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Last Updated: Thursday, 25 May 2006, 11:39 GMT 12:39 UK
State pension age to rise to 68
"My dad worked till he was 71 and it's done him the world of good"

The state pension age is to rise to 68 from 2044, as part of government proposals to strengthen pension provision in the UK.

The link between the state pension and earnings will also be restored within the next Parliament, Pensions Secretary John Hutton said.

A new savings scheme will be set up with automatic enrolment for staff and compulsory employers' contributions.

Mr Hutton said the changes would secure the future of the state pension system.

'Lasting solution'

"I believe it can lay the foundations for a lasting solution to the pensions challenge we face as a country," Mr Hutton told MPs, unveiling the contents of the white paper.

The key aspects of the proposals, the biggest shake-up of pensions for years, are:

PENSIONS WHITE PAPER


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  • The state pension age for men and women will increase to 66 in 2024, to 67 in 2034 and 68 in 2044. Each rise will be phased in over two years

  • During the next parliament, the state pension will be made more generous, and future increases will be tied to earnings rather than prices

  • The number of years it takes for people to qualify for a full basic state pension will be cut to just 30

  • From 2012, people will be automatically enrolled into a new, low-cost national savings scheme, albeit with the chance to opt out if it is not suitable for them.

The proposed changes will have little impact on anyone currently over the age of 47.

Turner welcome

The white paper is the government's response to the report of the Pensions Commission.

In a series of three reports the Commission, headed by Lord Turner, looked at the UK pensions system and made recommendations for reform.

The Commission concluded that unless the state pension was overhauled and private savings boosted, millions of Britons were headed for a meagre old age.

Lord Turner welcomed the government's proposals, saying it planned to implement 95% of his recommendations.

Mr Hutton told MPs that the restoration of the earnings link would take effect at some point during the next Parliament, preferably in 2012.

HAVE YOUR SAY
Pensions are a complete lottery
Alan Tayler, Wivelsfield

However, he said this would be subject to affordability and the government's fiscal position at the time.

The announcement got a positive reaction from employers and unions with Derek Simpson, Amicus general secretary, calling it a "victory for working people".

The Conservatives welcomed the basic aspects of the proposals but claimed the restoration of the link to earnings in 2012 was in doubt because a dispute between the Prime Minister and the Chancellor.

But former pensions minister Frank Field described the proposals as a "lost opportunity".

Savings scheme

Employees will be asked to pay 4% of their salary into the new National Pension Savings scheme.

Employers must, in turn, contribute 3% while the government will contribute 1% in the form of tax relief.

Company contributions will be phased in over three years and some support will be offered to small businesses.

The CBI said the proposals would cost businesses 2.3bn, while the Forum of Private Business said compulsory employer contributions represented a "stealth tax" on employers.

However, firms which already offer a pension scheme on an auto-enrolment basis that is at least as generous as the NPSS will not be forced to participate.

AT A GLANCE: WHITE PAPER & TURNER REPORT
Issue White paper Turner report
Pension age Rising to 68 from 2044 Rising to 67-69 by 2050
State pension Linked to earnings, probably by 2012 Linked to earnings by 2010
Nat'l pension savings scheme Automatic enrolment from 2012, but workers can opt out Automatic enrolment if no work scheme
Compulsory
savings
3% employers, 4% workers, 1% govt 3% employers, 4% workers, 1% govt
Help for women NI contributions reduced to 30 yrs Based on residence not NI contributions




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