UK pension funds suffered the first negative yearly returns since the three-year downturn at the beginning of the century, according to BNY Mellon Asset Servicing, proving themselves to be vulnerable to last year's extraordinary market volatility.

According to estimates released by the group, the average UK pension funds achieved an estimated weighted average return of -9.8 per cent for the year ending December 2008.

In the medium-term, the average fund achieved an estimated return of 1.7 per cent per annum over three years to December 2008, and over longer-term periods, an average of 6.6 per cent per annum was achieved over a five-year timeframe.

Over 2008, the poorest equity performances were recorded in Emerging Market and Pacific Basin ex Japan Equities, with -35.4 per cent and -31.3 per cent respectively. UK equities recorded -29.9 per cent, with Japanese and US Equities providing the strongest returns.

UK bonds return 12.8 per cent, but over 2008, overseas bonds provided a strong result of 44.9 per cent. Index-Linked Gilts also recorded positive returns of 3.7 per cent over 2008.

"While UK pension funds have continued to reduce their exposure to equities, falling below 50 per cent exposure for the first time as of September 2008, the significant equity market falls have still had a major impact on pension funds returns in 2008," commented Alan Wilcock, BNY Mellon Asset Servicing's performance and risk analytics manager.

- Pensions Age January 2009

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