- More than 1,600 bereavement and death-in-service cases were over 100 days old at the end of September.
- Some pension death-benefit lump sums must be paid within two years of a scheme being notified of a death to qualify for tax-free treatment.
- The government says compensation may be available if administrative delays cause a tax charge.
Bereaved families waiting for civil service pension payments could face an unexpected tax bill because of delays in processing death benefits, according to reporting by BBC Radio 4’s Money Box.
The issue centers on a two-year deadline for certain pension lump sums. Under HM Revenue and Customs rules, where a person dies before age 75, a lump-sum death benefit is generally tax-free only if it is paid within two years of the pension scheme first becoming aware of the death and the payment falls within the relevant tax allowance.
If the deadline is missed, the payment may be taxed at the beneficiary’s income tax rate. The prospect of a charge has raised concerns that families could be financially penalized for delays they did not cause.
Conservative MP Sir Geoffrey Clifton-Brown, chair of Parliament’s Public Accounts Committee, has written to Cabinet Office Minister Louise Haigh urging the government to protect bereaved families from what he called an “unjust” financial penalty.
He described it as “unconscionable” that families could face a tax bill through no fault of their own.
Why are bereaved families waiting for pension payments?
The Civil Service Pension Scheme manages pensions for about 1.7 million public sector workers in the UK. Administration transferred to Capita from MyCSP in December 2025, with the company saying it inherited a backlog of more than 86,000 cases.
The backlog subsequently grew to 120,000 cases by February, leaving retired civil servants and bereaved families waiting months for payments. Some have struggled to cover bills while they wait.
The Cabinet Office’s October 5 recovery-plan update showed that, as of September 30, 1,643 bereavement and death-in-service cases were more than 100 days old. Of those, 301 were listed as workable and due to be paid within 15 days.
The PCS union, which represents civil servants, said not all the outstanding cases would ultimately be affected by the two-year tax rule. However, it raised serious questions about how long the cases would remain unresolved.
Rob Wassell, 58, told Money Box he had been waiting almost two years for a lump sum from his late brother’s civil service pension. The scheme was notified of the death on October 22, 2024, meaning the two-year deadline was approaching.
Wassell said he had been contacting Capita with increasing desperation and needed the payment to cover estate costs and fill 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 said.
He added that the possibility of having to pursue compensation after an already difficult bereavement created “unnecessary worry and anguish”.
What is the government doing about the delays?
The Cabinet Office said the service levels following the transfer to Capita had been “completely unacceptable” and that it was committed to ensuring no member was left financially worse off.
The department said it was continuing to hold Capita to account, including withholding nearly £10m in payments, and was doing everything in its power to prevent further delays.
“If delays cause a tax charge, existing avenues for complaints can provide financial redress or compensation to cover losses,” a spokesperson said.
However, the Pensions Ombudsman has warned that standard complaints are likely to take around 18 months to resolve, with more complex cases potentially taking longer. That raises concerns for families approaching the two-year tax deadline.
Capita said it was deeply sorry for the frustration caused to members and their families.
“Our teams are working tirelessly to resolve outstanding cases as quickly as possible, with particular focus on people who have been waiting the longest and those facing financial hardship or challenging personal circumstances,” a spokesperson said.
For families waiting on payments, the immediate concern is whether the money will arrive before the tax deadline. The government has pointed to routes for compensation, but the uncertainty over timing means some bereaved relatives may face another financial and administrative battle while dealing with the loss of a loved one.
