By Richard Johnstone | 12 July 2013
Government measures intended to help people save for their retirement are being managed ineffectively and could lead to higher costs for taxpayers in the future, the National Audit Office has found.
Image | seewhatmitchsee, shutterstock
Auditors examined work by both the Treasury and the Department for Work and Pensions to encourage people to work longer and enroll in workplace pensions so they are less dependent on the state when they retire.
Around £250bn was spent on such schemes in 2011/12, which includes £39bn of tax and National Insurance Contribution relief to encourage pension contributions.
The NAO found there would be ‘significant consequences’ for the taxpayer from increasing longevity, with spending on pensions and other benefits for retirees likely to rise from 6.9% of Gross Domestic Product in 2011/12 to 9.5% in 2061/62.
Ministers want to reduce this potential long-term liability by increasing the future state pension age, introducing automatic enrolment into workplace pensions and creating a single-tier state pension.
However, these initiatives face challenges as there is no overarching programme or single accountability for encouraging people to save for retirement, the Government Interventions to support retirement incomes report stated. The Treasury is responsible for an overall savings strategy, while the DWP is responsible for workplace saving.
This split means that attempts to encourage people to prepare for old age may not be effective, auditors warned.
Success in encouraging saving for retirement through automatic enrolment into a pension, which began in October 2012, also depends on the responses of individuals, pension providers and employers.
For example, individuals can leave the scheme, and if significant numbers were to do so, it could mean projections for future spending on state pensions and pensioner benefits are too low.
The long-term costs are highly uncertain, auditor general Amyas Morse said, and there was a need for government to take a holistic view of how to encourage people to make savings for retirement.
‘The government is implementing a range of individual measures to help reduce the future cost for the state of people living longer and not saving enough for their retirement. But these measures are being managed by a variety of departments and public bodies and there is not enough coherence and accountability.
‘What is needed is for the government to take a more holistic view of its portfolio of interventions, how they interact and their relative costs and benefits. It should be more active and effective in influencing citizens to save more and plan more effectively for retirement, and in seeking to change the negative attitudes of some employers towards older workers.’
Responding to the report, a government spokesman said that it is ‘wrong to suggest that DWP and Treasury are not working effectively together’.
He added: ‘We are collaborating successfully to improve fairness, control costs for the long term and boost retirement saving. Our reform of the state pension system, changes to state pension age and automatic enrolment into workplace pensions are examples of our ongoing strategic approach to pensions.’
