United Kingdom

Pre-paid funeral plans must cover a send-off service, says FCA

Pre-paid funeral deals will have to include a service to mark a loved one's death in future under plans to crack down on rip-off providers.

There will also be bans on cold calling, expensive add-ons and kickbacks to middlemen, to prevent people being mis-sold unsuitable funeral plans.

The clampdown on firms that tout poor deals is a victory for This is Money's sister publication, Money Mail, which has campaigned for a clean-up of the funeral plan market. 

New rules: Pre-paid deals will have to include a funeral service to mark a loved one's death in future

The cost of a basic funeral rose to £4,184 on average last year, though the price of direct cremations slid to £1,554, according to an industry survey.

Pre-paid deals are meant to allow people to lock into a funeral price to protect relatives against soaring costs.

But investigations into this market revealed some players employed unscrupulous sales tactics, imposed high costs and were not transparent about where customer funds were kept.

An outcry led to the Financial Conduct Authority being handed regulatory powers over the industry, and it is now consulting on rules which will be brought in from July 2022.

However, the FCA says existing providers will have to start applying for authorisation or to become an 'appointed representative' as soon as possible from this September. 

They will be slapped with a higher application fee if they delay beyond 1 November.

Once authorised they will have to begin following FCA rules, and any which see applications fail will have to cease selling funeral plans and wind up such trading 'in an orderly way' before regulation formally takes effect.

Where can you find independent help? 

The Money Advice Service, a free Government-backed organisation, has information about funeral plans and how they work here.

The FCA has an advice page for consumers here.

See below for other options to prepare in advance for funeral costs.

The watchdog says: 'In January, the Treasury made legislation bringing the sale and administration of funeral plans within the FCA’s remit, following concerns raised in the media and by consumer groups about the conduct and financial soundness of some pre-paid funeral plan providers.'

It adds that carrying on regulated business without FCA authorisation after rules take effect is a criminal offence. 

The FCA says its proposals are aimed at ensuring funeral plans meet consumer needs, and it will 'ban the sale of products which do not provide for funeral services in almost all circumstances' after an individual's death.

It wants to ban cold calling so plans are sold fairly, and customers are not pushed into taking out plans that may not be right for them.

And it is looking to clamp down on unfair pricing, by banning firms from slipping in additional fees to drive profits and from making commission payments to middlemen.

The FCA adds that people taking out pre-paid funeral plans will have access to the Financial Services Compensation Scheme and Financial Ombudsman Service 'from day one, should things go wrong'.

The FCA's new rules will apply to future deals sold, rather than impose requirements on existing plans. 

However, the regulator has proposed ways authorised firms can apply them to older deals too.

At present, an industry-backed regulation service, the Funeral Planning Authority, operates rules and a code of practice for reputable funeral plan providers, which must adhere to them in order to gain registered status.

The FCA says this service will continue to regulate registered providers until it takes over in the summer of 2022.

Sheldon Mills, FCA executive director of consumers and competition, says: 'Pre-paid funeral plans can help people and their families to manage the costs of a funeral. It is vital that consumers have confidence that their plan will deliver the funeral they expect at a fair value.

'Knowing your family won’t pay the enormous cost of a funeral after you’ve gone can bring enormous peace of mind'

'The measures proposed today will help ensure that the industry serves consumers well. It’s imperative the industry prepares now, ahead of its upcoming entry into financial services regulation.' 

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: 'Concerns about cold-calling salespeople ripping vulnerable people off means the FCA will regulate the pre-paid funeral plan market from July 2022.

'Knowing your family won’t pay the enormous cost of a funeral after you’ve gone can bring enormous peace of mind. Unfortunately, opportunists have used this to their advantage.

'According to Citizens Advice Scotland and Fairer Finance, some pre-paid funeral providers have been harassing and misleading vulnerable people: putting them under pressure to fork out for vastly overpriced plans that aren’t guaranteed to cover the cost at all.'

Should you consider buying a pre-paid funeral deal?

The FCA's proposals to regulate the market don't necessarily make such plans right for individuals, who have plenty of ways to cover the costs of a funeral, says Coles.

'It’s well worth considering setting aside money in a savings account for funeral costs. Alternatively, you can explain to your family that it will be covered by other plans you have in place, such as life insurance written in trust or workplace death in service cover.' 

Coles says that anyone who already has a pre-paid funeral plan should check whether their provider is applying for FCA authorisation, as if they are not they may sell your policy on to another firm, or wind up and refund your premiums.

'If your provider stops trading, there may be delays in the money being returned, and you will need to start planning for your funeral all over again.

'So it’s worth getting to grips with where you stand as soon as possible, so you have a chance to make alternative arrangements.'

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