Jeff Salway: No alternative on table as the end of forced retirement finally looms

Like the acceleration in the state pension age increase, news that the default retirement age is being scrapped was greeted with an acceptance that would have been almost unthinkable just five years ago.

Opinion remains split on the eradication of the default retirement age (DRA) and the potential negative implications are clear, but outrage and fury are conspicuous by their absence.

Lord Turner's 2005 pension commission report, which laid the foundations of the pension reforms proposed or implemented since, sparked a considerable backlash. Its centrepiece was an increase in the state pension age that, in the event, was more gradual than the eventual hike to 66 by 2020 that was rubber-stamped in Thursday's pensions bill.

A later state pension age created an obvious anomaly where workers could be forced to retire on age grounds at 65 but not be able to draw their state pension. So in the year that the first baby-boomers reach 65, there was no alternative but to scrap the DRA. There are arguments against it, and valid concerns, yet they pale in comparison with the urgent need to address the inexorable decline in retirement savings.

Under the changes announced on Thursday, companies will no longer be able to dismiss employees just because they have reached 65, but will instead have to prove staff are not capable of continuing their duties. Only people notified before 6 April this year and whose retirement date is before 1 October can be forced to retire using the DRA.

Trade and industry bodies knew this was coming, but that hasn't prevented a predictable outcry. That's not to say they don't have valid grievances, not least the limited time they've been given to amend their procedures. That, and a lack of clarity around the changes, will doubtless result in numerous unfair dismissal claims.

The other concern is the impact at the other end of the job market. There are valid fears that allowing 65-year-olds to continue working creates yet another obstacle for younger generations, where unemployment levels are already highest. This may be the immediate impact, but it could be argued that by helping 65-year olds to continue working, the dependency on the state purse is reduced and pensioners have more money to spend, boosting the wider economy.

The impact of the move shouldn't be under-estimated from the perspective of saving for retirement. Far too many people have no choice but to draw their pension benefits earlier than they would otherwise like to because they can no longer work. The end of the DRA provides new flexibility for people wanting to take control of their retirement plans, giving them a better chance to improve their pension provision.

The added working years can make a massive difference to the pension income enjoyed by those who cannot afford to defer taking an annuity when they retire.The extra pension contributions, the annuity that the bigger retirement fund secures and the boost to the state pension that can be earned by deferring it can add up significantly.

The scrapping of the DRA and Thursday's rubber-stamping of plans to automatically enrol employees into workplace pensions constitute a critical step forward for pensions that has been a long time coming and should, in the long-term, prove profound.

THE Bank of England may have kept interest rates at 0.5 per cent on Thursday, but that won't stop lenders from raising mortgage costs over the coming weeks. The swap rates that dictate fixed-rate mortgages have gone up of late and several lenders have pulled their cheapest deals from the market in the past few days.

As products become more expensive, some commentators, rightly or wrongly, have urged homeowners on standard variable rates to secure a fixed deal before rates rise further.

The lending outlook does seem to have become a little more bleak in the early days of 2011, but there is sympathy to be had for lenders. On one hand, they have the government pushing them to lend more money. On the other, they are being nagged by the Bank to repay billions in loans that were given under the Special Liquidity Scheme in 2008. Analysts at UBS this week included the SLS repayment among the reasons for a contraction of lending by Lloyds Banking Group. The pressure that Lloyds and other lenders are under from the BOE, not to mention increasingly onerous capital adequacy regulations, means lending will remain constrained for a long time to come.