Longer working lives in return for a more generous basic state pension, allied to a new national pension savings plan, were called for by the Pensions Commission.
Lord Turner's proposals would see the state pension age rise to 67, and possibly to 69 by 2050, making Britain only the fifth country among the world's rich nations to raise the pension age for all.
The plan is aimed at averting what Lord Turner says is not a pensions crisis today but will be tomorrow if the government continues to try to "muddle through".
To date, only the US, Denmark, Norway and Iceland among the other rich nations belonging to the Organisation of Economic Co-operation and Development have agreed an increase in pension age.
Lord Turner's proposals would make the increase gradual. After being equalised at 65 for men and women in 2020, he suggests it should rise to 66 by 2030, 67 by 2040 and 68 by 2050.
The precise age would depend on rises in life expectancy, but at least 15 years' notice should be given of any increase so that those over 50 were not affected, Lord Turner said.
The return for that would be a system less reliant on means-testing, with clearer incentives to save, and a much more generous basic state pension.
Under the commission's preferred scenario, the two existing state pensions would both be flat rates. The basic state pension would become a universal "citizen's pension", based on residency, not national contributions. It would be worth £75 a week in today's money with the state second pension for someone with a full work record, or credits for caring, worth about £53 a week - making £128 for both combined, or about 29 per cent of average earnings.
The price for that would be to take state spending on pensions up from 6.2 per cent of national income today to 7.5-8 per cent of gross domestic product by 2045 - a rise of 1.3 to 1.8 percentage points, about £14bn in today's money.
But unless pensioners are on average to become much poorer, state spending will anyway have to rise as the number of people past current state pension age will increase by 50 per cent between now and 2050.
So the "extra" cost of the commission's proposals are much smaller between now and 2050 - never more than1 per cent of GDP and in some scenarios only 0.5 per cent, according to the commission's calculations.
In addition, someone on average earnings with a working life contributing to the national savings plan would gain an extra £66-£80 a week on reasonable assumptions, the commission said - giving a total pension of about £200 a week and more with additional voluntary contributions.
Employees would be en-rolled automatically into the plan but would retain the right to opt out. They would contribute a minimum 5 per cent of salary (4 per cent after tax) and, if they stayed in, employers would be compelled to add a "modest" 3 per cent. Each side could double their contributions voluntarily.
The recommendations, which include a number of options, came as Lord Turner said the present state and voluntary pension saving system was no longer "fit for purpose".
Britain was heading for a "relentlessly more means-tested system" with more than 70 per cent of pensioners on the pension credit by 2050. That, the commission said, would undermine private pension provision when it was anyway falling, and set on current trends to drop by 1.3 per cent of GDP or £14bn a year.
But there were "clear and unavoidable trade-offs", and "difficult and unavoidable choices" in designing something better.
"We do not believe it is possible to design a coherent state system without some increase in public expenditure over the next 45 years," the commission said. And increases in state pension age, in line with rising life expectancy, would be essential to keep the system affordable and fair between generations.
Anyone not prepared to debate that trade-off was "indulging in fairy-tale economics, in which a fairy godmother makes all difficult choices disappear", said Lord Turner.
The commission presented a "range of possible combinations of public expenditure and state pension ages around which public debate is now required".
Decisions were needed fairly quickly, ideally to take effect from 2010. Delay to 2015 would "seriously undermine" the reforms.
But it stressed that public spending did not need to rise, and should not rise, much between now and 2020. Indeed, it was due to fall as women's pension age was equalised with men's be-tween 2010 and 2020. That money could be put towards a start on reform, which could include a "citizen's pension" for the over-75s.
State spending, the commission said, should be concentrated on as generous, and non-means-tested, a flat rate pension as possible, creating a sound base for private savings.
Earnings-related provision should come from saving, with the state creating but not running a savings plan that would provide good, low-cost returns, allowing people to make their own trade-offs between actual retirement age and living standards in old age.
Such an approach would "help ensure that there is no future pension crisis", Lord Turner said, and that rising life expectancy could be seen "not as a problem, but a wonderful opportunity".
• Longer working lives in return for more generous basic state pension
• New National Pensions Savings Plan - likely to become popularly known as the “Britsaver”.
• Employees automatically enrolled, but retain right to opt out
• Minimum 5 per cent of salary contribution (4 per cent after tax) for employees who stay in. If they do, employer has to pay a “modest” 3 per cent. Total impact on private sector labour costs 0.6 per cent.
• Double that amount can be put in on voluntary basis
• Result should be charges of about 0.3 per cent a year, leaving a pension pot 25 to 30 per cent bigger than from current so-called low cost stakeholder pensions
• Basic state pension to be a universal “citizen’s pension”, paid based on residency not national insurance contributions. Worth about 17 per cent of average earnings. Both men and women to get it in own right: not paid, as at present on household basis.
• State second pension to be made flat rate. Contributory but with carers credited in. 44 years contributions will pay out 14 per cent of average earnings
• If changes start in 2010, two pensions would pay out about £75 and £53 respectively in today’s money – 29 per cent of average earnings
• To help pay for that state pension age needs to rise, and be linked to life expectancy
• Could go up to 69 by 2050. But commission suggests no change before 2020, 66 by 2030, 67 by 2040 and 68 by 2050.
• Reform would still increase public spending on pensions. Up from 6.2 per cent of national income today to 7.5 per cent of GDP by 2050 if state pension age is 69 by then, or 8 per cent if it is only 67.
• If 69, that is no more expensive by 2050 than sticking with current system, assuming pension credit, the means-tested help for the less well off, continues to rise in line with earnings.
• But on way through, between 2020 and 2045, spending will be higher, fluctuating by between 0.5 and 1 per cent of GDP more.
• Pension age linked to life expectancy, but at least 15 years notice of any change, so no-one under 50 ever affected.
• For anyone over 40, the most today’s proposal would add to state pension age is one year.
• Effect would be cut in means testing. Today just under 40 per cent of pensioners get means-tested pension credit. If nothing changes more than 70 per cent will by 2050. Commission proposals would cut that to 30 per cent, and the amount of saving subject to means-test would be much lower.
• If judged affordable, pensioners over 75 should get non-means tested basic citizen’s pension now. Helps women particularly. Extra element of package. Not judged central.
• “Vital” that jobs available for those who wish to work longer.
• Therefore employers should not longer be able to dismiss people on grounds of age
• People should be able to take part state pension and work on
• Consider reducing employers’ national insurance contributions for employees who are post state pension age .
• More training for older workers
• Changes, including new savings plan, should ideally take effect in 2010. A delay to 2015 would “seriously undermine” proposed reforms.
• Present public and private system “not fit for purpose”. Reform involves “difficult but unavoidable choices”.
• Trade off between higher public spending and higher state pension inevitable if system to be less means-tested. Those unwilling to discuss that “are indulging in fairy tale economics”.
• Rising life expectancy means by 2050, if state pension is age 67, the average man would still enjoy 3 years more in retirement than today – 22 years rather than 19. Even at 69, it would be 19 rather than 20. Even at 69 the proportion who survive to receive a state pension would be higher than today.