FSCS protects consumers when financial services firms fail but is unable to safeguard consumer interests in the prepaid funerals market.
The Financial Services Compensation Scheme (FSCS) has clarified that it does not provide protection for individuals who have a funeral plan with a provider who fails. This position applies whether the plan was purchased by paying a lump sum or by paying a monthly amount to the (funeral plan) provider.
Prepaid funeral plans have grown in popularity over the past 20 years as the cost is locked to today's prices, which is appealing when you consider the average cost of a funeral £3784 (up from £3675 in 2016) is increasing by 2.6%** each year. However, this clarification by FSCS highlights a how exposed consumers are to the fortunes of plan providers and the necessity to research products and providers thoroughly.
Too many people buy funeral plans prompted by TV advertising and never check out just how safe their hard earned money is who are behind these plans and how long have some of these companies been in business. Funeral Plans are not investment product and not protected by any financial protection scheme. Before you hand over the cheque make sure you understand who you are giving it to and are they financially robust. You may get some surprises if you do some digging!
The Funeral Planning Association, the industry-led organisation set up to establish a code of practice for UK prepaid funeral plan providers, lists more than 20 registered members who are subject to the terms of the voluntary code. However, the code offers no protection to consumers and whilst funeral plan providers can be regulated by the Financial Conduct Authority (FCA) many providers have chosen to exempt themselves, which means they are not.
It is a situation that is unhelpful to consumers who are considering investing a sizeable sum to cover the cost of their funeral and exposes a troubling lack of certainty that the money paid will guarantee the service is fulfilled as expected when needed.
The announcement brings some clarification to an area where many people incorrectly believe that funeral plans come under the scope of the FSCS - as they consider them to be insurance product. This is not the case. Even if a regulated funeral plan provider were to sell a funeral plan to an individual, this would not be covered by the FSCS because these products are not categorised as a ‘designated investment’ under FSCS’s compensation rules.
Funeral plan providers rely on insurance companies and investment trusts to meet their obligations to customers. In some limited circumstances where the provider of a Whole of Life insurance policy or provider of a product held within a trust goes bust, FSCS may be able to pay compensation to the provider of the funeral plan or the trustees. It would then be for the funeral plan provider or the trustees of the investment fund to decide what to do with any monies that are paid out as a result. Having paid compensation, FSCS is not responsible for the decisions that funeral plan providers or investment fund trustees may make. It is unlikely that FSCS would be able to pay compensation directly to individuals.
Money Advice Service has the following advice for those worried about making an upfront payment:
If you’re paying for your funeral bill upfront, you could consider paying for part of on your credit card.
When you pay with your credit card, you benefit from Section 75 of the Consumer Credit Act. This means you can get extra protection if things go wrong with the funeral director.
You could also get this protection if you were to pay at least £100 of the funeral bill upfront, and then pay off the rest of the balance in monthly instalments.
If you have any questions about the funeral plan you bought, you should contact your provider in the first instance, or the Funeral Planning Authority, for further guidance.
More information about funerals
Using the links below, you can find more general information about funerals - for example, the different options available, choosing a funeral director, rights, choices and help with costs. The sources of information differ depending on where you live:
*Royal London National Funeral Cost Index; **ONS Consumer Price Index
Sources: Financial Services Compensation Scheme (FSCS), Money Advice Service (MAS), Financial Conduct Authority (FCA), Funeral Planning Association