"The wealth of younger generations looks set to depend more on who their parents are than was the case for older generations."
Its research shows that today’s elderly have much more wealth to bequeath than their predecessors, primarily as the result of rising 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, the dramatic decline of defined benefit pensions in the private sector and the stagnation in household incomes.
Together, these trends mean inherited wealth is likely to play a more important role in determining the lifetime economic resources of younger generations, with important implications for inequality and social mobility, the IFS says.
Although younger generations are likely to inherit much more wealth than their predecessors did, within each generation, those who are already well off tend to inherit the most.
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, the research shows that those with higher incomes are significantly more likely to expect an inheritance than those with lower incomes.
Between 2002–03 and 2012–13, the wealth of elderly households (those in which all members are 80 or older) increased by 45%, and 72% of these households now expect to leave an inheritance, up from 60% a decade ago.
The IFS says that future inheritances are therefore likely to be "highly unequal". Even 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 a ‘lucky half’ of younger generations look likely to get the vast majority of inherited wealth.
However 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, 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.”
