The Institute of Directors (IoD) on Monday proposed increasing the state pension age by as much as five years to 70 and immediately walked into a row with unions and the Liberal Democrats.

Brendan Barber, the General Secretary of the TUC, accused the IoD of consigning tens of thousands of employees who are forced to retire at 65 to five years of “workless limbo”.

“With employers fighting hard to keep a retirement age of 65, such a proposal would condemn many older people to a limbo where they are too old to work and too young for a state pension,” Mr Barber said.

The TUC also said that the proposal would disproportionately hit the poor and those more reliant on state benefits in their retirement.

Vince Cable, the Liberal Democrats’ Treasury spokesman, told The Times that the proposal was “not helpful” when Britain’s three main political parties were finally beginning to reach a consensus on a way of tackling the UK’s pension crisis.

“The institute doesn’t appear to realise just how complex it is getting to a cross-party consensus on these issues. It has been hard enough equalising retirement ages for men and women at 65, and indeed increasing that by several years. If we’re going to get some understanding of this across governments, you can’t keep fiddling with the pension age,” Mr Cable said.

He added that as long as companies continued to make staff retire at 65, the IoD’s proposal was unlikely to be workable.

However, Theresa May, the Shadow Work and Pensions Secretary, left the door open for the Tories to consider such a measure if they came to power next year. “Conservatives have made clear that we are prepared to make the tough decisions needed to ensure that all pensioners receive a decent state pension,” she said. “So, in order to honour our commitment to raise the state pension in line with earnings, we will need to bring forward the date when the pension age rises to 66.”

The Conservatives outlined proposals to increase the pension age to 66 earlier than planned at their annual conference this month. Ms May also said that the Tories would set up a review to consider future rises in the state pension age.

The IoD, which speaks for more than 52,000 company directors, said that the official pension age should be increased to 70 “as soon as reasonably practical”. It also proposed that most means-tested retirement benefits should be abolished in favour of a universal basic state pension that is topped up by pension credits.

Malcolm Small, the senior adviser on pensions policy at the IoD, said that radical reform of the pensions system was needed because people were living much longer. “Startling increases in longevity in recent decades mean that it is unrealistic to expect to be able to fund a potential 25 to 30-year retirement from an effective 30 to 35-year working life,” he said.

Mr Small also said that the pensions system was too complex and acted as a disincentive for savers. The IoD’s proposal came despite plans to introduce in stages from 2012 a compulsory workplace pension for all UK workers.

National standards

America 65 years (for those born in 1937 or earlier) on a sliding scale to 67 years (for those born after 1960)

Australia 65 years for men; 60 years for women (for those born before 1935) on a sliding scale to 65 (for those born after 1949)

Germany 65 (with plans to increase it to 67 by 2029)

France 60

Italy 65 for men, 60 for women

Japan 60 (with plans to increase it to 65 by 2013)

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