The Post Office will continue to run the card account which distributes benefits to 4.3 million claimants.
The Post Office will continue to run the card account which distributes benefits to 4.3 million claimants.
It had faced competition for running the Post Office Card Account from a private firm, but ministers have decided to close the bidding process.
It had faced competition for running the Post Office Card Account from a private firm, but ministers have decided to close the bidding process.
Work and Pensions Secretary James Purnell told MPs he would do "nothing to put the network at risk".
Work and Pensions Secretary James Purnell told MPs he would do "nothing to put the network at risk".
The National Federation of Sub Post Masters had warned 3,000 post offices would close if the contract was lost.
The National Federation of Sub Post Masters had warned 3,000 post offices would close if the contract was lost.
The account, used by more than four million people, was brought in to end the need for giros and payment books for pensioners and benefit claimants, while still allowing them to use post offices to collect money.
The account, used by more than four million people, was brought in to end the need for giros and payment books for pensioners and benefit claimants, while still allowing them to use post offices to collect money.
The Post Office had faced competition to run it from the private company PayPoint.
The Post Office had faced competition to run it from the private company PayPoint, who said they were "disappointed by this decision".
'Viability'
'Viability'
Mr Purnell's announcement comes two weeks earlier than expected after criticism from MPs that delays in deciding if the Post Office would retain the contract were "destabilising".
Mr Purnell's announcement comes two weeks earlier than expected after criticism from MPs that delays in deciding if the Post Office would retain the contract were "destabilising".
He told MPs the account was "central to the viability of the network" and said the next contract would run initially from April 2010 to March 2015 with "the possibility of an extension beyond that".
He told MPs the account was "central to the viability of the network" and said the next contract would run initially from April 2010 to March 2015 with "the possibility of an extension beyond that".
This is a good deal from a financial point of view and a social point of view, James Purnell
Mr Purnell added that PayPoint would be "compensated their reasonable costs".
Mr Purnell added that PayPoint would be "compensated their reasonable costs".
Mr Purnell said the current economic conditions meant the Post Office was an "even more important service than it was before" and helping it flourish was in the "national interest".
"This is a good deal from a financial point of view and a social point of view," he told the BBC.
Amid criticism of the process of re-awarding the contract, Mr Purnell denied it had been mishandled.
"Far from being a reprieve, it is the continuing commitment from the government to support the Post Office network," he said of the decision.
Unions representing postal staff welcomed the decision but said the network's future depended on it being able to offer more services, particularly savings and insurance products.
"The Post Office is a national treasure and asset and the government should be doing more," said Andy Fury, from the Communications Workers Union, adding that the Post Office should be transformed into the "people's bank".
For the Conservatives, shadow business secretary Alan Duncan said the announcement was a "humiliating climbdown for the government, who have done everything they possibly can to find a way of awarding it (the contract) to somebody else".
For the Conservatives, shadow business secretary Alan Duncan said the announcement was a "humiliating climbdown for the government, who have done everything they possibly can to find a way of awarding it (the contract) to somebody else".
The Lib Dems said the decision would come as a "huge relief" to postal workers and customers but argued ministers had "some explaining" to do about how it had handled the process.
"The Government has wasted time and money and caused immeasurable heartache by dragging this process out for so long," said the party's work and pensions spokeswoman Jenny Willott.
"This could all have been avoided if, as the Liberal Democrats have long argued, the Post Office Card Account had never been put out to tender in the first place."
Earlier, Business Secretary Lord Mandelson told peers: "I believe very strongly that we have an opportunity here for the future of the Post Office - one that has been enlarged by the turbulence elsewhere in the financial services sector."
Earlier, Business Secretary Lord Mandelson told peers: "I believe very strongly that we have an opportunity here for the future of the Post Office - one that has been enlarged by the turbulence elsewhere in the financial services sector."
He said the government's closure programme, which will see 2,500 branches shut down by the end of year, had not been painless but "had placed the entire network on a much firmer footing".
He said the government's closure programme, which will see 2,500 branches shut down by the end of year, had not been painless but "had placed the entire network on a much firmer footing".
'Nebulous' plan
'Nebulous' plan
In a letter to the prime minister leaked earlier this week, Lord Mandelson said he believed post offices had a future as "trusted" sources of financial products and government services, with the face-to-face contact they offer "becoming an increasingly important and reassuring factor for many people".
In a letter to the prime minister leaked earlier this week, Lord Mandelson said he believed post offices had a future as "trusted" sources of financial products and government services, with the face-to-face contact they offer "becoming an increasingly important and reassuring factor for many people".
And he told peers: "I am going to convene a group of government departments to identify the potential additional work the Post Office may do. I think there are opportunities there and I want to examine them closely."
And he told peers: "I am going to convene a group of government departments to identify the potential additional work the Post Office may do. I think there are opportunities there and I want to examine them closely."
But Tory peer Lord Hunt said the government's proposals were "nebulous" and "raised more questions than they answered" and he called for more detailed plans and for the publication of the Hooper report into the future of the network.
But Tory peer Lord Hunt said the government's proposals were "nebulous" and "raised more questions than they answered" and he called for more detailed plans and for the publication of the Hooper report into the future of the network.
Lord Mandelson replied that the Hooper report would be published "very shortly".
Lord Mandelson replied that the Hooper report would be published "very shortly".
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