The pension deficits of FTSE 100 companies fell by £20 billion in 2006, a report from actuarial consultants Watons Wyatt has revealed.

Concerns around pensions funds dominated discussions in early 2006 as the collapse in long-term government bond yields left FTSE 100 companies with a collective pension shortfall of £60.4 billion.

But rising stock markets with growth in equities helped reduce the total deficit to just £39.9 billion by the end of the year.

Watson Wyatt analysts believe the improved situation reflects a “sustained fall” in the deficit which will continue through 2007, as long as investment markets suffer no unexpected shocks, said senior consultant Stephen Yeo.

But in smaller companies anxieties remain, with pensions deficit concerns particularly acute in the manufacturing industry, according to a study from the Pensions Regulator in mid-December.

Analysts are concerned smaller companies will be crippled by the need to pay doubled contributions to the Pension Protection Fund this year.

Safeguarding company retirement schemes could become unmanageably expensive for small businesses, they warn.

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