MILLIONS of employees will be forced to work until they are 70, or face vastly reduced company pension payouts, under new proposals.

The plans, to be published by the Government this summer, will impose a mandatory retirement age on Britain’s workers for the first time. Companies are currently able to set their own retirement age.

The move, which is likely to meet fierce opposition from workers and unions, will mean that millions of people in company schemes will be forced to work until 70, or lose their right to claim their full pension entitlement. Many who had hoped to take early retirement will, instead, be forced to work beyond the traditional retirement age of 65.

The plans, to be unveiled in a consultation paper from the Department of Trade and Industry, will be buried in a package of measures designed to enable the UK to comply with new EU legislation on age discrimination.

Britain, along with other EU members, has to implement a new EU directive on age by 2006, which means that discrimination on the basis of age, including at the time of retirement, will be outlawed.

The Government will say the legislation is good news for many workers that are forced to retire before they want to, and now will have the right to work on until they are 70.

But pensions experts claim that the laws will be used by the Government to tackle the growing pension-funding crisis. The changes could also lead to an increase in the state retirement age, from 65 to 70.

Ministers are understood to want to shift the burden of pensions funding away from the state. They want retirement funding to be met by a combination of private sector pension provision and the individual’s own efforts. Ministers believe that the present system, where the state meets 60 per cent of pension costs, is unrealistic.

Tom McPhail, a pensions expert at Hargreaves Lans-down, the independent financial adviser, said: “These proposals will come as a shock to a lot of people who will see their pension substantially reduced if they want to retire at what they regard as the traditional pension age. Many people will be very upset by this, and will be forced to re-examine their expectations for retirement.

“While some people may enjoy the ability to work on into their mature years, the reality is that many people do not want to spend their declining years at their desk.”

At present, most company schemes are so-called “60th” pensions schemes, which work on the basis that people retire between 60 and the traditional state pension age of 65.

But under these new rules, employers are likely to recalculate their final salary schemes to take account of the fact that many of their workers will continue working until they are 70.

They will spread pension payments over 70 years, enabling workers to claim their full pension entitlement only when they reach that age, and penalise them if they leave the scheme earlier.

Many employers will oppose the prospect of being faced with an ageing workforce. But pensions experts said that they could also use the laws as an excuse to make further cutbacks to their company schemes by spreading the same amount of pension funding over more years.