Children of '60s and '70s will be worse off than their parents when they retire

Only those who get an inheritance will enjoy better living standards

People born in the 1960s and 1970s will be better off in retirement than their parents only if they receive an inheritance from them, according to new research.

The Institute for Fiscal Studies (IFS) warned that the trend under which each generation since the Second World War has enjoyed higher incomes and living standards than the previous one “may be coming to an end”. The reliance on an inheritance means that wealth is likely to remain in the same families, entrenching the divide between the “haves” and “have nots”.

Researchers found that people born in the 1960s and 1970s do not enjoy higher take-home income than those born a decade earlier; have saved no more of their previous income; are less likely to own a home; probably have less private pension wealth and will find that their state pensions are worth a smaller proportion of their previous earnings.

The “60s and 70s” children did enjoy higher incomes in early adulthood but spent the extra money rather than save it, according to the IFS.

Andrew Hood, a research economist at IFS and an author of the report, said: “Since the Second World War, successive cohorts have enjoyed higher incomes and living standards than their parents. Yet the incomes and wealth of those born in the 1960s and 1970s look no higher than the cohorts who came before them.

“As a result, younger cohorts are likely to have to rely on inheritances to be better off in retirement than their predecessors.”

Expectations among people born in the 60s and 70s of having an inheritance are much greater than among previous generations. Some 28 per cent of those born in the 1940s have received or expect to receive inherited wealth, compared to 70 per cent of those born in the late 1970s.

The IFS said: “All in all, this suggests that the long-term fortunes of younger generations may be more tied to the wealth of their parents than has been the case for those already at, or close to, the state pension age. Those not fortunate enough to expect a significant inheritance look likely to be worse off in older age than current, and soon-to-be, retirees.”

People born in the 1970s are taking much longer to get on the housing ladder than previous generations. And changes to pensions, including the plan for a single-tier basic state pension, will leave the children of the 60s and 70 with less income in proportion to their previous earnings than people now above or around the retirement age – especially for higher earners. The rapid switch away from final salary schemes in the private sector will also affect younger people.

The report says that not all the trends are due to the squeeze on earnings in the past decade. It suggests further research into why the “60s and 70s” children spent all, and saved none, of the additional income that they had in young adulthood when compared to their predecessors.

Pensions: taking out what you put in

Q: Why won’t I be better off than my parents in retirement if I was born in the ’60s or ’70s?

A: The key reason is the disappearance of gold-plated pensions linked to final salary schemes. Most people born in the ’60s and ’70s will retire with a pension pot based on how much they’ve put in, linked to how well the stock market has done. Parents’ pensions were linked to their final salary with many getting two-thirds of their last pay packet.

Q: What can be done about it?

A: In simple terms a pension is a savings scheme, building up a nest egg for you to use when you retire. The bigger the nest egg the higher the retirement income.

Q: So I just need to save more?

A: You need to save enough for the retirement income you think you need. If you want £20,000 a year, for instance, you’ll probably need to have saved around £300,000.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Account Executive/Sales Consultant – Permanent – Hertfordshire - £16-£20k

£16500 - £20000 Per Annum: Clearwater People Solutions Ltd: We are currently r...

KS2 PPA Teacher needed (Mat Cover)- Worthing!

£100 - £125 per day: Randstad Education Crawley: KS2 PPA Teacher currently nee...

IT Systems Manager

£40000 - £45000 per annum + pension, healthcare,25 days: Ashdown Group: An est...

IT Application Support Engineer - Immediate Start

£28000 per annum: Ashdown Group: IT Software Application Support Analyst - Imm...

Day In a Page

Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

Robert Fisk on Syria air strikes

‘Peace President’ Obama had to take stronger action against Isis after beheadings
Will Lindsay Lohan's West End debut be a turnaround moment for her career?

Lindsay Lohan's West End debut

Will this be a turnaround moment for her career?
'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

The follow-up to 'The Tiger Who Came to Tea'

Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

BBC Television Centre

A nostalgic wander through the sets, studios and ghosts of programmes past
Lonesome George: Custody battle in Galapagos over tortoise remains

My George!

Custody battle in Galapagos over tortoise remains
10 best rucksacks for backpackers

Pack up your troubles: 10 best rucksacks for backpackers

Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world