Delays in Britain’s civil service pension scheme could expose some bereaved families to income tax on death benefits, and a parliamentary committee chair has asked the government to protect them.
The risk arises when an otherwise qualifying lump-sum payment misses a two-year deadline. HM Revenue and Customs (HMRC) says a benefit can be exempt if the scheme member died before age 75 and the payment falls within that person’s available lump sum and death benefit allowance. The two years run from the earlier of the scheme’s first notification of the death and the date it reasonably should have known. A payment after the deadline may be taxed as income.
Figures published by Britain’s Cabinet Office, using data from pension administrator Capita, show 1,311 bereavement cases and 332 death in service cases more than 100 days old as of Sept. 30. The figures measure time since a case was created; they do not count the families approaching the tax deadline.
In an Oct. 19 letter, the Cabinet Office said fewer than 10 individuals were potentially affected by the deadline or nearing it. The office said it could not stop HMRC from applying the tax rules but would compensate beneficiaries if a scheme delay directly caused a tax charge.
Public Accounts Committee Chair Sir Geoffrey Clifton-Brown asked the government in an Oct. 14 letter to ensure families would not be taxed because their payments were late.
Capita told the Cabinet Office it had cleared cases it considered workable in priority groups that included bereavement and death in service, according to a Sept. 9 government statement. Ministers said the claim covered only those cases, while wider service problems persisted.
The Cabinet Office is withholding £9.9 million in payments to Capita, according to a parliamentary answer. A 2025 Public Accounts Committee report identified weak contract oversight and a decline in service during an earlier administrator transfer in 2014.
The Cabinet Office expects to assess Capita’s performance and remedial reports by the end of October.
