The link between the basic state pension and average earnings could be restored after British Prime Minister Tony Blair and Chancellor Gordon Brown agreed a deal, two newspapers reported today.
The Guardianand the Financial Timessaid it would not be introduced before 2012 and would be paid for in part by raising the state pension age to 68 by 2050.
Restoration of the link was a key recommendation of a Pensions Commission report last year but the proposal was widely believed to have caused a rift between Mr Blair and Mr Brown, with the chancellor said to be anxious about the hefty cost of the plan.
The commission inquiry, chaired by Adair Turner said pensions should be in line with earnings, rather than prices which tend not to rise as fast. The link was broken in 1981 by a Conservative government.
"An agreement has been reached that is essentially the Turner blueprint," the Financial Timesquoted a source close to the Prime Minister as saying.
"There's more to be done but we've broken the back of it. That's where we are."
If nothing is done to tackle an estimated £57 billion (€84 billion) pensions shortfall, a growing number of Britain's ageing population could find themselves dependent on means-tested state handouts when they retire.
The BBC said Work and Pensions Secretary John Hutton was now very optimistic that most of the Turner report would be implemented. Downing Street was not immediately available to comment on the report today.