UK – Aon Consulting says companies in the FTSE 100 index could clear their pension deficit by the end of this year if markets move favourably.

Aon said it has analysed investment banks’ equity and bond market forecasts, adding that the research suggests the overall pensions deficit for companies in the FTSE 100 is forecast to fall from 65 billion pounds (96.5 billion euros) in December 2003 to 40 billion pounds in 2004.

This finding was based on the consensus that the equity market would rise to 4,725 points and bond yields would rise to 5.9%. But if bond yields are higher than the consensus forecast, the picture could be different, Aon said.

“If corporate bond yields rise to 6.5% by the end of December 2004 and the market hits 4725, Aon Consulting predicts that the current overall pensions deficit for FTSE 100 companies should be almost wiped out by year-end 2004,” the firm said.

"Our retrospective analysis of the investment banks’ consensus forecasts indicates that the FTSE is continuing to rise at a rate quite close to that predicted in 2003,” said Aon principal and actuary Paul McGlone.

“This, coupled with an overall fall in bonds, bodes well for pension schemes and we would remain cautiously optimistic that FTSE 100 pension deficits could be wiped out by the end of 2004.

Ian McKinlay, of Aon’s investment consulting practice added that the firm was finding that investment analysts are using pension scheme risk exposure as a means of differentiating between companies they favour.