State pensions to be linked to earnings instead of prices
Today’s younger generation will have to work until they are 68 for an extra £3 a week from the State, following a ‘landmark’ pensions deal announced.

Under the changes, the state retirement age will rise to 66 in 2024, 67 in 2034 and 68 in 2044.

That means that anyone aged between 38 and 46 will have to wait an extra year, and those aged between 29 and 37 an extra two years. Those now aged 27 or younger will have to wait three more years.

The weekly pensions allowance is to rise in value over the next 50 years to £139 for average earners, compared with £100 without the reforms. But average earners will no longer qualify for the pension credit, cutting their income from the State by £36 and leaving them only £3 a week better off – or £1 a week for each year they work beyond 65.

The increase in the retirement age is to help to pay for bigger state pensions, which will be linked to earnings instead of prices. That will start from 2012, as long as it is ‘affordable’, although Gordon Brown has by no means accepted that it is inevitable that the change will happen then.

The means-tested credit will be reduced so that only a third of pensioners will qualify by 2050, compared with 45 per cent at present.

Their retirement income is expected to rise but only as a result of personal savings. Anyone who works for a company that does not offer a good occupational pension will automatically join a new personal savings scheme. They will contribute 4 per cent of their salary, with the company adding a further 3 per cent and the Government 1 per cent. That scheme will generate a private pension of about £80 a week for average earners by 2050.

Women who give up years of work to look after children will be entitled to the basic state pension for the first time, although housewives with no family fail to qualify.

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