The basic state pension is to be linked to average earnings once again after an agreement between Tony Blair and Gordon Brown on the issue.
However workers are likely to have to work longer as a result, as to pay for the deal the state pension age is to be increased to 68 by 2050.

There had been reports that Blair and Brown clashed over the changes, with the Chancellor reportedly concerned that the changes would be too costly. But it appears that an agreement has finally been reached.

The restoration of the link between the basic state pension and average earnings was a key recommendation of Lord Turner’s Pension Commission report.

Restoring the link will make state pensions more generous, and by doing so, the Government is hopeful that there will be less need to pay out means tested benefits to pensioners. However the change will not come into place until after 2012.

The Government is currently reviewing pensions provision in the UK, and its other plans to reform the pensions system are likely to be announced before the end of the month.