Proposed changes to pensions and retirement rules will make it more difficult for smaller firms to create jobs, according to a trade body.

The Forum of Private Business claims the UK government's decision forcing companies to provide pensions for employees and force them to work longer before retirement will deal a double blow to smaller employers.

The FPB believes that making businesses of all sizes provide pension provisions from 2012 - even if they only employ a single person - will add cost and create extra administrative burdens.

It claims the move, announced this week, will lead to a fall in the number of permanent jobs being provided by small to medium-sized enterprises (SMEs) and an increase in the use of temporary staff and self-employed labour.

The FPB argues government intention to remove an employer's ability to retire workers as part of its abolition of the Default Retirement Age (DRA) will stop small employers hiring.

Responding to a recent consultation, the FPB warned the removal of important retirement options, which could be effective from as early as April next year, could leave businesses open to accusations of age discrimination and lead to an increase in employment tribunal claims.

FPB spokesman Phil McCabe said: "The Government has stated repeatedly it wants the private sector to pull the UK out of the economic doldrums by driving job creation.

"Yet by abolishing the DRA and forcing even the smallest businesses to provide staff pensions, it is creating a huge incentive for firms to avoid providing proper, permanent jobs due to the risks and costs involved.

"We appreciate that the Government needs to tackle the pensions shortfall and reduce the costs associated with an ageing population, but it is unfair and counter-productive that businesses struggling to emerge from one of the worst recessions in living memory should be expected to foot the bill."

The FPB pointed out that if Schedule 6 of the Age Regulations - which gives an employer the option of retiring staff at 65 - is removed, workers will be able to work on indefinitely.

Businesses will only be able to use the capability dismissal process to terminate the employment of a worker whose age is detrimentally affecting his or her performance. But many smaller business owners would be reluctant to do this, the FPB believes, as the process would be seen as demeaning, could affect workplace morale and would not provide a dignified end to a career.

The FPB says businesses have not been given enough time to plan for the abolition of the DRA and has called for the DRA to be phased out more slowly.