Bereaved families will not face tax bill over pension delays under new rules
Summary
The UK government has removed a two-year deadline that could make some pension lump-sum death benefits taxable when payments were delayed. The change aims to prevent bereaved families from facing tax bills because of delays outside their control, though wider duties to process claims promptly remain.Key Facts
- Under the previous rule, some lump-sum death benefits were tax-free only if paid within two years after the pension scheme learned of the death.
- The government announced the rule change in Wednesday’s Budget.
- The change removes the two-year deadline as a reason for taxing these payments.
- Capita took over administration of the Civil Service Pension Scheme in December 2025 and said it inherited a backlog of more than 86,000 cases.
- The backlog had grown to 120,000 cases by February, according to the article.
- As of 30 September, 1,643 bereavement or death-in-service cases had been outstanding for more than 100 days.
- Rob Wassell waited more than two years for a lump-sum payment after his brother’s death and was taxed at 45%; he is awaiting the outcome of a complaint review.
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