British workers just starting out on their careers might have to delay their retirement until the age of 68 - or even 69 - under a shake-up of the UK pensions system proposed today.

The recommendation for a gradual rise in the state retirement age came in the final report of Lord Turner of Ecchinswell's Pensions Commission, which said that working longer was the only way to fund a decent state pension.

He recommends in 2010 restoring the link between the basic state pension and increases in national average earnings, broken in the 1980s under Margaret Thatcher. As a result, the basic state pension will eventually be worth significantly more than it is today.

It also recommends the creation of a National Pensions Savings Scheme (NPSS), a safety net for employees in companies without adequate pension provision.

The report was commissioned by the Government three years ago to help avert a pensions crisis caused by the fact that Britain's population is living longer. The rising cost of pensions will start to become acute after 2020, when the post-War "baby boomer" generation is reaching retirement age.

Launching the report, Lord Turner said: "People are living longer - and that is a marvellous development that will only become a problem if we fail to think through the policy responses required."

The report recommends a gradual rise in the state retirement age to 67 by 2030, affecting those already in their thirties, and to 68 by 2050, affecting those currently under the age of 23.

But Lord Turner said it was impossible to predict so far down the line at what age retirement would have to be fixed. He said his report was primarily aimed at provoking a "rational debate" on the political and economic trade-offs needed to fund an affordable pensions system.

The Commission said: "We have suggested that the state pension age will have to rise to somewhere between 67 and 69 by 2050 and that public expenditure on pension and pension benefits will need to rise from 6.2 per cent of GDP (gross domestic product) today to between 7.5 per cent and 8 per cent of GDP in 2050."

Lord Turner said that his Commission was not recommending a rapid rise in the state pension age and had ruled out some submissions that it should rise to 70 - the Biblical "three score years and ten" allotted human lifespan - within just 25 years.

"On the basis of the present life expectancy forecast we believe that we will need to be in the range of 67 to 69 in 2050 to have an effective state pension system," he said.

The former CBI chief added: "It is wrong to talk about a crisis of pensioner income today, but the problems in the UK’s pension system will grow increasingly worse unless a new pensions settlement for the 21st century is now debated, agreed and put in place."

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