Grandparents due to pass down £400bn to younger generations, says insurer

A "wealth mountain" of more than £400 billion is set to cascade down from grandparents to the younger generations in the coming years, an insurer has calculated.

Royal London surveyed more than 5,600 people from the older, middle and younger generation of adults to find out about their plans and expectations for receiving an inheritance.

It found that among the grandparents surveyed, all of whom were home owners, the typical estate expected to be left was in the £400,000 to £500,000 range.

Based on just over a million people being in this situation, "this suggests a 'wealth mountain' of over £400 billion set to be passed on," across the UK, the report said.

Generally, the "sandwich generation" of 45 to 64-year-olds were the most likely recipients of this wealth, the research found - but around half of grandparents also plan to pass on wealth directly to their grandchildren.

And many people in the middle sandwich generation also feel under pressure to pass any inheritance they receive straight on to their own young adult children - the millennial generation - the research found.

Two-fifths (40%) of 45 to 64-year-olds feel that there is pressure to pass on wealth.

Nearly two-thirds (62%) are concerned about the financial position of the younger generation who have not generally seen their wealth increase, due to surging house prices, in the same way that some people in the older generations have.

But the report also warned that those millennials set to benefit from the expected cascade of wealth passed down the generations are likely to be in the minority among their age group.

The research found only around four million of the 17 million people aged 25 to 44 are in the "fortunate position" of having grandparents with housing wealth.

The report argues that policies designed to help "generation rent" need to be more targeted towards people who will not benefit from inherited wealth.

Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said: "There is a wall of housing wealth set to cascade through the generations in the coming years.

"Grandparents still attach great importance to passing on their wealth rather than consuming it.

"Many in the next generation feel under considerable pressure to pass any inheritance straight on to their own children as they are acutely aware of the challenges faced by their millennial offspring".

He continued: "Those millennials lucky enough to have home-owning parents and grandparents may be set to benefit from significant inheritance which will help them on to the housing ladder.

"But the majority of millennials are not in that position.

"Schemes such as the Lifetime Isa which provide a government contribution of £1,000 per year for those who have £4,000 per year to save will tend to favour precisely those groups who already have access to wealth.

"There is a danger that this will reinforce the advantage of those who are set to benefit from a cascade of wealth from the older generations."

A recent report from the Institute for Fiscal Studies (IFS) suggested the amount of wealth that younger generations will end up with is more likely to hinge on how well off their parents are than was the case for older generations.

The IFS warned that today's young adults will find it harder to create their own wealth than previous generations, with implications for social mobility.