About 1.3 million people in the UK have one of these plans, and it’s a rapidly growing market, with more than 200,000 sold last year. They are typically bought by older people to cover the cost of their funeral so their family doesn’t have to pick up the bill.
But this is a controversial sector. Worryingly, the organisation set up by the industry to regulate providers concedes that a “small number” of non-member firms “are behaving inappropriately”. And 10 days ago the Financial Services Compensation Scheme, the official safety net for customers of financial firms that go bust, issued a warning that “individuals could lose out if their provider fails”.
Now some funeral directors and consumer groups are claiming that parts of the sector are at risk of collapsing, and that in some cases middlemen are taking hundreds of pounds out of customers’ plans. Of course, with a prepaid funeral plan the person who bought it isn’t around when it is claimed on – and in some cases grieving families are being hit with unexpected extra bills at what is already a very difficult time.
Plans tend to cost &3,000-&4,000 and are typically paid for via monthly instalments or a lump sum. What is covered varies between providers, and plans are sold in different ways – including by telephone and “in-home” sales agents – and there have been claims that some companies are using aggressive tactics.
However, many people may be unaware of the commission and administration fees charged by some providers acting as middlemen between the customer and the funeral director.
Funeral director Johanna Loveridge was astonished when a client bought a &3,420 plan, but only &2,535 went towards the funeral. “I wrote back saying, ‘Is there a mistake? Because this doesn’t seem right’ … and that’s how I found out there was an admin cost of almost &1,000,” she says.
As a funeral professional, I wouldn't let my grandmother touch one with a barge pole – they are that bad Lucy Coulbert, funeral director. The fees, together with rising costs, mean there is sometimes barely enough to pay for the plan holder’s burial. “Companies are cutting corners when it comes to people cashing their plans in, so the families aren’t getting the standard they would expect,” Loveridge says. Death is an expensive business: insurer SunLife last year said the average funeral, not including the send-off, cost &3,897, and in May the Guardian reported that typical cremation and burial fees had
risen by at least 5% in a year. Consumer group Fairer Finance, in partnership with Dignity, one of the largest funeral plan providers,
published a report in July that called for stronger industry regulation. “It looks like some providers could be operating a quasi-Ponzi scheme, and we may see a Farepak-style collapse in the market,” James Daley, managing director of Fairer Finance, told Money, referring to the Christmas hamper business that went bust in 2006 leaving 116,000 people out of pocket. “I think people could lose a very significant amount of money.” The report warned that some providers could go bust, which could leave customers without the funerals for which they had paid. It also found some companies were aggressively marketing plans to over-50s, and that most customers did not understand what they had signed up for. The report added that “most plans” leave families carrying some of the costs, and that in the worst cases they can be left paying for a significant shortfall.“We’re heading for a national scandal. I think within 24 months we are going to see something quite nasty emerging,” says funeral director Lucy Coulbert. She adds: “I believe one particular company is relying on the fact that more people will take out pre-payment plans, which will top up the pot for the people who are dying now ... So every time a generation dies, hopefully the one underneath is still going to take out a plan, which means there is still money.” Strong market growth over the past decade has propped up the system, but if uptake starts slowing this could have disastrous consequences, Coulbert adds. She claims some customers are being ripped off by the plans. “As a funeral professional I wouldn’t let my grandmother touch one with a bargepole – they’re that bad.”Loveridge adds: “You don’t need to buy a plan; you just need to talk to your family and say: ‘Look, when the time comes this is what I want to happen’. I tell people to go and get an Isa ... that will make enough money to pay for most of a funeral.”
