Existing customers, and those considering taking out a prepaid funeral plan, will now benefit from greater protections as the Financial Conduct Authority (FCA) has begun regulating the sector.
Funeral providers will have to abide by tough new rules to clean up standards in the industry. However, the road to regulation has left thousands of existing customers in limbo, waiting to see if their provider will be authorised and has seen a number of providers go bust.
Here, Which? explains what the market shake-up means for existing and prospective customers, and what you need to know if you’re thinking of taking out a funeral plan.
A funeral plan allows you to pay upfront for your funeral, so your relatives don’t have to cover the costs themselves.
Since funerals are often expensive, paying in advance can bring you some peace of mind.
Around 1.6 million people in the UK have a funeral plan, and 218,000 took out their plan in the past year.
However, a prepaid plan won’t cover all costs, and coverage varies between providers.
It’s important to remember a prepaid plan isn’t only way you can cover the costs of a funeral. For instance, your family are also allowed to pay for your funeral using money from your estate as soon as you die, so you might need to weigh up whether it's the right choice for you.
Funerals aren’t cheap. The average cost of a basic funeral in 2021 was £4,056 – an increase of 121% since 2004, according to financial services company Sun Life.
A prepaid funeral plan allows you to cover costs at today’s prices, giving you comfort that your family will have one less thing to worry about when you die.
These plans can also help to ease the administrative burden on your loved ones, as you'll can make your own funeral arrangements in advance.
Here are the key things you need to know about the new regulation.
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As of 29 July, providers need to be authorised by the FCA to sell and carry out funeral plans.
The FCA regulates the financial services industry in the UK, and its role includes protecting customers, keeping the industry stable and promoting healthy competition between providers.
It regulates the conduct of 50,000 firms in the UK.
A spokesman from the FCA told us: ‘Our regulation will lead to a stronger market and better protection for consumers if firms fail.
‘We want to see an improvement in outcomes for consumers in this sector, with better-value products, better sales practices and better controls in place, so consumers can be confident they will receive the funeral they expect.'
As part of regulation, there is now a ban on cold calling. This means that unless the firm has an existing relationship with you, and you would expect to receive a call from them as part of this relationship, the firm cannot call you.
In 2018, a report by consumer group Fairer Finance found a ‘small but significant’ minority of firms were using aggressive sales tactics, driven by high commissions of up to £900 per funeral plan.
This meant customers - who tend to be older and more vulnerable - did not understand the limitations of what they were buying.
FCA regulation means you’ll now be protected by the Financial Services Compensation Scheme (FSCS), which helps customers who lose cash if an authorised financial services firm goes bust.
This means if you have a funeral plan with an FCA-authorised provider that goes out of business you may be able to claim compensation with the FSCS.
This includes funeral plans bought before the FCA regulation date, as long as the provider is approved for FCA authorisation.
You may also be able to claim compensation for certain activities carried out by a funeral plan provider or their intermediaries. This could cover things like funeral plan advice.
The new rules will drive up standards and ensure that when customers buy a plan, they receive the product that matches their needs and expectations.
A funeral will always have to be provided - unless the customer dies within two years of taking out a plan, in which case a full refund will be offered.
Regulation will also guarantee that customers will get a full refund if they cancel a plan within 30 days, or get a refund minus a 'reasonable' admin fee if they cancel after that.
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If you have a complaint against a funeral plan provider or intermediary, you’ll be able to refer it to the Financial Ombudsman Service (FOS).
The FOS is free to use and was set up to provide a speedy and cheap way to resolve disputes between financial companies and their customers without having to go to court.
You must have reached a final response in your dispute with a bank, insurance company or other financial provider, and still be unhappy with the outcome before you can take your complaint to the financial ombudsman. This means you'll need to go through the provider's internal complaints procedure first.
If the provider still hasn’t resolved your complaint within eight weeks, they've rejected your complaint, or you're unhappy with their final response, you can then take your complaint to the FOS.
Not every provider has been authorised by the FCA, which means they can no longer carry out funerals or sell new plans.
The FCA has published a list of 15 firms it will not be authorising.
Some providers have been given until 31 October to wind down their business, transfer their customers' plans, or refund them. But during this period they are allowed to carry out existing funeral plans.
Some 17 providers have told the FCA they will not be applying for authorisation and are planning to transfer, or have completed the transfer, of their existing plans to another provider.
The FCA said it is still assessing a small number of providers' applications and will give an update as soon as possible.
Two providers have gone bust: Safe Hands Limited, which had 46,000 customers, and Ready4Retirement, which appointed liquidators in June.
Margaret and Dave Fee (pictured below) had two plans with Safe Hands worth £5,500, which they used their retirement savings to purchase in 2015.
As the purchase took place before the regulations, their money isn’t protected.
FRP Advisory, the firm appointed to handle the administration process, says Safe Hands doesn’t have sufficient funds to refund customers in full, and that it will ‘take some time’ to investigate how much money can be paid out from the various investments made by Safe Hands.
The outlook isn’t hopeful: FRP’s latest estimates are that customers could get back just 10p to 20p in every pound.
Margaret told Which?: ‘Unfortunately, at our age we’re among the most vulnerable in society and the ones who can least afford to take the loss.’