Scottish Widows faces a compensation claim for up to £1bn after allegedly giving negligent advice to about 100 company pension schemes. The firm, which is owned by Lloyds TSB, has been accused of encouraging the schemes to give up guaranteed returns and protections against the risk of pensioners living for longer than expected.
According to an independent consultancy, the Actuarial Review Company (Arc), the pension funds› trustees were advised to switch investments from guaranteed deferred annuity funds into a Scottish Widows managed fund with a high exposure to shares. The moves, made in 1999 and 2000 at the height of the dotcom boom, saw the investments give up a guaranteed return of about 7% a year and removed protection for the funds from improved lifespan projections, which have led to much higher pension scheme costs.