More well off, better off
Those already well off will benefit the most from growing inheritances according to recent research.
The IFS states that this will lead to rising inequality and a social mobility divide among the younger generations.
As a result of increasing home ownership rates and rising house prices, the data indicates that today’s elderly have much more wealth to pass on than their predecessors. The younger generations however, will find accumulating wealth much more difficult due to the drop in the private sector defined benefit pensions, household income stagnation as well as the decline in home ownership.
These trends cumulatively mean that inherited wealth is likely to play a more prominent role in shaping the long term financial resources of younger generations, leading to significant consequences for both social mobility and inequality.
Those who are already well off in every generation are likely to inherit the most, despite younger generations probably being bequeathed more wealth than their predecessors.
Ignoring inheritance and ordering total lifetime income for pensioners, the top 20% have inherited four times the amount of the bottom 20% on average. The data indicates that where the younger generations are concerned, those with larger incomes are much more likely to be due an inheritance than those with lower incomes.
The wealth within elderly homes grew by 45% between 2002-03 and 2012-13, with the number of these households expecting to leave an inheritance growing from 60% ten years ago to 72%.
This is likely to mean that future inheritances will be “highly unequal” according to the IFS. Where the super-rich are excluded, the most wealthy 50% of elderly households hold 90% of the total wealth, with the top 10% holding 40%. The vast majority of wealth is therefore likely to pass to one half of the younger generation.
For the younger generation however, whether they be from a high or low income household, there is a higher likelihood of them inheriting something than their predecessors. For those born in the 1970s, the lowest-income fifth are more likely to have been passed on or are expecting to be passed on an inheritance than the highest-income fifth of those born in the 1930s.
Commenting on the difficulties of wealth accumulation for today’s young adults was Andrew Hood. The Senior Research Economist at IFS stated: “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 home ownership 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 home ownership for that group, the dramatic decline of defined benefit pensions in the private sector and the stagnation in their incomes.”