Civil service pension delays put bereaved families at risk of tax bills, MP warns

Families waiting for UK civil service pension death benefits could face tax bills because of payment delays, BBC News reported on 19 October. Sir Geoffrey Clifton-Brown, chair of Parliament's Public Accounts Committee, has written to Cabinet Office Minister Louise Haigh urging the government to protect them from a penalty he called unjust.

The risk comes from a two-year deadline: where someone dies before 75, a pension lump-sum death benefit is tax-free only if it is paid within two years of the scheme learning of the death and falls below the deceased's Lump Sum and Death Benefit Allowance, according to the BBC. A payment that becomes taxable is taxed at the beneficiary's income-tax rate. It is not yet clear how many families, if any, will incur a charge.

Bereavement cases and the approaching deadline

Rob Wassell, 58, has waited almost two years for a lump sum from his late brother's civil service pension, according to the BBC, whose Money Box programme he contacted. The scheme was notified of the death on 22 October 2024, making 22 October 2026 the two-year mark. Wassell said he needed the payment to cover estate costs and a £20,000 gap in his savings. ‘It's a bitter pill to swallow to have to pay tax for something which was not my fault,’ he told the BBC.

Clifton-Brown said it was ‘unconscionable’ for families to face a tax bill through no fault of their own. PCS general secretary Fran Heathcote called a further financial penalty for affected families ‘a profound injustice’. Their warnings concern a potential charge, rather than a confirmed bill for any named family.

What the Cabinet Office says about compensation

The Cabinet Office said service levels after Capita took over administration of the Civil Service Pension Scheme had been ‘completely unacceptable’. It said existing complaint routes could provide financial redress or compensation if delays cause a tax charge, and that it was withholding nearly £10 million in payments to Capita. It did not announce a waiver of the tax rule. The BBC reported that the Pensions Ombudsman currently expects standard complaints to take up to 18 months to resolve, with complex cases taking longer.

Capita took over from MyCSP in December 2025, inheriting more than 86,000 cases in the backlog; that figure had risen to 120,000 by February, according to the BBC. Capita has previously apologised for the impact of service problems and said it was working to resolve outstanding cases.

In its 5 October recovery-plan update, the Cabinet Office said Capita executives had committed to restoring services to standard contractual levels, with minor exceptions, by 30 September. The department said its next commercial steps would be determined after reports from a remedial adviser and a technical audit were submitted in October.