19th November 2015
Young Britons are on course to have less wealth at each point in life than earlier generations did at the same age – unless the rate at which they are accumulating wealth picks up, a new report has claimed.
The study from the Institute for Fiscal Studies (IFS), explored changes in household wealth and individuals’ attitudes towards saving over the period 2006-08 to 2010-12.
It concluded that increases in average wealth for working-age households over this four-year period were driven by rises in pension wealth.
After stripping out changes in how future pension income is valued, average pension wealth increased in real terms by around £13,000 for households aged 25–34, £32,000 for households aged 35–44 and £38,000 for households aged 45–54.
But it found that rises in average financial wealth were much smaller, at around £4,000, £1,000 and £6,000 for households aged 25–34, 35–44 and 45–54, respectively.
Few households hold the relatively risky financial assets that saw volatile returns over this period. For example, only 12% of households directly held UK shares in 2010–12.
The rate of increase in real wealth over the four-year period 2006–08 to 2010–12 suggests that younger cohorts are on course to have lower real wealth on average at each age than earlier generations.
“Despite the financial crisis, household wealth on average increased in real terms over the late 2000s, driven by increases in private pension entitlements,” said Dave Innes, a research economist at the IFS and an author of the report. “Even with these increases in average wealth, working-age households are at risk of being less wealthy at each age than those born a decade earlier.”
The IFS analysis also highlighted that just 35% of individuals who had not yet retired in 2010-12 expected private pensions to be their largest source of retirement income. One third expected their largest source of income to be the state pension, while 8% expected it to be saving or investments, 6% their primary housing and 5% an inheritance.
But among households aged 25–34, some 24% do not expect to receive any income from the state pension in retirement, while nearly half, at 44%, do not anticipate receiving any income from a private pension. However, 28% of individuals expect an inheritance to provide them with some retirement resources.
Rowena Crawford, a senior research economist at the IFS and another author of the report, said: “It is striking how many individuals do not expect private pensions to have a role in financing their retirement, let alone be their main source of income. It will be interesting to see how these attitudes change as auto-enrolment into workplace pensions is rolled out.”