Children worry the old-timers

By JO THORNHILL
Updated: 07:37 EST, 30 May 2006

IN the latest of its series of reports on the annual general meetings of mutual building societies and insurers, Financial Mail visits the agms held by Royal London and The Children's Mutual.

One topic overshadowed the annual general meeting of The Children's Mutual, the savings and health plan provider, held at London Zoo. While only 67 people turned up, many of the mutual's 313,000 with-profits members are concerned about the influx of new investors opening child trust fund accounts. The society has received more than £22m into 185,000 of these accounts since the Government launched the scheme early last year, and it expects to attract a further 100,000 account holders every year.

They will soon outnumber the society's with-profits policyholders, but at the moment investors in the child trust fund accounts are not offered membership rights, so they could not have attended or voted at the agm.

If The Children's Mutual was to demutualise, those with money in these accounts would not receive any windfalls. Only with-profits policyholders would be eligible.

One anxious member at last weekend's agm asked the board: 'If we allow CTF account-holders to become members, will we receive compensation for our diluted membership?'

Chief executive David White admitted the society had to come up with a solution. 'We know the issue has to be addressed, but we are mindful that we have different categories of members and customers, and whatever decision we arrive at will affect them in different ways,' he says. 'We must consider the interests of all parties. That said, we are looking at it very seriously.'

Sarah Hughes, 38, a fundraising consultant, and her husband David, 44, who works in online business development for a travel company, recently opened an Ethical Baby Bond CTF account with The Children's Mutual for their three-year-old son Oliver.

Sarah, who is expecting the couple's second child next month, says she picked the account because of its investment policy. It mainly backs UK companies that follow key ethical principles.

Managed by insurer CIS, it is the only ethical child trust fund on offer. Sarah does not understand why the account fails to give Oliver, or her or her husband, membership of The Children's Mutual. 'I don't see why it cannot allow parents or guardians to represent their children as members until the child is 18,' she says. 'We are contributing to the financial health of the company.'

Sarah and David, from Tonbridge, Kent, add to Oliver's account monthly, but say they are keeping an eye on the situation. She says: 'If decisions made by The Children's Mutual affect the account, I wouldn't hesitate to switch. I'm happy with it for now, but I will monitor the situation.'

For the first time in the 125-year history of The Children's Mutual, members were able to vote by post before the agm, though only 386 did.

Though details of executive pay were included in the summary financial statements sent out to members, no vote was held on remuneration. White promised that a vote would be held next year. Last year, White's pay rose 12% to £355,000, while his pension grew £46,000 to £252,000.

Andreas Whittam Smith, chairman of The Children's Mutual, told members: 'Executive pay can often seem very high, but the financial markets industry is one of the most successful in the UK economy, which is the primary reason for high salaries.'

ROYAL: WE'RE DOING FINE, SO WHY WOULD WE FLOAT?

INSURER Royal London has no intention of 'doing a Standard Life' and demutualising in the near future. That was the clear message from the board at its annual meeting last Thursday in the Waldorf hotel, central London.

One member questioned the logic of remaining mutual against a backdrop of falling with-profits business in which Royal London specialises. Chairman Tim Melville-Ross, right, replied: 'Comparing us with Standard Life is not productive. Standard Life's capital position and ambition were mismatched. We have a strong capital position, which is adequate for us in what we want to do.'

Royal London has about £1.4bn of 'free assets', which finance director Stephen Shone said was an indication of its continued strength.

After Standard floats in the summer, Royal London will be the country's biggest mutual insurer. 'We have no plans to change our corporate structure,' said Ross, pointing to its profitable businesses, which range from protection insurance through to investment management.

One man wanted to know why he and his wife had received a voting pack even though they were no longer members. Another criticised Shone for conveniently glossing over the fact that some with-profits policyholders had suffered financially from bonus cuts. A man in his sixties pleaded with the society to offer people of his age life insurance. Chief executive Mike Yardley said it was a gap that was being addressed.

Despite a generous remuneration package last year to Yardley, there was no criticism of his rewards. A vote to approve the directors' pay was approved by more than 95%.

In 2005, Yardley received a package, including pension benefits, totalling £756,000, plus incentive options of £3,026,000. Melville-Ross defended the rewards paid to Yardley and other senior directors and said they reflected the strong performance of the insurer under his direction. The incentives, he said, were designed to 'encourage and reward performance'.