Families of deceased civil servants may face 'unfair' tax due to delayed pension payments

Due to delays in administering the UK Civil Service scheme, bereaved families risk losing the tax status of lump-sum payments: under HMRC rules they must be paid within two years of notification of death. The House of Commons committee and the PCS union are demanding government guarantees of compensation.

tafs uz editorial deskFirst published on tafs uz 19 October 2026 at 18:183 min readAI translation

The key facts

The Civil Service Pension scheme covers 1.7 million civil servants; Capita inherited a backlog of more than 86,000 cases in December 2025, which grew to 120,000 by February
As of 30 September, 1,643 death cases were older than 100 days, with only 301 able to be paid within 15 days
The Cabinet Office points to compensation via the Pensions Ombudsman, but the latter takes up to 18 months to consider standard complaints

Risk of a 'death tax' due to bureaucratic delays

Bereaved families awaiting UK Civil Service pension payments may face an 'unfair' tax bill, the government was warned by the chairman of Parliament's Public Accounts Committee, Conservative Sir Geoffrey Clifton-Brown. Under HMRC rules, a lump-sum death benefit retains its tax status only if it is paid within two years of the pension scheme being notified of the death and does not exceed the Lump Sum and Death Benefit Allowance limit. Otherwise it is taxed at the recipient's income tax rate. Clifton-Brown called the situation 'unforgivable' and wrote to Cabinet Office minister Louise Haigh demanding confirmation that families will not suffer financially.

Scale of the delays

The Civil Service Pension scheme administers pensions for 1.7 million public sector workers. In December 2025 the outsourcing company Capita took over administration from MyCSP, inheriting a backlog of more than 86,000 cases. Despite a two-year transition period, by February the backlog had already grown to 120,000 cases. According to the latest figures as of 30 September, 1,643 cases of death or death in service were older than 100 days, of which only 301 fall into the category of payment within 15 days. The PCS union noted that not all cases will fall under the two-year rule, but 'serious questions' have arisen about the timelines for resolving them.

The fate of specific people

Rob Wassell, 58, has been waiting almost two years for a lump-sum payment from his late brother's pension. On 22 October the two-year deadline from the notification to the scheme expires — if the money does not arrive in the coming days, the payment may be taxed. He needs the funds to cover estate expenses and to fill a £20,000 hole in his savings. He called the possible tax a 'bitter pill', and the prospect of another fight for compensation exhausting. PCS general secretary Fran Heathcote said that penalising families because of Capita's failures would be a 'deep injustice'.

The position of the authorities and the company

The Cabinet Office, responsible for the scheme, acknowledged that the level of service after the transition to Capita was 'completely unacceptable' and stated its commitment to ensuring that no member is left in a worse financial position: the government is withholding almost £10 million from Capita. In the event of tax charges, the government points to existing complaint channels, including the Pensions Ombudsman, who can award compensation. However, the ombudsman himself reports that standard complaints take up to 18 months to consider, and complex ones longer. Capita has previously apologised for the failures and said it is working to clear the backlog; the company did not respond to a BBC request for comment.