There’s an unsparing piece in The Times, 11 November, on financial products associated with funeral planning:
Hundreds of thousands of the poorest pensioners are losing thousands of pounds by buying into poor-value funeral planning products offered by some of the most trusted high street names.
Funeral benefit plans offered as add-ons to over-50s life insurance promise to help those aged between 50 and 80 to set aside a pot of money for their families to pay for their funeral … First, the majority of people who invest in over-50s plans end up paying in much more money than their relatives receive in the cash lump sum. Second, in many cases the funeral plan add-ons are assigned to particularly expensive funeral directors, and, finally, the lump sum payouts are not protected against inflation or linked to specific funeral costs so they are likely to cover only a small proportion of the cost of a future funeral.
Sales of over-50s policies rose 25 per cent between 2008 and 2010, with 346,128 people buying policies last year alone. Sun Life Direct, for example, has 750,000 such customers … This type of insurance policy does not have a “cash-in value” so policyholders often find themselves facing the dilemma of whether to continue to lose money paying premiums until they die or close the account and forfeit the cash lump sum.
The funeral benefit option on these products effectively assigns the cash lump sum to a funeral provider with whom it has a commercial deal, usually Dignity or the Co-operative.
Insurers are also pushing policyholders’ families towards funeral directors that charge the highest fees. The two main providers that arrange funerals as part of a funeral benefit add-on are Dignity and the Co-operative.
Dignity and the Co-operative argue that it is worth paying more for their service … A spokesman for Dignity says: “Dignity provides an allinclusive service with no hidden extras.” A spokesman for the Co-operative says: “The Co-operative provides customers, and their families, with the invaluable peace of mind afforded by planning for their funeral in advance. We believe that, when compared on a like-for- like basis our charges are fair and reasonable and highly competitive for the standard of service that we provide.”
Age UK, an organisation that helps the elderly, has been accused of exploiting its reputation to sell unnecessarily costly funeral plans. A former senior employee of Age Concern is critical of these plans. He believes that Age UK is trading on its good name to sell overpriced products to vulnerable pensioners. He says: “Age UK uses its local branches as a route to a market where it can sell its branded products. Very often it is the less well-off pensioners using day care centres that are sold these products. Age UK funeral plans are particularly poor value because they encourage families to use expensive funeral directors rather than a cheaper local director.”
Age UK’s unholy alliance with Dignity brings in something like £9 million a year.
The last point the article makes is that funeral plan funds are not regulated by the FSA. Did you know that? Ah, you always assumed they must be. Well, they’re not; they’re regulated by the Funeral Planning Authority – whose shareholders are trade associations for pre-paid funeral plan companies, creating a conflict of interest.
Coming soon: more thoughts about the ticking time bomb of the pre-paid funeral plan. In the meantime, stash it under the mattress.