What are the real implications of intergenerational wealth transfer?

  • Describe the issues around intergenerational wealth transfer
  • Identify changes in the population affecting wealth
  • Explain the advantages of using a trust
What are the real implications of intergenerational wealth transfer?

In 1937, French poet and philosopher Paul Valéry wrote that “the trouble with our times is that the future is not what it used to be”.

It was this period (1925 -1945) that played host to the generation known as the Silent Generation, which preceded the generation at the heart of this topic – the Baby Boomers (1946 –1964).

By now, we have all heard of the Great Wealth Transfer, but what does this really look like?

It was at a Personal Finance Society Conference that I attended where one of the speakers conducted a visualisation exercise on the attendees to help them contextualise just how much £1tn is in order to frame the rest of his presentation.

We know that 1 trillion is 1,000 billion, but if we put it in the context of time, 1,000 seconds ago was equal to almost 17 minutes; 1m seconds is almost 12 days; 1bn seconds is 31.7 years; but a trillion seconds amounts to 31,709.8 years. It is estimated that £5.5tn is set to pass through generations over the next 30 years.

What do we know about the Baby Boomers compared with Millennials/Gen Z?

We know that the typical baby boomers had children and bought properties earlier, benefitting from huge house appreciation. By the time they reached their 50s, their liabilities were low and excess income was high and they typically benefitted from final salary pension schemes.

Today, we are seeing financial resilience challenged and financial maturity being delayed as the demand for early retirement rises and more people take out larger and longer mortgages - the average renter will have spent £53,000 on rental costs by the age of 30 as 40-year mortgages quickly become the norm. In addition, more people in their 50s have children at school who go on to need more financial help than ever before from the bank of mum and dad. Is the golden age of retirement behind us?

How are the age statistics shaping the future?

As of 2019, 18 per cent of the UK population were aged 65+ and by 2035, it is estimated to be 25 per cent. Over the next 22 years, the number of people aged 85+ is forecast to double to 3.2m, with one in five people living to see their 100th birthday. In the last decade, the number of people reaching their 100th birthday has increased by 62 per cent - a far cry from there being 100 people aged 100+ at the time of WW1.

This is a frightening statistic when you learn that 35 per cent of women and 24 per cent of men born in 2015 will develop dementia and that the average cost of a care home in 2020 was £34,944.

How is household wealth changing?

It is estimated that the Baby Boomer generation controls around 80 per cent of UK private wealth and property is expected to account for 70 per cent of transferred wealth.

Total net financial worth held by households saw an increase of 172 per cent between 1995-2015 from £1.6tn to £4.3 trillion, and IHT receipts totalled £5.2bn in 2019-20, the highest ever having more than doubled since 2009-10.