UK - Pension schemes in the UK returned around 10% in 2004, according to an estimate from Russell Mellon.

"Russell/Mellon's estimate of overall UK pension fund performance for the year ending 31 December 2004 is 10.0%," the firm said in a release. "This represents a second consecutive year of positive performance following on from three years of negative returns."

The 2004 return means that the three-year weighted average return would be 3.6% a year. Measured over five years to the end of 2004, returns are 0.1% p.a. Russell/Mellon said the 2004 performance was driven by strong returns in some of the key equity markets.

"This second successive year of positive performance is very good news for pension funds following the dreadful three-year run at the start of the decade," said statistics manager Daniel Hall.

Earlier, it pension consultants estimated that pension deficits at UK companies were broadly unchanged at around £60bn (E85bn) mark.

Hewitt Associates estimated the combined deficits of companies in the blue-chip FTSE 100 index - as measured with the FRS17 accounting standard FRS17 - had "remained around the £50-60 billion mark for most of 2004".

"In a relatively uneventful year for stock and bond markets, increases in pension fund assets have on average been offset by increases in liability values, leaving the aggregate position largely unchanged over the period.

"Without any other corrective action, a dramatic increase in stock market values would be needed to wipe out the aggregate FRS17 shortfall - around a 30% surge in equity values relative to bond prices."

Watson Wyatt put the current aggregate deficit for FTSE 100 firms at £61bn, from £60bn at the end of 2003. This was "despite the improvement in equity markets in which most pension funds are primarily invested".

The figure assumed that the increased level of contributions into pension schemes that took place in 2003 was continued into 2004.

"Most UK companies are reducing pension risk by switching investments away from equities and towards bonds, but getting the timing of this right is very hazardous so it is essentially a gradual change," said partner Chinu Patel.

"Companies are also making higher contributions, though these are based on funding plans projected 10 or 15 years ahead, so we are likely to continue with large deficits in UK company pension schemes for some years to come."

The firm said the main reasons why deficits have not reduced in the face of rising equity markets and increased contributions from employers are the reduction in AA bond yields and the continuing increase in inflationary expectations. It said these two factors have added almost £12bn to liabilities.