Fears about corporate pension deficits have abated over the past year following the dramatic rally in world stock markets. But they have not gone away and neither have the deficits.

The move by Marks and Spencer (M&S) this month to launch a £400 million (€600 million) bond to plug a £585 million gap in its pension fund has brought the issue back on investors' agendas.

M&S, which closed its final salary pension scheme to new entrants in 2002, said its fund showed a market value of £2.61 billion, while its liabilities were valued at £3.19 billion.

Research by Dresdner Kleinwort Wasserstein found that the pension deficit for the pan-European FTSE Eurotop 300 fell by 23 per cent last year to €212 billion. But Dresdner strategist Ms Karen Olney believes the windfall may be over. "Ongoing low inflation, markets susceptible to a relapse or sideways drift and tougher accounting standards mean pensions remain a key issue."

International accounting standards mean firms must value pension assets at market rate and their discount liabilities in line with the yield on AA corporate bonds. But while asset values increased last year with rising stock markets, so did liabilities as a result of a falling discount rate.

Dresdner estimates that pension assets rose by 15 per cent, but a fall in the corporate bond yield of about 0.3 per cent increased liabilities by some €30 billion.

Countries with funded pension schemes that relied more heavily on equities benefited most from last year's drop in the shortfall. These include Britain, the Netherlands and Switzerland. By contrast, Germany and France - with largely unfunded schemes - did not fare so well.

The bear market that pushed equities to a six- to eight-year low last March brought home to many companies just how costly a final salary pension scheme could be. Many had enjoyed long pension holidays during the equity bull market.

But the share price downturn exposed large funding gaps, prompting many companies to close their final salary schemes to new entrants. These have been replaced with money purchase pensions, where the employee bears the investment risk.

Many companies have actually increased the initial financial demands on them by closing schemes.

A closed fund is more costly at the outset because deficits need to be financed and no new money is being contributed by newly joined employees.

Ironically, many of the UK companies that have benefited from resurgent equity markets - which have eroded their pension deficits - are moving more of their funds' assets into bonds. Other European companies have more exposure to bonds and have not seen such a large reduction in their deficit.

Dresdner has identified companies most exposed to a turn in the equity market - those with pension assets of more than 40 per cent of their market capitalisation and with equity holdings of 60 per cent or more.

These are all UK companies and include BT Group, BAE Systems, Rolls Royce, GKN, Exel, Sainsbury, Cable & Wireless and Whitbread.

However, companies using high discount rates for their liabilities of 5.6 per cent or more and those with liabilities of more than 50 per cent of their market capitalisation could be exposed by a drop in corporate bond yields.

Swedish company pension liabilities jumped by 10-50 per cent when companies adopted international accounting practices.

On the other hand, if bond yields rise above the current 5.8-6.4 per cent used by many of these companies, they will benefit from a shrinking liability.

The screen threw up the following list of companies most exposed to falling corporate bond yields: DaimlerChrysler, Michelin, Rexam, RWE, Lufthansa, BCP, Thales and BAE.

Fears about pension deficits are likely to resurface as some investors appear to be losing faith in the global economic recovery.

World markets have given up their gains for the first quarter as investors have become more risk-averse. Many indices are below the level at which they ended last year.

What many firms need to get to grips with is the high cost of their pension promises. Many final salary schemes were set up in the 1970s, when high inflation made the liabilities look less onerous. In a low-inflation, low-interest rate world with equity markets tracking sideways, firms will realise just how expensive they are.