It comes after widespread anger over the hardline approach of Atos towards welfare claimants in recent years.
Social security minister Shirley Anne Somerville has also said Scots will have “greater choice and flexibility over their assessments”, as she addressed MSPs yesterday.
Holyrood is to take control of 11 benefits as part of the post-referendum deal on new powers for Holyrood. This accounts for about 15 per cent of current social security spending north of the Border – roughly £3.3 billion in total.
The first payments from the agency, Carer’s Allowance, got under way this month with a gradual roll-out of the other benefits on which 1.4 million Scots rely.
The Department for Work and Pensions (DWP) has contracted Atos and, more recently, US firm Maximus to carry out work capability assessments in Scotland. But both firms have been heavily criticised by disability rights campaigners over their approach which has seen thousands lose their benefits as the system has been overhauled.
Ms Somerville told MSPs: “In line with the important principle that social security is a public service, I have decided that our new public agency, Social Security Scotland, will deliver assessments to determine eligibility for disability assistance.
“It is clear to me that the new agency is best placed to provide a flexible, person-centred assessment service, fully supported by public sector healthcare professionals. This decision has been taken following an extensive period of research, analysis and consultation with key stakeholders.
“It is clear that the UK government are content with an approach that sees private sector assessment providers prioritise profits over people. We will not farm out assessments to private companies.
“Under the Scottish Government system, people will be given greater choice and control over their assessment through four actions I have committed to today. People will be invited at a time that suits them and to a location that suits them. For those with difficulty travelling, the assessor will come to them.”
A new national social security agency is to be established in Glasgow and Dundee and will be staffed by 1,500 workers.
Dr Jim McCormick, chairman of the disability and carers benefits expert advisory group said: “We welcomed the opportunity to advise ministers on the delivery body for assessments earlier this year, and strongly agreed that agency delivery was the correct option, due to compelling practical, cost and presentational advantages.”