The Labour leadership has faced an embarrassing defeat over its pensions policy at the party's conference in Brighton.

Labour rebels won 60 per cent of the vote to the motion that called for a restoration of the link between the state pension and earnings.

Tony Blair and the Labour leadership had dismissed the system in favour of giving extra cash to the poorest pensioners.

Union sources had claimed there was "confusion" over the Government's position despite Tony Blair's assurance that ministers had "got the message".

The debate included a dramatic intervention by Dame Barbara Castle who turns 90 next week.

She spoke to tell the Government the state pension was the only way to guarantee a decent income for every pensioner.

She said: "If we continue this policy the state pension will shrink. It will be dead to all intents and purposes".

Despite the vote it still seems unlikely that the leadership will change Labour policy.

John Edmonds, GMB general secretary, said: "We are desperately trying to seek agreement but it is proving impossible because the Government continues to shift the goalposts."

He said he could not understand what was unacceptable to ministers in the motion which they want to put before the conference.

The Chancellor has flown back to the conference from the IMF meeting in Prague. Labour's ruling National Executive Committee has met to decide how to respond .

Frank Field, the former Welfare Reform Minister, urged the Government to link the state pension to earnings. "If one doesn't do that, then literally over time it is going to disappear," he said.

The Prime Minister and Chancellor Gordon Brown had invited union leaders to face-to-face talks in their Brighton hotel suites to try to head off the conference defeat.

After day-long efforts to persuade the unions and a handful of local constituency parties to withdraw a motion on pensions, Unison General Secretary Rodney Bickerstaffe stood his ground and received loud applause when he told delegates that the Government's pledges on pensions were "not good enough".

Mr Brown sat on the platform, often looking stony-faced, as speakers in favour of the link, including Baroness Castle, were cheered.

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