Falling bond yields have pegged back pension fund performances despite an 18 per cent overall growth in the sector.

The figures show that pension fund liabilities have risen sharply, eating up most of the gains.

Mr Fernandes of LCP told The Times. “Many finance directors will be hoping that returns on UK shares will have brought their FRS17 deficits back under control.

“However the position is not so rosy for pension schemes with largely inflation-linked pensions because the reduction in real bond yields could easily have added ten per cent to the FRS17 liabilities of a year ago.”

Mr Fernandes said that recent reports about the FRS17 deficits afflicting many British pension funds varied wildly, with some predicting significant improvements in shortfalls and others suggesting a gloomier outlook, because many analysts made shifting allowances for 2003 pension contributions.