Inheritance and pensions wealth
The chart below summarises a particularly interesting statistic released by ONS last week – it was tucked away on page 25 of Pension Trends: Chapter 10 so it’s possible some readers may have missed it!
The chart, which shows the mean pensions saving for 50-64 year olds with at least some savings, emphasises the importance of inherited wealth in the accumulation of pensions wealth. Obviously it is impossible to infer causation, and I suspect that it is largely the correlation of wealthy people being far more likely to inherit things that make them even more wealthy, and wealthy people being far more likely to have access to a good occupational pension.
But there may be a causal effect here too. On the one hand, people may be putting inherited cash into their pension pot – although this would be more difficult than you might think. More likely is, on the other hand, that people that the inheritance of wealth in later life, but pre-retirement, frees up more cash for pensions saving. The kind of diligent financial manoeuvring that this would require might seem like an alien prospect to most people, but not to people with accountants who understand the tax advantages of saving for (or investing in) a pension.
We know that inheritance patterns reflect the existing structure of socio-economic inequality. A Joseph Rowntree study in 2005 by Karen Rowlingson and Stephen McKay found that while one in twenty people had received an inheritance of £50,000 or more (in 2004 prices), this rose to one in ten among social classes A and B, but fell to one or two in a hundred among D and E. One of the most thoughtful contributions to the literature on intergenerational justice argued that inherited wealth is a key element of intergenerational transfers fuelling intra-generational inequality.
The new data from the ONS on inheritance and pensions shouldn’t really surprise us, but it is depressing nonetheless. Having a decent income to live on in retirement should flow naturally from a lifetime of contributing to society, primarily through employment. It should not be dependent on inheriting wealth left over by previous generations. The mean pensions saving of a 50-64 year old that has not received an inheritance over £1,000 could fund an annuity income (with no protection built into the product, or lump sum) of less than £3,000 per year – and this does not take into account people with no private pension wealth.