Government considering whether delivery of state pension could be privatised, newspaper claims

An 80-page Efficiency Review document, which is marked as 'restricted' but has been seen by the Guardian, has been drawn up to consider the options that the Department for Work and Pensions (DWP) has to meet a 34% reduction in its budget by 2016 against 2009/10 figures. Last year's Spending Round allocated £6.3 billion to the DWP in 2016; a figure which will require the department to make another £2bn in cuts in the next two financial years, according to the newspaper.

The document states that the DWP has already pursued "all possible avenues for efficiencies", removing much of the "low hanging fruit" that other departments may still be able to cut as part of their own efficiency drives. Because of this, ministers and civil servants will be forced to "consider some more strategic shifts" around the delivery of services, particularly the state pension, according to the Guardian.

"[The DWP must consider] a review of the pension service's current delivery model and alternative delivery models," the document says. "Opportunities to go further [with savings] are limited ... [as] much of the 'low hanging fruit' has already gone."

"To delivery anything greater, the department needs to look more fundamentally at how it delivers its business, and consider some more strategic shifts," the document says.

Other potential areas of reform highlighted by the Guardian include the DWP's handling of 750,000 phone calls; the distribution of benefits and tax credits; and the operation of the 'Tell Us Once' reporting service, which allows for the reporting of births and deaths to most government bodies in one go. This means that retirement and other social security benefits can be stopped at the same time as a death is reported.

The DWP has confirmed that it is undertaking an efficiency review along with all other government departments, but denied that there were any plans to privatise the state pension or other services.

Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that any change in the delivery of the state pension, including privatisation, "would have to be handled with care". It was unlikely that the risks of doing so would outweigh the benefits, he said.

"The payment of the state pension is a huge operation, and any disruption in the payment of benefits to the elderly would be disastrous," he said. "The potential downside may well put any government off going down this route in practice."

A new 'single tier' state pension is expected to replace the current system from April 2017. The Pensions Bill, which is currently before Parliament, would create a flat-rate pension set above the means test and based on 35 years of National Insurance Contributions (NICs). It would also allow the Government to review the age at which people become eligible to receive the state pension every five years to ensure the system is sustainable. Once the new state pension is in force means testing, pension credits and the second state pension would be abolished.