Company pensions crisis 'eases'

Pension savings have been hit hard

The stock market's recent rally has sharply reduced the gaping hole in the UK's biggest company pension funds, according to a new study.

Research by investment bank Dresdner Kleinwort Wasserstein found that the joint pensions deficit of the 100 biggest stock market-listed firms has narrowed from £62.4bn ($99.8bn) in March to £49bn - a decrease of 22%.

The improvement reflects stronger returns from pension fund investments in the British stock market, which has risen by nearly a third since touching the bottom of a three-year slump in mid-March.

The recovery in share prices, triggered by the prospect of a quick US-led military victory in Iraq, has gathered pace thanks to signs that the global economy is on the mend after a protracted period of sluggish growth.

The pensions shortfall was exacerbated by the stock market's long bear run, which began in early 2000 as the late 1990s technology and telecoms bubble began to deflate.

Mounting deficits have prompted many companies to suspend their most generous pension schemes in an effort to limit their liabilities.

Respite?

The companies which have recorded the biggest improvement in their pension funds since March are National Grid, Transco, BT and Marks & Spencer, according to the Dresdner study.

However, some companies continue to nurse hefty pension fund deficits, with one group of firms representing 12% of the FTSE 100 index's value accounting for a quarter of its total pension shortfall.

And the Dresdner report warned that it is still too soon to celebrate the end of the pensions crisis.

"Investors are placing a great deal of faith on restructuring and the economic recovery," said its author, strategist Karen Olney.

"If the recovery is not as strong as prior recoveries, investors may be heading for some disappointment."

Last month, a study by actuaries Lane Clark & Peacock estimated the combined pensions shortfall of the UK's 100 biggest publicly quoted companies at £55bn - double what it had been one year earlier.