Bereaved families affected by severe delays in civil service pension payments risk incurring an unexpected tax charge through no fault of their own, Parliament’s Public Accounts Committee has warned the government. Under HMRC rules, lump sum pension death benefits paid more than two years after the scheme is notified of a death lose their tax-free status. The Cabinet Office has acknowledged the problem but insists existing compensation mechanisms are sufficient — a position critics are challenging with growing urgency.
The Civil Service Pension Scheme covers 1.7 million public sector workers. Outsourcing firm Capita assumed administration of the scheme from MyCSP in December 2025, inheriting what it described as a backlog of more than 86,000 cases. Despite a two-year transition period, the backlog had swelled to 120,000 cases by February. As of 30 September, 1,643 outstanding bereavement or death-in-service cases were more than 100 days old, of which only 301 were on track to be settled within 15 days.
Sir Geoffrey Clifton-Brown, the Conservative MP who chairs the Public Accounts Committee, wrote to Cabinet Office Minister Louise Haigh calling the prospect of bereaved families facing a “death tax” as a result of administrative failure “unconscionable”. He warned that “a significant number” of families would soon be watching the clock approach the two-year threshold, as what he termed the “maladministration of the scheme enters its tenth month.” His letter followed coverage by BBC Radio 4’s Money Box Live.
The tax exposure is not theoretical. Rob Wassell, 58, has been waiting nearly two years for a lump sum following his brother’s death. The pension scheme was notified of the death on 22 October 2023, meaning the two-year window closes imminently. Wassell told the BBC he had been contacting Capita with increasing desperation. “It’s a bitter pill to swallow to have to pay tax for something which was not my fault,” he said. He needs the funds to cover estate costs and a £20,000 shortfall in his savings.
Government Response Falls Short of Firm Guarantee
Minister Sally Jameson replied to Sir Geoffrey’s letter acknowledging that neither the Cabinet Office nor Capita has the legal power to waive tax charges under existing legislation. She nonetheless pledged that where delays produce an avoidable tax liability, affected individuals “will not be left out of pocket” and that compensation would be “processed swiftly.” The Cabinet Office added that it was withholding nearly £10 million in payments to Capita as a lever to enforce accountability.
The compensation route, however, is itself congested. The Pensions Ombudsman is currently advising that standard complaints take up to 18 months to resolve, with complex cases facing longer waits still. The Cabinet Office says fewer than 10 individuals are currently approaching the two-year threshold, and that each case is being treated with urgency. The PCS union, which represents civil servants, is not persuaded. Its general secretary, Fran Heathcote, described the prospect of further financial penalties as “a profound injustice,” arguing the government should be “ashamed” if families were made to bear the cost of failures entirely outside their control.
Capita, for its part, issued an apology, saying its teams were “working tirelessly” to resolve outstanding cases with particular focus on those waiting longest and those in financial hardship. The statement offered little by way of a concrete timeline. For families already navigating bereavement, the combination of administrative dysfunction, a rigid tax deadline, and an overloaded complaints system represents a compounding institutional failure that the government has yet to resolve with any binding commitment.