The death of retirement: Law that means employees must stop working at 65 may be axed

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The compulsory retirement age could be scrapped under a review by ministers to let older employees work until later in life.

A retirement revolution is set to remove the rule that careers must end at 65 and bring in a 'flexible' system to delay the end of careers.

Labour's decision to reconsider compulsory retirement in a review next year was made in the face of two test cases which are about to be decided in the High Court - and which may force ministers' hands.

Workers in their late 50s and 60s have become increasingly unhappy at the law that says companies and employers may sack a worker who reaches 65 without paying redundancy or compensation.

But more than 1.3million are working after their retirement age and the figure is rising at the rate of almost 100,000 a year.

Those who take advantage of retirement age reforms and work beyond 65 will not be able to claim a state pension - available at 65 for men and 60 for women - until they do stop work.

However, they will keep paying national insurance to build up pension contributions towards a better state pension when they do retire if they have not yet contributed enough already.

The rise in employees working beyond retirement age is encouraged by firms like DIY retailer B&Q which employs many older workers because of their honesty, diligence and politeness.

It has also been driven by the failure of Britain's once-admired company pensions system, which has seen the numbers of employees who can retire on a reliable final salary pension fall.

Growing numbers who are at the mercy of less generous pensions and the vagaries of the stock market are looking to work until an older age to make up for their lower pensions.

Ministers were due to review the retirement age in 2011. The decision to bring changes forward was announced by the Department of Work and Pensions in a 'Building a Society for All Ages' paper.

The paper also promised a review of the law to help grandparents, who have no legal rights over their grandchildren.

Minister for pensions and ageing Angela Eagle said: 'It is time to look again at this. Some people prefer to take early retirement, others prefer to keep working. We want to give older people flexible retirement options.

'The Government is responding to the changed economic landscape. The different circumstances today - for businesses, and for individuals coming up to retirement - suggest that an earlier review is appropriate.'

She added: 'As Britain's demographics change, it is sensible that we have the debate on what works for business and individuals. The retirement laws need to reflect modern social and economic circumstances.'

But pressure groups for the elderly were less impressed.

Michelle Mitchell of Age Concern and Help the Aged, the charities that have brought test cases in the High Court and the European Court of Justice, said: 'The Government's decision to bring the review of the default retirement age forward by a year represents a step in the right direction.

'But a review is not enough. 'The Government should immediately put a stop to an arbitrary and unfair rule which stops people from working, simply because of their age.'

Gordon Brown said yesterday: 'Evidence suggests that allowing older people to continue working, unfettered by negative views about aging, could be a big factor in the success of Britain's businesses and our future economic growth.'

But ministers may also be motivated by the need to cut spending and soaring public debt.

Delaying the payment of state pensions to millions of workers who may choose to work on well past 65 could save the Treasury billions of pounds each year.

The paper on retirement ages was release just a day before Labour's long-awaited Green Paper on care of the elderly.

That is expected to propose a cutback in means testing and state help for everybody who needs a care home - but at the cost of possible new taxes or contributions and the withdrawal of benefits for the elderly like attendance allowance.

The Government said it will hold a 'summit' in the autumn to see how the role of grandparents can be strengthened following parental separation and divorce.

At present grandparents have no legal rights over grandchildren, a position highlighted earlier this year when grandparents in Edinburgh objected to being ignored by social workers who handed their grandchildren over to a gay couple. continues here

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