Leading pension adviser Richard Jacobs has raised concerns over pension cash funds with big amounts deposited in a small number of banks such as HBOS and Royal Bank of Scotland.
Jacobs, managing director of Richard Jacobs Pension and Trustee Services, says Legal & General has 11 per cent of its £886m cash fund deposited with HBOS.
He says: “This provides no protection for investors. It will take until the end of the year at least before a deal is finalised between Lloyds TSB and HBOS and there is nothing stopping Lloyds from walking away before then.”
Jacobs says he is also concerned about Scottish Life’s £541m cash fund which has 5 per cent deposited with RBS, 8 per cent with Bank of Scotland and 5 per cent with Lloyds TSB. He says: “Where is the spread in that? People are more concerned about security, not returns. You are better off putting your money with someone like Norwich Union which has lower returns on its cash fund but has a broad spread, so if a bank goes bust you only lose a small amount of your investment.”
Jacobs is also urging personal investors to spread their money across different societies and banks. He says institutional investors should forget about returns and instead aim for something with a very broad spread.
Scottish Life head of communications Alasdair Buchanan says its investment strategy is to concentrate deposits with banks that are “less likely to fail”.
He says: “The more banks you spread the cash across, the riskier it becomes. If you start spreading cash to small banks that are less stable, you are actually increasing the risk.”
The Financial Services Compensation Scheme has confirmed that it would not cover any money lost in investments in money-market funds.
A spokesman says: “Unless you have a misselling claim, you would not be covered.”