National Audit Office Press Releases
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Introduction of the new state pension

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.

Yesterday’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.

Yesterday’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.

Amyas Morse, head of the National Audit Office, said: “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.”

Full report:  Introduction of the new state pension  

Notes for Editors

£89bn    spending on state pension in 2015-16

407,000  –  people forecast to claim the new state pension in 2016-17

2.1m  –  people have checked their state pension forecast since September 2014

0.5% of GDP  –  forecast reduction in spending on state pension and pensioner benefits in 2060, compared to forecast of expenditure under the previous state pension

£2 billion  –  forecast increase in net national insurance contributions in 2016-17 from introducing the new state pension in April 2016, one year ahead of the date originally proposed

50%  –  fewer people in 2030 will be eligible for Pension Credit than now

73%  –  of people who reach state pension age in 2030 will be better off under the new state pension

76%  –  of people who reach state pension age in 2060 will be worse off under the new state pension

77%  –  of people within ten years of state pension age are aware of state pension changes

18%  –  of working age people know how much their state pension is likely to be

The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

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