Older people in England, on average, hold a lot of wealth. For example, among those aged 55-64 (i.e. on the eve of retirement) median housing wealth is £185,000 and median other wealth (excluding pensions) is around £33,000. A set of new reports – funded by the IFS Retirement Savings Consortium and the Economic and Social Research Council and published today – shows that this wealth, whether held in housing or in financial assets, is not in general drawn down in retirement. This implies that most will be bequeathed to later generations.
Key findings on the use of wealth by current retirees in England include:
• Primary housing is the largest component of (non-pension) wealth held. 80% of the over 50s are home owners. On current trends, the majority home owners at age 50 would not be expected to move before of they die. Of the slightly over two-fifths who would be expected to move, few move for financial reasons, though something like two-thirds of moves do release some housing wealth.
• Financial wealth is on average drawn down, but only slowly. Observed behaviour suggests that on average individuals will draw down just 31% of net financial wealth between ages 70 and 90. Even among individuals in the top half of the financial wealth distribution, net financial wealth looks to be drawn down by just 39%, on average.
• Around one-in-six of those aged 55-64 own a second home. The prevalence of ownership of second homes changes very little at ages 70 and over, and actually increases slightly among those in their late 50s and 60s. Among those in their late 50s and 60s there is a shift away from second homes that do not yield an income towards those that do.
• Most people do not appear to experience large end-of-life expenses that would use up remaining wealth holdings. 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 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.
Rowena Crawford, an Associate Director at IFS and author of the set of reports, said: “Older people do not draw on their wealth much during retirement. The majority of homeowners do not move or access their housing wealth, and even financial wealth is drawn down only slowly. This means that most wealth held by retired people is likely to be bequeathed to future generations, rather than spent. This will have implications for the level and distribution of resources among current working age individuals, particularly those with wealthy parents and few siblings. 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.”