Scottish Widows faces a legal claim for up to £1 billion in compensation over allegations that it gave “negligent” advice to about 100 company pension schemes.

The life assurer, owned by Lloyds TSB, has been accused of encouraging the schemes to give up guarantees that protected against the risk of pensioners living for longer than expected.

In 1999 and 2000, at the height of the stock-market boom, it is alleged the schemes were advised to switch investments into a Scottish Widows fund with a high exposure to shares. In effect, this transferred the risk of pensioners living longer from the Scottish Widows balance sheet to the individual company plans.

It is alleged that the 100 schemes have lost a collective sum of £300m as a result of the switch. It is also claimed that to restore the benefits of the guarantees could cost as much as £1 billion.

The allegations are detailed in a dossier filed on Friday afternoon with the Financial Services Authority, which is also being sent to the Pensions Regulator, the Pensions Ombudsman and The Actuarial Profession, the professional body that monitors actuaries.

A High Court action is expected to be launched by one of the company schemes within days.

The alleged discrepancies have been raised by the Actuarial Review Company (Arc), an independent consultancy that worked with one of the schemes. It later conducted its own investigations, which led to the discovery of the other schemes allegedly affected.

All the pension schemes involved employed Scottish Widows as their scheme actuary – the official external adviser appointed by pension trustees to give independent advice on the funding of a pension scheme.

The 100 schemes are all in talks with Arc, the dossier claims. The report alleges that Scottish Widows breached rules on conflicts of interest by giving the advice to the schemes.

Letters sent by Scottish Widows to the schemes offered “incentives” to make the investment switch, the dossier alleges. The letters acknowledged potential conflicts of interest. A letter seen by The Sunday Times, dated June 22, 1999, told one pension scheme’s trustees that Scottish Widows would offer incentives on the condition that they made a decision within six months.

The letter made no reference to the guarantees being surrendered, only to the higher returns that could be achieved by increasing exposure to equities.

The advice to switch was based on the premise that higher returns were needed to close schemes’ funding deficits.

Arc alleges that unreasonable assumptions were used as the basis for this advice. The firm also claims that its work on the dossier has been verified by another firm of independent actuaries, and a senior legal counsel.

Scottish Widows is expected to dispute the claims, which have been the subject of private correspondence since June 2006.

It said: “Scottish Widows is not in a position to discuss the details of any case while in the complaint process system. We will review the specifics of the case and speak to the individuals involved before making any public comment.”

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