Standard Life has been forced to pay £100m in compensation to 97,000 investors in a fund run by the insurer that was supposed to be invested purely in cash, but which actually had far riskier underlying investments.
The company has been under pressure from investors and financial advisers to come clean about the investment strategy of the ostensibly very low risk Pension Sterling fund after its value fell by 4.8 per cent on 14 January, losing customers an average of £900 each in one day.
Standard Life literature had implied the fund was invested solely in cash but, in fact, a large proportion had been ploughed into far less stable investments including mortgage-backed securities.
The insurer initially said it would compensate only a few investors, but following widespread complaints all thoseaffected investors will now have the 4.8 per cent loss refunded.
"This decision is a reflection of our belief that many people were not fully aware of the nature of the fund, and that some customers could not have anticipated the value of their units could fall by such an amount in one day," said Standard Life.
"We would like to take this opportunity to apologise to any customers who have been affected by the fall in value of this fund," added John Gill, managing director of customer service, for the Standard Life group. "In hindsight, some of the literature supporting the fund fell short of our own high standards, and it is important that we put this right."
However, investors and independent financial advisers have ongoing concerns about the fund's underlying investments. Financial adviser Hargreaves Lansdown, which campaigned for reimbursement, warned that the fund's value could fall again.
"The compensation uplift to the fund now means if the loss-making mortgage-backed securities subsequently return to par value then investors would win twice over," acknowledged Tom McPhail, head of pensions research for the IFA. "But the downside is that there is no guarantee that the fund won't fall in value again."