Government to raise the retirement age ahead of schedule

The Government is to speed up the introduction of plans to make people work longer before they qualify for the basic state pension.

A Pensions Commission chaired by Lord Turner of Ecchinswell proposed last November that the state pension age for men and women should rise from 65 to 66 by 2030, to 67 by 2040 and to 68 by 2050. In return, it said the state pension should be more generous, rising annually in line with earnings rather than prices from 2010.

A White Paper released today, outlining the Government's response, will implement the main planks of the Turner report but on a different timescale to allay Gordon Brown's fears that the blueprint was unaffordable.

The state retirement age will rise in line with life expectancy, from 65 to 66 in 2024, then a further year each decade until it reaches 68 by 2044 - six years earlier than Lord Turner envisaged. Ministers will keep the rises under review to ensure that poor people, who have a lower life expectancy, are not disadvantaged.

The link between state pensions and earnings, severed by Margaret Thatcher 25 years ago, will be restored after 2012, two years later than Lord Turner proposed. This will be "subject to affordability and the fiscal position", but it will happen by the end of that parliament, which could run until 2015.

John Hutton, the Work and Pensions Secretary, will tell businessmen, unions and other interested parties at a Downing Street breakfast seminar today that the Government has confronted "difficult choices" to produce the White Paper. "I hope it will lay the foundations for a new and lasting consensus," he will say.

Ministers admit that businesses and unions will be disappointed by some elements of their policy, but will argue that the package should be seen as a whole and urge them to support it.

In a Commons statement, Mr Hutton will announce more government help for up to 30,000 workers who lost their pensions when their companies collapsed. The value of a £400m fund will be increased to £2.5bn.

The aid will be geared towards workers who were within seven years of retirement when their firm went bust, who will receive 80 per cent of what they might have reasonably expected from their company pension. Those within 15 years of retirement will get 50 per cent of their expected pensions.

The Tories will welcome the broad thrust of the White Paper, but will stop short of endorsing it fully. They will criticise the Government for forcing people to work longer for the state pension while continuing to allow existing public sector workers to retire at 60.

The Opposition claims Mr Brown, the Chancellor, has won his battle with Tony Blair over restoring the earnings because he has insisted on a "get-out clause" that would allow him to delay the boost on affordability grounds.

Philip Hammond, the Conservative spokesman on pensions, said: "If this is Tony Blair's legacy, then it is Blair's legacy in Brown's hands." He warned that almost five million women would miss out on the Government's plans to improve state pensions because they were likely to benefit only those who retired after 2010.

"It does not seem fair that a woman retiring on 1 April 2010 will get a full state pension based on 30 years' contributions, but that a woman retiring on 31 March with the same contributions will be condemned to a lifetime on a partial pension," Mr Hammond said.

Pension reforms

* The Government will hail today's White Paper as the biggest shake-up of the pensions system since the post-war reforms implemented by the Attlee government.

The main planks of the reforms will include:

* The basic state pension to rise in line with earnings rather than prices, as at present, after 2012

* The age at which people qualify for full state pensions to rise from 65 to 66 in 2024, then a year per decade until it reaches 68 by 2044

* Help for women, who often miss out on a full state pension, by cutting to 30 the number of qualifying years they need in work

* Weekly credits for women and carers that will count towards their state pension entitlements, as national insurance contributions would if they were in work

* A low-cost savings scheme into which all workers not in a company scheme will be automatically enrolled, but from which they could opt out if they chose

* Workers would contribute 4 per cent of their salary; employers would contribute 3 per cent at a cost of £2.6bn to business; and the state 1 per cent as tax relief

* A £400m fund to compensate workers whose firms went bankrupt will be increased to £2.5bn to help up to 30,000 people