THE UK's biggest companies have seen the shortfall in their pension schemes halve during the past year due to rising share prices, research showed.

Consultants Hewitt Bacon and Woodrow estimate that the pensions deficit faced by FTSE 100 companies has fallen from £100bn at the beginning of last year, to less than £50bn.

The group said the FTSE 100 Index may only have to climb above the 5,000 threshold for the average company to find its deficit had been wiped out altogether.

But the group warned that, despite company schemes being boosted by rising share prices, they still faced many challenges.

Raj Mody, principal consultant at Hewitt Bacon and Woodrow, said: "Although 2003 was a good year for the financial health of most pension schemes, it is important to note that they are not out of the woods yet.

"While assets are invested mainly in equities, schemes could still see a dramatic reversal of fortunes."

The deficits were measured under the new accounting standard FRS17, which takes a snapshot of a company and does not allow firms to smooth out the effects of stock market volatility.

But pension schemes have also been hit by a number of other challenges, such as poor stock market returns and people living longer.

The National Association of Pension Funds recently reported that one in four final salary schemes had closed to new members during the year to the end of April.