Pensions report recommends Britons work longer

Britons should work longer and save harder to stave off a looming pensions crisis as the country's population grows older, a landmark report recommended yesterday.

The Pensions Commission was asked three years ago to look at problems facing Britain's system, creaking under the pressure of an ageing workforce and facing a £57 billion shortfall in retirement savings.

Many industrialised nations, including the United States, Germany and Japan, have similar problems. As people live longer, birth rates fall and populations age, fewer people are working to support an increasing number of pensioners.

The commission proposed raising the age at which people take a state pension from 65 now to at least 67 by 2050. It said employees should be automatically enrolled into state or private retirement schemes.

"The government welcomes the broad framework of the... proposals and options and believes they are the right basis for the debate to come," Work and Pensions Secretary John Hutton told Parliament, promising firm proposals by the middle of next year.

"We are ruling nothing in and nothing out," he said. Leaks of the report turned it into a hot political issue in Britain. Media had speculated it could stoke tensions between Blair and finance minister Gordon Brown if the measures leave the Treasury facing a hefty bill.

The commission, chaired by Adair Turner, a former head of employers' group, the Confederation of British Industry, said the proposals would not require any major public spending rise in the next 15 years but increases would be needed thereafter.

Mr Turner said his aim was for "policies which over time will make state pension provision more generous and less means-tested but with the state pension age rising gradually as life expectancy increases".

Union bosses were broadly in favour of the review, saying it was a "bold and hard-headed report".

"The clear majority of the conclusions are undoubtedly progressive, and meet the tests we set in advance," said Brendan Barber, secretary-general of the Trades Union Congress.

"Linking the basic state pension to earnings and introducing compulsory employer contributions are both extremely welcome."

The government was asked to raise state pensions in line with earnings, rather than prices that tend not to rise as fast, but the report did not say when this change should come in.

The panel said if employees chose to contribute to company pension schemes - and it recommended a "minimum default" of five per cent of gross income - then companies should contribute three per cent, either into a state or private pension scheme.

Mr Blair said on Tuesday he supported Mr Turner's report, which he had seen, as he sought a balance between the obligations of employer, employee and state and has pledged to act quickly.

But he said reforms must be affordable, a position which could leave room to reject some of Mr Turner's recommendations.

Mr Brown is reported to fear that a higher state pension, linked to average earnings, would leave government with a huge bill in years to come.

Critics say the government has already skewed the system by agreeing millions of public sector workers already in service can still retire at 60 - raising charges of discrimination against private sector employees.