Funeral Plans – A Perfect Storm?

Funeral Plans – A Perfect Storm? main image

All is not calm in what would appear to be the somewhat muddied waters of the funeral plan market according to recent research carried out by Fairer Finance, the independent research group who state that the ‘combination of a fast growing market and high pressure sales to a potentially vulnerable customer base is creating a perfect storm’.

To be honest it’s about time someone put their head above the parapet and spoke out about the bad practices fuelling certain parts of the funeral plan industry; it’s just a shame that some of the media have used their artistic licence to create dramatic, attention grabbing and of course newspaper selling headlines, focusing on how all funeral plans are a con, missing the most important message – funeral plans are essentially a good thing – they just need to be regulated to protect the interests and the finances of the consumer.

Having for some time now written various articles and blogs calling for greater regulation for funeral plans, our stance at Over50choices is simple – regulate the market in the same way we have other financial sectors so there is complete transparency and customers are treated fairly. 

The report findings in summary

At times it’s true that the Fairer Finance funeral plan review, published in partnership with Dignity Funerals offers grim reading. Essentially their investigations found that:

  • Funeral plans are not regulated by the Financial Conduct Authority as many customers thought but by a voluntary regulator, the Funeral Planning Authority
  • Numerous websites carry misleading statements
  • High pressure and miss selling by some is giving the whole industry a bad name with many customers stating they felt badgered into buying a funeral plan
  • The amount paid to the funeral director from the sale of the funeral plan is significantly less than the amount paid by the customer
  • There is a lack of transparency over what happens to your money
  • Some ‘contribution’ funeral plans could leave families having to pay more

From our own research and talking to customers, we have been aware for some time that to help their sales and stop you shopping around, a number of companies claim that ‘all funeral plans are all the same’ but this as highlighted in the report simply isn’t true.

  • Guaranteed plans ‘guarantee’ to fully cover the cost of the services included in the plan at today’s prices, no matter when it is in the future.
  • Contribution funeral plans guarantee to cover the funeral directors costs but include a ‘contribution’ and not a guarantee for the essential third party costs, which typically account for around 30% of the fees – therefore there could be more to pay.  

Worryingly the report highlighted that over 90% of people that had purchased a contribution funeral plan wrongly thought the plan guaranteed to pay for the cremation fees which is not the case; so you can see the extent of the problem facing the industry.

When it comes to charges being taken out of the plan, all providers will of course incur admin charges for setting up a plan (in the same way for example the price of a car is calculated), product development, marketing costs and commissions - provided that these are not excessive and do not mean that the consumer could be asked to pay more for the services as a direct result of these costs then I think that it's fair to say that most people won't object.

Why do people buy funeral plans?

In all the headline bluster, it’s important to remember the reason why people buy funeral plans.

The average cost of a funeral is now £3,897 according to SunLife 2017 Cost of Dying Report, doubling in the last 10 years and so averaging around 6% annual inflation. With an ageing population and savings rates of around 1% and RPI of 1.3% (CPI 0.3%), a prepaid funeral plan could be an essential part of everyone’s financial planning needs.

In addition to removing the financial burden, the "right funeral plan" will take away the emotional stress of arranging your funeral from your family when the time comes – so it is vital that lessons are learnt from this report so customers can feel reassured when buying a funeral plan; not worried that they are being conned out of their hard earned savings.

What regulation does the Funeral Planning Authority currently offer?

The FPA oversees the sales of funeral plans in the UK. They are funded by the funeral plan providers registered with them and recently changed their board members to be wholly independent of the funeral planning market - so a step in the right direction.

There is no getting away from the fact that funeral plans are big business; there is after all currently more than £2bn of consumers’ money held in trust funds ready to pay for their funerals in the future.  In fact over 200,000 funeral plans will be sold this year alone, adding to the 1m plus already in existence. This should not be confused with Over 50 Life Insurance that offers a cash sum upon death and not your funeral services.

The role of the Funeral Planning Authority (FPA) is to ensure that in order to be a registered member, funeral plan companies must comply on an ongoing basis with their rules and strict code of conduct.

One of the main concerns is that registration is voluntary so not all funeral plan providers are regulated by the Funeral Planning Authority and therefore do not have to comply with their rules as to how your money is handled and the service received. 

It remains to be see whether the newly formed board will have the teeth to get stuck in and regulate the industry ahead of any FCA involvement which could be years away should it happen.

Other Research

In recent months Defaqto, the independent financial information business reviewed all funeral plan products in the market to see how comprehensive their features and benefits were - please click here to see their full findings.

A quick summary showed that Dignity (including AgeUK who they supply plans for) and Co op offered funeral plans that were awarded 4 Stars and 5 Stars (5 stars being the highest possible rating), whereas other FPA registered members’ contribution style plans were awarded a maximum of 3 Stars. It’s also worth pointing out that both Safe Hands and Open Prepaid Funerals plans, who are not registered and therefore not regulated by the Funeral Planning Authority were awarded 2 Stars.

The Defaqto findings will certainly give you an indication of the quality of the plan as they have reviewed and assessed the features and benefits you can expect.

So is it worth buying a funeral plan?

If you read the detail of the Fairer Finance Report you will see that amongst the mis-selling, customer badgering and general confusion, the ‘right funeral plan’ could be a good thing. 

Although communication could still be improved upon, in general terms both Dignity and Co op funeral plans reviewed well in the report; partly as they both own their own funeral directors but also because they offer to freeze and guarantee your cremation fees, as well as your funeral directors fees at today's prices.

As indicated by the 90% of customers who believed their plan was fully guaranteed, it's the payment of cremation and ministers fees that appears to lead to customer confusion with the contribution style funeral plans, which are offered by all funeral plan providers apart from Dignity and the Coop.

Whilst the likes of Golden Charter, Avalon, Golden Leaves, Open Prepaid Funerals, Perfect Choice don't guarantee your cremation fees, this doesn't necessarily mean that there will be insufficient funds to pay for your funeral; it just means that the costs for these elements aren't guaranteed.

It's worth noting that all of these providers who offer an allowance usually index link it to RPI or CPI so it grows ever year, but for some years now that has fallen way short of funeral inflation of around 6% pa.

What about Over50choices?

I am pleased to say that we were given a positive mention in the report as one of the few companies who are not misleading and very clear about what we offer.

Whilst funeral plans aren't regulated by the Financial Conduct Authority (FCA), we are regulated by them for other financial products and have adopted the same principles when selling funeral plans.

It's also worth mentioning that I, Ashley Shepherd have over 30 years financial services experience, culminating as Marketing Director at both AXA Wealth and Sun Life.

As a comparison and information service for the over 50s, we help you compare funeral plans and in the past have sold multiple funeral plan providers products before taking the decision to only sell Dignity Funeral Plans in the UK.

We recognised a while ago that the funeral plan market was becoming confusing and so wanted to offer our customers what we believe is one of the most comprehensive, clear, value for money funeral plans – a fact I am pleased to say that has been supported by the recent high Defaqto ratings and of course this report.

Our advice

Although dying is unavoidable, buying a funeral plan isn't compulsory - but it is one of a few options available to us that means our family’s won't have to bear the financial  and emotional burden of arranging our funeral

You can of course leave your money in a savings account or purchase an over 50 life insurance plan, both of which have their pro's and con's but at the end of the day, they will only provide cash when the time comes; they will not actually enable you make your funeral arrangements in advance so your family won’t have the additional worry.

Here at Over50choices we believe that a funeral plan can offer you a safe way of pre-arranging your funeral at today's prices - providing of course you choose the ‘right funeral plan’.

The table below shows how providers compare for their "superior" top of range plans for a cremation funeral:

Provider Costs fixed at today's prices Regulated by the FPA Defaqto Rating Could you family have to pay more
Funeral Director Cremation & Ministers Fees
Dignity Yes Yes Yes 5 Stars No
Coop Yes Yes Yes 5 Stars No
Golden Charter Yes No Yes 3 Stars Yes
Avalon Yes No Yes 3 Stars Yes
Golden Leaves Yes No Yes 3 Stars Yes
Perfect Choice Yes No Yes 3 Stars Yes
Open Funerals Yes No No 2 Stars Yes
Safe Hands Yes No No 2 Stars Yes

Please note that no funeral plan will pay for your flowers, headstones and reception.

As you can see shopping around, comparing funeral plans and buying wisely can still fulfil most people's reasons for purchasing a plan; of ensuring that essential funeral costs are fixed at today's prices with nothing more to pay and that families are free from having to make funeral arrangements when the time comes.

We welcome the report and are happy to advise customers and their families on the right plan for them.

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