Ministers to abolish fixed national age of retirement

The national retirement age, fixed at 65 for men, is to be abolished, with ministers introducing sweeping antidiscrimination laws designed to allow employees to continue working as long as they like.

The national retirement age, fixed at 65 for men, is to be abolished, with ministers introducing sweeping antidiscrimination laws designed to allow employees to continue working as long as they like.

Plans to introduce flexible retirement policies to stop employers forcing people to retire against their will are being drawn up by the Government and will become law by 2006, giving new employment rights to millions of pensioners. The shift in policy, to be signalled in a Commons committee hearing tomorrow, means that employers will not be able to compel people to stop work on the basis of their age alone.

The move comes after a directive from Brussels last year that outlawed discrimination against people at work on the grounds of their religion, age, disability or sexual orientation.

Britain has five years to incorporate the directive into British law. "We are outlawing the setting of retirement ages. It is quite controversial stuff," said a senior government source. "We are still working out the detail because we have until 2006."

The anti-discrimination measure is separate from government reform of state pensions policy. But it is likely to lead to a big increase in the number of pensioners who defer claiming their state pensions, which is allowed under current law up to the age of 75.

Each year that pensioners put off claiming their state entitlements can increase the value of the payments by 7.5 per cent, Age Concern estimates.

The new anti-age discrimination law is expected to beaccompanied by measures to encourage employees to have more flexible occupational pension schemes. Some pension funds have a fixed age of retirement. And current Inland Revenue rules prevent people from drawing part of their pension while continuing to work, unless they move job.

Groups representing employers say more and more organisations recognise the value of flexible retirement policies, including the creation of a "period of retirement" between the age of 55 and 70. "You can't claim pensions benefits and a salary at the same time. You have to move jobs," said a spokeswoman for Employers Forum on Age, which represents 170 companies and 10 per cent of the workforce.

"A lot of employers associated with our groups realise how valuable the experience of older workers is. But a lot of workers are being forced to retire too early. This is leading to even greater skills shortages."

Government advisers say the move will not increase burdens on employers but will allow them to retain workers with valuable skills. One said: "More and more employers are recognising the importance of keeping on skilled older workers. This helps combat age discrimination while providing support for businesses which want to take advantage of the experience of employees."

Groups representing older people predict that the Government could face lawsuits in the European Court of Justice if it fails to act to protect the rights of older workers who do not wish to retire when they reach 65. Article 13 of the Treaty of Amsterdam, signed last May, outlaws discrimination at work because of age.

A spokeswoman for the Department for Education and Employment said: "We have pledged to legislate on age discrimination by 2006. We are working on the detail now."

The cost of "inactivity" among the over-50s is estimated at £26bn a year at least, and the Government believes the new policy will help to address the skills gap resulting from an ageing population and a shortage of young people entering the job market. Within two years, 36 per cent of the labour force is expected to be over 45, and by 2010 the figure could have grown to 40 per cent. In two years' time only 17 per cent of those at work will be aged 16 to 24.

Ministers have relaxed immigration rules to allow skilled foreign workers to take jobs in the NHS and other areas with recruitment problems. They believe that by allowing older people to stay at work longer, businesses can save millions in training and recruitment costs.

Margaret Hodge, an Employment minister, said that the Government planned to "take employers with us, so that they work with the spirit, not just the letter of the law. We must overcome ageist stereotypes."

The age at which women can draw their state pensions is to be raised from 60 to 65, to match the age for men, by 2020.