The government has had “little success” in helping people understand what state pension they will receive, even after a radical overhaul of the system, according to the national spending watchdog.
Reforms initiated by the previous coalition government aimed to simplify and reduce the costs of the state pension, which had grown to £89bn in 2015-2016. In April, the basic state pension and earnings-related add-ons were replaced by a flat rate pension, currently £155.65 a week.
The National Audit Office said in a report on Thursday that the Department for Work and Pension’s attempts to improve understanding of pensions had failed.
“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,” it said. “But there is not yet any evidence that the new state pension has encouraged people to save more for their retirement.”
Since April, 35 years of national insurance contributions are needed for a full state pension, up from 30 in the old system, with a pro rata amount for those with fewer years. In the new system, those with NIC contributions of fewer than 10 years will not receive any state pension.
According to the NAO, 73 per cent of those who reach state pension age by 2030 will be better off under the new system, but 76 per cent would be worse off by 2060.
The report also noted that the DWP had not contacted all groups expected to lose under the new system, with just 18 per cent of working age people knowing how much their state pension is likely to be.
“In an ideal world there would have been an overnight transition from the old state pension system to the new system, and this would have greatly simplified the communication of the reform,” said Steve Webb, a former pensions minister.
“However, within a few years the majority of new pensioners will be getting the flat rate amount, and for younger workers the vast majority can expect to get the flat rate. This is a huge step forward when it comes to helping people know what to expect from the state in retirement”.
The report concluded the department had “successfully managed” the introduction of the new state pension, and that the implementation was “value for money”.
“This NAO report highlights how the new state pension has been successfully introduced from an administration perspective but also that there is more to do to help people understand it,” said Ros Altmann, who was pensions minister until the summer.
Separately on Thursday, a free-market think-tank called for the state pension to be scrapped and replaced with a senior citizen’s pension, payable from age 80, and workplace savings accounts.
The Centre for Policy Studies said the state pension was facing “fiscal calamity” with total spending having risen by 25 per cent since 2010-11.