The value of group pension funds fell back slightly in July, with the average managed pension fund suffering losses of 1.2 per cent.

Figures from investment managers Coyle Hamilton show that returns on managed pension funds for the three months to the end of July have been virtually flat, with an average loss of 0.2 per cent. This figure was bumped up by a strong month in June.

Returns over three years remain in negative territory with average losses of 2.5 per cent, but should soon return to the black as some of the bad months of 2001 fall out of the calculation period and are replaced by positive or flat months, according to Coyle Hamilton.

"Even if the returns for the next few months are zero, it will artificially look like we're doing better, because we will see the months in early 2001 when the markets were crashing around our ears taken out of consideration," said Mr Stephen Lalor, pensions consultant at Coyle Hamilton.

However, the three bear market years from 2000-2002 has ripped a significant hole in people's pension funds, and the setback will remain in evidence in the five-year pension fund performance figures for some time to come, Mr Lalor said.

"If markets fall by 33 per cent, they need to rise by 50 per cent to get back to where they were," he said.

But for long-term, regular instalment investments such as pensions, slumps in the market can be advantageous, he added, because investors are buying in at low valuations.

"You're really only concerned with where the market is when you're getting out of it," he said.

Investment managers previously only moved people's pension funds away from the equity markets to less risky asset classes such as bonds and cash on an ad hoc basis, but are now adopting a more cautious approach as pension holders near retirement age, according to Mr Lalor.

"It's now becoming more or less a matter of dogma to wave a flag at people and say the risk profile on your portfolio is on the volatile side," he said.

"Most people aren't really hunting for that last 20 per cent bounce in the market before they get out and they shouldn't be advised to be opportunistic with their pension fund like that. But if they suffer a 20 per cent drop in the value of their pension at the end of the investment, it's a disaster," Mr Lalor said.

Over 12 months, the average return on group pension funds stands at 10.3 per cent. Irish Life was the best performer over this period and KBC Asset Management was the worst.

The margin between the best and worst performers, particularly over timescales of more than three years, emphasise the importance of fund manager selection, according to Coyle Hamilton.

Over three years, Bank of Ireland Asset Managers had the best returns, while KBC again propped up the table.

Montgomery Oppenheim generated the highest returns over a five-year period and AIB Investment Managers the lowest.