The government said it would begin increasing the retirement age from the current 65 to 66 beginning in 2024, rising to 68 over two years from 2044. That will help pay for restoring the link between the basic state pension and earnings from as early as 2012 if fiscal conditions allowed, it said.
The link to average pay was removed by former Conservative Prime Minister Margaret Thatcher in 1980 in one of the first acts of her government to tackle a system that was deemed too expensive. The link to prices since then has significantly reduced the value of post-work benefits.
The changes accept the majority of recommendations made by a panel appointed by Prime Minister Tony Blair in 2002, which warned that there will be 50 percent more pensioners in Britain by 2050 and that nearly 10 million people of working age are not saving enough for their retirement.
The Pensions Commission also predicted that by 2050, the state pension will have declined from less than 20 percent of average pay to less than 10 percent, the AP reports.
Funding state pension systems is becoming a problem for many industrial nations. Italy has raised the age for a full pension to 60 from 57, Belgium is boosting the earliest retirement age from 58 to 60, and German lawmakers have agreed the retirement age should rise from 65 to 67 between 2012 and 2035. The United States already is gradually raising the age toward 67.
British governments have so far been reluctant to make major changes because they would be expensive and likely initially unpopular, but the state of the pension system has become a major issue on the British political agenda as the prospective shortfall increased.
The existing system provides a small state pension to everyone who has worked, supplemented by more lucrative private pensions, which are also being eroded by higher taxes, stock market underperformance and mismanagement.