When to + inflation for return requirement

[LTD]

For pension fund not to add inflation to discount rate?
For endowement to add?
Life insurers? Non life?

 

[Halsen]

I was wondering the same. From what I understand the discount rate used for liabilities for pensions should already account for the inflation. The CFA 2015 paper Q1 B only included the discount rate as the minimum return, not adjusting for inflation. They didn’t explain why inflation was not included, but I assume it’s because the discount rate should already account for it. I believe insurers work in a similar way, as they also have defined liabilities and a discount rate for them.
For endownments or foundations, whenever it says “maintain real value of assets”, or something similar, we should add inflation as far as I know.
That’s my understanding.

 

[first]

I am afraid there is no general rule. The required answer will depend on the situation outlined in the example. You are probably best advised to go through examples to understand the subtle differences.

 

[Zeeshan Shafi]

For pensions, inflation is already accounted for when calculating discount rate for liabilities (projected benefit obligation method).
For rest if the institutions I believe inflation would be added as question will either ask
i: expenses increase at rate of inflation
ii: maintain real value

 

[MrSmart]

If it’s a liability relative approach, the discount rate is appropriate.