Prudent to the last
The trade in pre-paid funeral plans is now worth pounds 150m. It theref ore comes as some surprise that the industry is unregulated. Eric Spencer looks into its coffers
Wednesday 04 September 1996
Welcome though the proposals are, doubts remain over whether they will, by themselves, provide the level of protection that plan-buyers need.
The idea behind these plans is simple. You choose the funeral you want and pay for it now. Costs average around pounds 1,000, but can be higher depending on the ceremony you choose. Your money is held in trust until you die, and then a reputable local funeral director carries out your wishes.
The plans offer the convenience of having all the arrangements made and paid for in advance, taking the pressure off relatives and freeing plan- holders from any worry over how their funerals will be conducted. But concerns were first raised two years ago when two small plan providers collapsed, taking plan-holders' money with them.
In the event, no one lost out because the larger players in the industry voluntarily stepped in. Subsequently, the Office of Fair Trading investigated and found to its surprise that although this is a rapidly growing industry, with around 150,000 plans outstanding, worth a total of pounds 150m, it is completely unregulated.
The OFT's estimate was that there could be as much as pounds 500m tied up in funeral plans by the year 2000, and although it acknowledged that these plans cannot be seen as investments alongside, say, unit or investment trusts, it made a strong recommendation that there should be statutory provisions to safeguard plan-holders' money.
The DTI has responded with proposals aimed at ensuring that providers place plan-holders' money in a properly constituted trust. The department also suggests that the industry establishes a compensation scheme to protect automatically all customers whose providers do fail. But the proposals say that legislation to back these measures would be costly and inflexible. Officials believe that a system of self-regulation relying on trade associations would be adequate to ensure the public is protected.
But this won't be enough. As things stand, the DTI cannot prevent companies following a code of conduct set by their trade association one day, and leaving the next. Without statutory regulation to oblige firms either to be members of an approved association with a satisfactory code of conduct, or to adopt a national code approved by the Government, the protection is simply not there.
Responses to the DTI proposals are due in by November 15, and the main players hope to work closely with the Government in making sure that effective legislation is put into place. But in the meantime, how can someone thinking of buying a plan be sure that their money is safe and they will get the funeral they want?
The most important thing to check is that plan-holders' money is put into a trust, which should be managed by named, reputable trustees; it should be valued annually by an actuary to make sure it can cover the likely future cost of the funerals; there should be safeguards to make sure payments from the trust are appropriate, and the funds should be held separate from the firm administering the plan or providing the funeral.
The primary aim of the trust may be to preserve the value of the money you have put in, so there's enough to pay for a funeral when the time comes. This requires a conservative attitude to investment, perhaps relying mainly on index-linked gilts with a few blue-chip securities to provide a safety margin.
Funeral costs fall into two parts. There's the basic funeral directors' service, usually including coffin, care of the body, hearse, pallbearers and so-on. On top of this there are disbursements: these are expenses such as church fees, the cost of flowers, crematorium or cemetery fees, and doctors' fees.
With a well-run trust you can be sure that the basic cost of a funeral will be covered. The problem is that unless the trustees are prepared to adopt a riskier investment strategy, the fund can't offer a long-term guarantee to cover the cost of the funeral and the disbursements as well. Over the past five years, the average cost of disbursements has risen by around 70 per cent, compared with general inflation of 17 per cent.
Any funeral plan-that carries a guarantee that it will cover all disbursements, as well as the basic cost of the funeral, will have to choose between demanding a very high rate of return on its investment or asking plan- holders for a sum large enough to be sure of meeting disbursement costs.
You should make sure you are comfortable with the assumptions underlying the plan-you have chosen. And if you change your mind, you should be able to get your money back, in full, with no questions asked.
The main points of the OFT's recommendations have been adopted by the National Association for Pre-paid Funeral Plans, the largest of the two trade bodies for plan-providers. Its code of practice requires its members to meet all the financial concerns outlined above, sets out clear service standards, and provides a conciliation service through the Chartered Institute of Arbitrators.
The writer is chief executive of Funeral Plans Limited.
10 April 2015 07:00 PM
15 April 2015 12:56 PM
Joining Barclays Blue Rewards costs £3 a month but then lets customers in for handouts of up to £15 a month
15 April 2015 07:27 AM
A charity is urging anyone struggling financially to see if they could get help from the state
13 April 2015 11:39 AM
Video: With an election looming, a hung parliament could hit sterling
03 April 2015 08:00 PM
03 April 2015 08:00 PM
02 April 2015 01:14 PM
Video: Tom McPhail, head of pensions at Hargreaves Lansdown, says May's outcome could alter your pension
30 March 2015 04:22 PM
Video: Simon Read talks to Fidelity's Tom Stevenson
01 April 2015 12:00 AM
Video: The Independent's Personal Finance Editor runs you through the key facts about Premium Bonds
27 March 2015 08:30 PM
27 March 2015 08:30 PM
20 March 2015 07:30 PM
- 1 This is what happens when you tattoo Charmander on yourself, drunk, and with no experience
- 2 BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 3 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 4 The Batman v Superman: Dawn of Justice trailer has leaked – watch
- 5 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
If I’m being racially abused I don’t need a white stranger with a saviour complex to rescue me
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
Russian warships in English Channel 'to conduct anti-aircraft and anti-submarine military drills'
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...
Day In a Page
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000