Worrying development: Many elderly people bought these plans in good faith
Thousands of people who bought plans promising to cover the cost of their funeral could find out in the coming weeks that they have been sold a dud. In the very worst cases, they could end up being told their plan has been voided and that they will get back only a fraction of the money they originally paid into the scheme.
This worrying development, which will shock many elderly people who bought these plans in good faith, is a result of the City regulator’s determination to knock the funeral plans market into shape so that only fit and proper companies are allowed to continue in business.
From late July this year, the Financial Conduct Authority will regulate the industry in an attempt to stamp out rogue providers and ensure people can buy pre-paid funeral plans with confidence. Only authorised providers will be able to sell plans after that date.
The Mail on Sunday can reveal that dozens of firms have failed to submit an application to be authorised, while three have submitted, only to withdraw them.
As a result, they are likely to close down and either try to sell their books of customers to rivals or return money to clients. If there are insufficient funds to go around, elderly customers could be left with pitiful payouts.
Currently, the sector is monitored by the Financial Planning Authority, an organisation funded by the very companies it oversees. But it is seen as weak, lacking independence and not covering the whole market – some plan providers choose not to be members.
Funeral plans are primarily bought by elderly people, often when their loved one has just died, they are vulnerable and they receive a cold call from a salesman.
In theory, the plans allow someone to pay for a funeral at today’s prices, even though it may not happen for a number of years. Funeral prices have been rising steeply and are projected to keep doing so, from an average £4,000 today to more than £8,500 by 2030.
A plan can be paid for up-front or in instalments. The market is dominated by Dignity, Golden Leaves and The Co-op. For example, Dignity plans range in price from £3,095 to £4,195. Like most plans, some costs are not covered – such as doctor’s and coroner’s fees, embalming and a burial plot.
The new regime will allow customers (for the first time) to take complaints to the Financial Ombudsman Service if they are unhappy with the initial response from their provider. They will also have the protection of the Financial Compensation Scheme if their plan provider goes bust.
In addition, there will be ongoing scrutiny of the trust funds that providers must have in place to meet the funeral costs of customers when they die. Overseen by independent trustees, these must be adequately funded at all times.
Third party companies will no longer be allowed to earn a commission on any warm lead to a provider that results in a plan being sold. This should end cold calling.
While financial experts and industry insiders welcome regulation, they have told The Mail on Sunday that some providers will fall by the wayside as they fail to get authorised – or choose not to apply for authorisation because they know they have no chance of getting approved.
In some instances, customers will be left with underfunded plans – policies where the promises made when purchased can no longer be met. Industry insiders believe a minority of providers have not been putting customers’ money into a trust fund straightaway, instead channelling the money through their own bank accounts, chiselling off a bit for themselves – and only then putting the remainder in the trust account.
The Mail on Sunday has not been able to substantiate these claims, although we did approach some of the companies named by insiders. They failed to respond.
The market shake-out has already begun. A few days ago, the regulator issued a statement confirming that plan provider Safe Hands Plans Limited, based in Wakefield, West Yorkshire, had withdrawn its application to be authorised as a funeral plan provider. The FCA’s message was stark: ‘Do not buy a new funeral plan from this firm.’
The regulator would not confirm what had caused Safe Hands to withdraw its application.
Information on Safe Hands’ website is succinct: ‘On July 29, 2022, FCA will start regulating the prepaid funeral plans sector. We have made the decision not to continue to provide funeral plan services after this date. We will continue to deliver funeral services at your time of need until 29 July. There is nothing you need to do right now. We will be in contact soon to explain what it means to you and [the] next steps.’
On Friday, Safe Hands told The Mail on Sunday that it was doing ‘everything possible’ to ensure that customers’ funerals would be honoured after July 29 under a new plan manager. It did not provide an update as to the financial robustness of the trust fund where clients’ money is held. But in February 2020 it said that it had £50million in the fund.
According to the regulator, 30 plan providers have yet to submit an application to be authorised. This suggests they will not be carrying on in business – and are looking to offload their customers to a rival.
Three have withdrawn applications – Safe Hands, Bridlington-based Eternal Peace Funeral Plans and PS Cremations Funeral Planning (Harrogate).
Thirty-nine have submitted applications, indicating they intend to carry on selling after July 29.
So far, the regulator has not ‘minded to approve’ any authorisations. Such detail will only be publicly available just ahead of the regulations coming into force.
James Daley, founder of consumer champion Fairer Finance, has been an advocate of regulation since 2017. This was after Fairer Finance uncovered evidence of high pressure sales, poor products, high fees and a lack of security for customers’ money.
On Friday, he told the MoS: ‘Safe Hands will be just the first to close to new business. It is worrying, as before regulation comes into force in July, there is no protection for funeral plan customers. The big question now is how much money is left in the trusts of providers that give up the ghost.
‘If there’s enough in Safe Hands’ trust to get funerals delivered, we may see some of the big firms such as Dignity and Co-op ride to the rescue. But if there’s not enough money for that to be viable, there’s a risk customers could be left out of pocket.’
He added: ‘Of course, regulating the market is the right thing to do, but it’s also only fair the Government makes sure no one loses out in the transition.’
Paul Thilo, managing director of pre-need services at plan provider Pure Cremation, said it was inevitable companies will leave the market before regulation kicks in.
‘Contraction is inevitable,’ he said. ‘But bad practice can’t be allowed to continue and not everyone in the market is behaving properly. Hopefully, regulation will give future buyers of plans an assurance the funeral plans market is fit for purpose and will deliver on its promises.’
Prosperous Life said it ‘welcomed’ the forthcoming regulation of the prepaid funeral plan industry. It added: ‘There is no doubt regulation is justified in setting standards in a market which serves the potentially emotionally and financially vulnerable.
‘To hear that some prepaid plan providers will not make it through regulation is, on the one hand, a source of great discomfort, but on the other an indication that the required standards will be necessarily unbending.’
Both Pure Cremation and Prosperous Life have asked to be regulated plan providers.
Graeme McAusland, chief executive of the Financial Planning Authority, said: ‘Clearly, if authorisation is not achieved then an alternative solution will be needed which will either be a transfer of plans to another provider or an orderly wind-down. For FPA registered providers we will seek to assist in achieving the best outcome for customers. However, in a winddown situation it is likely that in some cases planholders will lose out as they only receive their share of what is available in terms of assets in the trust.
The FCA told The Mail on Sunday: ‘We have been proactive to ensure that only firms which will meet our standards will be authorised by us, giving consumers confidence and protection in the event that things go wrong.
‘We’re also engaging with firms that haven’t applied to understand their next steps. For example, we’re aware that a number of firms are planning to transfer their customers to another provider. We are encouraging those firms to contact their customers with information as soon as possible.’
It reiterated that its new safeguards would apply to all customers, not just those who buy plans after July 29.