Workers should be able to stay in their jobs beyond the age of 65, and employers should be incentivised to allow older employees to work flexibly, the UK's equality watchdog said today.

The Equality and Human Rights Commission (EHRC) said the ageing population and an increased willingness to work among older people meant it was time for the government to scrap the default retirement age, a law which allows firms to force staff to finish work at 65.

It said scrapping the rule would remove the "safety net" for employers and encourage more radical approaches to issues such as flexibility, handling the performance of workers of all ages, and improving occupational health.

Hand-in-hand with this change, EHRC said, the government should extend the right to request flexible working to all employees and consider introducing incentives for flexible employers, with a particular emphasis on the over-50s.

The commission said the economy "would be the biggest winner" from the proposed changes, with research from the National Institute of Economic and Social Research suggesting that extending working lives by 18 months would earn Britain £15bn.

The government is currently looking into changes to the rule, and has indicated it could eventually scrap it entirely.

A survey of 1,500 workers by the commission suggests a rule change would be welcomed by many workers. It found that 64% of women and 24% of men wanted to remain economically active after the state pension age (currently 65 for men and rising to 65 for women by 2020).

Around 60% said they wanted to continue working but on a part-time basis, while 40% said they would like to stay in their current jobs but with greater flexibility in hours worked.

The commission's deputy chair, Baroness Margaret Prosser, said it was time to move away from systems put in place when people died not long after reaching state pension age.

"Britain has experienced a skills exodus during the recession, and as the economy recovers we face a very real threat of not having enough workers – a problem that is further exacerbated by the skills lost by many older workers being forced to retire at 65," she said.

"Keeping older Britons healthy and in the workforce also benefits the economy more broadly by decreasing welfare costs and increasing the spending power of older Britons.

"Our research shows that to provide real opportunity to older workers, abolishing the default retirement age needs to be accompanied by a concerted drive by government, employers and agencies to meet the health, caring and work needs of the over-50s to enable them to remain in the workplace. Greater flexibility can help to deliver this."

A spokesman for the Department for Work and Pensions said the government's long-term aim was to consign fixed retirement ages to the past.

"We have already committed to bringing forward our review of the default retirement age to this year. We are taking evidence now from business and individuals on the impact of retirement ages," he said.

"Our review will reach a decision after full consideration of the evidence on whether the default retirement age is still appropriate."