Plans to scrap fixed retirement age by October 2011

A man talks on a mobile telephone in front of Tower Bridge whilst walking across London Bridge in London March 1, 2010.

LONDON (Reuters) - The government announced plans to scrap the fixed retirement age next year, saying it wanted to give people the chance to work for longer although business leaders said the move would create serious problems.

Currently, employers can force staff to retire at the age of 65 regardless of their circumstances and without having to pay any financial compensation.

Under the government's consultation proposals, the default retirement age (DRA) would begin to be phased out from April 2011 and come to an end by October next year.

Ministers said the move was designed to give people more choice as they enjoyed longer and healthier lives.

"With more and more people wanting to extend their working lives we should not stop them just because they have reached a particular age," said Employment Relations Minister Edward Davey.

"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."

However, the Confederation of British Industry said the compulsory retirement age allowed employers to plan for the future, adding the speed of the proposed change left business with 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," John Cridland, the CBI's Deputy Director-General.

"This will create uncertainty among employers and staff, who do not know where they stand. For employers, these proposals could make workforce planning and providing some employment benefits, such as critical illness cover, next to impossible."

The government said the plans would still make it possible for certain employers to operate a compulsory redundancy scheme if it could be justified, citing air traffic controllers and police officers as examples.

The proposals will also inlude a review of when the state pension age should be increased to 66 and to re-establish the link between earnings and the basic state pension.

(Reporting by Michael Holden; Editing by Susan Fenton)