British pension age to rise to 68, as earnings link is restored

2006

The state pension age in Britain will rise to 68 from 2044, the government has said as it has unveiled radical plans designed to solve the country's pensions' crisis.

The White Paper on pensions, published today, has laid out a raft of proposals that, said the Department for Work and Pensions, "will provide the infrastructure for the [pensions'] system for the next forty years".

Key elements include raising the state pension age by a year to 66 over two years between 2024 and 2026.

From there it will rise to 67 between 2034 and 2036 and to 68 between 2044 to 2046, meaning that no one aged more than 47 will be affected.

The link between the state pension and earnings will, as widely predicted, be re-established, despite the affordability of this having led to serious conflict within government circles.

The government has also unveiled, as heavily trailed earlier in the week, the introduction of a new low-cost, national savings scheme, which will be in place by 2012.

The Personal Savings Accounts are similar to the National Pension Savings Scheme proposed by the government-appointed Pensions Commission, chaired by former Confederation of British Industry boss Adair Turner, which was tasked with looking at solutions to Britain's growing pensions' crisis and the challenges posed by an ageing workforce.

Under the plans, all companies will have to offer auto-enrolment in the scheme to their workers unless they have a more generous occupational pension scheme which already enrols workers automatically.

Companies will have to make a compulsory contribution of 3 per cent of salary to the scheme, with employees paying 4 per cent and the government 1 per cent. The money will be invested on behalf of employees in a variety of savings vehicles, such as investments in stocks, bonds, and property.

The employer contribution will be phased in over three years, said the DWP, and the government will consider a longer phasing-in period for smaller businesses.

Self-employed and unemployed individuals will be able to join the scheme on their own account.

The number of years of national insurance contributions needed to qualify for a full state pension will be reduced to 30 years for both men and women from the current 39 for women and 44 for men.

By 2010 this would mean that 70 per cent of women would be eligible for a full-basic state pension, as opposed to 30 per cent now, said the DWP.

The current system of "contracting out" from the State Second Pension will be abolished for defined contribution schemes, but not for traditional final salary occupational pensions, it added.

The State Second Pension will evolve into a flat-rate top-up pension by 2030, it continued.

By 2050 the intention was that anyone who had been in employment or caring throughout their working life would get around £135 a week or more on retirement from their state pension, added the DWP.

Speaking in Parliament, John Hutton, Secretary of State for Work and Pensions 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," he added.