Funeral plan providers ‘must prepare to meet high standards or leave the market’

Funeral plan providers are to be held to new high standards to ensure that customers receive the products they are expecting, the City regulator has said.

The Financial Conduct Authority (FCA) has confirmed rules that funeral plan providers will have to follow when they come under regulation from July 29 2022.

It said firms must now plan for the new regime or prepare to leave the market in an orderly way.

From July 29 2022 it will be a criminal offence for providers to carry out funeral plan contracts without authorisation, the FCA said.

If a provider knows it will not apply for authorisation, withdraws its application, or has its application refused, it should stop selling new funeral plans from that date, it added.

Providers in this position must, before July 29 2022, transfer their existing books of business or wind down in an orderly way.

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The regulator said the new rules will introduce high standards in the funeral plans market and require firms to ensure that plans are sold fairly, perform as expected and provide value for money.

Funeral instalment plan products which do not guarantee that a funeral will be delivered will be prevented.

Cold calling will also be banned, and new standards on advertising will be implemented to ensure plans are sold fairly, the FCA said.

High-pressure sales tactics such as cold calling can result in people taking out unsuitable products.

Commission payments to intermediaries will also be banned, to ensure products represent fair value.

Those selling funeral plans will be subject to full checks on their fitness to operate to improve governance standards and oversight, the regulator said.

Sheldon Mills, executive director, consumers and competition at the FCA, said: “Funeral plans should provide customers with comfort and certainty that their affairs are in order.

“Our new rules for the sector will drive up standards and ensure that when consumers buy a plan, they receive a product that matches their needs and expectations.

“We are banning all commission payments to intermediaries to make sure products offer fair value, and, having seen the real harm cold calling can cause consumers, we’ll be banning it.

“As we take over the regulation for this market, we will be rigorously assessing firms’ fitness to operate. Firms must now plan for this new regulatory regime or prepare to leave the market in an orderly manner.”

The FCA said that, as funeral plan providers will not come under regulation until July 29 2022, consumers will not be able to make a complaint to the Financial Ombudsman Service, nor will they have protection from the Financial Services Compensation Scheme (FSCS) should their provider fail before this date.

Those considering purchasing a pre-paid funeral plan before regulation should look into their options carefully, the FCA said.

They should be sure they understand what their plan does and does not provide before they pay, and whether there are extra charges.

The FCA is now consulting on the outcomes for consumers in the event of firm failure.

The proposed rules aim to minimise harm to customers if a regulated funeral plan provider fails by ensuring that contracts can be transferred to new providers where possible, and that the FSCS can arrange continuity of funeral plan contracts or pay appropriate compensation if a firm is not able to meet its liabilities.

The FCA is inviting feedback on the draft rules by August 31 2021.

The regulator said it will evaluate the new regulatory regime after the industry has had time to adapt. It will also examine consumers’ experiences.

Nicholas Hill, senior advice manager at the Government-backed Money and Pensions Service (MaPS), said: “These changes will come into place in 2022, so in the meantime we strongly urge people to review what they should look for in a plan before making a decision, and to be wary of any cold callers trying to sell them a plan.

“For more information about your options, you can access guides about funeral plans on our new MoneyHelper website.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The average funeral costs over £9,000 and even if you have a basic send-off it’ll set you back an average of over £4,000.”

She added: “Even once the market is regulated, it doesn’t necessarily make these plans right for you. There are plenty of other ways to cover the costs of a funeral that might suit you better.

“It’s well worth considering setting aside money in a savings account for funeral costs.

“If the money is held in a joint account, the other account holder can access the money without the grant of probate.

“If you are putting the lion’s share of the savings into the account and expect someone else to withdraw it and spend it after your death, it’s worth making a note of why you’ve set the account up, and what you want it to be used for, to avoid any disagreements further down the line.

“Another alternative is to explain to your family that the cost of the funeral will be covered by other plans you have in place, such as life insurance written in trust or workplace death in service cover.

“Both of these deliver lump sums outside of the estate before probate, so the money should be available to cover the cost of the funeral.”