Sound it out with HR
You are right there is no help we can provide, the matter rests squarely between the line manager, HR and their employment contract(s).
Things you might like to consider;
What are your legal obligations? Should they eventually be retrenched have you provided them with every opportunity to reskill and redevelop?
If you do redeploy them do they have the skills/knowledges sets and are development processess in place?...if they dont measure up long term they could have a case for constructive dismissal. I disagree with Steve, (after having talked to HR about your options) you do really need to be direct, open and pragmatic otherwise you may run into the issues I have just outlined. You may find they want to go but were staying on out of loyalty - you wont know unless you have an honest exchange of views.
Lastly dont move them into a job because you dont know what else to do with them, thats no grounds for recruiting someone, it sends out strange messages and looks like favouritism especially if they arent any good at it. And beware assumptions that just because they are older and experienced they will work well in coaching or development or whatever - its unfounded.
Longevity and being nice is no basis for retention.Older people are subject to the self same performance measures as young people, there are plenty of staff of all ages who we may prefer much less but are much more capable of doing a job effectively. Personal preferences, assumptions and likes should not figure in this difficult decision.
In todays environment, we all have to measure up - whatever our age. Good luck.