It is not just right to work longer, it is economically vital that you do so

So we are not going to be forced to retire if we don't want to.

So we are not going to be forced to retire if we don't want to.

In one sense, the Government's announcement yesterday, that compulsory retirement should go, reflects the view of society that people should not be discriminated against in the workplace. There are powerful reasons for supporting this position. Ageism, like sexism or racism, is unfair and demeaning. In so far as the law can lean against it, that must be welcome.

But of course, there is another powerful reason for trying to encourage people to stay in jobs: our ageing society desperately needs their labour. The proportion of people beyond normal retirement age is rising in all developed countries. At the moment, there are roughly four workers for every pensioner. By 2050, when the present twentysomethings will be drawing their pensions, if there were no increase in the retirement age, there would be fewer than two workers per pensioner. The spin on the announcement may be anti-discrimination in the workplace; the reality is economic necessity.

Actually, the idea that there should be a fixed retirement age at all is quite new. The age of 65 as the time when people should be paid state pensions, was chosen by Otto von Bismarck 130 years ago - at a time when the life-expectancy of a male was about 40. It was a great idea: everyone paid towards a pension but not many collected.

Thanks to Bismarck, all developed countries are now lumbered with the age of 65, or thereabouts, as the time when people are entitled to draw their pension. Before he chose 65, the whole idea of retirement was much less rigid. Most men and many women worked for as long as they could; a few rich or indolent men did not work at all and were called gentlemen. And even in the few occupations where there was a formal retirement age, very few people reached it.

The adherence to a single formal retirement age in a period when we are living much longer, coupled with unfunded state pension schemes, has created the pensions time-bomb. There has, in the last few years, been a growing debate about this, though as yet, most countries have failed to tackle the problem. Most of continental Europe faces a catastrophe: the present pension promises simply cannot be met, but any attempt at reform meets political resistance.

Certainly, pensions need to be fixed. Shifting to funded pensions is a help. Continental Europe is starting, haltingly, to establish private-sector funded pensions. In the US, it seems likely that some part of the social- security fund will be invested in stocks and shares. And just this week, here in the UK, the Centre for Policy Studies has produced a report suggesting that people should have the choice of having part of the money they pay towards their state pension invested in the stock-market.

But to focus on the pension side is to look at only one half of the issue. Even if you have adequate funded pensions, you still need people to do the work. So the other line of action is to find ways of encouraging people to stay in the workforce.

The first thing you do to keep people in the workforce is to stop them being heaved unnecessarily out of it. If that is the effect of the Government's initiative, then it deserves a cheer. But it can only be a start. Four other things have to happen.

Change number two is that pension legislation has to be rewritten so that people who want to go on working don't just defer their pensions but are able to benefit from the size of their pension pot. If people want to go on working, not draw down their pension at all but instead leave the capital value of the pension to their children, surely they should be allowed to do so? At the moment, pension legislation, compelling people on funded pensions to buy annuities with the pot, gives exactly the wrong signal. True, the state pension can be deferred until 75, but the financial incentive is not large.

Change three is that the tax system needs to be tilted to keep people in work. Saving tax by paying into a pension fund is unattractive if you are beyond retirement age and already have a large enough pension pot. Inheritance tax almost certainly encourages people to stop working earlier than they otherwise would. Why work on when not only do you have to pay tax on your earnings but then have to pay another wodge of tax on it when your savings pass to your children?

Four, employers need to think of imaginative ways of using older people's skills. One of the problems of our age is that new technologies seem to need the skills of the young. If you have a problem with, say, a washing-machine - you hope that the person coming round to fix it will be 50ish because you know there is more chance you will get the job done well. If you have a problem with a computer, you call your 20-year-old nephew.

So, employers have to embark on a whole string of changes designed both to make jobs more attractive to older workers and to "retrofit" these people with the skills of the young. Pay, conditions, terms of work - everything has to be more flexible. Older people will only continue to work if they feel welcomed and respected. It needs a lot of thought to create a culture that encourages them to do so.

Finally, there has to be a change in the cultural attitude towards retirement. Combating ageism is one side of that. But there is another. People who retire early, including those who are drawing public-sector pensions that have to be paid by other taxpayers, seem to feel little shame. Indeed they are often quite proud to have wangled early retirement.

Now of course, if people have saved for their old age and want to enjoy the fruits of their labour, that is fine. The voluntary sector benefits greatly from the recently retired. Few of us would want to live in a society where there was real pressure on all of us to work until we dropped. But the harsh arithmetic remains. If older people who are perfectly able to work choose not to work, then younger people will have to work harder to keep the economy growing. Early retirement increases the tension between young and old.

That is the thing that matters most. An ageing society must trample on ageism. But it must also cope with the burden that much larger numbers of the very old will place on the young. Shakespeare felt that crabbed age and youth cannot live together. Let's hope he was wrong, because we are going to have to learn how to do so.