Personal Pension  

NAO questions effectiveness of pension reforms

The National Audit Office has argued the Department for Work and Pensions and HM Treasury must be accountable for reducing the financial burden on the state of people living longer and under-saving and questioned the impact of financial capability work.

In a report published today (12 July), the National Audit Office noted the government does not view the interventions that influence retirement incomes as a portfolio with clear responsibility for delivering the intended outcomes.

While the DWP and HM Treasury have strategic lead on the main interventions that influence retirement incomes, the NAO noted a variety of departments and public bodies, and local authorities, have some involvement.

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There is no overarching programme or single accountability and many of the interventions have complex interactions with each other and with other policies and objectives, the NAO observed.

Some of these interactions extended widely, including home ownership, long-term care funding, quantitative easing, and consumer credit and debt.

Without a whole system view, the NAO warned there was a risk that individual, but co-dependent interventions may not be effective in increasing saving for retirement.

The NAO noted a number of areas with potential risks:

* Individual interventions are managed separately without adequate consideration of their impact on the overall objective of increasing retirement incomes,

* The Treasury leads on overall savings strategy and tax treatment of pension contributions and DWP on workplace saving, but there is no overall accountability for saving for retirement; and,

* DWP research suggests that the overwhelming majority of people who save under automatic enrolment can expect to end up better off in retirement than if they did not save, although incentives to save in pensions are diluted for those on low incomes and renters by the interaction with means-tested benefits on retirement.

The single-tier pension will improve incentives for those on low incomes who are not renters. In particular, the NAO flagged up that three regulators have oversight of pension providers but they have no common framework for assessing risk and measuring performance.

The wide range of organisations tasked with tackling the pension crisis also means an efficient allocation of resources is difficult, the NAO noted, because government does not know the relative costs and benefits of different interventions.

For example, the NAO considered that the Money Advice Service leads on government activities to improve the UK’s financial capability, working to improve the effectiveness and provision of financial education, to enable people to understand and manage their finances better.

However, while spending on financial capability has more than doubled since 2006, the NAO noted so far there is limited direct evidence of impact on outcomes.

The report revealed government spending on state pensions, other financial support, and health and social care for older people has increased substantially over recent decades to £250bn - 16 per cent of gross domestic product (GDP).

The report claimed tax incentives have failed to boost retirement saving.