Tens of thousands of pensioners who want the right to continue working beyond the compulsory retirement age have lost their legal battle to change the law.
Judges sitting at the European Court of Justice (ECJ) rejected claims that the UK policy on retirement at 65 amounted to age discrimination.
They ruled that as long as the rules were based on a "legitimate aim" linked to social or employment policy, the Government had not breached the Equal Treatment Directive.
The UK's Employment Equality (Age) Regulations, introduced in 2006, ban age discrimination but exclude pensioners, who can be dismissed at 65 without redundancy payments, or at the employer's mandatory retirement age if it is above 65.
The verdict in Luxembourg amounts to a defeat for Age Concern's legal battle to banish enforced retirement at 65, but the final decision still rests with the High Court in London.
The opposite decision would have most likely led to a glut of age discrimination claims. About 260 employees were thought to be sitting on age discrimination and unfair dismissal cases, awaiting the verdict.
Yesterday's ruling received a mixed response from pensioner campaign groups and company bosses.
Age Concern's director general, Gordon Lishman, said: "We are disappointed with the ECJ's judgment which sends the message that ageism is less important than other forms of discrimination, but we will continue our fight to ensure that older British workers are judged on their skills and abilities rather than their age.
"The Government continues to consign tens of thousands of willing and able older workers to the scrapheap. It is time for ministers to find the courage of their convictions and abolish the default retirement age without further delay."
But the CBI's director general David Frost said the ruling was "the right decision". He said: "The vast majority of businesses value their older employees and the considerable experience that they can bring to a firm. The right to request a postponement to retirement already exists, so there is no need to try to remove what should be a normal process of communication between employer and employee. The existing rules allow for the fairest outcome on both sides."
The Government argues that, under the current rules, retirement ages are lifted on a voluntary basis. A Department for Business, Enterprise and Regulatory Reform spokesman said: "We welcome the ruling that the UK's default retirement age is in line with EU law. The default retirement age is a tool that employers can use to plan their workforce, but many choose not to use it and the Government does not set a mandatory retirement age."
The High Court, which sent the case to Luxembourg for clarification of the law, will now have to make a final ruling on whether the aims of the Government's 65 retirement age are "legitimate".
Yesterday's judgment made it clear that EU governments were not required under the equality rules to draw up a specific list of the differences in treatment which they consider to be "justified by a legitimate aim". It went on: "The court notes that the aims which may be considered 'legitimate' by the directive, and, consequently, appropriate for the purposes of justifying derogation from the principle prohibiting discrimination on grounds of age, are social policy objectives, such as those related to employment policy, the labour market or vocational training."
The Liberal Democrat MEP Liz Lynne spoke of a "bitter blow" for older people and urged the Government to change the law: "It has always seemed wrong to me that just because someone reaches 60 or 65, they can be thrown on the employment scrapheap. We must continue to work to end the sudden cliff edge of retirement that forces people to stop working at a certain age whether they want to or not, whilst ensuring that individuals still remain entitled to a state pension at an agreed statutory age."
Case study: 'They said if they gave in the floodgates would open'
John Telfer, 66, remembers the first day he started work 50 years ago as an assistant to the governors of a school in south London. Since then he has barely been out of employment. He says he has been so busy he has hardly given a thought to retirement.
Two years ago, as he was reaching retirement age, he was told by Canterbury Christ Church University in Kent, where he has been the warden of the halls of residence for 14 years, that his working days were over. "They said that they had the right to enforce the rules... It was a bit of a shock."
Many of the students even wrote to the university seeking a reprieve for their warden.
Mr Telfer, one of 250 pensioners bringing legal claims against their employers for age discrimination, says he would have sought a compromise with the university. "But they said if they gave in to me the floodgates would open. Then they said the union would object. I don't think either argument is true."