Only authorised providers will be able to sell plans from late July
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.
Read more... https://www.thisismoney.co.uk/money/bills/article-10530295/Will-families-bought-prepaid-funeral-plans-told-theyve-CANCELLED.html
