New research published today (Monday) by the TUC, Common Wealth, and High Pay Centre shows that UK workers get comparatively little benefit from share dividends – despite common claims that they do.
The report Do dividends pay our pensions? finds that the proportion of UK shares directly held by UK pension funds fell from almost one in three in 1990 to less than one in 25 by 2018 – a decline of over 90%.
Over this period, ownership of UK public companies shifted from UK pension funds to foreign owners and investors whose identities are often obscured by lax reporting rules.
The authors say that workers in UK listed firms deserve a clearer understanding of who now benefits from their labour, and how much is captured by a wealthy minority.
Pension funds and share ownership
For nearly 20 years from 1981 to 1998, UK pension funds accounted for over a quarter of the total market value of UK listed shares. However, this steadily declined to just under 13% before the financial crisis in 2008. It then fell sharply and now stands at around 2.4% for direct ownership, and 6% with indirect ownership included.
The remaining shareholder returns to pension funds disproportionately benefit a wealthy minority. The richest 20% of UK households by income own 49% of pension wealth in the UK.
Despite Margaret Thatcher’s aspiration of a nation of share-owning households, individual private investors have declined from over 50% of UK share value in the mid-1960s to less than 14% today.
Within individual share ownership, there is significant inequality. For UK households, the richest 1% own 39% of total share-based wealth, more than the poorest 90% combined.
Most UK listed shares are now accounted for by foreign investors – a tenfold increase from 5.6% of share ownership in the mid-1970s to 55% today.
The change in ownership not only affects who benefits from company profits, it also has implications for the stewardship of boardrooms by shareowners and prioritisation in decision-making.
Short-term profit culture
As pension funds divested, and other types of shareowners came to dominate, the balance of boardroom decision making has also tilted away from reinvestment and toward value extraction.
This is reflected in boardroom remuneration policy. High Pay Centre research found that 82% of FTSE100 CEOs performance-related pay is linked to profitability, dividend payments, buybacks and share price gains.
Between 2014 and 2018, FTSE100 companies paid out £442 billion in dividends and share buybacks. Today’s workers and pensioners get little benefit from these dividends. And the extraction of this much value reduces funds for pay improvements, pension contributions or re-investment to secure the long-term success of the firm.
There is public support for reform to make firms balance the interests of shareowners with those of staff. Polling by BritainThinks for the TUC found that 76% of workers back a legal obligation for firms to give as much weight to the interests of their staff and other stakeholders (e.g. local communities) as to their owners or shareholders.
Recommendations for reform
The report authors say that the balance between the interests of a firm’s workforce and its shareholders has tilted too far towards shareowners and away from the working people who create the wealth. And they call on the UK government to step in with reforms to restore fairness to UK workers.
TUC General Secretary Frances O’Grady said:
“Working people deserve a fair share of the wealth they create. This should come through wages, pensions, and reinvesting profits to safeguard the future of the firm and its workforce.
“But in the last two decades, wages have stagnated. Pension schemes have been curtailed with the loss of defined benefits. And the connection between UK pensions and UK shares and dividends has been severed.
“This isn’t how it should work. But we can restore fairness by reforming company law so that directors have duties beyond short-term profits for shareholders. And we can restore the power that workers need to gain their fair share with stronger bargaining rights.”
Mat Lawrence, Director of Common Wealth, said:
“The economic story of the decade is clear: workers have suffered while asset-owners have surged.
“Ensuring working people share in the wealth they create is fundamental to turning ‘levelling up’ from rhetoric to reality. But critically, if companies reduce dividends and increase wages and investment, this mustn’t come at the expense of ordinary pensioners.
“With pension wealth inequality so high, the stock market is starkly disconnected from ordinary savers. The solution is a fair settlement at work and social security system that provides security and dignity in retirement”.
Luke Hildyard, Director of the High Pay Centre said:
“The link between the fortunes of the UK’s biggest businesses and the prosperity of the country as a whole is getting weaker and weaker.
“Our research shows that a tiny and shrinking proportion of corporate Britain’s vast pay-outs to shareholders reaches ordinary savers, while workers are denied a voice in the running of the companies they help to succeed.
“We need economic reforms to make big business work for the benefit of everybody, not just a small number of wealthy executives and investors.”
- Polling data: BritainThinks polled 2,134 adult workers in England and Wales. The poll was conducted between 13th – 21st May 2021. Results were weighted to be nationally representative according to the ONS Labour Force Survey Data. 76% agreed (and 5% disagreed) with the following statement: “When making decisions, businesses should be legally obliged to give as much weight to the interests of their staff and other stakeholders as they give to the interests of their owners or shareholders.”
- Wealth inequality: Research published by Oxfam in 2020 found that the richest 1% of people in the world own double the wealth of 6.9 billion people. And research by the Resolution Foundation in 2021 found that the typical family in the richest 10% of households has £1.3 million more in wealth per adult than the typical family in the fifth decile of the wealth distribution – equating to 54 times typical annual family household income prior to the pandemic.
- About the TUC: The Trades Union Congress (TUC) exists to make the working world a better place for everyone. We bring together the 5.5 million working people who make up our 48 member unions. We support unions to grow and thrive, and we stand up for everyone who works for a living. www.tuc.org.uk
- About Common Wealth: Common Wealth is an independent think that designs ownership models for a democratic and sustainable economy. https://common-wealth.co.uk
- About the High Pay Centre: The High Pay Centre is an independent, non-partisan think tank focused on economic inequality, with a particular interest in top pay. https://highpaycentre.org
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