Later this year, Turner, a former chairman of the Cambridge University Conservative association and former director-general of the CBI, will set out recommendations to help Britain solve its pensions crisis.

Tony Blair intends Turner’s work as chairman of the Pensions Commission to provide the template for solving one of the most difficult problems facing the country. Downing Street advisers hope that reforming the pensions system will help to shore up Blair’s legacy.

In an interview with The Sunday Times, Turner has given the first insight into the system he has been developing for the past 2½ years — and the stark choices we face.

He said: “Everybody agrees there should be a basic state pension but then there is what I call an iron triangle of choices.”

“It’s the generosity of the pension — £82 or £105 or £109 a week; it’s how much tax as a percentage of gross national product people will pay; and it’s the age at which you can claim a full state pension. They are absolutely inherent trade-offs.”

At present, Britain’s basic state pension is £82.05 a week. The chancellor Gordon Brown has also introduced means-tested benefits, which allow all but those with generous private or company pensions to collect more than £100 a week.

Turner believes the system may act as a disincentive for millions. If their payments towards a pension generate no more than the means-tested benefits, they have little reason to save. “We have to stop the spread of means-testing,” he said. “It is a disincentive to save. It arises from the fact that, almost uniquely, we have a basic pension below our poverty line.”

He thinks everybody should get a pension above the poverty line — but not necessarily from the age of 65. He argues that the state pension age must be increased, but in a way that is “sensitive” to differences in life expectancy between socioeconomic groups. This would not happen until at least 2020.

There may be a sliding scale. “It’s a little bit notional whether you say the state pension age is 65 and you get less, or whether we say the full state pension is £124 aged 70. I think, increasingly, we will make that choice clear to people.”

The government had considered only paying a flat-rate pension to all, which would keep people out of poverty — a so-called citizen’s pension. That idea appears to have been rejected. Turner appears to believe that the state should compel people to save part of their wages to top up the basic handout.

He said “no major developed country” had settled on a system whose prime purpose is to keep people out of poverty rather than to make them save an extra portion of their wages.

There are three “rationales” for this so-called earnings- related pension. “The issue is, do we have to do something in order to get people which in their heart of hearts they should do, know they want to and will regret not doing?” he said.

He believes there is also a “political moral hazard” in failing to compel people to save more. By 2030, a majority of the electorate are unlikely to have saved enough under the voluntary system and will be forced to live on a pension just above the poverty line.

Therefore, he argues, they may vote for a political party that promises a big increase in the state pension even though this may not be viable.

The third rationale, which he describes as the “most important”, is that the state could provide very cheap pensions.

People taking out pensions are charged a management fee of about 1.5%. But the government could negotiate the same services for 0.1% a year by pooling everybody’s savings. Turner’s plan is for everybody to build up a state pension of between 40% and 50% of average earnings — implying a payout of about £12,000 a year.

Because polls show that people want to retire on two-thirds of their final salary, they would be encouraged to top up their retirement income via private or company schemes. Others would be free to keep working.

Turner is still grappling with the detail of his plan. The discussion on whether it is an acceptable solution will begin next month when David Blunkett, the new work and pensions secretary, formally starts the debate on the way ahead.

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