Helping Australians plan for life events
Friendly societies are member-focused organisations that help Australians become financially independent and plan for life events through the provision of savings, investment and insurance products. These include education savings plans, superannuation products, health and travel insurance, and funeral plans.
Established in the 1830s by community groups, Australian friendly societies help people save and spread their investment and insurance risks. Friendly societies boast a proud tradition in the development of welfare services commonly provided these days by government.
Not all friendly societies offer financial services. Some provide aged care and health services, while a small number are fraternal societies centered on social and community activities.
All friendly societies are strictly regulated by the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001. Societies offering financial products are also prudentially regulated by the Australian Prudential Regulation Authority (APRA) under the Life Insurance Act 1995.
Planning for the future
Friendly societies help individuals and their families prepare for a range of ‘life events’, such as education and training, starting a family, and retirement.
Friendly societies offer a range of products – ranging from educations savings plans, funeral bonds, income bonds and investment bonds – to allow individuals and their families to plan for the future with confidence.
An education savings plan (or ’scholarship plan’) is also a type of life insurance policy, which can only be provided by a friendly society that is registered with APRA and is subject to benefit fund rules approved by APRA.
Modern education savings plans have been offered by friendly societies since the 1970s, and have encouraged parents and grandparents to set aside savings with the specific purpose of meeting the future education expenses of children and grandchildren.
Friendly societies have been active in working together with education institutions, to help promote the discipline of education savings and to act co-operatively to provide education benefits for nominated children – for primary, secondary and tertiary education.
Industry research indicates that over 90% of Australian children undertake some form of post-secondary education. However, this participation rate does not mean sufficient savings are set aside to realise the full educational potential of children – such as advancement to appropriate courses of further study, taking advantage of the option to pay discounted up-front fees or choosing to study overseas.
During the past 30 years, over 324,000 education savings plans have been established by friendly societies for Australian students – representing some $1.5 billion of funds under management.
A funeral bond is also a type of life insurance policy, which can only be provided by a friendly society that is registered with APRA and which is subject to benefit fund rules approved by APRA.
Funeral bonds have long been offered by friendly societies and are designed to help individuals to set aside monies to meet their future funeral expenses. Benefits payable under a funeral bond are only payable on death and must be used towards meeting funeral expenses. Most bond rules allow residual proceeds (after meeting funeral expenses) to remain in the estate of the bondholder.
Although it doesn’t have to be, a funeral bond can be used in conjunction with a pre-paid funeral plan entered into with a funeral director. Under such an arrangement, a funeral director is normally given entitlement to receive full bond proceeds upon death, in exchange for fixing the price of the future funeral.
Like an investment bond, on-going bond growth is not taxed in the hands of the bondholder.
A funeral bond normally also enjoys exempt status for a person who receives a means-tested pension or other benefit from Centrelink or as part of veterans’ entitlements.
An income bond is also a type of life insurance policy, but can only be provided by a friendly society that is registered with APRA and which is subject to benefit fund rules approved by APRA.
An income bond is very much like an investment bond, only growth distributions are taxed in the investor’s hands each year. There is no 10-year tax rule, and further contributions are not limited to the 125% ceiling.
Investment bonds (also known as Insurance Bonds or 10-Year Bonds)
An investment bond is a type of life insurance policy and is provided by either a friendly society that is registered with the Australian Prudential Regulation Authority (APRA).
Friendly societies have a long history of offering this product as a tax-concessional and medium to long-term investment to help meet various ‘life-event’ situations.
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