Fears over `pay now, die later'

Those contemplating death in the near or distant future should take note of this week's unusually punchy report on pre-paid funeral plans from the Office of Fair Trading.

In his last week in the job, the director-general, Sir Bryan Carsberg, has flexed rarely used muscle to demand statutory controls to protect money deposited with providers of funeral plans.

Typically targeted at the elderly and often with endorsements from charities like Age Concern - which picks up 2 per cent of every sale - these plans are thought to have pulled in some pounds 130m since they were launched in the late 1980s. The attractions of such arrangements are clear.

Once paid for, the plan offers the peace of mind that whatever misfortune befalls the beneficiary, funeral costs will be met without further burden on the deceased's estate or relatives. Clients have the choice of paying in instalments over a period of years or in one sum at the beginning of the plan.

A recent Which? survey found a degree of choice in that most companies offer funerals from the relative economy of a ceremony costing pounds 850 to anything up to pounds 1,800.

These attractions have drawn increasing numbers into the net as the public seeks protection from the inexorable spiral of funeral costs. Although the 150,000 plans sold to date pale beside the 640,000 funerals every year in the UK, the OFT forecasts that could increase to well over 500,000 in five years.

For people in their seventies, two-thirds of funeral plan customers, the average pounds 1,000 paid could represent a substantial part of a nest egg. Without statutory regulation, vulnerable people must depend on the honesty and competency of providers to look after this investment for a period that could exceed 10 years.

The recent disappearance of two small providers - Will Writers of Huddersfield and Green Pastures of Preston - has highlighted the problem. With insufficient assets to cover liabilities, which included policies sold to terminally ill patients in nursing homes, the collapses raised fears about financial stability.

In those instances, the rest of the industry rallied round to pick up the contracts abandoned, but such self-regulation could be put under severe strain by a large-scale collapse.

The OFT is now proposing legal controls to ensure that:

n There is transparency in the contract, which should state price, specification of chosen funeral and what is covered by guarantee;

n A totally independent trust fund is established for payments;

n There are regular actuarial valuations;

n There are safeguards against improper withdrawals from the fund;

n Fees are drawn only from fund surpluses.

Suitable legislation could take a while to introduce, particularly as it is not yet clear whether the Department of Trade and Industry or the Treasury would police it. The OFT has come down against the appointment of a specific regulator.

It also believes self-regulation continues to be appropriate in marketing funeral plans, although Sir Bryan has called for an end to endorsements by charities and nursing homes. While there is no direct evidence of mis- selling of funeral plans, potential investors should be wary of heavy selling pressure.

In the absence of legislation in the immediate future, the best advice is to shop around and check to what extent providers comply with OFT guidelines.

The largest operator, with about 90,000 contracts, is Chosen Heritage, part of the US-owned Great Southern funerals combine. Next in size is a range of plans offered by the Co-operative movement, including the Co- op Funeral Bond offered by the CWS. Third comes Dignity, marketed by Plantsbrook, now also part of the same group as Great Southern and Golden Charter, and backed by independent funeral directors.

All claim to follow the thrust of the OFT recommendations, but more formal codes have been drawn up by two trade organisations established in the wake of recent concerns about the financial stability of plan providers. A good start when looking for a plan is to ensure your company is backed by one of these organisations, which are tied in to the larger and more reputable companies.

Bear in mind that by tying up with a plan provider, your freedom of choice in choosing an undertaker may be constrained by the company's ultimate owner.

There is a funeral ombudsman to settle disputes. The snag is that only a half, at most, of undertakers subscribe to the scheme.

The rising cost of dying

Costs of "average" funerals - 1987 and 1993

1987 (pounds ) 1993 (pounds ) % nominal change

Services of funeral directors 143 305 113

Hire of hearse 52 81 56

Hire of additional vehicle 53 66 25

Coffin 169 240 42

Removal of body 35 61 74

Sub-total 452 753 67

"Disbursements" (cremation

charges, doctors' and church fees) 167 287 72

Overall total 619 1,040 68

Source: OFT/Mintel