Insurer faces 'mis-selling' claim

About 100 pension schemes were misled, it is claimed

Life insurance firm Scottish Widows is facing a legal claim over alleged mismanagement of pension fund schemes.

Scottish Widows is accused of giving "negligent" advice that cost about 100 pension schemes more than £300m, an independent actuarial consultancy says.

The Actuarial Review Company (Arc) said it had sent a dossier of complaint to the Financial Services Authority.

Scottish Widows said that it was not aware of the dossier and so could not make a "substantive" comment.

The allegations made in the dossier were first reported in the Sunday Times.

Scottish Widows said: "To our knowledge we are not in receipt, and have had no advance notification, of the dossier that has been reportedly submitted to the FSA, Pensions Regulator and Actuarial profession.

Investigation into the claims made in the Sunday Times article will continue once we are in receipt of the dossier Scottish Widows

"As a result it is very difficult to make any substantive comment on its content."

Scottish Widows, which is owned by Lloyds TSB, added: "We are only aware of one complaint ever being lodged from a company pension scheme relating to a similar issue to the one described in the (Sunday Times) article and we are not able to comment on specific cases."

The company also said it had no knowledge of any company pension scheme managed by Scottish Widows having contact with Arc.

"Investigation into the claims made in the Sunday Times article will continue once we are in receipt of the dossier," Scottish Widows said.

Allegations

The allegations were made by Arc, an independent actuarial consultancy set up by directors Roger MacNicol and Allan Cook to provide investment advice to pension trustees and employers.

They relate to Scottish Widows advice given in 1999 and 2000 at the height of the stock market boom and at the time of the take-over of Scottish Widows by Lloyds TSB.

Then, Arc claims, the pension fund schemes were encouraged by Scottish Widows actuaries to give up appropriately invested plans, yielding returns of around 7% a year in addition to guaranteed annuity rates.

The schemes were advised to switch to the Scottish Widows Managed Fund, a higher-risk investment vehicle with much more exposure to shares, and surrender their annuity rate guarantees.

Arc claims that a consequence of this was to transfer the risk of pensioners living longer away from the Scottish Widows balance sheet and onto the individual company pension plans.

Arc considers the advice to have been motivated by self-interest and not in the best interests of the pension funds.

'Abdicating responsibility'

Since the switch, Arc alleges the Scottish Widows Managed Fund has performed poorly and annuity rates have fallen to reflect lower interest rates and improved life expectancy - a situation that has collectively cost the schemes about £300m.

"Life assurance companies exist to assume risk but this is yet another example of a major brand simply abdicating its responsibility to its clients by shifting risk off its own books and onto the less powerful shoulders of clients," said Arc director Roger MacNicol.

"As a result, the schemes are significantly less well funded, less solvent; and require a higher contribution rate from both employer and employee. In some cases the schemes have been forced to close," he added.

Arc is urging Scottish Widows to agree to work with the group to grant compensation or restitution to the affected schemes.

It expects one pension scheme to take legal action within days.

But Scottish Widows said it was not aware of any High Court action being taken against it by a company pension scheme on the matter.