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The government may raise the minimum age of retirement from 50 to 55 to reverse the trend of getting rid of older workers in favour of younger and cheaper counterparts. Mark Tran explains the politics and economics of retirement 

What are the current rules on retirement?

The state pension is not paid until a woman is 60 and a man reaches 65. But people can take occupational and private pensions at 50. 

What is an occupational pension?

Often called 'superannuation' in the public sector, an occupational pension is an arrangement an employer makes, or a group of employers make, to provide pensions for their workers when they retire. Schemes may also pay a tax-free lump sum upon retirement and provide benefits for dependants if the employee dies. An occupational pension can be paid as well as the basic retirement pension.

What is the basic retirement pension?

The basic retirement pension is the foundation of pension schemes. Paying into this pension is obligatory, but other pensions can be added, such as the occupational pension. When you work, you pay national insurance contributions if your earnings are above a certain level (the 'lower earnings limit'). Your employer takes these out of your pay (as well as making payments for you). If you are self-employed, you pay national insurance contributions yourself. These contributions build up your rights to the basic retirement pension, often called the 'old-age pension'. Once you start getting your pension, it increases every year in April to take account of rising prices. 

Why does the government want to raise the age for occupational pensions to 55?

Like most industrialised countries, Britain faces a situation where a dwindling work force will have to support more elderly people. As the post-war baby boom is now approaching pensionable age, it is calculated that by 2040 there will be only two workers to support each pensioner, compared with 3.7 now. The UN recently warned that if Britain wants to maintain its current standards of living it must boost its workforce by either mass immigration, or raising the retirement age to 72. 

How does the government plan to go about raising the retirement age?

The change is to be phased in between 2010 and 2020. The change would coincide with the planned equalisation of the state pension age at 65. Ministers are also to press ahead with age discrimination laws to ban redundancy on age grounds, unless firms strictly abide by the voluntary code published by the government last year. Changes will also be made to allow older people to engage in voluntary work without losing state benefits. 

Isn't this a reversal of recent trends?

Yes. In the 1990s, companies wanted to get rid of older workers on the grounds that they were inflexible and too expensive in preference for younger employees, who were more malleable and cheaper. Early retirement (typically, where the pension starts earlier but at a lower rate, or where a firm offers a pay-off as an alternative to redundancy) was common in the last decade. But pension companies warn it will not be an option in the future. A report from Downing Street's performance and innovation unit shows that £16bn is lost to the exchequer every year because 2.8m people aged 50 to 65 are not working. 

What are the arguments against raising the retirement age?

Age Concern, the pressure group for elderly people, argues that it is unfair to force those in hard manual jobs who are looking forward to retirement to work for another five years. Pension experts also worry that raising the age of early retirement could act as a disincentive to younger people to invest in pensions as it would postpone their hopes of escaping the workplace.