Andrew Haigh: Friendly societies serve customers rather than shareholders

Published on Saturday 21 November 2009 14:16

FRIENDLY societies are one of the unsung success stories to emerge from the financial crisis, not only proving resilient through economic turmoil, but attracting new customers and enjoying rising levels of new business.

With more than 17 billion of funds under their management, they are serious players in today's financial world, helping to look after the financial welfare of more than six million people in the UK.

Tracing their roots back more than 150 years, friendly societies were set up to help people of limited means improve their economic status and make their lives more financially secure. Rising to prominence during the Industrial Revolution, membership provided the assurance that, in the event of ill health or death, families would be provided for. The alternative was the workhouse.

Today, as then, a society is owned by its members, which means it does not have to pay dividends to shareholders. All profits are ploughed back into returns to customers. This allows them to typically offer products with low premiums, making them more widely accessible to a range of family incomes.

With the advent of the welfare state, their mission of providing basic security to families was no longer so urgent, so over the years they developed specialisms in different areas, such as healthcare, savings, income protection and insurance. Some societies combined the benefits of a number of products and specialisms to provide multi-faceted financial products, such as health insurance saving schemes.

Throughout they have benefited from a benign tax regime, which allowed them to offer tax-free returns. Today they have become the largest providers of the child trust fund, which is contributing to the creation of a much-needed savings culture for families in the UK.

With approximately 1.4 million parents and relations regularly contributing to their children's accounts, and more than 22m being added on a regular basis every month, the child trust fund is making a significant contribution towards the long-term financial future of today's children.

But the societies have been helping families save for their children's future needs via savings plans, which offer tax breaks for those who can only afford to set aside small regular savings.

Tax-exempt savings plans are available only from friendly societies. Any growth in savings is exempt from tax and the plans also provide a tax-free lump sum at the end of the savings term, provided the investment is held for ten years. Engage Mutual's Vision Tax Exempt Savings Plan was recently launched in partnership with Clydesdale Bank for customers seeking a tax-favoured longer-term savings vehicle in addition to their Isa allowance. The plan can also be purchased as a child's savings plan, providing similar tax advantages on savings growth.

When it comes to savings products, friendly societies can point to some good-value returns. A Money Management survey earlier this year compared a friendly society with-profits investment with a plc with-profits investment, balanced managed fund (such as an Isa) and a building society 90-day deposit account. Over ten years or 25 years, the friendly society with-profits policy delivered the best returns (ranging from 11 per cent better to 93 per cent better in the comparison). When you add health insurance, income protection, life insurance and Isas to the list, friendly societies provide a comprehensive range of products designed to help families look after their financial health from the cradle to the grave.

Friendly societies and other mutuals display a wider responsibility for their customers and communities. Raising standards of financial capability is one area where Engage Mutual focuses its efforts. From working with a number of other mutual insurers in the creation and launch of the funtosave.org website, which teaches children aged four to seven about money and introduces the concept of saving; to delivering lessons in financial services and money management to teenagers, Engage Mutual is typical of the wider responsibility adopted by many friendly societies towards their customers and communities.

Friendly societies are modern financial organisations at the forefront in delivering financial products that are as socially relevant as ever and still available to all. The principles and philosophies that prompted the first friendly societies to be created still hold true and set apart mutual organisations such as these.

Andrew Haigh is chief executive of Engage Mutual Assurance and a board member of the Association of Friendly Societies