Retirement age of 67 provides framework for government reform

The Government will pledge today that the Turner report on Britain's pensions crisis will determine its policies for solving the problem.

John Hutton, the Work and Pensions Secretary, will announce in a Commons statement that the three-year inquiry chaired by Lord Turner of Ecchinswell will be the "broad framework" for a government blueprint to be published next spring after a national debate. Lord Turner, the former CBI director general, will propose a trade-off under which the age when people qualify for the basic state pension would be raised from 65 to 67. In return, the £82-a-week pension would rise in line with earnings rather than prices. The state pension age would rise to 66 between 2020 and 2030 and then to 67 between 2030 and 2040.

He also recommends more generous pensions for women and carers, many of whom miss out on a full state pension because they do not build up enough in-work contributions. He says they should receive credits that would count towards the state pension.

To encourage people to save for their retirement, Lord Turner proposes a new "low cost" National Pensions Savings Scheme. Workers would be automatically enrolled when they start a new job but could opt out. Employers would contribute a compulsory 3 per cent, employees 4 per cent and the state 1 per cent.

Lord Turner believes Labour was right to help poor pensioners when it came to power in 1997 and will not recommend the abolition of Gordon Brown's flagship pension credit scheme, which tops up the state pension for those on low incomes. But he will warn that the growth of means-testing will cause long-term problems as more old people qualify and could deter people from saving for their retirement.

Lord Turner is said to be furious about advance leaks of his report, which have been seen as a pre-emptive strike by Mr Brown. The Chancellor fears the eventual £12bn-a-year cost of restoring the link between the state pension and earnings, broken by Margaret Thatcher in 1980, would push up taxes.

Tony Blair and Mr Hutton, who will produce a White Paper next spring, are sympathetic to the broad thrust of the report. But it remains to be seen whether Mr Brown, the front-runner to succeed Mr Blair as Prime Minister, would accept a shift away from targeted help for the poorest old people to a higher state pension for rich and poor alike. Mr Hutton will tell MPs today that the Government is not ruling any of Lord Turner's proposals in or out, but that they will have to pass the key test of being affordable.

Yesterday, Mr Blair praised the "basic construct" of the Turner report, without mentioning the thorny issue of whether the state pension should rise in line with earnings. He told the CBI conference: "We need a system that enshrines a decent basic state pension, funded by the taxpayer, that allows top-ups; a retirement age that begins over time to reflect the changing demographic reality; and a proper balance between the obligations of the employer, the employee and the state."

The Prime Minister defended the deal which protects the right of today's public-sector workers to retire at 60 but will ensure that new recruits stop work at 65. Downing Street admitted it had issued wrong figures about how long it would be before a majority of civil servants retire at 65.

The agreement has been criticised by employers, and Mr Brown wants to reopen it in the long term. But Alan Johnson, the Trade and Industry Secretary, who negotiated it, insisted there would be no going back. "Every deal I have ever reached in my life, both as a trade unionist and as a politician, I honour," he told Radio 4's Today programme.

Two trade bodies, the Association of British Insurers (ABI) and manufacturers' organisation, the EEF, backed the idea of employers being compelled to pay money into their company pension schemes as long as workers contributed.

But the British Chambers of Commerce (BCC) warned that a compulsory scheme could damage businesses. "Many firms, particularly smaller ones, tell us that they simply cannot afford to contribute towards a pension for their employees," said David Frost, the BCC's director general.

n Thousands of British Gas engineers are to hold a series of one-day strikes, beginning on 12 December, in a dispute over pensions, the GMB union announced yesterday. The union promised emergency cover on strike days for the elderly and families with young children.

Keith Jupp, 48: 'I don't know where the years went'

"I work as a printer, earning under £25,000. I have worked for the same company, Newsquest, for the past 35 years. In that time, I have left once and been made redundant once and both times my company pension was frozen. More than 10 years ago, I took the initiative to take out my own savings pension with Abbey National. It's a vast quantity of money - more than £200 - that comes out of my salary every month. But I'm worried that's not enough to maintain my standard of living when I retire, which I hope will be when I am 60. Whether I can is another question.

My wife, Janet, works part time, so she is not paying into a pension at the moment, but she used to work for a bank so has some money frozen for when she retires. Everyone's in the same boat with pensions. The Government must see there will be a serious problem if it is not sorted out. A lot of younger people do not put any of their salary into a pension fund. I don't know where the years between 25 and 48 went, and retirement age is approaching quickly. My children are teenagers now, and have already been told that when they take a job they should start putting money aside."

Geneviève Roberts

Bill Jupp, 74: 'We didn't save to subsidise our pensions'

Mr Jupp retired in 1996 after working in the car industry for 29 years. He draws a basic state pension of £82.05 and his wife, Barbara, collects a 60 per cent equivalent - £49.23. He also receives £47.65 a month from his work pension, but has to "subsidise" his basic living costs using savings the couple hoped would allow them a comfortable retirement.

"The basic pension is a fixed income that can sustain us, but affords no frills, and rises more slowly than the utilities bills and council tax do. We get poorer every year. We were all encouraged to start our own savings when pensions started in 1948, but our generation probably saved too much because the Government now thinks it can pay less. We saved to enhance our pensions, not subsidise them.

"Old people deserve a lot better, but this is not about us. We are the custodians of a catastrophic future to be inherited by our grandchildren. Young people can't see the point in saving because they will never be able to save enough without good state support. The system will be in dire straits unless the Government forces people to save," he said.

Oliver Duff