Youngest generation to be poorer than parents
People born in the 1960s and 1970s will only be more wealthy after their retirement compared to their parents if they receive an inheritance, according to a study by the Institute for Fiscal Studies (IFS). In comparison to their predecessors, this generation have less income and are less likely to own a home. Furthermore, they are likely to have less money tied up in private pensions.
The study by the IFS concluded that people aged between their mid 30s and mid 70s are likely to be reliant on inherited wealth if they are going to be better off than their predecessors. Whilst those born in the 1960s and 1970s did have higher incomes, they spent lavishly and did not save. People born in the 1970s are taking longer to get on the housing ladder and their home-ownership rate has stalled over the last few years.
Changes to state pension entitlements and the closure of many company final salary pension schemes will result in a worse-off generation. However, according the IFS, later cohorts born in the 1960s and 1970s will receive much more from inheritances. Only 28% of people born in the early 1940s have received or expect to receive an inheritance, compared with 70% of those born in the late 1970s.
Despite this, IFS research economist and author of the report, Andrew Hood, said the expected inheritances are unevenly distributed. “Since the Second World War, successive cohorts have enjoyed higher incomes and living standards than their parents,” he said.
“Yet the incomes and wealth of those born in the 1960s and 1970s look no higher than the cohorts that came before them. As a result, younger cohorts are likely to have to rely on inheritances to be better off in retirement than their predecessors,” he added, before concluding: “But inheritances are unequally distributed, with households that are already relatively wealthy far more likely to benefit.”