Friendly society tax exempt savings plan - still worth the trouble?

HardCoreProgrammer2

I have been saving £25 monthly for 20 years with Scottish Friendly. It was initially a 10 year product but I was given the option to continue for another 10 years (Scottish Bond Plus). The maturity date will be soon and there is no option to continue.
I called them and was told informally to expect about £8500. This is better than I expected from the recent turmoil caused by the coronavirus, but probably not spectacular considering that it was for 20 years.
Does any of you have savings in a friendly society tax exempt savings plan? Do you think it is worth it or do you think that it makes more sense to invest in the stock market directly (e.g. shares, investment trust, unit trust)?

dunstonh

These types of plans went obsolete around 1995.

Does any of you have savings in a friendly society tax exempt savings plan?

Personally no and as using them could be considered a missale if arranged under advice.  So, haven't been near one in decades

Do you think it is worth it or do you think that it makes more sense to invest in the stock market directly (e.g. shares, investment trust, unit trust)?

Modern investing is cheaper and other tax wrappers are usually better and more flexible.

masonic

So a 3.3% annual return before inflation, or about 0.6% after inflation. I think you could have done better using normal cash savings accounts, especially in the early years of the plan. Even a low risk government bond fund would have outperformed this investment (at ~5.5% annual return), any mixture of bonds and equities would have done much better.

This just illustrates the impact of high charges. Friendly Societies and TESP products should on the whole be avoided like the plague.

Old_Lifer

Although tax-exempt,   the usually high charges on this  type of policy often mean the tax advantage is of little value. 

In addition,  there  can also be a high cost involved in surrendering  one of these tax-exempt policies towards  the end of the 10 year term.   There is often a condition which limits the surrender value to a return of premiums only.    A typical 10 year endowment  with the same premium would   towards the end of the term,   have had  a higher surrender value.

ffacoffipawb

No (added rhubarb).

AnotherJoe

Do Not compound your mistake of ten years ago by repeating it. 

Take the money, there are many better places you could put it and your £25 a month to better use. (BTW that £25 is probably now worth half what it was worth when you started 20 years ago) 

 Pension possibly since you'll geta tax boost, ISA for other investments, or just treat yourself. 

DiggerUK

You will end up celebrating with a bottle of Irn Bru and a Tunnocks Caramel Wafer, at best.
You do get free life insurance, but who wants to die rich..._

Reaper

HardCoreProgrammer2 said:

The maturity date will be soon and there is no option to continue.

Just double check that is correct. Usually even if you don't continue paying premiums it can continue "paid up". I still have a small one (with a different Friendly Society) from decades ago which I never got round to surrendering as the charges were much less once the 10 year premium paying period ended.

clivep

dunstonh said:

These types of plans went obsolete around 1995.

Actually the friendly society that I am a member of still sells them. However, I would agree that they no longer offer good value.

About 25 years ago when my first 10 year bond for £100 a year matured I received about £3,500 for the £1,000 invested. Reversionary bonuses were 20% of sum assured and terminal bonus of 50% of sum assured! This equates to something approaching 50% interest per annum non compounded.

In the last couple of years the reversionary bonus on my current policy has been 1% of sum assured. As this rate is applied to the sum assured rather than contributions paid then the APR works out at about double i.e. 2% as on average your money is only invested for half the term. So still better than a lot of the interest rates currently available.

masonic

clivep said:

In the last couple of years the reversionary bonus on my current policy has been 1% of sum assured. As this rate is applied to the sum assured rather than contributions paid then the APR works out at about double i.e. 2% as on average your money is only invested for half the term. So still better than a lot of the interest rates currently available.

It would be unfair to compare to a savings account where capital and accrued interest are guaranteed. If you compare those rates to the growth rates obtained on a multi-asset investment fund, even a very low risk one, you'd reach the opposite conclusion.

dunstonh

Actually the friendly society that I am a member of still sells them. However, I would agree that they no longer offer good value.

Lots of obsolete products are still sold.    When products cease to be sold via advisers as they are no longer viable, then they often move to direct distribution. Such as newspapers and television.  Often offering special offers.    

About 25 years ago when my first 10 year bond for £100 a year matured I received about £3,500 for the £1,000 invested. 

Investment returns, gross of inflation, have fallen over the decades.  I remember doing maturities on 10 year investments which quadrupled.  Then fell to tripled.  Nowadays, it is doubled.     Net of inflation, returns are broadly similar.