This report examines who benefits from shareholder returns and the extent to which dividend payments from UK companies are a significant source of income for UK pension funds.

There is increasing public interest in the rising amount of money UK companies pay to their shareholders through dividends and share buybacks and the potential opportunity cost – in terms of workforce wages, investments in R&D and building resilience against external shocks, such as Covid-19.

Research shows that:

• Dividends have risen as a share of pre-tax profits at FT350 companies between 1997 and 2020, while investment has fallen over the same period;
• Shareholder returns at the FTSE 100 grew by 56 per cent between 2014 and 2018, while average earnings grew by just 8.8 per cent (both nominal); and
• It is relatively common for companies to pay dividends that exceed their total profits; this happened in 27 per cent of cases in the FTSE 100 between 2014 and 2018.

One of the justifications given for high levels of dividend payments is that "they pay our pensions," because people’s pension savings are invested in the stock market. This report examines the extent to which this is the case and who really benefits from shareholder returns.