What is ‘inheritocracy’ and why could it matter to you?

The way that we work and earn money has always changed and evolved over time.

Gone are the days of town criers or knocker-uppers - that’s human alarm clocks - of the 19th century. Likewise, factory employment has fallen dramatically since its peak in the 1970s.

We’re probably on the threshold of the next era now, too, with Artificial Intelligence (AI) about to shake up the world of work once again.

Yet, while these eras are distinct, they all have one thing in common: the reward of hard work.

In theory, our society is a meritocracy. That means we’re financially rewarded depending on how hard we work and how valuable that work is.

However, there’s a school of thought that suggests that’s no longer how our society functions.

Your finances could be defined by your inherited wealth, not work

According to historian and author, Dr Eliza Filby, our society is now an ‘inheritocracy’.

In an inheritocracy, it’s thought that only those whose parents or wider family are able to provide financial support  - in whatever form - are able to succeed.

As Dr Filby explained in an article for The Guardian:

“If you’ve grown up in the 21st century, your opportunities are increasingly determined by your access to the Bank of Mum and Dad, rather than by what you earn or learn.

“In the 2020s, rather than a meritocracy – where hard work pays off – we have evolved into an inheritocracy, based on family wealth.”

Someone who benefits from an inheritocracy might get direct financial support. For example, their parents or grandparents might give them money directly for living costs, a house deposit, or help with childcare costs. 

Or, it might be an indirect benefit, such as access to free or subsidised housing. They might stay at home with their parents while saving for a house deposit. Or, they could live in their parents or grandparents’ second home while paying reduced or even no rent.

These are just examples of how an inheritocracy can work. It means that those with family wealth might be in a better position to succeed and live comfortably.

What inheritocracy could mean for you

Estimates suggest that those in the Baby Boomer generation - those born between 1946 and 1964 - will pass £5.5 trillion to their families by 2050.

So, it’s likely that we’ll see the inheritocracy trend continue over the coming years as this money makes its way to the next generation.

How you’ll be affected by inheritocracy depends on your age and family’s wealth.

Age

Younger individuals are usually more likely to benefit from familial wealth. That’s because, if you’re later in your career, you might’ve already built wealth for yourself or already received support when you were younger. 

If you’re able to benefit from your family’s wealth, it’s worth thinking about how you can use that fortune to save effectively for the future.

Those savings could be important for enjoying later life. You might also want to support your loved ones in future, just as your family did for you.

Meanwhile, if you won’t inherit, it’s arguably even more important that you consider your financial future. You’ll be fully responsible for building wealth, so thinking about it early can help you get on track towards saving what you need.

Family’s wealth

Obviously, not everyone will benefit from inheritocracy. If your parents or grandparents don’t have money or assets to share, you won’t enjoy the benefits of inherited wealth.

One thing to stress is that there’s no judgement if you’re a parent or grandparent looking to support your loved ones with their wealth. 

If you’ve worked hard throughout your career, it’s understandable that you’d want to share the proceeds with your nearest and dearest.

The key consideration here is to encourage them to make sensible decisions so they can build wealth effectively, just as you have.

Pensions can help you build wealth, with or without family help

Regardless of whether you’ll benefit from an inheritance, pensions could be a useful tool for building wealth.

• You can usually get tax relief on your contributions - subject to certain limits, most basic rate taxpayers can enjoy a 25% top up on what they pay into their pensions. Higher and additional rate taxpayers can benefit from further relief too.
• You can receive employer contributions - if you work for an employer, you’ll likely benefit from Auto-Enrolment. Under these rules, your employer’s required to pay at least 3% of earnings above a certain limit into your pension.
• Your pension savings will be invested - this gives them the chance to grow over time. Choose a pension plan that suits your risk tolerance and goals. Any growth your savings generate is entirely free from tax, too.
• Your family can contribute to your pot - you can pay in inherited lump sums, and your parents and grandparents could pay in too. You’ll usually receive tax relief on those contributions, and they’ll be invested as well.

When saving into a pension, keep the annual allowance and tax relief limits in mind.

The annual allowance is the limit on the gross amount that can be saved into a pension each tax year without incurring tax charges.

The current standard annual allowance for pension contributions is £60,000 (2026/27) - this includes personal, employer and any third party contributions.

There’s a separate limit on tax relief. You can receive tax relief on personal and third party contributions up to 100% of your salary, capped at £60,000 per year (2026/27). Tax relief isn’t applied to employer contributions.

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Inheriting a pension 

In 2026/27, you can inherit a pension without facing an Inheritance Tax (IHT) charge. This can make them a tax-efficient tool for passing wealth to your loved ones. 

However, note that this is set to change. From April 2027, pensions will be included in the value of your estate for IHT purposes. Though the exact details are yet to be announced.

Moving forwards, whoever you leave your pension to could face a 40% tax charge, depending on the size of your pension and your estate as a whole.

Find out more about pensions and IHT here.

Start saving with PensionBee

It’s true that having family support’s a big advantage for financial success.

Even so, it’s important to remember that hard work can still be valuable for building wealth. And, using a pension to tax-efficiently store and potentially grow that wealth can be useful.

Open a PensionBee pension and start saving for your future today. Combine old pensions into one, pick a pension plan that suits you, and contribute easily online.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.