Industrywide pension plans tend to hold around 10% of plan assets in direct property, which performed relatively poorly with a return of 10% compared with 32.2% from Australian real estate investment trusts, said Mr. Coombe. Corporate pension plans have a lower exposure to property and prefer to invest in listed vehicles rather than bricks and mortar, he added.
Mr. Coombe noted that most local plan sponsors do not face the deficit problems of their peers in other parts of the world because most Australian pension plans are defined contribution plans.
For U.K. pension plans, the positive returns for 2004 coming on top of those in 2003 are only the start of a long haul needed to restore many plans' funding positions, warned Graham Wood, a senior consultant at WM.
"Due to longevity increases and current long-bond yields, the deficit among U.K. pension plans is increasing," said Mr. Wood. "It's a fairly big gap to narrow. But if you have another seven to eight years of returns at 10% compared with inflation of 3.5%, then that will help quite dramatically."
Andrew Kirton, head of U.K. investment consulting at Mercer Investment Consultants, London, estimates U.K. pension plans face a funding gap of 15% to 20% on the basis that the plan sponsor is an ongoing concern. However, on an immediate termination basis, where the liabilities are bought out using insurance, the gap between assets and liabilities stretches to 40%.
The average asset allocation among U.K. pension plans has not changed substantially in the last two years despite anecdotal reports that pension plans are increasing their exposure to fixed income at the expense of equities.
"There is a long-term shift to bonds and more closely matching the assets to liabilities, but it's not something that's as yet appearing in the numbers," said Mr. Wood. In an environment of rising equities and with the funding gap that exists, pension plans will be cautious of the potential costs of moving to a bond-based strategy, he added.
The 7% depreciation of the dollar against the British pound during 2004 dented returns from North American equities and overseas bonds, which gained 4% and 5%, in U.K. currency terms, respectively. U.K. equities posted returns of 12.7% and European equities excluding the United Kingdom gained 13.7%, both in U.K. currency terms.
Dutch pension plans reaped the benefits of healthy growth in European and international equities, said Robert Rijlaarsdam, general manager at WM in Amsterdam.
Dutch pension plans invest on average 20% of total assets in European equities, which posted a total return of 12.6% for 2004 in European currency terms.
Far Eastern equities excluding Japan, emerging markets equities and listed real estate investment funds were the best performing asset classes for Dutch funds, with returns of 20.2%, 16.9% and 38.3% in European currency terms, respectively. But these are the asset classes in which Dutch pension plans invest between 2% and 3% of total assets.
Mr. Rijlaarsdam warned Dutch pension plans' positive investment returns over the last two years should be seen against a background of new local pension regulations that will likely introduce tougher funding rules and encourage greater use of risk-based asset allocation.
The C$650 billion (US $530 million) Canadian pension market similarly posted better-than-expected returns following a stronger-than-forecast equity market, said Jim Franks, director of consulting at Russell Investment Group, Toronto.
He estimates returns from domestic equity to have been 15.5% and 12.5% from EAFE equity in Canadian currency terms.
Like most non-U.S. investors, Canadian plans suffered from the sharp fall in the U.S. dollar over the year.
Asset allocation has remained reasonably stable over the last two years, with hedge funds only appearing at the very margins of the overall industry, he said.
But with the decline in long-term interest rates in 2004, "we estimate the solvency liabilities of non-indexed plans increased by around 5%. So while the real return on assets was good, it exceeded the increase in the liability by only about 2.5%.
"Thus most plans exceeded their real return objectives, but found themselves off a little worse at the end of the year," Mr. Franks wrote in an e-mailed statement.