Will your funeral be in the black?

IN THE old days you gave your pennies to the life assurance man - perhaps from the Pru or the Pearl - to make sure you could pay for your funeral. Or your child's funeral.

In the case of the child, if he or she survived until 21, when the endowment matured, this would be a useful lump sum to help them to get married and set up home. If the policy-holder died before the endowment was up, there would be enough to pay for the funeral.

Now new pretenders are battling it out for the savings of the ageing and insecure. The main players are Chosen Heritage, Golden Charter and Dignity, as well as the CWS and CRS cooperative societies. These are no longer insurance-based door-to-door companies. Instead they offer pre- paid funeral plans, which persuade you to part with the cost of the funeral now on the promise that they will pay the new price when the time comes.

The plans, if they are properly run, make sense for people anxious to tidy up all their funeral details before they go. Maybe they want to save their relatives the trouble, or perhaps there are no close relatives.

Buyers should beware, however, following the publication of an Office of Fair Trading Report which takes prepaid funeral plans to task. The outgoing director-general, Sir Bryan Carsberg, is deeply critical of the lack of statutory regulation.

So far 150,000 plans have been sold at an average pounds 1,000, and the figure is expected to rise to 500,000 in the next five years.

Sir Bryan's remarks come in the wake of the collapse of two such funeral plan companies, Will Writers of Huddersfield and Green Pastures of Preston.

The report found that there could be a lack of transparency in the contract conditions, in terms of price, specifications of the chosen funeral, items covered by the price guarantee and choice of the funeral director.

Some plans - often the smaller ones - fail to ring-fence funds with trust status. This should safeguard against improper withdrawals from the fund. The report also highlighted a pressing need for regular actuarial valuations, and for fees to be drawn only from surpluses. Further criticism is levelled at charities, principally Age Concern, and old people's homes for endorsing one specific plan over others in the market.

It is unclear whether pre-paid plans represent good value for money. Customers pay a lump sum or by instalments, which are guaranteed to hedge, or partially hedge, against inflation. This is a necessary proviso because funeral prices rose 22 per cent above the retail price index from 1987 to 1993.

Some providers, among them Chosen Heritage, the largest in the market, will soon guarantee only core services. They will no longer cover inflation over a certain level on ''disbursements'' - cremation, burial, clergy, organist, doctor's fees and the like, which have recently undergone the steepest price rises.

Mark Dear of Holden Meehan, the independent financial advisers, is sceptical about the value of these plans.

''As a short- term thing, maybe they give peace of mind. But I wouldn't touch them as a long-term investment.''

On the positive side, prices are determined by companies at a national level. So residents of the South-east, South-west and Scotland, where funeral prices are higher, may get a cheaper deal.

When choosing a plan, it is imperative to shop around.

q Check the money will go straight away into an independent trust fund with recognised independent custodian trustees.

q Make sure you know what you're getting for the money. Check for exclusions. Are basic disbursements covered? Can you nominate a funeral director?

q Does the plan cover inflation in all services purchased?

q If you later decide to cancel your plan, does the company guarantee to refund your money in full? Beware of ''discretionary'' refunds.

q Check the company is in one of the two trade associations, the National Association of Pre-Paid Funeral Plans or the Funeral Planning Council.