Generational Inheritance Inequalities
A recent Institute for Fiscal Studies briefing note shows that today’s elderly population has more wealth to bequeath than previous generations, thanks to rising home ownership rates and house prices.
Co-authored by Andrew Hood and Robert Joyce, the note finds that at the same time today’s young adults will find it harder to build up their own wealth than older generations did. This is attributed to a sharp fall in home ownership, the “dramatic decline of defined benefit pensions” in the private sector and stagnated household incomes.
The two trends mean that inherited wealth is likely to play a bigger role in the lifetime economic resources of younger generations. This has important implications for social mobility and inequality.
The note looks at current pensions and finds those with the highest lifetime incomes are also those who have inherited the most throughout their lives. People who have earned high incomes in their lifetime are about twice as likely to have inherited something than people on low incomes. They are also much more likely to have inherited hundreds of thousands of pounds.
The note finds evidence that the pattern is likely to be maintained among younger generations. Younger people with higher incomes are much more likely to have received an inheritance or to get one in the future.
Nowadays, elderly households now have significantly more wealth than households of the same age ten years ago. In households where all members are aged 80 or older, the average real non-pension wealth in 2012–13 was £230,000, compared with £160,000 for the same age group in 2002–03.
More of these households intend to leave a large inheritance to their beneficiaries. In 2012–13, 44 percent of older households expected to leave an inheritance of £150,000 or more, compared to just 24 percent in 2002–03.
Of people born in the 1970s, 75 percent have either received or expect to receive an inheritance, compared to 68 percent of people born in the 1960s, 61 percent of people born in the 50s and 55 percent of those born in the 1940s.
The report notes that wealth distribution is extremely unequally distributed. In households where everyone is aged more than 80 or older, the top half hold 90 percent of the wealth and the top 10 hold 40 percent of it. So, half of younger households look likely to get the vast majority of inherited wealth.
The note makes for thought-provoking reading. It will be interesting to see what happens to future generations when it comes to incomes and inherited wealth.
Source material: DublinChamber