Bereaved families affected by severe delays in civil service pension payments could face an 'unjust' tax bill, Parliament's Public Accounts Committee has 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. If payments miss this deadline, they are taxed at the beneficiary's income tax rate. Conservative MP Sir Geoffrey Clifton-Brown, who chairs the Public Accounts Committee, described the potential for families to face a 'death tax' as 'unconscionable' and said it would happen 'through no fault of their own'.
The Civil Service Pension scheme manages pensions for 1.7 million public sector workers. 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 have persisted. By February, the backlog had grown to 120,000 cases. According to the latest figures up to 30 September, 1,643 outstanding cases involving bereavement or death in service were more than 100 days old. Retired civil servants and bereaved families have waited months for pension payments, with some struggling to pay bills.
Sir Geoffrey has written to Cabinet Office Minister Louise Haigh urging the government to confirm that bereaved families will not face this 'unjust financial penalty'. 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'. The PCS union, which represents civil servants, said that while not all outstanding cases would be affected by the two-year tax rule, there were 'serious questions' over how long they would remain unresolved.
Rob Wassell, 58, has been waiting almost two years for a lump sum from his brother's civil service pension following the death. On 22 October it will be two years since the pension scheme was notified of the death, meaning if he does not receive payment in just a few days, it could face being taxed. Rob said he needed the money to cover estate costs and fill a £20,000 hole in his savings. He described the prospect of facing 'another battle' to recoup any tax through compensation as making him feel like 'you just want to give up'.
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. The Cabinet Office said that if delays caused a tax charge, existing avenues for complaints, such as the Pensions Ombudsman, could provide financial redress or compensation. 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 Cabinet Office said it is holding Capita to account and has withheld nearly £10 million in payments.
Capita said it is 'deeply sorry for the frustration' its administration of the scheme has caused and that teams are 'working tirelessly to resolve outstanding cases as quickly as possible', with particular focus on those waiting longest and facing financial hardship. For families waiting for pension death benefits, the combination of administrative delays and the two-year tax deadline means some risk losing tax-free status on payments they are entitled to receive, adding unexpected financial costs to an already difficult time.