Bereaved families exempt from tax on delayed civil service pensions

By The Financial Edition · 29 October 2026 · 16:23 GMT · BBC Business · 1 min read

Photograph: Diego Delso, delso.photo · CC BY-SA · sector illustration, not event evidence

Rule change details

The government has removed the requirement that certain lump sum pension payments must be made within two years of a scheme being notified of a death to remain tax-free. Under previous HMRC rules, payments made after this threshold were taxed at up to 45%. The change applies to payments made from 28 October and follows severe administrative delays within the Civil Service Pension scheme managed by outsourcing firm Capita.

Compensation and administrative backlogs

Pensions minister Torsten Bell confirmed the rule change in a letter to Parliament's Public Accounts Committee. Individuals who have already been taxed due to avoidable delays can seek compensation through the pension scheme's complaints process and the Pensions Ombudsman. While union representatives and MPs welcomed the change, they noted that administrative backlogs affecting thousands of cases still require resolution by Capita.

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