The government is proposing to scrap the default retirement age of 65 by October 2011.
The plan has been set out in a new consultation paper.
At the moment employers can force employees to retire once they reach the age of 65 whatever their circumstances and without paying any compensation.
The only legal requirement is that employers hold a meeting with members of staff at least six months before their 65th birthdays. At the conclusion of the meeting it is a matter for the employer to decide whether the employee can continue in their job after they reach the default retirement age.
Under the new rules, dismissing someone from work on the grounds of their age won’t be possible.
The government said that the move was aimed at encouraging people to carry on working against the backdrop of demographic changes that have seen the UK population living longer and healthier lives.
Other measures put forward by the government include reviewing when the state pension age should increase to 66 and re-establishing the link between earnings and the basic state pension.
If the proposals are implemented, then as from 6 April 2011 employers will not be able to issue any notifications for compulsory retirement using the default retirement age (DRA) procedure.
Between 6 April and 1 October, only people who were notified before 6 April, and whose retirement date is before 1 October, can be compulsorily retired using the DRA. After 1 October, employers will not be able to use the DRA to retire employees compulsorily.
The government did say that it will still be possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it.
Announcing the plans, which go out for consultation until 21 October 2010, Edward Davey, the employment relations minister, said: “With more and more people wanting to extend their working lives we should not stop them just because they have reached a particular age. We want to give individuals greater choice and are moving swiftly to end discrimination of this kind.
“Older workers bring with them a wealth of talent and experience as employees and entrepreneurs. They have a vital contribution to make to our economic recovery and long term prosperity.
“We are committed to ensuring employers are given help and support in adapting to the change in regulations, and this consultation asks what kinds of support are required.”
Steve Webb, the pensions minister, added: “Many older people want to work after age 65 and have a wealth of skills and experience that are not being used. We want to get rid of the default retirement age so that if they want to work they can do so. By spending longer in the workforce they can also have a better pension in retirement.”
Campaigners welcomed the decision.
Rachel Krys, a director of anti-ageism group the Employers Forum on Age, described the default retirement age, created in 2006, as a “dated and unfair system”.
She said: “Its removal is simply common sense. With rising life expectancies, and people staying fitter for longer, it is archaic to assume that someone’s age is an indicator of the contribution they can make to the workplace.
“Employers have nothing to fear from this change. This is an outdated policy and the removal of forced retirement is an opportunity to put policies and processes in place which make the most of an age-diverse workforce.”
The Chartered Institute of Personnel and Development (CIPD) called the plans “greatly encouraging”.
Dianah Worman, the CIPD’s diversity adviser, commented: “Our research has shown that many employees wish to work past retirement for differing reasons and many employers are already benefiting from allowing such flexibility.”
Business groups, however, were not so positive in their reaction.
David Yeandle, head of employment policy at the EEF, said: “Many manufacturers will be seriously concerned about this change in policy, which will make workforce planning more difficult.
“The proposed timetable also gives employers virtually little or no time to alter their policies and practices before such an important change in employment legislation is introduced.
“There is also a real danger that it could open a Pandora’s box with the onus being placed on employers to prove whether older employees are capable of continuing in their current role. Inevitably, this could lead to employment tribunal cases from some older employees who have been dismissed rather than allowed to retire.”
John Cridland, the CBI’s deputy director-general, argued that abolishing the default retirement age would make planning difficult for many employers.
Mr Cridland said: “The decision to abandon the DRA leaves business with many unresolved problems, and the government’s timetable to scrap it will give companies little time to prepare.
“Scrapping the DRA will leave a vacuum, and raise a large number of complex legal and employment questions, which the government has not yet addressed. This will create uncertainty among employers and staff, who do not know where they stand. There will need to be more than a code of practice to address these practical issues; we will need changes in the law to deal more effectively with difficult employment situations.
“For employers, these proposals could make workforce planning and providing some employment benefits, such as critical illness cover, next to impossible.
“A default retirement age helps staff think about when it is right to retire, and also enables employers to plan more confidently for the future. In certain jobs, especially physically demanding ones, working beyond 65 is not going to be possible for everyone.”
The government said it wants to use the consultation paper to find out whether extra support is needed to help employers manage without the DRA or statutory retirement procedures. This could include the possibility of a more formal code of practice on handling retirement discussions.
Views are also being invited on whether removal of the DRA could have unintended consequences for insured benefits and employee share plans.
The consultation can be found at: www.bis.gov.uk/retirement-age