Lloyds has dropped Standard Life Aberdeen from a mandate that saw it run £109 billion of Scottish Widows clients' pension investments.
The move will cost Standard Life Aberdeen £40 million in the form of an impairment charge.
A decision has long been expected after Aberdeen Asset Management, which had run the funds since 2013, merged with Scottish Widows' competitor Standard Life last year.
Scottish Widows, which is owned by Lloyds, initially agreed to wait six months following the completion of the merger before a decision was made. That six month period ended this week, and this morning the bank confirmed it would seek a new asset management partner.
'Given the merger of Standard Life and Aberdeen has resulted in our assets being managed by a material competitor, it is now appropriate to review our long-term asset management arrangements to ensure they remain up-to-date and that customers continue to receive good service and investment performance,' Scottish Widows chief executive Antonio Lorenzo said.
He added: 'We will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109 billion of assets.'
Aberdeen has managed the assets for Scottish Widows since 2014, when the asset manager acquired Scottish Widows Investment Partnership (Swip) for £550 million. Under this deal Aberdeen took on the mandate for around £100 billion of Lloyds assets through the Swip business.
In a statement issued to the market today Standard Life Aberdeen co-chief executives Keith Skeoch and Martin Gilbert (pictured) said they were 'disappointed by this decision in the context of the strong performance and good service we have delivered' on the contracts.
The statement added that the company would book an impairment charge of £40 million as a result of the decision.