What are Friendly Societies?

Friendly societies are financial organisations, both small and large, which provide a range of (usually) tax-free savings, life insurance, healthcare plans and assurance. Some also offer general insurance such as household and motoring cover. All friendly societies are mutually owned, meaning there are no shareholders and the policyholders share all profits and expenses.

Each society is basically defined as a body of people who join together to ensure financial provision for members and their relatives against loss of income through sickness, unemployment and retirement. The main benefit they offer is the chance to save extra cash, tax free, above that which can be invested in a pension plan and an ISA.

You are allowed to save up to £25 a month or £270 a year into a friendly society scheme, which usually runs for at least ten years. Your money is likely to be split between shares, property and fixed income investments – the best method for ensuring a profit. Some plans have life cover attached, meaning that it will pay out a guaranteed minimum amount to your relatives should you die before the plan has matured.

However, if you cash in an investment before it has matured, you might suffer heavy penalties for early surrender. This is to encourage long-term savers, such as parents who want to build a nest egg for their children.

Many friendly societies specialise in healthcare. These so-called ‘Holloway societies’ (based on principals proposed by 19th century MP George Holloway) offer such products as health insurance, critical illness insurance (which pays out if the holder is diagnosed with a specified illness) and cash plans that allow members to continue to pay their bills while in hospital.

There are around 270 such bodies in the UK, some offering products equal or superior to those available from high street competition. Between them, friendly societies hold total funds of about £12 billion and have an estimated five million members. Their representative body is the Association of Friendly Societies (http://www.afs.org.uk), which acts for members by dealing with the Government and financial regulators.

Each society is governed by its members within the terms laid down by the organisation, and every member is equal to all others, subject to rules of the society, and has one vote only, irrespective of the size of his or her stake.

The origins of friendly societies go back to the 16th century – and possibly earlier – when they served as contributory self-help schemes that held regular social gatherings. Their popularity hit its peak in the late 1800s, when an estimated half of Britain’s workers were members of one society or another, and there were about 27,000 societies; 100 times as many as today.

Most were small because they limited the number of members, though today’s societies are of limitless size, and eventually most disappeared because of mergers or closures.

For a list of friendly societies, try Yell (http://www.yell.com), Review Centre (http://www.reviewcentre.com/products1025.html) or Dot UK Directory (http://dotukdirectory.co.uk). It is important that you shop around for the package most likely to suit you, as friendly societies vary in what they offer.