Under regulations passed by the last government in February and due to come into force on September 1, teachers' employers will now be obliged to pay part of the costs of early retirement packages.
Since the late 1980s the department of education has itself funded all the costs of all early retirement and the National Association of Teachers in Further and Higher Education fears the move will encourage employers to make its older members redundant because they will be unable to afford early retirement.
Today, the union launched an eleventh hour bid to overturn the policy, urging London's high court to declare the regulations 'unlawful'.
Joan Gordon, NATFHE's pensions officer, said: 'The employers won't be able to afford it so it is going to be more difficult to get early retirement.
'Instead older members will be made redundant because it costs far less, but it is very difficult to get another job at the age of 55.
'I would say this is going to affect thousands of our members.'
The policy change, as well as hitting teachers' pension entitlements, will also hamper employers and could harm the quality of tuition, claims NATFHE, which represents around 70,000 lecturers and teachers.
The union's counsel, Elisabeth Laing, said: 'Many employers will not be able to afford to retire teachers early.
'They will thus be locked into employing teachers over 50 when it would or might be in the interests of the employer to dismiss them because the employer cannot afford the mandatory compensations which the compensation regulations impose.'
During the hearing, counsel for the DfEE, David Elvin, agreed the regulations would have the effect of discouraging employers from giving early retirement.
But he told the court the legislation requiring the DOE to pay for early retirement had been introduced in the 1980s simply as a 'temporary' measure to cope with a then surplus of older teachers.
'There is no continuing justification for it,' he told the court. 'It is seen as depleting unnecessarily the body of mature and experienced teachers to the detriment of education as a whole'.
He added: 'The changed provisions are designed to ensure that when an authority grants an application for early retirement it should bear a significant part of the cost.'
Miss Laing had argued the DfEE could not make such a dramatic policy change without actual legislation by parliament.
But Mr Justice Ognall ruled the DfEE had had the power to do so and warning NATFHE against taking the case to appeal, said even if he was wrong, 'fresh legislation bringing the change into force could be in place in a very short time.'
Although he refused NATFHE leave to take its case to the court of appeal the union, ordered to pay all the legal costs of the hearing, now has until 4pm on Monday to apply to the court of appeal itself for leave.