Desperately seeking some explanation of the Scottish Widows pension

LAST week's story about Scottish Widows and its confusing method of bonus payments certainly caused a bit of a stir.

If you remember, several of our readers, including some of Britain's toplawyers and accountants, have complained to the Financial Ombudsman that they are being penalised by receiving lower annual bonuses from Scottish Widows, simply because their pensions have guarantees.

As they see it, the fact that they are receiving a 1% annual bonus, compared to a 3% bonus paid to those without guarantees, means that they are being discriminated against. This, they argue, is in stark contravention of the House of Lords' judgement in the Equitable Life case which ruled that it was unlawful to discriminate between different classes of policyholders.

I did enjoy the statement Scottish Widows put out on Monday which began:

"Contrary to weekend press reports ..." You always know you've got them on the run when that's the best they can throw at you.

To be fair, Widows does have an explanation for the reasons why it is calculating its bonuses in this particular way. It's just that I don't understand it, and I am in good company: neither do all the lawyers, accountants and independent advisers I know.

I was much heartened though to read the follow-ups in other newspapers, which displayed all the coherence of an over-wound monkey grinder. The Independent said it all came down to the cash lump sum. Well, that was the first-time anyone had mentioned the cash lump sum to me. The Daily Telegraph had it that only top-up policies were affected. This is simply not true because we know precisely what investments those who are complaining had, and they are not top-up policies.

This means that either the journalists on those newspapers are as stupid as I am for not understanding what it is the company is trying to tell us ...

or that Scottish Widows is making it hard for anyone to understand.

Now we must be careful here, because Scottish Widows is a very fine company and nobody wants to suggest that it is in some way behaving in an underhand fashion. If it sees a problem looming on the horizon, it is perfectly within its duty to attempt to ameliorate the fall-out from any such difficulty. Any company would do the same.

`Nobody wants to suggest Widows is behaving in an underhand fashion' But its response to last week's story has some way to go to instill confidence. It has publicly stated that this problem has nothing to do with guaranteed annuity rates, which triggered the collapse of Equitable. Yet it is indeed about pensions with underlying guarantees, which a senior member of the company described to me as "effectively guaranteed annuities".

Someone is playing with words here, and it isn't me.

Last week, we spoke of statements which included a footnote explaining that those who were paid less got less because they had guarantees. On Monday, the company said it didn't know of the existence of this literature.

But I have seen it with my own eyes. It certainly exists.

We also revealed that a meeting was being planned between the company, the Financial Ombudsman and the complainants to attempt to resolve the situation.

Scottish Widows said it knew of no meeting. Yet I have seen the letters inviting complainants to the said meeting, and the Financial Ombudsman confirmed it was simply a matter of fixing the date.

If there is some plausible explanation for the way Widows is setting its bonuses, then there is no doubt the ombudsman will get to the bottom of it, and the complainants will go away happy.

But given that it has not been possible to take much of what Widows says at face value when we can understand the language it is speaking, what hope is there for us when we can't?

Copyright 2002 SMG Sunday Newspapers Ltd.
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