EUROPE – Towers Perrin says euro zone pension funds’ investment returns offset liability changes in the first quarter, meaning almost no change in funded status.

“In aggregate, positive asset returns almost exactly offset liability changes from the falling discount rate and, hence, there was virtually no change in the euro zone funded status in the first quarter,” the consulting firm said in a report.

It said it cut its benchmark discount rate to five percent as at March 31 2004 following lower bond yields and continued concerns over interest rates.

“It was a mixed result for pension plans around the world in the first quarter,” Towers Perrin said in its Global Capital Market Update. “Equities began the year strongly, but returns were dampened by the re-emergence of geopolitical concerns following the March 11 terrorist bombing in Spain and general instability in the Middle East.”

It said this uncertainty fed through with bond yields falling in all markets except the UK and Japan, pushing up liability obligations.

The report said: “While investment returns have been outstanding in the past year, a substantial amount of the negative impact of falling interest rates and equity market losses since March 2000 is still to be recouped.”

The firm issued advice to large international companies, saying: “Multinationals should review their specific situations to analyze the actual impact that the capital market movements (as well as other company-specific factors) have had on their plans and determine an appropriate response.

“The findings of this study show just how slow the recovery in defined benefit finances will be,” said Nigel Bateman, principal in Towers Perrin’s Global Consulting Group.

“Despite reasons for economic optimism generally, pension plans are still heavily underfunded. In the UK, our benchmark plan is 40% less well funded than it was in January 2000."

Earlier this month the firm released a survey of UK companies which found that nearly half of them planned to change their pension plans in next three years.