A growing reliance on inheritances is reshaping retirement patterns in Britain, with an increasing number of older workers choosing to leave the workforce before reaching state pension age, according to recent analysis by policy experts and research organizations.

The trend highlights a shift in the early retirement debate, which has largely focused on factors such as long-term illness pushing individuals out of work. However, inheritances—increasing both in size and frequency—are emerging as a significant factor influencing retirement decisions among middle-aged and older adults.

Data from the Institute for Fiscal Studies (IFS) indicate that millennials born in the 1980s can expect inheritances amounting to roughly 16% of their lifetime household income, nearly double the 9% projected for individuals born in the 1960s. Meanwhile, the Office for Budget Responsibility forecasts a rise in estate tax liability, with nearly one in ten estates expected to be subject to inheritance tax by 2030, up from one in twenty today. This increase is largely driven by rising property values and frozen tax thresholds.

Labour’s pensions minister, Torsten Bell, recently told a Treasury committee that the influence of inheritance wealth extends beyond the housing market, which has been the primary focus of public discussion. Analysis by the Resolution Foundation shows that most millennials receive inheritances later in life, typically around age 62, limiting the immediate impact on first-time homebuyers.

In fact, between 2018 and 2020, nearly 465,000 people in their 50s and over 400,000 in their 60s reported receiving an inheritance. For many, these sums are substantial: one in five individuals in their 60s who inherited assets received between £100,000 and £250,000. Inherited wealth often far exceeds financial gifts made before death, with only 2% of gifts across all ages exceeding £100,000 compared to 18% of inheritances.

The consequences extend to labor market participation and public finances. Recipients of inheritances are more likely to pay off mortgages, with those over 40 who inherit being six percentage points more likely to clear their home loans. Those who own their homes outright are four percentage points more likely to retire early than those still paying mortgages, according to the Resolution Foundation. Moreover, inheriting at least £50,000 is associated with a four percentage point increase in the likelihood of early retirement.

The demographic profile of inheritance recipients tends to skew toward higher earners with established careers, suggesting the potential loss of experienced, productive workers could impact economic growth and tax revenues at a time when the government is aiming to raise employment levels.

However, some experts caution against viewing inheritance as a straightforward catalyst for early retirement. Arun Advani, director of the Centre for the Analysis of Taxation, notes that inheritances as a share of lifetime income remain relatively constant across income groups and that middle- and lower-income individuals may be more likely to retire upon receiving such wealth. Meanwhile, higher earners may continue working due to non-monetary benefits of their jobs.

Bee Boileau of the IFS suggests the growth in inheritances will likely influence retirement patterns gradually over many years rather than triggering a sudden wave of early retirements.

Britain’s employment rate for those aged 55 to 64 stands at 67%, below rates exceeding 75% in countries like the Netherlands, Denmark, and Germany, indicating room for increased labor market participation among older workers. Yet rising inheritance wealth could counteract efforts to encourage prolonged employment.

Bell emphasizes the need for policymakers to recognize that, as the state pension age rises and concerns about pension incomes grow, inheritances may increasingly determine who can afford to retire early. This dynamic shifts the focus away from housing inequality toward a growing divide between those who can exit the workforce ahead of state pension eligibility and those who cannot.