Your Money: Mutual? Of course. Everyone benefits

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The debate about mutual status in Britain's building societies and insurers may have dropped out of the headlines, but it is far from over. As Nic Cicutti writes, members of both institutions still enjoy the benefits of mutuality - as long as they remain loyal to the concept.

When, after months of heightened expectations, Nationwide last summer successfully repelled the advances of Michael Hardern, the self- employed butler who sought election to its board in order to promote a flotation, the issue appeared to die down.

After all, Mr Hardern, the arch-demutualiser, had been comprehensively routed by Nationwide members.

Yet despite the apparent cessation of moves by building societies and insurers to convert into quoted companies, the issue has not gone away.

First of all, predators, including organisations that were once mutuals themselves, are on the prowl for new acquisitions in their old sector. The second, linked, reason is that in order to repel potential boarders, the mutuals have come up with "loyalty packages" for members.

Indeed, if anything, the practice appears to be spreading. Recently, Wesleyan Assurance Society, a large financial services provider, became the first insurer to offer its own Mutual Rewards package to members.

Lowry Maclean, managing director of Wesleyan, says: "This scheme is not just a one-off payment, as received by some customers of demutualising life offices. This extra bonus is expected to enhance customers' mutual rewards year after year."

Wesleyan pays an extra bonus in addition to the normal annual bonuses on with-profits endowment policies, to be announced in March.

The pounds 12.5m payout this year comes on top of a payout of pounds 10m 12 months ago, which led to some members having pounds 4,000 each attached to their policies, though the vast majority received bonuses of pounds 40-pounds 400.

The advantage to policy-holders is that if investment returns are good, the bonus they receive will itself earn interest in years to come. In addition, they receive a guarantee that any policy maturing before 2005 will repay the amount of the mortgage loan, plus a "money back guarantee" for the first three months of a regular-premium life insurance contract and one month for pensions.

Many building societies, including Nationwide, Bradford & Bingley, Yorkshire, and Coventry, have offered loyalty packages of between pounds 20m and pounds 400m a year in the form of reduced mortgage and higher savings rates than publicly- quoted rivals. But only one - Britannia - also offers cash. The scheme gives members points each year, depending on the size of their mortgage, the amount invested and the length of membership. There are also bonus points for those with other investments, including pensions, life cover or unit trusts with Britannia. Customers who have held Britannia products for five years or more receive 50 per cent more points, which double after 10 years. In 1997, the society paid out pounds 35m to its 1 million members.

Gerald Gregory, director of mutuality and marketing at Britannia, says: "The whole concept is that payments are in direct proportion to the profits that members help us to make. All our research shows that the scheme has been extremely well received. But it is only one of the benefits of mutuality, which also includes highly competitive savings rates and lower mortgages than our de-mutualised competitors."

Britannia's scheme he adds, has helped cut "attrition rates", the number of people switching to other financial institutions.

While Britannia and other mutuals campaign to defend their existing status, they are not having it all their way. A new breed of telephone savers and lenders, particularly the new supermarket-cum-financial services providers, are offering highly competitive products.

Meanwhile, many former members of newly-floated societies are now sitting on free shares worth pounds 2,000 or more per person. Over the next few months, dividends paid out on these shares may match if not beat the bonuses paid out under many loyalty schemes.

At the same time, Prudential's take-over of the formerly-mutual Scottish Amicable also gave its policy-holders one-off bonuses worth an average of pounds 300 on their with-profits policies. Not only will these bonuses earn interest until they mature: there will also be a separate, and larger, terminal bonus as a result of the takeover.

But, if nothing else, the now-quiet debate over mutuality continues to deliver tangible returns to millions of members.

'The Independent' has published a free guide, 'Making Your Investments Work for You'. It is by Steve Lodge, personal finance editor of the 'Independent on Sunday', and is sponsored by Wesleyan Financial Services. To obtain your copy, call 0800 1379749 or fill in the coupon on this page.