UK: Pre-pay funeral plans may be brought under financial regulator

Monday, 04 June 2018
HM Treasury has announced it is considering bringing the pre-pay funeral sector under Financial Conduct Authority (FCA) regulation.


Consumer lobbying groups have told the Treasury that the current self-regulation regime, established in 2001, does not provide clarity for consumers. It is also said to permit high pressure and misleading sales activity, and there is a lack of redress for poor service. There are also doubts about the financial soundness of some trust-based providers.

The market is a large one, and is growing rapidly: sales of pre-pay plans in 2017 were more than three times higher than in 2006. According to Treasury figures, the 24 members of the Funeral Planning Authority (FPA), which comprise 95 per cent of the market, have over 1.3 million undrawn plans, equivalent to GBP4 billion in assets under management. In 2017, these providers sold over 207,000 new plans.

Regulation at the moment is very light. Providers of pre-pay plans are not regulated at all if they undertake to apply the customer's payments to a whole life insurance policy, and to hold the proceeds on trust for the funeral expenses. In fact, all pre-pay providers currently claim to be exempted from regulation on this basis. Members of the FPA also subscribe to its voluntary code of practice, which allows it to terminate their membership or impose fines for non-compliance, though these powers have never been used.

The Treasury has launched a call for evidence to support its plans for a more robust regime. It has chosen the FCA as regulator because pre-pay plans are similar to insurance policies, which already come under the FCA's scope. The FCA's Unauthorised Business Department (UBD) already investigates complaints about unauthorised funeral plan providers, although only 12 such complaints were made in 2017.

The Treasury is looking for responses by 1 August.

At the same time, the Competition & Markets Authority (CMA) has begun an investigation of the funeral industry as a whole, excluding the pre-pay sector. It says the UK funerals market is worth over GBP2 billion a year, with around 5,000 funeral director branches currently in operation, as well as 294 crematoria, mostly operated by local authorities.

The CMA's main concern is that funeral directors do not always provide enough price and service information to enable consumers to exercise proper choice. The purchase of a funeral is a significant one, the average cost being nearly GBP3,800 in 2017. Extras can add another GBP2,000 to the total bill. Crematorium fees, which undertakers pay and then pass on to their customers, are also rising rapidly.

Responses to the CMA consultation are due by 28 June. An interim report will be published in six months, and a final report in a year's time.


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