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

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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