Almost a quarter of a million more people over the age of 65 have stayed in work since the default retirement age was abolished three years ago – according to Government figures.

According to the Department for Work and Pensions, there are 1,103,000 workers over 65 compared to 874,000 in the quarter October to December 2011.

It added that an average earner working one year longer can boost their pension pot by around £4,500.

Highlighting the gains for the wider economy, the Department for Work and Pensions, said that the country’s economic output could increase by 1%, or GBP16 billion, if everyone worked one year longer.

Pensions Minister Steve Webb said: “In years to come, we’ll look back at the kind of age discrimination that the default retirement age represented and wonder how it was ever allowed. Forcing people to retire at 65 might have made sense in 1925 but in the 21st century it was nothing short of an outrage.

“We have to wake up to the needs and expectations of today’s workforce – 30% of whom are now aged over 50 and one million over 65.

“These people have a massive role to play in our economy and society and many quite rightly want to carry on using the skills and knowledge they have honed over decades and also pass them on to younger colleagues.”

Glenn Hayes, an Employment Partner at national law firm Irwin Mitchell, said: “There have been hardly any reported cases about age discrimination resulting from dismissing older employees following the abolition of the default retirement age, which suggests that employers are adapting to the changes pretty well.

“It is however still possible to retire an employee despite the absence of a default retirement age.  However, employers must clear a number of hurdles first.  Recent cases both in the UK and in the EU have shown that it is possible to justify imposing a retirement age on the whole, or part of a workforce, provided the employer can show that it had a legitimate reason for doing so and that the age selected is a proportionate means of achieving that legitimate aim.”