Lord Turner of Ecchinswell today described Britain's existing state pensions system as not fit for purpose as he presented the politically-sensitive final report from a three-year inquiry.

Lord Turner said it was crucial that the Government abandons its policy of targeting benefits to the least well off, arguing that this eliminates the incentive for employees to save for retirement themselves.

Instead, he proposed raising the retirement age to 68 to fund a more generous basic state pension, which will be linked to earnings rather than retail prices.

Lord Turner said that the cost of his proposals was "not significantly higher" than the Government's current pension spending plans.

But the publication of the report was overshadowed by the political implications of its key findings, which have opened up a fresh rift between Downing Street and the Treasury.

Gordon Brown is said to favour aiming benefits at the least well-off in society and Treasury officials have claimed that the proposals would create a £20 billion black hole in public finances by 2020.

Tony Blair, meanwhile, is said to be more inclined to accept the findings of the report and considers them part of his legacy agenda. He is said to be prepared to overrule his anointed successor over the issue.

This evening, Mr Brown played down talk of disagreements and said the Government was "90 to 95 per cent" agreed on its approach to pensions reform.

"I think we are actually 90 to 95 per cent of the way there with Turner," he told BBC News 24. "The issue which has still to be resolved - affordability - is one on which Tony Blair and I are absolutely at one. We know that the country looks to us to manage the public finances in a prudent way."

"I believe that we are moving towards a consensus that will not just last for one Parliament but potentially for a generation."

Unveiling today's report, a response to criticisms levelled at proposals announced in December, Lord Turner said that it was essential that Britain had a stable pensions system that would allow people to make long-term plans.

He said: "In the past our pensions policy been characterised by endless chopping and changing which has created confusion. But without reasonable stability and predictability, a system in which people know what the state will do for them and what they have to build for themselves on top of state provision, we will not address the problems of pension adequacy."

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