Morning Line: What next after axing the 65 default retirement age?

The government yesterday finally announced its intention to scrap the 65 default retirement age. And about time too.

In 2009 – with increasing longevity and a deepening pension crisis, not to mention a widespread commitment to fight discrimination of all kinds – the 65 rule is a glaring anachronism. The only surprise is that it has lasted so long.

The real challenge, however, will be deciding what to replace it with in the long term. And on that topic there is nothing close to a consensus yet emerging, which is unsurprising given the complex and contentious issues ultimately at stake.

At one level the debate is about fairness and equality and in this context the case for scrapping mandatory retirement rules altogether is overwhelming.

Why should an employer be allowed to discriminate on the basis of age when it is not allowed to on race or gender? The answer is that they shouldn’t. There will be important exceptions, certainly - for example in jobs which require a certain level of physical fitness or require a long period of expensive training - but in general the principle of non-discrimination holds good.

For many older workers, meanwhile, the prospect of choosing to work into their 70s and 80s is an appealing one. They feel fit enough; the extra money is welcome; and they still feel they have something to contribute to the economy and to broader society. Besides, for many millions retirement is something to avoided for as long as possible, as it is often accompanied by a more rapid decline in physical and mental health.

On another level, however, the debate is one about the future shape of the UK labour market, and particularly the ‘flexibility’ which the government and employers have trumpeted for so long. To quote the Confederation of British Industry directly: ‘Having a default retirement age helps staff begin the process of deciding when it is right to retire, and helps firms plan ahead with more confidence.’

The key point here is the second one: employers want to retain the ability to axe staff when they see fit, whether that is because they are past their prime or because of broader pressures on costs. This in turn touches on the sensitive accusation that some firm are using the current downturn as an excuse to fire more expensive elderly employees.

More broadly, meanwhile, the debate over the default retirement age goes to the heart of the growing pension crisis in the UK economy, and the dawning realisation that the golden age of UK pensions is long past, almost certainly never to return.

The fundamental problem is a simple one: an aging population pretending that it is still young, and relying on a pension infrastructure designed for more youthful and prosperous times.

Once employers could be relied upon to provide generous final salary pension schemes for their employees; these days private-sector employees are lucky if they get a half decent defined contribution scheme. The reason they used to provide such generous benefits is that they had to - it was the only way to attract the best staff. Today there is no such pressure on them, except at the most senior levels, and only government regulations force them to provide for their employees’ retirement.

The state pension, meanwhile, has taken an almighty hammering over the past two decades, especially after the link with average earnings was cut. Labour has made some effort to improve conditions for the poorest pensioners, but its efforts have been hampered by economic pressures, not to mention its own ill-thought through policies such as the scrapping of advance corporation tax (ACT).