"Compulsory retirement for public servants has been mandatory at 65 for decades and Fine Gael's common sense and pragmatic approach will see a major shift in this policy for good".
He added the minimum retirement age was not being changed.
"They will still have the ability to retire at the point that they now do".
They want to be able to work a little longer to ensure a more secure retirement.
Mr Donohoe said for anyone who joined after 2004 - they either do not have a maximum retirement age or the maximum retirement age is already 70.
Workers who have already paid 40 years of pension contributions entitling them to a full pension but opt to stay on for longer will continue to pay contributions, but will not accrue further pension entitlements.
He said the extension has to be agreed between employee and employer.
Justin Moran, Head of Advocacy and Communications with Age Action, said: "Many older workers are afraid of losing their job for no other reason than turning 65".
"However, there are many thousands of older workers in the private sector who will not benefit from today's changes".
Minister for Public Expenditure Paschal Donohoe announced interim arrangements which, pending new legislation, will allow public servants who reach the age of 65 and who wish to remain working, to retire and be rehired so that they remain in employment up to the State pension age, which is now 66.
"Legislation is now stuck in the Oireachtas that would abolish mandatory retirement clauses, including in the private sector, and we would like to see the Government enable that Bill to move forward".
Mr Donohoe highlighted what he described as difficulties being experienced by public servants who are obliged to retire at 65 but who are not eligible for the contributory State pension until their 66th birthday.
Mr Moran added: "The notion that forcing older workers out creates jobs for younger workers isn't backed up by the evidence and in fact examples in France and Belgium show that the opposite is the case".