UK scheme returns of 7% 'the norm' for next decade

UK - Occupational schemes in the UK are expected to see returns of only around 7% over the next 10 years, say Barclays Global Investors (BGI).

Says BGI’s chief economist, Haydn Davies: “gone are the days of funding holidays, when employers could expect pension plans to deliver 15% nominal returns. 7% is now a more reasonable expectation for overall plan performance.”

The outlook is based on predictions of returns for UK equities and bonds. BGI forecasts returns of 8.75% for UK equities compared to a 5% return for UK fixed income over the next 10 years. Over the last 10-year period, UK bonds have outperformed UK equities by 1.4% a year, but Davies, and advanced strategies and research director, Richard Grinold, dispute that the same trend will occur in the coming 10 years.

With pension schemes therefore likely to earn single-digit returns over the next 10 years, BGI expects investors to look into higher-yielding markets such as hedge funds.