Companies will no longer be able to force staff to retire at 65, Britain's government said on Thursday in a move to boost the number of older people staying on at work as the population ages.
Governments across Europe have lifted retirement ages as part of austerity packages to cut record budget deficits, despite widespread protests.
UK employers will be barred from issuing compulsory notifications for retirement from October, but will still be able to force people out if they can give a justifiable reason.
Older workers can play an incredibly important role in the workplace and it is high time we ended this outdated form of age discrimination, said Employment Relations Minister Edward Davey.
Population projections suggest more than 10 million people living in Britain today will reach their 100th birthday, putting pressure on the government to reform pensions and increase the working age.
The average exit age from the labor market is 61 in Greece, 62 in Germany and 59.4 in France, European Union figures show.
Davey said there was no need to force people out of employment if they were still fit to work.
Many older people have skills and a huge contribution to make to businesses and those businesses that have got rid of fixed retirement ages find it very beneficial, he told the BBC's Today program.
They have seen it boost their business, not have a negative effect, he said.
About two-thirds of employers in the UK no longer use fixed retirement ages. Britain currently has about 850,000 workers aged over 65 and there is no evidence that productivity declines after that age, Davey said.
But the CBI, Britain's leading employers' organization, criticized the move, saying it did not provide employers flexibility to get rid of unsuitable staff.
The impact on employers, especially smaller ones, will be considerable. There is not enough clarity for employers on how to deal with difficult questions on performance, said John Cridland, CBI director-general designate.
The decision to scrap Britain's so-called Default Retirement Age (DRA) coincided with the publication of a pensions bill, announced in last October's spending review, which raises the state pension age to 66 for men and women by 2020.
From 2012, workers earning more than about 7,500 pounds ($12,100) a year will be automatically enrolled in a pension scheme, either one sponsored by their company or the National Employment Savings Trust (NEST).
The bill also includes plans to link pension payments to the consumer price index (CPI) rather than the retail price index (RPI), which tends to be higher because it includes housing costs.
But pension industry insiders said the bill gives pension schemes little freedom of choice between the two inflation measures.
Now it seems clear that unless you have RPI written in your (pension scheme) rules, you would be stuck with CPI, which in some circumstances could be better for employers, said Zoe Lynch, partner at law firm Sackers & Partners.
You won't have free choice to specify either CPI or RPI, there are plenty of schemes that would like to specify RPI, because there are a lot of investments which are only available on the basis of RPI, Lynch said.
(Additional reporting by Cecilia Valente; Editing by Mark Heinrich)