A free TV Licence will only be available to households with someone aged over 75 who receives Pension Credit from June 2020, the BBC has announced.
The broadcaster had come under criticism over plans to scrap the free licences for the over-75s.
Shadow culture secretary Tom Watson previously said the Tories are "outsourcing welfare policy to a public broadcaster" and breaking their 2017 manifesto commitment to keep the pensioner benefit for the duration of the Parliament.
At present standard television licence costs £154.50 a year.
The Government’s current scheme for over 75s TV licences comes to an end next year. After major consultation, Board believes allowing those receiving Pension Credit to get free licences is fairest option: https://t.co/ZslDnDJQpv pic.twitter.com/7r87hrVnMI— BBC Press Office (@bbcpress) June 10, 2019
Theresa May had promised to protect free licences as part of the Conservative manifesto in 2016 and news of the withdrawal of the scheme led to protests across the country.
From June 2020 around 3.7 million households which previously received a free licence will now have to pay for one.
It is thought 1.5 million households will be eligible for the free licence under the new scheme, which will cost the BBC around £250 million by 2021/22 depending on the take-up.
Licence fees were being reviewed by the BBC, with the full cost of concession due to be passed to the corporation from government in June 2020.
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Facing financial pressures and attempting to streamline, the BBC has said previously that shouldering the burden of free licences would "fundamentally change" the broadcaster.
The threat of scrapping the free licence drew criticism from campaigners who stressed its importance for the elderly.
The corporation's Director-General, Tony Hall, said: "This has not been an easy decision. Whilst we know that pensioner incomes have improved since 2000, we also know that for some the TV Licence is a lot of money. I believe we have reached the fairest judgment after weighing up all the different arguments.
"It would not be right simply to abolish all free licences. Equally it would not be right to maintain it in perpetuity given the very profound impact that would have on many BBC services.
"This decision is fairest for the poorest pensioners. Around 1.5 million households could get free TV licences if someone is over 75 and receives Pension Credit. It protects those most in need. And importantly, it is not the BBC making that judgment about poverty. It is the Government who sets and controls that measure.
"It is fairest for all audiences - of all generations, old and young - who we know value the BBC and the programmes and services we provide. It means these services can continue.
"We also need to look at how the level of the licence fee is set in the future. The last two settlements have been made in the dark and without proper consultation. It is vital that future decisions are evidence-based and made after proper consultation and scrutiny. We need to find a better way."