Bereaved families could face 'unjust' tax bill after civil service pension delays

Image source, Getty ImagesByBecky MortonPolitical reporterPublished24 minutes agoBereaved 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.

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.

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.