Bereaved civil service families may face tax bills due to pension delays

MPs warn of 'unconscionable' financial penalty as over 1,600 claims stall for more than 100 days

By LineZotpaper

Published21 October 2026

Read Time3 min

Bereaved families of civil servants could face large tax bills because of lengthy delays in processing death‑in‑benefit claims under the civil service pension scheme run by the outsourcing company Capita, MPs have warned. More than 1,600 families have been waiting over 100 days for their claims, pushing some beyond the two‑year window that allows lump‑sum payments to be made tax‑free.

The Commons public accounts committee (PAC) has raised urgent concerns that administrative failures in the £239 million scheme are causing hardship to grieving relatives. Under HMRC rules, if a member dies before age 75, the pension lump sum must be paid within two years of the scheme being notified of the death to remain tax‑free. Payments after that are taxed at the recipient’s marginal rate.

Geoffrey Clifton‑Brown, the Conservative MP who chairs the PAC, said the delays made it “slim” that payments would be made within the deadline. “It is unconscionable that the families of loyal and dedicated civil servants, who are continuing to suffer through this serious government failing, could potentially face such an unjust financial penalty,” he said.

The Cabinet Office acknowledged service levels were “unacceptable” and said it was holding back nearly £10 million in payments to Capita. A spokesperson said the department was “committed to ensuring scheme members were not left out of pocket” and that existing complaints avenues could provide compensation if delays caused a tax charge. However, the Cabinet Office said it could not prevent HMRC from taxing delayed claims, leaving affected families to seek redress through the Pensions Ombudsman, which estimates an 18‑month wait to resolve cases.

One of those affected is Clare Norris, who has been waiting 11 months for the death benefit and pension after her husband died last November. “Losing your partner is one of the most difficult experiences anyone can go through. The lack of clarity, communication and basic administrative handling from Civil Service Pensions has made it considerably worse,” she said. Capita said her case was a high priority and that she could expect to hear about next steps soon.

The PAC has called for a change in legislation to prevent relatives from paying the price for administrative delays. The committee last year urged the government to take the scheme in‑house after the previous contractor, MyCSP, was blamed for falling service levels. Instead, the contract was awarded to Capita last December despite some concerns that the company was inadequately prepared. In February, a dedicated email address was set up for unions to escalate severe hardship cases, including claimants at risk of suicide or losing their homes.

Analysis

Why This Matters

Grieving families face unexpected tax bills that could add thousands of pounds to their financial burden during an already difficult time.
The delays undermine trust in government administration and the outsourcing of vital public services to private contractors.
If the situation is not resolved, affected families will have to wait up to 18 months for redress via the Pensions Ombudsman, compounding hardship.

Background

The civil service pension scheme covers 1.7 million members. In December 2025, the Cabinet Office awarded a £239 million contract to Capita to administer the scheme, replacing the previous contractor MyCSP, which had been criticised for poor performance. The PAC had previously urged the government to bring the scheme in‑house rather than outsource it again. Early data shows more than 1,600 death‑in‑benefit claims have been outstanding for over 100 days. The Cabinet Office has withheld nearly £10 million in payments to Capita and set up an escalation process for the most severe hardship cases.

Key Perspectives

Bereaved families: They are experiencing financial strain and emotional distress due to the delays. Some face the risk of losing their homes or have been pushed to the brink of suicide. The uncertainty around tax liability adds to their anxiety. MPs and the PAC: They view the delays as a systemic failure and are pressing for a legislative fix to ensure families are not penalised by administrative inefficiency. They see the outsourcing as a root cause. Cabinet Office and Capita: The Cabinet Office acknowledges the delays are unacceptable and is holding Capita to account. Capita has said it is working on the cases and that some, such as Clare Norris’s, are being progressed under new processes. The department maintains that financial redress is available through existing complaints routes.

What to Watch

Whether the government introduces legislation to extend the two‑year tax‑free payment window or waive tax charges caused by administrative delays.
The volume and outcome of Pensions Ombudsman complaints, and whether its 18‑month estimate holds or grows.
Performance metrics from Capita over the coming months and any further withholding of payments by the Cabinet Office.

Sources

Bereaved civil service families could face ‘unjust’ tax bills due to pension scheme delays · UK news | The Guardian