Younger generations are likely to inherit much more wealth than their predecessors did, both in absolute terms and relative to their other sources of wealth. But within each generation, those who are already well off tend to inherit the most – with implications for inequality and social mobility.
Ranking current pensioners by total lifetime income (excluding inheritance), those in the top 20% have inherited four times as much as the bottom 20% on average. Among younger generations, those with higher incomes are significantly more likely to expect an inheritance than those with lower incomes.
These are among the main findings of new IFS research published today, which looks at the impact of inheritances on inequality across and within different generations.
Inheritances are going to be more important for younger generations ...
- Between 2002–03 and 2012–13, the wealth of elderly households (those in which all members are 80 or older) increased by 45%, mostly as a result of higher homeownership and rising house prices. 72% of these households now expect to leave an inheritance, up from 60% a decade ago, with a particularly sharp increase in the proportion expecting to leave a large inheritance.
- Younger generations look much more likely to inherit than their predecessors. Of those born in the 1970s, 75% have received or expect to receive an inheritance, compared with 61% of those born in the 1950s and less than 40% of those born in the 1930s.
... and are likely to benefit those who are already well off the most.
- Future inheritances are likely to be highly unequal. Even excluding the super-rich (for whom we do not have reliable data), the richest half of elderly households hold 90% of the wealth and the richest 10% hold 40% of the wealth. Hence a ‘lucky half’ of younger generations look likely to get the vast majority of inherited wealth.
- 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% of the population.
- Among younger generations, higher-income individuals are more likely to expect an inheritance. Looking at those born in the 1970s, 9 in 10 of the top-income fifth have received or expect to receive an inheritance, compared with 6 in 10 of the lowest-income fifth.
- But both low- and high-income households in younger generations are more likely to inherit something than their predecessors. In fact, the lowest-income fifth of those born in the 1970s are more likely to have received or expect to receive an inheritance than the highest-income fifth of those born in the 1930s.
Andrew Hood, an author of the briefing note and 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.”
Notes to editors
- Inheritances and inequality across and within generations, by Andrew Hood and Robert Joyce, will be available on the IFS website ifs.org.uk from 00:01 on Thursday 5 January 2017. If you have any queries, please contact Bonnie Brimstone on 020 7291 4818 / 07730 667 013 / @email
- Funding for the research from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy at IFS (grant number ES/M010147/1) is gratefully acknowledged.