After several years of anxiety over the critical state of their pension funds, companies will be relieved to see them in the black. It is, however, a little too early to celebrate.

Finance directors no longer have to fear the loss of tax breaks once their pension scheme goes into positive funding territory, but a surplus does require a number of tricky decisions.

It is unlikely that many companies are contemplating a contribution holiday, but some have started to reduce the amount that they pay into their fund - a fraught decision, given how quickly funds can fall back into the red and how apparently mean employers can suffer from public scorn.

There are complex financial instruments to be considered as pension fund trustees use this benign period to manage their investment risks. Alan Rubenstein, head of Lehman Brothers’ pensions advisory group, expects schemes to lock in their surpluses by switching from equities to bonds. Other options include putting in place inflation and duration swaps on liabilities and using the derivatives market to protect against falls in remaining equity expsosures, he says.

More financial directors are likely to weigh up the use of contingent assets, now that they are allowed to place items ranging from the company HQ to letters of credit in the pension fund. Pioneers include Marks & Spencer, which last year committed £500 million worth of property to its fund.

Escrow accounts should also attract attention. Companies are loathe to continue pouring money into a fully funded scheme, but fear the opprobrium that a payment holiday would attract. AstraZeneca and Diageo are among the businesses that have agreed deals under which they pay part of their annual pension contribution into an account that they can get access to later under preagreed circumstances.

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