Retirement age to rise to 68

The state pension age is to rise to 68, under new pension proposals announced by the government today.

The government's White Paper on pensions reform said that the state pension age will be increased gradually, rising to 66 between 2024 and 2026, then 67 between 2034 and 2036 and finally 68 between 2044 and 2046.

The link between the state pension and earnings will also be restored and the number of years needed to qualify for a full basic state pension will be reduced to 30. The government said that this will help women, with the change meaning that, by 2010, 70% of women reaching state pension age would be entitled to a full basic state pension, compared to 30% of women now.

Employees will also be automatically enrolled in a new low cost savings scheme from 2012, into which individuals will contribute 4% of their pay, employers will contribute 3% and the government will contribute 1%. However, individuals will be able to opt out of the scheme.

Commenting on the proposals, Work and Pensions Secretary John Hutton said: "Today's White Paper seeks to entrench a new pensions savings culture where future generations can take increasing personal responsibility for building their retirement savings.

"The reforms represent a comprehensive, integrated package of reform. I believe it can lay the foundation for a new and lasting consensus on a long-term resolution of the pensions challenge we face as a country."

However, the Liberal Democrats suggested that the government's proposals provided only a "half-solution" to the pensions problem. Work and pensions spokesperson David Laws said: "There is much in the new pensions architecture which is welcome - the restoration of the earnings link, the acceptance of a rising state pension age and the broad approach of the National Pension Savings Scheme."

However, he added: "The government is building its future pension system on the sand of a totally inadequate basic state pension. The continuation of complexity, mass means-testing and a low basic pension threatens to undermine today's settlement. The government's proposals will fail to deliver the final and settled solution which we have all sought."

Meanwhile, the Conservatives welcomed the basic proposals but expressed concerns about some of them. Shadow Work and Pensions Secretary Philip Hammond said that the restoration of the earnings was in doubt because of Chancellor Gordon Brown's declaration that it was subject to "affordability" and he also said that the reforms affecting women did not go far enough.

He said: "Over a million women will retire between now and 2010, without a full contribution record and therefore will not get a full basic state pension. Add to them the 3.8 million women already retired on a partial state pension and we have nearly 5 million women being bypassed all together by these charges."

Mr Hammond also insisted that the deal enabling public sector workers to retire at 60 should be re-examined. He said: "Public sector workers deserve fair treatment - the same as everyone else. But they, too, must share in shouldering the burden of adjustment. In the interests of fairness, the government must re-open public sector pensions settlement - if it fails to do so, a future Conservative government cannot be bound by a deal that is based on favours, not fairness."

(KMcA)