2. Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and our findings from those procedures in order that the Company's members, as a body, may better understand the process by which we arrived at our audit opinion . These matters were addressed, and our findings are based on procedures undertaken , in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

The risk

Our response

Recoverability of goodwill and of certain of the parent's investments in subsidiaries:

(Goodwill: £85m (2019: £1000m); goodwill impairment losses recognised: £915m (2019: £1,569m))

(Parent Company: certain investments in subsidiaries: included within the total investments in subsidiaries balance of £4,013m (2019: £6,027m); Impairment of investment in subsidiaries: £1,873m (2019: £795m))

Refer to page 59 (Audit Committee Report), page 143 (goodwill accounting policy and financial disclosures), page 214 (investment in subsidiaries accounting policy) and page 215 (investment in subsidiaries financial disclosures).

Subjective estimate:

The goodwill recognised at the Group and the carrying amount of certain of the parent Company's investments in subsidiaries are significant and at risk of irrecoverability due to reductions in assets under management or a change in the mix of the assets under management which would impact revenues. The estimated recoverable amount of these balances is subjective due to the inherent uncertainty involved in forecasting and discounting projected adjusted profits and determining the applicable price to earnings multiples (including appropriate premiums for control and discounts for lack of liquidity) and expected costs of disposals which are the key assumptions of the fair value less costs of disposal (FVLCOD).

The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount of the goodwill and certain of the parent's investment in subsidiaries has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount.

The financial statements (Note 15) disclose the range estimated by the Group.

We performed the tests below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described.

Our procedures included:

Our valuation expertise: We engaged our own valuation specialists to assist us in assessing the appropriateness of the Group's primary valuation methodology and its application in the valuation of the goodwill and certain of the parent Company's investment in subsidiaries, and the appropriateness of the input assumptions to the analyses.

Our sector expertise: We also used our sector experience to evaluate the appropriateness of assumptions applied in key inputs such as deriving maintainable earnings, assessing the comparability of companies used by management for the purpose of deriving an appropriate price to earnings multiple along with adjustments made to that market data in deriving an asset management specific multiple.

Sensitivity analysis: We performed our own sensitivity analysis which included assessing the effect of reasonably possible changes in projected adjusted profits and reasonable alternative assumptions in respect of applicable price to earnings multiples and applied premiums and discounts to evaluate the impact on the carrying value of the goodwill and investment in subsidiaries.

Assessing transparency: We assessed whether the Group's disclosures (in respect of goodwill) and the parent Company's disclosures (in respect of investment in subsidiaries) reflect the risks inherent in the impairment assessment performed.

Our findings:

We found the carrying value of goodwill and the related impairment charge to be cautious (2019: balanced) and the parent Company's carrying value of certain of the investments in subsidiaries and the related impairment charge to be cautious (2019: balanced) with proportionate (2019: proportionate) disclosures of the related assumptions and sensitivities.

The risk

Our response

Carrying value of investment in Phoenix and the related share of profit

(Carrying value of investment in Phoenix: £1,008m (2019: £961m); Share of Phoenix profit: £110m (2019: £(5)m))

Refer to page 59 (Audit Committee

Report), and page 147 (accounting policy and financial disclosures).

The value of the investment in Phoenix Group Holdings plc (Phoenix) is impacted by a number of judgemental factors and accounting estimates.

Accounting treatment and application

On 22 July 2020 Phoenix acquired ReAssure Group plc "ReAssure"; as part of this transaction the Group's shareholding was diluted. This resulted in a risk that Phoenix should subsequently be accounted for as an equity investment rather than an associate. It additionally resulted in a risk associated with the acquisition accounting, in particular the valuation of the opening balance sheet (including intangible assets), and the determination of the bargain gain on purchase (recognised as part of the share of Phoenix profit).

Subjective estimate

As a result of any declines in Phoenix's share price there is a risk of impairment of the carrying value of the investment.

In addition, and consistent with previous years, the calculation of Phoenix's profit, (with a resulting impact on the carrying value of the investment), is dependent on a number of Phoenix management's estimates, in particular the actuarial assumptions underpinning the movements in insurance contract liabilities. In this regard, the assumptions that have the most significant impact over the profit of the enlarged Phoenix group are the base and trend longevity and persistency assumptions.

The effect of these matters is that, as part of our risk assessment, we determined that the carrying value of the investment in Phoenix has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.

Our procedures in respect of the accounting treatment and application included:

Assessing principles: We assessed the nature of the relationship with Phoenix following the ReAssure transaction and subsequent SLA plc shareholding dilution and evaluated this against the indicators of significant influence in the accounting standards.

Assessing principles: Our component auditor critically assessed the acquisition accounting approach adopted by Phoenix against the principles of IFRS 3 Business Combinations, including the identification and valuation of intangible assets in the business combination against the principles of accounting standards.

Our procedures in respect of the share of Phoenix profit, and its corresponding impact on the carrying value of Phoenix:

Control design and operation: Our component auditor tested the design and operating effectiveness of key controls including over Phoenix management's process for modelling insurance contract liabilities and for setting and updating actuarial assumptions.

Our actuarial experience: Our component auditor used actuarial specialists to review and challenge the rationale for key assumptions adopted, including in respect of acquired businesses.

Our procedures in respect of any impairment to the carrying value include:

Tests of detail: We performed an assessment of the carrying value of the investment in Phoenix by comparing to its market value at 31 December 2020.

The work performed by the component auditor was under the direction, oversight and review of the Group team, as described in section 3.

Our findings:

In determining that Phoenix should continue to be treated as an associate there is room for judgement and we found that, within that, the Group's judgement was balanced.

We found the Group's carrying value of the investment in Phoenix and the related share of profit to be balanced (2019: balanced) with proportionate (2019: proportionate) disclosure of the related assumptions.

The risk

Our response

Impairment of Intangible Assets

(Customer relationships and investment management contracts: £314m (2019: £534m); Impairment of customer relationships and investment management contracts intangibles: £134m (2019: £0m))

Refer to page 59 (Audit Committee

Report), page 143 (accounting policy) and financial disclosures).

Subjective estimate:

The Group's customer related intangible assets include customer relationships and investment management contracts. There is a risk of impairment to the carrying value of these intangible assets.

Management need to make subjective judgements when assessing whether there are any indicators of impairment to these intangible assets.

Where there is an indicator of impairment, the estimated recoverable amount of these intangible assets is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows.

The effect of these matters is that, as part of our risk assessment, we determined that the value in use of these intangible assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount.

The financial statements (Note 15) disclose the sensitivity estimated by the Group.

Our procedures included:

Our valuation expertise: We evaluated whether for all of the Group's customer relationships and management contract intangible assets there were indicators of impairment that would trigger an impairment review. This included a critical assessment of the business performance, such as outflows of assets under management and / or reduction of revenue relating to each intangible asset.

Where indicators were identified, we used our own valuation specialists to assist us in assessing the appropriateness of the Group's valuation model. This included comparing the Group discount rate assumptions with our own estimate of a range of reasonable discount rates, based on comparable company information.

Our sector experience: Where there was an indicator of impairment, we used our sector experience to evaluate the appropriateness of assumptions applied in key inputs such as revenue from contracts with customers, operating costs and discount rates.

Sensitivity analysis: Where there was an indicator of impairment we performed our own sensitivity analysis which included assessing the effect of reasonably possible changes in forecast cash flows and discount rates to evaluate the impact on the carrying value of the intangible assets.

Assessing transparency: We considered whether the Group's disclosures in relation to the assumptions used in the value in use of customer relationships and investment management contracts intangible assets appropriately represent the sensitivities of the asset's value in use to the use of alternative assumptions.

Our findings:

We found the carrying value of intangible assets and the related impairment charge to be balanced (2019: balanced) with proportionate (2019: proportionate) disclosures of the related assumptions and sensitivities.

The risk

Our response

Valuation of the UK defined benefit pension scheme present value of funded obligation

(£3,015m, 2019: £2,852m)

Refer to page 59 (Audit Committee

Report), page 170 (accounting policy) and page 171 (financial disclosures).

Subjective valuation:

The present value of the Group's funded obligation for the UK defined benefit (DB) pension scheme is an area that involves significant judgement over the uncertain future settlement value. The Group is required to use judgment in the selection of key assumptions covering both operating assumptions and economic assumptions.

The key operating assumptions are base mortality and mortality improvement. The key economic assumptions are the discount rate and inflation. The risk is that inappropriate assumptions are used in determining the present value of the funded obligation.

The effect of these matters is that, as part of our risk assessment, we determine that the valuation of the pension scheme obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount.

The financial statements (Note 34) disclose the sensitivity estimated by the Group.

Our procedures included:

Test of detail and our sector experience: Our component auditor considered, with the support of internal actuarial specialists, the appropriateness of the base mortality assumption by reference to scheme and industry data on historical mortality experience and the outcome of the latest triennial report.

Our component auditor considered, with the support of internal actuarial specialists, the appropriateness of the mortality improvement assumptions by reference to industry based expectations of future mortality improvements. The component auditor considered the appropriateness of the discount rate and inflation assumptions by reference to industry practice.

Benchmarking assumptions and our sector experience: Our component auditor utilised the results of KPMG benchmarking of base mortality, mortality improvement, discount rate and inflation assumptions and our actuarial specialists' knowledge of industry practice to inform our challenge of the Group's assumptions in these areas.

Assessing transparency: In conjunction with internal actuarial specialists, we considered whether the Group's disclosures in relation to the assumptions used in the calculation of present value of the funded obligation appropriately represent the sensitivities of the obligation to the use of alternative assumptions.

The work performed by the component auditor was under the direction, oversight and review of the Group team, as described in section 3.

Our findings:

We found the estimated valuation of the UK defined benefit pension scheme obligation to be balanced (2019: balanced) with proportionate (2019: proportionate) disclosures of the related assumptions and sensitivities.

We have summarised below the changes to our key audit matters from the 31 December 2019 year end audit.

In our 31 December 2019 year end audit, we identified a significant risk around the share of profit from Phoenix. In considering the current market conditions and the ReAssure acquisition made by Phoenix in the period, we consider that these result in a range of additional factors for us to consider which will impact the carrying value of the investment. As such, we consider our key audit matter to be broader than the share of profit, and have updated this to include both the carrying value of the investment and the share of profit.

We did not consider the impairment of intangible assets to be a key audit matter in the 31 December 2019 year end audit, as there were no impairment triggers identified. Given impairment triggers (and resulting impairments) were identified in the year to 31 December 2020, we consider this to be a key audit matter for the year.

We continue to perform procedures over the provision for separation costs. However, ongoing progress in relation to the separation process has provided a greater level of certainty over the separation costs and so the level of estimation uncertainty associated with this provision has reduced in the year to 31 December 2020, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.

Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document

3. Our application of materiality and an overview of the scope of our audit

Materiality for the Group financial statements as a whole was set at £25m (2019: £31m), determined as 5% of our estimate of Group profit before tax made at the planning stage, normalised for our expectation of the level of adjusting items including impairment, restructuring costs and the profits arising on disposal of associate or past associate shareholdings. This equates to 2.7% (2019: 4.4%) of reported Group profit normalised on a consistent basis and to 2.9% (2019: 12.7%) of Group IFRS profit before tax from continuing operations of £853m (2019: £243m).

Materiality of £8.8m (2019: £19m), as communicated by the Group audit team, has been applied to the audit of the parent Company. This is lower than the materiality we would otherwise have determined by reference to total assets, and represents 0.1% of the Company's total assets (2019: 1.08% of normalised profit before tax). We changed the benchmark to total assets as we consider it to be the most appropriate benchmark for the Company in its capacity as the Group holding company.

In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole.

Performance materiality for the Group and parent Company was set at 75% (2019: 75%) of materiality for the financial statements as a whole, which equates to £18.75m (2019: £23.25m) for the Group and £6.6m (2019: £14.3m) for the parent Company.

We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk.

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.25m (2019: £1.6m), in addition to other identified misstatements that warranted reporting on qualitative grounds.

During the year the Group changed its consolidation process with a consequential increase in the number of reporting components identified. Of the Group's 295 (2019: 28) reporting components, we subjected 15 (2019: 8) to full scope audits for Group purposes and none (2019: 2) to specified risk-focused audit procedures. In the year to 31 December 2019, the latter were not individually financially significant enough to require a full scope audit for Group purposes, but did present specific individual risks that needed to be addressed.

As a result of the previous and ongoing structural changes in the Group, we considered it appropriate to change those benchmarks we use to determine the scope of our work. The comparatives presented opposite represent the coverage obtained on the new benchmarks under the previous consolidation process

The components within the scope of our work accounted for the percentages illustrated opposite. The remaining 27% (2019: 2%) of total Group fee income, 10% (2019: 3%) of the total profits and losses that made up Group profit before tax and 23% (2019: 2%) of net Group assets is represented by 280 (2019: 18) reporting components, none of which individually represented more than 5% of any of total Group fee income, Group profit before tax or of net Group assets.

For those items excluded from Group fee income, the component teams performed procedures on items relating to their components. The Group team performed procedures on the remaining excluded items.

For these residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these.

The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £1.25m to £18.2m (2019: £3.1m to £26m), having regard to the mix of size and risk profile of the Group across the components.

The work on 5 of the 15 components (2019: 8 of the 10 components) was performed by component auditors and the rest, including the audit of the parent Company, was performed by the Group team.

The Group team had planned to visit component locations in the United States, Luxembourg and the UK. However, all but one of these visits were prevented by movement restrictions relating to the COVID-19 pandemic. Instead video conferences were held to discuss the audit risk and strategy and the component audit findings reported to the Group team. The Group team visited 1 (2019: 6) component location in the UK (2019: UK and Singapore), to assess the audit risk and strategy and the findings reported to the Group team were discussed in more detail. Video and telephone conference meetings were also held with this component auditor. Any further work required by the Group team was then performed by the component auditor.

4. Going concern

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group's and the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (the going concern period).

We used our knowledge of the Group, its industry and operating model, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group's financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to adversely affect the Group's available financial resources over this period was market volatility, including any associated with COVID-19.

We considered whether these risks could plausibly affect the liquidity in the going concern period by assessing the degree of downside assumptions that, individually and collectively, could result in a liquidity issue, taking into account the Group's current and projected cash and facilities (a reverse stress test).

We critically assessed the assumptions in the base case and downside scenarios in particular in relation to market volatility assumptions by comparing to published growth and economic forecasts and overlaying our knowledge of the entity's plans, based on approved budgets, and of the sector in which it operates.

We considered whether the going concern disclosure in note (a) (v) to the financial statements gives a full and accurate description of the Directors' assessment of going concern.

Our conclusions based on this work:

· We consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate

· We have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group's or Company's ability to continue as a going concern for the going concern period

· We have nothing material to add or draw attention to in relation to the directors' statement in Note (a) (v) to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company's use of that basis for the going concern period, and we found the going concern disclosure in Note (a) (v) to be acceptable

· The related statement under the Listing Rules set out on page 102 is materially consistent with the financial statements and our audit knowledge

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will continue in operation.

5. Fraud and breaches of laws and regulations - ability to detect

Identifying and responding to risks of material misstatement due to fraud

To identify risks of material misstatement due to fraud (fraud risks) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:

· Enquiring of directors, the Group Audit Committee, Group Internal Audit and the Group's Legal team and inspection of policy documentation as to the Group's high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group's channel for 'whistleblowing', as well as whether they have knowledge of any actual, suspected or alleged fraud

· Reading Board minutes and attending Group Audit Committee and Risk and Compliance Committee meetings

· Considering the findings of Group Internal Audit's reviews in the period

· Considering remuneration incentive schemes and performance targets for management and directors

We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group to full scope component audit teams of relevant fraud risks identified at the Group level and request to full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at Group.

As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as impairment and pension assumptions. We requested component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at Group.

On this audit we do not believe there is a fraud risk related to revenue recognition, given the relative simplicity of the most significant revenue streams and the separation of duties between management and third party service providers.

We did not identify any additional fraud risks other than those professional standards require us to consider.

We performed procedures including:

· Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management and those posted to unusual accounts, as well as those which comprised unexpected posting combinations.

· Assessing significant accounting estimates for bias.

Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.

As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements, how they analyse identified breaches and assessing whether there were any implications of identified breaches on our audit.

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to component audit teams of relevant laws and regulations identified at the Group level, and a request for component auditors to report to the Group team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at Group.

The potential effect of these laws and regulations on the financial statements varies considerably.

Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation and pension's regulations and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: specific areas of regulatory capital and liquidity, conduct including Client Assets, money laundering, market abuse regulations and certain aspects of company legislation recognising the financial and regulated nature of the Group's activities and its legal form.

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

We have assessed the disclosure of provisions in Note 37 and contingent liabilities in Note 42 in light of our understanding gained through the procedures above, and consider that these are appropriate.

We discussed with the audit committee matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit.

Context of the ability of the audit to detect fraud or breaches of law or regulation

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.

In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

6. We have nothing to report on the other information in the Annual report and Accounts

The directors are responsible for the other information presented in the Annual report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Strategic report and Directors' report

Based solely on our work on the other information:

· We have not identified material misstatements in the Strategic report and the Directors' report

· In our opinion the information given in those reports for the financial year is consistent with the financial statements

· In our opinion those reports have been prepared in accordance with the Companies Act 2006

Directors' remuneration report

In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Disclosures of emerging and principal risks and longer-term viability

We are required to perform procedures to identify whether there is a material inconsistency between the directors' disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.

Based on those procedures, we have nothing material to add or draw attention to in relation to:

· The Directors' confirmation within the Viability Statement and Risk Management report that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity

· The Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being managed and mitigated

· The Directors' explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions

We are also required to review the Viability Statement, set out on page 37 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge.

Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group's and Company's longer-term viability.

Corporate governance disclosures

We are required to perform procedures to identify whether there is a material inconsistency between the directors' corporate governance disclosures and the financial statements and our audit knowledge.

Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge:

· The directors' statement that they consider that the Annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy

· The section of the Annual report describing the work of the Audit Committee, including the significant issues that the Audit Committee considered in relation to the financial statements, and how these issues were addressed

· The section of the Annual report that describes the review of the effectiveness of the Group's risk management and internal control systems

We are required to review the part of Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report in this respect.

7. We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if, in our opinion:

· Adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us

· The parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns

· Certain disclosures of directors' remuneration specified by law are not made

· We have not received all the information and explanations we require for our audit

We have nothing to report in these respects.

8. Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 103, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities

9. The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and the terms of our engagement by the Company. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report, and the further matters we are required to state to them in accordance with the terms agreed with the Company , and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Jonathan Mills (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

Saltire Court

20 Castle Terrace

Edinburgh

EH1 2EG

9 March 2021

7. Group financial statements

Consolidated income statement

For the year ended 31 December 2020

		2020	2019
	Notes	£m	£m
Income
Investment return	3	163	464
Revenue from contracts with customers	4	1,527	1,743
Insurance contract premium income	31	31	66
Profit on disposal of interests in associates	1	1,858	1,542
Other income	5	30	178
Total income from continuing operations		3,609	3,993

Expenses
Insurance contract claims and change in liabilities	31	17	156
Change in non-participating investment contract liabilities	25	56	265
Administrative expenses
Restructuring and corporate transaction expenses	9	297	374
Impairment of goodwill - asset management	15	915	1,569
Other administrative expenses	6	1,608	1,651
Total administrative expenses		2,820	3,594
Change in liability for third party interest in consolidated funds		(3)	21
Finance costs		30	36
Total expenses from continuing operations		2,920	4,072

Share of profit from associates and joint ventures	16	194	79
(Loss on)/reversal of impairment of interests in associates and joint ventures	16	(45)	243

Profit before tax from continuing operations		838	243
Tax (credit)/expense attributable to continuing operations	10	(15)	28
Profit for the year from continuing operations		853	215
(Loss)/profit for the year from discontinued operations	11	(15)	56
Profit for the year		838	271

Attributable to:
Equity shareholders of Standard Life Aberdeen plc
From continuing operations		848	210
From discontinued operations		(15)	56
Equity shareholders of Standard Life Aberdeen plc		833	266
Non-controlling interests
From continuing operations - preference shares	30	5	5
		838	271
Earnings per share from continuing operations
Basic (pence per share)	12	38.5	8.9
Diluted (pence per share)	12	37.9	8.8
Earnings per share
Basic (pence per share)	12	37.8	11.2
Diluted (pence per share)	12	37.2	11.1

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2020

		2020	2019
	Notes	£m	£m
Profit for the year		838	271
Less: loss/(profit) from discontinued operations	11	15	(56)
Profit from continuing operations		853	215
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains/(losses) on defined benefit pension plans	34	280	(23)
Share of other comprehensive income of associates and joint ventures	16	(13)	(17)
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	10	2	-
Total items that will not be reclassified subsequently to profit or loss		269	(40)

Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges	20	(3)	(10)
Exchange differences on translating foreign operations		(8)	(46)
Share of other comprehensive income of associates and joint ventures	16	13	7
Items transferred to the consolidated income statement
Fair value losses on cash flow hedges	20	13	22
Realised foreign exchange losses	1	6	-
Equity holder tax effect of items that may be reclassified subsequently to profit or loss	10	(2)	(2)
Total items that may be reclassified subsequently to profit or loss		19	(29)
Other comprehensive income for the year from continuing operations		288	(69)
Total comprehensive income for the year from continuing operations		1,141	146

(Loss)/profit from discontinued operations	11	(15)	56
Other comprehensive income from discontinued operations	11	-	-
Total comprehensive income for the year from discontinued operations		(15)	56
Total comprehensive income for the year		1,126	202

Attributable to:
Equity shareholders of Standard Life Aberdeen plc
From continuing operations		1,136	141
From discontinued operations		(15)	56
Non-controlling interests
From continuing operations -- preference shares		5	5
		1,126	202

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

Reconciliation of consolidated adjusted profit before tax to IFRS profit for the year

For the year ended 31 December 2020

		2020			2019
		Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Notes	£m	£m	£m	£m	£m	£m
Adjusted profit before tax
Asset management, platforms and wealth		284	-	284	395	-	395
Insurance associates and joint ventures		203	-	203	189	-	189
Adjusted profit before tax	2	487	-	487	584	-	584
Adjusted for the following items
Restructuring and corporate transaction expenses	9	(355)	-	(355)	(407)	-	(407)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts	2	(1,287)	-	(1,287)	(1,844)	-	(1,844)
Profit on disposal of interests in associates	1	1,858	-	1,858	1,542	-	1,542
(Loss on)/reversal of impairment of interests in associates and joint ventures	16	(45)	-	(45)	243	-	243
Change in fair value of significant listed investments	13	65	-	65	-	-	-
Investment return variances and economic assumption changes	13	46	-	46	(25)	-	(25)
Other¹	13	86	(15)	71	158	56	214
Total adjusting items	2	368	(15)	353	(333)	56	(277)
Share of associates' and joint ventures' tax credit/(expense)	2	(17)	-	(17)	(8)	-	(8)
Profit/(loss) before tax expense		838	(15)	823	243	56	299
Tax credit/(expense) attributable to
Adjusted profit	2	(38)	-	(38)	(69)	-	(69)
Adjusting items	2	53	-	53	41	-	41
Total tax credit/(expense)		15	-	15	(28)	-	(28)
Profit/(loss) for the year		853	(15)	838	215	56	271

¹ The Other adjusting item in 2020 relating to continuing operations includes £66m relating to our share of Phoenix gains relating to the acquisition of ReAssure and the completion of the Part VII transfer of the Legal and General mature savings business. The Other adjusting item in 2019 relating to continuing operations includes £140m received in relation to the settlement of arbitration with Lloyds Banking Group/ Scottish Widows (LBG), refer Note 5.

The Group's key alternative performance measure is adjusted profit before tax. Refer Note 13 for further details.

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

Consolidated statement of financial position

As at 31 December 2020

		2020	2019
	Notes	£m	£m
Assets
Intangible assets	15	501	1,707
Pension and other post-retirement benefit assets	34	1,474	1,163
Investments in associates and joint ventures accounted for using the equity method	16	1,371	1,509
Property, plant and equipment	17	236	266
Deferred tax assets	10	131	74
Financial investments	19	3,110	2,115
Receivables and other financial assets	19	621	560
Current tax recoverable	10	9	9
Other assets	22	46	55
Assets held for sale	23	19	767
Cash and cash equivalents	19	1,519	1,615
		9,037	9,840
Assets backing unit linked liabilities (excluding held for sale)	25
Financial investments		1,395	1,528
Receivables and other unit linked assets		8	10
Cash and cash equivalents		38	44
		1,441	1,582
Total assets		10,478	11,422

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

		2020	2019
	Notes	£m	£m
Liabilities
Third party interest in consolidated funds	32	77	119
Subordinated liabilities	32	638	655
Pension and other post-retirement benefit provisions	34	55	55
Deferred income	35	73	67
Deferred tax liabilities	10	66	87
Current tax liabilities	10	15	19
Derivative financial liabilities	20	13	3
Other financial liabilities	32	1,177	1,315
Provisions	37	93	102
Other liabilities	37	6	5
Liabilities of operations held for sale	23	11	747
		2,224	3,174
Unit linked liabilities (excluding held for sale)	25
Investment contract liabilities		1,042	1,152
Third party interest in consolidated funds		388	416
Other unit linked liabilities		11	14
		1,441	1,582
Total liabilities		3,665	4,756
Equity
Share capital	26	306	327
Shares held by trusts	27	(170)	(134)
Share premium reserve	26	640	640
Retained earnings	28	4,970	2,886
Other reserves	29	1,064	2,845
Equity attributable to equity shareholders of Standard Life Aberdeen plc		6,810	6,564
Non-controlling interests
Ordinary shares	30	3	3
Preference shares	30	-	99
Total equity		6,813	6,666
Total equity and liabilities		10,478	11,422

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

The consolidated financial statements on pages 115 to 210 were approved by the Board and signed on its behalf by the following Directors:

Sir Douglas Flint

Stephanie Bruce

Chairman

9 March 2021

Chief Financial Officer

9 March 2021

Consolidated statement of changes in equity

For the year ended 31 December 2020

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity shareholders of Standard Life Aberdeen plc	Ordinary shares	Preference shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2020		327	(134)	640	2,886	2,845	6,564	3	99	6,666
Profit for the year from continuing operations		-	-	-	848	-	848	-	5	853
Loss for the year from discontinued operations		-	-	-	(15)	-	(15)	-	-	(15)
Other comprehensive income for the year from continuing operations		-	-	-	282	6	288	-	-	288
Other comprehensive income for the year from discontinued operations		-	-	-	-	-	-	-	-	-
Total comprehensive income for the year	28,29	-	-	-	1,115	6	1,121	-	5	1,126
Issue of share capital	26	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	14	-	-	-	(479)	-	(479)	-	-	(479)
Dividends paid on preference shares	30,33	-	-	-	-	-	-	-	(3)	(3)
Reclassification of preference shares to liability	30,33	-	-	-	(1)	-	(1)	-	(101)	(102)
Share buyback	26	(21)	-	-	(402)	21	(402)	-	-	(402)
Reserves credit for employee share-based payments	29	-	-	-	-	64	64	-	-	64
Transfer to retained earnings for vested employee share-based payments	28,29	-	-	-	38	(38)	-	-	-	-
Transfer between reserves on impairment of subsidiaries	28,29	-	-	-	1,834	(1,834)	-	-	-	-
Shares acquired by employee trusts		-	(54)	-	-	-	(54)	-	-	(54)
Shares distributed by employee and other trusts and related dividend equivalents	28	-	18	-	(21)	-	(3)	-	-	(3)
31 December 2020		306	(170)	640	4,970	1,064	6,810	3	-	6,813

								Non-controlling interests
		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity shareholders of Standard Life Aberdeen plc	Ordinary shares	Preference shares	Total equity
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
31 December 2018		353	(115)	640	2,778	3,782	7,438	2	99	7,539
Effect of change in accounting policy to IFRS 9¹		-	-	-	(5)	(7)	(12)	-	-	(12)
Effect of change in accounting policy to IFRS 16¹		-	-	-	(12)	-	(12)	-	-	(12)
1 January 2019		353	(115)	640	2,761	3,775	7,414	2	99	7,515
Profit for the year from continuing operations		-	-	-	210	-	210	-	5	215
Profit for the year from discontinued operations		-	-	-	56	-	56	-	-	56
Other comprehensive income for the year from continuing operations		-	-	-	(33)	(36)	(69)	-	-	(69)
Other comprehensive income for the year from discontinued operations		-	-	-	-	-	-	-	-	-
Total comprehensive income for the year	28,29	-	-	-	233	(36)	197	-	5	202
Issue of share capital	26	-	-	-	-	-	-	-	-	-
Dividends paid on ordinary shares	14	-	-	-	(518)	-	(518)	-	-	(518)
Dividends paid on preference shares		-	-	-	-	-	-	-	(5)	(5)
Share buyback	26	(26)	-	-	(390)	(100)	(516)	-	-	(516)
Other movements in non-controlling interests in the year		-	-	-	-	-	-	1	-	1
Reserves credit for employee share-based payments	29	-	-	-	-	43	43	-	-	43
Transfer to retained earnings for vested employee share-based payments	28,29	-	-	-	57	(57)	-	-	-	-
Transfer between reserves on impairment of subsidiaries	28,29	-	-	-	780	(780)	-	-	-	-
Shares acquired by employee trusts		-	(50)	-	-	-	(50)	-	-	(50)
Shares distributed by employee and other trusts and related dividend equivalents	28	-	31	-	(38)	-	(7)	-	-	(7)
Transfer from the Standard Life Unclaimed Asset Trust		-	-	-	1	-	1	-	-	1
31 December 2019		327	(134)	640	2,886	2,845	6,564	3	99	6,666

¹ The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application.

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

For the year ended 31 December 2020

		2020	2019
	Notes	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations		838	243
(Loss)/profit before tax from discontinued operations	11	(15)	56
		823	299
Change in operating assets	41	817	158
Change in operating liabilities	41	(991)	(291)
Adjustment for non-cash movements in investment income		6	4
Other non-cash and non-operating items	41	(646)	(28)
Dividends received from associates and joint ventures	16	80	93
Taxation paid¹		(33)	(34)
Net cash flows from operating activities		56	201

Cash flows from investing activities
Purchase of property, plant and equipment	17	(13)	(28)
Proceeds from sale of property, plant and equipment		-	2
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		-	(40)
Disposal of subsidiaries net of cash disposed of	41	(8)	-
Acquisition of investments in associates and joint ventures	16	(5)	(51)
Proceeds in relation to contingent consideration	40	3	63
Payments in relation to contingent consideration	40	(48)	(18)
Disposal of investments in associates and joint ventures	1	914	1,720
Taxation paid on disposal of investments in associates and joint ventures¹		(33)	(22)
Purchase of financial investments		(521)	(590)
Proceeds from sale or redemption of financial investments		737	800
Purchase of intangible assets		(12)	(15)
Net cash flows from investing activities		1,014	1,821
Cash flows from financing activities
Repayment of subordinated liabilities and preference shares		(100)	(455)
Payment of lease liabilities		(35)	(32)
Shares acquired by trusts		(54)	(50)
Interest paid		(30)	(39)
Share buyback	26	(361)	(516)
Preference dividends paid		(5)	(5)
Ordinary dividends paid	14	(479)	(518)
Net cash flows from financing activities		(1,064)	(1,615)
Net (decrease)/increase in cash and cash equivalents		6	407
Cash and cash equivalents at the beginning of the year		1,347	957
Effects of exchange rate changes on cash and cash equivalents		5	(17)
Cash and cash equivalents at the end of the year	24	1,358	1,347
Supplemental disclosures on cash flows from operating activities
Interest paid		2	5
Interest received		30	34
Dividends received		122	143
Rental income received on investment property		3	3

¹ Total taxation paid was £66m in 2020 (2019: £56m).

The Notes on pages 123 to 210 are an integral part of these consolidated financial statements.

Presentation of consolidated financial statements

The Group's significant accounting policies are included at the beginning of the relevant notes to the consolidated financial statements. This section sets out the basis of preparation, a summary of the Group's critical accounting estimates and judgements in applying accounting policies, and other significant accounting policies which have been applied to the financial statements as a whole.

(a) Basis of preparation

These consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of owner occupied property, derivative instruments and other financial assets and financial liabilities at fair value through profit or loss (FVTPL).

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

(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), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2020.

Amendments to existing standards

· Amendments to IFRS 3 Definition of a business

· Amendments to IFRS 9, IAS 39 and IFRS 7 Interest rate benchmark reform

· Amendments to IAS 1 and IAS 8 Definition of material

The Group's accounting policies have been updated to reflect these amendments. Management considers the implementation of the above amendments to existing standards has had no significant impact on the Group's financial statements.

(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 after 1 January 2020. The Group has not early adopted the standards, amendments and interpretations described below:

IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023)

IFRS 17 was issued in May 2017 and will replace IFRS 4 Insurance Contracts. IFRS 4 is an interim standard which permits the continued application of accounting policies, for insurance contracts and contracts with discretionary participation features, which were being used at transition to IFRS except where a change satisfies criteria set out in IFRS 4. IFRS 17 introduces new required measurement and presentation accounting policies for such contracts which reflect the view that these contracts combine features of a financial instrument and a service contract.

IFRS 17's measurement model, which applies to groups of contracts, combines a risk-adjusted present value of future cash flows and an amount representing unearned profit. On transition retrospective application is required unless impracticable, in which case either a modified retrospective approach or a fair value approach is required. IFRS 17 introduces a new approach to presentation in the income statement and statement of comprehensive income.

The Group has no direct exposure to insurance contracts and contracts with discretionary participating features which will be impacted by the adoption of IFRS 17. However, the results of the Group's insurance associate, Phoenix and the Group's joint venture HASL, are expected to be significantly impacted by IFRS 17. The standard has not yet been endorsed by the EU nor by the UK Endorsement Board.

Other

There are no other new standards, interpretations and amendments to existing standards that have been published that are expected to have a significant impact on the consolidated financial statements of the Group.

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

The preparation of financial statements requires management to exercise judgements in applying accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses arising during the year. Judgements and sources of estimation uncertainty 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 have the most significant effect on the amounts recognised in the consolidated financial statements are as follows:

Financial statement area	Critical judgements in applying accounting policies	Related note
Defined benefit pension plans	Assessment of whether the Group has an unconditional right to a refund of the surplus Treatment of tax relating to the surplus	Note 34
Investments in associates	Determining whether the investments in Phoenix and HDFC Life should continue to be classified as associates Identification, valuation and determination of useful lives for equity accounting purposes, of the Group's share of its associate's intangible assets at the date of acquisition of an investment in the associate	Note 16
Intangible assets	Identification and valuation of intangible assets arising from business combinations and the determination of useful lives	Note 15
Provisions	Determining whether a provision is required for separation costs	Note 37

Determining the group of cash-generating units to which goodwill acquired in a business combination should be allocated is no longer considered a critical judgement in applying accounting policies following the impairment of goodwill in 2020. Additionally, our judgement relating to the classification of Phoenix and HDFC Life as associates has considered the reductions in these shareholdings during the year ended 31 December 2020. There are no other changes to critical judgements in applying accounting policies from the prior year.

The areas where assumptions and other sources of estimation uncertainty at the end of the reporting period have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Financial statement area	Critical accounting estimates and assumptions	Related note
Defined benefit pension plans	Determination of principal UK pension plan assumptions for mortality, discount rate and inflation	Note 34
Intangible assets	Determination of the recoverable amount in relation to impairment assessment of the segregated and similar customer relationship intangible asset	Note 15
Investments in associates	Determination of the recoverable amount in relation to the impairment assessment of investments in associates	Note 16

The following changes have been made to the Group's critical estimates and assumptions:

· As a result of market and revenue movements, the determination of the recoverable amount in relation to the impairment assessment of the segregated and similar customer relationship intangible asset is now considered a critical estimate

· The Group's asset management goodwill was fully impaired at 30 June 2020. While there was significant judgement relating to the recoverable amount at 30 June (refer Note 15), this is no longer a source of estimation uncertainty at the end of the reporting period.

· The determination of the fair value of contingent consideration assets and liabilities relating to the sale of the UK and European insurance business to Phoenix is no longer considered to be a critical area of estimation uncertainty following the settlement of certain indemnities

All other critical accounting estimates and assumptions are the same as the prior year.

Further detail on critical accounting estimates and assumptions is provided in the relevant note.

(a)(iv) Foreign currency translation

The consolidated financial statements are presented in million pounds Sterling.

The statements of financial position of Group entities, including associates and joint ventures accounted for using the equity method, 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 other comprehensive income and the foreign currency translation reserve in equity. On disposal of a Group entity the cumulative amount of any such exchange differences recognised in other comprehensive income is reclassified to profit or loss.

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 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.

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:

	2020		2019
	Income statement and cash flows (average rate)	Statement of financial position (closing rate)	Income statement and cash flows (average rate)	Statement of financial position (closing rate)
Euro	1.127	1.117	1.142	1.180
US Dollar	1.292	1.367	1.280	1.325
Indian Rupee	95.602	99.880	90.106	94.563
Chinese Renminbi	8.905	8.940	8.830	9.228
Hong Kong Dollar	10.024	10.599	10.030	10.322
Singapore Dollar	1.778	1.807	1.745	1.781

(a)(v) Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Strategic report. This includes details on our liquidity and capital management and our viability statement in the Chief Financial Officer's overview section and our principal risks in the Risk management section including the impact of COVID-19 on these principal risks. In addition, these financial statements includes notes on the Group's subordinated liabilities (Note 33), management of its risks including market, credit and liquidity risk (Note 38), its contingent liabilities and commitments (Notes 42 and 43), and its capital structure and position (Note 46).

In preparing these financial statements on a going concern basis, the Directors have considered the following matters and have taken into account the uncertainty created by COVID-19.

· The fundamental basis of our business has not been impacted by COVID-19, although fee based revenue has been reduced as a result of the fall in global equity markets and the shift in client preferences to assets with lower fees. We consider that COVID-19 will accelerate the key global trends already underway in our industry and already factored into our strategy which are discussed further in the Strategic report on pages 10 to 11, and that the Group is well placed to manage its business risks successfully.

· The Group has robust cash and liquid resources of £2.5bn at 31 December 2020. In addition the Company has a revolving credit facility of £400m as part of our contingency funding plans which is due to mature in 2024 and remains undrawn.

· The Group's indicative regulatory capital surplus was £2.3bn in excess of capital requirements at 31 December 2020. The regulatory capital surplus does not include the majority of the value of the Group's listed associates or the listed investment in HDFC Life which were £2.3bn and £1.2bn respectively at 31 December 2020.

· The Group performs regular stress and scenario analysis as described in the Annual report and accounts 2020 Viability statement. The market stresses considered in these analyses are considerably more severe than experienced as a result of COVID-19, and the diverse range of management actions available meant the Group was able to withstand these extreme stresses.

· In addition, the Group has performed specific scenario analysis in the period taking into account COVID-19 impacts on revenue, asset mix, flows and listed associates. These scenarios assumed that key equity market indexes held at the lowest levels witnessed during the COVID-19 outbreak, with only modest growth during 2021. Liquidity and capital remained robust over the going concern period in these scenarios.

· The Group's operational resilience processes have operated effectively during the period including the provision of services by key outsource providers. We have put in place additional processes to monitor key outsource providers during this remote working environment.

Based on a review of the above factors the Directors are satisfied that the Group and Company have and will maintain sufficient resources to enable them to continue operating for at least 12 months from the date of approval of the financial statements. Accordingly, the financial statements have been prepared on a going concern basis. There were no material uncertainties relating to this going concern conclusion.

(b) Basis of consolidation

The Group's financial statements consolidate the financial statements of the Company and its subsidiaries.

Subsidiaries are all entities (including investment vehicles) over which the Group has control. Control arises when the Group 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 over the entity. 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 removal rights of other investors 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%.

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. The liabilities are 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 fair value through profit or loss (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.

All intra-group transactions, balances, income and expenses are eliminated in full.

The Group uses the acquisition method to account for acquisitions of businesses. At the acquisition date the assets and liabilities of the business acquired and any non-controlling interests are identified and initially measured at fair value on the consolidated statement of financial position.

When the Group acquires or disposes of a subsidiary, the profits and losses of the subsidiary are included from the date on which control was transferred to the Group until the date on which it ceases, with consistent accounting policies applied across all entities throughout.

When the Group sells a subsidiary to an associate, the gain on sale of the subsidiary is recognised in full, with no elimination being made for the continuing interest in the subsidiary.

Notes to the Group financial statements

1. Group structure

(a) Composition

The following diagram is an extract of the Group structure at 31 December 2020 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

A full list of the Company's subsidiaries is provided in Note 48.

(b) Acquisitions

(b)(i) Prior year acquisitions of subsidiaries

On 29 November 2019, 1825 Financial Planning and Advice Limited (a subsidiary of 1825 Financial Planning Limited) purchased the wealth advisory business of Grant Thornton UK LLP through a business acquisition agreement under which the majority of the clients and employees of the wealth advisory business transferred to 1825 Financial Planning and Advice Limited. 1825 Financial Planning and Advice also purchased the wealth management business of BDO Northern Ireland through a similar business acquisition agreement on 1 July 2019.

On 15 February 2019, Aberdeen Asset Management PLC (AAM PLC) completed the purchase of the entire share capital of Orion Partners Holding Limited and Orion Partner Services Inc.

(b)(ii) Prior year acquisitions of joint ventures

On 31 July 2019, as part of the Group's strategic joint venture with Virgin Money, AAM PLC completed the acquisition of 50% (less one share) of Virgin Money Unit Trust Managers Limited (VMUTM) for an upfront cash payment of £40m plus 50% of the capital in the business and certain other costs.

(c) Disposals

(c)(i) Subsidiaries

Standard Life (Asia) Limited (SL Asia)

On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, SL Asia, to the Group's Chinese joint venture business, Heng An Standard Life Insurance Company Limited (HASL). SL Asia is reported in the Asset management, platforms and wealth segment and HASL is reported within the Insurance associates and joint ventures segment. The sale to HASL of the entire issued share capital of SL Asia was completed on 30 June 2020.

Total consideration received comprised cash of £19m and the Group recognised a gain on disposal of £8m in respect of the sale within continuing operations in the consolidated income statement for the year ended 31 December 2020. On disposal a gain of £8m was recycled from the translation reserve and was included in determining the gain on sale.

Prior to the completion of the sale, SL Asia was classified as an operation held for sale (refer Note 23).

(c)(ii) Associates

Profit on disposals of interests in associates of £1,858m includes £1,591m of gains in relation to the sale of equity shares in HDFC Life and its reclassification from an investment in associate, £263m of gains in relation to the sale of equity shares in HDFC Asset Management and a £4m dilution gain in Phoenix.

HDFC Life Insurance Company Limited (HDFC Life)

During 2020, the Group completed sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited. The gains on sales and the gain on reclassification from an associate to an equity investment can be summarised as follows:

		2020 £m
Gain on sale of 50,000,000 equity shares in HDFC Life sold through a Bulk Sale on 27 March 2020		206
Gain on sale of 40,000,000 equity shares in HDFC Life sold through a Bulk Sale on 4 June 2020		182
Gain on sale of 27,772,684 equity shares in HDFC Life sold through a Bulk Sale on 3 December 2020		152
Gain on reclassification of remaining 179,539,209 equity shares in HDFC Life from an associate to equity investment on 3 December 2020 (Refer Note 16)		1,051
Gains on disposals and reclassification of HDFC Life		1,591

In total, 5.83% of the issued equity share capital of HDFC Life was sold for a combined total consideration net of taxes and expenses of Rs 58,561m (£616m). The combined gain on sale of £540m was calculated using the weighted-average cost method. On disposal a loss of £5m was recycled from the translation reserve and was included in determining the gain on sale.

Following the 3 December 2020 sale, the Group's shareholding in HDFC Life was 179,539,209 equity shares or 8.89% and HDFC Life is no longer considered to be an associate of the Group. The Group's investment in HDFC Life has been reclassified from an investment in associates accounted for using the equity method to equity securities measured at fair value. Refer Note16 for further details of this reclassification. A reclassification gain of £1,051m is included in the profit on disposal of interests in associates for the year ended 31 December 2020 as the fair value on 3 December 2020 of £1,168m is higher than the previous carrying value as an associate of £111m. On reclassification a loss of £6m was recycled from the translation reserve and was included in determining the gain.

HDFC Asset Management Company Limited (HDFC Asset Management)

During 2020, the Group completed the following sale of equity shares in HDFC Asset Management on the National Stock Exchange of India Limited and BSE Limited:

· 12,000,000 equity shares in HDFC Asset Management sold through an Offer for Sale on 17 and 18 June 2020

Through the sale, 5.64% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 25,404m (£265m). The gain on sale of £263m before tax was calculated using the weighted-average cost method. On disposal a loss of £3m was recycled from the translation reserve and was included in determining the gain on sale. The Group's shareholding in HDFC Asset Management at 31 December 2020 is 45,228,305 equity shares or 21.24%.

Phoenix Group Holdings (Phoenix)

On 22 July 2020 the Group's associate, Phoenix, announced the completion of its acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix issued 277,277,138 new ordinary shares as part consideration for the acquisition. Completion of the transaction resulted in the Group's holding in Phoenix becoming 14.43% of the enlarged Phoenix Group (31 December 2020: 14.42%). A dilution gain of £4m was recognised within the Profit on disposal of interests in associates in the consolidated income statement as a result of the transaction.

(c)(iii) Prior year disposal of associates

HDFC Life

During 2019, the Group completed the following sales of equity shares in HDFC Life on the National Stock Exchange of India Limited and BSE Limited:

· 92,181,992 equity shares in HDFC Life sold through an Offer for Sale on 12 and 13 March 2019

· 33,032,381 equity shares in HDFC Life sold through an Offer for Sale from 3 to 6 May 2019

· 67,100,000 equity shares in HDFC Life sold through a Bulk Sale on 14 August 2019

· 100,000,000 equity shares in HDFC Life sold through a Bulk Sale on 30 October 2019

In total, 14.49% of the issued equity share capital of HDFC Life was sold for a combined consideration net of taxes and expenses of
Rs 135,994m (£1,503m). The combined gain on sale of £1,337m was calculated using the weighted-average cost method.

HDFC Asset Management

During 2019, the Group completed the following sale of equity shares in HDFC Asset Management on the National Stock Exchange of India Limited and BSE Limited:

· 6,422,310 equity shares in HDFC Asset Management sold through an Offer for Sale on 4 and 5 December 2019

Through the sale, 3.02% of the issued equity share capital of HDFC Asset Management was sold for a total consideration net of taxes and expenses of Rs 18,279m (£195m). The gain on sale of £204m before tax was calculated using the weighted-average cost method.

2. Segmental analysis

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker' which for the Group is the executive leadership team.

(a) Basis of segmentation

The Group's reportable segments for 2020 and 2019 were as follows:

Continuing operations:

Asset management, platforms and wealth

This segment primarily relates to our asset management, platforms and wealth activities. The Investments, Adviser and Personal vectors are all part of this segment. Our asset management subsidiaries and our asset management associate in India, HDFC Asset Management, provide a range of investment products and services for individuals and institutional customers through a number of different investment vehicles. Our platforms include the Standard Life branded Wrap and Elevate platforms which provide administration services to advisers. Our Wealth activity primarily relates to: Aberdeen Standard Capital which manages assets for private clients, intermediaries acting for clients, charities and trustees; 1825 which undertakes our financial planning and advice activity; Parmenion which undertakes activities for clients and intermediaries; and our strategic joint venture with Virgin Money (VMUTM). The segment also includes other wholly owned activities of the Group including the corporate centre and related activities and the UK and Ireland Standard Life staff defined benefit pension plans.

Insurance associates and joint ventures

This segment comprises our life insurance associates and joint ventures in the UK (Phoenix) and China (HASL) and our life insurance business in India (HDFC Life), which was classified as an associate until 3 December 2020. These businesses offer a range of pension, insurance and savings products to the UK, European, Chinese and Indian markets.

The Group's reportable segments will be revised in 2021 to align with the growth vectors.

(b) Reportable segments - Group adjusted profit before tax and revenue information

(b)(i) Analysis of Group adjusted profit before tax

Adjusted profit before tax is the key alternative performance measure utilised by the Group's management in their evaluation of segmental performance and is therefore also presented by reportable segment.

		Asset management, platforms and wealth	Insurance associates and joint ventures	Total continuing operations	Discontinued operations	Eliminations	Total
31 December 2020	Notes	£m	£m	£m	£m	£m	£m
Fee based revenue		1,425	-	1,425	-	-	1,425
Adjusted operating expenses		(1,206)	-	(1,206)	-	-	(1,206)
Adjusted operating profit		219	-	219	-	-	219
Capital management		21	-	21	-	-	21
Share of associates' and joint ventures' profit before tax¹		44	203	247	-	-	247
Adjusted profit before tax		284	203	487	-	-	487
Tax on adjusted profit		(38)	-	(38)	-	-	(38)
Share of associates' and joint ventures' tax expense	10	(12)	(26)	(38)	-	-	(38)
Adjusted profit after tax		234	177	411	-	-	411
Adjusted for the following items
Restructuring and corporate transaction expenses	9	(326)	(29)	(355)	-	-	(355)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts²		(1,180)	(107)	(1,287)	-	-	(1,287)
Profit on disposal of interests in associates	1	263	1,595	1,858	-	-	1,858
Impairment of associates and joint ventures	16	(45)	-	(45)	-	-	(45)
Change in fair value of significant listed investments	13	-	65	65	-	-	65
Investment return variances and economic assumption changes	13	-	46	46	-	-	46
Other		22	64	86	(15)	-	71
Total adjusting items		(1,266)	1,634	368	(15)	-	353
Tax on adjusting items		53	-	53	-	-	53
Share of associates' and joint ventures' tax expense on adjusting items		20	1	21	-	-	21
Profit attributable to non-controlling interests (preference shares)		(5)	-	(5)	-	-	(5)
(Loss)/profit for the year attributable to equity shareholders of Standard Life Aberdeen plc		(964)	1,812	848	(15)	-	833
Profit attributable to non-controlling interests
Preference shares				5	-	-	5
Profit for the year				853	(15)	-	838

¹ Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Asset Management, Phoenix, HASL, VMUTM and HDFC Life (until 3 December 2020).

² Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,180m included in administrative expenses and set out in Note 15, and £107m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the consolidated income statement.

Fee based revenue is reported as the measure of revenue in the analysis of adjusted profit before tax and relates to revenues generated from external customers. Refer Note 4 for a reconciliation of fee based revenue to revenue from contracts with customers.

All interest income, interest expense, depreciation and amortisation from continuing operations relates to the Asset management, platforms and wealth segment.

In the year ended 31 December 2020, transactions with one external customer amounted to more than 10% of fee based revenue. This fee based revenue of £195m is included in the Asset management, platforms and wealth segment.

		Asset management, platforms and wealth	Insurance associates and joint ventures	Total continuing operations	Discontinued operations	Eliminations	Total
31 December 2019	Notes	£m	£m	£m	£m	£m	£m
Fee based revenue		1,634	-	1,634	-	-	1,634
Adjusted operating expenses		(1,333)	-	(1,333)	-	-	(1,333)
Adjusted operating profit		301	-	301	-	-	301
Capital management		37	-	37	-	-	37
Share of associates' and joint ventures' profit before tax¹		57	189	246	-	-	246
Adjusted profit before tax		395	189	584	-	-	584
Tax on adjusted profit		(69)	-	(69)	-	-	(69)
Share of associates' and joint ventures' tax expense	10	(21)	(25)	(46)	-	-	(46)
Adjusted profit after tax		305	164	469	-	-	469
Adjusted for the following items
Restructuring and corporate transaction expenses	9	(379)	(28)	(407)	-	-	(407)
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts²		(1,733)	(111)	(1,844)	-	-	(1,844)
Profit on disposal of interests in associates	1	205	1,337	1,542	-	-	1,542
Reversal of impairment of associates	16	-	243	243	-	-	243
Investment return variances and economic assumption changes	13	-	(25)	(25)	-	-	(25)
Other		160	(2)	158	56	-	214
Total adjusting items		(1,747)	1,414	(333)	56	-	(277)
Tax on adjusting items		41	-	41	-	-	41
Share of associates' and joint ventures' tax expense on adjusting items		(5)	43	38	-	-	38
Profit attributable to non-controlling interests (preference shares)		(5)	-	(5)	-	-	(5)
(Loss)/profit for the year attributable to equity shareholders of Standard Life Aberdeen plc		(1,411)	1,621	210	56	-	266
Profit attributable to non-controlling interests
Preference shares				5	-		5
Profit for the year				215	56		271

¹ Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Life, HDFC Asset Management, Phoenix, HASL and VMUTM.

² Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts includes £1,733m included in administrative expenses and set out in Note 15, and £111m relating to intangibles recognised on the part acquisition of associates and included in Share of profit from associates and joint ventures in the consolidated income statement.

(b)(ii) Total income and expenses

The following table provides a reconciliation of fee based revenue and adjusted operating expenses, as presented in the analysis of Group adjusted profit by segment, to total income and total expenses respectively, as presented in the IFRS consolidated income statement.

	2020		2019
	Income	Expenses	Income	Expenses
	£m	£m	£m	£m
Fee based revenue and adjusted operating expenses as presented in the analysis of Group adjusted profit by segment from continuing operations	1,425	(1,206)	1,634	(1,333)
Insurance and participating investment contract claims and change in liabilities	17	(17)	156	(156)
Change in non-participating investment contract liabilities	56	(56)	265	(265)
Change in liability for third party interest in consolidated funds	(3)	3	21	(21)
Other presentation differences	144	(144)	177	(177)
Profit on disposal of interests in associates	1,858	-	1,542	-
Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts	-	(1,180)	-	(1,733)
Other adjusting items included in income and expenses	91	(320)	161	(387)
Capital management	21	-	37	-
Total income and expenses as presented in the IFRS consolidated income statement from continuing operations	3,609	(2,920)	3,993	(4,072)

This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of fee based revenue and adjusted operating expenses. Fee based revenue and adjusted operating expenses exclude items which have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement, such as investment returns which are for the account of policyholders. Other presentation differences generally relate to items included in administrative expenses which are borne by policyholders or are directly related to fee income. Other presentation differences include commission expenses and other cost of sales which are presented in expenses in the consolidated income statement but are netted against fee based revenue in the analysis of Group adjusted profit by segment.

(c) Total income from continuing operations by geographical location

Total income from continuing operations as presented in the consolidated income statement split by geographical location is as follows:

	2020	2019
	£m	£m
UK	1,399	1,862
Europe, Middle East and Africa	180	265
Asia Pacific	1,880	1,708
Americas	150	158
Total	3,609	3,993

The income of the operating businesses shown above is allocated based on where the income is earned. The return on investment funds is allocated based on where funds are registered.

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

	2020	2019
	£m	£m
UK	629	1,700
Europe, Middle East and Africa	15	60
Asia Pacific	17	71
Americas	76	142
Total	737	1,973

Non-current non-financial assets for this purpose consist of property, plant and equipment and intangible assets.

3. Investment return

Gains and losses resulting from changes in both market value and foreign exchange on investments classified as fair value through profit or loss are recognised in the consolidated income statement in the period in which they occur. The gains and losses include investment income received such as interest payments but exclude dividend income. Dividend income is separately recognised in the consolidated income statement when the right to receive payment is established.

Interest income on financial instruments measured at amortised cost is separately recognised in the consolidated income statement using the effective interest rate method. The effective interest rate method allocates interest and other finance costs at a constant rate over the expected life of the financial instrument, or where appropriate a shorter period, by using as the interest rate the rate that exactly discounts the future cash receipts over the expected life to the net carrying value of the instrument.

	2020	2019
	£m	£m
Interest and similar income
Cash and cash equivalents	10	18
Debt securities measured at amortised cost	9	10
	19	28
Gains on financial instruments at fair value through profit or loss
Equity securities and interests in pooled investment funds (other than dividend income)	137	365
Debt securities	5	21
Derivative financial instruments	(30)	1
	112	387
Dividend income	41	52
Gains on financial instruments at amortised cost	-	1
Foreign exchange losses on financial instruments other than those at fair value through profit or loss	(9)	(4)
Investment return from continuing operations	163	464

Included in investment return from continuing operations of £163m (2019: £464m) is £49m (2019: £392m) in relation to unit linked business including (£13m) (2019: £107m) relating to operations held for sale. Investment returns relating to unit linked business are for the account of policyholders and are excluded from adjusted operating income as they have an equal and opposite effect on IFRS income and IFRS expenses in the consolidated income statement.

Following the reclassification of HDFC Life from an associate to an equity security on 3 December 2020 gains of £65m have been included in equity securities and interests in pooled investment funds (refer Note 16 for further details of the reclassification).

4. Revenue from contracts with customers

Revenue from contracts with customers is recognised as services are provided i.e. as the performance obligation is satisfied and it is highly probable that a significant reversal will not occur. Where revenue is received in advance (front-end fees), this income is deferred and recognised as a deferred income liability until the services have been provided (refer Note 35).

Revenue from contracts with customers excludes premium written and earned on insurance and participating investment contracts (Refer Note 31).

(a) Revenue from contracts with customers

The following table provides a breakdown of total revenue from contracts with customers:

	2020	2019
	£m	£m
Asset management
Management fee income - Insurance¹	216	312
Management fee income - Other clients¹	1,008	1,122
Performance fees	30	37
Revenue from contracts with customers for asset management	1,254	1,471
Fund platforms
Fee income	193	204
Other revenue from contracts with customers	80	68
Total revenue from contracts with customers from continuing operations	1,527	1,743

¹ In addition to revenues earned as a percentage of AUM, management fee income includes certain other revenues such as registration fees.

Asset management

Through a number of its subsidiaries, the Group provides asset management services to its customers. This performance obligation is performed over time with the revenue recognised as the obligation is performed. The Group generally receives asset management fees based on the percentage of the assets under management. The percentage varies depending on the level and nature of assets under management. Asset management fees are either deducted from assets or invoiced. Deducted fees are generally calculated, recognised and collected on a daily basis. Other asset management fees are invoiced to the customer either monthly or quarterly with receivables recognised for unpaid invoices. The payment terms for invoiced revenue vary but are typically 30 days from receipt of invoice. Accrued income is recognised to account for income earned but not yet invoiced. There is also some use of performance fees and carried interest arrangements. Performance fees and carried interest are earned from some investment mandates when contractually agreed performance levels are exceeded within specified performance measurement periods. Performance fees and carried interest are only recognised once it is highly probable that a significant reversal will not occur in future periods. Given the unpredictability of future performance, the risk of a significant reversal occurring will typically only be considered low enough to make recognition appropriate upon the crystallisation event occurring.

Fund platforms

Through a number of its subsidiaries, the Group offers customers access to fund platforms. The platforms give customers the ongoing functionality to manage and administer their investments. This performance obligation is performed over time with the revenue recognised as the obligation is performed. Customers pay a platform charge which is generally calculated as a percentage of their assets. The percentage varies depending on the level of assets on the specific platform. The main platform charges are calculated either daily or monthly and are collected and recognised monthly. The charges are collected directly from assets on the platform. There are no significant payment terms.

Fee income from fund platforms includes revenue passed to the product provider and included below in other cost of sales.

The revenue from the contracts with customers is reported within the Asset management, platforms and wealth segment. The following table provides a reconciliation of Revenue from contracts with customers as presented in the consolidated income statement to fee based revenue, as presented in the analysis of adjusted profit before tax for the Asset management, platforms and wealth segment.

	2020	2019
	£m	£m
Revenue from contracts with customers from continuing operations as presented in the consolidated income statement	1,527	1,743
Presentation differences
Commission expenses	(77)	(89)
Other cost of sales	(27)	(26)
Other differences	2	6
Fee based revenue from continuing operations as presented in the Asset management, platforms and wealth segment	1,425	1,634

Commission expenses and other costs of sales are netted against fee based revenue in the segment reporting but are included within expenses in the consolidated income statement. Other presentation differences relate to amounts presented in a different income line item of the consolidated income statement and charges made to third parties for expenses incurred by the Group.

(b) Contract receivables, assets and liabilities

The Group has recognised the following receivables, assets and liabilities in relation to contracts with customers.

		31 December 2020	31 December 2019	1 January 2019
	Notes	£m	£m	£m
Amount receivable from contracts with customers	21	115	130	112
Accrued income from contracts with customers	21	221	227	214
Cost of obtaining customer contracts	15	49	60	80
Deferred acquisition costs	22	4	6	6
Total contract receivables and assets		389	423	412

		31 December 2020	31 December 2019	1 January 2019
	Notes	£m	£m	£m
Deferred Income	35	73	67	75
Accruals	36	-	3	5
Total contract liabilities		73	70	80

5. Other income

The Group's other income for the year ended 31 December 2020 of £30m (2019: £178m) includes the £8m gain on the sale of SL Asia (refer Note 1). Other income for the year ended 31 December 2019 included £140m in relation to the settlement of arbitration with Lloyds Banking Group.

6. Other administrative expenses

		2020	2019
	Notes	£m	£m
Interest expense		2	5
Commission expenses		77	89
Other cost of sales		27	26
Staff costs and other employee-related costs		625	646
Short-term and low value lease rentals		3	2
Auditors' remuneration	8	8	8
Depreciation of property, plant and equipment	17	46	47
Amortisation of intangible assets	15	152	184
Impairment losses on intangible assets¹	15	149	2
Impairment losses on disposal group classified as held for sale	23	1	-
Impairment losses on property right-of-use assets	17	2	16
Other		514	626
		1,606	1,651
Acquisition costs deferred during the year		-	(2)
Amortisation of deferred acquisition costs		2	2
Total other administrative expenses from continuing operations		1,608	1,651

¹ Impairment losses on intangible assets excludes a goodwill impairment charge of £915m (2019: £1,569m) recognised separately as an individual item on the consolidated income statement. Refer Note 15.

In addition to interest expense of £2m (2019: £5m) set out above, interest expense of £24m (2019: £29m) was incurred in respect of subordinated liabilities and the related cash flow hedge (refer Note 20) and interest expense of £6m (2019: £7m) in respect of lease liabilities which are included in Finance costs in the consolidated income statement.

7. Staff costs and other employee-related costs

The following table shows the staff costs and other employee-related costs aggregated for both continuing and discontinued operations.

		2020	2019
	Notes	£m	£m
The aggregate remuneration payable in respect of employees:
Wages and salaries		465	531
Social security costs		55	63
Pension costs
Defined benefit plans		(19)	(40)
Defined contribution plans		58	58
Employee share-based payments and deferred fund awards	44	66	34
Total staff costs and other employee-related costs		625	646

In addition, wages and salaries of £28m (2019: £40m), social security costs of £4m (2019: £4m), pension costs - defined benefit plans of less than £1m (2019: less than £1m), pension costs - defined contribution plans of £1m (2019: £1m), employee share-based payments and deferred fund awards of £27m (2019: £19m) and termination benefits of £31m (2019: £67m) have been included in restructuring and corporate transaction expenses. Refer Note 9.

The average number of staff employed by the Group during the year was 6,029 (2019: 6,268). All staff were employed within the asset management, platforms and wealth segment.

Information in respect of Directors' remuneration is provided in the Directors' remuneration report on pages 73 to 95.

8. Auditors' remuneration

The following table shows the auditors' remuneration aggregated for both continuing and discontinued operations.

	2020	2019
	£m	£m
Fees payable to the Company's auditors for the audit of the Company's individual and consolidated financial statements	1.1	1.1
Fees payable to the Company's auditors for other services
The audit of the Company's consolidated subsidiaries pursuant to legislation	4.1	3.7
Audit related assurance services	2.3	2.1
Total audit and audit related assurance fees	7.5	6.9
Other assurance services	0.8	1.2
Other non-audit fee services	-	-
Total non-audit fees	0.8	1.2
Total auditors' remuneration	8.3	8.1

Auditors' remuneration disclosed above excludes audit and non-audit fees payable to the Group's principal auditor by Group managed funds which are not controlled by the Group, and therefore not consolidated in the Group's financial statements.

During the year ended 31 December 2020 no audit fees were payable in respect of defined benefit plans to the Group's principal auditor (2019: £nil).

For more information on non-audit services, refer to the Audit Committee report in Section 3 - Corporate governance statement.

9. Restructuring and corporate transaction expenses

Total restructuring and corporate transaction expenses incurred from continuing operations during the year were £297m (2019: £374m). The expenses mainly relate to ongoing transformation costs for integration, separation from Phoenix and implementing our simplified operating model. 2019 expenses also included £49m in respect of the repurchase of subordinated liabilities (refer Note 33). Deal costs relating to acquisitions included in restructuring and corporate transaction expenses for the year ended 31 December 2020 were £1m (2019: £2m).

The table below reconciles restructuring and corporate transaction expenses in the consolidated income statement with restructuring and corporate transaction expenses used to determine adjusted profit before tax.

	2020	2019
	£m	£m
Restructuring and corporate transaction expenses	297	374
Asset management joint venture and insurance associate restructuring and corporate transaction expenses	39	33
Impairment of internally generated software and right-of-use assets as a result of restructuring, which are included in Other administrative expenses	19	-
Restructuring and corporate transaction expenses used to determine adjusted profit before tax	355	407

10. Taxation

The Group's tax expense comprises both current tax and deferred tax expense.

Current tax is the expected tax payable on taxable profit for the year and is calculated using tax rates and laws substantively enacted at the balance sheet date.

A deferred tax asset represents a tax deduction that is expected to arise in a future period. It is only recognised to the extent that there is expected to be future taxable profit or investment return to offset the tax deduction. A deferred tax liability represents taxes which will become payable in a future period as a result of a current or prior year transaction. Where local tax law allows, deferred tax assets and liabilities are netted off on the statement of financial position. The tax rates used to determine deferred tax are those enacted or substantively enacted at the balance sheet date that are expected to apply when the deferred tax asset or liability are realised.

Deferred tax is recognised on temporary differences arising from investments in subsidiaries and associates unless the timing of the reversal is in our control and it is expected that the temporary difference will not reverse in the foreseeable future.

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 to equity respectively.

The Group operates in a large number of territories and during the normal course of business will be subject to audit or enquiry by local tax authorities. At any point in time the Group will also be engaged in commercial transactions the tax outcome of which may be uncertain due to their complexity or uncertain application of tax law. Tax provisions, therefore, are subjective by their nature and require management judgement based on the interpretation of legislation, management experience and professional advice. As such, this may result in the Group recognising provisions for uncertain tax positions. Management will provide for uncertain tax positions where they judge that it is probable there will be a future outflow of economic benefits from the Group to settle the obligation. In assessing uncertain tax positions management considers each issue on its own merits using their judgement as to the estimate of the most likely outcome. When making estimates, management considers all available evidence. This may include forecasts of future profitability, the frequency and severity of any losses, and statutory carry forward and carry back provisions as well as management experience of tax attributes expiring without use. Where the final outcome differs from the amount provided this difference will impact the tax charge in future periods. Management re-assesses provisions at each reporting date based upon latest available information.

(a) Tax charge in the consolidated income statement

(a)(i) Current year tax expense

	2020	2019
	£m	£m
Current tax:
UK	(1)	6
Overseas	55	49
Adjustment to tax expense in respect of prior years	9	(1)
Total current tax attributable to continuing operations	63	54
Deferred tax:
Deferred tax credit arising from the current year	(76)	(26)
Adjustment to deferred tax in respect of prior years	(2)	-
Total deferred tax attributable to continuing operations	(78)	(26)
Total tax (credit)/expense attributable to continuing operations	(15)	28

The share of associates' and joint ventures' tax expense is £17m (2019: £8m) and is included in profit before tax in the consolidated income statement in 'Share of profit from associates and joint ventures'.

In 2020 unrecognised tax losses from previous years were used to reduce the current tax expense by £1m (2019: £nil). Unrecognised tax losses and timing differences were used to reduce the deferred tax expense by £1m (2019: £1m).

Current tax recoverable and current tax liabilities at 31 December 2020 were £9m (2019: £9m) and £15m (2019: £19m) respectively. In addition current tax recoverable and current tax liabilities in relation to unit linked business were £1m (2019: £nil) and £1m (2019: £2m) respectively. Current tax assets and liabilities at 31 December 2020 and 31 December 2019 are expected to be recoverable or payable in less than 12 months.

(a)(ii) Reconciliation of tax expense

	2020	2019
	£m	£m
Profit before tax from continuing operations	838	243
Tax at 19% (2019: 19%)	159	46
Remeasurement of deferred tax due to rate changes¹	9	1
Permanent differences	(20)	(4)
Tax effect of accounting for share of profit from associates and joint ventures	(37)	(15)
Impairment losses on intangible assets	174	298
Impairment/ (reversal of impairment) of investment in associates and joint ventures	9	(46)
Differences in overseas tax rates¹	(21)	(16)
Adjustment to current tax expense in respect of prior years	9	(1)
Recognition of previously unrecognised tax credit	(2)	(1)
Deferred tax not recognised	7	13
Adjustment to deferred tax expense in respect of prior years	(2)	-
Write down of deferred tax asset	-	6
Non-taxable profit on sale of subsidiaries and associates	(303)	(254)
Other	3	1
Total tax (credit)/expense from continuing operations for the year	(15)	28

¹ 2019 figures were previously disclosed as a single line - different tax rates (£15m).

The standard UK corporation tax rate for the accounting period is 19%. In the Spring Budget 2020, the government announced that the standard UK corporation tax rate would remain at 19% from 1 April 2020 rather than reducing to 17% as previously enacted. This new legislation was substantively enacted on 17 March 2020 to repeal the planned reduction in the standard UK corporation tax rate and maintain the rate at 19%. This will impact both current tax in the UK going forward and also the valuation of deferred tax assets and liabilities in the UK, which have been revalued at the balance sheet date to take account of this change.

On 3 March 2021, the UK Government announced its intention to increase the rate of UK corporation tax rate from 19% to 25% with effect from 1 April 2023. The proposed increase in the rate of UK corporation tax is expected to be enacted in Finance Act 2021. As the rate change was not substantively enacted as at 31 December 2020, it has not been taken account of in computing the UK deferred tax assets and liabilities which are reflected in the statement of financial position for that date. However, the rate change is expected to be substantively enacted during 2021. The effect of this change in the rate of UK corporation tax if it had been substantively enacted at 31 December 2020 would have been to increase the deferred tax assets and deferred tax liabilities in the statement of financial position by £19m and £9m respectively and increase the tax credit in the income statement by £10m.

The accounting for certain items in the consolidated income statement results in certain reconciling items in the table above, the values of which vary from year to year depending upon the underlying accounting values.

Details of significant reconciling items are as follows:

· Permanent differences in 2020 include expenses and accounting losses which are not deductible for tax purposes. It also includes the difference between the tax basis and accounting value for employee share-based awards. Notably, within permanent differences, is a (£12m) tax adjustment for non-taxable fair value movements that arose following reclassification of the investment in HDFC Life.

· The share of profits from associates and joint ventures is presented net of tax in the consolidated income statement and therefore gives a reconciling item

· The impairments of both the goodwill intangible asset and investment in associates and joint ventures are not tax deductible

· Certain profits are taxed at rates which differ from the UK corporation tax rate (such as the profit attributable to our Asian business) and, in 2020, mainly comprises a non-recurring reconciling item associated with the gain arising on a sale of shares in our associate HDFC Asset Management being taxed at a rate of less than 19%. This arose because the Indian rate of tax on long-term capital gains is less than the UK corporate tax rate.

· An additional £9m tax charge arises on the revaluation of deferred tax assets and liabilities in the UK following the reversal of a proposed tax rate reduction in the UK

· The ability to value tax losses and other tax assets also affects the tax charge. We have not recognised a deferred tax asset of £7m on tax losses arising in the year due to uncertainty as to when these losses will be utilised. In addition, we have recognised £2m of previously unrecognised deferred tax assets due to evidence of their current or future utilisation.

· The sales of shares in HDFC Life did not give rise to taxable gains due to the effect of reliefs available under India's tax legislation and its international tax treaties

· A deferred tax liability of £10m has been recognised in the period in relation to our share of the unremitted earnings of HDFC AMC. This results from a change to the taxation of dividends from Indian companies under Indian tax law that took effect from 1 April 2020. The corresponding charge forms part of the tax expense in the consolidated income statement. The change also gives rise to the release of a deferred tax liability of £18m attributable to our holdings in HDFC AMC and HDFC Life that related to the taxation of undistributed reserves under the preceding Indian tax rules. This release gives rise to the recognition of an £18m credit to the Share of profit from associates and joint ventures line item in the consolidated income statement.

(b) Tax relating to components of other comprehensive income

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

	2020	2019
	£m	£m
Tax relating to defined benefit pension plan deficits	(2)	-
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	(2)	-
Tax relating to fair value losses recognised on cash flow hedges	(1)	(2)
Tax relating to cash flow hedge losses transferred to consolidated income statement	3	4
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	2	2
Tax relating to other comprehensive income from continuing operations	-	2

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

(c) Deferred tax assets and liabilities

(c)(i) Movements in net deferred tax asset/(liability)

	2020	2019
	£m	£m
Opening balance carried forward	(13)	(39)
Effect of change in accounting policy to IFRS 9¹	-	1
Effect of change in accounting policy to IFRS 16¹	-	1
Opening balance at 1 January	(13)	(37)
Reclassified as held for sale during the year	-	-
Acquired through business combinations	-	(2)
Amounts credited to the consolidated income statement	78	26
Amounts credited directly to equity in respect of employee share-based payments	-	-
Tax on defined benefit pension plan deficits	2	-
Tax on cash flow hedge	(2)	(2)
Other	-	2
Net deferred tax asset/(liability) at 31 December	65	(13)

¹ The Group has initially applied IFRS 9 and IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated.

(c)(ii) Analysis of recognised deferred tax

	2020	2019
	£m	£m
Deferred tax assets comprise:
Losses carried forward	89	40
Depreciable assets	12	12
Employee benefits	28	22
Provisions and other temporary timing differences	2	1
Gross deferred tax assets	131	75
Less: Offset against deferred tax liabilities	-	(1)
Deferred tax assets	131	74
Deferred tax liabilities comprise:
Unrealised gains on investments	4	2
Employee benefits	-	3
Temporary timing differences	-	2
Deferred tax on intangible assets acquired through business combinations	52	78
Other	10	3
Gross deferred tax liabilities	66	88
Less: Offset against deferred tax assets	-	(1)
Deferred tax liabilities	66	87
Net deferred tax asset/(liability) at 31 December	65	(13)

A deferred tax asset of £89m (2019: £40m) for the Group has been recognised in respect of losses of various subsidiaries. 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 the reversal of deferred tax liabilities and anticipated taxable profits and gains based on business plans. The deferred tax asset recognised on losses primarily relates to UK entities where there is currently no restriction on the period of time over which losses can be utilised. Recognition of this deferred tax asset requires that management must consider if it is more likely than not that this asset will be recoverable in future periods against future profits arising in the UK. In making this assessment management have considered future operating plans and forecast taxable profits and are satisfied that, following completion of transformation activities, forecast taxable profits will be sufficient to enable recovery of the UK tax losses. Based upon the level of forecast taxable profits management do not consider there is significant risk of a material adjustment to the carrying amount of the deferred tax asset on UK tax losses within the next financial year.

Deferred tax assets and liabilities are expected to be recovered or settled after more than 12 months.

(d) Unrecognised deferred tax

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

· Cumulative losses carried forward of £80m in the UK and £287m overseas (2019: £80m, £301m respectively)

Of these unrecognised deferred tax assets, certain losses have expiry dates as follows:

· US losses of £164m with expiry dates between 2027-2037 (2019: £164m)

· Other overseas losses of £26m with expiry dates before 2024 (2019: £19m)

· Other overseas losses of £22m with expiry dates between 2025 and 2030 (2019: £9m)

11. Discontinued operations

The Group classifies as discontinued operations areas of business which have been disposed of or are classified as held for sale at the year end and which either, represent a separate major line of business or geographical area, or are part of a plan to dispose of one. The results of discontinued operations are shown separately on the face of the consolidated income statement from the results of the remaining (continuing) parts of the Group's business.

The consolidated income statement loss and cash flows from discontinued operations relate solely to the UK and European insurance business which was sold in 2018 to Phoenix. For the year ended 31 December 2020, the loss from discontinued operations was £15m (2019: profit of £56m) which reflected changes in the value of contingent consideration relating to the sale. The 2020 loss includes the impact of the resolution of certain legacy issues with Phoenix, refer Note 47. For the year ended 31 December 2020, net cash flows from discontinued operations of (£42m) (2019: £63m) are included in net cash flows from investing activities. There was no other comprehensive income from discontinued operations for the year ended 31 December 2020 (2019: £nil).

12. 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 excluding shares owned by the 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.

Adjusted earnings per share is calculated on adjusted profit after tax attributable to ordinary equity holders of the Company i.e. adjusted profit net of dividends paid on preference shares.

Basic earnings per share was 37.8p (2019: 11.2p) and diluted earnings per share was 37.2p (2019: 11.1p) for the year ended 31 December 2020. The following table shows details of basic, diluted and adjusted earnings per share.

	2020			2019
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	£m	£m	£m	£m	£m	£m
Adjusted profit before tax	487	-	487	584	-	584
Tax on adjusted profit	(38)	-	(38)	(69)	-	(69)
Share of associates' and joint ventures' tax expense	(38)	-	(38)	(46)	-	(46)
Adjusted profit after tax	411	-	411	469	-	469
Dividend paid on preference shares	(5)	-	(5)	(5)	-	(5)
Adjusted profit after tax attributable to equity shareholders of the Company	406	-	406	464	-	464
Adjusting items	368	(15)	353	(333)	56	(277)
Tax on adjusting items	53	-	53	41	-	41
Share of associates' and joint ventures' tax expense on adjusting items	21	-	21	38	-	38
Profit attributable to equity shareholders of the Company	848	(15)	833	210	56	266

	Millions			Millions
Weighted average number of ordinary shares outstanding			2,202			2,374
Dilutive effect of share options and awards			37			32
Weighted average number of diluted ordinary shares outstanding			2,239			2,406

	Pence	Pence	Pence	Pence	Pence	Pence
Basic earnings per share	38.5	(0.7)	37.8	8.9	2.3	11.2
Diluted earnings per share	37.9	(0.7)	37.2	8.8	2.3	11.1
Adjusted earnings per share	18.4	-	18.4	19.5	-	19.5
Adjusted diluted earnings per share	18.1	-	18.1	19.3	-	19.3

13. Adjusted profit and adjusting items

Adjusted profit before tax is the Group's key alternative performance measure. Adjusted profit excludes the impact of the following items:

· Restructuring costs and corporate transaction expenses. Restructuring includes the impact of major regulatory change.

· Amortisation and impairment of intangible assets acquired in business combinations and through the purchase of customer contracts

· Profit or loss arising on the disposal of a subsidiary, joint venture or associate accounted for using the equity method

· Impairment loss/reversal of impairment loss recognised on investments in associates and joint ventures accounted for using the equity method

· Change in fair value of significant listed investments

· Fair value movements in contingent consideration

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

Adjusted profit also excludes impacts arising from investment return variances and economic assumption changes in the Group's insurance entities as described further below.

Dividends payable on preference shares classified as non-controlling interests are excluded from adjusted profit in line with the treatment of ordinary shares. Similarly to preference shares, coupons paid on perpetual debt instruments classified as equity for which interest is only accounted for when paid is excluded from adjusted profit. This includes our share of interest payable on Tier 1 debt instruments held by associates. Coupons payable on perpetual debt instruments classified as equity for which interest is accrued are included in adjusted profit before tax.

(a) Investment return variances and economic assumptions changes - insurance entities

Associates and joint ventures insurance entities

Where associates and joint ventures have a policy for determining investment return variances and economic assumption changes, the Group uses the policy of the associate or joint venture for including their results in the Group's adjusted profit. This currently applies only to the Group's investment in Phoenix. The Phoenix policy is described below.

The components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected returns on investments backing both owner and policyholder funds, with consistent allowance for the corresponding expected movement in liabilities, as well as the impact of changes in economic assumptions on liabilities, are excluded from adjusted profit. The impact of strategic asset allocation activities, such as investment in higher yielding illiquid assets, is also excluded from adjusted profit.

The expected return on investments backing both owner and policyholder funds is based on opening economic assumptions applied to the funds under management at the beginning of the reporting period. Expected investment return assumptions are derived actively based on market yields on risk-free fixed interest assets at the start of each financial year. Investment return variances, including those relating to owners' funds, also include gains and losses on derivatives held to hedge life company Solvency II surplus positions.

Adjusted profit includes the effect of variance in experience for non-economic items, for example mortality, persistency and expenses, and the effect of changes in non-economic assumptions. It also incorporates the impacts of significant management actions where such actions are consistent with Phoenix's core operating activities (for example, actuarial modelling enhancements and data reviews).

Wholly owned insurance entities

The Group's wholly owned insurance business, SL Asia, was sold on 30 June 2020 (refer Note 1). The policy applied to wholly owned insurance entities is similar to that used by Phoenix as described above. The main difference relevant to SL Asia is that Phoenix recognises charges on unit linked business based on expected investment returns, whereas wholly owned insurance entities use actual investment returns.

(b) Significant listed investments

Following the reclassification of HDFC Life from an associate to an equity security on 3 December 2020 fair value gains of £65m have been included in investment return in the consolidated income statement but excluded from adjusted profit (refer Note 16 for further details of the reclassification). These gains represent the impact of movements in the market value of our remaining 8.89% holding in HDFC Life from 3 December 2020 to 31 December 2020. Excluding fair value movements on significant listed investments for the purposes of adjusted profit is aligned with our treatment of gains on disposal for these holdings when they were classified as an associate, and reflects that the fair value movements are not indicative of the long-term operating performance of the group.

(c) Other

In the reconciliation of consolidated adjusted profit before tax to profit for the period the other adjusting item sub-total of £71m (2019: £214m) includes £66m which predominantly relates to our share of Phoenix gains on the acquisition of ReAssure (Refer Note 16) and the completion of the Part VII transfer of their Legal and General mature savings business. Also included is the gain on disposal of SL Asia of £8m. Net fair value movements in contingent consideration were (£10m) (2019: £61m) including (£15m) (2019: £56m) relating to discontinued operations.

The other adjusting items in 2019 included £140m relating to the settlement of arbitration with Lloyds Banking Group.

14. Dividends on ordinary shares

Dividends are distributions of profit to holders of Standard Life Aberdeen plc's share capital and as a result are recognised as a deduction in equity. Final dividends are announced with the Annual report and accounts and are recognised when they have been approved by shareholders. Interim dividends are announced with the Half year results and are recognised when they are paid.

	2020		2019
	Pence per share	£m¹	Pence per share	£m
Prior year's final dividend paid	14.3	320	14.30	345
Interim dividend paid	7.3	159	7.30	173
Total dividends paid on ordinary shares		479		518

Current year final recommended dividend	7.3	154	14.30	320

¹ Estimated for current year final recommended dividend.

The final recommended dividend will be paid on 25 May 2021 to shareholders on the Company's register as at 16 April 2021, subject to approval at the 2021 Annual General Meeting. After the current year final recommended dividend, the total dividend in respect of the year ended 31 December 2020 is 14.60p (2019: 21.60p).

15. Intangible assets

Goodwill is created when the Group acquires a business and the consideration exceeds the fair value of the net assets acquired. In determining the net assets acquired in business combinations, intangible assets are recognised where they are separable or arise from contractual or legal rights. Intangible assets acquired by the Group through business combinations consist mainly of customer relationships, technology and brands. Any remaining value that cannot be identified as a separate intangible asset on acquisition forms part of goodwill.

In addition to intangible assets acquired through business combinations, the Group recognises as intangible assets software which has been developed internally and other purchased technology which is used in managing and executing our business. Costs to develop software internally are capitalised after the research phase and when it has been established that the project is technically feasible and the Group has both the intention and ability to use the completed asset.

Intangible assets are recognised at cost and amortisation is charged to the income statement over the length of time the Group expects to derive benefits from the asset. The allocation of the income statement charge to each reporting period is dependent on the expected pattern over which future benefits are expected to be derived. Where this pattern cannot be determined reliably the charge is allocated on a straight-line basis.

Goodwill is not charged to the income statement unless it becomes impaired.

The Group also recognises the cost of obtaining customer contracts (refer Note 4) as an intangible asset. These costs primarily relate to the cost of acquiring existing investment management contracts from other asset managers and commission costs for initial investors into new closed end funds where these are borne by the Group. For the cost of obtaining customer contracts, the intangible asset is amortised on the same basis as the transfer to the customer of the services to which the intangible asset relates.

		Acquired through business combinations
		Goodwill	Brand	Customer relationships and investment management contracts	Technology	Internally developed software¹	Purchased software and other	Cost of obtaining customer contracts	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Gross amount
At 1 January 2019		3,438	93	1,019	67	121	4	96	4,838
Additions		37	-	13	-	10	3	2	65
Other		-	-	(1)	-	-	(4)	(2)	(7)
At 31 December 2019		3,475	93	1,031	67	131	3	96	4,896
Reclassified as held for sale during the year		-	-	-	(3)	(2)	-	-	(5)
Additions		-	-	-	-	2	2	8	12
At 31 December 2020		3,475	93	1,031	64	131	5	104	4,903
Accumulated amortisation and impairment
At 1 January 2019		(906)	(26)	(386)	(41)	(59)	-	(16)	(1,434)
Amortisation charge for the year		-	(19)	(111)	(13)	(20)	(1)	(20)	(184)
Impairment losses recognised²		(1,569)	-	-	(1)	(1)	-	-	(1,571)
At 31 December 2019		(2,475)	(45)	(497)	(55)	(80)	(1)	(36)	(3,189)
Reclassified as held for sale during the year		-	-	-	2	1	-	-	3
Amortisation charge for the year	6	-	(18)	(86)	(7)	(21)	(1)	(19)	(152)
Impairment losses recognised²	6	(915)	-	(134)	(1)	(14)	-	-	(1,064)
At 31 December 2020		(3,390)	(63)	(717)	(61)	(114)	(2)	(55)	(4,402)
Carrying amount
At 1 January 2019		2,532	67	633	26	62	4	80	3,404
At 31 December 2019		1,000	48	534	12	51	2	60	1,707
At 31 December 2020		85	30	314	3	17	3	49	501

¹ Included in the internally developed software of £17m (2019: £51m) is £8m (2019: £6m) relating to intangible assets not yet ready for use.

² For the year ended 31 December 2020, goodwill impairment losses of £915m (2019: £1,569m) were recognised on asset management goodwill and presented separately in the consolidated income statement.

At 31 December 2020 £85m of goodwill (2019: £85m) is attributable to a number of smaller cash-generating units in the Asset management, platforms and wealth segment. At 31 December 2020, there was no goodwill (2019: £915m) attributable to the asset management group of cash-generating units, which comprises the Group's asset management business excluding HDFC Asset Management, in the Asset management, platforms and wealth segment.

On the acquisition of Aberdeen Asset Management PLC (AAM PLC) in 2017, we identified intangible assets in relation to customer relationships, brand and technology as being separable from goodwill. Identification and valuation of intangible assets acquired in business combinations is a key judgement.

The customer relationships acquired through AAM PLC were grouped where the customer groups have similar economic characteristics and similar useful economic lives. This gave rise to three separate intangible assets which we have termed Lloyds Banking Group, open ended funds, and segregated and similar.

In relation to the open ended funds we considered that it was most appropriate to recognise an intangible asset relating to customer relationships between AAM PLC and open ended fund customers, rather than an intangible asset relating to investment management agreements between AAM PLC and AAM PLC's open ended funds. Our judgement was that the value associated with the open ended fund assets under management was predominantly derived from the underlying customer relationships, taking into account that a significant proportion of these assets under management are from institutional clients.

The intangible asset for Lloyds Banking Group had a carrying value of £nil at the end of 2019. The description of the remaining two separate intangible assets including their estimated useful life at the acquisition date of 14 August 2017 was as follows:

Customer relationship intangible asset	Description	Useful life at acquisition date	Fair value on acquisition date	Carrying value 2020	Carrying value 2019
			£m	£m	£m
Open ended funds	Separate vehicle group - open ended investment vehicles	11 years	223	87	111
Segregated and similar	All other vehicle groups dominated by segregated mandates which represent 75% of this group	12 years	427	107	280

Measuring the fair value of intangible assets acquired in business combinations required further assumptions and judgements. Customer relationships were valued using discounted cash flow projections. The key assumptions in measuring the fair value of the customer relationships at the acquisition date were as follows:

· Net attrition - net attrition represents the expected rate of outflows of assets under management net of inflows from existing customers. This assumption was primarily based on recent experience.

· Market growth - a market growth adjustment was applied based on the asset class

· Operating margin - this assumption was consistent with forecast margins and included the impact of synergies that would be expected by any market participant and impacted the Aberdeen customer relationship cash flows

· Discount rate - this assumption was based on the internal rate of return (IRR) of the transaction and is consistent with a market participant discount rate

The above assumptions, and in particular the net attrition assumption, were also used to determine the useful economic life at the acquisition date of each asset used for amortisation. The reducing balance method of amortisation is considered appropriate for these intangibles, consistent with the attrition pattern on customer relationships which means that the economic benefits delivered from the existing customer base will reduce disproportionately over time.

There has been no change to the useful lives of the Open ended funds and Segregated and similar customer relationship intangible assets. Therefore the residual useful life of the Open ended funds customer relationship intangible asset is 7.6 years and the residual life of the Segregated and similar customer relationship intangible asset is 8.6 years.

Estimates and assumptions

The key estimates and assumptions in relation to intangible assets are:

· Determination of the recoverable amount of goodwill and customer intangibles

· Determination of useful lives

Determination of the recoverable amount of goodwill and customer intangibles

For all intangible assets including goodwill, an assessment is made at each reporting date as to whether there is an indication that the goodwill or intangible asset has become impaired. If any indication of impairment exists then the recoverable amount of the asset is determined. The recoverable amounts are defined as the higher of fair value less costs of disposal (FVLCD) and the value in use (VIU) where the value in use is based on the present value of future cash flows. Where the carrying value exceeds the recoverable amount then the carrying value is written down to the recoverable amount.

In assessing value in use, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.

In 2020, an impairment of goodwill of £915m (2019: £1,569m) and an impairment of customer relationships and investment management contracts of £134m (2019: £nil) have been recognised. Both impairments relate to assets included in the Asset management, platforms and wealth segment. The impairments are included within administrative expenses in the consolidated income statement.

Goodwill

The impairment of £915m was recognised at 30 June 2020 and relates to an impairment of asset management goodwill, the group of cash-generating units for which is our asset management business excluding HDFC Asset Management and VMUTM (2019: £1,569m). The impairment resulted from the impact on reported revenue and future revenue projections of global equity market falls and a shift in asset mix towards lower margin assets. Both the fall in equity markets and the shift in asset mix were global market impacts primarily resulting from COVID-19. Additional projections were prepared to take into account these COVID-19 impacts, and uncertainties over future financial markets, and these projections were a key input to the impairment review process. The asset management goodwill recognised is now fully impaired.

The recoverable amount of this group of cash-generating units at 30 June 2020 was £1,654m, which is based on FVLCD. This is also the carrying value at 30 June 2020. The FVLCD considered a number of valuation approaches, with the primary approach being a price to earnings multiple approach. This is a level 3 measurement as it is measured using inputs which are not based on observable market data. Key assumptions used in the earnings multiples valuation approach were:

· Projected adjusted profits which were based on management forecasts of maintainable earnings and market consensus views. Revenues in the management forecasts reflected past experience and modelling based on assets under management and fee revenue yields by asset class. Equity markets in 2020 were assumed to stay broadly in line with 30 June levels. Expenses in the management forecasts were based on past experience adjusted for planned expense savings.

· Price to earnings multiples which were determined based on market data on multiples of a peer group of comparable European asset managers as at 30 June 2020

· Premiums for control and discounts for lack of liquidity which were determined based on comparable transactions adjusted to remove strategic control premiums

· The expected cost of disposal, which was based on past experience of previous transactions

In addition to the price to earnings multiple approach, other valuation approaches were considered including discounted cash flows and deriving the valuation from the market capitalisation of the Group, which gave a range of reasonable outcomes. The primary valuation approach was within this range of reasonable outcomes and reflected market conditions and uncertainties at 30 June 2020, including significant uncertainties relating to the impact of COVID-19 at that point. Under IFRS requirements an impairment of goodwill recognised in an interim period cannot be reversed due to changes in circumstances during the second half of the financial year.

The recoverable amount of this group of cash-generating units at 31 December 2019 was £2,603m based on VIU, which was assessed by management as being higher than the FVLCD. The VIU continues to be significantly reduced by the IFRS requirement to add back certain expense savings to management's expectation of the level of future operating expenses, as was also the case at 31 December 2019. Considering this, and as a result of the increased market uncertainty in the COVID-19 environment and the impact of reduced reported revenue and future revenue projections, management has now assessed that the FVLCD is higher.

For the remaining goodwill of £85m (2019: £85m), which is attributable to a number of smaller cash-generating units in the Asset management, platforms and wealth segment, we concluded that no impairment was required.

Customer relationship and investment management contract intangibles

The recoverable amount for customer relationship intangible assets for which there were indicators of impairment is VIU. In assessing VIU, expected future cash flows are discounted to their present value using a pre-tax discount rate. Judgement is required in assessing both the expected cash flows and an appropriate discount rate which is based on current market assessments of the time value of money and the risks associated with the asset.

The impairment of £134m (2019: £nil) relates to the Segregated and similar customer relationship intangible asset which was recognised on the acquisition of AAM PLC. The impairment resulted from the impact of markets, net outflows and a fall in revenue yield on future earnings expectations. The impairment was recognised at 30 June 2020. The recoverable amount of this asset which is its VIU at 30 June 2020 was £119m and was calculated using a pre-tax discount rate of 14.8%.

The other key assumptions in the VIU were:

· Future assets under management which were modelled based on past experience of attrition rates and assumed market growth rates tapered to 2% in the longer term

· Fee revenue yields based on past experience adjusted to assume a decline due to changes in asset mix over the projection period

· Operating expense margins based on past experience and management forecasts

At 31 December 2020, there is no indication that the Segregated and similar customer relationship intangible asset has become further impaired. The following table shows the consequence of illustrative downside sensitivities of key assumptions on the carrying amount of the Segregated and similar customer relationship intangible balance at 31 December 2020. An increase in the discount rate of two percentage points would not lead to a further impairment loss.

				£m
30% increase in attrition				(2)
25% one-off decrease in AUM at 1 January 2021				(12)
Operating expense margin decreased by five percentage points				(11)

Determination of useful lives

The determination of useful lives requires judgement in respect of the length of time that the Group expects to derive benefits from the asset and considers for example expected duration of customer relationships and when technology is expected to become obsolete for technology based assets. The amortisation period and method for each of the Group's intangible asset categories is as follows:

· Customer relationships acquired through business combinations - generally between 7 and 12 years, generally reducing balance method

· Investment management contracts acquired through business combinations - between 10 and 17 years, straight-line

· Brand acquired through business combinations - 5 years, straight-line

· Technology acquired through business combinations - between 3 and 6 years, straight line

· Internally developed software - between 2 and 6 years. Amortisation is on a straight-line basis and commences once the asset is available for use.

· Purchased software - between 2 and 6 years, straight-line

· Costs of obtaining customer contracts - between 3 and 12 years, generally reducing balance method

Internally developed software

The determination of amounts to be recognised as internally developed software requires judgement and assumptions in respect of whether assets are capable of being separated and the extent to which development costs form part of the separable asset. Additionally judgement is required to determine which costs have been incurred in relation to the research phase, which are not capitalised, and which have been incurred in relation to the development phase of a project, which can be capitalised. We consider that costs are directly attributable to the software asset and can therefore be capitalised, where they would not have been incurred if the software development had not taken place.

The impairment of internally developed software of £14m recognised during the year to 31 December 2020 related to software made obsolete as a result of the development of the new investment platform in the Asset management, platforms and wealth segment.

16. Investments in associates and joint ventures

Associates are entities where the Group can significantly influence decisions made relating to the financial and operating policies of the entity but does not control the entity. For entities where voting rights exist, significant influence is presumed where the Group holds between 20% and 50% of the voting rights. Where the Group holds less than 20% of voting rights, consideration is given to other indicators and entities are classified as associates where it is judged that these other indicators result in significant influence.

Joint ventures are strategic investments where the Group has agreed to share control of an entity's financial and operating policies through a shareholders' agreement and decisions can only be taken with unanimous consent.

Associates, other than those accounted for at fair value through profit or loss, and joint ventures are accounted for using the equity method from the date that significant influence or shared control, respectively, commences until the date this ceases with consistent accounting policies applied throughout.

Under the equity method, investments in associates and joint ventures are initially recognised at cost. When an interest is acquired at fair value from a third party, the value of the Group's share of the investee's identifiable assets and liabilities is determined applying the same valuation criteria as for a business combination at the acquisition date. This is compared to the cost of the investment in the investee. Where cost is higher the difference is identified as goodwill and the investee is initially recognised at cost which includes this component of goodwill. Where cost is lower a bargain purchase has arisen and the investee is initially recognised at the Group's share of the investee's identifiable assets and liabilities unless the recoverable amount for the purpose of assessing impairment is lower, in which case the investee is initially recognised at the recoverable amount.

Subsequently the carrying value is adjusted for the Group's share of post-acquisition profit or loss and other comprehensive income of the associate or joint venture, which are recognised in the consolidated income statement and other comprehensive income respectively. The Group's share of post-acquisition profit or loss includes amortisation charges based on the valuation exercise at acquisition. The carrying value is also adjusted for any impairment losses.

On partial disposal of an associate, a gain or loss is recognised based on the difference between the proceeds received and the equity accounted value of the portion disposed of. Indicators of significant influence are reassessed based on the remaining voting rights. Where significant influence is judged to have been lost, the investment in associate is reclassified to interests in equity securities and pooled investment funds measured at fair value. If an entity is reclassified, the difference between the fair value and the remaining equity accounted value is accounted for as a reclassification gain or loss on disposal.

Where the Group has an investment in an associate, a portion of which is held by, or 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 FVTPL. In general, investment vehicles which are not subsidiaries are considered to be associates where the Group holds more than 20% of the voting rights.

The level of future dividend payments and other transfers of funds to the Group from associates and joint ventures accounted for using the equity method could be restricted by the regulatory solvency and capital requirements of the associate or joint venture, certain local laws or foreign currency transaction restrictions.

(a) Investments in associates and joint ventures accounted for using the equity method

	2020			2019
	Associates	Joint ventures	Total	Associates	Joint ventures	Total
	£m	£m	£m	£m	£m	£m
At 1 January	1,257	252	1,509	1,260	184	1,444
Exchange translation adjustments	(11)	8	(3)	(16)	(11)	(27)
Additions	-	5	5	-	51	51
Disposals	(102)	-	(102)	(178)	-	(178)
Profit after tax	177	17	194	63	16	79
Other comprehensive income	-	-	-	(22)	12	(10)
Dilution gains	4	-	4	-	-	-
(Impairment)/Reversal of impairment	-	(45)	(45)	243	-	243
Distributions of profit	(80)	-	(80)	(93)	-	(93)
Reclassified to equity securities and interests in pooled investments funds	(111)	-	(111)	-	-	-
At 31 December	1,134	237	1,371	1,257	252	1,509

The following associates and joint ventures are considered to be material to the Group as at 31 December 2020.

Name of associate	Nature of relationship	Principal place of business	Measurement Method	Interest held by the Group at 31 December 2020	Fair value of interest held by the Group at 31 December 2020	Interest held by the Group at 31 December 2019	Fair value of interest held by the Group at 31 December 2019
Phoenix Group Holdings plc (Phoenix)	Associate	United Kingdom	Equity Accounted	14.42%	1,010	19.97%	1,079
HDFC Asset Management Company Limited (HDFC Asset Management)	Associate	India	Equity Accounted	21.24%	1,321	26.91%	1,937
Heng An Standard Life Insurance Company Limited (HASL)	Joint venture	China	Equity Accounted	50.00%	n/a	50.00%	n/a

The country of incorporation or registration is the same as their principal place of business. The interest held by the Group is the same as the proportion of voting rights held. The material associates are all listed. HASL is not listed.

The Group's investment in the following company was considered to be a material associate at 31 December 2019 but was reclassified to equity securities and interest in pooled investment funds during 2020. Refer Section (b) below for further details.

Name of associate	Nature of relationship	Principal place of business	Measurement Method	Interest held by the Group at 31 December 2019	Fair value of interest held by the Group at 31 December 2019
HDFC Life Insurance Company Limited (HDFC Life)	Associate	India	Equity Accounted	14.73%	1,968

(b) Investments in associates accounted for using the equity method

The table below provides summarised financial information for those associates which are considered to be material to the Group. The summarised financial information reflects the amounts presented in the financial statements or management accounts of the relevant associates amended to reflect adjustments made when using the equity method, including fair value adjustments on acquisition and not the Group's share of those amounts.

	2020		2019
	Phoenix	HDFC Asset Management¹	Phoenix	HDFC Life²	HDFC Asset Management¹
	£m	£m	£m	£m	£m
Summarised financial information of associate:
Revenue	4,704	220	4,182	3,617	276
Profit after tax (all from continuing operations)	690	132	28	128	170
Other comprehensive income	25	-	(110)	-	-
Total comprehensive income	715	132	(82)	128	170
Total assets³	334,193	474	242,666	14,607	388
Total liabilities³	326,441	28	237,043	13,818	27
Net assets	7,752	446	5,623	789	361
Attributable to NCI and other equity holders	835	-	808	-	-
Attributable to investee's shareholder	6,917	446	4,815	789	361
Interest held	14.42%	21.24%	19.97%	14.73%	26.91%
Share of net assets	998	95	962	116	97

	2020				2019
	Phoenix	HDFC Asset Management	Other⁴	Total	Phoenix	HDFC Life²	HDFC Asset Management	Other	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Carrying value of associates accounted for using the equity method	1,008	116	10	1,134	961	167	120	9	1,257
Dividends received	67	13	-	80	67	9	17	-	93
Share of profit/(loss) after tax⁴	110	48	19	177	(5)	26	42	-	63

¹ Revenue and profit after tax for HDFC Asset Management are presented for the 12 months to 31 December 2020 and total assets and total liabilities are presented as at 31 December 2020. For 2019, revenue and profit after tax for HDFC Asset Management presented were for the 15 months to 31 December 2019 (refer below for details of accounting period alignment) and total assets and total liabilities presented were as at 30 September 2019 as the statement of financial position at 31 December 2019 was not made publicly available.

² As noted above, the Group's investment in HDFC Life was reclassified to equity securities and interests in pooled investment funds in 2020 so HDFC Life was not a material associate at 31 December 2020 (refer below for further details of the reclassification).

³ As a liquidity presentation is used by insurance companies when presenting their statement of financial position, an analysis of total assets and total liabilities between current and non-current has not been provided for Phoenix and HDFC Life. The majority of HDFC Asset Management's assets and liabilities are current.

⁴ For the year ended 31 December 2020 the share of profit/(loss) after tax of £19m for Other relates to HDFC Life for the period from 1 January 2020 to 3 December 2020 prior to its reclassification to equity securities and interests in pooled funds (refer below for further details of the reclassification).

Phoenix

Phoenix is the largest life and pensions consolidator in Europe. Our investment in Phoenix supports our strategic partnership. On 23 February 2021, the Group announced a simplification and extension of the strategic partnership between the Group and Phoenix. Refer Note 47.

Following the completion of the Sale of the Group's UK and European insurance business in August 2018, as part of the total consideration, the Group was issued with new Phoenix shares representing 19.98% of the issued share capital of Phoenix. While our interest was less than 20%, being the threshold where significant influence is presumed, our judgement was that Phoenix should be classified as an associate. This judgement took into account other key indicators of significant influence from the contractual relationships with Phoenix, including the licensing to Phoenix of the Standard Life brand, and the Group's representation on the Phoenix Board.

On 22 July 2020 the Group's associate, Phoenix, announced the completion of its acquisition of ReAssure Group plc. Under the terms of the transaction, Phoenix issued 277,277,138 new ordinary shares as part consideration for the acquisition. Phoenix have recognised a gain on acquisition of £372m reflecting the excess of the fair value of the net assets acquired over the consideration paid and the Group's share of this gain is recognised in our share of profit from Phoenix. Completion of the transaction resulted in the Group's holding in Phoenix becoming 14.4% of the enlarged Phoenix Group. A dilution gain of £4m was recognised within the Profit on disposal of interests in associates in the consolidated income statement as a result of the transaction. Refer Note 1 for further details. Although our interest in Phoenix has reduced to 14.4%, taking into account our continued representation on Phoenix's board and, in particular, the contractual relationships with Phoenix, including the licencing to Phoenix of the Standard Life brand, our judgement was that Phoenix should continue to be classified as an associate.

At acquisition the value of the Group's share of Phoenix's identifiable assets and liabilities was determined. This value was determined using the same valuation bases as required for a business combination under which most of the identifiable assets and liabilities of the enlarged Phoenix group (including Standard Life Assurance Limited (SLAL)) were measured at fair value. The most significant assets that were not measured at fair value were Phoenix's defined benefit pension schemes which were measured at their IAS 19 value.

A key judgement was the identification, valuation and determination of useful lives, of the Group's share of Phoenix's intangible assets at the date of acquisition. The main intangible assets identified were the acquired present value of in-force business (AVIF) for both SLAL and other Phoenix entities. AVIF comprised the difference between the fair value and IFRS carrying value of insurance contracts together with the fair value of future profits expected to arise on investment contracts. The valuation of the AVIF was determined using the application of present value techniques to the best estimate cash flows expected to arise from policies that were in-force at the acquisition date, adjusted to reflect the price of bearing the uncertainty inherent in those cash flows. This approach incorporated a number of judgements and assumptions which impacted the resultant valuation, the most significant of which were mortality rates, expected policy lapses, the expenses associated with servicing the policies, future investment returns, the discount rate and the risk adjustment for uncertainty, determined using a cost of capital approach. The Group's share of profit after acquisition under the equity method reflects the amortisation of these intangible assets. This differs from the amortisation recognised in Phoenix's own IFRS financial statements due to the revaluation of the existing Phoenix intangible assets at August 2018 for equity method purposes. The amortisation method reflects the expected emergence of economic benefits which results in higher amortisation in earlier periods.

Following the completion of the ReAssure transaction, the Group's current share of Phoenix's intangible assets recognised at the date of acquisition has reduced from 19.98% to 14.4%. The notional partial disposal of these intangible assets results in a reduction in the corresponding amortisation recognised in the Group's share of profit under the equity method.

	Useful life at acquisition date Years	Fair value at acquisition date £m	Group's share at acquisition date¹ £m
Intangible asset:
SLAL AVIF	24	2,931	586
Existing Phoenix AVIF	15	1,503	300

¹ Based on Group's share at the date of acquisition (19.98%).

There has been no change to the useful lives of the SLAL AVIF and Existing Phoenix AVIF. Therefore the residual useful lives of these assets at 31 December 2020 are 21.7 years and 12.7 years respectively.

The determination of longevity and persistency actuarial assumptions, and the determination of the bargain purchase gain in relation to the acquisition of ReAssure are also key judgements in the determination of the Phoenix profits for 2020 and therefore the Group's carrying value of Phoenix at 31 December 2020 and share of profits for the year ended 31 December 2020.

Estimates and assumptions

A key area of estimation is determining the recoverable amount of Phoenix on a value in use basis for the purpose of assessing impairment. We consider that under IAS 28 the market value of Phoenix represents the best estimate of the present value of future dividends and therefore this market value is used as the value in use. As the value in use is based on the market value, a discount rate is not determined.

At 31 December 2020 the market value of the Group's interest in Phoenix was £1,010m which was above the carrying value so no impairment was identified.

At 31 December 2019 the market value of the Group's interest in Phoenix was £1,079m and this was used as the value in use at this date. On this basis, a reversal of a previously recognised impairment of £243m was recognised in the consolidated income statement for the year ended 31 December 2019.

The determination that market value should be used as the value in use is an area of judgement. If the recoverable amount falls below the carrying value in a future period this will result in a future impairment.

Refer Note 47 for disclosure regarding the reclassification of Phoenix from an associate to an equity investment subsequent to the year end date of 31 December 2020.

Phoenix has taken advantage of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts from applying IFRS 9 as a result of meeting the exemption criteria as at 31 December 2015.

The financial assets with contractual cash flows that are solely payments of principal and interest (excluding those held for trading or managed on a fair value basis) are set out below together with all other financial assets, measured at fair value through profit and loss.

	Fair value as at 31 December 2020	Fair value as at 31 December 2019
	£m	£m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis	13,436	6,197
Financial assets other than those above¹	298,176	218,355
Total	311,612	224,552

¹ The change in fair value in the year to 31 December 2020 of all other financial assets that are FVTPL is a gain of £11,087 (2019: gain of £20,231m).

An analysis of credit ratings of financial assets with contractual cash flows that are SPPI, excluding those held for trading or managed on a fair value basis, is provided below:

	AAA		AA		A		BBB		BB and below		Non-rated		Unit linked		Total
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Carrying value	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Loans and deposits	-	-	6	21	195	47	-	164	-	-	368	284	78	-	647	516
Cash and cash equivalents	30	295	1,728	733	7,035	3,105	193	23	-	-	4	142	2,008	40	10,998	4,338
Accrued income	-	-	-	-	-	-	-	-	-	-	251	160	-	-	251	160
Other receivables	-	-	-	-	-	-	-	-	-	-	1,540	1,183	-	-	1,540	1,183
	30	295	1,734	754	7,230	3,152	193	187	-	-	2,163	1,769	2,086	40	13,436	6,197

HDFC Asset Management

HDFC Asset Management manages a range of mutual funds and provides portfolio management and advisory services. The investment in HDFC Asset Management is a strategic investment in a leading asset manager in India, one of the world's fastest growing markets.

During 2020 the Group further reduced its interest in HDFC Asset Management to 21.24% (2019:26.91%). Refer Note 1 for further details.

The difference between the carrying value of this associate and the Group's share of net assets is due primarily to goodwill arising on the buyback of shares by HDFC Asset Management from employees.

The year end date of HDFC Asset Management is 31 March which is different from the Group's year end date of 31 December. For the purposes of the preparation of the Group's consolidated financial statements, financial information for the period to 31 December is used for HDFC Asset Management. Prior to 2019, financial information for the 12 months to 30 September was used for HDFC Asset Management and 2019 included the Group's share of HDFC Asset Management's profits for the 15 months to 31 December 2019. £42m, which included £7m relating to the three months to 31 December 2018 (£12m net of tax of £5m), was recognised in the consolidated income statement for 2019. Profits for the three months to 31 December 2018 were excluded from 2019 adjusted profit.

HDFC Life

HDFC Life is one of India's leading life insurance companies. The investment in HDFC Life allows the Group to benefit from the life insurance market in one of the world's fastest growing economies.

During 2020 the Group further reduced its interest in HDFC Life to 8.89% (2019:14.73%). Refer Note 1 for further details of the sales during 2020. While the Group's remaining interest at 31 December 2019 was less than 20%, being the threshold where significant influence is presumed, our judgement was that HDFC Life should continue to be classified as an associate. This judgement took into account other key indicators of significant influence including the Group's representation on the board of HDFC Life and the Group's ability to participate in policy-making processes including decisions about dividends or other distributions that require unanimous board approval under the articles of association. The final sale on 3 December 2020 reduced the Group's interest from 10.27% to 8.89% and the Group is no longer entitled to representation on the board of HDFC Life and, from this date, HDFC Life is no longer considered to be an associate of the Group.

On 3 December 2020, the Group's investment in HDFC Life was reclassified to equity securities and interests in pooled investment funds measured at fair value. The equity accounted value of the investment at this date was £111m. The fair value of the Group investment in HDFC Life at this date was £1,168m based on the HDFC Life share price on the date of the reclassification and a reclassification gain of £1,051m has been recognised in the consolidated income statement. On reclassification a loss of £6m was recycled from the translation reserve and was included in determining the gain.

The year end date for HDFC Life is 31 March which is different from the Group's year end date of 31 December. For the purposes of the preparation of the Group's consolidated financial statements, financial information for the period from 1 January 2020 to 3 December 2020 was used for HDFC Life (2019: as at and for the 12 months ended 31 December 2019) for equity accounting purposes. The difference between the carrying value of this associate and the Group's share of net assets at 31 December 2019 was due primarily to goodwill of £49m arising from additional investments being made at fair value rather than book value.

At 31 March 2016 HDFC Life had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities connected with insurance were over 90% of its total liabilities. Therefore HDFC Life was eligible to defer the implementation of IFRS 9 for equity accounting purposes.

As the Group's investment in HDFC Life is now measured at fair value, we are no longer applying the temporary exemption from IFRS 9 in relation to HDFC Life at 31 December 2020. The fair value of HDFC Life's financial assets at 31 December 2019 that remained under IAS 39 for equity accounting purposes and the change in fair value during the year ended 31 December 2019 were as follows:

	Fair value as at 31 December 2019
	£m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis^1,2	6,871
Financial assets other than those above²	8,046
Total	14,917

¹ Financial assets that were SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments including central and state government securities. Their carrying value at 31 December 2019 was £6,659m. Securities with fair value and carrying value of £34m were rated below BBB.

² The change in fair value in the year to 31 December 2019 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) was a gain of £758m. The change in fair value for all other financial assets is a gain of £727m.

(c) Investments in joint ventures

	HASL		Other		Total
	2020	2019	2020	2019	2020	2019
	£m	£m	£m	£m	£m	£m
Carrying value of joint ventures accounted for using the equity method	236	205	1	47	237	252
Dividends received	-	-	-	-	-	-
Share of profit/(loss) after tax	23	20	(6)	(4)	17	16

The Group's share of the profit after tax (all from continuing operations) and total comprehensive income of other joint ventures was a loss of £6m (2019: loss of £4m).

HASL

The Group has a 50% share in HASL, one of China's leading life insurance companies offering life and health insurance products. The investment in HASL is a strategic investment giving the Group access to one of the world's largest markets.

On 30 June 2020, HASL completed the acquisition of SL Asia. Refer Note 1 for further details.

The table below provides summarised financial information for HASL, the joint venture which is considered to be material to the Group. The summarised financial information reflects the amounts presented in the financial statements of HASL amended to reflect adjustments made when using the equity method.

	HASL
	2020	2019
	£m	£m
Summarised financial information of joint venture:
Revenue	481	426
Depreciation and amortisation	3	3
Interest income	57	57
Interest expense	2	2
Income tax (expense)/income	(3)	6
Profit after tax (all from continuing operations)	46	41
Other comprehensive income	1	25
Total comprehensive income	47	66
Total assets¹	3,156	1,957
Total liabilities¹	2,685	1,547
Cash and cash equivalents	122	67
Net assets	471	410
Attributable to investee's shareholder	471	410
Interest held	50%	50%
Share of net assets	236	205

¹ As a liquidity presentation is used by insurance companies when presenting their statement of financial position, an analysis of total assets and total liabilities between current and non-current has not been provided for HASL.

At 31 December 2015 HASL had significant insurance liabilities and its liabilities arising from contracts within the scope of IFRS 4 and liabilities connected with insurance were over 90% of its total liabilities. Therefore HASL was eligible to defer the implementation of IFRS 9 for equity accounting purposes.

The fair value of HASL's financial assets at 31 December 2020 that remain under IAS 39 for equity accounting purposes and the change in fair value during the year ended 31 December 2020 are as follows:

	Fair value as at 31 December 2020	Fair value as at 31 December 2019
	£m	£m
Financial assets with contractual cash flows that are solely payments of principal and interest (SPPI) excluding those held for trading or managed on a fair value basis^1,2	1,862	1,344
Financial assets other than those above²	431	598
Total	2,293	1,942

¹ Financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) are predominantly AAA debt instruments. Their carrying value at 31 December 2020 is £1,378m (2019: £1,321m). No securities are rated below BBB (2019: none).

² The change in fair value in the year to 31 December 2020 for financial assets that are SPPI (excluding those held for trading or managed on a fair value basis) is a gain of £129m (2019: £63m). The change in fair value for all other financial assets is a gain of £23m (2019: gain of £68m).

VMUTM

Other joint ventures carrying value of £1m (2019: £47m) includes £1m (2019: £47m) for VMUTM.

In 2020 an impairment loss of £45m has been recognised on the Group's interest in VMUTM (2019: £nil). The impairment resulted from a reduction in projected future revenues as a result of a business plan reassessment by the joint venture which took into account the fall in UK equity markets due to COVID-19, and an increase in projected costs to develop a new retail customer proposition. The impairment charge is recognised in the Asset management, platforms and wealth segment and is included in loss on impairment of interests in associates and joint ventures in the consolidated income statement.

The impairment was recognised at 30 June 2020. Following the impairment, the carrying value of the investment in the VMUTM joint venture at 30 June 2020 was £nil which was the recoverable amount. The recoverable amount was based on value in use (VIU), the key assumptions for which are the discount rate, terminal growth rate and forecast cash flows. The pre-tax discount rate used was 14.9% and the terminal growth rate used was 2%. Cash flow projections for the five years to 30 June 2025 were based on management approved profit forecasts, with the terminal growth rate used for subsequent years. Profits were adjusted to a cash flow basis, e.g. amortisation and depreciation removed. The VIU cash flow projections at 30 June 2020 took into account expected future capital contributions to the business.

(d) Investments in associates measured at FVTPL

The aggregate fair value of associates accounted for at FVTPL included in equity securities and interests in pooled investment funds (refer Note 19) at 31 December 2020 is £54m (2019: £45m) none of which are considered individually material to the Group.

17. Property, plant and equipment

Property, plant and equipment consists primarily of property owned and occupied by the Group and the computer equipment used to carry out the Group's business along with right-of-use assets for leased property and equipment.

Owner occupied property: Owner occupied property is initially recognised at cost and subsequently revalued to fair value at each reporting date. Depreciation, being the difference between the carrying amount and the residual value of each significant part of a building, is charged to the consolidated income statement over its useful life. The useful life of each significant part of a building is estimated as being between 30 and 50 years. A revaluation surplus is recognised in other comprehensive income unless it reverses a revaluation deficit which has been recognised in the consolidated income statement.

Equipment: Equipment is initially recognised at cost and subsequently measured at cost less depreciation. Depreciation is charged to the income statement over 2 to 15 years depending on the length of time the Group expects to derive benefit from the asset.

Right-of-use asset: Refer Note 18 below for the accounting policies for right-of-use assets.

		Owner occupied property	Equipment	Right-of-use assets - property	Right-of-use assets - equipment	Total
	Notes	£m	£m	£m	£m	£m
Cost or valuation
At 31 December 2018		2	101	-	-	103
Right-of-use assets recognised on implementation of IFRS 16¹		-	-	354	1	355
At 1 January 2019		2	101	354	1	458
Additions		-	28	74	1	103
Disposals and adjustments²		-	(3)	(9)	-	(12)
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	(11)	-	(11)
Foreign exchange adjustment		-	(1)	(4)	-	(5)
At 31 December 2019		2	125	404	2	533
Reclassified as held for sale during the year		-	(4)	(7)	-	(11)
Additions		-	13	16	1	30
Disposals and adjustments²		-	(26)	(38)	-	(64)
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	(5)	-	(5)
At 31 December 2020		2	108	370	3	483
Accumulated depreciation and impairment
At 31 December 2018		-	(42)	-	-	(42)
Right-of-use assets recognised on implementation of IFRS 16¹		-	-	(176)	-	(176)
At 1 January 2019		-	(42)	(176)	-	(218)
Depreciation charge for the year	6	-	(18)	(28)	(1)	(47)
Disposals and adjustments²		-	1	3	-	4
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	8	-	8
Impairment		-	-	(16)	-	(16)
Foreign exchange adjustment		-	-	2	-	2
At 31 December 2019		-	(59)	(207)	(1)	(267)
Reclassified as held for sale during the year		-	2	2	-	4
Depreciation charge for the year	6	-	(19)	(26)	(1)	(46)
Disposals and adjustments²		(1)	27	36	-	62
Derecognition of right-of-use assets relating to subleases classified as finance leases		-	-	3	-	3
Impairment		-	-	(2)	-	(2)
Foreign exchange adjustment		-	-	(1)	-	(1)
At 31 December 2020		(1)	(49)	(195)	(2)	(247)
Carrying amount
At 1 January 2019		2	59	178	1	240
At 31 December 2019		2	66	197	1	266
At 31 December 2020		1	59	175	1	236

¹ The Group has initially applied IFRS 16 at 1 January 2019. Under the transition methods chosen, comparative information is not restated and the cumulative effect of initially applying these standards is recognised in retained earnings at the date of initial application.

² For the year ended 31 December 2020 £26m (2019: £nil) of disposals and adjustments relates to equipment with net book value of £nil which is no longer in use.

Included in property right-of-use assets, are right-of-use assets that meet the definition of investment property. Their carrying amount at 31 December 2020 is £25m (2019: £28m). This is made up a gross carrying value of £47m (2019: £46m) and accumulated depreciation of £22m (2019: £18m). During the year to 31 December 2020 there were additions of £nil (2019: £26m), transfers to investment property of £5m (2019: £nil), depreciation of (£2m) (2019: (£2m)), derecognitions related to new subleases classified as finance leases of (£2m) (2019: (£4m)), impairments of (£2m) (2019: (£16m)) and disposals and adjustments of (£2m) (2019 £nil) related to these assets. Rental income received and direct operating expenses incurred to generate that rental income in the year to 31 December 2020 were £3m (2019: £2m) and £2m (2019: £3m) respectively. In addition, there were direct expenses of £1m (2019: £nil) in relation to investment properties not currently generating income.

The fair value of these right-of-use assets at 31 December 2020 is £25m (2019: £28m). The valuation technique used to determine the fair value considers the rental income expected to be received under sub-leases during the term of the lease and the direct expenses expected to be incurred in managing the leased property, discounted using a discount rate that reflects the risks inherent in the cash flow estimates. It is not based on valuations by an independent valuer. This is a Level 3 valuation technique as defined in Note 40.

If owner occupied property was measured using the cost model, the historical cost before impairment would be £1m (2019: £2m). As the expected residual value of owner occupied property is in line with the current fair value, no depreciation is currently charged.

Further details on the leases under which the Group's right-of-use assets are recognised are provided in Note 18 below.

18. Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. In 2019, on adoption of IFRS 16 the Group used the practical expedient permitted to apply the new standard at transition solely to leases previously identified in accordance with IAS 17 and IFRIC 4 Determining whether an Arrangement Contains a Lease.

Right-of-use assets are measured at cost less accumulated depreciation and impairment losses and are presented in property, plant and equipment (refer Note 17). The Group does not revalue its right-of-use assets. This applies to all right-of-use assets, including those that are assessed as meeting the definition of investment property. The cost comprises the amount of the initial measurement of the lease liability plus any initial direct costs and expected restoration costs not relating to wear and tear. Costs relating to wear and tear are expensed over the term of the lease. Depreciation is charged on right-of-use assets on a straight line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group assesses right-of-use assets for impairment when such indicators exist, and where required, reduces the value of the right-of-use asset accordingly.

The related lease liability (included in other financial liabilities - refer Note 36) is calculated as the present value of the future lease payments. The lease payments are discounted using the rate implicit within the lease where readily available or the Group's incremental borrowing rate where the implicit rate is not readily available. Interest is calculated on the liability using the discount rate and is charged to the consolidated income statement under finance costs.

In determining the value of the right-of-use assets and lease liabilities, the Group considers whether any leases contain lease extensions or termination options that the Group is reasonably certain to exercise.

Where a leased property has been sublet, the Group assesses whether the sublease has transferred substantially all the risk and rewards of the right-of-use asset to the lessee under the sublease. Where this is the case, the right-of-use asset is derecognised and a net investment in finance leases (included in Receivables and other financial assets - refer Note 21) is recognised, calculated as the present value of the future lease payments receivable under the sublease. Where a property is only partially sublet, only the portion of the right-of-use asset relating to the sublet part of the property is derecognised and recognised as a net investment in finance leases.

Any difference between the initial value of the net investment in finance leases and the right-of-use asset derecognised is recognised in the consolidated income statement (within other income or expenses). Interest is calculated on the net investment in finance lease using the discount rate and is recognised in the consolidated income statement as interest income.

Where the sublease does not transfer substantially all the risk and rewards of the right-of-use assets to the lessee under the sublease, the Group continues to recognise the right-of-use asset. The sub-lease is accounted for as an operating lease with the lease payments received recognised as property rental income in other income in the consolidated income statement. Lease incentives granted are recognised as an integral part of the property rental income and are spread over the term of the lease.

The Group does not recognise right-of-use assets and lease liabilities for short-term leases (less than one year from inception) and leases where the underlying asset is of low value.

(a) Leases where the Group is lessee

The Group leases various offices and equipment used to carry out its business. Leases are generally for fixed periods but may be subject to extensions or early termination clauses. The remaining periods for current leases range from less than 1 year to 18 years (2019: less than 1 year to 19 years). A number of leases which are due to end in 2031 contain options that would allow the Group to extend the lease term. The Group reviews its property use on an ongoing basis and these extensions have not been included in the right-of-use asset or lease liability calculations.

The Group has recognised the following assets and liabilities in relation to these leases where the Group is a lessee:

	2020	2019
	£m	£m
Right-of-use assets:
Property	175	197
Equipment	1	1
Total right-of-use assets	176	198

Lease liabilities	(249)	(268)

The following table provides a maturity analysis of the contractual undiscounted cash flows for the lease liabilities:

	2020	2019
	£m	£m
Less than 1 year	30	33
Greater than or equal to 1 year and less than 2 years	30	29
Greater than or equal to 2 years and less than 3 years	28	28
Greater than or equal to 3 years and less than 4 years	24	26
Greater than or equal to 4 years and less than 5 years	22	23
Greater than or equal to 5 years and less than 10 years	98	102
Greater than or equal to 10 years and less than 15 years	44	57
Greater than or equal to 15 years	10	14
Total undiscounted lease liabilities	286	312

Details of the movements in the Group's right-of-use assets including additions and depreciation are included in Note 17.

The interest on lease liabilities for the year ended 31 December 2020 was £6m (2019: £7m).

The Group does not recognise right-of-use assets and lease liabilities for short-term leases and leases where the underlying asset is of low value. The expenses for these leases for the year ended 31 December 2020 were £3m (2019: £2m).The Group lease commitment for short-term leases was £nil at 31 December 2020 (2019: £nil).

The total cash outflow for lease liabilities recognised in the consolidated statement of cash flows for the year ended 31 December 2020 was £35m (2019: £32m).

(b) Leases where the Group is lessor (subleases)

Where the Group no longer requires a leased property, the property may be sublet to a third party. The sublease may be for the full remaining term of the Group's lease or only part of the remaining term.

At 31 December 2020, the Group had a net investment in finance leases asset of £18m (2019: £15m) for subleases which had transferred substantially all the risk and rewards of the right-of-use assets to the lessee under the sublease. All other sub-leases are accounted for as operating leases. Prior to the implementation of IFRS 16, all the Group's subleases were accounted for as operating leases. The increase during the year ended 31 December 2020 was mainly due to one new sublease entered into during the year.

(b)(i) Finance leases

During the year ended 31 December 2020, the Group received finance income on the net investment in finance leases asset of less than £1m (2019: less than £1m). The Group recorded an initial gain of £2m in relation to new sub-leases entered into during the year ended 31 December 2020 (2019: £4m).

The following table provides a maturity analysis of the future contractual undiscounted cash flows for the net investment in finance leases and a reconciliation to the net investment in finance leases asset:

	2020	2019
	£m	£m
Less than 1 year	3	2
Greater than or equal to 1 year and less than 2 years	2	2
Greater than or equal to 2 years and less than 3 years	2	2
Greater than or equal to 3 years and less than 4 years	2	1
Greater than or equal to 4 years and less than 5 years	2	1
Greater than or equal to 5 years and less than 10 years	9	7
Greater than or equal to 10 years and less than 15 years	-	2
Total contractual undiscounted cash flows under finance leases	20	17
Unearned finance income	(2)	(2)
Total net investment in finance leases	18	15

(b)(ii) Operating leases

During the year ended 31 December 2020, the Group received property rental income from operating leases of £3m (2019: £2m).

The following table provides a maturity analysis of the future contractual undiscounted cash flows for subleases classified as operating leases:

	2020	2019
	£m	£m
Less than 1 year	2	3
Greater than or equal to 1 year and less than 2 years	2	3
Greater than or equal to 2 years and less than 3 years	1	2
Total contractual undiscounted cash flows under operating leases	5	8

19. Financial assets

Financial assets are initially recognised at their fair value. Subsequently all equity securities and interests in pooled investment funds and derivative instruments are measured at fair value. All equity securities and interests in pooled investment funds are classified as FVTPL on a mandatory basis. Changes in their fair value are recognised in investment return in the consolidated income statement. The classification of derivatives and the accounting treatment of derivatives designated as a hedging instrument are set out in Note 20.

The subsequent measurement of debt instruments depends on whether their cash flows are solely payments of principal and interest and the nature of the business model they are held in as follows:

SPPI¹ test satisfied?	Business model	Classification
Yes	A: Objective is to hold to collect contractual cash flows	Amortised cost²
Yes	B: Objective is achieved by both collecting contractual cash flows and selling	Fair value through other comprehensive income (FVOCI)²
Yes	C: Objective is neither A nor B	FVTPL
No	N/A	FVTPL

¹ Solely payments of principal and interest.

² May be classified as FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

The Group has no debt instruments that are managed within a business model whose objective is achieved both by collecting contractual cash flows and selling and therefore there are no debt instruments classified as FVOCI. Debt instruments classified as FVTPL are classified as such due to the business model they are managed under, predominantly being held in consolidated investment vehicles.

The methods and assumptions used to determine fair value of financial assets at FVTPL are discussed in Note 40.

Amortised cost is calculated, and related interest is credited to the consolidated income statement, using the effective interest method. Impairment is determined using an expected credit loss impairment model which is applied to all financial asset measured at amortised cost. Financial assets measured at amortised cost attract a loss allowance equal to either:

· 12 month expected credit losses (losses resulting from possible default within the next 12 months)

· Lifetime expected credit losses (losses resulting from possible defaults over the remaining life of the financial asset)

Financial assets attract a 12 month ECL allowance unless the asset has suffered a significant deterioration in credit quality or the simplified approach for calculation of ECL has been applied. As permitted under IFRS 9 Financial Instruments, the Group has applied the simplified approach to calculate the ECL allowance for trade receivables and contract assets recognised under IFRS 15 Revenue from Contracts with Customers and lease receivables recognised under IFRS 16 Leases. Under the simplified approach the ECL is calculated over the remaining life of the asset.

The table below sets out an analysis of financial assets excluding those assets backing unit linked liabilities which are set out in Note 25.

		At fair value through profit or loss¹		Cash flow hedge		At amortised cost		Total
		2020	2019	2020	2019	2020	2019	2020	2019
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Derivative financial assets	20	18	16	-	3	-	-	18	19
Equity securities and interests in pooled investment funds	40	1,980	725	-	-	-	-	1,980	725
Debt securities	40	787	769	-	-	325	602	1,112	1,371
Financial investments		2,785	1,510	-	3	325	602	3,110	2,115

Receivables and other financial assets	21	28	1	-	-	593	559	621	560
Cash and cash equivalents	24	-	-	-	-	1,519	1,615	1,519	1,615
Total		2,813	1,511	-	3	2,437	2,776	5,250	4,290

¹ All financial assets measured at fair value through profit or loss have been classified at FVTPL on a mandatory basis. The Group has not designated any financial assets as FVTPL.

The amount of debt securities expected to be recovered or settled after more than 12 months is £231m (2019: £273m). Due to the nature of equity securities and interests in pooled investment funds, there is no fixed term associated with these securities.

20. Derivative financial instruments

A derivative is a financial instrument that is typically used to manage risk and whose value moves in response to an underlying variable such as interest or foreign exchange rates. The Group uses derivative financial instruments in order to match subordinated debt liabilities and to reduce the risk from potential movements in foreign exchange rates on seed capital and co-investments and potential movements in market rates on seed capital. Certain consolidated investment vehicles may also use derivatives to take and alter market exposure, with the objective of enhancing performance and controlling risk.

Management determines the classification of derivatives at initial recognition. All derivative instruments are classified as at FVTPL except those designated as part of a cash flow hedge or net investment hedge. Derivatives at FVTPL are measured at fair value with changes in fair value recognised in the consolidated income statement.

On adoption of IFRS 9 Financial instruments in 2019, the Group has elected to continue applying the hedge accounting requirements of IAS 39. The accounting treatment below applies to derivatives designated as part of a hedging relationship.

Using derivatives to manage a particular exposure is referred to as hedging. For a derivative to be considered as part of a hedging relationship its purpose must be formally documented at inception. In addition, the effectiveness of the hedge must be initially high and be able to be reliably measured on a regular basis. Derivatives used to hedge variability in future cash flows such as coupons payable on subordinated liabilities or revenue receivable in a foreign currency are designated as cash flow hedges, while derivatives used to hedge currency risk on investments in foreign operations are designated as net investment hedges.

Where a derivative qualifies as a cash flow or net investment hedge, hedge accounting is applied. The effective part of any gain or loss resulting from the change in fair value is recognised in other comprehensive income, and in the cash flow or net investment hedge reserve in equity, while any ineffective part is recognised immediately in the consolidated income statement. If a derivative ceases to meet the relevant hedging criteria, hedge accounting is discontinued.

For cash flow hedges, the amount recognised in the cash flow hedge reserve is transferred to the consolidated income statement (recycled) in the same period or periods during which the hedged item affects profit or loss and is transferred immediately if the cash flow is no longer expected to occur. For net investment hedges, the amount recognised in the net investment hedge reserve is transferred to the consolidated income statement on disposal of the investment.

		2020			2019
		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	19,32	549	-	6	566	3	-
FVTPL/Held for trading	19,32	687	18	7	534	16	3
Derivative financial instruments	40	1,236	18	13	1,100	19	3
Derivative financial instruments backing unit linked liabilities	25	463	6	9	669	5	6
Total derivative financial instruments		1,699	24	22	1,769	24	9

Derivative assets of £nil (2019: £4m) are expected to be recovered after more than 12 months. Derivative liabilities of £5m (2019: £1m) are expected to be settled after more than 12 months.

(a) Hedging strategy

The Group generally does not hedge the currency exposure relating to revenue and expenditure, nor does it hedge translation of overseas profits in the income statement. Where appropriate, the Group may use derivative contracts to reduce or eliminate currency risk arising from individual transactions or seed capital and co-investment activity.

(a)(i) Cash flow hedges

On 18 October 2017, the Group issued subordinated notes with a principal amount of US$750m. In order to manage its foreign exchange risk relating to the principal and coupons payable on these notes the Group entered into a cross-currency swap which is designated as a cash flow hedge. The cash flow hedge was fully effective during the year. The cross-currency swap has the effect of swapping the 4.25% US Dollar fixed rate subordinated notes into 3.2% Sterling fixed rate subordinated notes with a principal amount of £569m. The cross-currency swap has a fair value liability position of £6m (2019: £3m asset). During the year ended 31 December 2020 fair value losses of £3m (2019: losses of £10m) were recognised in other comprehensive income in relation to the cross-currency swap. Losses of £19m (2019: losses of £28m) and forward points/gains of £6m (2019: gains of £6m) were transferred from other comprehensive income to investment return and finance costs respectively in the consolidated income statement in relation to the cross-currency swap during the year.

(a)(ii) FVTPL/Held for trading

Derivative financial instruments classified as FVTPL/held for trading include those that the Group holds as economic hedges of financial instruments that are measured at fair value. FVTPL/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.

	2020			2019
	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	100	1	9	177	2	1
Variance swaps	6	6	-	5	6	-
Total return swaps	-	-	-	29	-	1
Bond derivatives:
Futures	-	-	-	1	-	-
Interest rate derivatives:
Swaps	52	-	4	153	-	2
Futures	34	-	-	-	-	-
Foreign exchange derivatives:
Forwards	859	15	2	718	10	5
Other derivatives:
Inflation rate swaps	18	2	-	14	1	-
Credit default swaps	81	-	1	106	2	-
Derivative financial instruments at FVTPL/ held for trading	1,150	24	16	1,203	21	9

(b) Maturity profile

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

	Within 1 year		1-5 years		5-10 years		10-15 years		15-20 years		Greater than 20 years		Total
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cash inflows
Derivative financial assets	367	411	-	99	-	651	-	-	-	-	-	1	367	1,162
Derivative financial liabilities	183	281	93	-	607	-	-	-	-	-	-	-	883	281
Total	550	692	93	99	607	651	-	-	-	-	-	1	1,250	1,443

Cash outflows
Derivative financial assets	(360)	(386)	-	(73)	-	(633)	-	-	-	-	-	-	(360)	(1,092)
Derivative financial liabilities	(187)	(287)	(73)	(1)	(614)	(1)	-	-	-	-	-	(1)	(874)	(290)
Total	(547)	(673)	(73)	(74)	(614)	(634)	-	-	-	-	-	(1)	(1,234)	(1,382)

Net derivative financial instruments cash inflows	3	19	20	25	(7)	17	-	-	-	-	-	-	16	61

Included in the above maturity profile are the following cash flows in relation to cash flow hedge assets:

	Within 1 year		1-5 years		5-10 years		10-15 years		15-20 years		Greater than 20 years		Total
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Cash inflows	23	24	93	96	607	650	-	-	-	-	-	-	723	770
Cash outflows	(18)	(18)	(73)	(73)	(614)	(632)	-	-	-	-	-	-	(705)	(723)
Net cash flow hedge cash inflows	5	6	20	23	(7)	18	-	-	-	-	-	-	18	47

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

21. Receivables and other financial assets

		2020	2019
	Notes	£m	£m
Amounts receivable from contracts with customers	4(b)	115	130
Accrued income		227	231
Cancellations of units awaiting settlement		126	111
Net investment in finance leases		18	15
Collateral pledged in respect of derivative contracts	38	28	18
Contingent consideration asset	40	28	1
Other		79	54
Receivables and other financial assets		621	560

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 £33m (2019: £25m).

Accrued income includes £221m (2019: £227m) of accrued income from contracts with customers (refer Note 4(b)).

22. Other assets

	2020	2019
	£m	£m
Prepayments	40	48
Deferred acquisition costs	4	6
Other	2	1
Other assets	46	55

The amount of other assets expected to be recovered after more than 12 months is £4m (2019: £6m).

All deferred acquisition costs above are costs deferred on investment contracts (deferred origination costs) which relate to contracts with customers (refer Note 4(b)). The amortisation charge for deferred origination costs relating to contracts with customers from continuing operations for the year was £2m (2019: £2m).

23. Assets and liabilities held for sale

Assets and liabilities held for sale are presented separately in the consolidated statement of financial position and consist of operations and individual non-current assets whose carrying amount will be recovered principally through a sale transaction (expected within one year) and not through continuing use.

Operations held for sale, being disposal groups, and investments in associates accounted for using the equity method are measured at the lower of their carrying amount and their fair value less disposal costs. No depreciation or amortisation is charged on assets in a disposal group once it has been classified as held for sale.

Operations held for sale include newly established investment vehicles which the Group has seeded but is actively seeking to divest from. For these investment funds, which do not have significant liabilities or non-financial assets, financial assets continue to be measured based on the accounting policies that applied before they were classified as held for sale. The Group classifies seeded operations as held for sale where the intention is to dispose of the investment vehicle in a single transaction. Where disposal of a seeded investment vehicle will be in more than one tranche the operations are not classified as held for sale in the consolidated statement of financial position.

Certain amounts seeded into funds are classified as interests in pooled investment funds. Investment property and owner occupied property held for sale relates to property for which contracts have been exchanged but the sale had not completed during the current financial year. Interests in pooled investment funds and investment property held for sale continue to be measured based on the accounting policies that applied before they were classified as held for sale.

	2020	2019
	£m	£m
Assets of operations held for sale
Parmenion Capital Partners LLP	18	-
Standard Life (Asia) Limited	-	765
Investment vehicles	1	2
Assets held for sale	19	767
Liabilities of operations held for sale
Parmenion Capital Partners LLP	11	-
Standard Life (Asia) Limited	-	747
Investment vehicles	-	-
Liabilities of operations held for sale	11	747

(a)(i) Parmenion Capital Partners LLP

On 30 November 2020, the Group confirmed its exploration of the potential sale of Parmenion Capital Partners LLP (Parmenion) and has subsequently classified these operations as held for sale. Parmenion is reported in the asset management, platforms and wealth segment.

At 31 December 2020, this disposal group was measured at its carrying amount and comprised the following assets and liabilities:

	2020
	£m
Assets of operations held for sale
Intangible assets	2
Property, plant and equipment	7
Receivables and other financial assets	5
Other assets	1
Cash and cash equivalents	3
Total assets of operations held for sale	18
Liabilities of operations held for sale
Other financial liabilities	11
Total liabilities of operations held for sale	11
Net assets of operations held for sale	7

Net assets of operations held for sale are net of intercompany balances between Parmenion and other group entities, the net assets of Parmenion on a gross basis as at 31 December 2020 are £12m.

(a)(ii) Standard Life (Asia) Limited

On 30 June 2020, the Group sold its wholly owned Hong Kong insurance business, SL Asia to the Group's Chinese joint venture business, HASL. Refer Note 1 for further details. SL Asia was reported in the Asset management, platforms and wealth segment and HASL is reported within the Insurance associates and joint ventures segment. Prior to the sale SL Asia was classified as an operation held for sale.

At 31 December 2019, this disposal group was measured at fair value less cost to sell and comprised the following assets and liabilities:

	2019
	£m
Assets of operations held for sale
Equity securities and interests in pooled investment funds	674
Cash and cash equivalents	26
Other assets	65
Total assets of operations held for sale	765
Liabilities of operations held for sale
Non-participating insurance contract liabilities	647
Non-participating investment contract liabilities	49
Other liabilities	51
Total liabilities of operations held for sale	747
Net assets of operations held for sale	18

Net assets of operations held for sale were net of intercompany balances between SL Asia and the rest of the Group. The net assets of SL Asia on a gross basis as at 31 December 2019 were £18m.

Following the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell prior to the sale, an impairment loss of £1m (2019: £nil) is included in Other administrative expenses in the consolidated income statement. Fair value was determined by reference to the sale price.

24. Cash and cash equivalents

Cash and cash equivalents include cash at bank, money at call and short notice with banks, money market funds and any highly liquid investments with less than three months to maturity from the date of acquisition. For the purposes of the consolidated statement of cash flows, cash and cash equivalents also include bank overdrafts which are included in other financial liabilities on the consolidated statement of financial position.

Where the Group has a legally enforceable right of set off and intention to settle on a net basis, cash and overdrafts are offset in the consolidated statement of financial position.

	2020	2019
	£m	£m
Cash at bank and in hand	788	852
Money at call, term deposits, reverse repurchase agreements and debt instruments with less than three months to maturity from acquisition	615	698
Money market funds	116	65
Cash and cash equivalents	1,519	1,615

		2020	2019
	Notes	£m	£m
Cash and cash equivalents		1,519	1,615
Cash and cash equivalents backing unit linked liabilities	25	38	44
Cash and cash equivalents classified as held for sale	23	3	26
Bank overdrafts	36	(202)	(338)
Total cash and cash equivalents for consolidated statement of cash flows		1,358	1,347

Cash at bank, money at call and short notice and deposits are subject to variable interest rates.

Included in cash and cash equivalents and bank overdrafts are £230m (2019: £592m) and £202m (2019: £338m) respectively relating to balances within a cash pooling facility in support of which cross guarantees are provided by certain subsidiary undertakings and interest is paid or received on the net balance. Cash and cash equivalents includes an offsetting overdraft of £nil (2019: £219m) where the Group has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis.

Cash and cash equivalents in respect of unit linked funds (including third party interests in consolidated funds) are held in separate bank accounts and are not available for general use by the Group.

25. Unit linked liabilities and assets backing unit linked liabilities

The Group operates unit linked life assurance businesses through a number of subsidiaries. These subsidiaries provide investment products through a life assurance wrapper. These products do not contain any features which transfer significant insurance risk and therefore are classified as investment contracts. 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 Note 4). 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.

Where the Group is deemed to control an investment vehicle as a result of holdings in that vehicle by subsidiaries to back unit linked non-participating investment contract liabilities, the assets and liabilities of the vehicle are consolidated within the Group's statement of financial position. The liability for third party interest in such consolidated funds is presented as a unit linked liability.

Unit linked liabilities and assets backing unit linked liabilities are presented separately in the consolidated statement of financial position except for those held in operations held for sale, which are presented in assets and liabilities held for sale in the consolidated statement of financial position.

Contributions received on non-participating investment contracts and from third party interest in consolidated funds are treated as deposits and not reported as revenue in the consolidated income statement.

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

Investment return and related benefits credited in respect of non-participating investment contracts and third party interest in consolidated funds are recognised in the consolidated income statement as changes in investment contract liabilities and changes in liability for third party interest in consolidated funds respectively. Investment returns relating to unit linked business are for the account of policyholders and have an equal and opposite effect on income and expenses in the consolidated income statement with no impact on profit after tax.

Assets backing unit linked liabilities comprise financial investments, which are all classified as FVTPL on a mandatory basis, and receivables and other financial assets and cash and cash equivalents which are measured at amortised cost.

(a) Financial instrument risk management

The shareholder is not directly exposed to market risk or credit risk in relation to the financial assets backing unit linked liabilities. The shareholder's exposure to market risk on these assets is limited to variations in the value of future fee based revenue as fees are based on a percentage of fund value.

The shareholder is exposed to liquidity risk relating to unit linked funds. For the unit linked business, liquidity risk is primarily managed by holding a range of diversified instruments which are assessed against cash flow and funding requirements. A core portfolio of assets is maintained and invested in accordance with the mandates of the relevant unit linked funds. Given that unit linked policyholders can usually choose to surrender, in part or in full, their unit linked contracts at any time, the non-participating investment contract unit linked liabilities are designated as payable within one year. Such surrenders would be matched in practice, if necessary, by sales of underlying assets. Policyholder behaviour and the trading position of asset classes are actively monitored. The Group can delay settling liabilities to unit linked policyholders to ensure fairness between those remaining in the fund and those leaving the fund. The length of any such delay is dependent on the underlying financial assets.

(b) Fair value measurement of unit linked financial liabilities and financial assets backing unit linked liabilities

Each of the unit linked financial liabilities and the financial assets backing unit linked liabilities has been categorised below using the fair value hierarchy as defined in Note 40. Refer Note 40 for details of valuation techniques used.

	Level 1		Level 2		Level 3		Not at fair value		Classified as held for sale¹		Total
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Financial investments	832	1,991	545	211	18	-	-	-	-	(674)	1,395	1,528
Receivables and other financial assets	-	-	-	-	-	-	7	10	-	-	7	10
Cash and cash equivalents	-	-	-	-	-	-	38	45	-	(1)	38	44
Total financial assets backing unit linked liabilities	832	1,991	545	211	18	-	45	55	-	(675)	1,440	1,582
Investment contract liabilities	-	-	1,024	1,201	18	-	-	-	-	(49)	1,042	1,152
Third party interest in consolidated funds	-	-	388	416	-	-	-	-	-	-	388	416
Other unit linked financial liabilities	7	-	2	6	-	-	1	6	-	-	10	12
Total unit linked financial liabilities	7	-	1,414	1,623	18	-	1	6	-	(49)	1,440	1,580

¹ Financial investments in 2019 include financial assets backing unit linked liabilities classified as non-participating insurance contracts within liabilities of operations held for sale. (Refer Note 23).

The financial investments backing unit linked liabilities comprise equity securities and interests in pooled investment funds of £1,244m (2019: £1,338m), debt securities of £145m (2019: £185m) and derivative financial assets of £6m (2019: £5m). In addition to financial assets backing unit linked liabilities and unit linked financial liabilities shown above there is a current tax asset of £1m (2019: £nil) included in unit linked assets and a current tax liability of £1m (2019: £2m) included in unit linked liabilities.

The fair value of financial instruments not held at fair value approximates to their carrying value at 31 December 2020 and 31 December 2019.

Transfers from level 1 to level 2 and from level 2 to level 1 during 2020 were £309m (2019: £nil) and £nil (2019: £nil) respectively. Transfers from level 1 to level 2 in the period primarily relate to interests in pooled investment vehicles which are priced daily but where the daily price is only offered by the fund manager. The Group now considers these investments to be level 2. All other transfers relate to assets where changes in the frequency of observable market transactions resulted in a change in whether the market was considered active. The movements during the period of level 3 unit linked assets and liabilities held at fair value are analysed below.

	Equity securities and interests in pooled investment funds		Investment contract liabilities
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
	£m	£m	£m	£m
At start of period	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	(2)	-	2	-
Sales	(1)	-	1	-
Transfers in to level 3¹	21	-	(21)	-
At end of period	18	-	(18)	-

¹ Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.

Unit linked level 3 assets relate to holdings in real estate funds. No individual unobservable input is considered significant. Changing unobservable inputs in the measurement of the fair value of these unit linked level 3 financial assets and liabilities to reasonably possible alternative assumptions would have no impact on profit attributable to equity holders or on total assets.

Transfers of unit linked assets and liabilities to level 3 generally arise when external pricing providers stop providing prices for the underlying assets and liabilities in the funds or where the price provided is considered stale.

(c) Change in non-participating investment contract liabilities

The change in non-participating investment contract liabilities was as follows:

	2020	2019
	£m	£m
At 1 January	1,152	1,468
Contributions	83	158
Account balances paid on surrender and other terminations in the year	(249)	(729)
Change in non-participating investment contract liabilities recognised in the consolidated income statement¹	58	258
Recurring management charges	(2)	(3)
At 31 December	1,042	1,152

¹ Change in non-participating investment contract liabilities recognised in the consolidated income statement in the table above excludes (£2m) (2019: £7m) in relation to non-participating investment contract liabilities classified as held for sale.

(d) Derivatives

The treatment of collateral accepted and pledged in respect of financial instruments and the Group's approach to offsetting financial assets and liabilities is described in Note 38. The following table presents the impact of master netting agreements and similar arrangements for derivatives backing unit linked liabilities.

			Related amounts not offset on the consolidated statement of financial position
	Gross amounts of financial instruments as presented on the consolidated statement of financial position		Financial instruments		Financial collateral pledged/(received)		Net position
	2020	2019	2020	2019	2020	2019	2020	2019
	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Derivatives¹	5	3	-	(2)	-	-	5	1
Total financial assets	5	3	-	(2)	-	-	5	1
Financial liabilities
Derivatives¹	(2)	(5)	-	2	-	-	(2)	(3)
Total financial liabilities	(2)	(5)	-	2	-	-	(2)	(3)

¹ Only OTC derivatives subject to master netting agreements have been included above.

26. Issued share capital and share premium

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 Company's share capital consists of the number of ordinary shares in issue multiplied by their nominal value. The difference between the proceeds received on issue of the shares and the nominal value of the shares issued is recorded in share premium.

The movement in the issued ordinary share capital and share premium of the Company was:

	2020			2019
	Ordinary share capital		Share premium	Ordinary share capital		Share premium
Issued shares fully paid	13 61/63p each	£m	£m	13 61/63p each	£m	£m
At 1 January	2,338,723,724	327	640	2,529,412,224	353	640
Shares issued in respect of share incentive plans	2,188	-	-	1,114	-	-
Share buyback	(144,610,296)	(21)	-	(190,689,614)	(26)	-
At 31 December	2,194,115,616	306	640	2,338,723,724	327	640

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

On 7 February 2020, the Company announced a share buyback of up to £400m through on-market purchases which commenced on 10 February 2020. The previous buyback of up to £750m through on-market purchases which was approved by shareholders on 25 June 2018 completed in December 2019. During 2020, the Company has bought back and cancelled 144,610,296 shares (2019: 190,689,614 shares). The total consideration was £362m (2019: £516m) which includes transaction costs and any unsettled purchases of shares already transacted. At 31 December 2020, there were unsettled purchases of shares for 507,757 shares (2019: none). In addition at 31 December 2020 there was an irrevocable contractual obligation with a third party to purchase the Company's own shares of £40m (2019: £nil). This obligation has been recognised as a part of the share buyback reduction to retained earnings for the year of £402m, with a corresponding £40m liability included within other financial liabilities (refer Note 36).

The accounting treatment adopted in the Half year results 2020 did not appropriately recognise a reduction to retained earnings and a corresponding liability within other financial liabilities for such an irrevocable contractual obligation. This will be corrected, and the 30 June 2020 retained earnings and other financial liabilities restated, in the Half year results 2021.The impact will be a reduction to 30 June 2020 retained earnings of £226m and the recognition of a corresponding other financial liability. There will be no impact on 30 June 2020 reported profit, earnings per share, regulatory capital or cash flows. There is no impact of this correction on any other previous reporting periods.

This share buyback has resulted in a reduction in retained earnings of £402m (2019: £390m), There was no reduction in the special reserve for the share buyback in 2020 (2019: £126m). An amount of £21m (2019: £26m) has been credited to the capital redemption reserve relating to the nominal value of the shares cancelled.

The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders. Details of the Group's employee plans are provided in Note 44.

27. Shares held by trusts

Shares held by trusts relates to shares in Standard Life Aberdeen plc that are held by the Standard Life Aberdeen Employee Benefit Trust (SLA EBT), Standard Life Employee Trust (ET), the Aberdeen Asset Management Employee Benefit Trust 2003 (AAM EBT) and, prior to SLA plc issuing its closure instruction to the Trustees on 13 December 2019, the Standard Life Unclaimed Asset Trust (UAT). The SLA EBT was established on 28 March 2019.

The SLA EBT, ET and AAM EBT purchase shares in the Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them. Where new shares are issued to the SLA EBT, ET or AAM EBT the price paid is the nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.

The number of shares held by trusts was as follows:

	2020	2019
Number of shares held by trusts
Standard Life Aberdeen Employee Benefit Trust	37,667,681	15,378,831
Standard Life Employee Trust	23,773,359	26,685,390
Aberdeen Asset Management Employee Benefit Trust 2003	6,294,765	10,579,914

28. Retained earnings

The following table shows movements in retained earnings during the year. The movements are aggregated for both continuing and discontinued operations.

		2020	2019
	Notes	£m	£m
Opening balance carried forward		2,886	2,778
Effect of change in accounting policy to IFRS 9¹		-	(12)
Effect of change in accounting policy to IFRS 16¹		-	(5)
Opening balance at 1 January		2,886	2,761

Recognised in comprehensive income
Recognised in profit for the year attributable to equity holders		833	266
Recognised in other comprehensive income
Remeasurement gains/(losses) on defined benefit pension plans	34	280	(23)
Share of other comprehensive income of associates and joint ventures		-	(10)
Equity holder tax effect of items that will not be reclassified subsequently to profit or loss	10	2	-
Total items recognised in comprehensive income		1,115	233

Recognised directly in equity
Dividends paid on ordinary shares		(479)	(518)
Reclassification of preference shares to liability	30,33	(1)	-
Shares buyback	26	(402)	(390)
Transfer between reserves on impairment of subsidiaries	29	1,834	780
Transfer for vested employee share-based payments		38	57
Transfer from the Standard Life Unclaimed Asset Trust		-	1
Shares distributed by employee and other trusts		(21)	(38)
Total items recognised directly in equity		969	(108)
At 31 December		4,970	2,886

29. Movements in other reserves

In July 2006 Standard Life Group demutualised and during this process the merger reserve, the reserve arising on Group reconstruction and the special reserve were created.

Merger reserve: the merger reserve consists of two components. Firstly at demutualisation in July 2006 the Company issued shares to former members of the mutual company. The difference between the nominal value of these shares and their issue value was recognised in the merger reserve. The reserve includes components attaching to each subsidiary that was transferred to the Company at demutualisation based on their fair value at that date. Secondly following the completion of the merger of Standard Life plc and AAM PLC on 14 August 2017, an additional amount was recognised in the merger reserve representing the difference between the nominal value of shares issued to shareholders of AAM PLC and their fair value at that date. On disposal or impairment of a subsidiary any related component of the merger reserve is released to retained earnings.

Reserve arising on Group reconstruction: The value of the shares issued at demutualisation was equal to the fair value of the business at that date. The business's assets and liabilities were recognised at their book value at the time of demutualisation. The difference between the book value of the business's net assets and its fair value was recognised in the reserve arising on Group reconstruction. The reserve comprises components attaching to each subsidiary that was transferred to the Company at demutualisation. On disposal of such a subsidiary any related component of the reserve arising on Group reconstruction is released to retained earnings.

Special reserve: Immediately following demutualisation and the related initial public offering, the Company reduced its share premium reserve by court order giving rise to the special reserve. Dividends can be paid out of this reserve.

Capital redemption reserve: In August 2018, as part of the return of capital and share buyback (refer Note 26) the capital redemption reserve was created.

The following tables show the movements in other reserves during the year. The movements are aggregated for both continuing and discontinued operations.

		Cash flow hedges	Foreign currency translation	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January 2020		4	3	2,317	54	115	(685)	1,037	2,845
Recognised in other comprehensive income
Fair value losses on cash flow hedges		(3)	-	-	-	-	-	-	(3)
Exchange differences on translating foreign operations		-	(8)	-	-	-	-	-	(8)
Items transferred to profit or loss from continuing operations		13	6	-	-	-	-	-	19
Aggregate tax effect of items recognised in other comprehensive income		(2)	-	-	-	-	-	-	(2)
Total items recognised in other comprehensive income		8	(2)	-	-	-	-	-	6
Recognised directly in equity
Share buyback	26	-	-	-	-	-	-	21	21
Reserves credit for employee share-based payments		-	-	-	64	-	-	-	64
Transfer to retained earnings for vested employee share-based payments		-	-	-	(38)	-	-	-	(38)
Transfer between reserves on impairment of subsidiaries		-	-	(1,834)	-	-	-	-	(1,834)
Total items recognised directly within equity		-	-	(1,834)	26	-	-	21	(1,787)
At 31 December 2020		12	1	483	80	115	(685)	1,058	1,064

The merger reserve includes £470m (2019: £2,304m) in relation to the Group's asset management businesses. Following the impairment of the Company's investments in its asset management entities (refer Section 8), £1,834m (2019: £780m) was transferred from the merger reserve to retained earnings to mitigate the impact on distributable reserves.

		Cash flow hedges	Foreign currency translation	Available-for-sale financial assets	Merger reserve	Equity compensation reserve	Special reserve	Reserve arising on Group reconstruction	Capital redemption reserve	Total
	Notes	£m	£m	£m	£m	£m	£m	£m	£m	£m
31 December 2018		(6)	49	7	3,097	68	241	(685)	1,011	3,782
Effect of change in accounting policy to IFRS 9¹		-	-	(7)	-	-	-	-	-	(7)
1 January 2019		(6)	49	-	3,097	68	241	(685)	1,011	3,775
Recognised in other comprehensive income
Fair value losses on cash flow hedges		(10)	-	-	-	-	-	-	-	(10)
Exchange differences on translating foreign operations		-	(46)	-	-	-	-	-	-	(46)
Items transferred to profit or loss from continuing operations		22	-	-	-	-	-	-	-	22
Aggregate tax effect of items recognised in other comprehensive income		(2)	-	-	-	-	-	-	-	(2)
Total items recognised in other comprehensive income		10	(46)	-	-	-	-	-	-	(36)
Recognised directly in equity
Share buyback	26	-	-	-	-	-	(126)	-	26	(100)
Reserves credit for employee share-based payments		-	-	-	-	43	-	-	-	43
Transfer to retained earnings for vested employee share-based payments		-	-	-	-	(57)	-	-	-	(57)
Transfer between reserves on impairment of subsidiaries		-	-	-	(780)	-	-	-	-	(780)
Total items recognised directly within equity		-	-	-	(780)	(14)	(126)	-	26	(894)
At 31 December 2019		4	3	-	2,317	54	115	(685)	1,037	2,845

¹ The Group has initially applied IFRS 9 at 1 January 2019. Under the transition method chosen, comparative information is not restated and the cumulative effect of initially applying this standard is recognised in retained earnings at the date of initial application.

30. Non-controlling interests

Non-controlling interests included preference shares.

(a) Non-controlling interests - ordinary shares

Non-controlling interests - ordinary shares of £3m were held at 31 December 2020 (2019: £3m).

(b) Non-controlling interests - preference shares

	2020	2019
	£m	£m
5% 2015 Non-voting perpetual non-cumulative redeemable preference shares	-	99

The Group recognised preference shares issued by AAM PLC as non-controlling interests. On 4 June 2020, AAM PLC notified the holders of the redeemable preference shares of its irrevocable intention to redeem the preference shares. Following notification the preference shares were reclassified as subordinated liabilities as an obligation to deliver cash was created. Refer Note 33.

The profit attributable to these non-controlling interests from continuing operations for the year ended 31 December 2020 was £5m (2019: £5m). Preference share dividends were discretionary and where declared, were paid in arrears in two tranches at a rate of 5% per annum and were non-cumulative. No interest accrued on any cancelled or unpaid dividends. During the year ended 31 December 2020 preference share dividends of £5m (2019: £5m) were paid including £2m paid as part of the redemption of the preference shares on 8 July 2020. Refer Note 33.

Overview
Materiality: Group financial statements as a whole	£25m (2019: £31m) 2.7% (2019:4.4%) of normalised profit before tax
Coverage	90% (2019:97%) of profits and losses that made up Group profit before tax
Key audit matters		vs 2019
Recurring risks (Group and Parent Company)	Recoverability of goodwill and of certain of the parent's investment in subsidiaries
Recurring risk (Group)	Carrying value of investment in Phoenix and the related share of profit
New risk (Group)	Impairment of Intangible Assets
Recurring risk (Group)	Valuation of UK defined benefit pension scheme obligation

In our opinion:

Basis for opinion

3. Our application of materiality and an overview of the scope of our audit

4. Going concern

5. Fraud and breaches of laws and regulations - ability to detect

Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations

Context of the ability of the audit to detect fraud or breaches of law or regulation

6. We have nothing to report on the other information in the Annual report and Accounts

Strategic report and Directors' report

Directors' remuneration report

Disclosures of emerging and principal risks and longer-term viability

Corporate governance disclosures

7. We have nothing to report on the other matters on which we are required to report by exception

8. Respective responsibilities

Auditor's responsibilities

9. The purpose of our audit work and to whom we owe our responsibilities

(a) Basis of preparation

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

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

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

(a)(iv) Foreign currency translation

(a)(v) Going concern

(b) Basis of consolidation

Notes to the Group financial statements

(b) Acquisitions

(b)(i) Prior year acquisitions of subsidiaries

(b)(ii) Prior year acquisitions of joint ventures

(c) Disposals

HDFC Life Insurance Company Limited (HDFC Life)

HDFC Asset Management Company Limited (HDFC Asset Management)

Phoenix Group Holdings (Phoenix)

HDFC Life

HDFC Asset Management

2. Segmental analysis

(a) Basis of segmentation

Continuing operations:

(c) Total income from continuing operations by geographical location

3. Investment return

4. Revenue from contracts with customers

Asset management

Fund platforms

(b) Contract receivables, assets and liabilities

5. Other income

6. Other administrative expenses

9. Restructuring and corporate transaction expenses

10. Taxation

(a) Tax charge in the consolidated income statement

(b) Tax relating to components of other comprehensive income

(c) Deferred tax assets and liabilities

(d) Unrecognised deferred tax

11. Discontinued operations

12. Earnings per share

13. Adjusted profit and adjusting items

(a) Investment return variances and economic assumptions changes - insurance entities

Wholly owned insurance entities

(b) Significant listed investments

(c) Other

14. Dividends on ordinary shares

15. Intangible assets

Determination of the recoverable amount of goodwill and customer intangibles

Goodwill

Customer relationship and investment management contract intangibles

Determination of useful lives

Internally developed software

16. Investments in associates and joint ventures

(a) Investments in associates and joint ventures accounted for using the equity method

(b) Investments in associates accounted for using the equity method

Phoenix

HDFC Asset Management

HDFC Life

(c) Investments in joint ventures

HASL

VMUTM

(d) Investments in associates measured at FVTPL

17. Property, plant and equipment

18. Leases

(a) Leases where the Group is lessee

(b) Leases where the Group is lessor (subleases)

(b)(i) Finance leases

(b)(ii) Operating leases