Widows faces court challenge over deferred annuity guarantee advice

ARC claims several other boards of trustees have contacted it since it accused Scottish Widows giving negligent advice to around 100 final salary pension schemes causing an alleged loss of £300m.

The consultancy says its lawyers will be issuing a writ in the High Court next Monday on behalf of trustees seeking compensation for advising them to switch from deferred annuity guarantee contracts into the Scottish Widows Managed fund.

Scottish Widows says it has yet to hear from the trustees concerned, who intend t remain anonymous until the writ has been issued, and has only received one complaint on the issue to date. It says it could not comment on the allegations because that complaint had not yet been concluded.

ARC alleges that Scottish Widows, acting in the capacity of actuarial adviser, recommended that lay trustees switch out of with-profits guaranteed deferred annuity funds guaranteeing 7 per cent annual into its Managed fund. It says after the transfer the fund would have had to return 10 per cent a year to break even. The alleged negligent advice relates to switches made in 1999 and 2000.

The consultancy says a further 99 schemes could be affected, creating a total compensation bill of £300m, although Scottish Widows would have to reserve nearer £1bn if it were to restore the benefits.

ARC has also asked the FSA to investigate the issue.

ARC Director, Roger MacNicol says: “The switch advice was given by employees of Scottish Widows, not by independent actuaries. Was the advice in the interests of the pension schemes or was it in the interests of the Scottish Widows? Was there a fundamental conflict of interest? One man’s liability is another man’s asset – a reduced liability for Scottish Widows is reflected by a reduced asset base for these schemes.

“The scheme went from being told it could have a pensions holiday for 13 years to having a deficit such that a contribution in excess of 25 per cent of fund value had to be made.”

A spokeswoman for Scottish Widows says: “We have to treat these figures with caution as we haven’t received anything from this company yet. That makes it difficult to answer these allegations.”


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