Firms will be damaged if they lose the right to set the retirement age of their workers, according to a new survey.

A poll of 1,200 firms showed that more than one in three believed it was crucial that they should decide when staff should retire.

A European Union directive outlawing age discrimination at work, which has to be implemented by the end of 2006, could lead to a mandatory retirement age, business groups believe.

David Frost, director general of the British Chambers of Commerce (BCC), which carried out the research, said: "British businesses are facing an ever-increasing number of diktats determining how to run their companies.

"Bosses need to be able to plan their workforce effectively to ensure they can remain competitive in the global economy."

The BCC believes there should be a retirement age of 65, but wants firms to have the right to keep employing older people.

Mervyn Kohler, head of public affairs for Help the Aged, said: "It is bizarre to hear employers argue that they need a 'normal' retirement age.

"The record of people made redundant or forced into early retirement before reaching 60 or 65 shows that they are quite capable of managing their employees.

"The whole point of the age discrimination legislation is to clearly separate chronological age from considerations of competence."