The expensive business of dying: what links the Poverty Premium to funeral poverty

Dying in Britain is an expensive business. And if you are already struggling financially this cost can rapidly increase adding to an already discomforting time for grieving families.

According to Sunlife, the average cost of a basic funeral in Britain rose to £4,271 last year, up from £1,920 in 2004. That’s before other so-called “discretionary items” such as flowers, while catering could add another £2,000.

Cremations-the type of funerals most Britons will have cost on average £3,744.

So it’s little wonder that this has caught the attention of the competition regulator, the Competitions and Market Authority (CMA), which has made some very strong statements about the conduct of the funerals market.

They are launching an investigation into the industry citing an increase in costs of 6% each year — twice the inflation rate — for the past 14 years. The CMA has also accused some funeral directors of “taking advantage” when charging sky-high prices at times when its customers are experiencing grief and are potentially vulnerable.

In the blunt words of the Fair Funerals Campaign, “When we’re grieving we don’t act like savvy consumers.”

But given that funerals are becoming increasingly more expensive for everyone, some people may not be able to see the direct link between this as an issue related to the poverty premium — the extra costs of being on a low income.

The cost of struggling is more when you are poor

Funeral poverty is defined as where the costs associated with a funeral is beyond a consumer’s ability to pay. Funeral poverty has increased by 50% in the three previous years.

It’s estimated by the Fair Funerals Campaign that 1 in 6 of us will struggle to pay for a funeral. Not only does the cost of a funeral impact very harshly on people with low incomes, it can also be the thing that actually pushes someone into poverty.

Because the number of government grants available to people have decreased over the years more and more people are expected to pay all of the cost of a funeral themselves. Low income households that could previously rely on a supplementary fund to help them avoid a personal financial crisis now have fewer options to turn to.

According to a report by Church Action on Poverty there a number of ways people end up paying for the costs of a funeral that mean they rely on debt. They include:

- 61% of people who encountered funeral poverty covered the shortfall by borrowing

- 31% borrowed from friends and relatives

- 20% used a credit card

- 10% borrowed from loan providers (including payday loan firms)

- The rest paid the funeral directors in instalments or sold personal belongings to cover the cost

- Funeral directors can then be left with bad debts when payment is not forthcoming.

The study by the personal financial research centre at Bristol University looking at the poverty premium shows that on average the premium will cost an individual £490 a year, of which around £55 reflects the use of higher-cost credit. However, as the Economist recently estimated, for those households that do use payday loans they pay up to £540 a year for them.

Any borrowing is costly, and if people rely on multiple forms of debt, including payday loans, to pay for funerals it demonstrates the close relationship between funeral poverty and the poverty premium.

Church Action on Poverty has called for new financial products for funerals, including new emergency funeral loans to ensure people don’t end up using payday loans for funeral costs. They suggest that this product could be provided through credit unions, but a low cost funeral product, to help people through expensive periods of grief, should be something all financial service providers consider.

Similarly they call for the creation of new funeral plans by providers, building in a dividend that subsidises each plan, and with a potential surplus payable to the bereaved on death, working as top-up or alternative to the state funeral benefit. This would be similar to other savings products which are topped up at the end with a dividend.

Government should also reconsider the grants made available to people on low incomes needing funds for a funeral. But this only deals with prices shouldered by consumers. The cost of funerals needs to be addressed at source — which has led some organisations to call for a Swedish-style not-for-profit funeral provision model that would specialise in early morning cremations. Caledonia Cremation, based in Glasgow, has already been rolling this model out.

We at Fair by Design are very happy to see the CMA looking into this issue. The cost of grief is hard for anyone, but the additional increased costs of funerals if you are poor or on a low income is not right, and it’s not fair.