Delays in civil service pensions could leave bereaved families facing tax bills

Families of people who died while in the UK civil service pension scheme could face tax bills on the lump sums they receive if payments are delayed, according to a Guardian report published on 21 October 2026. Some lump sum payments are tax-free only if they are paid within two years of the scheme being told of the member's death. Payments made after that window are taxed at the recipient's personal rate.

MPs have warned that delays in the scheme, which is run by the company Capita, could push some bereaved families past the two-year limit. Geoffrey Clifton-Brown, a Conservative MP and chair of the Commons public accounts committee, said the disorder in the scheme's administration made it slim that death benefit payments would be made within two years. A parliamentary committee response states that tax legislation makes a payment falling outside the two-year window taxable at the recipient's rate.

The scale of the backlog is set out in the government's latest recovery plan update, dated 5 October 2026. According to the Cabinet Office publication, families of more than 1,600 deceased civil servants had waited more than 100 days for their "death in benefit" claims, the term for applications for payments after a member dies, to be processed.

The Cabinet Office has said it cannot prevent HMRC, the UK tax authority, from taxing delayed death benefit claims. Affected members would have to seek recovery through the Pensions Ombudsman, the independent body that handles complaints about pensions. The Ombudsman has estimated that cases could take 18 months to resolve because of the volume of complaints. The public accounts committee has called for legislative change so that relatives do not pay for administrative delays.

The scheme's administration contract, worth £239m, passed from MyCSP to Capita in December 2025. The Cabinet Office later acknowledged that Capita's service levels were unacceptable. In February 2026, a dedicated email address was set up for unions to escalate severe hardship cases caused by the delays.

The problems have been raised repeatedly in the Commons. In a debate on 4 February 2026, MPs cited late pension payments, missing lump sums, lost records and long waits on the phone lines. On 6 July, it was stated that more than 4,100 bereavement cases still faced unacceptable delays. At a debate on 15 September, an MP said one constituent had spent two years trying to finalise his late mother's pension, and that other constituents had taken out hardship loans.

Steve Webb, a former UK pensions minister, has called for reform so that bereaved families due to receive civil service death benefits are not penalised through the tax system, according to Law360. The BBC has described the possible tax bill as "unjust". Parliamentary written evidence states that death-in-service lump sums and dependants' scheme pensions are excluded from the tax treatment described for late lump sum payments.