Thousands of public servants will be entitled to work until they are 70, under proposed new legislation approved by the government yesterday, according to the minister for Finance, Public Expenditure and Reform.

Paschal Donohoe said that as people were living longer and were in better health, many public servants wanted to work for longer, but could not because of a mandatory retirement age of 65 for those recruited before 2004.

He said the government now proposes to allow most employees to work up to 70 years of age if they choose to do so, though he stressed that they will still be free to retire at the minimum retirement age if they so wish.

Mr Donohoe said for anyone who joined after 2004 - they either do not have a maximum retirement age or the maximum retirement age is already 70.

He said the extension has to be agreed between employee and employer.

He added the minimum retirement age was not being changed.

Speaking on RTÉ's Today with Sean O'Rourke, Mr Donohoe said: "We're saying when people get beyond that point, particularly for people who joined before 2004, they will have the option to work for longer."

He acknowledged that this could result in a higher public service pay bill, as older workers staying on for longer would probably be in higher grades and at the top of their pay scales, and would not be replaced by younger workers on lower rates.

However, he insisted this cost would be partially offset by the fact that the pension lump sums would be deferred for longer.

The later retirement date will not apply to certain frontline workers like Gardaí and fire personnel, who already have accelerated pensions with a right to retire early on full pensions because of the nature of their work.

Workers who have already paid 40 years of pension contributions entitling them to a full pension but opt to stay on for longer will continue to pay contributions, but will not accrue further pension entitlements.

Mr Donohoe said he expected the change would have minimal impact on promotional prospects as the state was now recruiting more workers.  

He acknowledged that the legislation would only apply to public service workers, but said a proposed Workplace Relations Commission Code of Practice would examine this issue for the private sector.

He said he hoped to bring legislation before the Oireachtas early in the new year.

Head of Advocacy and Communications at Age Action has said it welcomes the Government's proposal. 

Speaking on RTÉ's Morning Ireland, Justin Moran said the current situation where people leave work at 65, but are not entitled to the State pension until they turn 66, "creates a great deal of difficulty of financial hardship for a lot of older workers".

He said Age Action deals with a lot of older workers "who are in their late 50s early 60s who are fearful of losing their jobs at the age of 65 for no other reason than reaching an arbitary age".

He said the measure will allow people to continue working, if that is what they want to do.

Mr Moran said the current situation forces people on the dole, which is €50 to €60 less than the State pension, where there are "more 65-year-olds on Job Seekers Benefit than at any other age".

He said he would like to see the measure extended to private sector workers.

Mr Moran added: "The notion that forcing older workers out creates jobs for younger workers isn't backed up by the evidence and in fact examples in France and Belgium show that the opposite is the case. 

"The more people you have in employment, the more people are growing the economy, creating job opportunities."