The state pension is to rise in line with earnings rather than prices under a major shake-up of the pensions system announced by the Government today.

The restoration of the earnings link in a White Paper on pensions should see the real value of the basic state pension effectively double from what it would have been by 2050, even though Britain's population is ageing steadily.

But that increase will be funded largely by an automatic savings scheme to which both workers and their employers would contribute and a rise in the state retirement age that means those aged 26 and under will have to work until the age of 68.

The reforms, based largely on the recommendations of Lord Turner of Ecchinswell's Pensions Commission, were presented to MPs today by John Hutton, the Work and Pensions Secretary.

"Today’s White Paper seeks to entrench a new pensions savings culture where future generations can take increasing personal responsibility for building their retirement savings," Mr Hutton told the Commons.

"The reforms represent a comprehensive, integrated package of reform. I believe it can lay the foundation for a new and lasting consensus on a long-term resolution of the pensions challenge we face as a country."

Publication of the White Paper follows months of negotiations between Downing Street, the Department for Work and Pensions and the Treasury - which was especially alarmed by the restoration of the earnings link ditched under Margaret Thatcher.

But although Lord Turner says that "90 to 95 per cent" of his recommendations have been adopted intact, the Government appears to have moved forward the date at which the higher retirement age will take effect.

The White Paper was generally welcomed by business and trade groups, although the Confederation of British Industry criticised compulsory employer contributions as another tax on business. But pensioner organisations said it failed to do enough for today’s retired people.

Lord Turner's Pensions Commission had warned the Government that up to 12 million people were failing to save properly for their pensions.

It also predicted that the number of pensioners in the UK would double by 2050 and the ratio of those in work to those in retirement would halve and recommended that the retirement age be gradually lifted to help pay for the extra pension burden.

The state retirement age for women is already due to rise from 60 to 65 by 2020, putting women back in line with men. Under the White Paper, it will now rise to 66 by 2024, 67 by 2034 and 68 by 2044 - six years earlier than expected.

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