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Number of over-65s still in work has increased dramatically while business favours return of default retirement age

Pensioners facing higher costs of living are working in even greater numbers, according to a report published today by over 50s insurance group Saga.

The number of those aged over 65 who are still working increased by 124,000 in 2012 compared with 2011.

The report claims there are several reasons for the rise. The inflation rate for older people is running higher - at 10% a year - than for younger adults because of fast-rising prices for food and utility bills. Both items make up a larger fraction of the spending of over-65s than they do for the general population.

In addition, fewer people have traditional final salary occupational pensions, which give a guaranteed income.

Director general at Saga, Ros Altmann, said: "The past two quarters indicate that things are generally improving.

"However, as we enter 2013, it is important policymakers act to prevent inflation squeezing older people's living standards."

Another report published today has found the majority of UK businesses favour the reintroduction of a default retirement age (DRA), with almost a third fearing that without it, they are at greater risk of losing their best younger members of staff due to lack of promotion opportunities.

The report, by law firm Irwin Mitchell, found that, out of the 421 organisations surveyed, more than half would welcome the ability to retire staff automatically once they had met a certain age.

The right for a company to automatically retire staff when they meet a certain age was abolished 18 months ago.

The report claims that, although the DRA was removed and employment can no longer be terminated on the grounds of age alone, what continues to make it an ongoing and sometimes complex point for employers is they still have the option to introduce their own retirement age if they are able to legally justify it.

Irwin Mitchell partner Tom Flanagan said: "Now the DRA has been abolished, the way in which a company performance manages its staff has become highly relevant - particularly in relation to the threat of age discrimination claims. There is a clear argument that if a business cannot retire staff at a certain age, it could potentially be accused of unlawful age discrimination if it uses a performance management process more rigorously simply to 'manage out' older employees

"Given the number of businesses who do not have a performance management process and those which treat older employees differently, the low expectation of age discrimination claims that the survey revealed could indicate that some businesses are not thinking the issues through fully."