The Government's stakeholder pension project has suffered a setback after it lost a crucial vote.
Tory peers won a vote to raise the 75 year age limit for stakeholder annuity purchases during a House of Lords reading of the Welfare Reform and Pensions Bill.
During the debate Baroness Hollis accepted the Government has three options for dealing with the halving of Serps based widows' pensions. It will either pay compensation, delay the cut or reverse it.
The Government will now have to put down new amendments to the bill on annuities to achieve its aims.
Winterthur Life director of sales and marketing John Moret says: "The Government cannot afford not to resolve the retirement age issue – the timetable would suffer and ultimately lead to a delay in the stakeholder launch."
Widows, who can currently claim a husbands' entire Serps entitlement if they die after reaching pensionable age, will see this benefit halved from April 2000.
The changes were made in 1986 but DSS leaflets were not amended to take account for a decade. Savers given faulty information could be due compensation.
Hollis said: "The problem has taken 12 years to emerge. We have not yet had 12 months to resolve it, and we are talking about billions and billions of pounds."
She revealed the blunder could cost the Government up to £10bn.