Pension funds in the UK showed strong returns for investors last year, a new study has revealed.

Overall they saw an 18.2 per cent growth over the course of the last year on the back of a strong stock market performance, according to investment analyst Mellon Analytical Solutions (MAS).

The figures revealed the third consecutive year of double digit growth with pension investment returns now averaging 14.8 per cent over the last three years.

All pension investments performed well but the overseas equity markets brought in the biggest returns of 49.9 per cent with Japan proving to be particularly strong at 39.6 per cent.

The UK equities market, the biggest asset class for pension fund investments, achieved a market return of 22 per cent.

Property-related investments also offered strong returns last year, growing by an average of 17 per cent.

Daniel Hall, publication and statistics manager at MAS, said: "By the end of 2004, pension funds had got back to where they were at the start of the decade, in terms of fund value. This year they have finally started to move ahead."

The recent strong returns for pension fund investments mark a turnaround from the end of the century when funds recorded significant losses.

According to MAS estimates, a fund that was worth £100 million at the end of 1999 would have fallen to £79 million in 2002, but has now returned to growth and would be worth £119 million.

The findings will help to boost the pensions sector amid mounting concerns about the spiralling debts of many final salary schemes.