The age at which people qualify for the State pension will be increased in phases over the coming years under a framework put forward by the Government today.

The Taoiseach today announced a major reform of future State, private and public service pensions. Under the new National Pensions Framework, the age at which people qualify for the State pension will increase over time - to 66 years of age in 2014, 67 in 2021 and 68 in 2028.

This means everyone now under the age of 49 will have to work until they are 68 before they can draw down the State pension. Speaking at the publication of the plan in Government Buildings this afternoon Minister for Social and Family Affairs Mary Hanafin said the move was necessary because people were living longer and healthier lives.

Ms Hanafin said “inertia and procrastination” were the main reasons cited by people for not taking out pensions.

She said there would be a change in the way in which pensions are currently calculated over the average working life, “which has particularly disadvantaged women who take time out for caring”.

Ms Hanafin said it was 100 years since the State pension was introduced at a time when average life expectancy was 50 and pension was payable from the age of 70. Now average life expectancy was 76 for men and 81 for women, and was expected to increase by another eight years over the longer term.

“People are living so much longer. It was never the intention that you would be living on pension for as long as that,” she said.

“You can expect to live about 15 years on your pension. That’s going to grow maybe to 20 to 25 years or longer. That was never the intention for people. And we see so many people now who actually want to work longer, who are healthier and living longer and want to work longer.”

The current system of tax relief at the standard and higher rates is to be phased out - instead a State contribution, which will apply to existing occupational and personal pension schemes, will equal 33 per cent tax relief. The mechanism for the delivery of this has not yet been finalised.

A new pension scheme for new entrants to the public service will take effect from 2010 under the proposals.

The State pension will remain as the basis of the pension system in the State, and "every effort will be made by the State to keep the value of this pension at 35 per cent of average earnings".

Under the framework, there would also be a new supplementary pension scheme to give extra retirement income for employees who are not already in a pension scheme. Those earning above a certain income threshold will be automatically enrolled in this new scheme, and the State and employer will support this by providing matching contributions.

Under a new auto-enrolment scheme, employees aged 22 or over will automatically enrolled unless they are a member of their employer’s scheme, which provides higher contribution levels or is a defined benefit scheme.

Employees will be required to make a fixed percentage contribution, and there will be matching State and employer contributions. A range of funds, including a low-risk default option, will be made available.

Employees can opt out, but they will be re-enrolled every two years. They will not be able to withdraw their savings before retirement. Under this part of the scheme the Government will contribute €2 and the employer €2 for every €4 paid into the pension by the employee.

Ms Hanafin said this aspect of the pension plan was similar to an SSIA. She added that this scheme will not be guaranteed by the State and therefore will be exposed to the risks associated with private investments.

Announcing the framework, Brian Cowen said: ‘There are significant challenges ahead for us as a society. We are living longer, which is a wonderful achievement, but we know that the impact of population ageing is very challenging.

"This framework sets out the way in which we intend to protect our pensioners, now and in the future, and to encourage and support people to provide for their retirement savings in a fair, transparent and sustainable way.”

Commenting, Minister for Social and Family Affairs Mary Hanafin said: “It has increasingly become evident that many Irish workers are not saving enough for their retirement and will be faced with a serious drop in income when they retire. Previous efforts at encouraging people to invest in personal pensions have not been as successful as expected, especially among low to middle income earners.

"Having examined all options and looked at international experience, the Government has decided that a new auto-enrolment supplementary pension is the best approach to take. This will ensure that those on low to middle incomes receive supports from both the Government and the employer,” she said.

The new National Pensions Framework follows a public consultation process that began with the publication of a Green Paper on pensions in October 2007. It was also informed by the proposals in the McCarthy report and the report of the Commission on Taxation.