Bereaved families affected by severe delays paying out civil service pensions could face an "unjust" tax bill, the government has been warned. Under HMRC rules, certain lump sum pension payments must be paid within two years of the pension scheme being notified of a death to remain tax-free. Conservative MP Sir Geoffrey Clifton-Brown, who chairs Parliament's Public Accounts Committee, said it was "unconscionable" some families could face a "death tax" through no fault of their own.
The Cabinet Office said that if delays caused a tax charge there were existing avenues to claim compensation, such as the Pensions Ombudsman. However, the ombudsman is currently advising that standard complaints are only likely to be resolved within 18 months, with more complex cases facing a longer wait. The Civil Service Pension scheme manages the pensions of 1.7 million public sector workers in the UK.
Outsourcing firm Capita took over the administration of the scheme from a company called MyCSP in December 2025, saying it inherited a backlog of more than 86,000 cases. Despite a two-year transition period to prepare for the takeover, problems have persisted and by February the backlog had grown to 120,000 cases. Retired civil servants and bereaved families have been left waiting months for pension payments, with some struggling to pay bills.
Civil service pension backlog 'overwhelmed' Capita, boss says Emergency loans offered to civil servants waiting on pensions Retired civil servants left in pension limbo According to the latest figures up to 30 September, external, 1,643 outstanding cases of bereavement or death in service are more than 100 days old. Of these, only 301 are in scope to be paid within 15 days. The PCS union, which represents civil servants, said that while not all these cases would ultimately be affected by the two-year tax rule, there were "serious questions" over how long they would remain unresolved.
If someone dies before the age of 75, a pension lump sum death benefit is only tax-free if it is paid within two years of the pension scheme first becoming aware of the death, and if the value is below the deceased's Lump Sum and Death Benefit Allowance. The payment would be taxed at the same rate as the beneficiary's income tax rate. Sir Geoffrey has written to Cabinet Office Minister Louise Haigh to urge the government to confirm the bereaved families affected will not face this "unjust financial penalty".
His letter came after BBC Radio 4's Money Box Live highlighted the potential tax liability. Sir Geoffrey said "the chaos currently engulfing the Civil Service Pension Scheme means that the likelihood of death benefit payments being made within two years is slim". He warned "a significant number" of family members "will be watching the clock quickly tick down to a year, as the maladministration of the scheme enters its tenth month".
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