Tax is never deducted directly from the state pension, but it is a taxable payment as pension income so will be taxed under income tax rates.

The lump sum payment if the state pension was deferred is taxable but it cannot put them into a higher tax bracket, ie if their income is within the personal allowance then the lump sum will also be taxed at 0%.

If tax is owed if can be collected by:

• if the individual receives income from another pension, the tax owed on the State Pension is collected from their other pension using PAYE via an adjustment to their tax code;
• if they are not in receipt of another pension, but are still working, then the tax owed on the State Pension is collected through their employer’s PAYE scheme; and
• if they are not working and have no other pension income then the tax owed is collected via their self-assessment tax return.