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The government is planning to scrap the default retirement age in the UK from October 2011.

Under the proposal, employers would not be allowed to dismiss staff because they had reached the age of 65.

Activists, who have long campaigned against the rule, welcomed the proposal as a "victory" against ageism.

Currently, an employer can force an employee to retire at the age of 65 without paying any financial compensation.

The only obligation on an employer is to hold a meeting with the member of staff to discuss plans at least six months before their 65th birthday.

At the end of that meeting it is entirely at the discretion of the employer whether or not to terminate employment.

The government has launched a consultation process about scrapping the rule.

Under the plans, no forced retirement notices could be issued after 6 April 2011- six months before the October change.

The CBI business group criticised the speed of the proposed changes saying it left firms "with many unresolved problems".

The government's timetable to scrap the default retirement age would give companies little time to prepare, it added.

However, Rachel Krys of the Employers Forum on Age was delighted, saying it was "really unfair" that people had been forced out of jobs because of their age.

"We have to stop these blunt discriminators," she added.

The charity Age UK, which has led the campaign to end the default retirement age, also welcomed the government's plan.

Last year it challenged the rule in the High Court, but was unsuccessful.

"We have fought a four-year campaign to achieve this historic decision so Age UK is absolutely delighted that the government is finally setting a clear date for the abolition of this arbitrary and unfair law," said Michelle Mitchell, Age UK charity director.

"Everybody stands to win from scrapping forced retirement. People over 65 will have full employment rights for the first time. The economy will benefit from older workers' precious skills and experience and their increased buying power.

"Public finances will receive a boost from more people paying taxes for longer."

Proposals to change the retirement law formed part of the government's Coalition Agreement, and was included in both parties' manifestos, but previously no deadline had been set.

The government hopes the change will encourage people to work for longer, against a background of an ageing population.

That could ease the strain on public finances as more people continue to pay tax, while at the same time claiming the state pension.

Activists have argued it could inject billions of pounds extra into the economy.

But some employers are worried it will complicate the job of managing a workforce and add to overall costs.

Graeme Leach, director of policy at the Institute of Directors, said: "We greatly regret the government's decision to abolish the default retirement age.

"We do not see how the removal of a mechanism that gives employers flexibility in managing their workforce is compatible with the government's stated desire to boost enterprise and de-regulate the employment arena."

The rules vary across Europe although, even where there is no default retirement age, figures from 2005 showed that people did not, on average, work beyond the age of 65.