Jonathan Howard, head of corporate clients at Courtiers, investigates the impact of a change in the UK's default retirement age.

You’ll be fascinated to learn, as I was, that the government has just brought forward its review of the UK’s default retirement age (not to be confused with the state pension age) to next year. Having read the relevant consultation document from the Department for Work and Pensions, I think the review will conclude that giving employers the right to pension off their staff without question at age 65 is no longer appropriate.

Like any right-minded person, I firmly believe that discrimination based on a person’s age is a wholly destructive thing and should not be tolerated, but how will all this affect the UK economy?  Does giving people the right to work longer serve the national interest?

The argument in favour of removing the threshold altogether is straightforward. Perfectly capable and willing employees, with decades of experience and knowledge, reach the age of 65 and get unceremoniously dumped by their employers because they are deemed too old and too expensive. They are replaced by younger and cheaper labour, and the 65-year-old is left to contemplate a long and uninspiring retirement. If insufficient pension provision has been made, you could also insert the word ‘impoverished’ into the preceding sentence.

On the other hand, if you believe in a free market economy, you must believe that well-run companies take whatever action they deem most beneficial for their businesses. A valuable employee will be offered the chance to work past 65 if the company thinks it is in their own interests, regardless of the default retirement age. Having a default simply allows employers to better plan for the future. Let’s keep in mind that, according to the CBI, less than one fifth of employees who asked to work beyond 65 had their request declined.

While retaining older staff has some impact on those attempting to get on the bottom rung initially, the net effect for the economy remains positive – the better trained and more experienced employee is able to contribute more than the 18-year-old apprentice, leading to increased output, increased demand and, ultimately, more jobs.

Having a default retirement age does serve a useful purpose when it comes to retirement planning. Pension saving in the UK is already woefully inadequate, and giving people the right to work forever can only serve to drive those savings down further – why save for a pension when you can spend your income now and then just work until you die?

I believe that we do still need a default retirement age to enable businesses and individuals to plan their respective futures effectively, but there is no denying that the current default age of 65 is outdated, given the significant increases to life expectancy enjoyed since it was introduced. We are heading towards a pensioner-heavy society, with all the associated stresses that places on the remaining working population and healthcare, and this must be addressed.

I would therefore propose a series of small increases, rather than abolition of the default age altogether. There must always be a balance between the needs of the individual, the needs of businesses and the needs of the state, and this would appear to strike that balance.