The age at which people receive the basic state pension will rise to 68, the government confirmed yesterday as it unveiled long-awaited reforms of the pensions system. Dan Martin, AccountingWEB business writer, explains the changes.

Revealing the new White Paper in the House of Commons yesterday afternoon, pensions minister John Hutton said to pay for a more generous state pension, the retirement age needs to go up.

Hutton said it will rise to 66 between 2024 and 2026, to 67 between 2034 and 2036 and to 68 between 2044 and 2046.

As a result of the changes, Hutton claimed that by 2050 anyone who has been in employment or caring throughout their working life will get around £135 a week or more in retirement in state pension.

With ministers looking to defuse the UK's pensions timebomb, the measures were based on Lord Turner's Pensions Commission report which warned that as many as 12 million people are not saving enough for a comfortable retirement.

As a result of a deal reached between prime minister Tony Blair and chancellor Gordon Brown, the link between pensions and earnings, cut during the 1980s, will be restored from 2012.

Lord Turner had proposed 2010 and the two-year delay is likely to cut £1.7 billion off the peer's cost projections.

Detailing reforms which have been billed as the biggest shake-up to pensions for 60 years, Hutton also confirmed that the government plans to go ahead with Lord Turner's National Pensions Savings Scheme proposal.

The three principles proposed by the commission will be followed - automatic enrolment, organisational arrangements to ensure low cost provision, and a compulsory matching employer contribution set at a minimum 3%.

Women were also targeted by an element of the proposals which reduces the full basic state pension from 39 to 30 years, beginning in 2010.

Hutton said this should mean the number of women able to claim a full basic state pension will rise from the current 30% to 70% by 2010.

"[The] White Paper seeks to entrench a new pensions savings culture where future generations can take increasing personal responsibility for building their retirement savings," Hutton said.

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."

Reaction to the White Paper has been mixed.

The Institute of Chartered Accountants in England and Wales (ICAEW) welcomed the proposals saying they were an "an urgently needed step forward in addressing long term issues around retirement provision".

Eric Anstee, ICAEW chief executive, said: "We have said all along that long term stability is needed for pensions planning and tough decisions need to be taken.

"We are committed to working with government to ensuring that this white paper is the foundation for securing a long term solution to the challenges we will face – a solution that people can have confidence in."

The Association of Chartered Certified Accountants (ACCA) said the proposals make a "promising start" to reform the pensions system but warned concerns still existed.

It said raising the state pension age to 66 or 68 will require a major shift in attitudes to the employment of older people, while the White Paper also fails to offer tangible incentives for employers to offer occupational schemes for their staff.

In addition, ACCA expressed worries over compulsory employer contributions to the NPSS.

Allen Blewitt, ACCA chief executive, said: "The proposal to require employers to contribute at least 3% of their employees' gross salary to the national savings scheme is potentially harmful and could have a detrimental effect on small businesses and employment in small firms.

Nick Goulding, from the Forum of Private Business, complained that the government is sneaking in a 'stealth tax on employment'.

"[The government is] intent to let employers foot the bill for the pensions black hole, but are hoping that small businesses won't notice the impact if they drag their heals introducing it," he said.

Goulding acknowledged the fact that the proposals will be implemented over three years with the consideration of a "longer phasing-in period for smaller businesses" but said: "This is a half-hearted attempt to appease those companies that will be hardest hit."

David Frost, director general of the British Chambers of Commerce, added: "UK firms are facing intense pressures, both globally and domestically. Piling additional costs on to them will simply increase the cost of doing business in the UK and further undermine business' ability to compete with rapidly developing economies such as China and India."