Investment company UK equity income sector dividend increases beat inflation by more than 2% a year over 20 years, according to figures released by the Association of Investment Companies (AIC).
According to the report, the performance of the UK Equity Income sector make compelling reading for those concerned about the impact of inflation on their income in retirement, as well as those wanting to build up a capital sum to pass on to friends and family when they die.
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Data from the AIC using Morningstar shows that £100,000 invested into the average UK Equity Income investment company on 1 September 1994 would have generated an initial annual income of £3,265 by 31 August 1995. By 31 August 2014, this annual income would have grown to £8,139. The annual income grew by an average of 5% per year over 20 years, more than 2 per cent above inflation (RPI), which averaged 2.9% over the same period.
In addition, the capital value of the investment more than doubled to £222,315 – a 122% increase, again well ahead of inflation.
The AIC is publishing this research as part of its series ‘Freedom in pensions’ looking at how investment companies can be used to build a long-term pension portfolio, as well as their unique advantages in delivering a higher or growing income in retirement.
Ian Sayers, Director General of the Association of Investment Companies (AIC) said: "Our recent pension research revealed that 59% of respondents expected to be retired for at least 20 years. When asked what might discourage them from buying an annuity, 72% cited the impact of inflation on a level annuity and 67% the inability to pass anything on to friends and family when they die. So we decided to see whether the popular UK Equity Income sector had managed to keep up with inflation over 20 years in both income and capital terms.
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By GlobalData"Many people are aware of the advantages investment companies have over other funds in delivering a higher or growing income, such as the ability to hold back some of their income in good times to pay it out in more challenging ones. Today’s figures show that these are not theoretical advantages, with the sector increasing their annual dividends well ahead of inflation over 20 years, as well as more than doubling the capital value.
"Many people are aware of the advantages investment companies have over other funds in delivering a higher or growing income, such as the ability to hold back some of their income in good times to pay it out in more challenging ones. Today’s figures show that these are not theoretical advantages, with the sector increasing their annual dividends well ahead of inflation over 20 years, as well as more than doubling the capital value.
"Of course, this type of investment is very different to buying an annuity. There are no guarantees and you are putting both your income and capital at risk. But for those who can accept the risks, these figures make a compelling case for investment companies to be considered as part of a long-term income portfolio."
