The Government was facing mounting anger from business groups over plans to phase out the so-called default retirement age (DRA) of 65 by October next year.
Ministers said the DRA will be "consigned to the history books", winning praise from anti-ageist campaigners who have complained that forcing someone to retire just because they reached 65 was discriminatory.
But after studying the details of the announcement, the country's leading business groups criticised the move, warning that the timescale will give companies little time to prepare. The Institute of Directors (IoD) said it "greatly regretted" the decision, while the CBI said business will now be left with many "unresolved" problems.
Adam Marshall, director of policy at the British Chambers of Commerce, said: "The Government has pledged to reduce the burden of employment law, but at the same time it is proposing to restrict businesses' ability to manage their workforce by phasing out the DRA.
"Many small and medium-sized firms value the DRA as it triggers a conversation about an employee's future and provides both sides with an opportunity to plan. Companies value the skills and experience of older workers, and most do keep them on, but they also value the freedom to manage their workforce."
CBI deputy director general John Cridland said: "The decision to abandon the DRA leaves business with many unresolved problems and the Government's timetable to scrap it will give companies little time to prepare. Scrapping the DRA will leave a vacuum and raise a large number of complex legal and employment questions, which the Government has not yet addressed.
"This will create uncertainty among employers and staff, who do not know where they stand. There will need to be more than a code of practice to address these practical issues; we will need changes in the law to deal more effectively with difficult employment situations."
The Engineering Employers Federation (EEF) also criticised the "short" timescale, warning that manufacturing firms would not have enough time to prepare for such an important change.
The group also told ministers that the change could lead to an increase in employment tribunal claims from older employees who believe they have been unfairly forced to leave their job.
David Yeandle, the EEF's head of employment policy, said: "Manufacturers also need an explanation of what they feel are contradictory messages from the Government. On the one hand, employers are being encouraged to take on more young people to reduce youth unemployment but, on the other, the Government is making it more difficult for employers to plan for changes in their workforce by phasing out the default retirement age."