DIVIDEND GROWTH REACHES HIGHS
UK companies paid out a record £110.5bn in dividends in 2019, which was 10.7% up on 2018. This may be good news for income investors, although higher payouts will mean more investors are subject to Dividend Tax, unless investments are held in tax efficient wrappers. Ongoing uncertainty around Brexit throughout the year, which resulted in comparative sterling weakness against the dollar, meant that dividend returns were boosted due to many UK dividends being declared in US dollars. The record figure was also artificially increased by an exceptionally large £12bn of ‘special dividends’ – particularly from the banking, mining and IT sectors.
NO REPEAT IN 2020
Once currency factors and special dividends have been taken out of the equation, underlying dividends saw a modest rise of just 2.8% in 2019, which is the slowest growth since 2014. So, experts were already warning investors not to expect the same in 2020, even before the COVID-19 outbreak.
PASSING ON THE POUNDS
Baby Boomers, the wealthiest generation in history, are ageing. This will mean substantial growth in the yearly number of inheritances and financial gifts to offspring. Economists and financial observers have dubbed this inter-generational movement of money ‘The Great Wealth Transfer’. Estimates suggest that, over the next 30 years, an unprecedented £5.5tn could pass between generations in the UK and the average value of inheritances is set to grow from £62,000 in 2017 to £91,000 in 2027.
TACKLING THE TABOO
The importance of the wealth transfer process is unquestionable, but most families remain uncomfortable when talking about money – with finance among the few remaining taboo topics. However, it is vitally important that retirees involve their offspring in financial planning decisions if the wealth transfer process is ultimately to be successful.