The Actuarial Review Company claims Widows advised schemes in 1999 and 2000 to give up deferred annuity guaranteed contracts, which guaranteed a 7 per cent annual yield, in favour of its pension managed fund, which has yielded around 3.5 per cent from 1999 to May 2008.
According to Arc, which advises one of the schemes, the schemes collectively lost over 300m as a result of the transfer. It believes if all the schemes took action, then the life office might have to pay as much as 1bn in costs and compensation to reinstate contracts.
Arc has sent a dossier to the FSA, urging it to launch an immediate investigation.
Arc alleges that advice was given by Widows’ actuaries rather than independent actuaries and claims this would represent “mismanagement of a conflict of interest”.
Director Allan Cook says: “Schemes with several thousand members were advised by internal Scottish Widows actuaries to switch out of the DAGs into the Widows managed fund. The switches involved schemes giving up guaranteed returns and mortality guarantees. The nature of the advice appeared to be biased and in line with Scottish Widows’ objectives to relieve themselves of guarantees and release reserves.”
Widows says it is unaware of the legal action. A spokeswoman says: “To our knowledge, we are not in receipt and have no advance notification of the dossier that has been reportedly submitted to the FSA, FOS, The Pensions Regulator and The Actuarial Profession. As a result, it is very difficult to make any substantive comment on its content. We are only aware of one complaint ever being lodged from a company pension scheme relating to a similar issue to the one described. We are not aware of any High Court action being taken against Scottish Widows by a company pension scheme on this issue.”
The complaint referred to by Scottish Widows is believed to be Arc’s client, which first lodged a complaint in May 2007. Arc says that trustees from two other schemes have already begun talks with it on the issue.
The FSA declined to comment on the issue.