Alan Sparks: Will someone need to crowd-fund your employee’s funeral?

Sparks-Alan

State bereavement care is basic at best. Group life can ensure colleagues, family and friends don’t have to come to the rescue when the worst happens, says Canada Life Group Insurance research & development consultant Alan Sparks

The local press occasionally throw up a story that demands a second look. Recently I came across a sad tale in the Torquay Herald Express about a crowd-funding site set up after a young woman had been killed in a stabbing. Her friends and work colleagues were trying to raise money to pay for the funeral costs.

This dramatic and rare situation helps to illustrate the potential financial needs a death may create. The demand is clear with the over-50s as funeral plans continue to do good business. For younger adults, however, insurance is usually sold alongside mortgages and to protect family, meaning there is a potential gap for the single renters.

The basic funeral requirement is known as a ‘disposal arrangement’. In practice, this means a funeral with an average cost of £4,100 or a cremation costing about £3,300.

It is not always clear who is responsible for making arrangements. Where there is a will the executor will be appointed. Otherwise, according to the Good Funeral Guide, common law from 1840 says: “It would seem that the individual under whose roof a poor person dies is bound to carry the body, decently covered, to the place of burial.”

If no one can be found to make the funeral arrangements, the local authority must take over. Historically, this has been called a pauper’s funeral, but it is now more likely to be a cremation; there is no memorial such as a headstone. According to BBC research, this process costs councils over £1.7m a year, up by 30 per cent in four years. Councils are likely to try to recover costs from the estate or the executor, or by sale of the deceased’s property or personal effects.

There is the potential for financial support from the Government, via the Social Fund. This Funeral Payment could meet a proportion of the costs, covering burial or cremation fees and up to £700 of the funeral costs. To qualify the claimant must be a partner, parent or close relative or friend of the deceased, and on income-related benefits. Importantly, if anyone in these categories is not on one of the qualifying benefits, a Funeral Payment may not be granted.

There may be other money worries for family and friends of the deceased. Dependants are obviously at risk but others could be affected, such as people sharing rented accommodation who may face bigger bills in the short term or other family members pressured to cover outstanding loans.

There is limited government assistance available in the form of Bereavement Payments. These have recently been reviewed and will change from April 2017 but a select committee of MPs has pointed out that there remain significant gaps.

The benefits available under state pension age are a £2,000 one-off tax-free lump sum to a spouse or civil partner, and up to £112.55 a week payable to a surviving spouse or civil partner while entitled to Child Benefit. This ceases on remarriage or starting cohabitation.

If over age 45 there is an age-related payment of up to £112.55 a week payable for 52 weeks, only to a widowed spouse or civil partner without dependent children. The weekly payments are subject to income tax and dependent on the amount of National Insurance contributions paid by the deceased.

From April 2017 the structure will be called Bereavement Support Payment. Eligibility will be limited still to a surviving spouse or civil partner, and the deceased must have paid sufficient NI in the previous year. If there are dependent children the payment will be around £5,000 plus 12 monthly payments of about £400. If there are no dependent children the payment will be around £2,500 plus 12 monthly payments of about £150. All payments are tax free, not means tested and disregarded for the purpose of Universal Credit. The key omission is no cover of cohabitees, even if there are dependent children.

Funeral costs do not have to fall on family, friends and work colleagues. Employers can offer group life assurance to their employees as a cost-effective and tax-efficient benefit that often requires no individual medical underwriting and means that, should the worst happen, their family would be assisted financially.