Widowswindfall adds to siege of mutuals
Sunday 26 December 1999
All members who took out a with-profits policy before 22 June this year will receive a fixed sum of pounds 500. Those who took out policies before 31 December 1998 will enjoy further payouts calculated on the amount they have invested and the length of time they have held their policies. An estimated 900,000 will be eligible for this variable compensation, with a few people receiving sums amounting to more than pounds 100,000.
But these terms have been surrounded by controversy. Some 400,000 members will not receive a windfall because, although they have Scottish Widows policies, they were issued by subsidiary companies such as fund management firms or the banking arm of the company. Those who have Scottish Widow PEPs, unit trusts, credit cards or deposit accounts will get nothing.
News of the takeover is another nail in the coffin for mutual societies, which have come under siege from carpetbaggers in recent months. The Government has recognised the problem; it recently introduced legislation requiring 500 signatures from members before a demutualisation vote can take place, rather than the previous 50. But the huge support given by Scottish Widows members to the demutualisation proposal suggests that the trend is set to continue.
Kenneth Murray, chief executive of Murray Financial, a company established to take over building societies and turn them into internet banks, says: "Societies are realising that their futures are better served by conversion than remaining as a mutual."
The Skipton, Chelsea and Portman building societies are all facing demutualisation votes in the new year, and there are rumours that Scottish Life could be targeted by a bank wanting a stake in the life assurance sector. Possible bids could come from foreign as well as British banks. Meanwhile, the likes of the Halifax and Prudential, which have already bought out smaller building societies, should not not be ruled out of further bids.
Despite predictions that more demutualisations will follow, the willingness of Scottish Widows to give up its 184-year history as a mutual society is not shared by everyone.
Some building societies are fighting back. For example, Leek United rejected a hostile takeover bid earlier this month.
Meanwhile, the Cheshire Building Society has also reaffirmed its determination to remain independent, claiming that mutuality is providing clear benefits for its members. This has been demonstrated as loyalty rates for mortgage borrowers who have been with the society for more than five years have established the Cheshire in second place in the latest "Best Buy" table from Moneyfacts. The society also offers a Members' Loyalty Bond for investors of two years' standing.
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