Chairman of the BBC Sir David Clementi said: "Linking a free licence for over-75s to Pension Credit was the leading reform option".
From June 2020 any household with someone aged over 75 who receives Pension Credit will be eligible for a free TV licence funded by the BBC.
The BBC will launch an awareness campaign across TV and radio alerting pensioners to the change, which could encourage 600,000 low income households now not in receipt of Pension Credit, to take advantage of the weekly top-up.
The broadcaster said those who are blind, regardless of age, are entitled to a 50% discount on the cost of a TV licence, which covers the whole household.
A Downing Street spokesperson said May was "very disappointed" with the BBC's decision and urged the broadcaster to reconsider, with government sources highlighting the high pay of many BBC executives as a potential alternative saving.
The deputy leader of the Labour Party Tom Watson has branded the burden placed on pensioners an "outrage", and activists for the elderly have warned that the move will directly impact the "sick and disabled".
The Commissioner for Older People for Northern Ireland, Eddie Lynch, said the "really disappointing move" would affect over 75,000 people living here.
"There will also be some anger too at the decision made by the BBC but in the end this is the responsibility of the UK Government".
Director-General Tony Hall added: "This has not been an easy decision".
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Lord Hall has announced that licence fees will now be linked to Pension Credit and will be means-tested.
However. any household that receives a Pension Credit, a form of welfare to top up income for the poorest, will still be eligible for free access. "People across this country value television as a way to stay connected and we want the BBC to look again at ways to support older people", the spokesman told reporters.
It comes after the board of the BBC announced yesterday they would be scrapped in the United Kingdom from June 2020.
The BBC have said if they took on the cost of the free licenses, the extra cost would meant "unprecedented closures" across a number of channels.
That means that within 20 or so years there will be virtually no-one watching BBC One and no-one paying TV licences, does it not?
"It would not be right simply to abolish all free licences".
Now, whatever you think about the licence fee, this can not be right that the oldest and most vulnerable, some of whom rely on their TV for comfort, should find themselves at risk of having their service stripped from them or even at risk of court action.
"We've been clear that we expected the BBC to continue this concession".