MILLIONS of older people are to be given greater employment rights under proposals designed to banish age discrimination from the workplace. The measures, announced by the Department of Trade and Industry this week, will allow people to remain in work beyond the age of 65. If companies force them to retire, they will be able to claim unfair dismissal and will be entitled to full redundancy.

It will also be illegal for companies to advertise jobs for young people only. Similarly, training and promotion opportunities cannot be restricted to persons of a certain age without justification.

But while the proposals, designed to take effect in October 2006, contain good news for elderly workers, what effect will this have on pensions? The age at which the state pension becomes payable will remain 65, but the situation with companies is less clear cut. It is thought that Patricia Hewitt, the Trade and Industry Secretary, will still allow companies to force elderly staff to retire, albeit at the later age of 70. However, trade unions fear that companies will try to make this the age at which they start paying full pension benefits.

Matthew Demwell, partner at Mercer Human Resource Consulting, says that it would make sense for some companies to lift the pension age if staff are staying on longer.

Instead of the current “cliff-edge” cut-off — where full retirement benefits are payable at 60 or 65 — companies will allow workers to draw pensions in phases. “People may have the opportunity of working one or two days a week less after the age of 65, in return for part of their pension, which will allow them to keep up their level of income,” Mr Demwell says.

For many companies, though, raising the pension age has less to do with age than the cost of final salary schemes. Companies such as Axa, Rolls-Royce and Woolworths recently raised their retirement ages from 60 to 65.

Kevin Wesbroom, of Hewitt Bacon & Woodrow, the actuarial firm, says that changes to pension ages are unlikely to be retrospective. So if a company raised its retirement age from 65 to 70, a 55-year-old worker who has earned a £100,000 pension pot would still be able to draw that pension in ten years’ time. It is only the benefits earned going forward that will be payable at 70.

Mr Wesbroom says: “What these anti-ageism proposals do is present a huge challenge to employers to provide a decent pension scheme, If not, workers may not be able to afford to retire, so they will stay on at work and they cannot be forced out.”

Francis Fernandes, partner at Lane Clark & Peacock, another firm of actuaries, says that whether companies raise their pension age will depend on the sector they are in. Retailers such as B&Q and Asda have actively recruited older workers, while manufacturers are less likely to do so.

Mr Fernandes says: “Raising the retirement ages to save on pension costs might be appropriate in some industries, but I expect that many employers will be more concerned at the impact of the changes on their business productivity rather than pensions.”

One company bucking the trend of passing the investment risk to employees is Barclays. The bank has launched a new pension scheme that will guarantee members an amount equal to at least 20 per cent of their lifetime earnings when they retire. Each year the pension pot will increase with inflation and it may also be topped up if the stock market performs well.

All new joiners at the bank will be enrolled in the scheme, as will the 24,000 staff currently part of the money purchase plan. They will each contribute 3 per cent of their basic salaries to the new scheme and will also be able to benefit from a money purchase element of the plan.

However, members of the scheme will still have to buy an annuity with their pension pots when they retire, the rates of which can vary substantially over the years.