Merger looms for troubled savings group CWFS

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One of the main savings institutions looking after postal workers, the Communication Workers Friendly Society, has admitted it could be forced to merge with a rival because of its shaky position.

In its 2009 accounts published last week, chief executive Nigel Briggs acknowledges the society's independence is threatened if 'there is a prolonged failure to reduce the cost base or if it is not possible to develop new products cost effectively'.

But members have contacted Financial Mail accusing management of running the society into the ground while furthering their own interests. Some may voice their anger at the AGM in Bournemouth on Sunday.The CWFS was founded in 1895 to provide financial assistance for postal workers who fell ill or lost loved ones.

Although it has long had strong union links - the Communication Workers Union represents staff in the telecoms and postal industries - it is now an independent organisation primarily selling taxexempt with-profits savings plans to postal staff.

But in recent years it has lurched from crisis to crisis. At the end of 2007 it had more than 29,000 members and assets of £127 million. Yet membership is down to just above 27,000 while assets have slumped to just below £102 million.

The 2009 accounts confirm that for two-thirds of last year the sales force was sidelined as Revenue & Customs investigated the status of tax-free policies it sells to postmen. The Revenue ordered the society to pay it £800,000 to ensure the policies retain their tax-free status.

A result of the wrangle was that over the year only 1,000 new savings plans were taken out compared with more than 4,500 that were surrendered.
Claims paid by the society --whether from policies maturing, plans being surrendered or policyholders dying - exceeded premiums coming in by more than £1.8 million.

If it wasn't for a revaluation of the society's liabilities (money set aside to cover bonuses already promised to policyholders) that saw them reduced by £5 million, the society's financial situation could have become terminal.

The adverse impact of a dearth of new business was compounded by the society's questionable management of policyholders' assets. In February last year, the society, on the advice of investment adviser Redington, decided to get out of equities altogether.
As a result, it crystallised losses of £1.9 million - on top of the £10.5 million losses the year before when the decision to start moving out of equities was first taken.
At the time the FTSE 100 was 3,800 - last week the index closed at 5,262. In its accounts, the society says the decision was in members' 'best longterm interests' and reflected their 'relatively cautious profile'.

Members who have contacted Financial Mail in recent days are unhappy. One said: 'The accounts read like a horror story.' Another said he was ' furious' that while terminal bonuses had been axed for savers, boardroom pay had soared. In 2009, the boardroom was paid a total of £517,958 with Briggs receiving £144,868, including a bonus of £12,456. In 2008, boardroom pay totalled £344,010. Executive directors are on 12-month contracts so they will enjoy big payoffs if there is a takeover.

Staff at headquarters in Wimbledon, south-west London, accuse management of destroying the society for personal gain and squandering assets by employing an army of consultants to look at how it can expand its product range - a mission that so far has reaped no reward.
THE Financial Services Authority believes that some friendly societies are limping along and not serving policyholders' interests. It wants them taken over by rivals.

On Friday, Briggs told Financial Mail that the society was ' confident' it would meet its targets for new with-profits business in coming months and confirmed the expense overrun was an issue 'we have to deal with'.

Briggs also said he could not ' categorically rule out a transfer of engagements to another provider if we are unable to reduce our cost base or increase our income sufficiently'. In the meantime, he said, there would be board changes 'to further enhance the quality of our decision making'.
Are you a dissatisfied policyholder with CWFS? Email jeff.prestridge@mailonsunday.co.uk.


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