The Private Investor: Friendly society? More like an enemy society

I wouldn't want to advertise this as one of the great investment scandals of all time, but I am very disappointed with the returns on my friendly society policy, which is about to mature. Ten years ago, I pledged to save £9 per month with the Family Assurance Society of Brighton. It seems a long time ago, and grim with it. Norman Lamont was the Chancellor of the Exchequer, we were just emerging from the house-market collapse, and Take That was the most popular group in Britain.

Anyway, I kept my pledge and honoured my standing order every month for a decade. For a cumulative investment of £1,080, I am shortly to receive just £982, including a terminal bonus of £173. Of course, the performance of the stock market over the past three years hasn't helped; but what about the performance of the stock market over the previous seven years?

The Family Assurance Society, based in Brighton, has an outfit named Pavillion Investment Management looking after its funds, and it says: "Pavilion has a strong reputation in the investment world." In the leaflet they send out encouraging people to save with them a 10-year return of 100 per cent since September 1992 is quoted for the fund I am invested in, a performance somewhat at odds with my "real world" experience.

At all events, it is not encouraging me to reinvest with them. Neither is what I consider to be sharp practice. In their "your options" letter, you just tick a box to indicate where you'd like your funds reinvested, but there is no box to tick if you want to cash it in. And neither do they remind you that one reason for the poor performance of your investment is that their charges are "front-loaded" so that, in my case, the first year or so's worth of savings went in charges, rather than being evenly spread over the life of the investment.

Overall, a dispiriting experience and one that belies the Friendly Society movement's, well, friendly image. In truth, I wasn't expecting great things from this investment the more worldly-wise I became, but I still feel rather let down. It amazes me that the Government and various bien-pensant quangos should think friendly societies hold the key to the pensions crisis or, heaven help us, the future of the welfare state. Indeed, as far as I can see not many societies even run stakeholder pensions, although the UK's biggest friendly society, Liverpool Victoria, does. No, from the point of view of the investor, there is nothing special about a mutual as compared with a plc. Equitable Life, after all, was owned by its members and much good it did them.

The only special thing about friendly society savings schemes is that they are UK tax-free, a dubious merit given the lack of gains to tax, up to an Inland Revenue limit of £25 per month per individual. Given my experience, I hope ministers are not tempted by the vogue for all things mutual to review this ceiling upwards.

So not a great start to the year, and there isn't much in the markets to cheer me up either. I had hoped the poorish hints from the High Street about Christmas sales would be offset by a trend towards more immediately post-Christmas and new-year shopping. So far, there isn't much evidence for this. The news from Dixons in particular about tiny growth in sales was discouraging and you can almost feel the confidence draining from the economy.

Mind you, we have a long way to go before we catch up with the parlous state of the Germans, who, I notice, announced a 199,000 increase in unemployment on Thursday. Even in what was the old West Germany, unemployment is running at 7.5 per cent. It is 5 per cent in Britain. Across the Federal Republic, 4.3 million are out of work, with perhaps an extra half-million on bogus training schemes.

It is the sort of number that brought down Weimar. Germany should be Europe's powerhouse economy; with 0.7 per cent growth forecast for next year, 2003 will be a rough year for of all Europeans, including the ones who live on this island.

sogrady@independent.co.uk