Leading article: A nettle that needed to be grasped

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The Independent Online

However much consternation they provoke from cash-strapped employers and weary workers, the Government's plans to end the compulsory retirement age from the autumn of next year is a step in the right direction. The whole idea of a "retirement age" is a relic from an era when average life expectancy for men was in the mid-60s. Average longevity has extended by more than a decade since then. People are generally healthier too. The idea that workers suddenly become obsolete on their 65th birthday has long been absurd.

Another common fallacy in this debate is that the old need to be purged from the labour force to make room for the young. The number of jobs in an economy is not fixed; both young people and older people can contribute. Indeed, the experience of older workers tends to be complementary to the energy of the young.

So the shift is necessary. But it needs to be accompanied by other reforms, in particular incentives to flexible working. We have less physically demanding jobs than in the past. The idea that productivity inevitably falls off dramatically in later life is, in most instances, sheer prejudice. It is true that there are still some manual professions in which it does become progressively more difficult for older workers to perform. But the solution is to reform workplace practices, allowing older workers to work fewer hours, or to occupy other less physically strenuous roles.

Flexibility is key. One of the obstacles to flexible working, particularly in smaller companies, is that it creates administrative complications, such as the need to alter National Insurance contributions. This economic downturn has actually seen some encouraging signs of employers and workers coming up with imaginative ways to keep jobs. The CBI estimates that around 45 per cent of British companies have increased flexible working in recent years. That is a start, but much more is needed. And the Government can help. The administrative complications are something George Osborne's new Office of Tax Simplification should look at.

Employment law needs to be reviewed, too. At the moment many companies rely on compulsory retirement at 65 to shed underperforming staff because it is so difficult and costly to remove people through other means. The solution is not to keep an ageist law, but to make it easier for firms to get rid of underperforming workers, whatever their age.

The other side of the retirement age coin is, of course, pensions. One of the reasons the Government is pushing ahead with this reform of the retirement age, where its predecessors prevaricated, is that it has become unaffordable to continue paying out state pensions to all from age 65. It makes no sense to raise one without raising the other.

Retirement and pensions need to be dealt with holistically by ministers. As the Pensions Minister, Steve Webb, pointed out in an interview with this newspaper earlier this week, some seven million workers are not saving sufficiently for their retirement and too many are assuming that their property assets will be sufficient to pay for their old age.

Extending the working age will create some extra time to deal with this problem. But there should be a concerted effort to educate people about the need to make realistic provision for the years after their working lives come to an end. Realistically, a national auto-enrolment savings scheme is going to be required. There also needs to be efforts to ensure that the pensions and insurance industries, which charge hefty management fees and have performed almost as badly as the banks in recent years, deliver a fairer deal for their customers. The Government has grasped the nettle on retirement. But unless it does the same with working practices and pensions, it is going to get badly stung.