Fears funeral plan reforms could mean thousands lose money

"It has given me sleepless nights, I've been up at 3 o'clock in the morning wondering what the outcome will be."

72-year-old Lyn Burrow is talking about the thousands of pounds she's paid to cover the cost of her funeral when she dies.

She and her husband Fred, 80, spent a total of £6,310 with funeral plan provider Safe Hands.

Now they're worried they might lose some, or even all, of their money.

The funeral plan market is being reformed and industry insiders are worried that this could mean some providers will go out of business, leaving tens of thousands of customers out of pocket.

"The way things sounded we stood the chance of losing all the money we had paid for these plans, so we decided we would cancel the plans and would just have to swallow the £800 cancellation fees," says Lyn.

"We felt if we at least got some money back it would be better than nothing".

Safe Hands, which has withdrawn its application for approval by the UK's financial regulator, meaning it will not be allowed to operate after 29 July, told Lyn it hoped to find another funeral provider to take over its client book.

It also said Lyn would have to wait a month for her refund, leaving her worried she may not see any money at all. Safe Hands did not reply to the BBC's numerous requests for comment.

People like Lyn and Fred are worried because the UK's funeral plan sector is being reformed by the UK's financial watchdog, the Financial Conduct Authority (FCA).

From 29 July, any provider must be authorised and regulated by the FCA which, from that point onwards, will give consumers far greater protection than they have at the moment.

The FCA says reform is needed because elderly, and very often vulnerable, customers have been subjected to unfair practices like high pressure sales tactics and cold calls, and it wants to raise standards by regulating what companies can and cannot do.

The very real problem for people like Lyn and Fred though is that whilst the regulation of funeral plan companies will be a good thing in future, getting to that point could mean some people lose out.

"There are around 65 firms that operate in this sector and not all of them will be able to demonstrate they can meet the standards that will ensure protection for consumers in the future" according to industry expert Kate Robinson from Avyse Partners, which specialises in regulatory consultancy.

"The point is - firms which don't go for authorisation will either choose not to be regulated or won't be able to meet the new standards because they present such a significant step change to what was in place previously.

"This means some providers may not be able to deliver the funerals they have sold because they have to either transfer the business to another firm or it may force firms into administration and if that happens customers will likely lose out."

Source: FCA/Fairer Finance

Whilst many of the larger, more reputable firms are expected to be granted authorisation by the FCA, others are unlikely to even apply for authorisation or will be turned down. If that happens they will be unable or not allowed to operate beyond 29 July.

The Funeral Planning Authority told Money Box it has been concerned about this situation for a number of years. "We made our concerns known to both HM Treasury and the FCA," it said.

"Customers who took out plans in good faith are potentially being punished as a consequence of a Government policy, the approach taken to the implementation of that policy, and the lack of a properly thought through transition process that was designed to protect customers."

The government said: "Bringing pre-paid funeral plans into regulation will protect consumers from bad practice within the sector including by exposing any unsustainable business models and preventing problems from getting worse, and impacting more consumers.

"This follows extensive consultation and the Financial Conduct Authority is now taking proportionate steps to regulate these pre-paid plans.

"The FCA's guidance is clear that firms not seeking authorisation should transfer their existing books of business or wind down in an orderly way before regulation starts."

James Daley, the managing director and co-founder of consumer group Fairer Finance, has this advice for people worried about their funeral plans: "If you're in the cooling off period [having very recently bought a plan] and you can cancel free of charge and you're with a smaller company you're worried about, then cancel because there's no cost.

"But if you're going to incur a cancellation fee, and some of these policies charge up to £1,300 in cancellation fees, my advice would be to sit tight for now.

"Rather than crystalising a loss it may be better to hold your nerve for a few weeks or a few months and see what this settlement ends up being."

You can hear more on this story on BBC Radio 4's Money Box podcast by clicking here.