If the default retirement age is scrapped, the cost to employers of employee benefits could increase by a third, warn pension experts.

Following the announcement on Monday that the Government is to bring forward the review of the default retirement age from 2011 to 2010, Aon Consulting predicts the retirement age will rise, and when it does employers will have to pay additional pension contributions.

In the private sector where average employer contributions are 7% of salary, this could lead to significant expense when added to other benefit costs such as death in service and private medical insurance.

Matthew Lawrence, senior consultant at Aon Consulting, said: "The evidence shows that businesses are already adopting a pragmatic approach to retirement and they do not use 65 as an arbitrary way of retiring people: 81% of all requests to work beyond the default retirement age are accepted under the current rules, according to CBI research.

"Given existing policy commitments and the Heyday ruling, however, the reality is that the default retirement age will rise or be removed completely.

"If we work on the basis that the default retirement age is to be increased to 70, Aon has calculated that this could have serious financial implications for employers who currently provide group income protection benefits through to ‘normal retirement age'. A typical large white-collar organisation would, for example, expect the cost of providing that benefit to increase by at least 20%."