UK - The Actuarial Review Company (ARC) says it is now in talks with more than 20 sets of trustees who believe they may have suffered from  allegedly negligent advice given by Scottish Widows to switch from a deferred annuity guaranteed contract to the insurer's pensions managed fund.

In May, an unnamed set of trustees launched a legal action against Scottish Widows in which it claimed internal Scottish Widow actuaries, instead of independent actuaries, advised scheme to switch contracts without explaining the costs of the guarantees being forfeited. [See earlier article: Scot Wids may face £1bn 'negligent' advice claims]

ARC believed around 100 final salary schemes may have been affected by the issue, including the scheme currently pursuing legal action, and in the last five weeks it has begun discussions with more than 20 sets of trustees from other schemes.

As a result ARC has been gathering documentation from affected schemes and now says it has proof that the advice letters sent to the schemes by the Scottish Widows actuaries in the period in question - 1999/2000 - are identical and not scheme specific.

Roger MacNicol, director of ARC, claimed the only thing differentiating the letters was the name of the scheme, as the letters contained no reference to the funding of the schemes; the membership profiles, contribution rates or anything else that might be considered to be scheme-specific.

In addition, ARC claimed that the 'advice' focused on what would be the effect of not switching from the with-profits deferred guaranteed annuity contract to the Scottish Widows Pensions Managed fund, rather than what the scheme would be giving up.

MacNicol said: "The trustees need to know what they are giving up by switching from one contract to another, and this was not explained to them by their actuary."

"This was a standard letter that was sent out, it was not scheme specific. The schemes' believed the actuary was working for them and so trusted the advice given. Despite suggestions that trustees should have sought independent advice, there would be no reason for an IFA to get involved as it was an actuarial matter," he added.

The legal papers for the case against Scottish Widows have now been filed with the courts, and once both sides are satisfied with the documentation a date for the hearing will be confirmed.
However, Scottish Widows has rejected the allegations that it had given "negligent" advice to 100 DB schemes, and claimed that it has had no contact with ARC and has not received a copy of the dossier outlining the allegations.

A statement from the insurer said: "Normal professional practice, and standard industry procedure, would be for a complaint to be lodged directly with the provider involved. ARC has failed to do this, but instead has attacked us by means of a planned PR campaign. This is a wholly inappropriate way to conduct business."

The firm added, "as a result, Scottish Widows is seeking legal advice over the conduct of ARC".

Scottish Widows  admitted it had received one claim from a DB scheme which could relate to the matter, but said "to the best of our knowledge" ARC was not representing the complainant and revealed the claim had been rejected following legal and actuarial advice.

The legal action has highlighted the potential conflicts of interest arising from an employer opting for a "bundled" pension offering - which includes the appointment of a scheme actuary - when setting up a scheme. 

As a result it has been suggested that if the current case is successful other insurers that offered this "bundled" approach - either in the past or currently - could face similar legal actions.

However, MacNicol warned that as ARC continues its discussions with the other trustees, it is likely that "more cases will be raised in the future" against Scottish Widows. It is yet unclear, should they proceeed, whether they would be on an individual basis, or whether some schemes might join together to try form some type of class action.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email