results of control self-assessment

·   Dashboard summaries of key risks

·   The Chief Internal Auditor's assessment of the internal control environment related to the management of risk and capital

·   Analysis of emerging risks

A key component of the Group's ERM framework is the risk appetite framework. During the year the Committee received proposals regarding changes to the Group's risk appetite framework and risk limits. This included receiving proposals regarding the quantitative risk limits to be used to manage the business during 2016 accompanied by risk assessments of the business plan for 2016. Specific items discussed by the Committee in respect of the risk limit proposals included the impact of changes in interest rates on the measurement of longevity risk and the approach used in allocating capital across different types of risk.

In addition to receiving information on liquidity risk through the dashboard reporting, the Committee received the results of the Group's quantitative assessment of liquidity risk, setting out the estimated realisable value of assets in a distressed market relative to requirements following significant adverse shifts in customer demand. This allowed the Committee to understand the extent of liquidity risk in the context of the appetite approved under the risk appetite framework. The results indicated that, for the scenarios considered, all entities were able to meet customer demands.

In line with the Committee's duties, the Committee reviewed the key assumptions and bases underlying the Individual Capital Assessment for Standard Life Assurance Limited and the Committee also reviewed the Internal Capital Adequacy Assessment Process for Standard Life Savings Limited and Standard Life Investments (Holdings) Limited with the latter representing the first report covering the integrated Ignis business and Standard Life Wealth.

Having reviewed and challenged the material presented in these regulatory returns, the Committee recommended that the respective Boards submit the returns.

Recognising the importance of risk culture and good risk governance within the ERM Framework, the Committee received an overview of risk governance within the investment business. The Committee noted the governance arrangements in place within the business and the interaction of the governance committees across the Group.

Scrutiny of with profits risk and capital matters

The Committee is advised of relevant updates on with profits risk and capital matters through content in the Group Chief Risk Officer's regular risk reporting. In addition, mechanisms exist for the Chairman of the SLAL With Profits Committee to highlight specific matters to the Committee. None were highlighted during the year.

In carrying out their duties, the Committee reviewed the annual report from the With Profits Committee on the management of SLAL's with profits business. Having had due regard to the material presented, the Committee agreed there were no items that required escalation to the Board.

During the year the Committee received an overview of hedging activity which included a focus on hedging performed within SLAL's with profits business. This supported the Committee in scrutinising material risk and capital matters within SLAL's with profits business and provided the Committee with information on:

·   The exposure being hedged and the rationale for the hedge

·   The instruments used for hedging

·   How the hedges are calibrated

·   The process for rebalancing the hedge

·   Conditions where the hedge may be ineffective

Regulatory compliance

During the year the Committee reviewed and assessed the 2015 regulatory compliance plans detailing the planned assurance activities to be performed across the Group. The Committee also received various updates on thematic reviews being undertaken by the Group's regulators.

Reporting on regulatory compliance was covered in Group Views on Risk reporting and included:

·   Updates on activities detailed in the regulatory compliance plans

·   Significant regulatory developments, such as those relating to the Markets in Financial Instruments Directive's impact on investment management and the Group's planned response to those regulatory developments

Thematic items and Business Risk Review reporting

During the year the Committee received a number of presentations supporting a wider understanding of risks and risk management activity across the Group.

In light of the growth in assets under management as a result of organic growth and the acquisition of Ignis, the Committee received a presentation on the processes and procedures in place to monitor and manage any investment capacity or liquidity issues within the investment business. This provided the Committee with assurance regarding the range of activities in place to support the investment business in meeting client expectations in the face of reduced trading capacity at many banks and the increase in "crowded trades" where many market participants were following the same strategy.

The Committee also received a thematic presentation regarding implications of the UK government's plan to hold a referendum on the UK remaining a member of the EU. This highlighted potential risks including the ability of UK entities to continue providing regulated services to European entities in the event of the UK exiting the EU ('Brexit'). In addition to monitoring external developments, the Committee agreed a number of further actions to be taken by the business at this time to ensure the business is well-prepared for the possibility of a Brexit.

A number of Business Risk Review reports were presented to the Committee during the year which provided the Committee with independent assessments from the risk function on various matters.

Business Risk Review reports presented to the Committee included reviews covering the development of the Standard Life Wealth and 1825 businesses. These were considered to be timely reviews in assessing and challenging the ambitions of Standard Life Wealth following the acquisition and integration of Newton Private Client Management in 2013 and the commercial and operational plans of the recently launched 1825 business.

The presentations allowed informed discussion to take place regarding the progress of these businesses and made a number of recommendations which the Committee endorsed aimed at supporting the businesses in meeting their respective objectives.

Committee effectiveness

The Committee reviews its remit and effectiveness annually and in 2015 this review was completed via an internal self-assessment questionnaire.

The review concluded that the Committee continued to operate effectively and recognised positive developments through the introduction of Business Risk Review reports and the enhancements that had been made to Views on Risk reporting. For 2016, the review also highlighted expectations that the Committee's work would continue to evolve reflecting a number of factors including the changing risk profile of the Group as well as the increased regulatory focus on matters such as conduct risk.

 

END

 

 

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