Inheritance – The Elephant in the living room

By Peter Wilson
April 26, 2021
(IFA Magazine)

 

Inheritances are set to become larger compared with lifetime incomes for younger generations than for their predecessors and exacerbate inequalities, as well as have a big effect on living standards later in life, according to an Institute for Fiscal Studies report published today. The report also finds that the expectation of inheritance may influence saving and investing behaviour.

In the latest Mind & Money podcast “We need to talk about inheritance”, Becky O’Connor, Head of Pensions and Savings at interactive investor asks Greg Davies, behavioural finance expert at Oxford Risk, whether there is an optimum time for parents to gift a living inheritance; why the personality of the receiver matters when you are planning giving and how to talk openly about giving and receiving an inheritance.

Becky O’Connor, Head of Pensions and Savings, said: “Inheritances are no longer a matter for wealthy families only. House price growth, which has largely benefited the ‘baby boomer’ generation, means anyone whose parents own a home is now likely to receive some form of inheritance during their lives.

“The IFS report shows how widespread and how influential this shift back to inherited wealth is likely to be. It also hints at how it is likely to change life choices for those in line to receive money from their parents.

“The consequences of this great generational wealth shift are profound both for individual families and the economy. Yet conversations about inheritance are still potentially very emotionally charged and awkward, and so largely avoided. Inheritance is the big elephant in the living room.”

“It’s really important that potential givers and receivers open up about what their plans are and the amounts that are actually at stake so that expectations are realistic. Millennials may have high hopes for receiving large lump sums, but if their parents’ pensions aren’t sufficient to get them through retirement, these amounts may never materialise.

The interactive investor Great British Retirement Survey 2020 found that 42% of retired people had gifted money to their adult children to help them buy a property. An increasing proportion of non-retired parents have used lump sums from their pension to help their children (21% vs 14% of those who have taken sums).

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