Get by with a little help from your friendlies

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MORE THAN 8 million people pay regularly into friendly society savings policies, many of which are tax-free and can be taken out on top of PEPs, pensions and other tax-free investments.

Friendly societies were established in the 16th century. Now totalling more than 350, with 1,200 branches nationwide and pounds 8bn in funds under management, the societies originated as "self-help" mutual organisations - owned by their members and aimed at encouraging self-reliance. Through societies, members could save to cover themselves in areas such as sick pay and health provision, in which the state played no part.

Today those people who are aware of friendly societies might think of them as providing "small-ticket" savings schemes for the poorest in the country - which indeed they do, with savings plans starting from as little as pounds 4 a month.

Marion Poole, general secretary of the Association of Friendly Societies, says: "These people on lower salaries will never find out about savings products from most of the providers, including banks and building societies, because their incomes are too small to allow them to invest in most of their products, which usually have a minimum investment of pounds 25."

The core of the friendly societies' investment products is the 10- year tax-free savings bond, in which investors can save up to a maximum pounds 25 a month, or pounds 300 a year. The investment rolls up tax-free and final payout is tax-free, provided it is held for the full term.

This figure was increased in May from a previous maximum of pounds 18 a month. Before the 1984 Budget, however, when Chancellor Nigel Lawson slashed tax exemptions, the maximum investment had been pounds 2,000 a year.

One of the biggest criticisms is that the limits are too low. But Ms Poole points out: "It is possible for the wage-earner to take one out for every member of their family, so the grand yearly savings total can be fairly substantial."

High charges are another criticism. Because premiums must, by law, be low, the cost of administering such small savings means charges are disproportionately high.

Family Assurance, the UK's largest friendly society with 600,000 members, has removed the initial charge of pounds 120 for existing members, although it has kept a pounds 50 administration charge, and an annual charge of 1.95 per cent, reducing to 1 per cent after 10 years. New members must pay the pounds 120 initial charge, but another family member who joins at the same time will pay just pounds 60.

o The association can be contacted on 0171-606 1881.