The hidden financial costs of being LGBT+

From the pay gap to property costs, Paul Burgin considers some of the issues that undermine financial security.

Let’s start at the top. If you earn less and have less disposable income, your investment, savings, home-buying and pension options are more limited. According to YouGov, the LGBT+ community certainly suffers a pay gap. At some £6,700 per year, it is almost double the gap between the binary genders.

That pay gap has a direct impact on financial well-being. A survey by insurer Aegon shows the community tends to plan less and save less than heterosexual counterparts, particularly those people not in relationships.

Sven Drew, co-chair of the Aegon Proud network that supports financial well-being for LGBT+ customers and staff, thinks the discrepancies between the community and heterosexuals can be significant.

He says: “The biggest differences are gender-based, rather than sexuality-based. The sexuality-based things are more nuanced.”

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Women already suffer a pay gap and it is magnified for lesbian and bisexual women.

Drew explains: “Gay men are seen as more confident and out there, but they are still men. And men tend to have better career paths than women.”

LGBT+ independent financial advisers agree that there are discrepancies, but the financial pressures and costs can differ across the generations.

Paul Thompson, founder of the specialist financial advice network Equality Wealth, says: “There is definitely a cost of being LGBT, particularly for the older generation that was forced by society to live in the closet, or those who lived through the 1980s and 1990s with the impact of HIV on the ability of gay men to plan ahead.”

The older generation is playing catch-up in retirement planning, but not enough people are making proper plans, he admits. In a lot of relationships, couples keep their finances separate or simply do not discuss them.

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An unwillingness to address joint finances can be extremely costly. Married partners come first when it comes to inheritance, as do civil partners in most instances. Those living together do not.

Bill Smith of Scotia Wealth Management, based in Edinburgh, cites a recent case of an older client who still referred to his partner as ‘his friend’. Between them, they had expensive separate properties in the city. When the friend died, he left his flat to his partner, but without planning his inheritance. The total tax bill topped £200,000.

Smith says: “People who have lived together for many years, if not married, assume they will inherit. The simplest thing to do is write a will.”

Without over-simplifying, Smith identifies different issues for different age groups among his mainly gay clientele. For older clients, many may have been in a conventional marriage before coming out and finding new partners.

Smith says: “They had old final salary or other pension schemes that would only have gone to the wife. It is a lot easier to get your partner’s final salary now if you are in a same-sex relationship.”

Becky O’Connor, head of pensions and savings at interactive investor, says: “With pensions, it is important to fill out a ‘nominated beneficiaries’ form, also known as an ‘Expression of wishes’ form. This allows you to state who you want to receive your leftover pension and if more than one person, in what proportions. If you don’t, your pension could go into your estate and may not go to the person or people you wish to receive it, particularly if your family background is complicated.”

But when married and in the closet, those men may have also had children. Some clients have to juggle their financial plans to provide for their current partner and their children, too.

Younger generations are broadly more open about their relationships, although their unwillingness to discuss and share finances is still a big barrier. Bill Smith says many in their 30s and 40s are buying properties together, but not planning for who gets what in future, or how to provide for a partner when there are big discrepancies in earnings.

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For the youngest generations in their 20s and 30s, Smith is blunt: “The biggest issue is to get them to stop partying and start saving something. Even £50 per month at that age, you won't miss it.”

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Consultant Kim North of Technical & Technology, a specialist financial services consultancy, agrees with Smith.

She says: “It is never too late to start, even if you have been clubbing to the age of 50. And the clubs are all shut now anyway, so why not put away the money you’ve saved?”

She also thinks that attitudes in the financial services industry towards the community have improved, but are not perfect.

She and her partner Victoria struggled to get each other's names on old pension contracts, despite knowing their way round the system. The couple managed to make the changes by filling in the necessary paperwork and pointing out the law. ‘Kim’ and ‘Vic’ still get referred to as men in correspondence.

More seriously, North points to the much improved position of those with HIV. When the epidemic started, insurers simply refused to grant life insurance policies to a gay man, whatever their HIV status.

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Pressure from the community and improvements to life expectancy and efficient medication has rolled that back. L&G, for example, stopped asking about sexual orientation, but asked about high-risk sexual practices from 2005, then dropped all such questions finally in 2010.

North says: “For gay men, yes you can get life insurance, and no you don’t pay more for it, HIV is no longer an issue, providing you are taking your meds.”

Non-traditional families

Changing lifestyles and the Covid-19 pandemic have thrown up other financial costs for the community. Equality Wealth found that properties in LBGT-friendly areas can be 20% more than in other towns and cities.

Kim North adds that the many LGBT+ people in freelance industries and the arts have been hard hit by lockdown, and not always had access to furlough schemes.

She also points to direct costs of transitioning or having babies by IVF, adoption or surrogacy. IVF is expensive, at around £5,000 per cycle if not available on the NHS. Success is not guaranteed and the process can take longer than expected.

For those in non-traditional families, her major advice is to write a will - and quickly.

She says: “Ensure someone you trust gets probate and the trustee distributes your money and assets as you want.”

Those who die without wills are known as intestate. Under the rules, homes, other assets and pensions without named beneficiaries go to children first, siblings and then parents.

North adds: “Lots of us are not in traditional families or may be estranged from parents, and brothers and sisters. If you were disowned or thrown out, you don’t want them to get your money.”