Unveiling the government's pension review, Social Security Secretary Alistair Darling said: "If we do nothing many pensioners would face poverty in retirement - a prospect we are not prepared to tolerate."

He said a new Minimum Income Guarantee would be created to prevent this.

"For the first time ever, a lifetime's work won't lead to dependency on means-tested benefits in retirement."

Under the proposals set out for consultation, Mr Darling said the new incomes guarantee would equal about 20% of average earnings and apply to everyone.

'Where's the money coming from?'

Attacking the proposals, the Tory opposition asked the government where the money was coming from to provide better pensions.

BBC Correspondent Kim Catcheside: "Changes are aimed particularly at young workers"

Tory Social Security Shadow Iain Duncan Smith said: "Is it going to be based on increases on contributions...? Or is it going to be linked to an increase in tax?"

Mr Duncan Smith also wanted to know how the increase in spending on pensions could possibly square with the government's declared aim of reducing the welfare bill as a whole.

BBC Social Affairs Correspondent Niall Dickson discusses the government's proposals with Martin Lewis on the 6 o'clock news

Speaking for the Liberal Democrats, Steve Webb said the review was a "small step in the right direction". But he denied the government's proposals were far reaching, saying the review was simply the most radical overhaul of pensions, "since the last one".

He attacked the government for not making saving compulsory for those on incomes of £10,000 to £20,000 a year.

"Requiring people to save who can save is surely better than crossing your fingers and hoping that they will," he said.

End of SERPs

Mr Darling also announced the abolition of the State Earnings Related Pension (SERPs), which will be replaced by a new Second State Pension.

Alistair Darling, planning for the future

This second pension will be targeted at those earning under £9,000 a year with the intention of providing them with a minimum income on retirement, and avoiding reliance on means tested benefits.

Ministers hope the proposed reforms will encourage the estimated five million people now earning between £9,000 and £20,000 a year who do not contribute any extra savings to their pension to do so.

No compulsion

Ministers say the reforms are the biggest pensions shake-up in a quarter of a century.

But the long-awaited review has rejected compulsory second pensions and the complete privatisation of the pension system but gives incentives to middle-income earners to save more.

Other new proposals will see carers able to build up credit which can then be paid into the new State Second Pension.

Mr Darling said he was determined to set up a system that was both affordable and manageable, but there were no quick, blanket solutions as everyone's circumstances were different.

Stake-holder pensions

Mr Darling also spelt out what the government meant by the much talked about "stakeholder pension".

He said the government's long-term ambition was that everyone earning more than £9,000 a year should be in a secure, privately-funded pension, enabling people who do not have a second pension a chance to build up a nest egg for retirement.

Mr Darling admitted that Labour's plans would result in a £500m increase in government spending but he said everyone earning between £9,000 and £18,500 would receive improved pension rights.

He also announced a new annual pensions statement for every working showing how much private and state pension people were likely to receive.

Responding to the announcement, a Spokesman for Age Concern said: "This is great for future pensioners and also does a lot for carers.