Retirement age to be scrapped in pensions review

Older workers will be given the chance to "wind down" into retirement under government plans to be published tomorrow.

Compulsory retirement at 65 will be scrapped in an effort to reduce the growing number of people retiring with smaller pensions than they had anticipated. Andrew Smith, the Secretary of State for Work and Pensions, warned yesterday that employees would have to work longer or save for their retirement because of the "remorseless arithmetic" of an ageing population.

Tomorrow's long-awaited Green Paper on retirement savings is not expected to include radical reform of state pensions, such as raising the basic retirement age, but will concentrate on reducing the regulation faced by companies offering occupational schemes. The formation of a new high-powered pensions watchdog to restore trust in the pensions industry will also be announced.

The moves could disappoint the financial services industry, which has said workers face a £27bn pension "black hole" because of the slump in the stock market. It also reported a near doubling in the number of companies closing their final salary pensions to new members.

It was also reported that the Government would keep under review the possibility of forcing employees to take out private pensions, for instance if tax changes designed to encourage workers to save more fail to solve the problem of retirement provision.

But he is preparing to reject a "quick-fix solution" and to clear the way instead for older workers with private pensions to be able to work longer. Although the state pension is automatically paid at the age of 65, employees currently cannot draw any of their private pensions even if they continue to work part-time for the same employer after that.

Mr Smith said about half the workforce was not saving enough for retirement. He added: "We've got to get away from the idea of retirement as a cliff-edge, where on Friday you're a valued member of the workforce, but on Monday you're shuffled off to retirement and that's it. More and more people would like to move gradually into retirement."

Mary Francis, director general of the Association of British Insurers, said: "If the Green Paper gets just high marks for presentation and low marks for action, it will have failed. It is vital that the Government gets this right."

The TUC, Consumers' Association and Help the Aged called for an "unequivocal commitment" that the Government will maintain the basic state pension. It also believes it should be compulsory for companies and individuals to contribute to pension schemes.