Depending on who you listen to, friendly societies - many of them among the UK's oldest mutual organisations, carrying names as antiquated as the Nottingham Oddfellows - may be either on the verge of rebirth or extinction.
On one hand, the Government's pensions review could favour these mutual societies as preferred providers of its proposed stakeholder pension plan. On the other, the Chancellor's planned introduction of individual savings accounts (ISAs), aimed at the low earner, could destroy the main product sold by friendlies - the pounds 25-a-month tax-free savings plan.
Meanwhile, although as yet in the background, there is always the possibility that the predators and windfall speculators who have already targeted building societies and mutual life insurers might turn their fire on the friendlies.
Until the modern welfare state was set up by the postwar Labour government, friendly societies were the foundation of many families' finances. There were thousands of societies, with millions of members, providing pensions, insurance and savings plans. While friendlies now offer a wider range of products, they are often burdened by high charges and weak management and customer bases have shrunk.
One friendly society manager, who understandably does not want to be named, said his society was run by a voluntary committee of members, with an average age of 74, who did not understand today's financial services industry. He is forced to offer savings plans that collect just 20p a month while costing pounds 20 a year to run, and insurance policies that do not always meet the cost of the risks they are meant to cover.
But if some friendly societies have lost contact with the real world, others are more dynamic. The backbone for most of the societies is the 10-year-plus savings plan, which is tax-free for investments of up to pounds 25 a month. These are often marketed as investments for children, to be cashed in when the child goes to college.
Performances for the tax-free plans vary. The National Deposit friendly society claims an average annual return over the past 10 years of 11.3 per cent, Royal Liver claims 8.8 per cent.
Savings are invested in various ways. National Deposit splits its investments equally between shares, gilts (UK government bonds) and property.
The Homeowners Society has most of its investments in building society and cash deposits. Liverpool Victoria Friendly Society, the largest society and owner of Frizzell Bank, a specialist issuer of credit cards, has a large property portfolio.
Many societies are also moving in new directions, helped by the 1992 Friendly Societies Act that allowed them to offer more financial products. Family Assurance offers an ethical PEP, and a PEP with premiums starting at just pounds 10 a month. Homeowners has launched travel insurance through its Mutual Benefits Club subsidiary.
Marion Poole, general secretary of the Association of Friendly Societies, says: "Friendly societies are not known for their daring investment decisions ... They will be conservative rather than foolhardy, and tend towards being risk averse."
Societies talk about how they are committed to mutuality, and by and large have so far avoided carpetbaggers' attention. But there has been a steady decline in the number of friendlies; there are now about 1,000, with 10 or 20 closing each year. And the Registrar of Friendly Societies, the societies' watchdog, says some of these have been wound up to distribute retained asset value to members.
Most friendlies are said to be too small, or to have too small reserves, to be targets for asset strippers. Arguably they would have little value as going concerns if they demutualised, as the core of their product range remains the tax-free savings plan, which they could not provide if they ceased to be mutual friendly societies, though some experts believe Liverpool Victoria could be an exception.
"We have had some people coming here who have tried to carpetbag friendly societies," says Patrick Connolly of Chartwell Investment Management, a Bath-based independent financial adviser (IFA) that published a guide to windfall hunting with mutual insurers. "But it is very debatable if there is much, or any, opportunity in that direction. Liverpool Victoria are an exception to the rule and might have something of interest to a predator."
Mr Connolly says there are two with-profits products offered by Liverpool Victoria that would give investors membership of the society, and which should lead to a windfall if the society demutualised. These are its 10- year tax-free savings plan, for investments of between pounds 10 and pounds 25 a month, and its single-premium bond, for a minimum of pounds 1,000 for a five-year term. All investments must be handled directly, as Liverpool Victoria does not deal with IFAs. A spokeswoman for Liverpool Victoria dismissed the threat from carpetbaggers.
Liverpool Victoria, tel: 0800 550050; Family Assurance, 01273 725272; Tunbridge Wells Equitable, 01892 515353; Scottish Friendly Assurance, 0141 275 5000; National Deposit, 0117 973 9003; Royal Liver, 0151 236 1451; Homeowners, 01423 844000.Reuse content