Compulsory retirement at 65 to be abolished

The Government is to press ahead with plans to end compulsory retirement at 65 despite calls from business for the move to be delayed, it was announced today.

The employment relations minister Ed Davey said the abolition of the default retirement age was "great news for older people, great news for business and great news for the economy".

He dismissed warnings that allowing employees of pensionable age to stay in work would make it more difficult for young people to find jobs, insisting that the change will boost the economy and enlarge the size of the labour market.

"Older workers have a lot to offer in the workplace and it's time we got rid of this outdated form of age discrimination," said Mr Davey.

"We will do all we can to support businesses with the change."

Age campaigners have long called for the abolition of the default retirement age, which fulfils a pledge in the Government's coalition agreement.

But while less than a third of firms still insist on people leaving on their 65th birthday, there are concerns among business leaders about the change.

The Institute of Directors has criticised the move - featured in both the Conservative and Liberal Democrat election manifestos - for reducing flexibility for employers.

Mr Davey said today that guidelines would make clear that employers will still be able to conduct performance appraisals and fairly dismiss staff found to be no longer capable of doing their jobs effectively.

He told BBC Radio 4's Today programme: "While there are some costs to business - and we have looked at them very carefully and listened to business - I think this is really beneficial and should not be the problem some people suggest."

There are already around 850,000 workers aged over 65 in the UK, and there is no evidence that productivity declines after that age, said Mr Davey.

"Many older people have skills and a huge contribution to make to businesses and those businesses that have got rid of fixed retirement ages find it very beneficial," he said. "They have seen it boost their business, not have a negative effect.

"People are living longer, having healthier lives and they have a lot to contribute."

Asked whether allowing older people to stay on in work would reduce the number of jobs available to younger workers, Mr Davey replied: "The opposite is the case. Because of this policy, the evidence suggests that there will be an increase in the number of workers in the workforce.

"That will boost the economy, increasing GDP, increasing tax revenue. Evidence internationally shows more people in the labour market means more activity, more income, more growth.

"Those people who seem to think there is a displacement between young people and older people are not reading the evidence and have a very old-fashioned approach to labour supply, as if there is a fixed amount of jobs in the economy. That clearly isn't the case."

Officials said the change will be phased in between April and October to allow firms to ready themselves and amend their human resources policies.

The announcement coincides with the publication today of the Pensions Bill, which includes raising the state pension age to 66, as announced by Chancellor George Osborne in last October's spending review.

Companies are also to be required to enrol their staff in pension schemes automatically, a move expected to force employers to reduce their contributions for existing members.

Pensions expert David Robertson, of the Association of Consulting Actuaries, said research indicated that many large companies were considering "levelling down" their contributions as a response to auto-enrolment.

He said: "A lot of big firms are looking at levelling down their contributions because they are looking at paying contributions for a lot more employees."

Rachel Krys, campaign director of Employers Forum on Age (EFA), said the move was a "pragmatic response to the increasing calls for change".

She said: "Business performance will improve when employees are used to their full potential, managed throughout their careers and not cast aside as they enter their 60s or encouraged to coast towards retirement.

"A new approach to retirement which enables individuals to work as long as they are making a valuable contribution, and protects employers' ability to provide insurance and benefits, is a pragmatic response to the increasing calls for change.

"Growing numbers want to and have to work beyond 65. Outdated policies which prevent this group working increase the burden on the already creaking state pension provision and ignores the fact that we are living longer and healthier lives.

"Employers without retirement ages experience a greater focus on performance, a reduction in recruitment costs and the retention of talent, whatever the age."