The government has outlined plans to axe compulsory retirement at 65 as part of a widespread review of age discrimination laws.

Employment minister Margaret Hodge announced the establishment of an age advisory group at a Commons committee on Wednesday. Its focus will be on tackling the rising problem of people who are made redundant in their 50s and struggle to find new jobs because they are considered too old by employers.

The government is beginning to consider how it will bring in new rules to protect the rights of older workers to comply with EU commitments that ministers accepted under the Treaty of Amsterdam signed last May.

The new laws must be in place by 2006 and among the options are a period between the age of 55 and 70 when retirement could be taken.

Patrick Grattan of Help the Aged said: "We support the abolition of fixed retirement ages. It would allow those who want to go on working to do so. This is good for employers, the economy and individuals. It does not present a problem for employers, as most people do not work right up until the retirement age anyway. Other countries such as New Zealand have abolished retirement ages without a problem for employers.

"The right to draw on an occupational pension or the right to state benefits when they are needed is a different matter. Occupational pensions can and are paid to many people before retirement age from 50 onwards. State benefits for those who cannot work when they get older will remain fundamental and would not be changed by ending fixed retirement ages. Of course the advantages of abolishing the fixed retirement age all depends on stamping out age discrimination once and for all in employment, so that those who want to can continue working for as long as they want," he said.

The CBI urged the government to take a cautious approach when deciding the legislation. "We can live with anti-discrimination laws but age doesn't fit easily with this. The government has got six years to implement this and given the complexity of the age issue we will ask if we have a national debate. We would also like employers to have early guidance so they are not hit by a raft of tribunal claims," said a spokesman.

Age Concern said that flexibility and radical laws were the way forward.

"We have long said that older people want the option to carry on working after the age of 65. It's great that the government has progressed to this level but there are two problems. We don't want to see the fixed date extended; this won't benefit all older people. If someone has worked very hard it won't bring any improvement to their life," a spokesman warned. "Secondly, what we'd like to see is all-encompassing anti-age discrimination laws that are in the same league as legislation on sex and race. This should cover financial services and treatment rationing in the NHS."