The Department for Work and Pensions successfully managed the introduction of the new state pension, but it is not yet clear whether the simplified system will encourage people to save more for their retirement.

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The introduction of the new state pension has been successfully managed by the Department for Work and Pensions, according to the National Audit Office, but it is not yet clear whether the simplified system will improve understanding of retirement savings.

Today’s report found that the Department introduced the new state pension one year ahead of the date originally proposed, introducing higher national insurance contributions for some employers and employees earlier than planned. It met its deadline by making the minimum necessary changes to its IT systems.  The Department made the changes in time to allow the uninterrupted payment of state pension from the ‘go-live’ date in April 2016.  The cost of implementing the programme was within budget.

The Department deferred the development of a more ambitious digital solution that offered operational efficiencies and new customer services. It has not yet introduced a new digital claims service, which is now due in April 2017. Instead, the Department prioritised the digital pension statements service and introduced this in February 2016. According to the NAO, the Department has reduced the expected operational savings from £341 million to £73 million.

Today’s report found that the Department is likely to maintain the accuracy of state pension payments. The calculation of pension entitlement is based on the same national insurance data as the old system. The rule changes make the calculation simpler and the departments have conducted extensive testing of system changes. HMRC is also checking its national insurance data with pension schemes that were previously contracted out. Take-up of the service, and therefore, progress is slow.  HMRC had confirmed just 1.7% of deferred and pensioner memberships by August 2016.

In addition, there has been some deterioration in the time taken by the Department to process claims. This relates partly to the introduction of new state pension but also reflects wider demands on operational staff since April 2016. The Department’s performance in processing claims began to recover in August 2016.

According to the NAO, however, the Department’s attempts to improve people’s understanding of their state pension have had limited success so far, and it is not yet clear whether the simplification of the state pension will support wider pension reforms. One of the Department’s objectives of state pension reforms was to prompt people to take action and plan for their retirement from a younger age. But there is not yet any evidence that the new state pension has encouraged people to save more for their retirement.

The rule changes mean some people will gain while others lose out. The Department did not, though, directly contact groups likely to be adversely affected.

 

“The Department’s implementation of the new state pension so far represents value for money. Reforming pensions is, however, a long-term endeavour. The Department has yet to reintroduce its plans for the digital administration of pensions, and achieving the longer-term objectives of the new state pension will depend on how it interacts with wider reform of the pensions system. Both these key areas will need to be tackled to achieve value for money as the reforms develop.”

Amyas Morse, head of the National Audit Office

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View press release (3 Nov 2016)

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