Written evidence from the Department for Work and Pensions (USP0137)

 

Synopsis

 

The current State Pension system is extremely complex. The new State Pension will bring greater clarity - helping people to understand their State Pension more easily. Those with an existing National Insurance record will have their past contributions taken into account. As of 6 April 2016, everyone will have a Starting Amount for the new State Pension which will take into account what their past record has built up. If their Starting Amount is below the full amount of £155.65, it will be simple to work out how they can add further to the Starting Amount for when they reach their State Pension age.             
 

To support people to plan for the future, we need to make personalised information available on what this means for their State Pension. The focus of our communications campaign has been to raise general awareness of the planned changes and to begin to encourage those most immediately affected to find out what the changes will mean for them.
             

In light of this, we began a communication campaign at an early stage of policy development to tell people that the State Pension will be changing. The campaign to date is focussed particularly on raising awareness for those closest to State Pension age.
 

Key Policy Aims             
 

  1. A key aim for the design of the new State Pension is to provide long term clarity for people on how much they can expect to receive in State Pension. The new system will give someone, from an early point in their working life, a clearer idea of the support they will receive from the State in later life. Importantly this will help people to judge how much additional saving they will need to make to add to what they will receive from the State. The new State Pension works hand in hand with automatic enrolment, which is enabling many more people to save in a workplace pension. Together, the new State Pension and automatic enrolment, along with reviews of the State Pension age, are designed to form the main elements of a sustainable basis of retirement income in the decades to come.


Key Communication Principles
 

  1. For those not yet contributing to the National Insurance system the communications message is relatively straightforward – every year added to their National Insurance record before they reach State Pension age will give 1/35 of the full new State Pension amount, until they reach the full amount. For everyone with a pre-existing National Insurance record, where they start in the new system will depend on their past record. For this reason a focus of our communications campaign is to raise overall awareness and to stress that people need to find out about their individual position.             
     
  2. Understanding of the current State Pension system is low, not helped by the complexity of how people’s pension amounts can be made up. Ipsos MORI research from July 2014 showed that only 18 per cent of people understood that their State Pension eligibility is linked to their National Insurance record.

 

  1. The current system is hugely complex. In addition to the basic State Pension, there have been a number of earnings related additional State Pension schemes (State Second Pension, State Earnings Related Pension Scheme and Graduated Retirement Benefit). Since 1978 people have been able to contract-out of the earnings related element of the State Pension. For defined contribution pensions, this ceased in 2012 and will cease for everyone else from April next year as the basic and earnings related elements are replaced with the new State Pension. Around 80 per cent of people reaching State Pension age in the next 20 years have been contracted-out at some point (see paragraph 19 for an explanation of the impact of contracting-out). To add to this, there have also been numerous other pension components such as age addition and the ability to derive entitlement based on a spouse’s contributions.

 

Moving Away from Complexity             
 

  1. As a result of the earnings related element of State Pension together with the impact of periods of contracted-out employment, it has been virtually impossible for anyone to calculate what their pension income from the State would be. It was contingent on levels of earnings in each year and how they were re-valued over the years. In addition it depended on what type of National Insurance was paid or credited in each year. Even advisers in The Pension Service required access to DWP computer systems to get accurate figures. The design of the new State Pension means that from April 2016, this complexity will end for future pension build-up. The aim during 2016 is to crystallise people’s past records into a single Starting Amount figure, meaning that an understanding of the past will no longer be needed once the Starting Amount figure is known. The Starting Amount will take into account each person’s past record up to April 2016 and form the foundation on which any future flat rate pension can be built.                
     
  2. For people with an existing National Insurance record, the design of the new State Pension takes account of their contributions to April 2016. This ensures that we are reflecting if, for example, someone has paid less into the National Insurance system because they were contracted-out, or indeed if they have built a higher level than the full amount of the new State Pension. The result of the calculation carried out becomes their Starting Amount. This approach also ensures their Starting Amount is the better of either the existing scheme rules or the new State Pension rules when applied to their National Insurance record.

 

  1. From that point everyone whose Starting Amount is lower than the full new State Pension rate will build up State Pension at a flat annual rate, until they reach the full amount or their State Pension age.  This means those with an existing record will need to know their position as at April 2016 before they can go on easily to track what they build up from then on. 

 

  1. The simplicity of the new State Pension calculation – 1/35 of the full amount is added for each qualifying year – means that most people can have clarity on what the new State Pension should mean for them, given their future plans, by knowing three things:
     
    1. What their Starting Amount would be as of April 2016;
    2. When they will reach their State Pension age (a State Pension age calculator is available on GOV.UK);
    3. In how many of the years between April 2016 and their State Pension age they anticipate either: working and paying National Insurance; receiving National Insurance credits; or making voluntary contributions.

             
State Pension Statements             
 

  1. The Starting Amount is the most important piece of information for people reaching State Pension age in the years from 2016 onwards. Our focus has therefore been to make this personalised information available to all those reaching State Pension age in the early years, currently to all aged 55-and-over, via a State Pension Statement showing their current entitlement and from 2016 we plan to make this available to a much wider age group on a digital platform.             
  2. State Pension statements come with a comprehensive leaflet about the new State Pension. This has been user tested to help people understand as effectively as possible the actions they can take, where applicable, to build on their Starting Amount. This includes eligibility for National Insurance credits and the possibility of gaining further qualifying years through working or by making voluntary National Insurance Contributions.

 

  1. Between September 2014 and October 2015, nearly 500,000 individual new State Pension statements have been issued.

 

 

 

Primary Audience Groups

 

  1. There are three very broad groups of people whose differing needs are addressed in our communications:-             
     
    1. Those eligible for the State Pension before 6 April 2016 where we reassure people already in receipt of their pension that their payments will not be affected – (they receive the current pension, based on the National Insurance record they had from the past); and ensure that those reaching State Pension age between now and April 2016 know that their pension will be calculated on the basis of the existing system.
       
    2. Those who will only start to build a National Insurance record from 6 April 2016 onwards – they will receive the full new State Pension if they have a 35 year National Insurance record when they reach State Pension age.
       
    3. Those who have already been building a National Insurance record in the current system and who will reach State Pension age under the new system – there will be calculations of how much they have built under the old system which take their existing record to 2016 into account. Then they may add further years under the new simpler system, depending on their circumstances.

 

  1. Following is an explanation for the Committee outlining how communications are targeting messages to each of these groups separately. It shows how the initial priority group consists of the people closest to reaching State Pension age.

 

Other Priority Groups

 

  1. There are some specific groups of people in group c we need to be aware of when explaining particular elements of the move to the new system. We have developed a number of communications products to help people in these groups to understand how they may be affected, what other considerations they should be aware of, and any action they may be able to take. Some of these products and communication approaches are outlined in the Communications Approach section of the memo.

 

C1. Contracting-Out
 

  1. The first of these groups is where people have been contracted-out of the additional State Pension in the past.             
  2. The Starting Amount calculation ensures that people will receive as a Starting Amount at least what would they would have received under the current scheme, based on their contributions to April 2016. For those with at least 30 years of contributions, this would be the full current basic State Pension amount.              
     
  3. People who were contracted-out of the additional State Pension either paid lower National Insurance contributions or some of their National Insurance was instead paid into their workplace or personal pension. So to take into account that they have paid less into the National Insurance system, the amount of State Pension they will get as their Starting Amount will be lower than that received by people with the same earnings who were not contracted-out. However, in most cases, the pension that people who were contracted-out will get from their workplace or personal pension(s) should include an amount that will be equivalent to the amount of additional State Pension they would have received if they had not been contracted-out. This is a long-term feature of the State Pension system and these people are therefore not disadvantaged by these rules. They paid less into the National Insurance system, and at the same time they contributed to and built up a private pension, and in most cases will receive, as a minimum, a broadly similar amount of private pension to the additional State Pension foregone.
                 
  4. But we recognise that this feature of the system is extremely hard to understand; which is one of the reasons for bringing it to an end in April 2016.             
  5. Most people who have been contracted-out in the past should also be able to add additional qualifying years from 2016 onwards until they reach State Pension age, or the full amount of new State Pension. Also as a result of the ending of the additional State Pension and contracting-out, there are a number of interactions which need to be worked through. We have plans to communicate these impacts on the groups affected.              
     
  6. As we discuss in the Communications Approach section of this memorandum, the campaign directs people to GOV.UK and to request a Statement. Details of how past contracting-out may affect people is covered in both of these places. We have also prepared animations and online explanations and have worked with partners to link to explanatory materials, as well as writing to all MPs with information to relay to their constituents.             
                 

C2. Derived Entitlement and Inheritance

 

  1. Under the new State Pension, individuals will build their own pension, moving away from the outdated system where women could derive entitlement to a retirement pension from their spouse or civil partner. While we have made transitional provision for some groups affected by this change and the minimum qualifying period change described below, it will still result in a different outcome from that expected by some people. The activities we are undertaking to communicate with those people are described at paragraph 45.              
     
  2. Protections have been put in place for certain groups to recognise the change from the current system to the new one. For example, certain women who held the right to pay reduced-rate National Insurance contributions, will be able to get whichever is better of a State Pension worth about the same as the standard rate of basic pension for a married, divorced or widowed woman, plus any Graduated Retirement Benefit, State Earnings Related Pension Scheme and State Second Pension they had built up themselves by 2016, or the State Pension they would get under the new rules based on their own National Insurance contributions. This will apply if they had the right to pay at the reduced rate at the start of the 35 year period ending on the 5 April before they reach State Pension age.             
     
  3. There are also protections for people who are widowed. In general, if their spouse/civil partner reached State Pension age or died before the new system starts, they may be able to inherit some of their additional State Pension (their State Earnings Related Pension Scheme / State Second Pension) and Graduated Retirement Benefit. If their spouse reaches/reached State Pension age, or dies/died under State Pension age, on or after 6 April 2016, they may inherit half of any Protected Payment.  The marriage or civil partnership must have begun before 6 April 2016 for this to apply.             


Interactive tool for derived and inherited rights information             
 

  1. As we discuss in the Communications Approach section of this memorandum, the campaign directs people to GOV.UK and to request a Statement. Details of how their past National Insurance history may affect people are covered in both of these places. In addition, there is an interactive tool on the GOV.UK website which guides people through the changes and provides further factual information.


C3. Minimum Qualifying Period             
 

  1. The new State Pension introduces a Minimum Qualifying Period of ten years (there was previously a de minimus rule until 2010, and the Minimum Qualifying Period reinstates the principle of targeting the State Pension on those who have made a significant social or economic contribution). The new system provides an exemption to this for women who have paid at a reduced rate in the past. The Minimum Qualifying Period can also be met by taking into account contributions made in other EEA countries, those with reciprocal arrangements and Switzerland.
      
  2. People who do not meet the Minimum Qualifying Period in April 2016 may meet this rule if further qualifying years are added to their National Insurance record before they reach State Pension age. They may add sufficient years to enable them to get a full new State Pension. For people not entitled to the full new State Pension, there will still be support available through the Pension Credit Standard Minimum Guarantee which, if they meet the means test, can top up their income to £155.60 a week (2016/17).             
     

State Pension Age Changes             
             

  1. Separately from the introduction of the new State Pension, the next few years see changes to the State Pension age. The Pensions Act 1995 originally legislated for the equalisation of men and women’s State Pension age – in line with the principle in EU Regulations - to take place between 2010 and 2020. In light of increasing life expectancy, the Pensions Act 2011 accelerated this process to allow for a rise to 66 by 2020 for both genders. This means that equalisation of State Pension age to 65 is being accelerated to November 2018 (affecting women born between 6 April 1953 and 5 December 1953).             
     
  2. Both the 1995 and 2011 changes followed public calls for evidence. The Government has notified the women affected by the State Pension age changes. Women with a State Pension age determined by the 1995 timetable (born between 6 April 1950 and 5 April 1953) were sent letters between April 2009 and March 2011. Following the 2011 changes, DWP wrote to all those directly affected to inform them of the change to their State Pension age. A mailing exercise to these individuals, due to reach State Pension age between 2016 and 2026, was completed between January 2012 and November 2013. Anyone requesting a State Pension Statement from July 1995 onwards has been sent it based on the latest State Pension age legislation (first 1995 and then 2011).             
     
  3. The policy decision to increase women’s State Pension age is designed to remove the inequality between men and women. The costs of prolonging gender inequality and delaying the move to age 66 from 2016 to 2026 are estimated to be an additional £30.6bn in DWP benefit expenditure over 10 years  (2011/12 prices), as set out in the Pensions Act 2011 Impact Assessment. Just over half of the people impacted are women. Parliament extensively debated the issue and listened to all arguments both for and against the acceleration of the timetable to remove this inequality. The decision was approved by Parliament in 2011 and we do not believe that, currently, any new evidence which might affect this decision has emerged. The information on GOV.UK also includes State Pension age timetables, and a State Pension age calculator.             
     

 

 

Section two – DWP’s communications approach

 

  1. The Department started its communications on the new State Pension alongside the draft Pensions Bill (which became the Pensions Act 2014), making changes to leaflets, providing lines for staff and adding new content on GOV.UK to explain the reforms and how people are affected.             
     
  2. The Department has prioritised its communications on the introduction of the new State Pension on those closest to State Pension age (55 years plus), who will reach State Pension age the soonest after the new State Pension is introduced. We recognise that the need to communicate will continue for a long period, with the emphasis changing from raising awareness to understanding personal implications over time. The campaign and materials therefore continue to be developed to address the different needs of people, depending on how they will be affected. 

 

  1. To provide personalised information about the effect of the reforms, the Department ensured that State Pension statements and an accompanying leaflet were available on the new rules for people closest to State Pension age. In 2016, the Department will be rolling out a digital service that will enable everyone to get a statement in a more tailored and interactive way.

 

  1. The Department developed a communications campaign trial in November 2014 to test the effectiveness of a range of messages and channels to communicate the changes. Based on insight and evidence, a multi-channel campaign was used to reach our priority audiences and encourage them to take action despite the significant noise of many other simultaneous pensions-related messages. 

 

  1. The six-week campaign, called Know the Facts, was spread across radio and digital advertising, press, social media, stakeholder engagement, and direct mail.  The campaign aimed to raise awareness for all, driving most people to the relevant information on GOV.UK, and reassuring pensioners on the existing system that the changes would not affect them. The campaign’s call to action also directed our priority audience, initially people within five years of State Pension age and extending to those within ten years, to the State Pension Statement Service.

 

  1. The Department developed a range of communication products to help customers understand the impact of the changes on them, including factsheets, infographics, videos, calculators, and links to the online and telephony statement service for our priority audience. PensionTube, the YouTube channel dedicated to pensions, was launched by the Department, as a resource for people to find out more information about the changes.
  2. The Department also worked extensively with stakeholders using them as key intermediaries to share messages and create content. These included Age UK, the Money Advice Service, Which? and TPAS.  A stakeholder multi-media hub has been developed on GOV.UK, with factsheets, animations and case studies across all aspects of the reforms.

 

  1. More than 250,000 people visited the campaign pages on GOV.UK during the trial period, with a 111 per cent increase in personalised statements issued within the first five year group, showing the campaign’s initial positive impact on raising awareness and action among its priority audience.              
     
  2. Evaluation of the trial, conducted by Ipsos MORI, supported the Department’s communications approach. The evaluation indicated that people ten years from State Pension age have a greater latent interest in the reforms, and also the importance of keeping messages simple given low public understanding and the complexity of the existing pension system. The campaign has been developed and rolled out in response to feedback and evaluation.

 

Communications – phase two

 

  1. The Department continuously improves its communications in response to real time analysis and evaluation. Having focused on keeping messages simple to build awareness among our priority audience, the Department also recognised the importance of explaining the complexity of the old system, being as transparent as possible. This would be important to deal with the transition to the new State Pension, in the next stage of the campaign.

 

  1. Phase two of the campaign began in August 2015, and was designed to increase understanding around specific aspects of the changes to the State Pension particularly around the impact of past contracting-out on people’s Starting Amounts. The campaign uses a full range of communications tools, including a new Ministerial blog and animations on PensionTube. A range of supporting materials on GOV.UK has been updated to help people better understand what the changes mean for them, as well as explaining that not everyone will receive the full amount directly from the State when the new system is introduced.

 

  1. As part of the communications activity, the Department is also targeting specific groups such as the self-employed and those with low qualifying years, who may be at risk of failing the minimum qualifying period and those impacted by the changes to the derived entitlement and inheritance rules. The Department has developed a range of communication products, including fact sheets, infographics, and case studies, and is working closely with stakeholders to communicate the changes to these groups. The campaign advertising will also encourage people to engage with material online.

 

  1. Campaign activity up to January 2016 will include; radio adverts and optimised digital search (making GOV.UK the first returned item in a Google search on new State Pension); national and regional print adverts; advertorials in women’s magazines; Facebook adverts and digital display adverts.             
     

State Pension Statements

 

  1. To help people understand the implications of contracting-out, changes were made to the new State Pension Statement in August 2015 to provide further information.  Based on feedback from customers, research and focus groups carried out with Ipsos MORI, further additional information was added to the statements in November 2015 to give more information about contracting-out, showing people an estimate of the value of the State Pension they opted out of – the Contracted-out Pension Equivalent or COPE.

 

  1. Supporting materials explain how the COPE amount (which represents the value of additional State Pension that would have built up in the period that they were contracted-out) should be considered alongside the State Pension to provide a clear understanding of the overall pension provision they have built up under the existing system. These make clear that, in most cases, their contracted-out private pension will include an amount equal to the additional State Pension they would have received had they not contracted-out, and that their total private pension could be more than that amount (and that the total private pension benefits depend on the scheme rules). The materials also explain that there are some circumstances where their private pension may not be equivalent to the COPE – for example, if the scheme is underfunded, or the scheme is a DC scheme and investments have not performed well.

 

  1. The new online service being developed to enable everyone to access personalised information based on the new State Pension scheme rules is called Check My State Pension. The communications campaign will signpost to the new digital service as soon as it becomes available.

 

Stakeholders and partners

 

  1. The Department is continuing to work closely with stakeholders to reach target audiences. We hold regular meetings with our key stakeholders and send a weekly pension bulletin direct to 3,000 subscribers. The Department asks stakeholders to support the campaign through their own channels such as newsletters and websites, to share our social media posts and videos, to partner with the Department on topics that interest them and to co-create content and provide pensions related case studies for use in the campaign. The Department also updates and shares material with the Northern Ireland administration and the Wales and Scotland Offices.

 

  1. The Department has built good working relationships with organisations that offer advice and expertise in pensions, for example, Independent Financial Advisers. More than 35 events with four of the largest Independent Financial Advisers representative bodies in the country have been organised. While these are primarily to raise awareness of State Pension top up, they also cover the context of pension reform, including the new State Pension.

 

  1. We are joining up messages through our pension campaigns and communication products on new State Pension and Automatic Enrolment where appropriate. For example, our publication on GOV.UK ‘8 things you need to know about pensions’ included messages on the new State Pension and work place pensions. Our pensions bulletin to more than 3,000 stakeholders regularly includes messages on all aspects of pension reform, aiming to help people plan for and secure their retirement.  

 

  1. Examples of stakeholder work include:

-          quarterly stakeholder forums on State Pension changes with twenty organisations

-          80 Department for Work and Pensions local stakeholder engagement officers are briefed to engage with organisations at a local level 

-          The Department has helped to edit guides on State Pension changes for Age UK and Which?

-          A pensions personality quiz created with Silver Surfers was promoted to 275,000 Facebook followers, with 2,500 users in one month.

 

  1. The effects of the ending of contracting-out, the resulting increase in National Insurance payments and future simple build-up of State Pension have been a significant part of our communications effort. Employers and pension schemes are significantly impacted by this and they have been targeted within the wider campaign with specific contracting-out press advertorials, blogs and digital communications.  We have also produced an employer’s pack to help them explain the reforms to their employees including how they might be affected by contracting-out. These products explain messages set out in the previous section on design and communication implications, at paragraphs 17-23.

 

Campaign – further phases

 

  1. Phase three of the campaign will focus on three key priorities between January and April 2016. We will continue to build awareness and understanding about the changes, targeting people aged 55-and-over, encouraging them to get a statement so they know where they stand under the new rules and can take appropriate action to prepare for retirement. We will extend our activity to explain the changes to specific groups who need to be aware of elements of the move to the new system, in particular contracting-out, derived entitlement and inheritance, as well as targeting specific groups such as women and carers.  We will also start testing messages with younger audiences as we move towards the introduction of the digital service during 2016.

 

  1. Phase four of the campaign will run from April to October 2016 and will continue to promote the call to action for people to get personalised information as the digital service comes on stream.

 

Monitoring and evaluation

 

  1. The Department is monitoring its communications on the new State Pension using continuous real time data analysis. periodic tracking surveys (developed with Ipsos MORI) and setting clear key performance indicators. This has enabled the Department to demonstrate the measurable effects of the campaign, for example, on audience awareness and behaviour change.

 

  1. Communications are on-going through a variety of channels with targeted bursts of advertising from November 2014 to February 2015 and again from the end of August 2015. Awareness of changes to the State Pension increased in the target group of five years from State Pension age from 59 per cent to 67 per cent; and in the ten years from State Pension age target group, awareness increased from 56 per cent to 62 per cent. 

 

  1. Between September 2014 and October 2015, nearly 500,000 new State Pension statements have been issued. In the core ten year group 53 per cent of individuals are taking some kind of appropriate action such as getting a statement or going online to find out more information             
     
  2. The stakeholder toolkit has had more than 113,000 unique visits since it was published in December 2014. More than 620,000 people have visited the campaign website.
     

Conclusion

 

  1. The introduction of the new State Pension is a long-term reform, and the Department will continue our communications well beyond April 2016. Although we recognise the entire working population will need to know about the changes, we believe it is right currently to target our activity at those who need to know now (those aged 55 plus). Independent evaluation shows the campaign has increased awareness levels of those within the ten year from State Pension age group to 62 per cent and significant campaign activity is planned between now and April 2016 to raise levels further. Once individuals’ finalised Starting Amounts are known, it will be simple for people to calculate what their new State Pension income will be, based on the number of post-2016 years they may be able to add to their Starting Amount. 
                 
  2. We are also ensuring we are transparent about the complexity involved in understanding how the old system impacts on the Starting Amount for the new State Pension, including adding new information to the State Pension statements to explain the implications of contracting-out, and targeting specific groups who need to know about the detail of the changes.


Section three – Preparations and Operational Readiness

 

  1. We are confident that all implementation activities are on track to support the first claims to new State Pension. This includes changes to 14 IT systems to allow processing of expected claims from 459,000 customers in the first year.

 

  1. In readiness, the IT changes have already been delivered successfully into Departmental IT systems, following rigorous testing. No major issues have been identified that could put successful processing of claims at risk.

 

Customer communications

 

  1. We will send invitations to claim new State Pension to customers from December 2015 and will begin to issue payments to customers who reach State Pension age under the new State Pension from 6 April 2016.             
     
  2. Customer communications products have been updated with new State Pension information; this includes the Department’s leaflets and State Pension references on GOV.UK. Customer letters generated by the IT systems have been updated and changes to the clerically produced letters will be in place for December 2015.
     

Staff training and development

 

  1. For DWP, the delivery of the Learning and Development to over 800 staff is on track. Learning and Development materials for staff have been developed and sessions were rolled out in November 2015. Additionally, Her Majesty’s Revenue and Customs has communicated Business Guidance notes, electronic information and other awareness to their staff working in the new State Pension and Scheme Reconciliation Service areas.
     

 

 

 

Staff guidance/awareness

 

  1. Pensions guidance and instructions have been updated to include new State Pension information and will be published on the Departmental intranet for use by staff prior to the first claims being received.  This guidance has also been tested through a model office.

 

  1. Department for Work and Pensions staff can access information on new State Pension through a dedicated resource centre on the intranet. This aims to incorporate all the available information on new State Pension in one place. It includes factsheets on new State Pension, lines to take for operational staff to support any queries received from customers and links to further relevant information.

 

  1. We have introduced a network of Pension Champions in Pensions Centres, to help to increase staff awareness and engagement with the new State Pension.

 

December 2016