Friendly Societies

Friendly societies were formed to meet the financial needs of a working population at a time when poverty was widespread and saving was a severe challenge. Retirement was a luxury available to a few and provision for a decent burial was regarded as an important necessity. Societies therefore originally focussed on providing savings schemes for funeral expenses and only later in the nineteenth century did they expand into the provision of income support schemes for the working populace during periods of illness or following an accident.

Most friendly societies have remained relatively small organisations because of the constraints placed on them by successive governments and partly because societies still tend to focus on local services for their local community. Local societies do not need to grow and their need for capital is limited. There are however several larger national societies that have been successful in developing niche markets and have accumulated significant financial strength from their organic growth. Friendly societies are mutual organisations and are effectively owned by their members , i.e. policyholders. Financial performance therefore is not diluted by the demands of shareholders.

The product most commonly marketed by friendly societies is the tax exempt savings plan. This is only available from friendly societies, but anyone -adult or child - can have one. This plan, a qualifying life assurance Policy, must conform to the usual rules for such contracts, including:

• Life assurance cover of at least 75% of the premiums payable
• Plan to run for at least ten years
• Premiums to be paid annually or more frequently.

Premiums for exempt plans are limited to £25 per month or £270 per year. The fund is tax exempt and does not suffer tax on capital gains or interest. Dividends receivable by the fund are eligible for a tax credit of 10% until April 2004. Because of the tax exempt nature of the fund if a plan is discontinued early, a chargeable event may arise, giving rise to a taxation charge.

Tax exempt savings plans can uniquely be written for children.

Friendly societies differ in the investment funds they offer, some continue with the tradition of with profits funds whilst others may offer a broad range of unit linked funds. Leading friendly societies have performance records which stand comparison with the best that the major insurance companies have to offer.

Recognising that the limited monthly premium is quite small, a number of societies offer lump sum plans which in turn are designed to fund the regular premium tax exempt plan . In addition long term savings plans providing for premiums in excess of the tax exempt savings plan are also available. Obviously the excess premium would be invested in a taxable fund.

These tax exempt plans are an affordable addition to core products for clients consideration. They are particularly attractive for older clients as a means of providing a tangible gift at some point in the future to grandchildren. Such plans can be taken out for any number of children. They are an ideal way of providing funds to assist with future costs associated with further education.

The top friendly societies provide the potential to deliver a substantial sum from a regular investment. Although £25 per month may not seem a lot of money, it could grow to a tax free pay-out of over £4,000 based on past performance figures. Please note however that past performance is not an indicator of future performance. In choosing a friendly society contract, the underlying plan charges and financial strength are important considerations. Here again some of the top societies compare very favourably with major insurance companies.

Being mutual societies there is always the possibility of participating in any benefits from de-mutualisation.

Some of the more well known societies you may have heard of include - Family Assurance, Foresters, Homeowners, Liverpool Victoria, Scottish, Tunbridge Wells.