Youngsters set to be more reliant on inherited wealth, says IFS

5 Jan 17

Younger generations are likely to inherit more wealth than their predecessors, while inheritances will form a greater portion of their income, the Institute for Fiscal Studies has found.

A report by the think-tank, published today, examines the impact of inheritances on inequality across and within different generations.

It reveals that younger generations will inherit much more wealth than their predecessors, both in absolute terms and also relative to other sources of wealth.

Andrew Hood, senior research economist at IFS, said: “Today’s elderly have much more wealth to leave to their children than their predecessors did, primarily as the result of higher homeownership rates and rising house prices.”

In the decade from 2003 and 2013, the wealth of elderly households (in which all members are 80 or older) increased by 45%.

Today, almost three-quarters (72%) of these households expect to leave an inheritance, up from 60% a decade ago. There has been a particularly sharp increase in the number of households expecting to leave a large inheritance

Of those born in the 1970s, three-quarters have received or expect to receive an inheritance, compared with 61% of those born in the 1950s, and less than 40% born in the 1930s.

Among younger generations, those with higher incomes are significantly more likely to expect an inheritance than those with lower incomes. Moreover, within each generation, those who are already well off tend to inherit the most – which has implications for inequality and social mobility. In the case of current pensioners, if they are ranked by total lifetime income (excluding inheritance), those in the top 20% have inherited four times as much as the bottom 20% on average.

Hood added: “The wealth of younger generations looks set to depend more on who their parents are than was the case for older generations.”

Inheritances are therefore likely to most benefit those who are already well off, with inheritances in the future likely to be “highly unequal”. Excluding the super rich, the richest half of elderly households hold 90% of the wealth and the richest 10% hold 40% of the wealth. Hence, around half of people in younger generations look likely to get the vast majority of inherited wealth.

Moreover, the largest inheritances tend to go to those already well off. Among current pensioners, more than half with families that are wealthy enough to leave them over £250,000 in inheritance have lifetime incomes in the top 20% of the population.

According to Hood: “Today’s young adults will find it harder to accumulate wealth of their own than previous generations did, due to a sharp fall in homeownership for that group, the dramatic decline of defined benefit pensions in the private sector and the stagnation of their incomes.”

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