Retirees likely to bequeath rather than use most of their wealth

Most of the wealth held by older people in England will be passed on to later generations rather than used in retirement, according to new research by the Institute for Fiscal Studies (IFS).

The research reveals that, among the next group of retirees — those aged 55-64 — median housing wealth is £185,000 and median other wealth (excluding pensions) is around £33,000.

Eight in ten of the over-50s are homeowners, yet the majority of homeowners do not move or access their housing wealth in retirement, and even financial wealth is drawn down only slowly.

On average, individuals will draw down just 31% of their net financial wealth between the age of 70 and 90. Even among individuals in the top half of the financial wealth distribution, net financial wealth is drawn down by just 39%, on average.

The research also found that most people do not experience large end-of-life expenses that would use up their remaining wealth.

While it´s important to be prepared for the potential costs of later-life care, 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 their 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, the IFS noted.

However, report author Rowena Crawford, an associate director at the IFS, highlighted several reasons why the current patterns of wealth use in retirement might change in future.

For instance, many working age people report expecting to draw on non-pension wealth to provide money for their retirement. Of those in their 50s, 40% expect to use savings, 30% expect to use their home, and 10% expect to use other property to finance their retirement.

And, if future retirees have lower pensions than today´s retirees, it may become more common to draw larger sums from housing wealth.

“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,” Crawford said.