Retired people set to bequeath wealth, not spend

Wealthy retired people in England are hanging on to their money, which is likely to be bequeathed to later generations on their death rather than spent during their own lifetime, according to research from the Institute for Fiscal Studies (IFS)

Its studies show that among those aged 55-64 (ie, on the eve of retirement) median housing wealth is £185,000 and median other wealth (excluding pensions) is around £33,000.  Primary housing is the largest component of non-pension wealth, with 80% of the over 50s home owners.

The researchers found that when financial wealth is drawn down, this happens only slowly - on average individuals will draw down just 31% of net financial wealth between ages 70 and 90. Even among individuals in the top half of the financial wealth distribution, net financial wealth looks to be drawn down by just 39%, on average.

In addition, the research indicated most people do not appear to experience large end-of-life expenses that would use up remaining wealth holdings. Among a sample who died between 2002/3 and 2012 only 7% received help with daily activities from a privately paid employee in the two years prior to death.

A fifth did stay in a nursing or residential home for some period before death but in total only 7% stayed for six months or more – and not all of these would have paid for this care privately.

Looking at patterns of bequest giving, the research found married people nearly always bequeath only to their spouse, while the surviving spouse most often bequeaths all of their assets to their children (in 60% of cases for those with financial assets) rather than sharing directly across multiple generations.

Together these findings imply that inheritances will typically only be received at relatively older ages. Bequests tend to be made to multiple individuals – for example to several children – and so inheritances received are generally considerably smaller than the size of individuals’ estates on death.

However, the IFS says these trends could change in the future as many working age people report expecting to draw on non-pension wealth to provide money for their retirement. Of those in their 50,: 40% expect to use savings, 30% expect to use their primary housing, and 10% expect to use other property to finance their retirement.

If future retirees have lower pensions than current retirees, drawing larger sums from housing wealth may become more prevalent, especially as the study also found second home ownership at older ages is increasingly common among generations born more recently: one-in-seven of those born 1950-54 own second homes, compared to one-in-ten of those born 1940-44 and around one-in-twenty of those born 1930-34.

Rowena Crawford, an associate Director at IFS and author of the set of reports, said: ‘Older people do not draw on their wealth much during retirement. The majority of homeowners do not move or access their housing wealth, and even financial wealth is drawn down only slowly. This means that most wealth held by retired people is likely to be bequeathed to future generations, rather than spent.

‘This will have implications for the level and distribution of resources among current working age individuals, particularly those with wealthy parents and few siblings.

‘Given the increased freedom people now have over how they spend their pension wealth in retirement, carefully monitoring how the use of wealth evolves in future will be important, both for the living standards of the retirees themselves, and also for younger generations.’

IFS report ‘The use of wealth in retirement’ is here.

Report by Pat Sweet

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