NAO: understanding of state pension poor, despite new regime success

The Department of Work and Pensions’ (DWP) attempts to improve people’s understanding of their state pension have had limited success so far, despite the successful introduction of the new regime

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 National Audit Office (NAO) said.

It added it is not yet clear whether the simplification of the state pension will support wider pension reforms.

The NAO report found that the DWP 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 also 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, and the cost of implementing the programme was within budget.

It was also found the DWP 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, the NAO said.

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

Head of the NAO Amyas Morse 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.’

Calum Fuller |Assistant editor, Accountancy magazine (up to 2018)

Calum Fuller is former assistant editor of Accountancy magazine and Accountancy Daily, published by ...

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