Business chiefs have backed government proposals to allow employees to retire at 65 but have warned of the costs of measures to stop age discrimination at work.

The planned rules, which must be in place by autumn to comply with a European Union directive, would ban compulsory retirement below the age of 65 unless this could be ‘objectively justified’ by an employer.

The current upper age limit for unfair dismissal and redundancy rights would also be removed.

David Frost, the director-general of the British Chambers of Commerce has warned that too little time had been allowed for small companies to get to grips with the new rules.