The taxman says three and a half million people are due a refund, but two million will have to fork out for underpaid tax.
Call for over-65s in work to pay NI
Tory MP Therese Coffey says extra revenue from working pensioners' National Insurance payments could benefit young workers
Pensioners who continue to work should pay National Insurance which could then be passed on as tax breaks to firms who employ young workers, a Tory MP has said.
Therese Coffey said the extra revenue could also be passed on directly to young low-paid workers in the form of a National Insurance holiday.
With the removal of the default retirement age, more people are expected to work for longer but those over 65 who continue in employment do not currently pay National Insurance on their earnings. According to Treasury estimates, up to £2 billion could be raised by changing the rules so pensioners pay NI.
Ms Coffey said the extra revenue could be passed on to under-25s on less than £20,000-a-year. She said it could be worth an extra £375-a-year to an 18-year-old on the minimum wage of £4.98-an-hour, while saving their employer £450. For a 21-year-old, it would be £675 more per year and save the employer £800.
The backbench MP for Suffolk Coastal said she was hopeful the idea could be adopted, particularly if the Chancellor George Osborne merges Income Tax and National Insurance.
Ms Coffey said: "For those who chose to continue working they are doing the same job and then get a pay rise when they turn 65. One of the things I have found from talking to employers is that they are not so keen to take on young people and this would make it more attractive.
"When they take on somebody with 20 years of experience they are already really productive. I think in this challenging climate they are more likely to go for somebody with experience rather than somebody who is fresh."
Last month, a report by the respected Institute of Fiscal Studies found pensioners have enjoyed the fasting-rising incomes over the past decade.
At the same time, it said, they will shoulder less of the burden of the coalition Government's tax and benefit changes than working age people. It found while pensioners' incomes have risen by 29.4% since 1999, those of non-pensioners' have risen by just 26%.
Ms Coffey made the suggestion as part of a paper called Policy Bites, which has put forward seven proposals the Government could adopt to help businesses grow. Other ideas include building a third and fourth runway at Heathrow Airport, a suggestion from Tory MP Kwasi Kwarteng.
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