Raising the state pension age is the only solution to the pensions crisis, a pensions research group has warned.

With a higher state pension age, a better state pension can be afforded at no extra cost

Alison O'Connell PPI director

In its first report, the Pensions Policy Institute said the debate on raising the retirement age could not be put off any longer.

If the state pension age was raised to 70, at no extra cost, state pension payouts could be about �110 ($171) a week or about �130 for over 75s.

Raising the state pension age would not only provide pensioners with a greater retirement income, but also take older pensioners out of means testing, said PPI.

Counting the cost

There is growing concern about how pensions will be funded in the future.

Increased life expectancy, an ageing population and the closure of secure final salary pension schemes are fuelling the debate over pensions provision.

PPI said that increasing the state retirement age did not need to be introduced for another 20 or 30 years, and therefore would affect only people under the age of 40.

But the research body said it was necessary to reflect increasing longevity.

Demographic changes were having a huge impact on the UK pensions pot, PPI, said.

By 2045, just under 20% of women and 12% of men over 65 years old will reach 95, the report said.

And there are increasing demands on the system.

Only 66% of people lived to collect their pension when the state system was set up, compared with 90% of people now.

People retiring today are collecting their pension for eight years longer.

Raising the state pension age could take pensioners off means-tested benefits, for a small temporary extra cost.

State pension resources would then be focused on giving a meaningful basic state pension to "older pensioners, instead of a small amount to all".

Saving or working

PPI said there were only two ways out of the pensions crisis: saving more or working (and saving) longer

Working longer would be "the more attractive solution for many people", it said, and would fit with the fact that we are living longer.

PPI was set up to provide independent research on pension provision.

It aims to collect better information on retirement provision, as well as to prepare long-term pensions planning and improve public understanding of the pensions issues.

David Willetts MP, shadow secretary of Work and Pensions, welcomed the report.

"I particularly like the idea of a higher basic state pension for older pensioners to take them off means-tested benefits.

"That's why we put this forward as an alternative to the government's pension credit, which will bring more than half of all pensioners into means testing.

Better money

Other countries are raising their state pension age. For example the US is increasing it to 67, and Australia, Germany and Italy are among many other countries with plans for an increase.

In the UK, the state pension age is 65 for men and 60 for women, but is due to be equalised to 65 for all by 2020.

Alison O'Connell, author of the paper and director of PPI, said: "People are living significantly longer. Health and job prospects for the over 65s are improving.

"Working longer can help to fund better retirement income. And the real prize is that, with a higher state pension age, a better state pension can be afforded at no extra cost."