Pensions experts have forecast that the Treasury could reap an annual £10 billion windfall by forcing people to work longer.

Ministers are divided over whether to lift the retirement age to 70 or scrap it altogether in response to a European Union directive to ban age discrimination.

The government must introduce some changes to the retirement age by October 2006 to comply with the European Employment Directive.

Tom McPhail, head of pensions research at Hargreaves Landsdown, an independent financial advisory firm, said: "The reality underlying all this is that we cannot afford to have the type of retirement that many of today’s retirees enjoy, because we haven't saved enough."