Fears are growing that tens of thousands of elderly customers could lose vast sums of money after buying unregulated funeral plans.
The plans cost between £3,000 to £4,000 and firms promise to give people peace of mind that their loved ones will not be hit with a big bill when they die.
But providers face a major clampdown after a City watchdog investigation exposed evidence of misselling and high-pressure sales tactics.
New rules: Funeral plan providers face a major clampdown after a City watchdog investigation exposed evidence of misselling and high-pressure sales tactics
From July 29, all firms must be regulated by the Financial Conduct Authority (FCA) or cease trading.
The watchdog has now published a list of 24 firms — out of a total of 66 — that it intends to authorise. This includes major providers Co-op and Dignity.
These 24 companies hold around 87 per cent of an estimated 1.85 million plans sold.
The FCA said it is still assessing a small number of applications from providers and will give an update as soon as possible.
But it is understood around 5 per cent of current plan holders — some 92,500 customers — are with firms that will not obtain authorisation.
Around 16 providers chose not to apply for authorisation, while around ten have withdrawn their application.
Many intend to transfer their customers to other providers, but there is no guarantee that this will happen.
MPs working for an all-party parliamentary group for funerals and bereavement estimate as many as 200,000 plans could be at risk based on the number of providers seeking to transfer their books.
In a letter to Economic Secretary John Glen, they called on ministers to put a financial support package in place to protect these customers.
One major provider, Safe Hands, which has 46,000 customers, has already collapsed and does not have enough cash set aside to refund people.
The business, which was registered in Wakefield, W. Yorks, was described in a Westminster debate as a ‘Ponzi scheme’ and ‘house of cards’.
At a two-hour insolvency hearing earlier this month, it emerged that customers who had paid £3,000 for funeral plans may only recoup around £100.
Administrators FRP Advisory had previously estimated that it could retrieve as much as £16 million from the defunct firm.
But at the court hearing, it revealed only £6 million had been recovered so far, while legal bills had climbed to £1 million.
If the remaining £5 million is split between all customers, they would get just £108 each.
Funeral plans cost between £3,000 to £4,000 and firms promise to give people peace of mind that their loved ones will not be hit with a big bill when they die
Deputy Insolvency Judge Stephen Baister described the legal fees as a ‘bitter pill to swallow’ for Safe Hands customers, who are aged 70 on average.
He said: ‘This is not an unusual situation unfortunately. It arises all the time. The customers’ money ought to have been ring-fenced.’
Dozens of customers had written to the court in advance of the hearing to object to their money being used to meet legal costs.
One told the hearing they felt ‘let down’. Another warned ‘lessons should be learnt from this’.
Eddy Wainwright, 69, who paid £3,500 for a Safe Hands plan, added: ‘It feels like the 46,000 of us with plans are last in the pecking order to receive the money.
‘I thought buying a funeral plan was one of the most financially sensible decisions I’d ever made. There is nobody being held accountable for mishandling our money,’ he later told Money Mail.
FRP insists the legal process is ongoing and that more money could be recovered.
Dignity is in talks to support Safe Hands customers and has agreed to cover the cost of funerals for those who die in the next six months.
Mike Hilliar, director of funeral planning at the firm, said: ‘What happened at Safe Hands is disgraceful and highlights why the discipline and safety of regulation is overdue.’
Campaigners are urging the regulator to set up a compensation scheme to ensure households aren’t left in the lurch.
James Daley, from campaigning body Fairer Finance, says: ‘The funeral plan market has been overrun with cowboys for too many years.
It’s shocking. We raised concerns with the FCA about how some firms were using their customers’ money five years ago and it did nothing.
‘The Government should ensure plan holders are compensated in full.’
Last month the FCA warned people not to buy products from Empathy Funeral Plans or Unique Funeral Plans.
Empathy has withdrawn its application for regulation, while Unique did not apply.
Unique’s founder Sean O’Driscoll has since set up a new company — Alpha Funeral Plans International — in Dublin, Ireland, where the new FCA rules will not apply.
When contacted by Money Mail, Unique said its expansion plans had been discontinued following its decision to not progress with the FCA regulation.
Pride Planning, which has 20,000 customers, has also withdrawn its application. A spokesman says this is because the firm is selling on its book of business, adding that it has no plans to go into administration and all customer money is ring-fenced.
Emily Shepperd, executive director of authorisations at the FCA, says: ‘We want holders of pre-paid plans to be reassured, which is why we have published a list of firms we intend to authorise.
‘We want to see an improvement in how customers are treated, with better-value products, better sales practices and better controls so consumers can be confident they’ll receive the funeral they expect.’
- To find out what your funeral plan provider is doing visit fca.org.uk/consumers/funeral-plans/providers-list