Final Results - Part 4 of 8

RNS Number : 4148F

Standard Life plc

20 February 2015

Standard Life plc

Full Year Results 2014

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, Standard Life plc's Group financial statements (the 'financial statements'):

· Give a true and fair view of the state of the Group's affairs as at 31 December 2014 and of its profit and cash flows for the year then ended

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

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

What we have audited

Standard Life plc's Group financial statements comprise:

· The Consolidated statement of financial position as at 31 December 2014

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

· The Consolidated statement of cash flows for the year then ended

· The Consolidated statement of changes in equity for the year then ended

· The Group accounting policies

· The notes to the Group financial statements, which include other explanatory information.

We have not audited the Proforma reconciliation of consolidated operating profit for the year ended 31 December 2014 set out on page 112 which was prepared by Standard Life plc.

Certain required disclosures have been presented elsewhere in the Annual report and accounts 2014 (the 'Annual report'), rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

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

Our audit approach

Overview

Materiality

· Overall Group materiality was set at £37 million which represents 5% of operating profit before tax.

Scoping

· We identified 9 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 focused on the material reporting units within the UK and Europe, Standard Life Investments and Canada.

· In addition, specific audit procedures on certain account balances and transactions were performed at a further 13 reporting units within the Group across all segments. Additional procedures were also performed at the Group level over the group consolidation and other reporting units in order to obtain further audit evidence.

· Overall we concluded that this gave us the evidence we needed for our opinion on the financial statements as a whole.

Areas of focus

· Our risk assessment identified the following as areas of focus specific to our audit of the financial statements:

· The valuation of life insurance contract liabilities, focussing particularly on annuitant mortality assumptions

· The valuation of identifiable intangible assets arising from business combinations, focussing on intangible assets arising as a result of the acquisition of Ignis Asset Management Limited

· The valuation of complex financial investments in the financial statements, particularly focussing on investments where the valuations involved judgements or specialist valuation processes

· The presentation and disclosure of the disposal of the Canadian business announced in 2014.

The scope of our audit and our areas of focus

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ('ISAs (UK & Ireland)').

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as 'areas of focus' in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.

Area of focus		How our audit addressed the area of focus
Valuation of life insurance contract liabilities Refer to page 56 (Audit Committee Report), page120 (Critical accounting estimates and judgement), pages 129 to 131 (Accounting policies) and page 178 to 184 (notes).
The Directors' valuation of the life insurance contract liabilities involves complex judgements about future events, both internal and external to the business, for which small changes in assumptions can result in material impacts to the valuation of these liabilities. As part of our consideration of the assumptions used to value these liabilities we gave specific focus to the annuitant mortality assumptions given the sensitivity of the Group's profit to changes in these assumptions and the level of judgement involved in setting the assumptions. Annuitant mortality assumptions are those related to the life expectancy of annuitants and the rate at which life expectancy is likely to improve. These assumptions are driven by past experience and assumptions about future changes which are based on the Group's experience together with industry standard tables.		In evaluating the valuation of life insurance contract liabilities, our audit work involved the following: · We obtained audit evidence in respect of the key controls over the key actuarial models, data collection and analysis and the assumption setting processes used by management, evaluated their design and implementation and tested their operating effectiveness · To assist in our evaluation of the methodology applied in the models, we focused on significant changes made to those models by obtaining documentation of the key changes from management and assessing these against relevant financial and regulatory reporting requirements and industry standards · We assessed the key changes in the methodology and the assumptions used against regulatory and financial reporting requirements and industry standards, in particular for the expected future improvements in annuitant mortality. Having ascertained the extent of a change in the methodology and/or the key assumptions that either individually or collectively could result in a material misstatement, we considered the likelihood of such a change in those key assumptions arising. · Standard Life plc's assumptions in the UK were also included in PwC's independent benchmarking survey, which included 25 of the largest life insurers in the UK. This allowed us to compare the assumptions used relative to the Group's industry peers. In addition to the above, our audit work in respect of annuitant mortality assumptions included: · Testing of the process by which the assumptions were set, including evaluating the controls in place over the assumption setting process · Considering the experience investigations carried out by management on annuity contracts which compared actual experience in the last five years to the assumptions used · Evaluating the choice of the industry standard Continuous Mortality Investigation ('CMI') model and the parameters used. We determined, based on our audit work, that the assumptions used in the models were appropriate and the methodologies and models used are in line with the prior year and industry accepted practice whilst reflecting the nature of the Group's life insurance contracts.
Area of focus	How our audit addressed the area of focus
Valuation of identifiable intangible asset arising from business combinations Refer to page 56 (Audit Committee Report), page 120 (Critical accounting estimates and judgement), page 122 (Accounting policies) and page 136 (notes).
The acquisition of Ignis Asset Management Limited during 2014 required the Directors to make significant judgements with respect to the identification and valuation of an intangible asset acquired, being the value of customer contracts acquired. The value of the intangible asset was determined as at the date of the acquisition in accordance with the requirements of IFRS 3 'Business combinations'. The assumptions which had the biggest impact on that valuation, and which also required the Directors to make significant judgements, and were therefore the focus of our work, were those related to the expected growth from future fund flows and performance, profit margins and discount factors. We also focused on management's update to the valuation at the year end to reflect movements in the assumptions as a result of post-acquisition events such as fund flows, discount rate and operating margins. This resulted in an impairment charge of £43 million.	Our approach to testing the valuation of the intangible asset as at the date of acquisition included: · Evaluating the methodology applied to the valuation of customer contracts and assessing whether the assumptions and inputs used in the model reflected the facts and circumstances as at the date of acquisition · Challenging the assumptions used against our own independent expectations, which were based on our industry knowledge and experience, and checking the consistency of forecast data included in the model with the Group's own forecasts and business plans approved by the Board. We tested the value of the intangible asset at year end to assess whether movements in the assumptions were as a results of post-acquisition events, and had been reflected in the value of the intangible asset by: · Agreeing that management's impairment assessment reflected post acquisition events by checking that changes made to the assumptions were supported by appropriate evidence · Evaluating and challenging changes in the forecast fund flows and obtaining evidence to support the historic accuracy of management's forecasting process · Challenging changes in the discount rate and obtaining evidence to support the change in risk profile of the forecasts which were being reflected in the change in the discount rate · Considering the forecast operating margin against our own expectation of a reasonable range based on our experience across the industry. We considered that, based on our testing: · The assumptions used in the valuation of customer contracts were appropriate to the circumstances and plans of the Group at the acquisition date and within a reasonable range · The impairment charge recognised in the Consolidated income statement for the year appropriately reflected post acquisition changes.
Valuation of complex financial investments Refer to page 56 (Audit Committee Report), page 120 (Critical accounting estimates and judgement), pages 125-128 (Accounting policies) and pages 163 to 164 and 168 to 170 (notes)

We focused on this area as the valuation of certain complex investments, specifically in respect of derivatives and real estate investments, remains a complex area which requires the use of judgement and/or the involvement of valuation specialists by the Directors. Due to the nature of these investments, there are a number of key judgements because there is no active market price available. These key judgements include: · The selection of an appropriate standard market methodology and model for valuing derivatives · The selection of future rental income and discount rate assumptions for valuing real estate investments.	In obtaining sufficient audit evidence over the valuation of derivatives and real estate investments, our testing included: · Understanding and then testing the key controls over the asset valuation processes and techniques used in respect of the valuation of derivatives and real estate investments · Understanding and assessing the models and inputs used for a sample of derivative investments across the investment portfolio for which there is no active market price available. This included recalculating the sample of valuations using independent models and assessing data inputs against recognised independent market data providers. · Evaluating the methodology, inputs and assumptions used in a sample of real estate investment valuations by comparing the yields and market rents used by third party valuers against published market benchmarks in order to identify any valuations where the main driver or value movement fell outside our expected range. We also met with the third party valuers to understand and challenge the valuation approach and inputs which were in accordance with our expectations based on our own industry experience. Based on our audit work we found that the judgements used were consistent with prior years and industry practice and that the inputs and assumptions used were within ranges which we considered to be acceptable.
Area of focus		How our audit addressed the area of focus
Presentation and disclosure of business disposals Refer to page 56 (Audit Committee Report), page 132 (Accounting policies) and pages 171 to 172 (notes)
We focused on this area following the announcement of the sale of the Canadian business on 4 September 2014, and which completed on 30 January 2015. As a result of the announcement, IFRS 5 'Non-current assets held for sale and discontinued operations' required the Canadian business to be treated as a discontinued operation in the financial statements. This resulted in a number of presentational changes and disclosures in the financial statements. This could have resulted in the requirements of IFRS 5 not being fully met. In addition, as a result of the Canadian business being treated as a discontinued operation, the comparative numbers and associated disclosures for the year ended 31 December 2013 were required to be restated.		Our work to audit the presentation and disclosure of the disposal of the Canadian business included: · Obtaining and reading the Share Purchase Agreement, Business Transfer Agreement, Global Collaboration Agreement and Indemnity Agreement and associated correspondence in respect of the disposal of the Canadian business to assess whether the classification as 'Held for Sale' was appropriate · Assessing the valuation of assets and liabilities in the Canadian business to consider whether any revaluation or impairment was required by considering the headroom between the fair value less costs to sell and the carrying value of assets and liabilities in the Group · Assessing the completeness and accuracy of the disclosure of discontinued operations against the disclosure requirements of IFRS 5 · Testing the Group's restatement of the comparative numbers and associated disclosures to assess whether business associated with the sale had been appropriately recognised as discontinued. Based on the testing undertaken, the presentation and disclosures in respect of the disposal of the Canadian business as a discontinued operation are consistent with the requirements of IFRS 5.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account our assessment of the risk of material misstatement for each individual account balance and the financial statements as a whole, the geographic structure of the Group, the accounting processes and controls and the industry in which the Group operates.

The Group is now reported in four segments being UK and Europe, Standard Life Investments, Asia and Emerging Markets and Other, and the Canadian operations which are treated as discontinued. 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 either within PricewaterhouseCoopers LLP or from other PricewaterhouseCoopers network firms operating under our instruction.

We identified nine 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 focused on the material reporting units within the UK and Europe, Standard Life Investments and Canada. In addition, specific audit procedures on certain account balances and transactions were performed at a further 13 reporting units within the Group across all segments. Additional procedures were also performed at the Group-level over the Group consolidation and other reporting units in order to obtain further audit evidence. Overall we concluded that this gave us the evidence we needed for our opinion on the financial statements as a whole.

Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work performed 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 financial statements as a whole. As a result the Group engagement team visited the Canadian operations as the largest overseas component of the audit. This visit involved discussing the audit approach and any issues arising from their work, as well as meeting local management. In addition, the Group engagement team attended internal clearance meetings with component teams either in person or by call.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall Group materiality	£37million (2013: £40 million).
How we determined it	5% of operating profit before tax.
Rationale for benchmark applied	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 as it is the key performance measure reported by management and used by others to reflect the underlying performance of the business in both its internal and external reporting to stakeholders, including shareholders and analysts.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £2 million (2013: £2 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern

Under the Listing Rules we are required to review the directors' statement, set out on page 47, in relation to going concern. We have nothing to report having performed our review.

As noted in the directors' statement, set out on page 47, the Directors have concluded that it is appropriate to prepare the 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.

Other required reporting

Consistency of other information

Companies Act 2006 opinions

In our opinion:

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

· The information given in the Corporate Governance Statement set out on pages 48 to 70 with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements.

ISAs (UK & Ireland) reporting

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 financial statements · apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit · otherwise misleading.	We have no exceptions to report arising from this responsibility.
· The statement given by the Directors on page 47, in accordance with provision C.1.1 of the UK Corporate Governance Code ('the Code'), 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 is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit.	We have no exceptions to report arising from this responsibility.
· The section of the Annual report on pages 56 to 58, as required by provision C.3.8 of the Code, describing the work of the Group Audit Committee does not appropriately address matters communicated by us to the Group Audit Committee.	We have no exceptions to report arising from this responsibility.

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 are not 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 ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.

Responsibilities for the 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 47, the Directors are responsible for the preparation of the 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 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.

What an audit of financial statements involves

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.

We primarily focus our work in these areas by assessing the Directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited 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.

Other matter

We have reported separately on the Company financial statements of Standard Life plc for the year ended 31 December 2014 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

20 February 2015

(a) The maintenance and integrity of the Standard Life plc 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 2014

		2014	2013 restated¹
	Notes	£m	£m
Revenue
Gross earned premium		2,404	2,649
Premium ceded to reinsurers		(61)	(47)
Net earned premium		2,343	2,602
Investment return	4	13,179	13,334
Fee and commission income	5	985	816
Other income		81	64
Total revenue		16,588	16,816

Expenses
Claims and benefits paid		4,389	5,137
Claim recoveries from reinsurers		(533)	(544)
Net insurance benefits and claims		3,856	4,593
Change in reinsurance assets and liabilities	34	(60)	741
Change in insurance and participating contract liabilities	34	3,834	(1,495)
Change in unallocated divisible surplus	34	(71)	(40)
Change in non-participating investment contract liabilities	34	5,362	10,047
Expenses under arrangements with reinsurers	6	639	61
Administrative expenses
Restructuring and corporate transaction expenses	10	106	73
Other administrative expenses	7	1,430	1,289
Total administrative expenses		1,536	1,362
Change in liability for third party interest in consolidated funds	33	758	829
Finance costs		98	98
Total expenses		15,952	16,196

Share of profit from associates and joint ventures		36	25

Profit before tax		672	645

Tax expense attributable to policyholders' returns	11	250	222

Profit before tax expense attributable to equity holders' profits		422	423

Total tax expense	11	292	280
Less: Tax attributable to policyholders' returns		(250)	(222)
Tax expense attributable to equity holders' profits	11	42	58
Profit for the year from continuing operations		380	365
Profit for the year from discontinued operations	12	127	131
Profit for the year		507	496

Attributable to:
Equity holders of Standard Life plc		503	466
Non-controlling interests	33	4	30
		507	496
Earnings per share from continuing operations
Basic (pence per share)	13	15.8	14.2
Diluted (pence per share)	13	15.7	14.1

Earnings per share
Basic (pence per share)	13	21.1	19.7
Diluted (pence per share)	13	21.0	19.6

¹ Comparatives for the year ended 31 December 2013 have been restated to reflect retrospective application of changes to accounting policies as a result of new IFRSs adopted in the period and the classification in the current year of the Group's Canadian business as discontinued operations. Refer to Group accounting policies - (a) Basis of preparation and Note 12 - Discontinued operations.

The Notes on pages 135 to 237 are an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2014

		2014	2013 restated¹
	Notes	£m	£m
Profit for the year		507	496
Less: Profit from discontinued operations	12	(127)	(131)
Profit from continuing operations		380	365
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension plans	38	292	70
Revaluation of owner occupied property	20	5	51
Equity movements transferred to unallocated divisible surplus	32	(4)	(48)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	11	-	(2)
Total items that will not be reclassified subsequently to profit or loss		293	71

Items that may be reclassified subsequently to profit or loss:
Fair value gains on cash flow hedges		1	-
Net investment hedge		(1)	1
Fair value gains/(losses) on available-for-sale financial assets		27	(18)
Exchange differences on translating foreign operations		(13)	(13)
Equity movements transferred to unallocated divisible surplus	32	6	4
Share of other comprehensive income of joint ventures	31	4	(3)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	11	(6)	3
Total items that may be reclassified subsequently to profit or loss		18	(26)
Other comprehensive income for the year from continuing operations		311	45
Total comprehensive income for the year from continuing operations		691	410

Profit from discontinued operations	12	127	131
Other comprehensive income from discontinued operations	12	(18)	(18)
Total comprehensive income for the year from discontinued operations		109	113
Total comprehensive income for the year		800	523

Attributable to:
Equity holders of Standard Life plc
From continuing operations		687	380
From discontinued operations		109	113
Non-controlling interests
From continuing operations		4	30
		800	523

¹ Comparatives for the year ended 31 December 2013 have been restated to reflect the classification in the current year of the Group's Canadian business as discontinued operations. Refer to Note 12 - Discontinued operations.

The Notes on pages 135 to 237 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 2014

		2014			2013
		Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Notes	£m	£m	£m	£m	£m	£m
Operating profit before tax¹
Standard Life Investments		257	4	261	197	-	197
UK and Europe		390	-	390	375	-	375
Canada		-	132	132	-	251	251
Asia and Emerging Markets²		19	(5)	14	-	(6)	(6)
Other		(62)	-	(62)	(66)	-	(66)
Operating profit before tax	2	604	131	735	506	245	751
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes		15	73	88	(22)	(70)	(92)
Restructuring and corporate transaction expenses		(109)	(31)	(140)	(71)	(2)	(73)
Impairment of intangible assets		(43)	(4)	(47)	-	-	-
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters		-	-	-	-	(15)	(15)
Other		(22)	(3)	(25)	(7)	-	(7)
Non-operating (loss)/profit before tax	2	(159)	35	(124)	(100)	(87)	(187)
Dubai included in discontinued operations segment²	2	(22)	22	-	(6)	6	-
Share of associates' and joint ventures' tax expense	2	(5)	-	(5)	(7)	(1)	(8)
Profit attributable to non-controlling interests	2	4	-	4	30	-	30
Profit before tax expense attributable to equity holders' profits		422	188	610	423	163	586
Tax (expense)/credit attributable to
Operating profit	2	(82)	(42)	(124)	(77)	(64)	(141)
Non-operating items	2	40	(19)	21	19	32	51
Dubai included in discontinued operations segment²	2	-	-	-	-	-	-
Total tax expense attributable to equity holders' profits		(42)	(61)	(103)	(58)	(32)	(90)
Profit for the year		380	127	507	365	131	496

¹The 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.

² Dubai business, the closure of which was announced in November 2014, is included as discontinued operations for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the pro forma reconciliation above includes the reclassification of Dubai results between discontinued and continuing operations. Comparatives have been restated.

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 135 to 237 are an integral part of these consolidated financial statements.

Consolidated statement of financial position

As at 31 December 2014

		2014	2013 restated¹
	Notes	£m	£m
Assets
Intangible assets	16	565	300
Deferred acquisition costs	17	771	905
Investments in associates and joint ventures	18	4,508	1,784
Investment property	19	9,041	8,606
Property, plant and equipment	20	186	219
Pension and other post-retirement benefit assets	38	760	432
Deferred tax assets	21	33	121
Reinsurance assets	34	6,036	6,173
Loans	22	400	2,924
Derivative financial assets	22	4,021	1,991
Equity securities and interests in pooled investment funds	22	71,327	84,654
Debt securities	22	64,441	69,209
Receivables and other financial assets	22	1,248	1,107
Other assets	26	307	272
Assets held for sale	27	29,338	121
Cash and cash equivalents	22	10,617	10,322
Total assets		203,599	189,140
Equity
Share capital	29	239	238
Shares held by trusts	30	1	(6)
Share premium reserve	29	1,115	1,110
Retained earnings	31	1,816	1,391
Other reserves	32	1,501	1,494
Equity attributable to equity holders of Standard Life plc		4,672	4,227
Non-controlling interests	33	278	333
Total equity		4,950	4,560
Liabilities
Non-participating insurance contract liabilities	34	21,841	28,312
Non-participating investment contract liabilities	34	88,207	97,659
Participating contract liabilities	34	31,276	30,447
Reinsurance liabilities	34	-	316
Deposits received from reinsurers	35	5,642	5,589
Third party interest in consolidated funds	33	15,805	16,058
Borrowings	35	44	95
Subordinated liabilities	35	1,612	1,861
Pension and other post-retirement benefit provisions	38	44	104
Deferred income	39	276	316
Deferred tax liabilities	21	214	178
Current tax liabilities	21	172	55
Derivative financial liabilities	24	1,693	932
Other financial liabilities	35	3,690	2,510
Other liabilities	41	100	148
Liabilities of operations held for sale	27	28,033	-
Total liabilities		198,649	184,580
Total equity and liabilities		203,599	189,140

The Notes on pages 135 to 237 are an integral part of these consolidated financial statements.

The consolidated financial statements on pages 110 to 237 were approved by the Board of Directors on 20 February 2015 and signed on its behalf by the following Directors:

Sir Gerry Grimstone, Chairman Luke Savage, Chief Financial Officer

Consolidated statement of changes in equity

For the year ended 31 December 2014

		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
2014	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		238	(6)	1,110	1,391	1,494	4,227	333	4,560
Profit for the year from continuing operations		-	-	-	376	-	376	4	380
Profit for the year from discontinued operations		-	-	-	127	-	127	-	127
Other comprehensive income for the year from continuing operations		-	-	-	296	15	311	-	311
Other comprehensive income/(expense) for the year from discontinued operations		-	-	-	(15)	(3)	(18)	-	(18)
Total comprehensive income for the year		-	-	-	784	12	796	4	800
Distributions to equity holders	15	-	-	-	(386)	-	(386)	-	(386)
Issue of share capital	29	1	-	5	-	-	6	-	6
Reserves credit for employee share-based payment schemes	32	-	-	-	-	27	27	-	27
Transfer to retained earnings for vested employee share-based payment schemes	31, 32	-	-	-	27	(27)	-	-	-
Transfer to retained earnings on sale of owner occupied property	31, 32	-	-	-	4	(4)	-	-	-
Shares acquired by employee trusts		-	(3)	-	-	-	(3)	-	(3)
Shares distributed by employee trusts	31	-	10	-	(10)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(59)	(59)
Aggregate tax effect of items recognised directly in equity	11	-	-	-	6	(1)	5	-	5
31 December		239	1	1,115	1,816	1,501	4,672	278	4,950

		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 from continuing operations		-	-	-	335	-	335	30	365
Profit for the year from discontinued operations		-	-	-	131	-	131	-	131
Other comprehensive income for the year from continuing operations		-	-	-	67	(22)	45	-	45
Other comprehensive income for the year from discontinued operations		-	-	-	23	(41)	(18)	-	(18)
Total comprehensive income for the year		-	-	-	556	(63)	493	30	523
Distributions to equity holders	15	-	-	-	(636)	(20)	(656)	-	(656)
Issue of share capital	29	2	-	-	-	-	2	-	2
Reserves credit for employee share-based payment schemes	32	-	-	-	-	32	32	-	32
Transfer to retained earnings for vested employee share-based payment schemes	31, 32	-	-	-	33	(33)	-	-	-
Transfer to retained earnings of sale of owner occupied property		-	-	-	-	-	-	-	-
Shares acquired by employee trusts		-	(11)	-	-	-	(11) )	-	(11)
Shares distributed by employee trusts	31	-	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

The Notes on pages 135 to 237 are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

For the year ended 31 December 2014

		2014	2013 restated¹
	Notes	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations		672	645
Profit before tax from discontinued operations	12	188	163
		860	808
Change in operating assets	45	(13,455)	(17,523)
Change in operating liabilities	45	11,700	13,867
Adjustment for non-cash movements in investment income		(242)	52
Change in unallocated divisible surplus		(71)	(40)
Non-cash items relating to investing and financing activities	45	189	134
Taxation paid		(242)	(197)
Net cash flows from operating activities		(1,261)	(2,899)

Cash flows from investing activities
Purchase of property, plant and equipment		(21)	(17)
Proceeds from sale of property, plant and equipment		13	-
Acquisition of subsidiaries and unincorporated businesses net of cash acquired	1	(297)	(57)
Acquisition of investments in associates and joint ventures		(14)	(19)
Purchase of intangible assets not acquired through business combinations		(54)	(47)
Net cash flows from investing activities		(373)	(140)
Cash flows from financing activities
Repayment of other borrowings		(4)	(37)
Capital flows from third party interest in consolidated funds and non-controlling interests		3,434	4,332
Distributions paid to third party interest in consolidated funds and non-controlling interests		(172)	(100)
Shares acquired by trusts		(1)	(11)
Proceeds from exercise of share options		5	-
Interest paid		(112)	(112)
Ordinary dividends paid	15	(386)	(656)
Net cash flows from financing activities		2,764	3,416
Net increase in cash and cash equivalents		1,130	377
Cash and cash equivalents at the beginning of the year	28	10,253	9,889
Effects of exchange rate changes on cash and cash equivalents		(140)	(13)
Cash and cash equivalents at the end of the year ²	28	11,243	10,253
Supplemental disclosures on cash flows from operating activities
Interest paid		13	11
Interest received		2,317	2,626
Dividends received		2,364	2,134
Rental income received on investment property		597	591

² Cash and cash equivalents at the end of the year include cash and cash equivalents in respect of operations held for sale. Refer to Note 28 - Cash and cash equivalents for reconciliation to consolidated statement of financial position.

The Notes on pages 135 to 237 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 International Financial Reporting Interpretations Committee (IFRIC), 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 property, owner occupied property, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss (FVTPL).

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), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2014 unless otherwise stated. The Group's accounting policies have been updated to reflect these.

IFRS 10 Consolidated Financial Statements and amendments to IAS 27 Separate 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 definition. 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.

The standard has been adopted retrospectively subject to the transition guidance which permits retrospective application only in circumstances when the outcome of the control assessment for individual entities at the date of initial application differs from the outcome under the previous accounting policy. The date of initial application for the Group's financial statements is 1 January 2014.

The application of IFRS 10 has resulted in the consolidation of entities which were previously out of scope of consolidation. The impact of IFRS 10 on the consolidated income statement and the consolidated statement of financial position for the comparative period is shown in the tables in (a)(iii).

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. The adoption of IFRS 11 has resulted in six entities which were previously classified as jointly controlled entities under IAS 31 being classified as joint operations. As a result the Group's share of these entities' assets, liabilities, revenues and expenses are now recognised in accordance with applicable IFRS. The standard has been applied retrospectively and the impact on the consolidated income statement and the consolidated statement of financial position for the comparative period is shown in the tables in (a)(iii).

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.

The required disclosures are provided in the Group accounting policies, Note 1 - Group structure, Note 18 - Investments in associates and joint ventures, Note 33 - Non-controlling interests and third party interest in consolidated funds and Note 43 - Structured entities.

IAS 28 Investments in Associates and Joint Ventures (2011)

IAS 28 (2011) is revised to include joint ventures as well as associates. Additionally, the scope exception within IAS 28 for investments in associates held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment linked insurance funds, has been removed and as a result the scope of the standard has been widened to include all investments in any entity over which the Group has significant influence. The standard has been revised to allow an entity to elect to measure an investment in associate at fair value through profit or loss (FVTPL) where that investment is held by, or indirectly through, venture capital organisations, or mutual funds, unit trusts and similar entities, including investment linked insurance funds.

The impact of the adoption of IAS 28 (2011) is that a number of equity investments in entities over which the Group has significant influence which were previously out of scope of IAS 28 have now been brought into scope resulting in the reclassification of these investments as investments in associates. Where the FVTPL election is available the Group has continued to measure these investments at FVTPL. All other investments in associates are measured using the equity method. The standard has been applied retrospectively and the impact on the consolidated income statement and the consolidated statement of financial position for the comparative period is shown in the tables in (a)(iii).

Other

Additionally the Group has adopted the following amendments to existing standards which are effective by EU endorsement from 1 January 2014 and management considers the implementation of these amendments has had no significant impact on the Group's financial statements:

· Amendments to IAS 39 Financial Instruments: Recognition and Measurement

· Amendments to IAS 32 Financial Instruments: Presentation

· Amendments to IAS 36 Impairment of Assets.

(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 2015. The Group has not early adopted the standards, amendments and interpretations described below:

IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2017)

IFRS 15 will replace IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements on the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers andSIC-31 Revenue Barter Transactions Involving Advertising Services. IFRS 15 provides a new revenue recognition model for contracts with customers. The model provides a five step process for determining recognition and measurement of revenue, and considers two approaches to recognise revenue: at a point in time or over time. Extensive new disclosure requirements and estimate and judgment thresholds have been introduced. The adoption of IFRS 15 is expected to have a significant impact on the measurement and presentation of revenue and related balances in the consolidated financial statements of the Group. The standard has not yet been endorsed by the EU.

IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)

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 other comprehensive income or fair value through profit or loss (FVTPL) depending on the business model it is held within or whether the option to adopt FVTPL has been applied. IFRS 9 also introduces a new impairment model, an expected credit loss model which will replace the current incurred loss model in IAS 39. An impairment loss may now be recognised prior to a loss event occurring. 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.

Additionally IFRS 9 removes 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.

As well as presentation and measurement changes, IFRS 9 also introduces additional disclosure requirements. The standard 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.

Group accounting policies continued

(a) Basis of preparation 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

Other

In addition to IFRS 9 and IFRS 15, the following interpretations and amendments to existing standards have not been early adopted and are not expected to have a significant impact on the financial statements of the Group:

Standard, amendment or interpretation	Effective Date¹	Detail	EU endorsement status
IFRIC 21 Levies	17 June 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.	Endorsed
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions	1 July 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.	Endorsed
Annual improvements 2010-2012 cycle and Annual improvements 2011-2013 cycle	1 July 2014	These annual improvement cycles make 11 minor amendments to existing standards.	Endorsed
Amendment to IAS 16 Property, Plant & Equipment and IAS 38 Intangible Assets: Depreciation and Amortisation	1 January 2016	The amendment clarifies the appropriate application of revenue based depreciation or amortisation. The amendment clarifies that revenue based depreciation is not appropriate for property, plant and equipment and, in most circumstances, revenue based amortisation is not appropriate for intangible assets however this is rebuttable.	Not yet endorsed
Amendments to IAS 27 Separate Financial Statements: Equity Method in Separate Financial Statements	1 January 2016	The amendments now permit the application of the equity method of accounting in separate financial statements for associates and joint ventures as well as subsidiaries.	Not yet endorsed
Amendment to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture	1 January 2016	The amendment addresses an inconsistency between IFRS 10 and IAS 28 and clarifies the treatment of a sale or contribution of assets between investors and associates or joint ventures.	Not yet endorsed
Amendment to IFRS 11 Joint arrangements: Accounting for Acquisitions of Interests in Joint Operations	1 January 2016	The amendment to IFRS 11 requires the application of business combination accounting for the acquisition of the interest in a joint operation which constitutes a business.	Not yet endorsed
Annual improvements 2012-2014 cycle	1 January 2016	This annual improvements cycle makes five minor amendments to existing standards.	Not yet endorsed
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates and Joint Ventures: Applying the Consolidation Exception	1 January 2016	The amendments allow the fair value measurement of subsidiaries of associates or joint ventures to be retained in applying the equity method of accounting for interests in associates or joint ventures that are investment entities. Additionally the amendments clarify the circumstances in which the exemption for investment entities from preparing consolidated financial statements apply and that only a subsidiary which is not an investment entity and provides support services to an investment entity is consolidated.	Not yet endorsed
Amendments to IAS 1 Presentation of Financial Instruments: Disclosure Initiative	1 January 2016	The amendments clarify guidance on presentation in relation to materiality, disaggregation and subtotals, notes, disclosure of accounting policies and other comprehensive income arising from investments accounted for under the equity method.	Not yet endorsed

¹ For annual periods beginning on or after.

(a)(iii) Impact of retrospective application of new standards, interpretations and amendments to published standards

The following tables show the impact of the accounting policy changes as a result of the adoption of the new consolidation standards, (IFRS 10, IFRS 11, and IAS 28 (2011)) on the consolidated income statement for the year ended 31 December 2013.

	As reported previously	Effect of IFRS 10	Effect of IFRS 11	Effect of IAS 28 (2011)	Restated	Less discontinued operations	Continuing operations
2013	£m	£m	£m	£m	£m	£m	£m
Total revenue	20,545	110	3	-	20,658	(3,842)	16,816
Effect of restatement analysed as
Investment return	15,449	141	3	-	15,593	(2,259)	13,334
Fee and commission income	977	(31)	-	-	946	(130)	816

Total expenses	19,769	103	3	-	19,875	(3,679)	16,196
Effect of restatement analysed as
Administrative expenses	1,825	8	3	-	1,836	(474)	1,362
Change in liability for third party interest in consolidated funds	865	95	-	-	960	(131)	829

Share of profit from associates and joint ventures	25	-	-	-	25	-	25
Profit before tax	801	7	-	-	808	(163)	645

Total tax expense	305	7	-	-	312	(32)	280
Effect of restatement analysed as
Tax expense attributable to policyholders' returns	215	7	-	-	222	-	222

Profit for the year	496	-	-	-	496	(131)	365
Other comprehensive income for the year	27	-	-	-	27	18	45
Total comprehensive income for the year	523	-	-	-	523	(113)	410
Attributable to:
Equity holders of Standard Life plc	493	-	-	-	493	(113)	380
Non-controlling interests	30	-	-	-	30	-	30

The following tables show the impact of the accounting policy changes as a result of the adoption of the new consolidation standards (IFRS 10; IFRS 11, and IAS 28 (2011)) on the consolidated statement of financial position for the year ended 31 December 2013.

	As reported previously	Effect of IFRS 10	Effect of IFRS 11	Effect of IAS 28 (2011)	Restated
At 31 December 2013	£m	£m	£m	£m	£m
Total assets	184,605	4,528	7	-	189,140
Effect of restatement analysed as
Investment in associates and joint ventures	328	-	(60)	1,516	1,784
Investment property	8,545	-	61	-	8,606
Derivative financial assets	1,767	224	-	-	1,991
Equity securities and interests in pooled investment funds	90,316	(4,146)	-	(1,516)	84,654
Debt securities	62,039	7,170	-	-	69,209
Receivables and other financial assets	1,042	65	-	-	1,107
Other assets	269	2	1	-	272
Cash and cash equivalents	9,104	1,213	5	-	10,322

Total equity	4,560	-	-	-	4,560

Total liabilities	180,045	4,528	7	-	184,580
Effect of restatement analysed as
Third party interest in consolidated funds	11,803	4,255	-	-	16,058
Derivative financial liabilities	795	137	-	-	932
Other financial liabilities	2,367	136	7	-	2,510

Group accounting policies continued

(a) Basis of preparation continued

(a)(iii) Impact of retrospective application of new standards, interpretations and amendments to published standards continued

In addition to the above, the Group has restated comparative periods presented in the cash flow statement. The overall impact is a decrease in net cash flows from operating activities for the year ended 31 December 2013 of £612m, and an increase in net cash flows from financing activities for the year ended 31 December 2013 of £1,832m. There was no impact on cash flows from investing activities.

(a)(iv) 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 22
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 34
Deferred acquisition costs on insurance and investment contracts	Determination of the acquisition costs to be deferred on insurance and and investment contracts Determination of the amortisation pattern to be applied to deferred acquisition costs	(k) and Note 17
Financial instruments at fair value through profit or loss	Determination of the fair value of complex financial instruments	(q) and Note 44
Investment property and owner occupied property	Determination of the fair value of investment property and owner occupied property	(l), (m) and Notes 19, 20 and 44
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 38
Assets whose carrying value is subject to impairment testing	Determination of the recoverable amount	(i), (j), (k), (o), (p) and Notes 16, 17, 18, 20, 23 and 42
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 16
Consolidation assessment	Assessment of control	(b)(i) and Notes 1 and 43

(a)(v) Exchange rates

The income statements and cash flows, and statements of financial position of Group entities that have a different functional currency from the Group's presentation currency have been translated using the following principal exchange rates:

	2014	2014	2013	2013
	Income statement (average rate)	Statement of financial position (closing rate)	Income statement (average rate)	Statement of financial position (closing rate)
Euro	1.244	1.289	1.182	1.202
US Dollar	1.647	1.559	1.571	1.656
Canadian Dollar	1.818	1.806	1.620	1.760
Indian Rupee	100.735	98.425	92.106	102.449
Hong Kong Dollar	12.775	12.092	12.183	12.842

(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 (FVTPL).

(b)(i) Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group is considered to control an entity when it has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power. For operating entities this generally accompanies a shareholding of 50% or more in the entity. For investment vehicles, including structured entities, the control assessment also considers the removal rights of other investors and whether the Group acts as principal or agent in assessing the link between power and variable returns. In determining whether the Group acts as principal, and therefore controls the entity, the scope of the Group's decision-making authority and the magnitude of the variability associated with the returns are also taken into account. As a result, the Group often is considered to control investment vehicles in which its shareholding is less than 50%.

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 is considered to control an investment vehicle, such as an open-ended investment company, a unit trust or a limited partnership, and it is therefore consolidated, the interests of parties other than the Group are assessed to determine whether they should be classified as liabilities or as non-controlling interests. Those that are liabilities are separated into two components being an investment management services component and a financial liability. The financial liability component is recognised in the third party interest in consolidated funds line in the consolidated statement of financial position and any movements are recognised in the consolidated income statement. The financial liability is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets. The interests of parties other than the Group in all other types of entities are recorded as non-controlling interests.

(b)(ii) Associates and joint arrangements

Associates are entities over which the Group has significant influence but not control. Significant influence is the power to participate in the financial and operating policy decisions of the investee. The Group considers itself to have significant influence over entities where, through its role as investment manager, it has decision making power over the relevant activities of that entity. As a result the Group classifies all Group managed investment vehicles as associates even though it may hold less than 20% of the voting rights of the investment vehicle.

Where the Group has an investment in an associate, a portion of which is held indirectly through a mutual fund, unit trust or similar entity, including investment-linked insurance funds, that portion of the investment is measured at fair value through profit or loss (FVTPL) in accordance with IAS 39. All other investments in associates are accounted for using the equity method.

The Group also has investments in joint arrangements which are classified as joint operations when the Group has joint control of rights to the assets and obligations for the liabilities of the arrangement and classified as joint ventures when the Group has joint control of the rights to the net assets of the arrangements.

Joint operations are accounted for by recognising the Group's share of the assets, liabilities, revenues and expenses of the arrangement in accordance with applicable IFRSs. Joint ventures are accounted for using the equity method.

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.

The Group's investment in associates and joint ventures recognised in the consolidated statement of financial position includes goodwill, net of any impairment loss, identified on acquisition.

Where the Group's share of losses from an associate or joint venture accounted for using the equity method equals or exceeds its interest in the associate or joint venture, 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 accounted for using the equity method 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 accounted for using the equity method have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b)(iii) Structured entities

The Group has investments in a range of investment vehicles including open-ended investment companies (OEICs), unit trusts and limited partnerships. These vehicles are structured in such a way that voting or similar rights are not the dominant factor in deciding who controls the entity and as such are classified as structured entities. The Group's ownership interest in these vehicles can vary

Group accounting policies continued

(b) Basis of consolidation continued

(b)(iii) Structured entities continued

from day to day based on the Group and third party participation in them. Where Group companies are deemed to control such vehicles, they are consolidated. Where the Group has an investment but not control over these types of entities, the investment is classified as an investment in associate where the Group has significant influence, or as equity securities and pooled investment funds in the consolidated statement of financial position.

(c)(i) Business combinations

The Group uses the acquisition method to account for business combinations. At the acquisition date the assets acquired and liabilities assumed as part of the business combination 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 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 asset or 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 other income 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. 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 policy (h)(iii)).

The exchange rates used to translate financial statements of Group entities that have a different functional currency than the Group's presentation currency are shown in (a)(v) Exchange rates.

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 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.

(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).

(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 consolidated 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 units 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 policy (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.

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 after the demutualisation of SLAC. All other decreases are charged to the consolidated income statement for the period.

Group accounting policies continued

(m) Property, plant and equipment continued

Owner occupied property is depreciated on a straight-line basis over its estimated useful life, 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 its estimated useful life of between two and fifteen 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. Financial assets classified as loans include loans secured by mortgages and loans secured on policies.

Management determines the classification of loans at initial recognition. Certain loans 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 loans are classified as loans and receivables. Loans classified as at FVTPL are measured at fair value with changes in fair value recognised in the consolidated income statement.

Loans classified as loans and receivables are initially measured at fair value plus directly attributable transaction costs. Subsequently, they are measured at amortised cost, using the effective interest rate (EIR) method, less any impairment losses. Revenue from financial assets classified as loans is 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 ongoing 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 policy (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 rate 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.

(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 has been 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 in connection with the acquisition of an equity holding in another entity and the conditions for merger relief under section 612 of the Companies Act 2006 are met, which permits the difference between the issue value and nominal value of the shares issued to be transferred to a reserve other than the share premium account, such differences are transferred to the merger reserve. A component of the merger reserve attached to the acquisition of an entity is released to retained earnings on disposal, part disposal or impairment of the interest in that entity.

(t)(iii) Reserve arising on Group reconstruction

The reserve arising on Group reconstruction represents the difference between the fair value and book value of the assets and liabilities of the Group at the time when merger accounting principles are applied under accounting policy (c)(ii) on Group reconstructions. A component of the reserve arising on Group reconstruction is released to retained earnings on disposal of entities that were involved in the related Group reconstruction.

(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 Financial Reporting Standard 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 policies (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.

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.

Group accounting policies continued

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

(v)(i) Participating contract liabilities continued

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 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 IAS 12 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 contracts are separated into two components being an investment management services component and a financial liability. All fees and related administrative expenses are deemed to be associated with the investment management services component (refer to policies (g)(iv), (k)(iii) and (bb)). The financial liability component is designated at FVTPL as it is implicitly managed on a fair value basis as its value is directly linked to the market value of the underlying portfolio of assets.

(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.

(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 of operations and individual non-current assets which have been classified as held for sale are presented separately in the consolidated statement of financial position. Operations and individual non-current assets are classified as held for sale when their carrying amount will be recovered principally through a sale transaction.

An operation classified as held for sale is measured at the lower of its aggregate carrying amount and its aggregate fair value, less the estimated incremental costs that are directly attributable to the disposal (excluding finance costs and income tax expense). No depreciation or amortisation is charged on assets of an operation once it has been classified as held for sale. Any impairment charge arising is recognised firstly against assets of the operation other than financial assets, investment property, assets arising under insurance contracts, assets arising from employee benefits or deferred tax assets.

Individual non-current assets classified as held for sale are measured 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), other than financial assets and investment property which continues to be measured based on the accounting policies that applied before they were classified as held for sale. No depreciation or amortisation is charged on an asset once it has been classified as held for sale.

(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 48 - Employee share-based payments. 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 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. Group structure

(a) Composition

The following diagram is an extract of the Group structure at 31 December 2014 and gives an overview of the composition of the Group. Diagram removed for the purposes of this announcement. However it can be viewed in full in the PDF document.

The following are particulars of the Company's principal subsidiaries at 31 December 2014 which are unlisted entities except where indicated. Only the undertakings of the Company whose results or financial position, in the opinion of the Directors, principally affect the consolidated financial statements of the Group are listed below as permitted by Section 410(2) of the Companies Act 2006. A complete list of the Company's subsidiaries is available as an attachment to the Company's Annual Return.

Name of subsidiary	Country of incorporation or residence	% of interest held¹	Nature of business
Standard Life Assurance Limited	Scotland	100	Life assurance
Standard Life Investments (Holdings) Limited	Scotland	100	Holding company
Standard Life Investments Limited	Scotland	100	Investment management
Standard Life (Mauritius Holdings) 2006 Limited	Mauritius	100	Holding company
Standard Life Oversea Holdings Limited	Scotland	100	Holding company
Standard Life Employee Services Limited	Scotland	100	Support services
Standard Life Pension Funds Limited	Scotland	100	Life assurance
Standard Life Savings Limited	Scotland	100	Investment management
Standard Life European Private Equity Trust plc^2,3	Scotland	54	Investment trust
Standard Life International Limited	Ireland	100	Life assurance
The Standard Life Assurance Company of Canada⁴	Canada	100	Life assurance
Standard Life Mutual Funds Ltd⁴	Canada	100	Collective investment products
Standard Life Investments (Mutual Funds) Limited	Scotland	100	Collective investment products
Standard Life Investments (Corporate Funds) Limited	Scotland	100	Collective investment products
SLTM Limited	Scotland	100	Collective investment products
Standard Life Client Management Limited	Scotland	100	Direct sales
Standard Life Wealth Limited	Scotland	100	Investment management
Ignis Investment Services Limited	Scotland	100	Investment management
Standard Life (Asia) Limited	Hong Kong	100	Life assurance
Vebnet (Holdings) Limited	England	100	Holding company

¹All issued share capital of the Company's principal subsidiaries is classified as ordinary.

²Standard Life European Private Equity Trust plc is a listed entity over which the Group is considered to have control. Due to the nature of this entity it is not included in the structure diagram above.

³Indicates the entity has had a different reporting date to the Group but has been consolidated consistently at 31 December 2014.

⁴Indicates the entity was disposed of as part of the sale of Standard Life Financial Inc. and Standard Life Investments Inc. on 30 January 2015. Refer to Note 51 -Events after the reporting date.

1. Group structure continued

(a) Composition continued

The ability of subsidiaries to transfer cash or other assets within the Group for example through payment of cash dividends are restricted only by local laws and regulations, and solvency requirements. These are not considered significant restrictions on the Group's ability to access or use the assets and settle the liabilities of the Group.

The Group also has investments in Qualifying Limited Partnerships which are consolidated in these financial statements. For the Qualifying Limited Partnerships, North American Strategic Partners (Feeder) 2006 Limited Partnership and North American Strategic Partners (Feeder) 2008 Limited Partnership an exemption from filing annual accounts with Companies House has been taken in accordance with the Partnership Accounting Regulations (2008).

(b) Acquisitions

On 1 July 2014, Standard Life Investments (Holdings) Limited (SLIH), a wholly owned subsidiary of the Company acquired the entire share capital of Ignis Asset Management Limited (IAML). IAML is the holding company of the Ignis Asset Management group (Ignis) which provides asset management services to Phoenix Group, a closed life assurance fund consolidator, as well as to third party clients, including retail, wholesale and institutional investors in the UK and overseas.

The acquisition of Ignis complements Standard Life Investments' strong organic growth and strengthens its strategic positioning. It deepens its investment capabilities, broadens Standard Life Investments' third party client base and reinforces its foundation for building a business in the rapidly developing liability aware market.

Ignis is reported in the Group's Standard Life Investments reportable segment.

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

1 July 2014	Notes	£m
Purchase consideration
Cash		385
Contingent consideration liability		1
Contingent consideration asset		(20)
Total purchase consideration		366
Fair value of net assets acquired:
Customer-related intangible assets	16	208
Cash and cash equivalents		88
Other financial assets		76
Deferred tax assets	21	6
Other assets		13
Deferred tax liability	21	(40)
Trade payables		(37)
Accruals		(36)
Other liabilities		(17)
Goodwill	16	105

Customer-related intangible assets relate to the existing investment management agreements in place at the acquisition date between Ignis and Phoenix Group, as well as other retail and institutional clients. The deferred tax liability of £40m relates to the temporary difference arising from the recognition of the customer-related intangible assets and will be released as these intangible assets are amortised or impaired.

The goodwill is attributable mainly to the significant synergies expected to arise as a result of the acquisition as well as the value of the workforce of the acquired business. None of the goodwill recognised is expected to be deductible for income tax purposes.

A price adjustment mechanism was included in the terms of the sale and purchase agreement. This mechanism applies to withdrawals of certain Phoenix Group assets under management (AUM) acquired through the business combination. If AUM is withdrawn under certain circumstances, and outwith the expected run-off profile of the assets, then the seller will repay part of the purchase consideration to SLIH for a period of up to ten years from acquisition. This mechanism is considered a contingent consideration asset which was recognised at fair value at the acquisition date. The repayments are received quarterly in arrears and no payments have been received from the seller at 31 December 2014. The value of the contingent consideration asset at 31 December 2014 is £20m. The potential amount receivable under this contingent consideration arrangement is between £nil and £205m.

The amount of revenue and profit contributed to the Group's consolidated income statement for the year ended 31 December 2014 from the acquired business was £73m and £1m respectively. The profit of £1m is after restructuring costs of the acquired business since acquisition and excludes amortisation and impairment of customer-related intangible assets arising on consolidation. Operating profit before tax contributed to the Group's operating profit from continuing operations for the year ended 31 December 2014 was £36m.

If the acquisition had occurred on 1 January 2014, the Group's total revenue and profit from continuing operations for the year would have increased by £66m and £5m to £16,654m and £385m respectively.

Prior year acquisition

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. The consideration transferred of £76m included £31m of contingent consideration, of which a liability with a fair value of £15m remained at 31 December 2013. The liability was settled in full in the year to 31 December 2014 by a cash payment of £14m. The movement in fair value of £1m has been included in other income in the consolidated income statement.

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:

Continuing operations:

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.

UK and Europe

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

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 and Singapore and investments in joint ventures in India and China.

Other

This primarily includes the group corporate centre and related activities.

Discontinued operations:

Canada

The operations in Canada provide long-term savings, investment and insurance solutions to individuals, and group benefit and retirement plan members. The Canadian business was sold on 30 January 2015.

Dubai

The operations in Dubai provided a range of savings and investment products. The closure of this business was announced in November 2014.

(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.

A number of changes have been made to the financial information provided to the executive team in the year to 31 December 2014 and as a result to the Group's segmental reporting as follows:

· 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 from 1 January 2014. As a consequence, the results of SLW are now presented within the Standard Life Investments segment. Previously this business was managed as part of the UK and Europe segment.

· On 3 September 2014, the Group announced the disposal of its Canadian business. As a consequence, the results of this business have been presented as discontinued operations. Previously the results of Standard Life Financial Inc. were reported and managed as a separate segment (Canada) and the Standard Life Investments Inc. business was reported and managed as part of the Standard Life Investments segment. Withholding tax in relation to dividends received from the Canadian business previously reported as operating tax in the other segment, has also been included in discontinued operations.

· On 5 November 2014, the Group announced the closure of the Dubai business. The results of this business are included as discontinued operations for segmental reporting purposes as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Dubai was previously included in Asia and Emerging Markets. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the segmental analysis disclosures include the reclassification of Dubai results between discontinued and continuing operations.

· Institutional pension business managed by Standard Life Investments but legally written by the UK business has previously been reported in both the Standard Life Investments and UK and Europe segments with the inter-segment transactions and balances removed through eliminations. In 2014, it was agreed by management that to allow a more meaningful presentation of revenue, expenses and AUA for each segment, institutional pension business would be removed from the UK and Europe results and only presented within Standard Life Investments. The UK and Europe results and the eliminations have therefore been adjusted with no impact on the Group results. This change reduces UK and Europe fee based revenue and maintenance expenses but there is no impact on UK and Europe operating profit.

2. Segmental analysis continued

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

Comparative amounts for the year ended 31 December 2013 have been prepared on the same basis as 31 December 2014 to allow more meaningful comparison.

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

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

As described beneath the pro forma reconciliation of consolidated operating profit to profit for the year, operating profit is considered to present an indication of 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.

		Standard Life Investments	UK and Europe	Asia and Emerging Markets	Other	Eliminations	Total continuing operations	Discontinued operations¹	Total
31 December 2014	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		686	802	53	-	(108)	1,433	219	1,652
Spread/risk margin		-	183	-	-	-	183	191	374
Total income		686	985	53	-	(108)	1,616	410	2,026
Acquisition expenses		-	(229)	(3)	-	-	(232)	(73)	(305)
Maintenance expenses		(450)	(376)	(49)	-	108	(767)	(221)	(988)
Group corporate centre costs		-	-	-	(54)	-	(54)	-	(54)
Capital management		-	10	-	(8)	-	2	15	17
Share of associates' and joint ventures' profit before tax²		21	-	18	-	-	39	-	39
Operating profit/(loss) before tax		257	390	19	(62)	-	604	131	735
Tax on operating profit		(51)	(43)	(1)	13	-	(82)	(42)	(124)
Share of associates' and joint ventures' tax expense		(7)	-	2	-	-	(5)	-	(5)
Operating profit/(loss) after tax		199	347	20	(49)	-	517	89	606
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	14	1	29	(2)	(13)	-	15	73	88
Restructuring and corporate transaction expenses	10	(51)	(51)	-	(7)	-	(109)	(31)	(140)
Impairment of intangible assets	16	(43)	-	-	-	-	(43)	(4)	(47)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	14	-	-	-	-	-	-	-	-
Other		(9)	(11)	-	(2)	-	(22)	(3)	(25)
Total non-operating items		(102)	(33)	(2)	(22)	-	(159)	35	(124)
Tax on non-operating items		17	18	-	5	-	40	(19)	21
Dubai included in discontinued operations segment¹		-	-	(22)	-	-	(22)	22	-
Profit for the year attributable to equity holders of Standard Life plc		114	332	(4)	(66)	-	376	127	503
Profit attributable to non-controlling interests							4	-	4
Profit for the year							380	127	507

¹ Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Dubai results between discontinued and continuing operations.

² Share of associates' and joint ventures' 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.

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

		Standard Life Investments	UK and Europe	Asia and Emerging Markets	Other	Eliminations	Total continuing operations	Discontinued operations¹	Total
31 December 2013	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		514	795	54	-	(107)	1,256	203	1,459
Spread/risk margin		-	162	-	-	-	162	351	513
Total income		514	957	54	-	(107)	1,418	554	1,972
Acquisition expenses		-	(227)	(16)	-	-	(243)	(82)	(325)
Maintenance expenses		(339)	(358)	(43)	-	107	(633)	(243)	(876)
Group corporate centre costs		-	-	-	(53)	-	(53)	-	(53)
Capital management		-	3	-	(13)	-	(10)	16	6
Share of associates' and joint ventures' profit before tax²		22	-	5	-	-	27	-	27
Operating profit/(loss) before tax		197	375	-	(66)	-	506	245	751
Tax on operating profit		(41)	(47)	-	11	-	(77)	(64)	(141)
Share of associates' and joint ventures' tax expense		(7)	-	-	-	-	(7)	(1)	(8)
Operating profit/(loss) after tax		149	328	-	(55)	-	422	180	602
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	14	1	(11)	(2)	(10)	-	(22)	(70)	(92)
Restructuring and corporate transaction expenses	10	(13)	(48)	(5)	(5)	-	(71)	(2)	(73)
Impairment of intangible assets	16	-	-	-	-	-	-	-	-
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters		-	-	-	-	-	-	(15)	(15)
Other		-	(5)	-	(2)	-	(7)	-	(7)
Total non-operating items		(12)	(64)	(7)	(17)	-	(100)	(87)	(187)
Tax on non-operating items		2	12	1	4	-	19	32	51
Dubai included in discontinued operations segment¹		-	-	(6)	-	-	(6)	6	-
Profit/(loss) for the year attributable to equity holders of Standard Life plc		139	276	(12)	(68)	-	335	131	466
Profit attributable to non-controlling interests							30	-	30
Profit for the year							365	131	496

(b)(ii) Total income

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

	2014	2013 restated¹
	£m	£m
Fee based revenue	1,433	1,256
Spread/risk margin	183	162
Total income from continuing operations as presented in the analysis of Group operating profit by segment	1,616	1,418
Dubai included in discontinued operations segment²	4	-
Consolidation adjustments	125	228
Tax movement attributable to policyholder returns	250	222
Net insurance benefits and claims	3,856	4,593
Change in reinsurance assets and liabilities	(60)	741
Change in insurance and participating contract liabilities	3,834	(1,495)
Change in unallocated divisible surplus	(71)	(40)
Change in non-participating investment contract liabilities	5,362	10,047
Expenses under arrangements with reinsurers	639	61
Change in liability for third party interest in consolidated funds	758	829
Non-operating items	1	43
Other	274	169
Total revenue from continuing operations as presented on the consolidated income statement	16,588	16,816

²Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the reconciliation includes the reclassification of Dubai results between discontinued and continuing operations.

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:

	2014	2013 restated¹
	£m	£m
Acquisition expenses	232	243
Maintenance expenses	767	633
Group corporate centre costs	54	53
Total operating expenses from continuing operations as presented in the analysis of Group operating profit by segment	1,053	929
Dubai included in discontinued operations segment²	26	6
Consolidation adjustments	125	228
Net insurance benefits and claims	3,856	4,593
Change in reinsurance assets and liabilities	(60)	741
Change in insurance and participating contract liabilities	3,834	(1,495)
Change in unallocated divisible surplus	(71)	(40)
Change in non-participating investment contract liabilities	5,362	10,047
Expenses under arrangements with reinsurers	639	61
Change in liability for third party interest in consolidated funds	758	829
Finance costs	98	98
Non-operating items	159	66
Other	173	133
Total expenses from continuing operations as presented on the consolidated income statement	15,952	16,196

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).

	Standard Life Investments	UK and Europe	Asia and Emerging Markets	Other	Eliminations¹	Total continuing operations	Discontinued operations	Total
31 December 2014	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	162	122	-	-	(15)	269	21	290
Spread/risk	-	16	-	-	-	16	9	25
Assets not backing products in long-term savings business	-	8	-	-	-	8	2	10
Joint ventures	-	-	2	-	-	2	-	2
Other corporate assets	1	-	-	1	-	2	-	2
Total assets under administration	163	146	2	1	(15)	297	32	329
Third party AUA								(149)
Reinsurance assets								6
Deferred acquisition costs								1
Assets attributable to third party interest in consolidated funds and non-controlling interests								16
Other								1
Total assets per consolidated statement of financial position								204

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.

2. Segmental analysis continued

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

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

	Standard Life Investments	UK and Europe	Asia and Emerging Markets	Other	Eliminations²	Total continuing operations	Discontinued operations	Total
31 December 2013 (restated)¹	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	90	114	-	-	(13)	191	19	210
Spread/risk	-	15	-	-	-	15	8	23
Assets not backing products in long-term savings business	-	6	-	-	-	6	2	8
Joint ventures	-	-	2	-	-	2	-	2
Other corporate assets	1	-	-	1	(1)	1	-	1
Total assets under administration	91	135	2	1	(14)	215	29	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								16
Other								1
Total assets per consolidated statement of financial position								189

² 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.

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

	2014	2013 restated¹
	£m	£m
UK	12,740	14,535
Rest of the world	3,848	2,281
Total	16,588	16,816

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

	2014	2013 restated¹
	£m	£m
UK	8,345	7,382
Canada	-	1,345
Rest of the world	1,447	398
Total	9,792	9,125

¹ Comparative periods presented have been restated to reflect retrospective application of changes to accounting policies as a result of new IFRSs adopted in the period. Refer to Group accounting policies - (a) Basis of preparation.

Non-current non-financial assets for this purpose consist of investment property, 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 and investment 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.

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 (b)(i) contains a description of the fund structure operated by SLIL.

(a)(ii) 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.

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

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

(a)(iii) Canada

The Canadian business is included as discontinued operations following the announcement on 3 September 2014. 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 Canada 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.

(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 based on the movement in UK RPI. These contracts are classified as non-participating insurance contracts.

The total liability at 31 December 2014 for RPI linked annuities in payment (including any guaranteed minimum rate of escalation) is £373m (2013: £320m) and this represents approximately 9% (2013: 9%) 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 42(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 2014 is £343m (2013: £274m) and this represents approximately 8% (2013: 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 42(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.

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) 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 certain non-participating annuity-in-payment contracts held in the HWPF has been transferred to the PBF. The market risk on certain annuities has been transferred to the PBF.

For those annuities in payment which increase at a predefined rate the total liability at 31 December 2014 is £3,127m (2013: £2,977m) and this represents approximately 33% (2013: 32%) of the total liability for UK annuity in payments contracts held within the HWPF.

The total liability at 31 December 2014 for RPI linked annuities in payment (including any guaranteed minimum rate of escalation) is £1,972m (2013: £2,113m) and this represents approximately 21% (2013: 22%) 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) Asia and Emerging Markets - Insurance 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.

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

The Canadian business is included as discontinued operations following the announcement on 3 September 2014.

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 2014 is £595m (2013: £652m) and these represent approximately 15% (2013: 16%) of the total liability for Canadian annuity-in-payment contracts. The liability for annuities

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

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

(b)(iv) Canada - Insurance, investment and reinsurance contracts continued

linked to CPI is approximately £346m (2013: £394m). This represents approximately 9% (2013: 9%) of the total liability for Canadian annuity-in-payment contracts.

For CPI-linked annuities, a 1% increase in the CPI would increase liabilities by £29m (2013: £65m). 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 2014, the liability for these policies is £1,668m (2013: £1,227m).

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 £29m (2013: £19m). At 31 December 2014, the liability for all the TIFs (i.e. pre and post November 2003) is £55m (2013: £74m).

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, for all contracts sold prior to May 2014. Individual Ideal Savings term funds issued after 1 May 2014 have an accidental death benefit in the contract, and are therefore classified as non-participating insurance 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 increase in liabilities of £32m (2013: decrease £6m) 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% (2013: 42%) 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.

4. Investment return

		2014	2013 restated¹
	Notes	£m	£m
Interest and similar income
Cash and cash equivalents		80	88
Loans		7	6
		87	94
Dividend income		1,840	1,660
Gains/(losses) on financial instruments at fair value through profit or loss
Associates (other than dividend income)		100	226
Equity securities (other than dividend income)		1,522	10,844
Debt securities		6,086	(195)
Derivative financial instruments		2,243	1
		9,951	10,876
Impairment losses recognised on loans		-	(1)
Foreign exchange gains/(losses) on instruments other than as at fair value through profit or loss		26	(18)
Income from investment property
Rental income	19	450	446
Net fair value gains on investment property	19	825	277
		1,275	723
Investment return from continuing operations		13,179	13,334

5. Fee and commission income

		2014	2013 restated¹
	Notes	£m	£m
Fee income on investment contracts at fair value		619	580
Fee income from third party funds under management		305	178
Fee income deferred during the year	39	(35)	(36)
Amortisation of deferred income	39	66	73
Release of deferred income	39	5	-
Other fee and commission income		25	21
Total fee and commission income from continuing operations		985	816

6. Expenses under arrangements with reinsurers

	2014	2013
	£m	£m
Interest payable on deposits from reinsurers	32	33
Premium Adjustments	607	28
Expenses under arrangements with reinsurers from continuing operations	639	61

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 reinsurance 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

		2014	2013 restated¹
	Notes	£m	£m
Interest expense		11	9
Commission expenses		234	273
Staff costs and other employee-related costs	8	577	525
Operating lease rentals		30	34
Auditors' remuneration	9	7	5
Depreciation of property, plant and equipment	20	14	13
Impairment losses on property, plant and equipment	20	-	5
Impairment losses reversed on property, plant and equipment	20	(4)	(2)
Amortisation of intangible assets	16	41	29
Impairment losses on intangible assets	16	47	-
Other		457	397
		1,414	1,288
Acquisition costs deferred during the year	17	(143)	(146)
Impairment of deferred acquisition costs	17	9	6
Amortisation of deferred acquisition costs	17	150	141
Total other administrative expenses from continuing operations		1,430	1,289

In addition to interest expense from continuing operations of £11m (2013: £9m), interest expense of £98m (2013: £98m) was incurred in respect of subordinated liabilities and £32m (2013: £33m) in respect of deposits from reinsurers. For the year ended 31 December 2014, total interest expense from continuing operations is £141m (2013: £140m).

8. Staff costs and other employee-related costs

		2014			2013 restated¹
		Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Notes	£m	£m	£m	£m	£m	£m
The aggregate remuneration payable in respect of employees:
Wages and salaries		456	114	570	409	119	528
Social security costs		55	9	64	48	11	59
Pension costs	38
Defined benefit plans		24	15	39	25	16	41
Defined contribution plans		15	3	18	11	4	15
Employee share-based payments	48	27	2	29	32	4	36
Total staff costs and other employee-related costs		577	143	720	525	154	679

¹ Comparatives for the year ended 31 December 2013 have been restated to reflect classification in the current year of the Group's Canadian business as discontinued operations. Refer to Note 12 - Discontinued operations.

	2014	2013
The average number of staff employed by the Group during the year:
UK and Europe	3,986	3,951
Standard Life Investments¹	1,322	1,109
Canada	1,991	1,992
Asia and Emerging Markets	263	259
Other²	773	913
Total average number of staff employed	8,335	8,224

¹ Includes staff employed by Standard Life Investments Inc. which is a discontinued operation.

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

Information in respect of Directors' remuneration is provided in the Directors' remuneration report on pages 71 to 102.

9. Auditors' remuneration

	2014			2013 restated¹
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	£m	£m	£m	£m	£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	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	3.3	1.1	4.4	2.8	1.5	4.3
The audit of funds not consolidated in the Group's financial statements	0.6	0.3	0.9	0.6	0.2	0.8
Audit related assurance services	0.6	-	0.6	0.4	-	0.4
Total audit related assurance fees	4.8	1.4	6.2	4.1	1.7	5.8
Other assurance services	1.3	0.7	2.0	0.5	0.2	0.7
Tax compliance services	0.1	-	0.1	0.2	-	0.2
Tax advisory services	0.3	-	0.3	0.2	-	0.2
Other non-audit fee services	0.1	-	0.1	0.2	-	0.2
Total non-audit fees	1.8	0.7	2.5	1.1	0.2	1.3
Total auditors' remuneration	6.6	2.1	8.7	5.2	1.9	7.1

¹ Comparative periods presented have been restated to reflect classification in the current year of the Group's Canadian business as discontinued operations. Refer to Note 12 - Discontinued operations.

The increase in Other assurance services for continuing operations is due to 2014 including Solvency 2 related assurance services. 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 £48,500 (2013: £44,400).

10. Restructuring and corporate transaction expenses

Total restructuring and corporate transaction expenses incurred from continuing operations during the year were £106m (2013: £73m) which includes £11m of deal costs (2013: £11m) relating to acquisitions as described in Note 1 - Group structure (b) Acquisitions. The remaining expenses relate to a number of business unit restructuring programmes, Solvency 2 and the closure of the Dubai business.

In December 2014 the Group announced that the UK staff defined benefit pension plan would be closed to future accrual effective April 2016. All employees in the closing plan will be transferred to the UK defined contribution plan and employer contributions into the defined contribution plan will be amended. Following this restructuring of the pension plans, operating profit from continuing operations for the year ended 31 December 2014 has been increased by £15m so that operating profit reflects the expected long term annual pension expense and is therefore more indicative of the long term operating performance of the Group. As a result £15m of pension costs that are included in staff costs in the consolidated income statement for the year ended 31 December 2014, are included in restructuring and corporate transaction expenses in determining operating profit from continuing operations.

10. Restructuring and corporate transaction expenses continued

The table below reconciles restructuring and corporate transaction expenses incurred from continuing operations with restructuring and corporate transaction expenses used to determine operating profit from continuing operations.

	2014	2013
	£m	£m
Restructuring and corporate transaction expenses from continuing operations	106	73
Pension plan restructuring	15	-
Expenses incurred by the Heritage With Profit Fund	(2)	(2)
Closure of Dubai¹	(10)	-
Restructuring and corporate transaction expenses used to determine operating profit from continuing operations	109	71

¹ Dubai business, the closure of which was announced in November 2014, is included as a discontinued operation for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement.

Restructuring and corporate transaction expenses of £31m (2013: £2m) are used to determine operating profit before tax from discontinuing operations. In 2014 these expenses relate to the sale of the Canadian business and the closure of the Dubai business. Refer to Note 2 - Segmental analysis.

11. Tax expense

The tax expense is attributed as follows:

	2014	2013 restated¹
	£m	£m
Tax expense attributable to policyholders' returns	250	222
Tax expense attributable to equity holders' profits	42	58
Tax expense from continuing operations	292	280

The standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly, the Group's UK profits for this accounting period are subject to tax at a rate of 21.5%. The Finance Act 2013 further reduced the UK corporation tax rate to 20% with effect from 1 April 2015. This has been applied in calculating the UK deferred tax position at 31 December 2014.

The share of tax of associates and joint ventures from continuing operations is £5m (2013: £7m) 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

		2014	2013 restated¹
	Notes	£m	£m
Current tax:
UK		268	141
Overseas		14	1
Adjustment to tax expense in respect of prior years		(7)	(36)
Total current tax attributable to continuing operations		275	106

Deferred tax:
Deferred tax expense arising from the current year	21	17	174
Total deferred tax attributable to continuing operations		17	174
Total tax expense attributable to continuing operations		292	280

Attributable to equity holders' profits		42	58

In 2014 and 2013, no unrecognised tax losses from previous years were used to reduce current tax expense. Unrecognised losses and timing differences of £10m were used to reduce the deferred tax expense (2013: £4m).

(b) Tax relating to components of other comprehensive income

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

	2014	2013 restated¹
	£m	£m
Deferred tax on revaluation of owner occupied property	-	2
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	-	2
Current tax on net change in financial assets designated as available-for-sale	6	(3)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	6	(3)
Tax relating to each component of other comprehensive income from continuing operations	6	(1)

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

		2014	2013
	Notes	£m	£m
Tax credit on reserves for employee share-based payments		(5)	(8)
Tax relating to items taken directly to equity	21	(5)	(8)

(d) Reconciliation of tax expense

	2014	2013 restated¹
	£m	£m
Profit before tax from continuing operations	672	645
Tax at 21.5% (2013: 23.25%)	144	150
Policyholder tax (net of tax at UK standard rate)	196	170
Permanent differences	8	(7)
Temporary differences	(3)	-
Different tax rates	(36)	(6)
Adjustment to current tax expense in respect of prior years	(7)	(36)
Recognition of previously unrecognised tax credit	(10)	(4)
Deferred tax not recognised	(1)	(1)
Adjustment to deferred tax expense in respect of prior years	(6)	5
Write-down of deferred tax asset	3	-
Other	4	9
Total tax expense from continuing operations for the year	292	280

12. Discontinued operations

On 3 September 2014 the Group announced its intention to sell its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife). The results of the Canadian business have been classified as discontinued operations and the associated assets and liabilities have been classified as held for sale as at 31 December 2014. Refer to Note 27 - Assets and liabilities held for sale.

(a) Consolidated income statement of discontinued operations

The profit included in the consolidated income statement in respect of the discontinued Canadian operations is as follows:

	2014	2013
	£m	£m
Revenue
Gross earned premium	1,720	1,479
Premium ceded to reinsurers	(36)	(46)
Net earned premium	1,684	1,433
Investment return	2,914	2,259
Fee and commission income	124	130
Other income	17	20
Total revenue from discontinued operations	4,739	3,842

Expenses
Claims and benefits paid	1,121	1,141
Claim recoveries from reinsurers	(29)	(39)
Net insurance benefits and claims	1,092	1,102
Change in reinsurance assets and liabilities	(36)	(58)
Change in insurance and participating contract liabilities	1,548	175
Change in non-participating investment contract liabilities	1,403	1,845
Administrative expenses
Restructuring and corporate transaction expenses	21	2
Other administrative expenses	430	472
Total administrative expenses	451	474
Change in liability for third party interest in consolidated funds	80	131
Finance costs	9	10
Total expenses from discontinued operations	4,547	3,679

Share of loss from associates and joint ventures	(4)	-

Profit before tax from discontinued operations	188	163

Tax expense attributable to policyholders' returns	-	-

Profit before tax expense attributable to equity holders' profits	188	163

Total tax expense	61	32
Less: Tax attributable to policyholders' returns	-	-
Tax expense attributable to equity holders' profits	61	32
Profit for the year from discontinued operations	127	131

Attributable to:
Equity holders of Standard Life plc	127	131
Non-controlling interests	-	-
	127	131

(b) Other comprehensive income of discontinued operations

The other comprehensive income included in the consolidated statement of comprehensive income in respect of the discontinued operations is as follows:

	2014	2013
	£m	£m
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (losses)/gains on defined benefit pension plans	(20)	31
Revaluation of owner occupied property	(2)	17
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	5	(11)
Total items that will not be reclassified subsequently to profit or loss	(17)	37

Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges	2	-
Net investment hedge	16	62
Fair value gains/(losses) on available-for-sale financial assets	22	(14)
Exchange differences on translating foreign operations	(36)	(107)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	(5)	4
Total items that may be reclassified subsequently to profit or loss	(1)	(55)
Other comprehensive income/(expense) for the year from discontinued operations	(18)	(18)

Net cash flows attributable to operating, investing and financing activities of discontinued operations are as follows:

	2014	2013
	£m	£m
Net cash flows from operating activities	117	257
Net cash flows from financing activities	(1)	(3)
Net cash flows from investing activities	(65)	(98)
Total net cash flows	51	156

13. 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.

	2014	2013 restated¹
Profit attributable to equity holders of Standard Life plc from continuing operations (£m)	376	335
Profit attributable to equity holders of Standard Life plc from discontinued operations (£m)	127	131
Profit attributable to equity holders of Standard Life plc (£m)	503	466
Weighted average number of ordinary shares outstanding (millions)	2,384	2,362
Basic earnings per share from continuing operations (pence per share)	15.8	14.2
Basic earnings per share from discontinued operations (pence per share)	5.3	5.5
Basic earnings per share (pence per share)	21.1	19.7

13. Earnings per share continued

(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.

	2014	2013 restated¹
Profit attributable to equity holders of Standard Life plc from continuing operations (£m)	376	335
Profit attributable to equity holders of Standard Life plc from discontinued operations (£m)	127	131
Profit attributable to equity holders of Standard Life plc (£m)	503	466
Weighted average number of ordinary shares outstanding for diluted earnings per share (millions)	2,396	2,378
Diluted earnings per share from continuing operations (pence per share)	15.7	14.1
Diluted earnings per share from discontinued operations (pence per share)	5.3	5.5
Diluted earnings per share (pence per share)	21.0	19.6

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was 12 million (2013: 16 million).

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 more useful indication of the long-term operating business performance of the Group.

(c)(i) Basic alternative earnings per share

	Continuing operations	Continuing operations	Discontinued operations	Discontinued operations
2014	£m	p per share	£m	p per share
Operating profit before tax	604	25.3	131	5.5
Tax on operating profit	(82)	(3.4)	(42)	(1.8)
Share of associates' and joint ventures' tax expense	(5)	(0.2)	-	-
Operating profit after tax	517	21.7	89	3.7
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	15	0.6	73	3.1
Restructuring and corporate transaction expenses	(109)	(4.6)	(31)	(1.3)
Impairment of intangible assets	(43)	(1.8)	(4)	(0.2)
Other	(22)	(0.9)	(3)	(0.1)
Total non-operating items	(159)	(6.7)	35	1.5
Tax on non-operating items	40	1.7	(19)	(0.8)
Dubai included in discontinued operations segment¹	(22)	(0.9)	22	0.9
Profit attributable to equity holders of Standard Life plc	376	15.8	127	5.3

¹Dubai business, the closure of which was announced in November 2014, is included as discontinued operations for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Dubai was previously included in Asia and Emerging Markets. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Dubai results between discontinued and continuing operations.

	Continuing operations	Continuing operations	Discontinued operations	Discontinued operations
2013	£m	p per share	£m	p per share
Operating profit before tax	506	21.4	245	10.3
Tax on operating profit	(77)	(3.2)	(64)	(2.7)
Share of associates' and joint ventures' tax expense	(7)	(0.3)	(1)	-
Operating profit after tax	422	17.9	180	7.6
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	(22)	(1.0)	(70)	(3.0)
Restructuring and corporate transaction expenses	(71)	(3.0)	(2)	(0.1)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	-	-	(15)	(0.6)
Other	(7)	(0.3)	-	-
Total non-operating items	(100)	(4.3)	(87)	(3.7)
Tax on non-operating items	19	0.9	32	1.3
Dubai included in discontinued operations segment¹	(6)	(0.3)	6	0.3
Profit attributable to equity holders of Standard Life plc	335	14.2	131	5.5

¹ Dubai business, the closure of which was announced in November 2014, is included as discontinued operations for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Dubai was previously included in Asia and Emerging Markets. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Dubai results between discontinued and continuing operations.

(c)(ii) Diluted alternative earnings per share

	Continuing operations	Continuing operations	Discontinued operations	Discontinued operations
2014	£m	p per share	£m	p per share
Operating profit before tax	604	25.2	131	5.5
Tax on operating profit	(82)	(3.4)	(42)	(1.8)
Share of joint ventures and associates tax expense	(5)	(0.2)	-	-
Operating profit after tax	517	21.6	89	3.7
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	15	0.6	73	3.1
Restructuring and corporate transaction expenses	(109)	(4.5)	(31)	(1.3)
Impairment of intangible assets	(43)	(1.8)	(4)	(0.2)
Other	(22)	(0.9)	(3)	(0.1)
Total non-operating items	(159)	(6.6)	35	1.5
Tax on non-operating items	40	1.6	(19)	(0.8)
Dubai included in discontinued operations segment¹	(22)	(0.9)	22	0.9
Profit attributable to equity holders of Standard Life plc	376	15.7	127	5.3

¹ Dubai business, the closure of which was announced in November 2014, is included as discontinued operations for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Dubai was previously included in Asia and Emerging Markets. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Dubai results between discontinued and continuing operations.

13. Earnings per share continued

(c)(ii) Diluted alternative earnings per share continued

	Continuing operations	Continuing operations	Discontinued operations	Discontinued operations
2013	£m	p per share	£m	p per share
Operating profit before tax	506	21.2	245	10.3
Tax on operating profit	(77)	(3.2)	(64)	(2.7)
Share of joint ventures and associates tax expense	(7)	(0.3)	(1)	-
Operating profit after tax	422	17.7	180	7.6
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	(22)	(0.9)	(70)	(3.0)
Restructuring and corporate transaction expenses	(71)	(3.0)	(2)	(0.1)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	-	-	(15)	(0.6)
Other	(7)	(0.3)	-	-
Total non-operating items	(100)	(4.2)	(87)	(3.7)
Tax on non-operating items	19	0.9	32	1.3
Dubai included in discontinued operations segment¹	(6)	(0.3)	6	0.3
Profit attributable to equity holders of Standard Life plc	335	14.1	131	5.5

¹ Dubai business, the closure of which was announced in November 2014, is included as discontinued operations for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. Dubai was previously included in Asia and Emerging Markets. Under IFRS 5, Dubai does not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Dubai results between discontinued and continuing operations.

14. Non-operating items

The Group focuses on operating profit as a measure of its performance, which incorporates expected returns on investments backing equity holder funds with a consistent allowance for corresponding expected movements in equity holder liabilities. The methodology used in calculating operating profit is outlined below.

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.

Short-term fluctuations in investment return and economic assumptions 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:

	2014		2013
	UK	Canada	UK	Canada
	%	%	%	%
Equity securities	6.01	8.60	4.74	8.60
Property	5.01	8.60	3.74	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 2014, short-term fluctuations in investment return and economic assumption changes resulted in gains of £15m (2013: £22m losses) from continuing operations and gains of £73m (2013: £70m losses) from discontinued operations. 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 Canada 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 consolidated 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.

Other

Non-operating items also includes restructuring and corporate transaction expenses as discussed in Note 10 - Restructuring and corporate transaction expenses.

15. Dividends

The Company paid a final dividend of 10.58 pence per share totalling £252m (final 2012: 9.80 pence; £230m) in respect of the year ended 31 December 2013 on 22 May 2014. An interim dividend of 5.60 pence per share (interim 2013: 5.22 pence) totalling £134m (interim 2013: £124m) in respect of the year ended 31 December 2014 was paid on 21 October 2014. The dividends were recorded as an appropriation of retained earnings for the year ended 31 December 2014. The company also paid a special dividend of 12.80 pence per share totalling £302m in respect of the year ended 31 December 2012 on 21 May 2013.

Subsequent to 31 December 2014, the Directors have proposed a final dividend for the year ended 31 December 2014 of 11.43p per ordinary share, an estimated £224m in total. The dividend will be paid on 19 May 2015 to shareholders on the Company's register as at 10 April 2015, subject to approval at the Annual General Meeting on 12 May 2015. The dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2015.

Refer to Note 51 - Events after the reporting date for details of the proposed return of value to shareholders in 2015.

16. 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 2013		71	30	177	37	315
Additions		40	29	25	22	116
Other		-	-	-	(2)	(2)
At 31 December 2013		111	59	202	57	429
Reclassified to held for sale during the year		-	-	-	(4)	(4)
Additions	1	105	208	33	10	356
Impairment losses recognised	7	-	(43)	(4)	-	(47)
Other		-	-	(1)	-	(1)
At 31 December 2014		216	224	230	63	733
Accumulated amortisation
At 1 January 2013		-	(13)	(73)	(15)	(101)
Amortisation charge for the year¹		-	(5)	(20)	(5)	(30)
Other		-	-	-	2	2
At 31 December 2013		-	(18)	(93)	(18)	(129)
Reclassified to held for sale during the year		-	-	-	2	2
Amortisation charge for the year	7	-	(15)	(21)	(5)	(41)
At 31 December 2014		-	(33)	(114)	(21)	(168)
Carrying amount
At 1 January 2013		71	17	104	22	214
At 31 December 2013		111	41	109	39	300
At 31 December 2014		216	191	116	42	565

¹The amortisation charge for the year ended 31 December 2013 includes £1m in respect of discontinued operations.

Additions to intangible assets acquired through business combinations during the year to 31 December 2014 relate to the acquisition of Ignis (refer to Note 1 - Group structure) and comprises life company contracts of £80m, institutional client contracts of £90m and retail client contracts of £38m. Each of these categories form a cash-generating unit.

During 2014, subsequent to the acquisition of Ignis, there was a significant change in the management structure of the Absolute Return Government Bond Fund, which makes up the majority of the institutional client contracts cash-generating unit carrying value at 31 December 2014. This has resulted in outflows of assets under management and reduced projections of inflows and revenue, with a consequential fall in the recoverable amount of this cash-generating unit. The recoverable amount of the institutional client contracts cash-generating unit at 31 December 2014 is £44m which is its value in use. The discount rate used to calculate value in use at 31 December 2014 was 14%. The most significant judgements used in determining the recoverable amount are estimated net flow projections for the next five years and forecasted operating profit margins. The useful economic lives of the intangible assets is between 10 and 15 years and therefore the projected cash flows used to determine value in use cover a period of longer than five years. The impairment loss of £43m recognised during the year to 31 December 2014 relates to this decrease in recoverable amount.

The Group's goodwill of £216m (2013: £111m) has been acquired through a series of business combinations, and additions in the year to 31 December 2014 relate to the acquisition of Ignis. The cash-generating units to which goodwill is attributed is £71m (2013: £111m) to the UK and Europe business unit and £145m (2013: £nil) to the Standard Life Investments 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 2014 or 31 December 2013.

17. Deferred acquisition costs

		2014	2013
	Notes	£m	£m
At 1 January		905	904
Reclassified as held for sale during the year		(106)	-
Additions during the year¹	7	143	165
Amortisation charge²	7	(150)	(151)
Impairment charge³	7	(9)	(6)
Foreign exchange adjustment		(12)	(7)
At 31 December		771	905

¹Additions during the year ended 31 December 2013 includes £19m in respect of discontinued operations.

²The amortisation charge for the year ended 31 December 2013 includes £10m in respect of discontinued operations.

³The impairment charge for the year ended 31 December 2013 includes £nil in respect of discontinued operations.

The amount of deferred acquisition costs expected to be recovered after more than 12 months is £676m (2013: £772m). Included in deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) amounting to £460m (2013: £607m).

18. Investments in associates and joint ventures

		2014	2013
	Notes	£m	£m
Investments in associates and joint ventures accounted for using the equity method		242	267
Investments in associates measured at FVTPL	22	4,264	1,515
Loans to associates and joint ventures	22	2	2
Total investments in associates and joint ventures		4,508	1,784

(a) Investments in associates

Included in associates and joint ventures accounted for using the equity method is an investment in the following associate. The HDFC Asset Management Company Limited manages a range of mutual funds and provides portfolio management and advisory services.

	HDFC Asset Management Company Limited
Country of incorporation and registration	India
	2014	2013
31 December	£m	£m
Summarised financial information of associate:
Revenue	94	93
Profit after tax	39	38
Other comprehensive income	-	-
Total assets	215	160
Total liabilities	105	80
Net assets	110	80
Interest held	40%	40%

Share of net assets	44	32
Carrying value of associate	73	58
Dividends received	3	8

The Group's share of post-acquisition movements in reserves of HDFC Asset Management Company Limited which have been recognised directly in equity, have not been reflected in the carrying value of the associate. As a result there is a difference between the carrying value of the associate and the Group's share of net assets.

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. There is no quoted market price for the investment in HDFC Asset Management Company Limited.

18. Investments in associates and joint ventures continued

(a) Investments in associates continued

In addition to the above, the Group has investments in associates measured at FVTPL of £4,264m (2013: £1,515m), none of which are considered individually material to the Group as the investments are primarily held by unit linked and segregated funds (2013: none). The aggregate financial information of these associates is as follows:

	Associates at FVTPL
	2014	2013
	£m	£m
Share of post-tax profit from continuing operations	100	226
Share of post-tax profit from discontinued operations	-	(7)
Share of other comprehensive income	-	-
Share of total comprehensive income	100	219

These associates have no significant contingent liabilities to which the Group is exposed and there are no restrictions that would prevent the transfer of funds to the Group.

(b) Investments in joint ventures

The following are particulars of the Group's principal joint ventures, both of which are unlisted:

	HDFC Standard Life Insurance Company Limited		Heng An Standard Life Insurance Company
Country of incorporation and registration	India		China
	2014	2013	2014	2013
	£m	£m	£m	£m
Summarised financial information of joint ventures
Revenue	2,371	1,562	158	132
Profit/(loss)	70	48	3	(13)
Other comprehensive income	2	(2)	6	(5)
Total assets	6,610	4,642	857	798
Total liabilities	6,366	4,469	712	696
Net assets	244	173	145	102
Interest held	26%	26%	50%	50%
Current share of net assets	63	45	73	51
Carrying value of joint venture	86	68	73	51
Dividends received	4	3	-	-

The Group's interest in the HDFC Standard Life Insurance Company Limited has been built up over time to its current level of 26%. The difference between the carrying value of this joint venture and the Group's current share of net assets is due to additional investments being made at fair value rather than book value.

19. Investment property

		2014	2013 restated¹
	Notes	£m	£m
At 1 January		8,606	8,626
Reclassified as held for sale during the year		(1,297)	(92)
Additions - acquisitions		823	539
Additions - subsequent expenditure		210	134
Net fair value gains²	4	825	323
Disposals		(128)	(806)
Foreign exchange adjustment		(14)	(109)
Other		16	(9)
At 31 December		9,041	8,606

The fair value of investment property can be analysed as:
Freehold		6,421	6,257
Long leasehold		2,558	2,285
Short leasehold		62	64
		9,041	8,606

² Net fair value gains for the year ended 31 December 2013 includes £46m in respect of discontinued operations.

The rental income arising from investment property during the year from continuing operations amounted to £450m (2013: £446m), which is included in investment return as set out in Note 4 - Investment return. Direct operating expenses (included within other administrative expenses) from continuing operations arising in respect of such rented property during the year amounted to £73m (2013: £88m).

The methods and assumptions used to determine fair value for investment property and property under development are discussed in Note 44 - 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.

The Group has reclassified all investment property in Canada as held for sale at 31 December 2014. In Canada, property with a value higher than CA$50m is externally appraised every quarter, property with a value between CA$10m and CA$50m is 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 is reviewed in light of the market information provided by the other external appraisals and an internal adjustment is estimated.

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

	2014	2013 restated¹
	£m	£m
Not later than one year	485	456
Later than one year and no later than five years	1,344	1,400
Later than five years	3,481	2,781
Total operating lease receivables	5,310	4,637

¹ Total operating lease receivables at 31 December 2013 includes receivables in respect of the Canadian business which have been reclassified as held for sale during the year ended 31 December 2014. Refer to Note 27 - Assets and liabilities held for sale.

20. Property, plant and equipment

		Owner occupied property	Equipment	Total
	Notes	£m	£m	£m
Cost or valuation
At 1 January 2013		112	110	222
Additions		-	17	17
Disposals and adjustments¹		-	(6)	(6)
Revaluations²	32	68	-	68
Impairment losses reversed^3,4	7	2	-	2
Impairment losses recognised^3,4	7	(5)	-	(5)
Foreign exchange adjustment		(5)	-	(5)
At 31 December 2013		172	121	293
Reclassified as held for sale during the year		(43)	(9)	(52)
Additions		-	19	19
Disposals and adjustments¹		-	(1)	(1)
Revaluations		5	-	5
Impairment losses reversed³	7	4	-	4
At 31 December 2014		138	130	268
Accumulated depreciation
At 1 January 2013		-	(66)	(66)
Depreciation charge for the year⁵	7	-	(14)	(14)
Disposals and adjustments¹		-	6	6
At 31 December 2013		-	(74)	(74)
Reclassified as held for sale during the year		-	5	5
Depreciation charge for the year	7	-	(14)	(14)
Disposals and adjustments¹		-	1	1
At 31 December 2014		-	(82)	(82)
Carrying amount
At 1 January 2013		112	44	156
At 31 December 2013		172	47	219
At 31 December 2014		138	48	186

¹ For the year ended 31 December 2014 £1m (2013: £6m) of disposals and adjustments relates to equipment with net book value of £nil and is no longer in use.

²Revaluations for the year ended 31 December 2013 includes £17m in respect of discontinued operations.

³The impairment reversed/(recognised) arose due to changes in the market value of a number of properties relative to their original deemed cost.

⁴Impairment losses reversed/(recognised) for the year ended 31 December 2013 includes £nil in respect of discontinued operations.

⁵Depreciation charge for the year ended 31 December 2013 includes £1m in respect of discontinued operations.

If owner occupied property was measured using the cost model, the historical cost before impairment would be £155m (2013: £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 44 - Fair value of assets and liabilities.

21. Tax assets and liabilities

		2014	2013 restated¹
	Notes	£m	£m
Current tax recoverable		191	138
Less: Current tax recoverable classified as held for sale		-	-
	26	191	138
Deferred tax assets		87	121
Less: Deferred tax assets classified as held for sale	27	(54)	-
		33	121

Total tax assets		224	259

Current tax liabilities		175	55
Less: Current tax liabilities classified as held for sale	27	(3)	-
		172	55
Deferred tax liabilities		227	178
Less: Deferred tax liabilities classified as held for sale	27	(13)	-
		214	178
Total tax liabilities		386	233

All current tax assets and liabilities as at 31 December 2014 and 31 December 2013 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.

21. Tax assets and liabilities continued

(a) Recognised deferred tax

	2014	2013
	£m	£m
Deferred tax assets comprise:
Actuarial liabilities	5	148
Losses carried forward	9	39
Realised losses on investments	1	9
Depreciable assets	40	34
Deferred income	30	46
Employee benefits	23	42
Provisions and other temporary timing differences	-	3
Insurance related items	13	10
Subordinated liabilities valuation differences	-	3
Unrealised losses on investments	-	1
Other	-	2
Gross deferred tax assets	121	337
Less: Offset against deferred tax liabilities	(88)	(216)
Net deferred tax assets	33	121
Deferred tax liabilities comprise:
Insurance related items	2	35
Unrealised gains on investments	141	212
Intangible assets acquired through business combinations	30	-
Deferred acquisition costs	121	132
Subordinated liabilities valuation differences	-	3
Temporary timing differences	4	4
Other	4	8
Gross deferred tax liabilities	302	394
Less: Offset against deferred tax assets	(88)	(216)
Net deferred tax liabilities	214	178
Movements in net deferred tax liabilities comprise:
At 1 January	(57)	134
Reclassified as held for sale	(74)	-
Acquired through business combinations	(34)	-
Amounts charged to the consolidated income statement¹	(17)	(170)
Amounts charged to components of other comprehensive income²	-	(13)
Amounts credited directly to equity in respect of employee share-based payment schemes	5	8
Transfer to current tax for vested employee share-based payment schemes	(6)	(9)
Foreign exchange adjustment	1	(6)
Prior year adjustment	-	(1)
Other	1	-
At 31 December	(181)	(57)

¹ Included in amounts charged to the consolidated income statement for the year ended 31 December 2013 is a credit of £4m in respect of discontinued operations.

²Included in amounts (charged)/credited to components of other comprehensive income for the year ended 31 December 2013 is £11m in respect of discontinued operations.

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 £10m (2013: £49m) 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 £126m (2013: £96m)

· Tax reserves of the German branch of Standard Life Assurance Limited of £37m (2013: £71m)

· Unrealised investment losses of £17m (2013: £12m).

22. Financial investments

		Designated as at fair value through profit or loss	Held for trading	Available-for-sale	Loans and receivables	Net investment hedge	Cash flow hedge	Total
2014	Notes	£m	£m	£m	£m	£m	£m	£m
Investments in associates and joint ventures	18	4,264	-	-	2	-	-	4,266
Loans	23	-	-	-	400	-	-	400
Derivative financial assets	24	-	4,012	-	-	8	1	4,021
Equity securities and interests in pooled investment funds	42	71,327	-	-	-	-	-	71,327
Debt securities	42	64,085	-	356	-	-	-	64,441
Receivables and other financial assets	25	20	-	-	1,228	-	-	1,248
Cash and cash equivalents	28	-	-	-	10,617	-	-	10,617
Total		139,696	4,012	356	12,247	8	1	156,320

		Designated as at fair value through profit or loss	Held for trading	Available-for-sale	Loans and receivables	Net investment hedge	Cash flow hedge	Total
2013 (restated)¹	Notes	£m	£m	£m	£m	£m	£m	£m
Investments in associates and joint ventures	18	1,515	-	-	2	-	-	1,517
Loans	23	-	-	-	2,924	-	-	2,924
Derivative financial assets	24	-	1,937	-	-	54	-	1,991
Equity securities and interests in pooled investment funds	42	84,654	-	-	-	-	-	84,654
Debt securities	42	68,526	-	683	-	-	-	69,209
Receivables and other financial assets	25	-	-	-	1,107	-	-	1,107
Cash and cash equivalents	28	-	-	-	10,322	-	-	10,322
Total		154,695	1,937	683	14,355	54	-	171,724

The amount of debt securities expected to be recovered or settled after more than 12 months is £49,896m (2013: £54,443m). Due to the nature of equity securities and interests in pooled investment funds, there is no fixed term associated with these securities.

23. Loans

		2014	2013
	Notes	£m	£m
Loans secured by mortgages	44(e)	107	2,705
Loans secured on policies		4	90
Other		289	129
Total loans	42	400	2,924

Loans with variable rates and fixed interest rates are £84m and £316m respectively (2013: £170m and £2,754m respectively). Loans that are expected to be recovered after more than 12 months are £169m (2013: £2,468m).

24. 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.

		2014			2013 (restated)¹
		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		1,135	1	-	20	-	-
Net investment hedges		1,107	8	12	883	54	-
Held for trading	35	119,963	4,012	1,681	95,378	1,937	932
Derivative financial instruments	42	122,205	4,021	1,693	96,281	1,991	932

Derivative assets of £2,708m (2013: £930m) are expected to be recovered after more than 12 months. Derivative liabilities of £738m (2013: £228m) 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 £1,135m (2013: £20m) and a net fair value asset position of £1m (2013: £nil) were designated as hedges of a portion of the expected cash proceeds from the sale of the Canadian business in 2015 and future cash flows arising from revenue receivable in foreign currency in 2014 and 2013. The cash flows from these instruments are expected to be reported in the consolidated income statement for the following year. In 2014 and 2013, the ineffectiveness recognised in the consolidated income statement that arises from these cash flow hedges was less than £2m.

(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 amount of £1,107m (2013: £883m) and a net liability position of £4m (2013: £54m net asset) were designated as net investment hedges and gave rise to gains for the year of £15m (2013: £63m), 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 2014, the losses recognised in the consolidated income statement were £6m (2013: £5m). No amounts were withdrawn from equity during the year (2013: £nil), as there were no disposals of foreign operations.

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.

	2014			2013 (restated)¹
	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	16,420	73	337	14,570	224	376
Variance swaps	59	53	64	39	83	94
Options	8,867	922	187	4,966	418	42
Total return swaps	193	-	2	-	-	-
Bond derivatives:
Futures	8,257	88	23	8,267	32	48
Interest rate derivatives:
Swaps	41,244	1,255	692	29,306	288	165
Futures	-	-	-	108	1	-
Options	68	13	-	72	12	-
Swaptions	7,458	851	3	5,825	285	28
Foreign exchange derivatives:
Forwards	32,704	643	293	27,745	454	105
Futures	-	-	-	182	-	-
Options	2,116	42	46	3,457	100	66
Other derivatives:
Inflation rate swaps	2,022	52	30	559	24	6
Credit default swaps	555	20	4	282	16	2
Derivative financial instruments held for trading	119,963	4,012	1,681	95,378	1,937	932

(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
2014	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	23,548	812	411	159	113	508	25,551
Derivative financial liabilities	11,802	32	-	-	7	-	11,841
Total	35,350	844	411	159	120	508	37,392

Cash outflows
Derivative financial assets	(22,250)	(42)	(1)	(13)	(595)	-	(22,901)
Derivative financial liabilities	(12,496)	(259)	(123)	(41)	(9)	(487)	(13,415)
Total	(34,746)	(301)	(124)	(54)	(604)	(487)	(36,316)

Net derivative financial instruments cash inflows/(outflows)	604	543	287	105	(484)	21	1,076

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

24. Derivative financial instruments continued

(d) Maturity profile continued

	Within 1 year	2-5 years	6-10 years	11-15 years	16-20 years	Greater than 20 years	Total
2013 (restated)¹	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	23,305	306	200	92	29	69	24,001
Derivative financial liabilities	10,672	289	2	-	-	-	10,963
Total	33,977	595	202	92	29	69	34,964

Cash outflows
Derivative financial assets	(22,303)	(203)	(68)	(133)	(191)	(123)	(23,021)
Derivative financial liabilities	(11,084)	(153)	(196)	(185)	(100)	(98)	(11,816)
Total	(33,387)	(356)	(264)	(318)	(291)	(221)	(34,837)

Net derivative financial instruments cash inflows/(outflows)	590	239	(62)	(226)	(262)	(152)	127

25. Receivables and other financial assets

		2014	2013 restated¹
	Notes	£m	£m
Amounts receivable on direct insurance business		98	110
Amounts receivable on reinsurance contracts		1	7
Outstanding sales of investment securities		182	159
Accrued income		205	279
Cancellations of units awaiting settlement		256	183
Collateral pledged in respect of derivative contracts	42	202	29
Property related assets		136	147
Contingent consideration asset	44	20	-
Other		148	193
Receivables and other financial assets		1,248	1,107

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 £56m (2013: £94m).

26. Other assets

		2014	2013 restated¹
	Notes	£m	£m
Current tax recoverable	21	191	138
Prepayments		36	39
Other		80	95
Other assets		307	272

The amount of other assets expected to be recovered after more than 12 months is £37m (2013: £44m).

27. Assets and liabilities held for sale

	2014	2013
	£m	£m
Assets of operations held for sale	29,254	-
Investment property	10	92
Amounts seeded into funds	74	29
Assets held for sale	29,338	121
Liabilities of operations held for sale	28,033	-

Investment property classified as held for sale at 31 December 2013 related to property for which contracts had been exchanged during 2013 but the sale had not completed, and was included in the Group's UK and Europe reportable segment. During the year to 31 December 2014 these properties were sold and a loss of £1m was recognised and included in investment return in the consolidated income statement.

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. All movements in the fair value of seeded funds are recognised in investment return in the consolidated income statement.

(a) Assets and liabilities of operations held for sale

On 3 September 2014 the Group announced its intention to sell its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife). As discussed in Note 51 - Events after the reporting date, the sale of the Group's Canadian long-term savings and retirement, individual and group insurance business (Standard Life Financial Inc.) and Canadian investment management business (Standard Life Investments Inc.) completed on 30 January 2015. Under the agreements entered into in September 2014, the assets and liabilities of the SLAL Canada Branch will transfer once certain conditions to completion, including regulatory approval, are fulfilled. The assets and liabilities of the Canadian business held for sale at 31 December 2014 are as follows:

		Financial instruments				Other
		Designated as at fair value through profit or loss	Held for trading	Available-for-sale	Loans and receivables	Other	Total
2014	Notes	£m	£m	£m	£m	£m	£m
Assets of operations held for sale
Intangible assets		-	-	-	-	13	13
Deferred acquisition costs		-	-	-	-	115	115
Investments in associates and joint ventures		33	-	-	-	70	103
Investment property		-	-	-	-	1,417	1,417
Property, plant and equipment		-	-	-	-	31	31
Deferred tax assets	21	-	-	-	-	54	54
Reinsurance assets		-	-	-	-	187	187
Loans		-	-	-	2,313	-	2,313
Derivative financial assets		-	44	-	-	-	44
Equity securities and interests in pooled investment funds		12,961	-	-	-	-	12,961
Debt securities		10,694	-	365	-	-	11,059
Receivables and other financial assets		-	-	-	214	-	214
Other assets		-	-	-	-	34	34
Assets held for sale		-	-	-	-	-	-
Cash and cash equivalents	28	-	-	-	709	-	709
Total assets of operations held for sale		23,688	44	365	3,236	1,921	29,254

27. Assets and liabilities held for sale continued

(a) Assets and liabilities of operations held for salecontinued

		Financial instruments			Other
		Designated as at fair value through profit or loss	Held for trading	Amortised cost	Insurance contracts	Other	Total
2014	Notes	£m	£m	£m	£m	£m	£m
Liabilities of operations held for sale
Non-participating insurance contract liabilities	34	-	-	-	9,425	-	9,425
Non-participating investment contract liabilities	34	13,734	-	2,118	-	-	15,852
Participating contract liabilities	34	-	-	-	702	2	704
Reinsurance liabilities		-	-	-	273	-	273
Deposits received from reinsurers		-	-	-	-	-	-
Third party interest in consolidated funds		953	-	-	-	-	953
Borrowings		-	-	59	-	-	59
Subordinated liabilities	37	-	-	223	-	-	223
Pension and other post-retirement benefit provisions		-	-	-	-	101	101
Deferred income		-	-	-	-	1	1
Deferred tax liabilities	21	-	-	-	-	13	13
Current tax liabilities	21	-	-	-	-	3	3
Derivative financial liabilities		-	26	-	-	-	26
Other financial liabilities		-	-	368	-	-	368
Other liabilities		-	-	-	-	32	32
Total liabilities of operations held for sale		14,687	26	2,768	10,400	152	28,033

28. Cash and cash equivalents

	2014	2013 restated¹
	£m	£m
Cash at bank and in hand	750	751
Money at call and short notice	2,201	887
Demand, term deposits and debt instruments with less than three months to maturity from acquisition	7,666	8,684
Cash and cash equivalents	10,617	10,322

		2014	2013 restated¹
	Notes	£m	£m
Cash and cash equivalents		10,617	10,322
Cash and cash equivalents classified as held for sale	27	709	-
Bank overdrafts	36	(33)	(69)
Bank overdrafts classified as held for sale		(50)	-
Total cash and cash equivalents for consolidated statement of cash flows		11,243	10,253

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

29. Share capital and share premium

(a) Share capital

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

	2014	2014	2013	2013
Issued shares of 10p each fully paid	Number	£m	Number	£m
At 1 January	2,376,616,730	238	2,357,978,652	236
Shares issued in respect of share incentive plans	287,120	-	283,126	-
Shares issued in respect of share options	17,469,894	1	18,354,952	2
At 31 December	2,394,373,744	239	2,376,616,730	238

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 £1,800 (the maximum limit increased from £1,500 from 1 September 2014). The Group offers to match the first £25 of shares bought each month. During the year ended 31 December 2014, the Company allotted 287,120 (2013: 283,126) 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 2014, 14,509,687 (2013: 18,169,290) and 2,960,207 (2013: 185,662) 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.

(b) Share premium

The premium arising on shares issued during the year was £5m (2013: £nil) and relates to share options exercised in respect of the Sharesave scheme.

30. Shares held by trusts

Shares held by trusts at 31 December 2014 of (£1m) (2013: £6m) comprises £3m (2013: £10m) in relation to the Employee Share Trust (EST) offset by a £4m (2013: £4m) credit in relation to the Unclaimed Asset Trust (UAT).

The EST purchases and holds shares in the Company for delivery to employees under various employee share schemes. Share-based liabilities to employees may also be settled by the issue of new shares which may also be held in trust until delivery to employees. The number of shares held in trust for the purposes of settling employee share schemes at 31 December 2014 were 1,081,758 (2013: 3,112,350).

Shares held by trusts also include shares held by the 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. The corresponding obligation to deliver these shares to eligible members of SLAC is also included in the shares held by trusts reserve. During 2010, the UAT gifted 2,304,345 shares to charity which resulted in a decrease in the number of shares held by the trust with no corresponding decrease in the obligation to deliver these shares. As a result there is a net credit balance in the shares held by trust reserve in respect of the UAT. The number of shares held by the UAT at 31 December 2014 was 21,143,650 (2013: 24,859,996).

This information is provided by RNS

The company news service from the London Stock Exchange

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