In a development that will surprise absolutely no one who has ever dealt with a pension scheme, bereaved families waiting for civil service pension payouts could be hit with an "unjust" tax bill due to severe delays. Under HMRC rules, certain lump sum pension payments must be paid within two years of the scheme being notified of a death to remain tax-free. Miss that deadline, and the taxman comes calling - through no fault of the family.
Conservative MP Sir Geoffrey Clifton-Brown, who chairs Parliament's Public Accounts Committee, called it "unconscionable" that some families could face a "death tax" through no fault of their own. He's written to Cabinet Office Minister Louise Haigh urging the government to confirm affected families won't face this "unjust financial penalty." His letter followed a BBC Radio 4 Money Box Live investigation highlighting the potential 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 that "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." He added: "This is an additional stress they should not have to bear." Because apparently, grief needed a side order of bureaucratic anxiety.
The Civil Service Pension scheme manages the pensions of 1.7 million public sector workers in the UK. Outsourcing firm Capita took over administration from MyCSP in December 2025, inheriting a backlog of more than 86,000 cases. Despite a two-year transition period to prepare, problems persisted, and by February the backlog had grown to 120,000 cases. Retired civil servants and bereaved families have been left waiting months for payments, with some struggling to pay bills.
According to the latest figures up to 30 September, 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, representing civil servants, said that while not all cases would ultimately be affected by the two-year tax rule, there were "serious questions" over how long they would remain unresolved.
The Cabinet Office said that while fewer than 10 individuals are currently approaching the two-year threshold, "we are treating every case with urgency." If someone dies before age 75, a pension lump sum death benefit is only tax-free if paid within two years of the scheme first becoming aware of the death, and if the value is below the deceased's Lump Sum and Death Benefit Allowance. Otherwise, it's taxed at the beneficiary's income tax rate.
In response to Sir Geoffrey's letter, Minister Sally Jameson said neither the Cabinet Office nor the scheme administrator had the power under tax law to alter or waive these tax charges. However, she said where delays lead to an avoidable tax charge people "will not be left out of pocket" and the scheme "will ensure compensation is processed swiftly." Because nothing speeds up a process like adding another process.
Rob Wassell, 58, has been waiting almost two years for the lump sum from his brother's civil service pension following his death. On 22 October it will be two years since the scheme was notified of his death, so if he doesn't receive the payment in just a few days, it could be taxed. Rob, who contacted BBC's Money Box, said he had been phoning Capita with increasing "desperation" as his situation dragged on. "It's a bitter pill to swallow to have to pay tax for something which was not my fault," he said. "It creates unnecessary worry and anguish through the process, which is already in itself difficult."
Rob said he needed the money to cover estate costs he had to pay for his brother and fill a £20,000 hole in his savings. However, he said it was "heartbreaking" to hear of other cases where people needed the money just to survive. The idea of facing "another battle" to recoup the tax through compensation made it feel like "you just want to give up," he added.
Fran Heathcote, head of the PCS union, said it would be "a profound injustice" if families faced a further financial penalty because of Capita's failures. "If that does happen, the government should be ashamed that families are being made to pay the price for failures that are entirely outside their control," she said.
A Cabinet Office spokesperson, which has overall responsibility for the scheme, said: "The service levels following the move to Capita have been completely unacceptable and we are committed to ensuring no member is left financially worse off. We are continuing to hold Capita to account, including holding back nearly £10m in payments, and are doing everything in our power to ensure that individuals do not experience delays. If delays cause a tax charge, existing avenues for complaints can provide financial redress or compensation to cover losses."
A Capita spokesperson said: "We are deeply sorry for the frustration that the administration of the Civil Service Pension Scheme has caused 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." Because nothing says "tirelessly" like a 120,000-case backlog.