Pensions  

Young set to inherit more than previous generations

Young set to inherit more than previous generations

Younger generations are likely to inherit more wealth than their predecessors, both in absolute terms and relative to their other sources of wealth, the Institute for Fiscal Studies (IFS) has said.

But the instutute has warned that those who are already well off tend to inherit the most.

New research by the IFS found that between 2002 to 2003 and 2012 to 2013, the wealth of elderly households increased by 45 per cent, mostly as a result of higher homeownership and rising house prices.

Article continues after advert

Of these households, 72 per cent now expect to leave an inheritance, up from 60 per cent a decade ago, with a particularly sharp increase in the proportion expecting to leave a large inheritance.

But even low-income households are now likely to receive an inheritance, with the lowest-income fifth of those born in the 1970s more likely to have received or expect to receive an inheritance than the highest-income fifth of those born in the 1930s.

Andrew Hood, a senior research economist at IFS, said: “The wealth of younger generations looks set to depend more on who their parents are than was the case for older generations.

“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.

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

But he warned that future inheritances are likely to be highly unequal.

Even excluding the super-rich, the richest half of elderly households hold 90 per cent of the wealth and the richest 10 per cent hold 40 per cent of the wealth.

This creates what the IFS has termed a “lucky half” of younger generations likely to get the vast majority of inherited wealth.

The IFS also said the largest inheritances tend to go to those who are already well off. Among current pensioners, more than half of those with families well enough off to leave them more than £250,000 in inheritance have lifetime incomes (excluding inheritances) in the top 20 per cent of the population.

damian.fantato@ft.com