By Paul Lewis
BBC Radio 4's Money Box
Tom McPhail says 'cash' can be misleading
People who put their pension money into so-called 'cash' funds could still find it falls in value.
The warning comes this week after 96,000 Standard Life customers who moved their pension into its Sterling Fund were told it had fallen by 5%.
Many of them had done that to protect their money against stock market falls prior to retirement.
But Standard Life's John Gill said "The fund does not come with a guarantee that the unit price will not fall."
'Too much risk'
With the price of shares down by more than 30% in the last year many people approaching retirement have been looking for a safe place for their money in the months before they are due to retire.
Standard Life's Pension Sterling Fund is one of many on the market which are sold as "cash" funds which avoid shares to protect them from the ups and downs of the stock market.
But Tom McPhail of financial advisers Hargreaves Lansdowne told Money Box on BBC Radio 4 that cash does not always mean cash.
"People are using 'cash' for 'money market sector' and I think that could be slightly misleading.
"What they're investing in is short term loans to companies, short term loans to banks that behave in a very similar way to cash.
"But where Standard Life went wrong they were using asset backed securities.
"They were taking a little bit too much risk with that cash."
Standard Life denies misleading customers.
Customer Services Managing Director John Gill told the programme: "The value of assets will go up and down in line with market movements and that has been clear to our customers.
"We've seen exceptional market volatility and I don't believe any asset classes have been immune from this downturn."
But that is not true of cash which at least maintains its value.
The Pension Sterling Fund particulars say it is invested "not only in bank and building society deposits, but also in a variety of other money market instruments."
Figures provided by the company show that only 12% is in cash itself.
But John Gill says other investments are as good as cash.
"There's pure cash, then there are things like certificates of deposit that banks issue - broadly speaking directly issued by banks is about 50% of the fund."
Tom McPhail says that Standard Life customers should check carefully what they were told when the investment was sold to them.
"People using funds for pre-retirement to park their cash in the expectation of being able to take it out for retirement could be having interesting conversations with Standard Life about the disclosure of risk that went on in that process."
John Gill said "We do not believe there is a case for compensation but if customers have a particular complaint we will of course consider that."
BBC Radio 4's Money Box was broadcast on Saturday,
17 January 2009 at 1204 GMT.