Families face 'unjust' tax over pension delays, MPs' spending watchdog warns

Bereaved families waiting for civil service pension payments could face an "unjust" tax bill through no fault of their own, the chair of Parliament's Public Accounts Committee has said.

Sir Geoffrey Clifton-Brown, the Conservative MP who chairs the committee, described the prospect as "unconscionable". He also referred to a potential "death tax" for families caught by delays.

He set out the warning in a letter to Cabinet Office minister Louise Haigh. He urged the government to confirm that bereaved families will not face this financial penalty.

Under HMRC rules, certain lump sum payments must be paid within two years of the pension scheme being told of a death to remain tax-free, according to BBC. If someone dies before age 75, a lump sum death benefit is only tax-free if it is paid within two years of the scheme first becoming aware of the death and if it is below the deceased person's Lump Sum and Death Benefit Allowance. A taxable payment is taxed at the beneficiary's income tax rate.

The issue was highlighted by BBC Radio 4's Money Box Live before Sir Geoffrey's letter.

The Civil Service Pension scheme covers the pensions of 1.7 million public sector workers. Capita took over its administration from MyCSP in December 2025. Capita said it inherited a backlog of more than 86,000 cases.

By February, the backlog had grown to 120,000 cases despite a two-year transition period to prepare for the takeover. Up to 30 September, 1,643 outstanding bereavement or death-in-service cases were more than 100 days old. Of those, only 301 are in scope to be paid within 15 days.

A recovery plan update on 13 July had said benefits were due to 7,603 bereaved families and set a target of clearing bereavement cases within two months, by early September, according to GOV.UK.

One case is that of Rob Wassell, 58. He has been waiting almost two years for the lump sum from his brother's civil service pension after his brother's death. On 22 October it will be two years since the scheme was notified of the death.

The Cabinet Office said if delays caused a tax charge there were existing routes to seek compensation, such as the Pensions Ombudsman. The ombudsman is currently advising that standard complaints are only likely to be resolved within 18 months, with more complex cases taking longer.