The decision comes after the collapse of a Huddersfield company, Will Writing Services, which sold pre-paid funeral plans.
Age Concern, the charity for the elderly, has already warned customers to check out the service they can expect before parting with their savings. 'Buyers need to be absolutely confident that the future cost of the funeral will be covered,' a spokesman said.
About 100,000 people in Britain have already taken out such plans, which aim to provide an inflation- proofed way to beat rising funeral costs by paying for them in advance. 'Ease the burden for family and friends,' says the leaflet produced by Chosen Heritage, a scheme recommended by Age Concern. 'You'll spare your family anxiety and expense.'
Sir Bryan Carsberg, Director- General of Fair Trading, said that while there was 'no doubt' that pre-paid funerals offered peace of mind, it was important to alert customers to the 'possible mis-selling of over elaborate funerals to elderly or vulnerable people who perhaps cannot really afford them'.
People needed assurances that a service - sometimes bought years in advance - would be delivered. 'Greater price transparency' was desirable and more effective ways of policing codes of practice were needed, Sir Bryan said.
Officials at the Office of Fair Trading (OFT) are already investigating the way funeral directors handle consumer complaints.
Age Concern also recommends ensuring that any money spent on a plan goes into a trust fund, with independent trustees so that it is kept separate from the funeral planning company's other assets. This protects the money in case of bankruptcy.
Buyers should also check that they know what they are getting for their money, including a specified funeral director, all cremation fees, portability of their plans wherever they move and full refunds if necessary.
The Society of Allied and Independent Funeral Directors, a small trade organisation for independent funeral directors, yesterday welcomed the OFT inquiry.
'It is vital that the general public have absolute confidence in the pre- paid funeral plan that they purchase, especially as it may be many years before the service paid for is actually delivered, and for the funds to be safeguarded,' a spokesman said.
The society also advised people to ensure that in the event of a plan being cancelled, the refund covers the cost of a similar funeral and not just the original sum paid.