Common Return Expectations
Twice a year, the Council for Return Expectations set the common return expectations that pension companies and financial institutions use to calculate pension projections and return expectations for the following calendar year.
The common return expectations are the council’s expectations of the future yield of various investment assets in which the Danes’ savings are invested. The savings are invested in many different assets such as equities, bonds, real estate, infrastructure, etc.
The pension companies and banks use the common return expectations to calculate pension projections and return expectations for customers. How high one can expect the return on investment to be is of great importance in estimating how much your payout will be once you retire.
All customers receive a pension projection from their pension company at least once a year. The pension projection shows how much you can expect to receive as a pensioner. The projection is calculated on the basis of common return expectations that are set by the Council for Return Expectations.
Moreover, the projection depends on a number of other factors that are more individual or company specific, including investment distributions, longevity, initial savings, payments etc.
Return expectations for investment products
When customers purchase an investment product or receive investment advice, they may be presented with the return expectations for the product or as part of the advice. In the financial institutions that use the common return expetations, the return expectations for the various investment products will be calculated on the basis of the common return expectations set by the Council for Return Expectations.
Moreover, return expectations for investment products as well as pension projections depend on a number of other factors that are more individual or company specific, including investment costs, investment allocation and invested capital, etc.
Common return expectations set by experts
It has been decided that all pension companies and financial institutions that use return expectations must use the same expectations when calculating pension projections and return expectations. The assumptions are set by independent experts. That is why Insurance & Pension Denmark and Finance Denmark have set up the Council for Return Expectations.
Read more about the Council for Return Expectations.
Common return expectations set by independent experts are aimed at ensuring that customers’ pension projections and return expectations are as realistic as possible.
Uncertainty regarding pension projections
It is never possible to predict with complete certainty as to how the return on investment on pension savings will develop in the future. There is an element of uncertainty in the projection. Starting 1 January 2020, all projections must also disclose this uncertainty.
Therefore, the Council for Return Expectations not only set expected returns, but also expectations regarding the risk of the investments. The risk is indicated by means of so-called standard deviations and correlations. The pension companies use these expectations to calculate the uncertainty of the projections.
- See Finance Denmark and Insurance & Pension Denmark’s guide for financial institutions and pension companies on the allocation of investment assets when calculating pension projections (pdf in Danish).