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A friendly way to save your cash for future
Friendly societies have a lot of potential, says Conal Gregory, Personal Finance Regional Journalist of the Year
Friendly societies form one of the least-known fields of finance and yet protect millions, both for their health and savings.
They are at the heart of mutuality. In essence, a friendly society is a collective self-help organisation which provides the security of mutual insurance.
At one stage, they constituted the largest set of voluntary associations in Britain, reaching six million members – equivalent to half of all adult males – in 1904.
Today the figures are still impressive with almost 5.7m members holding 10.9m policies and net assets of 17.5bn.
The first such society may have been the quaintly named United General Sea Box of Borrowstounness which dates from 1634. It collected funds to help mariners, particularly to provide for a funeral.
In many ways friendly societies were forerunners of the welfare state. Some are still based on an occupation (such as dentists, police, pharmacists and transport as well as ones just for a firm's employees), religion or 'the pledge' which stated no consumption of alcohol.
The majority though are open to all. Many are substantial enterprises, such as LV= (formerly Liverpool Victoria – with over 6.5bn net assets) and Royal Liver Assurance (over 3.5bn).
Their unique feature is the 10-year savings plan which is tax-exempt, although not offered by all friendly societies. Up to 25 a month (or 270 annually, even though the sum does not equate) can be invested. That low figure has not been raised since May 1995 when it increased from 200.
Such a plan should be regarded as long term as in the first year or two, virtually nothing may be returned if a policy is encashed.
Most societies place the money in their with-profits fund but others on an unit-linked basis. Usually life cover is included but it's possible to opt out of that and enjoy greater growth, such as with Royal Standard and Sheffield Mutual.
Often such plans can be started for children, even for babies. While Child Trust Funds are meant to be the first savings incentive, many children lost out because they were born before CTF was introduced. Relatives and close friends also like the 10-year tax-exempt plan as it does not mean all payments mature at age 18.
However, there are societies – notably The Children's Mutual, which is the marketing name for Tunbridge Wells Equitable – which have policies specifically available for 18, 21 and even longer terms.
When considering the most appropriate society and plan, look at:
Recent performance (although not guaranteed, it is a good indicator).
Guaranteed sum assured.
If life cover is included.
Investment range.
Deductions.
Additional benefits, such as contributing to dental and optical fees.
Based on a major survey of policies maturing on December 31 last year contributing the maximum monthly 25 over 10 years, there is an enormous variation in growth.
The stars are all Yorkshire based: Sheffield Mutual (15.2 per cent pa without life cover, 12 per cent with cover), Druids Sheffield (12.25 per cent pa with life cover) and Leeds-based Kingston Unity (10.48 per cent with life cover).
These stellar performances compare with just 1.4 and 1.7 per cent (with-profits and unit linked from The Children's Mutual), 2.0 per cent (Nottingham) and 2.37 per cent (Family). All three societies included life cover.
The actual payouts varied from 6,605 to 3,212. The sums assured proved to be less helpful even though the outright star (Sheffield Mutual) offered the highest at 3,829 but at the lower end just 2,050 was guaranteed by Family.
By comparison with a decade ago, some policies have changed their basis.
Engage Mutual Assurance of Harrogate, which used to be known as Homeowners, have additionally offered a with-profits policy since 2007.
In Royal Standard's case, the sums assured are now lower but the bonus rates higher.
The incentives are rarely publicised. It may be an additional sum, such as an extra three per cent for teetotallers at Bury-based Healthy, formerly the aptly named Rechabite Friendly Society.
Druids Sheffield make a discretionary grant every three years which is sent to every member. That was 65 in late 2006.
For those going to university, Bristol- based National deposit runs an annual draw for a grant, worth 1,000pa which is paid for three years. Nottingham has a discretionary fund for those paying either 1,000 lump sum or at least 15 monthly which allows claims up to 30pa for dental, educational, medical or optical purposes.
Beyond the usual life cover, the Communication Workers pay an additional sum if death is caused by an accident to both the member and spouse.
Sheffield Mutual will contribute up to 30 every two years towards the cost of both dental and optical treatment.
A good property portfolio appears to be the secret of success. Druids Sheffield, of Wath upon Dearne, has a high proportion of assets – 70 per cent, up from 61 per cent in two years – in domestic property. Commercial property is the choice of both Kingston Unity (41 per cent) and Sheffield Mutual (37 per cent).
Under-achievers have tiny amounts in this sector – five per cent (Nottingham) and six per cent (The Children's Mutual and Family). Several other forms of saving are also available from friendly societies.
Apart from Child Trust Funds, a stocks and shares ISA has been introduced by a number including Family, Healthy, Kingston Unity, Nottingham, Scottish Friendly, Sheffield Mutual and Shepherds. Nottingham claims to offer ethical, British and global investment choices at half the regular market cost.
Sickness insurance which provides help during periods of ill health and hardship is available from Kent-based Anglo-Saxons. It comes with yearly discretionary grants for dental, optical and other treatments.
Exeter Friendly is one of the oldest private medical insurance organisations, providing particularly for the over 50s. Royal Liver Assurance is another leader.
A cash plan to spread the cost of dental and optical fees is offered by the Civil Service Healthcare while income protection is available from the Cirencester among others.
Finally, one of the novel launches has been made by National Deposit, formed in 1868. Aware that many resent paying premiums for healthcare when no claim is made, it has a new policy. Half of each premium (minimum 20) goes into a personal deposit account and half to fund the health scheme. If you need to claim, the first half pays a percentage of the cost.
There is loyalty bonus after running the account for five years.CASE STUDY
Susan Green is a great supporter of her local friendly society, the Leeds-based Kingston Unity.
A 50-year-old legal secretary from Crossgates, Leeds, she first heard about the society from her parents.
With her husband, Robert, they took out their mortgage in 1977 through the society. It is now paid off and this facility is no longer available. Susan has used Kingston Unity to save regularly. Her first 10 year tax-exempt policy matured in June which paid over 4,915.
She has immediately restarted, contributing the maximum 25 a month. "It's not risky but a better return than a building society," says Susan. Current returns are 10.48 per cent per annum after charges.
Robert, a 50-year-old site agent, is half-way through a 20 year tax-exempt policy. He pays 74.25 each quarter. Susan's sister has also invested and is now onto her second tax-exempt plan.
The couple have two grown-up children. Susan enjoys reading biographies and holidays abroad, most recently to New York.
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