Final Results - Part 4 of 8

RNS Number : 0471B

Standard Life plc

27 February 2014

 



Standard Life plc

Full Year Results 2013

Part 4 of 8

Independent Auditors' Report to the Members of Standard Life plc

Report on the Group financial statements

Our opinion

In our opinion the Group financial statements, defined below:

·    give a true and fair view of the state of the Group's affairs as at 31 December 2013 and of the Group's profit and cash flows for the year then ended

·    have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union

·    have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

This opinion is to be read in the context of what we say in the remainder of this report.

What we have audited

The Group financial statements, which are prepared by Standard Life plc, comprise:

·   the Consolidated statement of financial position as at 31 December 2013

·   the Consolidated income statement and statement of comprehensive income for the year then ended

·   the Consolidated statement of changes in equity and statement of cash flows for the year then ended

·   the Group accounting policies and the notes to the Group financial statements, which include other explanatory information.

We have not audited the Pro forma reconciliation of consolidated operating profit to profit for the year set out on page 106 which was prepared by Standard Life plc.

The financial reporting framework that has been applied in the preparation of the Group financial statements comprises applicable law and IFRSs as adopted by the European Union.

Certain disclosures required by the financial reporting framework have been presented elsewhere in the Annual Report and Accounts 2013 (the 'Annual Report'), rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

What an audit of financial statements involves

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

·    whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed

·    the reasonableness of significant accounting estimates made by the directors

·    the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Group financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Overview of our audit approach

Materiality

We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatementsboth individually and on the financial statements as a whole.

Based on our professional judgement, we therefore determined materiality for the Group financial statements as a whole to be £40 million. Our view on overall materiality was communicated to the Audit Committee.

We agreed with the Audit Committee that we would report to the Committee those misstatements identified during the audit above £2 million, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

In determining our materiality, we have considered financial metrics which we believe to be relevant and concluded that operating profit before tax was a relevant benchmark because it is a performance measure used by management to reflect the underlying profit of the business.

Overview of the scope of our audit

The Group is reported in five reportable segments being UK and Europe, Standard Life Investments, Canada, Asia and Emerging Markets and Other. These segments are disaggregated into reporting units. The Group's financial statements are a consolidation of these reporting units.

In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting units by us, as the group engagement team, or component auditors within PricewaterhouseCoopers LLP (PwC) and from other PricewaterhouseCoopers network firms operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.

Accordingly, we identified 10 of the Group's reporting units which, in our view, required an audit of their complete financial information, either due to their size and/or their risk characteristics. These focussed on the material reporting units within the UK and Europe, SLI and Canada reportable segments.  In addition, specific audit procedures on certain balances and transactions were performed at a further 10 reporting units within the Group across all reportable segments. Additional procedures were also performed at the Group level over the group consolidation and other reporting packs in order to gain further audit evidence. Overall we concluded that this gave us the evidence we needed for our opinion on the Group financial statements as a whole.

Areas of particular audit focus

In preparing the Group financial statements, the directors made a number of subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considered future events that are inherently uncertain. We primarily focused our work in these areas by assessing the directors' judgements against available evidence, forming our own independent judgements, and evaluating the disclosures in the financial statements.

In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be significant issues in relation to the financial statements is set out on page 56.

Area of focus	How the scope of our audit addressed the area of focus
Valuation of insurance contract and pension scheme liabilities We focused on this area due to the significance of these liabilities to the Group's balance sheet and the inherent judgements in determining the assumptions applied in the methodology for calculating those liabilities. The key judgements relate to annuitant mortality assumptions where small changes can have a significant impact on the Group's balance sheet (see Notes 33 and 37 to the Group financial statements).	We tested the design and operating effectiveness of key controls over critical actuarial models, data collection and analysis and the assumption setting processes. We evaluated the methodology for those models focussing on significant changes by obtaining documentation of the key changes approved by the directors and assessing these against compliance with relevant financial and regulatory reporting requirements. We performed audit procedures over the key changes in the methodology and assumptions used, in particular the expected future improvements in annuitant mortality. Having ascertained the extent of change in the assumptions that either individually or collectively would result in a significant impact on the financial statements, or a material misstatement, we considered the likelihood of such a movement in those key assumptions arising. We also performed an independent annual benchmarking survey which allowed us to further challenge the assumption setting process by comparing the assumptions used relative to the Group's industry peers.
Valuation of illiquid and complex investments We focussed on this area as the valuation of investments remains a complex area which requires the use of director judgement and/or the involvement of valuation specialists. Due to the nature of the investment portfolio, the key judgements relate to the valuation of derivatives and real estate investments. (see Note 42 to the Group financial statements).	We tested key controls over asset valuation processes and techniques in respect of derivatives and real estate investments.   We evaluated the methodology, inputs and assumptions used in a sample of investment property valuations comparing the yields and market rents used by third party valuers against benchmarked industry data ranges for the appropriate sectors. We also compared year on year capital movements and assessed these against relevant industries for the period. We assessed the models and inputs used for a sample of derivative investments across the investment portfolio for which there is no active market price available, recalculating the valuation using independent models and assessing data inputs against recognised market data providers. We tested a further sample of derivative valuations to independent third party sources for a range of financial instruments where an active market price was available.
Risk of fraud in revenue recognition ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition due to the pressure management may feel to achieve the planned results. We focused on this area due to the judgement involved in the recognition of revenue in premium, fee and investment income.	Regarding the premium, fee and investment income revenue recognised during the year, we evaluated the relevant IT systems and tested the internal controls over the completeness, accuracy and timing of premium, fee and investment income revenue recognised in the financial statements. We tested journal entries posted to revenue accounts to identify unusual or irregular items. We substantively tested manual journals, suspense accounts, control accounts and reconciliations over key financial reporting processes such as outstanding premiums and management fee income.
Risk of management override of controls ISA (UK& Ireland) states there is a risk of management override of controls due to the pressure management may feel to achieve the planned results. We focussed on this area due to the significance of estimates and judgements made by management relevant to the financial statements, the importance of the presentation and disclosure of key earnings measures in the financial statements and because there is always a risk that any system of internal control will be overridden.	We assessed the overall control environment of the Group, including the arrangements for staff to 'whistle-blow' inappropriate actions, and interviewed senior management and the Group's Internal Audit function. We examined the significant accounting estimates and judgements relevant to the financial statements for evidence of bias by the directors that may represent a risk of material misstatement due to fraud. We also tested key reconciliations and journal entries. We assessed the application of accounting policies and methodologies for the reporting of key earnings measures by obtaining an understanding from management including details of changes that occurred in the year. Adjustments were tested to obtain evidence in respect of the adjustments made and whether they were permitted under the methodology approved by the Board of Directors.

Going Concern

Under the Listing Rules we are required to review the directors' statement, set out on page 64, in relation to going concern. We have nothing to report having performed our review.

As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the Group's financial statements using the going concern basis of accounting. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's ability to continue as a going concern.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion:

·      the information given in the Strategic report and the Directors' report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements

·      the information given in the Corporate governance statement set out on pages 49 to 69 in the Annual Report with respect to internal control and risk management systems and about share capital structures is consistent with the Group financial statements.

Other matters on which we are required to report by exception

Adequacy of information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility.

Directors' remuneration

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law have not been made. We have no exceptions to report arising from this responsibility. 
Corporate Governance Statement

Under the Companies Act 2006, we are required to report to you if, in our opinion a corporate governance statement has not been prepared by the Company. We have no exceptions to report arising from this responsibility.

Under the Listing Rules we are required to review the part of the Corporate governance statement relating to the Company's compliance with nine provisions of the UK Corporate Governance Code ('the Code'). We have nothing to report having performed our review.

On page 48 of the Annual Report, as required by the Code Provision C.1.1, the directors state that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's performance, business model and strategy. On page 56, as required by C.3.8 of the Code, the Group Audit Committee has set out the significant issues that it considered in relation to the financial statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

·   the statement given by the directors is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit; or

·   the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We have no exceptions to report arising from this responsibility.

Other information in the Annual Report

Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:

·   materially inconsistent with the information in the audited Group financial statements

·   apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit

·   is otherwise misleading.

We have no exceptions to report arising from this responsibility.

Responsibilities for the Group financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Directors' responsibilities statement set out on page 48, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other matters

We have reported separately on the Company financial statements of Standard Life plc for the year ended 31 December 2013 and on the information in the Directors' remuneration report that is described as having been audited.

Stephanie Bruce (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Edinburgh

27 February 2014

(a)    The financial statements are published on the website of Standard Life plc. The maintenance and integrity of the website is the responsibility of the Directors, the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b)    Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

Consolidated income statement

For the year ended 31 December 2013

		2013	2012 restated1
	Notes	£m	£m
Revenue
Gross earned premium		4,128	4,315
Premium ceded to reinsurers		(93)	(95)
Net earned premium		4,035	4,220
Investment return	4	15,449	13,982
Fee and commission income	5	977	906
Other income		84	77
Total revenue		20,545	19,185
Expenses
Claims and benefits paid		6,278	6,562
Claim recoveries from reinsurers		(583)	(590)
Net insurance benefits and claims		5,695	5,972
Change in reinsurance assets and liabilities	33	683	44
Change in insurance and participating contract liabilities	33	(1,320)	1,339
Change in unallocated divisible surplus	33	(40)	(39)
Change in non-participating investment contract liabilities	33	11,892	7,718
Expenses under arrangements with reinsurers	6	61	656
Administrative expenses
Restructuring and corporate transaction expenses	10	75	114
Other administrative expenses	7	1,750	1,607
Total administrative expenses		1,825	1,721
Change in liability for third party interest in consolidated funds	32	865	782
Finance costs		108	77
Total expenses		19,769	18,270
Share of profit from associates and joint ventures	17	25	48
Profit before tax		801	963
Tax expense attributable to policyholders' returns	11	215	218
Profit before tax expense attributable to equity holders' profits		586	745
Total tax expense		305	269
Less: Tax attributable to policyholders' returns		(215)	(218)
Tax expense attributable to equity holders' profits	11	90	51
Profit for the year		496	694
Attributable to:
Equity holders of Standard Life plc		466	665
Non-controlling interests	32	30	29
		496	694
Earnings per share
Basic (pence per share)	12	19.7	28.3
Diluted (pence per share)	12	19.6	28.1

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

The Notes on pages 127 to 216 are an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2013

		2013	2012 restated1
	Notes	£m	£m
Profit for the year		496	694
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains/(losses) on defined benefit pension plans	30	101	(37)
Revaluation of owner occupied property	19	68	5
Equity movements transferred to unallocated divisible surplus	31	(48)	(2)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	11	(13)	102
Total items that will not be reclassified subsequently to profit or loss		108	68
Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges	31	-	(1)
Net investment hedge	31	63	18
Fair value losses on available-for-sale financial assets	31	(32)	-
Exchange differences on translating foreign operations	31	(120)	(65)
Equity movements transferred to unallocated divisible surplus	31	4	13
Share of other comprehensive income of joint ventures	17	(3)	-
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	11	7	-
Total items that may be reclassified subsequently to profit or loss		(81)	(35)
Other comprehensive income for the year		27	33
Total comprehensive income for the year		523	727
Attributable to:
Equity holders of Standard Life plc		493	698
Non-controlling interests		30	29
		523	727

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

The Notes on pages 127 to 216 are an integral part of these consolidated financial statements.

Pro forma reconciliation of consolidated operating profit to profit for the year

For the year ended 31 December 2013

		2013	2012 restated1
	Notes	£m	£m
Operating profit before tax2
UK and Europe		380	393
Standard Life Investments		192	145
Canada		251	353
Asia and Emerging Markets		(6)	3
Other		(66)	(27)
Operating profit before tax	2	751	867
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes		(92)	(29)
Restructuring and corporate transaction expenses		(73)	(109)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters		(15)	-
Other		(7)	(4)
Non-operating loss before tax	2	(187)	(142)
Share of joint ventures' and associates' tax expense	2	(8)	(9)
Profit attributable to non-controlling interests	2	30	29
Profit before tax expense attributable to equity holders' profits		586	745
Tax (expense)/credit attributable to:
Operating profit	2	(141)	(124)
Non-operating items	2	51	73
Total tax expense attributable to equity holders' profits		(90)	(51)
Profit for the year		496	694

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

^2.      The split of operating profit before tax for the year ended 31 December 2013 has been updated to reflect changes in segmental reporting. Refer to Note 2 - Segmental analysis (b) Reportable segments - Group operating profit, revenue and asset information.

The Group's chosen supplementary measure of performance is operating profit. The Directors believe that operating profit provides a more useful indication of the long-term operating performance of the Group. To align the measure of the Group's performance with the long-term nature of its business, operating profit excludes items which create short-term volatility. Operating profit includes the impact of significant actions taken by management during the year. Refer to accounting policy (jj) for further details.

The Notes on pages 127 to 216 are an integral part of these consolidated financial statements.

Consolidated statement of financial position

As at 31 December 2013

		2013	2012 restated1
	Notes	£m	£m
Assets
Intangible assets	15	300	214
Deferred acquisition costs	16	905	904
Investments in associates and joint ventures	17	328	328
Investment property	18	8,545	8,565
Property, plant and equipment	19	219	156
Pension and other post-retirement benefit assets	37	432	339
Deferred tax assets	20	121	177
Reinsurance assets	33	6,173	6,912
Loans	21	2,924	3,299
Derivative financial assets	21	1,767	2,150
Equity securities and interests in pooled investment funds	21	90,316	65,812
Debt securities	21	62,039	73,301
Receivables and other financial assets	21	1,042	1,717
Other assets	25	269	284
Assets held for sale	26	121	-
Cash and cash equivalents	21	9,104	9,942
Total assets		184,605	174,100
Equity
Share capital	28	238	236
Shares held by trusts	29	(6)	(7)
Share premium reserve		1,110	1,110
Retained earnings	30	1,391	1,441
Other reserves	31	1,494	1,579
Equity attributable to equity holders of Standard Life plc		4,227	4,359
Non-controlling interests	32	333	341
Total equity		4,560	4,700
Liabilities
Non-participating insurance contract liabilities	33	28,312	29,050
Non-participating investment contract liabilities	33	97,659	84,201
Participating contract liabilities	33	30,447	31,618
Reinsurance liabilities	33	316	381
Deposits received from reinsurers	34	5,589	6,136
Third party interest in consolidated funds	32	11,803	12,037
Borrowings	34	95	108
Subordinated liabilities	34	1,861	1,868
Pension and other post-retirement benefit provisions	37	104	130
Deferred income	38	316	352
Deferred tax liabilities	20	178	43
Current tax liabilities	20	55	150
Derivative financial liabilities	23	795	853
Other financial liabilities	34	2,367	2,323
Other liabilities	40	148	150
Total liabilities		180,045	169,400
Total equity and liabilities		184,605	174,100

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

The Notes on pages 127 to 216 are an integral part of these consolidated financial statements.

The consolidated financial statements on pages 104 to 109 were approved on behalf of the Board of Directors, on 27 February 2014 and signed on its behalf by the following Directors:

Gerry Grimstone, Chairman                                                             David Nish,Chief Executive

Consolidated statement of changes in equity

For the year ended 31 December 2013

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2013	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		236	(7)	1,110	1,441	1,579	4,359	341	4,700
Profit for the year		-	-	-	466	-	466	30	496
Other comprehensive income for the year		-	-	-	90	(63)	27	-	27
Total comprehensive income for the year		-	-	-	556	(63)	493	30	523
Distributions to equity holders	14	-	-	-	(636)	(20)	(656)	-	(656)
Issue of share capital other than in cash	28	2	-	-	-	-	2	-	2
Reserves credit for employee share-based payment schemes	31	-	-	-	-	32	32	-	32
Transfer to retained earnings for vested employee share-based payment schemes	30, 31	-	-	-	33	(33)	-	-	-
Shares acquired by employee trusts		-	(11)	-	-	-	(11)	-	(11)
Shares distributed by employee trusts		-	12	-	(12)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(38)	(38)
Aggregate tax effect of items recognised directly in equity	11	-	-	-	9	(1)	8	-	8
31 December		238	(6)	1,110	1,391	1,494	4,227	333	4,560

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2012 (restated)1	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		235	(19)	1,110	1,034	1,605	3,965	358	4,323
Profit for the year		-	-	-	665	-	665	29	694
Other comprehensive income for the year		-	-	-	65	(32)	33	-	33
Total comprehensive income for the year		-	-	-	730	(32)	698	29	727
Distributions to equity holders	14	-	-	-	(331)	-	(331)	-	(331)
Issue of share capital other than in cash	28	1	-	-	-	-	1	-	1
Reserves credit for employee share-based payment schemes	31	-	-	-	-	25	25	-	25
Transfer to retained earnings for vested employee share-based payment schemes	30, 31	-	-	-	25	(25)	-	-	-
Shares acquired by employee trusts		-	(5)	-	-	-	(5)	-	(5)
Shares distributed by employee trusts		-	17	-	(17)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(46)	(46)
Aggregate tax effect of items recognised directly in equity	11	-	-	-	-	6	6	-	6
31 December		236	(7)	1,110	1,441	1,579	4,359	341	4,700

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

The Notes on pages 127 to 216 are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

For the year ended 31 December 2013

		2013	2012 restated1
	Notes	£m	£m
Cash flows from operating activities
Profit before tax		801	963
Change in operating assets	43	(12,992)	(14,319)
Change in operating liabilities	43	9,938	11,375
Adjustment for non-cash movements in investment income		62	(6)
Change in unallocated divisible surplus	33	(40)	(39)
Non-cash items relating to investing and financing activity	43	134	84
Taxation paid		(190)	(284)
Net cash flows from operating activities		(2,287)	(2,226)
Cash flows from investing activities
Purchase of property, plant and equipment	19	(17)	(18)
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		(57)	-
Acquisition of investments in associates and joint ventures		(19)	(16)
Purchase of intangible assets not acquired through business combinations		(47)	(38)
Net cash flows from investing activities		(140)	(72)
Cash flows from financing activities
Repayment of other borrowings		(37)	(42)
Proceeds from subordinated liabilities		-	747
Repayment of subordinated liabilities		-	(50)
Capital flows from third party interest in consolidated funds and non-controlling interests		2,492	2,983
Distributions paid to non-controlling interests		(92)	(75)
Shares acquired by trusts		(11)	(5)
Interest paid		(112)	(77)
Ordinary dividends paid	14	(656)	(331)
Net cash flows from financing activities		1,584	3,150
Net (decrease)/increase in cash and cash equivalents		(843)	852
Cash and cash equivalents at the beginning of the year	27	9,898	9,125
Effects of exchange rate changes on cash and cash equivalents		(20)	(79)
Cash and cash equivalents at the end of the year	27	9,035	9,898
Supplemental disclosures on cash flows from operating activities
Interest paid		11	11
Interest received		2,431	2,694
Dividends received		2,137	1,822
Rental income received on investment properties		586	595

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

The Notes on pages 127 to 216 are an integral part of these consolidated financial statements.

Group accounting policies

(a)     Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the IFRS Interpretations Committee and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of investment properties, owner occupied property, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The principal accounting policies set out below have been consistently applied to all financial reporting periods presented in these consolidated financial statements.

(a)(i)   New standards, interpretations and amendments to existing standards that have been adopted by the Group

The Group has adopted the following new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and amendments to existing standards which are effective by EU endorsement for annual periods beginning on or after
1 January 2013 unless otherwise stated:

IFRS 13 Fair Value Measurement

IFRS 13 replaces the guidance on fair value measurement in existing IFRSs with a single standard. The standard does not change requirements regarding which items should be measured at fair value but provides guidance on how to determine fair value. The standard has been applied prospectively and also requires specific disclosures on fair values. All fair values reported in the consolidated financial statements have been determined in accordance with IFRS 13. Additional disclosures have been provided in Note 42 - Fair value of assets and liabilities.

Amendment to IAS 1 Presentation of Financial Instruments (effective for annual periods beginning on or after 1 July 2012)

The amendment to IAS 1 revised the way other comprehensive income is presented. As a result items that can subsequently be reclassified to profit or loss are presented separately from items that will never be reclassified to profit or loss in the consolidated statement of comprehensive income. The tax associated with each category is also shown separately. The amendment has affected presentation only.

Amendment to IAS 19 Employee Benefits

The amendment to IAS 19 revises requirements for pensions and other post-retirement benefits, termination benefits and other employee benefits. The main impact on the Group's consolidated financial statements is that expected returns on plan assets and the unwind of the discount rate on the defined benefit obligation are no longer separately recognised in profit or loss. Instead, interest on the net defined benefit asset or liability is recognised in profit or loss, calculated using the discount rate used to measure the net pension obligation or asset. Additionally, the amended standard no longer permits entities to defer past service costs. Past service costs must be recognised immediately in profit or loss. The amendment has been applied retrospectively and the impact is described in Note 37 - Pension and other post-retirement benefit provisions.

Enhanced disclosures are also required by the amendments which are presented in Note 37 - Pension and other post-retirement benefit provisions.

All other revisions in the amendment have had no impact on the Group's consolidated financial statements.

Amendment to IFRS 7 Financial Instruments: Disclosures

The amendment to IFRS 7 requires additional disclosures for financial assets and liabilities which are offset in the financial statements or are subject to enforceable master netting agreements or similar arrangements. The additional disclosures are presented in Note 41 - Risk management.

Additionally the Group has adopted the following amendments to existing standards which are effective by EU endorsement from 1 January 2013 and management considers that the implementation of these amendments has had no significant impact on the Group's consolidated financial statements:

·   Amendment to IAS 12 Income Taxes: Deferred Tax

·   Annual Improvements to IFRS 2009-2011.

(a)(ii)  Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group

Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group's annual accounting periods beginning on or after 1 January 2014. The Group has not early adopted the standards, amendments and interpretations described below:

Consolidation standards

IFRS 10 Consolidated Financial Statements  

IFRS 10 introduces a single consolidation model to be applied to all entities and replaces previous requirements on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and Standing Interpretations Committee (SIC) 12 Consolidation - Special Purpose Entities. IFRS 10 defines control, determines how to identify if an investor controls an investee and requires an investor to consolidate entities it controls under the new standard. IFRS 10 identifies three elements, all of which must be present for an investor to control an investee, which are as follows:

·   Power over the investee

·   Exposure, or rights, to variable returns from its involvement with the investee

·   The ability to use that power over the investee to affect the amount of the returns.

IFRS 11 Joint Arrangements  

IFRS 11 defines and establishes accounting principles for joint arrangements and replaces previous requirements in IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. The standard distinguishes between two types of joint arrangements - Joint Ventures and Joint Operations - based on how rights and obligations are shared by the parties to the arrangement. Joint operators should recognise their share of the assets, liabilities, revenue and expenses of the interest in accordance with applicable IFRSs. Joint venturers should apply the equity method of accounting prescribed in IAS 28 Investments in Associates and Joint Ventures 2011 to account for their interest.

IFRS 12 Disclosure of Interests in Other Entities  

IFRS 12 is a single disclosure standard which applies to all entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 requires entities to disclose information to enable users of the financial statements to evaluate the nature, risks and financial effects associated with interests in other entities. The required disclosures are grouped into the following main categories:

·   Significant judgements and assumptions

·   Interests in subsidiaries

·   Interests in joint arrangements and associates

·   Interests in unconsolidated structured entities.

IAS 27 Separate Financial Statements (2011)

IAS 27 is revised to remove the requirements for consolidated financial statements which are superseded by the issue of IFRS 10.

IAS 28 Investments in Associates and Joint Ventures (2011)

IAS 28 is revised to include joint ventures as well as associates. Joint ventures are required to be equity accounted following the issue of IFRS 11.

Adoption of the consolidation standards

IFRS 10, IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) as amended by IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: transition guidance and IFRS 10, IFRS 12 and IAS 27: Investment Entities must be adopted concurrently. The adoption of IFRS 10, IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) is expected to have a significant impact on the recognition, measurement and presentation of interests in other entities in the consolidated financial statements of the Group. Additional disclosures will also be presented. The new standards and amendments have been endorsed by the EU for adoption for annual periods beginning on or after 1 January 2014.

Other

Amendment to IAS 32 Financial Instruments: Presentation (effective for annual periods beginning on or after 1 January 2014)

The amendment to IAS 32 clarifies the circumstances in which financial assets and financial liabilities may be offset on the statement of financial position. The adoption of the amendment to IAS 32 is not expected to have a significant impact on the consolidated financial statements of the Group.

Amendment to IAS 36 Impairment of Assets (effective for annual periods beginning on or after 1 January 2014)

The amendment to IAS 36 clarifies that the recoverable amount for a cash-generating unit to which significant goodwill or

indefinite-lived intangible assets have been allocated, is only required to be disclosed when an impairment loss has been recognised or reversed. The adoption of the amendment to IAS 36 is not expected to have a significant impact on the consolidated financial statements of the Group.

Group accounting policies continued

(a)(ii)  Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group continued

International Financial Reporting Interpretations Committee (IFRIC) Interpretation 21 Levies (effective for annual periods beginning on or after 1 January 2014)

The interpretation clarifies that an entity recognises a liability for a levy when and only when the triggering event specified in the legislation occurs. The adoption of the interpretation is not expected to have a significant impact on the consolidated financial statements of the Group. The interpretation has not yet been endorsed by the EU.

Amendments to IAS 39 Financial Instruments: Recognition and Measurement (effective for annual periods beginning on or after 1 January 2014)

The amendments to IAS 39 provide relief in certain circumstances from having to discontinue hedge accounting when a derivatives contract is novated as a result of a change in law or regulation and the new counterparty is a clearing counterparty. The adoption of the amendments to IAS 39 are not expected to have a significant impact on the consolidated financial statements of the Group.

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions (effective for annual periods beginning on or after 1 January 2014)

The amendments clarify the requirements for attributing employee and third party contributions to periods of service and recognising employee and third party contributions in certain situations. The adoption of the amendment is not expected to have an impact on the consolidated financial statements of the Group. The amendment has not yet been endorsed by the EU.

IFRS 9 Financial Instruments and subsequent amendments (amendments to IFRS 9 and IFRS 7: Mandatory Effective Date and Transition Disclosures andHedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (no stated mandatory effective date)

IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 allows only two measurement categories for financial assets: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if it is held to collect contractual cash flows and the cash flows represent principal and interest, otherwise it is measured at fair value through profit or loss (FVTPL). Financial liabilities may be designated as at FVTPL. The amortised cost measurement basis is applied to most other financial liabilities. For financial liabilities designated as at FVTPL, changes in the fair value due to changes in the liability's credit risk are recognised directly in other comprehensive income.

Hedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39removes and replaces the current requirements for hedge effectiveness in IAS 39 and therefore the requirements for the application of hedge accounting. The new requirements change what qualifies as a hedged item and some of the restrictions on the use of some hedging instruments. The accounting and presentation requirements remain largely unchanged. However, entities will now be required to reclassify the gains and losses accumulated in equity on a cash flow hedge to the carrying amount of a non-financial hedged item when it is initially recognised. Additional disclosures on hedge accounting are also required.

The mandatory effective date for IFRS 9 has been removed however the standard as amended permits entities to adopt certain elements early without the need to adopt the entire standard. The standard including subsequent amendments has not yet been endorsed by the EU.

The adoption of IFRS 9 is expected to have a significant impact on the measurement and presentation of financial instruments and related balances in the consolidated financial statements of the Group.

Annual improvements 2010-2012 cycle and Annual improvements 2011-2013 cycle (effective for annual periods beginning on or after 1 July 2014)

These annual improvement cycles make 10 minor amendments to existing standards. The adoption of these amendments is not expected to have a significant impact on the consolidated financial statements of the Group. The annual improvement amendments have not yet been endorsed by the EU.

(a)(iii) Critical accounting estimates and judgement in applying accounting policies

The preparation of financial statements requires management to make estimates and assumptions and exercise judgements in applying the accounting policies that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses arising during the year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events, that are believed to be reasonable under the circumstances. The areas where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the consolidated financial statements are as follows:

Financial statement area	Critical accounting judgements, estimates or assumptions	Related accounting policies and notes
Classification of insurance, reinsurance and investment contracts	Assessment of the significance of insurance risk transferred	(f)
Classification of financial instruments	Classification of asset as either held for trading, available-for-sale, FVTPL	g(iii), q, and Notes 4 and 21
Participating contracts, non-participating insurance contracts and reinsurance contracts	Determination of the valuation interest rates Determination of longevity and mortality assumptions Determination of persistency assumptions Determination of expense assumptions	(u), (v), (w), (x) and Notes 3 and 33
Deferred acquisition costs on insurance and investment contracts	Determination of the acquisition costs to be deferred on insurance contracts and investment contracts Determination of the amortisation pattern to be applied to deferred acquisition costs	(k) and Note 16
Financial instruments at fair value through profit or loss	Determination of the fair value of complex financial instruments	(q) and Note 42
Investment property and owner occupied property	Determination of the fair value of investment property and owner occupied property	(l), (m) and Notes 18 and 19 and 42
Defined benefit pension plans	Determination of assumptions for mortality, discount rate, inflation and the rate of increase in salaries and pensions Assessment of the recoverability of any surplus	(aa) and Note 37
Assets whose carrying value is subject to impairment testing	Determination of the recoverable amount	(i),(j), (k), (o),(p) and Notes 15, 16, 17, 19, 22 and 41
Business combinations	Identification and valuation of identifiable intangible assets arising from business combinations	c(i), j(ii) and Note 1
Intangible assets	Determination of useful lives of intangible assets	j(ii) and Note 15

(b)     Basis of consolidation

The Group's financial statements consolidate the financial statements of the Company and its subsidiary undertakings. Associate and joint venture undertakings are accounted for either using the equity method from the date that significant influence or joint control, respectively, commences until the date this ceases, or at fair value through profit or loss.

(b)(i)   Subsidiaries

Subsidiaries are all entities, including special purpose entities, over which the Group has the power to govern the financial and operating policies. Such power, generally but not exclusively, accompanies a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group until the date that control ceases.

Intra-group transactions, balances and unrealised gains on intra-group transactions are eliminated. Unrealised losses are also eliminated unless the transactions provide evidence of an impairment of the asset transferred. Subsidiaries' accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.

Where the Group owns more than 50% of an investment vehicle, such as open-ended investment companies, unit trusts and limited partnerships, and it is consolidated, the interests of parties other than the Group in such vehicles are classified as liabilities. These are recognised in the third party interest in consolidated funds line on the consolidated statement of financial position and any movements are recognised in the consolidated income statement. The interests of parties other than the Group in all other types of entities are recorded as non-controlling interests in equity.

(b)(ii)  Associates and joint ventures

Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Joint ventures are entities whereby the Group and other parties undertake an economic activity, which is subject to joint control arising from contractual agreement.

Group accounting policies continued

(b)     Basis of consolidation continued

(b)(ii)  Associates and joint ventures continued

Where the Group has a significant holding in an investment vehicle that meets the definition of an associate or joint venture and that investment in an associate or joint venture backs policyholder liabilities, including the unallocated divisible surplus, the scope exemption under IAS 28 Investments in Associates is applied and that investment is designated as at fair value through profit or loss (FVTPL) in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

All other associates and joint ventures are accounted for using the equity method and, in this case, the Group's investment in associates and joint ventures includes goodwill, net of any impairment loss, identified on acquisition.

Investments in associates and joint ventures that are accounted for using the equity method are initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group's share of net assets of the associate and joint ventures. The Group's share of post-acquisition profit or loss of its associates and joint ventures is recognised in the consolidated income statement and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

Where the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations in connection with or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in the associates and joint ventures. Unrealised losses are also eliminated unless the transactions provide evidence of an impairment of the asset transferred. The accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c)     Business combinations and Group reconstructions

(c)(i)   Business combinations

The Group uses the acquisition method of accounting to account for business combinations. At the acquisition date the assets acquired and liabilities assumed as part of the business combinations are identified and assessed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Only assets acquired and liabilities assumed as part of the exchange in the business combination transaction are considered in applying the acquisition method of accounting.

The identifiable assets acquired and liabilities assumed are measured at their acquisition date fair values. The consideration transferred in a business combination is measured at fair value at the acquisition date. Any obligation for contingent consideration arising from an acquisition is recognised at fair value at the acquisition date on the consolidated statement of financial position and subsequent changes in fair value are recorded in the consolidated income statement. Acquisition-related costs are expensed when incurred.

(c)(ii) Group reconstructions

The Group uses merger accounting principles to account for group reconstructions which are not business combinations within the scope of IFRS 3 Business Combinations (revised). Under the principles of merger accounting, assets and liabilities transferred to a new entity are recorded in the new entity at the carrying value they were measured at by the transferor. No goodwill is recognised as a result of such transactions

(d)     Foreign currency translation

The consolidated financial statements are presented in millions pounds Sterling.

The statements of financial position of Group entities that have a different functional currency than the Group's presentation currency are translated into the presentation currency at the year end exchange rate and their income statements and cash flows are translated at average exchange rates for the year. All resulting exchange differences arising are recognised in the foreign currency translation reserve in equity. Where the unallocated divisible surplus changes as a result of such exchange differences which are attributable to participating policyholders, this change in the unallocated divisible surplus is not recognised in the consolidated income statement but is recognised in equity (refer also to (h)(v)).

Foreign currency transactions are translated into the functional currency at the exchange rate prevailing at the date of the transaction. Gains and losses arising from such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the relevant line in the consolidated income statement.

Translation differences on non-monetary items, such as equity securities held at fair value through profit or loss, are reported as part of the fair value gain or loss within net investment return in the consolidated income statement. Translation differences on financial assets and liabilities held at amortised cost are included in the relevant line in the consolidated income statement.

(e)     Segmental reporting

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed and the way in which key financial information used by the executive team to review performance is presented.

(f)       Classification of insurance, reinsurance and investment contracts

The measurement basis of assets and liabilities arising from life and pensions business contracts is dependent upon the classification of those contracts as either insurance or investment contracts. A contract is classified as insurance only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred, excluding scenarios that lack commercial substance. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. When a policyholder exercises an option within an investment contract to utilise withdrawal proceeds from the investment contract to secure future benefits which contain significant insurance risk, the related investment contract liability is derecognised and an insurance contract liability is recognised. The withdrawal proceeds which are used to secure the insurance contract are recognised as premium income in accordance with accounting policy (g)(ii). Life and pensions business contracts that are not considered to be insurance contracts are classified as investment contracts.

The Group has written insurance and investment contracts which contain discretionary participating features (e.g. with profits business). These contracts provide a contractual right to receive additional benefits as a supplement to guaranteed benefits. These additional benefits are based on the performance of with profits funds and their amount and timing is at the discretion of the Group. These contracts are referred to as participating contracts.

Generally, life and pensions business product classes are sufficiently homogeneous to permit a single classification at the level of the product class. However, in some cases, a product class may contain individual contracts that fall across multiple classifications (hybrid contracts). For certain significant hybrid contracts the product class is separated into the insurance element, a non-participating investment element and a participating investment element, so that each element is accounted for separately.

Contracts with reinsurers are assessed to determine whether they contain significant insurance risk. Contracts that do not give rise to a significant transfer of insurance risk to the reinsurer are considered financial reinsurance and are accounted for and disclosed in a manner consistent with financial instruments.

Contracts that give rise to a significant transfer of insurance risk to the reinsurer are assessed to determine whether they contain an element that does not transfer significant insurance risk and which can be measured separately from the insurance component.  Where such elements are present, they are accounted for separately with any deposit element being accounted for and disclosed in a manner consistent with financial instruments. The remaining elements, or where no such separate elements are identified, the entire contracts, are classified as a reinsurance contracts.

(g)      Revenue recognition

(g)(i)    Deposit accounting for non-participating investment contracts

Contributions received on non-participating investment contracts are treated as policyholder deposits and not reported as revenue in the consolidated income statement.

Deposit accounting is also applied to contracts with reinsurers that do not qualify as reinsurance contracts under policy (f).

The fee income associated with non-participating investment contracts is dealt with under policy (g)(iv).

(g)(ii)   Premiums

Premiums received on insurance contracts and participating investment contracts are recognised as revenue when due for payment, except for unit linked premiums which are accounted for when the corresponding liabilities are recognised. For single premium business, this is the date from which the policy is effective. For regular (and recurring) premium contracts, receivables are established at the date when payments are due.

(g)(iii)  Net investment return

Gains and losses resulting from changes in both market value and foreign exchange on investments classified as at fair value through profit or loss, including investment income received (such as interest payments), are recognised in the consolidated income statement in the period in which they occur.

Changes in the fair value of derivative financial instruments that are not hedging instruments are recognised immediately in the consolidated income statement.

For debt securities classified as available-for-sale (AFS), interest income recognised in the consolidated income statement is calculated using the effective interest rate (EIR) method.

Unrealised gains and losses on AFS financial assets are recognised in other comprehensive income unless an impairment loss is recognised. On disposal any accumulated gain or loss previously recognised in other comprehensive income is recycled to the consolidated income statement.

For loans measured at amortised cost, interest income recognised in the consolidated income statement is calculated using the EIR method.

Dividend income is recognised in the consolidated income statement when the right to receive payment is established.

Rental income is recognised in the consolidated income statement on a straight-line basis over the term of the lease.

Group accounting policies continued

(g)      Revenue recognition continued

(g)(iv)  Fee and commission income

All fees related to unit linked non-participating investment contracts are deemed to be associated with the provision of investment management services. Fees related to the provision of investment management services and administration services are recognised as the services are provided. Front-end fees, which are charged at the inception of service contracts, are deferred as a liability and recognised over the expected life of the contract. Ongoing fees that are charged periodically, either directly or by making a deduction from invested funds, are recognised as received, which corresponds to when the services are provided.

Commissions received or receivable are recognised as revenue on the commencement or renewal date of the related policies. However, when it is probable that the Group will be required to render further services during the life of the policy, the commission is deferred as a liability and is recognised as the services are provided.

(h)      Expense recognition

(h)(i)    Deposit accounting for non-participating investment contracts

Withdrawals paid out to policyholders on non-participating investment contracts are treated as a reduction to policyholder deposits and not recognised as expenses in the consolidated income statement.

Deposit accounting is also applied to contracts with reinsurers that do not qualify as reinsurance contracts under policy (f) above.

(h)(ii)  Claims and benefits paid

Claims paid on insurance contracts and participating investment contracts are recognised as expenses in the consolidated income statement.

Maturity claims and annuities are accounted for when due for payment. Surrenders are accounted for when paid or, if earlier, on the date when the policy ceases to be included within the calculation of the insurance liability. Death claims and all other claims are accounted for when notified.

Claims payable include the direct costs of settlement. Reinsurance recoveries are accounted for in the same period as the related claim.

(h)(iii)  Change in insurance and participating investment contract liabilities

The change in insurance and participating investment contract liabilities, comprising the full movement in the corresponding liabilities during the period, is recognised in the consolidated income statement. This also includes the movement in unallocated divisible surplus (UDS) in the period. However, where movements in assets and liabilities which are attributable to participating policyholders are taken directly to equity, the change in UDS arising from these movements is not recognised in the consolidated income statement as it is also recognised in equity.

(h)(iv)  Change in investment contract liabilities

Investment return and related benefits credited in respect of non-participating investment contracts are recognised in the income statement as changes in investment contract liabilities.

(h)(v)   Expenses under arrangements with reinsurers

Expenses, including interest, arising under elements of contracts with reinsurers that do not transfer significant insurance risk are recognised as they are incurred in the consolidated income statement as expenses under arrangements with reinsurers.

(i)       Impairment of non-financial assets

The carrying amounts of non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, at least at each reporting date. An impairment loss is recognised in the consolidated income statement for the amount by which the asset's carrying amount exceeds its recoverable amount. Non-financial assets other than goodwill, which have been impaired are reviewed for possible reversal of impairment losses at each reporting date.

The recoverable amount of an asset is the greater of its net selling price (fair value less costs to sell) and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit, or group of units, to which the asset belongs.

(j)       Goodwill and intangible assets

(j)(i)     Goodwill

In a business combination, goodwill represents the excess of the consideration transferred, the amount of any non-controlling interest and the fair value of any previously held interest, over the fair value of the Group's share of the identifiable assets acquired and the liabilities and contingent liabilities assumed at the acquisition date.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated, from the acquisition date, to each of the Group's cash generating units or groups of cash generating units that are expected to benefit from the business combination. The carrying amount of goodwill for each cash generating unit or group of cash generating unit is reviewed when changes in circumstances or events indicate that there may be uncertainty over its carrying value, and at least annually.

Goodwill is carried at cost less any accumulated impairment losses and is included in intangible assets.

(j)(ii)    Intangible assets

Intangible assets are recognised on the consolidated statement of financial position if it is probable that the relevant future economic benefits attributable to the asset will flow to the Group and they can be measured reliably and are either identified as separable (i.e. capable of being separated from the entity and sold, transferred, rented, or exchanged) or they arise from contractual or other legal rights, regardless of whether those rights are transferable or separable.

Intangible assets are recognised at cost. For intangible assets acquired in a business combination the cost is the fair value at the acquisition date.

Intangible assets are carried at initial cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged to the consolidated income statement on a straight-line basis over the estimated useful life of the intangible asset. The estimated useful life of the Group's classes of intangible assets is as follows:

·   Intangible assets acquired through business combinations - between six and seventeen years

·   Internally developed software - between two and ten years

·   Other acquired intangible assets - between two and six years.

Impairment losses are calculated and recorded on an individual basis in a manner consistent with policy (i). Amortisation commences at the time from which an intangible asset is available for use.

(k)      Deferred acquisition costs

(k)(i)    UK and Europe - insurance and participating investment contracts

Acquisition costs incurred in issuing insurance or participating investment contracts are not deferred where such costs are borne by a with profits fund that is subject to the Prudential Regulation Authority (PRA) realistic capital regime. For other participating investment contracts, incremental costs directly attributable to the issue of the contracts are deferred. For other insurance contracts, acquisition costs, which include both incremental acquisition costs and other indirect costs of acquiring and processing new business, are deferred.

Deferred acquisition costs are amortised in proportion to projected margins over the period the relevant contracts are expected to remain in force. After initial recognition, deferred acquisition costs are reviewed by category of business and written off to the extent that they are no longer considered to be recoverable.

(k)(ii)   Canada and Asia and Emerging markets - insurance contracts

The Group's policy for acquisition costs incurred on insurance contracts issued by overseas subsidiaries is to apply the policy used in the issuing entity's local statutory or regulatory reporting or, where local reporting did not explicitly or implicitly defer acquisition costs at the time the overseas subsidiary was first consolidated, to adjust those policies to apply a policy similar to that described in (k)(i) for non-participating insurance contracts.

Implicit allowance is made for deferred acquisition costs in the Canadian Asset Liability Method (CALM). Therefore, no explicit deferred acquisition costs have been recognised separately for business written by the Canadian subsidiaries.

(k)(iii)  Non-participating investment contracts

Incremental costs directly attributable to securing rights to receive fees for asset management services sold with unit linked investment contracts are deferred. Where such costs are borne by a with profits fund that is subject to the PRA's realistic capital regime, deferral is limited to the level of any related deferred income.

Deferred acquisition costs are amortised over the life of the contracts as the related revenue is recognised. After initial recognition, deferred acquisition costs are reviewed by category of business and are written off to the extent that they are no longer considered to be recoverable.

Trail or renewal commission on non-participating investment contracts where the Group does not have an unconditional legal right to avoid payment, is deferred at inception of the contract and an offsetting liability for contingent commission is established.

(l)       Investment property

Property held for long-term rental yields or investment gain that is not occupied by the Group and property being constructed or developed for future use as investment property are classified as investment property.

Investment property is initially recognised at cost, including any directly attributable transaction costs. Subsequently investment property is measured at fair value. Fair value is determined without any deduction for transaction costs that may be incurred on sale or other disposal. Gains or losses arising from changes in fair value are recognised in the consolidated income statement. Investment property is not depreciated.

Group accounting policies continued

(l)      Investment property continued

Property located on land that is held under an operating lease is classified as investment property as long as it is held for long-term rental yields and is not occupied by the companies in the Group. The initial cost of the property is the lower of the fair value of the property and the present value of the minimum lease payments.

Rental income from investment property is recognised in the consolidated income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income and are also spread over the term of the lease.

(m)    Property, plant and equipment

Owner occupied property consists of land and buildings owned and occupied by the Group. Owner occupied property is recognised initially at cost and subsequently at fair value at the date of revaluation less any subsequent accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset into working condition for its intended use. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Prior to the demutualisation of The Standard Life Assurance Company (SLAC), increases in the fair value of owner occupied property were recognised in the unallocated divisible surplus and following the demutualisation of SLAC, all fair value increases are recognised in the revaluation reserve in equity. Where the unallocated divisible surplus changes as a result of fair value increases which are attributable to participating policyholders, this change in the unallocated divisible surplus is not recognised in the consolidated income statement but through equity. Decreases in the fair value of owner occupied property that offset previous increases in the same asset were recognised in the unallocated divisible surplus prior to the demutualisation of SLAC and are recognised in the revaluation of owner occupied property reserve in equity post the demutualisation of SLAC. All other decreases are charged to the consolidated income statement for the period.

Owner occupied property is depreciated on a straight-line basis over their estimated useful lives, generally between 30 and 50 years. The depreciable amount of an asset is determined by the difference between the fair value and the residual value. The residual value is the amount that would be received on disposal if the asset was already at the age and condition expected at the end of its useful life.

Equipment is stated at historical cost less depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation on equipment is charged to the consolidated income statement on a straight-line basis over their estimated useful lives of between two and 15 years. The residual values and useful lives of the assets are reviewed at each reporting date and adjusted if appropriate.

(n)     Income tax

The income tax expense is based on the taxable profits for the year, after adjustments in respect of prior years.

Deferred tax is provided using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.

Temporary differences arising from investments in subsidiaries and associates give rise to deferred tax only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and the timing of the reversal of that difference cannot be controlled. Deferred tax is provided on unremitted earnings of subsidiaries to the extent that the temporary difference created is expected to reverse in the foreseeable future and the Group is not able to control the timing of the reversal.

Current tax and deferred tax is recognised in the consolidated income statement except when it relates to items recognised in other comprehensive income or directly in equity, in which case it is credited or charged to other comprehensive income or directly in equity respectively.

The income tax expense is determined using rates enacted or substantively enacted at the reporting date.

The Group's long-term businesses in the UK and Ireland are subject to tax on policyholders' investment returns on certain products and tax on equity holder profits. Policyholder tax is accounted for as an income tax and is included within the total income tax expense. Total income tax expense is analysed between equity holder tax and policyholder tax in the consolidated income statement. Equity holder tax comprises current and deferred tax on profits attributable to equity holders. Policyholder tax comprises current and deferred tax on investment returns attributable to policyholders.

(o)     Reinsurance assets and reinsurance liabilities

Reinsurance assets and reinsurance liabilities arise under contracts that are classified as reinsurance contracts (refer to policy (f)).

Reinsurance contracts are measured using valuation techniques and assumptions that are consistent with the valuation techniques and assumptions used in measuring the underlying policy benefits and taking into account the terms of the reinsurance contract.

Reinsurance recoveries due from reinsurers and reinsurance premiums due to reinsurers under reinsurance contracts that are contractually due at the reporting date are separately recognised in Receivables and other financial assets and Other financial liabilities respectively.

Reinsurance assets and reinsurance liabilities are offset and the net amount reported on the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis.

If a reinsurance asset is considered to be impaired, the carrying amount is reduced to the recoverable amount and the impairment loss is recognised in the consolidated income statement.

(p)     Loans

Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group intends to sell in the short term or that it has designated as at fair value through profit or loss (FVTPL). Financial assets classified as loans include loans secured by mortgages and loans secured on policies.

Loans are initially measured at fair value plus directly attributable transaction costs. Subsequently, other than those loans designated as at FVTPL, they are measured at amortised cost, using the effective interest rate (EIR) method, less any impairment losses. Revenue from financial assets classified as loans are recognised in the consolidated income statement on an EIR basis.

Impairment on individual loans is determined at each reporting date. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group. This would include a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the Group. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. 

If there is objective evidence that an impairment loss has been incurred on loans carried at amortised cost, the amount of the impairment loss is calculated as the difference between the present value of future cash flows, discounted at the loan's original effective rate, and the loan's current carrying value. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement. Subsequent recoveries are credited to the consolidated income statement.

If there is no evidence of impairment on an individual basis, a collective impairment review is undertaken whereby the assets are grouped together, on the basis of similar credit risk characteristics, in order to calculate a collective impairment loss. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. 

Loans which are subject to collective impairment assessment and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans after the minimum number of payments under the renegotiated terms have been collected. Individually significant loans whose terms have been renegotiated are subject to on-going review to determine whether they remain impaired or past due.

(q)     Equity securities, debt securities and derivatives

Management determines the classification of equity securities, debt securities and derivatives at initial recognition.

All of the Group's equity securities and certain debt securities are designated as at fair value through profit or loss (FVTPL) as they are part of groups of assets which are managed and whose performance is evaluated on a fair value basis so as to maximise returns either for policyholders or equity holders. All other debt securities are designated as available-for-sale (AFS).

All derivative instruments are classified as held for trading (HFT) except those designated as part of a hedging relationship. Hedge accounting policies are described in (q)(i).

Equity securities, debt securities and derivatives are recognised at fair value on the trade date of the transaction. In the case of derivatives, where no initial premium is paid or received, the initial measurement value is nil. For instruments classified as HFT or designated as at FVTPL, directly attributable transaction costs are not included in the initial measurement value but are recognised in the consolidated income statement. AFS debt securities are initially recognised at fair value plus directly related transaction costs.

Where a valuation technique is used to establish the fair value of a financial instrument, a difference could arise between the fair value at initial recognition and the amount that would be determined at that date using the valuation technique. When unobservable market data has an impact on the valuation of derivatives, the entire initial change in fair value indicated by the valuation technique is recognised over the life of the transaction on an appropriate basis, or when the inputs become observable, or when the derivative matures or is closed out.

Instruments classified as HFT or as at FVTPL are measured at fair value with changes in fair value recognised in the consolidated income statement.

Debt securities designated as AFS are measured at fair value. For these instruments interest calculated using the effective interest method is recognised in the consolidated income statement. Other changes in fair value and any related tax are recognised in other comprehensive income and recorded in a separate reserve within equity until disposal or impairment, when the cumulative gain or loss is recognised in the consolidated income statement with a corresponding movement through other comprehensive income. An AFS debt security is impaired if there is objective evidence that a loss event has occurred which has impaired the expected cash flows.

Group accounting policies continued

(q)     Equity securities, debt securities and derivatives continued

(q)(i)   Hedge accounting

A hedge relationship will qualify for hedge accounting by the Group if, and only if, the following conditions are met:

·   Formal hedging documentation at inception of the hedge is completed, detailing the hedging instrument, hedged item, risk management objective, strategy, effectiveness testing methodology and hedge relationship

·   The hedge relationship is expected to be highly effective at inception in achieving offsetting changes in fair value or cash flow attributable to the hedged risk

·   The effectiveness of the hedge can be reliably measured and the hedge is assessed for effectiveness regularly during the reporting period for which the hedge was designated to demonstrate that it is has been highly effective.

The Group discontinues hedge accounting in the following circumstances:

·   It is evident from effectiveness tests that the hedge is not, or ceased to be, highly effective

·   The hedging instrument expires, or is sold, terminated or exercised, or

·   The hedged item matures or is sold or repaid.

Cash flow hedge relationships

A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect the consolidated income statement. A cash flow hedge is therefore used to hedge exposure to variability in cash flows such as those on variable rate assets and liabilities. Where a derivative is designated and qualifies as a cash flow hedge, the effective part of any gain or loss resulting from the change in fair value of the derivative is recognised directly in the cash flow hedges reserve in equity. Any ineffectiveness is recognised immediately in the consolidated income statement. Amounts that have been recognised directly in the cash flow hedge reserve are recognised in the consolidated income statement in the same period or periods during which the hedged item affects the profit or loss.

If a cash flow hedge no longer meets the relevant hedging criteria, hedge accounting is discontinued and no further changes in the fair value of the derivative are recognised in the cash flow hedges reserve. Amounts that have already been recognised directly in the cash flow hedges reserve are recognised in the consolidated income statement in the same period or periods during which the hedged item affects the profit or loss.

Where the forecast transaction is no longer expected to occur or the asset or liability is derecognised, the associated accumulated amounts in the cash flow hedges reserve are recognised immediately in the consolidated income statement.

Net investment hedge relationships

A hedge of net investments in foreign operations is the hedge against the effects of changes in exchange rates in the net investment in a foreign operation, that is, the hedge of the translation gains or losses that are recognised in equity.

A hedge of net investments in foreign operations is accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement. In the event of disposal of the foreign operation, gains and losses accumulated in equity are included in the consolidated income statement.

If the net investment hedge ceases to meet the relevant hedging criteria, hedge accounting is discontinued and gains and losses accumulated in equity remain in equity until the disposal of the net investment, at which point the amounts are included in the consolidated income statement.

(q)(ii)   Embedded derivatives

Options, guarantees and other derivatives embedded in a host contract are separated and recognised as a derivative unless they are either considered closely related to the host contract, meet the definition of an insurance contract or if the host contract itself is measured at fair value with changes in fair value recognised in income.

(r)       Financial guarantee contracts

The Group recognises and measures financial guarantee contracts in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The Group initially recognises and measures a financial guarantee contract at its fair value. At each subsequent reporting date, the Group measures the financial guarantee contract at the higher of the initial fair value recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue and the best estimate of the expenditure required to meet the obligations under the contract at the reporting date, determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

(s)      Cash and cash equivalents

Cash and cash equivalents include cash in hand, money held at call and short notice with banks and any highly liquid investments with less than three months to maturity from the date of acquisition. Cash and cash equivalents are categorised for measurement purposes as loans and receivables and are therefore measured at amortised cost. For the purposes of the consolidated statement of cash flows, cash and cash equivalents also include bank overdrafts, which are included in borrowings on the consolidated statement of financial position.

(t)      Equity

(t)(i)    Share capital and shares held by trusts

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.  Shares are classified as equity instruments when there is no contractual obligation to deliver cash or other assets to another entity on terms that may be unfavourable. The difference between the proceeds received on issue of the shares and the nominal value of the shares issued is recorded in the share premium reserve. Incremental costs directly attributable to the issue of new equity instruments are shown in the share premium reserve as a deduction from the proceeds, net of tax. Incremental costs directly attributable to the issue of equity instruments in a business combination are excluded from the consideration transferred.

If the Company or its subsidiaries purchase any equity instruments of the Company, the consideration paid is treated as a deduction from total equity. Any corresponding obligation to deliver a fixed number of the Company's equity instruments is offset within the shares held by trusts balance in equity. Where such shares are sold, if the proceeds are equal to or less than the purchase price paid, the proceeds are treated as a realised profit in equity. If the proceeds exceed the purchase price, the excess over the purchase price is transferred to the share premium reserve.

(t)(ii)   Merger reserve

If the Company issues shares at a premium and the conditions for merger relief under section 612 of the UK Companies Act 2006 are met, a sum equal to the difference between the issue value and nominal value is transferred to a 'merger reserve'.

(u)     Insurance and investment contract liabilities

For insurance contracts and participating investment contracts, IFRS 4 Insurance Contracts permits the continued application, for measurement purposes, of previously applied Generally Accepted Accounting Principles (GAAP), except where a change is deemed to make the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable, and no less relevant to those needs. The Group therefore adopts UK GAAP, including the requirements of FRS 27 Life Assurance in relation to its UK-regulated with profits funds, for the measurement of its insurance and participating investment contract liabilities. As permitted under UK GAAP, the Group adopts local regulatory valuation methods, adjusted for consistency with asset measurement policies, for the measurement of liabilities under insurance contracts and participating investment contracts issued by overseas subsidiaries.

Further details on these policies and the policies for the measurement of non-participating investment contracts are given in (v), (w) and (x).

(v)     Participating contract liabilities and non-participating insurance contracts

(v)(i)   Participating contract liabilities

Participating contract liabilities are analysed into the following components:

·   Participating insurance contract liabilities

·   Participating investment contract liabilities

·   Unallocated divisible surplus

·   Present value of future profits on non-participating contracts, which is treated as a deduction from gross participating contract liabilities.

The policy for measuring each component is noted below.

UK and Europe

Participating contract liabilities arising under contracts issued by a with profits fund falling within the scope of the Prudential Regulation Authority (PRA) realistic capital regime are measured on the PRA realistic basis. Under this approach, the value of participating insurance and participating investment contract liabilities in each with profits fund is calculated as:

·   With profits benefits reserves (WPBR) for the fund as determined under the PRA realistic basis, plus

·   Future policy related liabilities (FPRL) for the fund as determined under the PRA realistic basis, less

·   Any amounts due to equity holders included in FPRL, less

·   The portion of future profits on non-participating contracts included in FPRL not due to equity holders, where this portion can be separately identified.

The WPBR is primarily based on the retrospective calculation of accumulated assets shares. The aggregate value of individual policy asset shares reflects the actual premium, expense and charge history of each policy. The net investment return credited to the asset shares is consistent with the return achieved on the assets notionally backing participating business. Any mortality deductions are based on published mortality tables adjusted where necessary for experience variations. For those asset shares on an expense basis, the allowance for expenses attributed to the asset share is, as far as practical, the appropriate share of the actual expenses incurred or charged to the fund. For those on a charges basis, the allowance is consistent with the charges for an equivalent unit linked policy. The FPRL comprises other components such as a market consistent stochastic valuation of the cost of options and guarantees.

Group accounting policies continued

(v)     Participating contract liabilities and non-participating insurance contracts continued

(v)(i)   Participating contract liabilities continued

The Group's principal with profits fund is the Heritage With Profits Fund (HWPF) operated by Standard Life Assurance Limited (SLAL). The participating contracts held in the HWPF were issued by a with profits fund falling within the scope of the PRA realistic capital regime. Under the Scheme of Demutualisation (the Scheme), the residual estate of the HWPF exists to meet amounts which may be charged to the HWPF under the Scheme. However, to the extent that SLAL's board is satisfied that there is an excess residual estate, it shall be distributed over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. This planned enhancement to the benefits under with profits contracts held in the HWPF is included in the FPRL under the PRA realistic basis, resulting in a realistic surplus of nil. Applying the policy noted above, this planned enhancement is therefore included within the measurement of participating contract liabilities.

The Scheme provides that certain defined cash flows (recourse cash flows) arising in the HWPF on specified blocks of UK and Irish business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the Shareholder Fund (SHF) or the Proprietary Business Fund (PBF) of SLAL, and thus accrue to the ultimate benefit of equity holders of the Company. Under the Scheme, such transfers are subject to certain constraints in order to protect policyholders. The Scheme also provides for additional expenses to be charged by the PBF to the HWPF in respect of German branch business in SLAL.

Under the PRA realistic basis, the discounted value of expected future cash flows on participating contracts not reflected in the WPBR is included in the FPRL (as a reduction in FPRL where future cash flows are expected to be positive). The discounted value of expected future cash flows on non-participating contracts not reflected in the measure on non-participating liabilities is recognised as a separate asset (where future cash flows are expected to be positive). The Scheme requirement to transfer future recourse cash flows out of the HWPF is recognised as an addition to FPRL. The discounted value of expected future cash flows on non-participating contracts can be apportioned between those included in the recourse cash flows and those retained in the HWPF for the benefit of policyholders.

Applying the policy noted above:

·   The value of participating insurance and participating investment contract liabilities is reduced by future expected (net positive) cash flows arising on participating contracts

·   Future expected cash flows on non-participating contracts are not recognised as an asset of the HWPF. However, future expected cash flows on non-participating contracts that are not recourse cash flows under the Scheme are used to adjust the value of participating insurance and participating investment contract liabilities.

Some participating contracts are issued by a non-participating fund with a with profits investment element then transferred to a with profits fund within SLAL falling within the scope of the PRA's realistic capital regime. The with profits investment element of such contracts is measured as described above. Any liability for insurance features retained in the non-participating fund is measured using the gross premium method applicable to non-participating contracts (see policy (v)(ii)).

Canada

The Group's policy for measuring liabilities for participating contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity's local statutory or regulatory reporting. Therefore, for participating contracts issued by The Standard Life Assurance Company of Canada (SLCC), the Canadian regulatory valuation technique is applied, under which for most participating business the value of participating policy liabilities is set equal to the value of the assets set aside in a separate fund for this business, unless this is insufficient to cover guaranteed benefits, in which case a higher liability is recognised.

Unallocated divisible surplus (UDS)

The UDS comprises the difference between the assets and all other recognised liabilities in the Group's with profits funds. This amount is recognised as a liability as it is not considered to be allocated to shareholders due to uncertainty regarding transfers from these funds to equity holders.

In relation to the HWPF, amounts are considered to be allocated to equity holders when they emerge as recourse cash flows within the HWPF. The Scheme permits the HWPF to enter into loans, the repayment of which is contingent on the emergence of recourse cash flows (contingent loan agreement). The Scheme requires that an amount equal to the loan proceeds received on a contingent loan agreement (securitisation receipt) is transferred to the SHF or PBF of SLAL. When the HWPF enters into a contingent loan agreement and the securitisation receipt transferred to the SHF or PBF is in the form of an instrument whose cash flows are contingent on the emergence of recourse cash flows within the HWPF, the obligation to transfer, and the subsequent transfer of, the securitisation receipt is not treated as an allocation to equity holders from the HWPF. In this case the obligation of the HWPF to repay the contingent loan agreement, in excess of repayments reflecting emerged recourse cash flows, is not considered to be a recognised liability of the HWPF in the determination of the UDS.

As a result of the policies for measuring the HWPF's assets and all its other recognised liabilities:

·   The UDS of the HWPF comprises the value of future recourse cash flows in participating contracts (but not the value of future recourse cash flows on non-participating contracts), the value of future additional expenses to be charged on German branch business and the effect of any measurement differences between the Realistic Balance Sheet value and IFRS accounting policy value of all assets and all liabilities other than participating contract liabilities recognised in the HWPF

·   The recourse cash flows are recognised as they emerge as an addition to equity holders' profits if positive or as a deduction if negative. As the additional expenses are charged in respect of the German branch business, they are recognised as an addition to equity holders' profits.

Present value of future profits (PVFP) on non-participating contracts held in a with profits fund

For with profits funds falling within the scope of the PRA's realistic capital regime, an amount is recognised for the PVFP on
non-participating contracts where the determination of the realistic value of liabilities for with profits contracts in that with profits fund takes account of this value directly or indirectly. The amount is recognised as a deduction from liabilities. Where this amount can be apportioned between an amount recognised in the realistic value of with profits contract liabilities and an amount recognised in UDS, the apportioned amounts are reflected in the measurement of participating contract liabilities and UDS respectively. Otherwise it is recognised as a separate amount reflected in liabilities comprising participating contract liabilities and UDS.

(v)(ii)   Non-participating insurance contract liabilities

UK and Europe

The liability for annuity in payment contracts is measured by discounting the expected future annuity payments together with an appropriate estimate of future expenses at an assumed rate of interest derived from yields on the underlying assets.

Other non-participating insurance contracts are measured using the gross premium method. In general terms, a gross premium valuation basis is one in which the premiums brought into account are the full amounts receivable under the contract. The method includes explicit estimates of premiums, expected claims and costs of maintaining contracts. Cash flows are discounted at the valuation rate of interest determined in accordance with Prudential Regulation Authority (PRA) requirements.

Canada and Asia and Emerging Markets

The Group's policy for measuring liabilities for non-participating insurance contracts issued by overseas subsidiaries is to apply the valuation technique used in the issuing entity's local statutory or regulatory reporting.

For non-participating insurance contracts issued by SLCC, the Canadian regulatory valuation technique is applied. Under Canadian regulations, liabilities are determined according to the Canadian Asset Liability Method (CALM). Assets and liabilities are projected under a number of different economic scenarios. These scenarios include the current yield curve as at the valuation date and a number of various rising and falling interest rate environments. Under each scenario, the assets required to support the liabilities are the value of assets which will achieve zero surplus at the end of the projection period. In this valuation allowance is made for income taxes arising from differences between tax and accounting bases that are policy related. Under CALM the deferred taxes recognised under IAS12 relating directly to policy related items included in the computation of liabilities are eliminated in the liabilities and discounted deferred taxes are added. The liability is set equal to the greatest value of the required assets.

Liabilities for non-participating insurance contracts issued by subsidiaries in Ireland and Hong Kong are measured using local reporting valuation techniques.

(w)    Non-participating investment contract liabilities

Unit linked non-participating investment contract liabilities are designated as at FVTPL as they are implicitly managed on a fair value basis as their value is directly linked to the market value of the underlying portfolio of assets.

Liabilities for non-linked investment contracts are measured at amortised cost. Amortised cost is calculated as the fair value of contributions received at the date of initial recognition, less the effect of payments such as transaction costs, plus or minus the cumulative amortisation using the EIR method of any difference between that initial amount and the maturity value, and less any write-down for surrender payments. At each reporting date, the amortised cost liability is determined as the value of future best estimate cash flows discounted at the EIR.

(x)     Liability adequacy test

The Group applies a liability adequacy test at each reporting date to ensure that the insurance and participating contract liabilities (less related deferred acquisition costs) are adequate in the light of the estimated future cash flows. This test is performed by comparing the carrying value of the liability and the discounted projections of future cash flows. 

If a deficiency is found in the liability (i.e. the carrying value amount of its insurance liabilities is less than the future expected cash flows), that deficiency is provided for in full. The deficiency is recognised in the consolidated income statement.

(y)     Borrowings

Borrowings include bank overdrafts and are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, borrowings are carried at amortised cost with any difference between the carrying value and redemption value being recognised in the consolidated income statement over the period of the borrowings on an effective interest rate basis.

(z)     Subordinated liabilities

Subordinated liabilities are initially recognised at the value of proceeds received net of issue expenses. The total finance costs are charged to the consolidated income statement over the relevant term of the instrument using the effective interest rate. The carrying amount of the debt is increased by the finance cost in respect of the reporting period and reduced by payments made in respect of the debt in the period.

Group accounting policies continued

(aa)   Pension costs and other post-retirement benefits

The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in separate trustee-administered funds. The pension plans are funded by payments from employees and by the relevant Group companies, determined by periodic actuarial calculations.

For defined benefit plans, the liability recognised on the consolidated statement of financial position is the present value of the defined benefit obligation less the fair value of plan assets. If the fair value of the plan assets exceeds the defined benefit obligation, a pension surplus is only recognised if the Group considers that it has an unconditional right to a refund. The amount of surplus recognised will be limited by tax and expenses. Plan assets exclude any insurance contracts or non-transferable financial instruments issued by the Group. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method whereby estimated future cash outflows are discounted using interest rates of high quality corporate bonds denominated in the currency in which the benefits will be paid of similar term as the pension liability. Where appropriate these interest rates are adjusted to take account of abnormal market conditions.

Remeasurements, which include gains and losses as a result of changes in actuarial assumptions, the effect of the asset ceiling and returns on plan assets (other than amounts included in net interest) are recognised in other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised in staff costs and other employee-related costs when they are due.

(bb)  Deferred income

Front-end fees on service contracts, including investment management service contracts, are deferred as a liability and amortised on a straight-line basis to the consolidated income statement over the period services are provided.

(cc)   Provisions, contingent liabilities and contingent assets

Provisions for restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.

Contingent liabilities are disclosed if the future obligation is less than probable but greater than remote or if the obligation is probable but the amount cannot be reliably estimated.

Contingent assets are disclosed if the inflow of economic benefits is probable, but not virtually certain.

(dd)  Non-current assets held for sale

Assets and liabilities which have been classified as held for sale are presented separately in the consolidated statement of financial position. Assets and liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction. The relevant assets are recorded at the lower of their carrying amount and their fair value, less the estimated incremental costs that are directly attributable to the disposal (excluding finance costs and income tax expense).

Investment property which has been classified as held for sale is measured at fair value.

(ee)   Dividend distribution

Final dividends on share capital classified as equity instruments are recognised in equity when they have been approved by equity holders. Interim dividends on these shares are recognised in equity in the period in which they are paid.

(ff)     Leases

Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Where the Group is the lessee, payments made under operating leases, net of any incentives received from the lessor, are charged to the consolidated income statement on a straight-line basis over the period of the lease.

Where the Group is the lessor, lease income from operating leases is recognised in the consolidated income statement on a straight-line basis over the lease term. Initial direct costs incurred in arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.

The Group has not entered into any material finance lease arrangements as either lessor or lessee.

(gg)  Employee share-based payments

The Group operates share incentive plans for all employees, share-based long-term incentive plans and restricted stock plans for senior employees and may award annual performance shares or options to all eligible employees when the Group's profit exceeds certain targets. Further details of the schemes are set out in Note 46. For share-based payment employee transactions, services received are measured at fair value.

Fair value of options granted under each scheme is determined using a relevant valuation technique, such as the Black Scholes option pricing model.

For cash-settled share-based payment transactions, services received are measured at the fair value of the liability. The fair value of the liability is remeasured at each reporting date and any changes in fair value are recognised in the consolidated income statement.

For equity-settled share-based payment transactions, the fair value of services received is measured by reference to the fair value of the equity instruments granted. The fair value of those equity instruments is measured at the grant date, which is the date that the Group and the employees have a shared understanding of the terms and conditions of the award. If that award is subject to an approval process then the grant date is the date when that approval is obtained. Market vesting conditions and non-vesting conditions, such as the requirement of employees to save in a Save-as-you-earn scheme, are included in the calculation of the fair value of the instruments at the date of grant. Vesting conditions which are not market conditions are included in assumptions about the number of instruments that are expected to vest.

If the equity instruments granted vest immediately, the employees become unconditionally entitled to those equity instruments. Therefore, the Group immediately recognises the charge in respect of the services received in full in the consolidated income statement with a corresponding credit to the equity compensation reserve in equity.

If the equity instruments do not vest until the employee has fulfilled specified vesting conditions, the Group presumes that the services to be rendered by the employee as consideration for those equity instruments will be received in the future, during the period of those vesting conditions (vesting period). Therefore, the Group recognises the charge in respect of those services as they are rendered during the vesting period with a corresponding credit to the equity compensation reserve in equity.

Cancellations of awards granted arise where non-vesting conditions attached to the award are not met during the vesting period. Cancellations are accounted for as an acceleration of vesting and the remaining unrecognised expense in respect of the fair value of the award is recognised immediately.

At each period end the Group reassesses the number of equity instruments expected to vest and recognises any difference between the revised and original estimate in the consolidated income statement with a corresponding adjustment to the equity compensation reserve.

At the time the equity instruments vest, the amount recognised in the equity compensation reserve in respect of those equity instruments is transferred to retained earnings.

(hh)  Derecognition and offset of financial assets and liabilities

A financial asset (or a part of a group of similar financial assets) is derecognised where:

·   The rights to receive cash flows from the asset have expired

·   The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' arrangement

·   The Group has transferred its rights to receive cash flows from the asset and has either transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

Financial assets and liabilities are offset and the net amount reported on the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

(ii)     Securities lending agreements

The Group undertakes securities lending agreements under which securities are loaned to third parties. Where they do not meet the criteria for derecognition under IAS 39 Financial Instruments: Recognition and Measurement, the loaned securities are not derecognised and continue to be classified in accordance with the Group's policy. The collateral received from securities borrowers typically consists of debt securities. Non-cash collateral arising from securities lending arrangements is only recognised on the consolidated statement of financial position where the criteria for recognition is met.

(jj)     Operating profit

The Group's chosen supplementary measure of performance is operating profit. Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from operating profit and is presented within profit before tax.

Group accounting policies continued

(jj)     Operating profit continued

Operating profit also excludes the impact of the following items:

·   Restructuring costs and significant corporate transaction expenses

·   Impairment of intangible assets

·   Profit or loss arising on the disposal of a subsidiary, joint venture or associate

·   Amortisation of intangibles acquired in business combinations

·   Changes in Canada insurance contract liabilities as a result of the resolution of the tax position of individual matters relating to prior years

·   Items which are one-off in nature and outside the control of management and which, due to their size or nature, are not indicative of the long-term operating performance of the Group.

(kk)   Earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the year less the weighted average number of shares owned by the Company and employee trusts that have not vested unconditionally to employees.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume the conversion of all dilutive potential ordinary shares, such as share options granted to employees.

Diluted earnings per share can also be calculated by adjusting the profit or loss for the effects of changes in income, expenses, tax and dividends that would have occurred had the dilutive potential ordinary shares been converted into ordinary shares.

Alternative earnings per share is calculated on operating profit before tax. Refer to policy (jj) for details of the adjusted items.

Notes to the Group financial statements

1.    Business Combinations

On 27 September 2013, Standard Life Wealth Limited (SLW), a wholly owned subsidiary of the Company acquired the private client division of Newton Management Limited (NML) resulting in combined assets under management of £5.5bn. SLW acquired NML's UK client business through the transfer of customer contracts and employees involved in the management of those contracts. The acquisition also involved the purchase by SLW of the entire share capital of Newton International Investment Management Limited (renamed Standard Life Wealth International Limited (SLWI)), a company incorporated in Jersey whose principal activity is to manage international private client investments. A wholly owned subsidiary of SLWI, also incorporated in Jersey, acts as authorised corporate director (ACD) for a Jersey regulated investment fund. On the acquisition date SLW was appointed investment adviser to SLWI, to the Jersey regulated investment fund and to a number of UK regulated investment funds. Other wholly owned subsidiaries of the Company were appointed as trust manager or ACD of these UK regulated investment funds. The transaction has broadened the Group's client investment proposition with an additional complimentary style of investing and a new offshore offering. Additionally the Group's distribution capability has increased through an expanded network of professional intermediaries. In November 2013, the Group announced the results of SLW will be managed and reported as part of Standard Life Investments segment from 1 January 2014. For 2013 SLW was managed and reported as part of UK and Europe.

At the acquisition date the consideration, net assets acquired and resulting goodwill were as follows:

		27 September 2013
	Notes	£m
Purchase consideration
Cash paid on 27 September 2013		45
Liability for contingent consideration		31
Total purchase consideration		76
Fair value of net assets acquired:
Customer-related intangible assets	15	29
Financial assets		6
Prepayments		1
Total fair value of net assets acquired		36
Goodwill	15	40

The goodwill is attributable to the value of future contracts and the workforce of the acquired business as well as the significant synergies expected to arise as a result of the acquisition. Of the goodwill recognised of £40m, £37m is expected to be deductible for income tax purposes.

The liability for contingent consideration at 27 September 2013 consists of variable consideration of £16m and deferred consideration of £15m and is measured at fair value. Both the variable and deferred consideration are calculated as a percentage of a maximum amount as agreed in the purchase agreement. The percentage of the variable consideration was based on assets under management on the acquisition date and the £16m was settled in full in November 2013. The amount of the deferred consideration settlement will be calculated based on assets under management six months after the completion date on 27 March 2014 and will be settled in April 2014. The potential amount payable under the remaining contingent consideration arrangement is between £nil and £17.6m.

At 31 December 2013, the fair value of the remaining contingent consideration is £15m and is included in other financial liabilities on the consolidated statement of financial position.

The amount of revenue and profit contributed to the Group's consolidated income statement for the year ended 31 December 2013 from the acquired business was £5m and £1m respectively.

If the acquisition had occurred on 1 January 2013, the Group's total revenue and profit for the year would have increased by £15m and £2m to £20,560m and £498m respectively.

2.    Segmental analysis

(a)     Basis of segmentation

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. The Group's reportable segments are as follows:

UK and Europe

UK and Europe provide a broad range of pensions, protection, savings and investment products to individual and corporate customers in the UK, Germany, Austria and Ireland.

Standard Life Investments

Standard Life Investments provides a range of investment products for individuals and institutional customers through a number of different investment vehicles. Investment management services are also provided by Standard Life Investments to the Group's other reportable segments. This segment includes the Group's share of the results of HDFC Asset Management Company Limited.

Canada

The operations in Canada provide long-term savings, investment and insurance solutions to individuals and group benefit and retirement plan members.

Asia and Emerging Markets

The businesses included in Asia and Emerging Markets offer a range of savings and investment products and comprise wholly owned operations in Hong Kong, Singapore and Dubai and investments in joint ventures in India and China.

Other

This primarily includes the group corporate centre and related activities. 

(b)     Reportable segments - Group operating profit, revenue and asset information

IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker'. The Chief Operating Decision Maker for the Group is the executive team.

The key performance metrics of the Group include operating profit before tax and assets under administration (AUA), which are analysed below by reportable segment.

In February 2013, changes were announced in the way the Group manages its business. The offshore bond business in Ireland which was previously reported in Asia and Emerging Markets is now managed and reported as part of UK and Europe. Additionally, due to changes in the way the Group's segments are managed, some overhead costs which were previously reported in Asia and Emerging Markets are now reported in group corporate centre in Other. These combined changes provide stronger focus in our chosen markets and will help drive further value in each of the markets in which the Group operates. The reportable segments have therefore been changed for the year ended 31 December 2013. Comparative amounts for 31 December 2012 have been restated on the same basis to allow more meaningful comparison.

In November 2013, the Group announced that the results of Standard Life Wealth Limited (SLW) would be managed and reported as part of the Standard Life Investments segment effective 1 January 2014. Previously this business was managed as part of the UK and Europe segment and accordingly the results of SLW have been presented as part of UK and Europe.

Income statement and asset information is presented by reportable segment in the tables that follow.

(b)(i)   Analysis of Group operating profit by segment

The pro forma reconciliation of consolidated operating profit to profit for the year sets out the long-term operating performance of the Group. Operating profit is the key measure utilised by the Group's management in their evaluation of segmental performance and is presented by reportable segment.

		UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Elimination	Total
31 December 2013	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		927	521	194	54	-	(237)	1,459
Spread/risk margin		162	-	351	-	-	-	513
Total income		1,089	521	545	54	-	(237)	1,972
Acquisition expenses		(227)	-	(76)	(22)	-	-	(325)
Maintenance expenses		(485)	(351)	(234)	(43)	-	237	(876)
Group corporate centre costs		-	-	-	-	(53)	-	(53)
Capital management		3	-	16	-	(13)	-	6
Share of joint ventures' and associates' profit before tax1		-	22	-	5	-	-	27
Other		-	-	-	-	-	-	-
Operating profit/(loss) before tax		380	192	251	(6)	(66)	-	751
Tax on operating profit		(48)	(40)	(50)	-	(3)	-	(141)
Share of joint ventures' and associates' tax expense		-	(7)	(1)	-	-	-	(8)
Operating profit/(loss) after tax		332	145	200	(6)	(69)	-	602
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	13	(11)	1	(70)	(2)	(10)	-	(92)
Restructuring and corporate transaction expenses	10	(59)	(2)	(2)	(5)	(5)	-	(73)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	13	-	-	(15)	-	-	-	(15)
Other		(5)	-	-	-	(2)	-	(7)
Total non-operating items		(75)	(1)	(87)	(7)	(17)	-	(187)
Tax on non-operating items		14	-	32	1	4	-	51
Profit for the year attributable to equity holders of Standard Life plc		271	144	145	(12)	(82)	-	466
Profit attributable to non-controlling interests								30
Profit for the year								496

¹    Share of joint ventures' and associates' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

Each operating segment reports total income as its measure of revenue in its analysis of operating profit. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and actuarial reserving changes.

Eliminations relate to inter-segment transactions, which are entered into under normal commercial terms and conditions that would be available to unrelated third parties.

The Group has a widely diversified policyholder base and is therefore not reliant on any individual customers.

2.    Segmental analysis continued

(b)     Reportable segments - Group operating profit, revenue and asset information continued

(b)(i)   Analysis of Group operating profit by segment continued

		UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Elimination	Total
31 December 2012 (restated)1	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		839	408	172	46	-	(194)	1,271
Spread/risk margin		112	-	393	-	-	-	505
Total income		951	408	565	46	-	(194)	1,776
Acquisition expenses		(203)	-	(79)	(10)	-	-	(292)
Maintenance expenses		(463)	(281)	(240)	(41)	-	194	(831)
Group corporate centre costs		-	-	-	-	(50)	-	(50)
Capital management		12	-	107	-	23	-	142
Share of joint ventures' and associates' profit before tax2		-	18	-	8	-	-	26
Other		96	-	-	-	-	-	96
Operating profit/(loss) before tax		393	145	353	3	(27)	-	867
Tax on operating profit		(15)	(33)	(75)	-	(1)	-	(124)
Share of joint ventures' and associates' tax expense		-	(5)	(4)	-	-	-	(9)
Operating profit/(loss) after tax		378	107	274	3	(28)	-	734
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	13	(4)	-	(19)	(1)	(5)	-	(29)
Restructuring and corporate transaction expenses	10	(95)	(3)	(3)	(1)	(7)	-	(109)
Other		-	-	-	-	(4)	-	(4)
Total non-operating items		(99)	(3)	(22)	(2)	(16)	-	(142)
Tax on non-operating items		51	1	17	-	4	-	73
Profit for the year attributable to equity holders of Standard Life plc		330	105	269	1	(40)	-	665
Profit attributable to non-controlling interests								29
Profit for the year								694

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

²    Share of joint ventures' and associates' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

(b)(ii)   Total income

The following table provides a reconciliation of total income, as presented in the analysis of Group operating profit by segment, to total revenue, as presented in the consolidated income statement:

	2013	2012
	£m	£m
Fee based revenue	1,459	1,271
Spread/risk margin	513	505
Total income as presented in the analysis of Group operating profit by segment	1,972	1,776
Consolidation adjustments	273	279
Tax movement attributable to policyholder returns	215	218
Net insurance benefits and claims	5,695	5,972
Change in reinsurance assets and liabilities	683	44
Change in insurance and participating liabilities	(1,320)	1,339
Investment return credited and related benefits on non-participating investment liabilities	11,892	7,718
Change in unallocated divisible surplus	(40)	(39)
Expenses under arrangements with reinsurers	61	656
Change in liability for third party interest in consolidated funds	865	782
Non-operating items	(31)	(98)
Other	280	538
Total revenue as presented on the consolidated income statement	20,545	19,185

Consolidation adjustments mainly relate to amounts attributable to third party interest in consolidated funds which are included in total revenue in the consolidated income statement but excluded from total income. Non-operating items are the adjustments that relate to total income which reconcile operating profit to profit for the year as shown in the analysis of Group operating profit by segment in Note 2(b)(i).

(b)(iii)  Total expenses

The following table provides a reconciliation of total operating expenses, as presented in the analysis of Group operating profit by segment, to total expenses, as presented in the consolidated income statement:

	2013	2012 restated1
	£m	£m
Acquisition expenses	325	292
Maintenance expenses	876	831
Group corporate centre costs	53	50
Total operating expenses as presented in the analysis of Group operating profit by segment	1,254	1,173
Consolidation adjustments	248	264
Net insurance benefits and claims	5,695	5,972
Change in reinsurance assets and liabilities	683	44
Change in insurance and participating liabilities	(1,320)	1,339
Change in investment contract liabilities	11,892	7,718
Change in unallocated divisible surplus	(40)	(39)
Expenses under arrangements with reinsurers	61	656
Change in liability for third party interest in consolidated funds	865	782
Finance costs	108	77
Non-operating items	80	113
Other	243	171
Total expenses as presented on the consolidated income statement	19,769	18,270

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

2.    Segmental analysis continued

(b)     Reportable segments - Group operating profit, revenue and asset information continued

(b)(iii)  Total expenses continued 

Consolidation adjustments mainly relate to expenses attributable to third party interest in consolidated funds which are included in total expenses in the consolidated income statement but excluded from total operating expenses. Finance costs are included in capital management in the analysis of Group operating profit by segment. Non-operating items are the adjustments that relate to total expenses which reconcile operating profit to profit for the year as shown in the analysis of Group operating profit by segment in Note 2(b)(i).

(b)(iv)  Analysis of assets under administration by segment

Group AUA presents a measure of the total assets of the Group including those administered on behalf of customers and institutional clients. AUA represents the IFRS gross assets of the Group adjusted to include third party AUA, which is not included on the consolidated statement of financial position. In addition, certain assets on the consolidated statement of financial position are excluded from the definition, including reinsurance assets, deferred acquisition costs and intangible assets. 

As a long-term savings and investments business, AUA is a key driver of shareholder value and is consequently one of the key measures utilised by the executive team in their evaluation of segmental performance. AUA is therefore presented by reportable segment (in billions).

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Elimination1	Total
31 December 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	145	97	17	-	-	(49)	210
Spread/risk	15	-	8	-	-	-	23
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	2	-	-	2
Other corporate assets	-	1	-	-	1	(1)	1
Total assets under administration	166	98	27	2	1	(50)	244
Third party AUA							(79)
Reinsurance assets							6
Deferred acquisition costs							1
Assets attributable to third party interest in consolidated funds and non-controlling interests							12
Other							1
Total assets per consolidated statement of financial position							185

¹    In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

The third party AUA adjustment mainly relates to the investment products element of third party funds under administration and non-insured self invested personal pension (SIPP) AUA which are not included on the consolidated statement of financial position. Assets attributable to third party interest in consolidated funds and non-controlling interests are included on the consolidated statement of financial position but are excluded from the Group's AUA.

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Elimination1	Total
31 December 2012	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	124	83	16	-	-	(42)	181
Spread/risk	16	-	10	-	-	-	26
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	1	-	-	1
Other corporate assets	-	-	-	-	2	-	2
Total assets under administration	146	83	28	1	2	(42)	218
Third party AUA							(65)
Reinsurance assets							7
Deferred acquisition costs							1
Assets attributable to third party interest in consolidated funds and non-controlling interests							13
Other							-
Total assets per consolidated statement of financial position							174

¹    In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

(c)     Total revenue by geographical location

Total revenue as presented in the consolidated income statement split by geographical location in which it was earned is as follows:

	2013	2012
	£m	£m
UK	14,488	12,540
Canada	3,826	3,363
Rest of the world	2,231	3,282
Total	20,545	19,185

The revenue of the operating businesses is allocated based on customer location. The return on investment funds is allocated based on where funds are registered.

(d)     Non-current non-financial assets by geographical location

	2013	2012
	£m	£m
UK	7,474	7,126
Canada	1,284	1,391
Rest of the world	398	418
Total	9,156	8,935

Non-current non-financial assets for this purpose consist of investment property, investment property held for sale, property, plant and equipment and intangible assets (excluding intangible assets arising from insurance or participating investment contracts).

3.    Business written in the Group's insurance entities

(a)     How the business is held in the Group's insurance entities

The Group's insurance and investment contracts are held by the regulated entities within each reportable segment. Each regulated entity operates various funds and how the business is held within these funds is outlined below by reportable segment.

(a)(i)   UK and Europe

Standard Life Assurance Limited

The main entity in the UK and Europe reportable segment that issues insurance and investment contracts is Standard Life Assurance Limited (SLAL). SLAL operates a fund structure which was established on the demutualisation of The Standard Life Assurance Company on 10 July 2006, under which its recognised assets and liabilities are allocated to one of the following funds:

·   Shareholder Fund (SHF)

·   Proprietary Business Fund (PBF) - includes UK, German and Irish branches

·   Heritage With Profits Fund (HWPF) - includes UK, German and Irish branches            

·   German With Profits Fund (GWPF)

·   German Smoothed Managed With Profits Fund (GSMWPF)

·   UK Smoothed Managed With Profits Fund (UKSMWPF).

SLAL - Insurance and investment contracts issued since demutualisation

The liabilities and associated supporting assets for contracts issued since demutualisation are held in the PBF except for the element of any contract where the customer has chosen to invest in a with profits (i.e. participating) fund. The assets and associated liabilities, including liabilities for financial guarantees, for such with profits investment elements are held in the GWPF, GSMWPF or UKSMWPF. The PBF is sub-divided into internal linked funds (unit linked funds) and a non-unit linked fund. Where a customer invests on a unit linked basis, the assets and corresponding liabilities for such unit linked investment elements are held in the unit linked funds. Asset management charges are transferred from the unit linked funds to the non-unit linked sub-fund of the PBF as they arise. Any liabilities for insurance features or financial guarantees contained within a contract that has a unit linked investment element are held in the non-unit linked sub-fund of the PBF. Any liabilities for insurance features contained within a contract that has a with profits element are held in the non-unit linked sub-fund of the PBF. Deferred income and deferred acquisition costs arising on contracts that have a unit linked investment element or a with profits investment element are held in the non-unit linked sub-fund of the PBF.

SLAL - Insurance and investment contracts issued before demutualisation

The liabilities and associated supporting assets for contracts, both participating and non-participating, issued prior to demutualisation are mostly held in the HWPF except for (i) the assets and corresponding liabilities for unit linked investment elements of such contracts, and (ii) the supporting assets and associated liabilities for longevity risk on certain annuity contracts. The assets and associated liabilities for these two contract components are held in the PBF. Asset management charges arising on unit linked investment elements are transferred from the PBF to HWPF as they arise. Any liabilities for insurance features or financial guarantees contained within a contract that has a unit linked investment element or a with profits investment element are held in the HWPF. Deferred income and deferred acquisition costs arising on contracts that have a unit linked investment element or a with profits investment element are also held in the HWPF.

3.     Business written in the Group's insurance entities continued

(a)      How the business is held in the Group's insurance entities continued

(a)(i)    UK and Europe continued

Under the Scheme of Demutualisation (the Scheme) the residual estate of the HWPF exists to meet amounts which may be charged to the HWPF under the Scheme. However, to the extent that the board of SLAL is satisfied that there is an excess residual estate, it shall be distributed over time as an enhancement to final bonuses payable on the remaining eligible policies invested in the HWPF. The Scheme provides that certain defined cash flows (recourse cash flows (RCF)) arising in the HWPF on specified blocks of UK and Irish business, both participating and non-participating, may be transferred out of that fund when they emerge, being transferred to the SHF, and thus accrue to the ultimate benefit of equity holders of the Company. The Scheme also provides for additional expenses to be charged by the PBF to the HWPF in respect of German branch business. Under these mechanisms, profits, on an RCF basis, on non-participating business excluding investment spread profits on annuities and profits, on an RCF basis or German additional expenses basis, on unitised with profits contracts, are transferred to the SHF. All investment return on HWPF investments is retained in the HWPF for the ultimate benefit of participating policyholders. Under the Scheme, transfers to the SHF are subject to certain constraints in order to protect policyholders.

Standard Life International Limited

The UK and Europe reportable segment also contains the International Bond issued by Standard Life International Limited (SLIL) to UK residents. Note (a)(iii) below contains a description of the fund structure operated by SLIL.

(a)(ii)   Canada

The main entity in the Canada reportable segment that issues insurance and investment contracts is The Standard Life Assurance Company of Canada (SLCC). SLCC operates a fund structure under which certain recognised assets and associated liabilities are allocated to either segregated funds or a participating fund. Its remaining recognised assets are managed together to support other contract liabilities and to contribute to equity holders surplus. Where a customer chooses to invest on a segregated fund basis, the assets and associated liabilities for such segregated fund investment elements are held in the segregated funds. SLCC's segregated funds operate on a similar basis to SLAL's unit linked funds. Any liabilities for insurance features or financial guarantees contained within a contract that has a segregated fund investment element are held outside the segregated funds. Deferred income and deferred acquisition costs arising on contracts that have a segregated fund investment element are also held outside the segregated funds.

SLAL operates a Canadian branch. A separate sub-fund of the PBF is maintained for this branch. All contracts issued from SLAL's Canadian PBF are wholly reinsured to SLCC.

(a)(iii)  Asia and Emerging Markets

The entities in the Asia and Emerging Markets reportable segment that issue insurance and investment contracts, other than joint ventures, are SLIL and Standard Life (Asia) Limited (SLA). These entities operate using a shareholder fund and a long-term business fund which is sub-divided into unit linked funds and a non-unit linked fund. Where a customer invests on a unit linked basis, the assets and associated liabilities for such unit linked investment elements are held in the unit linked funds. Any liabilities for insurance features contained within a contract that has a unit linked investment element are held in the non-unit linked fund. Deferred income and deferred acquisition costs arising on contracts that have a unit linked investment element are held in the non-unit linked fund.

(b)      Insurance, investment and reinsurance contract terms including guarantees and options

Details of the significant types of insurance and investment contracts issued by the Group, the nature of any guarantees and options provided under these contracts and details of significant reinsurance contracts are given below.

(b)(i)    UK and Europe - Insurance and investment contracts issued since demutualisation

UK annuity-in-payment contracts (spread/risk business)

This class of business consists of single premium contracts that provide guaranteed annuity payments. The payments depend on the survival of a life or lives with or without a guaranteed period and may reduce on a specified death or increase each year at a predefined rate or in line with the increase in the UK RPI. These contracts are classified as non-participating insurance contracts.

The total liability at 31 December 2013 for RPI linked annuities in payment (including any guaranteed minimum rate of escalation) is £320m (2012: £279m) and this represents approximately 9% (2012: 8%) of the total liability for UK annuity in payment contracts held within the PBF. There is a subset of annuities where the RPI linked annuity payment cannot fall or is guaranteed to increase at a minimum rate; the majority of such annuities are those whose payment cannot fall. If the market moves in line with the adverse scenarios as shown in the market risk sensitivity analysis in Note 41(b), then the impact on shareholder equity from these RPI linked annuities and corresponding assets is not significant.

For those annuities in payment which increase at a predefined rate, the total liability at 31 December 2013 is £274m (2012: £269m) and this represents approximately 8% (2012: 8%) of the total liability for UK annuity in payment contracts held in the PBF. If the market moves in line with the adverse market conditions as shown in the market risk sensitivity analysis, the impact on the shareholder equity from those annuities with a predefined rate of increase and the corresponding assets is not significant.

UK and Irish unit linked pension contracts (fee business)

This class of business comprises single or regular premium contracts under which a percentage of the premium is used to allocate units in one or more unit linked funds. These contracts do not provide significant death benefits in excess of the accumulated value of investment fund. They are classified as non-participating investment contracts.

Contracts are categorised as retail (e.g. UK Active Money Self Invested Personal Pensions (SIPP), UK Active Money Personal Pension, UK Stakeholder, Irish Synergy Personal Pension), corporate (e.g. UK Group SIPP, UK Group Flexible Retirement Plan, UK Group Stakeholder) and institutional (Trustee Investment Plan). These contracts do not contain a with profits investment option except for UK Group Stakeholder and UK Stakeholder, under which customers may invest in the UKSMWPF.

The costs of contracts invested in unit linked funds are recovered by deduction of an asset management charge from the unit linked funds. Under Stakeholder contracts, this asset management charge has a specified maximum limit. There are no other guarantees on these contracts with the exception that the unit prices of certain cash funds are guaranteed not to fall.

Under UK SIPP contracts, as well as investing in unit linked funds offered by SLAL, policyholders can choose to invest in a wide range of other permitted investments. These other investments are not recognised on the Group's consolidated statement of financial position.

UK unit linked investment bonds (fee business)

Unit linked investment bonds issued by SLAL (e.g. Capital Investment Bond) are single premium whole of life contracts under which a percentage of the premium is used to allocate units in one or more unit linked funds. These contracts do not provide significant death benefits in excess of the accumulated value of investment fund. They are classified as non-participating investment contracts. There are no other guarantees on these contracts with the exception that the unit prices of certain cash funds are guaranteed not to fall.

The International Bond is issued by SLIL to UK residents. It is a single premium whole of life investment bond. The customer has the option to invest in unit linked funds offered by SLIL and mutual funds and deposit accounts offered by other providers. The mutual funds and deposit accounts are recognised as assets by the Group and are classified as unit linked business along with a corresponding liability. On death of the last life assured an additional benefit of 0.1% of the surrender value is paid unless the death is accidental when an additional benefit of 10% of the surrender value is paid subject to a £1m cap. These contracts are classified as insurance contracts where it is considered that the accidental death benefit transfers significant insurance risk. No other guarantees apply to this contract.

German unitised with profits deferred annuity contracts (fee business)

German unitised with profits deferred annuities contracts are written in the PBF with the participating investment elements being transferred to the GWPF and, to a significantly lesser extent, to the GSMWPF. The death benefit under all of the deferred annuities is the greater of the sum assured on death, 100% of the current surrender value, the nominal fund, and, for regular premium paying contracts and certain single premium contracts, a refund of premiums. These contracts are classified as participating insurance contracts.

The maturity value of contracts invested in the GWPF is subject to guaranteed minimum amounts. In addition, certain contracts are subject to guaranteed annuity amounts or guaranteed annuity factors and certain unit prices in the GWPF are guaranteed not to decrease.

The GWPF is operated such that all investment return on assets held in the fund will be distributed to participating policyholders over time subject to deductions of asset management charges and deductions for guarantees.

(b)(ii) UK and Europe - Insurance and investment contracts issued before demutualisation and related reinsurance contracts

HWPF participating contract allocations of regular and final bonuses

This section firstly describes the method used by the Group to determine the regular and final bonuses allocated to participating contracts held in the HWPF. It then describes the significant types of insurance and investment contracts held in that fund, the nature of any guarantees provided and significant reinsurance contracts.

As shown in the market risk sensitivity analysis in Note 41(b), there is no impact on shareholder equity arising from contracts in the HWPF for either of the market movements scenarios. As explained in the limitations of the sensitivity analysis, this is because although shareholders are potentially exposed to the full cost if the assets of the HWPF are insufficient to meet policyholder obligations, the assumption changes given are not severe enough for such an event to occur.

Regular bonuses are declared at the discretion of the Group in accordance with the Principles and Practices of Financial Management (PPFM) of the HWPF for UK business and similar principles for European business and are set at levels which aim to achieve a gradual build-up in guaranteed participating policy benefits whilst not unduly constraining investment freedom and the prospects for final bonuses. In setting these rates, the financial position (both current and projected) of the HWPF is taken into account, and were it necessary, regular bonus rates would be set to zero. Regular bonus rates are set for each relevant class of participating policy and/or internal fund and reflect its characteristics, including any guarantees. For some contracts, final bonuses may also be paid. These bonuses are not guaranteed and can be withdrawn at any time.

The Group's aim is that, subject to meeting all contractual obligations and maintaining an adequate financial position, payouts on a participating policy (including any final bonus applying) should fairly reflect the experience of the HWPF applicable to such a policy, after any adjustments for smoothing, and any distribution of the residual estate deemed appropriate by the Group.

3.    Business written in the Group's insurance entities continued

(b)     Insurance, investment and reinsurance contract terms including guarantees and options continued

(b)(ii) UK and Europe - Insurance and investment contracts issued before demutualisation and related reinsurance contracts continued

When setting payout levels, the Group seeks to ensure fair treatment between those participating policyholders who choose to withdraw and those who remain. 

Asset shares are used as a tool to determine fair treatment. The calculation of asset shares varies between products, for example calculations can be on the basis of representative policies or on an individual policy basis.

The methodology and parameters used in payout calculations may, of necessity, involve some measure of approximation. The Group reviews regularly the methodology and parameters used and sets parameters on bases appropriate for the participating class and/or internal fund concerned.

In normal circumstances the Group seeks to offer some smoothing of investment returns to participating policyholders at the time of claims due to maturity for life policies or for pension policies where the Group has no right to reduce benefits as defined in the relevant contractual terms and conditions. The Group may, at its discretion, also provide some smoothing of investment returns for death claims and some types of withdrawal at the time of payment. The Group aims to operate smoothing of investment returns in such a way as to be neutral for participating policyholders as a whole over time. The Group monitors the anticipated cost of smoothing on a regular basis and, in most circumstances, will reflect the costs in payouts and in some circumstances adjust the approach to smoothing.

When calculating asset shares, the Group may, at its discretion, make fair deductions to reflect its assessment of the cost of guarantees. The Group takes an allowance for the assessed costs of guarantees when determining final bonuses payable on claims, calculating policy switch values and calculating surrender and transfer values. These allowances vary between types of policies, reflecting the nature of the guarantees provided. These allowances are kept under review. A deduction is also taken from participating asset shares determined on an expense basis of 0.5% pa as a contribution to the capital of the HWPF.

Eligible policies covered by the Mortgage Endowment Promise may receive 'top up' amounts, in accordance with the Scheme.

UK conventional with profits contracts (no impact on equity holder profits in the absence of burnthrough)

Conventional (i.e. non-unitised) with profits contracts consist of single or regular premium endowment, whole life and pension contracts held in the HWPF.

Under endowment and whole life contracts, guaranteed benefits are payable on death. Regular bonuses may be added to the guaranteed sum assured over the term of the policy and, in addition, a final bonus may be paid on death and maturity. Certain endowment assurances have minimum surrender value provisions and minimum paid-up values.

Under pension contracts, a minimum level of benefit is set at the outset and applies at the date(s) specified in the policy, for example under pure endowment contracts. Regular bonuses may be added to this initial minimum over the term of the policy and, in addition, a final bonus may be paid. Guaranteed annuity options providing for payment of a minimum annuity, in lieu of a cash sum, are available under pure endowment contracts. Under some of these contracts the guarantee applies only at the maturity date. Under other contracts, the option also applies for a specified period preceding the maturity date, in which case the sum assured and bonuses are reduced by specified factors and different guaranteed annuity rates apply.

All conventional with profits contracts are classified as participating insurance contracts.

UK and Irish unitised with profits pension contracts (fee business via RCF)

This class of business comprises single or regular premium contracts held in the HWPF under which a percentage of the premium is used to allocate units on a participating basis. Such contracts include hybrid contracts (see accounting policy (f)) resulting in the unitised with profits investment elements being classified as participating investment contracts, although there are some contracts that are classified as participating insurance contracts, for example those with guaranteed minimum pensions. The major unitised with profits pension contracts include Individual Personal Pension Plans (retail), Group Personal Pension Plans, Executive Pensions and Stakeholder (corporate) and Trustee Investment Plans (institutional).

The significant options and guarantees under these contracts are the following:

·   Contracts where, subject to specified conditions, it is guaranteed either that the unit price will rise at an annual rate of at least 4% per year or that the unit price will not fall, and, that there will be no unit price adjustment (UPA) at specified retirement dates or death

·   Certain Trustee Investment Plan contracts where, subject to specified conditions and limits, it is guaranteed that there will be no unit price adjustment (UPA) when units are encashed.

UK and Irish unitised with profits life contracts (fee business via RCF)

Unitised with profits life business comprises single or regular premium endowment and whole life contracts held in the HWPF under which a percentage of the premium is used to allocate units on a participating basis. The death benefit under regular premium contracts is the greater of the bid value of units allocated and sum assured under the contract. Some contracts also contain critical illness cover providing for payment of a critical illness sum assured on diagnosis of certain defined serious illnesses. These contracts, principally Homeplan, With Profits Bonds and Versatile Investment Plans, are classified as participating insurance contracts.

The significant options and guarantees under these contracts are the following:

·   Contracts where, subject to specified conditions, it is guaranteed on death and maturity either that the unit price will rise at an annual rate of at least 3% a year or that the unit price will not fall, and, that there will be no UPA at maturity

·   For bonds it is guaranteed that no UPA will apply on regular withdrawals up to certain specified limits.

Under contracts effected in connection with house purchase, the death benefit is guaranteed. Under other regular premium contracts, at any time after the first ten years, the Group may review the status of the contract and, if it deems it necessary, the sum assured may be reduced, within the limits permitted.

Under some contracts effected in connection with house purchase, provided the original contract is still in force, the following options can normally be exercised at any time before the 55^th birthday of the life assured:

·   Future insurability option under which a new contract can be effected on then current premium rates, in connection with a further loan, up to the level of life and basic critical illness cover available on the original contract, without any further evidence of health

·   Term extension option on then current premium rates under which the term of the contract may be extended by a whole number of years if the lender agrees to extend the term of the loan.

German unitised with profits contracts (fee business via German additional expenses basis)

Unitised with profits German contracts held in the HWPF mainly consist of endowment assurances and deferred annuities, under which a percentage of each premium is applied to purchase units on a participating basis. The death benefit under endowment assurances is the greater of the sum assured on death or 105% of the current surrender value. The death benefit under deferred annuities is the greater of the sum assured on death, 100% of the current surrender value, the nominal fund and, for regular premium paying contracts and certain single premium contracts, a refund of premiums. These contracts are classified as participating insurance contracts.

The maturity value, and for certain contracts the surrender benefits, are subject to guaranteed minimum amounts. For some participating unitised policies it is guaranteed that there will be no UPA on claims on or after the surrender option date. Certain contracts are subject to guaranteed annuity amounts or guaranteed annuity factors. In addition certain unit prices in the HWPF are guaranteed not to decrease.

UK and Irish unit linked pension contracts (fee business via RCF)

This class of business comprises single or regular premium contracts under which a percentage of the premium is used to allocate units in one or more unit linked funds held in the PBF. Such contracts include hybrid contracts (see accounting policy (f)) resulting in the unit linked investment elements being classified as non-participating investment contracts. The major unit linked pension contracts include Individual Personal Pension Plans (retail), Group Personal Pension Plans, Executive Pensions and Stakeholder (corporate) and Trustee Investment Plans (institutional).

The costs of contracts invested in unit linked funds are recovered by deduction of asset management charges from the unit linked funds which are transferred from the PBF to the HWPF. Under Stakeholder contracts, this asset management charge has a maximum limit. There are no other guarantees on these contracts with the exception that the unit prices of certain cash funds are guaranteed not to fall.

UK and Irish unit linked life contracts (fee business via RCF)

This class of business comprises principally unit linked investment bonds (e.g. Capital Investment Bonds), classified as non-participating investment contracts and the unit linked investment element of Homeplan contracts, classified as non-participating insurance contracts. No significant guarantees, other than the guaranteed death benefit on Homeplan contracts, are provided under these contracts.

The costs of contracts invested in unit linked funds are recovered by deduction of asset management charges from the unit linked funds which are transferred from the PBF to the HWPF.

UK and Irish annuity-in-payment contracts (spread/risk business in relation to longevity risk transferred to PBF otherwise no impact on shareholder profits in absence of burnthrough)

This class of business consists of the same type of contracts described in (b)(i) above and also includes the With Profit Pension Annuity (WPPA), under which changes to the level of annuity are based on a declared rate of return but reductions in the level of the annuity are limited. These contracts are classified as non-participating insurance contracts, except for the WPPA which is classified as a participating insurance contract.

SLAL has reinsured both the longevity and market risk arising on a portfolio of annuity-in-payment contracts held within the HWPF with Canada Life International Re (the reinsurer). In order to limit counterparty credit exposure, the reinsurer was required to deposit back an amount equal to the reinsurance premium of £6.3bn (referred to as 'the deposit'). Interest is payable on the deposit at a floating rate. In respect of this arrangement SLAL holds a ring fenced pool of assets within the HWPF. See Note 41(c) on credit exposure and Note 6 - Expenses under arrangements with reinsurers for further details of the deposit back. A floating charge over the ring fenced pool of assets has been granted to the reinsurer.

The longevity risk on the remaining annuity-in-payment contracts held in the HWPF has been transferred to the PBF. The market risk arising on investments supporting its fixed schedule of payments is retained in the HWPF.

For those annuities in payment which increase at a predefined rate the total liability at 31 December 2013 is £2,977m (2012: £3,271m) and this represents approximately 32% (2012: 32%) of the total liability for UK annuity in payments contracts held within the HWPF.

3.    Business written in the Group's insurance entities continued

(b)     Insurance, investment and reinsurance contract terms including guarantees and options continued

(b)(ii) UK and Europe - Insurance and investment contracts issued before demutualisation and related reinsurance contracts continued

The total liability at 31 December 2013 for RPI linked annuities in payment (including any guaranteed minimum rate of escalation) is £2,113m (2012: £2,007m) and this represents approximately 22% (2012: 20%) of the total liability for UK annuity contracts held within the HWPF. There is a subset of annuities where the RPI linked annuity payment cannot fall or is guaranteed to increase at a minimum rate; the majority of such annuities are those whose payment cannot fall.

UK other non-participating contracts (spread/risk business via RCF)

This class of business consists primarily of deferred annuities that provide guaranteed annuity payments from the retirement age associated with the relevant pension plan. The payments depend on the survival of a life or lives with or without a guarantee period and may reduce on a specified death or increase each year at a predefined rate or in line with the increase in UK RPI. These contracts are classified as non-participating insurance contracts.

(b)(iii) Canada - Insurance, investment and reinsurance contracts

Annuity-in-payment contracts (spread/risk business)

This class of business consists of single premium contracts that provide guaranteed annuity payments based on the survival of a life or lives or for a specified period. The majority of the portfolio are life contingent annuities and are classified as non-participating insurance contracts. However, there are some term certain annuities classified as investment contracts. The benefits may increase each year at a predefined rate or in line with increases in the Canadian Consumer Price Index (CPI). For contracts under which benefits increase in line with the CPI, benefits will not decrease in periods of deflation.

For those annuities which increase at a predefined rate, the total liability at 31 December 2013 is £652m (2012: £713m) and these represent approximately 16% (2012: 16%) of the total liability for Canadian annuity-in-payment contracts. The liability for annuities linked to CPI is approximately £394m (2012: £464m). This represents approximately 9% (2012: 10%) of the total liability for Canadian annuity-in-payment contracts.

For CPI-linked annuities, a 1% increase in the CPI would increase liabilities by £65m (2012: £80m). However, inflation risk on these annuities is mitigated by investments in assets linked to inflation.

Universal Life contracts (fee business and spread/risk business)

The main Universal Life contract, Perspecta, is a non-participating whole life assurance contract. Perspecta was closed to new business in 2012. Premiums may be invested in term investment funds (TIFs), segregated funds or mutual funds. Premiums invested in TIFs are placed on deposit at rates of interest guaranteed for periods from one day to 20 years. The rate offered is determined with reference to the financial conditions at the time of premium payment. The contract provides life cover and, in addition, on death the value of the segregated funds is guaranteed never to be less than 75% of premiums deposited into those funds, adjusted for expense charges and any withdrawals. At 31 December 2013, the liability for these policies is £1,227m (2012: £1,464m).

Perspecta contracts issued up to November 2003 provided the following interest rate guarantees:

·   0% for the Daily Interest Fund.

For each TIF, the greatest of 90% of the Government of Canada Bond rate for the same term, less 1.75%, and:

·   0% for the 1-year TIF

·   1% for the 3-year TIF

·   2% for the 5-year TIF

·   3% for the 10, 15 and 20-year TIF.

Furthermore, it was guaranteed that at least one TIF at a minimum guaranteed interest rate of 3% would be offered as long as the policy is in-force.

Perspecta contracts issued after November 2003 provide lower interest rate guarantees for terms of at least three years. There is no guarantee that a term with a 3% minimum guaranteed rate will be offered and the TIF investment option can be withdrawn.

In addition, on all Perspecta policies the value of the investment account may increase on guaranteed terms at specified policy anniversaries. The level of increase depends upon various conditions, including when the contract was effected.

Perspecta policyholders have the option to switch into TIFs some or all of their investments in the other investment options and can increase their premiums up to statutory limits. The guarantees that then apply are those set when the contract was effected.

A reduction of 1% in the yield curve would increase the value of the guarantees by £19m (2012: £67m). At 31 December 2013, the liability for all the TIFs (i.e. pre and post November 2003) is £74m (2012: £99m).

SLCC has entered into contracts to reinsure mortality risk arising under these Universal Life contracts. Under these reinsurance contracts, the reinsurers receive regular reinsurance premiums throughout the period until death claims arise on the underlying contracts based on payment schedules established at inception of the reinsurance contract. SLCC receives payments from the reinsurers on the death of the Universal Life policyholders to cover the death benefit due.

Registered and non-registered savings plans (fee business and spread/risk business)

This category comprises individual and group non-participating savings contracts. These contracts permit investment into term funds or segregated funds.

Premiums invested in term funds are placed on deposit at rates of interest guaranteed for a selected term. The rate offered depends on financial conditions at the time of deposit. Proceeds at the end of a guarantee period may be reinvested at the then current rates. The components of contracts invested in term funds are classified as non-participating investment contracts.

Where premiums on individual contracts are invested in segregated funds a death benefit guarantee applies being the greater of the segregated fund value and 100% of the net deposits. In addition provided that the monies have been invested for a minimum of 10 years, the maturity benefit is the greater of the segregated fund value at the maturity date and 75% or 100% of premiums invested, depending on the guarantee option selected, less any cash values previously paid out. Otherwise the maturity benefit is the fund value. The cost of all these guarantees including those in respect of registered retirement income plans (see below), net of supporting fees, has been calculated in accordance with local regulations and results in a reduction in liabilities of £6m
(2012: increase £40m) being required. The components of individual contracts invested in segregated funds are classified as
non-participating insurance contracts.

Where premiums on group contracts are invested in segregated funds, no guarantees on death or maturity are given. The components of group contracts invested in segregated funds are classified as non-participating investment contracts.

Registered retirement income plans (fee business and spread/risk business)

Registered retirement income plans are non-participating single premium contracts. These contracts permit investment into term funds or segregated funds on a similar basis to the individual savings plans described above. Regular withdrawals are made from the account to provide an income during retirement. The policyholder may vary the amounts withdrawn subject to the regulatory minimum. The components of contracts invested in term funds are classified as non-participating investment contracts. The components of individual contracts invested in segregated funds are classified as non-participating insurance contracts.

Participating individual life contracts (no impact on equity holder profits in the absence of burnthrough)

Participating whole life and endowment assurance contracts contain scales of minimum guaranteed surrender values and paid-up policy amounts. Participating whole life contracts issued prior to 1985 include a guaranteed annuity rate option where the lump sum death benefit can be converted into an annuity on guaranteed terms or retained by SLCC whereupon the value accumulates at an annual interest rate of at least 2.5%.

The value of the liabilities in respect of guaranteed benefits is 42% (2012: 48%) of the participating contract liability value which is set equal to the value of the fund in which the contracts participate.

Non-participating life contracts (spread/risk business)

This category comprises whole life and term assurance contracts where the guaranteed benefit is payable on death. These contracts are classified as non-participating insurance contracts. This category is closed to new business.

(b)(iv) Asia and Emerging Markets - Insurance contracts and investment contracts

Unit linked life contracts (fee business)

The main contract issued by SLA is the Harvest 101 product. It is a regular premium savings product with a term ranging from five to 25 years. The customer has the option to invest in unit linked funds offered by SLA and mutual funds and deposit accounts offered by other providers. The mutual funds and deposit accounts are recognised as assets by the Group and are classified as unit linked business along with a corresponding liability. On death of the life insured, a benefit of 101% of the fund value is paid. If the death is accidental then an additional benefit of 10% of the initial account value is paid subject to a USD10,000 cap. These contracts are classified as insurance contracts where it is considered that the accidental death benefit transfers significant insurance risk. No other guarantees apply to this contract.

4.    Investment return

		2013	2012
	Notes	£m	£m
Interest and similar income:
Cash and cash equivalents		98	123
Loans		143	165
Debt securities		18	-
Other		1	1
		260	289
Dividend income		2,144	1,769
Gains/(losses) on financial instruments at fair value through profit or loss:
Equity securities (other than dividend income)		12,803	6,325
Debt securities		(615)	4,911
Derivative financial instruments		(38)	70
		12,150	11,306
Impairment losses (recognised)/reversed on loans		(4)	2
Foreign exchange losses on instruments other than as at fair value through profit or loss		(17)	(19)
Income from investment properties:
Rental income	18	591	604
Net fair value gains on investment properties	18	325	31
		916	635
Total investment return		15,449	13,982

5.    Fee and commission income

		2013	2012
	Notes	£m	£m
Fee income on investment contracts at fair value		675	648
Fee income from third party funds under management		242	196
Fee income deferred during the year	38	(36)	(61)
Amortisation of deferred income	38	73	70
Release of deferred income	38	-	26
Reinsurance commission income		1	1
Other fee and commission income		22	26
Total fee and commission income		977	906

During the year to 31 December 2012, certain non-participating investment contracts were reclassified as non-participating insurance contracts due to a change in the benefits available under the contracts. As a result of the reclassification, deferred income of £26m was released and recognised in the consolidated income statement in fee and commission income. Deferred acquisition costs of £22m that were considered recovered by the fees that had previously been deferred were also released, resulting in a net increase of £4m in profit before tax.

6.    Expenses under arrangements with reinsurers

	2013	2012
	£m	£m
Interest payable on deposits from reinsurers	33	36
Premium Adjustments	28	620
Expenses under arrangements with reinsurers	61	656

Standard Life Assurance Limited (SLAL), a wholly owned subsidiary of the Company, has reinsured a portfolio of annuity contracts held within its Heritage With Profits Fund (HWPF) with Canada Life International Re (the reinsurer), a reinsurer not related to the Company. The treaty contains the requirement for the payment or receipt of Premium Adjustments, a term defined in the treaty, to ensure that the investment risk on the ring fenced pool of assets falls on the reinsurer. They are calculated periodically under the treaty as the difference between the value of the ring fenced assets and the deposit amount. If the Premium Adjustment is payable to the reinsurer, the reinsurer is required to deposit a corresponding amount into the deposit. If the Premium Adjustment is payable to SLAL, a corresponding amount is repaid from the deposit. Accrued interest and accrued Premium Adjustments are presented in deposits received from reinsurers on the consolidated statement of financial position.

7.    Other administrative expenses

		2013	2012 restated1
	Notes	£m	£m
Interest expense		16	17
Commission expenses		381	394
Staff costs and other employee-related costs	8	679	645
Operating lease rentals		34	32
Auditors' remuneration	9	7	7
Depreciation of property, plant and equipment	19	14	16
Impairment losses on property, plant and equipment	19	5	7
Impairment losses reversed on property, plant and equipment	19	(2)	-
Amortisation of intangible assets	15	30	24
Recovery under insurance claim	40	-	(98)
Other		594	560
		1,758	1,604
Acquisition costs deferred during the year	16	(165)	(202)
Impairment of deferred acquisition costs	16	6	3
Amortisation of deferred acquisition costs	16	151	180
Release of deferred acquisition costs2	16	-	22
Total other administrative expenses		1,750	1,607

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

²      A reclassification of certain non-participating investment contracts as non-participating insurance contracts resulted in a release of deferred acquisition costs during the year ended 31 December 2012. Refer to Note 5 - Fee and commission income. 

In addition to interest expense of £16m (2012: £17m), interest expense of £108m (2012: £77m) was incurred in respect of subordinated liabilities and £33m (2012: £36m) in respect of deposits from reinsurers. For the year ended 31 December 2013, total interest expense is £157m (2012: £130m).

8.    Staff costs and other employee-related costs

		2013		2012 restated1
	Notes	£m		£m
The aggregate remuneration payable in respect of employees:
Wages and salaries		528		507
Social security costs		59		56
Pension costs:	37
Defined benefit plans		41		41
Defined contribution plans		15		13
Employee share-based payments	46	36		28
Total staff costs and other employee-related costs		679		645
			2013	2012
The average number of staff employed by the Group during the year:
UK and Europe			3,951	4,229
Standard Life Investments			1,109	1,022
Canada			1,992	1,951
Asia and Emerging Markets			259	264
Other2			913	981
Total average number of staff employed			8,224	8,447

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

²      Includes staff in group corporate centre and group information technology. 

Information in respect of Directors' remuneration is provided in the Directors' remuneration report on pages 70 to 98.

9.    Auditors' remuneration

	2013	2012
	£m	£m
Fees payable to the Company's auditors for the audit of the Company's individual and consolidated financial statements	0.3	0.3
Fees payable to the Company's auditors for other services:
The audit of the Company's consolidated subsidiaries pursuant to legislation	4.3	3.8
The audit of funds not consolidated in the Group's financial statements	0.8	0.8
Audit related assurance services	0.4	0.4
Total audit related assurance fees	5.8	5.3
Other assurance services	0.7	1.2
Tax compliance services	0.2	0.3
Tax advisory services	0.2	0.3
Other non-audit fee services	0.2	0.1
Total non audit fees	1.3	1.9
Total auditors' remuneration	7.1	7.2

Auditors' remuneration for the year to 31 December 2013 has been presented across new categories to provide more useful information. Comparatives for the year ended 31 December 2012 have been adjusted accordingly.

For more information on non-audit services, refer to the Report from the Chairman of the Audit Committee in the Corporate Governance report.

During the year, the Group incurred audit fees in respect of the UK staff defined benefit plan of £44,400 (2012: £43,500).

10.  Restructuring and corporate transaction expenses

Total restructuring costs incurred during the year were £75m (2012: £114m) which includes £11m related to the acquisition of the private client division of Newton Management Limited described in Note 1 - Business combinations. The remaining costs relate to a number of business unit restructuring programmes and Solvency 2.

Of the restructuring costs, £73m (2012: £109m) is adjusted when determining operating profit before tax, with the remaining £2m (2012: £5m) incurred by the Heritage With Profits Fund.

11.  Tax expense

The tax expense is attributed as follows:

		2013	2012
		£m	£m
Tax expense attributable to policyholders' returns		215	218
Tax expense attributable to equity holders' profits		90	51
Total tax expense		305	269

The standard rate of corporation tax in the UK changed from 24% to 23% with effect from 1 April 2013. Accordingly, the Group's UK profits for this accounting period are subject to tax at a rate of 23.25%. The Finance Act 2013 further reduced the UK corporation tax rate to 21% with effect from 1 April 2014 and 20% with effect from 1 April 2015. These rates have been applied in calculating the UK deferred tax position at 31 December 2013.

The share of tax of associates and joint ventures is £8m (2012: £9m) and is included in profit before tax in the consolidated income statement in 'Share of profit from associates and joint ventures'.

(a)     Current year tax expense

		2013	2012
	Notes	£m	£m
Current tax:
UK		146	224
Double tax relief		-	(2)
Overseas		28	43
Adjustment to tax expense in respect of prior years		(39)	(32)
Total current tax		135	233
Deferred tax:
Deferred tax expense arising from the current year	20	170	36
Total deferred tax		170	36
Total tax expense attributable to operations		305	269
Attributable to equity holders' profits		90	51

In 2012, £1m of unrecognised tax losses from previous years were used to reduce income tax expense. Unrecognised losses and timing differences of £4m were used to reduce the deferred tax expense (2012: £14m).

Deferred tax of £30m (2012: £26m) has not been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries.

(b)     Tax relating to components of other comprehensive income

Tax relating to components of other comprehensive income is as follows:

		2013	2012
	Notes	£m	£m
Deferred tax on remeasurement gains/(losses) on defined benefit pension plans	30	8	(102)
Deferred tax on revaluation of owner occupied property	31	5	-
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss		13	(102)
Current tax on net change in financial assets designated as available-for-sale	31	(7)	-
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss		(7)	-
Tax relating to each component of other comprehensive income		6	(102)

All of the amounts presented above are in respect of equity holders of Standard Life plc.

11.  Tax expense continued

(c)     Tax relating to items taken directly to equity

		2013	2012
	Notes	£m	£m
Tax credit on reserves for employee share-based payments		(8)	(6)
Tax relating to items taken directly to equity	20	(8)	(6)

(d)     Reconciliation of tax expense

		2013	2012 restated1
		£m	£m
Profit before tax		801	963
Tax at 23.25% (2012: 24.5%)		186	236
Policyholder tax (net of tax at UK standard rate)		165	165
Permanent differences		(14)	(32)
Non-taxable transfer to equity holders		-	(47)
Different tax rates		(1)	15
Adjustment to current tax expense in respect of prior years		(39)	(32)
Recognition of previously unrecognised tax credit		(4)	(14)
Deferred tax not recognised		(1)	-
Adjustment to deferred tax expense in respect of prior years		(10)	(31)
Overseas witholding tax on dividends		14	8
Other		9	1
Total tax expense for the year		305	269

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

12.  Earnings per share

(a)     Basic earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year is the weighted average number of shares in issue less the weighted average number of shares owned by employee share trusts that have not vested unconditionally to employees.

	2013	2012 restated1
Profit attributable to equity holders of Standard Life plc (£m)	466	665
Weighted average number of ordinary shares outstanding (millions)	2,362	2,351
Basic earnings per share (pence per share)	19.7	28.3

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

(b)     Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares - share awards and share options awarded to employees. 

For share options, a calculation is made to determine the number of shares that could be acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that could be issued, or purchased, assuming the exercise of the share options. 

	2013	2012 restated1
Profit attributable to equity holders of Standard Life plc (£m)	466	665
Weighted average number of ordinary shares outstanding for diluted earnings per share (millions)	2,378	2,369
Diluted earnings per share (pence per share)	19.6	28.1

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was 16 million (2012: 18 million).

(c)     Alternative earnings per share

Earnings per share is also calculated based on operating profit before tax as well as on the profit attributable to equity holders of Standard Life plc. The Directors believe that earnings per share based on operating profit provides a better indication of the long-term operating business performance of the Group.

(c)(i)   Basic alternative earnings per share

	2013	2013	2012 restated1	2012 restated1
	£m	p per share	£m	p per share
Operating profit before tax	751	31.8	867	36.9
Tax on operating profit	(141)	(6.0)	(124)	(5.3)
Share of joint ventures and associates tax expense	(8)	(0.3)	(9)	(0.4)
Operating profit after tax	602	25.5	734	31.2
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(92)	(4.0)	(29)	(1.2)
Restructuring and corporate transaction expenses	(73)	(3.1)	(109)	(4.6)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	(15)	(0.6)	-	-
Other	(7)	(0.3)	(4)	(0.2)
Total non-operating items	(187)	(8.0)	(142)	(6.0)
Tax on non-operating items	51	2.2	73	3.1
Profit attributable to equity holders of Standard Life plc	466	19.7	665	28.3

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

(c)(ii)  Diluted alternative earnings per share

	2013	2013	2012 restated1	2012 restated1
	£m	p per share	£m	p per share
Operating profit before tax	751	31.6	867	36.6
Tax on operating profit	(141)	(6.0)	(124)	(5.2)
Share of joint ventures and associates tax expense	(8)	(0.3)	(9)	(0.4)
Operating profit after tax	602	25.3	734	31.0
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(92)	(3.9)	(29)	(1.2)
Restructuring and corporate transaction expenses	(73)	(3.1)	(109)	(4.6)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	(15)	(0.6)	-	-
Other	(7)	(0.3)	(4)	(0.2)
Total non-operating items	(187)	(7.9)	(142)	(6.0)
Tax on non-operating items	51	2.2	73	3.1
Profit attributable to equity holders of Standard Life plc	466	19.6	665	28.1

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

13.  Non-operating items

Short-term fluctuations in investment return and economic assumptions changes

Operating profit is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. As a result, the components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected investment returns, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from operating profit and disclosed separately within the heading of short-term fluctuations in investment return and economic assumption changes.

The expected rates of return for debt securities, equity securities and property are determined separately for each of the Group's operations and are consistent with the expected rates of return as determined under the Group's published European Embedded Value (EEV) methodology. The expected rates of return for equity securities and property, with the exception of the Canadian operations, are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium or property risk premium, respectively. The expected rates of return on equity securities and property for Canadian operations are determined by the Appointed Actuary in Canada. 

The principal assumptions, as set at the start of the year, in respect of gross investment returns underlying the calculation of the expected investment return for equity securities and property are as follows:

	2013		2012
	UK	Canada	UK	Canada
	%	%	%	%
Equity securities	4.74	8.60	4.93	8.60
Property	3.74	8.60	3.93	8.60

In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields for the debt securities actually held or, in respect of the Canadian operations, is determined by the Appointed Actuary in Canada. For debt securities classified as available-for-sale that support liabilities measured at amortised cost, the expected rate of return is the effective interest rate adjusted for an allowance, established at initial recognition, for expected defaults. If debt securities classified as available-for-sale are sold, any gain or loss is amortised within the expected return over the period to the earlier of the maturity date of the sold debt security, or the redemption date of the supported liability.

Gains and losses on foreign exchange are deemed to represent short-term fluctuations in investment return and economic assumption changes and thus are excluded from operating profit.

For the year ended 31 December 2013, short-term fluctuations in investment return and economic assumption changes resulted in losses of £92m (2012: £29m). Short-term fluctuations in investment return relate principally to the investment volatility in Canada non-segregated funds and UK annuities, and in respect of the Group's subordinated liabilities and assets backing those liabilities.

Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters

As set out in accounting policy (v)(ii) the Group's Canadian insurance contract liabilities are measured according to CALM. That valuation includes an allowance for the difference between the undiscounted deferred taxes recognised under IAS 12 Income Taxes relating directly to the insurance contract liabilities and the discounted value of those deferred taxes.

Hence when management or the Canadian tax authorities successfully challenge an historic tax position which results in a change in the difference between the undiscounted and discounted deferred taxes relating directly to the tax treatment of insurance contract liabilities, a change in insurance contract liabilities is recognised in the income statement thus impacting profit before tax. This change in insurance contract liabilities is removed when determining operating profit before tax. As this amount unwinds under CALM in future years, the associated change in insurance contract liabilities is also excluded from operating profit before tax.

Normal finalisation of prior years' tax charges are not excluded from operating profit where they are routine and part of normal operations.

14.  Dividends

The Company paid a final dividend of 9.80 pence per share and a special dividend of 12.80 pence per share totalling £230m and £302m respectively (final 2011: 9.20 pence; £216m) in respect of the year ended 31 December 2012 on 21 May 2013. An interim dividend of 5.22 pence per share (interim 2012: 4.90 pence) totalling £124m (interim 2012: £115m) in respect of the year ended 31 December 2013 was paid on 29 October 2013. The dividends were recorded as an appropriation of retained earnings and special reserve for the year ended 31 December 2013.

Subsequent to 31 December 2013, the Directors have proposed a final dividend for the year ended 31 December 2013 of 10.58 pence per ordinary share, £251m in total. The dividend will be paid on 22 May 2014 to shareholders on the Company's register as at 11 April 2014, subject to approval at the Annual General Meeting on 13 May 2014. The dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2014.

15.  Intangible assets

		Goodwill	Intangible assets acquired through business combinations	Internally developed software	Other acquired intangible assets	Total
	Notes	£m	£m	£m	£m	£m
Gross amount
At 1 January 2012		71	30	154	23	278
Additions		-	-	25	13	38
Disposals and adjustments		-	-	(2)	2	-
Other		-	-	-	(1)	(1)
At 31 December 2012		71	30	177	37	315
Additions	1	40	29	25	22	116
Other		-	-	-	(2)	(2)
At 31 December 2013		111	59	202	57	429
Accumulated amortisation
At 1 January 2012		-	(8)	(58)	(12)	(78)
Amortisation charge for the year	7	-	(5)	(15)	(4)	(24)
Other		-	-	-	1	1
At 31 December 2012		-	(13)	(73)	(15)	(101)
Amortisation charge for the year	7	-	(5)	(20)	(5)	(30)
Other		-	-	-	2	2
At 31 December 2013		-	(18)	(93)	(18)	(129)
Carrying amount
At 1 January 2012		71	22	96	11	200
At 31 December 2012		71	17	104	22	214
At 31 December 2013		111	41	109	39	300

The Group's goodwill of £111m (2012: £71m) has been acquired through a series of business combinations. The cash generating unit to which all goodwill is attributed is the UK and Europe business unit.

Goodwill is reviewed annually for impairment by comparing the carrying value of each of the investments including goodwill with its recoverable amount. The recoverable amount of the investments is determined by calculating its value in use.

The value in use calculation uses cash flow projections based on business plans for a maximum period of five years. The following key assumptions have been applied by management to the calculations after considering past experience and market expectations for future growth:

·   A growth rate of 3% has been used to extrapolate new business contributions beyond the business plan period, and is based on management's estimate of future growth rates for the industry and the UK economy

·   Additional net flows into assets under administration and increased market share have been assumed due to enhanced product offerings

·   Cost savings have been assumed due to synergies expected

·   A risk-adjusted discount rate ranging from 10% to 15% has been applied.

As a result of the impairment testing carried out, no goodwill was considered to be impaired at 31 December 2013 or 31 December 2012.

16.  Deferred acquisition costs

		2013	2012
	Notes	£m	£m
At 1 January		904	920
Additions during the year	7	165	202
Amortisation charge	7	(151)	(180)
Impairment charge	7	(6)	(3)
Release of deferred acquisition costs1	7	-	(22)
Foreign exchange adjustment		(7)	(13)
At 31 December		905	904

¹    A reclassification of certain non-participating investment contracts to non-participating insurance contracts resulted in a release of deferred acquisition costs during the year to 31 December 2012. Refer to Note 5 - Fee and commission income.

The amount of deferred acquisition costs expected to be recovered after more than 12 months is £772m (2012: £799m). Included in deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) amounting to £607m (2012: £649m).

17.  Investments in associates and joint ventures

		2013	2012
	Notes	£m	£m
Investments in associates and joint ventures accounted for using the equity method		306	302
Loans to associates and joint ventures	21	22	26
Total investments in associates and joint ventures		328	328

		2013	2012
	Notes	£m	£m
At 1 January		328	326
Share of profit from associates and joint ventures		25	48
Dividends received		(12)	(5)
Additions		24	21
Disposals and loan repayments		(9)	(14)
Change due to reclassification of investments		-	(36)
Foreign exchange adjustment		(25)	(12)
Share of other comprehensive income of joint ventures	30	(3)	-
At 31 December		328	328

(a)     Investments in associates

The following are particulars of the Group's share of significant associates:

Name of associate	Country of incorporation or registration	Interest held %	Year end	Nature of business	Assets £m	Liabilities £m	Revenues £m	Profit £m
At 31 December 2013
HDFC Asset Management Company Limited1	India	40.0	31 Mar	Investment Management	64	32	37	15
At 31 December 2012
HDFC Asset Management Company Limited1	India	40.0	31 Mar	Investment Management	63	31	31	13

¹    The reporting date for HDFC Asset Management Company Limited is 31 March as this is its year end date. This is different from the Group's year end date of 31 December.

(b)     Investments in joint ventures 

The following are particulars of the Group's significant joint ventures, all of which are unlisted:

	Country of incorporation or registration	Interest held	Current assets	Long-term assets	Current liabilities	Long-term liabilities	Income	Expenses
Name of joint venture		%	£m	£m	£m	£m	£m	£m
At 31 December 2013
Castan Waterfront Development Inc.	Canada	50.0	1	25	1	10	(3)	-
First Real Properties Limited	Canada	49.0	2	88	2	11	8	7
526304 Alberta Limited	Canada	50.0	5	25	-	4	4	-
HDFC Standard Life Insurance Company Limited	India	26.0	27	1,180	30	1,132	406	394
Heng An Standard Life Insurance Company Limited	China	50.0	20	379	2	346	66	73
At 31 December 2012
Castan Waterfront Development Inc.	Canada	50.0	-	24	-	5	2	-
First Real Properties Limited	Canada	49.0	1	98	3	11	27	10
526304 Alberta Limited	Canada	50.0	1	25	-	-	2	-
HDFC Standard Life Insurance Company Limited	India	26.0	29	1,149	38	1,025	535	518
Heng An Standard Life Insurance Company Limited	China	50.0	11	357	2	325	85	94

18.  Investment property

		2013	2012
	Notes	£m	£m
At 1 January		8,565	8,743
Additions - acquisitions		539	540
Additions - subsequent expenditure		127	130
Net fair value gains		325	31
Disposals		(806)	(827)
Foreign exchange adjustment		(104)	(48)
Investment property reclassified to assets held for sale	26	(92)	-
Other		(9)	(4)
At 31 December		8,545	8,565
The fair value of investment property can be analysed as:
Freehold		6,210	6,250
Long leasehold		2,271	2,200
Short leasehold		64	115
		8,545	8,565

The rental income arising from investment property during the year amounted to £591m (2012: £604m), which is included in investment return as set out in Note 4 - Investment return. Direct operating expenses (included within other administrative expenses) arising in respect of such rented property during the year amounted to £168m (2012: £179m).

The methods and assumptions used to determine fair value for investment property and property under development are discussed in Note 42 - Fair value of assets and liabilities.

For property located in UK and Europe, all valuations are provided by independent qualified professional valuers at 31 December or as at a date that is not more than three months before 31 December. Where valuations have been undertaken at dates prior to the end of the reporting period, adjustments are made where appropriate to reflect the impact of changes in market conditions between the date of these valuations and the end of the reporting period.

In Canada, property with a value higher than CA$50m are externally appraised every quarter, property with a value between CA$10m and CA$50m are externally appraised twice a year while property with a value lower than CA$10m are externally appraised once a year, with valuations evenly distributed throughout the year. Property not subject to an external appraisal at a quarter end are reviewed in light of the market information provided by the other external appraisals and an internal adjustment is estimated.

18.  Investment property continued

Future minimum lease rental receivables in respect of non-cancellable operating leases on investment properties were as follows:

		2013	20121
		£m	£m
Not later than one year		453	464
Later than one year and no later than five years		1,397	1,471
Later than five years		2,778	2,383
Total operating lease receivables		4,628	4,318

¹      The comparative information has been restated to reflect correct timing of future rental receivables.

19.  Property, plant and equipment

		Owner occupied property	Equipment	Total
	Notes	£m	£m	£m
Cost or valuation
At 1 January 2012		115	97	212
Additions		1	17	18
Disposals and adjustments1		-	(4)	(4)
Revaluations	31	5	-	5
Impairment losses recognised2	7	(7)	-	(7)
Foreign exchange adjustment		(2)	-	(2)
At 31 December 2012		112	110	222
Additions		-	17	17
Disposals and adjustments1		-	(6)	(6)
Revaluations	31	68	-	68
Impairment losses reversed2	7	2	-	2
Impairment losses recognised2	7	(5)	-	(5)
Foreign exchange adjustment		(5)	-	(5)
At 31 December 2013		172	121	293
Accumulated depreciation
At 1 January 2012		-	(52)	(52)
Depreciation charge for the year	7	-	(16)	(16)
Disposals and adjustments1		-	2	2
At 31 December 2012		-	(66)	(66)
Depreciation charge for the year	7	-	(14)	(14)
Disposals and adjustments1		-	6	6
At 31 December 2013		-	(74)	(74)
Carrying amount
At 1 January 2012		115	45	160
At 31 December 2012		112	44	156
At 31 December 2013		172	47	219

¹   For the year ended 31 December 2013 £6m (2012: £2m) of disposals and adjustments relates to equipment with net book value of nil and is no longer in use.

²  The impairment (recognised)/reversed arose due to changes in the market value of a number of properties relative to their original deemed cost.

If owner occupied property was measured using the cost model, the historical cost before impairment would be £180m (2012: £180m). Where the expected residual value of owner occupied property is in line with the current fair value, no depreciation is charged. Equipment primarily consists of computer equipment.

The methods and assumptions used to value owner occupied property are set out in Note 42 - Fair value of assets and liabilities.

20.  Tax assets and liabilities

		2013	2012 restated1
	Notes	£m	£m
Current tax recoverable	25	137	154
Deferred tax assets		121	177
Total tax assets		258	331
Current tax liabilities		55	150
Deferred tax liabilities		178	43
Total tax liabilities		233	193

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

All current tax assets and liabilities as at 31 December 2013 and 31 December 2012 are expected to be recoverable or payable in less than 12 months. Deferred tax assets and liabilities are expected to be recovered or settled after more than 12 months.

(a)     Recognised deferred tax

		2013	2012 restated1
	Notes	£m	£m
Deferred tax assets comprise:
Actuarial liabilities		148	165
Losses carried forward		39	48
Realised losses on investments		9	81
Depreciable assets		34	32
Deferred income		46	58
Employee benefits		42	50
Provisions and other temporary timing differences		3	5
Insurance related items		10	34
Subordinated liabilities valuation differences		3	-
Unrealised losses on investments		1	6
Other		2	-
Gross deferred tax assets		337	479
Less: Offset against deferred tax liabilities		(216)	(302)
Net deferred tax assets		121	177
Deferred tax liabilities comprise:
Insurance related items		35	40
Unrealised gains on investments		212	139
Deferred acquisition costs		132	157
Subordinated liabilities valuation differences		3	-
Temporary timing differences		4	9
Other		8	-
Gross deferred tax liabilities		394	345
Less: Offset against deferred tax assets		(216)	(302)
Net deferred tax liabilities		178	43
Movements in net deferred tax assets/(liabilities) comprise:
At 1 January		134	65
Amounts charged to the consolidated income statement		(170)	(36)
Amounts (charged)/credited to components of other comprehensive income	30	(13)	102
Amounts credited directly to equity in respect of employee share-based payment schemes		8	6
Transfer to current tax for vested employee share based payment schemes	30	(9)	-
Foreign exchange adjustment		(6)	(2)
Prior year adjustment		(1)	-
Other		(-)	(1)
At 31 December		(57)	134

¹    Comparatives for the year ended 31 December 2012 have been restated to reflect retrospective application of changes to accounting policies as a result of an amendment to IAS 19 - Employee Benefits. Refer to Group accounting policies - (a) Basis of preparation.

20.  Tax assets and liabilities continued

(a)     Recognised deferred tax continued

Deferred tax assets and liabilities are netted off to the extent that legal offset is available under local tax law. A deferred tax asset of £49m (2012: £135m) for the Group has been recognised in respect of losses of various subsidiaries and unrealised losses on investments. Deferred tax assets are recognised to the extent that it is probable that the losses will be capable of being offset against taxable profits and gains in future periods. The value attributed to them takes into account the certainty or otherwise of their recoverability. Their recoverability is measured against anticipated taxable profits and gains based on business plans. The losses do not have an expiry date. 

(b)     Unrecognised deferred tax

Due to uncertainty regarding recoverability, deferred tax has not been recognised in respect of the following assets:

·   Cumulative losses carried forward of £96m (2012: £89m)

·   Tax reserves of the German branch of Standard Life Assurance Limited of £71m (2012: £93m)

·   Unrealised investment losses of £12m (2012: £376m).

21.  Financial investments

		Designated as at fair value through profit or loss	Held for trading	Available-for-sale	Loans and receivables	Net investment hedge	Total
2013	Notes	£m	£m	£m	£m	£m	£m
Investments in associates and joint ventures	17	-	-	-	22	-	22
Loans	22	-	-	-	2,924	-	2,924
Derivative financial assets	23	-	1,713	-	-	54	1,767
Equity securities and interests in pooled investment funds	41	90,316	-	-	-	-	90,316
Debt securities	41	61,356	-	683	-	-	62,039
Receivables and other financial assets	24	-	-	-	1,042	-	1,042
Assets held for sale	26	29	-	-	-	-	29
Cash and cash equivalents	27	-	-	-	9,104	-	9,104
Total		151,701	1,713	683	13,092	54	167,243

		Designated as at fair value through profit or loss	Held for trading	Available-for-sale	Loans and receivables	Net investment hedge	Total
2012	Notes	£m	£m	£m	£m	£m	£m
Investments in associates and joint ventures	17	-	-	-	26	-	26
Loans	22	-	-	-	3,299	-	3,299
Derivative financial assets	23	-	2,132	-	-	18	2,150
Equity securities and interests in pooled investment funds	41	65,812	-	-	-	-	65,812
Debt securities	41	72,927	-	374	-	-	73,301
Receivables and other financial assets	24	-	-	-	1,717	-	1,717
Assets held for sale	26	-	-	-	-	-	-
Cash and cash equivalents	27	-	-	-	9,942	-	9,942
Total		138,739	2,132	374	14,984	18	156,247

The amount of debt securities expected to be recovered or settled after more than 12 months is £48,905m (2012: £61,940m). Due to the nature of equity securities and interests in pooled investment funds, there is no fixed term associated with these securities.

22. Loans

		2013	2012
	Notes	£m	£m
Loans secured by mortgages	42(e)	2,705	3,014
Loans secured on policies		90	99
Other		129	186
Total loans	41	2,924	3,299

Loans with variable rates and fixed interest rates are £170m and £2,754m respectively (2012: £197m and £3,102m respectively). Loans that are expected to be recovered after more than 12 months are £2,468m (2012: £2,765m).

23.  Derivative financial instruments

The Group uses derivative financial instruments in order to match contractual liabilities, to reduce the risk from potential movements in foreign exchange rates, equity indices, property indices and interest rates, to reduce credit risk or to achieve efficient portfolio management. The Group designates certain derivative financial instruments as cash flow hedges and net investment hedges to mitigate risk, as detailed below. Derivative financial instruments that are not designated part of a hedge relationship are held for trading under IAS 39 Financial Instruments: Recognition and Measurement.

		2013			2012
		Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	Notes	£m	£m	£m	£m	£m	£m
Cash flow hedges		20	-	-	22	-	-
Net investment hedges		883	54	-	755	18	-
Held for trading		78,165	1,713	795	82,979	2,132	853
Derivative financial instruments	41	79,068	1,767	795	83,756	2,150	853

Derivative assets of £824m (2012: £1,681m) are expected to be recovered after more than 12 months. Derivative liabilities of £195m (2012: £560m) are expected to be settled after more than 12 months.  

(a)     Cash flow hedges

The Group designates as cash flow hedges those currency forwards and currency swaps used to reduce the exposure to variability in cash flows arising from the foreign exchange risk associated with revenue receivable in foreign currency.

Forward foreign exchange contracts with an aggregate notional principal amount of £20m (2012: £22m) and a net fair value asset position of £nil (2012: £nil) were designated as hedges of future cash flows arising from revenue receivable in foreign currency in 2013 and 2012. The cash flows from these instruments are expected to be reported in the consolidated income statement for the following year. In 2013 and 2012, the ineffectiveness recognised in the consolidated income statement that arises from these cash flow hedges was less than £1m.

(b)     Net investment hedges

The Group hedges part of the currency translation risk of net investments in foreign operations using forward foreign exchange contracts. Forward foreign exchange contracts with a notional principal of £883m (2012: £755m) and a net asset position of £54m (2012: £18m) were designated as net investment hedges and gave rise to gains for the year of £63m (2012: gains of £18m), which have been deferred in the net investment hedge translation reserve. The effectiveness of hedges of net investments in foreign operations is measured with reference to changes in the spot exchange rates. Any ineffectiveness, together with any difference in value attributable to forward points, is recognised in the consolidated income statement. In 2013, the losses recognised in the consolidated income statement were £5m (2012: £4m). No amounts were withdrawn from equity during the year (2012: £nil), as there were no disposals of foreign operations.

23.  Derivative financial instruments continued

(c)     Held for trading

Derivative financial instruments classified as held for trading include those that the Group holds as economic hedges of financial instruments that are measured at fair value. Held for trading derivative financial instruments are also held by the Group to match contractual liabilities that are measured at fair value or to achieve efficient portfolio management in respect of instruments measured at fair value.

	2013			2012
	Contract amount	Fair value assets	Fair value liabilities	Contract amount	Fair value assets	Fair value liabilities
	£m	£m	£m	£m	£m	£m
Equity derivatives:
Futures	12,176	186	314	8,490	22	88
Variance swaps	32	67	77	62	179	188
Options	4,421	375	33	5,190	678	40
Bond derivatives:
Futures	6,969	23	44	13,231	79	34
Interest rate derivatives:
Swaps	23,068	265	156	12,133	441	117
Futures	108	1	-	128	-	-
Options	72	12	-	113	27	-
Swaptions	5,651	279	28	11,469	469	110
Foreign exchange derivatives:
Forwards	22,054	386	81	19,468	164	109
Futures	179	-	-	201	-	2
Options	2,865	89	56	5,907	55	77
Other derivatives:
Inflation rate swaps	447	23	6	1,305	3	23
Credit default swaps	123	7	-	5,282	15	65
Derivative financial instruments held for trading	78,165	1,713	795	82,979	2,132	853

(d)     Maturity profile

The maturity profile of the contractual undiscounted cash flows in relation to derivative financial instruments is as follows:

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	Total
2013	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	19,488	265	180	85	29	59	20,106
Derivative financial liabilities	8,275	300	45	27	10	19	8,676
Total	27,763	565	225	112	39	78	28,782
Cash outflows
Derivative financial assets	(18,638)	(170)	(75)	(146)	(185)	(126)	(19,340)
Derivative financial liabilities	(8,471)	(140)	(209)	(253)	(166)	(112)	(9,351)
Total	(27,109)	(310)	(284)	(399)	(351)	(238)	(28,691)
Net derivative financial instruments cash inflows/(outflows)	654	255	(59)	(287)	(312)	(160)	91

Cash inflows and outflows are presented on a net basis where the Group is required to settle cash flows net.

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	Total
2012	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	12,445	1,135	99	20	15	107	13,821
Derivative financial liabilities	11,858	799	3	-	-	-	12,660
Total	24,303	1,934	102	20	15	107	26,481
Cash outflows
Derivative financial assets	(11,912)	(688)	(36)	(101)	(52)	(31)	(12,820)
Derivative financial liabilities	(12,117)	(666)	(37)	(44)	(49)	(127)	(13,040)
Total	(24,029)	(1,354)	(73)	(145)	(101)	(158)	(25,860)
Net derivative financial instruments cash inflows/(outflows)	274	580	29	(125)	(86)	(51)	621

24.  Receivables and other financial assets

		2013	2012
	Notes	£m	£m
Amounts receivable on direct insurance business		110	114
Amounts receivable on reinsurance contracts		7	4
Outstanding sales of investment securities		109	51
Accrued income		271	1,037
Cancellations of units awaiting settlement		177	130
Collateral pledged in respect of derivative contracts	41	28	8
Property related assets		148	212
Other		192	161
Receivables and other financial assets		1,042	1,717

The carrying amounts disclosed above reasonably approximate the fair values as at the year end.

The amount of receivables and other financial assets expected to be recovered after more than 12 months is £93m (2012: £95m).

25.  Other assets

		2013	2012
	Notes	£m	£m
Current tax recoverable	20	137	154
Prepayments		39	23
Other		93	107
Other assets		269	284

The amount of other assets expected to be recovered after more than 12 months is £44m (2012: £41m).

26.  Assets held for sale

		2013	2012
		£m	£m
Investment property		92	-
Amounts seeded into funds		29	-
Assets held for sale		121	-

Investment property classified as held for sale relates to property for which contracts have been exchanged prior to 31 December 2013 but the sale is expected to close during 2014. The consideration for the sale of investment property will be cash. Gains or losses on all investment property, including those held for sale are recorded in Investment return in the consolidated income statement. Investment property held for sale is included in the Group's UK and Europe reportable segment.

26.  Assets held for sale continued

Amounts seeded into funds classified as held for sale relate to seed capital provided to newly established funds which the Group is actively seeking to divest from and it is highly probable that the capital provided will be returned within 12 months. These are included in the Group's Standard Life Investments reportable segment. The underlying assets of seeded funds consist primarily of equity securities and interests in pooled investment funds. There are no significant liabilities in seeded funds.

27.  Cash and cash equivalents

		2013	2012
		£m	£m
Cash at bank and in hand		687	631
Money at call and short notice		857	882
Demand, term deposits and debt instruments with less than three months to maturity from acquisition		7,560	8,429
Cash and cash equivalents		9,104	9,942

		2013	2012
	Notes	£m	£m
Cash and cash equivalents		9,104	9,942
Bank overdrafts	35	(69)	(44)
Total cash and cash equivalents for consolidated statement of cash flows		9,035	9,898

Cash in hand is non-interest bearing. Cash at bank, money at call and short notice and deposits are subject to variable interest rates.

28.  Share capital

The movement in the issued ordinary share capital of the Company during the year was:

	2013	2013	2012	2012
Issued shares of 10p each fully paid	Number	£m	Number	£m
At 1 January	2,357,978,652	236	2,353,665,822	235
Shares issued in respect of share incentive plans	283,126	-	445,155	-
Shares issued in respect of share options	18,354,952	2	3,867,675	1
At 31 December	2,376,616,730	238	2,357,978,652	236

The Group operates share incentive plans, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any one year is £1,500. The Group offers to match the first £25 of shares bought each month. During the year ended 31 December 2013, the Company allotted 283,126 (2012: 445,155) ordinary shares to Group employees under such share incentive plans.

The Group also operates long-term incentive plans (LTIPs) for executives and senior management and a Sharesave (Save-as-you-earn) scheme for all eligible employees. During the year ended 31 December 2013, 18,169,290 (2012: 3,832,753) and 185,662 (2012: 34,922) ordinary shares were issued in relation to LTIP and Sharesave schemes respectively.

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and the same rights to receive dividends and other distributions declared or paid by the Company.

29.  Shares held by trusts

The Employee Shares Trust (EST) purchases and holds shares in the Company for delivery to employees under various employee share schemes. Shares purchased by the EST are presented as a deduction from equity in the consolidated statement of financial position. Share-based liabilities to employees may also be settled by the issue of new shares.

Shares held by trusts include shares held by the Unclaimed Asset Trust (UAT). The shares held by the UAT are those not yet claimed by the eligible members of The Standard Life Assurance Company (SLAC) following its demutualisation on 10 July 2006.

Any corresponding obligation to deliver a fixed number of the Company's equity instruments to employees, or eligible members of SLAC, is offset within the shares held by trusts reserve.

The number of shares held by trusts at 31 December 2013 which were not offset by a corresponding obligation to deliver a fixed number of equity instruments, was 3,112,350 (2012: 2,527,223).

 

END

 

 

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