Don’t buy funeral plans until new rules are in force

THE pre-paid funeral plan market is on borrowed time. Unless the industry can come up with a quick resolution to the basket case that is Safe Hands Funeral Plans, I fear consumer confidence will be shot to pieces. New sales of plans will drop off a cliff – and rightly so.

Just over a week ago, Safe Hands plunged into administration, imperilling the plans of some 46,000 customers. Plans that customers, most of them elderly, had bought in good faith and in full expectation of the product delivering its promise in the fullness of time. That is, a funeral that they had chosen and paid for in advance.

Sadly – no, outrageously – the plans will not meet their promises. In a letter sent to customers a few days ago, the firm’s administrator, FRP Advisory, did not hold back. All customers, it said, should consider their plans ‘terminated’ with immediate effect. Although customers’ money should have gone into a trust fund with the sole purpose of providing the funerals promised, FRP admitted there was not enough in this fund to meet all the funerals promised. Why?

Reading between the lines, it appears the fund suffered from a double whammy. Until FRP came on the scene, it was overseen by Sterling Trust Corporation, based in Weston-super-Mare, North Somerset. First, not all the money from customers went into the fund. A big chunk went to pay sales expenses (fat commission payments to third parties) and a raft of other fees to pay for company overheads.

So, the managers of the fund had their work cut out right from the word go by being required to make good this deficit through the prudent investment of the money sheltered within the trust. This leads on to the second part of the whammy – it appears the trust’s assets were not managed sufficiently well to keep up with the ever rising costs of funerals.

What I find extremely worrying is FRP’s comment that the ownership of some of these assets (equities, bonds, cash, real estate and loans) is ‘complicated’. As a result, it is unsure which of these investments can be realised for the benefit of planholders. This is a scandalous state of affairs. Who else could they belong to?

The only ray of hope for Safe Hands customers in the administrator’s letter is the possibility of all plans being transferred to another provider. It’s a transfer the big players in the sector such as Dignity and the Co-op must help facilitate – otherwise trust in the entire industry will be smashed.

Regulation of the pre-paid funeral plan market is to be taken over by the Financial Conduct Authority at the end of July. Indeed, it is the FCA’s requirement for all plan providers to apply for authorisation ahead of this date that has caused the Safe Hands scandal to bubble to the surface. I am sure other providers will go into administration in the coming weeks and months as their trust funds are deemed unfit for purpose.

Some experts cast doubt on the business model of Capital Life, a provider based in Wilmslow, Cheshire, and set up by ex-employees of Safe Hands. It has been at the forefront of paying big commission to third-party sellers, which prompts the question: how financially healthy is its trust fund? Capital Life has not responded to my questions.

Last week, I spoke to numerous readers who are waiting anxiously to find out whether their Safe Hands funeral plan will be honoured by another provider. They are salt-of-the-earth individuals – the likes of 80-year-old Mary Hunt from Larkhall, South Lanarkshire, and Noreen and Derek Round from Willenhall in the West Midlands.

Quite rightly, they feel cheated and have contacted their local MP to see if they can put pressure on the Government to ensure their losses are made good. The Safe Hands Funeral Plans Support Group has also set up a page on Facebook. The Mail on Sunday has led the way in reporting on this scandal. We will not let go until justice prevails. In the meantime, don’t buy a funeral plan until FCA regulation comes in.

‘We will not let go until justice prevails’