Pension savers who hold money in Clerical Medical's Cash Pension are being charged more in fees than their money earns in interest.
As a result, their investments are guaranteed to fall in value.
Savers often make use of cash funds within their pension plans to shelter from volatile markets or while they are deciding where to invest. But Clerical Medical's Cash Pension fund pays interest at 0.5pc while charging a 1pc annual management fee, resulting in a fall in value.
The practice came to light when a Telegraph reader wrote to our troubleshooter, Jessica Gorst-Williams, to complain about the fund.
The reader, HG from Surrey, wrote: "This fund can only result in investors losing money, as the cash fund is invested in Bank Rate securities producing 0.5pc but Clerical Medical makes a charge of 1pc.
"The fund is used to park funds when switching investments. I feel investors should be warned of this pitfall or better Clerical Medical should change its charges while the Bank Rate is so low."
Jessica replied: "This is a phenomenon that needs to be watched out for by anyone with money in a cash, or similar, fund. With interest rates as low as they are, skimming profits off such sums in the form of management charges or whatever has become much more transparent than it used to be.
"So, not only is such money being whittled away by inflation, but a higher percentage is being creamed off by some financial providers than the underlying sum is able to generate itself."
She (SNP: ^SHEY - news) said Clerical Medical now under the umbrella of Scottish Widows, which is in turn owned by state-backed Lloyds Banking Group (LSE: LLOY.L - news) had admitted that the returns on such cash investments had not been enough to fully offset the 1pc annual management fee. This has resulted in the unit price falling slightly.
"I cannot change things for you," Jessica said, "but at least I can fulfil your request to make others aware of this."
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