Apparently, 60% of pensioners are unaware that their State Pension is taxable income. Historically this assumption is probably based on the way in which their pension is paid without deduction of tax.
This may be about to change!
The Office of Tax Simplification has come up with an idea to streamline the taxation of pensioners. They are seriously considering bringing the State Pension into the pay-as-you-earn system.
If this happened HMRC would issue a code number to the Department of Works and Pensions who would calculate any tax due and deduct it before making the net of tax payment to a pensioner’s bank account.
If you have no other income apart from your State Pension you are unlikely to be affected. However, if your personal allowances are already used against other income (including other pensions) you would likely suffer a tax deduction. No change is proposed before April 2013.