A gradual rise in the state pension age to 68 has been put forward by the Turner report into the future of UK pensions.
The report from the Pensions Commission has also proposed a National Pension Savings Scheme, which people would be automatically enrolled into.
Lord Adair Turner said the system faced “significant problems” which would get worse if policy did not change.
Explaining the national pensions saving scheme (NPSS), Turner said the scheme should automatically enrol all workers, although they would have the right to opt out.
Under the proposed NPSS, individuals would contribute 4% of their post-tax earnings, their company an additional 3% and the government 1% through tax relief or credit.
Turner said this would add only 0.6% to the labour costs of the private sector.
But some business groups questioned whether such a scheme, modelled on one being developed in New Zealand, would be affordable.
“My concern is just that businesses can’t afford it,” David Frost, director-general of the British Chambers of Commerce, told the BBC’s Today programme.
The commission suggests that the state pension age should rise gradually, to 66 by 2030, 67 by 2040 and 68 by 2050.
It also proposes:
- future entitlement to the basic state pension should become universal and be based on residency and not on contributions
- the basic state pension should become indexed to earnings
- the current state second pension should evolve into a flat-rate payment
TUC general secretary, Brendan Barber, described the commission’s report as “bold and hard-headed”.