Despite some recovery in equity markets in the final quarter of the year, 2002 was a major disappointment for UK pensions funds Alan Wilcock, Russell/Mellon CAPS

Russell/Mellon CAPS suggested that funds declined in value by around 11.3% in 2002, following a fall of 8.9% in 2001 and 1% in 2000.

The group said this was the first time the value of pension funds had fallen for three consecutive years since records began.

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Russell/Mellon attributes the decline to the sharp falls on the stock market, not just in the UK but across the world.

A bad run

Russell/Mellon analyses and compares different pension funds.

It said the three year period to December 2002 was the worst period for returns on pension funds since the mid-1970s.

However, on a more positive note, it said the average return when looking at the past 10 years was a more positive 7.5%.

Alan Wilcock, research and development director at Russell/Mellon said: "Despite some recovery in equity markets in the final quarter of the year, 2002 was a major disappointment for UK pensions funds.

"The situation was compounded by the negative results in both 2000 and 2001."

More gloom ahead

Mr Wilcock's negative view is shared by Watson Wyatt, a firm of consultants which warned yesterday that there could be more bad news ahead.

The group said 2003 could see the end of more company final salary pension schemes.

It suggested a number of the schemes - which were traditionally viewed as the best type of pension - could be closed to new entrants or wound up altogether.

It blamed a £70bn black hole in pension funds caused by the stock market falls and advised pension funds to invest in property rather than shares.