Millions of public servants have kept their right to retire five years early after the Government struck a deal to avoid the biggest walkout since the General Strike.
After months of talks and threats of industrial action, ministers abandoned attempts to force civil servants, health and education workers to carry on working until they were 65.
Under a compromise deal, which has still to be ratified by some union leaders, all existing employees will be able to retire at 60 without loss of benefit.
New entrants will continue to enjoy a final salary scheme with defined benefits but they will retire only at 65, unless they make extra contributions.
Unions welcomed the offer which will be the subject of a consultation exercise among members but they pointed out the outline agreement did not apply to more than one million local government workers.
Brendan Barber, the general secretary of the TUC, said the same protection should be afforded to local authority staff, but hailed the deal as a major breakthrough. "This is a real change of heart by the Government. The guarantees we have been given were simply not there before. We have managed to persuade the Government they needed to think again," he said.
The agreement provoked a row between employers and ministers. Sir Digby Jones, director general of the CBI, argued taxpayers would have to pay for the "capitulation", but the Work and Pensions Secretary, Alan Johnson, contended the deal would save the £13bn the Government originally intended to save.
Sir Digby said: "This is a bad deal for the taxpayer, the Government has capitulated to the threat of public sector strikes and conceded that 21-year-old civil servants can retire aged 60 in 2044. Lucky them."
Mr Johnson responded that unions had agreed to savings meaning the deal remained "within the cost envelope". New entrants made up a large proportion of staff because of high turnover. "The good news that we are living longer means pensions have to adapt," he said. "It's been happening in the private sector and today's agreement means it will happen in the public sector."
Mark Serwotka, leader of the PCS civil service union, said the agreement was "a fantastic achievement".
Dave Prentis, leader of the public service union Unison, welcomed the deal but added: "We want the principles established here to be applied to the local government scheme."Reuse content