Will the state pension be privatised?

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The Department for Work and Pensions is desperately looking for ways to cut costs - and is said to be considering privatising the process of delivering the state pension. The change is a radical one - but the department may need to take radical steps as it faces losing £2 billion from its budget in the next two years.

So what would it mean for pensioners?

Cuts

The proposal was reported by the Guardian, which has seen the document outlining the cost-cutting options. The review said that all the simple cost-cutting measures had already been implemented, so they needed to consider more 'strategic' changes - such as outsourcing the administration of benefits.

It's worth highlighting that this is just a proposal within a review - so is a long way from becoming reality. However, there will be those within government who like the idea.

The department runs 10 pension centres, employing 7,000 people, issuing 4.5 million pension statements every year, answering 750,000 phone calls, and administering £100 billion.

Given that public sector pay and benefits are far more generous than those available to most of the private sector, the government could save a small fortune from cutting those jobs and outsourcing to a company that is less generous, and therefore able to deliver the service at a far lower cost.

The cost

Cutting 7,000 public sector jobs, or transferring them to the private sector, is far from a simple and pleasant process. It would mean that thousands of people would face horrible uncertainty over the future of their jobs and their terms and conditions: the price paid for 'efficiency' will be personal suffering.

Plus, there's the very real risk that the outsourcing doesn't go entirely to plan. The PFI schemes for hospitals have become a standard-bearer for botched outsourcing. Many were established under rules which cost the NHS Trusts involved incredible sums of money, and in the case of South London Healthcare NHS Trust, the debt and interest owed through the schemes was a major contributing factor into the trust going bust.

An outsourcing shambles that very nearly became a national humiliation was leaving the security of the Olympics to G4S. When the army was called in to meet the enormous staffing shortfall, it became a very visible symbol of outsourcing failure.

And it's hardly as if the government has learned all the lessons of outsourcing and is now always able to deliver a seamless transition. At the moment the outsourcing of lower risk cases within the probation service is being challenged by the unions. They are reporting the justice secretary, Chris Grayling, to the International Labour Organisation over the fact that community service will be overseen by a private company - and that private companies are not allowed to oversee forced labour.

Impact on pensioners

In the worst case, there's the risk that any failure could impact pensioners. Ros Altmann, a pensions expert, told the Guardian that she was concerned that one option for a private company trying to cut costs could be to reduce the service. This, she warned, was particularly concerning given that many pensioners are in a financially vulnerable position.

AGE UK recently found that 1.25 million elderly people are financially on the edge of disaster at all times and are just £200 away from slipping into the red. If any slip-ups resulted in a delay in paying their state pension, there will certainly be those who can suddenly not afford to eat or heat their homes.

According to the Daily Mail, the chair of the Commons work and pensions committee, Dame Anne Begg, said "The pension service is one of the success stories of the DWP. There is a very high satisfaction rate and very few complaints about it. [So] if it's a success story and it ain't broke I'm not sure why they would want to upset that. If you end up with a poorer service as a result then it's not good value for the taxpayer".

The scale of the cuts is astonishing - seeing the department's budget cut by a third. Arguably, to make these cuts and keep all services in-house might lead to a fall in service in any case, and in that case maybe outsourcing is the 'least worst' option. But is this a disaster waiting to happen?

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