Pension funds continue to suffer from global uncertainty in financial markets, losing one-eighth of their value over the past three months, according to figures published by Mercer Investment Consulting.

The average Irish pension managed fund fell 12.6 per cent in the third quarter of 2002.

This brought average losses on pension funds for 2002 to 20.6 per cent, said Mr Tom Murphy, head of Mercer Investment Consulting in Ireland.

"With geo-political risks heightening by the day and negative sentiment outweighing any positive economic news, there appears to be no let-up for investors at the moment. Barring a remarkable recovery in the final quarter, we are facing into a third consecutive year of negative equity market returns," he said.

The best performers were Irish Life's Global Access fund, which fell by just 10 per cent, and Eagle Star, which was down 10.7 per cent. Baillie Gifford and KBC Asset Management sustained the heaviest losses, falling more than 15 per cent.

Mr Murphy said the top-performing managers were those that had not invested too heavily in equities. "Managers that have maintained a high relative equity weighting in the belief that markets had hit rock bottom back in June have again been disappointed," he said.

The global equity market plunged 18.3 per cent over the quarter.

Investment analyst Mr Frank O'Brien said pension trustees would have to address the risk profile of their pension funds. "It's pretty clear now and for the foreseeable future, there is going to be low investment returns on pensions after high returns for 20 years."

Mr O'Brien yesterday gave a presentation at a meeting of the trustee forum of the Irish Association of Pension Funds on the subject of managing risk during an era of lower returns.

Boots, had opted for a low-risk investment strategy for its pension fund, Mr O'Brien noted, but would have to accept lower returns over the long term. All of Boots's £2.3 billion sterling (€3.65 billion) pension fund is now invested in bonds, 75 per cent of which are long-dated bonds and 25 per cent are index-linked.