Funeral Plan Trusts
When you pay money into a Funeral Plan, what exactly happens to it and what is it used for. Well, each provider of Funeral Plans operate different trust funds but these trust funds must operate under the regulation of the Financial Conduct Authority.
Some Funeral Plan Providers also operate a product known as Fixed Monthly Payments. This is an insurance-based product and in these cases, the monies are used by the insurance companies within their operational processes which differ slightly from trust fund products.
The trust funds are usually run by large multinational trust providers who operate within a specified framework and are overseen by independent trustees who also are independent of the Funeral Plan Provider. The trust itself is run by trust managers and actuaries. The actuaries calculate the rate of death for a specified period of time and make available a percentage for long-term, low-risk investments which will guarantee a targeted growth rate in excess of the Retail Price Index.
Compare the Rising Costs
The RPI runs at approximately 3% per annum but funeral costs have increased in excess of 7% per annum over the last 10 years. This is quite a rate to reach if they intend to keep up with this constant increase! This said, the price of funerals, although, unquestionably rise, won’t increase to quite the levels quoted by certain reports quote.
The industry has seen a great deal of new funeral directors set up over the last 6 years and this trend will only increase. There are approximately 600,000 deaths a year and about 5500 funeral directors which equates to roughly 109 funerals per year per funeral director. At an average cost of £3,800 per funeral, that’s a turnover of £414,000 for the average funeral directors.
Obviously, there are a lot of associated costs for funeral directors but due to an ever-increasing older population and the fact that everyone is guaranteed to have one, it is a very attractive business proposition. These new companies and the firms who have had free reign within a location for generations are becoming competitive and the advent of the Internet has broadened the opportunities that exist for proactive funeral directors.
These combined factors are why the future price increases will be incomparable with the previous years. There are several other factors but competition is the driving force.
Is Your Money Safe?
They will still rise and Funeral Plans protect you against this but coming back to is your money safe? Yes! All providers of Funeral Plans must have in place a ring-fenced trust which is only accessible upon death. They must have independent trustees, fund managers and actuaries and all trust funds are regulated by the Financial Conduct Authority and are covered by the Governments Compensation Scheme.
How each Funeral Plan Provider administrates the plan at the time of death differs and you should ascertain whether you will be tied to a Funeral Director even if you relocate or whether your plan is transferable or allocated at the time of death.