US - The recovery in equity markets last year helped to improve the funded status of US pension funds, adding an estimated US$180bn to balance sheets, according to a leading pensions' consultancy.
Figures from Mercer show the rebound in stock indexes helped to improve pension scheme funded status to a deficit of $229bn in December, from the 2008 year-end deficit of $409bn.
The firm said the data will be "welcome news" for plan sponsors, particularly those with a financial year end of December 31.
But it warned smoothing methods that deferred 2008 losses could still mean increased cash contribution requirements or higher Financial Accounting Standard pension expenses for some companies in 2010.
Mercer financial strategy group member Adrian Hartshorn also warned that many schemes were too reliant on the stock markets and therefore risked eroding gains once volatility returned.
To minimise this threat, he said pension schemes needed to overhaul their typically cumbersome investment process and improve the efficiency and timeliness with which decisions are implemented.
Meanwhile, pension funds in the UK are staging their own comeback.
Schemes have recovered from a dismal 2008 by delivering their best returns in four years, research from BNY Mellon showed.
Plummeting equity prices during 2008 had resulted in a 13.6% drop in investment performance. However, 2009 saw a dramatic turnaround with UK funds achieving an estimated weighted average return of 14.0% over the year.
This represents an estimated real return of 14.9% when measured against the Retail Price Index, and 12.8% against the National Average Earnings Index.
BNY Mellon Asset Servicing performance and risk analytics manager Alan Wilcock commented: "Following the worst annual return for over 30 years in 2008, pension funds clawed back most of those losses by the end of 2009, despite the poor start to the year."
UK pension funds also made gains over the three-year period to December 31, 2009 with an estimated average return of 1.7% per year. However, they failed to deliver positive returns against both the RPI and the NAEI during this period.
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