The friendly way to save

Just before the launch of the NHS in 1948, friendly societies had 14 million subscribers. Now they have staged a comeback for parents and the self-employed

Friendly societies can sometimes seem like the forgotten man of the financial services industry, but they provide savings and insurance plans for more than six million people. So what can they offer?

Friendly societies can sometimes seem like the forgotten man of the financial services industry, but they provide savings and insurance plans for more than six million people. So what can they offer?

There are some 300 friendly societies nationwide, offering a non-profit-making alternative to commercial companies for people wanting regular savings plans, life insurance or protection against ill health. Their roots go back to Roman times, when legionnaires stationed in damp, unfriendly Britain clubbed together to protect each other, and their families, from financial hardship.

Their popularity grew in Victorian times, until by 1945 they had around 14 million subscribers, a number that fell as the Welfare State assumed societies' traditional role of helping the poor help themselves.

In recent years they have staged a comeback, notably through their popular baby bond products taken out by parents on behalf of their offspring, and savings plans aimed at paying children's future university costs.

Friendly society savings plans come with small, but attractive tax breaks, allowing members to save a maximum £25 a month for a minimum of 10 years, and taking all returns free of income tax and capital gains tax. They are mostly taken out by parents and grandparents for newly-born children, to provide a sizeable lump sum at age 18, says David Halliday, head of marketing at Tunbridge Wells Equitable, which has 300,000 members.

Unlike individual savings accounts (ISAs), these plans can be taken out in the child's name. A family with three children could therefore take out three plans on their behalf, plus one for each parent. Somebody investing £25 a month over the last 15 years (£4,500 in total) in the Tunbridge Wells Equitable Baby Bond would now have £10,725 - giving 10.8 per cent annual growth.

Monthly payments are invested in a with-profits bond. Usually offered by insurance companies, the bond offers the higher returns associated with long-term investment in stocks and shares, while smoothing out stock markets' ups and downs by paying returns in the form of an annual bonus that cannot be clawed back in future, even if markets collapse. There may also be a final, terminal bonus at maturity, depending on performance over the investment term.

Many endowments backing mortgages are with-profits funds, and falling investment returns have hit their popularity, however they remain a "low-risk method of investing over the longer term," Halliday says. Neil Thomas, director of financial advisers Simpsons of Brighton, says friendly society savings products offer attractive tax benefits - but can backfire if you fail to maintain monthly payments, and cash in your policy during the early years.

Although Mr Thomas recommends ISAs for most of his clients, he uses friendly societies for those who need investment discipline. "Many people need or like to be locked into a savings scheme for a fixed term, because it prevents them from raiding their savings or stopping contributions when money is tight," he says.

He recommends Tunbridge Wells Equitable Bonds to some of his clients. He also recommends the environmentally-friendly Ethical Bond by Family Assurance, one of the largest friendly societies.

Liverpool Victoria has won a lot of new friends with its with-profits bond, attracting investors who had never used a friendly society before.

Last year a survey by Money Marketing magazine showed it was the top-performing with-profits bond over five years. It turned £5,000 into £17,476, beating big names such as CGU Life, Legal & General, Norwich Union, Prudential and Sun Life.

But Mr Thomas says while performance has been impressive, there is no guarantee it will be maintained. "Liverpool Victoria has proved hugely popular lately. But investors should realise that a small society can afford to be more generous with its terminal bonuses than a major company such as Standard Life, which has hundreds of thousands of policyholders. As Liverpool Victoria gets more popular, it may not be able to afford to be so generous."

Investments are not friendly societies' only business. Many also offer income protection plans which may appeal to people, particularly the self-employed, who are looking for cover in case they fall sick and cannot continue working.

Income protection (also known as permanent health insurance) pays a regular monthly income until you are fit enough to return to work, or until you reach retirement. Plans are largely sold by insurance companies, but are currently bought by just one in 10 of the working population. Many are doubtless deterred by the fact if they never fall ill they will see no return on their premiums, while friendly societies' plans offer you something at the end of the term.

A non-smoking woman taking SA plan with Tunbridge Wells Equitable paying £30 a month would get a monthly tax-free payout of £1,250 if she had to stop work following sickness, paid after 13 weeks of illness. But she would also get a projected lump sum of £2,880 at the end of the 20-year term, even if she made a claim. With an insurance company she would get nothing.

Marion Poole, general secretary of the Association of Friendly Societies, says when Labour took office in 1997 there were hopes it would take steps to help friendly societies and thus help the less well-off provide for themselves. These hopes were dashed when friendly societies lost out following changes to advanced corporation tax (ACT). Recent pleas to raise the £25 monthly investment limit have fallen on deaf ears. "Friendly societies are the ideal way to help parents save for university fees. Raising this investment limit to £1,000 a year would help many families, including those on low incomes, to save for their children's education."

Friendly societies have enjoyed some success stories, and the amount of members' money they manage has risen from £12-£15bn over the last year. Many have also launched mini-cash ISAs and life insurance ISAs.

Any organisation that numbers the Tolpuddle Martyrs among its former members must be worth a look.

 

Association of Friendly Societies (leaflet line) 020-7397 9560; Family Assurance 01273 724570; Liverpool Victoria 01202 292333; Tunbridge Wells Equitable 0500 800830 or www.twefs.co.uk

Sport
Brazilian fans watch the match for third place between Brazil and Netherlands
world cup 2014Brazil 0 Netherlands 3: Dutch pile on the misery in third place playoff
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
Arts and Entertainment
books The follow-up documentary that has got locals worried
News
Ian Thorpe had Rio 2016 in his sights
people
PROMOTED VIDEO
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
News
One Direction star Harry Styles who says he has no plans to follow his pal Cara Delevingne down the catwalk.
musicManagement confirms rumours singer is going it alone are false
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

    How Saudi Arabia helped Isis take over northern Iraq

    A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
    The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

    The evolution of Andy Serkis

    First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
    You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

    You thought 'Benefits Street' was controversial...

    Follow-up documentary 'Immigrant Street' has got locals worried
    Refugee children from Central America let down by Washington's high ideals

    Refugee children let down by Washington's high ideals

    Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
    Children's books are too white, says Laureate

    Children's books are too white, says Laureate

    Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
    Blackest is the new black: Scientists have developed a material so dark that you can't see it...

    Blackest is the new black

    Scientists have developed a material so dark that you can't see it...
    Matthew Barzun: America's diplomatic dude

    Matthew Barzun: America's diplomatic dude

    The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
    Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

    Meet the 'Quantified Selfers'

    From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
    Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
    Mrs Brown and her boys: are they having a laugh?

    Mrs Brown and her boys: are they having a laugh?

    When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
    Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

    Otter man Gavin Maxwell's bitter legacy

    The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
    Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

    Joanna Rowsell: 'I wear my wig to look normal'

    The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
    Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

    Bill Granger's quick and delicious marinades

    Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
    Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

    Anyone but Argentina – why Brazilians don’t love their neighbours any more

    The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
    The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

    The Open 2014

    Time again to ask that major question - can Lee Westwood win at last?