OF ALL the reasons why people decide they need a financial makeover, a prospective change in circumstances is usually No 1.
For Jonathan Rose and his partner, Guido Scholz, that change is the Civil Partnership Act, which comes into force on Monday. If they choose to sign on the dotted line, they will be entitled to the same rights as heterosexual married couples.
Their motivation is more pragmatic than romantic. “We are not concerned that we are missing out on wedding presents,” says Jonathan, a graphic designer. “It is the financial and legal issues that are important to us, but we would like to know all the pros and cons before we go ahead.”
The couple, who met in Israel six years ago, pool all their finances, so they want to make sure that they inherit each other’s assets. And if one of them were to fall seriously ill, they would like to have the same rights as a spouse. Jonathan says: “It would be devastating if one of us was in hospital and the other wasn’t allowed to visit or make important decisions. Neither of us wants to be alone later in life, looking back and thinking, ‘If only we’d signed that bit of paper 20 years ago’.”
Jonathan, 37, and Guido, 32, also have other reasons for wanting a financial makeover. Guido, a flight attendant, says: “I am concerned about our long-term finances. We want to make the most of our money while we can work.”
Jonathan adds: “It’s time to start concentrating. I lived abroad for 17 years so I feel I have a lot of catching up to do. We want to build for the future.”
They have both joined their employers’ pension schemes and expect to retire at 65 at the latest. They also hope that a Money MoT will help them to make some career changes. Guido, who is taking a teacher training course, says: “Long-haul flights take it out of you over the years so I do not want to do it for ever.” He hopes to reduce his flying hours and teach German part-time.
Jonathan is thinking about doing some freelance work from home to earn some extra money on top of his salary. “I used to work freelance and there are elements of it that I miss,” he says. “It’s good to work on a project from start to finish occasionally instead of being a link in a chain.”
They bought their flat in Hertfordshire last year and have a three-year, fixed-rate mortgage with Abbey. Guido says: “We manage to save £250 a month each and plan to pay a chunk off the mortgage at the end of the three years.” But he wonders if this is the best strategy. “Would it be better to switch to a different type of mortgage, such as the One account?” he asks.
Guido, who is from Germany, is also thinking about investing in a flat in Munich or Berlin. “In Germany it is more popular to rent because people do not like to take on large debts,” he says. “This could work to my advantage.”
He would prefer to retire abroad. “I think it is hard to be old in the UK, especially in London,” he says. “Pension income is so little and I think old people are treated badly.”
What the experts' say
CIVIL PARTNERSHIPS
Richard Hogwood, solicitor, Speechly Bircham
“If Guido and Jonathan enter into a civil partnership in the UK, they will be treated as married, but they should not assume that they will be considered married if they move to another country.
In that case they should seek specialist advice.
“Hospitals do not have to take instructions from anyone in particular and there are stories of the wishes of same-sex partners being ignored and even refused access to the bedside.
“Having a piece of paper to prove a legal relationship should ensure that any hospital, at least in the UK, would acknowledge the rights that each has to visit the other and to have an input into any medical decisions.
“Virtually anyone can grant an enduring power of attorney (EPA), appointing one or several people to manage their day-to-day financial affairs. An EPA is useful for when someone loses mental capacity, is held up abroad or is in hospital. They are cheap to put in place.
“An EPA does not cover health matters, but it is possible to draft a document setting out your wishes for the treatment you would like
to receive in certain circumstances. This is often called a ‘living will’. EPAs and living wills would probably apply only in the UK.
“Any assets held by them as joint tenants would pass to the other on death. However, other assets, including perhaps the half-share of the house if held as tenants in common, would pass according to complicated intestacy rules. A surviving unregistered same-sex partner would receive nothing under these rules. Assets would instead pass to relatives.
“Jonathan and Guido should put wills in place whether or not they decide to have a civil partnership. If they already have wills, these will be revoked automatically by a civil partnership (unless special provisions have been included) and they will need new ones.
“As civil partners, Jonathan and Guido will gain tax advantages as reported on page 2. It is unlikely that
Guido will be considered UK-domiciled at present, which will affect their tax planning.
“If they have a civil partnership, it would have to be annulled or dissolved if they wish it to end. Pre-registration agreements are likely to be popular for prospective civil partners. They enable a couple to work out reasonable terms were they to split up. They are best suited to couples where there is a significant imbalance in wealth or one is likely to receive a substantial inheritance.”
INVESTMENT
Mark Dampier, head of research, Hargreaves Lansdown
“Jonathan and Guido should look closely at their pension investments. Their schemes may offer links to external fund choices and at their age they can afford to choose higher-risk funds which should achieve better returns.
“They could also invest in funds outside pensions for more flexibility. I recommend Artemis Global Growth, Scottish Mortgage and Jupiter Managed Opportunities.
“If they think they might retire to another country they should think about investing in that country’s currency. At present all their savings are in sterling. Guido’s proposal to buy property in Germany would be a partial solution.
“The introduction of German real estate investment trusts (Reits) should drive growth, but there are two drawbacks. One is high tenant protection, which makes being a landlord unattractive, and there is no real population growth, which lowers demand for housing.
“They are right to build their cash reserves first.”
MORTGAGES
David Hollingworth, head of communications, London & Country Mortgages
“An offset or current account mortgage works best for higher-rate taxpayers who have substantial savings. I think Jonathan and Guido would be better off with cheaper discounted and tracking deals.
“I doubt it is worth their while remortgaging now because of penalties, but they could reduce their mortgage by overpaying. Abbey allows 10 per cent a year.
“High street lenders will not provide a mortgage against property in Germany, but it is possible to raise capital against a UK property if there is enough equity in it and enough income to support the increased borrowing.”
PENSIONS
Paul Korobejko, principal consultant, Torquil Clark
“Some insurance companies provide useful pension planning tools, such as the calculator on Legal & General’s website at www.landg.co.uk.
“I calculate that Guido’s pension at 65 will be about 27 per cent of his present earnings. Jonathan’s works out at about 26 per cent. They may want to increase their pension contributions.”
Jonathan’s response
“The advice has been quite an eye-opener because much of the information is new to us. I have realised that one problem with financial planning is that it can be
hard to know what questions to ask because you do not know what you should be asking. The advice has filled in some gaps.
“We did not know about enduring powers of attorney and living wills, or the long-term implications of Guido’s domicile status and the tax issues.
“We also did not know that we could make mortgage overpayments, which will be very useful for us. It was good to have the pros and cons of offset mortgages spelt out.
“The information about civil partnerships was very interesting. It would be straightforward for us because we share our finances 50/50 and there are no quibbles, but we have not yet made a definite plan. We have a lot of future ahead of us in which to make decisions.
“I was more cautious than Guido about buying property in Germany but I now see that it could be a good long-term investment for both of us.”
