A right-wing think tank has urged Chancellor George Osborne to bring forward plans to raise the state pension age to 68 in an effort to meet the costs of the country's ageing population.

The Institute of Economic Affairs (IEA) also suggested replacing state pensions with compulsory private schemes, and cutting employment regulations aimed at protecting older employees.

The IEA said the state pension age for men and women should rise to 68 by January 2023, around a decade earlier than that set out by Mr Osborne last year.

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After 2023 the state pension age would be linked directly to increases in life expectancy, but, in its report, the IEA added: "Individuals should be encouraged to save for their own retirement and thus bear the costs of earlier retirement themselves. To achieve this aim, in the long term, a privatised pension system, such as that in Australia, would ensure stronger incentives to work."

It also said older people should be exempted from employment protection legislation not mandated by the European Union, and suggested allowing no-fault compensated dismissal for those recruited within five years of the state pension age, making it easier for firms to fire workers.

A spokesman for the Department of Work and Pensions said: "This Government abolished the discrimination of a default retirement age and is reforming state pension age to ensure it reflects changes to life expectancy."

He added: "Automatic enrolment means millions more people will be saving for a pension with a contribution from their employer."