Bereaved families exempt from tax on delayed pension payouts

Summarised from 2 outlets · Updated 30 Oct, 16:58 · Archive

Bereaved families will no longer face tax bills if pension schemes take longer than two years to process death benefits.

The government has changed tax rules so bereaved families will no longer face unexpected tax bills because of delays in receiving pension payouts. The change, announced in Wednesday's Budget, removes a previous requirement that certain lump sum pension payments had to be paid within two years of a death to remain tax-free. The move addresses widespread problems at the Civil Service Pension scheme, which has faced severe delays since outsourcing firm Capita took over its administration from MyCSP in December 2025.

Capita inherited a backlog of more than 86,000 cases and, despite a two-year transition period to prepare for the takeover, the backlog had grown to 120,000 cases by February. According to figures up to 30 September, 1,643 outstanding bereavement or death-in-service cases were more than 100 days old. Retired civil servants and bereaved families have been left waiting months for pension payments, with some struggling to pay bills.

Sir Geoffrey Clifton-Brown, chair of the Public Accounts Committee, welcomed the tax rule change. He said it would reassure civil service members caught up in 'an avoidable crisis that should never have escalated to this degree'. However, he added that lifting the tax deadline 'is not to absolve Capita from processing and making payments to members of this scheme in a timely manner'.

How it is being reported

• Bereaved families will no longer face tax hit if pension benefits take too long to processThe move will remove a tax burden on families experiencing long delays to payouts that are beyond their control - including those caught up in the civil service pensions crisis.This is Money · 30 Oct, 16:35
• Bereaved families will not face tax bill over pension delays under new rulesCampaigners had warned some families could face an unfair financial penalty because of delays which were not their fault.BBC News · 29 Oct, 15:18

In this story: Civil Service Pension scheme · Capita · MyCSP · Geoffrey Clifton-Brown · UK

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