Lifetime Receipt of Inheritances and the Distribution of Wealth in England

Abstract

We investigate the impact of inheritances and gifts received on the distribution of wealth. Whereas previous work has looked only at marketable wealth, we consider broader measures of wealth including state and private pensions. We find that once pension wealth is included, inheritances and gifts no longer have an equalising impact on the distribution of wealth. Without pension wealth, including wealth transfers reduces the Gini coefficient for wealth from 0.57 to 0.52. With pension wealth, the impact is negligible. We argue that this latter effect gives a better indication of the impact of inheritances on the distribution of lifetime income. 56Fiscal Studies Policy pointsr The relative importance of inheritances and other intergenerational transfers in determining the lifetime economic resources of individuals is widely thought to be increasing over time. This has led to concerns about widening intragenerational inequality and an adverse impact on intergenerational mobility.r Nearly one-third of individuals aged 65-79 in England in 2012-13 had received an inheritance in the past, and 6 per cent had received a gift worth £1,000 or more (in 2012 prices).r Inheritances are smaller in absolute terms for those lower down the wealth distribution, but they are more important relative to other wealth holdings.Inheritances therefore act to make the distribution of non-pension wealth less unequal.r However, this inequality-reducing impact of inheritances and gifts shrinks (or even disappears) when public and private pensions are included in the measure of household wealth. This is important because, in the UK context, the impact of transfers on the distribution of this broader measure of wealth likely gives a better indication of the impact of transfers on lifetime incomes.

Wealth, Top Incomes, and Inequality

“…For the total population, these authors find that within the fourth and fifth decile of the distribution of wealth, the participation of pension wealth is 95% and 87%, respectively; while this is 42% and 21% within the ninth and tenth decile, respectively. A recent study by Crawford and Hood (2016), employing a sample of retirees aged 65-79 from the English Longitudinal Study of Ageing (ELSA), shows that both private and public pensions are very important in the augmented measure of household wealth and in its distribution. From Crawford and Hood (2016)'s Table 1 it is possible to infer that private and public pension wealth represent about 19% and 22%, respectively, of an augmented measure of household wealth that includes both types of pensions.…”

“…future increases in pensions and inflation are balanced out. Similar to Frick and Grabka (2013) and Crawford and Hood (2016) the discount rate is assumed to be 2%, but instead of simply employing the expected life expectancy as the horizon to receive pensions, we compute 'annuity prices' for each individual and multiply it by the corresponding pension. It is also assumed that surviving spouses receive 50% of the partner's pension.…”

“…In a recent study, Crawford and Hood (2016) find that inheritances and financial gifts have an equalizing effect on wealth distribution when standard measures of marketable wealth are used. However, these effects disappear when the authors employ augmented measures of wealth, which include estimates of state and private pension wealth.…”

Intergenerational Transfers by Size and Wealth Inequality in Rich Countries

“…Karagiannaki and Hills (2013) and Karagiannaki (2017) analyse the annual flow of inheritances and gifts reported in the British Household Panel Survey from 1996-2005, and conclude that these had only a limited impact on wealth inequality. 1 Crawford and Hood (2016) analyse data on lifetime receipt of inheritances and gifts of older persons from English Longitudinal Study of Ageing, compare inequality in transfers and in wealth minus transfers and conclude that inheritances and gifts are equalising in terms of conventional measures of marketable wealth.…”

“…We first investigate the characteristics associated with whether the household has received any transfers, irrespective of size, and then assess among recipients only the characteristics associated with receiving larger versus smaller amountsthe two-stage approach often employed in such contexts where many observations have zero receipts (e.g. Crawford and Hood, 2016). We first estimate a logit regression for the probability of receipt, with age, gender and education of the household reference person as independent variables.…”