US - According to a Watson Wyatt poll, defined benefit plan sponsors will use an expected rate of return on pension assets of 9%, on average, in their 2001 financials.
This is down from an average of 9.2% for 2000. According to Fortune magazine, Warren Buffett advocates the use of a return closer to 6.5 to 7%.
Watson Wyatt notes the following:
* In the older demographic environment of the next two decades, ageing baby boomers will be heavy net savers. Their need to invest may drive up global equity values, as implied in a study by Goldman Sachs.
* Moody’s ‘AA’ corporate bond rate had an average yield of 7.25% at year end - returns in excess of 6.5% could be locked in with an immunised bond portfolio.
Watson Wyatt added: “Assuming even a modest premium for equities, a 6.5 to 7% assumption seems like an unusually conservative measure.”
By Luke Clancy
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