I refer to the article by Jill Lewis-Ranwell of Tunbridge Wells Equitable Friendly Society. I must take issue with her with regard to the “advantages” of friendly society investments.
I have in the past raised this point, without a lot of success.I fail to see why the present Government seems to value friendly societies as providing a service for the smaller investor.
The reason for my antipathy? A reduction in yield of 4 per cent.
For a £163.25 a month plan (monthly maximum for tax “effectiveness”) over 10 years with total deductions that could amount to £163.807 which, leaving out the cost of the death benefit, would have the effect of bringing investment growth of 7 per cent a year down to 3 per cent.
Who cares about the tax advantages when the society is taking out costs at this level?
Commission? If you want to, you cannot reinvest it or offset it for the benefit of the client – there are no facilities for doing so.
Back in 1999, (nothing has changed since), a £163.1,500 lump sum over a 13-year period would have produced, at the firm's best projection rate, a return of 5.15 per cent compound over the term and at worst 2.35 per cent – again with “tax concessions”.
It would seem that the society is trousering the concessions, not the client.
Why are friendly societies and their products regarded so benignly both by our Government and the regulator?
Not only do they produce these type of poor value plans aimed at the least well off in our society but they have also,as a sector, been among the most heavily fined for compliance lapses.
I find it ironic that one of the friendly societies' directors is also the chairman designate of the Financial Service Ombudsman Scheme, which,in a response to similar interrogations a couple of years ago, maintained that they are good value.
For whom? Presumably,I will have no need to concern myself with Cat standards or 1 per cent pension charges henceforth.