Growing size of inheritances set to reduce social mobility for younger generations
New research by the Institute for Fiscal Studies (IFS) indicates that inheritances for those born between the 1960s to 1980s in the UK are set to grow dramatically compared to other income.
Average inheritance doubles
For those born in the 1980s, average inheritances compared to lifetime income are projected to be almost twice as large as for those born in the 1960s.
This would mark a profound social change. People’s incomes and living standards are increasingly determined by what they receive from their parents rather than what they earn themselves. This means the differences between older and younger generations that we see today are set to translate into reduced social mobility within younger generations in the future.
Key findings from the report
- For younger generations, inheritances are likely to be larger compared with lifetime incomes than for their predecessors.
- For those with higher incomes, inheritances are set to be larger. However, as a percentage of lifetime income, inheritances look likely to be similar for low- and high-income households.
- Inheritances are set to be increasingly important in increasing inequalities between those with richer and poorer parents, reducing social mobility.
- Inheritances are likely to have their biggest effect on living standards later in life. However, once they are received, the anticipation of future inheritances may have consequences for outcomes today.
- Those with higher incomes are more likely to be able to reduce the amount that they save in anticipation of inheriting. This impacts their living standards today:
- The growth of inheritances means that policies that successfully redistribute them would have larger effects on inequality and social mobility for later-born generations.
If the research stands up, inheritances look set to make it increasingly harder for those with poor parents to move up the income distribution ladder as smaller inheritances mean they have more ground to make up.
For further information on inheritance planning, please get in touch with a member of our team.