Retirement age up to 68 by 2044

24-08-2006

The state pension age is to be increased to 68 from 2044 onwards, as part of a massive upheaval of the UK's pensions system announced today by the government.

Today's pensions white paper also revealed that employers and employees will be required to contribute to a national savings scheme and that the link between basic state pensions and earnings will be re-established sometime during the next parliament.

Presenting the white paper to the House of Commons today, John Hutton, minister for pensions, said that today's reforms would "secure long-term stability and sustainability" for pensions in the UK.

Rises in the state pension age will be phased in at regular intervals, rising to 66 in 2024, 67 in 2034 and then 68 by 2044, while the minimum time required to qualify for a basic state pension has been reduced to 30 years, a reform introduced primarily to give women a better deal in retirement.

The national savings scheme will be introduced in 2012, in which all employees will be automatically entered unless they wish to opt out, and will require workers to pay four per cent of their salaries into the new scheme and their employers to contribute three per cent. The government will also add one per cent of employees' salaries via tax relief.

However, while Mr Hutton pledged to restore the link between state pensions and earnings, no specific time commitment was made. Although 2012 is the preferred date to re-establish the connection, the white paper included the back-up clause that it depended on "affordability" and the government's position.

The white paper was unveiled today as a result of the warning issued by the Pensions Commission, which delivered three reports to the government claiming that unless significant changes were made to the pensions system, millions of Britons faced poverty in their retirement years.

Lord Turner, the head of the commission, today welcomed the government's reforms, which included many of his recommendations.

"The white paper commits British pension policy to the three key policies which were at the centre of our recommendations. First, state pension provision which increases over time in line with the nation's prosperity, limiting the extent of means-testing, and made affordable by a steady rise in the state pension age as people live longer," he said.

"Second, a better deal for women. Third, automatic enrolment into a new system of low cost personal pension savings accounts with provision for an employer contribution. We hope that this overall architecture can command support from all parties, whatever the debates about details," Lord Turner added.

Amicus, the UK's largest manufacturing trade union, was also encouraged by the changes to the pensions system. Appearing on BBC Radio 4's The World at One, Derek Simpson, general secretary of the union, said: "I certainly welcome the issues, they are the issues that Amicus has been campaigning for, for some time."

Mr Simpson added that although there are concerns among industries that the reforms are not far-reaching enough to solve the pensions crisis, today's white paper revealed that "the principles involved are an indication that finally the Labour government is unpicking some of the problems of pensions and particularly the link to earnings which, albeit delayed, strikes back at the removal of that link by the Conservatives in the 80s".

Speaking earlier in the day, the prime minister, Tony Blair, hailed the unveiling of the pensions white paper as a "landmark day" and the biggest single "reform of the welfare system for a generation".



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