Friendly Society Bonds

derektomblin

The government allow investment of up to £270 per year for 10 years completely free of tax. My existing bond with the Family Friendly Society is about to mature and I am considering starting a new one. Does anybody know where I can find a comparison of past performance of these bonds with all the Friendly Societies?

Derek

EdInvestor

Hi Derek

Not offhand, but I'm afraid their performance is usually not very good because of their high charges.

carnet

Most of the charges on Friendly Society 10 year tax free savings schemes can be mitigated by going through a discount broker such as Chartwell.

However, the savings scheme has to be for the maximum allowed ie £25 per month/ £270 annual lump sum - and only if the FS pays commission .

Money Management magazine sometimes has FS performance stats.

ReportInvestor

Hi Derek

Do not touch with a bargepole - Guardian link

The high charges for small policies hit you hard.

Plus friendly societies hardly claim to be investment experts :rolleyes: . AND they will also charge for life assurance at a higher rate than you could get on the open market.

The key is this:-

Investors can only pay two taxes - income tax on dividends and capital gains tax on profits. But the dividend tax is now the same for basic rate taxpayers and for non-payers.

The Friendly societies are slowly going to the dogs because of the irrelevance of the tax relief for basic rate tax payers and because our redistributive government does not want to raise the limit to attract higher rate taxpayers. The pained appeals of their embattled executives attract the sympathy of House of Commons' committees whose members are sponsored by mutuals, but the fact is that they fall on the deaf ears of both Gordon & the Treasury.

The Guardian Money Editor even LOST £1 over ten years using a regular savings plan with Family Assurance

So much for "tax relief" when your investment fails to grow at all :mad: :eek:

The Independent's "independent investor" Sean O'Grady has a revealing run in with the friendly societies - Click on this link

dunstonh

These types of plans are a blast from the past. They really ought to be on the way out nowadays. However, as most are bought and not advised on, they still get away with issuing them.

ReportInvestor

One more advantage of having an IFA .

carnet

Yes, while I agree that the tax free element is largely irrelevant to most people and that FS 10 year plans can be expensive there are a couple of points ;

1. I set one up for somebody a few years ago through a discount broker and got (a) the allocation rate increased from the usual 96% to 98.5% (b) the initial charge reduced from the usual £120 to only £27 and (c) the total charges over the 10 year period brought down from the usual illustrated £627 to only £335. This had the overall effect of bringing the usual reduction in the illustrated investment growth of 7% p.a. to 4.1% up to 5.6%.

OK, its still not great but it was largely done for bagging purposes and makes it a far less "stupid" investment.

2. Also, many Friendly Society funds are contracted out to large specialist fund management houses and some are actually run by very successful and well known (at least to me ) managers.

ReportInvestor

Hi carnet,

2.4% charges at best :eek:.

It is important in this context that any "bagging" is ultimately successful, otherwise you just shoot yourself in the foot .

What Friendly Societies, if any, do you currently think offer possible demutualisation windfalls? And why? Won't the self serving interest of their managements mean that they carry on paying themselves overblown salaries until the FSs themselves are worth almost nothing to their members?

I'd be grateful. though, if you start a list of any FSs that currently outsource their fund management ?

carnet

It is important in this context that any "bagging" is ultimately successful, otherwise you just shoot yourself in the foot .

Agreed, but with an actual loss over 10 years fairly unlikely due to the discounts (its breaking even after the first 5 years which included 3 miserable ones ) it should be a relatively painless "punt". My own personal windfall proceeds to date are in the many £000's (even after a few losses incurred in surrendering the actual policies (plus, of course, small losses on Equitable Life ) - and with SLAC still to look forward to .

What Friendly Societies, if any, do you currently think offer possible demutualisation windfalls? And why? Won't the self serving interest of their managements mean that they carry on paying themselves overblown salaries until the FSs themselves are worth almost nothing to their members?

FS's are anachronisms which you said yourself are "going to the dogs". Something has to happen eventually and, IMHO, its worth a £20 one-off SHP to gain membership on the off-chance there might some sensible "rationalisation" within the sector. However, as they market themselves on their low minimums and tax-free products this may not be easy. My money's on Liv.Vic, Teachers, Royal Liver, Family - the tiddlers probably aren't worth bothering with.


I'd be grateful. though, if you start a list of any FSs that currently outsource their fund management ?

As I don't personally invest in any of their products (apart from the said one-off £20 SHP's and I don't really care who manages these ) I'm afraid I don't hold this information. It's only when I'm researching managers for my serious investments there have been numerous occasions when I've been amazed to discover that some highly rated fund managers also manage FS funds. I'll try and dig some out but it may take a little time.

ReportInvestor

Fair enought carnet. I really appreciate your honest answer.

£20 SHPs for bagging purposes are a no lose investment, and good luck to you . At least you've cleared up the nature of your own "investment" in these lousy policies.

Ten year FS policies are simply not from the same stable as your £20 SHPs. And it was a ten year investment that Derek asked about.

FWIW I totally agree with you that LivVic is as likely to go as any of them, and look forward to future discussions with you about the future of individual FSs .

derektomblin

Many thanks for all your advice! I guess the rule is to invest for performance and not to let a tax advantage dictate. My maturing bond has produced the equivalent return of 3.75% (compund), tax free, based on the original invested sum and it's current value. This is, of course, including a recent period of very poor stock market performance when many equity investments have actually lost money.My previous FS Bond (which has remained invested) has produced 7.08% (compound), tax free, over the 20 years. (Probably better than a Building Society but not an average equity based investment.)

I guess there are other cheaper ways of carpet bagging the Friendly Societies. The Building Society carpet bagging scene seems to have very quite for a very long time now!

Derek