A person’s lifetime wealth is increasingly defined by how much they inherit from their family, says The Institute of Fiscal Studies director Paul Johnson.
Johnson believes inheritance in determining an individual’s life chances is probably at its highest since Victorian times.
Speaking at an event run by Seven Investment Management, Johnson argued this will have considerable repercussions for social mobility.
A variety of social factors such as the cost of housing, low returns on investment and government policy have contributed to the financial pressures on young people, he says.
Policies include the triple lock on the basic state pension which has increased 9 per cent compared to average earnings since between 2010 and 2011.
Additionally, the slow rise in the retirement age compared to increases in life expectancy and decline in final salary schemes all mean inheritance has gained greater significance.
Johnson said: “We have a situation where all the risk is on the individual this is a cause for long term concern. The pensions system has worked remarkably well for the current generation of pensioners but that experience will not be automatically transferred to the next one.
“Inheritance is increasingly contributing to life wealth which in turn has consequences for social mobility and therefore inheritance is probably the most crucial factor in determining a person’s overall wealth since Victorian times.”
Successful government policies to get people to save like auto-enrolment could be undone if the amount of wealth transferred through inheritance is unevenly distributed.
He added: “If people get to retirement for example and they do not own their own home and are still renting, then it is a problem. The rent bill will take a massive chunk out of their savings and then they might have to rely on housing benefit which is means tested.”
Johnson said he was unsure how all these extra pressures on public spending will be financed in the future.
He added: “I don’t see a world where spending on pensions and health decreases in any way. These will have to be paid for by higher taxes and these will come from young people mainly.”