Funeral Plan Industry

Lucy Allan Excerpts

Thursday 26th May 2022 Westminster Hall

[Lucy Allan (Telford) (Con)]

I beg to move,

That this House has considered the funeral plan industry.

It is a great pleasure to serve under your chairmanship for the first time, Mrs Cummins. I am grateful to the Chairman of Ways and Means, for her wisdom in selecting this afternoon’s debate; amid the noise and chaos that is the normal week in Parliament, she has provided a space to consider the needs and concerns of decent and often vulnerable people who are trying to do the right thing.

People who buy funeral plans are elderly, and they may be ill—perhaps terminally so. They may have struggled with the cost of a funeral when their spouse died, and they do not want to burden their children with the same anxiety. They may fear the shame of a local authority funeral—a pauper’s burial. These are people who have worked hard and saved hard, and they want some piece of mind at the end of life. They are not people who grab the headlines and demand the limelight or who, when something goes wrong, take to Twitter, call their lawyer or send emails in capital letters to their MP twice a day. They may even be quite reluctant to contact their MP, and if they do, it will be politely understated. For that reason it is all the more important that we are here today to ensure that their voices are heard in this place, and I am very grateful to all Members for attending the debate.

The funeral plan industry sees these people, who I think we can all agree are vulnerable, as a lucrative target market. Until now, it has certainly been a huge growth industry. Today, 1.6 million people hold a funeral plan, with 218,000 people taking out a new plan only last year and with over £4 billion in funds under management held in plans. There is huge trust placed in funeral plan providers by vulnerable people, yet this lucrative industry is unregulated.

[Mr Kevan Jones (North Durham) (Lab)]

Does the hon. Lady share my concerns about some of the practices and sales techniques that are used to get people to sign up to these plans? She has already mentioned that people are vulnerable, but when we read the small print in the glossy brochures that are provided, it is clear that these plans do not actually deliver what has been promised to many people.

[Lucy Allan]

The right hon. Gentleman is absolutely correct, and I will come on to some of those high-pressure sales techniques, which I very much hope the new regulatory regime will remove.

The Funeral Planning Authority held itself out as providing some form of oversight, giving itself a veneer of respectability as a quasi-regulator, but it was not, and we have to remember that the industry is entirely unregulated, despite any appearances to the contrary. The Minister rightly took steps some years ago to rectify that omission, and I pay tribute to him for that. Of course, there are good providers, such as Dignity and Co-op Funeralcare, which care about good governance and are working to ensure that this unregulated industry is brought within the perimeter of the Financial Conduct Authority by 29 July. However, that creates challenges for the industry, because some providers have not applied to be regulated and some have not been accepted for regulation, for good reason. There are concerns about where that will leave people who hold plans with those providers. I have had useful meetings with Dignity and the FCA, and I am grateful to them for their work in this area.

Let us make no mistake: as the right hon. Gentleman just alluded to, this is an industry with a record of using high-pressure selling techniques, such as cold calling, telesales and having a sales rep sit in someone’s kitchen until they sign on the dotted line. People sign up for some extraordinary fee arrangements, whereby 25% of the plan could be taken as commission. Then there is the use of intermediaries, such as will writers, to sell a funeral plan as if it were an add-on, when all people really wanted was a will. They are told that their money is held in trust and overseen by independent trustees, and that it will be ringfenced and invested in blue-chip equities, yet there is a complete lack of transparency as to how their money is invested. Then there is the playing on people’s fears, and I am afraid that even the more reputable companies tell people that a funeral plan is an essential part of end-of-life planning.

That brings me to the ironically named Safe Hands Funeral Plans, now in administration. While we can all agree that only a small number of providers pay scant regard to good governance, the industry as a whole has long known about these providers and their practices. I am sad to say that it knew about Safe Hands Funeral Plans and its methods, which were an open secret in the industry. As we move towards regulation, it was only a matter of time before any rogue operators would fail. A number of investigative personal financial journalists have covered this story, and I particularly pay tribute to Jeff Prestbridge for his sterling work in this area. I encourage him and others to keep up the campaign.

When my constituents, Don and Toni Haines, from Ketley in Telford, contacted me about their Safe Hands plan, sold to them by Equity Wills in Market Drayton, Shropshire, it did not take me long to see what had happened to the money supposedly held in trust for the benefit of plan holders. Yes, I am a chartered accountant and I specialised in insolvency, including administrations and liquidations, but even a cursory glance at note 8 on page 6 of the Safe Hands accounts, freely available to anyone online, makes clear that the company is entitled to receive any surplus declared following an actuarial valuation of the Safe Hands Plans Trust—the moneys held in trust for savers could be distributed to a director shareholder.

The surplus declared on the Safe Hands Plans Trust as at May 2020 was £2.4 million. In 2019 the surplus was £10.9 million. It is clear that moneys supposedly ringfenced for plan holders were distributed to director shareholders as a dividend. Did Equity Wills of Market Drayton tell Mr and Mrs Haines that this would happen if they bought a Safe Hands plan? Did Equity Wills check the Safe Hands accounting policies themselves before pocketing their commission? They did not even tell Mr and Mrs Haines they were buying a Safe Hands plan, so my constituents could not even check for themselves.

Digging a bit deeper into the accounts, which of course make full use of the small company exemption to file only limited information, we see that a loan of £3.5 million appears to form part of the assets of the trust, which are ringfenced for plan holders. This loan was advanced to a director of Safe Hands—a Mr Malcolm David Milson, and his wife. By 2020, he was no longer a director shareholder and the advances made to him were not recovered. In anyone’s book, this is clearly financial misconduct. The administrators believe that, out of a portfolio valued at at least £60 million, they can realise between only £10 million and £16 million, leaving plan holders with a return of between 10p and 20p in the pound—and we should not forget that that is after they have paid their 25% commission.

Let us call this what it is: theft. Anyone associated with this company should be disqualified as a director, along with anyone who signed off the accounts or certified the surplus. There is a duty of care to the vulnerable. As much as I admire what Dignity is trying to do, in the material that it circulated to Members it has not fully recognised or accepted that these people are vulnerable. It is important that that is acknowledged, and I am sure the Minister will do that in his response.

I am not somebody who uses exaggerated language, because it often diminishes the power of an argument, but what has been happening here is clear: it is what any accountant will call teeming and lading—in other words a Ponzi scheme. As long as the provider keeps selling to new customers to pay the maturing plans of existing customers, there is no problem, but if the music stops—as it did in this case when the provider was prevented from selling any new plans by the FCA as it moved to regulate the industry—the house of cards collapses, leaving vulnerable savers in this instance with 10p to 20p in the pound.

My fear is that Safe Hands plan holders will not be the only casualties. In fairness to Dignity, it has so far underwritten the plans that are now maturing and is working with the FCA to see how it can take plan holders on as clients. However, there is a big concern that its long -term proposal would require plans that are fully paid—we should not forget that most plans are fully paid—to make further payments to Dignity on the basis that people would at least be better off doing that than just having the 10p to 20p in the pound that the administrator would pay. That is not good enough.

The industry knows that nobody needs a funeral plan. Let us not pretend otherwise. A person can tell their children what they want when they die and put their monthly contribution into an ISA or bank account. Why risk it with a funeral plan? Why pay exceptional commissions? If their estate is valued at less than a few thousand pounds, the cost of the funeral gets the first call on the deceased’s assets. If there are no assets at all, the local authority picks up the cost.

I am very concerned that some industry lobbyists are seeking to water down the FCA regulatory proposals and are lobbying MPs to that end, and I urge the Minister and the FCA to stand firm. These are vulnerable savers and they must have the gold standard of protection. Watering down the proposed new regulatory regime for the industry would make it easier to become regulated. I understand that we do not want to exclude providers from regulation altogether, but it would be counterproductive. We have been there with the FPA, which, as we have seen, has provided no regulation whatever, just the veneer of regulation or some form of respectability.

Funeral plans are savings and investment products targeted at vulnerable people, and those savers should have at least the same level of protection as anyone else buying a savings financial product. There is a duty of care to protect the vulnerable from exploitation and mistreatment—I am sure the FCA and the Minister will agree.

[Mr Kevan Jones]

Does the hon. Lady agree not only that it needs to be clear what people are purchasing, but that if the people selling the plans are receiving commission —in some of the examples I have come across, the third party selling them has been on commission—that should be clearly stated, too?

[Lucy Allan]

The right hon. Gentleman is absolutely right. The lack of transparency is a significant feature of where this industry has gone astray.

Protecting funeral plan holders from some of their loss, which is what is suggested, is not good enough, and nor should the industry expect taxpayers to bail it out. This is a problem of the industry’s making, and it needs to work together to find a solution. If the industry cuts plan holders adrift, it will have sullied its own reputation, creating longer-term consequences for itself.

This is also about accountability. The auditors, the actuaries, the trustees, the directors and the fund managers cannot just walk away from these vulnerable customers. Why should plan holders with fully paid plans have to pay more to save their funeral plan? It is no good saying that a Safe Hands customer’s loss would be less if they paid to switch to a Dignity plan than what would otherwise crystalise from a distribution from the administrator. That is no comfort to anyone. I welcome the steps that Dignity has taken to date, but it must consider whether it, with other reputable members of the industry, can go further.

I know that the Minister wants to do the right thing, and I know that the industry understands that if it wants to survive this financial shock—this battering to its reputation—it too will go the extra mile to do the right thing. The voices of people who work hard, save hard and trust others to do what they say they will do with their money are being heard today by the Minister loud and clear.

I hope the FCA will have no truck whatever with the view that these vulnerable saving plan holders should be treated less favourably than other plan holders. There must in all circumstances be a duty to protect vulnerable customers, a requirement to hold capital to be able to honour the guarantees that are given, and an industry compensation scheme for the plan holders who will be excluded from the financial services compensation scheme. This is an important point. Anyone who will lose out prior to 29 July will not be protected by the financial services compensation scheme. Those people must have a scheme that protects them from losses, and that must be a funeral plan industry scheme. I do not think it should be topped up by the Government. The industry got into this mess, and it needs to work together to get out of it.

I know that, sadly, this matter will not be at the top of the Treasury’s in-tray, at what is a challenging and difficult time for all Treasury officials. The Minister is one of my favourite Ministers, and I urge him to make sure that the little people do not end up at the bottom of the pile, and to consider that how we treat the vulnerable says much about our financial services industry as a whole—and, indeed, about our society.

We want to build a reputation for probity and integrity in the financial services sector. There are vulnerable people whose vulnerabilities have been exploited. We cannot just hope that they will not know that they lost the money; that, if they do know, they will not have the capacity to fight for themselves; or that they might die, leaving local authorities to step in. If we do that, we will damage not only the funeral plan industry, but the financial services industry. There are MPs across the House who will not let that happen—I am one of them. These individuals are the people we are all here to represent. I hope that the Minister will allow us all to be part of the solution.

--- Later in debate ---

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank hon. Members who contributed to the debate: the hon. Members for Putney (Fleur Anderson) and for Gordon (Richard Thomson), the right hon. Member for North Durham (Mr Jones), and of course my hon. Friend the Member for Telford (Lucy Allan), who has professional experience in this domain and used her accountancy and forensic skills to examine some of the issues relating to Safe Hands. They are very relevant to some of the things we need to discuss this afternoon. I know she cares deeply about these matters, and I will try to attend to the points that have been made during the debate.

That people care so much about funerals is not particularly surprising. No one needs to explain to me the important role they play in celebrating the marking of a life and helping bereaved families and friends say goodbye to their loved ones. I have said previously that no one nearing the end of their life, or their families, should be consumed by money worries relating to the cost of their funeral. The hon. Member for Putney raised a number of issues about the broader nature of support for funeral provision. I will probably not be able to attend to them this afternoon, but I note those points and I will try to secure an answer for her.

Safe Hands’s going into administration will naturally be very upsetting for its customers and their families, and those consumers will, of course, be anxious to know who will look into the behaviour of the company and its directors. A number of points have been raised about that, particularly by the right hon. Member for North Durham. Within three months of any administration, the administrator must report to the Insolvency Service on the conduct of the directors prior to the company’s failure. In addition to the Adjournment debate and some of the points made during that debate two Thursdays ago, more points have today been made, helpfully putting on the record some of the concerns about those behaviours. When that administration process has concluded, those matters will obviously be there to be taken up. I understand that, where there is misconduct that shows people to be unfit to be a director, they may be disqualified from acting as a director for up to 15 years where that is in the public interest. Separate criminal investigations may also be undertaken in any administration where evidence of criminality is uncovered. However, it is only right that at this stage we await the outcome of the administration process.

As hon. Members will be aware, and as has been mentioned this afternoon, Dignity, one of the UK’s largest funeral plan providers, stepped in to provide funerals for Safe Hands customers, following the firm’s entering administration. I have met with Dignity myself, in the Treasury, and I know that my hon. Friend the Member for Telford has met with Dignity as well. I am very pleased that Dignity has now agreed to do that—at no additional cost to plan holders—for a further six months.

Although the Financial Conduct Authority does not yet regulate funeral plan providers, it is currently going above and beyond its legal duties by helping to support the industry and administrators as they look to find a longer-term solution for Safe Hands customers. I am hopeful that customers will not need to wait too much longer before they see further progress on a longer-term approach. The example of Safe Hands clearly demonstrated the need for a better-regulated funeral plan market, because although the sector provides a valuable service, we must ensure that the situation that has developed for Safe Hands customers is not repeated. That was the purpose of the work that has been done.

[Lucy Allan]

The Minister is making very important points, so I am grateful to him for giving way. He is talking about the Safe Hands plan holders and arrangements for them. A question that has come up today is what provision will be made for the plan holders who will be within unregulated products after 29 July, because it does appear likely that a significant number of plan holders will be holding a plan that is not backed by any form of compensation scheme or regulation.

[John Glen]

Going forward, people either are regulated—those who are going on the journey into regulation by the end of July go under FCA regulation, and it will be keeping an eye on their selling practices—or become an appointed representative of a bigger, regulated firm, which keeps an eye on them, and then the FCA keeps an eye on it. Many firms, most firms—I think it is in the order of 67 firms—are going through the journey into regulation. There will be smaller firms that decide not to go on that regulatory journey, and either they will become authorised under the appointed representative regime or they will wind down, and return the funds to their customers.

Those are the two options. The FCA is working with the industry to smooth that journey. The House passed a statutory instrument to ease that process of transition. But those are the options available. Of course, we are midway through that journey, but what this afternoon’s debate has shown is the imperative of the industry working to sort out some of the issues that have been laid bare by the Safe Hands experience. I think Safe Hands is an exception, but it is a pretty awful experience for those customers. My belief is that this process of regulation will give clarity to the situation, going forward, in terms of who is regulated, how they are regulated and what being under regulation, either as an appointed representative or directly from the FCA, means. The FCA will be responsible for communicating that.

--- Later in debate ---

[Lucy Allan]

I am very grateful to all Members who have attended today’s debate. I know we are competing with the platinum jubilee address to Her Majesty; in fact, the Member who has just sat down in the main Chamber, the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier), is the Member who secured the Adjournment debate on this topic two weeks ago. There are many Members from across this House who would have wanted to be here, making some of the points that have been so ably made by other colleagues.

I am particularly grateful to the right hon. Member for North Durham (Mr Jones). He spoke about the abuse of trust, and a day of reckoning coming for those people who engage in these types of activities. He is absolutely right: financial misconduct is something we cannot tolerate when it targets the most vulnerable in our society.

I also pay tribute to the hon. Member for Putney (Fleur Anderson), because I met somebody the other day who told me that she is almost as good as her predecessor. [Laughter.] That is a very fine compliment to her, because I worked closely with her predecessor for many years. The hon. Lady was absolutely right to talk about dignified funerals: that is a vital issue, and I am pleased that she has also highlighted the issues of anxiety, worry, stress, and all the other things that happen in this market where these selling techniques are used. Both the hon. Member for Putney and the right hon. Member for North Durham talked about people wanting to do the right thing, and we as parliamentarians are here to promote that, support those people and ensure that those who do the right thing do not get penalised by people seeking to exploit them. That is why this debate has been so important.

I am grateful that the hon. Member for Gordon (Richard Thomson) talked about people who are selling peace of mind, because that is exactly where things have been going wrong. We all crave peace of mind, and if somebody is going to sell it to me in a bottle, I am going to pay for it. Taking money from people by creating fears and then not delivering on promises is a disgraceful abuse.

I am grateful to the Minister for everything he has said today, and have absolute confidence that this is something that will stay in his in-tray—somewhere in the middle of his in-tray, perhaps—and continue to have his close attention. The FCA is doing a great job, although it needs to recognise that it was maybe a bit slow to the party. These things have happened on the FCA’s watch.

[John Glen]

I would respectfully say that in the end, this has to be the responsibility of Government, because we mandated the FCA to do this. The Government must take responsibility, not the FCA, but my hon. Friend is absolutely right that it is now incumbent on the FCA to get this right, and I believe it will.

[Lucy Allan]

I thank the Minister for that point. The FCA always talks about things being within or without its perimeter, and I sometimes wonder how a savings product targeted at the most vulnerable could ever have been without its perimeter. I agree that it was the Government—and, in fact, the Minister—who made sure that this issue came within the FCA’s auspices, and it is now working constructively with industry players and Members of Parliament, which is extremely important. I will continue to champion the interests of vulnerable people whose vulnerabilities have been exploited, and I know many others will join me in doing so. Mrs Cummins, thank you very much.

Question put and agreed to.

Resolved,

That this House has considered the funeral plan industry.