Hutton: Raise retirement age or income tax

Britain faces a choice between either increasing the retirement age now or income tax in years to come, the work and pensions secretary has warned.

John Hutton said in a speech on Thursday the retirement age should be raised to 68, otherwise future generations face a four pence increase in income tax.

The increase, to be introduced over the next 40 years, will be included in a bill of reforms to the pensions system to be made public next week.

Hutton, addressing the Association of British Insurers, said: "It is a big step to ask one parliament to set a course for 40 years. But it is the right thing to do.

"As unpopular as it may be to talk about working longer - the simple fact is that if we aren't prepared to increase the state pension age, we will simply pass an ever greater and frankly unsustainable burden on to our children and grandchildren.

"We need to lock in stability in pensions policy to allow future generations to plan ahead with confidence.

"Those who would oppose the increase must do so in the full knowledge of the predicted consequences.

"They are in effect arguing for more than a four pence rise in the basic rate of income tax to pay for a population spending more and more of their lives in retirement."

The pensions package, revealed in last week's Queen's speech, also includes re-linking the basic state pension to earnings within the next parliament.

It will also cut the number of years it takes to build a full basic state pension from 44 years for men and 39 years for women to 30 years for everyone.

According to the government, by 2010, 70 per cent of women reaching state pension age would have a full basic pension, compared to only 30 per cent today, a figure which should increase to more than 90 per cent by 2025.