Millennials could see their wealth boosted by almost a fifth from inheritance, researchers have found, amid warnings of a widening gap between the rich and poor.
Inheritances have been growing as a share of national income in the UK since the 1970s, according to the Institute for Fiscal Studies (IFS), but the economic think tank believes they are now set to grow dramatically compared with other sources of income – meaning people’s overall wealth is increasingly likely to be determined by their parents’ assets rather than their own earnings.
The IFS, which publishes its findings in a report on Monday, also suggests people with higher incomes tend to be more likely to reduce the amount they save in anticipation of receiving future inheritances – meaning they could see a larger effect on their current living standards.
David Sturrock, a senior research economist at IFS and an author of the report, said: “The increasing levels of wealth held by older generations and the lack of income growth for younger generations are together driving an inter-generational economic divide.
“But these trends also mean that inheritances are set to become more important in future, widening the gap between those with rich parents and those with poor parents. The growing importance of inherited wealth will be a profound societal shift, one with worrying consequences for social mobility.
“As inheritances become larger, any policies that redistribute inheritances will have bigger impacts on inequality and social mobility, and this should increase the pressure to rationalise our system of inheritance taxation.”
The IFS expects existing disparities between older and younger generations to translate into reduced social mobility within younger generations in the future. The smaller inheritances received by those with poorer parents will mean they have more ground to make up – making it increasingly hard for those with poor parents to move into higher income distribution brackets.
For people born in the 1980s, average inheritances could be nearly twice as large as for the 1960s generation. According to IFS projections, inheritances will be worth nine per cent of household lifetime income for those born in the 1960s, rising to 16 per cent for those born in the 1980s.
Alex Beer, welfare programme head at social well-being charity the Nuffield Foundation, said: “The pandemic has highlighted and exacerbated the social and economic inequalities within our society. This research shines a light on ways in which those inequalities are set to increase even further with the growing importance of inheritances in lifetime incomes.”