Taxation and State Pensions

Your basic State Pension will count as taxable income when you retire, but will be paid to you without tax taken off. The way you pay the tax due on your State Pension will depend on a number of factors. If you are still working at this point of your file, then you can pay this tax through your employer's PAYE (Pay As You Earn) scheme (depending on the amount you earn). If not, you will have to complete a Self Assessment tax return each year.  If your income is low there may be no tax to pay - and you may be able to get other benefits.

If you defer you State Pension, then you can earn a one-off taxable lump sum payment, or a higher weekly State Pension (it depends on how long you have deferred it for). Both these additional amounts are subject to income tax, so you will need to pay tax at the same rate as you are paying on your other income.

If your pension is taxed through your employer or your pension payer you will receive a PAYE Coding Notice (form P2) from HMRC at least once a year telling you your tax code. It is very important to check this to make sure it shows the right amount of tax on your State Pension.