WHEN BAE Systems recently unveiled plans to tackle its monster GBP3.1bn pension deficit, biggest in the FTSE-100, its workforce agreed to give up GBP770m in future benefits for a stronger guarantee that past pension promises will be honoured. Scottish & Newcastle's pension partnership with its staff included higher contribution rates but the preservation of retirement at age 60.

Such agreements are now so critical to companies that they can make or break financial credibility and corporate transactions.

It is consultant actuaries who are at the heart of many current such negotiations in Scotland, and one of the best-known is Ronnie Bowie, senior partner in Glasgow at Hymans Robertson, the international consulting group which generates more than half its UK turnover in Scotland. Bowie's team advises nine of Scotland's top 20 companies, and another 39 in the private and public sectors, from a Glasgow office employing 180, and more actuaries than anywhere else except Standard Life and Scottish Widows.

"When I arrived in 1980 I was the sixth person, " says Bowie, 52. "Now I have been here man and boy - it sounds awful." But he believes Hymans Robertson has grown through not trying to replicate its bigger rivals. "What can happen in large firms is they get into a sort of actuarial hothouse, where products are developed and ideas are generated almost in isolation from what the clients want. Actually, it really isn't rocket science."

He says there are two common complaints by companies about their pension advisers. "First, they did not warn them that it might go wrong, and when bad news arrived they were completely unprepared for it. Second, the adviser was from another planet."

Many firms were encouraged to shake up their pension strategy when the bear market hit. "We are now getting new clients who say 'three years ago we closed our scheme to new entrants and invested more in bonds - we thought we had fixed it, but three years later the deficit is bigger, the risks are just the same, and we have a two-tier workforce with almost all the pension obligation going towards a diminishing group of employees - we need something more radical here'."

In the sad story of the rise and fall of UK pension funds, it is customary to blame pension holidays, Gordon Brown and the techs, media, and telecoms boom.

However, Bowie is refreshingly candid over the role of consultants, the actuarial priests who encouraged 50-year funds to worship at the shrine of three-monthly performance figures. He admits the priestly caste played its part in driving funds into a herd-like mentality, with investment decisions "neutered" by the need to follow a benchmark index. "One of the things the consulting community can be less proud of is the way we contributed to that neutering - and now we have gone to the other extreme."

In the past few years, consultants have been encouraging trustees hand over at least some of the cash to managers who are allowed investment freedom. "If you give a bad manager lots of freedom you will get an even worse result, but if you have got a good manager you should give them their head, give them a chance with longer time horizons."

Bowie is equally direct about the new world of FRS 17, the accounting standard which has swapped funds' obsession with quarterly performance figures for a fixation on the annual balance sheet. "Pension funds are in a situation where there is a one-in-six chance that the funding level could be 20-per cent higher or 20-per cent lower in a year's time. People spend 90-per cent of their time worrying about what their asset allocation is in their fund, the equity risk, but equally important are interest rates and bond yields - if they come down, your liabilities go up. Typically, interest rates will be half your risk."

Bowie is sceptical about the rush by pension funds into bonds, and says companies do not like having to justify more volatile FRS17 figures with City analysts. "So why not condition the analysts to expect it? They have deep pockets, but with bonds, what are they doing - they are lending money to the government for 50 years almost interest-free."

So why is it happening? "Pension funds, companies and investors all like the comfort of a crowd. Six or seven years ago they all had to have the same asset allocation and one of the big name managers, now they are reducing the amount of equity in the fund because that's what everybody is doing. If you are a company that has not got deep pockets you should reduce your risk, but it is horses for courses, what we are getting just now is a lemming-like move."

For Bowie, the squeeze on the private sector makes the public sector promise look bizarre.

"A retirement age of 60 is completely unsustainable, " he says. "The nation can't afford it. In unfunded public pension schemes, there has to be a top-up from tax and that is going to rise by 50-per cent over the next 30 years, and at the same time spending on health is supposed to be going up by 3-per cent over GDP . . . Britain has overpromised on health, pensions and a whole stack of other things - unless taxes rise."

He says companies which have already tried fixing their pension problem have only got "one more shot" to get it right, without losing employee trust.

"They can't go to the well in a half-hearted way. Our experience is, if you go along with a coherent package, employees are up for a partnership."

Simply setting up a new, probably less generous, scheme for new entrants is not an ideal solution. "Some Scottish clients have said they don't want a two-tier workforce that is going to give them industrial relations problems in 10 years' time. They want to keep their scheme open, but in a partnership where risk is reduced, employees take their share of the pain, and they are prepared to put more money in."

What is then needed, says Bowie, is the "dynamic investment strategy" where money can be left in equity markets until profits can be taken, then switched into bonds orhedge funds for lower risk. Companies which have already closed their traditional scheme and opened a potentially inferior one for new entrants are taking the opportunity to "reduce the difference between the haves and the have-nots", Bowie says.

Outside that world, Bowie is making his own contribution too, as a director of Glasgow's muchrespected Prince & Princess of Wales Hospice. "They are beginning to build up a few investments they can use to further the work of the hospice. It has been great, a real eye-opener, and another reminder that there is life outside the actuarial profession."

He believes the profession has done its penance. "It is almost in danger of adopting the hairshirt as its symbol. It's doing a lot of good things, and I think it is looking forward in a positive way. I am quite optimistic."