The £1.2bn pensioner tax break John Healey could target at the Budget

The financial advice firm said the cost of the exemption has increased by 43 per cent over the past six years, potentially making it an attractive option for a Government looking to raise money.

People who continue working after reaching State Pension age do not currently pay National Insurance on their earnings.

They must still pay income tax, while their employers continue paying National Insurance as usual.

The exemption exists because National Insurance paid between the ages of 16 and State Pension age helps people qualify for benefits, including the State Pension.

Once someone reaches State Pension age, they generally stop paying contributions even if they remain in work.

However, the cost of this relief has risen sharply as more older people continue working.

In 2020/21, the exemption cost the Treasury £840million and benefited 597,000 pensioners. By 2025/26, the cost had reached £1.2billion, with 899,000 people benefiting.

The increase comes as the State Pension age begins rising from 66. The change started in April 2026 and the qualifying age will reach 67 by April 2028.

More people are also continuing to work beyond traditional retirement age because of higher living costs or inadequate pension savings.

Others remain employed because they enjoy the sense of purpose and social contact, sometimes reducing their hours or moving into less demanding roles.

Department for Work and Pensions figures show that 29.7 per cent of people aged 65 to 69 were working in 2026, up from 15.8 per cent in 2006.

Employment among those aged 70 to 74 has also more than doubled over the same period, rising from 5.9 per cent to 11.9 per cent.

Those pensioners still earning had a median weekly income of £446, with 4% taking home £1,500 or more per week.

Sean McCann, chartered financial planner at NFU Mutual, said the exemption was one option the Chancellor could consider ahead of the budget.

“A growing number of people are choosing to continue working beyond state pension age either through necessity or choice,” he said.

“With employees paying 8% National Insurance on earnings between £12,570 and £50,270 and 2% on anything above, a change in policy could see a pensioner with earnings of £25,000 pay an additional £994 a year.”

Mr McCann suggested the government might introduce a reduced rate for working pensioners to acknowledge that they are already receiving their state pension.

“While the bulk of revenue generated by National Insurance is used to provide the state pension and other working age benefits, a proportion is used to help fund the NHS.

“With the Chancellor keen to put the public finances on a more stable footing, it’s possible that working pensioners will be asked to shoulder some of the burden,” he added.