Civil servants were left facing "hardship, distress and inconvenience" when the administration of pensions was taken on by the MyCSP mutual, an extensive report by the public spending watchdog has found.
MyCSP was launched as a "joint mutual" in 2012 with ministers promising that the new system would transform "a neglected back-office operation into a new competitive and responsible business".
The mutual took over the administration of pension payroll services from Capita in September 2014. The government currently holds a 24% stake in the organisation, with employees holding 25% through a trust, and private firm Equiniti holding the remaining 51%.
Special report: What’s going on at MyCSP?
MyCSP pension payments delayed after mutual faces IT problems
The latest report by the National Audit Office takes a detailed look at the problems facing the administrator, with the watchdog identifying "dozens of individual stories of hardship, distress and inconvenience" caused by late payments, difficulty contacting the organisation, and a "failure to provide accurate and timely information on pension entitlement".
In one case highlighted by the NAO, a widow awaiting a death-in-service lump sum payment – usually paid within one week of receipt of a death certificate – was made to wait 39 days for her payment, with the delay leaving her with with "no income" to pay bills or funeral costs.
A Cabinet Office spokesperson said "definitive action" had since been taken to improve the situation, while the report makes clear that performance at MyCSP has improved since 2015, with service back at "pre-migration levels" since last September.
However, the NAO's report points out that almost 15,000 pensioners living overseas were paid their pensions "up to seven days late" when MyCSP took on the running of the payroll services in September 2014, with 99 not paid at all during that month. The spending watchdog says this delay occurred because MyCSP "did not fully understand" the payment system used by previous supplier Capita, and says MyCSP "could not cope with the increase in calls and emails" that followed the handover.
The administrator failed to answer almost 100,000 calls lodged by concerned members between September 2014 and March 2015, the NAO notes, while saying that MyCSP also "did not have sufficient staff" to process the work it inherited from Capita, with a backlog of urgent cases peaking at 22,000 in January of last year.
The mutual has since increased staffing at its call centre from 59 to 100, and introduced weekend opening hours to cope with high volumes. Total staffing across the organisation has also risen, from a planned 600 in August 2014, to 768 full-time equivalents by September last year.
But the in-depth report finds that the Compendia IT system used by MyCSP to administer payments – and described as "award-winning" by MyCSP's private sector backer Equiniti – was "not fully ready at the time of the migration", with those delays resulting in Capita's contract having to be extended by a year.
According to the NAO, Capita and MyCSP are also at odds over the volume and "complexity" of the work left to the new administrator, with MyCSP arguing that a lack of information from the previous supplier had contributed to the delays experienced by retired civil servants, and Capita disputing those claims.
The report says: "MyCSP expected 10,000 to 12,000 items of work in progress casework to be transferred from Capita, such as payment of new awards or notifications of a change in circumstance. MyCSP told the Cabinet Office that there were 54,000 items of work in progress at the point of transfer.
"These included around 40,000 member records with data issues flagged by its new Compendia system at the point of data migration. These records required a manual intervention to resolve. Capita disagreed that these 40,000 additional cases should be considered as part of the work in progress."
Capita's performance on the contract also "declined in the six months running up to the migration", the NAO says, with the firm missing a series of targets in the run-up to the end of the deal. Approached for a reaction on Wednesday evening, Capita told CSW that it believed the watchdog's report provided "much needed clarity about the transfer of service" between the two organisations.
A spokesperson for the company added: "Capita actively engaged with, and supported, MyCSP throughout the migration project. The migration date was delayed at MyCSP’s request.
“Since service commencement in October 2002, Capita had not incurred any financial penalties until August 2014. MyCSP postponed the migration of the service from July to September 2014 which resulted in additional workload to assist in the migration activity and also presented a resource challenge as many employees had already made plans to leave Capita when they expected the service to migrate in July 2014.”
Intervention and turnaround
After becoming aware of the scale of the problem in January 2015, the Cabinet Office stepped in, asking MyCSP to draw up a plan to deal with the backlog and calling on the administrator to prioritise its most urgent cases.
That intervention, alongside MyCSP's decision to hire more staff, appears to have had a significant effect, with the NAO saying that by September of last year the organisation had "met all key service levels" and was answering 96% of calls, with an average wait time of just 19 seconds.
But the watchdog's report points out that MyCSP – which is paid £33m a year to run the scheme – has only suffered a "very limited financial impact" for its performance, incurring "approximately £36,000" in performance-related payment reductions since the hand-over, even though the Cabinet Office could have chosen to exercise some £90,000-worth of these reductions – known as "contract service credits" – in the year leading up to the migration.
A spokesperson for the Cabinet Office said the department was "aware of the performance issues with the civil service pension programme from around a year ago", adding:
"These originated from the payroll transfer from Capita to MyCSP in September 2014 and led to a significant dip in service and delays in processing pensions.
“Once the Cabinet Office were fully aware of the extent of the problem we took definitive action and instructed MyCSP to take action and track its progress. This successfully cleared the backlog and brought performance back towards acceptable levels."
Meanwhile, a spokesperson for MyCSP told CSW that the organisation had agreed "a number of actions to manage and improve service levels" since concerns had been raised.
They added: "MyCSP is pleased to confirm that, as detailed by the National Audit Office report, performance is now back to a steady state. Call handling levels have been back to normal for the past six months, with a corresponding reduction in member complaints, significantly down from their peak at the time of the service challenges.
"Service to members remains our utmost priority and we will continue to work with the scheme manager (Cabinet Office) and employers to deliver towards that aim."
"This report should make sobering reading"
Among its recommendations, the NAO says there should be "cross-government action" to solve the "longstanding" problem of errors in government pensions data. The Cabinet Office said it was aware of those "underlying" issues, and was "developing a data improvement strategy as a matter of priority", while the NAO says the department is also drawing up a plan for a revised set of service levels for the MyCSP contract.
Pointing out that there is still no single organisation with a "a view or control of the overall system" of administering civil service pensions, the spending watchdog urges the Cabinet Office and the Civil Service Pensions Board to ensure that departments "are properly involved" in the governance and performance of MyCSP.
And it says government should "consider and disseminate" lessons from the transition when working on other mutuals, as well as on wider moves to share back-office services across Whitehall.
The NAO's findings have been welcomed by civil service unions. Mark Serwotka, general secretary of the PCS union – which has long argued against the mutualisation programme – said MyCSP was a "textbook case in how not to reform public services".
He added: "It is disappointing that the involvement of Equiniti has not been fully scrutinised, but this report should make sobering reading for minsters who pursue privatisation for political reasons."
Meanwhile, Dave Penman of the FDA union – representing senior officials – said his members had endured a "chronic level of service that would be utterly unacceptable in the private sector".
"We welcome the NAO’s investigation and support its recommendations – in particular the prioritisation of a thorough data cleansing exercise that is crucial to members getting the pension they have saved for, and for taxpayers to be confident in the proper cost management of the scheme," the union's general secretary added.
"While MyCSP has improved, the FDA remains very concerned about its capacity to handle the vast number of exits being processed at the moment and the forthcoming Guaranteed Minimum Pension (GMP) reconciliation requirement.
"Should the chancellor decide to make changes to pension tax relief in the forthcoming Budget, we simply do not believe the scheme administration could cope.”