<p>[Don?t</a> trust those expected returns | Features | Fundweb](<a href=“http://www.fundweb.co.uk/fund-strategy/issues/4th-march-2013/dont-trust-those-expected-returns/1066499.article]Don?t”>http://www.fundweb.co.uk/fund-strategy/issues/4th-march-2013/dont-trust-those-expected-returns/1066499.article)</p>
<p>"“Both corporate and public pension plans are digging themselves into a hole,” adds Lynn Turner, former chief accountant at the Securities and Exchange Commission. “Over the next decade, that hole will get so big it will eventually collapse upon itself.”</p>
<p>"J Michael Martin, president of Financial Advantage, cautions that “the future won’t be like the past.” He references the annual growth percentage rate of GDP, starting in the 1950’s, with a trendline at 5 per cent.</p>
<p>He points out how “the wiggles keep coming down,” until they reach a more modest current level about 2 per cent. One can build a case that that even that level of growth would be a blessing, since many of the factors that affect GDP appear weaker, going forward. Besides, even if that elusive 2 per cent should be realised, it will likely consist of a series of plus 3 per cent’s and minus 2 per cent’s.</p>
<p>The crux is that widely-held earnings rate assumptions depend on economic expansion at a 3 per cent or 4 per cent real basis. “The chances of that happening with declining demographics, an inflexible overleveraged system and no significant innovation make those numbers very doubtful,” says Gibb."</p>