Research using Understanding Society has found that, for generations born in the 1960s, 70s and 80s in the UK, inheritances are set to grow dramatically compared to other income.
Older generations now have more wealth than their predecessors did, but younger generations’ incomes are no higher than those of the generations just before them. “As a result,” the report says, “inheritances will be an increasingly important part of lifetime income and wealth.”
The research was carried out by Pascale Bourqin, Robert Joyce and David Sturrock at the Institute for Fiscal Studies, who used Understanding Society data to calculate the range of household income across the life cycle, and to see how individual households tend to move up and down the earnings distribution over time. They also used data sources such as the English Longitudinal Study of Ageing and the Living Costs and Food Survey for other aspects of the work.
The authors project that inheritances will be worth an average of 9% of household lifetime income for people born in the 1960s, rising to 16% for those born in the 1980s. This would mean that what people receive from their parents plays an increasing part in their incomes and living standards – reducing the relative importance of what they earn themselves.
David Sturrock, a Senior Research Economist at IFS, said:
“The growing importance of inherited wealth will be a profound societal shift, and 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.
“More broadly, our findings underline the need to kickstart income growth for younger generations, not just to improve living standards but also to limit the importance of parental wealth and therefore drive social mobility too.”
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